ACT's David Seymour - i like his style.

[Bjauck]

For a start, I am not rich; and I think you'll find an annual equity tax would be unacceptable to most NZers and a complete disincentive. People would go to all sorts of lengths to avoid it - even more than they did with death duties.

People will always try to minimise tax, no matter the type. If an asset tax was associated with the individual assets, I am not sure if they could be avoided as easily as incomes accruing to individuals.

I think you are right about an asset tax being unpopular...there are still a great number of Owner occupiers who would shudder at the though of their investments in their homes being subject to an asset tax (in addition to rates?) However just because it would be popular, does not make it any more socialist than other revenue raising measures...

Investments in one's own home (as opposed to investments in businesses and companies) have always had a privileged position in NZ's revenue raising system. So obviously there is a strong feeling held by many of entitlement that this privilege continue. However as home ownership is increasingly unattainable for many, it could be time to review the tax system to ensure NZ's capital is being taxed fairly, and is being deployed efficiently and effectively.

[Rep]

People will always try to minimise tax, no matter the type.

Kerry Packer summed it up:
"I am not evading tax in any way, shape or form. Now of course I am minimizing my tax and if anybody in this country doesn't minimize their tax they want their heads read because as a government I can tell you you're not spending it that well that we should be donating extra."

A reasonable fair taxation system usually means that the incentives for evasion are deterred by the likelihood of enforcement and penalty and that the incentives for avoidance are not usually cost-effective enough to bother. Many countries that have reduced high marginal tax rates for income often collect more tax revenues when they have reduced rates and increased enforcement/penalties as the reward for evasion is lowered and the deterrence factor raised.

In terms of TOPs tax policy, wealth taxes such as land tax presume that an asset actually produces an income that can fund the tax - most of the time there have been exemptions for the family home as an owner-occupier doesn't have an income stream such as a rental although the countervailing argument is that they don't have to pay rent instead. You could argue that a pensioner living in a mortgage free house in Auckland is sitting on $1m (based on a median value) and they could sell their home instead and release it to the market to fund their retirement but as a society we have to consider if that means that they have to rent or move outside of the area that they have lived their lives because arbitrarily the market now values their home at a level that they are considered wealthy - so it's complicated.

We could start means testing the pension instead (wealth tax by stealth) or tax cash-poor and asset-rich folk out of their homes - but neither is going to make middle New Zealand particularly happy especially when they find their parents spending their inheritance on rent or moving in with them.

[Bjauck]

....
In terms of TOPs tax policy, wealth taxes such as land tax presume that an asset actually produces an income that can fund the tax - most of the time there have been exemptions for the family home as an owner-occupier doesn't have an income stream such as a rental although the countervailing argument is that they don't have to pay rent instead. You could argue that a pensioner living in a mortgage free house in Auckland is sitting on $1m (based on a median value) and they could sell their home instead and release it to the market to fund their retirement but as a society we have to consider if that means that they have to rent or move outside of the area that they have lived their lives because arbitrarily the market now values their home at a level that they are considered wealthy - so it's complicated.....

The net benefit derived from investing one's capital in one's home is currently tax free whereas if that capital had been invested in a business instead, all the profits/net benefits derived therefrom would be taxed. So the incentive is there to build up the nest egg by way of an expensive home rather than by way of a prifitable business or portfolio of financial investments. The stats for NZ household wealth bear that out.

If there is to be a change to the tax system. I would suggest that the change be gradually phased in, so that the pensioners who have relied on the current tax system are not unduly affected. For example, if a single pensioner without much other income is living alone in a multi-million dollar house, then the asset tax (to the extent it would exceed the income tax payable) should be allowed to accrue as a charge on the property.

With an asset tax, eventually I would anticipate that residential property values (and other assets currently producing little taxable income) would settle at more affordable and realistic prices than as currently under the current tax system.

Middle NZ may find that their kids would be able to afford to buy their own homes and move out of home.

[blackcap]

The net benefit derived from investing one's capital in one's home is currently tax free whereas if that capital had been invested in a business instead, all the profits/net benefits derived therefrom would be taxed.

Im not sure that is true. If I buy a share (part of a business) for $5 (capital), and this business does well and I sell it down the track for $10, I have a tax free gain.
If I buy a house for $5 and down the track I sell it for $10 I also have a tax free gain.

If my business pays me a dividend of $1 I pay tax on that $1. IF my house provides me rent of $1 I pay tax on that rent.

If I borrow to buy my share in the business, the interest is tax deductible.
If I borrow to buy my house, the interest is also tax deductible.

I fail to see the difference?

[Bjauck]

Im not sure that is true. If I buy a share (part of a business) in a for $5 (capital), and this business does well and I sell it down the track for $10, I have a tax free gain.
If I buy a house for $5 and down the track I sell it for $10 I also have a tax free gain.

If my business pays me a dividend of $1 I pay tax on that $1. IF my house provides me rent of $1 I pay tax on that rent.

If I borrow to buy my share in the business, the interest is tax deductible.
If I borrow to buy my house, the interest is also tax deductible.

I fail to see the difference?

The discussion had been on owner-occupied housing (one's own home.) So it will never pay you a taxable rent as you live in it without having to pay tax on the value to you of being able to do that (i.e. the dividend from the equity in owner-occupied housing is always tax free). Despite being unprofitable, experience has shown that owner-occupied residential housing increases in capital value! If you rent out a room in your home, then that is a different matter.

With shares in listed companies - you can get those that do not pay dividends yet do go up in value. Many are companies in their growth phase with hopes of becoming profitable in the future. Also some have investments in land...
However it is difficult to get banks to lend you money to invest in shares - so your chance of leveraging as many capital profits as with land or houses is more limited.

If a business has no prospect of being able to afford to pay its participants/employees an income or turning a profit, is it in fact a business? Whereas owner-occupied housing will under the present system never be profitable or tax-paying except in so far as it pays rates (which in effect is payment for services rendered anyway.)

[fungus pudding]

The discussion had been on owner-occupied housing (one's own home.) So it will never pay you a taxable rent as you live in it without having to pay tax on the value to you of being able to do that (i.e. the dividend from the equity in owner-occupied housing is always tax free). Despite being unprofitable, experience has shown that owner-occupied residential housing increases in capital value! If you rent out a room in your home, then that is a different matter.

With shares in listed companies - you can get those that do not pay dividends yet do go up in value. Many are companies in their growth phase with hopes of becoming profitable in the future. Also some have investments in land...
However it is difficult to get banks to lend you money to invest in shares - .

Most banks couldn't care less what you want to do with money you borrow. They are only concerned with the security you offer.
And do residential homes increase in value? No. It's an illusion. Buildings depreciate, and money depreciates.

[fungus pudding]

Im not sure that is true. If I buy a share (part of a business) for $5 (capital), and this business does well and I sell it down the track for $10, I have a tax free gain.
If I buy a house for $5 and down the track I sell it for $10 I also have a tax free gain.

If my business pays me a dividend of $1 I pay tax on that $1. IF my house provides me rent of $1 I pay tax on that rent.

If I borrow to buy my share in the business, the interest is tax deductible.
If I borrow to buy my house, the interest is also tax deductible.

I fail to see the difference?

Because there is no difference.

[fungus pudding]

Kerry Packer summed it up:
"I am not evading tax in any way, shape or form. Now of course I am minimizing my tax and if anybody in this country doesn't minimize their tax they want their heads read because as a government I can tell you you're not spending it that well that we should be donating extra."

A reasonable fair taxation system usually means that the incentives for evasion are deterred by the likelihood of enforcement and penalty and that the incentives for avoidance are not usually cost-effective enough to bother. Many countries that have reduced high marginal tax rates for income often collect more tax revenues when they have reduced rates and increased enforcement/penalties as the reward for evasion is lowered and the deterrence factor raised.

In terms of TOPs tax policy, wealth taxes such as land tax presume that an asset actually produces an income that can fund the tax - most of the time there have been exemptions for the family home as an owner-occupier doesn't have an income stream such as a rental although the countervailing argument is that they don't have to pay rent instead. You could argue that a pensioner living in a mortgage free house in Auckland is sitting on $1m (based on a median value) and they could sell their home instead and release it to the market to fund their retirement but as a society we have to consider if that means that they have to rent or move outside of the area that they have lived their lives because arbitrarily the market now values their home at a level that they are considered wealthy - so it's complicated.

We could start means testing the pension instead (wealth tax by stealth) or tax cash-poor and asset-rich folk out of their homes - but neither is going to make middle New Zealand particularly happy especially when they find their parents spending their inheritance on rent or moving in with them.

TOP policy offers no exemption from the tax for a private dwelling. Morgan is emphatic about that. Regardless of pros and cons, that makes it dead in the water as far as ever getting it accepted by voters.

[Aaron]

TOP policy offers no exemption from the tax for a private dwelling. Morgan is emphatic about that. Regardless of pros and cons, that makes it dead in the water as far as ever getting it accepted by voters.

Your right fairness and equity do not top self interest. How else has National stayed in power so long if it weren't for the universal pension bribe and finding capital gains taxes too difficult to comprehend let alone discuss.

Our GST is one of the most pure in the world. I don't think I have come across another consumption tax that didn't have exemptions for basic foodstuffs. That got past the voters though. Maybe NZers aren't that bright or perhaps they don't care if it is a regressive tax as it only hurts the poor and the poor don't vote or don't appreciate they are getting a raw deal.

[Rep]

TOP policy offers no exemption from the tax for a private dwelling. Morgan is emphatic about that. Regardless of pros and cons, that makes it dead in the water as far as ever getting it accepted by voters.

That's why I had the final comment: "We could start means testing the pension instead (wealth tax by stealth) or tax cash-poor and asset-rich folk out of their homes - but neither is going to make middle New Zealand particularly happy especially when they find their parents spending their inheritance on rent or moving in with them."

It's a dead duck whatever the merits because it's not a policy that's electorally acceptable at the current time. That's not to say it won't be in time - if you'd asked people 30 years ago when they scrapped the Auckland Harbour Bridge Tolls that they would be tolled for using the motorway or entering the main city, you'd have been laughed as much as the Takapuna City Mayoral candidate who said his main objective was to have barriers, bells and signals at every level crossing in the city (he was from out of town and seemed unaware that there is no rail on the North Shore).

In any case, if you slowly boil the frog then progressively you might get there but it's too big a leap right now for the electorate and I'm sceptical it will actually make any difference to the housing market in the long term.