It is expensive enough to buy food, clothing etc. even without paying GST.
Printable View
And depleting your spending money by taxing income doesn't help either. But GST and income tax are the systems that fund govt. expenditure. An extra 5% stamp duty on a house purchase simply sounds opportunist. What is it for if they do not fund their weird titles system?
It is arbitrary to rely on those types of taxes. It warps the economy and investment decisions. It is logical to extend the tax base to include realised capital gains and those who buy land as well as those who buy goods and services. Maybe stamp duties and GST should be levied at the same rate?
it seems illogical not to tax those activities whilst taxing income from personal effort. How much does it warp decision making?
For those who push for a flat tax rate, would it be fair if all net capital gains and income were taxed at the same rate? In addition would it be fair if all land, goods and services purchases were taxed at the same flat rate?
If I were creating a tax system, I would contemplate having a receipts tax system. In other words, if a taxpayer receives an inheritance, income or capital gains, then they should be treated the same, accumulated and taxed at a flat rate (with a tax-free threshold.) That would mean taxpayer outgoings would not be taxed - so no GST or stamp duties.
Hey FP you never answered my question. Always interested to hear your view.
I have already agreed denying interest deductibility on a specific investment is inconsistent and unfair, but if you are allowed to claim interest on a new build and the bright line test gets cut back to 5years instead of 10yrs for a new build, this is using policy to address the main issue which in your view is a lack of supply. Good idea? Bad idea? Discuss....
Labour is going to look at rejigging the RMA, I won't pretend to understand the RMA but along with encouraging landlords to actually build new houses Labour seems to be taking some positive steps to address the issue around house price rises don't you agree?
Although personally I think monetary policy is at the heart of the matter just trying to see if I can coax a positive response from you towards any Labour initiatives. I don't think it is possible but thought I would try.
No. I do not agree. The bright line test increase to ten years is fair enough, because as I have said, IRD have never been able to sucessfuly apply the intention policy, leaving the impossible situation of having to ask vendors if they sold for the monetary gain, or did they have another reason. You may recall the standard form with the little squares to tick that were sent out to every vendor of a property that had been rented out. But this will have little or no effect on prices. Taxing landlords' outgoings will make no difference to real estate prices either, except for an increase in rents as the rental pool dries up, but of course the offset is some tenants will become owners, even if that is not their preference. I'm not sure that investors will be encouraged to build new rental units. Too marginal at the best of times. I expect many will come to their senses and get into the far better investment - commercial or industrial. Along with the new 39% top tax rate I expect a to see a rise in the listed property trusts so investors can benefit from the 28% PIE tax rate. So overall the world will tick on - but Labour cerainly have not found the answer to rising house prices.
I gather from your last comment you think I am anti labour. I am not. I am anti-stupidity and stupid policies. I have voted for Labour at times, but at present I would not vote for either major party.
Correct I was just being an ahole because I assumed it would cause you pain to ever admit anything Labour does was a good idea.
Time will tell if they are good ideas or not but it is a step further than just making noises such as asking the NZRB to consider house prices. They will probably have already lost the National swing voters with the latest policies so they might as well get rid of targeted inflation while they are about it. Personally I think that would be politically much easier and over the long term have a greater effect.
I sure hope the RMA gets a major makeover and will trend towards how the supply is made overseas. Today I was reading what Vancouver is doing ; converting corner lot petro stations into high density urban living:
https://dailyhive.com/vancouver/3668...couver-raphael
and if you have not noticed, the streets are grided and residential houses don't place high fencing around the front of their homes - this makes driving easier as it reduces the risk of accidents from cars backing out, children cycling too quick out of the driveways, etc.
I have the only empty lot where I live in a sub-division built 10 years ago. All plans to build 2 new houses fell through as some of the neighbours would not grant me a resource consent. Everyone asks me, "What are you going to do with that prime empty piece of land?" - I said hopefully one day, the NZ RMA may change and allow more effective / efficient building for me. It was not expected that we ended up buying the neighbouring house (and thus didn't need to build new).
Monetary policy isn't the key issue of the housing crisis as the NZ Reserve Bank follows similar criteria that overseas central banks follow (and where their housing prices have not seen no where near the rise NZ has experienced in the past 40 years). Kind of like which came 1st, the chicken or the egg example. Why are we blaming banks because they lend to wealthy landlords and property investment consortiums? - when the banks also need to service the 1st home buyers? Are you implying that if the banks didn't have the $ ; that these landlords wouldn't have the ability to leverage their investments? IMO, it's the behaviour of these wealthy people buying too many residential houses is the root problem just as Jacinda has outlined.
Like high powered sports cars - do we blame deaths caused because the cars are too powerful and fast or do we blame the drivers?
Are you arguing that lower interest rates and the availability of credit do not have a major effect on the price of assets? I would suggest they do and I don't think I am alone in that view.
Doesn't a NZRB gaurantee of a 2% minimum price rise every year not provide the basis for negative gearing. Would losing money on an investment property make sense without the central bank gauranteed tax free capital gain and inflation effectively reducing the debt by 2% or more a year.
What about if interest rates on term deposits were at a level that was above inflation and provided a real return to the investor. Would people be so keen to invest in houses if they could get a real return on capital invested at the bank.
Do banks even need depositors anymore?
No. Without a doubt varying interest rates affect all assets, but that's not my argument.
The key problem is the RBNZ does not factor house prices in their CPI figures for inflation (and this a common issue abroad). So the 2% target is of moot interest because it does not capture the rise in house prices (as it's treated as a capital asset and not a consumption). Will say i'm not a fan of the CPI metric and it's the same kind of BS that academics have cooked up such as EBITDA when comparing profitability of businesses. For decades, both Warren Buffet & Charlie Munger have said universities have forgot how to teach business studies and Mr Munger has recently said, they've cooked up all sorts of ideas (and the damn gov'ts are following it because they're "academic experts") that investors are clueless to what investing is all about. A good example recently he ranted is the issue of 'diversification', paraphrasing that why do managed funds have to own 50 or 100+ different companies in different sectors just so they can say they're diversified when, "I have a tough enough time trying to evaluate a dozen GOOD companies"?
The CPI inflation figure follows along the same lines - they're only a basket of 'consumption' goods and services. It does not factor the LOSS income by the individual through higher taxation - through massive increases in residential properties. Of course their argument is when $ is slim because of high unemployment, they assume the demand will drop and prices will go down (thus inflation goes down). When Jacinda last year go the news by so called 'expert economists' in NZ, their forecast was housing prices would drop. But when you get a +20% rise, then how are these economists are still credible today? One thing I will appraise Jacinda is she asks why the NZRB doesn't factor house prices into the CPI figure? and so they've been lame about it ; Jacinda is directly making action to do something about it. Pull the levers to discourage more rapid high price speculation.
Nevertheless, if you pull up CPI figures in NZ for the past 40 years and compared them to Canada or the US, I would be quite certain NZ's inflation is considerably more despite the same 2% target has been met. Just look at the pricing of food, new cars, education, you name it. If inflation was not that significant here then we wouldn't be seeing x 3 times the price of building material in NZ when compared to the retail shelf price at Home Depot in America.
In Canada, all the chartered banks lending ability are governed by the ratio of cash deposits. They just can't willy nilly borrow infinite amounts from the central bank. In NZ, I don't believe that's how it would work or how it could be enforced as the majority of banks here are foreign owned and operate on overseas funding too. A foreign bank in Canada are still bound by the gov't regulations and without it, Canada's housing market would of collapsed during the GFC. So to answer your question, "no' banks in NZ don't give a rats ass about cash term deposits.
As for term deposits, the ONLY advantage fixed interest bearing deposits have is to take advantage of "opportunity". Hence the term cash is king when you can seize the moment ie last year's share market crash. But to bank on it or assume it's a wise way of investing (ie Kiwi Saver funds that use fixed interest bearing investments as a % proxy of the risk level of the funds) is nothing but BS hot air. A 'Conservative' fund = higher level of fixed deposits earning measly 1% ? while the more 'Aggressive' funds have a far lower % of fixed deposits. This is how the NZ FMA educates people about finance? The same stupid thing as "you got to diversify your risk away".... which also diversifies the gains away.
Someones view on what is causing high house prices and where they might be headed.
https://www.theguardian.com/money/20...may-never-bust
Lower for longer(forever?) I might be kicking myself for not borrowing more in a few years. Money nearly free and all the talk is about inflation in things other than asset prices. Monetary policy rewarding what used to be considered reckless behaviour is the name of the game. I haven't been playing.
House hunting is going slow.
There is more room for house prices in other countries to keep on inflating. On the other hand, NZ has only just introduced tax reforms and tenancy reforms which other countries already had. In NZ now Tenants are getting more rights and landlords will not be able to - to the same extent - reduce taxable incoming to boost non-taxed leverage capital gains.
In NZ there still remains plenty of scope to increase the tax burden on both investor and owner-occupier house owners.
Ten Year Bright-light test is fair enough in my opinion. However the rest of the new rules will only damage the Property Investors but wont help the first home buyer.
Firstly, If they think interest deduction is not fair for the home owner, just let them can claim interest expenses in their income. It is more reasonable than make the property industry cant claim the interest while the other industry still can. In the end of the day, people do not invest in housing market because the returns is low, the property investor take the risk to get low annual returns so they get higher capital gain is reasonable.
Secondly, the price cap is so stupid in my opinion, why the first home buyer only can buy the house under the cap which is so low at 700k and 650k in Wellington? Why they cant get the 10% deposit to buy the more expensive house (with more potential) rather than just apartment or townhouse? The rules look pretty and nice but it actually lock down the potential for the low income people became more heathy in the future.
There are few plans and rules they can do and adjust to solve the housing problems rather than current new rules.
+ Most important is building more houses (they failed it but need to focus on it);
+ Secondly, if its too hard they can build some more motorway to north and south where people feel easily to commute from long distance to main central of Auckland, Wellington or Hamilton;
+ Thirdly, price cap must be increased to at least 1 million or even removed for first home buyer and the deposit requirement also can be reduced to 5% or removed (but once in life only, the next one's price cap and deposit requirement will be back to normal).
I love the way Labour treat the low income people, however, they rule the country so bad in economics. I hope they can hear me and add my suggestion to their rules.
PS: Sorry for my bad English, but as an investor in both shares and property, I cannot handle my feeling for the new rules from Labour. For some people like me who has or image to have one or two property for renting out. The new rules will make us never become supper rich that every investors' dream. The supper rich people will still manipulate the property market.
What you describe is a tax system like the US where home owners are allowed to deduct mortgage interest expense off their income (keep in mind CGT applies in the US on the principal residence home). But NZ's tax system is nothing remotely the same or anywhere else in the OECD. For eg. in Canada, it's mandatory every individual resident files a tax return where as in NZ, people live without a worry of IRD going after them for not filing. I do appraise NZ's approach to having a simple tax system with few tax deductions (or credits) and NO complex tax software required!!!
I do find the "Brightline test" rather unique as it still does not address taxing of the capital gains. Everyone knows that in a 10 year period, the amount of CG is considerable in a house and if the risk is to "sell within 10 years risking tax on the CG... ONLY a fool will do so". It's like saying do you want to take a 33% hit paying tax on the 7th year you sell the investment property or just wait 3 more years and walking away without any tax? I'm biased yes because coming from Canada, no time period applies on the taxing of capital gains. The US is a bit more generous having 2 categories (short term and long term CGT). My personal view is more extreme ; bring in CGT in NZ and re-balance the whole investment scheme by removing the FIF on foreign share investments and have a straight out CGT on both asset classes (nationally and overseas). It's not a complex system as that's how they do it overseas - I still do believe NZ investors in holding residential properties for the 10+ year time frame are still getting away with a sweet ride.
The 1st home owner buyer cap has been raised but asy you say it's not enough. Well 1st time home owners should NOT be in the position of buying more expensive properties. They don't get the right to choose to live in ritzy expensive neighbourhoods, nor the luxury to have a detached dwelling with a large back yard, etc. If you look at how the rest of the world lives, (in multistory apartment complexes) there should be no complaint.
What you describe, is again something Canada has done for the past many decades. Unfortunately the problem in NZ is we have this very very restrictive RMA that dictates how high and how close etc. we can build on a piece of property. NZ building has adopted a 'passive' approach design for building houses (that is sun orientation is used to heat the homes) - very different to overseas where house are built CLOSE together and depend on active ventilation / central heating. It's an argument that do you value the heat from the sun or heat from electricity / fossil fuel - for the sake of saving mother nature? we let people live more sparsely instead of high density? As for the price cap for the 1st time home buyer - well i've mentioned before what Canada has done. They've forced the banks to have mandatory 5% deposit regardless of the principle amount. Cdn gov't does offer a 5% (10% on new builds) 'JOINT' deposit to the home owner which is capped at $500K ; but this does not stop the person from choosing a more expensive place while getting the joint deposit. I don't think NZ is bold enough to take these steps and would rather just string along the problem by raising the caps every year or so.
Keep in mind, the recent changes made were to single out property speculators or the mom & dad / 1% that manages to own 5 or more residential properties. It's not all about creating a level playing field with these people because they had it so good for decades. While the middle class get shafted with Kiwi Saver that proportionately pays a far high tax on their portfolio investment. Come on? PIE funds at 28% ??? it's robbery compared to the capital gains we've seen in real estate prices in NZ. Compare both asset classes on a 10+ year time frame (because we all know those in the rental property game never sell within 10 years).
Mike Hosking nails it points out the only reason house prices are high is cheap money.
He says a lot of other stuff which may or may not be right. He points out real estate has never been in a bubble and never crashed. The USA and Ireland might disagree but that was over a decade ago. behind the pay wall sorry.
https://www.nzherald.co.nz/nz/mike-h...UVNBECDDPWBVE/
So if you are worried about inflation in house and asset prices you need to raise interest rates pure and simple.
A 30 year trend of lower and lower interest rates would need to change so I guess the only debate is will it happen.
I would suggest not.
When public chat hosts starts thinking they know the best way forward then God bless our world ...lol
Interest rates are not and will not be decided on the basis of house prices alone ...These rates actually effect real economy activity in more ways then not ...rates determine how small and large businesses are profitable or not ...they determine levels of NZD which helps or hinders exporters working for the economy and many more important sectors .
The only reason Govt has chosen to try tax side roadblocks for property prices as all other sectors are struggling in most difficult covid induced environment ...they had no choice but to target only property prices as no other sector can take anymore burden of higher rates
NZ economy will collapse if Mike 's suggestions are put to place and RBNZ starts raising rates for controlling property prices ...
The same could be said for many economists.
What is undoubtedly true is the old Fungus oft-repeated adadge ........................'Interest rates and assett prices are the opposite ends of a see-saw.' That is why the best time to buy real estate is when interest rates are sky-high, and the worst time is when they are very low.
In that 40min speech by Jacinda when she made the announcement some weeks ago, her gov't WAS CONSULTED by these very same ECONOMISTS that the NZ housing market was about to see a slight correct or drop. I understand exactly what she was saying that during that time, their gov't was not in the position to place any new further tax issues.
However when these SAME economists got it wrong and the NZ gov't sees a +20 or 30% rise in house prices within a year? No gov't and I mean NO gov't should be complacent about the situation and action must be done. I'm sick of people blaming the Labour Party and if the National Party had something better to say, then front up with some real solutions but nope, they're too busy pointing fingers.
You know I use to think NZ was a very progressive country but all i've seen is more and more wealth inequality. I'm with alokdhir that these talk show hosts know nothing better because they only see in NZ's eyes to rave ratings. They never take the example abroad because they don't know everything and more importantly, their listeners don't care how people do things abroad.
There ARE solutions to the problem as I rant below:
The Canadian gov't for many decades have kept an eye on the housing market. They've increased supply at a massive scale at where it matters like in Vancouver, any visitor there will see the massive #s of high rise apartments, even suburbs like Burnaby are building these tall 40 story buildings like crazy. A close friend visited Auckland few years ago and he asked me.. "Where are these high rise buildings? as we drive down Ponsonby and around Mission Bay. Then the discussion on "Lane Houses" came up and I showed him how NZ adds more supply by sub-dividing a serviced lot and you 'build a driveway down 1 side of the boundary' - he had a laugh because regulations doesn't allow that in Vancouver ; you have the back alley access that would serve as access to build a Lane House with no extra cost required on such side driveway.
Furthermore the Cnd gov't created a 2 tiered system. The 1% rich are slapped with taxation in all ways from 20% surcharge on rates (if the property is held in a trust / company / or not a principle resident), Vacancy Tax aka Ghost houses for leaving the home empty or a vacation home, more importantly CGT and if proven frequent profiting, then the CGT could be shifted to being taxed at full income rates.
Whereas the 1st home buyer gets the benefit of tax free CG, joint venture deposits with the gov't, and banks being forced to allow a 5% deposit regardless of state of the economy, tax free investment schemes like TFSA, RRSP conversion to deposit on a mortgage; by the way the difference being with the 'KS -> 1st home deposit' is as I said before, the KS funds pay tax every year in say like a PIE fund 28% so the individual has lost out on tax free compounding. The only benefit the person has by via the KS deposit to mortgage is it allowed withdrawal early yinstead of waiting until retirement age; this is a big difference to Canada's RRSP where the CGT on the untaxed compound gain is paid at retirement, but is complete waived if going to a deposit on a 1st home.
But the proof isn't by reading the fine print. I see my middle class friends back in Canada and compare them to my cousins (middle class here in NZ). There is no comparison. The former is able to achieve more, address rising tuition at uni fees, house affordability, larger and more affordable SUVs, but most of all, at the time of retirement, their nest eggs will grow far more than what KS would provide here.