By Frank Newman on 20th April 2014
It’s election year. Politicians are finding their voices and are having a lot to say about property. Labour has made no secret that it wants housing to be an election battleground, and a capital gains tax is seen as an integral part of that plan.
Labour leader David Cunliffe this week hinted at what a capital gains tax may look like. Gains on the resale of property would be taxed at 15%, would not be retrospective and, as we already know, would exclude the family home. He said the new tax was required because “speculators” were making tax fee gains and forcing up property prices.
I am sure no one in Labour would consider Mr Cunliffe to be unintelligent. It’s therefore fair to assume he knows speculators who by definition buy property with the intention of resale, ARE ALREADY taxed on their capital gains – at their income tax rate which is likely to be higher than 15%. One can only assume the finer points of Labour’s capital gains policy will leave the present tax policy in place and cast the net wider to capture long-term rental property investors and those owning beach houses – even though a significant part of property value increases arise from inflation. Taxing inflationary gains is inherently unfair and discriminate against property investors.
When asked why a capital gains tax has not prevented rapidly rising property prices in other countries, Mr Cunliffe responded by saying the price rises would had been greater had there not been a capital gains tax. That, of course, is simply speculative and self-serving.
The other issue for debate will be the contention that housing is now hopelessly unaffordable. A more measured view suggests housing affordability is an issue in some regions but not in most. Houses are still very affordable in most provincial areas. Christchurch and Auckland are the main problem areas: Christchurch because of the earthquake and Auckland because of regulatory nonsense promoted by those who are now lamenting rising house prices. Obviously land prices will rise if a city is ring-fenced and development limited to the within the perimeter. This so-called “smart growth” is promoted by greenies to protect open spaces from development.
Another election issue is likely to foreign ownership, and the impact this is having on house prices. National says it’s not a problem of any significance (and the numbers suggest this to be so). Labour wants to crack down on “foreign speculators” who, according to their website, own more than 11,000 New Zealand properties that they don’t live in. This, they say, “drives up housing costs and drives New Zealand families out of the market”. If elected it would block all purchases of existing property by people who did not live here, or did not plan to live here. NZ First wants a register of overseas persons who own land in New Zealand so the foreign ownership of land can be measured.
With respect to rental housing Labour would introduce a Healthy Homes Guarantee. They say, “All rental homes will have to meet minimum standards of insulation and heating. Landlords already have obligations to their tenants in terms of cleanliness and maintenance – and labour will add warmth to the list.”
No doubt we will hear a lot more about these issues over the coming months.
Central government politicians are not the only ones wanting to increase the tax net. Local Government New Zealand (LGNZ) is conducting a review of local government funding, to find what they say is a more sustainable funding model.
LGNZ President Lawrence Yule has advised the LGNZ Local Government Funding Review will “identify new funding options and alternatives that can complement councils’ current funding tools.”
Their proposal will no doubt be dressed up along the lines of democracy, life, liberty and the pursuit of eternal happiness but the bottom line is that they want to raise more money from their communities to do more.
Mr Yule says many regions are facing declining population numbers, and populations which are aging and less able to cope with property tax increases, and under-utilised infrastructure. That he says, is reason to expand the revenue raising base.
It seems, reducing council expenditure to reflect the lower population base and the income constraints of an aging population is not an option LGNZ is considering.