I watched Terminator 3 last night. It’s the worst in the series but that’s still better than watching another Guyon-National lovefest*. Which is a long way of saying I didn’t see the Bill English ‘debate’ on TVNZ7 last night. But apparently the most interesting part of it was English didn’t rule out changes to taxation on investment properties. Labour’s David Cunliffe and the Green’s Russel Norman supported such moves. So, whoo, consensus.
Of course, no-one’s asked John Key yet and he has a nasty habit of reflexively shutting down debate over anything politically risky by emphatically ruling it out. And a habit of cutting his deputy off at the knees.
Basically, the tax changes would ring-fence housing investment losses from other income, so landlords can’t avoid tax by negatively gearing their investments (the rent doesn’t cover the interest). The Reserve Bank of Australia has identified negative gearing as the prime cause of housing unaffordability because it has allowed the wealthy to push houses prices out of the reach of the rest of us (creating a bubble at the same time).
The Tax Working Group says ring-fencing won’t raise a whole heap of money – $500-$900 million a year. Enough to pay for a small off-setting tax-free bracket ($1300-$2400) but it would probably be better used to support public services and decrease the amount we need to borrow to fund the government deficit.
When Australia introduced ring-fencing (temporarily) it had the expected effect of reducing housing speculation. This should have resulted in depressed house prices, deflating the bubble, and allowing more people to own their own homes but house prices actually continued rising because construction slowed with less investor demand and rents rose because there were fewer landlords and those there were could no longer afford to negatively gear. If that becomes an issue here, the government can always build more state houses with its increased revenue to keep the supply of rentals up and rents down.
It’s not good enough that the entire rental industry gets away with paying no net tax. Loss ring-fencing and other measures are a good step to redress that unfairness.
I doubt this government will take up the larger proposals from the Tax Working Group for capital gains and land taxes. Let alone pollution taxes that raise money while encouraging polluters to clean up their act. Really, we should reforming the tax system away from burdening work to punishing pollution and removing the distortions that cause over-investment in land instead of productive capital. Unfortunately, I don’t think this government has the courage to make that kind of real change.
*that reminds me, does anyone watch Q+A any more? I for one am not getting up at 9 on a Sunday to watch softball interviews from Holmes and Guyon.