A land tax in name but not in substance will achieve sweet Fanny Adams

A land tax is an annual levy based on the value of the land owned. In its 2010 report the Tax Working Group advocated for a land tax to make the system fairer, i.e. a way to broaden the tax burden away from income, but the option it presented was to apply the tax in New Zealand.

The disadvantages of a land tax, as outlined in the report, are that any tax levied on a piece of land automatically decreases the value of that land and it disadvantages groups likely to own large land masses, for example farmers and Māori authorities, and groups with fixed incomes.

In short, constituents the government would not want to mess with – its traditional farming base, homeowners in leafy suburbs enjoying the benefits of high house prices and the growing number of ageing New Zealanders moving onto a pension.

But that is never going to be a problem for Mr Key because he has no intention of levying the tax on anyone living here, in fact he has also talked about exempting New Zealanders who have moved overseas and still own a home here.

A tax on non-resident, non-New Zealanders is going to present a very narrow target.  Keeping in mind that the intention is to take the heat out of the property market, will it have any practical effect beyond the government being seen to be doing something?  

And there are still several ifs and buts.

The most significant is the government’s dogged insistence foreign buyers are not pushing up prices in the Auckland market.

This is where the politics of race get interesting; the prime minister has specifically said he doesn’t think there are “people in Shanghai who get out of bed and think ‘oh – I want to buy a house in New Zealand'”.

But when people in Auckland talk about foreign buyers they are usually talking about those visibly different to the European constituents, mainly Asian people.

That’s not to say there are plenty of Australians, Americans, Canadians and people from the United Kingdom at the auction houses, they’re just not as easy to differentiate.

Mr Key makes the point many of the ‘foreigners’ in the Auckland market are in fact residents, citizens or have connections to New Zealand, for example a child studying here.

A land tax would not affect the vast majority of those people, but the message the government is taxing ‘foreign buyers’ is delivered nonetheless.

The best thing to happen is for the data to be released showing the negligible impact that non-resident non-New Zealand buyers have on the market, and this whole game of smoke and mirrors goes away.

There is no detail about what that tax would look like, for example at what percentage of its value would land be taxed, but we do know it would not be applied to land-owners in New Zealand.

Politically convenient in that case – a tax that sounds like the government is taking action in response to a problem, but one with little, if any, impact on constituents at home.

The other worry is that once the infrastructure and systems are in place to levy land taxes, it is just going to take the next Labour-led government to widen the definition of what kind of properties will be included.   It will be the thin end of the wedge to get another income stream from rich pricks.

 

– Jane Patterson, RNZ

 

 


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  • dennis

    Remember, no new tax. Tax non citizens if you must.

  • Christie

    The problem with a land tax is that it would be on unrealised gains. A basic principle of taxation is that it is levied on amounts actually received. Taxes on unrealised income could drive landowners into poverty.

  • Second time around

    There are people who live in NZ who are not permanent residents, like foreign students, businessmen, diplomats. If they live in their own house they pay land tax, if they buy a house as a NZ registered company they may be exempt, if they rent from a Kiwi landlord they do not pay, even though a Kiwi resident is unable to live in the house because the foreigner occupies it. A selective land tax will be popular with lawyers and accountants but otherwise has little to recommend itself.

  • biscuit barrel

    Most of the people voting for national and John Key, were because they expected him to keep a pearl handled revolver in his office desk draw to deal with anyone who walked in talking about a new tax

  • Jman

    As long as we have the immigration floodgates open, we have hordes of foreigners buying up houses in Auckland. Does it really make a difference to the kiwi first-home buyer whether they get outbid at auction by a foreigner with no ties to New Zealand or a new arrival?

  • localnews

    Mr Key knows that with house prices, NZ becomes wealthier on a scale against the rest of the world. I hope they keep rising, I think it is marvellous that more and more of us will be able to look forward to prosperous retirements.

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