Hide: John Key’s Land Tax policy will fail, just as it is designed to do

The land tax on foreigners is the perfect policy for John Key: it won’t work, won’t upset voters, shows he’s “doing something” and, just to be sure, he’s floated the policy to gauge reaction and to poll.

Not upsetting voters is crucial. No one likes paying tax. But making others pay – especially “the rich” and, even better, rich foreigners – is a plus. The policy won’t lose votes and will win some. Making foreigners pay for our government is smart politics.

That the policy fails is important. There are more homeowners than home buyers. The expectation is not just that house prices stay high but that they ever increase. No government will survive the bursting of the housing bubble.

I am confident the policy won’t work. The Government’s number one policy agency, the Productivity Commission, spent more than a year studying housing affordability and produced a 300-page report concluding against fiddling the tax system as any sort of cure.

The commission spent another year coming up with a 350-page report of policies that would work. Such is politics that policies that won’t work are favoured over those that would.

Key learned his politics from the master, Helen Clark. She developed the floating of policy ideas ahead of any announcement. Key has perfected it.

And the Labour Party have once again been driven into a corner where they don’t want to be, simply because they continue to see opposing everything Key proposes as the most important strategy.  

It may be “only for foreigners” but income tax was originally only for the very rich and GST was only ever to be 10 per cent.

I shudder to think what happens to a tax that is introduced with the promise that it will be “adjusted for conditions”.

A land tax is a dangerous tax because it’s easy to ramp up.

Hike income tax too high and workers head to Australia. But land can’t be shifted.

And if you don’t pay land tax the government will take it.

At 3 per cent the tax would be $510 a week on an average Auckland home.

At that rate, homeowners would be renting their own home from the government. And Key is floating the policy saying it will be less than 10 per cent. That’s three times the market rent.

The important thing in politics is to appear to be doing something.

Taxing foreigners ticks that box – and it also pinches Labour’s policy. That takes the wind out of their sails.

Such is Key’s luck that he will successfully complete his third term with the country thinking he did something about housing affordability. Such is Little’s luck that he might be Prime Minister when the bubble finally bursts.

New taxes always worry me, especially because a Land Tax in the hands of the left will be another tool to extract more money from the haves and hand even more of it to the have nots.

The best outcome is for this Land Tax to never actually happen, but for the electorate to have all the warm fuzzies that Key actually “did something”.

I suspect that’s where we are heading at the moment.

 

– Rodney Hide, NZ Herald

 


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  • dumbshit

    What are the chances that rents will rise, because of the tax, and the irony will be tenants getting “top-ups”, from Winz, to cover the increase. The government is thus contributing to their own tax! Labour would be proud cooking one like that.

    • Rodney_Hide

      The interesting thing is that rents have not increased with house prices. Have a look at the price-rent ratio in recent years. I wonder how big the problem would be if housing affordability was defined by rent, not asset price?

      Rodney Hide

      • contractor

        Recall the market reaction when National removed the depreciation write off – for a time it reduced rental supply leading to shortages of rental accommodation, and some increase in rents which had flatlined for some years. However, the advantage of tax free capital gains and the overall supply deficit, of rentals and houses for sale, rekindled rental investor appetite resulting in improved rental supply pushing out many would be first home buyers due to continuing price rises.
        So tax free capital gains are supporting rental supply which is positive aside from the damaging price increases (that supress new home formation consumer multiplier effects).
        The overriding problem is the total supply of houses, requiring change to regulations and taxation that encourage and accelerate land development and building, and make land banking punitive.
        Appropriate tax policies are always an important part of the mix, but that does not mean tax reduction for its own sake as the prime ideal.

  • Kiwiracer

    The ONLY solution is to build more houses

    • Wasapilot

      Agree, which involves freeing up land. If only the useless council could get on with it, and if only we could get sensible amendments to the RMA.

    • The only solution is to stop the endless migration of people of little or no value to the country and economy as a whole.

      Growth does not equal population explosion.

      • Brian Dingwall

        Surely if a migrant can add to price inflation of housing by bidding successfully for an average house in Auck, they must be of considerable value to the country and the economy?

        Low value migrants presumably aren’t pushing up house prices….

        • Balls.
          There is a huge money go round in some migrant communities.
          Basically peasants with no money or education, not even basic English coming in on the back of family whip arounds on the cashed up scheme or access to low interest loans, drug money and a myriad of other unsavory methods the third world have of getting riches, keeping their money invested and buying low value businesses and then sending the money back once they have achieved citizenship, bought their elderly families in under our unique family reunification scheme and then selling their business to the next influx of gib stoppers and pie makers.

          Those low value migrants are most definitely pushing up house prices. And they are also the tax evaders that deal in cash in their communities that even my 11 year old questions why in certain shops while standing in a queue she see’s everyone pay in cash and asks why they don’t have EFTPOS (a question I’m not prepared to answer for an 11 year old)and we don’t need them here.

          • Brian Dingwall

            And balls to you too Mr Banglestein, any money go round you imagine to be there must stop once the money is in the hands of the property vendor….

            And if they brought it in with them, then our economy must be better off by that amount, at least, until/unless they cash up and go again. If they didn’t bring it in then they earned it here, and/or they borrowed it, in which case they must be creating wealth (or no-one would lend to them).

            The poor ones, without money or education, by definition are not buying houses….if their families have sufficient money for them then by definition they are not poor…

            As an example my migrant wife has a PhD from a US University, has been employed here (26 years since we returned from the US) and/or in her home country in Asia for all her post doc life, is a stalwart in her church community, and I would trust every one of her country-folk with my life. Her friends kids include NZ qualified doctors, classical musicians, medical researchers and experts in every field (check out any university capping to see ’em all). They are adding hugely to NZ’s economy and social fabric.

          • contractor

            Couldn’t agree with you more. While I detest population increase there are numerous real economic and social benefits from motivated, younger and wealthy immigrants, provided they live by our values.
            An unfortunate reality of the capitalist industrial system (the most successful system there is) is the need for population growth, reasons are a story for another day.

    • Brian Dingwall

      yes, correct, but that takes a while…in the meantime the industry and our local governments must send a credible signal that the undersupply issue is being addressed, in sufficient volumes so future super-profits won’t obtain. This will dampen the ardour of any shorter term investor. Markets hear good signals, and ignore political grandstanding.

      It would help too if councils not only free up more land, but also reduce or cap their costs as rising council costs are a significant contributor to house price inflation.

      • Brian Dingwall

        As long as there is no such economic signal, or, as at present, a clear signal that nothing will be done, then investors and speculators have an easy game to play.

  • Kevin

    Labour – outwitted and outmanoeuvred. Again. It’s like watching a chess grandmaster playing against an eight year old.

  • sheppy

    As ever the elephant in the room namely Auckland Council and their unwanted shoebox apartments only on top of the Len Brown memorial trainset plan is ignored. Nothing will change until they get rid of the planning department at Auckland Council and replace it with people capable of accepting the existence of modern ways of life.

  • Richard

    As I understand it the land tax is only proposed on the land value of the property (hence the name), at 3% that would be roughly $260.

    It looks like Rodney has calculated his estimate on the full average Auckland house price.

    • willtin

      Surely he is above making mistakes??

      • Rodney_Hide

        I did do total value but the point was in comparison to a tax of ten percent that the PM floated. The total land value for the average Auckland house is 60 percent. The point is a low tax rate each year e.g. 10 percent to use the figure quoted — is a lot of money.

        Rodney Hide

  • kayaker

    “Such is Little’s luck that he might be Prime Minister when the bubble finally bursts”. …now, that’s just going too far. Little will never be PM under any circumstances.

  • Andy

    Perhaps the way is paved now towards commercial investment for foreign money.

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