My blood ran cold at the prospect of our country continuing as a happy hunting ground for overseas wealth and still more crude exploitation of housing stocks after this week’s prime ministerial announcement from Chris Hipkins that there will be no significant wealth tax on his watch.
For families in crisis from faux inflation and literally wondering where their next mortgage payment will come from, it’s an existential threat.
Public interest journalist Bernard Hickey put his finger on this visceral distaste.
“Unlike the rest of the world, where capital gains beyond the family home are taxed and where managed funds are often lightly or not taxed before retirement to encourage investing in real businesses, New Zealand will remain uniquely exceptional: a place where leveraged investment in residential land is tax preferred and politically untouchable,” he said.
“The future of Aotearoa’s political economy will now remain frozen – maybe for decades – in its stagnant, unequal, unjust, unproductive and unhealthy state for the foreseeable future.
“Those hoping to change that frozen landscape should now look after themselves and their families, and/or hope and work for an electoral miracle that gives parties who want such taxes dominant positions in any post-election negotiation,” Hickey said.
“Any renters without family resources or strong prospects of marrying into wealth need to know they now have no normal pathway to home ownership for their families for another generation.
“Realistically, they should look to migrate to Australia, which has a capital gains tax that helps fuel higher capital investment, higher productivity, higher wages and a much better prospect of saving a house deposit after the rent (albeit high and rising) is paid.”
All that those on the renting side who choose to stay in Aotearoa can hope for is to marry into wealth or win Lotto, he said. “Investing in businesses, managed funds and bank accounts that pay interest or dividends that are taxed and cannot be leveraged is a mug’s game.
“Which means the easiest, simplest and least risky way to higher wealth is to do whatever it takes as fast as possible to buy more residential land and to leverage it up as much as possible from a bank with proof of income from rent and one or two solid waged jobs (rather than uncertain and variable business income). Then sit back and wait for massively leveraged and tax-free gains to arrive.”
All the status quo needs is plenty of renters in work and not nearly enough new homes built, Hickey said. “That’s why both Labour and National favour very high population growth through migration of temporary workers and not nearly enough investment in the infrastructure needed for enough homes for all the population, he said.
At first, 40 years ago, it was ‘passive income’ – a notion that Rich Dad Poor Dad author Robert Kiyosaki put in the heads of young New Zealanders with an inherited ethic of prudence in a country where their parents had capitalised on the family benefit to raise the deposit on a family home and university education was a right.
Since everyone had enough, money was relatively unimportant and hippies were supposed to give it up altogether. The country closed down for summer holidays right through January, most families in Auckland had at least a dinghy in the garage and social welfare arrived sooner rather than later.
We were lambs to the slaughter when effort-free property ownership and speculation and its accompanying massive social divide was driven through in the 1970s and ’80s. Inequality arrived with Thatcherite precision and hasn’t looked back, fuelled by our dominant, barely regulated overseas banks and corporations as well as successive governments.
What’s not to like if anyone from anywhere can buy a house – a family’s home – as an investment with a bank mortgage and sell it a year later for $200,000 more (the industry expectation) without troubling themselves with tax or GST on the transaction?
Market forces gone mad, when we already have the highest house prices in the Western world.
In recent months, even former National Party finance minister Ruth Richardson has called for a rebalancing of tax rates for low wages eroded by inflation over 30 years. The recent study commissioned from Inland Revenue found the wealthiest families paid less than half the amount of tax compared to other New Zealanders. Cohorts of wealthy citizens have said they should pay more.
Never the less, Prime Minister Chris Hipkins shut down ‘tax switch’ proposals in the 2023 Budget and says work had been under way on experimenting with a wealth or capital gains tax, but decided instead to only adjust the tax rate paid by trusts.
“I ultimately made the call not to proceed with [the tax switch]. We simply didn’t have a mandate to implement those,” he said. “End of story”.
Really? What were we doing this time three years ago if not mandating, and expecting, some seriously heavy political lifting to generate a fairer and liveable future for all New Zealanders?
And what is an election for if not to set mandates, then and now.•