New Zealand Property Investors' Federation, (NZPIF) is the umbrella body for 20 local Property Investors' Associations throughout New Zealand.

Phone: (027) 357 9243

Email: www@nzpif.org.nz

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01-08-2011

The Politics of envy

The NZPIF has had two meetings this year with senior Labour Ministers. At both these meetings we asked about Labour's housing policy and if any new taxes were being considered. We were told that a land and capital gains tax had been looked at, to pay for extra planned spending, but there were problems with both and would not be part of their policy.

So it was with surprise to learn that a Capital Gains Tax is now to form part of their election campaign.

Labour’s reason for introducing this new tax is to raise extra revenue and to make housing more affordable for first home buyers. From overseas experience, both these aims have proven to be unachievable.

An unusual situation has occurred in the CGT discussion in that the left and far right are in favour of such a tax. It appears that we are caught in the middle and to use a military term must fight two flanks.

The left view us as rich and our gains should be shared with others. They also view us as the prime reason for first home buyers not being able to afford their own home. Both these believes are false of course.

Maori Party co-leader, Tariana Turia, said “Labour thinks it’s only wealthy people who have accumulated more than one home, but I know quite a lot of younger people who ...own two or three homes as well”.

From my own experience, rental property owners are self reliant, hard working, ordinary people who are taking responsibility for their own future. Some of the rhetoric from people who want a CGT on rental property makes them appear ill-informed and envious.

Regarding house price growth, other countries with a CGT have experienced even greater property price rises than New Zealand, so why do they expect it to be different here? Faced with a reduction in their overall investment return, owners are more likely to seek higher returns through rental price increases.

A study into the difference in cost between renting and owning the average NZ home found that it is $89 per week cheaper to rent than own the average NZ home. As we are at the bottom of the property cycle, this is the closest that these two numbers are likely to get and show that there is plenty of room for rental prices to move higher.

On the right side of the political persuasion, ACT leader Don Brash has been keen on a CGT for a very long time. They make the theoretical argument that making it harder for people to invest in rental property will see more funds move into the “productive sector”. This is repeated so often that some people just accept it as true without any serious examination.

While it is a great aim to increase New Zealand’s productivity, there is no proof that rental property ownership is actually the main problem. In the last few years we have see rental property ownership have depreciation claims and the LAQC structure taken away, making it harder to provide rental property to tenants. At the same time we have seen employers and tax payers money being given to the Financial Services Sector to bolster their income.

In making their call for a CGT, the Financial Services Industry may have scored an own goal however. In order to satisfy their tax increase targets, Labour are going to have to include other businesses, investments and farms as well.

The NZ Property Investors’ Federation has argued for years that a CGT does not raise much tax income and has no affect on house prices. Unfortunately the politics of envy on the left and greed on the right have left many people unwilling to hear the truth.

Regardless, we will still keep pushing our message. 

Tags: federation reports

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