Monday 25 July 2016

Not the Silver Bullet But a Start: Are We Really Serious About the Housing Crisis Part 3

Last week I looked at misdirected investment. This week it is that dreaded term that has been bandied around as both a miracle cure and a poison that will slowly destroy and unduly punish Kiwi investment. Yes, it’s Capital Gains Tax.

If there has been one thing that has got New Zealander’s collective backs up over the housing crisis it would have to be a Capital Gains Tax. Labour campaigned on it last election and failed. John Key is adamant that it will not benefit the nation. However, as Duncan Garner pointed out quite clearly in two blogs last year, politicians from across the floor have a vested interest in not introducing some type of tax on property. That vested interest is that many of them own more than one property. Why own more than one? Because we as a nation don’t treat property the same as any other asset or capital. Therefore, in order to pay as little tax as possible, people invest in property. This helps fuel the housing price bubble, particularly in Auckland and isn’t the best thing for the country.

And this isn’t about revenue gathering. It is about trying to bring balance and fairness into our current tax system. At the moment it is heavily sloped towards investing in property and the ones who end up paying the most tax proportionally are salary and wage earners. We need to bring some balance back to the field. In researching for this particular blog I discovered that perhaps one of the fairest and balanced ways of correcting the faults in our tax system is something that the Morgan Foundation propose - a Comprehensive Capital Income Tax. It brings balance to our tax system and would see less money invested in property and more money invested elsewhere (This would help solve the issue I raised last week of misdirected investments).

Whichever way we go, the point is we can’t keep doing the same thing as we will always get the same results. No tax on property = heavy investment in property. Introducing a fair tax on all income (basically introducing tax where there isn’t tax currently) = a balanced investment in property and shares and local businesses (in other words, diversification).

And whilst a change in the way we collect tax isn’t the silver bullet, having it as part of a raft of ideas would cool the housing balloon without it going pop. It would bring balance and generate tax revenue that could be used for the benefit of all New Zealanders in areas like health, education, the environment (increasing what DOC gets would be a great start there) and even a reduction in the income tax people pay.

It’s a win win for the nation. We just need our politicians to stop serve their own and their mate’s interests and do more to look after the interests of we the people who voted them in and have the power to vote them out again. 

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This is part 3 of a 6 part series. See Are We Really Serious About the Housing Crisis for the summary. Next week, the importance of Financial Education and why we all benefit through learning even the basics of investment. In later blogs I'll look at  increasing the current housing stock and finally why I believe we should be focusing more on going up rather than out, particularly in Auckland.

Thursday 21 July 2016

43 Years of Silence, 43 Years Too Long.

43 years ago today this was the view from on board HMNZS Otago. It was sent there officially to be a physical presence of the New Zealand protest against French nuclear testing on Mururoa Atoll. Prior to the Otago leaving, Prime Minister Norman Kirk said that its presence (and HMNZS Canterbury's when it relieved the Otago) would be "a silent accusing witness with the power to bring alive the conscience of the world".

Since then the men who went on Big Norm's Mystery Tour have been silently suffering and a nation whose proud anti-nuclear stance was built on the success of that 1973 protest has stayed silent in its appreciation and gratitude to those men who did their duty and served their country when called upon. Shame on us as a nation that we have forgotten these men who made the world aware of what the French were doing. Their mere presence meant that minutes after the nuclear test, word was sent to Wellington and then to the world of the detonation, sparking what former NZPA correspondent David Barber referred to as ‘a barrage of international protests that prompted New Zealand's Prime Minister Norman Kirk to say, "Never before has world opinion on nuclear testing been so stirred.”’ It was groundbreaking. One small nation in the South Pacific had boldly confronted another over nuclear testing and won. It was a major victory. 1973 was the last time the French undertook atmospheric nuclear testing.

Yet how many Kiwis know about what happened? How many of us are aware of the efforts of those brave men on board two of our Navy frigates? How many are aware that far too many of them have died in the following years of cancers and leukemias? How many of us know of the suffering that those sailors who are still alive have had to endure? Continual cancer treatment, often for rare forms of the disease. The psychological effects of watching your former shipmates dying and knowing the high probability that you could be the next one to contract cancer or leukemias. The effects on the wives, partners, children and now grandchildren as their husband / dad / granddad suffered.

This has got to end. New Zealand must acknowledge these national heroes and do the right thing by them. On the day of the Otago’s department, Norman Kirk said that a grateful nation would not forget the men and would look after them if something happened. Something did happen, and continues to happen to the sailors and men on board those frigates. It is time our nation stayed true to those words spoken by Mr Kirk 43 years ago. Lest we forget.

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DISCLAIMER: I sit on the executive committee of the Mururoa Nuclear Veterans Group Inc as the co vice-president as well as the Media Officer. The group is made up of former sailors on the HMNZS Otago and Canterbury and the HMAS Supply, wives, partners and children of those sailors who served on the 1973 Tour. 

Monday 18 July 2016

Misdirected Investments: Are We Really Serious About the Housing Crisis Part 2

Last week I mentioned 7 ways I thought could be implemented to help solve the housing crisis. This week I want to turn to the idea of foreign and local investments.

Let me state at the outset that I am not against foreign investments. As we are part of the global economy they play an important role in the New Zealand economy. However, unlike some of the rhetoric that has come from the right about investments and the housing crisis, I do not believe that foreigners buying up our housing stock can be called foreign investment. The problem is that buying up land and houses directly contributes to our housing crisis and adds little or no value to the economy. The house is purchased, and the investor sits on it until they are ready to move their money on. Under our current tax regime, that is an easy thing to do with no consequences. Any profit can be taken out of the country without any tax being paid. How does that help New Zealand? Not only does it push up house prices and reduce the housing stock available, it also denies money flowing into our small and medium sized businesses which are an important and significant part of our economy.

What would be better is to discourage foreigners who want to invest in New Zealand from purchasing our housing stock. One way this could be achieved is by some form of capital gains tax and a tax on money leaving the country. Not only would this be fair, it would also bring us in line with other countries around the world. In addition, it is important to incentivize investing in New Zealand businesses, thus encouraging money out of our housing stock and into the business sector, thus growing businesses and growing our economy. Whilst I am not sure how this could be achieved, some ideas could be a rebate on money invested in small and medium business, or a reduced tax rate. The point though is that with proper investment, our small and medium sized businesses, which are significant contributors to our economy, could grow resulting in more people employed, exports increasing and more money brought into our economy. We would all benefit. With the current situation, the only ones who benefit are the speculators buying up the housing stock.

In the same way, we can also incentivize Kiwis to put their money into small and medium sized businesses. We as a nation seem to be allergic to investments outside of property but we need to turn this around so our economy can grow and strengthen. It would also help make our economy more resilient as money flows into more diverse sectors. Like with foreign investments we could incentivize by offering rebates or reduced tax on investments in our small and medium business sector.

The one thing we can’t do is nothing. We can no longer keep putting our collective heads in the sand, denying the existence of a problem. That will only result in the housing balloon expanding until it pops.

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This is part 2 of a 4-6 part series. See Are We Really Serious About the Housing Crisis for the summary. Next week, Capital Gains Tax - Not the Silver Bullet but a start. In later blogs I'll look at  Financial Education, increasing the current housing stock and finally why I believe we should be focusing more on going up rather than out, particularly in Auckland.

Monday 11 July 2016

Are We Really Serious About the Housing Crisis?

This past weekend Labour celebrated 100 years of existence. As part of that centenary they announced a Housing policy they would enact if they became the next government. Despite what the right say, it is clever politicking by Labour for two reasons; 1. it’s an attempt to address a growing issue and 2. it harks back to the 1930s era of Labour governance where state housing originates from. Meanwhile, yesterday National announced that it didn't expect a dividend from Housing New Zealand which will, in theory, allow HNZ to invest in building more state houses.

This crisis has been an ongoing issue for years yet has been ignored by the politicians until now. With both main parties deeply rooted in neoliberal economic policy there has been an unwillingness to interfere with the market, choosing instead to believe the market will right itself. There has also been a push to emphasise one issue or another. We’ve heard that not enough houses are being built, too many foreigners buying up our houses, it’s Kiwi investors, it’s councils not releasing enough land. What we haven’t heard is a concerted combined attempt at solving this growing problem.

I have decided that instead of complaining, I would have a go at offering a combined solution to the problem. Admittedly I am no economist, or finance advisor, nor do I claim expertise in this area. But as a lay person I think some of these ideas, as part of a wider ranging policy, have merit and should be openly discussed.

1. Discourage foreigners purchasing housing stock. 
This is often seen as being “anti-foreign investment”. I believe that’s a false label used to dismiss this idea but this idea needs an alternative offered in conjunction.

2. ENCOURAGE foreign investment into local businesses. 
This is that alternative. The problem isn’t foreign investment. The problem is where that investment is going. Housing stock doesn't generate wealth for our country. Foreign investment in our small and medium sized businesses does. These first two ideas have to go hand in hand.

3. ENCOURAGE local investment into local businesses. 
Likewise, local investment shouldn’t be sunk into multiple homes. Local businesses generate wealth, employ people and return money back into regional economies.

4. Capital Gains / Property Tax. 
People hate this idea but the reality is that currently there is little to no tax on property investment. A graduated tax based on the number of properties one owns seems to be a fair way of taxing. If you want to make your money in property go ahead, but you will be taxed just like any other investment.

5. Education on Investments. 
Too many Kiwis have no idea about how the sharemarket works, what a share is, what a bond is. We fear the sharemarket because we don’t understand it. As a nation we need to financially school ourselves up and get over our fear. 

6. Build More Houses. 
It is a no brainer but the population is growing, particularly in Auckland. Not enough housing is being built to cover the growth. 

7. Build Up, Not Out. 
Building more suburbs in our major cities, particularly Auckland will not solve the issue but will simply create more complex problems. We need to have a long term plan to make compact people-friendly cities. Sprawling metropolises like we have now are car-friendly, use up valuable farmland and don’t work. The desired quarter acre section with a white picket fence is an idea best left in the 1950s where it belongs.

So seven ideas. Not rocket science but at the same time if done properly can help to solve the housing crisis. Some of the ideas won’t see immediate effects but are necessary to stop the speculation and correct the craziness that currently inhabits our property market. I’d love to see all of these ideas implemented. I’d love to see politicians with the guts to actually work together to solve the crisis. But I fear that that won’t happen. I fear personal interests will trump what’s best for the nation and that the housing crisis will only get worse until something snaps, plummeting us into the abyss of fiscal depression.

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This will form the start of a 4-6 part series. I will attempt to expand on some of these ideas over the coming weeks. Next week, redirecting investment away from housing and into Kiwi businesses (this will attempt to expand points 1-3). That will be followed by a look at Capital Gains Tax, Financial Education, Increasing the current housing stock and finally why I believe we should be focusing more on going up rather than out, particularly in Auckland.