It is generally agreed that under the tutelage of this country’s two establishment parties, National and Labour, there has been a gross waste of capital resulting in poor productivity performance and loss of position for our country in the global per capita income league tables.
The main crime has been misdirection of capital/savings into residential property at the expense of more productive endeavour. This has been going on for decades.
Google the words “New Zealand’s productivity performance” and you’ll be drowned in references to this decades-long neglect and its cause.
The evidence is overwhelming; the puzzle is why.
Why have these establishment parties continued, term after term, to provide a tax break on the income (imputed) from owner-occupied property that has made it a no-brainer in terms of investment by Kiwis?
Successive tax task forces have pointed out the stupidity. But the allure of political tenure and personal enrichment from being on the property ladder has thwarted any redress of the error.
Try to get a loan from a bank in New Zealand on anything but property and you’ll soon learn how disadvantaged every other form of investor is – no debt finance available for them.
For banks, that same tax loophole that enables the income from owning your own home to arrive tax free, is mana from heaven. Property as collateral is unbeatable.
In economic parlance, it enjoys the protection of a ‘put’ from the political establishment . Even our Reserve Bank, charged with controlling inflation has wrung its hands at times about the destruction from house price inflation but done diddly squat about it. ‘Not our mandate’ apparently.
Today, after all these decades, the political allure of property-led economic recoveries is irresistible for most establishment party politicians. Only a couple of years ago after the pandemic, former PM John Key was publicly calling for the Reserve Bank to cut interest rates and for the immigration doors to be thrown open again so growth could get going once more. That generation of politician just knows no better.
The cost of the resulting low-productivity growth model is terrible. Mostly our home-grown talent leaves for greener pastures. Almost anywhere in the OECD has stronger productivity and income growth than here.
The education of that talent costs us all, and when it leaves the country that investment is wasted.
The establishment parties come up with endless initiatives to boost immigration of both rich investors and low income labourers to make up for it. Still our income per capita trend has lagged the OECD average. Patently this approach has not been a solution.
A second aspect of this funk is the widening gap for first home buyers where nowdays houses are seven times the graduate’s starting salary as opposed to three times before this housing over-investment nonsense began.
I wonder if these establishment parties weren’t so determined to protect the tax loophole on housing whether Prime Minister Christopher Luxon would have happily owned seven properties. I know I wouldn’t have. It’s been easy money for sure.
The housing schism is a generational one now. If you don’t have access to the bank of Mum and Dad, breaking into that market is excruciating.
And there’s the rub, the entrenched position of the establishment parties is largely a generational one. It’s time for the next generation to give them and their self-interested tax loophole a serve.
The three-way reform of flat tax, universal basic income and closed income tax loopholes – is budget neutral.
Indeed, 70 percent of New Zealand taxpayers will be better off.
So what is Luxon on about when he says Opportunity is about raising tax?
Raising tax for who? In essence the multiple property-owning elite of which Christoper Luxon is clearly one, and I’m another.
Be there no mistake, the reforms that underlay the policies of TOP2017 and so far, Opportunity 2026, reflect a shift in generations.
The Baby Boomers who have done so well shifting wealth towards themselves now need to step back and allow the generations who have a far longer future ahead of them, to steer the ship.
The real ‘wasted votes’ are the ones that perpetuate this waste of capital.
