PM to downplay capital tax hole and instead signal post-flood austerity

Hipkins is reported to be preparing to reassure business leaders that the tax system status quo is safe. Photo: Lynn Grieveson / The Kākā

TL;DR: PM Chris Hipkins is expected to squelch any revival of talk about a Capital Gains Tax when he gives a luncheon speech to business leaders in Auckland today. The speech will squash any momentum that might have built after yesterday’s stunning report revealing Aotearoa’s richest pay tax at a rate anywhere between a third and half the rate of middle-income earners.

Instead, Hipkins is reported to be preparing to reassure business leaders that the tax system status quo is safe and that the Government will look to fund any extra post-Gabrielle spending through ‘belt-tightening’ in other areas to ensure the Budget deficit and Government debt remain low.

Paying subscribers can usually see and hear more below the paywall fold place here and in the podcast above, but I’ve decided to open most of this one to all immediately given the public interest involved, and to recognise the support I get from paying subscribers to publicise my journalism on housing unaffordability, climate change inaction and poverty reduction.

Exposed yet untouchable: our housing market with bits tacked on

PM Chris Hipkins is set to plough on and ignore the exposure of the scale of the hole in Aotearoa’s tax system that is massively widening inequality and distorting our economy into a housing market with bits tacked. Opposition Leader Christopher Luxon is also in no mood to use the research released yesterday to drive tax change. He flat out denied that wealthy property owners should pay more tax when pressed on the report’s implications yesterday, saying instead the solution was income tax cuts for middle income earners. (See more in quotes of the day below)

That focus on keeping overall taxes and public debt low by not taxing capital gains and not investing heavily in public infrastructure preserves Aotearoa’s existing economic model focused on creating the conditions for wealth creation for home owners through leveraged and untaxed capital gains on residential land, rather than investing in real businesses, infrastructure and skills that increase productivity and real wages.

That model was exposed yesterday with the release of IRD research showing New Zealand’s richest 311 families are worth an average of $276 million each and generate 93% of their effective income in ways that are not taxed, meaning their effective tax rate was 9.5% in 2020/21. If those families had been taxed at the same 30% effective rate as a PAYE earner on $80,000 per year (as measured in a Treasury report), that would have generated extra tax revenues of $3.3 billion — more than enough to pay for flood repairs.

RBNZ and Govt act to put floor under house prices

The model was further reinforced by the Reserve Bank’s announcement yesterday it planned to loosen LVR settings from June 1 to allow banks to resume mortgage lending growth and stop house prices from falling much more than the 15-20% forecast by the bank. A bottoming-out of house prices is set to reverse the negative wealth effect that has pushed the economy towards a recession.

Housing Minister Megan Woods also yesterday announced increases in the caps for first home buyers grants, including increases cited at HUD of as much as $150,000 to $650,000 for new builds in regional areas such as Gisborne, central Hawkes Bay and Whanganui. The Government also halved the mortgage guarantee insurance to 0.5% for first home buyers, meaning someone with a $600,000 home loan now only has to pay $3,000 upfront for insurance, rather than $6,000, which leaves them more money for a deposit to leverage up into a higher bidding price.

I’ll be attending Hipkins’ speech in Auckland later today and welcome suggestions for questions in the comments below and in the chat on the Substack app if you’re out and about on mobile.

Scoops and news breaking elsewhere this morning