Migration loosening and extreme housing valuations show again how solving our low productivity, low wage and low investment problem requires a residential land tax
Thanks Bernard. Not an easy read but you have consolidated in one post my conclusions about tax, housing and the economy. Very supportive of you sharing this.
Bernard - this is an incredibly important issue than NZ needs to address now and you have summarised the issues superbly as always. Open it up - in the vain hope it will spur some constructive debate....
Aug 22, 2022·edited Aug 22, 2022Liked by Bernard Hickey
Hi Bernard - there is a far simpler way of sorting the problem that actually makes NZ far wealthier and doesn't cost any one - it is also a concept as old as the Crown vesting ownership rights to land in individuals and them then paying a land tax in return - there is nothing stopping government being the sole provider of mortgages in NZ and using the revenue to offset running expenses - at present much of the value of property in NZ is expropriated by the Australian banks using money magicked into existence through the wonders of fractional reserve banking - and just as Grant Roberston magicked billions into existence during Covid and the US government "invents" trillions of dollars each year to fund it deficit our government could fund property transactions using fictional dollars imposing a prescribed annual charge. In reality that turns a property transaction into a promise to pay the state a certain level of annual land tax for the use of the land.
Having foreign owned banks fund our housing market and agricultural sector bleeds more than $10billion out of the economy annually in profits and interest payments. - That's roughly half of the value from our dairy industry - there is actually no good reason for this other than convention - we don't need it. The banks have been the primary cause of property price inflation as that is a very simple way of "growing the business" by doubling or trebling the "value" of property they have similarly fattened their revenues - at our collective expense.
I agree with the diagnosis, but not necessarily the solution (Land Tax). If you want to stop property price inflation, choke the credit for buying existing properties. As Richard Werner says, stop banks creating money for financial transactions. It takes 2 things to increase property prices: 1. More demand than supply. 2. Too much credit. The RBNZ could implement this straight-away using "credit guidance" to banks. If you want to bid the price of an existing property higher, then fine; but do it with your own money. This would be so effective that it would need to be phased in, or property prices would drop like a stone.
Great article Bernard, as always. Approx. 1 year ago, 2 senior executives from McQuarie Bank Australia, (Bernard would have the details) said that in light of the GFC, (2008) Covid & climate change, anyone who still believed in shrinking the size of government was delusional. Because of the huge environmental, (South Island floods, etc.) & economic challenges we face, these executives stated that proactive, well resourced governments were our only hope! Bernard's brilliant land tax formula is the only way ahead. People are vaguely aware of this - 65% in a recent poll were against National's proposed $2B tax cuts for the wealthy. Bernard's intelligent solutions are a key part of the public education process we need to turn the ship around while we still can.
To be contrary, I think we will see a new tax but it will be a “disaster support & recovery” tax to give local and central government the money to pay for fixing up the damage caused by climate change extreme events and for ongoing adaptations. It is a much easier sell to the voting public as it is obvious what its purpose is, and it helps soothe the fears that all house owners now have when they read about events like the Nelson and West Coast floods.
"There Is No Alternative" (TINA) was the mantra of Thatcher, Reagan, Douglas and their fellow travellers. Whilst they were right that things needed to be shaken up, their execution wasn't their finest hour.
And we see that in increased inequality, the financialisation of companies (where boosting payouts to shareholders is more important than boosting the production of widgets), the use of immigration to lower wage rates, etc.
So, Bernard, please start using rhetoric where your (and others) ideas are The Alternative. A land value charge (not a tax) would be for more infrastructure spending; a ten percent cut to your supermarket bill by scrapping GST and replacing it with a Financial Transaction Tax; tweaking the Income Tax Act to explicitly state that all business profits are taxable as income (oh look, no need for a capital gains tax as there are no longer any capital gains); etc.
Hi Bernard, also happy to support opening this up and giving people something to think about. Speaking of taxes though, any chance you could shed some light on how the bright line tax is going? Would be curious to hear about the actual numbers. I know part of the usefulness of the tax is to deter / slow down / change behaviour before a purchase / sale, but given it's self reported most of the time and the IRD is still playing catchup with a lot of things, would be interesting to see if there is much compliance happening.
Even though I've "accidentally" become a land baron (developing land we bought from the sale of my old house into an eco community), I'm totally for a land tax to reduce inequity. I was really interested to see the extent of self-employed SMEs in Aotearoa - would you have any idea how many of these are home-based micro-businesses, David? I've been searching for this data but it's really hard to come by... I'd speculate that especially post-COVID, the number of home-based micro businesses would have increased?
Great ideas Bernard. If only the Greens had this policy. By only supporting Labour they contribute to the two majors being essentially the same, just paying lip service to different groups.
A while ago on their website TOP had a policy of taxing only the equity in property. They must have realised that would have unintended consequences like people leveraging up on the equity to buy more property and avoid the tax.
The opponents of land tax always come up with the “poor widow” argument ever since 1909 when Churchill and Loyd George tried to bring it in in the People’s Budget. (Book of that name by Geoffrey Lee). The House of Lords vetoed the land tax.
The wealthy always use the poor as a human shield re land tax. Offsetting it against a decrease in GST could also be a way of making it acceptable to the median voter.
Aug 22, 2022·edited Aug 22, 2022Liked by Bernard Hickey
NZ is no place for 10 Million people. The fixation with growing our population so that we can continue to grow our economy overlooks a number of key constraints. Our economy is utterly dependent on agriculture to pay for imports of technology and energy. We have less land area today providing that income then we did when NZ's population was half its present size. We have funded a substantial and sustained deficit in export income by borrowing and selling land and passports. Our immigration policies over the past decades have been little better than a modern form of slavery exploiting the poor and the desperate to work for crappy conditions in return for getting out of what ever disadvantageous situation they were born into. We have also been singularly undiscerning in immigration criteria. A quick trip to Golden Bay or the Coramandel or Queenstown will turn up large numbers of imported "lifestylers" often with unconventional views of society who are living here at our collective expense. The imbalance between house building and population growth has caused one of the most devastating impositions of poverty in the modern history of this nation. I have a friend who migrated to NZ got citizenship then left to live overseas and he uses his NZ passport as a convenience - his children get NZ citizenship by default as will theirs - even though they may never have any intention of living in NZ unless things go terribly wrong in Europe (which may happen sooner rather than later). My child does not have any equivalent opportunity to gain citizenship in his country. So we have lots of people who see NZ citizenship to be a life raft not a privilege. Our government gaily sells passports to rich people who come here and inflate the value of property making it tougher for the rest of us to survive. We also need to make it less attractive for NZer's to leave NZ and more attractive for them to stay. My child is in the process of obtaining a PhD and a very large student loan. Her first job after ten years of specialised education in field that NZ suffers a severe skill shortage will be paid roughly the same as a truck driver earns - and the truck driver wont have decades of student loan payment to look forward to. She will not be able to afford to have children and has stated as such. And why should someone be able to leave NZ work overseas for 4 decades then expect to come back her to retire (competing for housing again) and get free healthcare when the rest of us have hung out here keeping the ship afloat in the meantime. On top of that we live in one of the most disaster prone nations on the planet - our biggest city is smack in the middle of one of most active volcanic fields on the planet, our capital city is the most quake/tsunami prone on the planet, the South Island's primary city is located within the long term river bed of one of the country's biggest rivers and then we have the alpine fault. That going off will make the Tohuku earthquake in Japan look like a squib primarily because Tohoku was 100km offshore where as the AF is on land and the aftershock sequence it will initiate hasn't even been discussed but each of the major aftershocks will be worse the the CHCH earthquakes. And then if we get foot and mouth we will have an economy that look like Cuba on a bad day (or maybe Sri Lanka). As a nation we have taken to the quick fix rather than doing things right. No amount of population growth, particularly if it emphasizes unskilled work, will make NZ any better off than it is today. We also need to recognize that population growth is heavily subsidized by the existing population as they are the ones who pay for the infrastructure and social services that the additional population consume.
That’s an outstandingly lucid exposition of our current National economic situation, in my opinion.
And, an equally rational prescription to remedy the problem.
In my ideal world, the Prime Minister accepts this analysis and resigns prior to next years election for the greater good, allowing Grant Robertson or ?? to campaign on tax reform policies.
Hopefully with sufficient leverage from economic literate minor parties to make it happen.
Bernard, could you explian this part a bit more please? "Those who say our market is just as bad as others who do have capital gains taxes are just plain wrong. The outsized fall in our market since interest rates started rising also shows that." It seems an effective argument aginst capital gains taxes to me that countries with capital gains taxes (e.g., Australia, Canada) still have very unaffordable housing. And of course I would say the common demominator is too much credit for buying exisiting housing in Canada, Australia and NZ.
Thanks Bernard. Not an easy read but you have consolidated in one post my conclusions about tax, housing and the economy. Very supportive of you sharing this.
Great chorus today Bernard. I think you need to open this one up for everyone to read.
Bernard - this is an incredibly important issue than NZ needs to address now and you have summarised the issues superbly as always. Open it up - in the vain hope it will spur some constructive debate....
Yup, open this one up. Blast the podcast from a boombox held above your head. I want me some land tax
Hi Bernard - there is a far simpler way of sorting the problem that actually makes NZ far wealthier and doesn't cost any one - it is also a concept as old as the Crown vesting ownership rights to land in individuals and them then paying a land tax in return - there is nothing stopping government being the sole provider of mortgages in NZ and using the revenue to offset running expenses - at present much of the value of property in NZ is expropriated by the Australian banks using money magicked into existence through the wonders of fractional reserve banking - and just as Grant Roberston magicked billions into existence during Covid and the US government "invents" trillions of dollars each year to fund it deficit our government could fund property transactions using fictional dollars imposing a prescribed annual charge. In reality that turns a property transaction into a promise to pay the state a certain level of annual land tax for the use of the land.
Having foreign owned banks fund our housing market and agricultural sector bleeds more than $10billion out of the economy annually in profits and interest payments. - That's roughly half of the value from our dairy industry - there is actually no good reason for this other than convention - we don't need it. The banks have been the primary cause of property price inflation as that is a very simple way of "growing the business" by doubling or trebling the "value" of property they have similarly fattened their revenues - at our collective expense.
I agree with the diagnosis, but not necessarily the solution (Land Tax). If you want to stop property price inflation, choke the credit for buying existing properties. As Richard Werner says, stop banks creating money for financial transactions. It takes 2 things to increase property prices: 1. More demand than supply. 2. Too much credit. The RBNZ could implement this straight-away using "credit guidance" to banks. If you want to bid the price of an existing property higher, then fine; but do it with your own money. This would be so effective that it would need to be phased in, or property prices would drop like a stone.
Great article Bernard, as always. Approx. 1 year ago, 2 senior executives from McQuarie Bank Australia, (Bernard would have the details) said that in light of the GFC, (2008) Covid & climate change, anyone who still believed in shrinking the size of government was delusional. Because of the huge environmental, (South Island floods, etc.) & economic challenges we face, these executives stated that proactive, well resourced governments were our only hope! Bernard's brilliant land tax formula is the only way ahead. People are vaguely aware of this - 65% in a recent poll were against National's proposed $2B tax cuts for the wealthy. Bernard's intelligent solutions are a key part of the public education process we need to turn the ship around while we still can.
Thanks for the insights Bernard
To be contrary, I think we will see a new tax but it will be a “disaster support & recovery” tax to give local and central government the money to pay for fixing up the damage caused by climate change extreme events and for ongoing adaptations. It is a much easier sell to the voting public as it is obvious what its purpose is, and it helps soothe the fears that all house owners now have when they read about events like the Nelson and West Coast floods.
"There Is No Alternative" (TINA) was the mantra of Thatcher, Reagan, Douglas and their fellow travellers. Whilst they were right that things needed to be shaken up, their execution wasn't their finest hour.
And we see that in increased inequality, the financialisation of companies (where boosting payouts to shareholders is more important than boosting the production of widgets), the use of immigration to lower wage rates, etc.
So, Bernard, please start using rhetoric where your (and others) ideas are The Alternative. A land value charge (not a tax) would be for more infrastructure spending; a ten percent cut to your supermarket bill by scrapping GST and replacing it with a Financial Transaction Tax; tweaking the Income Tax Act to explicitly state that all business profits are taxable as income (oh look, no need for a capital gains tax as there are no longer any capital gains); etc.
I could go on.
Hi Bernard, also happy to support opening this up and giving people something to think about. Speaking of taxes though, any chance you could shed some light on how the bright line tax is going? Would be curious to hear about the actual numbers. I know part of the usefulness of the tax is to deter / slow down / change behaviour before a purchase / sale, but given it's self reported most of the time and the IRD is still playing catchup with a lot of things, would be interesting to see if there is much compliance happening.
Even though I've "accidentally" become a land baron (developing land we bought from the sale of my old house into an eco community), I'm totally for a land tax to reduce inequity. I was really interested to see the extent of self-employed SMEs in Aotearoa - would you have any idea how many of these are home-based micro-businesses, David? I've been searching for this data but it's really hard to come by... I'd speculate that especially post-COVID, the number of home-based micro businesses would have increased?
Great ideas Bernard. If only the Greens had this policy. By only supporting Labour they contribute to the two majors being essentially the same, just paying lip service to different groups.
A while ago on their website TOP had a policy of taxing only the equity in property. They must have realised that would have unintended consequences like people leveraging up on the equity to buy more property and avoid the tax.
The opponents of land tax always come up with the “poor widow” argument ever since 1909 when Churchill and Loyd George tried to bring it in in the People’s Budget. (Book of that name by Geoffrey Lee). The House of Lords vetoed the land tax.
The wealthy always use the poor as a human shield re land tax. Offsetting it against a decrease in GST could also be a way of making it acceptable to the median voter.
NZ is no place for 10 Million people. The fixation with growing our population so that we can continue to grow our economy overlooks a number of key constraints. Our economy is utterly dependent on agriculture to pay for imports of technology and energy. We have less land area today providing that income then we did when NZ's population was half its present size. We have funded a substantial and sustained deficit in export income by borrowing and selling land and passports. Our immigration policies over the past decades have been little better than a modern form of slavery exploiting the poor and the desperate to work for crappy conditions in return for getting out of what ever disadvantageous situation they were born into. We have also been singularly undiscerning in immigration criteria. A quick trip to Golden Bay or the Coramandel or Queenstown will turn up large numbers of imported "lifestylers" often with unconventional views of society who are living here at our collective expense. The imbalance between house building and population growth has caused one of the most devastating impositions of poverty in the modern history of this nation. I have a friend who migrated to NZ got citizenship then left to live overseas and he uses his NZ passport as a convenience - his children get NZ citizenship by default as will theirs - even though they may never have any intention of living in NZ unless things go terribly wrong in Europe (which may happen sooner rather than later). My child does not have any equivalent opportunity to gain citizenship in his country. So we have lots of people who see NZ citizenship to be a life raft not a privilege. Our government gaily sells passports to rich people who come here and inflate the value of property making it tougher for the rest of us to survive. We also need to make it less attractive for NZer's to leave NZ and more attractive for them to stay. My child is in the process of obtaining a PhD and a very large student loan. Her first job after ten years of specialised education in field that NZ suffers a severe skill shortage will be paid roughly the same as a truck driver earns - and the truck driver wont have decades of student loan payment to look forward to. She will not be able to afford to have children and has stated as such. And why should someone be able to leave NZ work overseas for 4 decades then expect to come back her to retire (competing for housing again) and get free healthcare when the rest of us have hung out here keeping the ship afloat in the meantime. On top of that we live in one of the most disaster prone nations on the planet - our biggest city is smack in the middle of one of most active volcanic fields on the planet, our capital city is the most quake/tsunami prone on the planet, the South Island's primary city is located within the long term river bed of one of the country's biggest rivers and then we have the alpine fault. That going off will make the Tohuku earthquake in Japan look like a squib primarily because Tohoku was 100km offshore where as the AF is on land and the aftershock sequence it will initiate hasn't even been discussed but each of the major aftershocks will be worse the the CHCH earthquakes. And then if we get foot and mouth we will have an economy that look like Cuba on a bad day (or maybe Sri Lanka). As a nation we have taken to the quick fix rather than doing things right. No amount of population growth, particularly if it emphasizes unskilled work, will make NZ any better off than it is today. We also need to recognize that population growth is heavily subsidized by the existing population as they are the ones who pay for the infrastructure and social services that the additional population consume.
Thanks again Bernard.
That’s an outstandingly lucid exposition of our current National economic situation, in my opinion.
And, an equally rational prescription to remedy the problem.
In my ideal world, the Prime Minister accepts this analysis and resigns prior to next years election for the greater good, allowing Grant Robertson or ?? to campaign on tax reform policies.
Hopefully with sufficient leverage from economic literate minor parties to make it happen.
Bernard, could you explian this part a bit more please? "Those who say our market is just as bad as others who do have capital gains taxes are just plain wrong. The outsized fall in our market since interest rates started rising also shows that." It seems an effective argument aginst capital gains taxes to me that countries with capital gains taxes (e.g., Australia, Canada) still have very unaffordable housing. And of course I would say the common demominator is too much credit for buying exisiting housing in Canada, Australia and NZ.