Is Cullen Insane?


If you want an example of the left trying to shoot the rich, and ending up killing off the poor, you need look no further than this morning’s news.

Let me explain.

It’s no secret that house prices have risen dramatically in the last few years. If you owned a house in 2000, you’d be very, very unlucky to not have had it double in value, if not more.

What is slightly less well know, is that rents have not risen to match that.

There’s a good reason for this. People are using rental properties to make a tax loss, meaning they can claim a lower rate of tax. This of course, benefits the poor as much as the landlord since poor people tend to rent.

So I was gobsmacked to hear this on the radio this morning:

The Government is considering axing the scheme where landlords and property investors claim losses against their taxes – a move which could see tenants lose their homes if owners sell.

Finance Minister Michael Cullen told Parliament he was considering the move as part of the Government’s wider concerns about monetary policy.

So the poor become a casualty again in the attempt to cover up the mess caused by the government pursuing growth at the expense of good monetary policy.

Update: As you might have noticed, I had a little trouble finding the story on the Internet to quote. However,  it was good to see One News pick it up and point out that it will hit those who rent.

8 comments

  1. So in effect the tax department is complicit in a cosy little club where both renters and landlords take advantage of a distorted market subsidized by other taxpayers. Nice for the rich and their tenants. Not too great for the other kiwis that suffer the effect of an insane housing bubble.

  2. The gap between the rich and the poor has commenced widening yet again, thanks of course to the Labour-led Government, who seem to be quite clueless regarding the outcomes of their policies. It may be beneficial to the New Zealand economy both short and long term, if people such as Michael Cullen and Helen Clark were made ‘commoners’.
    Let them live in rented accomodation for five nights or so, then let them stay in a shelter for one or two nights, then promptly tell them that they will not be getting their jobs back, then take away their wallets and sit them in front of a television and subject them to political policies which make them even worse off. John Key was raised in a state house, as we’re told constantly, so he can be spared of this excursion. However, send the likes of Bill English along with Clark and Cullen, so that he has some practical experience about what works and what does not work, in terms of policies, for all of New Zealanders, since he is likely to become Deputy Prime Minister of New Zealand in less than seventeen months time.

    If that all happens, then it’s likely New Zealamd will get on track, economically speaking, forever. Pity that won’t happen.

  3. I would say it’s more to do with people trying to get out of the top tax bracket – you know the one, “only 5% will qualify”.

  4. Actually ropata, the whole point of the blog is that tenants are getting a free (well, cheap) ride as landlords stick the taxman.

  5. Most people expect to get a 10% gross annual return on their investments. Therefore, hypothetically speaking, someone who buys a property for $300,000 would not be greedy to expect it to rent out for about $600 per week. Sound a bit high? Well, that figure may become the average cost of renting a property soon. If that does become the situation, then we can expect a hell of a lot more homeless people and also more people unable to pay for their groceries, electricity, etc.

    So, if that scheme is scrapped by our seemingly thoughtless Government, I foresee a mad rush by ignorant ‘investors’ to purchase property from the real investors (most of whom will make a profit of 100% or more per property), followed reasonably quickly by a rush to sell the rental properties as they become increasingly vacant as the most poor people are forced into homelessness, obviously because of a lack of money to pay their rent.

    Then, because a lot of property will be for sale, it’s obvious that the average price of a property will come down to a level where the property investor can make a gross profit of about 10% and where the tenants can actually afford to rent.

    All that will probably happen, I think, within four or five years, maybe sooner.

  6. Some observations from http://subversnz.blogspot.com/ :

    Brian Fallow is right here:

    “It has long been an odd feature of New Zealand that despite our egalitarian self-image we tolerate, indeed staunchly defend, a fundamentally class-based anomaly in the tax system. If you increase your wealth by the sweat of your brow you get taxed, quite hard. If you increase your wealth by owning the right assets over the right period, that is sacrosanct.
    Other countries don’t see it that way. The United States and Britain tax the capital gains when rental properties are sold. So do Australia and Canada, but at only half the taxpayer’s marginal rate.”

    And here:

    “The McLeod tax review is increasingly looking like a golden opportunity lost. It proposed a new broad-based, low-rate wealth tax as an offset (people forget this bit) for substantial cuts in personal and company tax rates. But the instant firestorm from talkback radio-land killed the idea within hours.

    It does seem as though Cullen is recognising the effect of the rule changes in 1991 that allowed people to make losses on investment property for tax purposes:

    “Since the repeal of those provisions in 1991 there was very, very substantial growth in losses which substantially outgrew the actual rental income and that clearly pointed to heavy (debt) gearing for the purchase of rental property, contributing probably to heating of the housing market.”

    New Zealand is unique in the OECD in that we neither implement a proper capital gains tax on investment property nor do we ringfence losses for tax purposes.

  7. Interesting comments.

    The thing is, you can’t overtax businesses or you’ll kill the economy. You can tax people as much as you like, and they’ll put up with it for the most part.

    Of course, the answer is personal tax cuts, but that would be evil.

    Oh, we do have capital gains tax. If you buy a property you are liable for tax if your intent was to make money by capital gain. What we need is better enforcement (although my sources suggest it’s not enforced as badly as some think).

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