Could these taxes assist?
Mention Auckland and you either get housing or transport. I will cover transport in a subsequent post but for this one let’s look at housing.
To cut a long story short this from the NZ Herald:
Bernard Hickey: Land tax is long overdue5:00 AM Sunday May 1, 2016
Now that the Prime Minister has let the land tax genie out of the bottle we should all have a good close look to see which version suits us best.
Key has suggested a land tax targeted at non-residents, but with some sort of three-year exemption for expatriates who own houses here as the best way to take some of the heat out of the housing market and comply with our trade agreements.
It is already looking like the sort of highly targeted tax shot through with exemptions and loop holes that killed off the original version of a land tax in the early 1990s. Foreign investors must already be calling their tax planners for early side-stepping tips.
It is not the version of a land tax that was proposed in 2010 by the Tax Working Group that Key set up and which he has already rejected once. That was a broad tax on everyone owning land. No specific rate was proposed, but former Reserve Bank chairman and tax working group member Arthur Grimes put forward a paper in late 2009 that estimated a 1 per cent land tax would raise $4.6 billion and cause an almost-overnight reduction of land values of 16.7 per cent.
………Also, the sharp and sustained fall in interest rates, the biggest net migration surge in more than a century and a massive shortfall in house building has generated a mis-match of demand and supply that has driven up the value of houses and the land underneath. So a 16.7 per cent fall in land prices “overnight” would simply reset values to where they were a year ago.
The benefits of a 1 per cent land tax on that engorged base of land values shouldn’t be sneezed at either. It would generate $6.7 billion of tax revenues that would allow either income taxes to be cut across the board or for the GST rate to be cut back to 10 per cent.
Key could engineer a massive new tax cut switch that would help address the housing affordability crisis and reset the incentives for business investment in one swoop.
The politics of it would be awkward, but not insurmountable. It would be progressive tax (ie, it hurts more as wealth levels rise) that falls more heavily on some more than others, in particular richer and older people, and especially those on New Zealand Superannuation.
The benefits are obvious. It would finally send the right signals to investors, that capital gains are not completely tax free, that more productive and intensive use of land makes sense, that land banking does not make sense, and that investing in equipment, research and development would be as sensible as gearing up to buy land.
It would be the biggest leg-up for first-home buyers in a couple of generations.
Hickey hits the nail on the head in terms of land taxes and switching them in return for lower GST and/or income tax. For that I am incline to agree with him to the point this should have been done in 2010 (but getting it in now will assist with Auckland still).
However, for me I would start with a universal (so yes Churches and Crown land get pinged as well) Vacant Land Tax for vacant land holdings in an urban area and the Unitary Plan’s Future Urban Zone* area charged at 1% of Rateable value annually. The tax raised from this Vacant Land Tax would and should be ring fenced (by law) into an Infrastructure Fund to be used to pay for infrastructure building when the land is developed. In a way not only would the Vacant Land Tax encourage to development in urban and future urban areas (note: not rural areas to be left rural) but could be a way of replacing the clumsy upfront Development Contributions scheme on developments as well.
*I was made aware of people trying to develop in the Future Urban Zone area in Auckland but due to Council stonewalling the development as it falls outside the first ten years’ area of this Future Urban Land Supply Strategy (which I don’t support) the Vacant Land Tax would harm the people trying to develop (who will then be charged an arm and a leg by Council for an even more cumbersome Structure Plan before the development got a look in for consenting). I am of the view that the Future Urban Land Supply Strategy is not required as the Future Urban Zone IS that strategy already there. If there is too much or too little of the FUZ then get a Public Plan Change done as normally would be done. When the Future Urban Zone is flipped to a live Residential or Business/Industrial Zone the provisions in the Unitary Plan should already be sufficient enough to guide development without a separate “Structure Plan.” The only time a Structure Plan would need to be done is when a Master Plan is done for a large-scale urban renewal project like the City Centre or Manukau Transform projects under Panuku Development Auckland. See: Sprawl? Evil or Natural
So a Vacant Land Tax could be one way to getting supply going again in Auckland.
Universal Capital Gains Tax
Another is Universal Capital Gains Tax that is even charged on the family home – to a point. See GST is great because it is universal thus simple to understand and enforce. Capital Gains Tax is another example of a universal tax (with a time limit) helping minimise property speculation especially in a boom as Auckland is seeing.
This is how a Universal CGT would work:
- First two years after original sale a 15% charge gets applied to the capital gain made on the property when sold again
- For the next three years (so years three to five) a 5% charge is applied
- After five years you can go to 0% although GST being charged on investor property is an idea
The idea is to slow down quick flipping which is even harmful to the family home given that means the family is moving to different communities in a very short period. It can take up to five years before you and your family have fully settled into your new home, neighbourhood and community (including schools) so moving around prior to five years would be something a Universal CGT would discourage as well.
Vacant Land Taxes and Universal Capital Gain Tax (with a sunset period after five years)? A way in remedying Auckland’s housing situation (alongside boosting physical supply in Auckland)?