I’m no great shakes when it comes to understanding micro-economics and fiscal stuff. (Macro-economics for that matter too.) But several people have asked me what I’ve thought of the New Zealand government’s recent pre-budget announcement, particularly in relation to tax. So here goes.
I may be a bit strange, but I tend to look at budgets more in terms of fairness to all and what will make the citizenry better able to face the future, not so much in terms of how much better or worse off I will be. My long-term thinking is that the fairer and more sustainable the way our representatives collect and spend tax money, the happier most people will be and therefore the more pleasant and positive-thinking the community I live in will also be. If this happens, I win in the end even if my financial wealth status is down a bit.
Which it will be, in all probability. Being “older” and dependent on superannuation plus releasing money I saved over the years, my tax bracket is so low now (it wasn’t once, mind) that I doubt I’ll get much of a boost from any tax cuts. But it appears I will still be paying extra GST that will be compensated for only in the component of my income that comes from NZ Super.
However, although I do sympathise with people who are really struggling and simply cannot tighten the belts any further, I see the GST rise as being pretty minor in proportion to the general money coursing around the economy these days. I’m more concerned about the fairness of tax rules for those who are comfortably off, and how these may affect the ability of our economy to settle at a more sustainable state than it was in during the last property bubble.
Meaning what? Meaning that for years I, like quite a few others, have been particularly concerned at how the tax loopholes in favour of property investment (over savings or investing in something that actually benefits the country) have skewed our way of life so much that we are now collectively in so much debt. And I’m now equally concerned that the people who indulged in property trading (“climbing the property ladder”) and renting out in order to get fast tax-free capital gains, and use ludicrously unreal depreciation rules to get rich quickly, at the expense of people doing productive work who were/are being priced out of owning a house.
If any of these unfair and unequal uses of tax rules are actually implemented come budget time, to anywhere near a reasonably fair system, then certainly there will be lots of people hurt as a result – both property investors and people forced to rent. And house values will probably drop again.
But I think that that’s something we have to face as part of a move to an ultimately more sustainable and fair system. A one-off hit for a few years. In recent decades (particularly the last), property investors have in the main done very well indeed, thank you very much, at the expense of the rest of us. All tax changes hurt some people and sectors and please others. Until now tax rules have operated to please investors and hurt people trying simply to own a home. It seems this is about to change, and I’m glad of it.
I’ve always been comfortable with GST as a tax mechanism, as it forced tax dodgers to actually contribute to paying for the public goods and services they use. It’s not perfect – GST does constitute a much higher proportion of the disposable income of poorer people than the very rich – but it’s better than PAYE and Company tax mechanisms alone (spoken as someone who until the mid-80s paid PAYE with no ability to dodge it).
GST percentage changes are for most people only marginal changes. But the tax dodges allowed and encouraged through property investment have been having an absolutely huge impact on our economy through the recent property boom, so much so that when the property bubble looked like popping (though it looks like it only deflated a bit), the result was a huge wave of fear and insecurity through the rest of the economy. So if we don’t take action to address this, by changing property tax rules, then I believe it is inevitable that we will soon re-live the recent past, to our greater detriment in the medium-term future.
I would much rather see property prices hold for as long as they can, or even drop quite a bit, and reach a sustainable equilibrium that’s fair to all, than to see everything go back to property boom days. I’ll support any taxes that will make this the number 1 priority – even if it means that some now-well-off property investors take a big hit.
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