By David Hargreaves
Well, if you scream for long enough they will listen, eventually.
The apparently casual remarks by Prime Minister John Key on TVNZ’s Q+A programme at the weekend represent the Government’s final acceptance that it really does need to do something material (via some taxation measures) about the demand issues helping to drive Auckland’s house prices. It’s also the clearest and most unambiguous admission from the Government that it really can’t contemplate banning foreign investors – because our trade deals won’t let it.
I’ve certainly in the past commented in favour of Australian-style foreign investment curbs. But I guess you can’t have your cake and eat it. We want free trade with as many countries as possible. It’s churlish to then turn around and say: “We want you to buy all our products but we’ll be darned if you can buy any of our houses.” I wonder though if it would still be possible to at least encourage offshore investors to buy new rather than existing houses. Perhaps that carrot could be offered through whatever taxation measures are come up with – so the buyer of new housing stock gets some advantage over those buying existing stock.
But to go back to Key’s remarks. It is worth remembering – because for some reason it seemed to get overlooked in all the discussion about the ‘bright-line’ test and the two-year tax selling window – that the Government indicated prior to the Budget in May it would be looking at introducing withholding tax next year for offshore-based house buyers. But notwithstanding that a line in the sand had already been lightly pencilled in, Key’s comments show a Government at last prepared to face up to the fact that it can no longer employ the ‘look no hands’ approach.
Basic and unpleasant instincts
The Government’s moves toward some form of intervention have probably been assisted by the strident efforts of the Labour Party in provoking some of the more basic and unpleasant instincts among some in the community. What the Government’s now seemingly about to propose looks reasonable by comparison. Stamp duty and/or land tax looks eminently more practical to me than going for a nuclear option such as only allowing New Zealand citizens to buy NZ houses.
I suppose if the Government had announced moves aimed at foreign ownership of properties two years ago (as it should have) then it might have looked more interventionist than your average National Party ever wants to look. (Investment and making money = free enterprise and therefore GOOD, but intervention and prevention = socialism and therefore BAD!)
Likewise the idea, officially announced as policy at the weekend, that migrants be encouraged to go to places other than Auckland when they arrive in the country is overdue as well, but nevertheless welcome.
Some people might say introduction of these new measures is simply too late. But I don’t think anything’s too late till you die. Measures that can make a positive difference can and should be tried at any time, even if as in the case of the Government coming to the party on these issues, the measures are overdue.
The door is open
All I would say is that now Key has opened the door firmly to the idea of taxation on purchase of property from offshore then so the Government should get on with it as soon as possible – even if it’s only a firm indication of a likely timeframe for introduction of such measures. As mentioned earlier, there was the pre-budget announcement of a potential withholding tax. Now the PM’s said what he has said, let’s see something substantive put on the table as soon as possible.
Will introduction of taxes on foreign-based buyers work? You know, it is one of those questions that will never be answered satisfactorily. Once taxes and duties have been introduced we will only have the house sales patterns from that point onwards as a guide. So, if foreign investment still in future seems to be at strong levels – and bear in mind we still don’t have good information on the extent of it now, no matter what Labour tries to say – then people might say the new tax rules have ‘failed’. But of course the problem is, you don’t have the counterfactual for comparison. Once you introduce new taxes and the like you only know what has happened not what MIGHT have happened if the taxes hadn’t been introduced.
The fact of the matter is, no taxes are going to stop people investing if they want to invest and yes, people will always look for ways around taxes.
But the alternative is not and never was tenable. If other countries have taxes and duties we NEED them too. Otherwise we are advertised internationally as a soft touch for the investors – as has been happening.
Demand must be reduced
The fact of the matter is, New Zealand moving to some form of sensible taxation of offshore housing investors must help to reduce offshore demand. Let’s face it our little ol’ country miles away from anywhere isn’t going to be uppermost in the minds of offshore investors unless we put it there by offering massive investment incentives as per the current situation.
So, get moving Government, the PM has spoken. Why not have something announced before the end of the year? This is too important to wait for next year’s Budget.
Finally, on the migration measures and the policy of encouraging immigrants to go somewhere other than Auckland, well bring it on, it is potentially a win-win.
As a country we’ve just accepted over the years that everything gravitates to Auckland. As a long time resident of Wellington I for years (and prior to relocation to Auckland) said to anybody who would listen that I would never live in Auckland,. which just goes to show that you should never say never.
City of opportunity
But the reason people do move to Auckland is for opportunities, perceived and real.
So, encouraging migrants to live elsewhere has the twin benefit of reducing the pressure on Auckland’s pressured infrastructure while at the same time giving an infusion of fresh blood, talent and ideas to regional New Zealand. It would be fantastic to see more job-creating, vibrant new enterprises growing up in the regions.
We have got ourselves into too much of a mindset of saying: “High immigration bad, high foreign investment bad” whereas the reality is we are not utilising either to our best advantage. Make both work for us. Ultimately we can control what comes across our borders whether it be people or money. And by channeling both we can stimulate the economy.
All I would say to the Government is: Boy, you took your time, but welcome to the real world anyway.