The Opportunities Party (TOP) wants to reform New Zealand’s current tax regime, which it says is inequitable and favours owners of capital over wage-earners.
In a statement, TOP said the current regime results in poor utilisation of capital and lower than necessary income and employment.
This was most obvious in the property sector, where speculators and home-owners benefit while those that are renting are punished, it said.
“The current system encourages borrowing and speculating on land values. This comes at the expense of investment in our productive businesses, which are held back by a lack of investment.
“It is unfair, pushes up house prices and drives even greater inequality. Ultimately, it is in everyone’s interest that we address the loophole in the tax regime.”
TOP’s position is that all productive assets – including housing and land – are or can produce income annually and all income should be taxed, whether it is in cash or in kind.
As such, it proposes to deem a minimum rate of return on all productive assets.
“Not only will plugging this leak in the tax regime make tax fairer and boost economic growth it will over time improve housing affordability, by erasing the reason for property speculation.”
The proposal was a cultural change but, while the property-owning group is a big one, there are big implications with an ever-rising property to income ratio, TOP said.
“Future generations will struggle to rent let alone own, businesses will be starved of the investment capital they need to grow and create jobs, our reliance on foreign debt will keep rising and inequality will get worse.”
According to the party, only 20% of New Zealanders would bear the burden of the change and they would be the people most able to afford it.
Property owners over 65 would pay the tax via a mortgage to the IRD, which would be paid on change of ownership to avoid any cashflow issues.
TOP said the new system would be phased in gradually to ensure house prices remain stable while incomes grow.
It also said the proposal was nothing like a capital gains tax, which were “totally ineffectual at halting speculation as we have seen overseas”.
Rather it was an annual levy (like rates) which aimed to make income tax fair.
Tax specialist Terry Baucher said the ideas contained in TOP’s proposal were not new and similar proposals were mooted in the McLeod Tax Review and by the Tax Working Group.
This was because there has long been an imbalance in New Zealand’s tax system and it is one which will need to be addressed sooner or later as it cannot continue indefinitely, he said.
“You have an older generation with property wealth and a younger generation who have, to a large degree, been priced out of the market.
“And the savings mechanisms the younger generation make use of, like KiwiSaver, are subject to a different and harsher tax policy than property is.
“That situation is unfair and it is going to grate on people increasingly.”
New Zealand is out of step with the rest of the world in its taxation of capital, but political fear of anything resembling a Capital Gains Tax (CGT) means the situation is allowed to continue, Baucher said.
“John Key’s resignation might be the circuit breaker needed to readdress the tax situation and look at alternative options.
“This proposal is one that should be thoroughly investigated and probably implemented.”
He added that, if implemented, the proposal would affect property valuations and it could also be a circuit breaker in terms of current house price inflation.
“Having said that, when a land tax was suggested it was thought this would take 10-15% off the value of the land – but that would, essentially, have taken values back to those of 2014.
“It would probably be a similar scenario with this type of tax so the drop in values would almost be lost in the wash.”
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