Saturday, March 20, 2010
Mike Butler: A message from property investors
He did emphasise that that a capital gains tax was ruled out on the family home, but I had the impression that we should watch out for such a tax on anything else.
In a somewhat meandering speech, he said that the government sector had gone through the roof, and the non-government economy had been in recession since 2005. A total of $240-million is being borrowed every week to pay for everything.
He sits next to Sir Roger Douglas in parliament, and seems to have borrowed the latter’s line of building a better, brighter future here so that we no longer have our children and grandchildren living and paying taxes overseas, mainly in Australia.
Mr Foss went away from the meeting with a list of recommendations, from the Hawke’s Bay Property Investors’ Association, which he vowed to pass up his food chain. They were:
1. Because of the success of the $14.6-million over three years tax audit project in gathering $63.6-million up to 11/09, we (the Hawke’s Bay Property Investors’ Association) suggest rewriting the relevant act around capital gains to make it simple, so its enforcement is simple and cost efficient and the tax rightfully owed will be paid.
2. The Government should look carefully at the structure of property investment and understand it. For instance, especially the fact that for 26 of the last 28 years the sector has paid tax, but for the last two years it hasn’t, because of the fact that it was impossible to buy cashflow-positive properties, thus creating a tax loss. Now once again it is possible to buy cash flow positive properties, so after initial expenses are paid they generally become profitable and pay tax as they have for 26 years previously.
3. The Government should look carefully at the situation in Australia in 1985 when the Hawke/Keating government ring-fenced losses on investment properties and two years later repealed the act. The reason was rents had risen 51 percent in Sydney and 37 percent across Australia. A similar situation applied in Ireland more recently and after two years the government repealed the legislation, as rents had risen dramatically as investors stopped providing rental properties.
4. The Government should realise that if investors lose the incentive to maintain and upgrade their properties, the standard of those properties will drop and all the good work done recently with insulation and heating subsidies will peter out.
5. If it is desirable to have more people invest in the share market, then the Government should clean it up so that the average Mum and Dad investor has faith in it, as clearly they don’t at present. Property is an obvious area for the average Mum and Dad to invest in and they have, as the average investor is Mum and Dad who own 1.5 properties.
I came away from the meeting with the distinct impression that the National-led government is playing around the edges of the problem.
While emphasizing that the government had none of its own money, that it was all taxpayer money, and while acknowledging the hike in government spending, he said nothing about profligate, vote-catching initiatives such as Working for Families, interest-free student loans, KiwiSaver, government ownership of KiwiRail, and so on.
Government spending is the problem.
The Government must reduce its spending, not hold it at current levels.
at 1:22 PM