Q: Finance Ministers traditionally urge people to be prudent – not to borrow to invest in shares. Instead, use savings to reduce mortgage or credit card debt. What is your take on that Grant?
A. Absolutely, the right advice. To borrow to invest in risky assets is gambling. Add tax to the equation and it makes even less sense. Thanks to our extremely astute government, rental income is taxable, but borrowing costs are not. We want landlords to sell their houses to first home buyers. Our tax system helps.
Q: Quite so, but before we divert to rental housing, how does the government justify borrowing to invest in the New Zealand Super Fund? On the Treasury’s figures total Crown borrowings in June 2022 will be 55% of GDP and the NZSF’s financial assets will be 17.0% of GDP. Is that not doing exactly what you have just advised the general public not to do?
A. Ah, Bryce, you do not understand that government is different. It is astute. When a private person or business borrows and loses, it feels the pain. When government gambles and loses, it sends you the bill. Borrow and be happy, that is good government.
Q: Very well. Let’s come back to rental housing. So you want to see less private rental housing. But how does that help people who need to rent? Families on the list for state housing have reportedly quadrupled to reach a record high of 25,887. Also, the media is telling us that New Zealand is running out of motels to house the homeless.
A. Thank you for asking. That is where our state house build programme comes in. Labour plans to provide more than 18,000 additional homes by 2024. Those 25,887 families are in good hands.
Q: Despite these problems, Budget 2022 pays $350 over three months to each of more than two million people. Why is this additional $700 million tax burden a good thing?
A. Of course, it is a good thing. People don’t realise that we are spending their money. We call it investing in wellbeing.
Q: Well, if $350 is good why would $700 not be better?
A: My dear boy, of course it would be better. But it would be fiscally irresponsible, and we can’t have that can we?
Dr Bryce Wilkinson is a Senior Fellow at The New Zealand Initiative, Director of Capital Economics, and former Director of the New Zealand Treasury. His articles can be seen HERE.
1 comment:
i find the concept of belittling landlords renting out houses/apartments a bit puzzling. since we are not preventing immigration (despite stated policy) but students/workers cannot buy houses unless they are 'residents', where are they supposed to live?
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