Making more houses more expensive

October 16, 2019

Retirement Commissioner Peter Cordtz is suggesting people could be allowed to withdraw KiwiSaver funds to buy investment properties:

Home ownership has been declining for the past 30 years, from a high of about 78% in the 1980s, to about 55% today.

Māori and Pasifika have fared the worst – today only 35% of Māori and 20% of Pasifika own their own homes.

About 12% of New Zealanders aged 65-plus are renting, making them eligible to apply for the Accommodation Supplement if they are struggling. The cost to taxpayers of the accommodation supplement paid to people 65+ has already increased 92% in the past six years, from $88 million in 2013 to $170 million in the year ended March 2019.

This is on top of the cost of NZ Super, currently $39 million a day and forecast to rise to $120 million a day in 20 years due to the ageing population.

“Super wasn’t designed to cover rent – it currently pays $411 for a single person; $632 for a couple. At that rate, it assumes you have housing sorted,” says Cordtz.

“The cost of declining home ownership is a problem that affects all of us, and we need a circuit breaker,” says Cordtz. “If we can get more people on the property ladder earlier, there may be less liability to taxpayers later.”

One idea open to public submissions is to loosen the KiwiSaver rules related to withdrawing savings for a deposit on a first home. Currently, the KiwiSaver member has to live in that property, but high house prices in cities like Auckland, Wellington and Tauranga mean it is difficult for members who work in those cities to purchase a home there to live in.

“If they could buy a property in a more affordable part of the country, they could use it as an investment to progress on the property ladder or simply to retire to one day,” says Cordtz.

He says the idea originally came from a Māori mortgage broker who was trying to help clients buy property near whānau in areas other than where they worked.

“We see this as an idea that could help a lot of New Zealanders get on the property ladder and create a long-term investment to aid retirement,” says Cordtz. . . 

I see this as an idea that could make it harder for a lot of other New Zealanders get on the property ladder.

High prices in several places is a problem for people wanting to buy their first home or upgrade an existing one, and not just the cities mentioned. Wanaka and Queenstown are at least as expensive.

The root cause is one of supply and demand.

Allowing people to use KiwSaver funds to buy investment properties will give people a bit more to spend but do nothing to increase the number of properties available.

Won’t that spread the problem of rising prices fueled by demand outpacing supply to other places, many of which have lower wages than in the places where people are already struggling to buy a first home?

The last thing would-be home owners in smaller towns and less densely populated cities need is buyers from other places competing with them and spreading the problem of property inflation wider.


Opposing for opposing’s sake

May 27, 2015

Labour is opposing for opposing’s sake and in doing so shows it doesn’t know who its constituency is anymore.

Take the criticism of the government’s plan to sell public land in Auckland to help increase the supply of housing:

The Labour Party has accused the Government of planning to build on land that includes a power sub-station, pylons, a cemetery, a fire station and school playing fields. . .

There have been suggestions that children living near pylons have a greater risk of developing leukemia after a cluster of cases. However, that was thought to be a coincidence not the cause.

As for the rest of the land – why shouldn’t houses be built on playing fields if they’re surplus to the schools’ requirements and what’s wrong with living near a cemetery or fire station? Lots of people already do and how will they feel about Labour when it’s disparaging about the location of their homes?

It is wasteful for the government to sit on land it doesn’t need. There’s the opportunity cost of the value of the land and it costs ratepayers because public land isn’t rateable.

Then there’s the angst about the end of the $100 kickstart for KiwiSaver.

Inland revenue’s regulatory impact found that KiwiSaver hasn’t substantially increased savings despite encouraging enrolment of a large number of individuals.

The KiwiSaver scheme currently costs around $800 million in subsidies per annum and the Government has spent in excess of $6 billion on it since inception in 2006 . There are currently two subsidies: a one – off $1,000 kick-start payment paid to all new enrolees in the scheme (the kick-start) and an annual member tax credit paid to members of up to a maximum of $521 (annual MTC). The scheme also has ongoing Inland Revenue administration costs.

A seven year evaluation of KiwiSaver concluded in 2014 . . .The Evaluation has broadly found that the scheme has been successful in attracting significant numbers of members and Inland Revenue’s role in the scheme has functioned well. However, the scheme has delivered very poor value for the Crown’s subsidies. A high degree of leakage to people outside the target group for KiwiSaver and substitution from other savings has occurred. Estimates range from zero to one-third of KiwiSaver balances representing new household savings. . .

 The scheme delivers poor value for the public subsidies, most of the subsidies go to people who need it least and it hasn’t led to a significant increase in overall savings.

If Labour really thinks that it is better to subsidise the savings of people more able to help themselves than to spend the money on those in genuine need it really has lost its way.


Business as usual with surprises

May 22, 2015

The Budget which was expected to be boring was a business as usual one with surprises.

The business as usual bit is continuing focus on the careful management of public money and getting back to surplus without the slash and burn approach which past governments took.

The big surprise was an increase in benefits, above the normal adjustment for inflation, for the first time in more than 40 years.

Even the opposition was struggling to oppose that and balancing the increase is the requirement for sole parents to seek work once their youngest child is three and increased work obligations for those on job seeker benefits helps.

Dene Mackenzie says Bill English has pulled off a master stroke:

He pushed his political opponents off stride by announcing social spending better than anything Labour did during its most recent nine years in Government.

Mr English will continue to be criticised by opponents for not delivering his prized surplus this year, but spending $790 million on a package to help children in some of New Zealand’s poorest families was a touch of genius.

The package included more child-care support for low-income families, a $25-a-week increase in benefit rates for families with children, an increase in Working for Families payments to low-income families not on a benefit, and increased work obligations for sole parents on a benefit.

”This package strikes a balance that offers more support to low-income families with children while ensuring there remains a strong incentive for parents to move from welfare to work,” he said.

He also made it difficult for his political opponents to make any meaningful criticism by lifting benefit rates by more than inflation for the first time since 1972.

The Finance Minister has always been the social conscience of National, right from the days when he was a member of the party’s ”brat pack”.

At political conferences more than 20 years ago, he talked about ensuring a ”truck driver” from Balclutha could earn enough to feed and house his family. . .

The increase to Working for Families at the lower end of income ensures the truck driver and any other parents in paid work will be better off than those on benefits.

I don’t support WFF for families earning well above the average income but can’t think of a better way to ensure there’s a decent gap between income from benefits and low paid jobs.

The Budget at a glance is here.

I was listening to talkback on my way home from Christchurch last night. The cut in the $1000 kickstart for Kiwisaver wasn’t popular but it was less likely to go to those who’d need it most and tax credits and employer contributions remain.

Border security and the risk of biosecurity breeches is of increasing concern with more travellers. Requiring $6 from departing travellers and $16 from incoming ones is a little bit of user-pays.

The Finance Minister’s speech is here.

. . . New Zealand remains one of the faster-growing developed economies, with conditions supporting sustained solid growth, forecast at 2.8 per cent on average over the next four years.

Growth matters. It means more jobs, higher incomes and opportunities for families to get ahead.

By mid-2019, the number of people in work is expected to rise by another 150,000 and the unemployment rate to drop to 4.5 per cent. The average wage is also expected to rise by $7,000 to $63,000 a year.

New Zealand’s positive economic performance, relative to others, is demonstrated by the strength of the New Zealand dollar and the very low number of people leaving for Australia – the lowest, in net terms, since 1992.

Lower dairy prices are a headwind for growth, however, and global uncertainties remain. Monetary policy easing in other countries is helping to keep upward pressure on the exchange rate.

Unusually, given our current growth, New Zealand is experiencing very low inflation.

Annual CPI inflation is only 0.1 per cent, compared to the Budget 2014 forecast of 1.8 per cent.

This is good news for consumers and workers because their income goes a bit further and they get good value for any pay rises.

Low inflation is also keeping down interest rates. The concerns I expressed in last year’s Budget about rising interest rates have largely disappeared.

But lower-than-expected prices also mean that nominal GDP – the size of the economy in dollar terms – is not rising as quickly as previously expected, despite solid growth in the real economy.

This means tax revenue is not rising as quickly either.

Compared to what was forecast in last year’s Budget, nominal GDP is expected to be $15 billion lower in total over this year and the next three years, and tax revenue to be $4.5 billion lower in total over the same period. . .

Government’s fiscal priorities are:

Returning to surplus this year and maintaining surpluses in the future

Reducing net debt to 20 per cent of GDP by 2020, including repaying debt in dollar terms in 2017/18

Further reducing ACC levies

Beginning to reduce income taxes from 2017, and

Using any further fiscal headroom to reduce debt faster.

The Government is making good progress on all these fiscal priorities.

While expenditure is firmly under control, tax revenue – as I mentioned – is not rising as quickly as expected.

This is lowering operating balances across the forecast period, compared to Budget 2014 predictions.

But the overall trajectory has not changed. We have come from an $18.4 billion deficit four years ago to seeing steadily rising surpluses into the future.

A deficit of $684 million is now forecast for 2014/15, which is $2.2 billion better than last year’s deficit.

A surplus of $176 million is expected in 2015/16, followed by $1.5 billion in 2016/17 and rising to $3.6 billion in 2018/19.

As I’ve said previously, the Government has no intention of making spending cuts simply to chase a surplus in a particular year.

The surplus target has been successful in applying greater discipline to government spending.

That discipline has turned the Government’s books around, and the fiscal outlook remains very positive. . .

The government can, and should, control its spending and the disciplined approach to it that has been taken since National came to power in 2008 is the major reason New Zealand is doing as well as it is.

The government can influence the environment which helps the income side, but sustainable growth comes from the private sector.


Another Labour policy lacks details

June 17, 2014

Labour has confirmed it will make KiwiSaver compulsory – without details and with exceptions:

. . . Under Labour’s policy, all employees not already in the scheme would be automatically enrolled on October 1 next year. Students and beneficiaries would be exempt.

Low income earners would also be exempt – but the details of the minimum threshold will be subject to consultation, Mr Cunliffe said.

The elephant in the KiwiSaver room that no-one mentions is that in a few decades there will be significant inequality amongst retirees – those with KiwiSaver and those without.

The poor are least likely to have KiwiSaver accounts and making it compulsory for everyone else will merely compound that.

Labour expects auto-enrolment would bring a further half a million people into the scheme.

“Most of those are low income earners who are missing out on getting their fair share of government contributions”, Mr Cunliffe told reporters at Parliament this morning.

“These workers will have higher incomes after Labour raises the minimum wage and the ramp up of their employee contribution will be slower.” . . .

Raising the minimum wage will do little for most people because any increase will be cancelled out by reductions in Working for Families and other assistance such as accommodation supplements.

Increasing employer contributions will also have a depressing impact on wages and job opportunities and also threaten job stability.

Adding costs to employment without increasing productivity would mean businesses would have to charge more for whatever they sell which would flow through to inflation.

The alternative would be to absorb the cost which would reduce profits. That in turn could threaten viability and would reduce their ability to invest more in their business and their staff.

This policy would leave most workers with left in their pay packets – without Labour’s other daft idea of altering KiwiSaver rates to control inflation.

Saving is good, but many people would be better paying off a mortgage or other debt than putting more in KiwiSaver.

But the worst of this policy is, like so many others of labour’s – is its vagueness. Once more the party shows it doesn’t do details.

Spin doctors don’t do numbers, but the Treasury secondee the party sacked would have.

A policy without details isn’t really a policy, it’s just a vague idea of what the party might or might not do should it get into government.


More tax, higher costs, fewer jobs

June 2, 2014

The Green Party plans to impose a carbon tax on us:

. . . Co-leader Russel Norman wants to scrap the current carbon pricing system – the Emissions Trading Scheme.

In its place would be a tax of $25 per tonne of carbon on industry polluters. . .

Critics of the tax claim the tax is a burden on households, who pay higher electricity and fuel costs.

However, the Greens say their levy would be offset by a ”climate tax cut” on the first $2000 of income. 

”We can reduce our emissions without hurting household budgets,” he said. ”Households will be on average $319 better off every year under the Green party policy.” . .

Imposing a tax with one hand and giving a tax with another won’t make anyone better off because the tax will lead to other cost increases on fuel, power and food which will passed on, in part or full, to consumers.

Agriculture – which is currently exempt from the ETS – would pay a reduced rate of $12.50 per tonne. This works out as an 12.5 per cent hit on farmers’ income. This includes 2 per cent on the working expenses of the average farm. A Berl Economics report, released with the policy, said dairying will be ”adversely affected.”

Dairying won’t just be adversely affected by the carbon tax, it will be hit by other Green policies too.

But it adds: ”However, at the currently projected pay-out for milk solids, even dairy farms in the lowest decile would remain well above break even in the face of an emissions levy.”

What happens when the payout drops to its long-term average which is well below the $7 forecast for the coming season?

What about the environmental impact of less efficient farmers in other countries increasing production because our produce is more expensive which makes it easier to compete with us?

And what about the poor people who will face higher prices for dairy products, power and fuel?

Other gas-emitting industries – such as electricity and road fuels – are less likely to be affected because they would be able to ”pass-on any production cost increases to households.” . . .

That will be the households whose earners will be getting a tax cut, the benefit of which will be less than the cost increases from the extra tax.

BusinessNZ Chief Executive Phil O’Reilly said the levy may threaten jobs. 

“Our approach should be unlocking business solutions rather taxing business more,” he said. 

As a “small open trading economy” New Zealand should participate in international emissions trading schemes.

Federated Farmers president Bruce Wills said the tax will make dairy farmers “less competitive” in international markets. . .

Less competitive means lower returns which means less export income which means less economic growth which means we’ll be less able to fund the first world education, health and other services we need.

However green they want to paint it, this is a red policy which will add costs, put downwards pressure on wages and threaten jobs.

Bernard Hickey told last week’s  Alliance Group Pure South conference that the election will be close.

He then went on to list the policies that farmers could expect to adversely affect them under a Labour/Green coalition with whichever other left-wing parties they’d need to govern.

They included: capital gains tax, compulsory KiwiSaver and water restrictions and charges.

Those are three very good reasons to vote National and the Green carbon tax is another.

And Steven Joyce points out some inconvenient truths:

 

 

 


What should the exchange rate be?

May 18, 2014

Bob Jones isn’t impressed with Labour’s monetary policy, with good reason:

The uncritical way the media have treated Labour’s ridiculous monetary policy proposal reflects its mood change. Despite its alluring symmetry, the concept is naive in the extreme. David Parker should be asked exactly what should the exchange rate be? That would be fun. Let us assume he succeeded in lowering the exchange rate drastically, for if not drastically, then why bother?

The effect: happy farmers and exporters (that is until they wanted to buy a new tractor, car and other spending), a reduced income for all houseowners other than the minority with floating-rate mortgages who stay neutral, and the return of inflation as virtually everything and not just imported goods leaps in cost. Ergo: back to the days of wage-costs cyclical increases and an end to stability.

A fall in the value of the dollar is not without costs – and for many people those costs could well be higher than those of a higher exchange rate.

Reducing the value of the dollar, reduces earning power in effect reducing the real value of wages.

But here’s the irony. For Labour to get up this year, they acknowledge they must capture the 30 per cent non-voting sector comprising mainly low-income people. Reducing their already tight incomes and adding to their consumption cost is an odd way to achieve that. . .

If Labour thinks they can sell a policy which would reduce people’s take-home pay by increasing Kiwisaver contributions while bemoaning the plight of the poor, they really don’t understand the people to whom they’re tying to appeal.


Which dead rats will Labour swallow?

May 13, 2014

David Cunliffe is promising surpluses and to reduce unemployment to 4%.

Governments don’t create jobs, individuals and businesses do that.

The role of governments is to get the policies right which foster economic growth to give those who create jobs the confidence to do so.

That’s what National has done, is doing and will continue to do.

Labour’s prescription contains nothing to give any confidence.

They’re threatening more and higher taxes, will take us back to the 70s with their power plan, will create income uncertainty with their mad idea to meddle with KiwiSaver contributions, increase compliance, tighten labour laws . . .

But worse they’ll need the support of the Green Party which is anti-growth, anti-trade, anti-farming, anti-mineral exploration and anything else that will create real, sustainable jobs.

Labour will have to swallow a lot of dead rats to create the environment that would reduce unemployment to 4%.

Which will they be and how will they persuade the other parties they’ll need to form a coalition to agree to swallow them too?


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