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Tax Cuts Are Needed to Help Home Affordability
Recently, at a Parliamentary Select committee considering housing
affordability, the Council of Trade Unions stated that the low rates of
pay in this country were the reason that many people cannot afford to
purchase a property. We disagree and believe there are two things that
are making it difficult to purchase a home. The first is our
ridiculously high mortgage rates - they are the highest in the western
world. Secondly our high incidence of tax - in particular in the lower
income ranges depriving many wage and salary earners of the ability to
service a mortgage. If we substantially cut our mortgage rates to where
they are in the USA, UK and Australia and raised our income tax
thresholds then many more New Zealanders would be able to purchase their
own home.
Tax Breaks For Rental Properties
Some people in the wider community are calling for the deductibility of
interest, enjoyed by property investors, to be removed in order to slow
down the housing market. This does not make any sense as these tax
advantages do not just apply to property investors. The same advantages
exist for those who borrow to buy shares in public listed companies,
private companies or other income producing assets. It would be crazy
to stop these tax deductions for just one sector, namely property
investors, when a share investor or business purchaser can still use
them. Most businesses, when purchasing assets, such as plant and
equipment, vehicles, stock and premises do borrow to fund them, and
claim a deduction on their interest component. Residential property
investors are just one of many types of businesses borrowing money to
purchase assets and claim the tax deductibility of their business costs.
Our High House Prices?
Recently the Economist newspaper in London calculated that the average
house price in New Zealand had risen by 94% from 1997 to 2006. This is
an average figure and there are wide variations within this figure. Many
countries have had larger house price increases over this period -
Ireland 252%, UK 192%, Spain 173% and Australia 132%. There were a
number of countries lower that us, such as Canada 69%, Switzerland 16%,
and Japan at minus 32% (a drop in house prices by a third). The increase
in house prices in New Zealand is not out of context with the rest of
the world. |
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