OnPoint by Keith Ng

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OnPoint: Election 2011: GO!

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  • Danielle,

    beholden to the bank on a monthly basis

    I’d rather be beholden to a bank than a landlord. I’ve had some fucking weird and/or power-mad landlords.

    ETA:

    then on average you’d be better off renting

    People always say this, but renting in NZ sucks unless you can pay top dollar. You get the house sold out from under you and have to move; you can never get the landlord to agree to upgrade anything; strange shit happens like them dropping by all the time or living down the road and lurking nearby (I know this is illegal, but it happened to me a lot); you can’t decorate the way you want; you can hardly ever have the pet you want. It bites. I’d rather not, thanks.

    ETA (again) to add: I mean, I personally am happy to pay quite a lot more money to make my home life less annoying.

    Charo World. Cuchi-cuchi!… • Since Nov 2006 • 3828 posts Report Reply

  • giovanni tiso, in reply to Danielle,

    you can’t decorate the way you want

    Not having to decorate is a plus for me. Plus the annoying landlord (of which we've had none, ever) gets to deal with the leaky roof, which is a big win.

    Wellington • Since Jun 2007 • 7473 posts Report Reply

  • Paul Williams, in reply to Lucy Stewart,

    Lucy, I'm thinking aloud really, I don't have a fixed view (I have in the past had a fixed view which required more funding for students and for universities).

    In terms of what funding, I meant the combined impact on universities of regulating fees and also enrolments which, along with set funding for courses, caps university income. I understand, but haven't verified, that public funding for tertiary education is comparatively high however the balance is unusual with a relatively high proporation directed to students (in the form of loans for living costs). If that's correct, and we have high levels of enrolment and qualification and high levels of PLT departures, I think we've got a problem.

    The real question in keeping the investment in tertiary students in NZ is, of course, jobs - especially in the sciences and engineering. It's getting the first job right out of university that will keep people here - there is nothing more demoralising than spending several years and a lot of money on a field-specific degree to find that your best offer is barely above minimum wage working a helpdesk. I can't tell you the number of job ads I've seen that say things like "graduate position, two years experience required".

    I agree. NZ has low wages and, by virture of its size, can't compete with the opportunities available offshore. If graduates aren't offered interesting work with decent remuneration, of course they'll head offshore. With the Australian economy picking up rapidly, it'll be both tertiary and vocationally qualified NZers who depart. The recovery effort in Queensland will only make matters worse.

    All that said, I'm interested in the solution. My once strongly held objection to loans has gone. The issue now is how to limit debt so that it is repaid and doesn't deter students from enrolments. Labour's changes to the allocation of repayments, to principal and interest, was sensible. At the time, I also though setting fee maxima was too (but that was when enrolments were uncapped). I don't think the current mix is right and, if I'm honest, I'm not convinced the interest free arrangements are justified. Perhaps CPI would be better - that's the case in Australia.

    Sydney • Since Nov 2006 • 2273 posts Report Reply

  • Danielle, in reply to giovanni tiso,

    Not having to decorate is a plus for me.

    There's nowt so queer as folk. :)

    Yeah, I can see that - depending on your priorities - renting might be better for a lot of people. For me it's absolutely not, however.

    Charo World. Cuchi-cuchi!… • Since Nov 2006 • 3828 posts Report Reply

  • Paul Williams, in reply to Matthew Poole,

    Well, of course. When your Minister of Tertiary Education includes student loans in the overall education budget, that's quite a significant distortion on what's really available to institutions themselves.

    Matthew, I actually think it's reasonable to assess the total value of public funding for tertiary by including student support. The VCs are arguing that student support is too generous. I'm not sure it is, but when the enrolments are capped and fees are regulated, it's hardly surprising that that's their view.

    Sydney • Since Nov 2006 • 2273 posts Report Reply

  • Matthew Poole, in reply to Paul Williams,

    Matthew, I actually think it’s reasonable to assess the total value of public funding for tertiary by including student support. The VCs are arguing that student support is too generous.

    Including student allowances, absolutely. But student loans are loans. They're at least technically an asset, not an operating expense, and should not be included in a truthful evaluation of money spent on providing tertiary education. That'd be like a bank saying it spends $x on providing mortgages where $x includes the value of the mortgages themselves.

    As for too generous, a student allowance barely covers rent in Auckland. It's far from generous, and the changes to living costs for student loans makes it worse - you now can't get the accommodation supplement if you're getting living costs, as I understand it.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • BenWilson,

    The psychology of it is a little puzzling to me I confess.

    There's lots of factors that come into play, and they matter differently to different people. Stability is a big factor for some, I think people with kids tend to think it matters a lot more. Being able to dick with the place matters to some - but other renters aren't bummed about just moving flats to get a better kitchen, or whatever facility they're after.

    Annoying landlords can be an issue, but equally bad can be annoying neighbors, who you are usually stuck with as an owner. At least when you rent you don't groan in horror at the thought of the Mongrel Mob moving into your street, and what that's just done to your capital.

    But as for the financial side of things, I think the reason we think property is such a sound choice is because we're such poor savers. Chicken and egg problem.

    Auckland • Since Nov 2006 • 10657 posts Report Reply

  • DexterX,

    It is my view my opinion of what wuill happen - If you introduce a CGT on unrealised capital, which is to be paid annually, and is in effect a land tax, that tax will get passed onto tenants.

    I recall there was a land tax in the 1980s on certain classes of ppty and that tax was passed onto tenants.

    I am interested in your view as to where you think that a tax on unrealsied capital gains will come from??

    Auckland • Since Nov 2006 • 1224 posts Report Reply

  • Matthew Poole, in reply to Paul Williams,

    I’m not convinced the interest free arrangements are justified. Perhaps CPI would be better

    If students had some reasonable hope of getting their education funded other than through a student loan. maybe. But for pretty much everyone there is no option except a loan. Scholarships are few, applicants are many, and many of them don't offer enough to cover even a year of tuition never mind anything else.

    Contrast this with Australia, where there are many fully-funded positions available on top of scholarships.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • giovanni tiso, in reply to DexterX,

    I am interested in your view as to where you think that a tax on unrealsied capital gains will come from??

    If tomorrow we raise the tax rate on incomes over $100,000, where do you think the money will come from?

    Same place.

    Wellington • Since Jun 2007 • 7473 posts Report Reply

  • Matthew Poole, in reply to DexterX,

    Who's talking about a CGT on unrealised gain, though? All the serious suggestions I've seen are based on taxation of gains realised at time of sale. So try addressing that one, please.

    Oh, and you haven't explained why we should consider your opinion to be more worthy of contemplation than the opinion of taxation practitioners who've looked at the impacts of CGT schemes introduced overseas.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Paul Williams, in reply to Matthew Poole,

    Including student allowances, absolutely. But student loans are loans. They're at least technically an asset, not an operating expense, and should not be included in a truthful evaluation of money spent on providing tertiary education. That'd be like a bank saying it spends $x on providing mortgages where $x includes the value of the mortgages themselves.

    From an accounting perspective, I suspect you're right. However, there's an operating expense due to the loan being interest free and that probably hits the notional P&L. My point is that there's an envelope of funding, capital and operating, available in any single period assigned to tertiary education (which for the moment we're defining narrowly as institution-based) and I understand that an unusually large proportion of that goes to student support (again, I could be wrong but that's what I understand). If then, we have comparatively high participation, is the level of student support justified or is it deadweight? And if it's deadweight could it be better invested in expanding provision (that assumes if student support is decreased the savings remain in the portfolio)?

    Of course you'd want to look at the composition of participation, if there's not improving low-socioeconomic participation that's a problem even if overall participation is up.

    Contrast this with Australia, where there are many fully-funded positions available on top of scholarships.

    I'm not sure what this is based on Matthew? From 2012, all undergraduate places in public universities will be funded by the Commonwealth at a set rate that is part of the cost and the balance will be payable by the student (with access to loans). I don't know that there's comparatively more scholarship places at undergraduate level in Australia.

    Sydney • Since Nov 2006 • 2273 posts Report Reply

  • DexterX, in reply to giovanni tiso,

    If you raise a tax rate it will come from that income source - if it is wages it will come of your wages - if its is drawings from your business it comes out of your business earnings.

    If you are in business you can adjust the business and either chose to absord or pass the increase on - you can structure things so that your net position remains the same.

    If part of the the income you derive is from rents and there is a tax increas then that is also able to be passed on.

    So I will ask you the same question - where do you think an tax on unrealsied capital gains of rental property will be funded from??

    I suggest it will be funded from rents.

    .

    Auckland • Since Nov 2006 • 1224 posts Report Reply

  • Jacqui Dunn,

    Gio - you said

    "In the end we bought at a time when the balance of our savings, average rents and house prices meant our repayments were on a par with what we would have spent on rent."

    So having to pay anything to the bank presumably still meant you were still on a par. That equation seems utterly sensible to me. It's the people who borrow 90% of a house price where their repayments are two or three times what they might have paid in rent, who have bugger-all chance of ever getting it paid off, who are better off renting. (Although my experience of renting put me off that. It's not a choice I would make, but I don't have anyone to suit but myself.)

    Deepest, darkest Avondale… • Since Jul 2010 • 585 posts Report Reply

  • Matthew Poole, in reply to Paul Williams,

    From 2012, all undergraduate places in public universities will be funded by the Commonwealth at a set rate that is part of the cost and the balance will be payable by the student

    A conversation I had several years ago, with someone from Australia, implied strongly that a number of places in Australian universities are fully-funded and the availability of partial funding to other places is limited by the particular course. So high-social-utility degrees such as medicine would have relatively more funded places available than degrees such as commerce, or arts, or what have you.
    That may've been a mistaken interpretation on my part, but the cap on the number of places with access to even partial funding was explained clearly and is at odds with what you state here. So maybe things have changed?

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Matthew Poole, in reply to DexterX,

    I suggest it will be funded from rents.

    Yes, probably, but that spike in rent increases will be a one-off and will long-term be offset by reduced rates of rent increases due to property values not climbing as rapidly as they do when one can engage in speculative behaviour with only minimal disincentive. You haven't responded as to why you think that's an incorrect assumption, either, and you're determinedly looking at the near-term impact without considering whether there might be any longer-term offset that ends up with renters being better-off.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • giovanni tiso, in reply to Jacqui Dunn,

    It's the people who borrow 90% of a house price where their repayments are two or three times what they might have paid in rent, who have bugger-all chance of ever getting it paid off, who are better off renting

    Yes, precisely. It bears saying though because everywhere you turn you hear people (including the guy who very quickly became our ex mortgage broker) claiming that money given to the landlord is wasted. So is interest paid to the bank, and that must be factored in.

    I suggest it will be funded from rents.

    Which hasn't happened in other countries that have introduced a CGT. Neither has the tax curbed house market speculation, by and large, but then it still did what it was supposed to do - which was taxing an investment income.

    Wellington • Since Jun 2007 • 7473 posts Report Reply

  • Paul Williams, in reply to Matthew Poole,

    Certainly up until a few years ago, there were caps on places, fees were regulated and funding was allocated to incentivise specific programs (for social utility and other reasons). However, in the last few years, there's been quite significant reform and higher education is now moving towards an entitlement-based arrangement. Fees are still regulated but Commonwealth funding doesn't match costs and the difference is paid by the student. I don't know the number of scholarship places. I do know that quite significant funding is allocated through two specific measures to improve low-socioeconomic and regional student participation.

    Certainly, funding for higher education in Australia is generous and probably more so that in NZ. Whether it constitutes more as a percentage of GDP I'm not sure. They/we also have a brain drain problem, but it's not nearly so bad as NZ's. Also, while participation has increased hugely in the last decade+ in Australia, the partipation of low-socioeconomic students has been static. Finally, as we're doing comparisons, loans are not interest free here, the borrowing appreciates by CPI. And just for the sake of my own personal integrity, I have previously strongly argued for the interest free loan arrangement, I'm just not sure now...

    Sydney • Since Nov 2006 • 2273 posts Report Reply

  • DexterX, in reply to Matthew Poole,

    I can consider for decades to come there will be an accute accomodation shortage - so I don't see it getting better for renters.

    I also feel immigration policy also plays a major part in the shortage and in sustaining the low age economy.

    The only thing that will improve things is a a susutaioned lift in GDP and an increase in wages.

    I don't see CGT as having a postiive effect on anything the smae way i don't see asset slaes having a positive effect - I see both as the wrong answer.

    Auckland • Since Nov 2006 • 1224 posts Report Reply

  • Tim Hannah, in reply to DexterX,

    So I will ask you the same question – where do you think an tax on unrealsied capital gains of rental property will be funded from?

    Who is talking about a CGT on unrealised gains other than you?

    Wellington • Since Jan 2007 • 228 posts Report Reply

  • BenWilson,

    I can consider for decades to come there will be an accute accomodation shortage - so I don't see it getting better for renters.

    That really depends on how much property gets built, and population movement both homegrown and from immigration. But yes, there's not a lot of property development going on...part of the reason for this is because just holding property has better tax incentives.

    So I will ask you the same question - where do you think an tax on unrealsied capital gains of rental property will be funded from??

    For starters can you point to anyone in this 30 page long thread who has suggested taxing unrealized gains? Can we put that baby behind us?

    You're begging the question, when you ask where the funds for CGT will come from. Only accountants parcel up funds and say "that comes from this and that comes from this". In practice, CGT will come out of the pockets of property investors, however they can find it. Yes, they might put up rents. Or they might charge more in their day jobs. Or they might just accept the tax rise and tighten their belts, exactly the way people paying income tax do when it goes up. They might sell the boat. Perhaps the government could introduce the tax at the same time as dropping income tax, and that would pay for it. How is it relevant where the money comes from? The most fundamental question everyone else here is considering is "what effect might it have on property investment", and the obvious answer is "it would make it less attractive". Which might tip the scales away from the near singlemindedness with which NZers get into property in the first place. It might channel the funds into more productive activity than buying an existing house and charging people to live in it. Hell, they might even think of building houses instead.

    Auckland • Since Nov 2006 • 10657 posts Report Reply

  • Matthew Poole, in reply to BenWilson,

    Which might tip the scales away from the near singlemindedness with which NZers get into property in the first place. It might channel the funds into more productive activity than buying an existing house and charging people to live in it.

    If it does that, then it might lead to the economic growth that Dexter's been rabbiting on about:

    The only thing that will improve things is a a susutaioned lift in GDP and an increase in wages.

    If Kiwis started putting money into things other than houses, hell even if they put money into banks, we might see changes in the economy. We're a relatively smart country, but there are some incredibly stupid aspects to the economy, not least of which is the absolute stranglehold that housing has on the investment market. Banks are obsessed with the stuff, as are "mum and dad investors", which is to the long-term detriment of our economy. Like the poor guy up in Whangaparoa who lives in the same street as the 50-something-house landlady and had to go overseas to get $2m in capital investment for a software project. She can leverage about $10m in lending out of banks, but he can't find a fifth of that for something that will create high-value jobs.

    Auckland • Since Mar 2007 • 4097 posts Report Reply

  • Kumara Republic, in reply to Matthew Poole,

    We're a relatively smart country, but there are some incredibly stupid aspects to the economy, not least of which is the absolute stranglehold that housing has on the investment market. Banks are obsessed with the stuff, as are "mum and dad investors", which is to the long-term detriment of our economy.

    Like the poor guy up in Whangaparoa who lives in the same street as the 50-something-house landlady and had to go overseas to get $2m in capital investment for a software project. She can leverage about $10m in lending out of banks, but he can't find a fifth of that for something that will create high-value jobs.

    Ah yes... Baker vs Straker. And the Productive Economy Council, headed by another software entrepreneur, has some useful pointers too.

    It only reinforces my theory about the unholy alliance of anti-intellectualism and cargo cultism. The Dancing Cossacks of 1975 were one of the most obvious examples.

    The southernmost capital … • Since Nov 2006 • 5443 posts Report Reply

  • Lucy Stewart, in reply to Paul Williams,

    . Fees are still regulated but Commonwealth funding doesn't match costs and the difference is paid by the student. I don't know the number of scholarship places.

    I doubt the number of scholarships available can be worse than in New Zealand, where the majority that are available are for relatively small amounts (one year's fees or significantly less; there are lots worth only a couple of hundred, which are barely worth the time to apply for) or oddly specific. I spent a lot of time looking into science scholarships; the ones available at Canterbury were all for things like "parasitology" or "the botany of Northland" or "people who went to one of these three schools". Scholarships based on straightforward academic merit are vanishingly rare.

    But, really, I just don't think there is a solution to the funding vs. brain-drain problem that is entirely funding based. Even if you cut funding for students, you'd need to address the real question, which I think is - what do we want out of our university-educated population? Why do we want people to have degrees? Do we need this many people to do full degrees? Are we still willing to pay for anyone who wants a degree to go to university? Are we willing to set boundaries on who we're willing to pay for? You can't form solutions without addressing those issues.

    And, as I've said before in similar discussions, there needs to be more of a willingness to accept that we are a tiny country at the end of nowhere and a bunch of our best-educated will always leave once they've graduated because they're smart and curious and know there's a big world out there. The trick is in making sure that "a bunch" is not "everyone", that we can attract other countries' best and brightest in return, and in ensuring that a significant portion of them do come back.

    Wellington • Since Nov 2006 • 2105 posts Report Reply

  • DexterX,

    A quote from the Labour party candidate based on the Oct 2011 conference:

    “All commentators thought that NZ desperately needs to manage its currency and to support and help the productive sector. A capital gains tax was considered to be a vital part of the mix. Too many are doing business for a capital gain rather than development of technology. And change has to occur.”

    I found this a bit naive. Who are the “Too many that are doing business for capital gain” and what is the proof? What “technology” did the people at the conference and the people posting in this blog in favour of a CGT want “developed” and what are they going to take to do “it” – whatever “it” is that they considered needed doing o grow the economy.

    In my view it is naïve to think that the people that own and invest in realty will shift that investment into creating innovation in the export sector.

    If you want to encourage reinvestment then you provide tax relief – not a punitive capital gains tax which will effectively be passed on to the working poor and beneficiaries as increased rent and living costs whilst also sending the “business talent” off shore.

    The SCT & PC isn’t that much of a long shot – The geezer that developed 42 below was, I understand, from listening to Radio live Business on Sunday, involved in an enterprise exporting perfumed candles – and the basis of this was that with times tight globally people weren’t looking to buy luxury items, cars, boats, jet skis to feel good and that personal products like perfumed candles would provide a feel good factor.

    This article in the herald gives a relevant look at debt levels and household spending;
    http://msn.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10705683

    The reason’s promoted by political parties for doing or omitting to do things are most times BS.

    In considering Ben Wilson comment "what effect might it have on property investment", and the obvious answer is "it would make it less attractive".

    Property investment has been made less attrative by the removal of deprecation and as a result the rental stock was reduced – For the people that can stay owning rental ppty it will become more attrative,

    I consider a CGT will have two major effects:
    1) Shrink the rental stock further
    2) To increase rents partly on account of reduced rental stock being well uinder the demand and the passing on of CGT to tenants..

    Auckland • Since Nov 2006 • 1224 posts Report Reply

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