NZ’s housing market drives inequality – why not just tax houses like any other income?

• The claim it amounts to an “envy tax” assumes all wealth has been fully earned and fully taxed in the first place.
• A good portion of the wealth accumulated at the top is attributable to fortunate circumstances generating significant tax-free gains.
• Inland Revenue’s recent survey of the wealthiest 311 New Zealand families revealed an average net worth of $276 million.
• Because it isn’t taxed properly, investing in housing has been encouraged as a way to accumulate wealth.

The trouble with a wealth tax

• While the Greens’ wealth tax is a useful start to a wider discussion about inequality, it inevitably creates obstacles that in the end may be too difficult to overcome.
• Probably the biggest hurdle is that this kind of tax can be incredibly complex and would provoke endless debate about what should be included.

Not a capital gains tax

• This is not the same as a capital gains tax – those days are over.
• Besides, the real problems – inequality and misallocation of resources – wouldn’t be touched by a capital gains tax.
• Such a tax can only apply to gains made on houses sold in the future, not the accumulated gains over many years, and it will always exempt the family home.

How a house tax works

• Calculated annually and pegged to the capital value of properties, this effective income would be taxed at the person’s marginal tax rate.
• Thus a couple living in a $3 million house with a $1 million mortgage would fall under the threshold.
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A circuit breaker

• Moreover, it is possible to implement quickly, using existing property valuations and registered mortgages, unlike a net wealth tax where the devil is in the contentious detail.
• The effect should be positive for those struggling in the housing market, as more housing for sale or rent is opened up.
• The approach is essentially a circuit breaker that can simply and quickly address the accumulation of wealth by a small group of people.