September 21, 2009

100% pure debt?

The Balance of Payments figures released tomorrow will likely show New Zealand’s net debt breaking the 100% of GDP barrier while the National Party drags its feet on overdue changes to the tax treatment of investment properties.

“New Zealand currently ranks as the fifth most indebted nation in the OECD. Increasing levels of debt to fund another round of house price increases is not a sustainable economic path,” said Green Party Finance Spokesperson Russel Norman today.

“The Government needs to introduce incentives that will reprioritise borrowing and investment in the productive sector and away from speculation in housing,” urged Dr Norman.

The Greens are pressuring the Government to introduce a suite of demand and supply side measures to address New Zealand’s debt problem. The productive sector in New Zealand has been in recession now for the last five years due, in part, to difficult borrowing conditions.

“We need new tools to revitalise this sector so we can earn our living by what we produce rather than by what we borrow,” added Dr Norman.

“Our current tax system encourages a disproportionate amount of our wealth to be invested in non-productive assets like property. A capital gains tax on investment properties is one of a suite of measures to help restore some balance.”

Further demand-side measures would include putting limits to the tax write-offs property investors are able to claim through loss-attributing companies. Losses on LAQCs, used to offset tax, have increased from $750 million in 2003 to $2.3 billion in 2008. On the supply side, greater numbers of state and community sector housing starts along with smart growth initiatives would help ease the demand for housing.

“We may even need to consider more specific measures targeting the bank lending behaviour at the root of this all. For example, by increasing the amount banks need to hold in reserve for lending in bubble-prone sectors like housing, you effectively limit the amount of borrowing.”

ENDS

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