Q&A: Greens suggest a surcharge on foreign buyers
Q&A: Greens suggest a surcharge on foreign buyers to
tackle the house market
Green Party Co-Leader Russel Norman says the country needs to look at how overseas demand is affecting the New Zealand housing market.
“What Hong Kong did is they put a 15 per cent surcharge effectively on non-residents buying property ,” he told TVNZ’s Q+A programme this morning, “to try to basically turn down the tap a little bit to take some of the heat out of it.”
Labour Finance Spokesman David Parker said while the party agreed with the Greens that there should be a capital gains tax, a surcharge was not Labour policy. However, he said, “we consider all good ideas.”
He said it was “astounding that the central part of this government’s Budget is a planning initiative, and it’s only a minor planning initiative that both the Auckland City Council and the Labour and the Greens have been calling for for months, which is to implement the Auckland plan changes.”
Mr Parker said Labour was committed, like the Government, to a balanced budget by 2014/15, but would achieve it by different means – saying Labour would “gather a little bit more tax from the most wealthy”.
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CORIN DANN INTERVIEWS DAVID PARKER AND RUSSEL NORMAN
David Parker, I’ll start with you. The government’s reiterated their debt focus in this Budget, didn’t they? They said basically they want to keep the priority on right through to 2020.
DAVID PARKER - Labour Finance Spokesman
Government debt, not NZ debt.
CORIN The government debt, yes. Can Labour agree to that?
DAVID Yeah, well, we think we should be back in surplus in 2014, 2015. I don’t think this is a debate about austerity versus government spending. It’s about whether you make the structural reforms in the economy so that you get away from this two-speed economy which currently has speculators in Auckland doing well and the productive economy not. Unemployment’s still over 7 per cent. Maori and Pacific Island unemployment 15 per cent. Got a two-speed economy around the country, with some regions stagnating and others not doing well. You’ve got exporters struggling while speculators flourish.
CORIN Sure, and we’ll have that debate, but I need to get some answers from you on these issues because they are important in terms of the debt and the government spending. Will you commit to their track of government spending, which is coming down, and their focus on debt, that 2020 target?
DAVID Yeah, we have said that we will balance the budget by 2014, 2015. We get there in a slightly different way in that we gather a little bit more tax from the most wealthy, we use that to bring forward universal KiwiSaver, which costs money, and a R&D tax credit, and we also gather a bit more tax over time from a capital gains tax, although that’s slow to build. But then you-
CORIN Sorry, David. If I could come to you on this question, Russel, would you agree to that spending profile that the government has said? I mean, for example, a billion dollars in the next Budget. Would you restrict spending promises to a billion dollars?
RUSSEL NORMAN - Greens Co-Leader
Well, we’ll be putting out our tax policies through next year, and obviously the projections change over time, so we’ll see next year how it goes. But obviously the much bigger picture is that under National’s economic plan, NZ will borrow $61 billion more over the next five years according to the numbers in the Budget. So it is a massive borrowing plan from this government.
CORIN And would you borrow less? And how would you do it?
RUSSEL In terms of NZ’s national position, I think it’s very important to distinguish between the government’s books and the nation’s books. In terms of NZ’s national position, because we’re currently a loss-making company of $10 billion a year, under National’s plan, the losses will increase to $17 billion a year. The current account deficit increases to $17 billion a year by 2017. In order to cover that, National, basically, the plan is for NZ to borrow another $61 billion so that our net debt by 2017 is $208 billion. This is a disastrous Budget for NZ, and we need to change track.
CORIN David Parker, though, the government- the Treasury is forecasting some pretty good growth. 2 to 3 per cent. They have got the books in order. The IMF’s happy. Standard & Poor’s are happy. They’ve set things up nicely, haven’t they?
DAVID A third of their growth comes out of Christchurch. Apart from that, it’s pretty modest. The problem, as Russel correctly identifies, is that the growth is in the wrong parts of the economy. This is again house-price led, debt-fuelled consumption growth-
CORIN All right, I’ll stop you there. Let’s get some solutions, then. What would you do to change that?
DAVID The most important thing for NZ is a capital gains tax. We have people investing on the basis of a tax bias rather than productive jobs that we need in our economy.
CORIN And I’ll stop you there. Russel Norman, you agree? Capital gains tax? You’re both agreed on that one?
RUSSEL Yeah, excluding the family home, it’s one part of the solution. But obviously you need a broader range, a package that focuses on the tradable sector and supporting the tradable sector so we can trade our way out of this terrible debt position National’s put us in.
CORIN All right, and then we come to the export part of it. The last government, governments for years have been talking about growing exports as a percentage of the economy. No one’s been able to do it.
DAVID Well, this government came saying they were going to rebalance it and they were going to cure the problem. Actually, the economists would agree that the most important thing is getting the tax signal right. You need more savings. Yesterday Bill English was saying the most successful thing in NZ is KiwiSaver. Well, that’s a Labour Party initiative. We say that we need to universalise that and then gradually grow the amount of savings in it. You need an R&D tax credit. You need the various other measures to encourage investment in the regions and in productive output, rather than in speculative housing. I think it’s astounding that the central part of this government’s Budget is a planning initiative, and it’s only a minor planning initiative that both the Auckland City Council and the Labour and the Greens have been calling for for months, which is to implement the Auckland plan changes.
CORIN Russel, what would you do on housing? We know obviously a lot about Labour’s Kiwi Build policy to build houses. What do you propose in order to solve our housing problem?
RUSSEL Well, you’ve got to look at both demand side and the supply side. So, we’ve got demand side issues around investment properties and the tax incentive. So capital gains tax, excluding the family home, is part of changing the tax signal, as well as also looking at the losses and how those losses are accounted for around investment property. You’ve also got to take into account the overseas demand. There’s different reports about the size of it, but the Hong Kong government, for example, has introduced measures to try and constrain the overseas demand. So that’s important as well.
CORIN I’ll just stop you there. So that is actually restricting foreign owners buying NZ houses, something I think Tony Alexander, BNZ economist, has mooted, hasn’t he?
RUSSEL Um, yeah. I mean, it might be restricting. What Hong Kong did is they put a 15 per cent surcharge, effectively, on non-residents buying property to try to basically turn down the tap a little bit to take some of the heat out of it. And then on the supply side - I mean, we support the supply side measures that Labour’s talking about. Probably what we would say is it needs to be medium density. I think Bill English is wrong when he says that medium-density, high quality housing is more expensive than urban sprawl. Urban sprawl is very expensive in the long term because you’ve got to pay for all the infrastructure to get out there and then all the energy costs when everyone’s got to drive across town when, you know, you’re paying 2 bucks a litre for petrol. So you’ve got to look at the long-term costs around that. But the most important thing, actually, is to look at the tradable sector. What are we doing for the primary sector in terms of owning more of the value chain into China, for example? What are we doing in terms of manufacturing, in government procurement? What are we doing to develop the ICT sector, such as a second cable that would really help our ICT sector get away?
CORIN Sure. David Parker, foreign investment. Do you agree with the Greens? Would you look- Would Labour look at a policy that restricted foreign ownership of, say, residential property in NZ?
DAVID No, we haven’t said that we should restrict ownership.
CORIN Is it a good idea?
DAVID Uh, it’s not our policy. We think we should-
CORIN Ok, I know it’s not your policy, but is it worth looking at?
DAVID (CHUCKLES) We consider all good ideas. We have actually said we should restrict overseas ownership of farmland, because we don’t want to drive the price high there. One of the problems is NZ is we’ve actually got very poor data as to how much foreign ownership there is of residential land, because it’s not gathered by anyone. That’s where you need to start, is gathering that data and see how big a problem it is. You’ve not going to cure these problems with house prices until you deal with the underlying drivers of rampant house price inflation. Poor tax signal, rising inequality where some people can afford 10 houses and other people can afford none.
CORIN Hasn’t what Russel just talked about here with foreign investment highlight an issue between Labour and the Greens when it comes to the economy? There are many people, rightly or wrongly, in the business community that are fearful of the Greens telling Labour what to do in government. They are worried about the Greens. Have you and have you both been communicating with the business community? Because, whether it’s justified or not, there could be investment capital flight.
DAVID The first thing I would say is in defence of Russel and some of the accusations that are made is this is rarked up by the National Party and our opponents. You know, the Greens and Labour are very aligned on things like a neutral taxing signal, doing things right so that we improve manufacturing and productive output in NZ. The differences around-
CORIN Have you communicated that, though, to the business community? Are you talking to them? Because we saw what happened to Helen Clark in ’99. The business community went cold.
DAVID Well, actually, Helen Clark ran three elections in a row, so I don’t know-
CORIN But she backed off.
DAVID No, she- In what?
CORIN Well, she backed off in terms of her approach towards the business community. Look, I have to come to Russel on this. So, what’s your response to that?
RUSSEL Sure, sure. So, since the Budget, I’ve done four business breakfasts and lunches, talking to business groups. If you think about- I mean, the way I try to think about it is if you think about the non-tradable sector, right, we need to drive efficiency through the non-tradable sector. That’s what NZ Power is all about, right? It’s about driving down the price of power for households and businesses. Likewise, Kiwi Bank in the financial services sector, it’s about trying to reduce the cost of the financial services sector for NZ businesses. So some of the things that we introduced are unpopular with certain sectors within the business community, like electricity companies, obviously. But in terms of rebalancing the NZ economy so that the tradable sector can get away and succeed, driving down electricity prices is a great thing. So of course we’ll upset those in the non-tradable sector who are making profit gouging, in my opinion, right. But that doesn’t mean that everybody thinks it’s a bad thing. The exporters and manufacturers said NZ Power was a great idea because if they can get cheaper power, they can compete overseas better. So you’ve got the business communities quite differentiating.
CORIN Do you regret, perhaps, talking about money printing? A year or so ago, the economic situation was looking a bit more dire. Now we’re looking at 2 to 3 per cent growth. Is that still an appropriate policy response in this environment?
RUSSEL Well, let me try a different picture on you, Corin. Like, ok, I’m the Minister of Finance. I’ve just announced my plan for my business, which happens to be NZ Inc. The plan involves $10 billion in losses this year and increasing annual losses to $17 billion in four years’ time. Do you think that is a successful plan? If you were a shareholder in this company and the chief financial officer said to you, ‘That’s my plan. I’m going to fund it by borrowing another $60 billion,’ do you really think that is a successful business plan for NZ? Because I don’t.
CORIN No, and the point is you may be right; you may be wrong. But some big chunk of the business community is, for whatever reason, very fearful of that, David Parker. They are fearful.
DAVID The answer to that is vote Labour. (CHUCKLES) You know? The divides in politics are not enormous. You’ve got someone talking about Vladimir Putin next. If you had Vladimir Putin, you should be worried. Yet, we have Steven Joyce coming out and saying when we do something, they compare us to him or Stalinism or North Korea. Look, you know, there is a proper debate to be had in NZ as to what structural reforms are needed to get over these long-term problems of the current account deficit which makes us poorer every year. It’s going in the wrong direction, and there is nothing, there is absolutely nothing in this Budget that fixes it.
CORIN David Parker, Russel Norman, we have to leave it there, but thank you very much for a great discussion. Cheers.
RUSSEL Thank you.