ACT's David Seymour - i like his style.

[Bjauck]

....
In terms of TOPs tax policy, wealth taxes such as land tax presume that an asset actually produces an income that can fund the tax - most of the time there have been exemptions for the family home as an owner-occupier doesn't have an income stream such as a rental although the countervailing argument is that they don't have to pay rent instead. You could argue that a pensioner living in a mortgage free house in Auckland is sitting on $1m (based on a median value) and they could sell their home instead and release it to the market to fund their retirement but as a society we have to consider if that means that they have to rent or move outside of the area that they have lived their lives because arbitrarily the market now values their home at a level that they are considered wealthy - so it's complicated.....

The net benefit derived from investing one's capital in one's home is currently tax free whereas if that capital had been invested in a business instead, all the profits/net benefits derived therefrom would be taxed. So the incentive is there to build up the nest egg by way of an expensive home rather than by way of a prifitable business or portfolio of financial investments. The stats for NZ household wealth bear that out.

If there is to be a change to the tax system. I would suggest that the change be gradually phased in, so that the pensioners who have relied on the current tax system are not unduly affected. For example, if a single pensioner without much other income is living alone in a multi-million dollar house, then the asset tax (to the extent it would exceed the income tax payable) should be allowed to accrue as a charge on the property.

With an asset tax, eventually I would anticipate that residential property values (and other assets currently producing little taxable income) would settle at more affordable and realistic prices than as currently under the current tax system.

Middle NZ may find that their kids would be able to afford to buy their own homes and move out of home.

[blackcap]

The net benefit derived from investing one's capital in one's home is currently tax free whereas if that capital had been invested in a business instead, all the profits/net benefits derived therefrom would be taxed.

Im not sure that is true. If I buy a share (part of a business) for $5 (capital), and this business does well and I sell it down the track for $10, I have a tax free gain.
If I buy a house for $5 and down the track I sell it for $10 I also have a tax free gain.

If my business pays me a dividend of $1 I pay tax on that $1. IF my house provides me rent of $1 I pay tax on that rent.

If I borrow to buy my share in the business, the interest is tax deductible.
If I borrow to buy my house, the interest is also tax deductible.

I fail to see the difference?

[Bjauck]

Im not sure that is true. If I buy a share (part of a business) in a for $5 (capital), and this business does well and I sell it down the track for $10, I have a tax free gain.
If I buy a house for $5 and down the track I sell it for $10 I also have a tax free gain.

If my business pays me a dividend of $1 I pay tax on that $1. IF my house provides me rent of $1 I pay tax on that rent.

If I borrow to buy my share in the business, the interest is tax deductible.
If I borrow to buy my house, the interest is also tax deductible.

I fail to see the difference?

The discussion had been on owner-occupied housing (one's own home.) So it will never pay you a taxable rent as you live in it without having to pay tax on the value to you of being able to do that (i.e. the dividend from the equity in owner-occupied housing is always tax free). Despite being unprofitable, experience has shown that owner-occupied residential housing increases in capital value! If you rent out a room in your home, then that is a different matter.

With shares in listed companies - you can get those that do not pay dividends yet do go up in value. Many are companies in their growth phase with hopes of becoming profitable in the future. Also some have investments in land...
However it is difficult to get banks to lend you money to invest in shares - so your chance of leveraging as many capital profits as with land or houses is more limited.

If a business has no prospect of being able to afford to pay its participants/employees an income or turning a profit, is it in fact a business? Whereas owner-occupied housing will under the present system never be profitable or tax-paying except in so far as it pays rates (which in effect is payment for services rendered anyway.)

[fungus pudding]

The discussion had been on owner-occupied housing (one's own home.) So it will never pay you a taxable rent as you live in it without having to pay tax on the value to you of being able to do that (i.e. the dividend from the equity in owner-occupied housing is always tax free). Despite being unprofitable, experience has shown that owner-occupied residential housing increases in capital value! If you rent out a room in your home, then that is a different matter.

With shares in listed companies - you can get those that do not pay dividends yet do go up in value. Many are companies in their growth phase with hopes of becoming profitable in the future. Also some have investments in land...
However it is difficult to get banks to lend you money to invest in shares - .

Most banks couldn't care less what you want to do with money you borrow. They are only concerned with the security you offer.
And do residential homes increase in value? No. It's an illusion. Buildings depreciate, and money depreciates.

[fungus pudding]

Im not sure that is true. If I buy a share (part of a business) for $5 (capital), and this business does well and I sell it down the track for $10, I have a tax free gain.
If I buy a house for $5 and down the track I sell it for $10 I also have a tax free gain.

If my business pays me a dividend of $1 I pay tax on that $1. IF my house provides me rent of $1 I pay tax on that rent.

If I borrow to buy my share in the business, the interest is tax deductible.
If I borrow to buy my house, the interest is also tax deductible.

I fail to see the difference?

Because there is no difference.