Rising Auckland House prices are really a tax issue

Rising Auckland House prices are really a tax issue

Media Statement July 30, 2013

Rather than ban the buying of homes by people who pay tax in other countries it would be more sensible to impose on them a full ground rent on all urban and suburban properties, according to the New Economics Party.

Spokesperson Deirdre Kent said that while it was heartening to see the Labour Party trying to control house prices, they should be focussing on the fact that homeowners who pay tax overseas are not paying enough tax in our country.  “They are coming to our country and expecting huge untaxable capital gains on their house when they only pay rates here”.

“It is New Zealanders who have helped increase the value of the land they have bought so the rise in value should be captured by the public.  The best way to do this is not wait till they sell, but charge them a full ground rent every year. For urban sites it might be five percent or over of unimproved land value, depending on the zoning restrictions. (Ideally it should be by auction as this allows for the overvaluing of land at the moment.) This revenue should then be shared by national and local government and ground rent should replace rates.”

She said it was the taxpayers of this country who paid for the schools, roads, parks, railways, street lights, community halls, businesses and organisations that gave the site its value.

“It is the same when people paying tax in New Zealand go to Australia and buy a house or when John Key buys a house in Hawaii and expects to receive the capital gain without being a tax resident there. Imposing a charge on holding of land is an important way for countries to retain their integrity.”

For further comment phone Deirdre Kent 06 364 7779 or 021 728 852

 

 

 

Ground rents near Cornwall Park in Auckland

The Weekend Herald, Saturday July 27, has an article entitled “Paying for park users pleasure is a bitter pill”. It outlines the story of their recent ground rent hikes, where one occupant in Maungakieke Road had walked away from her $2.1million home after refusing to pay the $73,700 asked by the Cornwall Park Trust Board as her new annual lease. Her rent used to be $8,300 a year but was reviewedP1200771 in 2011.

Another has had her ground rent rise from $3995 to $29,000. These dramatic rent increases reflect the change in land value over the last 21 years, the term of the lease.

Well, I did a websearch on this and skimmed through the long legal decision of the Supreme Court (yes, 70 lessees had trooped from the High Court to the Court of Appeal then the Supreme Court challenging the way the trust had valued the land but had failed).

Apparently the trust set restrictions on what could be built on the land and charged a ground rent of five to seven percent of the unimproved value.

We in the New Economics Party have been talking a bit about how ground rents would be set in our proposed scheme where property owners can opt to have their land bought by Treasury using their tax vouchers, and we did some figures based on five percent for suburban properties. We thought ground rent should be set according to zoning and other restrictions.

My first response to this article and to the court judgment is that there appeared to be little understanding either from the court or from the Weekend Herald reporter that the land has gained in value through the actions of the surrounding community and the local and central government not by the Cornwall Park Trust. Sure, these Maungakieke Road residents enjoy the privilege of living next to an amazing park, whose maintenance is paid for by their rents, but they also live in the grammar zone, a great selling point for Auckland houses. In fact an ad for a house on this leasehold land says “Zoned for top schools, Cornwall Park School, EGGs and AGS zones, Remuera Intermediate, near Newmarket, CBD, Remuera, Greenlane Countdown, shops, cafes and restaurants.”

The Trademe website also confirmed the press report that there are plenty of houses on the market in the Cornwall Park vicinity. One at 24 Maungakieke Avenue with 5 bedrooms and 3 bathrooms is vacant and the grass looks extremely high. It has 1000 sq m section and is adjacent to Cornwall Park.

So there is a big problem with current leasehold land, largely engendered by the fact that a Trust which deals with only one aspect of public life – the care of a city park – is charging five to seven percent of the land value, which is actually the percentage that government would charge if the land were publicly owned. The rising land values should not be privately captured but publicly captured to pay for schools, roads, rail, street lights, libraries, hospitals and parks.  And this revenue should be shared by all levels of government.

There is a quite a lot of leasehold land in Auckland. Some is held by Ngati Whatua, Waterfront Auckland (a public body), Dilworth Trust. Many blocks of the Viaduct area, according to the journalist Anne Gibson, are owned privately by businessmen Trevor Farmer and Mark Wyborn. Both these high flyers are into property. The former is listed in the NBR as being worth $400 million in 2012 and the latter $240 million. Perhaps they too are extracting five to seven percent of the unimproved value? Nice if you can get it. Pity about the rest of us missing out. We pay for the infrastructure and that puts up the value of their land and therefore their ground rent!

 

A thriving, vibrant economy is possible after fossil fuels – tax reform, currency reform and welfare reform

http://www.slideshare.net/deirdrekent/sustainable-economics-without-fossil-fuels-21

This slideshare show is now updated and made clearer. It is the first time it has been published on this site and represents a lot of feedback from our members. If others have a method of reforming the tax and money system in a way that is politically possible and in a way that doesn’t shock the economy, we would love to know. Meanwhile this is a serious proposal. Feedback is welcomed.

Why not do monetary reform then land tax reform?

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What is your solution?

One of the questions we often get asked is why not do monetary reform first and then do other things later.

Positive Money NZ and its parent in UK have done wonderful work in teaching about the dysfunctional money system. There is no doubting that. They are reaching a wide range of people and describing what is wrong with the money system, how it leads to growing debt, wealth disparity and the growth imperative. We really recommend going to their website and seeing all the wonderful youtube videos and articles and links there. It is a great website.

But when we are in a political party we need to aim to get a thriving economy and that means jobs.

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Untaxing labour and sales is like unblocking a currency river

And when we think of where the money flows and why it doesn’t flow into job creation if you fix the money system, we also need to think about the tax system.  Our party says it is time to untax labour and sales and to tax land and its resources. When we do this, all sorts of miracles occur.

Imagine having a currency where completely new rules apply. When using this new currency there is no tax on labour, sales or enterprise. No income tax, no GST and no company tax when using this money. Wow! What happens? Well employers realise that workers get 100% of their salary so they have a happy workforce. But that is not the end. When the workers spend their money they won’t have to pay GST. This is that they have more purchasing power. Their wages are higher now in relation to the prices of goods. And that is what unions have been crying out for for ages.

So it is like having the river bed carved out for a new currency. The new money flows in the riverbed unimpeded by taxes. So it flows into productive investment and creates jobs.

We have proposed the slow introduction of a parallel national currency created by a new agency (the Treasury) which adheres to these rules. The slideshow for this is now at http://www.slideshare.net/deirdrekent/sustainable-economics-without-fossil-fuels-21

Of course having argued that it is important to treat the global economic system as a living system and that we need to intervene where the effect is greatest, and having argued that the global economy is what Cantabrians would call ‘mega-munted’ and that you need to start again, people still come back saying Couldn’t we just have monetary reform for a start.

Yes I know a lot of people just want us to do the monetary reform and do the rest later. But what happens? Yes money is spent into existence rather than lent into existence so it doesn’t bear a debt and it has no interest due either. All good. But where does it go? With GST and income tax and company tax, it will of course go into buying up yet more property and naturally occurring assets, putting pressure on the limited resource of land and raising its price. And as before, the wealth concentrates with land owners.

Q. I thought you wanted to close the gap between rich and poor?

A. Oh yes we will do that now, we will impose a land tax.

Q. Well how are you going to do that?

A. Well we will start at 0.5% land tax and lower income tax a little across the board at the same time. That way we won’t shock the economy.

Q. But I am still paying my rates and my mortgage. Why should I pay a third land tax?

A. Oh I don’t know.

And there is stops. If there is another way, please would someone tell us about it! In all the time we have had this initiative up and running, nobody has come out with an alternative solution other than by starting again with a second national currency differently designed.

If you can come up with a suggestion which is better than the dual currency, we would be pleased to hear from you.

Reform of tax and money system essential for narrowing gap and bringing jobs

So we have just seen the Ikaroa Rawhiti by-election win for Labour with Mana coming in second.

The successful candidate Meka Whaitiri has repeatedly said “Our people are hurting. The issues are poor housing, jobs and poverty” Labour has said people are moving from National to Labour because of the rising cost of living.

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With currency reform and tax reform money will flow into activities that maintain and upgrade assets like houses

If the money system widens the gap between the rich and the poor then a party which ignores this or even understand this will do little to reduce wealth disparity. Explaining this: If money is created by banks as interest bearing debt, but the banks don’t also create the interest, then there will never be enough money in the system for everyone to pay back debt. So the losers have to go further into debt. This widens the gap.

If in addition the tax system causes wealth to concentrate with property owners and stops money going into investment in the productive sector then a party which ignores this will surely make little progress in alleviating poverty or bringing jobs for the rangatahi of Ikaroa Rawhiti electorate. Explaining this: If we tax labour, sales and enterprise with income taxes, GST and company tax, then the purchasing power of everyone declines. The cost of living rises relative to income. At the same time investment money goes into housing, because there is no tax on land and everyone is betting on rising land prices. A notable example was of an Auckland house which was recently sold by New Zealand Transport Agency for $220,000 above Rateable Value. The housing bubble in Auckland is a serious threat as the Reserve Bank constantly reminds us.

Because our party has looked to the root of the issues, and have proposed a well designed domestic-only currency linked to a completely new tax and welfare system, (see https://neweconomics.net.nz/index.php/2013/06/how-to-build-a-life-supporting-economic-system/), only our party can offer serious solutions to the growing wealth disparity and bring real jobs to the Ikaroa Rawhiti electorate.

 

How To Build A Life-Supporting Economic System

How To Build A Life-Supporting Economic System

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Earth is a Living System

Earth is a living ecosystem and necessarily the model for the human economic system. The words ecology and economy have the same Greek root ‘ekos’, meaning ‘home’ or ‘earth’, so our economy is a subset of our ecology. All life-based systems are unique home economies – Earth, nations, states, cities, towns, communities, families, and each living being. Each economy can only survive in balance within natural limits.

Every global crisis derives from an unbalanced economy:

  • Financial collapse is caused by an interest-bearing debt-based money system and a grossly overinflated ‘shadow economy’. These cause rising debt as “promises to pay” that cannot be met by the real economy.
  • Energy collapse is caused by our economic dependence on fossil fuels and the new reality of relentlessly declining energy returns, leaving less energy to drive the economy.
  • Biosphere collapse is caused by the real world demands of the growth-based economy, required to service exponentially expanding interest-bearing debt.
  • Societal collapse is the descent into social unrest, the police state and militarism, driven by the above.

We have a Deadly Economy

In an interest-bearing debt system of money creation:

  • Private banks create money as a commodity for private profit, causing cycles of boom and bust as the money supply expands and shrinks. The lack of balance is destabilizing. Scarcity of money during recessions/depressions causes unemployment and turmoil.
  • The interest mechanism automatically transfers wealth upward from those with the least to those with the most, increasing income inequality. This undemocratic money system leads to social polarization and social collapse.
  • Interest-bearing debt expands exponentially, demanding perpetual growth of GDP despite our finite Earth, which exhausts all human and natural ‘capital’.
  • The need for growth is inflationary, promoting unproductive speculation in financial markets and real estate, inflating house prices, and eroding the productive economy.

A tax system which taxes labour, sales or enterprise discourages work discourages trade and discourages enterprise. It also greatly reduces people’s purchasing power (though there are cases for reducing this e.g. tobacco, alcohol, fossil fuel etc.). A tax system like this encourages property speculation, reduces productivity and concentrates wealth with landowners.

When we tax these three but fail to tax land, we invite taxpayers to use tax havens and do under-the-counter trades, resulting in lost government revenue. Land cannot be hidden offshore.

However, though it has been recommended for centuries, a land tax in the 21st century is a politician’s nightmare. Successive tax review by Inland Revenue, Treasury and universities have recommended land tax, but no government has implemented them. In fact there is actually a law prohibiting land tax in New Zealand, probably enacted to please the banks.

People already pay on their property two payments – rates and mortgage – so the possibility of government imposing a third burden is zero. In fact it is political suicide for any politician to recommend land tax, no matter how small. Yes, the banks have claimed land for themselves, as it is their best security on their loans. They vehemently oppose land tax and so governments have to be content with taxing a less secure asset – income taxes.  Banks love lending on property because as the price of land rises, so does the size of their loan portfolio.

A means tested welfare system with an intrusive state and a ‘benefit trap’ is trapping our unemployed and dampening enthusiasm for working. It is also complicated and expensive to run and requires billions being spent on IT systems. The benefit system with its various income support schemes which favour the children of employed over the children of the unemployed like Working for Families is basically unfair. A Universal Basic Income has been recommended for centuries, starting when someone saw thieves hanging in the street and said it would be better to pay them a living wage. However there has been no progress.

All of the above – monetary reform, a Georgist tax reform and a Citizens Dividend – would if introduced suddenly shock the economy. All of the above have attracted loyal movements that have made virtually no progress over the centuries. It is important to reflect on the reasons for inaction. Each major reform would shock the economy.

We Need a Living Economy

A living economy will feature:

  • Publicly created permanent debt-free money as a medium of exchange for public benefit, circulating permanently, its volume regulated by a publicly accountable body. A sufficient, balanced supply of money is stabilizing, promoting business and employment.
  • Reliable public revenue without debt or interest is spent directly into the economy. It is critical to take the power from the banks to create the country’s money and return this to the people.
  • Tax will be removed from ‘good’ activity like work and enterprise and trade, and will be imposed where people take more than their share of the commons or impose a burden on the commons.
  • A Citizen’s Basic Income removes the need for Social Welfare and numerous income support programmes. It avoids the ‘benefit trap’ and allows voluntary work and new businesses to thrive.
  • A stable money supply that is neither inflationary nor deflationary, and flows freely into productive investment in the real economy.

Transition To A Healthy Public Money System and to a Reformed Tax and Welfare system

First we need to explain why we are applying a broad-brush approach to reform, not doing it piece by piece.

When family therapists are presented with the problem of a difficult adolescent, it is important to treat the family as a whole system, rather than just look at the presenting problem, the adolescent. Tweak just one part of the system and the whole becomes healthier. You seem to solve all sorts of problems. But if you just try and fix one problem at a time, it won’t work. The original problem tends to persist. That is because the issues don’t exist in isolation and the relationships continue. You can’t divide up a system because you break the links and destroy the patterns. It is the same for any living system. The challenge is to intervene at the points where it is going to effect the greatest change. This is in the areas of goals of an economy and the fundamental paradigms which are taken as gospel. Those paradigms are the basic beliefs and ‘givens’ of a system.

In our case, we have an economic system showing a range of Big Problems. First we have the property bubbles in Auckland and Christchurch while the economy in the regions stagnates.  Second we need to sort out the welfare mess by introducing a universal payment, the UBI. Third we need to get a tax system that taxes what we hold or take, not what we do or make. (Taxing labour and enterprise is counterproductive, while it is quite fair to tax those who take or use more than their share of the commons.) Fourthly we need to move from privately created interest-bearing money to publicly created interest-free money.

These big issues are all connected through banks, land and taxes. If there is quite a simple solution where, if you tweak one or two parts of the system and the other problems solve themselves naturally, then we should use it. This is the systems approach. You don’t tackle the intractable problems issue by issue; you look at the whole integrated system and choose your point of intervention that gives the greatest leverage. In that way the fundamental relationship between the elements of an economic system will remain intact.

You will notice we are suggesting the point of intervention that has the most leverage – the currency, tax and land. We have paid attention to what is important. Changing the paradigm from a currency monoculture to a currency ecosystem is going to bring big change. Changing the tax and welfare systems will also have a major effect.

Second we set up a small new system parallel to but very different from the old system.

This proposal will put in place the small beginnings of a new and healthier system to coexist with the earlier deadly system as the old system dies away.

So we are going to start a new currency with new rules. This will be the beginning of the new healthy economy. The old economy will die and a new one will be born. It’s a transformational change. In order to transform the tax system from taxing labour, sale and enterprise to only taxing land and the use of the commons, you need to link that new tax system to a completely new currency.

It can’t be done effectively otherwise. New life is full of health and vitality. Just as new growth in a forest after a fire appears slowly, so will this process be gradual.

Note that by setting up a fledgling parallel system we have not just fiddled round the edges. We have changed the whole paradigm. So we would expect major change.

Step one

Government issues a new currency called Tradeable Tax Credits. These are acceptable by Treasury for tax on a certain date. (The Reserve Bank is left out)

Step Two

Using Tradeable Tax Credits, Treasury gradually buys up the land of homeowners who opt into the system voluntarily. Government doesn’t want to use New Zealand dollars – first because it hasn’t got enough of it and second because Government wants to link the vouchers to a new tax regime. The dated Tax Credits are to ensure that Treasury issues just the right amount so as not to cause inflation. The date by which it must be redeemed also serves as a circulation incentive.

Step Three

Then Government makes the rules for these tradeable tax credits. They say trades in Tax Credits will not incur income tax, GST or company tax. IRD is not involved with them except insofar as it imposes “land rates” and resource taxes.

Step Four

Full land rates would be set if possible by tender or auction and the lessee will pay it in perpetuity to Government, the revenue to be shared in some proportion between central and Local Government.

Step Five

A Land Rates Index would be established for each general area and rates adjusted annually or biennially according to the rates index. Note the rates are not indexed to inflation. Rates vary very little unless there is an earthquake, subsidence or new infrastructure or a significant business arrives in the area or departs from it.

Step Six

There would be no impediment preventing the Tradeable Tax Credits from being freely traded with NZ Dollars. Employers will want the Tax Credits and importers will want the New Zealand Dollars. The Tax Credits would be issued at par and redeemed at par. What happens in between will depend on the sentiment of the market.

Step Seven

From time to time Government will issue all men, women and children with a small Citizens Dividend in Tradeable Tax Credits to share some of the revenue with its citizens. This dividend would gradually grow as the area of land in the scheme grew.

Step Eight

Resource taxes are imposed on anyone with a monopoly on any part of the commons e.g. Oil, Coal, minerals, water, fisheries etc.

Step Nine

The homeowner who has opted into the scheme receives Tradeable Tax Credits to the value of their land and either puts it in the bank or uses it to pay labour for home improvements or for productive investment and always to pay taxes.

Step Ten

The bank lends out the new Tradeable Tax Credits to businesses to pay a portion of their labour and New Zealand materials. New jobs are created. As there will be no need to move to Auckland, labour intensive industries will attract young people back to regions, back to New Zealand. Organic farming and manufacturing will want them. At first some workers are paid only a small proportion of their wages in the new credits.

Step Eleven

No rates will be payable on any property where the land is Government owned and full land rates are paid.

 

The land to be changed to publicly owned leasehold land would include: –

  1. All land owned by those who do not pay income tax in New Zealand. This would have to be done in steps. It also includes trusts and companies who don’t pay tax in New Zealand.
  2. All land owned by government or local government and intended to be sold off to private buyers would stay with the Government e.g. The “green frame” in central Christchurch.
  3. Any other freehold land through an-opt in scheme. This would not alarm those who are capital rich and income poor like the elderly and would not alarm farmers. It would also take the worry from our would-be subsistence farmers on small holdings.
  4. All land under infrastructure like roads, hydroelectric power stations, airports, sewerage or stormwater or water servicing will be required to be converted to leasehold land. Once again to avoid inflation, this must be only done in stages.

The circulation incentive

Dated Tradeable Tax Credits will circulate relatively fast. They will not pool for long in anyone’s bank account. People don’t want to find themselves in possession of them when the date arrives, so they trade with it, put it in the bank for the bank to lend out or else pay their land rates early. When a tax credit circulates smoothly without pooling anywhere, it nourishes everything in its path. A trade mutually benefits the buyer and the seller. Even if the Tax Credit goes out of the country there is an incentive for the holder to get it back to New Zealand before its maturity date.

The NZ Dollar and the Tradeable Tax Credit

These can be exchanged. A market will develop naturally. There are two opposite forces acting. The NZ dollar will be used for importing goods and for those who are travelling overseas. The Tax Credits will be particularly attractive to those who plan to use it to pay for labour because this currency is completely delinked from all disincentives to show initiative. The labour they buy will not be taxed, their employers business will not be taxed and the goods and services produced will not be taxed. The Tax Credits will always be worth one NZ Dollar when it is paid for taxes before the expiry date. It is rather like the NZ Postage stamps they sold us when the 70c stamp replaced the 40c stamp. One stamp will take the letter anywhere in the country.

The Tradeable Tax Credits would be digital only

Kiwibank has a “Loaded” card. It is a debit card with embedded chips for each currency. It is issued when a customer travels overseas. Perhaps the Tax Credit could be issued this way, with EFTPOS machines dealing with both types of currency. It is possible each new voucher could have a unique identity so that their circulation speed could be tracked.

Results

Transformational reform when carefully and gradually introduced has an exciting range of effects. This policy gives us low cost housing while gradually but fundamentally changing the tax structure. According to the Productivity Commission, the value of land is on average half of the total value of an urban property, but for Auckland it is 60%. Secondly it makes an important but gradual change in the money creation process. Thirdly it starts on an overdue reform of the welfare mess. Fourthly it gradually changes the way we fund local authorities.

While it releases much needed liquidity for new businesses it has to be implemented along with adequate controls on resource use through resource taxes e.g. carbon tax.

Wouldn’t people cheat the system?

History tells us that wherever money is involved people will try and find a way to cheat the system. Some suggest that people will exchange their Tax Credits for NZ dollars and go and buy another property and do it again. But these people haven’t planned to pay their ground rent and this is a large ongoing obligation. In fact wise people will not opt in unless they have a plan to use the new credits productively to create sufficient revenue flow to pay the rent. Most will pay their land rates in advance. Remember the Tax Credits are issued at par and redeemed at par. The sorts of things that happen in between will soon settle down as people learn the rules. The new law will have meaningful penalties for those who default on their obligations to pay land rates.

How much land rates?

A full ground rent  or land rates for an urban or suburban property is ideally set by auction. However, rule of thumb indicates it is around five percent per annum or more depending on the zoning and other restrictions on the land. Location is important. The further away the property is from government services, the lower the rate. Certain land is however, already overvalued e.g. Auckland land and dairy land, so allowances for that would then have to be made. Other restrictions would include land with a  QE2 covenant or land under historic buildings or land otherwise used for the public purpose.

The Citizens Dividend

Although this starts out being small, the first payout will attract a great deal of attention. When people realise these Tax Credits will pay for food and other essentials, they will begin to trust them. Their value relative to the standard currency will rise. As time goes by this dividend will be repeated and will increase, perhaps allowing, say working couples to opt to care for their own children rather than drive to jobs they don’t like. It might also enable inventors to spend more time inventing. Because the dividend of a dependent will go to the nominated carer, it will redress the economic balance of power between those who care for dependents and those who don’t. This raises the status of carers – usually women, raises the standard of care for children and reduces the social service burden on the state. Many carers will opt to spend their dividends on further education. There is also a long known fact that as the education of women rises so does the control over fertility.

Shouldn’t relief of mortgages be a first priority?

Yes. However in practicality those who opt in at the start will probably be those who are mortgage free because those with mortgages don’t want the hassle of going to their banks and having the bank refuse the Tax Credits. It would be easier in the case of New Zealand owned banks like Kiwibank, the Cooperative Bank, TSB and the SBS. However over 90% of New Zealanders’ mortgages are with the Australian owned banks and the banks might take the case to the World Trade Organisation or other authority to challenge it. So it is better to do the easy things first until the public is onside.

Is there a precedent for Step One?

Yes. These Tradeable Tax Credits are the same as the Treasury Notes that have been used before in history e.g. China 1912 when there was an uprising.  Abraham Lincoln used the US Treasury to issue Greenbacks in 1865 and The UK Chancellor of the Exchequer Lloyd George, on the advice of John Maynard Keynes, issued Emergency Bradbury Treasury Notes in 1914 to pay for World War I. Lord Bradbury was the Secretary of the Treasury.

Bernard Lietaer and Stephen Belgin in their book New Money for a New World describe three periods of history in which there were dual currencies. First, Dynastic Egypt, where there was gold for long distance trade and also pottery chards that were receipts for corn taken to a store. The built-in circulation incentive was that when, after a year, farmers came back with ten chards, they were only given nine bags of corn. These pottery pieces circulated for sixteen centuries in a period of relative prosperity.

Secondly in the Central Middle Ages in Europe people used gold for long distance trade but silver coins for local trade. The local Lord or Duke, who owned the land and issued the coins, reminted the silver coins at irregular and unpredictable intervals. Though the periods between reminting varied from area to area, a lord might give out, for example, four coins for every five that were brought in. Reminting happened when the Lord died. This practice coincided with a massive period of cathedral building and the authors say the enthusiasm cannot only be explained in terms of religious devotion but in the currency system. Maintenance of water wheels, mills and wine presses was excellent. Ordinary people wore silver buckles. Nutrition was so good that the average height of a woman in London at that time was 1 cm higher than today.

Thirdly in Wørgl Austria in 1933 during the depth of the Depression, ‘work certificates’ were paid to council workers who could in turn have them accepted by the butcher, baker, etc because they were redeemable for tax. But each month the bearer of the note had to place a stamp on the note to validate it. During the 18 month period these work certificates circulated, unemployment declined dramatically, bridges were built, people paid their local tax early and visitors came from far and wide to witness the ‘Miracle of Worgl’.

Lietaer and Belgin claim that in each period there was prosperity across all classes and a huge building programme. They attribute this favourable economic outcome to the dual currency, and in each case the domestic currency had a built-in circulation incentive. The authors did not describe the tax system of each society, but to my knowledge there was no income tax, sales tax or company tax during this period. In the central Middle Ages tax was more likely to be a regular tithe to the lord or duke, possibly paid in produce. This is basically a land tax.

There is also a precedent in New Zealand history for Step Six, a Citizens Dividend. In 1951, after a particularly high wool cheque, the government gave out a five pounds dividend to all families.

Why can we see so many bad symptoms start to reverse?

If we observe the results of these small actions being set in place, it is truly astonishing. It is almost as though a fallen domino set has begun to rise, piece by piece. Some are totally disbelieving, because we are so used to thinking that only one result is possible.

  1. A better, fairer tax system with reliable revenue.
    You can see it works towards a much simplified tax system where tax evasion becomes impossible, because you can’t hide land offshore. Many tax-based subsidies will cease to exist as GST, income and company taxes are gradually phased out. For example, tax exemptions on aviation, fuel, interest on mortgages simply disappear. The black and criminal economies no longer gain an unfair advantage. When you use the new money to employ a tradesman, you won’t have to hand it under the table.
  2. New life in industry, and a sea change in horticulture and agriculture. The new Tax Credits,  with a built-in circulation incentive, give opportunities for labour intensive industries to return. The post fossil fuel age will require a whole new set of businesses and these Tax Credits will provide the lubrication. It will be great for organic farming and pest destruction, both of which require a large labour input. Clean green technology will finally blossom and green jobs will no longer need to be subsidised.
  3. Lower prices and higher wages. The increased purchasing power, which results when Tax Credits are free of all other taxes, cannot be underestimated. The affordability of labour and of New Zealand produced goods increases dramatically. Holders of the credits find they can access the basics of food and clothing. Import substitution starts to happen and clothing factories may re-open. When the Tax Credits circulate unburdened by taxes on labour or trade, prices inevitably drop. When employers pay their employees in Tax Credits, which have no income tax, you get a contented workforce. And when workers discover their Tax Credits can buy necessities without GST they are doubly happy.
  4. Issuing of Tax Credits starts a process of gradual but inexorable reduction of private debt. This can only be good for our population and our businesses as all debt under the current system incurs interest.
  5. Because there will no longer be the necessity to move to Auckland for employment, it will be great for regional development, which will take some pressure off Auckland housing. The new Tradeable Tax Credits will flow to the regions without impediment. The attraction of Auckland where a growing portion of the economy is in the FIRE section – finance, insurance and real estate – will no longer apply. The two speed economy, where Auckland  and Christchurch are going ahead yet the regions are withering and suffering unemployment, will even out.
  6.  It is the origin of a new method of funding local authorities. No longer will all of their revenue come from the regressive policies of universal fixed charges or from rating on capital values that discourages investment.
  7. Maori and Pacific Islanders and low income people will benefit from this policy, as they will all be recipients of the jobs created, and from time to time of a Citizens Dividend.

This is quite a list of achievements.

 

Summary

The policy is powerful, elegant and simple. It creates jobs, provides cheaper housing and transforms interest-bearing money to government interest free money all simultaneously. And it does the whole thing gradually without shock to the economy.

 

More discussion needed

Among the issues to be fleshed out are: –

  1. Policy as it affects Maori. Because this is a policy dealing with land and its ownership, it is important to take the proposal round the country from iwi to iwi, preferably by group including Te Reo speakers, because in each rohe and iwi there would be a different situation with respect to the various types of Maori land, incorporations and trusts. However, because the system is an opt-in arrangement, nobody is immediately penalised.
  2. A programme to be devised for gradual rollout without causing inflation. There will have to be robust research on the value of foreign owned land, the tax take and the value of land in each category.
  3. We need a plan to handle the possible fear engendered in those who want their land to be made leasehold but have their mortgage with one of the big four Australian banks, which comprise over 90% of all mortgages.
  4. What is the role of Government in encouraging retail business to accept Tradeable Tax Credits, especially in the early days of implementation?
  5. Since the cost of the house and improvements are not included in the proposed mortgage relief, there needs to be other interest-free arrangements similar to the JAK Bank of Sweden6.   The role of banks in making loans to businesses wanting Tradeable Tax Credits to finance wages and materials.  Does this mean the banks finally get to be an intermediary between saver and borrower?

 

Deirdre Kent deirdre.kent@gmail.com 06 364 7779

021 728 852

New Economics Party

https://neweconomics.net.nz

With acknowledgement to the late Dr Adrian Wrigley of Cambridge UK

 

Change Tax Policy and Control Banks for Affordable Housing, says New Economics Party

Change Tax Policy and Control Banks for Affordable Housing, says New Economics Party

January 31, 2013

Change Tax Policy and Control Banks for Affordable Housing, says New Economics Party

To get affordable housing we need a tax policy which favours investment in productive enterprises not housing, says the New Economics Party.

“If we don’t control capital coming into New Zealand and then don’t stop it going into housing through our tax policy, it’s no wonder we have a housing bubble in Auckland”, said Deirdre Kent, spokesperson for the New Economics Party. “And if we let the banks lend 100% on housing, we are asking for trouble.”

Freeing up land and changing the Resource Management Act is not working, she said.

“Banks are pushing money onto buyers and we effectively have a bubble which will eventually collapse. Wealthy Chinese are buying here to get their money out of China where they are clamping down on corruption. A lot goes into real estate.

No progress will be made towards affordable housing until land tenure is separated from buildings, according to the New Economics Party. Spokesperson Deirdre Kent said “Until we (move from income tax to imposing a full ground rent) impose a full ground rent – which can replace income tax as a source of revenue for Government – we won’t get any progress. “

She said that when homeowners just have to pay the price of the building, the price of the home is halved. “In Auckland where land is on average 60% of the property price, the price would drop even further if a full ground rent was imposed.”

“When property prices rise, it is almost solely because the price of land rises. Generally, the price of the house doesn’t rise. When the public captures the windfall from rising land prices instead of the banks and the private owners house prices will be finally contained,” she said.

She said some Auckland leasehold land fetched a ground rent of 5% at auction and this money should really be public money because it is the public who has paid for the services to that land in roads, schools, sewers and businesses.

“Others have recently been proposing solutions to affordable housing but they are just tinkering around the edges.”

For further comment phone Deirdre Kent 06 364 7779 or 021 728 852.