Taxes on Fixed Rate Mortgages
I know Cullen has probably had a severe dressing down from Head Girl over this, but what Cullen is proposing in adding a Government levy on top of mortgages isn't too bad an idea - just far off the mark of a better scheme.
You see, the main problem with the New Zealand Economy is that too many people are borrowing against the equity on there ever increasing house values.
The other side of the coin is this - too much spending is the result of not enough saving. And here's where Cullen is going wrong. Instead of punishing us more to stop us spending, he should reward us more for saving.
The incentives on savings are all wrong - while you can get up to 7% return on low/medium risk investments, you lose up to almost 40% of the return in tax, and another 40% in inflation - giving a real return of about 1.5%. Not very exciting. Hence the rush to buy investment residential property, which is a low risk/high return option.
If Cullen was to slash (or remove) tax rates on all long-term investments (not just for Kiwisaver) then the incentive would be to invest in other low risk/high return options - not just residential housing. And with the heat taken out of residential housing and property values increasing more modestly, less people can borrow and spend.
But reducing taxes is too much of a leap of imagination for our Labour Minister of Finance - maybe we need to replace him with a more blue version?
You see, the main problem with the New Zealand Economy is that too many people are borrowing against the equity on there ever increasing house values.
The other side of the coin is this - too much spending is the result of not enough saving. And here's where Cullen is going wrong. Instead of punishing us more to stop us spending, he should reward us more for saving.
The incentives on savings are all wrong - while you can get up to 7% return on low/medium risk investments, you lose up to almost 40% of the return in tax, and another 40% in inflation - giving a real return of about 1.5%. Not very exciting. Hence the rush to buy investment residential property, which is a low risk/high return option.
If Cullen was to slash (or remove) tax rates on all long-term investments (not just for Kiwisaver) then the incentive would be to invest in other low risk/high return options - not just residential housing. And with the heat taken out of residential housing and property values increasing more modestly, less people can borrow and spend.
But reducing taxes is too much of a leap of imagination for our Labour Minister of Finance - maybe we need to replace him with a more blue version?
posted by Michael at
9:01 AM
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