“The feeling is that currently, housing is implicitly subsidised by govt relative to other asset classes”

I think you hit the nail on the head. The feeling is that the playing field is slanted towards housing, but in reality it’s not.

If there’s no real problem caused by our enthusiastic investment in property on a level playing field, it seems like we’re just tinkering with something that isn’t broken?

A CCT? The issue with that is that we are treating a stock like a flow – so the entire stock of capital gets taxed every year, rather than just the gain on capital. It seems fairly inconsistent with the treatment of all other income (namely on value add), and so I’m not a fan.

In the end New Zealand needs to decide how it wants to tax income, both in an intertemporal sense and in a distributive burden sense. Until the nation is willing to face that we can’t figure out what sort of tax system to have 🙁

“One worrying implication of that, Matt, is that a CGT is therefore a disincentive to save.”

Yes, it is as it “creates a wedge in the capital market” instead of “creating a wedge in the goods market”. That isn’t necessarily a worrying implication, it depends on the relative cost of the “wedges” when raising an X amount of revenue.

“Why do we think we are overinvested in housing, again?”

Spending on housing investment has been well about trend. However, the “number” of houses built has been low. In other words, we have been building bigger and flasher houses than we could afford, probably at an inefficient cost.

For me, I don’t care if we invest heavily in housing if we do really value it – we just have to make sure that all investments are treated equally by government in order to ensure that the allocation of investment funds represents expected private return right. The feeling is that currently, housing is implicitly subsidised by govt relative to other asset classes – if this is true then that should be (and sounds like it will be) cleaned up.

I believe the mish-mash isn’t just in housing, but between a myriad of invest types due to poor policy. Lets see what happens in the budget.

Why do we think we are overinvested in housing, again?

It is definitely an argument against CGT. There is only really one reason why I would still support a CGT in theory – the government has decided that a tax on interest is optimal. A CGT is effectively like a tax on interest, and so putting one in place ensures that all investments are treated equally.

LOL!

I do think there is some confusion out there with regards to the “stock” of capital and the “flow” of return on capital. And I think that is what is driving a lot of the belief that labour is relatively overtaxed.

There are “relative price” issues in the tax system, and some areas where two people with the same lifetime income will get taxed differently (such as when people have more volatile income). We should be thinking about the relative impacts of this more methinks.

So if Sam Morgan wants to claim that he sat on Trademe for seven years, adding no value, then sold it for a huge ‘capital gain’… well, he might want to reconsider that statement. 😉