Bernard Hickey is devastating in his appraisal of how under funded our social infrastructure is and how cheap mass immigration is to blame…
In my view, this is the culmination of 30 years of under-investment in health infrastructure to ensure Budget surpluses and low public debt, but with low income taxes and no wealth taxes. This coincied with a tipping point in the 30-50% pay gap between Australian and New Zealand health sector wages. Australia’s decision to announce on Anzac Day this year it would welcome any New Zealander as a first class citizen accelerated the exodus, along with significant upfront bonuses and relocation pay offers from Australia’s health system in the wake of covid.
All roads lead to the 30/30/30 fiscal rules. Both National and Labour-led Governments have tried to keep net debt and the size of Government spending well under 30% of GDP by running surpluses whenever possible for 30 years, but without a capital gains or wealth taxes. That was fine when the strategy was set in stone in 1989 when population growth was low with an ageing population. But politicians, planners and ultimately median voters realised in the last 20 years they could generate GDP growth, higher land price inflation for leveraged tax-free capital gains and get lower interest rates by engineering 1.5-2% population growth per year, but without enough infrastructure investment. It worked until it didn’t, which is now.
This accidentally-on-purpose ‘strategy’ of engineering low taxes with unfunded population growth happened because politicians and ultimately voters decided not to talk about or create population growth or infrastructure investment strategies. That was largely because it would become clear in the conversation that the 30/30/30 rule was unsustainable without higher user-pays charges and taxes on households, especially through wealth or capital gains taxes. That higher tax share of GDP for investment is needed to pay for higher levels of infrastructure spending that goes with this population growth, which was three times faster than officially forecast and still is.
Yet we just had another election, at least the fifth in 15 years, where the same accidentally-on-purpose strategy of unfunded population growth to keep taxes low on today’s home owners was adopted.
So how does this end? Tens of thousands of young renters are opting to leave the country and are being replaced by over 100,000 (net) new workers on temporary work visas. Taxpayers are now somewhat surprised and alarmed that the EDs are full when they need them, largely because politicians from both sides of Parliament assured them they could have it all: low taxes AND a fully publicly-funded hospital system.
Labour’s disintegration and reintegration of the DHBs into one national authority was the latest attempt to square an impossible circle by pretending more could be achieved by spending the same amount. Somehow, we are promised, less can be spent in the ‘back offices and we’ll get the same level of service at the front line.
The whistles of the escape valves in our political economy are;
- rising net migration rates of residents, including some of the 200,000 temporary workers awarded residency last year after the covid lockdowns;
- more desperate pleas from nurses, doctors and administrators for help, while administrators and politicians limit spending growth on hospitals, staff and drugs to ensure their Budgets return to supluses; and,
- the richest taxpayers will increasingly opt for private health insurance.¹
…the Labour Party are strapped into the exact same neoliberal economic straightjacket as National is and that is why nothing ever gets done in NZ because the self serving public service Professional Managerial Class Consultants ensure it never happens while the interests of the Landlords are now calling the shots.
Bernard Hickey calls it the ‘Dark Heart of NZ’s Political Economy‘, and it’s the Real Estate Pimps protecting their golden goose while Governments simply import fake growth from exploiting migrant workers but not taxing the rich to pay for the infrastructure…
The failure of yet another pre-fabricated house builder1 and a legal threat2 against our biggest council to force more greenfields development are two more signs, if we needed them, that our economy and society are now just a residential land market with bits tacked on.
These two latest events again demonstrate the massive skew in our tax settings in favour of housing land ownership has so changed the DNA of our political economy that nothing really changes without the removal of that skew. They also show the election debate we’re having has yet again failed to address the three elephants in our societal room:
- residential land will have to be taxed and business investment incentivised to change the land-seeking, inequality-widening and low-capital-investment biases now embedded throughout our economy, politics and society;
- our infrastructure financing and taxation systems are totally broken and inadequate at both central and governmental level, yet no politicians want to have honest conversations with each other or voters about how to fix it by increasing taxes and/or user-pays charges; and,
- the bipartisan and accidentally-on-purpose Government policy settings enabling and encouraging population growth of 1.5-2% per annum through migration of guest workers dominates our economic and societal outlook, and remains undebated and unacknowledged.
…none of this is being acknowledged or debated…
The dominant way that house builders, land owners, land bankers and households make outsized profits and capital gains in Aotearoa-NZ is to buy more land, preferably with a big mortgage, and wait. They don’t need to build a house efficiently, or any house at all. They don’t need to build a profitable business or invest in shares in someone else’s business. It’s always, always about the business of driving up land values and using mortgage debt to increase the leveraged returns, which aren’t available from other investments.
Home owners and land bankers just need that land zoned residential, and can then wait for the leverage, time and the failure of central and local Government to build the infrastructure to cope with regular 1.5-2% population growth to deliver the rents and untaxed capital gains to make the owner far richer than they ever be from saving wages or profits.
Working in a job or profession or investing in a business or managed fund is a mug’s game, compared to the leveraged, spectacular, government-guaranteed, ongoing and tax-free capital gains on residential land. The differences in incentives between investing equity in leveraged-up land and investing equity in unable to be leveraged stocks or business investments are so vast. In other countries, capital gains on land and other asset value increases are taxed, while savings in funds that invest in businesses receive tax incentives, either on the way into the fund or in the fund itself. Savings in our investment funds are taxed throughout.
This royally skewed set of incentives is why our housing market is worth NZ$1.6 trillion, which is four times our GDP (NZ$400 billion), 10 times the value of our listed companies (NZX total market value of $160 billion), eight times larger than our total managed funds sector ($200 billion including NZ Super Fund and ACC) and 16 times larger than our only-very-marginally-incentivised household pension funds (Kiwisaverat $100 billion). For comparison, Australia’s housing market is worth the same four times GDP, but is worth four times stocks, three times and funds under management. In the United States, its housing market is worth twice GDP, once the stock market, twice funds under management and 7.5 times its comparable ‘subsidised’ household pensions market, which is known as 401k in America, rather than KiwiSaver.
This dark heart of our political economy shows up regularly in all sorts of ways, in particular the focus of investors, developers, politicians and equity-rich home owners on greenfields development of clearly-titled and mortgageable plots of land. An actual occupied house on the land is a bonus, but not necessary to be exposed to these gains.
…I told you the Real Estate Pimps were buying this election!
An RNZ analysis of political donations since 2021 shows people involved in the property industry are giving the most – and almost all of it is going to National, ACT and NZ First.
Since 2021, people aligned with the property industry have donated more than $2.5 million to political parties.
More than half of the cash from the property industry went to the National Party (53 percent), followed by ACT (32 percent) and New Zealand First (12 percent). Labour received 2 percent.
Real Estate Pimps have donated millions to National and in return National have lifted the Foreign Buyers Ban and will give landlords the right to kick tenants out with no notice.
National and ACT will also role back Tenants rights while reopening Landlord tax loop holes.
There is a class war on renters but we don’t have the political vocabulary to articulate it.
By opening NZ up to foreign speculators while reopening landlord tax loops holes, National and ACT are opening NZ up for sale to their overseas wealthy mates.
Let’s remind ourselves just how vested the Landlord class is..
…there is an unspoken promise between the neoliberal State and the untaxed capital gains private landlord class that the neoliberal State never builds enough State Houses to alleviate housing desperation so that the untaxed capital gains private landlord class can exploit that housing desperation ON TOP OF getting a $2Billion annual subsidy in the form of the Accommodation Allowance EVERY SINGLE YEAR!
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