Before the sick puppy that is the Labour Government gets voted out in big numbers late next year, they will want to try to be moden day Robin Hoods (robbing from the rich and giving to the poor). I really am not impressed about government policy lately, so am firing up a bit in this opinion on my blog at our current inept Government.
Labour – the knock down party
They will attempt to close the gaps by knocking down those who try to do it themselves and get ahead. “Closing the Gaps” is their policy rationale, the effect is to drive out many successful New Zealanders and NZ companies overseas, and to demotivate many people.
We have all heard on talkback, seen on TV the effects that working for families is having. In many cases it is more of a case of not working for more money than if you worked. The system is just wrong when if you choose not to work you can get more money than if you did work.
Obviously I can’t respect our Treasurer Dr Cullen’s financial opinions – to me they reek of someone that was given a scholarship to a private school and then they were harassed and made to feel inferior every day of their school life.
His ring fencing of tax losses is Labour’s latest such wealth bashing idea. They are proposing to ring fence tax losses to the entity that made the loss (most pertinently this will mean that the over 100,000 LAQCs will be largely a totally ineffective structure as losses they make will be stuck inside that LAQC {a company} until the positive returns make up for this). This will hurt many investors significantly – particularly employed ones. Self-employed persons and Business owners should be using trusts anyway and they will still have flexibility in their distributions (eg. beneficiary distributions to other Trusts). I think Dr Cullen and Labour are being rather myopic in their thoughts as the ripple effect would be that residential property investment is not such a viable option, and as such the burden to house the poorest New Zealand would fall upon an already struggling Housing New Zealand.
Other comments on Ring Fencing
APIA President and NZ Property Investors’ Federation Vice President Andrew King forwarded me some articles and links on this that help explain the impact. From ANZ’s Property Focus we have:
“We believe ring-fencing property investment tax losses lacks a sound economic rationale. If policy-makers are serious about helping the Reserve bank contain inflationary and housing pressure, the solution resides in looking at supply constraints, productivity, savings, and the enforceability of the existing rules towards housing – all areas with the potential to deliver better economic incentives. The introduction of
such assistance is distinct from ancillary policy instruments, which we believe would deliver additional distortions.”
The full text can be found at http://www.anz.com/nz/about/media/newslibrary.asp?Property_Focus
Then PriceWaterhouse Coopers Chairman and tax expert John Sherwan stated in the Business section of the Dominion Post last week:
“PriceWaterhouseCoopers chairman John Sherwan says draconian action (ring-fencing of tax losses claimed on rental properties) would be unjustified. ‘You hear a lot of nonsense about these tax breaks for landlords having to end. But property investors don’t get any special tax breaks. It’s a complete misunderstanding because exactly the same tax regime applies to any kind of investment’.
Mr Sherwan says one of the great advantages of the tax system is that it has created a level playing field for investors. Whether they want to put their money into shares, or starting a Business, or building a small rental property empire, the tax treatment is the same. This means investors are more likely to make rational choices about what they do with their cash.
The Muldoon era left the tax system riddled with distortions and it has taken several decades to straighten it out, he says. “For the Government to now do something, just for the sake of being seen to do something, will wreck what we have been spending 20 years building.”
More on this on http://www.stuff.co.nz/stuff/4139119a1864.html
Now is the time for action. Stop being a passenger. Get involved in your local property investor’s association now, talk to your MP, talkback and fight. Do not allow the Government to destroy your hard earned wealth. One voice does very little, but lobbying and a tide of public opinion does a lot. Destiny is in your hands.
Conclusion
It is time for Labour to put some tennis balls in their own mouths (as Labour Minister David Benson-Pope did to a high school student of his) and bow out gracefully before they wreck further damage that will take years to clean up.
John Key is the right man to lead New Zealand with National. He is a diversified investor, obviously from merchant banking days being strong in equities, commercial paper, bonds etc, but he also owns 6 properties.
N.B Disclosure: I am happy to disclose that I am a former Young National Party member and support centre-right leaning parties and candidates in local and central government. I am passionate and moderately active in politics and look forward to seeing Labour continue their self implosion.
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