Posts Tagged ‘John Banks’

With the results of the election out, I am very happy to see that there will be no introduction of a Capital Gains Tax for property and business owners, as well as no ring-fencing of tax losses brought in for the tens of thousands of property investors that make tax losses on their portfolios.

These were an important part of Labour’s Own Our Future policy.  Not only did the majority of voters reject them on Saturday with Labour’s lowest polling in their 95 year long history, but Labour’s campaign strategy team (led by Trevor Mallard) pulled any mention of these for unpopularity reasons in the leaders’ debates, and Phil Goff focused on stopping asset sales instead.

My take on introducing CGT is that if it wasn’t political suicide why then didn’t Helen Clark and Michael Cullen implement them in their 9 years of Government, particularly after Labour crushed a weakened Bill English led National Party in 2002 (National got just under 21% of the party vote back then).

Capital Gains Tax is a poor policy that “would lead to hoarding of property, would take a long time to have any effect and would discourage property investment and push up rents”.

Ring-fencing tax losses isn’t political suicide as most people don’t understand it – however this is the very policy Bob Hawke (PM) and Paul Keating (Treasurer) implemented for the Australian Labour party in 1985, only to rescind it 2 years later in face of their supporters backlashing against higher rents.

Labour will need to learn that you can’t legislate into prosperity half the population, by striving to legislate the ‘rich’ out of prosperity, hence the attempts at demonising John Key as a merchant banker with no social conscience and envious attacks based on his wealth.  Looking at the National led Government, with support from ACT (John Banks) and United Future (Peter Dunne) guaranteed, there are 62 votes, with a maximum of 59 votes against them.

It is likely the Maori party (3 seats – Turia, Sharples and Flavell) will however play an important part in Government to give 65 seats for, 56 against, as National need to look at multiple coalition partners to retain power in the 2014 election.  As a result the policies of the centre-right including the status quo of having no Capital Gains Tax and no ring-fencing of tax losses will remain in place.

Lets look at what this means for property investors.

Impact on Property Investors’ Cashflow

Slightly Positive - there will be cashflow gains from a stronger economy that doesn’t take on as much debt as Labour would for its increased Government spending campaign. After the very dark clouds over Europe move away, business confidence will be restored, hiring will begin and with National’s more friendly employment policies (eg. not raising the minimum wage to further punish elementary or semi-skilled younger workers), there should be higher employment.

This in turn will lead to steady rent increases and hopefully a reduction in the amount of cases going to the Tenancy Tribunal – The Department of Building and Housing tell me approximately 75% of cases they hear are for rent arrears.

Auckland’s constrained housing supply with the large costs of development and urban limit will be maintained. Perhaps the most entertaining thing would be to have John Banks as Minister of Local Government, or Minister for Auckland to keep an eye on the Supercity Praetor Len Brown.

Almost perversely Labour’s ring-fencing of tax losses policy would have meant a number of investors would have sold their properties, and this would have reduced supply increasing rents even further. This would have been a nice cashflow transfer payment as the middle and lower income New Zealanders would have been given transfer payments (increased benefits, accommodation supplements and such like). A lot of property investors love Labour – just look at how well the property market did in 2002 – 2007.

The most important thing though is not to have NZ given a Sovereign credit downgrade again, as this would push up interest rates and restrict access to credit that help underpin property as an excellent investment choice for many.

This means the Government will have to look closely at borrowings, and I believe have to revisit the retirement age of 65, which is simply too early in this day and age.  It was fine when implemented in 1898, but in 2011 people live a lot longer with medical, pharamaceutical, healthcare and diet advances and a more sedentary lifestyle with lower rates of smoking (both my grandmothers were in their 90s when they died).

Other good news is that the Tenancy Tribunal will be less busy and have shorter wait times with redirection of Government transfer payments (benefits and accommodation supplements), so they are paid directly to landlords.

Since Housing New Zealand has limited funds, many Landlords take up the slack and invest in lower value areas providing a kind of social housing service to tenants. It is great to be paid by the Government who are generally far more reliable than individual low income tenants. Up until now this has been up to the discretion of individual WINZ case managers. From speaking with many other APIA members who hold a number of properties, tenants couldn’t say the landlord wanted the rent direct credited, the best way was for the tenant to say something like: “I struggle in paying my rent, so would really appreciate you helping me out by paying my Landlord directly”.  Some Tenancy Tribunal waiting times for a hearing have been unacceptably high – so this will be a welcome respite.

Impact on Property Investors’ Equity

Neutral - The status quo is being maintained and other market drivers are more at play.  Capital Gains Tax and ring-fencing of tax losses would have reduced house prices, as investors sold off properties because of the tax impacts.  This would in the long-term equal out, but not without short and medium term pain.  I think the National Party should have said that if CGT were introduced that they would rescind it when they returned to power as it is not part of a more aspirational and brighter future.  The real equity gains come from another boom in a property cycle.  That is not anytime soon.  However a recovery is already underway in some parts of Auckland, particularly in the higher decile areas led by home-owners and immigrants into Auckland.

Final thoughts on the election

Whilst I still prefer a four year election cycle to better encourage longer term thinking, we have a three year cycle and the popularity contest means Labour have a lot of work to do to win the 2014 election, including getting a new leader more palatable to the country and to move that party towards the right to get votes off National and NZ First.  The poorly worded and overly confusing voting system question for the referendum should have simply asked which voting system do you prefer and listed 4 or 5 choices.

Some polls were remarkably accurate, others didn’t fare so well.  John Key’s “show me the money” line to Phil Goff on how much revenue CGT will bring in was a highlight of the campaign, and the poorly handled teagate incident at Urban Cafe in Carlton Gore Road, Newmarket was a lowlight.  It also brought back Winston Peters and Andrew Williams who some in the media have affectionately termed the “leaky mayor”.  It will be interesting to see the impact that NZ First have in Parliament.

The recovery of our great nation’s economy is what we are striving for.  The economy underpins our housing market, not the other way around despite what others may tell you.  When our economy is performing strongly, there is good money to be made in being an accommodation service provider.  Congratulations to all those elected MPs, to National on winning another election, the Green party for getting their highest party vote ever and to NZ First for returning from the dead.  All the best to Phil Goff and Don Brash for the future as they step down from the leadership of their parties, and best wishes to their replacements.  Now we have voted in a Government and they will try to support and improve the system and framework we have to live our lives – the hard work is now up to us to live and improve our lives.

Disclaimer: All information provided in this blog is provided on a best-endeavours basis, and is generic information. It doesn’t constitute financial, legal, accounting, taxation, building or any other advice. The author encourages all readers to obtain the appropriate financial, legal, accounting, taxation, building or any other advice from a suitably skilled professional before making any decisions that could impact you financially.

Last Tuesday the 10th of August 2010 I had the sincere pleasure of introducing two of Auckland’s finest sons, in the Honourable John Banks Mayor of Auckland City and Len Brown Mayor of Manukau City, to the stage for the Auckland Property Investors’ Association August Keynote Meeting – the Super City Mayoral Debate.  With Len Brown (29.6%) ever so slightly edging out John Banks (28.7%) in the latest NZ Herald – Digipoll Mayoral Survey, and Andrew Williams the North Shore City Mayor only polling a very distant 3rd at just below 4%, we have a two horse race for the battle to become the first Lord Mayor of a United Auckland.

We had 15 minutes from each of the mayoral candidates, before structured questions from the APIA Board were asked by debate facilitator Andrew King (NZPIF Vice President, best-selling author and a previous APIA President), and then we had questions from our audience of some 270 – 300 people.

The topics were broad and included questions on transport, rates, planning rules, charging water to tenants like all other utilities (telephones, broadband, power, gas, Sky TV etc).  With rates being the second or third biggest expense to most property investors in light of depreciation claims being slashed earlier this year by the Inland Revenue and Government, this is very topical.  The last thing we want to see is big rate rises for property investors.

Len Brown

Len Brown talked of a need for a unified Auckland and that our city needs a Mayor that is a builder and a uniter.  His aspiration was to build the most liveable city in the world.  It would be a place to invest that invests on all great outcomes:

• environmental sustainability and a commitment to be an ecocity
• a powerhouse of an economy
• diverse social communities

The key is to build the city on inclusiveness and on communities, fairness especially in rate setting, and that Auckland needs to regain its “mojo” (eg not building the waterfront stadium and the Queens Wharf issues for the Rugby World Cup 2011 headquartered in Auckland).

John Banks

John Banks gave a strong presentation and his answers to questions gave a strong indication that he has issues with the Auckland Regional Council, and it spending massive amounts of money on legal fees, and building a united Auckland based on:

• opportunity
• security
• prosperity

Banksie wants to make Auckland an even better place to invest your money, make a dollar, pay your taxes and pass on a legacy to your kids.  Banks also rightly said that we would be competiting with cities not nations in the future, particularly our Australian counterparts in Sydney, Melbourne and Brisbane.

Minor skirmishes

Skirmishes in the debate included Len Brown questioning the issuance of over 40,000 fines for vehicles driving in bus lanes in John Banks’ Auckland City, and John Banks trumping Len Brown’s assertion that it is appropriate to have this meeting in the under the shade of Maugakiekie (One Tree Hill) and just down the road (Puriri Drive) of the statute of Sir John Logan Campbell, the founding father of Auckland, by emphatically saying “I wear the robes Sir John Logan Campbell wore”.  There were a few very minor altercations in this debate, but the mayors were of course very well behaved and both spoke excellently and would be fine leaders of the magnificent city that is Auckland.

How the Super City is changing the Local Governance Model for Auckland?

Current Situation	Government decisions
1 regional council 3 district councils 4 city councils 30 community boards (145 members)	1 Auckland Council 20 to 30 local boards (125 – 150 members)
1 chair elected by regional council 7 mayors elected at large, within cities and districts	1 regional mayor with governance powers
13 regional councillors 96 territorial authority councillors 145 community board members	20 councillors 125 – 150 local board members
Local Electoral Act provides for Maori representation if there is community support	Local Electoral Act provides for Maori representation if there is community support
8 Long-Term Council Community Plans (LTCCP – a 10 year plan)	1 LTCCP
7 district plans	1 district plan
2 councils with plans governing waterfront and CBD	1 Waterfront Development Agency
2 rates bills per property	1 rates bill
8 rating authorities	1 rating system
3-yearly terms for elections	3-yearly terms for elections
8 IT data systems	1 IT data system
8 local transport entities	1 regional transport authority*
8 water and wastewater providers	1 water and wastewater provider – volumetric pricing
Limited alignment between central and local government on improving social well-being	Government to find better ways of aligning central and local government action on social well-being