The Government depreciation blunder

[OllyN]

My latest column below.

Pressure from all sides
March 2010

NZ Prime Minister John Key made a fundamental blunder when he recently delivered to Parliament his views -- the government's views -- of the proposals from the Tax Working Group.
Quite rightly he booted out the looney leftist ideas of land tax and capital gains tax (typical notions that arise from those whose lives are filled with envy whenever they see people other than themselves doing well).

However he caved in on one recommendation and gave a clear signal that the treatment of depreciation on investment property would be attacked in the Ministers of Finance's Budget due out in May.

What the new measures would be was not made clear. No details were given ... so the public has been left guessing about the imminent new measures.

Neither, it seems, has anyone considered what the flow-on effects may be -- and what unintended consequences may eventuate.

Even more disappointingly, by innuendo the Prime Minister appeared to go along with the suggestion that property investors act as some kind of free-loading extortionists ripping of the system while swimming up to their armpits in ill-gotten gains.

It appears that he chose to be 'the populist' -- swayed by the ignorant masses who bay for blood, revel in public hangings, while cutting everyone down to size at the first opportunity.

The government as a whole has stumbled badly this time, which is hard to understand given that the Prime Minister and the Minister of Finance, Bill English, both have a good background in finance. Surely their collective wisdom would have taught them one thing:

Uncertainty creates unease and unease creates distortions.

Initially I believed that the proposed changes to depreciation would do little harm. On further research and discussions with others, the ramifications and problems became clear and I am now of the opinion that any major changes would indeed be harmful.

I would not be surprised in the least if the suggested depreciation changes will be watered down (or even abandoned all together) when reality finally gets through the six inch thick skulls of those poor unfortunates whose task it will be to write up the proposed legislation.

link: http://www.ollynewland.co.nz/articles.php

[fatfishandchipman]

This is why businessmen make bad politicians. Government is not a business. It is not a for-profit venture – it never has been nor ever will be. The problem with successful businessmen is simple -- their egos – hence the desire for politics.

In the end reality will calm these stormy seas: 15% GST and probably nothing more. The depreciation/appreciation issue is more of a figurative word problem than a real issue that will change the real-estate landscape, of this I'm sure.

When house prices double – then triple – and then quadruple you have just entered the real estate twilight zone. And then, to add insult to injury the Spruickers that ran riot through the streets of New Zealand, thieving and grubbing, scamming and stealing. The New Zealand property market is a mess! We’re in for a correction all right!

This kind of thing scares people – especially government people – no matter their background. Government’s behave the only way they know how – knee-jerk reaction – and legislation is the weapon they wield. This is how it is.

[k1w1]

It's a little difficult to describe the notion of a capital gains tax as coming from the loony left when NZ is one of the few (if not the only) first world country to not have such a tax.

I also laughed at your comment about Key choosing to be "the popularist'. He's so far proven himself to be nothing but that.