According to Swiss-based Research Institute, Credit Suisse, New Zealand is now the world’s fifth richest country – with only Switzerland, Hong Kong, the US and Australia ranking higher. However, as with many of these reports, I’m a little cynical – not because I doubt the overall assessment, but because up until this year Credit Suisse hadn’t actually been bothering to include New Zealand in the Survey. Which begs the question: if you can overlook the supposedly fifth richest nation – how robust and accurate is the rest of your data?
But I digress. The general message of the report, and others like it, is that New Zealanders have been getting wealthier over the past 30 years. This is undoubtedly true and is a testament to the Rogernomics reforms of the 1980s and an endorsement of the largely sound economic management of successive Governments, of both flavours, in the years since.
The Credit Suisse report goes on to note two things which are a strong feature of our economic prosperity. It says that kiwi wealth is ‘reasonably evenly distributed’ (which means that our wealth is spread ‘more equally’ than most countries), and it also says that our wealth is partly due to our house prices. Both things are important because they tell us something about the mix of policies which has worked for us and should give us reason to be very cautious about doing anything which upsets that success.
The first of these – relative equality – is notable because it is consistent with the egalitarian ethic which underpins our nation and which is at the heart of our strong social conscience and our desire to give others ‘a fair go’. However, it isn’t just our sense of fair play which has made us ‘more equal’ – it’s also the ‘Working for Families’ tax redistribution package which was introduced during the Rogernomics era and which has evened out extremes in a way which few other nations have been able to achieve.
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That’s not to say that ‘Working for Families’ is perfect – in fact it was described as ‘communism by stealth’ by John Key back in 2004 because of the extent to which it penalises one group of kiwis in favour of another. Under current settings, the tax paid by hundreds of thousands of kiwi families is offset by ‘tax credits’ – and in many cases, an accommodation supplement – which means that they effectively pay little or no tax. But this is contrasted against the just 11% of kiwi taxpayers who are classified as ‘wealthy’ (because they earn over $90,000) and who pay, between them, almost 50 percent of all PAYE. There are many who would say that such a stark contrast in tax treatment of kiwis is the antithesis of ‘fairness’ – but few of the so-called ‘wealthy’ who are carrying that tax burden are complaining so perhaps an argument could be mounted, reinforced by the Credit Suisse report, to say that current settings are about right.
Of course, none of this would be possible without overall growth in the economy. Re-cutting the pie without also making the pie bigger is a recipe for disaster and New Zealand needs to continue doing more to increase the overall wealth of the nation.
Which brings us to the other Credit Suisse observation – that our wealth is also partly due to our house prices. This will have come as no surprise to anyone who understands the New Zealand property market and is in rebuttal to the claims of those who say that buying a home or investing in property adds nothing to the overall economy. In reality – when your home increases in value that increase in ‘equity’ can be used fund travel or major purchases, buy a business, pay for your kids education, or support you in retirement. Conversely, if kiwi house prices had not increased to the extent that they have over the past 4 decades our ability to do these things would be severely impacted and we would be less ‘wealthy’ as a result.
This is an important observation and should be enough to encourage political parties to review their housing policies. Those that do this openly and honestly will quickly recognise that such measures as the ring-fencing of investor tax losses, loan-to-value restrictions on house deposits and the ever-present ogre of capital gains taxes don’t just damage the housing market – they run the risk of eroding the wealth of our nation.
- Ashley Church is the former CEO of the Property Institute of New Zealand and is now a property commentator for OneRoof.co.nz. Email him at [email protected]
