Forget about whether the McLeod committee’s suggestion that New Zealand should have an annual tax on housing equity is political poison or not. Mortgage bankers Cairns Lockie reckon the idea is just plain dumb.
It comes up with three major problems.
"Pensioners on a low income but with high valued properties will be severely penalised," it says.
How severe can easily be seen in how the proposed tax would work. Cairns Lockie’s example is of a $300,000 house with a mortgage of $100,000. Assuming a risk-free rate of 6% and a marginal tax rate of 39%, the annual tax bill would be $4,680.
"Those who decide to pay off their mortgage more quickly will be penalised considerably more than those who use their mortgages to purchase lifesyle assets such as expensive boats and cars," it says.
And "there will be a number of avoidance schemes. Those who are self-employed will be tempted to create loans to their businesses to negate this wealth tax.
The McLeod committee was set up by the Labour/Alliance government to review New Zealand’s tax system.
