【MARS Blog】The Party is over

The party is over and this comment can either be taken literally with the election coming up or metaphorically with what is happening economically around the globe.

Imagine an Octopus with the head being the Labour government and the tentacles being the restrictions put forward in the form of government policies and the ship is our beloved country.

Tentacle 1 (1)

The increase of the Bright Line test from two years to five years, then again to ten years.

This move was designed to shift investors towards new homes which is tax-free. What was forgotten here of course was the high cost of building, the red tape from the Councils (even the Government’s Kiwi-build couldn’t break through) and the high land costs; all of these factors pulling investors away from new builds and hence has been overly successful.

Tentacle 2 (2)

In the Tenancy world, letting fees were abolished/time extension on rent increases (by double)/removal of ‘no-cause’ terminations. This helped the tenants to some degree but the increased risk played their part in rent increases to cater for this risk.

Tentacle 3 – Mortgage interest not deductable so even though you may be negatively geared paying money out of your pocket every month, the IRD will still see you as receiving a profit and will stretch out its grinch-like claw for tax due. (3) This will likely spur landlords to put up the rent to offset some of these losses.

History has shown that tax increases during a recession are a recipe for greater unemployment and economic loss, yet the tax train just keeps getting bigger as more carriages are added on. NZ, which is the engine in this metaphor, will slow down further with the extra weight placed upon it.

Most of us who have been in the industry for twenty years plus, know that heavy regulation aimed toward property investors/speculators would have minimal effect. It would only be interest rates that would slow down the property market an sure enough this has now come to pass.

Removing the farm fence around property investors and replacing it with Trumps wall will not go without consequence. I believe many property investors are in a holding pattern now, waiting to see if Labour survive the election.

If Labour get back in and the proportion on non-deductable interest marches on, then many property investors may sell. This will do two things:

The total rental pool of rental properties in NZ will be reduced which will in effect put up the rent for the remaining houses.
The extra second hand stock on the market will compete with new builds for the first home buyers and new build developments will slow down.

The Labour government policy is designed to stop the above two points from occurring yet their policies seem designed to make them a foregone conclusion. Now I’m not saying that the policy makers do not know what they are doing in creating new law, but it seems as though the party are aligning themselves very closely with a general law that has infiltrated many of their policies, that law is commonly known as the ‘Law of Inverse Consequences’.

Tentacle 4 (4)

Introduction of a 39% tax rate – This high tax rate designed for those earning more than $180k per annum is believed to swell the governments tax coffers by an extra $550 million. The government has witnessed 23% of the tax collected coming from hard working individuals that earn over $150,000 (3% of the workers) so why not hit them again to see how much we can make them bleed.

The expected effect of this will be that 3% of the population will be paying 25% of NZ’s tax take. The first thought that comes to mind is a dystopian society in ‘ATLAS SHRUGGED’ where the successful individuals fight against those that have the intent to take their winnings from them.

Tentacle 5 (5)

Separating the health Boards into an amalgamation of Health boards around NZ to make a NZ Health Board and an extra one called the Maori Health Authority. With the Maori population being 16.5% and Asian population being 15% in 2018 (6), my money is on the Asian’s pipping the Maori’s at the post to take second place when the statistics for the latest census are published.

Some see this move as polarising or separating New Zealanders into two groups, which I don’t believe is ever a good thing. Once you label a group, the occupants in that group will tend to behave collectively in the same fashion. The isolating of a group of people in this fashion turns them into victims and encourages more to follow.

The new NZ Health Board should be able to adhere to the needs of Asians, Polynesians, Maori’s, Europeans, Bolivians, Cossacks, Polynesians, Latin Americans, Fijians and Indians and other ethnicities that flock here without having to have separate health boards for all of them. No-one should get priority over another just because they register as being in the same group that some of their ailing peers are in.

Tentacle 6 (7)

The Three Waters system, designed by the Labour government to manage drinking water, waste water and stormwater, will come into existence from early 2025, unless of course, the National Party win the election in October 2023. Ten boards will take control from the sixty seven boards around the country and all investment decisions will be made by these ten Boards. The small print in this agreement mentions that 50% of the votes on these investment decisions will be held by one group, the mana whenua. This has been a contentious move by the government as they are effectively monopolising the decisions on these assets to one interest group.

Tentacle 7

The three strike rule.(8)

This rule instructs judges to impose the harshest sentences on people that get sentenced for the same crime three times. Labour has thrown this out due to the ridiculous sentences that some people received for minor crimes. In my view, if you get sentenced three times for doing the same thing, then the previous lessons have not been learnt, so yes, throw away the key for a while and when they get out, see how many of them do it a fourth time. The assailants can take comfort that they live in NZ and not Sudan, where three men received three years prison a few years ago and hand their hand amputated for stealing. That was their first offence (9).

Tentacle 8

The Income Insurance Scheme (10) was introduced to provide compulsory insurance for your income. It would be a compulsory 2.77% tax (insurance premium) administered by ACC to cover 80% of your income for six months after you lose your job. It sort of makes sense until you look at the vast majority of NZers that maintain their jobs will be financing the few that don’t. In addition to that, another tax in 2023 is a bridge too far in this high inflation era when people can’t afford food and lodgings. In my opinion, if the few people who believe they will have a lot to lose if their job disappear, then they should acquire income insurance, just like they always have done, or were able to.

Conclusion

Some of the above have some merit however as Sir Isaac Newton once famously stated, ‘Every action has an equal and opposite reaction’, I have found that the Labour government has not thought through the long term or wide-reaching implications of their policies. This government has shifted more to left wing politics over the last term which leads to a wild swing back when the opposing party wins an election.

This will be seen with the above as National intends to cut off these eight tentacles listed above if they come out as the winners in October. When this happens i.e. the opposing parties cancel the actions of the party that came before them, the country stays in a holding pattern and doesn’t go anywhere. Ideally, the smaller party’s that are more centrist are needed to balance the bigger parties and stabilise the country.

References

【MARS Blog】The Party is over

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