4. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
What effect would ring-fencing any losses from investment in housing have on house prices and rents?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
Given the effective tax advantage on investment in housing it should cool the housing market, particularly over the longer term, The impact on rents is less certain, particularly as it may become easier for those renting to purchase their own homes. Generally speaking, one would expect a convergence between house prices and rentals, over time, as a return on investment.
Can the Minister confirm, then, that the effect of ring-fencing losses would initially be to force rents up and to force everyone’s house value down?
Hon Dr MICHAEL CULLEN Link to this
A change of this sort takes some time to occur. For example, when ring-fencing was removed in 1991, we did not move immediately to a position where rental losses outweighed rental income. That did not occur until about 1996.
H V Ross Robertson Link to this
Can the Minister advise the House whether the Government is taking any steps to support people who might want to save for their own homes?
Hon Dr MICHAEL CULLEN Link to this
Those who join the KiwiSaver scheme, which comes into effect on 1 July, and save 4 percent of their income for 3 years will have access to a first-home deposit subsidy of $1,000 per year of membership, up to a maximum of $5,000 for 5 years for each member, subject to certain eligibility criteria—so, potentially, $10,000 for a couple. The Minister of Housing is currently developing a shared equity scheme, and this will be considered as part of Budget 2008.
R Doug WoolertonDoes the Minister share the views of the Governor of the Reserve Bank and New Zealand First that rampant immigration has had a major impact on house prices and rents, and will he be seeking to limit immigration numbers to help ensure that Kiwis can still afford to own their own houses in their own country?
Hon Dr MICHAEL CULLEN Link to this
I do not think it is fair to describe Dr Bollard’s view as being that “rampant” immigration has had an impact on inflation. He pointed out that, obviously, an increase in population, whether by immigration or by other means, has an impact upon the housing market. Equally, of course, immigration has served to provide additional labour into a tight labour market, which otherwise might have seen high rates of increase in the cost of labour.
Gordon CopelandIs the Minister open to alternatives to the ring-fencing of tax losses, for evaluation against the criterion of increasing housing affordability and as a supplementary monetary policy instrument, whether arising from Finance and Expenditure Committee inquiries or from elsewhere, including those alternatives that other parties in the House may care to offer?
Hon Dr MICHAEL CULLEN Link to this
I am always open to alternatives and discussion. If the member is capable of bringing another 48 votes with him on this matter, I will be extraordinarily grateful.
Madam SPEAKER
Rt Hon Winston Peters Link to this
I raise a point of order, Madam Speaker. I was on my feet asking for a question, and you gave the question to somebody who was sitting in his seat. That is not the way it is done, Madam Speaker. I was on my feet.
Yes, well, I am on my feet now, Mr Peters. I determine who gets the call. New Zealand First had had a call. There is a convention that the call goes on rotation. When I do not do that, that member, I am afraid, also criticises the Chair.
Rt Hon Winston Peters Link to this
I raise a point of order, Madam Speaker. Would you please explain to me which Standing Order, Speaker’s ruling, or convention requires you to seek someone who is not on his or feet and give that person the question?
Hon Dr MICHAEL CULLEN Link to this
Speaking to the point of order, I say that the member raises a point that is useful in a wider context, because a habit has developed in the House—I think partly because of the rotation of supplementary questions—whereby a lot of members do not now actually rise and call before receiving the call. I think that often the Speaker sees that, for example, it is time for a Green call, and if a Green person is rising to his or her feet, the assumption is that he or she is doing so to ask a question. I think it would be helpful if we reverted to the more traditional practice where people have to rise in their seats and call. It is quite correct that Mr English did not call at that point, and began to sit down again when Mr Peters sought the call at that point. Madam Speaker, it is worth bringing to the attention of the House that it is helpful from your perspective if people do actually stand and call when they are seeking to ask a supplementary question.
I thank the member for that. In the past I had noticed that Mr Peters had risen then actually sat again. I will consider the issue, and I will come back tomorrow with a considered ruling on it. In the past, if parties did not get the call in the rotation when they were expecting it, then matters were raised—as the member has done himself. That is fair enough. I think we do need some clarity on this. I also am aware—and I want to put this as sensitively as I can—that some people take some time to rise to their feet. I am trying to be sensitive to that, as well.
Rt Hon Winston Peters Link to this
If the Minister is saying that the job market was filled by high immigration numbers, then what evidence does he have that is different from the briefing of the Department of Labour post election 2002, which said that up to that point fewer than one out of two immigrants had been placed in the economy; what has changed in the last 4 years to make that false?
Hon Dr MICHAEL CULLEN Link to this
What has changed in part is the significant change in the criteria for immigration, to place far greater emphasis upon the general skills category. Of course, if a person is immigrating with a family, then not all of that family will be entering the job market, necessarily—particularly if there are children. But the reality is that if the member cares to look at the data over a significant number of years, he will see that the balance of immigration has moved very significantly in the direction of an emphasis upon the skills element.
What does the Minister believe will be the effect on homeowners with large mortgages when their 2-year interest rate goes from 7½ percent to 9¼ percent, as will occur for thousands of them in the next 6 months; and why is he not satisfied with that impact on their pockets and their house values, without his adding another measure, which may have the effect of pushing their house values down even further than high interest rates will?
Hon Dr MICHAEL CULLEN Link to this
One of the reasons for considering measures around this is, in fact, to aid monetary policy, so that interest rates do not need to be raised as much. This member has been calling for higher increases in interest rates by the Governor of the Reserve Bank, as a means of throttling off demand. It is a bit rich now for him to turn round and bemoan the consequences. In the immortal words of Tom Paine, he “pities the plumage, but forgets the dying bird”.
Where has the Minister been for the last 6 years, when house prices have been rising continuously; if he thought that this measure was effective at all, why did he not bring it in 5 years ago?
Hon Dr MICHAEL CULLEN Link to this
The member bounces around from opposing such a measure to suggesting that it already should have been done. Once he settles at some particular place, I will know how to explain to his leader, John Key, why and where he differs from him.
Does the Minister have the support of the Prime Minister for his campaign to push down house values, in the light of her comments on Monday explicitly ruling out a capital gains tax; and does her failure to rule out ring-fencing losses mean that it is now Government policy?
Hon Dr MICHAEL CULLEN Link to this
No such proposal has been taken to Cabinet, therefore by definition it is not Government policy. One of the problems with a capital gains tax—apart from the fact that if it were done, it should apply to all asset classes—is that countries overseas that have capital gains taxes have significant inflation in house prices on occasion.
In reference to overseas data, has the Minister seen the data in the Reserve Bank submission that shows there is absolutely no correlation between the tax treatment of housing and the rise in house prices—in other words, it does not seem to matter what tax treatment different countries have; their house prices have risen to roughly the same extent?
Hon Dr MICHAEL CULLEN Link to this
If the Reserve Bank is saying that, I am stunned. In fact, the variability in house price increases in the last 10 years, even in developed countries, has been extremely large. Some countries, such as Japan, have seen a fall in house prices over that period of time. Some countries, such as Ireland, have seen very much higher increases than those in New Zealand over that period of time. What is significant in New Zealand is that before ring-fencing was removed in 1991, net rental income was more than 80 percent of gross rental income, in total, whereas, on average, over the last 7 or 8 years net rental income has been less than 10 percent of total rental income. That points to very heavy gearing of purchasing property for rental purposes.