The Press

Orr plans his advice on tax solution for housing

- Thomas Coughlan

Reserve Bank governor Adrian Orr has responded vigorously to Finance Minister Grant Robertson’s plea that he pay mind to rocketing house prices, saying he’s likely to give frank advice on tax changes the Government could use to cool the housing affordabil­ity crisis.

Orr pointedly offered the view yesterday that ‘‘fiscal policy is far more effective’’ for making targeted interventi­ons in the housing market than monetary policy but that it is ‘‘in the hands of elected officials’’, not the bank.

Fiscal policy is the responsibi­lity of the Government, not the Reserve Bank.

Orr welcomed Robertson’s letter on Tuesday. It asked that the central bank consider changing its remit to include some considerat­ion of house prices.

Orr said he believed the letter requested the full gamut of the bank’s advice on the housing crisis. This means the solutions he comes up could be the responsibi­lity of the bank, but they could also be the responsibi­lity of Robertson.

The governor was asked whether he’d use the opportunit­y to suggest some taxes that might help relieve pressure on the housing market.

‘‘I assume so – that’s how I’ve read the spirit of the letter,’’ Orr said.

‘‘There would be taxation [advice] – I think it would be remiss to, if the letter is open, not to put our best foot forward.’’

Robertson’s letter came as the Reserve Bank unveiled a $28 billion stimulus programme that Westpac economists said might contribute to 15 per cent growth in house prices over the coming year.

Orr’s tax advice probably wasn’t what Robertson had in mind when he wrote to the central bank requesting its help in confrontin­g ‘‘rising house prices’’.

The Reserve Bank is responsibl­e for monetary policy, mainly setting interest rates through the official cash rate.

It is operationa­lly independen­t of the Government, which controls fiscal policy and taxation.

Most market watchers assumed Robertson’s letter would lead to Orr offering some monetary policy solutions to the crisis. These would be economic levers that Orr himself controls.

But in his public responses to Robertson, Orr has been keen to emphasise that he sees his role as much bigger than just looking at what the Reserve Bank can do to take heat out of the housing market.

Orr wants to lend the bank’s considerab­le intellectu­al heft to give the Government policy advice on what it can do.

‘‘I was very pleased that it’s an open letter. That is, it’s not constraini­ng us to narrow remits of monetary policy but saying, ‘You’ve got a highly capable team here – help provide assistance and affordabil­ity solutions,’’’ Orr said.

This could mean offering tax suggestion­s to a Government that has been quite clear it doesn’t want to implement them.

Prime Minister Jacinda Ardern has ruled out introducin­g a capital gains tax, and a wealth tax, two potentiall­y effective tax tools the Government could use to take some demand heat off the housing market. A land tax is also not on the political agenda.

Orr said he’d have to speak frankly to the Government, despite its many ruledout taxes. He said using tools such as tax would be a more effective way to encourage housing affordabil­ity than blunt instrument­s like the Reserve Bank’s interest-rate-setting tools.

 ??  ?? Reserve Bank governor Adrian Orr.
Reserve Bank governor Adrian Orr.

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