Everyone gets slice of bigger pie
According to Swiss research institute Credit Suisse, New Zealand is now the world’s fifth richest country, behind Switzerland, Hong Kong, the US and Australia.
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 bothered 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 testament to the Rogernomics reforms of the 1980s and an endorsement of the largely sound economic management of successive Governments in the years since.
The Credit Suisse report notes two things about our economic prosperity: Kiwi wealth is ‘reasonably evenly distributed’ (our wealth is spread ‘more equally’ than most countries), and it is partly due to house prices.
Both things tell us about policies that have worked and give us reason to be 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 the ‘Working for Families’ tax redistribution package introduced during the Rogernomics era.
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 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 11 per cent of taxpayers who are classified as ‘wealthy’ (because they earn over $90,000) and who pay, between them, almost 50 per cent of all PAYE. Many would say that such a stark contrast in tax treatment is the antithesis of ‘fairness’ — but few of the so-called ‘wealthy’ are complaining, so perhaps an argument could be mounted, reinforced by the Credit Suisse report, to say that settings are about right.
Of course, none of this would be possible without overall growth. 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 overall wealth.
Which brings us to the other Credit Suisse observation, that our wealth is also partly due to house prices. This will have come as no surprise to anyone who understands the New Zealand property market. If house prices had not increased to the extent that they have over the past four decades, we would be less ‘wealthy’.
This is an important observation and should be enough to encourage political parties to review housing policies.
Those that do this will quickly recognise that such measures as the ring-fencing of investor tax losses, loan-tovalue restrictions on house deposits and the ogre of capital gains taxes 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 ashley@nzemail.com
Credit Suisse says New Zealand’s wealth is partly due to house prices