Your accountant probably won’t charge you to hand you the brochure he/she undoubtedly has pre-printed. The accountant I visited didn’t need more than 10 minutes of time to explain it to me and didn’t charge me a dime.

Ringfencing – This piece of “private slang” was discussed and described by Dr Cullen a year ago to describe separating the treatment of the LAQC for housing from the LAQC in general. It is also fairly common in Australia for some reason. I understood it immediately and I’m from the USA. I apologize for I truly did not “get” that you truly didn’t know what that was.

Finally, the usage of housing as an investment/speculation displaces and destroys the ability of people who simply want a place to live to obtain one. In this regard it is NOT like any of the other investments, businesses or speculations that are available. I am NOT interested in running my own business. I am interested in a house that my family can and will live in, a house that I can improve (and by GOD the houses here need improvement!) and one that I don’t have to worry about being sold out from under me.

I agree that in some ways the US market is unlike the NZ market. In one significant way they are deadly similar. The government is encouraging people to speculate in housing here… differently from the US and perhaps in a more sustainable way, but the effect on people who earn a living and want to buy a house at a price that they can actually afford to pay is similarly devastating.

I don’t have ANY patience with this government for all the lies its told for all the years its told them, and I don’t cut defenders of the current system any slack at all. It is MY tax money that is going to the SPECULATOR’S bank even as he is bidding the price of the house I would like to buy out of reach.

Explain to me the morality of that particular arrangement.

Houses are NOT businesses. They are houses. Making them into a business distorts the market for houses. Gerrit has an answer which I don’t like but which at least gives me an even shot at getting a house. I get the same break as the speculator. This puts MORE money into a market that is already quite stupid in terms of price and I explained that on another thread. I could live with that perhaps. It isn’t going to happen either.

respectfully
BJ

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If the market cannot supply housing at a price that people can afford then it is time to interfere with the market.

i suppose you would also say that if the market couldn’t provide adequate food, the government should intervene in that industry too? you appear to have your head wrapped around this issue bliss, which is to say i agree with everything you said & find it consistent with everything i have said. if we are to single out the property market for government actions inconsistent with those applying to other industries we must base our argument on a claim that having people own their own homes delivers a unique value to society (rather than just to the individuals concerned) beyond what the free market is able to measure, and not base our argument on unjustified claims of entitlement or accusations of inequity in the government’s omission of the extraordinary actions which would create special conditions in that market compared with all others.
you would probably suggest if people were going starving, the government should intervene by any one of a number of measures – by giving money or food directly to those people, by subsidising food production, by buying food & selling it cheaply, by regulating food prices or whatever. not by by affecting anger that commercial farmers could claim seeds, fertilizers & labour as expenses while home gardeners couldn’t, & that therefore you were paying the taxes to fund farmers!

at the outset of this discussion it was claimed that the problem was that landlords are able to take all of their losses in the year they are incurred instead of holding them over to a profit-making year. i pointed out that this wouldn’t be helpful to landlords, then someone else explained it pretty differently. then it became apparent this was only a distraction, the main objection was against businesses being able to count business costs as expenses for tax purposes while the same cost incurred by a household did not reduce their tax burden – just the same in the housing sector as it is in all other industries.
those who had made the vague or incorrect comments have not corrected themselves, but implicitly allowed all the contradictory material in this thread to stand. i’ve asked for clarification, quite the opposite of making a point of being poorly informed, but apparently unless i am willing to pay for my accountant’s time to figure out which comments in this thread are right & which are wrong i am guilty of “persisting” in misunderstanding.
perhaps the fault is with those who have failed to address queries & failed to clearly state just what their problem is & why they consider it a problem.
i predict at the end of it all we’ll be left with only two concrete problems: the lack of a capital gains tax; & rent subsidies.
i suspect the use of vague undefined & ill-defined terms & acronyms, and unwillingness to engage, are simply to obscure the fact that some people don’t really have a firm idea of what they want or what the problems are.
yes i did say i “presumed” that ringfenced means abolished, but notice i used a question mark, this is clearly a request for information. evidently it is easier to scathe me for not guessing what this piece of private slang means than it is to simply explain what it means.
on that note let me explain that when i say expansionary or contractionary i’m using the terms technically, not emotionally. i’m not intending that one or the other should imply “good” or “bad” or “like” or “dislike”.

the US market is not comparable to new zealand’s. the US has had very low interest rates for years, we have had the opposite. the US has had risky & odd banking practices, like enticing borrowers with a low initial interest rate set to later go up to a rate beyond what they can afford, forcing them to sell the house. such a loan is tailored entirely toward speculation. (it would be like lending a worker money to invest in the share market. apparently in 1984 banks here began offering people loans to speculate against the $NZ!) the housing bubble there has been as much a credit bubble as anything else. another obvious sign of speculation in the US market but not here, was the development of large quantities of uninhabited housing stock in the US. reduced sale numbers there accompany reduced prices, here if you see reduced sales numbers, that usually comes with increasing prices (before bouncing back again!) indicating a drop-off in willingness to sell, not buy.

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Ha ha…very droll.

It will be interesting to hear the justification for these “tax cuts” after years of telling us they are inflationary.

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Probably not… I think we’d much rather have actual tax cuts.

Good straight line.

Thanks

BJ

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Since you persist in misunderstanding, and make a point of remaining poorly informed, there really isn’t much more to say. Talk to your accountant about how an LAQC can save YOU money on your tax bills. The net effect in some cases is that you can buy the house for nothing at all. The taxpayer’s do ALL the work. That’s less common now than it was, but it still runs close enough to true to make a big difference in people’s decision making process.

It isn’t the case that owning a house is a business. We don’t buy houses so we can set up businesses, we buy houses to live in them. Favoring the investor over the owner-occupier IS government intervention. It permits the business model to run roughshod over the family model. It is a mistake.

Just as your presumption that ringfenced means abolished.

Is it my imagination? Maybe everyone went out and tied one on and is posting while drunk. How on earth can you get that I mean abolished when I very clearly VERY clearly said ringfenced. ?

Nor is dropping back from having the highest interest rates in the world exactly an “expansionist” policy… or don’t you see those interest rates as being symptomatic of a problem? You don’t mean to tell me you LIKE Cullen’s policies do you ?

Bubbles are fragile? What an amazing thing to say. These bubbles are always quite sturdy as they are being inflated… as long as the government supports them by shielding the malinvestments from consequences using taxpayer dollars. When the government stops doing that, either because it won’t or because it can’t, that’s when things get delicate… and it still can take longer than anyone believes from the time the bubble becomes obvious to the time when it finally succumbs to a pinprick of reality. We saw the housing collapse coming 2 years ago in the USA. It was an obvious call… the fundamentals were wildly out of whack… but it just kept going because money kept being created and pumped into it.

It doesn’t stop until the money stops being pumped in.

The market IS ALREADY being interfered with.

BJ

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the market isn’t doing stupid things, but quite rational, indeed unavoidable things,

Markets do not have brains. They can only do stupid things! Duh!

Markets are especially good at one thing, price discovery.

Markets do not care about equitable distribution. Famine is not a market failure. It is a market failure if there is food in the warehouses, but if all the farmers grow cotton for the foreign market and the locals starve because there was never enough food planted, that is not a market failure.

But it sure is an economic failure.

My point is that markets are not be all and end all in economics. They are useful in certain situations and useless in others.

Housing is a human need and IMO right. If the market cannot supply housing at a price that people can afford then it is time to interfere with the market.

Eg., a state housing programme.

peace
W

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The only reason the market is doing stupid things is because government is doing stupid things.

the market isn’t doing stupid things, but quite rational, indeed unavoidable things, in bringing the price of housing up as the population goes up. maybe the government is doing stupid things in bringing the population level up.
simply allowing a business to function as a business, paying tax on profits, & not singling out a specific industry for different treatment is not stupid.
as i say, if you wish to argue for a special treatment in the case of the housing market, you will need to make your argument based on the social desirability of government intervention, not on faux-righteous anger or “fairness” arguments.

You haven’t talked to an accountant yet…. HAVE you.

to ask her what in heck you are talking about? funnily enough no… i thought discussing it with you seemed a more appropriate solution.

Dropping interest rates is only possible if the LAQC is ringfenced as well

ah, so expansionary monetary policy is responsible as long as laqc is abolished…. i presume you do mean abolished when you say “ringfenced”? here’s a tip, if you’re no longer sure you know what you mean, or you’re no longer sure you want your “interlocutor” to know what you mean, try obscuring your meaning by using several slightly or completely different words in a row, separated only by / -& use … as your only other punctuation – even where entirely unnecessary! along with copious use of “eh?” it’s guaranteed to make readers first go crosseyed then lose all interest in finishing reading your post!

the new zealand housing market has none of the characteristics of a bubble. bubbles are fragile – investors who know they only got in on speculation that prices would keep rising tend to flee once that rise shows signs of stopping. yet we’ve had slowdowns from time to time, we’ve had alarmist warnings from politicians, but prices then go right on rising. it’s been going on for years – must be the sturdiest bubble in history.

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With the LAQC they pay mortgage out of income PLUS tax deductions for a variety of losses. The net effect can be quite substantial. You haven’t talked to an accountant yet…. HAVE you.

Dropping interest rates is only possible if the LAQC is ringfenced as well. Otherwise it can’t be done. Dropping interest rates kicks some of the money out of the system. Ringfencing makes it necessary for investors to consider the actual income available from the property and not buy on price speculation. Taken together they change a lot of things, like the “value” of the dollar here. Why do we have the highest interest rate in the civilized world?

Your accountant may well have a complete pre-printed colour brochure of just how this works which he can hand you. It isn’t unfamiliar territory for them.

Let me point out something about people who “realize that if they don’t bust a gut to buy a house now”…

That phrase has been used for the past 6 years in the US to justify people borrowing far beyond their ability to repay. The bubble here is smaller, but no less a bubble and people who are buying houses that they can’t afford without continuously refinancing against an appreciating asset (the habit here, I know), and without using my tax dollars as a crutch, need to be flushed out of the system. The only difference between here and the USA in this respect is that the first home buyer doesn’t get ANY breaks here.

However, if you buy a house at a stupid price you are stuck with that price, no matter WHAT the market does. The situation in the US tells us that overpriced houses and speculation do eventually kill the market even with the government tax breaks.

Gerrit offers that I should get the same breaks… which doesn’t quite solve my problem with the prices but at least allows ME to afford them. You provide the advice that I should just find the money and do it because house prices only go up. Which is not true and I have seen the counterexample to that claim in gory detail.

The only reason the market is doing stupid things is because government is doing stupid things. The connection could not be clearer.

respectfully
BJ

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property prices may have outstripped rent for now, but that is only to be expected in a market where most everyone realizes that if they don’t bust a gut to buy a house now, they may lose the chance forever.

and i repeat people only pay rents out of actual income… and they only pay mortgage servicing out of actual income. so you have no point.

places far away, where monetary policy is less responsible and hot money can be created…. My answer is to… drop the interest rates

well make up your mind!

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It is not compulsory (what is the shout about it being required) so whats’ the beef. I had the time and inclination when salaried.

Sorry… I see that it IS compulsory.. If it is done your way (which is the way the US does it) then buying a house is a tax shelter for a significant portion of your income. You get to keep more and the choices below change so that the folks taking option C subsidize both A and B. If the buyer is, as they are now) only getting a tax benefit if the house is rented out my choices are…

A. Buy a house and rent it to someone so as to be on the receiving end of this government sponsored largess.

B. Buy a house and live in it and pay the extra tax required to fund everyone who selected option A.

C. Rent a house and pay the extra tax required to fund everyone who selected option A.

My beef here is that I am not a fncking landlord, I am an Engineer and I want a house for my family to live in, not a fncking investment property.

My problem is that houses CANNOT be worth the prices I see… and I know that because I AM an Engineer. Builders are building nothing less than a half-million now and they’ve booked their crews to build spec housing at that level for the next year and a half. I know damned well that a perfectly good 4 bedroom house can be built for less than 300K on a developed section that is being sold at a 10%-15% overpriced 150K. Most of the existing housing stock is little better than a carefully stacked pile of firewood. I could build better MYSELF if I could get the fncking council to mind its own business.

THAT at least is one of the things the US does quite right. The council gives the permit to build, but that is about the last you hear from them. Most of the inspectors and inspections are private and independent The buyer gets an inspector to go over the house, the “council” takes no responsibility for anything but fire-safety and required gas cutoffs and the like.

There is TOO MUCH MONEY chasing houses… and it isn’t money from people who are trying to live in their own houses… because THEY don’t have that kind of money and THEY don’t get an LAQC type break.

So where is the “too much money” coming from? I don’t blame the LAQC for all of this, but that part of it comes from the taxes I pay so it hurts me twice. Some simply comes from places far away, where monetary policy is less responsible and hot money can be created. We don’t have any sort of firewall in place to keep the hot money from burning us, and we see plenty of the hot money coming through. Carry-trade.

My answer is to limit the LAQC *AND* drop the interest rates and provide some better regulation and guarantees of normal investment firms and options. Why should housing be the only thing that a NZ investor perceives as safe? Why did a dozen or more investment firms go belly up and a lot of investors lose everything in the past couple of years?

You don’t turn down the heat in a market segment by putting more money into it. You have to take the money OUT of it or you have to accept ridiculous levels of inflation… which is what we have.

The difference between the rental people can pay and the mortgage people can pay tells the story here. Rentals haven’t gone up anywhere near how the prices of houses have gone up. People pay rent out of actual income. People buy investment property HERE with other-peoples-money. The difference is important and it tells you that there is something quite wrong.

respectfully
BJ

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Kevyn is right that anyone can set up an LACQ if you are earning (not on a benefit) Cost about $400 to set up a company.

So the “ordinary folks� qualification is everybody that is earning a wage or salary.

i don’t see the benefit in setting up a business to own your property & rent it back to you when the most you could do is totally offset rent payments against interest to avoid paying any tax on the business.

so i’m guessing we’ll be left with the conclusion this is only something of benefit to landlords, not first-home-buyers.

if it were extended to ordinary folk, you would have to acknowledge this was being done as a very deliberate attempt to tweak the market in favour of home ownership as a social goal in its own right, not as a “fair” thing to “eliminate disadvantages” or any other economic principle – just as previous regimes have used tax breaks to try to tweak the market in favour of insurance or whatever as listed by gerrit above.
there’s no particular economic theory or fairness doctrine about why this private expense or that one, should be treated as a business expense by the individual for tax purposes & not their various other expenses.

NOR should we be kneecapped by the prices that people are willing to pay to become landlords because THEY get to use OUR tax money to offset THEIR mortgages on houses who’s prices THEY are bidding up because they don’t care about the “loss� as much as about the asset value increase.

It is speculation that is funded out of my tax dollars,

i think i’m going to have to repeat again: there is no logical reason why some expenses should be tax exempt for private individuals and not others. you aren’t complaining that the expenses involved in growing food are unfairly making it difficult for householders to grow a veggie garden or bake bread compared with businesses which can claim expenses for tax purposes, so why are you making this argument about property?
i think i’m going to have to repeat again: house prices are moving rationally upward as population increases – it makes it a sound investment for anyone wanting an appreciating asset. it’s not the other way around. you seem to imply it’s just a bubble, with speculation upon increasing prices supplying the only impetus for prices to keep increasing. your ignoring the most important reason of all for prices to rise.
if you’re such an angry taxpayer, start campaigning against population increases.
& don’t give me that brain drain bull. there’s plenty of talented & successful people staying in this country by choice, & plenty of others leaving other countries to come here.

However that wont drop house pricing and get you into your own property quicker. Only a tax rebate as enjoyed by an LAQC company for first home ownership (as currently on rental property only) will do that.

no, that won’t stop the constant increase in house prices. any increase in affordability such a tax-regime change will bring is once-off & will be totally swallowed up by just a few years more of population growth & house price growth. even now, this tax change would do nothing for the thousands of people who simply can’t afford the deposit on a house, regardless of what their monthly payments thereafter would be.

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“Ordinary folks who are on PAYE wages and actually working full time do not have time and SHOULD NOT BE REQUIRED to screw around with being landlords in order to keep some part of their taxes, own houses or otherwise manage their finances and investments.”

It is not compulsary (what is the shout about it being required) so whats’ the beef. I had the time and inclination when salaried.

In fact for about 7% of the rental you can employ an agent to manage your property so be complete hands free (a tax deductable expense).

You need to face facts that even in a down turn housing prices wont drop significantly. They may be harder to sell, but wont drop that much in price.

Now if the government was to provide a tax rebate for the interest you are paying for a first morgage it would substantial allow more people to own their own homes. Something you are desiring.

Totally agree that the interest rates are sending money overseas at a great rate. Something we do not need so why not drop the interest rates down to 6%?

Would stop speculative money flowing into New Zealand (take money out of the system as you want) as there are better interest rates to be gained elsewhere.

However that wont drop house pricing and get you into your own property quicker. Only a tax rebate as enjoyed by an LAQC company for first home ownership (as currently on rental property only) will do that.

Quality of housing is as good or as bad as you want. With double glazing becoming mandatory for all new housing south of the Bombay Hills, dont expect new house prices to drop. If new house prices dont drop, neither will second hand housing.

Be an interesting exercise to breakdown the cost of a new house into its various components and see what the profit margin is actually. If the land development, materials and labour costs are high I dont expect a housing price drop, no matter what Cullen does.

He cannot in actual fact do anything about it except build houses at a loss and sell them to you. Do you want your tax payers money spent on that scenario?

No, the best way is to have a tax rebate system on interest and face the fact that no beneficary will ever own their own property unless like a superannuant you had one before hand.

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Fueling the inflation in house prices by pumping MORE money into it (giving me a mortgage interest tax break) is not the correct answer. It may be the only answer this government can give me, and I have suggested it as a bad but possible alternative to the way the system currently fails to work. The way to get the distortion out is to take money OUT of the system. Pumping yet more money into Australian banks to pay stupid prices for the utter cr@p that constitutes the bulk of the housing stock here does not strike me as a particularly desirable way to cure this particular ill.

respectfully
BJ

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Ordinary folks who are on PAYE wages and actually working full time do not have time and SHOULD NOT BE REQUIRED to screw around with being landlords in order to keep some part of their taxes, own houses or otherwise manage their finances and investments.

NOR should we be required to pay for others to do so

NOR should we be kneecapped by the prices that people are willing to pay to become landlords because THEY get to use OUR tax money to offset THEIR mortgages on houses who’s prices THEY are bidding up because they don’t care about the “loss” as much as about the asset value increase.

It is speculation that is funded out of my tax dollars, and I hate to say it but I am one P!55ED off taxpayer today.

Cullen thinks it is perfectly OK for people in the 60-80K bracket to get whacked 2x as hard as those who are on 200K and upwards. He has no inclination to index brackets against inflation or add brackets. He has no inclination to do anything about house prices, and his pathological resistance to letting the middle class keep anything is part of the reason people leave as soon as they start to succeed in this country, and part of the reason labour gets so much less traction in that income bracket.

respectfully
BJ

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Kevyn is right that anyone can set up an LACQ if you are earning (not on a benefit) Cost about $400 to set up a company.

So the “ordinary folks” qualification is everybody that is earning a wage or salary.

Benificiaries are excluded, yes. so these “ordinary folk” cannot minimise their tax liabilities (because they are tax recipients not payers).

No, will never see the day personal income tax disppears. Nor it should as we must all pay our share.

However LACQ is a mechanism available for the “ordinary folk” (me included as i’m not “extraordinary”) to grow wealth for themselves through property acquisition.

if you can remember back to 1991 when National bought this mechanism out, it was mainly to get the State out of being a landlord. This has worked very well as the State is no longer the dominant landlord of residential rental property.

One could argue that it should/should’nt from a politcal left/right point of view. However our taxes would have been much higher had the State buy the rental properties now owned by the “ordinary wage and salary earning folk”.

Notice that parliament has very little inclination to overturn LACQ’s as most parliamentatian have them for themselves. (look at the asset register for Helen Clark and see what she owns).

The government has, through its tax policies, a perfect mechanism to encourage first home buyers. Simply allow a tax deduction (you name the amount) for first home buyers against morgage interest payed.

But again beneficiaries as tax recipients would miss out. so this current labour/green/NZF/UF alliance would rule that as hurting “ordinary folk” and wideing the “gap between rich and poor”.

I guess there are two types of ordinary folk, tax payers and tax recipients. Tax changes in any form only help (or if taxes go to high, hurt) the payers.

May well be why this current Labour/Green/NZF/UF government cannot see its way to tax cuts (except for election year to “bribe” voters WFF/Student loans, etc) for the payers. It would have to increase the benefits to recipients to maintain a balance. And that funding has to come from the payers by the way of tax increases.

Personally think Cullen has this balance way out of kilter by running huge surplusses. And as prices rise for our everyday needs (petrol, milk, etc.) the government GST take increases and this surplus grows.

So instead of balacing the books better by reducing either personal taxation or GST he has done nothing but collect huge surplusses.

Sooner or later he has to make a correction but I dont think he has the gumption.

Either delete GST (my prefered method as it helps the tax recipients as well) or personal tax cuts (which needs an increase to benefits to maintain social balance).

Of course running the worlds highest interest rates on morgages, thanks to the Reserve Bank, means so much of our money is now flowing to our Australian Banks head offices instead of being invested into growing New Zealand.

All New Zealand morgage holders could retire a lot of depth if the interest rates were dropped to below 6%.

Again Cullen is caught in a tangle of his own making. By letting people retain more of their money through lowering taxation and interest rates, he feels a loss of control in that it might (and it is a big unknown) spark inflation. However he has to do something and I dont think he has a notion of what to do.

The problem has become so big ($9 billion) that he has paralysis.

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You can only claim tax credits on expenses and then only offset these against actual tax liabilities.

virtually anything can be called an expense as i pointed out, & you have given some additional examples. are you aiming at ultimately abolishing income tax & having only corporate tax/profit tax?

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That is how an LACQ was explained to me by my accountant. Now he could have been wrong and so could I.

Absolute helps ordinary folks. Lets say you earn $60,000 per annum. Tax rate is $20,000.

Say you levered your existing property and bought a rental. The expenses occured (including interest payments – but not pricipal) to maintain that property are tax deductable through your LACQ.

The tax credits gained are offset againt your $20,000 liability as a salary or wage earner in the year claimed.

If the tax credits are larger then your liabilites they carry over.

“the government would be left with nothing left to tax if private individuals could claim all the same expenses that businesses can.”

You can only claim tax credits on expenses and then only offset these against actual tax liabilities.

So while you can be in tax credit you cant cash them in. It can only be offset against tax liabilites. So you need to get out and earn plus pay tax to get the credits. Meaning the government will never be out of a tax base.

In the old days we used to fill out ir5’s that included tax deductions such as super payments, life insurance, etc. Now the government has done away with alll your deductions so that as a PAYE payer you do not need to do tax returns.

Taable deductions used to be issued for things like first farm or fishing vessel ownership as a mechanism to stimulate certain sectors of the economy.

Why Cullen does not look at some of these tax deductable incentives for the PAYE payer is beyond me.

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Why should an individual paying PAYE not have the same tax offsets as a business?

because they’re not a business?
a business can claim vehicle & travel costs as expenses, they can claim insurance as an expense, energy, even entertainment costs & food under some circumstances. the government would be left with nothing left to tax if private individuals could claim all the same expenses that businesses can.

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