Haere ra, ‘Magic’ Mike Hosking

Diary of the last ten hours

7.20am 

I am waiting on a train.

I am bound for Palmerston North, a charming little provincial centre near Feilding. 

I need no encouragement, ever, to get on a train and leave town.

Haere ra, Tamaki Makaurau!

Here ra, accountants and interior designers and personal trainers in your double cab Utes!

Haere ra, ‘Magic’ Mike Hosking, man of a thousand reckons.

What does Mike have for us this morning in the New Zealand Herald as we pull away? 

Same old shit, basically, but with extra Pfizer envy.

He is saying he loves the sense of boldness of people who aren’t us. For example, the plucky people who chose Boris and Brexit and freedom of the kind where you get out of the plane an hour before it’s landed.

In Britain thanks to freedom today they're out and enjoying their summer having run a successful vaccination programme, says Mike Hosking, who claims to have attended high school.

Our vaccine rollout is a national disgrace, our lack of supply is a direct result of a lack of determination and an abdication of responsibility to the people of this country, says Mike Hosking who has maybe been barred from using the internet reading books and looking at newspapers.

We are sitting ducks because we have a lazy inept government that has the 125th worst vaccine rollout in the world, says Mike Hosking who is possibly a visitor from another solar system.

On and on goes today’s reading of the Gospel according to Mike which sooner or later always lands in the same place of veneration: it is admirable, noble, even, to be sharp elbowed and grasping.

We are now seeing, as promised, as predicted, weekly vaccinations in much greater numbers and we are on track to be done by the end of the year. The US is still not much more than halfway there, the UK still has about a third left to be vaccinated which is good, sure, but they also have Delta variant all over the show and you’d be nuts to want to trade places with that ticking bomb beneath you. 

When you take out all the bloviating Mike’s gripe boils down to this, we should have had more stock sooner, why are we not at the front of the line?

But why, Mike? Why should we be at the front of the line? What makes us so important?

Your answer appears to be: because the sooner we’re out of this the better. But that doesn't explain what makes us so important, and it sure doesn’t explain why we should go ahead of countries where thousands of people are dying every day.

8.15am

It's been a long time since I last took this main trunk trip and here’s my first Trip Advisor thought: damn, this ride is comfortable. High, wide windows, tray tables, slots for your USB cables, great coffee. This is going to be a good day. 

Second thought: this train can really hoof it. I remember the Northern Express and the Limited working this main trunk line and honestly it took like a week to get from Feilding to Auckland. But we are flying, bro. Flying. 

9.32am

Looking at houses on the side of the tracks, is there ever some new density to see. New density in Takanini, new density in Pokeno, fog density in Huntly. 

This reminds me to share some fresh intelligence from reader John in Germany - Hi John! - what would you say to the idea of a house that you build just by stacking interlocking blocks? I would say tell me more, and thanks John for alerting us to this. I don’t know about the seismic considerations but damn I like what I’m seeing.

10.32am

Third thought: Amtrak viewing cars are very cool and all and they give you a magnificent picture window but the Northern Explorer, man its viewing car is a different and wilder and better beast. It’s an open carriage, with safety bars, no windows, no seats and it is VISCERAL. The wind flies through you and your feet feel all the jolts and vibrations and when you plunge into the tunnel you breathe the damp clammy air and this is altogether faithful to the concept of  Aotearoa adventure tourism. 

11.02am

Uncle Dave, write all the younger readers around about now, cheers for that property-having porn but you got anything for us?

Strong point. I liked what Jade Kake wrote this week asking why don't we crash the housing market on purpose and fair enough too because continuing the way things are is surely no prescription for a happy future

He wrote:

The biggest problem is that the vast majority of people’s personal wealth is tied up in housing. We have an economic system that incentivises sinking our money in housing over other more productive uses (such as investment in businesses). 

Well, yes, and come on down reader Terry Baucher who has formulated a proposal for a Fair Economic Return that would go a good way to addressing this. I mentioned it briefly the other day, but it deserves more than a few lines so I invited him to set out his thoughts and do let me hand over to  him as we roll towards Taumarunui.

There are innumerable statistics I could use to illustrate the scale of the housing crisis which as I told Stuff “Is eating our young”. But the following two starkly illuminate this generational change.  In 1991 61% of people aged 25 to 29 years lived in an owner-occupied home. By 2018 the percentage had dropped to 44.  For those in their late 30s the rate fell from 79% in 1991 to 59% in 2018. These are catastrophic numbers before considering that ownership rates are even worse for Māori and Pasifika.  Small wonder one million Kiwis currently live abroad, a diaspora second only to Ireland in the OECD. 

Fixing the housing crisis will take years and a key part will be addressing supply issues. But increased supply is not enough and takes time. A change in tax policy is needed to address demand and take heat out of the housing market. Tax is one of the few demand tools which can act quickly by restricting residential property’s tax preferred status. 

Traditionally, the tax tool suggested was a capital gains tax (CGT).  However, CGT is a transactional tax, one which only applies on sale. Critics of CGT have always pointed to the “lock-in effect” where the threat of CGT means people either don't sell or defer a sale until a point where no tax applies. Critics of the extension of the bright-line test to 10 years believe it would exacerbate this lock-in effect. I suspect they are probably right.

Against this backdrop, Associate Professor Susan St. John and I concluded it was time for a comprehensively different approach to the whole issue of property taxation. We call it the Fair Economic Return (FER). It builds on an idea that was first mooted by the McLeod Tax review in 2001.

The McLeod review was not particularly sold on a capital gains tax but there was a recognition even 20 years ago that the tax treatment of property was favourable and causing distortions in the tax system. The McLeod review therefore suggested applying a deemed rate of return to property as an alternative taxation basis.  Then Finance Minister Michael Cullen shot the idea down, but a variation, the “Fair Dividend Rate”, was later introduced as part of the revised foreign investment fund (FIF) regime for foreign shares. 

We propose FER applies to all residential property including the family home.  A person’s taxable housing income would be determined by applying a set percentage to a person’s net equity in all residential property.  FER would therefore replace the current hodgepodge of increasingly complex tax law around residential rental property.  Owners of residential investment property would no longer need to calculate rental income and expenditure.  

To get around the definitional issues of what is the family home, we propose there should be an exemption available to each person. In our initial working paper, we've suggested that exemption could be $1,000,000.

Here's an example of how it would work for a couple living in a seaside village.  Their only property asset is their house worth $3 million with a $500,000 mortgage.  The net equity in the property is therefore $2.5 million. Applying each person's exemption of $1,000,000 this leaves $500,000 subject to the Fair Economic Return at a rate of let's say one percent.  This results in income of $2,500 for each person.

Our initial estimate is a one percent FER could raise perhaps $1 billion of tax a year about double the amount expected from the new 39% top tax rate.  

In the context of New Zealand’s tax system FER makes more sense than the 39% top tax rate. It would be consistent with the “Broad Base, Low Rate” principle by actually broadening the tax base, thus enabling a lower top tax rate, if the Government wishes.  

FER is targeted at the richest 20% of New Zealanders who perhaps hold 80% of all property.  It is progressive because it includes the family home which under current legislation has been left untaxed.  This has resulted in over investment in housing and ever larger houses – new houses in New Zealand are amongst the largest in the world. FER therefore addresses a very real problem of misallocation of resources.  

One definition of insanity is doing the same thing over and over again and expecting different results.  That would be an accurate summary of the tax treatment of housing over the past 30 years. It’s time to do something different. It’s time for to try a Fair Economic Return approach. 

If you want to read more, the full report is here.

12.28pm

Fourth thought: Taumarunui you're looking pretty 

1.08pm

Fifth thought: Raurimu Spiral you're still looking cool

3.15pm

Sixth thought: When is beer o-clock on the Northern Explorer? Somewhere around Ohakune, it turns out, although intrepid skiers Ed and party were opening a bottle of something sparkling when I found them just before noon, in car D. By the time we’re near Mangaweka, there are bottles all over the place. I used to like a beer on a train very much myself but that was a different life, and besides I’ll be driving shortly.

3.33pm

Last  thought: bloody hell the old cellphone coverage goes in and out a lot on the main trunk line. 

Better put this onto the internet machine while the 4G is working.

4.20pm