What happens if you default on your mortgage?

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Technofreak

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#601564 28-Mar-2012 21:12

I'm not so sure a wealth tax as described above is necessarily a good idea. I haven't read Gareth Morgan's book so don't know if that was exactly what he was espousing. We have a wealth tax now, it's called City/Regional Council rates. These are set on the value of your property. Wealth can increase, in some cases quite dramatically leading to a large rise in the tax levied but there is no compensating increase in income.

The problems arise when these properties are owned by someone on a fixed income, like retired people who may have scrimped and saved over the years to reside in a nice house in a nice part of town. Due to rate rises driven by increasing property values it has been know for these people to have to sell their home as they cannot afford to pay the rates. Another wealth tax would accentuate this problem. Is that a fair outcome?

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BarTender

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#601770 29-Mar-2012 10:44

Technofreak: I'm not so sure a wealth tax as described above is necessarily a good idea. I haven't read Gareth Morgan's book so don't know if that was exactly what he was espousing. We have a wealth tax now, it's called City/Regional Council rates. These are set on the value of your property. Wealth can increase, in some cases quite dramatically leading to a large rise in the tax levied but there is no compensating increase in income.

The problems arise when these properties are owned by someone on a fixed income, like retired people who may have scrimped and saved over the years to reside in a nice house in a nice part of town. Due to rate rises driven by increasing property values it has been know for these people to have to sell their home as they cannot afford to pay the rates. Another wealth tax would accentuate this problem. Is that a fair outcome?

Using the same situation. The same person who had virtually no cost of tertiary education and thus no student loan. Also percentage relative to their wage a house which was only 2-3 times their annual wage rather than 5-6 times which is the case now for first home buyers.

The baby boomers have had it pretty good and know they are sitting on a gold mine of a house and pay rates accordingly based on that home value. If they are on a low income and cannot maintain the rates then it's time to downsize to a more affordable house.

If this in turn drives down house costs in the "good" areas so they are more affordable then that's a good thing.

Otherwise you have a generation of 60+ baby boomers who are asset rich yet cash poor.
And a generation of 25-40 year olds who need to move to the wops, have a sizable student and home loan who may if things work out by their mid to late 50's may have paid off their mortgage but then only have 10 years to build up their retirement funds.

So how exactly is tax the baby boomers more a bad thing?

Technofreak

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#602157 29-Mar-2012 20:07

Bar tender I can't agree with some of your statements.

Pre student loans many people had to pay their own way by having several jobs while studying. It certainly wasn't as easy as it is now with the living allowances and student loans to help out. While the 'baby boomers' as you call them may not have student loans many certainly struggled in their early years. Student loans came along just as I completed my training. I had to fund my training up front out of my own pocket, no student loan to speed and ease the way. The way I see it is the 'baby boomers' paid early on whereas today the 'post baby boomers' pay later on.

Why should someone like my parents for example who have worked hard all their life, earning only an average wage, paying their taxes then be slugged more tax just because the family home keeps getting worth more and more each year. I don't see that as being a fair system.

I'm not so sure that the post baby boomers are not able to buy a house. I see plenty that are.

Your figures about the ratio of house price to salary are interesting but don't match with figures I have seen. I don't deny that the ratio has widened but not to the extent you claim certainly not in the last generation.

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mudguard

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#602203 29-Mar-2012 21:04

I've just turned thirty, and I only know one person in my group of my friends who have bought houses by themselves. The rest have had assistance from parents or bequeathed money. I'm still saving, I have several term deposits and my kiwisaver, but with my girlfriend on her OE (one way ticket and 5 year visa hmmm) I'm trying to get rid of my smallish student loan (studied for five years, borrowed for one) and buy a house at some point. Working two jobs and simply trying not to spend. However I cannot bring myself to have a large mortgage by buying in Auckland (where I'm kind of doomed to work)

I don't begrudge the boomers. But the reality is that something will have to be done. I wonder what the effect on my PAYE will be in 15 years or so when we have that many more retirees to support?

I think the underlying theme for me is I want a place to live, call my own and I don't see it as an investment. We all know why kiwis have bought up large on property. My parents are a great example, middle class, own two properties with a massive mortgage and will sell the family home as it's nearly tripled in price since they purchased it in the late nineties to clear everything. I'm fairly certain my old man's salary didn't do the same over that period of time!

There has to be some sort of adjustment and I'm concerned that it will occur when I'm technically in my earning prime! I think the most frustrating arguement I hear from boomers is how that super is contribution to collect. It's not, each individual's contribution has probably been spent many time over! It's not sitting in a pot for you to collect when you turn 65!

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mattwnz

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#602208 29-Mar-2012 21:18

Technofreak: Bar tender I can't agree with some of your statements.

Pre student loans many people had to pay their own way by having several jobs while studying. ?It certainly wasn't as easy as it is now with the living allowances and student loans to help out. ?While the 'baby boomers' as you call them may not have student loans many certainly struggled in their early years. ?Student loans came along just as I completed my training. ?I had to fund my training up front out of my own pocket, no student loan to speed and ease the way. ?The way I see it is the 'baby boomers' paid early on whereas today the 'post baby boomers' pay later on.

Why should someone like my parents for example who have worked hard all their life, earning only an average wage, paying their taxes then be slugged more tax just because the family home keeps getting worth more and more each year. I don't see that as being a fair system.

I'm not so sure that the post baby boomers are not able to buy a house. ?I see plenty that are.

Your figures about the ratio of house price to salary are interesting but don't match with figures I have seen. I don't deny that the ratio has widened but not to the extent you claim certainly not in the last generation.

That is exactly the reason why people in the 20's, 30's and 40's are moving overseas. The system is setup so NZ is a great place to retire, but not so great for working in. These babyboomers are only going to get to see their grandkids growing up via skype unless things change with affordability and the low wages. A GCT is not the answer. A land tax is a possible answer, but the real answer is the easy credit that people can get to pay for up to 95% of a house.

Ragnor

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#602209 29-Mar-2012 21:18

Technofreak: Bar tender I can't agree with some of your statements.

Pre student loans many people had to pay their own way by having several jobs while studying. It certainly wasn't as easy as it is now with the living allowances and student loans to help out.

Bollocks, until 1989 not only were there no university fees, most students were given a living grant – they were paid to study.

Technofreak:

Why should someone like my parents for example who have worked hard all their life, earning only an average wage, paying their taxes then be slugged more tax just because the family home keeps getting worth more and more each year. I don't see that as being a fair system.

The tax they put into the system was spent and hasn't been saved/invested to fund their retirement.

Our current superannuation scheme is a ponzi/pyramid scheme there has to be more workers on the bottom paying tax than people getting super, there used to be 20 workers to 1 superannuant... with longer life spans and the baby boomer population bulge it's going to be 5:1 or 3:1 and unsustainable.

Technofreak:

I'm not so sure that the post baby boomers are not able to buy a house. I see plenty that are.

The ratio of income to house prices worsened massively in the 90's and early 00's, it's still getting worse. I'm not sure what figures you're looking at but all you need to look at is the increase in house average prices from 80's till now vs the increase in income... house prices went up massively income hasn't.

Technofreak

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#602213 29-Mar-2012 21:25

mudguard:
There has to be some sort of adjustment and I'm concerned that it will occur when I'm technically in my earning prime! I think the most frustrating arguement I hear from boomers is how that super is contribution to collect. It's not, each individual's contribution has probably been spent many time over! It's not sitting in a pot for you to collect when you turn 65!

I agree something needs to happen, but taxing people for being careful or frugal during their working life isn't the way.

Perhaps a capital gains tax on properties that have been owned for less than X number of years. The way I see the problem is people can make money on a house without paying tax in most cases, this doesn't encourage investment into something that's productive and creates employment. Why would you invest in something that is going to be taxed when you can get a tax free return on a property? That is a big driver for high property prices.

So far as the super is concerned, very true the money has been spent and not sitting waiting for collection, however that's the way the super scheme was sold do that's what most believe and expect.

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Ragnor

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#602220 29-Mar-2012 21:32

Taxing people that have all their wealth in non productive assets like property is exactly what we need to do

The value of land in NZ is >$400 billion, a 1% land tax could raise $4 billion annually.

Technofreak

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#602223 29-Mar-2012 21:41

Ragnor:

Technofreak:

Why should someone like my parents for example who have worked hard all their life, earning only an average wage, paying their taxes then be slugged more tax just because the family home keeps getting worth more and more each year. I don't see that as being a fair system.

The tax they put into the system was spent and hasn't been saved/invested to fund their retirement.

Our current superannuation scheme is a ponzi/pyramid scheme there has to be more workers on the bottom paying tax than people getting super, there used to be 20 workers to 1 superannuant... with longer life spans and the baby boomer population bulge it's going to be 5:1 or 3:1 and unsustainable.

I wasn't referring to the fact that they might have paid into a super scheme as part of their taxes, I was just making the point they paid taxes while they were earning and now some are suggesting they pay again just because of the value of their home.

You are quite correct re the ponzi style scheme of the Universal Super, however as I mentioned elsewhere the super scheme was sold on the idea that you were putting many away into a fund for your retirement. It's no wonder people think it's waiting for them to withdraw, - it would be if it had been invested with an insurance company or similar.

Re you comments about student loans, you may well be right about some studies being totally paid for, though I know of some that certainly were not funded at all but are now funded via student loans.

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ajobbins

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#602230 29-Mar-2012 21:59

The reality of the current tax/super system is that us young people's taxes are being used now to fund our grandparents (and parents retirement). By far the biggest single item on the tax bill is super payments.

By the time I am old enough to retire, the likelihood of a government super is very low. I will spend most of my working life paying tax to fund the super of those who feel a sense of entitlement to it having paid tax their whole working life. Sure they did, but I bet than every dollar they paid in tax over their whole life gets paid back to them in Super - and then some. I doubt I will be afforded the same luxury.

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Technofreak

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#602231 29-Mar-2012 22:00

Ragnor: Taxing people that have all their wealth in non productive assets like property is exactly what we need to do

The value of land in NZ is >$400 billion, a 1% land tax could raise $4 billion annually.

Which equates to on average over $3500 per house per year or $68 per week. That's a lot of money for many people, especially on top of all the other taxes like PAYE, and Rates etc.

While I agree there needs to be encouragement to get investment into productivity, this solution sounds like someone who hasn't got something trying to get something for nothing from someone who has something.

A tax on the gain when the gain is realised, i.e. at sale time is how I think it should be done. Perhaps a tax rate that is higher than the tax for returns from productivity based activities might be the way to go. If there wasn't an incentive to chase the property gains it would take the heat out of the market, which would help new home buyers without penalising established home owners with a wealth tax.

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Technofreak

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#602235 29-Mar-2012 22:06

ajobbins: The reality of the current tax/super system is that us young people's taxes are being used now to fund our grandparents (and parents retirement). By far the biggest single item on the tax bill is super payments.

Which is exactly what they did for the generations before them.

You're right the super burden is getting bigger every day. We were sold a scheme that only works when the work force is growing or at least keeps pace with the retired work force. That's not happening right now, and it's not just a New Zealand problem. The problem is it will be political suicide to knock the scheme on the head so it rolls on with a bit of tinkering here and there.

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Ragnor

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#602271 30-Mar-2012 00:41

Technofreak:
Ragnor: Taxing people that have all their wealth in non productive assets like property is exactly what we need to do

The value of land in NZ is >$400 billion, a 1% land tax could raise $4 billion annually.

Which equates to on average over $3500 per house per year or $68 per week. That's a lot of money for many people, especially on top of all the other taxes like PAYE, and Rates etc.

While I agree there needs to be encouragement to get investment into productivity, this solution sounds like someone who hasn't got something trying to get something for nothing from someone who has something.

A tax on the gain when the gain is realised, i.e. at sale time is how I think it should be done. Perhaps a tax rate that is higher than the tax for returns from productivity based activities might be the way to go. If there wasn't an incentive to chase the property gains it would take the heat out of the market, which would help new home buyers without penalising established home owners with a wealth tax.

1% was just an example, it could easily be 0.5% or 0.25% which halves or quarters your listed per week amount.

The revenue gained would allow the government to reduce GST or income tax if they chose to, we know Labour are not keen on the 15% GST and National would like to lower income and company tax further.

I have a house in Auckland so a land tax would directly affect me, so it's not from someone who has nothing to lose and everything to gain.

The problem with a tax on the captial gain only (instead of a land tax) is the administration burden and the likely ability to dodge it with trusts/clever accounting and so forth and or under the table agreements/sales between family/friends.

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