Gareth Morgan is a genius

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#1685010 9-Dec-2016 07:16

JayADee:

Morgan says not to worry, you can owe this tax to the IRD and pay it when you either die or sell. So work hard, pay off your mortgage then owe a brand new one to the IRD if you can't afford to pay your house tax for whatever reason- sickness or age. You get to age while watching the house you 'own' slowly begin to belong to the government. Of course, Gareth will never experience this. Sure he'll have to pay more in taxes but as he's already said in a couple interviews, he can afford it! Yup, sounds very fair.

Part of my retirement plan is to run a reverse mortgage... I already expect to watch the house I 'own' slowly begin to belong to the bank. It's no big deal if the government also gets a slice, so long as it means that during (what remains of) my working life, I get to pay substantially less income tax.

So the (obvious?) response to GM's plan is to *not* build up equity in your home... run a mortgage for life. In fact, if the tax rate on equity is high enough and interest rate low enough (e.g. 5% tax vs 4% interest), it becomes worthwhile to borrow money against your house to avoid paying tax on your house. I'm sure that GM would then want to target cash in your bank account as well. Which in turn would lead to further avoidance strategies (trusts, overseas bank accounts, etc).

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#1685011 9-Dec-2016 07:28

frankv:

JayADee:

Morgan says not to worry, you can owe this tax to the IRD and pay it when you either die or sell. So work hard, pay off your mortgage then owe a brand new one to the IRD if you can't afford to pay your house tax for whatever reason- sickness or age. You get to age while watching the house you 'own' slowly begin to belong to the government. Of course, Gareth will never experience this. Sure he'll have to pay more in taxes but as he's already said in a couple interviews, he can afford it! Yup, sounds very fair.

Part of my retirement plan is to run a reverse mortgage... I already expect to watch the house I 'own' slowly begin to belong to the bank. It's no big deal if the government also gets a slice, so long as it means that during (what remains of) my working life, I get to pay substantially less income tax.

So the (obvious?) response to GM's plan is to *not* build up equity in your home... run a mortgage for life. In fact, if the tax rate on equity is high enough and interest rate low enough (e.g. 5% tax vs 4% interest), it becomes worthwhile to borrow money against your house to avoid paying tax on your house. I'm sure that GM would then want to target cash in your bank account as well. Which in turn would lead to further avoidance strategies (trusts, overseas bank accounts, etc).

My father ran a mortgage on his house until the day he died at 75, despite being perfectly able to pay it off. It was the cheapest capital he could borrow and invest elsewhere and had tax advantages to boot, so when he died, the mortgage insurance paid off the outstanding debt. Even better for him was the fact that for the last 5 years or so, UK interest rates were so low as to be barely even noticeable.

Anyone with a bit of brains and ingenuity will find a way to avoid GM's great plans as he and his ilk forget the fact that anyone who works hard and makes money does so generally for themselves and their families not to facilitate better lives for strangers.

Personally I think a flat rate income tax of about 15% is probably likely to produce as much if not more income for the government based on the fact that there will be far less effort put into avoiding a tax at that sort of rate. You'd then have fiscal and political headroom to do something like introduce compulsory 5% annual pension contributions to reduce the cost of that and so on.

tdgeek

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#1685012 9-Dec-2016 07:29

He says his tax on house equity is like paying rent.

1. So you pay down $10,000 in a year. You have paid income tax on that already, then you pay again as your house has more equity?

2. The so called rent you pay on equity, you already pay rent, as you are foregoing the interest on the equity. So you don;t get the interest, yet you pay again?

You need to encourage home ownership, not discourage it. Home ownership gives pride, and stability to a family. It also allows the owner to be better off as the mortgage is paid off, so that money then goes into the economy. It also allows more freedom in retirement, especially if the growing elderly cause financial disruption as the baby boomers retire. So, after paying this "rent" all your life, when you sell, or reverse mortgage it, you would have to get all that back, as you are reducing your equity?

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#1685013 9-Dec-2016 07:30

JayADee: France has a system like this but they seem to have a growing wealth disparity issue?

From the reports of friends who live there, the tax system is a huge burden and a complete mess!

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#1685014 9-Dec-2016 07:32

tdgeek:

He says his tax on house equity is like paying rent.

1. So you pay down $10,000 in a year. You have paid income tax on that already, then you pay again as your house has more equity?

2. The so called rent you pay on equity, you already pay rent, as you are foregoing the interest on the equity. So you don;t get the interest, yet you pay again?

You need to encourage home ownership, not discourage it. Home ownership gives pride, and stability to a family. It also allows the owner to be better off as the mortgage is paid off, so that money then goes into the economy. It also allows more freedom in retirement, especially if the growing elderly cause financial disruption as the baby boomers retire. So, after paying this "rent" all your life, when you sell, or reverse mortgage it, you would have to get all that back, as you are reducing your equity?

I wonder what he would do if the economic situation deteriorated and he had 70% of homeowners in negative equity?

Would they be entitled to tax refunds?

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#1685016 9-Dec-2016 07:36

Geektastic:

tdgeek:

He says his tax on house equity is like paying rent.

1. So you pay down $10,000 in a year. You have paid income tax on that already, then you pay again as your house has more equity?

2. The so called rent you pay on equity, you already pay rent, as you are foregoing the interest on the equity. So you don;t get the interest, yet you pay again?

You need to encourage home ownership, not discourage it. Home ownership gives pride, and stability to a family. It also allows the owner to be better off as the mortgage is paid off, so that money then goes into the economy. It also allows more freedom in retirement, especially if the growing elderly cause financial disruption as the baby boomers retire. So, after paying this "rent" all your life, when you sell, or reverse mortgage it, you would have to get all that back, as you are reducing your equity?

I wonder what he would do if the economic situation deteriorated and he had 70% of homeowners in negative equity?

Would they be entitled to tax refunds?

That right, its all over the place.

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#1685017 9-Dec-2016 07:46

Take the current housing prices, everyones equity has risen far more than wages, so home owners will pay more "rent" on that much higher equity, yet do not have a wage increase of that magnitude to fund it

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#1685025 9-Dec-2016 08:26

tdgeek:
Take the current housing prices, everyones equity has risen far more than wages, so home owners will pay more "rent" on that much higher equity, yet do not have a wage increase of that magnitude to fund it

His argument on that is that he wants current house prices to freeze and wages to rise (through tax cuts?) to cover it. But yes, you would have to pay more with the higher equity you have.

You would think all this would lead to lower house prices in the long run but it hasn't happened in France. From what I can tell of Morgan's idea with hints of tax cuts for families with children, for example, it's very similar to what France is already doing. France's disparity index is a bit better than ours but not hugely different (Looking at the chart in Wiki) and they have even higher tax rates than we do and I believe also have a capital gains tax and inheritance tax.

So I'm not sure why Morgan thinks this will work better here than it does there?

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#1685035 9-Dec-2016 09:11

MikeB4:

Here we go again, you really need to stop attacking those who have a differing view, its tiresome.

Err, have you read any of your own posts? Or does constantly calling Gareth Morgan a lunatic because you don't agree with his tax policy not count as attacking those who have a differing view?

Pot calling kettle, me thinks.

Just saying.

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#1685047 9-Dec-2016 09:28

I quite like Gareth's tax policy in principle - but, in practice, it would be a nightmare to administer.

But good on him for bringing new ideas into the debate; no one else seems to be doing this at this point. And debate is needed: the 'developed' western world is seeing increasing inequality and at some point in the future something will need to change. I see Brexit and Trump as early warning shots over the bow from the 'dispossessed''.

As far as attracting public support - if 95% of voters reject it, and only 5% like it, if the 5% vote for him then he's over the MMP threshold and then he's part of the parliament debate which I reckon can't be a bad thing IMHO.

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#1685049 9-Dec-2016 09:30

I saw the Paul Henry interview. Henry just asked a quick succession of questions that I found reasonable. Morgan lost a huge opportunity to put his case across, and clarify how this would actually work. Instead he blustered and rambled, and just became defensive to questions that he could have used to his advantage to provide facts and details. People can claim that Henry was not fair, but every Henry interview is like this, and he only has a limited time to get as much information out of the interviewee as possible.

What I took from it, was that Morgan hadn't thought this through, didn't understand all the situations where it might be somewhat problematic, and so on. If this tax were a good idea, which I find based on the problems raised unlikely, Morgan should take a step back and find someone with better communication skills to put it forward.

Where does a retired person go, when there is no longer a pension (as some here think should happen) and unexpected costs and problems have eaten what assets the equity tax has left them / retirement savings? Do they have to reenter the workforce? What if someone has to leave the workforce to take care of a sick family member or...

How does this affect rent costs for a renter, and is it likely that the owner will just pass the costs onto them, and rents go higher?

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#1685052 9-Dec-2016 09:32

dejadeadnz:

The one-liners filled peeing contest between the usual suspects in this thread is about as low quality as the performances by the protagonists in the Paul Henry interview.

Well, that really contributed to the discussion.

Plesse igmore amd axxept applogies in adbance fir anu typos

tdgeek

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#1685056 9-Dec-2016 09:38

rmt38:

I saw the Paul Henry interview. Henry just asked a quick succession of questions that I found reasonable. Morgan lost a huge opportunity to put his case across, and clarify how this would actually work. Instead he blustered and rambled, and just became defensive to questions that he could have used to his advantage to provide facts and details. People can claim that Henry was not fair, but every Henry interview is like this, and he only has a limited time to get as much information out of the interviewee as possible.

What I took from it, was that Morgan hadn't thought this through, didn't understand all the situations where it might be somewhat problematic, and so on. If this tax were a good idea, which I find based on the problems raised unlikely, Morgan should take a step back and find someone with better communication skills to put it forward.

Where does a retired person go, when there is no longer a pension (as some here think should happen) and unexpected costs and problems have eaten what assets the equity tax has left them / retirement savings? Do they have to reenter the workforce? What if someone has to leave the workforce to take care of a sick family member or...

How does this affect rent costs for a renter, and is it likely that the owner will just pass the costs onto them, and rents go higher?

The renter. The landlord is running a business, so they dont get hit with CGT until they sell. So that should not affect renters

The owner however would be taxed without realising the equity. They are also being taxed on the equity not the capital gain. So, dont buy a house. If you do, interest only, and as the value increases, mortgage that and save, invest, buy stuff. You will then be paying more interest, but you can offset that by investing in shares, rather than you own property.

tdgeek

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#1685058 9-Dec-2016 09:39

rmt38:

I saw the Paul Henry interview. Henry just asked a quick succession of questions that I found reasonable. Morgan lost a huge opportunity to put his case across, and clarify how this would actually work. Instead he blustered and rambled, and just became defensive to questions that he could have used to his advantage to provide facts and details. People can claim that Henry was not fair, but every Henry interview is like this, and he only has a limited time to get as much information out of the interviewee as possible.

What I took from it, was that Morgan hadn't thought this through, didn't understand all the situations where it might be somewhat problematic, and so on. If this tax were a good idea, which I find based on the problems raised unlikely, Morgan should take a step back and find someone with better communication skills to put it forward.

Where does a retired person go, when there is no longer a pension (as some here think should happen) and unexpected costs and problems have eaten what assets the equity tax has left them / retirement savings? Do they have to reenter the workforce? What if someone has to leave the workforce to take care of a sick family member or...

How does this affect rent costs for a renter, and is it likely that the owner will just pass the costs onto them, and rents go higher?

And yes, I agree re the interview

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#1685059 9-Dec-2016 09:40

The taking of home equity be it by taxation or reverse mortgage is a seriously silly idea. Most folks buy a home to live in with the aim of being mortgage free by retirement thus drastically reducing the amount of retirement income needed to meet accommodation costs which is very prudent. It also allows for contingencies during retirement.

If the equity in the home is taxed the required income to service goes up and this can bring greater burden on the state thus the taxation goes back in income support resulting in circulating revenue without gain.

Now take a retired couple who are free hold and living in Taupo, their family is living scattered across NZ and all is well. Their equity in their home starts to dwindle due to taxation or reverse mortgage. Due to aging or ill health they can no longer live in the home and need to sell and move to where care is available. However, they now have very low equity and the net proceeds of a sales bring very little cash. They are now facing trying rent either a home close to family and medical services or try and fund a Rest home. They can do neither on their pensions, family cannot due to commitments help so they need to seek help from either charitable homes or heavy government subsidies. Again, circular finance without gain but considerable stress and health issues.

If this couple were to be able to keep their equity and sell gaining that equity they would have been able to address their needs from their own resources.

Mr Morgan’s idea will result in homeless, aging people having to try and exist on state funding and subsidy. The health services costs will escalate dramatically. The burden on future generations will not be lessened it will be increased. The idea is dangerously unsound.

Yes, I have been scathing of Mr Morgan’s proposal as I believe it is dangerous and I believe shock jock tactics to try and get media coverage. However, it causes unwarranted and potentially harmful stress on those on or approaching fixed income existence. It could also greatly worsen the already shocking levels of age abuse we already have in this country.

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