Mortgage tax

Dr Cullen has floated a possible surcharge on fixed rate mortgages. I concede that something ought to be done about NZ's bias towards residential investment, and that this proposal is something. However, I do not believe that this is the right something. I have three grounds for this: craven self-interest, realpolitik, and economic advisability.

Craven self-interest: I just bought house, and i really can't afford to pay any more than I already am.

Realpolitik: I think any measure that is going to have a big impact on house prices, or mortgage payments is potentially political suicide, and would need an across the spectrum agreement.

Economic advisability: This measure seems likely to impact disproportionately on those with large mortgages and relatively low incomes. It will tend to be a greater disincentive to those who have not yet gotten into the housing market, not those who already have substantial investment in the sector.

That is, it is likely to do most damage to first home buyers. People who already have high equity will probably be less seriously affected. Their mortgages will represent less of a proportionate drain on their income. For those with investment properties, much of their mortgages will be paid by rent in any case. They can also write some of their losses off against tax.

In fact this measure might force more people to rent for longer, thus exacerbating the divide between the haves and have nots as far as housing is concerned.

If Cullen wants to discourage investment in the over heated housing market, that is all very well, but it should target people who are investing, not people who are buying a first home, which is more likely to be for predominantly lifestyle and personal, rather than economic reasons.

The point I am trying to make is that we ought to be discouraging over-investment, not family home ownership. If Cullen wants genuinely to discourage investment in residential propoerty, he should look at a capital gains tax on second houses.