Extend tax review to housing: Arcus

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New Zealanders are laughing all the way to the bank with household wealth increasing on the back of house price gains, but Arcus would like to see that change.

Tuesday, March 21st 2006, 6:29AM

Arcus chief economist Rozanna Wozniak says that the current review of taxation on savings should be extended to include the housing market.

The latest Spicers Household Savings Indicators show that the average net worth of New Zealanders is increasing thanks to the residential property market.

Nearly everyone who owns residential property has been laughing all the way to the bank, Wozniak says.

Rising house prices saw the net worth of the average household increase $10,000 in the December quarter to reach $326,000.

This is in keeping with the upward trend of the last two years. Three years ago, this figure was only $208,000.

Total net worth as measured by the Spicers Household Savings Indicators increased 3.5% in the quarter and 15% in the 2005 year.

Wozniak says that the rapid house price growth has enabled us to spend more than we earn.

"We have happily drawn down on the increased equity in our homes to fund a higher standard of living. If we define savings as wealth, then we’re still saving."

Furthermore, the Government has been putting aside money for superannuation.

“This sounds like rational behaviour, doesn’t it?

Wozniak argues not because:

• There is no guarantee that superannuation payments will not reduce as the budgetary strain gets worse
• 71% of assets are tied up in the homes we live in, and cannot be easily accessed in retirement
• Our debt-equity ratios may be comfortable, but the debt still needs to be serviced. Debt servicing levels have reached a record high of 12% of disposable income.

“New Zealand’s economic performance has improved during the last five years. Nevertheless, there is still a significant gap to close before we can provide the standard of living (in economic terms), income levels and breadth of opportunity that Australia can offer.”

Maybe we aren’t as wealthy as we feel and our feet are doing the talking. Last year the net outflow to Australia increased 45% to 21,400 people.

Wozniak says there are two priorities for closing the gap.

“Widen the terms of reference for the current taxation review to include residential property with the aim of leveling the playing field across all types of investment. And, secondly, a wider tax policy review starting with the corporate tax rate.”

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