Three experts share their opinions on what this means for the economy
An analysis of National’s foreign buyers tax by three independent economists has pointed to a $450 million shortfall from the promised $740 million annual tax revenue.
Sam Warburton, left-wing, Michael Reddell, right-wing and fiscally conservative, and CoreLogic’s Nick Goodall, who disavowed politics entirely, crunched the numbers well into the night for the past two weeks, using confidential real estate data from CoreLogic on 1.6 million homes.
And while Warburton, Reddell, and Goodall disagreed on what the $450 million shortfall means for the economy, the three were of the same opinion that it raises questions about Nicola Willis and Christopher Luxon’s financial competence, according to a Newsroom report.
Announced as a cornerstone of the National’s tax package two weeks ago, the foreign buyer tax would allow foreign buyers to purchase houses above $2 million, but with a 15% fee on the sale to the government.
By reverse-engineering National’s numbers, Warburton, Reddell, and Goodall noted the party’s key assumption, which was that it could levy its new tax on an average 1,700 sales per year, at an average price of $2.9 million, if elected in October.
But that doesn’t just add up, the economists said, as they highlighted three crucial flaws.
One was that Australian and Singaporean buyers can’t be taxed due to New Zealand’s free-trade deals – a criticism that has already been levelled by Labour.
The analysis also revealed that for National to hit its target, nearly 200 buyers a year would have to agree to fork out $2 million for a house, plus the extra $300,000 tax on houses that are valued as low as $1.1 million.
The economists said that behavioural change is inconceivable.
“It took us long hours, evenings, and weekends, to get this right,” Warburton said. “We’d be swapping emails at 1am, 2am, saying ‘here’s where I got to.’ But we didn’t have a deadline, so we could keep going till we got it right.
“National did have a deadline. There are signs that they at least started out with an honest attempt. But there was a lot of pressure from media about releasing the plan. And you get to a point where you’re struggling to complete it because it’s getting a little bit too hard, especially with the timelines. And you can’t keep going if your boss says, ‘we need to get this out’.”
Grant Robertson, Labour’s finance spokesperson, said the analysis exposed a hole amounting to a “whopping $2.1 billion.”
“Christopher Luxon’s sorry excuse for a tax plan is now officially dead in the water,” Robertson said. “National’s economic credibility is in tatters.”
Willis disregarded the criticism, saying it was “hardly surprising” for different economists to disagree about things.
“National is confident in our figures,” she said. “They have been independently assessed by Castalia economic advisors.
“Our figures are conservative and assume that sales captured by the tax will be significantly less than half the number of sales to foreigners before the ban came into place. We are committed to implementing tax relief that will deliver up to $250 a fortnight for an average income family with young children.”
For Redell, the fiscal conservative, National’s arithmetic hardly matters.
“The $500 million a year error is just over 0.1% of GDP. It’s rounding error stuff in the overall fiscal scheme,” he said.
He believes the macroeconomics isn’t that important. Even if the National doesn’t bring in the money it’s promised, it won’t crash the economy.
“To me, it’s much more about the credibility of the people who aspire to run the country,” Redell said.
Goodall thinks the issue raises the question about where a National government would find the money to deliver its promised tax cuts.
“When you can’t make the numbers stack up, that has to make you question any other data they bring to the table – and whether that enables them to be in a position to look after the economy in the future,” he said.
Warburton, too, has a different take on the issue.
“National should be as concerned about a half billion hole in their revenue as they would be happy about cutting waste. We all should be,” he said.
Andreas Heuser, managing director at economic consultancy Castalia, said National’s modelling is based on the experience New Zealand had before the ban.
“We reviewed this modelling with reference to foreign buyer taxes in other jurisdictions, including Ontario, British Columbia, and Hong Kong. Our review included modelling of the reduction in purchases due to the imposition of the new tax,” Heuser told Newsroom.
“Hence, we believe the forecast number of sales to foreign buyers in National’s tax plan is reasonable and supports the overall revenue forecast in the plan.”
Use the comment section below to tell us how you felt about this story.
