KEY POINTS:
A leading bank economist sees almost no chance of a levy being introduced on fixed rate mortgages.
Today Finance Minister Michael Cullen said such a levy was worth further investigation.
But BNZ chief economist Tony Alexander was sceptical about the chances of it being introduced.
"I put the
chances of a fixed rate levy coming in close to zero because it would affect something like 1.2 million people out there, or at least that's the number of loans we have," he told Radio New Zealand.
"There wouldn't be many votes in it."
Dr Cullen's comments on Radio New Zealand today caused a dip in the value of the NZ dollar, from around US68.65c shortly before 8am to about US68.40c, 30 minutes later.
The levy idea, of possibly up to 2 percentage points that would be imposed when needed, was included in a report from the Reserve Bank and Treasury released to the public in April.
The report was looking at alternatives to raising the Official Cash Rate to keep inflation in check.
Dr Cullen said the change would need wide support.
"The Reserve Bank Act and monetary policy has been very much a sort of broadly consensual area of policy and I wouldn't want to move away from that."
National Party finance spokesman Bill English said Dr Cullen should "fix his own high taxing, big spending policies before he levies a new tax on fixed interest mortgages".
Those policies had put pressure on inflation and interest rates, Mr English said
"And the problem is about to get worse, with Labour planning a surge in spending up to the 2008 election.
"The irony won't be lost on taxpayers. Dr Cullen is proposing a tax on families with a mortgage so they stop spending while he goes on a binge himself."
Mr Alexander said the introduction of a levy would basically remove all fixed interest rates from New Zealand.
Now about 85 per cent of mortgages in this country were on fixed rates, compared to about 60 per cent four or five years ago.
That shift had happened as fixed rates had remained relatively low as floating rates had risen around 2-1/2 per cent in the past three years, Mr Alexander said.
In contrast, about 80 per cent of home buyers in Australia were on floating rates and were used to them changing.
So when Reserve Bank of Australia wanted to slow the economy it raised the rate and people reacted.
"Here, in New Zealand, we really don't care," he said.
A levy would be a good idea if New Zealanders decided they wanted to get exports growing over the longer term.
Now the New Zealand economy had over investment in housing, while research showed export underperformance during the past two decades, with the current system creating an excessively high NZ dollar for a long period of time.
While the Reserve Bank did have a problem, Mr Alexander doubted it supported the levy idea.
Reserve Bank Governor Alan Bollard had the ability to ask the finance minister for the levy as an extra tool and had not done so, he said.
In terms of addressing the currency problem, the levy was the only viable alternative track, "but I think it's too radical".
Export New Zealand chief executive Bob Walters said the idea was worth considering.
"What we are looking at here though is the absolute need to increase our foreign exchange earnings through exports and international business in order that we can maintain the standard of living that we require in New Zealand."
Real Estate Institute president Murray Cleland said he did not think the idea would float and he would be strongly against anything that put hurdles in front of people trying to buy homes.
- NZPA
