Martin Hawes: Capital gains tax no answer to property dependency

Photo / Chris Skelton

I agree New Zealand would be better off if we speculated less on housing and invested more in other things. There are better investments than rental property, and we will never get rich as a country by selling houses to each other.

However, I do not agree the way to motivate people to change their investment behaviour is to impose a capital gains tax. We should advance more attractive investments.

There is no evidence that waving a tax stick causes people to flee property. Other countries have capital gains taxes and ring fence tax losses as well, but they have still had a property boom at least as great as ours.

New Zealanders are not obsessed with property because of the tax system - investment in housing is not treated any differently from any other business. A capital gains tax might see a temporary dip in property values, then it will be back to business as usual.

The obsession stems from two things: first, Kiwis do not understand other investments. This makes them suspicious of bonds, shares and managed funds.

These investments are controlled by people in dark suits, far removed in glass towers, who have trampled over small investors for their own gain.

Second, property is tangible and will always be there. People think they understand property, and feel in control.

Much of this is myth, but people feel it at a deep, psychological level. When I speak about the benefits property trusts have over speculating in housing, I see many people turn off - they simply do not want to trust their savings to people they regard as "financial sharks".

Two things would be preferable to imposing more taxes: first, our markets must be fair to all and our corporate governance must be first-class; and second, the finance industry must tell its story better.

Shares, bonds and managed funds that are based on these investments have often provided excellent returns but they lose out to real estate, which is more customer-friendly. When it comes to easy, transparent transactions and good communication, the real estate industry has beaten the finance industry hands down.

If those in bonds, shares, commercial property and managed funds made a concerted effort to tell their stories well, there would be no need for more taxes.

* Martin Hawes is a financial adviser. His disclosure statement can be found at www.martinhawes.com