Fair economic return
What is it?
All property, above a certain threshold, is deemed to be earning an income equivalent to the standard return on assets. For instance, a $1 million property would be assumed to be earning 5% a year (roughly the current rate on bank deposits), which works out at $50,000. That “imputed” income would be taxed at the individual’s standard tax rates.
What is the problem that this change would seek to address?
New Zealand is over invested in property, but any tax that could fall on middle earners may be politically difficult. The fair economic return tax would therefore seek to tax high-end property only.
What are the advantages?
Unlike a capital gains tax, which is only levied on profits made after the tax is introduced, this tax would be on the current value of property, allowing it to effectively capture past housing- market gains. And it could help shift investment away from property.
What are the disadvantages?
It is complicated to explain and assumes an income that may not in fact exist.
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