Sean Plunket & Sir Roger Douglas on Housing, Rogernomics & more: Whaleoil transcript part 2

Magic Talk recording starts at 11:30.

Sean

We have in the studio Sir Roger Douglas, not only the guy who stopped us being a Polish ship yard but also the man who founded the Act Party, of course, which is somewhat on the wane at the moment. But Sir Roger’s just told us you need all this tax reform you need the government to stop spending your money, I guess, at the end of the day, Sir Roger, for political purposes. All those things you talked about a pump-priming. Ah? government expenditure designed to shore up their core support so they do well at the polls.

Sir Roger

They are trying to buy? buy votes. Most of it. But the end result, if you just look at New Zealand right now, we owe to New Zealanders, existing New Zealanders, for their future pensions, for their future super, their future healthcare and to the chronically ill for the extra costs which are involved, one trillion dollars. In other words?

Sean

So that?s what the government effectively owes the people of New Zealand?

Sir Roger

Yes. That?s effectively what they owe the people of New Zealand um? and if you think about that one trillion dollars, that?s a one? what is it? it?s

Sean

It?s life? it?s more than? 

Sir Roger

It?s a million, million? if you? kind of thing. And? um? and what people need to remember? I mean we?ve had the Mainzeal the other day? but if people? if a company on the stock exchange, whether it was Fletchers or anyone else, kept their books in the way the government does? their directors would be in jail.

Sean

Right. For trading while insolvent.

Sir Roger

So, I was the one who introduced accrual accounting but we?ve never accrued our debt to the retired or the people who are in the workforce for the portion of their life that they?ve been in the workforce. If we did that, we would have a trillion dollars of extra debt. That?s 3.6 billion which went to top up everyone?s savings for retirement and super? and that? so they could save $5,200 a year.

We?d put some money into savings for health because we might think? people talk about the problems we?ve got for? in retirement in terms of super. Super?s nothing! Health is the big issue.

Health is enormous and what I?m suggesting there is that people put 1-1.5 cents of their income into a health savings fund. The NZ Super Fund matches that money, because we don?t need it. If you’re going to retire with a billion you don?t need the NZ? and probably in the early years the earnings of that fund would pay for it. And the government puts in a third. So, you have 1200 minimum and all these have to be indexed, and people would retire with about half a million dollars in their healthcare fund.

Now you look out 40 years and you think half a million is huge. Won?t be so huge if? because one of the things that is killing this country is that our health inflation is more than double our underlying inflation. It?s been about five percent for 30 years and we have to get that under control.

So that?s another one. Our? the other one um? which is a big one? oh? oh? that people get $3,600 into a health fund every year, I won?t go into that, but housing is something we need to do something about.

Housing is just simply a mess. And you got Twyford and?

Sean

Is it a mess we can build our way out of, Sir Roger, or is it a structural market price problem? That?s?

Sir Roger

Look? look? I don?t know how young people, in particular, are? unless they get family help, can possibly buy their own home. And the answer, in my view, is you got to get the supply up and? and?. you know against what you would think I would say, I am, in the case of housing um? believe that the government has to get involved. And I would take, say four billion a year out of that Super Fund and I?d put it aside and I?d start to buy land up. And then I?d get outside developers. I?d have a say? national?

Sean

So, you?re suggesting a more aggressive and a?

Sir Roger

Absolutely.

Sean

A more aggressive KiwiBuild policy.

Sir Roger

Ah? yes but?

Sean

Well not more aggressive but comprehensive and perhaps more?

Sir Roger

In terms of the land. So, we? they would buy land. They would get it zoned to hell with Auckland city if Auckland city don?t play? you get it zoned. You also zone private land for housing and people have got a certain amount of time to do it otherwise they can sell. And you aim to do 10,000 sections. And the government owns those ten. They can sell some but they the key to getting really low-income people? the people who?ve got no chance, is to do a? shared ownership model so they might go to the bank? so you?re paying rent, you?re paying $400, go the bank, we will lease you? lease you the land.

Sean

All right. Okay.

Sir Roger

And the person that leases has got part ownership and each year they want to buy a bigger share, they can. They?re entitled to.

Sean

Right. But it gives them security, somewhere to live and?

Sir Roger

And it will lower prices because once you get? once you get the supply of sections ah? at least equal to the demand, or a bit more, then you will see a change in price.

Sean

Well that?s? yep, that is remarkable. Sir Roger, a lot of people would say? and someone in fact has texted to me ?hey, when?s the trickle down going to start??  A lot of people might say indeed, Sir Roger, that all the problems we?ve go now are your fault.

Sir Roger

Oh well, people do. The interesting thing about that, and what I?d say back to you is ?tell me: one, policy that I put in place that the Cullens of this world and the Clarks and the Keys and? have actually rolled back??

And? and a measure of a quality policy is that when you put it in, it lasts. And? and what I?m talking about here, again, is that if New Zealand is going to move forward in a positive way then you have to implement quality policy. And this tax policy is not quality.

 Look, you can have an argument ah? for taxing capital. But have that as a real discussion. I mean, I in 1980 I got fired from the Labour Party front bench for advocating a tax on assets instead of a company tax.

Sean

Well, what do you think about the idea, and I did a bit of work for TOP during the election, as you know, TOP argued that if you are going to have a CGT, if you?re going to try and take some heat out of the property market you should actually have an assets tax and to not include the family home um? is madness.

Sir Roger

Well, I think what you do is if you are going to have an assets tax then you have to give an exemption but you don?t say an exemption on the house, what you do is say ?first two million dollars of your assets aren?t subject, so you are only taxed on assets that you own beyond the two million?.

Because what the asset tax is all about is really about opportunity. See, in this country what we do is we tax success. And that?s what Cullen wants to do is pull the success wall down. Well, surely, we want success?

Ah? let me give you an example. You got two farmers, they?ve both got farms alongside one another, same acreage, they?re both worth 200 million, just… let?s say 100 million. One of them is very successful and we make him pay a huge amount of tax and the other one is not successful and he pays no tax. We should be taxing opportunity, not outcome.

Sean

Looking at this CGT I just want to say, interesting you have talked about Michael Cullen throughout this interview, you haven?t talked about Grant Robertson and whilst Cullen was the chair of the working group do you think he?s actually driving this?

Sir Roger

Well I don?t think the government? the government got themselves in a mess, didn?t they during the election and they said on capital gains? because you had Ardern saying there would be a capital gains in the first term and then they decided to park it with a? a committee. And that?s what they are doing here. But I think they get quite a bit of advice off Cullen and a? um? but Robertson is a? keeping his powder dry, as you would, until they get a result. But I just think it?s a? it?s not necessary? look, I think there is a case for having a look at how we tax capital. But we already tax capital in terms of company profits. What are company profits if they aren?t a tax on??

Sean

Success.

Sir Roger

Well, they?re a tax on assets, though surely? And? and? so I think you have to have a proper review but it shouldn?t be predetermined. Ah? but to me? ah? it?s minor because they?ve gone for an absolutely comprehensive capital gains tax and it?s only going to raise eight billion in five years at 1.6, it?s like 1.5 billion whereas you?ve got to go to something like I?m talking about, which is 12 billion. But you?ve got to have in mind ?what am I using this money for?? ?What are my objectives??

And I think it is fair to say that there?s a lot of people there who are living from week to week. A huge number of people are living week to week.  You just got to look at what happened in America when Trump closed the door?

Sean

People would say, Sir Roger, if you hadn?t made the changes, you would? if we had unemployment, we would just employ more people in the Post Office or the railways and everything would be bobsy-die and you destroyed that?

Sir Roger

Well, you wouldn?t have a trillion dollars? you wouldn?t be a trillion dollars in debt you?d be five trillion.

Sean

Okay. Okay, do you think? it all came to grief with Lange over flat tax, would flat tax be part of the transformational government? you know? transformational move this government could make?

Sir Roger

 I wouldn?t? look I think um? you know, time moves on. What I have in my package, which I have put together, trying to write a small book on it, um? what I propose is that the middle rate? the? the 17.5% rate, sorry, goes? it finishes at $48,000? goes right up to $70,000. So, you would have the 10.5% up to $14,000, then at 17.5% up to $70,000 (rather than $48,000) and beyond that it would still be 33% but coming down one cent at a time and you?d bring the company tax down as well.

And you can do that within this and when you think about it the people in this bracket are being hammered by this government. They are paying? they?re paying 30 cents in tax and they?re paying the GST on the remainder, not all the remainder, because they don?t pay it on rent or mortgages. That probably costs them another eight cents at least, then they lose some of their rental support, they lose some of their family support and in the end they?re up to 60, they get a dollar? they get ten dollars and six dollars? gone back to the government, and they wonder why they aren?t better off.

So, you?ve got to? you know, you?ve got to make equality. Now, if we did that? ah? someone on $70,000 would save $2,750 and that would help? and then you have to index those brackets.

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