The Reserve Bank Governor says he plans to discuss tax changes the Government could use to cool the housing affordability crisis during talks with Finance Minister Grant Robertson.
Adrian Orr welcomed Robertson's letter on Tuesday which asked the central bank to consider changing its remit - or objective - to include consideration of house prices alongside inflation and sustainable employment.
Orr has assured Robertson the bank does consider house prices when formulating monetary policy, and he told Stuff his view is that "fiscal policy is far more effective" for making targeted interventions in the housing market than monetary policy.
Speaking at the Reserve Bank in Wellington on Wednesday, Orr was asked if he would use the opportunity presented by Robertson to suggest tax changes that might help relieve pressure on the housing market.
"I don't know the broader work agenda, so one would assume that issues of taxation would be in the broader work agenda, so we will see what comes," he said. "There's been so much work over decades on this issue that I don't think problem identification is too difficult. It's really around appetites for accepting policy recommendations."
He gave a more specific answer to Stuff: "I assume so - that's how I've read the spirit of the letter. There would be taxation [advice] - I think it would be remiss to, if the letter is open, not to put our best foot forward."
Green Party finance spokesperson Julie Anne Genter is welcoming Orr's comments.
"Like many other experts, he understands that addressing the housing crisis and growing inequality in this country ultimately is the Government's responsibility, and that tax reform must be a part of this picture, as well as an increased supply of community and public housing."
Robertson has promised not to introduce a capital gains tax after Prime Minister Jacinda Ardern promised last year it would not happen under her leadership.
But Newshub revealed he's not ruling out an extension to the bright-line test - the tax on investment properties. It means if a property is sold within five years, capital gains are taxed at the owner's income tax rate. The family home is exempt.
ACT leader David Seymour says it's a capital gains tax by "stealth".
But Green Party co-leader Marama Davidson says it is a "disservice to New Zealanders not to use all of the tools in the toolbox to fix this runaway housing crisis, and that includes taxing wealth or capital".
Seymour argues the solution lies in building more houses by repealing the Resource Management Act (RMA), the complex piece of planning law blamed for holding back new developments. Labour intends to replace it next year.
Genter says blaming the RMA is a "tired excuse".
Robertson's letter to the Reserve Bank came after it unveiled the Funding for Lending Programme (FLP), making up to $28 billion available to banks at the record low-interest rate of 0.25 percent, to lend and help stimulate the economy.
Westpac economists have suggested it might contribute to 15 percent growth in house prices over the coming year. It comes as house prices have increased by 20 percent on last year, with the median house price in Auckland now $1 million.
"House price instability is harmful to our aims of reducing inequality and poverty, and is also likely to negatively impact the Government's aim of creating a more productive and inclusive economy," Roberson said in his letter to Orr.
"This is particularly the case where investments in the economy are increasingly being made in the existing housing stock, rather than in other more productive assets."
He appeared to be referring to the FLP, echoing concerns by National that the programme was being rolled out without any requirement for the new lending to be targeted at productive investment such as helping businesses.
Orr said the bank considered targeting the FLP but came to the conclusion that it is up to banks to decide where the funding goes.
The Reserve Bank confirmed on Wednesday it would bring back loan-to-value restrictions (LVRs) early next year, meaning banks will once again require a deposit of 30 percent from investors to get a mortgage and 20 percent from home occupiers.
Some commercial banks such as ASB and BNZ have already introduced them ahead of the Reserve Bank's decision, to try and cool the housing market by slowing the buying frenzy sparked by the current environment favourable to buying.
National leader Judith Collins says low-interest rates are the problem.
"They encourage people to buy existing houses rather than to have money put in the bank, for instance. We're used to people wanting to save for retirement. Now it's like why would you bother when the interest rates are so low."
