Elevate CA sponsored the Bill English and Phil Heatley show in Whangarei tonight. Its not that we have a particular political agenda. Actually, if we’re honest it was more about getting our brand out there in front of 100 or so local business people. Chipping in for the beer and nibbles was a small price to pay.
So now that I have that out the way, I can say that Bill and Phil put on a good show in Whangarei tonight at the NZ Institute of Building function. I found myself agreeing with a lot of the stuff Bill English had to say around making it easier for Kiwi businesses to do business internationally.
This is something I have been banging on about for some time: As a country we need to generate wealth internationally if we want to live a first world lifestyle, because funding that lifestyle from borrowing just isn’t sustainable. So it was good to hear Bill English talking about investing in the things that will help kiwi businesses become more competitive internationally. Stuff like improving our roading infrastructure, our electricity generation and distribution, our broadband network – and reducing the pervasive burden of red tape in our business world.
The rhetoric was encouraging.
But the single obvious incentive to encourage Kiwis from “borrowing to spend” towards “saving to invest” was clearly not on Phil and Bill’s political agenda. In this country, a person will almost always do well over the long term by borrowing to invest in residential real estate. The interest and all expenses can be made tax deductible against personal income, while the ultimate capital gains are typically tax free. Nice. Why wouldn’t you do it? Especially with the 24% price increases forecast for Auckland residential property by certain economists over the next three years.
Nice for the individual investor who has the means to borrow hard. But is that productive or beneficial for the country? Hell no. It increases our indebtedness to the rest of the world, and achieves nothing that generates income for the country in the context of the world at large. The wealth generated is not real, so why is our tax system encouraging this behaviour?
How about ending the very generous tax incentives to buy and hold residential real estate in this country, and in turn target those incentives to the parts of the economy that generate real wealth for all of us. Namely entrepreneurial Kiwi businesses that can market innovative, world class products into niches internationally.
Fraser Hurrell is one of three directors of Elevate CA Limited, Chartered Accountants & Business Advisors in Whangarei, New Zealand.
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