Credit growth returning in all the wrong places

A growing imbalance between lending for housing versus lending for business investment should remind the Minister of Finance that he needs to address tax incentives for property speculation, said Green Party Finance Spokesperson Russel Norman today.

“While new credit growth is relatively subdued, the green shoots are in all the wrong places,” warns Dr Norman.

Reserve Bank figures released today show that mortgage lending continues to grow in an otherwise subdued market. The Green Party shares Dr Bollard’s fears that further debt-fuelled speculation in the housing market will be to the detriment of the productive sector.

“This is the time the Government should be taking the initiative to incentivise more sustainable borrowing and investment patterns in New Zealand. If we’re not smart and invest a greater proportion of our wealth in the productive sector as we move out of this recession, we’ll return to the same unsustainable patterns of economic growth,” said Dr Norman.

The Greens are proposing a suite of demand and supply measures that help redress the structural imbalance embedded in our economy — one that sees 60% or our borrowing directed into housing and only 25% into the business sector. It would also address the growing social problem of housing affordability.

“A capital gains tax on any property investment excluding the family home would help restore some balance to the way New Zealanders are encouraged to invest.”

Further demand-side measures would include putting limits to the tax write-offs property investors are able to claim through loss-attributing companies. Losses on LAQCs, used to offset tax, have increased from $750 million in 2003 to $2.3 billion in 2008. On the supply side, greater numbers of state and community sector housing starts along with smart growth initiatives would help increase the numbers of houses on the market.