by Miriam Bell
PwC chief executive Bruce Hassall said the Budget’s forecast of economic growth of 2.8% per annum over the next four years indicated growth would be steadier than previously feared.
“Inflation is low, employment growing, unemployment coming down and apart from Auckland housing and construction, capacity pressures in the economy are not threatening.”
It is the Auckland housing market that remains the most toxic risk to the economy, Hassall said.
“Measures to damp down demand - like strengthening the tax regime around property profits – are welcome and are joined by more initiatives on the supply side, especially bringing more Crown land into the market for development.”
While the Crown land development programme will be useful, it is not large in terms of the imbalance between demand and supply, Hassall added.
Also, it will operate on a timescale of years and, in the meantime, underlying population growth continues.
In the view of Deloitte chief executive Thomas Pippos, the Budget brought home the reality of a hard economic grind and was a far cry from the economic rock star sentiments.
He said, when it came to Auckland, the issue targeted is the ever rising cost of housing, rather than the associated infrastructure challenges, with the initial salvo being the tax changes.
“But those changes do no more than reinforce existing settings and will do little to curb investment in that sector and the upward pressure on prices.
“The tax is easily avoided, the vast majority of property would be excluded from its ambit, and even if there were a tax on some of the gains, at least two-thirds of those gains would stick to the investors.”
Further, Pippos added that, as the tax would only be paid when the gains are realised, any operating losses incurred through holding the property would still be deductible and able to be offset against other income on a current basis.
“This is not a criticism of the measures, just the reality. As international precedents prove, tax, whether of this nature or more broadly based, can only at best take an edge off a hot market.”
For Westpac chief economist Dominick Stephens the Budget contained little in the way of surprises, with forecasts much as expected and allowances for new spending unchanged.
The property related policy initiatives – including a tightening of capital gains tax rules around investor property, and the fund to open up Crown-owned land for Auckland housing development - were well-signalled.
However, Stephens said that, while Treasury’s forecasts seemed similar to Westpac’s own, it seemed to have a very benign view of what a post-Christchurch-rebuild economic slowdown might look like.
“That optimism suggests downside risks to the Treasury’s revenue forecasts further down the track.”
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