I think our finance minister is sleep deprived and hallucinating. His latest brilliant idea is a levy on fixed rate mortgages. The backgournd to this is that the main inflation control weapon in New Zealand is interest rates. When inflation gets too high, the Reserve Bank raises the official cash rate, which supposedly dampens demand and inflation is kept in control.
Unfortunately our high interest rates attract overseas investors, which mean that the exchange rate is high, and exporters suffer. Supposedly the economy is strong but the balance of payments is terrible, because people are rushing to buy cheap imports, and exporters are earning next to nothing.
Supposedly the imposition of an additional levy on fixed rate mortgages will dampen demand for housing, while not offering any additional incentive to overseas investors.
Here's what I don't get: the idea is that a raise in the official cash rate takes to long to flow through, so doesn't decrease demand for mortgages immediately. This seems strange to me, as surely it will decrease demand for new mortgages. It's only the existing ones that aren't affected until they are due for renewal, and surely the government doesn't want to throw people out of their houses? (Oh, I have just figured it out - if their mortgage costs go up, they won't have money for other things like, say, food and clothes, so that reduced spending in these areas will keep inflation down).
Secondly, house ownership rates in New Zealand are at an all time low, and it is predicted that huge numbers of people will never be able to afford their own home. And yet demand increases. That's because of the baby boomers looking to property as an investment. So maybe to dampen demand they could find some measure to increase taxes on property investors, and leave young people struggling to buy their first homes alone? Or maybe even help them along?
As the banks say in this article, this idea will never float, because about 1.2 million people in the country have mortgages, and that's a lot of votes (in a country of 4 million).
And I'm very glad to say that despite interest rates of nearly 8 percent, and house prices that are very high in relation to wages, compared to many other countries, my eldest daughter has successfully managed to buy her first home and will be moving out in a month. (I'll miss her. But I'm happy for her). It's not big, it needs a few repairs, but it is attractive and conveniently sited close to a very regular bus route.