Westpac chief economist Dominick Stephens expects new taxes on wealth and assets within the next decade as “social pressure associated with the widening gaps between those who own a home and those who don’t is building, building, building.”
Westpac economists said in their latest economic review that they expect unemployment to peak at 6.2% and the official cash rate (OCR) to enter negative territory next year. They also predicted that house inflation will increase by 15% by mid-next year.
“House prices are reacting squarely to the recent fall in mortgage rates. By next year, low mortgage rates will be joined by a recovering economy, producing ongoing house price increases,” Stephens said, as reported by Stuff.
Government deficits are also growing, so extra tax would be allocated on a “two for debt, one for social spending” basis to allow positive fiscal surprises and more spending. However, Stephens warned that the government needs to tax more or spend less as deficits and the growing wealth inequality would put pressure on for tax change.
“The government will still be running large deficits, mid-decade. Beyond that, the ageing population will increase the cost of New Zealand Superannuation and health care, rendering the current fiscal trajectory unsustainable,” Stephens said.
“The required adjustments to our fiscal position can’t be delayed forever. Sooner or later, some form of consolidation will be necessary, though the precise form this takes will depend on which party is leading the government at the time,” he continued.
“Our pick is that a future government will introduce some form of tax on assets, such as a land tax, capital gains tax, or a wealth tax. Societal concern about increasing wealth inequality is only going to intensify, eventually creating a large constituency for such a tax. And tax experts agree that broadening the tax base would enhance economic efficiency.”