Adrian Orr puts taxes back on the table in the affordable housing debate

Reserve Bank Governor Adrian Orr has responded strongly to Finance Minister Grant Robertson’s plea for him to pay attention to skyrocketing house prices, saying he is likely to give open and frank advice on the changes. the government could use to cool the housing affordability crisis.

In a sitting interview with Things Yesterday, Orr deliberately expressed the view that “fiscal policy is much more effective” for targeted interventions in the housing market than monetary policy, but that it is “in the hands of elected officials,” not the bank.

Fiscal policy is the responsibility of the Government, not the Reserve Bank.

Orr welcomed Robertson’s letter on Tuesday asking the central bank to consider changing its mandate to include some consideration of house prices.

Orr said he believed the letter requested the Bank’s full range of advice on the housing crisis. This means that the solutions he presents could be the bank’s responsibility, but it could also be Robertson’s responsibility.

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Talking at the Reserve Bank in Wellington, The governor was asked if he would take the opportunity presented by Robertson to suggest some taxes that could help ease pressure on the housing market.

“I guess so, that’s how I read the spirit of the letter,” Orr said. “There would be taxes [advice]- I think it would be negligent, if the letter is open, not to do our best, “he said.

Robertson’s letter came as the Reserve Bank unveiled a $ 28 billion stimulus program that Westpac economists say could contribute to 15% growth in home prices over the next year. .

Orr’s tax advice was probably not what Robertson had in mind when he wrote to the Bank asking for their help in dealing with “the problem of rising house prices.”

The Reserve Bank is responsible for monetary policy, mainly setting interest rates through the OCR; it is operationally independent from the government that controls fiscal policy and taxes. Most market watchers assumed that Robertson’s letter would lead Orr to offer some monetary policy solutions to the crisis; these would be economic levers that Orr himself controls.

But in his public responses to Robertson, Orr has wanted to emphasize that he sees his role as much larger than just looking at what the Reserve Bank can do to take some pressure off the housing market. He wants to lend the considerable intellectual weight of the Bank to advise the government on policy what it can do.

“I was very pleased that it is an open letter, meaning that it does not limit us to limiting the powers of monetary policy, but says that you have a highly capable team here, helping to provide affordable solutions and assistance,” Orr said.

This could mean offering fiscal suggestions to a government that has been quite clear that it does not want to implement them.

Jacinda Ardern has ruled out a capital gains tax and a wealth tax, two potentially effective tax tools the government could use to ease demand from the housing market. A land tax is not on the political agenda either.

Orr said he would have to speak frankly with the government, despite his many scrapped taxes.

“I am aware that the government has publicly said that it has ruled out certain things,” Orr said. “But we are going to have to speak openly, frankly and with integrity because that is what the central bank has to do.”

Orr said using tools like taxes would be a more effective way to boost housing affordability than hard-hitting tools like the Reserve Bank’s interest rate setting tools.

“I think fiscal policy is much more effective around targeted intervention,” Orr said.

“[Monetary policy] it is a blunt tool and it is an effective blunt tool. If you want to enter certain sectors of society, that is regulation.[…] that’s fiscal policy and it’s in the hands of elected officials, “Orr said.

Robertson said RNZ Yesterday the Treasury was considering measures to ease demand in the housing market, this could include an extension of the bright line test, essentially a limited form of capital gains tax.

“There is a lot of political space outside of the things that we have discarded in terms of what we can do around affordable housing,” Robertson said.

Any advice that is offered to the government will not be far off. Robertson’s letter says he is eager for solutions soon and wanted Orr to give his letter the “earliest possible consideration.”