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Housing, wealth, and inequality

House prices in Auckland are high and rising, which is causing concern in many quarters. But do we know what sort of effects high house prices may have on New Zealand society, now and in the future?

Politicians and commentators from all quarters have argued that they are undermining the equity of New Zealand society by making it harder for young people to buy houses and squeezing household budgets. Here, for example, are some recent comments from Finance Minister Bill English:

The Finance Minister agrees rising house prices in Auckland are making inequality worse by shutting low and middle-income earners out of the property market.

Opposition parties say rising inequality is not only hurting those who cannot afford to buy a home, but is also bad for the economy.

Bill English said house prices were making life tougher for low and middle income earners in Auckland and said inequality was a problem.

“We’ve been concerned about that for some time, that there’s parts of Auckland where there’s been really no new supply of lower value houses that low and middle-income families can afford.”

I’ve seen Minister English making similar comments elsewhere – saying that limited housing supply is worsening poverty and inequality. How true is this?

First, here’s a graph showing indexed house prices, rents, and consumer price levels over the last two decades. While housing prices have been rising faster than the CPI throughout this period, house prices have really only taken off dramatically since 2002. Meanwhile, rents have risen at a more consistent pace:

Keep that timing in mind. Most of the increase in Auckland’s house prices has occurred between 2002 and 2008, and again since 2012.

So now, let’s take a look at what’s been happening to inequality over the same time period. Here’s a useful chart from a Stuff article on the topic. It looks at the 80-20 ratio – i.e. the ratio of incomes for a household near the top of the earning distribution (80th percentile) to one near the bottom (20th percentile). While it’s not a perfect measure, as it misses outcomes at the upper and lower tails, it does seem to track with the Gini coefficient, another common measure.

Essentially, what this measure is telling us is that income inequality rose during the late 1980s and early 1990s, during NZ’s painful economic restructuring, flattened, and then trended down slightly since the mid-2000s. Importantly, the same basic trends hold true even after taking housing costs into account, which suggests that rising Auckland house prices haven’t altered the underlying dynamics of income inequality:

NZ income inequality chart

In other words, recent increases in Auckland house prices have not coincided with rising income inequality. Minister English is well aware of this. For example, in May 2014 he answered a few questions on inequality in Parliament:

Hon BILL ENGLISH: Well, the facts as laid out in the annual report issued by the Government agency initiated by the previous Labour Government, and now backed up by the OECD, show that income inequality in New Zealand has been flat to falling in recent years, and, on average, it has remained unchanged for the last 15 years.

This does not necessarily mean that we can be sanguine about the impact of housing costs on New Zealand society. For one thing, statistics published in the Ministry of Social Development’s most recent (2014) Household Incomes in New Zealand report suggest that the share of households paying more than 30% of their income for housing has risen since the early 2000s. These changes seem to have affected households across all five quintiles of income, albeit to varying degrees. However, from an equity perspective they’re dwarfed by the impact of early-1990s changes to social welfare and housing policy:

MSD high housing costs by income quintile chart

Another issue is that rising house prices may be causing inequality of wealth to increase. The distribution of household wealth has received more attention in recent years, e.g. in Thomas Piketty’s Capital in the 21st Century, which analysed trends in wealth and income distributions over the past two centuries.

There are reasons to believe that higher house prices may increase wealth inequality. For example, 2013 Census data shows that upper-income households are much more likely to own, partly own, or hold in a family trust their primary residence. 80% of households earning over $100,000 per annum own their houses, compared with only 52% of households earning less than $30,000.

However, we simply don’t have enough recent data to form robust conclusions about the impact of rising house prices on wealth inequality. During the 2000s, the Survey of Family, Income, and Employment (SoFIE) did collect some data on household wealth. An analysis of the 2003/2004 data showed that wealth was much more unevenly distributed than income – 51.8% of all net wealth was held by the richest 10% of New Zealanders.

As SoFIE was discontinued in 2010, we have no way of knowing whether or not wealth inequality has increased during the most recent run-up in Auckland house prices. Consequently, I’d say that a hypothesised link between house prices and wealth inequality is potentially concerning, but unproven. If the Finance Minister is concerned about that issue, I’d recommend that he re-start SoFIE so we can get a better idea of whether rising house prices have coincided with rising wealth inequality.

Finally, commentators should note that this post isn’t arguing for or against any particular policy directed at inequality or the housing market. It’s just taking a look at the data (or lack of data) on the topic. With that in mind, what’s your perspective on the link between housing and inequality?

69 comments to Housing, wealth, and inequality

  • Bruce

    Data needs to be for Auckland only not NZ. I think you will find inequality will be much greater.

    • Peter Nunns

      Unfortunately, we don’t have good data on income inequality at a regional level. Some indicators (e.g. Census data on household incomes) suggest that Auckland may have a higher _level_ of inequality due to the fact that it’s got pockets with relatively high and low incomes.

      However, I think it’s less likely that Auckland has followed a totally different _trend_ than the rest of the country. Auckland is large – 1/3 of the country – and as a result I’d expect any significant trend in Auckland’s income inequality to be picked up in the national statistics.

      • Bruce

        To a certain extent however Auckland house prices are a complete disconnect to the rest of the country. Also wealth is probably more concentrated in the top 20% in Auckland (despite the housing boom making anyone who has owned a house for over a decade considerably wealthier).

  • P

    Land Value Tax.
    https://www.youtube.com/watch?v=jFQgOy-5Tng

    Improvements to PT, especially rail projects will jack up property prices massively also. LVT can recapture that value uplift automatically.

  • Local resident

    Housing might be expensive, relative to the low wages in NZ, but rent is cheap. Owning a home shouldn’t be seen as a right but rather an investment choice. Just because you may not think you can own your own home in Auckland does not mean you are poor.

    • Peter Nunns

      That’s a great point. Home ownership might not be an attractive or feasible option for everyone. However, long-term renting in NZ can be a challenge due to the fact that tenancy laws don’t offer much in the way of guaranteed tenure or quality standards. The government seems to be taking steps to address some of these issues – hopefully they’ll give renters a bit more certainty.

      • Local resident

        Fair point on the tenancy laws in NZ. Both the home owner and the renters need to be protected in order to avoid problems. It is always someones expensive investment and also someone else’s home – these need to be respected.

    • Dan

      The rent is too damn high. What makes you say it is cheap? It is certainly cheaper than paying a mortgage on an equivalent property but capital gains mean you would be far better off paying the mortgage.

      • Ricardo

        Agreed Dan, my advice to anyone who asks is ‘buy something, anything’ in Auckland. At least you get a foot in the door and level peg yourself going forward. Although I have rentals my other piece of advice is always ‘rent is dead money’. Even if you buy further out, rent it out and then you rent in town, you will still be a bit better off.

    • Frank McRae

      “Housing might be expensive, relative to the low wages in NZ, but rent is cheap”

      This idea comes up often but it is not true. While rent is proportionately much cheaper than buying in Auckland it is not cheap by any objective standards. The median rent in Auckland is $495 a week. http://www.trademe.co.nz/property/price-index/for-rent/
      This is way out of proportion to incomes and means a significant number of households spend over half their income on housing.

      • Ricardo

        Hi Frank, and the mortgages on those properties are double again. Mortgage on a million at 5% is over 1000 a week (using bank calculator). And before commentators suggest there are loads of houses cheaper to buy, there may be some, but most central suburbs start at that price, and that is the average value across Auckland that we are heading for. So buying or renting is becoming beyond the reach of many Kiwis. Sadly nothing we can do about it. Landlords would like some return (although the returns don’t cover new mortgages) and the foreign money flooding in is pushing house buying out of reach. And neither major political party really has the will to limit foreign ownership, regardless of the current finger pointing going on. The new laws on Oct 1 will do nothing to stop foreign ownership or the laundering of dirty money. It either goes into our housing or Sky City. So nothing will really change until our prices compare to other major cities where foreignors can buy at will, and then there may be a levelling out. Those who get excited about ‘cycles’ and major bubble bursting do not take into account the foreign money – and a lot of it is dirty money (ask accountants who deal in this area) – something that has never been a major part of any of our previous cycles. So we can discuss disparity and impacts till the sun goes down, but it’s all out of our control.

      • Brendon Harre

        Housing costs in relation to income have being going up for renters. The effect may not be as dramatic as house prices. But since 1993 wages have increased by just under 200% but rents have gone up by nearly 250%.

        In the last century, maybe even century and half the big story has been the gradual reduction in income percentage that households have dedicated to feeding themselves and the gradual rise in income spent on shelter.

  • Dan

    It is pretty clear that a large increase in house prices would cause a large increase in wealth inequality. I agree data should be collected on this. I see it all around me — those of my friends who are wealthy enough to own a house (even if they’ve only bought in the last few years) now typically have hundreds of thousands of dollars, those who can’t afford a house still own pretty much nothing.

    I think we should talk about wealth inequality more than we do — income inequality is talked about mainly because it is easy to measure.

    • JimboJones

      Yep I don’t think you need data to prove the obvious – I guess data would confirm how big the wealth gap is.
      In our personal experience we now have about 70% more wealth than we would have had we not bought our house 9 years ago and instead rented/saved. However without a mortgage we may have taken more risks, started a business etc and we could actually be more wealthy – who knows…
      Sometimes I wish we had bought an investment property (we considered it several times). But I think I would now feel really guilty – it is horrible what greed has done to the younger generation’s hopes and aspirations.

  • Craig

    Those with access to money being able to multi purchase houses holding to ransom those that don’t. Making money out of thin air where no value has been added. Ultimately SOMEONE has to pay for this money. You can’t not add any value and still expect the prices to rise or eve be sustained. People don’t want to admit this is been driven by greed. And the banks are the clear winners. They are the enablers. Real estate agents are the pushers. Home buyers are the junkies. When to check into rehab?

  • unaha-closp

    “I’d say that a hypothesised link between house prices and wealth inequality is potentially concerning, but unproven.”

    To demonstrate a link does not require NZ specific data, as people in many other places also live in houses. A plethora of applicable data exists and demonstrates the real detrimental effects on the poorest member of society.

    • Peter Nunns

      “A plethora of applicable data exists…”

      Citations please?

      • unaha-closp

        ECB – The role of housing in wealth inequality in Eurozone countries, Deniss Bezrukovs

        UK Local Government – Housing Wealth Inequality, Economics paper 6: Volume 1 & Volume 2 – ” – if large swings in housing equity arise because of arbitrary market processes that bear no relationship to work effort, entrepreneurship, or explicit democratic choice of society, there may be negative implications not only for economic efficiency but also for the role of government and the capacity of policy to affect peoples’ lives.”

        And just for balance:

        Cato Institute – Housing and Wealth Inequality, Randal O’Toole

  • KarlB

    As you suggest – wealth inequality, rather than income inequality is the more relevant measure here.

    I guess we might expect income inequality to accompany house price rises if rents rise in tandem and wage rises lag. But that’s clearly not been the case in this latest price run-up.

    In the longer-term, income inequality effects might be more pronounced – e.g. if higher house prices force people out of Auckland – and access to it’s higher paying jobs.

    But yes, wealth inequality’s the issue and crazy that the government’s not collecting data on it.

    • Brendon Harre

      I think the problem is more about wealth inequality too. I think too that a lot of the effect is hidden from quantitative examination. Rising housing costs can be adapted to in ways that is difficult to measure, living in rental rather than owning your own home, living in a cold, damp house when you would prefer better, living in over-crowded conditions. Falling out of formal housing completely -living in cars, caravans, being homeless. What are those statistics saying?

      When I returned from Europe I was talking to a mother in a Christchurch playground. They were a one income family living in rental accommodation. They had ice on the inside of their windows in winter. When they approached the landlord for a heatpump -his response was to say -‘would that help’ and then walked away. They could not afford to move. This would be unacceptable in Europe.

      How do you measure that sort of inequality? NZ didn’t use to have that sort of power imbalance -‘Jack was as good as his master’. We are creating a society of self entitled landed gentry whose income and wealth is based on exploiting Generation Rent.

      This is a return to some sort of Dickens Tory economy/society and does not bode well for our future.

  • Brendon Harre

    Between the 1950s and 1990s NZ had a property price to average income ratio of between 2 to 3, upward and downward movements were random and roughly equal. In the mid 90s it ratcheted up to 4.1 before dropping down to just under 4 by 2002. There was a second ratchet from 2002 to 2008 where the ratio rose to over 6 before dropping back to about 5.5 post GFC. From around 2012 a third ratchet has occurred, particularly centred on Auckland where the ratio is headed towards 10. (Fig. 1.4 Generation Rent by the Eaqub’s)

    The weird thing about the property market since the mid 90s is the periods of downward price correction have not matched the previous periods of price booms.

    Germany and Switzerland during the same period had stable prices while Ireland had one big boom that crashed badly after the GFC, but now appears to be re-inflating. (Fig 4.1)

    • JimboJones

      Assuming that house prices are solely related to incomes would be to ignore the effect of interest rates and many other factors.
      Property price to income ratio will not remain constant if the cost of servicing a mortgage (interest) goes down as much as it has between the 70’s and now.

      • Brendon Harre

        The cost of existing housing should relate to the cost of building new housing. When interest rates change does the price of second hand cars, TVs etc change? No.

        The interest rate argument is something banks use to justify increases in house and mortgage values, to justify their increased bank profits.

        • stevenz

          Not so. When making a housing decision the typical family figures out what they can afford to pay on a monthly (fortnightly, etc) basis and looks for a house and mortgage that match that. Lower interest rates mean they can spend the same amount on a more expensive house, thus lower interest rates make more expensive houses more attractive, thus reinforcing the higher cost.

  • Waspman

    The cold hard truth is the vast majority of our kids will not and today can not buy a home in Auckland or anywhere near it. And this government is either too compromised and or incapable of doing a damned thing to change that outcome!

  • Sailor Boy

    Can anyone hear the horrible squeaking noise that happens when you blow up a balloon really hard? Just before it slaps you in the eyes and pops your sinuses from the sudden pressure drop?

    • Ricardo

      Wishful thinking. Or envy?

      • Craig

        Common sense. It is an unsustainable situation. Whoever gets caught with the parcel will be paying for the previous owners lavish lifestyle by being in negative equity for many years. Interest rates will also inevitably rise and people will spend their entire time just servicing a mortgage.

      • Sailor Boy

        Could you name another basic commodity that has endured a price doubling in 4 years and not subsequently popped?

      • Doloras LaPicho

        You’re right, Riggles, Auckland house prices will keep on rising forever and never crash. LIKE THE CHINESE SHARE MARKET.

        • Nick

          I agree that logic would say the bubble must burst. But you know all the time I’ve been in NZ (13 years), economists have been saying “Huge bubble. Unsustainable. Massive crash coming”. But it hasn’t happened. It would be interesting to know what’s interfering with those basic economic models.

  • Brendon Harre

    Household home ownership rates also peaked in the 1990s at over 75% and has dropped in every census since. It is now under 65%. Every age group has had drop in ownership. If you look at individual rather than household data -just over half of kiwis are renters (p.11 Generation Rent).

    This wouldn’t matter if renting was a perfect substitute for owning. But it is not. Renting in NZ is a tenuous existence where tenants have few of the rights and certainties of owners. An indication of this is in Auckland there is a known effect causing poor education if students are ‘rental kids’ because of the large number of school changes that short term rentals have impacted negatively on their schooling.

    NZ housing stock is of poor quality -often cold, damp, poorly ventilated and insulated. This poor housing is particularly prevalent amongst the rental housing stock. NZ has housing related diseases, such as rheumatic fever not seen in other developed countries in the OECD.

    House ownership is unevenly spread in society, particularly by ethnicity. Over half of Europeans own housing but only 24% of Maori and 17% of Polynesians own housing.

    • Peter Nunns

      A good summary of the broader social issues. I’d note that this post focused quite narrowly on income and wealth inequality, but those metrics obviously don’t capture everything.

  • Ricardo

    Rents don’t cover mortgages. Auckland prices are through the roof and more foreign money is on its way. Auckland will be soon (if not already in many suburbs) be owned by the wealthy (largely foreign) – and rented to those who can afford it. Then we will be just like every major global city. The changing demographics will bring their share of issues and Auckland will be pretty much a different part of NZ, with different values, languages, cultures, etc. Pretty much it.

    • Peter Nunns

      “Auckland will be pretty much a different part of NZ…”

      Auckland already is different from the rest of New Zealand, and I’d argue that it’s been a net positive for the country. First and foremost, Auckland is different economically – it’s got a more diverse range of industries and significantly higher productivity. It’s better at attracting migrants from overseas and elsewhere in New Zealand. Many of these people would not come to NZ (or stay here) if Auckland didn’t exist. This leads to positive spillovers for the rest of the country – taxes paid in Auckland fund superannuation in Gisborne; firms based in Auckland supply services to firms in the Waikato. There are challenges associated with being a big city – meeting needs for housing and transport infrastructure, for example – but they’re not insurmountable.

      Furthermore, Auckland is not unique in the global context. Large cities are almost always different than the rest of the country. London and New York have more immigrants and different industries than Kentucky or Yorkshire. The same goes for Vienna, Sydney, or Brisbane.

    • Craig

      How foreign are white Kiwi baby boomers?

  • Local resident

    Whilst home ownership can enjoy capital gain, it can also register capital loss. Renting is much cheaper and carries no financial risk of interest rate movements or a house price correction.
    Looking at Europe, many people in Germany and Switzerland rent rather than buy. I would say the majority are renters. This leaves them with a lot more disposable income to either enrich their lives or invest in other financial plans. Conversely in the UK most people own their homes and run the risk of negative equity and being wage slaves to the mortgage.
    A house may be unaffordable to buy in Auckland but they are pretty cheap in other parts of the country. How long it is before Aucklanders cotton on to this and start working remotely or commuting greater distances?

    • buttwizard69420

      It couldn’t possibly be because a lot of jobs aren’t available in regions or people can’t telecommute and it’s not possible to project that kind of approach on to every person in Auckland regardless of their occupation, age or ties to the area. No, it must be that people just ‘haven’t realised’.

    • KLK

      While by no means an expert on the issue, I understand renters in Germany are afforded many rights – permanence of tenancy, refurbishment etc – which, as you say, make renting much more attractive to the burden of a mortgage.

      These are not applicable in the UK or Auckland which means any comparison is apples v oranges.

  • George D

    All I know is that when I moved to Wellington, I thought I’d be able to enjoy Auckland again. I don’t know if that’s true anymore.

  • john m

    Well to be honest. It’s those who do rent that are causing this problem for themselves. I say if renters moved out of Auckland or back home or just pack out 1 house with many renters (which is already happening) maybe rents will drop and investors will find it harder to make it viable to own many property’s. And prices will fall.
    My 2 siblings there partners myself and partner all live in my dad’s house. And we are all in our late 20s and 30s whil my dad lives with his partner.
    And none of us could afford to rent anything nice and I have installed solar panels 2 new bathrooms and a small kitchen in the rumpus room.
    While all our neighbours are now owned by Chinese some I believe to be owned off shore.

  • kelvin

    unfortunately it is a trend for other international city as well like sydney, Vancouver and new York

    House price is directly proportional to the city population size.

    There is a limit of how the city can sprawl before its transport system become inefficient. So eventually land per capita will decrease and land price increase.

    • stevenz

      House price is directly proportional to city size?! Really? That would be a remarkable economic phenomenon. Please let us know where we can see the data because if true, then little or nothing can be done about housing cost since it is completely divorced from policy, demographics, economic base, location, culture, amenity, and growth trends. We could sure save a lot of time if it’s that simple.

    • Like Demographia and many other neolib “think” tanks you are only looking at the English speaking world. Many cities in the non-English speaking world are growing without the price of housing necessarily growing.

  • KLK

    john m: “My 2 siblings there partners myself and partner all live in my dad’s house. And we are all in our late 20s and 30s whil my dad lives with his partner.
    And none of us could afford to rent anything nice :

    I assume you mean nice “and where we wanted to live”.

    Which, straying off topic a little, is why opening up fringe land for development is unlikely, in my opinion, to do anything for first home buyers to get into the market. Outside of some urban ghettos (relative to NZ), the lowest house prices (let alone rents) in Auckland are on the urban fringe. First home buyers don’t want to live there now (probably because its quiet suburbia, plus travel time trade-offs), so building some standalone house out there – at significantly higher cost given its new – won’t make much difference, except to make houses close to the CBD even more attractive, and push them up even further…

  • stevenz

    I’m not usually a stickler for definitions but what is being counted in “wealth”? One kind of wealth, the largest category for a lot of people, is equity in their house. People with high-priced houses may have a large number of dollars in equity, but people with lower-cost houses may have a higher percent of the value in equity. Anecdotally, there are lots of stories about people buying million $ houses with help from mum and dad, and often the minimum down payment that they can get away with. Whose wealth is that? How does the price of the house relate to the question of equality? I could go on.

    Just asking, not criticizing the analyses.

  • stevenz

    “51.8% of all net wealth was held by the richest 10% of New Zealanders”. Compared to many first world countries today, that is a remarkably equitable distribution of wealth. That’s old data now, so those numbers have changed markedly, I would bet. We’re now talking about 1% and .1% controlling a huge % of wealth in some places, particularly the US but it must also hold in China and India.

    “Billionaires and politicians gathering in Switzerland this week will come under pressure to tackle rising inequality after a study found that – on current trends – by next year, 1% of the world’s population will own more wealth than the other 99%.” — Oxfam
    http://www.theguardian.com/business/2015/jan/19/global-wealth-oxfam-inequality-davos-economic-summit-switzerland

    • Peter Nunns

      That’s a fair point – NZ has historically been relatively egalitarian in income and wealth distribution compared with a lot of other countries. Data on _global_ wealth inequality isn’t a relevant point of comparison, as measures of global inequality pick up the effects of both (a) substantial variations in wealth/income within countries and (b) large variations in average wealth/income _between_ countries. Branko Milanovic documents this quite well in his research on global inequality.

      That being said, Piketty has developed and published data comparing wealth distributions in selected rich countries in the late 2000s/early 2010s (see figs 10.1-10.5 in his book). He finds that the richest 10% hold:
      * Around 60% of total net wealth in France and Sweden
      * Around 70% of total net wealth in the UK and US.

      That’s obviously a higher level of wealth inequality than NZ had a decade ago. It’s hard to know whether that’s changed since then in the absence of better data – which was exactly the point of the post!

  • mfwic

    I really think part of the issue is that people with a bit of money simply dont have any alternative form of investment that they trust in this country. The widening gap between rent and house prices is because more of us have piled into the market because our only other choices are dodgy finance companies, listed trusts with high management fees, direct share investment (“you have to be an inisder to make that scam work” A Soprano), or accepting 1% over inflation after tax at the bank. If the government was serious about house prices perhaps they would sell units in the Cullen fund and expand it to work like the Vanguard indexed fund in the US. Private funds in NZ are simply a mechanism to convert your wealth into the fund managers wealth.

    • Peter Nunns

      “If the government was serious about house prices perhaps they would sell units in the Cullen fund and expand it to work like the Vanguard indexed fund in the US.”

      +1

  • harrymc

    We need a wealth tax.

    • Local resident

      We already have ‘wealth tax’. High earners pay a higher rate of tax than low income earners. What is needed is to have a flat rate that is applied to all income. If you earn 200’000 you pay 20’000 tax. If you earn 20’000 you pay 2’000 tax. It is simple and it is fair.
      The entitlement that some people have (guardian readership) to think somehow the few should pay for the many is astounding 🙁

      • Nick R

        We don’t have the Guardian Phil! What Harry means is a tax on wealth as opposed to income tax. For example my retired mother is wealthy in assets, but pays very little income tax, only a modest amount on interest and dividends.

  • Local resident

    I know Nick. But here is a question for the socialists in the room.
    Why should your Mother pay tax on assets she worked hard to buy when the money used to buy those assets has already been taxed – often at the highest rate? Taxing your Mothers investments is sending the wrong message. It penalises people who save whilst at the same time rewarding people that spend all their income. It is simply not fair. It is already grossly unfair your Mom would be means tested for welfare.
    NZ has a high standard of living (compared to the rest of the world) with little inequality, introducing wealth taxes – that anyone rich with a lawyer would dodge – is just envy tax.
    One of NZ’s admirable fiscal policies is the absence of death duty and no capital gains tax. People that suggest we should introduce these are very likely the sort of people that want everything handed to them on a plate 🙁

    • Peter Nunns

      “the sort of people that want everything handed to them on a plate”

      You mean, like people who expect to inherit large amounts of their parents’ money without paying any taxes on it? You’re right – I don’t think we should be sympathetic to their special pleading!

      • David B.

        Peter I agree with local resident and don’t agree that if I give my kids money it should be taxed. It’s family money and there’s no taxable transaction here. Are you arguing for example that kids should declare their pocket money to the IRD?

        That said, there’s a fair few people who own multiple houses in this country who make windfall profits on the back of that. I’d be happy to see a share of those profits go back as tax, as this is new income that has never been taxed.

        • Peter Nunns

          Disclosure thresholds should obviously apply on gifts and estates, to balance out the administrative costs against the fairness of the tax system. This is common elsewhere in the tax system. For example, businesses don’t have to register for GST unless they have annual turnover of more than $60,000. Similarly, estate taxes overseas are focused on large estates worth multiple millions of dollars. So the pocket money thing is just a red herring.

          So is the “double taxation” argument. We _already_ tax most other forms of income every time the money changes hands. For example, let’s say I earn a salary of $50,000. I pay income taxes on that income – it’s been taxed once. Then I pay you $500 to repaint my house. You are then required to pay income taxes on those earnings – even though the money was taxed when I originally earned it.

          Basically, I don’t see why large transactions between parents and children should be treated any differently. Income is income.

  • Local resident

    Except it is not income. It is passing on family property.
    Peter – your ideology is rooted in envy and is a cruel tax that punishes people for working hard and saving.
    You don’t pay tax when you sell a second hand car (except in the USA), why should you pay tax when you give your children your second hand home?

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