So the debate over house prices has continued today with the Reserve Bank having its turn answering questions about it
And it’s clearly turning into a blame game
Yesterday, Finance Minister Grant Robertson tried to blame the Reserve Bank by making his letter public.
Today, the Reserve Bank has put the ball firmly back in the court of the government.
And this is the interesting bit you might want to know. If you read between the lines, it sounds a lot like Reserve Bank governor Adrian Orr wants either a Capital Gains or wealth tax.
In an interview today he said: "I'm aware the Government has said publicly they have ruled certain things off the table. They have ruled that off but ...we're going to have to speak openly, frankly and with integrity."
Well, what has the government ruled out? The Capital Gains Tax in the 2017 election. The wealth tax in this election campaign. So we should expect Reserve Bank pressure on them to break those promises, both behind closed doors and publicly.
I suppose the question is, can the government break those promises? Can they blame Covid for driving house prices unexpectedly high, and say the Reserve Bank is advising them they have to break their promises in the best interests of the country?
My gut feeling is no. Despite various economists, interest groups and the Green Party trying to pretend that a Capital Gains Tax or a wealth tax has now become popular, the ongoing resistance from the government to doing anything of the sort suggests it’s not.
That’s not to say Grant Robertson may not find some other way to affect house prices. For example, he could just extend the five-year brightline test so far that it becomes a Capital Gains Tax in practice.
That’s always possible. As we said yesterday, he’s probably going to have been seen to do something more than simply writing letters, given the political pressure he, Jacinda and Labour are facing from their supporters to do something. This is the downside of making big promises before you’re in government.
And when it comes to the blame game, the truth is it doesn’t really matter what caused median house prices to shoot up by 20 percent in a year. What really matters is who promised to make housing more affordable, and that would Labour.