National’s foreign buyers tax falls $450m short a year, according to a painstaking review by three independent economists.

The three economists have worked late into the night and through their weekends for the past two weeks, to crunch the numbers. Sam Warburton describes himself as left-wing, Michael Reddell as right-wing and fiscally conservative, and CoreLogic research head Nick Goodall disavows politics entirely.

CoreLogic gave them access to data on 1.6 million homes, that Goodall says he’s happy to also share with the National Party.

The three disagree on what the $450m shortfall means for the economy – but they agree it raises questions about Nicola Willis and Christopher Luxon’s financial competence.

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Luxon and Willis announced the policy two weeks ago, as a cornerstone of their tax package. The foreign buyer tax would maintain the foreign buyer ban for houses bought for less than $2 million; allow foreign buyers to purchase houses above $2m; and tax those high-value purchases at 15% of the purchase price.

The three economists reverse-engineered National’s numbers to discover the party’s key assumptions: that if it were elected to government it could levy its new tax on an average 1,700 sales per year, at an average price of $2.9m.

This doesn’t add up, they say. They highlight three key flaws: first, that Australian and Singaporean buyers can’t be taxed because of New Zealand’s free trade deals. That criticism has already been levelled by Labour.

“It’s hardly surprising to have different economists disagreeing about things. National is confident in our figures.”
– Nicola Willis, National

But further, their new analysis also points out that for National to make its numbers, it would need nearly 200 foreign buyers a year to agree to pay $2m plus the additional $300,000 tax on houses that are valued as low as $1.1m.

That behavioural change is inconceivable, they say.

“It took us long hours, evenings and weekends, to get this right,” Warburton says. “We’d be swapping emails at 1am, 2am, saying ‘here’s where I got to’. But we didn’t have a deadline, so we could keep going till we got it right.

“National did have a deadline. There are signs that they at least started out with an honest attempt. But there was a lot of pressure for media about releasing the plan.

“And you get to a point where you’re struggling to complete it because it’s getting a little bit too hard, especially with the timelines. And you can’t  keep going if your boss says, we need to get this out.”

“Christopher Luxon’s sorry excuse for a tax plan is now officially dead in the water. National’s economic credibility is in tatters.”
– Grant Robertson, Labour

Labour’s finance spokesperson Grant Robertson says the economists have exposed a hole that adds up to a “whopping $2.1 billion”.

“Christopher Luxon’s sorry excuse for a tax plan is now officially dead in the water,” he says. “National’s economic credibility is in tatters.”

Willis dismisses the criticism. “It’s hardly surprising to have different economists disagreeing about things,” she says.

“National is confident in our figures. They have been independently assessed by Castalia economic advisors.

“Our figures are conservative and assume that sales captured by the tax will be significantly less than half the number of sales to foreigners before the ban came into place. We are committed to implementing tax relief that will deliver up to $250 a fortnight for an average income family with young children.”

The three economists argue National’s arithmetic simply doesn’t add up; that it’s internally inconsistent. At the very least, the party appears to have made some wildly optimistic assumptions.

“National should be as concerned about a half billion hole in their revenue as they would be happy about cutting waste. We all should be.”
– Sam Warburton, economist

But does it actually matter? Reddell, the fiscal conservative, notes: “The $500m a year error is just over 0.1 percent of GDP. It’s rounding error stuff in the overall fiscal scheme.”

For him, the macroeconomics isn’t overly important. If National doesn’t pull in the money it’s promised, it won’t crash the economy. “To me,” he says, “it’s much more about the credibility of the people who aspire to run the country.”

Goodall says it raises a big question about where a National government would find the money to deliver its promised tax cuts. “When you can’t make the numbers stack up, tt has to make you question any other data they bring to the table – and whether that enables them to be in a position to look after the economy in the future.”

And Warburton puts it differently again: “National should be as concerned about a half billion hole in their revenue as they would be happy about cutting waste. We all should be.”

The three economists also criticised the backroom review of the numbers conducted by economic consultancy Castalia, first published by Newsroom, saying its economists didn’t demonstrate what review took place. “This is insufficient to give any additional confidence in National’s numbers,” their report says.

“We would expect to see a detailing of the method, assumptions, and calculations, and the reasonableness of them, caveats with the analysis, and identification of variations to the method and assumptions that might be appropriate. None of this appears in what is written up as Castalia’s review.”

The economists acknowledge the possibility that Castalia has done more in-depth work, but there’s nothing disclosed. “Castalia’s review cannot be relied on to back National’s estimates.”

Castalia managing director Andreas Heuser rejected the criticism, saying only the executive summary of Castalia’s review has been made public.

“The specific critique in relation to the foreign buyer tax appears based on a view that New Zealand residential real estate has permanently lost its position as a destination for investment capital,” he says.

The three economists assume that the removal of the ban will lead to a negligible number of investment transactions, he says. “In our view, this requires a belief that foreign buyers have been deterred from the New Zealand market by factors other than the ban. Castalia agrees with National’s assessment that a return to previous trends is more likely to be accurate.

“National’s modelling is based on the experience New Zealand had before the ban,” he adds. “We reviewed this modelling with reference to foreign buyer taxes in other jurisdictions, including Ontario, British Columbia, and Hong Kong. Our review included modelling of the reduction in purchases due to the imposition of the new tax.

“Hence, we believe the forecast number of sales to foreign buyers in National’s tax plan is reasonable and supports the overall revenue forecast in the plan.”

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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