So the status quo should not be the default option.
The Morgan plan starts from the proposition that not all income is cash income.
Income from labour (wages and salaries) is taxed. So is the income from some forms of capital, including financial assets like shares, bonds and bank deposits.
But if you own the roof over your head, you avoid the cost of renting a similar property out of your after-tax income.
That return on your investment - "imputed rent", in the jargon - escapes the tax system altogether.
"The benefit you receive each year from owning the house is every bit as real as that you receive from owning a bank deposit or from rent paid by a tenant," Morgan says.
"Why should you be tax-exempt when tenants have to pay rent from their income after tax and their landlords pay tax on that income received?"
The Morgan plan would take all forms of capital above some threshold, including land and housing, and net off any associated debt; it is equity which is the tax base.
It would then specify some deemed minimum rate of return on that capital and tax that. If the asset already returns more than the minimum, the higher amount is what would be taxed, as it is now.
We are not talking about trivial sums here.
The Reserve Bank estimates New Zealand households' net wealth to be around $1.2 trillion. Of that, the lion's share is $720 billion in housing and land (excluding vacant land), which is partially offset by $140b in housing loans.
Not all of the net equity of $580b is outside the tax base. A fair amount would be rental properties; but if the rental yield is less that the deemed rate, the difference would be taxable under the Morgan plan.
So what would the effective tax rate be on this expanded tax base?
It would depend on the outcome of the election.
"The details of tax rates, minimum taxable income rates, asset value thresholds, the distribution of the income tax rate cuts and importantly the transition rates to fully closing this loophole will be negotiated between The Opportunities Party and the ruling establishment party that wins the 2017 election," Morgan says.
His guess is that the effective tax rate would be anywhere between 0.5 and 1.5 per cent. Ultimately.
"Who knows how many years a government would choose to phase in this change in the tax base. They don't want to collapse house prices. The aim is to take the sting out of house price inflation."
That analgesic effect arises because if you remove the tax privilege housing currently enjoys, it will be rational to pay less for it.
And by taxing a deemed return on vacant land hoarded in the speculative expectation of capital gain, it would reduce the incentive for land banking.
One obvious issue is the elderly who are asset-rich but cash-poor. What to do about them would be the subject of political negotiation, Morgan says.
"Our preference is to allow homeowners over 65 to pay the tax via a mortgage to the IRD payable on change of ownership of their house, hence avoiding any cashflow issues." In effect, it would often be an estate duty.
The policy is about more than bringing imputed rents into the tax net. It also has implications for business investment. By raising the tax on such investment which returns less than the minimum rate, it creates an incentive for underperforming businesses to lift their game.
"If you have a business that year after year makes lacklustre returns on the capital it owns, then that capital needs to be put to work more productively, either by the existing owner utilising it better or by it being sold to someone who can," Morgan says. "Productive capital is a scarce resource. This policy will raise the supply to those who can get a return on it."
The policy does not specify what the required minimum return should be.
In The Big Kahuna, the book by Morgan and Susan Guthrie on tax and welfare reform, a rate of 6 per cent was assumed, in line with long-term government bond yields. But that was in 2011 and since then global bond yields, including New Zealand's, have fallen steeply.
The larger context is one where New Zealand's metrics on inequality and poverty are a lot worse after housing costs than before them.
Nearly 100,000 owner-occupier households spend more than 40 per cent of their pre-tax incomes on housing, even when mortgage rates are at multi-decade lows (and set to rise).
Another 127,000 households who rent expend a similar share of their incomes on housing.
Morgan is right to argue that the social costs of the tax loophole underpinning this, and the opportunity cost in more productive investment, are too high.
The 2001 McLeod tax review identified the treatment of owner-occupied housing as a weakness of the tax system but shrank from recommending it be taxed, saying "the approach met with such widespread opposition that no government is likely to implement it in the near future."
The question is whether homeowners are any less callous and politicians any less craven now.
The Morgan plan
• Extend tax base to cover assets such as property, equipment, structures, brands, goodwill and intellectual property
• Land and homes would also be included
• System would assume a minimum return on those assets, and charge tax on that return
• Financial assets (deposits, bonds, shares) are excluded, as they are already subject to income tax
• Use all the extra money to reduce income tax
• Details to be worked out include: tax rates, minimum taxable income, asset thresholds and transition rates
