Critics say our obsession with property is draining money away from real businesses, which create jobs and make New Zealand richer. This week an exporter hits back at his neighbour Pat Baker, the $10 million landlady who kicked off the debate in the Weekend Herald last week. He says landladies like her represent what's wrong with our tax laws and economy.
A $10-million landlady who complained about tougher tax rules has copped plenty of criticism from Weekend Herald readers - including a scathing attack from a software exporter who lives a couple of houses down her street.
Seventy-three-year-old great-grandmother Pat Baker said the Government's tax crackdown on rental properties would unfairly penalise her investment in 53 Hamilton houses, which earned $700,000 rent each year.
But her Whangaparaoa neighbour Grant Straker, chief executive of software exporter Straker Interactive, said Mrs Baker was being greedy. Ten houses would be okay, he suggested, but 53 was going overboard.
He said his business, which had sold website translation systems to the European Union, provided jobs, export dollars and big growth potential.
Yet it could not get money from banks and had been forced to Britain for $2 million venture capital.
Property investors, however, had easy access to capital, got big tax breaks but did little for New Zealand.
"Here I am in business for 10 years, employing 18 people on PAYE tax and paying company tax. Yet the overdraft for our borrowings still has to be secured against our house because the banks won't lend against a business, especially software where you don't get any real money from the company until you sell it. All Pat Baker is doing is taking away houses from young people who could have bought them."
Many readers demanded to know how much tax Mrs Baker was paying. She refused to say but she wants people to acknowledge that landlords provide a social service and tax rules should not be changed.
"I want to put the property investors' point of view across."
Baker estimated $649,000 annual expenses on her properties: $450,000 bank interest, $72,000 in rates, $60,000 in maintenance, $50,000 property management fees and $17,000 insurance.
As she lives at Whangaparaoa, she needs a property manager for the Hamilton houses. Tenants blocked toilets, and just in the last few days she spent $6000 on a driveway, $4000 on spouting and $1700 on hot-water cylinders. She estimated that without the depreciation allowance, she might earn less than $10 a week on each house.
"Of course buildings depreciate. Why else do I spend thousands of dollars on plumbing, spouting, roof repairs, carpentry, painting, etc? The properties' monetary value increases over time but not the buildings themselves - they wear out. So surely depreciation is appropriate," she said.
The Tax Working Group said axing depreciation on buildings could generate $1.3 billion more in taxes annually.
Mrs Baker said Inland Revenue had made depreciation compulsory. It was not "some sneaky way of avoiding tax, dreamed up by we wicked property investors."
Mr Straker and several other readers predicted that the depreciation allowance meant Mrs Baker would be paying no tax at all.
However some readers supported her, saying it was good to hear the other side of the debate.
READERS' VIEWS
Poor old Pat. I feel so sorry for her that she thinks that her owning all those houses is helping anyone but herself, out there in the market purchasing properties, making it unaffordable for anyone else to actually live in their own home. The proposed changes will make it fair. It's time our investments went into something productive like businesses.
- ALBERT McGHEE
We are 45, have owned up to seven rentals. We sold down to four so we could get in the right school zone for our daughter. Our plan is to grow our portfolio again over the coming years, now that we are seeing some stability back in the economy. I guess our dream is say 15 to 20 properties. Yes we support painters, plumbers, property managers. We pay rates, we take risks. We do not want to be average.
- MARK CHAPMAN
She says she never had a high-paying job. $700,000 a year in income seems pretty high to me. The lady seems to have missed the point. How much tax does she pay on the $700,000? What does her tax return say?
- DAMIAN PAINE
If she had invested her money in a business or in someone else's business, how many people would this business have employed? Wouldn't this be far more than the occasional tradespeople she hires now? And how much would the taxes on these employees have contributed to the economy? She is not singled out at all. We are young homeowners but see many friends struggle to buy a decent house that fits their family.
AN HERTOGEN
Great to hear the other side of the story. This comes up in discussion at work on a regular basis and I fall on the "it's not just black and white" side of the equation, which doesn't win popularity at all. There's no simple fix.
- ANDREW RAE
