Would it not be prudent of this Government, by way of tax concessions, to encourage down-sizing or down-towning in order to assist these people to become at least partially self-sufficient in their retirement?
Your thoughts, please, Mary.
A. Nasty old suspicious me smells a rat. But more on that in a minute.
My thoughts are as follows. Why does a house cost so much less, in a small town, than the same house would cost in a city? Because there's less demand for it.
Why would that be? Well, the real estate adage that there are three things that matter, location, location and location, is true. Many more people want to live in cities, with all the amenities they offer.
And, according to your numbers, the market value that people put on being close to those amenities is about $250,000 - the extra amount a city house costs.
Now let's say the Government sets up a tax incentive to encourage people to move from big cities to small towns.
I'm not sure what you had in mind, but we'll say that those who make such a move can reduce their taxes by 20 per cent a year for the following 10 years. That would, indeed, boost interest in down-towning, as you call it.
With higher demand, small-town house prices would rise. At the same time, demand would fall slightly in the cities, and house prices there would fall - or at least not rise as quickly.
The differential might drop to, say, $200,000.
This, in turn, would make moving to a small town somewhat less attractive. Those who move would get a tax break, but less of a boost to their nest egg.
You might not get any more people moving than now. The Government might well have achieved nothing.
But that's just the start of it.
If the Government makes any move like this - offering a tax break to encourage some type of behaviour - it tends to have two bad results:
* The economy is distorted.
Society generally does better if there's less government intervention.
In his famous 1776 book The Wealth of Nations, economist Adam Smith wrote about the invisible hand.
Textbook author Paul Samuelson summarises the idea as follows: "Every individual, in pursuing only his own selfish good, was led, as if by an invisible hand, to achieve the best good for all, so that any interference with free competition by Government was almost certain to be injurious."
There are limits to this, of course. We all want government regulation, for instance, to prevent people from being ripped off, or to prevent the environment from being damaged.
But mucking around with taxes often does more harm than good.
If the people who move to small towns pay less tax, somebody else has to make up the difference, or go without services that the Government would otherwise have provided.
What's more, bureaucracy must be set up to handle the new tax laws.
Total wealth decreases.
* Not only is money transferred from some taxpayers to others, but often it goes from the poorer to the richer.
Under your scheme, the tax break would go to people who own their own homes. People who don't - who tend to be on lower incomes - couldn't take advantage of it.
This is a common problem with tax incentives to save.
According to Michael Littlewood, who was on the 1992 Todd task force on retirement saving, more than half the value of the UK tax incentives for saving goes to the top 10 per cent of earners. Only 1 per cent of the value goes to the bottom 10 per cent of earners. That's shocking.
While your idea has appeal, then, I don't think it would make life better for New Zealanders as a whole.
But there is one group that would clearly benefit: owners of small-town properties that rose in value! I'm not suggesting, though, that's what is motivating you. You sound like an honest, thoughtful man who would genuinely like to help retired people.
And it's good to point out to people that - without any tax concessions - they could still free up capital by down-towning.
Q. In the Herald recently, you elaborated on NZSE top 40 & 50 indices.
I believe you didn't mention that most world stock indices are capital indices, eg the US Dow Jones, S&P500 and Nasdaq etc.
Your readers should be aware of the differences, so that they do not compare "lettuces to cabbages", especially when the NZ market represents less than 0.2 per cent of world capitalisation. We're not on the radar screen of world markets.
Hope you will be kind enough to elaborate on this point and the performance of these indices.
A. You're right.
The most frequently quoted international indexes are capital ones. They track share price growth but don't include dividends.
Some of the indexes are also calculated on a gross basis, which includes dividends. But - probably just because that's the way it's always been done - the capital indexes are the ones that hit the headlines.
Similarly, under the old New Zealand system, the NZSE40 capital index was most quoted. And it might seem fair to use capital indexes all round.
The only trouble is, New Zealand companies tend to pay higher dividends than in other countries. This leaves less money in the companies for growth, so share prices don't rise as much as they otherwise would.
Because of this, New Zealand used to be hard done by in international comparisons of capital indexes. Now we're erring the other way. The new NZSE50 includes dividends, so when it's compared with international indexes that don't include dividends, New Zealand gets an unfair advantage.
The best solution would be for the media to quote gross indexes for all countries. But the gross numbers are not all readily available on a timely basis. One day, hopefully.
Meantime, I'll do my bit by trying to get gross data for all countries whenever I can.
Q. I'm 73, mortgage-free and I don't have any debt. I don't have a credit card.
The elderly couple in your column a few weeks ago astound me. Their list of investments (totalling $271,000) is obscene.
They should offload half of this and give it to cancer research or similar.
What do they want, for God's sake?
I live easily on $240 Super and $20 a week interest. Keep things simple is the key. I run a car. I have dental bills. I have a holiday each year. I budget. I don't have a video.
A. It's extraordinary how different people need different amounts of money. As somebody said, one man's famine is another man's feast.
Good on you for coping well on what many would consider a meagre income.
But I don't think it's fair to call the couple's savings obscene. As they said, "We have never been left anything, and all our cash has been through saving all our working life and after". So good on them, too.
It would be great if they can leave some of their money to a charity when they die. But I don't think they should feel obliged to give it away now.
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