Critics insist on missing the point on foreign buyer tax
The politics are good and the fiscal impacts are fine.
Ongoing media questioning about National's foreign buyer tax plan have raised questions about the validity of the proposed revenues. On a simple review of things, the figures may seem… ambitious. My arts graduate arithmetic suggested an average of $25m per mansion to generate the promised revenue.
However, these types of assessment are made based on static assumptions. These assume that there won't be any behavioural changes from foreign buyers in response to the tax. Dynamic modelling, on the other hand, accounts for the likelihood of changed behaviours. Since people do change their behaviour in response to new conditions, that presents a more careful approach to predicting the outcomes of any tax policy.
Static modelling is like a photograph. It captures a situation at a specific point in time, with all its elements in a fixed position. It gives you a clear, detailed image but doesn't show how the situation might change over time or under different conditions. In economic terms, static modelling might show you the state of a market at a given moment, but it doesn't predict how that market might evolve.
Dynamic modelling, on the other hand, is like a movie. It shows you not just a single moment, but how the situation changes and evolves over time. It can capture the movement and interaction of different elements, and how they respond to changing conditions. In economic terms, dynamic modelling could show you how a market might evolve over time in response to changing policies or economic conditions.
It is a little bit surprising that the critics of the plan, including several economists, did not seem to have included any changes in behaviour in their calculations. Castallia, who reviewed the numbers for National, have made it completely clear that they took this more nuanced approach.
Modelling is not an exact science, especially when dealing with complex issues like property markets and taxation. It is more of an estimation tool that gives us a reasonable prediction, but not an exact figure. Even if the projected revenues from the foreign buyer tax are on the optimistic side, they are not materially significant in relation to the overall tax plan National has presented.
A claimed discrepancy of $450 million discrepancy is a considerable amount of money. In the context of a government that recently spent over half a billion dollars on rapid antigen tests that will never be used? When considered against a $2 billion dollar overestimate by Treasury on corporate tax revenue in the budget?
Some perspective is needed.
The media have seized upon this issue and this is not surprising. There is clearly a perception that there is a window to shift the narrative of the election. However, the general public understands the inherent uncertainty in these figures, and it is really quite doubtful that this issue will significantly impact National's standing in the upcoming election - other than the good politics of it as a means of opening up the country a bit while also taxing foreigners.
You might wonder why National does not simply release all of its workings. It’s a fair question, but let’s not pretend that doing so would achieve much more than drag the party into even more protracted arguments over minutiae that, ultimately, may not significantly impact the policy's overall effectiveness or purpose of the policy.
The author Stephen King sometimes uses the phrase "close enough for government work.” The phrase aptly applies to the incessant nagging at National's foreign tax plan and its projected revenues.
Asking hard questions of National's foreign tax plan is good. But we should do so acknowledging the inherent and significant margin for differing views.
National's plan is a proactive approach to generate revenue and it should be evaluated on its potential impacts rather than any false idea of precise revenue predictions.