Category Archives: NZ Politics

New Zealand Neoliberal Corruption. Citizen Thiel – Matt Nippert.

Peter Thiel is an internet oligarch who believes in a stateless world free of regulation or limits on human endeavour. He made millions on PayPal, and billions on Facebook.

He lobbied New Zealand Cabinet ministers and public servants, presenting himself as our exceptional angel of venture capital.

He was secretly granted citizenship, but within months of his “solemn vow” appeared to move on. He has barely seen since and has recently been buying up real estate while selling down his local technology investments.

What remains are his boltholes in Queenstown and questions over whether political pressure played any part in his granting of citizenship.

Thiel declined to be interviewed for this story, but issued a brief statement about the saga saying, “I believe in New Zealand”, and noting that he’s invested $50 million in New Zealand tech companies.

This story is, instead, based on dozens of interviews and hundreds of pages of documents sourced under the Official Information Act.

This is the story of Citizen Thiel.

PART ONE: CRUSH

It was 1995 when Peter Andreas Thiel first visited New Zealand. He was 28 and the German-born naturalised American was yet to found a single company. The billionaire-to-be would have been indistinguishable from the hordes of middle-class tourists also enjoying the thrills of Queenstown.

Thiel was drawn to the region’s adventure tourism industry at least partly out of his disdain for government regulation. In his only local public speech to date, at an Auckland University conference in 2011, he spoke of his white-knuckled ride on the Shotover Jet as being among “all the crazy things you can do in New Zealand that you can’t do anywhere else, risky things that are probably not allowed [elsewhere]”.

Thiel — now worth $3.7 billion and with deep links to Western intelligence agencies, the Trump administration and the Silicon Valley firms dominating the internet — seemed, in 1995, to still be in search of a purpose. Around this time the Stanford graduate changed jobs from judicial clerk to securities lawyer to derivatives trader.

Three years later he’d find that purpose, co-founding online payment company PayPal to set himself up to make a small fortune that he’d later leverage into a large one.

According to his 2012 book Zero to One, his purpose is more than making money and extends to escaping limits of both the human body and social rules. An interest in lifespan extension (including transfusing blood from the young), musing whether freedom was compatible with democracy, and support for artificial island habitats free from the constraints of traditional government and laws have led critics to caricature him a Bond villain for the internet age.

PayPal: Co-founded by Thiel in 1999, he made $75 million when the online payments firm was sold to eBay in 2002.

And, as with most caricatures, underneath lies a grain of truth. Thiel says in Zero to One that his first company sought to do far more than simply make online transactions easier. “PayPal had a suitably grand mission — the kind that post-bubble sceptics would later describe as grandiose. We wanted to create a new internet currency to replace the US dollar.”

Zero to One sketches out Thiel’s vision of technology enabling a world post-government, and is broadly shared by PayPal’s other founders — a group of young men who grew into a new generation of technology oligarchs.

Elon Musk went on to create Tesla and SpaceX; Reid Hoffman started LinkedIn; Steve Chen founded YouTube. As their influence grew this crew would become known as the “PayPal mafia”.

While the other members of the PayPal mafia were spreading their wings and priming their rockets in the United States, Thiel took a short detour and sought to formalise his relationship with New Zealand.

His application included two years of tax returns, the disclosure of two reckless-driving convictions in February 2000 (officials ruled these were minor and wouldn’t count against his application), and a schedule of assets as part of a listing of his net worth.

Thiel made more than $1 billion from a 2004 investment of $750,000 in Facebook. While he’s since cashed out his shares, he still serves as a director on the social media giant’s board.

Incomplete redactions show Thiel was by this point rich from PayPal — sold to online retailer eBay — but not yet super-rich. His declared net worth at this point ran to only nine figures. His $750,000 punt in 2004 on a small start-up called Facebook was yet to level him up to the realm of the world’s billionaires.

But in the end, only a relatively small slice of wealth was needed to nudge Thiel’s application over the line. The points-based visa he sought awarded him eight for his age — young migrants being preferred — and four for business experience. Applicants are allowed to pump up their score by setting aside funds to invest and awarded one point per $1 million. Thiel was just one point short.
Correspondence from his advisers talked about the possibility of investing the required million into vineyards or property, and Thiel himself indicated on his application form he had a particular interest in the South Island.

Damper Bay: His $13.5m purchase of a 193-hectare section on the shores of Lake Wanaka first brought Thiel’s citizenship to notice as his new status meant the deal did not require Overseas Investment Office approval.

As it turns out, that $1m tagged for investment ended up stashed in a term deposit for the required two years. And, of all the financial institutions in all the places he could have chosen to park this money, documents show he opted for the National Bank’s provincial branch in Whanganui.

The choice of an out-of-the-way bank seems to speak to Thiel’s tightly-guarded privacy. Bank workers in Whanganui — hardly a tech mecca, with an agricultural economy and population of barely 40,000 — would have been unlikely to pick their new client as an offshore dotcom multimillionaire.

This preference for discretion didn’t end there. In a New York Times opinion piece explaining why he was bankrolling defamation action against a gossip site he stated: “The defense of privacy in the digital age is an ongoing cause.” Last year his lawyer lobbied New Zealand’s Department of Internal Affairs to redact information from material released under the Official Information Act.

And, shortly after news of Thiel’s surprise New Zealand citizenship broke in January 2017, Jeremiah Hall of San Francisco’s Torch Communications acknowledged questions for Thiel about the issue.

“I’ll be back in touch if we have any comment,” he said.

He did not get back in touch.

In the 12 months since, the Herald has 10 times asked questions of Thiel — about his citizenship, his shrinking holdings in Kiwi software firm Xero, why he appears to have ghosted New Zealand, ties between his firm Palantir and local intelligence agencies, and even the celebrity classic, “What do you think of New Zealand?” And 10 times he again did not get back in touch.
But on the eve of publication of this story — a year and a day after questions were first asked about this saga — Thiel broke his silence with a short statement.

“I believe in New Zealand, and I believe the future of New Zealand’s technology industry is still underrated. I look forward to helping it succeed long-term.”

Thiel has stayed in touch with the country with short visits every few years, but it was around the 2008 United States presidential election that he took a serious focus on Middle-earth.

Thiel’s horse in United States politics at this time wasn’t nearly as successful as Trump would be eight years later. He’d initially backed Ron Paul for the Republican nomination, and after the libertarian outsider tanked in primaries he switched to party candidate John McCain. But McCain also tanked and Democratic candidate Barack Obama swept into the White House.

John Key: Thiel was enamoured with the National government, and met the Prime Minister in 2010 to expound on his plans to boost the New Zealand tech sector.

Where one window to government closed in 2008, another opened. Days after Obama’s victory, a fresh-faced financier named John Key took control of the Beehive. Thiel liked what he saw.

Rod Drury, whose cloud software company Xero is the biggest winner from Thiel’s brush with New Zealand, says his keystone shareholder was then disillusioned with the United States.

“If you know Peter, and if you’ve tracked him for years like I have, he was always into small government. He really likes that, compared with the US at the time, we were pretty much a free-market economy, fairly lightly regulated. You can imagine the affinity he’d have with that,” he says.

Rod Drury: Xero founder and chief executive Drury counted Thiel as one of his earliest and most significant investors.

Drury acknowledges a closer examination of the National Party’s platform would likely see them placed on the left wing of the Democratic Party, but he says Thiel was more interested in the general direction the country seemed to be going.

This affinity escalated into a courtship that would see multiple meetings with Cabinet ministers, lawyers from a high-end law firm shuttle from Auckland to Wellington to lobby Internal Affairs, and bold statements made about rerouting rivers of Silicon Valley capital and the establishment of a high-tech incubator in Auckland.

By the end New Zealand — or at least some officials in Internal Affairs — were smitten. But even Drury acknowledges we may have been naïve.

PART TWO: COURTSHIP

Thiel came on heavy in the two years ahead of his audacious and ultimately successful bid for citizenship in 2011. He visited the country three times during the period in a whirlwind of lobbying, business deals and public relations.

He met no fewer than four senior members of the Cabinet — including the Prime Minister — to present his case for turbocharging New Zealand’s tech industry, arranged his first business investment (five years after first being granted an investment visa), started buying real estate, and gave his first and, so far, only interview with New Zealand media.

The formal part of his bold quest saw his lawyers Bell Gully travel from Auckland to Wellington in late 2010 to hand-deliver a letter from Thiel to the Minister of Internal Affairs with his truly exceptional request.

“In the course of pursuing my international business opportunities, my travel, personal philosophical commitments and benefaction, I am happy to say categorically that I have found no other country that aligns more with my view of the future than New Zealand,” Thiel wrote.

“It would give me great pride to let it be known that I am a New Zealand citizen.”
The letter was accompanied by a note from his lawyer making it clear his client’s application would require the Minister to exercise rare discretion under “exceptional circumstances” rules, as Thiel was not intending to live here and sought unprecedented “citizenship at large”.

“Mr Thiel’s principal place of residence cannot be described in the context of the ordinary rules,” Thiel’s lawyers said.

In mid-2010, Thiel had incorporated Valar Ventures, a limited partnership which he said in his letter was intended to “become an active player in New Zealand’s venture capital industry”. The fund’s name is a reference to the mythical beings who created the world in The Lord of the Rings. Its first major target was Xero.

The accountancy software company was floated in 2007 and, three years on, the local sharemarket still didn’t know what to make of this ambitious company burning cash which saw profitability as only a medium-term objective. Its share price was languishing close to its $1 launch.

Drury, the company’s energetic founder and chief executive, says Thiel’s representatives came knocking in early 2010.

“They came to our offices, we met them a few times, they seemed impressed. So we took distance out of the equation and said, ‘Well, shall we come up and meet Peter?’”

That trip to San Francisco to pay homage to Thiel’s court was, recounts Drury, “one of the most exciting meetings that I’ve had”.

Drury says he doesn’t share Thiel’s libertarian views but is laissez-faire when it comes to ideology.

“They’re quite intense those guys, those PayPal guys. They’re really seen as royalty in the global tech scene. And he’s incredibly bright, and he’s always been a contrarian. He’s one of those people [who will] always stretch you,” Drury says.

Recounting the mood at the time, Drury conveys the impression of a starstruck nation.

“Everyone was so excited to see him. I think we were so flattered that someone of that status in the technology industry was even interested in New Zealand.”

In October 2010, Xero announced Thiel had tipped $4m into the company.

Drury describes this development as a “massive deal” that was instrumental in growing his company into the multi-billion-dollar business it is today — and said Thiel began looking locally, unsuccessfully as it turned out, for more Xeros.

During this period Thiel seems to have made a conscious effort to court the new National Party Government, meeting Key, Finance Minister Bill English, Minister of Economic Development Gerry Brownlee and Minister of Science Wayne Mapp.

Bill English: The then-Finance Minister also met Thiel in May 2010, but officials say no records of what was discussed exist.

English confirmed a May 2010 meeting, but said no records of what was discussed existed. Official Information Act requests to the Prime Minister’s Office regarding the meeting with Key were not answered — but the then-Prime Minister told Parliament in 2013 he’d met Thiel on “a few occasions” and described the relationship as “cordial”.

In early 2011, Thiel’s camp made contact with the New Zealand Venture Investment Fund (NZVIF), seeking to partner with the taxpayer-funded body to invest further in local tech firms.

NZVIF staff also made the pilgrimage to San Francisco that August, and a deal was inked in December to set up a $40m fund. Of this, Thiel was supposed to kick in $15m and the Government $20m, with Stephen Tindall and handful of other smaller local investors making up the difference.

Crucially, the deal included a generous buy-back clause, allowing Thiel and his private-sector partners to split losses with the Government if the fund tanked, but collect all the profits if it did well. The clause had been standard in NZVIF deals — intended to encourage the development of local venture-capital markets — but its inclusion with the Valar fund would later raise questions in Parliament and help see the clause retired from use.

While this was being finalised, Nathan Guy replied to Thiel’s letter, advising him to submit a formal application to officials who would draft a report for the Minister’s consideration.

That report from officials highlighted his connection to ministers, especially Key. Thiel wasn’t just giving a talk at Auckland University that June, he was “presenting at a conference in Auckland in July (along with the Prime Minister)”. Thiel didn’t just donate $1m to the Christchurch earthquake recovery, he made a donation “facilitated by Mark Weldon, chief executive of NZX, on behalf of the Prime Minister”.
Thiel stated an intention to help establish a technology incubator in Auckland and set up a landing pad in San Francisco to assist New Zealand companies breaking into the United States.

Largely on the basis of these non-binding intentions, that single earthquake donation and the relatively modest $4m invested to date in Xero, along with another — failed — Pacific internet cable company, officials concluded he was an exceptional philanthropist and investor and recommended his application be approved.

“It is interesting … I think the Minister may go for it,” one official emailed to another at the time.

Gerry Brownlee: The then-Minister for Economic Development also met Thiel during his whirlwind of government lobbying in 2010.

Peter Dunne was Minister of Internal Affairs when news of Thiel’s citizenship broke a year ago, but he was not at the time of the application. He wouldn’t have gone for it.

Speaking from his Khandallah home, Dunne admits he initially didn’t know who Thiel was when the news broke. But after becoming aware he was a “person of significance”, Dunne immediately reviewed the citizenship file. His copy, of course, was unredacted.

Now retired and transitioned from his trademark bowties to an open-necked collar, Dunne is relaxed and frank in saying he is unconvinced by the case made by officials.

“I looked at the documentation the Minister would have received, which basically said, ‘These are the facts and, by the way, we recommend it’. I thought, ‘I can’t quite see how you to get to this conclusion on the face of the fact he’d been in the country only 12 days.’”

The 12 days became a minor national scandal for some when it was belatedly revealed — after having been initially redacted at the request of Thiel’s lawyers until the Ombudsman forced its release — and showed the billionaire had failed to meet even 1 per cent of the typically required 1350 days of in-country residence in the five years prior to being granted citizenship.

Information released by Immigration NZ shows his fleeting appearances during this period were typical. In the three years after he was awarded his investor visa in 2006, he spent six days in New Zealand. In total, during the 16 years prior to Guy awarding him a passport, his combined stay in the country amounted to fewer than five weeks, or around the same length of stay as a single visit by an typical backpacker.

Not a Dunne deal: Peter Dunne, Minister of Internal Affairs at the time Thiel’s citizenship became public, says questions remain over his predecessor’s decision.

Dunne’s opinion of Thiel’s bid is: “Give me citizenship: I want the passport, but don’t expect me to put in an appearance.”

Asked what he’d have done if he’d been in the chair in 2011, Dunne said: “To me, had the application come across my desk for consideration, I’d have said no.”

But he wasn’t the one occupying the Minister’s office. That was Guy who, in the days after his decision was revealed a year ago, pleaded ignorance.

“I don’t recall this specific application,” he said.

Dunne is unable to understand Guy’s decision to approve Thiel’s application. “I can only speculate. As I say, the documentation gives no clue. Whether it was the prospect of investment from Mr Thiel, or whether there was some form of political pressure, I don’t know.”

For its part, Internal Affairs denied their former minister’s suggestion that its advice was subject to political interference. “The Department is satisfied that it tendered robust information and advice on what the minister of the day had to weigh up in making a decision on whether or not to grant citizenship.”

The senior official who wrote the recommendation in 2011 has since retired from Internal Affairs and moved to Australia. He did not return repeated calls or emails from the Herald.

With a signature, Guy approved Thiel’s request application on June 30, 2011, and a month later, in a private ceremony at the New Zealand consulate at Santa Monica in California, the technology billionaire swore on the Bible to become Citizen Thiel.

An award of citizenship is effectively permanent and is granted without subject to conditions. It allows voting and residence rights and the ability to run for office, and can only be revoked under extreme circumstances.

Thiel’s lawyer used almost religious language in explaining how important his client considered this moment.

“Mr Thiel has advised that citizenship is irrevocable. It is the public recognition of a hallowed bond. For that reason and others, he is prepared to make this solemn allegiance to thereby embrace and contribute to the life, history and culture of New Zealand.”

PART THREE: GHOSTING

With passport in hand, the eye of Citizen Thiel began to wander almost immediately.

Six months after the Santa Monica ceremony that had made him a citizen, the mission listed on Valar Ventures’ website — which had previously billed itself as having been “founded to help grow New Zealand into a hub of technological progress” — was rewritten to remove references to the country that had just gifted him his new nationality.

Valar was instead given a global mandate and would go on to make investments in Brazil and Australia. The fund invested in precisely one new company locally after 2011 — retail software firm Vend. The investment used funds from a mixture of private and public sources through the NZVIF joint venture.

While publicised numbers around Thiel splurging capital locally look impressive — $4.5m initially in Xero and Pacific Fibre, $15m into the NZVIF partnership, another $22m into Xero in late 2012, with tens of millions more in 2013 — the headlines overlap.

Thiel’s initial $4.5m in local investments was included in the NZVIF deal as his initial contribution. The latter Xero and Vend investments also included co-investors and government cash from its matching contribution to the NZVIF partnership.

And this partnership fund itself languished and didn’t even meet half its billed potential — the NZVIF joint venture was initially touted as worth $40m, with Thiel contributing $15m — but he ended up tipping in just over $7m.

Thiel’s financial structuring uses multiple entities, and the terms of venture capital deals are notoriously secretive with hard numbers and details of third-party investors not made public, so the extent of his investment into local tech companies is difficult to confirm and has been redacted from official documents.

A spokesperson for Thiel said the billionaire’s total investment to date in local tech firms was $50m.

Meanwhile, offshore, Thiel was running into some challenges. His hedge fund Clarium Capital Management lost the house on a large and wrong bet on oil supplies collapsing. Outside investors fled and by 2011 it was one-twentieth the size of its peak with barely a couple of hundred million of Thiel’s own capital remaining.

But all was not lost. Facebook was edging towards a public listing that would allow Thiel to exit and crown one of the most spectacular deals of the internet era. The $750,000 investment he’d made in in 2004 was largely cashed out following the 2012 IPO for more than $1.3b.

If Thiel was growing increasingly distant from New Zealand, Xero’s Drury says he still noticed the halo effect from his celebrity shareholder. “It’s always hard to measure these sorts of things absolutely, but having Peter involved was a massive deal for us.”
Thiel sat for a time on the company’s US advisory board as it sought to break into the world’s biggest market, and provided introductions to new partners and investors in Silicon Valley.

Drury: The Xero founder says Thiel’s involvement was crucial in turning his company into a multi-billion-dollar business.

When Thiel became involved, Xero was loitering on the start-up crossroads to success or failure and had a share price of just $1.50. The company’s stock went on to pass $40, and the company is now one of New Zealand’s largest with a market capitalisation in excess of $5b.

“Look back to 2010. It was an incredibly important time for us and he provided a huge amount of value. And now, at 1.2 million customers, 1800 staff all over the world? That was a key time. We’re incredibly grateful for his support.”

The support for Xero — from which various Valar vehicles would make hundreds of millions of dollars in capital gains as the share price surged — is the most tangible legacy of Citizen Thiel.

Re-reading Thiel’s letter today, with the benefit of hindsight, it seems other non-binding claims made during his bid for citizenship are less fulfilled. Valar Ventures has been inactive in this country for years. Its New Zealand website resembles digital tumbleweed. The Auckland technology incubator never eventuated. Thiel’s touted involvement with the San Francisco landing pad for Kiwi companies reportedly ended once his three-year sponsorship deal expired in 2013.

The Herald could find no other charitable giving by Thiel in New Zealand since that $1m earthquake appeal donation and, given the opportunity to provide details, Thiel’s representatives did not respond.

And in hindsight, that million-dollar donation doesn’t seem entirely selfless. It occurred while officials were mulling Thiel’s application, and the application explained the donation in such a way to avoid it being seen as an attempt to influence decision making.

Thiel: A speech at Auckland University in 2011 remains the sole public appearance Thiel has made in New Zealand.

“Our client has been approached on behalf of the Prime Minister to play a role in the offshore initiatives in relation to the Christchurch Earthquake Fund. It is anticipated there will be publicity about this. This has arisen subsequent to the original application, such that its context is unique to the circumstances. Our client was anxious to avoid it being considered in any manner relative to the merits of this application,” his lawyers wrote in March 2011.

A month later that anticipated publicity for the donation did indeed occur, the result of self-promotion by proxy. Wide local coverage of this selfless act of charity was triggered by a press release: From Bell Gully on Thiel’s behalf.

And claims Thiel would use citizenship to act as an ambassador-at-large seem like mere pillow talk. In a widely reported interview with Business Insider, Thiel described New Zealand as a “utopia”. This interview also occurred during the citizenship application process, and Bell Gully quickly forwarded this clipping to Internal Affairs officials.

The Herald has been unable to find any public statements by Thiel promoting New Zealand since.

Tim Hunter, columnist for National Business Review, noted in February that Thiel and Valar had been distant from these shores in recent years.

“Looking back, it seems Mr Thiel’s love affair with New Zealand is less intense that it was when he was seeking citizenship,” Hunter wrote.

Even New Zealand’s Ombudsman, the statutory neutral arbiter for making decisions on government information, seemed perplexed about the case when compelling Internal Affairs to confirm Thiel had been in the country only 12 days in the qualifying period prior to being awarded citizenship.

“In Mr Thiel’s case, there had been and continued to be public disquiet that the minister granted him citizenship in circumstances where his connection to New Zealand was not publicly known and, even in hindsight, was not obvious.”

PART FOUR: BOLTHOLE

News of Thiel’s surprise citizenship — overnight he became New Zealand’s second-richest man — came as his profile in the United States reached its zenith.

In January 2017, Thiel was serving on newly elected President Trump’s transition team, after having been an early backer of the outsider candidate. He’d spoken at the Republican Convention and donated $1.5m to Trump’s campaign, with the biggest cheque coming during the candidacy’s lowest ebb — in the days after the release of the infamous Access Hollywood “Grab ’em by the pussy” tape.

Trump connection: Thiel’s support for Trump continued after the election, including organising a summit of tech leaders during which he was seated next to the president-elect.

His move into mainstream politics — having previously backed fringe libertarian candidates — caught those who knew him both here and in the United States by surprise. “We were all surprised that he was so into Trump. But it was consistent with his contrarian and small government point-of-view,” says Xero’s Drury.

Hard news about the extent of Thiel’s involvement with the Trump administration has been hard to come by.

In lieu of Thiel talking, fevered rumours have swirled in the American media about what role he plays in United States politics. He’s been variously reported: having soured on Trump; being considered by Trump as a candidate for the Supreme Court, intelligence director or ambassador to Germany; being suddenly concerned about technology company monopolies; and running for Governor of California.

But as Drury notes, despite the reports, there’s been little resulting evidence to underlie the above claims. Thiel is neither Trump’s man in Berlin nor suddenly seeking to regulate the likes of Facebook (of which he remains a director).

“He’s been relatively quiet since all of that [the US election]. I keep a really close eye on that stuff, and he don’t seem around that too much anymore.”

In a twist, Thiel also may have been ghosted — a slang term for the practice of ending a personal relationship by suddenly and without explanation withdrawing from all communication — himself. Michael Wolff’s explosive book Fire and Fury has him telling a fellow billionaire that, despite being forewarned Trump was prone to outrageous flattery and hollow promises, he’d taken the bait and now found himself on the outer.

“He absolutely was certain of Trump’s sincerity when he said they’d be friends for life — only to basically never hear from him again or have his calls returned,” Wolff writes of Thiel.
His sudden elevation to the centre of politics in the United States occurred as Thiel appeared to be busy trimming his remaining business exposure to New Zealand.

In October 2016 he activated the buyout clause in his NZVIF partnership — requesting his public partners keep this news secret — seeing him book a gain conservatively estimated at $30m from his contribution of $6.75m, while NZVIF was left barely breaking even.

The clause had been a feature of all NZVIF deals, and its original purpose to was to encourage new local venture-capital firms to invest in nascent start-ups. Its use by Valar — a savvy international operator which effectively went all-in on a single listed company — caused some concerns within the Government over what exactly it had got itself into.

A 2014 government-commissioned report into NZVIF said the deal with Thiel “creates some difficult optics where, in the Valar Ventures example, the taxpayer is offering an American billionaire a loan at less-than-market rates”.

The buyout led to finger-pointing in Parliament over who was accountable for the one-sided deal, and has cast serious doubts over the future of the fund as whole.

But Thiel wasn’t done cutting his local links. In the middle of 2017 he cashed out of his flagship New Zealand investment in Xero, with Crunchbase now listing the company among Valar’s exits. According to available records, Thiel’s only remaining local equity investments of note are small — recent valuations put it as worth a few million — stakes in Vend and e-reader technology creator Booktrack.

Drury sees Thiel’s subsequent ghosting as more a lack of opportunities than any misrepresentation. Despite boosters, with only four million people the New Zealand economy is on par with a mid-sized city internationally and our technology industry is nascent.

A flying visit by Thiel to New Zealand in December to visit an Auckland gallery gives some credence to an alternate explanation. The venue, on Karangahape Rd, was home to The Founders Paradox, the latest work by artist Simon Denny, with the ideas of Thiel as a central focus.

According to art critic Anthony Byrt’s notes accompanying the exhibit, Thiel’s hardcore libertarian and Lord of the Rings-inspired world-building fantasies — along with his position at the apex of the technology ecosphere — have seen him become “one of the most influential thinkers in the world”.

(Asked by another gallery visitor what he thought of the exhibition — including a large rendering of himself as a blue-skinned knight fighting the forces of fair elections and democracy — Thiel reportedly said: “It’s actually a work of phenomenal detail.”)

Denny’s work paints New Zealand as a stepping stone — and safe haven — for powerful technologists seeking to escape government limits on human activity.

A crude description of this attraction for New Zealand came last year in The New Yorker where Reid Hoffman, the co-founder of LinkedIn (and a member of the so-called PayPal mafia) said the country had become shorthand for apocalypse insurance in Silicon Valley.

Boltholes: Fellow PayPal founder Reid Hoffman has described New Zealand as a preferred hedge for Silicon Valley tycoons concerned about the collapse of the United States.

“Saying you’re ‘buying a house in New Zealand’ is kind of a ‘wink, wink, say no more’,” Hoffman says.

Drury says this trend started after the September 11, 2001, terror attacks on the US and hasn’t slowed, and considers Thiel as part of it.

No other Silicon Valley hedger has quite gone to the length of Thiel, however. Internal Affairs figures show the libertarian internet tycoon is the only businessman in at least the past six years to have secured citizenship despite neither living nor intending to live here.

Drury is aware of the controversy his one-time shareholder has caused, but says the episode was worth it.

“So, maybe we were all a little starstruck back then.” he concedes.

“My view is these people are net contributors, even though they’re not here all the time. I sort of joke, ‘If you can give me a 10-pack of passports, let me flick ’em around’.”

Dunne, however, is unimpressed by Drury’s enthusiasm, saying the Thiel episode raises issues about both how citizenship was obtained and how much the country values its passport.

“It’s a transparency issue,” he says.

“As far as I can tell, having been granted citizenship, Mr Thiel has been conspicuously absent ever since.”

Thiel’s presence in recent years appears to have been primarily related to real estate. An unexpected quirk in the tale of Citizen Thiel is how, despite his reputation as an investor with a Midas touch, he seems to be one of the few people to lose money in New Zealand’s recent frothy real estate market.
In 2011 he bought a striking four-bedroom Queenstown holiday home constructed with Swiss granite and known locally as the “Plasma Screen”, due to its expansive windows, for $4.8m.

Six years after he purchased the house, the local council assigned it a capital valuation of only $2.5m. Thiel similarly lost $200,000 on a Parnell property he bought in 2010 and sold two years later.

The value of the land that brought him to public attention in New Zealand — a 193ha block of former Crown leasehold farmland on the shores of Lake Wanaka — is also intriguing.

Bought by Thiel for $13.5m in late 2015, the previous owners had tried — and failed — over the previous decade to subdivide the section. Council planners said the site was classed as an “outstanding natural landscape” and it was unlikely they would approve consents for any more than the single building already present.

Real estate agent Graham Wall told the local paper while the land itself — rolling scrub hills — wouldn’t seem out of place on the Desert Road, Thiel was immediately sold on its isolation.

“You turn up there with a jaded billionaire from San Francisco and it’s, ‘Oh my God, I could have a house here and not see anything except lakes and mountains — the best thing on Earth and for $10m!’”

For now council records show this land appears to be being banked. In the two years since Thiel made his purchase, no resource or building consent applications have been filed.

Exactly what is intended for the land at Damper Bay is unknown, but Thiel has built at least one physical bolthole in this country.

According to building consent records, his Queenstown Plasma Screen holiday home last year suffered a serious fire, causing more than $500,000 in damage. Building consents for the repairs filed with the Queenstown Lakes District Council in May show Thiel took this opportunity to rebuild and repurpose a walk-in closet.

Plans now describe this nook as a panic room.

NZ Herald

Winston Peters’ view on capitalism will challenge new Govt – Chris Trotter.

Crucial to the success of the “unfriendly capitalism” indicted by Winston Peters has been its stalwart bodyguard of “expert lies”.

Ever since 1984, when its unfriendliness began gathering pace, a seemingly endless procession of “experts” has been summoned to represent this new “unfriendly” capitalism’s cruelty as kindness.

Some of these so-called experts were paid for by the big corporations. Others were commissioned by government agencies to prepare the way for changes destined to place an ever-increasing number of New Zealanders at the mercy of private economic power.

None of the core institutions of the New Zealand State were exempted from this “restructuring” process. Health, education, social welfare, the trade union movement, the universities, local government: all fell victim to the “gleichschaltung” (co-ordination) demanded by an increasingly foe-like capitalist system. And, in each case, these government “reforms” were presented to the public as the only rational response to what was, after all, “expert” opinion.

In a tiny number of cases, the tendered “expert advice” was so extreme that the Government of the day simply balked at introducing reforms that seemed so patently politically unsaleable. For the most part, however, the experts’ findings were accepted and implemented.

That these arguments, for what can only be described as dramatic and socially-wrenching change, were received uncritically, and then promoted enthusiastically, by the news media was a crucial factor in their success. It encouraged the view that economic management had become such a complex business that “ordinary people” could not, realistically, be expected to play any useful role in the formulation of economic policy.

It required the system-threatening shock of the Global Financial Crisis of 2008-09 to set off a world-wide revolt against what we now call “neoliberal” economic orthodoxy – and the “experts” who have for so long expounded and defended its “principles”.

This revolt has come late to New Zealand because, through the worst years of the Global Financial Crisis, the Chinese economy’s absorption of so many of this country’s exports shielded it from the high levels of unemployment and the swingeing austerity programmes which have unsettled so many larger western nations.

On October 20, however, the NZ First leader, Winston Peters, from the stage of the Beehive Theatrette, told New Zealand that: “Far too many New Zealanders have come to view today’s capitalism, not as their friend, but as their foe. And they are not all wrong. That is why we believe that capitalism must regain its responsible – its human face. That perception has influenced our negotiations.”

In that moment, it was clear that the revolt against neoliberal economic orthodoxy and the lies of its “experts” had finally reached New Zealand’s shores. That, in his declaration for a Labour-NZ First-Green Government, New Zealand was experiencing its very own “Brexit” moment, would become even clearer when Peters declared that he and his party had rejected the option of a “modified status quo” in favour of “real change”.

Just how much “real change” Jacinda Ardern’s government is willing to countenance will be revealed in the people she chooses to advise her.

At the APEC summit in Vietnam in early November, where she is hoping to persuade the remaining 11 signatories to the Trans-Pacific Partnership to allow New Zealand to renegotiate the Investor State Dispute Settlement provisions of the agreement, who will Ardern include among her expert advisers? A prime minister whose ambitions extended no further than slightly modifying the status quo would limit her APEC entourage to all the usual MFAT and private sector suspects. A prime minister determined to signal her commitment to “real change”, however, would invite Professor Jane Kelsey to join her in Danang.

A “Real Change” Government, determined to reverse the draconian policies adopted by a Ministry of Social development advised by neoliberal “experts”, would call upon the experience and expertise of Sue Bradford and Metiria Turei. Those who find themselves astonished and/or offended by the thought of two such bitter opponents of this country’s actuarially inspired and excessively punitive welfare system being asked to advise Jacinda’s government on its root-and-branch reform should, perhaps, pause and consider just how radical (albeit from the opposite end of the political spectrum) was the “expert” advice that created it.

In his review of four recent books addressing the worldwide “rage against the elites”, Professor Helmut K Anheier, of Berlin’s Hertie School of Governance, writes: “It is well within elites’ power to make decisions that benefit all of society, rather than narrow interests. Elites have surely failed in this regard over the last quarter-century, but they need not continue to fail in the future.”

But, is it reasonable to expect “real change” advice from the same neoliberal elites whose ideologically-driven recommendations created the very problems our new government is pledged to solve?

Capitalism with a “human face” has no need of a bodyguard.

ARE WE AS BRAVE AS LABOUR IN THE 1930s?- Bryan Gould.

New Zealanders like to think that we are, in most respects, up with – if not actually ahead of – the play. Sadly, however, as a new government is about to emerge, there is no sign that our politicians and policymakers are aware of recent developments in a crucial area of policy, and that, as a result, we are in danger of missing out on opportunities that others have been ready to take.

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The story starts, at least in its most recent form, with two important developments. First, there is the now almost universal recognition that the vast majority of money in circulation is not – as most people once believed – notes and coins issued on behalf of the government by the Reserve Bank, but is actually created by the commercial banks through the credit they advance, using bank entries rather than cash, and usually on mortgage.

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The truth of this proposition, so long denied, is now explicitly accepted by the Bank of England, and was – as long ago as 1994 – explained in a letter written by our own Reserve Bank to an enquirer, and stating in terms that 97% of the money included in the usually used definition of money known as M3 is created by the commercial banks.

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The proposition is endorsed by the world’s leading monetary economists – Lord Adair Turner, the former chair of the UK’s Financial Services Authority and Professor Richard Werner of Southampton University, to name but two. These men are not snake-oil salesmen, to be easily dismissed. They have been joined by leading financial journalists, such as Martin Wolf of the Financial Times.

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The second development was the use by western governments around the world of “quantitative easing” in the aftermath of the Global Financial Crisis. “Quantitative easing” was a sanitised term to describe what is often pejoratively termed “printing money” – but, whatever it is called, it was new money created at the behest of the government and used to bail out the banks by adding it to their balance sheets.

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These two developments, not surprisingly, generated a number of unavoidable questions about monetary policy. If banks could create billions in new money for their own profit-making purposes, (they make their money by charging interest on the money they create), why could governments not do the same, but for public purposes, such as investment in new infrastructure and productive capacity?

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And if governments were indeed to create new money through “quantitative easing”, why could that new money not be applied to purposes other than shoring up the banks?

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The conventional answer to such questions (and the one invariably given in New Zealand by supposed experts in recent times) is that “printing money” will be inflationary – though it is never explained why it is miraculously non-inflationary when the new money is created by bank loans on mortgage or is applied to bail out the banks.

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But, in any case, the master economist, John Maynard Keynes, had got there long before the closed minds and had carefully explained that new money could not be inflationary if it was applied to productive purposes so that new output matched the increased money supply. Nor was there any reason why the new money should not precede the increased output, provided that the increased output materialised in due course.

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Those timorous souls who doubt the Keynesian argument might care to look instead at practical experience. Franklin Delano Roosevelt used exactly this technique to increase investment in American industry in the year or two before the US entered the Second World War. It was that substantial boost to American industrial capacity that was the decisive factor in allowing the Allies to win the war.

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And the great Japanese (and Keynesian) economist, Osamu Shimomura, (almost unknown in the West), took the same approach in advising the post-war Japanese government on how to re-build Japanese industry in a country devastated by defeat and nuclear bombs.

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The current Japanese Prime Minister, Shinzo Abe, is a follower of Shimomura. His policies, reapplied today, have Japan growing, after years of stagnation, at 4% per annum and with minimal inflation.

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Our leaders, however, including luminaries of both right and left, some with experience of senior roles in managing our economy – and in case it is thought impolite to name them I leave it to you to guess who they are – prefer to remain in their fearful self-imposed shackles, ignoring not only the views of experts and the experience of braver leaders in other countries and earlier times, but – surprisingly enough – denying even our own home-grown New Zealand experience.

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Many of today’s generation will have forgotten or be unaware of the brave and successful initiative taken by our Prime Minister in the 1930s – the great Michael Joseph Savage. He created new money with which he built thousands of state houses, thereby bringing an end to the Great Depression in New Zealand and providing decent houses for young families (my own included) who needed them.

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Who among our current leaders would disown that hugely valuable legacy?

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Bryan Gould, 2 October 2017

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BryanGould.com

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The Last Thing Progressive New Zealand Needs Is A Coalition Of Contradictions – Chris Trotter.

It is possible to want something too much.
The New Zealand progressive community’s hunger for power – so shamelessly on display since Election Night – has led it to treat Labour, the Greens and NZ First as unambiguously progressive entities capable of working together without fault or friction. That they know this assumption to be false has not prevented them from presenting a Labour-NZ First-Green Government as unequivocally “a good thing”. Consequently, there is now a real danger of a coalition of contradictions being brought into existence: a forced parliamentary alliance with the potential to be as politically unedifying as it is electorally short-lived.

As by far the most progressive member of the tripartite alliance in prospect, the Greens will be expected to make the most wrenching compromises and concessions. They will discover very rapidly just how vast the discrepancy is between NZ First’s and Labour’s pro-environmental rhetoric, and any willingness on their part to join with the Greens in rolling-out the practical policy measures necessary to give it effect.

The differences between the Greens: a party rooted in the most sophisticated layers of metropolitan New Zealand; and NZ First: a party drawing it most steadfast support from the country’s smallest towns and rural servicing centres; is unlikely to be limited to the best means of tackling climate change and cleaning up the rivers. The Greens and NZ First will find that they are not only at odds over what constitutes practical policy, but that, culturally, they have almost nothing in common. Metiria Turei spoke no more than the truth when she described NZ First as a “racist” party. Quite how the Greens will cope with the sexism and homophobia that is reportedly rife within their newfound ally’s ranks will be agonising to observe.

The Greens’ relationship with Labour is likely to be even more fraught. Disagreements are always sharpest between those who believed themselves to be in accord on the issues that matter most – only to discover that they aren’t. Jacinda’s promises about eliminating child poverty notwithstanding, Labour is not about to abandon its policy of keeping in place a regime of strong “incentives” to “encourage” beneficiaries to move “from welfare to work”. There will be no bonfire of MSD sanctions under Jacinda. Nor will there be a 20 percent increase in beneficiaries’ incomes.

The one election promise Labour will keep and, since the Greens foolishly signed up to it as well, the promise their junior partner will also be expected to honour, is the promise to abide by the self-imposed restrictions of the Labour-Green “Budget Responsibility Rules”. Since these amount to a guarantee that National’s undeclared austerity regime will remain in force across whole swathes of the public sector, it is impossible to avoid the conclusion that the Budget Responsibility Rules will become an extraordinarily divisive force within any Labour-NZ First-Green coalition.

Having denied themselves the ability to raise income and company taxes before 2020, the Labour Party has effectively turned itself into a massive economic brake on its own, and its potential allies’, policy expectations. Unless the Greens and NZ First can persuade the likes of Grant Robertson and David Parker to avail themselves of hitherto out-of-bounds financial resources, this ‘progressive austerity’ will soon turn the coalition into a bitter collection of thwarted hopes and dreams.

Small wonder then, that, according to political journalists Richard Harman and Jane Clifton, there is a growing faction within both the National Caucus and the broader National Party to walk away from any deal with NZ First. Convinced that the coming together of Labour, NZ First and the Greens can only end in bitter disappointment and, ultimately, coalition-dissolving division, they are arguing that it is better to allow the “three-headed monster” to demonstrate its utter incapacity to provide “strong and stable” government for New Zealand. “Give them enough rope,” runs this argument, “and in three years – or less – they will have hanged themselves, and National will be back in the saddle and ready for another very long ride.”

It would be an enormous error for New Zealand’s progressive community to convince itself that the deep contradictions embedded in the manifestos of Labour, NZ First and the Greens can somehow be overcome. Far better for Labour and the Greens, the two parties who are, at least theoretically, ideologically compatible, to spend the next three years developing a suite of progressive policies capable of making a real difference to the lives of the many – not the few.

Right now, with the progressive community’s desire for political power so unreservedly on display, it should be very, very careful what it wishes for.

Bowalley Road

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New Zealand Election. “It’s the Economy, Stupid!” – Bryan Gould. 

It was Bill Clinton who identified the main issue in his election campaign as “It’s the economy, stupid”.

And so it almost always is, and New Zealand’s 2017 election campaign will be no different.

Of course other issues will matter too, but it is the economy, and the impact its fortunes will have on individual voters, that will usually have the greatest impact on the greatest number.

That is not usually seen as a plus for parties of the left. It is usually thought to the extent that it is almost an article of faith for some voters, notwithstanding the evidence of their own experience, that parties of the right are best equipped to manage the economy, and that other contenders for power necessarily start therefore at a disadvantage in that regard.

So Jacinda Ardern showed commendable courage when she devoted part of the time she had available in the first leaders’ debate to an economic issue.  That issue was productivity, or the lack of it.

Many experts, whether on the left or right, will agree that productivity growth is the essential factor in a successful economy. And most will say that our record in this regard is not good enough.

Why does it matter? Because it measures how much each individual worker across the whole economy produces on average. If our productivity gains are sluggish, as they have been, and fall behind those of other countries, we slip further down the international ladder in terms of living standards and prosperity.

We have been able to increase national output over recent years, but that is almost all down to taking in more immigrants. That produces a larger cake overall, but it does nothing to raise individual living standards, indeed, the reverse, since there are more slices to be cut from only a slightly bigger cake and we have to share our existing capital equipment with that greater number.

So, if productivity growth is the only sure way of raising living standards and providing more resources to spend on essentials, like housing, health and the environment, why have we failed to produce a better performance?

Because, as Jacinda Ardern pointed out, we have failed to invest in the new skills, new techniques, and new equipment and technology needed to increase the productive capacity of each member of the workforce.

We have failed to provide young people as they join the workforce with the skills, the training and apprenticeships, that are needed in a modern and competitive economy. We have handicapped our workforce by saddling large numbers with poverty (engendered by inequality) so that they have to contend with poor housing, health care and educational opportunities.

We have failed to provide incentives so that the necessary investment in new productive capacity, especially in research and development, and new equipment, is made.

And we have refused, for ideological reasons, to use the power of government to make good all these deficiencies.

Perhaps less obviously, we have failed to do what more successful economies do as a matter of course, move resources to the growth points in the economy. Where are those growth points? They should be, and almost invariably are, in the export sector, which is where the biggest markets are and where economies of scale, and therefore productivity gains, can most easily be achieved.

So, has our focus been, as it should, on improving our export performance and improving our export returns?  No, quite the contrary. We have insisted on running an economic policy characterised by high interest rates (in international terms at least) and an overvalued dollar.

As a result, our exporters face a constant head wind, because they have to charge a premium on everything they sell. And that makes it difficult both to compete for sales and  to earn a proper return on what they do sell. Just ask the dairy farmers or the Manufacturers and Exporters Association what the high dollar has done to them. Little wonder that the return on investment is so low that there is little to spend on raising productivity.

These failures are the government’s Achilles heel in managing the economy.  It seems Jacinda Ardern picked the right issue to focus on.

Bryan Gould, 1 September 2017


Jacinda tsunami is looking very hard to halt – Richard Prebble. 

Occasionally New Zealand elections produce a tidal wave. I witnessed the tidal wave that swept the Lange government to power. The pre-conditions are in place.

It is very hard for any government to win four elections in a row. Replacing Prime Ministers, Bolger to Shipley, Lange to Palmer has led to defeat in the next election. The signs are it will be a tidal wave.

First the tide goes out for the minor parties as it has for the Greens, United Future and Maori Party. New Zealand First is also losing votes to Labour.

Then the wave sweeps in. Anecdotal evidence is urban “John Key” women voters are switching to Jacinda Ardern.

Each poll shows the wave is gaining momentum. When Labour’s support crosses National’s it is all over.

The wave started when the Greens defended benefit fraud. Peters repaying his overpayment reminds us that Metiria Turia, who is still a Green candidate, has not.

Conditions were ideal for Labour. They just had the problem of their leader, until he fell on his sword.

In Jacinda, Labour have the ideal candidate for a five week campaign. Her regular Breakfast TV appearances have made her an accomplished TV performer.

The Maori Party is leaking votes to Labour too. Instead of campaigning on Maori water rights the party is campaigning for an amnesty for overstayers. They have lost the plot.

The only way to stop a tidal wave is to prevent it starting. Bill English and National’s strategist Steven Joyce are just too cautious. National also underestimated Ardern. In Parliament she has been ineffective. In six years she has not landed a single attack on Paula Bennett. But none of this matters.

This is the age of celebrity politics. It is image not substance. Macron in France, Trudeau in Canada, Trump in America and now Ardern in New Zealand. The camera loves Jacinda.

The red T-shirt crowd we first saw on TV may have been Matt McCarten’s “rent-a-mob” imported from overseas but mania when it gets going is infectious. Now the crowds are real.

I saw the Lange tidal wave. People came into my electorate office and took away handfuls of enrolment cards. On election day people lined up to vote in record numbers. Big enrolment and high voter turnout benefits Labour. As of June, the Electoral Commission estimated 445,234 voters (nearly all young and overwhelmingly Labour) had not registered. Last election just 76.77 per cent of those who did register voted. Labour strategists believe if they can lift enrolment and turn out, the party has 600,000 extra votes, enough to win.

Labour could be elected to govern alone. If the Greens, United Future, Maori and TOP all fail to reach the threshold then with the votes redistributed, Labour could govern alone on as little as 45 per cent. Winston Peters, confident he would be kingmaker, pulled New Zealand First out of the minor party debates. Now he finds himself in the middle of a benefit overpayment and is railing against “dirty politics”. What is worse, when Labour does not need him Peters becomes irrelevant.

What could stop the Jacinda tidal wave? A major failure in the leaders’ debates. Not likely. The Opposition Leader usually wins the leaders’ debate.

Labour is doing its best to lose. The party is rolling out Andrew Little’s ill-thought manifesto of promises the party never thought it would have to implement. In any other election promising to tax water, fuel, capital and tourism would be fatal.

All of Labour’s new taxes are extra. Many of Labour’s promises are just silly, such as trams up Dominion Rd. Others are reckless. “Nationalising” Maori water rights will prove very divisive.

If Labour continues to issue massive tax and spend promises for the next four weeks it may alarm the voters, though it seems nothing will turn the media against their love affair with Jacinda.

Elections are won by the party that sets the agenda. National wanted to make the management of the economy the issue. National has lost confidence in its strategy. It feels it must match Labour’s spending promises with its own. If the election is not fought on who can best manage the economy but on Labour’s agenda of housing, health and education, nothing will stop the Jacinda tidal wave. Five weeks is not long enough to discover whether Jacinda is too inexperienced and three years is going to be three years too long to learn the answer.

NZ Herald 

University of Otago’s Andrew Coleman looks at the intergenerational effects of the tax system on New Zealand’s housing markets. 

The tax system plays a crucial role in New Zealand’s housing markets. At the simplest level, the Goods and Services Tax is applied to new land development and new house construction, raising the price of new housing by 15%.

But the effects of the tax system are more complicated than this.

Since 1986 several tax changes have caused an intergenerational rift in New Zealand society by increasing the prices young people pay to purchase houses.

Some of these tax changes appear justifiable on efficiency grounds, but even these have made it more expensive for young people to purchase or rent property.

In conjunction with other tax changes that have artificially raised property prices, a generation of older property owners have become rich at the expense of current and future generations of New Zealanders.

The scale of the problem

The scale of the problem is seen by observing how average property prices have increased by over 220% in inflation-adjusted terms since 1989; the highest rate of increase in the developed world.

The average size of new houses has also increased more quickly than in Australia or the United States, the only two countries that publish this data.

The average size of a new dwelling in 2013 was 198 m2, up from 125 m2 in 1989, and nearly twice as large as the average new house in Europe.

The tax changes that have affected housing can be divided into those that affect the cost of supplying housing and those that affect the demand for housing.

Unfortunately, unravelling the effect of taxes on house prices and rents is challenging.

The effects depend on the extent that the supply of new housing is responsive to prices.

If the supply of housing is very responsive to prices, taxes that affect supply prices (such as GST) become fully reflected in prices, while taxes that affect demand (such as the relative size of taxes on housing income and other assets) do not. Conversely, if the supply of housing is not really responsive to prices, supply taxes like GST have little effect on prices but demand taxes have large effects.

The analysis is further complicated because the supply of land – particularly land in good locations – is less responsive to price than the supply of new houses.

It is quite possible that a particular tax can simultaneously lead to higher land prices but not much new land, and larger houses but not much of an increase in building costs.

Since 1989, the ways that the tax system affects the demand for housing has been the biggest problem.

The fundamental difficulty is that the returns from other classes of assets such as interest income are more heavily taxed than the returns from housing.

Because interest is more heavily taxed than the returns from owneroccupied housing – which are essentially the rent people get from their own home – people have an incentive to live in larger houses than otherwise, and pay more for well-located properties.

In the absence of this tax distortion, many people would choose to live in smaller houses and land prices in major cities would be a lot lower.

It is not unreasonable to suspect the premium people pay for well-located properties is twice as high as they would pay under a non-distortionary tax system.

Incentives

But this is not all. The tax system provides incentives for landlords to pay a much higher price/rent multiple for the houses they lease, largely because the absence of a capital gains tax.

Because the houseprice/ rent multiple could increase either because house prices increase or because rents decline (or some combination of both), the tax system could make buying more expensive or it could make renting more affordable. Most of the evidence suggests house prices have increased rather than rents have fallen; either way, the result is a tax-induced decline in home ownership rates.

When the tax system causes artificially high house prices, costs are imposed on current and future generations of young people, who have to borrow more and pay higher mortgage costs.

Why 1989? New Zealanders have never paid tax on the capital gains associated with house price increases, and the way housing is taxed was not fundamentally changed in 1989.

This is true. But the distortionary effects of taxation depend on the way houses are taxed relative to other asset classes, and in 1989 the government changed the way some other capital income is taxed.

Until 1989, money placed into retirement saving schemes was tax deductible, and the earnings from this money were not taxed as they accumulated.

Under this tax scheme – which is used in most developed countries including the United Kingdom, the United States, France, Germany, and Japan – the money placed in these savings schemes is taxed in a similar way to housing.

It reduces the incentive for owner-occupiers and landlords to overinvest in housing.

While the distortions in the current tax system could be eliminated by introducing a capital gains tax on housing and all other assets, and by taxing the rent you implicitly pay yourself when you own your home, most countries have found this too difficult to do.

As they have discovered, it is far simpler to change the way other savings are taxed.

On the supply side, in addition to GST, the Local Government Act (2002) has also affected the cost of supplying housing by changing taxes.

Instead of levying property taxes (rates) to fund the costs of developing new sections, local governments have progressively imposed development charges.

This change has improved efficiency by moving the costs of a larger city to the new people populating it, but it has also increased the price of housing right across cities.

People who bought before 2002 shifted the cost of new development to others, increasing the value of their houses, even though their development costs had been paid by other ratepayers.

For a long time, economists have pointed out that if you tax the income from housing less than other assets, you tend to increase land prices.

At the macroeconomic level, they have noted that this tends to increase national debt levels, and lower national income.

The first owners of land benefit from these schemes, but everyone else loses.

Perhaps this is a reason why other countries have been concerned to tax housing on a similar basis to other assets.

It is unfortunate New Zealand does not do so, even if the tax changes implemented since the late 1980s have proved very advantageous to middle-aged and older generations.

Interest.co.nz