I was reading a column by James Weir in the DomPost this morning. He quoted largely of BNZ Chief Economist Tony Alexander.
Tony Alexander (perhaps better named Mr Fixit) was talking about the Reserve Bank's efforts to curb spending by raising the interest rates. This has the effect of increasing the mortgages for all those who have the temerity to buy a house and try to pay it off. Loosely speaking, lets call those who proudly own a mortgage the middle class, or at least, those aspiring to be middle class. They would also represent a strong tax-giving constituency for the Government.
So, to slow the economy, we mortgagees need to pay more money to the Bank. This helps the economy. Perhaps not our economy, but the economy. Putting aside the problems with this logic for a moment, lets accept that the Reserve Bank are understandably upset that many people are doing their best to manage their mortgage by fixing interest rates. Are we beating the system?
Enter Mr Fixit. Mr Fixit suggests this could be fixed by the Reserve Bank setting a "fixed rate tax", allowing the central bank to hit all borrowers, not just those on a floating rate.
So what Mr Fixit is saying is tax those fixed rate mortgages. That will fix it. Does Mr Fixit also believe the Reserve Bank ought to have the power to create taxes, in addition to controlling the money flow by playing with interest?
Now, isn't that just one of the most stupid things an economist could say? Think about it. Apart from this insane belief that taxing problems make them go away (every-one gave up smoking and drinking last year, didn't they?), what impacts would such a tax have to the floating rate?
Do you think the floating rate might be "market adjusted" by the Bank to take into account the fixed rate taxation?
Would this would be considered a deductible expense/rebate for investors, thus hitting actual home owners even harder?
What impact to rate adjustments might undermine business loans?
What next Mr Fixit? A law to make fixed rates illegal? Has Dr Cullen offered you a job yet, or is the BNZ looking for some more government (taxpayer) funds to prop it up in a cooling house market?
The more I think about it, the stupider this becomes. And I'd rather not think about it anymore.