Letter to Dr Cullen on Mortgage Interest Levy

MC-1-0

20 February 2007

Hon Dr Michael Cullen
Minister of Finance
Parliament
Wellington

Dear Dr Cullen

Mortgage interest levy

Over the last few months Treasury and Reserve Bank staff have undertaken further work on the Mortgage Interest Levy (MIL) that was first canvassed in the Supplementary Stabilisation Instruments (SSI) report of March 2006.

The direction of this work has been to develop further the proposal outlined in the SSI report, look further at some of the features of an MIL and attempt to answer some of the unanswered questions that were left at that time. This work has now stopped.

The attached paper presents the results of the work that has been carried out to date. The paper is a working draft and as is clear upon reading, the analysis is incomplete and there remain a number of features of an MIL that have not been fully explored. Moreover, no assessment of the overall merits of an MIL either in isolation or against other macro stabilization options has been undertaken.

The report is for your information.

We expect that the report will be publicly released (we already have requests for it under the Official Information Act) and would be keen to discuss with you the timing and management of that release.

Yours sincerely

Dr A E Bollard
Governor
Reserve Bank of New Zealand

John Whitehead
Secretary to the Treasury