Dunne indicates property tax change, lower personal tax
Revenue Minister Peter Dunne has added further weight to widespread expectations the tax system on property investment is to be changed, and personal taxes are to be lowered.
Speaking to the International Fiscal Association conference in Christchurch today, Mr Dunne said changes to the tax treatment of property were likely, to make the rules fairer and more equitable for all taxpayers.
"This is not an attack on landlords, as some have protested, but a rebalancing act designed to address the concerns highlighted by both the Tax Working Group and the Governor of the Reserve Bank over the years about distortions favouring property investment over other forms of investment," Mr Dunne said.
"There are also likely to be lower personal taxes across the board - not just for the top end of the income scale as some allege - to encourage productivity, investment and saving."
The proposal that GST be lifted to 15 percent, would only go ahead if appropriate compensation was provided for those who need it, while no exemptions for specific items would be introduced, Mr Dunne said.
The issue of the company tax rate and its relationship to the top personal tax rate and that of trusts was still being considered.
Despite the relatively recent reduction in the company tax rate from 33 percent to 30 percent, New Zealand's rate remained higher than many OECD countries.
"This does not necessarily mean that we need to drop the rate to match or outpace other countries," Mr Dunne said.
Recommendations from the Tax Working Group were still being reviewed by the Government and final decisions on the overall shape of any tax reforms would be announced in the budget on May 20.
Mr Dunne also announced today a new round of consultation on the reform of New Zealand's international tax rules.
He released an issues paper seeking feedback on suggested changes to the treatment of non-portfolio foreign investment funds.
"This consultation paper builds on the comprehensive reforms made last year to the taxation of New Zealand companies that have offshore subsidiaries so they can compete in world markets on the same basis as foreign competitors," Mr Dunne said.
"The main feature of those reforms was the introduction of an exemption from New Zealand tax on income earned through controlled foreign companies undertaking 'active' business activities such as manufacturing, distribution or sales functions.
"This issues paper continues the reform process by looking at ways to remove further taxation obstacles to New Zealand companies' international competitiveness," Mr Dunne said.
"In particular, it looks at how the tax exemption might be extended to some investment interests made by New Zealand companies in foreign companies - known as foreign investment funds or FIFs - in which they are not the controlling partner."
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Comments and questions18
Interesting, given that the thing giving John Key a Woodie is cutting depreciation on residential rental buildings, but that there is no similar proposal for commercial buildings.
The Nats completely ignore the social good services performed by all landlords - and the pressure that is likely to come to bear on the down at heelers who rent all their lives once 30 per cent of all landlords with residential rentals flee the market. Housing NZ does not, cannot and will not fill that gap.
Might just look at some commercial property once we’ve sold out of residential.
I think things will work out. Don't fear change.
if people are struggling to see or admit to what is going on here - well....
both LABOUR and or NATIONAL will be bringing in land tax come budget 2011.
the rest of it - go figure
If National want to have another round,john need to
keep the gold card (or Max How much per year?)
If he upset all the landlords & put up the GST, he can say good bye to next election.
He can do it next term to increase GST.
If 30% of the landlords flee the market I'm sure that prices will fall and other investors, who don't need the tax benefits to make the numbers stack up, will pick up the properties and continue renting them out.
Or are landlords now trying to claim that there will be thousands of empty rental properties lying around the place after their tax gravy train gets switched off?
After the last decade of land transfers to Maori I wonder how either party expects to garner enough support in the house to get any form of land tax through. Unless we create seperate tax laws for Maori... A very slippery slope.
Incomes are to low in Auckland for an "economic rent' to be charged. The taxpayer and landlords are both susidising the low rents. The landlords are out of pocket because house values have not increased. Disallowing depreciation and/or rental losses will increase rents in election year.1.3M tenants. Rents are alraedy hiking in Auckland because of the housing shortage which will just get worse.
Mark you are drinking to much TUI
The house price inflation caused by property investors pushing up the price of a property asset due to quirks in the tax and laqc regimes has cost all NZers a fortune.
The cost of a roof over your head is predominantly interest on a mortgage. That cost has to be paid out of tax paid income, therefore the less you pay for housing the more you have to spend or invest in income generating productive investments.
Eventually if property prices keep growing at rates above about 5-6% per annum the only way you get your money out is to find a bigger fool to sell your inflated property to. That fool is the younger generation who many of us hope will work hard stay in NZ, pay tax and allow a trimmed down Govt sector to deliver the services we all expect. If they have to pay too much tax or pay too much for a roof over their heads they will leave.
Chris. Good points. However, to extend, have you not considered we are on a course of purposeful economic implosion?
I am so sick of listening bleating and threatening landlords acting as i we give a tuppeny stuff about their petty woes.
they are irrelevant and their pathetic threats of rising rents and ' we'll just have to sell up" indicate an over-inflated sense of national importance.
house prices drop= new investors buy in= more rentals.
also cheaper houses = first homers leaving rentals to buy so freeing up existing rentals.
prop investors...go away and play elsewhere...or stop whining !
elvis. you haven't done your homework. go read the copenhagen treaty. no 'new' investors will be moving in. only the UN appointed agencies. hence the super city.
Chris & Elvis, you guys are right about landlords. There are plenty of people fed up with them threatening higher rents, shortage of rentals etc..
This suggestion that they provide a social service is rubbish. The Salvation Army provides a social service, quite different from a landlord whose motive is to maximise rentals and profit from capital gain.
Landlords and Councils are central to the economic problems in NZ.
Damian.
"Landlords and councils are central to the economic problems in NZ"
You clearly completely failed economics 101. I'd love to see how your homework would read explaining your rationale for such a statement.
God, very quickly, needs to help us all with such logic.
As a landlord and property investor, I'm sure I'm not in a minority when I say I'm OK with these changes and can live with them, in fact I'm surprised its taken so long to fix these loopholes, especially with the LAQC's and depreciation. Enjoy it while it lasts!
Of course some landlords (especially the "latecomers" that are highly levered and bought their properties for too much to start with), with foolish levels of debt that have effectively been subsidised by all taxpayers that won't be able to rely on the rest of us as a crutch. I do feel for them but they're not performing a social service even though they have effectively been state subsidised..
Rents are set according to supply and demand, not the personal debt levels of the property owner. Those with too much debt will divest to those with less leverage, but overall rents will stay the same..
Dave - hold your breath on those thoughts. wait until ETS stage 2 or Mexico 2010 kicks in. You may sing quite different tune then. Indeed you may be looking for somewhere or some bush to live
@ anonymous (whoever you are)
Landlords and Councils are definitely central to the economic woes in NZ.
My rationale doesn't have much to do with economics as you suggest.
Firstly NZ has some of the least affordable housing in the developed world. Auckland has the 22nd least affordable housing out of 272 markets according to the latest Demographia Survey. Clearly a problem right??
Why are Landlords a problem? With the assistance of tax benefits they have played a key role in driving up values for residential property to levels never seen before. Yes they do play a role that is needed but the playing field is not level.
What about Councils? Their administration of planning and building laws has made development an expensive and long process. Take the MUL imposed by the ARC for example.
Lastly, why is the Govt reforming how Councils behave and slapping Landlords with new taxes. Because they are problem!!
but I think NZ will be an even better place to live with the tax reductions, although GST increases are a bit unfair. I think you have to be positive and adapt, as any businessperson does. If you are heavilly levered, sell up before its\'s too late.
I've earned some incredible after tax returns from property using Bank money while being employed with a real job while my mates have lost their savings trying to set up their own businesses or even just investing in term deposits. Property has done me proud but the good times can't last forever you know!
Damian.
Again: God, very quickly, needs to help us all with such logic.
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