English continues to signal changes to property tax
Finance Minister Bill English is continuing to signal changes to the tax regime covering investment properties.
Speaking on a TVNZ 7 programme, Mr English said there was a need for change.
"We will seriously consider changes in the taxation of property," he said.
"We haven't had those put to us yet, but I think the evidence that investment patterns in New Zealand could be more productive I think is pretty strong."
Under current laws, losses on investment properties can be used to write off taxes and capital gains taxes on property are not as tightly applied as in other countries.
Mr English repeated assurances that changes would not include a capital gains tax on homes, but said he had not ruled out anything else.
Those advocating change argue that investment is being funnelled into unproductive parts of the economy, such as investment properties.
Others have argued that other countries with stringent capital gains tax regimes and less generous tax treatment have still experienced property price bubbles like New Zealand.
Currently a tax working group is working on policy options for the Government, which are likely to be released by the end of the year.
This would allow any changes to be made in the 2010 budget, Mr English has said any tinkering with the tax system would be cost-neutral.
This means any taxation gains in one area would be balanced off with reductions elsewhere.
The TVNZ 7 programme was in the news last week due to its advertising heavily featuring Mr English.
The 45-second ad, running on all TVNZ's channels, promoted a new series called Focus on the Economy.
It outraged the Labour Party, which said it was more like a party political broadcast.
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Comments and questions48
Mr English should check out the meltdown of residential properties in Australia in the Eighties when the then Government tampered with something they did not understand ,the voters did.
Well lets think... a shortage of rental property due to "Property tax" ... supply v demand ...rents go up. Meanwhile National loses the election as its voters who were screwed by Finance Companies under Cullen get screwed by Bill. Wopnder why you got kicked out from being Prime Minister ,Bill? take control of this John or wear the consequences.
Bill English is the very last man in that Parliament that should be 'cracking down' on any damn thing. The rank hypocrisy is breath-taking, but, I guess, part of the course.
Why do I put my money in my house? Because if I had it on stock markets I would have lost up to 60% of it by now.
So anyway, yes, we fix supposed imbalances in the economy caused by taxation, by more taxation. The only jobs that have been protected through the financial crisis by taxpayer money, in State sector jobs. Before this crisis began there were 1.8 million productive people belaboured by having to pay the benefits or state sector wages of 1.7 million people. Utterly ludicrous. That's where you take your knife Bill, you thieving S&#^#*
Damn, I forgot to fall up the car yesterday, and extra petrol tax goes on today doesn't it?
For the record, the two typos in my last post were out of anger, not tiredness.
Finally though, those tax cuts Bill? ?They seemed to have morphed into more tax. How did that happen?
What an ignoble, rotten government National have become already.
probably a sensible & necessary move
@8.09A.M.comment well said. Anytime soon wee Willie or w'ont he pull the trigger on all small business endeavours as well ,they are the same as investors,only under a different hat.Once more @8.09AM YOUR COMMENTS SHOULD BE FRAMED,well said.
As a former rental property owners, the tax rebate (mainly from depreciation of the chattles and building) meant rents could be kept at a level which covered most of the costs, but not all. Without the rebate the rents will have to rise. Silly TV One News last night talked of closing a "loophole". Depreciation is a legitimate cost, not a loophole. Heaven help the politicians when the renting occupants of 48% of NZ homes get a rent hike courtesy of John and Bill.
NZ is fast heading to a situation were it will be insolvent. Something has to change.
LAQC tax avoidance has become so mainstream its got out of hand. If you have purchased rentals for the sole purpose of LACQ based tax reduction and capital gains watch out. Perhaps you should cash up to a position were the rental income actually produces a return, this reduces your risk, lowers NZ international debt mountian but you will probably then have to pay more tax....good for roads, schools, hospitals etc?
Hopefully these changes will be balanced in a raise in GST, and a leveling out of the top tax rate balance for companies, trusts, and high income earners. Time will tell, but all looks like very clear signals from Wellington.
It is obvious to see that increased tax on property investors will just lead to higher rents. And it will hardly redirect investment, getting 3 to 5% interest gross from the bank and losing 20 to 40% in tax is hardly a winner. And our sharemarket is pathetic. And well paying jobs are hard to get ( and highly taxed).
And what is this with the government (labour did it too) spending our tax dollars on so many tv adverts blowing their own trumpet.
More working! Less governing!
You may be correct to some extent but lets remember that there are three factors that affect property prices and rents etc. They are demand, supply and price. If you increase rents to compenstate a tax then demand will naturally decrease, people will live with their parents longer, couples will move in togeather and university students will start 'double bunking' (just like the prisons will soon). This clearly will result in decrease demand and vacant rental properties where rents will fall.
Basically I think that while rents may raise slightly, we are more likely going to see a decrease in investment property values to a level where the return on investment will be the same as what they are earning now.
Residential property is a non-productive asset, but New Zealander's don't know how to invest in anything else.
There is a limit to how much unfortunate tenants will pay to live in some of the filty hovels provided by some of you so-called "investors" out there.
When my generation comes to power, we will asset strip your generation and make you work till you're 80. Having 20-30 residential investment properties will not save you.
Bill English is the last person to be talking about closing loopholes in property allowances!
On a more serious note, why should property investors be treated any different to other investers (and I mean investers, not people who trade property for financial gain?)
And, one last point, surely such a move would hike rents by about 50% to cover the additional costs (or are the National government going to start building state houses again, paid for by some form of hiden tax rise?)
I suggest that Mr Key puts Mr English back in his box, as I am pretty sure that the vast majority of property investers in New Zealand would have voted national at the last election.
Shouldn't you be at school?
heres a novel suggestion ........level the investment palying field by reducing tax on super schemes. First $ 5000 tax deductable scheme earnings not taxed income in your hand from super scheme taxed as income. Now theres a thought!!!!!!!
Careful Billy you may never get a second chance to make a favourable impression on your mislaid supporters,or could the word be CONNED.
Ok, let me get this straight;
1) A National government wants to raise taxes
2) A notional government wants to rents to rise and house prices to fall
3) A National government will, therefore, want to raise benifit payments or invest in state housing again
4) A National government wants people to stop investing and rely on the Cullen fund for their pensions (didn't they just suspend contributions to that?)
Have I missed something, or is Bill English spouting bollocks whilst John Key is away again?
A notional government was a bit Freudian!
Sorry Billy Dont Be A Fool!
This country can't go on handing out huge tax refunds to rental property owners. Its basically an extension of our welfare system. Too many people in this country are looking for the easy handouts.
There appears to be some misconception here that property investers are treated differntly to other investers?
Its a little known point that capital gains tax already applies to property traders, and also taht any depreciation claimed by property investers is clawed back by the IRD when the property is sold.
If the idea goes ahead - and I doubt that Key will want to updet the several hundred thousand property investers in New Zealand who are predominantly National voters - property prices would collapse and rents would sky rocket.
"Those advocating change argue that investment is being funnelled into unproductive parts of the economy"
The money used to invest in rental properties is borrowed and does not exist until a loan is taken out. If it is not invested in rental properties it won't get invested elsewhere - it will simply not exist.
I'm making plans to leave permanently. Property investment via being a landlord was the only thing making the country economically viable, & if that's going then I might as well live somewhere I can earn a decent wage. If the right wing think this is a good idea, imagine how screwed the country will be when the socialists get back in again, the only ones left will be the bludgers - time to go before it's too late, Hawaii sounds nice.
Please ensure that your gimp wears his maks with the zip done up nice and tightly before you go abroad again. His pronouncements are severely gamaging to the economy and could have dissastrous effects on your position in the polls.
Its easy; borrow $500k from the bank, buy shares and pay the interest on the loan with the dividends and then sell the shares at a proffit later.
No, it doesn't make sense and that is why people invest in property.
AB - I'll give you the benefit of the doubt and assume on your target list of "easy handouts", way ahead of rentals, would be Working for Families, ACC, and a variety of DOL payments. Taking the first place must be Working for Families. It is the most asinine & inefficient program ever. While I like the fat check every year, how about not taking it in the first place and do away with the millions in admin costs?
You obviously don't own a rental either. It's not that easy.
Those suggesting we should invest in productive parts of the economy miss one important point
Many of us borrowed 100% to buy the rental house, we have no spare money, and definitely would not of borrowed 100% to buy stocks and share.
We might loose 10~20% on a house, but could loose 100% over night in stocks and Share, and have a huge loan left to repay with no equity
Also many 1,000's of us bought brand new houses to rent out, increasing the new housing pool
A major tax change would force many of use to sell (reducing rental stock) or have to increase rents, I would be looking at $100+ a week
Its not just and will be a vote loser (without even mentioning the effect it would have on the economy.)
It would be folly.
The NZ econmony is never going prosper on the back of real estate. Its time more incentive was given to investors to put their money into export companies and the NZ share market. We need to be earning export dollars not bringing in off shore money to sink into real eatste. Is NZ inslovent?
Who will house the homeless when the Nats make a Pearl Harbour attack on Landlord investors,sorry Mr Key BAD CALL.
If I were to invest in the sharemarket I could think of better places than NZ shares.
Yes, Bill English has it right - and I'm a full time developer. At present, us developers are at a disadvantage to the mum & dad investors whom inflate the property market by purchasing rental properties via LAQCs for 2 reasons: (1) To articially create tax losses which are then off-set against taxable income as salaried employees. (2) Because they can then sell the rental property at a non-taxed capital gain, notwithstanding that they have benefited from the tax deductions/ offsetting during the term of ownership. Us professional developers are taxed on capital gain, and on bona-fide taxable income derived from our projects.
A "collapse in property values" if Bill's suggested changes are implemented? Nonsense! Eventually however, property values will increase because far less houses will be supplied to the rental market, because (1) only professional developers will supply (refer above), and (2) most of my contemporaries have disappeared as a result of the credit crunch and the few of us still on the battlefield can't get funding anyway! Does anyone not perceive a serious housing shortage soon? Compounded by (good) population growth?!
Just like my spelling.
This needs changing, having IP's and taking the tax loss to your day job, so you can claim the benfit, thats a loop hole that needs fixing.
What the Govt should be doing to bring house prices down, and rents, is to encourage property investors and developers to increase housing stock in an affordable manner.
By opening up more land to residential, and taking away all the exorbitant council restrictions and fee's so more houses can be built. Plus freeing up the financial markets so these new builds can be financed.
Hiking rents through new tax's and reducing the supply of housing will create a bubble in itself.
Surely lots of new affordable housing will both bring prices and rents down, and also create employment and growth, as clearly in the next 3 or 4 years demand is going to exceed supply.
To also provide for the economic growth the country needs we must also have immigration bumped up to cover all the baby boomers that will be retiring over the next 10 years.
And they will need housing.
The recession and communual living along with greater unemployment will end 2010 / 2011 and the number of people looking to buy or rent a place to live is going to take a massive hike.
AB said: "Its time more incentive was given to investors to put their money into export companies and the NZ share market.".
Well you don't create incentives by yet more taxing. I'm sick of tax. The best incentive to invest in export companies would be decent export companies on the NZX, and after that freedom of choice of who or what I invest in without the distortions of all the taxing and paying holidays for Douglas, Hide, Carter and Hone (who doesn't give a 's#%^' about me, so why would I about him).
The only thing we need as far as tax is concerned, is a lot less of it, and the only way we'll do that is to slash the huge size of our government and bureaucracy. I simply don't believe, anymore, the tax neutrality claim in the article (especially when indirect taxing is considered in the mix).
This nonsense really angers me off. Someone said below he's leaving, well I probably can't do that, due to family ties, but I am self employed, and I'm cutting back to just a living wage for my wife and I: I don't need all this BS from a hypocrite like English. I'm not your slave mate.
[The only reason this post sounds so moderate is because the censor software here wouldn't post with all my swear words in.]
I don't think that anybody could reasonably argue that people who won residential investment property should able to claim working for families by using their tax losses to reduce their taxable income, but that does not mean that they should not be able to declare their losses - including bona-fide depreciation - just like any other invester.
The majority of people fail to understand that property investment does not benefit the country as a whole. The trading banks borrow nearly 40% of their mortgage funding from overseas to prop up the individuals dreams of becoming the new "donald trump's" of NZ. Investment money needs to be redirected to creating industries that are going to move the country forward and provide employment opportunities so that exports can be generated and income produced.
There is no future in the general current mentality of trading property amongst ourselves supported by taxes, misguided news media, university courses in property management etc. as none of this helps our natinal deficit.
I think it's hilarious that landlords can believe they will hike rents in retaliation to a property tax. It's economics 101 that you can only set your rents at what the market is willing to pay.
I'm a landlord myself and can see that highly leveraged rental properties turbo charged with an LAQC are bad for economy. How about some landlords see through their greed and accept this fact.
NZ has some of the highest house prices in the OECD but some of the lowest per capita incomes. Come on people - put 2 and 2 together! We need some changes here!
Three cheers to the Dipper from Dipton ,what a smart move ,just like the smart moves on who gets a taxpayer handout for out of town or in town politicians,or the house you dont own when in fact you do.
All evidence in other economies suggests that taxing property gains etc does NOT make any difference re property bubbles! The reason people don't invest in stocks/shares etc is that the stock market is so manipulated and driven by fear and greed, that investors may as well just go and buy a Lotto ticket. I have seen insider trading first hand and know that the poor old Ma and Pa investors have absolutely no control over what goes on in the boardroom. They are just the suckers who prop up poorly managed companies. If English wants people to invest in more 'productive' parts of the economy, firstly he needs to tighten up on the disclosure regulations and also get serious about white collar crime. At least property provides investors with transparency and control!
Also, if the govt want to tax profits on property and remove any tax benefits, then logic suggests that those many investors who have lost money (e.g. Blue Chip, Investors Forum, Merlot etc) over the last 2 years should receive a nice fat credit on their losses.
Latest Infometrics report suggests that NZ already heading into major housing shortage. Really good idea then for Govt to remove what little incentive there is for property investors (yes, gearing is a risk, which is offset/rewarded by tax benefits) to help contribute to the supply side; unless of course Bill is thinking that the govt wants to become landlords again thru more Housing NZ stock!! Methinks not!
All the whingeing about the alleged effect on the market is just BS.
There will be NO effect on the supply of housing. How can there be?
If a landlord finds his operation no longer profitable with LAQC and other tax breaks removed and has to sell up, someone else ends up owning the property.
There will still be the same number of houses.
Obviously there will be fall in the value of rental properties. Who would buy one at today's prices if the tax breaks are no longer there?
Perhaps we may see a proportion of rental properties going into the owner-occupied category. Certainly, that seems to be where the demand is at present.
But that is likely to have a relatively minor effect on the supply of rental housing, and therefore on rentals.
This comment is totally naiive and fallacious. Because there is virtually no development finance available, many developers (those that are left) are seeking investor capital to help fund developments. With the loss of tax breaks etc, these people will probably put their money into other things - stock market (heaven forbid!!). Also, if there is a 'sinking lid' in terms of property values, driven by removal of tax breaks, that will have a flow-on effect to developers, as the sale price of their developments is directly relative to the rest of the market. If they can't make a buck, then it won't happen! Logical!
All of the comments I have seen to date from this column and elsewhere are looking through the wrong end of the telescope.
The problem is not tax breaks, as rental housing is just like any other business which is entitled to its depreciation and other cost/loss writeoffs. The problem is that NZ lenders, banks especially, do not value the returns from "Productive Investment" in the same way as Property Lending, where there is a tangible asset they can call up in the event of a default. In other countries stocks, shares and factories are a VALUED ASSET and can be borrowed against in order to purchase a useful quantity. Where the market perceives a paper asset as below par as a "tangible asset", then the borrower can arrange investment insurance to reassure the lender that they will be covered in the event of a default. In the US this takes the form of a Credit Default Swap note, which is a tradeble instrument much like a mortgage or insurance policy and can be sold to another investor. The Lender is assured that they will be fully paid out by the insurer as if it was a land based property and is therefore happy to lend against stocks, shares and start up industries, each with their own percentage differentials according to risk. In other words make the investment in a "Productive Asset" as risk free as property and the problem will resolve itself.
The only change I would make to property tax law would be to remove the discretion as to whether a property is bought for onsale, or bought for holding. This latter is a rort when a sale is notified to IRD as " I didn't think I would be selling so soon". "Yeah Right".
@ Market Observer - you are right that the banks bias towards property is a major reason for the property bubble. Hopefully National and Bollard takes steps to rein this in, such as capital / liquidity rules for banks etc...But changes to bank lending need to be part of a toolbox to be used against the property market.
National's intentions for tax are definitely required to level the playing field. It's a no brainer.
Another reform that's needed is a loosening of how Council's zone land which is placing limits on land supply for developers. I believe National will do something with this too.
If these three changes are made, NZers will enjoy affordable housing and be poised for massive growth. Can't wait.
Good idea mate. the less ppty investors the better. Did you ever consider that the only reason it is profitable is because you are getting a free ride from the taxpayer. This is driving productive money into the wrong place and voila, there aint nothing productive anymore except the housing merry go round.
Hi Jimmy, I have to take issue with your comments on ppty investors. They are, after all just another business like any other, and are entitled to the same tax loss offsets, when a loss is made. The problem is that there should not be a loss on such a regular basis if the business is correctly run. Besides which the ppty investor is not getting any profit to tax. The "profit" is only the capital increase (when there is one)for he/she to live on, they are not stealing any tax as there is no profit to tax. In the current market there are an awful lot of asset rich/cash poor, and even destitute, landlords going to the wall in mortgagee sales. Its very much swings and roundabouts. So be careful what you wish for.
Also Jimmy, do you really want to return to the rental situation as it was 10 years ago? Then there were too may tenants literally running after each available property. You had queues of several hundred people sqabbling in the street over a property, and upping the rent offers to the letting agent to out do each other in order to get a roof over their heads.
I didn't think so.
You really are seeing supply and demand at work.
A good deal of property investors are skilled hard working folk who are sick of being screwed by our welfare state culture and double taxing.Property investment is about the only semi safe way to provide for our retirments ( we know the govenment won't).Most skilled people can earn far more income off shore and I suspect this tax ploicy will be yet another reason to join the other 25% of Newzealanders getting ahead in other parts of the world. Dont think I will vote Nat again!
Market Observer,
I rented heaps 10 years ago and did not notice any major shortage. It seem a lot worse in wellington now than it ever was 10 years ago. What has happened is the tax distorrtion has driven hosues too high in price which makes it fundamentally more difficult to buy and make a profit, increasng the reliance on speculative gains and tax loss offsets. Best to remove the distortion and let the market finds its proper equilibrium. I do think we shoudl remove it gradually however ie maybe only claim 70% of loss in forst year, 50% by 3rd year and compltely phase it out after 5 years.
Yea right. Not to mention all those 'mainstream' LAQCer's who may have just recently forked out 4-5 thousand dollars to form their little companies in a modest venture to get ahead in life! If they go, Nationals next.
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