The Government’s own tax experts say the Government’s tax deductibility policy will do little to stop exploding house prices and will drive rents up, says National’s Shadow Treasurer Andrew Bayly.
“The Government’s interest deductibility policy, which comes into effect this Friday, is not just 11th hour policymaking, but Inland Revenue advised the Government against it.
“Inland Revenue strongly opposed any option to remove the ability to deduct interest and instead endorsed the status quo, saying additional taxes on rental housing are unlikely to be an effective way of boosting overall housing affordability.
Only someone with absolutely no idea about how the real world works would think that increasing costs for landlords would magically help housing affordability.
“It also claimed the policy would put upward pressure on rents and could reduce the supply of new housing developments in the longer term.
“It estimates that 250,000 taxpayers will now have to face high compliance and administration costs, further eroding coherence of the tax system.
“The Government says the plan is to target speculators, but nothing could be further from the truth.
How could a blanket tax change hit only a small number of landlords?
“In reality, this policy targets the ‘mum and dad’ landlords of the New Zealand, those who may only own one extra property. According to MBIE, this is 80 per cent of all landlords in the country.
“For the average property in Auckland, we estimate this will lead to an extra $7,600 on the end-of-year tax bill per property which, for many, may mean they lose money on their rental.
“This figure does not even include the money that will have to be spent on accountants and lawyers who will need to help calculate the amount of tax owed.
“Chartered Accountants Australia and New Zealand have slated the policy, saying the measures do not accord with good public policy design.
“Government officials have advised that the Government’s housing tax policies – announced earlier this year – have had no dampening effect on house prices, but there was evidence of continued acceleration in rental price growth.
“This is another ill-conceived and rushed policy, with little real input from tax experts. As of Friday, every landlord will be paying this extra tax.
“If the Government’s policy is intended to force mum and dad landlords to put up rents or sell their retirement nest eggs, it’ll work really well. But, if it hasn’t already had an impact on house prices, then it’s not likely to any time soon.
“National will reverse this misguided change.”
Rents have already risen since the policy was announced.
Even the Finance Minister admits tax changes won’t help the housing crisis.
Interest paid on money borrowed by a business is a legitimate, tax deductible cost of doing business that every other business except those renting houses.
Singling out landlords to lose the deductibility is unfair to them and their tennants.
It also adds uncertainty to other business. If the government can misuse tax policy in this way for one sector which one will they pick on next?