Would the Nats really whack property investors?
Wednesday, January 20th 2010, 11:08PM 
8 Comments
Residential property investors have been a political target for some time now and today’s report from the Tax Working Group (TWG) made it clear they, unfairly, remain in the sights.
The TWG has put the acid on the government throughout the report and raised ideas which will be clearly more than the government can stomach.
The question that I struggle with is how far would a National-led government be prepared to go and clobber the property investment sector?
There is little doubt in my mind that the vast majority of property investors would vote National or some other party on the right of the political spectrum. To penalise several hundred thousand of its core supporters is the equivalent of political suicide.
National has plenty of political capital to burn, but moves such as the TWG have proposed are like lighting a bonfire.
I suspect there is some “low-hanging” fruit the government can pick. For instance the land tax idea is something that wouldn’t be too hard to do, and could raise a reasonable sum of money.
I am told there used to be a land tax (apparently it was a pink form filled out each year which had to be filed by the end of May).
Likewise changes to depreciation are possible. There is an argument which suggests depreciation isn’t really justified when the asset is generally appreciating. There maybe some instances, such as leaky buildings, where there is a genuine reason for depreciation, and the rules could be made to accommodate this.
Also an increase in GST would mean that property investors paid more tax.
One thing which was good to see is that the TWG didn’t get stuck into the argument about loss attributing qualifying companies. Many commentators have described this as a rort that property investors shamelessly exploit.
I have always had trouble with these arguments. The view being that property investors are in business providing a service (accommodation) to customers. They should be allowed to operate under the same rules as any other business. LAQC’s are legitimate structures for them to use.
This was summed up by the Institute of Chartered Accountants tax director, Craig Macalister, at www.netprophet.co.nz when he queried whether the current "emotion" around property investment was getting out of hand.
"We need to be careful not to fall into the trap of selected taxes for different assets or investments for all the reasons why these were a failure in the past," he said.
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Comments from our readers
On 21 January 2010 at 9:03 am Geoff Nairn said:
Undoubtedly, this discussion is going to draw some highly polarised opinions. From what I see on a fairly frequent basis, there are a number of (residential) property investors who do in fact "rort" the system. However, the point I want to take from Phil's comments are where he observes: "To penalise several hundred thousand of its (The National Party) core supporters is the equivalent of political suicide." It is ironic that the only Government that had the political balls to make highly unpalatable changes was David Lange's Labour Govt, and the changes they made were ones that Muldoon's lot didn't have the appetite for. If we removed politics from Government we would have a significantly more stable and prosperous economy. On 21 January 2010 at 3:16 pm vini said:
I agree with Craig, property investment is like any investment. If only govt free up land and make land cheaper, property prices would not be this high and poor/first home buyers an afford to buy their homes. Then not many people will investing. It's a government created mess, it would not be resolved as per the working Group. On 21 January 2010 at 6:51 pm Gary said:
The irony behind some of these TWG recommendations appears to be lost so far because many commentators are ignorant of how mum and dad investors use property to set up for retirement and how the recession started. They actually mortgage themselves heavily and take risks early in life to save the taxpayer a heavy burden at retirement plus provide a service. To do that, Banks (particularly when times were good) gave away mortgages from 80%, 90% or even 100% of purchase price. If the Government decides to hit the thousands of investors who incidently provide homes that Government could not afford to own, the ramifications for the NZ economy could be massive. The number of investors who could not survive, could only sell. House prices will drop with the market being flooded which will mean many mortgagee sales, investor houses selling below mortgage values and the fallout creating losses for the Banks. But wait isn't this where US Banks/ Lenders got in to trouble, isn't this where the recession started. These so called experts within this TWG must have a very narrow understanding of this part of the economy. This almost needs a rebellion of some sort so we and this industry can survive. Australia looks more inviting. It is a pity again, that a minority rorting the system cause changes for the majority. Isn't this symptomatic of NZ society in general. Minorities rule. On 21 January 2010 at 9:35 pm Howie said:
Bottom line is nobody wants to pay more tax, and I don't think punishing property investor is the right thing to do. Sorry to bring this up, but we really need to cuting down social benefits in NZ otherwise we will never catch up Ausies. I think New Zealand's big revenune loop hole comes from people who are manipulating the social benefit system - not property investors. Government should give vouchers rather than real money to people on income support, and government should their rents directly. Also, we need to start taking more good migrants - not more refugees. On 22 January 2010 at 1:42 pm Matt said:
Many landlords use the strategy of running their investments at a loss to gain a tax advantage and so they can reap the rewards of a rising market of which there is no guarantee. If you ask any landlord I'm sure they'd rather be making a healthy cashflow profit than a loss (like any business). However, with low rents and high house values it's now impossible for a new investor to achieve positive cashflow initially so there needs to be incentives to attract new investors to the industry. The government should be happy that new landlords are in effect subsidising rents out of their own pocket for others who aren't in a position to buy a property because the government couldn't keep house prices down. Landlords shouldn't be punished for providing a necessary and valuable service and exposing ourselves to financial risk. On 30 January 2010 at 1:15 am Heather said:
I am in Matt's camp. Extremely well put! On 31 January 2010 at 9:00 am db said:
The reason many New Zealanders invested in rental property was because we had no worthwhile/safe superannuation scheme to see us into retirement. We decided to protect ourselves and our families from being state dependent. We sacrificed many weekends to weed, repair, paint, dump rubbish, pay bills and will now be penalised for it. On 5 February 2010 at 5:49 pm Marion said:
It is very unnerving to think that a bunch of socialists are advising the government of ways to keep average New Zealanders from being able to create wealth for their retirement.
I remember the different forms of taxes on land and houses back in the 60's and 70's, we worked hard on getting subsequent governments to change these for the betterment of New Zealanders.
What a shame to be going backwards - reeks of socialistic policy implementation.
I didn't vote National to get his kind of government. Their recommendations are ridiculous and shameful.
Of course the current emotion around property investment is getting out of hand. We have and are still experiencing the worst recession since the great depression and people are hurting, so therefore need to lay blame somewhere - these socialist opportunists are taking advantage and we New Zealanders are going to suffer over and over for it.
Of course houses depreciate like any other business asset - I have to spend money each year on repairs and maintenance. Who will house the people when us risk taking, adventurous New Zealanders sell up? The government (or really the tax payer), using the extra taxes they are proposing they will be collecting. It seems to me to be a socialist recipe for keeping the people of NZ poor, whacking anyone who puts their head up above the crowd and has the ordasidy to make some money.
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