Property tax - who are the unintended consequences?

Photo / Paul Estcourt.

As the vitriol builds against property investors it's becoming increasingly clear that there will be many innocent bystanders injured by the mooted changes to tax law.

Whatever merit there may be in rooting out the landlords who are rorting the tax system must be weighed against the damage caused further down the line - which, you'd think the technocrats would be investigating this very minute.

What has surprised me this week is the fund managers I've spoken to - most of whom have constantly moaned about New Zealanders' residential property obsession - were fairly muted in their support for the proposed changes to the property tax rules.

One told me that while the funds industry might benefit from a boot in the head to property investment there was also a strong possibility that New Zealanders would just sit on devalued property that no-one wanted to buy.

"And if they can't turn property into cash they're unlikely to buy more equities," he said.

Similarly, comments from Craig Stobo, chairman of the AMP NZ Office Trust (ANZO), contained in the fund's half-yearly results are illuminating.

Stobo is no particular friend of tax-deducting landlords and in his past life as head of BT NZ funds management he no doubt railed against the residential property sector.

He was also instrumental in designing the new investment tax rules that resulted in the PIE (or Portfolio Investment Entity) regime, which theoretically gave fund managers an edge over individual punters.

However, in the ANZO statement Stobo points out that many elderly investors bought into listed property trusts in the belief they would provide steady retirement income and were not chasing tax benefits.

"The burden of these proposed taxes is therefore going to be borne by investors who have taken steps to provide for their future, and the businesses which are providing jobs for the current generation of workers - neither of which have much ability to absorb new costs in the current economic environment," Stobo said.

"New Zealand's relative competitive position on the global stage and ability to attract capital from overseas investors will also be diminished by any new taxes that are imposed."

While it might be exciting to whip up hysteria against rentiers it is worth remembering that not all people invested in property in order to depreciate the toilet.

David Chaplin