Business groups warn against kicking property market in the guts

Property investors are likely to be most affected by any changes to the tax system. Photo / Herald on Sunday.

Business groups are giving the thumbs down to a proposal for a land tax from the Tax Working Group today and are warning against kicking business in the guts with tax changes.

The Tax Working Group is suggesting that the goods and services tax (GST) be raised to 15 per cent and capital gains taxes applied to property so that income and company taxes can be lowered and aligned with each other and with Australia.

The group's thinking is that the consumption taxes have less impact on economic growth and that GST is an efficient tax. Also, in order to drop income taxes the tax net has to be widened to include taxes on assets.

Business NZ chief executive Phil O'Reilly said many recommendations would find support among the business sector, but there could be problems with a land tax.

"This would be an anti-competitive cost on New Zealand's many land-based enterprises," he said.

"Enterprises already face a fairly stiff land tax through local body rates and this recommendation if accepted would impose a second tier of land taxation."

He acknowledged work was required on the tax treatment of residential rental properties.

EMA chief executive Alasdair Thompson also said his group did not want a land tax.

"We're not keen on a land tax as this would likely fall most heavily on urban land. If more tax is needed we support using the efficient GST," he said.

Property Council chief executive Connal Townsend said the council strongly disagreed with the idea that buildings did not depreciate.

"The land value might hold, but the building itself definitely depreciates."

The working group is suggesting removing a 20 per cent depreciation loading on plant and equipment, which reduces tax, arguing the assets may not be devaluing.

Mr Townsend said commercial property needed constant reinvestment or it eroded in value.

"That is threatened by the possibility of removing depreciation on commercial buildings. In some circumstances, for example the manufacturing sector, the building and the plant are virtually the same thing."

The proposed change would have a negative impact on the hundreds of thousands of New Zealanders with holdings in commercial property, either directly or through their KiwiSaver and other investments.

He also said a land tax was previously abolished because it was largely unworkable.

"It's asking business to pick up the load when we're at the bottom of an economic cycle - that's an extra kick in the guts," he said.

Business New Zealand supported the alignment of company, top personal and trust tax rates and lower personal rates and the idea of the company tax rate being competitive with other countries.

Mr O'Reilly said the group's call for a review of welfare policy and the use of relevant tax treatment for low income families in place of the poorly-targeted working for families system had much merit.

"We know from feedback from our members that working for families can act as a disincentive for workers to improve their income from employment."

New Zealand Manufacturers and Exporters Association chief executive John Walley said the report was a move in the right direction.

"Tax advantages for rental properties have already cost the country billions in lost tax revenue and the poor investment incentives created by the tax free status of property has been even more damaging and inflationary. The sooner these loopholes are closed the better," he said.

But his group was against the proposal to take away the 20 per cent depreciation on new plant and equipment.

A comprehensive capital gains tax was the fairest way to level the investment playing field.

"New Zealand relies heavily on personal and corporate tax for its income so reductions in this area are necessary.

"The reductions in the corporate tax rate would enhance New Zealand's international competitiveness. The need for international competitiveness extends beyond fiscal policy, and the impacts of monetary policy on exchange rates must be part of the rebalancing equation."

- NZPA