New tax would need to apply to family home to work - Key

Any capital gains tax would have to apply to all houses, including the family home if it was to work properly, said Prime Minister John Key. Photo / Doug Sherring

If a government really was serious about getting results in the real estate market from implementing a capital gains tax, all houses should be included under the tax, Prime Minister John Key says.

Key has been reacting early to an upcoming economic policy announcement from the opposition Labour Party, which is due this Thursday and tipped to include a 15 per cent capital gains tax on all assets other than the family home. National is opposed to a capital gains tax, saying changes it made to depreciation rules and LAQC laws in the 2010 Budget were good enough in creating disincentives for property investment.

"If you really were serious about real estate, you'd have to include every house [under a capital gains tax], which is why capital gains taxes don't work well," Key said on Newstalk ZB on Monday morning.

"[If] you take out family homes, that means 80 per cent of all properties come out - so the bulk of houses are actually not in, and therefore that doesn't help the property market," he said.

"The only thing you will get is you'll get landlords who put up rents - that's what Treasury said - they'll go up by about 6 per cent. So how on earth that helps people that are less well off, is beyond me."

Meanwhile Key said he thought the idea that a capital gains tax would steer people away from investing in real estate was a "misguided part" of the argument.

"The first thing you've got to ask yourself is, do you need another tax on the economy? And the simple answer to that is if you followed National's plans, no," he said.

"We're going to be back in surplus in three years, debt will have topped out under 29.5 per cent, we're creating new jobs, we've got momentum happening in the economy."

Labour was trying to put out a stalking-horse for a problem that existed that while they were in government, but did nothing about it.

"It's actually not true now [about the property market overheating due to tax incentives]. Go and have a look at real estate. We made a significant number of changes in Budget 2010 - we got rid of depreciation, we've changed a lot of the rules around LAQCs," Key said.

These changes meant that, for the most part, capital gains were now not as attractive as people thought.

The government had also earmarked $110 million for the Inland Revenue Department to crack down on people potentially breaking the law under the current capital gains tax system.

"It's an intention system. And actually they've been catching a lot of people over the last few years," Key said.


INTEREST.CO.NZ