KEY POINTS:
Finance Minister Michael Cullen appears to lack enough parliamentary support to scrap a tax break for landlords which he argues has contributed to an overheated housing market.
Dr Cullen favours further investigation into whether existing tax rules - which allow landlords who make a loss on their rental properties to pay less income tax - should be tightened.
Before a select committee at Parliament yesterday, he argued that since the rules took effect in 1991, the number of New Zealanders owning rental properties had skyrocketed and losses had grown as people took advantage of what was effectively a tax break.
The fact that banks were willing to lend 100 per cent of a property's value to a buyer meant more and more people had been claiming the losses.
"What we have seen in housing is a long-term trend of heavy gearing and tax losses being offset against other income. This is no longer something engaged in by a small proportion of the New Zealand population."
A clampdown would take the form of "ringfencing" losses from residential property investment so they could not be offset against taxes - a return to the law before 1991.
The landlord tax advantage is in the spotlight as the Government looks at how to cool the housing market apart from raising interest rates.
A capital gains tax has been rejected by Prime Minister Helen Clark and several other parties.
But while Dr Cullen has said that he and the Inland Revenue Department are keen to look further into at least partially scrapping the tax break for landlords, the political reality is that the Government will struggle to get enough support to enact even that clampdown.
National Party finance spokesman Bill English yesterday argued that the move would push up rents and depress house prices. He also asked why it was needed when homeowners carrying debt would soon be hit by higher interest rates anyway as fixed-rate mortgage contracts came up for renewal.
"Why is he [Dr Cullen] not satisfied with that impact on their pockets and their house values, without adding another measure, which may have the effect of pushing their house values down even further than high interest rates will."
Dr Cullen responded by saying one of the reasons for considering axing the landlord tax advantage was to aid monetary policy, so interest rates did not have to be raised so high.
He also suggested that National leader John Key recognised the importance of action on the rental situation, but Mr English did not.
However, even outside National, Dr Cullen's efforts to explore ring-fencing appear to lack support.
United Future leader Peter Dunne said he was "far from convinced" of its merits.
New Zealand First leader Winston Peters said he had not discussed the matter with Dr Cullen yet, but in principle his party was not generally in favour of more taxation.
Dr Cullen said work was being done on the idea, but "not in any great detail", and he also appeared to concede there might be a problem getting enough support.
"There is not much point in doing lots of work if we don't have 61 votes."
