New property tax will hit tenants, says investor lobby

Photo / Martin Sykes

There has been a suggestion tenants will be the ones to suffer if New Zealand introduces a capital gains tax.

It is expected to form part of Labour's tax policy, going into the November election.

The family home would be excluded from such a proposal, which is likely to levy a 15 per cent tax when a property is sold.

Property Investors'Federation president Andrew King says it will put people off selling their investment properties, reducing the supply of properties on the market and sending rents up.

King says it will be tough for tenants to save for a house, forcing them to rent for life.

A capital gains tax aimed at high-income earners is seen as a politically risky move that has already drawn claims from National that it "would crush everyday New Zealanders".

Labour is to release economic policy next week and Leader Phil Goff yesterday confirmed "it will be in the area of taxation".

"We'll be looking at, as we've foreshadowed, indicating how we would be paying for the policies that we're introducing and any changes in the broad taxation area," Mr Goff said.

Facing a drubbing at the November election unless his party can win over voters with strong policies, Mr Goff said next week's package would be bold.

"It's going to be about producing a real step change in the economy".

But while Mr Goff refused to confirm new taxes would be part of the package, the Herald understands Labour will announce a capital gains tax - albeit one which will not directly affect most taxpayers and homeowners.

The Herald understands that like the Green Party's long-standing capital gains tax policy, the tax would not apply to the family home and is therefore aimed at investment property owners.

It is also understood the tax will also only kick in at a relatively high threshold, it will not be retrospective and it will not apply when properties change ownership due to the death of a family member.

But Labour's refusal to give details on its plan gave National free rein to attack the policy before it sees the light of day and Mr Key wasted no time in doing so yesterday.

He said any of the options Labour was said to be considering, including a capital gains tax, a land tax or a tax on financial markets transactions "would crush everyday New Zealanders".

"I look forward to campaigning against those things."

Mr Key said Labour would have to introduce "a very heavy tax that they're going to have to apply to all New Zealanders" if it wanted to fund its policies including a rapid reduction in debt without partial privatisation of state assets.

He said New Zealanders had no appetite for new taxes.

"In the fullness of time, if we have good sound economic policy, we can actually grow wages and incomes for New Zealanders. And I don't think putting another tax on at a very fragile time is in the best interests of New Zealanders."

Labour's capital gains tax would be similar to what has applied in Australia for two decades and New Zealand is now one of only a few developed economies that does not have a capital gains tax on property.

Many commentators believe the absence of a such a tax helped fuel bubbles in New Zealand's residential and rural property markets.

Commenting on the policy release which will likely also detail increases in top personal tax rates, Mr Goff said: "we've got to look at the past and try to avoid the huge inflation in property prices - that's one consideration".

Papers provided to the Government's Tax Working Group indicated that a capital gains tax could raise $3.8 billion per year.

THE TAX
* Would apply on the profit when a property is sold.
* Would not apply to the family home.
* Would only kick in at a relatively high threshold i.e gains above a certain level of profit.
* Would not be retrospective, i.e would not apply on properties bought before the tax was introduced.
* Could raise at least $3.8 billion a year.

- Additional reporting NZPA/TRN