Never mind the backlash, let's talk housing tax

By BRIAN FALLOW economics editor

Notwithstanding the ferocity of the public and political reaction to the idea, the issue of a wealth tax on housing remains on the McLeod tax review's agenda.

The review committee's chairman, Rob McLeod, said that it would have to study the written submissions "just as a matter of process," before the extensive round of oral submissions.

"Then we will debate that issue, along with the others. I can't at this stage predict what we will have to say about the matter."

Under its terms of reference, the review could not ignore as large an issue as the tax treatment of residential property.

Several submissions in the first round had raised the subject, and the OECD in its 2000 report on the New Zealand tax system had pointed to it as a substantial hole in the tax base.

Mr McLeod said it was somewhat ironic, given that the review had rejected a comprehensive capital-gains tax or a comprehensive wealth tax, that there was such a negative reaction to the "rifle shot" approach targeting a single material asset,

suggesting new tax is never popular. One of the predecessors of the McLeod committee, the 1967 Ross review, drew a lot of fire for proposals which eventually bore fruit as GST nearly 20 years later.

"Imagine if we didn't have a history of taxing income and someone came up with a proposal that our wages be taxed," said Mr McLeod.

"It's a question of where you start from, how the public will react."

In the end, however, if the public did not over time come to accept any tax, it would not work.

Mr McLeod's major concern about the furore over the house tax was that it might lead to the public's taking the tax review a lot less seriously.

The first round of submissions had exceeded the committee's expectations and the second round (which closes on August 1) looked like being no less vibrant, he said.

The review is looking for technical input, for example on the international tax rules, as well as submissions of a more philosophical character.