Reaction: Housing shortage risk looms, say property investors

John Key. File photo / Mark Mitchell

The Prime Minister has just delivered his statement to Parliament, tipping an increase in GST, cuts in income tax rates and a change to the way property investment is taxed.

There has been a swift reaction to his speech. Here a selection of comments from across the political spectrum, business community and key lobby groups.

Martin Evans, Property Investment Federation president:

Investors will be adversely affected by any scrapping of depreciation write-offs, says Evans.

The "goal posts have now changed" for investors who bought properties and expected to be able to write off their depreciation.

"The calculations they did to purchase that property [now] no longer apply, so some [investors] will be stuck with properties they wouldn't have otherwise bought," says Evans.

Evans says his organisation will recommend that investors stop maintaining their properties, put up rents as much as they can, and sell up if holding onto the property proves unsustainable.

He said the scrapping of depreciation write-offs could lead to a housing shortage in New Zealand.

"There will be less people buying investment properties, which means there won't be enough properties to house the 30 per cent of New Zealanders that [that rental properties] house."

Bill Rosenberg, Council of Trade Unions economist:

Rosenberg says moves to increase GST will only encourage the development of an "underclass" and will increase inequality, rather than reducing it.

He says National has missed an opportunity to make significant changes in our tax structure and create jobs.

"The Prime Minister glosses over the steep rise in unemployment revealed just last week, and his statement does precious little for those out of a job or whose jobs are at risk," he says.

"Instead he threatens making it harder to access unemployment benefits for those unfortunate enough to be out of a job for any length of time. The signalled reforms on this and other benefits are a worry given National's record on benefit cuts."

Philip York, Federated Farmers commerce and economics spokesperson:

York says farmers already pay a form of land tax – local government rates - and will be pleased to learn no land tax would be implemented by the Government.

"Farmers just wouldn't have been able to find any more money to pay [a land tax], it just would have been impossible," he says.

Farmers would also be pleased to learn that no comprehensive capital gains tax would be introduced, as they often funded their retirement through selling their farms.

"We think sanity has prevailed."

York says the announcement of increased state investment in science and innovation is a positive sign for the agricultural sector.

"If we don't use our natural given resources in a responsible way then we can't continue provide first world living standards that everybody seems to want."

Phil O'Reilly, Business NZ chief executive:

O'Reilly welcomes the 'development of a cohesive plan pointed at a stronger economy'. Changes in tax and innovation policy were strategic elements that will bring significant improvements in many parts of the economy.

"Indications of lower income tax and an increase in GST, with benefit adjustments to ease the transition, will be helpful for business growth and competitiveness and fairer to all. It will also be important for the Government to consider changes to company tax following the Australian tax review," says O'Reilly.

Neil Russ, tax partner at legal firm Buddle Finlay:

Russ says he was " a bit surprised" by the Prime Minister's comments today. A GST increase to 15 per cent would send the wrong message to people wanting to come to New Zealand from overseas.

"All of of a sudden GST [would be] 5 per cent higher than in Australia," he said. "And it [would be] more comprehensive."

He says the Government's decision not to implement a land tax was politically motivated, as it would have alienated key members of the Government's support base, such as farmers and the elderly.

"It could have been the making or the ruining of that Government," he said. "I suspect that political expediency has won out."


John Cantin, Senior Tax Partner KPMG:

"All business will be impacted by any increase in GST. However, tourism and financial institutions will be more affected than others."

Financial institutions cannot recover full GST so that a GST increase will either increase their costs or reduce returns to savers.

This means the Government does need to properly model the effects of a GST rise on the incentive to save to make sure the effects it intends are realised, says Cantin.



Michael Barnett, Auckland Chamber of Commerce chief executive:

Businesses will benefit from a focus on trade, science and innovation, and a move toward unlocking the country's natural resources, Barnett says.

He says wealth is ultimately generated by the private sector and the proposed changes are encouraging for small firms, big companies and sole traders.


Alasdair Thompson, Employers and Manufacturers Association chief executive:

Thompson says most New Zealanders will agree with the government's plan to reduce income taxes and plug holes in the tax base.

"We applaud the goal of encouraging people to earn more by taxing their incomes less," he says.

He says businesses will welcome changes which encourage earning more income, saving and productive investment.

John Walley, NZ Manufacturers and Exporters Association chief executive:

"How the Prime Minister expects a broken tax system to be fixed without any changes is beyond me."

He says the tax system is in need of an overhaul but National lacks the political courage to make any significant change.

"The desire to drop the income and corporate tax rates is commendable but jobs follow investment as night follows day, and without balance in fiscal and monetary policy the real economy will be robbed of returns and starved of investment."

Dr Russel Norman, Green Party:

"The honeymoon is over for John Key's Government but sadly most New Zealanders won't be able to afford a divorce lawyer."

He says National is intent on digging New Zealand into an economic
and environmental black hole, and raising GST will only hurt low and middle income Kiwis.