Cullen rejects home tax proposal

By VERNON SMALL deputy political editor

Finance Minister Michael Cullen has rejected a radical proposal to tax the family home after a public outcry.

"As long as I am Minister of Revenue, such a new tax will not be introduced," he told Parliament yesterday.

The proposed tax, part of an interim report by the Government-appointed Tax Review 2001, was certain to be rejected by all political parties as a big vote loser.

Dr Cullen had wanted to avoid commenting on specific proposals to promote broad discussion of the report, which also advocated dumping excise duties on tobacco, alcohol, petrol and gambling in exchange for a rise in GST.

"I hope the ideas canvassed by the review can be debated seriously without reflexive position-taking," he said on Wednesday.

However, the "broad debate" on the home tax idea was over in less than 24 hours after his Beehive office was inundated by more than a thousand telephone calls.

Several radio talkback hosts, including former Alliance MP Pam Corkery, urged listeners to phone Dr Cullen and object to a home tax.

In response, he issued a statement saying he had rejected a similar proposal by the OECD last year.

"I rejected it in very strong terms. I have seen nothing that has changed my mind in that regard," he said.

Irresponsible media reporting of the proposal, "as if it came from me and was Government policy," had caused him to break his silence.

Opposition leader Jenny Shipley also attacked the idea. On Wednesday, she had described the overall review as a golden opportunity for intelligent debate.

Speaker Jonathan Hunt yesterday refused her application for an urgent debate on the review after she urged the Government to dispel anxiety about the home tax proposal.

"National opposes the proposed private family home tax in the McLeod report. A person's home is their castle," she said.

The tax review panel, chaired by accountant Rob McLeod, had suggested taxing the equity in the family home as if it had been earning interest from Government stock. That would mean a couple with $100,000 equity in a house could pay about $1200 more a year in tax.

The report said the estimated $750 million extra tax should be used to lower income tax.

The home tax was rejected by trade unionists, Grey Power, real estate agents and tax accountants.

PricewaterhouseCoopers tax partner John Shewan said the proposal was conceptually sound, but in practice nonsense. "Individual New Zealanders will perceive this to be unfair because they don't really see their house as an investment and it is not producing cash either."

Council of Trade Unions economist Peter Conway said the idea would boost already high levels of household debt.

Mr McLeod said the tax system favoured home ownership, which distorted investment decisions and diverted investment.

The interim issues paper is open to public submission, and a final report will be produced in October.

The Government has said it will not take up all the recommendations and will make no significant tax changes until they have been put to the voters at next year's election.