Election 2023: Investor says he could save thousands more from National’s tax cuts than the typical family

National and Act say their tax changes will boost rental supplies and hence keep rents down. Photo / Doug Sherring

A Wellington property investor says National’s tax changes could save landlords hundreds of dollars more per fortnight compared with the tax relief promised to the average Kiwi family.

But he says he doesn’t think it’s fair he’s getting a bigger tax break than ordinary families.

The investor said National’s election promise to eventually allow landlords to fully deduct interest payments from their income tax would have saved him $348 per fortnight in tax payments last financial year.

By contrast, National says its election promises would leave the average family with kids up to $250 better off - although it also admitted only 3000 Kiwi families would likely save that much.

The investor - who owns one rental - believed other landlords with bigger loans would save even more in tax breaks than him.

“I do not believe that landlords should be first in line for tax cuts, ahead of those with less income,” the investor, who didn’t wish to be named, said.

National argues landlords deserve tax relief because it will benefit renters on low incomes by boosting the supply of rentals and keeping rents cheaper.

Landlord lobbies agree, saying many hard-pressed mum-and-dad investors may be forced to sell their rentals if they don’t get tax relief from high mortgage repayments.

The proposed National - and Act - changes have helped turn housing back into a key election battleground.

Labour earlier began in 2021 scrapping interest deductibility - with its tax changes taking full effect in 2025.

The Wellington investor said that should Labour stay in Government he will eventually be unable to claim any of his home loan repayments as expenses.

Therefore, had Labour’s policy been in full effect last financial year it would have meant he paid $9061 in extra income tax or $348 per fortnight, he said.

Numbers case study: $348 per fortnight savings

Providing his investment numbers to the Herald, the investor said he bought his Wellington two-bedroom apartment on College St in 2019 for close to $700,000.

Securing a high loan-to-value-ratio mortgage, he owes about $560,000 on the apartment.

Overall, he paid more in interest and expenses on his apartment in the last financial year than he earned in rents.

Looking at the numbers, he said his apartment’s $650 per week rent brought in $33,800 in annual income.

He paid $28,580 in interest payments over the same period.

He also paid separate expenses (made up of the rates bill, and body corporate and encroachment fees) worth $10,566.

Subtracting his separate expenses from his rental income, he’s left with $23,233.

Under Labour’s policy, from 2025 he would have to treat this $23,233 as personal income.

Rents have been on the rise in New Zealand.

As an IT consultant earning more than $180,000, he would then pay a 39 per cent tax rate on $23,233 rental income - or $9061.

National, on the other hand, plans to gradually bring interest deductibility back in while Act would bring it in immediately.

That would mean the investor could include his $28,580 mortgage payments as expenses.

That would result in his rental making a loss and him subsequently having to pay no income tax on it.

The investor said he believed he was better off financially than the average family and so didn’t deserve a tax break so much higher than them.

Can the changes keep rents down?

While the Wellington investor’s $560,000 mortgage is close to the $495,000 average size of new mortgages taken out by investors, it is hard to say how much the typical landlord will save from National’s tax cuts.

That’s because every investor’s situation is different in terms of their mortgage payments, expenses, rent income, and income tax brackets.

There is no published figure on how many mortgages are held by investors and what the average size of these are.

But on balance, Kelvin Davidson, chief economist with analysts CoreLogic, said he didn’t expect National and Act’s proposed tax changes to quickly boost the supply of rental stocks as the parties claim.

That’s because interest rates were so high at the moment that many rentals were not offering good yields or incomes.

That meant even with tax breaks, investors were unlikely to be suddenly getting a big cash injection enabling them to buy more properties - and hence boost the supply of rentals available to renters, he said.

However, Davidson said he did expect the changes could help stop rents rising as fast as they might otherwise.

That’s because investors have been hit by high mortgage and other costs related to new Healthy Homes standards and thus have been under pressure to raise rents to offset the costs.

Tax breaks may ease the pressure they feel to raise rents, he said.

On the other hand, wages and demand for rentals can also affect rent prices.

And should any Government open the taps to boost or continue recent high immigration levels, the demand that creates could likely help drive rents up, offsetting any relief from tax breaks, Davidson said.

The Herald has approached National for comment.

A Labour Party spokesman said his team agree that working families and those who need extra support would be much worse off under a National government.

“Christopher Luxon and Nicola Willis have got their priorities totally wrong and are turning their back on working New Zealanders.”