National, Act, NZ First coalition talks cast uncertainty over Nats’ foreign buyers tax

By RNZ

As negotiations to form a government drag on, National may have to consider phasing in its planned tax changes gradually, or possibly announce deeper cuts in spending, a top economist says.

The incoming prime minister maintains his government will reduce taxes, but Christopher Luxon has been less willing to stand by the overseas home buyers policy that is meant to fund it.

National’s election promise would allow foreign buyers to purchase homes for $2 million or more, as long as they pay a 15 percent tax on the sale price.

It predicted this would raise $740 million a year, a figure some leading economists dismiss as not credible.

Luxon said the promised tax cuts will be delivered, but the way they are paid for may change as a result of the ongoing coalition negotiations with ACT and New Zealand First.

So if it scraps a foreign buyers tax, how will the government raise the money needed for its tax policy, estimated to cost $14.6 billion over four years?

“It is tricky - there aren’t as many opportunities going forward to fund this,” Infometrics principal economist Brad Olsen told Checkpoint.

“You have to keep going with this tax cut - Christopher Luxon has made it very clear that this is his bottom line.

“I think most likely the two areas you could see are either a phasing in of these tax changes, so the foreign buyers tax would go - but maybe instead of coming in immediately, the indexation of tax thresholds might take a little longer.

“Or, you might see a cutback, a further deeper cutback in the likes of public sector funding to instead fund that tax relief.”

Infometrics Principal Economist Brad Olsen.

If that were the case, the government would have to expand its planned cuts, Olsen said.

“I suspect that at the level we’re talking about it would have to be a bit more across the board.”

With coalition talks in their second week, there are no signs a deal is close.

New Zealand First voted for the foreign buyers ban while in coalition with Labour, and was flatly opposed to partially rolling it back.

The National Party was already looking at making large cuts in spending.

If jobs are going to be cut from the public sector, it will require the new government to sell that to the public and workers.

“It’ll be critical for the incoming government to be clear over what it wants to achieve with the public sector, because otherwise you’re going to have a lot of those public sector leaders who are needing to make cuts and needing to make tough decisions around staffing levels without knowing exactly what areas they’re going to require staffing.

“You’ll need to have an idea of what still needs to be resourced and what areas are seen to be not as key in focus - those are the areas that I think are more likely to come in the cuts that are envisaged.”

Olsen said that all the parties’ plans and proposals were coming up against reality during the negotiations.

“None of these plans avoid first contact with reality. They’re always good on paper, but you’re never sure exactly what comes out of coalition negotiations.”

Other options could be floated to pay for National’s plans such as increasing corporate tax, but Olsen said he was not sure there was strong support among the parties.

“Although we’ve certainly seen some big corporate profits being made by the banks in recent days, actual corporate profits overall are now over 10 per cent lower than they were a year ago, so you risk not getting quite as much revenue as you might have originally expected.

“The other challenge of course is that none of the parties went to the electorate with that in mind... I don’t see that to be an immediate starter.

“I wouldn’t discount the idea that some of these changes might well be pushed out. It’s clear that there are limited fiscal options. Possibly a more prudent way to do this would instead of introducing some of that tax relief immediately, there might have to be a bit more staggering that goes on.”