Christopher Luxon announcing the deals with Act and NZ First
National’s decision to accelerate the implementation of a policy that allows landlords to reduce their tax bills will result in some receiving a refund for the current tax year.
The previous government abolished landlords’ ability to deduct their interest costs, increasing the amount of money on which they pay tax, and thereby increasing their overall tax bill. The changes began phasing in from 2021. National, Act and NZ First pledged to reverse this change, effectively reducing the tax bills of individuals who owned multiple residential properties.
National’s campaign promise estimated the cost of this change at $2.1 billion over the four-year forecast period, based on phasing out the change at the beginning of the next tax year starting on April 1.
As part of its coalition deal with Act, National agreed to accelerate the pace of this change, beginning in the current tax year.
An analysis by Council of Trade Unions economist Craig Renney, formerly an adviser to Labour finance spokesman Grant Robertson, suggests the policy will cost an extra $900 million and come in closer to $3b.
About $600m of the increased cost comes from phasing out interest deductions more quickly, as National is obliged to do under its deal with Act. The rest comes from using updated information from the Inland Revenue Department, published in 2022, which revised upwards the income brought in by Labour’s changes - and therefore increased the cost of cutting them.
Finance Minister Nicola Willis said the Government stands by the commitments made in its coalition agreements. ”The details of how these commitments will be implemented, including their costs, will be considered by Cabinet and are likely to be Budget-sensitive until details are finalised and made public,” she said.
In the current tax year, from April 1, 2023, landlords can claim a 50 per cent deduction, but National and Act have promised to increase this to 60 per cent.
Renney said a problematic part of this concession is that it would mean some landlords could claim a rebate on tax already paid.
Council of Trade Unions economist Craig Renney. Photo / Mark Mitchell
“That means that they [landlords] will be receiving a rebate on payments already made. Landlords will be cut a cheque from government, but tenants will not benefit from the rental payments they have already made. That’s hugely unfair and simply rewards landlords for nothing,” Renney said.
Act leader David Seymour previously told the Herald he was prepared for the potential for tax rebates to be issued thanks to the policy and said he was happy to wear that change.
“There is potentially a wash-up in doing it this way but, nonetheless, what is important is a lot of people are making decisions right now,” he said.
National had proposed to keep the level of deductions at 50 per cent this year and next, rising to 75 per cent in 2025/26, and returning to 100 per cent in 2026/27.
Under the coalition agreement with Act, landlords can claim a 60 per cent deduction this year, rising to 80 per cent next year, and 100 per cent in 2025/26.
National, Act and NZ First had all campaigned on the change but at different speeds.
Renney said the parties should ditch the change and spend the revenue on something else.
“Budgets are about choices, and we are going to have a mini-budget in December 2023. The incoming government could have used this money to pay the pay equity bill for early childhood teachers, which would cost just a quarter of this cost blowout. Instead, landlords are getting an early Christmas present while tenants and the users of public services get austerity and cuts,” Renney said.
Renney had his numbers vetted by Terry Baucher, a tax specialist at Baucher Consulting.
Baucher said a retrospective tax change like this was a “highly unusual move”.
“I can’t recall a tax measure like this being brought in after an election with retrospective effect,” he said.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
