National won't commit to reversing all Labour's housing taxes - questions over $190m rental loss policy

National leader Christopher Luxon won't commit to reversing all Labour's property taxes. Photo / Jason Oxenham

National may U-turn on one of its tax policies.

The party is no longer committing itself to its 2020 policy of repealing a property tax brought in by Labour in its first term.

In its first term, Labour abolished the ability of landlords to offset losses on their rental properties against other tax liabilities. The policy came into effect in the 2019-20 income year and National went to the 2020 election pledging to reverse it.

An IRD regulatory impact statement from 2018 reckoned the policy, better known as the ring-fencing of rental losses, would bring in $190 million a year in revenue - about $2000 for each taxpayer that used the rules.

National budgeted a $190m annual hit to tax revenue in its 2020 fiscal plan after it reversed the rules, which it planned to do in 2023/24.

National leader Christopher Luxon's state of the nation speech on Sunday spoke of the creeping tax burden under four years of Labour and pledged to abolish many of the new taxes.

But Luxon specifically pledged himself to abolishing the taxes mentioned in his speech, like the bracket creep experienced by workers, interest deductibility, the extension of the brightline test.

When asked whether the party was still committed to its 2020 pledge of removing the ring-fencing rule, housing spokeswoman Nicola Willis said: "National has committed to reducing pressure on rents by reversing Labour's tax grab on interest costs and the extension of the brightline test."

They did not rule-out other housing policies, including the abolition of ring-fencing rules in future.

"We will announce any further housing commitments ahead of the next election," Willis said.

Many New Zealand rental properties are run at a loss. The cost of holding, maintaining, and insuring the home is greater than the amount it earns in rent.

Landlords could previously offset these losses against other taxes they owed. Now, those losses are "ringfenced", meaning they cannot be deducted against other income.

IRD estimated about 40 per cent of taxpayers with rental properties record rental losses. The former rules meant an average estimated tax benefit of $2000 a year to those rental owners.

The policy was criticised from the left because it effectively meant it was cheaper for a landlord to own a rental property than a first-home buyer because first-home buyers could not make similar deductions.

It was criticised from the right for piling costs onto landlords which would likely be passed on to tenants in the form of higher rents.