National’s foreign buyers tax finds an unlikely sceptic - Sir John Key

Sir John Key (left) has previously described taxes on foreign buyers, similar to those being proposed by Christopher Luxon, as unworkable. Photo / Jason Oxenham

National’s plan to tax foreign buyers has found an unlikely critic: former prime minister Sir John Key, who made critical remarks about the feasibility of such a tax when he was prime minister.

When asked about the comments on Friday, Key told the Herald: “FTAs [Free Trade Agreements] and tax laws are very complicated and subject to the way they are drafted. An expert would need to look at all this to firstly make an assessment.

“That said, many countries New Zealand has existing FTAs with have implemented taxes aimed at foreign buyers including Australia. In both New South Wales and Queensland this exact tax applies to Kiwis. I know this to be true having personally paid it,” he said.

National plans to pay for $2.9 billion of its $14.6b tax plan by revoking a ban on the purchase of residential property for homes that sell for more than $2 million and replacing it with a tax of 15 per cent on the sale price.

Key had looked at a similar idea in 2016, but was open about the challenge it posed to New Zealand’s tax treaties with other countries - a criticism Labour has been making of National’s plan, dubbing it a tax on ex-pats.

At the time, Key was openly flirting with the idea of a land tax, but warned that one challenge would be the potential to accidentally tax New Zealanders who were no longer tax residents here. He ruled out a stamp duty, the policy that most closely resembles what National wants to do, because it could breach international tax agreements.

“Subject to our capacity to do so, New Zealanders living abroad would be exempt but you could do it for a period of three years at which point if they retained the property, they might have to start paying [the tax],” he told the Herald back in 2016.

Since the recent National policy was announced, debate has swirled about whether it would breach tax treaties New Zealand has with other countries designed to avoid levies being used to discriminate against people on the basis of nationality.

Labour reckons the only way through the imbroglio would require the policy to be based on tax residency, but that would mean taxing some New Zealand citizens who live overseas and have international tax residency.

National’s finance spokeswoman Nicola Willis responded to the comments by saying National was “confident that if elected we can impose a foreign buyer tax and exclude New Zealand citizens living overseas, and that this can be done in compliance with our international trade and tax obligations”.

“A number of experts, including the former deputy commissioner of Inland Revenue Robin Oliver, agree with us,” she said.

The policy applies based on tax residency. If a person is not a New Zealand tax resident, the theory goes, it would be possible to tax them without triggering a double tax treaty.

National finance spokeswoman Nicola Willis. Photo / Mark Mitchell

The problem is that the policy exempts New Zealand citizens, regardless of whether they are tax residents of New Zealand or somewhere else. Oliver told the Herald he believed such an exemption could be included without triggering one of the tax treaties.

Key used his own work history abroad as an example of how a land tax might apply.

“Me, John Key, going off to London like I did, if we continued to own a house in New Zealand, I’m a New Zealand citizen but I’m a non-resident for tax purposes and, in principle, a land tax could be paid there,” he told the Herald.

Key also said in 2016 a stamp duty - a one-off tax, resembling the one National is currently campaigning on - would not contravene the Trans-Pacific Partnership Trade Agreement (TPP, the precursor to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) but it would contravene some tax agreements.

“I mean, in terms of stamp duty we think they run contrary to either our FTAs or double tax agreements. In terms of banning foreigners, that wasn’t a successful law in Australia when they tried to do it because people can circumvent the system,” Key told RNZ at the time.

“Under TPP, we have retained the ability to impose a discriminatory stamp duty on property sales to people from other TPP countries.

“However, a discriminatory stamp duty like this would be inconsistent with the Korea FTA and our double tax agreements with Australia, Japan and Mexico,” Key said through the spokeswoman in comments reported by Stuff in 2016.

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.