Tax team sees new money in NZ homes

By VERNON SMALL deputy political editor

A Government-appointed review team wants a tax on home owners as part of radical realignment of the tax system.

A couple with a $200,000 house and a $100,000 mortgage could pay $1200 a year more in tax under the proposed regime.

The review is due to be completed in October, but in its preliminary findings yesterday its authors suggested taxing equity in a owner-occupied house based on how much this would earn in a risk-free investment such as Government bonds.

They said the new tax would reap $750 million a year for the Government, which should be used to cut income tax.

Tax Review 2001 chairman Robert McLeod said the change would also hit house prices, particularly for more expensive houses. It was estimated house prices could drop between 2 per cent and 15 per cent if the tax were implemented.

He said the suggestion was "a hot potato" but the committee would have been derelict in its duty if it had not raised it.

Housing accounts for more than 70 per cent of total household savings, compared with a less than 50 per cent average across all OECD countries.

Money diverted from home ownership could be invested in assets that improved economic growth and lifted incomes.

The proposal is unlikely to win any significant political support, because taxes on home ownership are seen as a sure-fire vote loser.

Alliance MP and revenue undersecretary John Wright said yesterday that the idea was not a runner.

"The Alliance will reject that suggestion, because we believe home ownership is good and we don't want to encourage home owners to make a home in Government bonds."

The review also recommended scrapping excise taxes on tobacco, alcohol and gambling because they hit low-income people harder than the wealthy.

Mr McLeod said the tax system was not the appropriate way to deal with problem drinking and smoking.

Excise income should be replaced by a higher GST rate of 16.6 per cent.

The review suggested a less progressive personal tax scheme by cutting the present four tax rates to two, and also favoured aligning the top personal rate with the corporate rate.

Finance Minister Michael Cullen said he would try to avoid comment on specific proposals while the review was under way.

"The Tax Review has delivered a tough-minded and radical analysis which should spark a 'first principles' debate on taxation in this country," he said.

No significant changes would be made before putting them to the voters at the 2002 general election.

The Government did not expect to adopt all the recommendations, and he hoped all political parties would use them in forming their own policies.

National Party leader Jenny Shipley welcomed the review as "a golden opportunity for intelligent debate."

She said it found Labour and Alliance "envy taxes" achieved little.

"It also suggests that reducing tax on company production and on people's work and effort are key considerations for the benefit of us all, and that taxing bad environmental practises is worth considering.

"These are all areas which National will consider seriously."

Business NZ chief executive Simon Carlaw said suggestions for taxing owner-occupied homes would undoubtedly cause controversy because the tax-free nature of home ownership was jealously guarded. "But over the longer term, such a move would free up money currently invested in housing so it could be put to productive use to the benefit of the economy."

The review rejected comprehensive capital gains taxes, a financial transaction tax, proposed by the Alliance, and a tax on foreign exchange transactions or Tobin tax.