Government review recommends tax on housing
A team reviewing the New Zealand tax system at the behest of the Labour-Alliance government is urging an annual tax on housing.
Thursday, June 21st 2001, 9:30AM
by Jenny Ruth
The team, chaired by Rob McLeod, managing partner at accountancy firm Arthur Andersen, is recommending the tax should be based on the net equity people have in their homes.
In an issues paper released today (20 June), it says if people invest in shares or a bank account they will be taxed on the dividends or interest they earn. But if they use the same money to buy a house to live in, the investment’s benefit, occupancy, is tax free.
"This tax concession for returns on savings that are taken in the form of owner occupancy alters the behaviour of New Zealand savers in favour of home ownership," the team says.
Housing investment accounts for more than 70% of total household savings compared with less than 50% of the average of all OECD countries, it says.
"Money goes into home ownership which might otherwise have been invested in assets that improve economic growth and lift the incomes of all New Zealanders."
Nevertheless, it acknowledges that the present concessionary treatment of home ownership "is a tradition that is deeply embedded in the psyche of all New Zealanders. Quite clearly, any proposal to change it will be highly controversial."
McLeod says the easiest thing for the team would have been "to simply drop this hot potato."
But the resulting distortions have "very important consequences" which should be more widely understood and debated by the public.
The team accepts that if housing were taxed, property values would fall "as buyers took account of the extra tax cost they would face."
It estimates that, at an average tax rate of 25%, a housing tax would generate revenue of $750 million and it suggests this should be used to reduce income tax.
The review team will now conduct a second round of consultations before presenting its final report to the government in October.
Finance minister Michael Cullen says the review team "delivered a tough-minded and radical analysis" but that the government won’t adopt any proposals for significant change without first seeking a mandate at the 2002 general election.
"The government has never indicated
that we would expect to pick up all the review’s recommendations
and has always hoped that all political parties will feel free
to draw on the final report as a resource," Cullen says.
"Accordingly, I intend to refrain as much as possible from commenting on any of the specific issues the inquiry has raised. We need a broad discussion involving many voices."
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