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In the line of fire

Friday, July 17th 2009, 10:22AM 6 Comments

by Philip Macalister

One of the less reported news items this week was the Prime Minister’s speech about the economy where he lambasted its recent performance.

The speech also included the “six drivers” the government wants to use to address the country’s economic underperformance.

One which property owners need to be wary of has been labelled “a world-class tax system”.


Now this speech was a little fuzzy and didn’t tell readers or listeners much about what the problem with the tax system is or what could change.

However, already there have been comment pieces suggesting the target of such reform will be property investors.

One metropolitan paper ran an editorial saying that changes must be made to stop New Zealanders using foreign funds to borrow up big and then invest in housing.

This is a theme which has been picked up elsewhere.

While the tax system, arguably, may encourage property investing, making changes to the tax system isn’t going to be some magic bullet to solve economic performance or to make houses more affordable.

I’m wary that forces are lining up to attack something which has arguably delivered a lot of wealth to New Zealanders.

Any changes need to be well thought through and discussed. As for property investors, be warned: you may be about to come under attack.
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Comments from our readers

On 17 July 2009 at 5:14 pm Hoads said:
Regarding the issue of borrowing overseas money to invest in NZ housing.
This would target the Banks that borrow at low interest rates off shore then look to get a return from our housing.
If that is correct then I would support any restrictions that would make that hard for the Banks.
It would then allow for the local investment funds to be more keanly sort after, the risks would be better managed and the likelihood of another spike in the property market reduced.
New Zealanders are better to look after their own first and foremost.
On 17 July 2009 at 6:14 pm simon davies said:
Its just typical that something the pollies have been making big bucks out of themselves for decades is now going to come under attack.We have a [currently] profitable rental property that is effectively our future nest egg.We are providing a quality residence for those unable to afford their own and in the process trying to become independent of the state in our retirement.Why we should come under attack is beyond me.
On 17 July 2009 at 7:15 pm sMiles said:
Property investment is an economic contributor especially commercial property and not a significant cause of bubble house price rises. That was mainly a result of 'have it all now' borrowing by home owners with bank support. While some better tax neutrality may be helpful, a much better economic result would be acheived by simply lowering the overall tax burden substantially. Desocialise NZ fast and extensively and we will get economic gains to rapidly follow. Keep high taxation and we will founder forever.
On 19 July 2009 at 1:16 pm Lee Kammerer said:
Why is always assumed by those in the media (very much including the writer of this blog) that changes to taxation system are always going to detrimental to investors? John Key and Bill English have both categorically ruled out a capital gains tax and are committed to lowering personal taxation when economic conditions improve. Quite frankly I am sick of the negative, sensationist tone taken by our media. And in actual frank this government has done a lot of positive things for property investors in the short time it has been in power (common sense changes to RTA legislation for example).
On 31 October 2009 at 4:26 am Estate Agents Christchurch said:
It would still generate profit even with changes to taxation system. Some would struggle to financial success through the property investment market but still there's growth.
On 7 January 2010 at 6:54 am B. Mason ( jmt9@bigfoot.com ) said:
Imputed rental value of owner occupied housing (net of mortgage interest) should be taxed as income. This was the case in the UK until the 1960's. It's explained on the internet - just Google it. No great mystery. The policymakers are undoubtedly quite aware of it but they choose to overlook it because it is politically very contentious. Clearly, failure to tax it amounts to a subsidy to owner occupiers effectively capitalised into higher house prices. Also it is inequitable that rent payers effectively do pay tax at income tax rates on the rental value of the property they occupy (they have to find a gross amount of income and pay tax on that before having a net amount of income with which to pay rent). Introduction, would broaden the tax base, remove a subsidy capitalised into higher house prices and remove a gross inequity.
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ANZ 8.64 ▼7.45 ▼7.09 ▼6.95
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BNZ - Mortgage One 8.69 - - -
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BNZ - Std, FlyBuys 8.69 ▼7.45 ▼7.09 ▼6.99
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼6.59 - -
Co-operative Bank - Owner Occ 8.40 ▼6.79 ▼6.49 ▼6.35
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Co-operative Bank - Standard 8.40 ▼7.29 ▼6.99 ▼6.85
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 ▼6.69 ▼6.35 ▼6.15
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 ▼7.75 ▼7.39 ▼7.19
Kiwibank - Offset 8.50 - - -
Kiwibank Special - ▼6.85 ▼6.49 ▼6.39
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
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TSB Bank 9.44 7.79 7.55 7.45
TSB Special 8.64 6.99 6.75 6.65
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Median 8.64 7.14 6.82 6.44

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