14 May 2017

Labour proposes removing 'tax loophole' for investors

11:23 pm on 14 May 2017

Tax breaks for investors with multiple rental properties would be removed under a Labour government, party leader Andrew Little says.

Andrew Little.

Labour leader Andrew Little makes his keynote speech to Labour's Congress. Photo: RNZ / Craig McCulloch

Mr Little has just unveiled a policy under which landlords could not use tax losses on their rental properties to offset their tax on other income.

He made the announcement during his keynote speech at Labour's election year Congress being held in Wellington this weekend.

According to Mr Little, property investors used this practice, called negative gearing, to avoid paying about $150 million in tax last year.

Under Labour they would have to 'ring-fence' those losses.

The policy would be phased in over five years, with loss deductibility reducing by 20 percent a year.

The extra revenue the government would receive would be used to heat and insulate 600,000 homes over 10 years, through $2000 grants.

Mr Little said the policy would not affect most people with a single rental as a long-term investment.

He said the loophole was "heavily used by foreign buyers" and that most of the gains went to people on higher incomes.

"[National] have let speculators run riot with the help of a tax loophole that means taxpayers effectively subsidise their purchases."

That had pushed up house prices and put a first home even more out of reach for many young families, said Mr Little.

"This loophole is effectively a hand-out from taxpayers to speculators. It gives them an unfair advantage over Kiwi families."

no caption.

Labour's new-look leadership team, deputy leader Jacinda Ardern and Andrew Little, at the party's Congress today. Photo: RNZ / Craig McCulloch

Mr Little challenged those defending the loophole to justify why the government should hand out subsidies when most young couples could not afford to buy a home.

"It's about time speculators who are taking tens of thousands of dollars a year in taxpayer subsidies as they hoover up house after house."

In his address, he talked about his own experience about being able to buy home his Wellington home 17 years ago for $315,000.

He told the Congress that the house had now tripled in price, to about $830,000, which had not been matched by an increase in New Zealand wages.

"Every Kiwi family should have a place that can call home and everyone should have a shot at owning their own place."

Labour already has policy targeting property speculators, including extending the 'bright-line' test to five years, and banning foreign property speculators from buying existing New Zealand houses.

It also had a plan to build 100,000 "high quality, affordable" houses over 10 years under its KiwiBuild policy.

A recent International Monetary Fund report warned record immigration might cause the economy to overheat, and that might reignite the housing market.

It said the Reserve Bank should be allowed to use debt-to-income limits to cool the housing market if needed, along with tax changes to deter property speculation.