Fresh bid for capital gains tax
By IRENE CHAPPLE - Sunday Star Times | Sunday, 17 June 2007
The Reserve Bank has plunged into the housing affordability debate by promoting controversial policies such as a capital gains tax on investment properties and limiting immigration.
Just days after Reserve Bank governor Alan Bollard's unexpected intervention in the currency markets, the bank has taken the unusual step of offering detailed suggestions on how government policy could dampen the overheated property market.
In a submission to the commerce select committee's housing affordability inquiry, the bank said government might want to consider introducing a capital gains tax on rental properties, and better controls on immigration.
Government policy on encouraging immigration to stem labour skill shortages may have to be tempered because of its impact in sustaining house prices, the submission said.
The bank's comments come after unprecedented growth in the housing market, which has left New Zealanders with some of the most unaffordable homes in the developed world.
Despite Bollard's repeated warnings, prices have continued to rise and a study last month showed Aucklanders must spend 100 per cent of their take-home pay to repay a standard mortgage on a median-priced house. Homeowners' outlay has also risen rapidly in almost all of New Zealand.
Figures out last week show Auckland's median house prices have dropped $2000 in the past month - but pundits say it is too early to predict a slump.
In its submission, the bank raised the spectre of rising mortgagee sales undermining economic stability. It says New Zealand tax policy "appears to be favourably disposed toward rental property, compared to other countries" and suggests further tax measures such as ring-fencing operating losses on investment properties may be appropriate.
The bank's advisers suggest further "consideration might also be given as to whether taxation policies could be more in line with those in Australia, where realised capital gains on rental properties are taxed, but at half the normal tax rate".
National and Labour have both ruled out any capital gains tax on property.
Despite Labour's hints that it wants to reconsider rules around tax losses on property, it does not have enough support in parliament.
Westpac economist Dominick Stephens described the bank's suggestions on tax as making sense in the current environment.
"Tax arrangements regarding housing really are a big factor in increasing house prices. When a Kiwi gets a bit of money, the first thing they do is go and buy a rental property... if they go and start a business they would be employing people."
Tax threshold changes six years ago immediately bumped up the value of rental investments by about 17 per cent because of the owner's ability to write off losses.
"It encouraged those on the top tax rates to purchase rental properties, which effectively locks out first home buyers."
A spokesman said Finance Minister Michael Cullen would wait until the committee had finished its inquiry in about six months before commenting.
But National's finance spokesman Bill English said the bank should focus on controlling inflation and leave policy to government.
"They've got tools, with the interest rates and foreign exchange intervention, and they should focus on using those tools rather than trying to climb into debate where they do not have a role."
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