Is the new government reducing tax on rental properties to benefit landlords or to cut the cost of rents? That’s the big question this week, after Associate Finance Minister David Seymour announced on Sunday that the Government would be reversing the Labour Government’s removal of the ability of landlords to write-off mortgage interest payments on their rentals. The policy will cost about $3bn over the next four years and is seen by opponents as a big cash handout to wealthy property investors.
Landlords should be able to deduct interest from taxable income, but only if they also pay capital gains tax. In the absence of a capital gains tax renting houses is not "just like any other business". I am amazed that people don't recognise the idea that this $3 Billion handout will result in lower rents as just another version of the tired old "trickle down" argument. Margaret Thatcher, Roger Douglas, and Ruth Richardson couldn't have stated it more clearly.
Good article. Perhaps to be consistent, landlords should be able to deduct interest. But the same argument for cutting GST from some food -as takes place in every developed nation to some extent and is lambasted by pundits here, is what is used to justify cutting the tax deductibility and shortening the bright line. Landlords, like grocery chains, will keep the profits. Albeit a well-oiled grocery commission could have overseas such ill-gotten windfall gains.
In most of the developed world, rent controls, stamp taxes, capital gains and/or wealth taxes slow down housing speculation and tax the wealthy. Here they are off Scott-free paying taxes on income-producing assets such as housing. As has been written many times - “Today's research shows the wealthiest New Zealanders pay on average 9.5% tax, including GST, on their economic income. Meanwhile, someone with a salary of $80,000 pays around 28-29% of their economic income, including GST.” It is embarrassing.
And National who built 90 homes during their 9 year tenure last time pale compared to Labour who built over 13,000 homes resulting in the worst homelessness in the developed world by 2017. But that is another story.
“Spain capped energy prices by more than the UK, lowered the cost of public transport, taxed excess profits and put in place limits on how much landlords can raise rents.” Its inflation fell to less than 2% last year and its economy is growing by over 2.5%. https://www.theguardian.com/commentisfree/2023/aug/03/spain-inflation-lower-bank-england-interest-rates So let’s dispense of the neo-liberal model that has been shown to have failed for over 40 years.
Communism - high failure rate alongside many other social complication
Both are associated with low rates of freedom and free speech.
The figures you are relying on for tax paid for the ultra wealthy included unrealised capital gains. Basically, a tax on inflation. They were skewed figures used to hype up the public. That report also didn't take into account those who are net recipients of tax....WFF and accom supplement etc.....
The Nats had started to build more than they 90 and some of the houses you claim Labour built were well underway when they took power. GI for example where the left were up in arms and protested at long term state housing tenants being moved off their 1/4 acre section so more could be built. The unintended? consequences of Labour competing on the open market for those houses was rampant house price inflation.........that was something Labour finished first in by a golden mile.
Having no GST on certain foods is extremely costly and offers no economic benefit because of the compliance. Essentially, everyones tax would need to go up more than people would save at the checkout....if indeed it was passed on to the public.
"Socialism" ...or as close as anyone came to it reached its zenith in Scandanavia whose nations have consistently havd the highest happiness rate, the least inequality, high growth, and less inflation than here. So what is your measure of "success? ...and like every developed nation other than NZ, they have no sales taxes on food. And like the developed world, they have capital gains tax and in Norway a wealth tax as well.
They have less inflation than NZ for many reasons. The main one is they didn't have a hapless Labour government in power that thought the answer was to print and spend money.
You miss one very important factor in your comparison to scandanavia.....who are capitalist countries with a softer social stance......they have money...we have none to spare, nor can we afford to keep borrowing unless there is a return on that investment.
Socialists, like Jacinda, classic example, run out of other peoples money to spend. Hitler was the leader of a socialist party. True socialism has a 100% failure rate and is closely linked to human rights abuse and worse for anyone who speaks out against them......
You realise how many of the ultra wealthy have left Norway.....so much so that they will take in significantly less tax now. I'm not a fan of the ultra wealthy because I believe they are greedy so and so's but they are a necessary evil.
Do you realise that in almost every country with a capital gains tax on houses that it costs more than they get back in tax.......that makes it an envy tax......not one that will help society at all....
No, all nations, including those in Scandinavia printed money in a Keynesian fashion. It worked to save lives and prevent economic collapse but did, along with supply chain problems lead to inflation.
Seriously do you understand what “socialism” is? (Most define it as the social control of the economy). And it is true most fascist parties in the 1920’s to 30’s had some “socialist” elements even as they hunted down socialists as enemies of the state. But they all abandoned most socialist policies after in power. Mussolini in the 20’s, Hitler after purging the brown shirts, and Franco in the 40’s. It is not too dissimilar to what is happening today with some on the left with feet in both camps – and the far right taking over large portions of the working class.
In almost every policy Jacinda was to the right (less “socialist”...more cautious) than what exists in most of Northern Europe (and much of Southern Europe) in redistributing wealth.
And where did you pull that bonkers doozy from -that “every country with a capital gains tax on houses that it costs more than they get back in tax”? Wow.
Socialism is an economic and political philosophy encompassing diverse economic and social systems characterised by social ownership of the means of production, as opposed to private ownership. So that makes the countries in scandanavia wholly capitalist as they don't own all the means of production.
Jacinda was president of the world socialist youth so to say she is to the right is somewhat blind. All of her actions and inactions and choices of failed solutions followed that same path.
Capital gains took 10 years before it saw a return in Australia....one of the first countries to get it to pay more than it costs. Do your own research......echo chambers are not the place to make your mind up on things.
NZ doesn't have but a few far right people....and there are no far right parties in parliament. The greens are far left...in parts at least.
You do realise that redistributing wealth requires people that can actually pay more tax? Human nature is such that studies on a UBI resulted in an 11% average reduction in workforce participation.......Socialists don't seem to understand that greed, laziness and selfishness are human traits no matter how much money you have in your wallet. They also seem to miss that unless people are appropriately rewarded for their endeavours and efforts they go elsewhere.
I agree with your definition of socialism...fundamentally the social control of the economy. Scandinavian and northern European nations have been until recently governed primarily by social democratic parties, all of which consider themselves “socialist”.
Social democracy has been a democratic movement toward socialism, as oppsed tot he revolutionary strategy. Jacinda is a social democrat. The “world socialist youth” movment is a social demcoratic movement. However, like most social democrats in our age of advanced capitalism, has had one hand tied behind her back. Her tenure did see a return of a higher income tax - albeit much lower than we used to have in the 70’s-early 80’s, and short term CGT, the extended bright line. They work.
I did do my research on CGT “to get it to pay more than it costs” and it is utter rubbish - which is why all developed nations - except Switzeralnd who have wealth tax instead- have kept it.
Also the phrase “a UBI resulted in an 11% average reduction in workforce participation” is absolutely false. Not to mention that the right wing of the economic spectrum such as Milton Friedman were the first who floated the idea of a UBI.
Truth is this is a complicated thing. The full impact of not being able to deduct interest costs is only really just kicking in now. If it was left alone, it would have a devastating impact on rental supply. Im in Property management, a number of clients were in a position where their tax bill was going to be greater than their income in two years time. About 10% of our clients sold to avoid what was coming. Many are still selling even now because of the high interest rates & costs. Meanwhile rent in Auckland have gone through the roof in the last year, but not just because of this though. If the government hadn’t done this I am confident that you would be seeing massive increases in rents over the next few years. Even now there are historically low levels of rentals available in Auckland.
Only lefties would say that it wont lower rents - the Govt certainly didnt say it either. What they said was that rents will have no excuse to rise in the mid term future, once inflation is under control. DUH!
I don't doubt a lot of landlords will continue to put up rents no matter what but when insurance and rates rise at the levels we have seen them there is a lot of upward cost pressures and lets face it, landlords had not yet felt the pain of zero interest deductibility on their balance sheet so rents had not been raised to allow for this yet.
The figure of 2.9 billion is no doubt accurate but the hand wringing over it is rather puzzling and shows the left have few clues that the government had never seen that money.....but I have no doubt Labour had already earmarked it for some more poorly thought-out policies....
The current government campaigned on this, so by that they were elected with a mandate to change it. Shame the previous government were implementing policies, some under urgency, that they had no such mandate to act on.
I agree with your definition of socialism...fundamentally the social control of the economy. Scandinavian and northern European nations have been until recently governed primarily by social democratic parties, all of which consider themselves “socialist”. Social democracy was a democratic movement toward socialism. Jacinda is also a social democrat whose youth wing is called the “world socialist youth”. However, like most social democrats in our age of advanced capitalism, has had one hand tied behind her back. Her tenure did see a return of a higher income tax - albeit much lower than we used to have in the 70’s-early 80’s, and short term CGT, the extended bright line. They work. (I did do my research on CGT “to get it to pay more than it costs” and it is utter rubbish which is why most nations have it.)
Also the phrase “a UBI resulted in an 11% average reduction in workforce participation” is false. Not to mention that the right wing of the economic spectrum such as Milton Friedman are the one who first floated the idea of a UBI.
What the Gov't could do is limit the rise that landlords can apply to their rents to a percentage, then watch the scourge of these terrible rackrenters die in the gutter as they sell their properties off onto a market which renters can't afford to buy in anyway. Back to the old back seat of the Honda for a bed?
It always struck me as very unfair and unreasonable to, effectively, treat the interest paid as income for tax purposes.
What would be the effect of doing the same to other businesses?
Say you had a small trucking business with no other access to the capital markets other than a bank loan. You have borrowed $900 thousand for trucks and equipment and pay $72,000 interest every year on it - on top of all your other direct costs and depreciation etc. That is treated as "profit" and taxed accordingly. Does anyone seriously think that truck transport would get cheaper and more available as a consequence?
It would of course be great at limiting competition from the little guy. The big listed companies would love it.
Essentially the law of supply and demand determines the cost of most things including rents.
A rental property quickly changes from an asset to a liability if left empty as the landlord's overheads (rates, insurance, mortgage repayments, maintenance etc etc) remain the same regardless of whether or not the property is returning an income.
Landlords should be able to deduct interest from taxable income, but only if they also pay capital gains tax. In the absence of a capital gains tax renting houses is not "just like any other business". I am amazed that people don't recognise the idea that this $3 Billion handout will result in lower rents as just another version of the tired old "trickle down" argument. Margaret Thatcher, Roger Douglas, and Ruth Richardson couldn't have stated it more clearly.
Good article. Perhaps to be consistent, landlords should be able to deduct interest. But the same argument for cutting GST from some food -as takes place in every developed nation to some extent and is lambasted by pundits here, is what is used to justify cutting the tax deductibility and shortening the bright line. Landlords, like grocery chains, will keep the profits. Albeit a well-oiled grocery commission could have overseas such ill-gotten windfall gains.
In most of the developed world, rent controls, stamp taxes, capital gains and/or wealth taxes slow down housing speculation and tax the wealthy. Here they are off Scott-free paying taxes on income-producing assets such as housing. As has been written many times - “Today's research shows the wealthiest New Zealanders pay on average 9.5% tax, including GST, on their economic income. Meanwhile, someone with a salary of $80,000 pays around 28-29% of their economic income, including GST.” It is embarrassing.
And National who built 90 homes during their 9 year tenure last time pale compared to Labour who built over 13,000 homes resulting in the worst homelessness in the developed world by 2017. But that is another story.
“Spain capped energy prices by more than the UK, lowered the cost of public transport, taxed excess profits and put in place limits on how much landlords can raise rents.” Its inflation fell to less than 2% last year and its economy is growing by over 2.5%. https://www.theguardian.com/commentisfree/2023/aug/03/spain-inflation-lower-bank-england-interest-rates So let’s dispense of the neo-liberal model that has been shown to have failed for over 40 years.
And go to what?
Socialism - 100% failure rate
Communism - high failure rate alongside many other social complication
Both are associated with low rates of freedom and free speech.
The figures you are relying on for tax paid for the ultra wealthy included unrealised capital gains. Basically, a tax on inflation. They were skewed figures used to hype up the public. That report also didn't take into account those who are net recipients of tax....WFF and accom supplement etc.....
The Nats had started to build more than they 90 and some of the houses you claim Labour built were well underway when they took power. GI for example where the left were up in arms and protested at long term state housing tenants being moved off their 1/4 acre section so more could be built. The unintended? consequences of Labour competing on the open market for those houses was rampant house price inflation.........that was something Labour finished first in by a golden mile.
Having no GST on certain foods is extremely costly and offers no economic benefit because of the compliance. Essentially, everyones tax would need to go up more than people would save at the checkout....if indeed it was passed on to the public.
"Socialism" ...or as close as anyone came to it reached its zenith in Scandanavia whose nations have consistently havd the highest happiness rate, the least inequality, high growth, and less inflation than here. So what is your measure of "success? ...and like every developed nation other than NZ, they have no sales taxes on food. And like the developed world, they have capital gains tax and in Norway a wealth tax as well.
They have less inflation than NZ for many reasons. The main one is they didn't have a hapless Labour government in power that thought the answer was to print and spend money.
You miss one very important factor in your comparison to scandanavia.....who are capitalist countries with a softer social stance......they have money...we have none to spare, nor can we afford to keep borrowing unless there is a return on that investment.
Socialists, like Jacinda, classic example, run out of other peoples money to spend. Hitler was the leader of a socialist party. True socialism has a 100% failure rate and is closely linked to human rights abuse and worse for anyone who speaks out against them......
You realise how many of the ultra wealthy have left Norway.....so much so that they will take in significantly less tax now. I'm not a fan of the ultra wealthy because I believe they are greedy so and so's but they are a necessary evil.
Do you realise that in almost every country with a capital gains tax on houses that it costs more than they get back in tax.......that makes it an envy tax......not one that will help society at all....
No, all nations, including those in Scandinavia printed money in a Keynesian fashion. It worked to save lives and prevent economic collapse but did, along with supply chain problems lead to inflation.
Seriously do you understand what “socialism” is? (Most define it as the social control of the economy). And it is true most fascist parties in the 1920’s to 30’s had some “socialist” elements even as they hunted down socialists as enemies of the state. But they all abandoned most socialist policies after in power. Mussolini in the 20’s, Hitler after purging the brown shirts, and Franco in the 40’s. It is not too dissimilar to what is happening today with some on the left with feet in both camps – and the far right taking over large portions of the working class.
In almost every policy Jacinda was to the right (less “socialist”...more cautious) than what exists in most of Northern Europe (and much of Southern Europe) in redistributing wealth.
And where did you pull that bonkers doozy from -that “every country with a capital gains tax on houses that it costs more than they get back in tax”? Wow.
Socialism is an economic and political philosophy encompassing diverse economic and social systems characterised by social ownership of the means of production, as opposed to private ownership. So that makes the countries in scandanavia wholly capitalist as they don't own all the means of production.
Jacinda was president of the world socialist youth so to say she is to the right is somewhat blind. All of her actions and inactions and choices of failed solutions followed that same path.
Capital gains took 10 years before it saw a return in Australia....one of the first countries to get it to pay more than it costs. Do your own research......echo chambers are not the place to make your mind up on things.
NZ doesn't have but a few far right people....and there are no far right parties in parliament. The greens are far left...in parts at least.
You do realise that redistributing wealth requires people that can actually pay more tax? Human nature is such that studies on a UBI resulted in an 11% average reduction in workforce participation.......Socialists don't seem to understand that greed, laziness and selfishness are human traits no matter how much money you have in your wallet. They also seem to miss that unless people are appropriately rewarded for their endeavours and efforts they go elsewhere.
I agree with your definition of socialism...fundamentally the social control of the economy. Scandinavian and northern European nations have been until recently governed primarily by social democratic parties, all of which consider themselves “socialist”.
Social democracy has been a democratic movement toward socialism, as oppsed tot he revolutionary strategy. Jacinda is a social democrat. The “world socialist youth” movment is a social demcoratic movement. However, like most social democrats in our age of advanced capitalism, has had one hand tied behind her back. Her tenure did see a return of a higher income tax - albeit much lower than we used to have in the 70’s-early 80’s, and short term CGT, the extended bright line. They work.
I did do my research on CGT “to get it to pay more than it costs” and it is utter rubbish - which is why all developed nations - except Switzeralnd who have wealth tax instead- have kept it.
Also the phrase “a UBI resulted in an 11% average reduction in workforce participation” is absolutely false. Not to mention that the right wing of the economic spectrum such as Milton Friedman were the first who floated the idea of a UBI.
Truth is this is a complicated thing. The full impact of not being able to deduct interest costs is only really just kicking in now. If it was left alone, it would have a devastating impact on rental supply. Im in Property management, a number of clients were in a position where their tax bill was going to be greater than their income in two years time. About 10% of our clients sold to avoid what was coming. Many are still selling even now because of the high interest rates & costs. Meanwhile rent in Auckland have gone through the roof in the last year, but not just because of this though. If the government hadn’t done this I am confident that you would be seeing massive increases in rents over the next few years. Even now there are historically low levels of rentals available in Auckland.
Only lefties would say that it wont lower rents - the Govt certainly didnt say it either. What they said was that rents will have no excuse to rise in the mid term future, once inflation is under control. DUH!
I don't doubt a lot of landlords will continue to put up rents no matter what but when insurance and rates rise at the levels we have seen them there is a lot of upward cost pressures and lets face it, landlords had not yet felt the pain of zero interest deductibility on their balance sheet so rents had not been raised to allow for this yet.
The figure of 2.9 billion is no doubt accurate but the hand wringing over it is rather puzzling and shows the left have few clues that the government had never seen that money.....but I have no doubt Labour had already earmarked it for some more poorly thought-out policies....
The current government campaigned on this, so by that they were elected with a mandate to change it. Shame the previous government were implementing policies, some under urgency, that they had no such mandate to act on.
I agree with your definition of socialism...fundamentally the social control of the economy. Scandinavian and northern European nations have been until recently governed primarily by social democratic parties, all of which consider themselves “socialist”. Social democracy was a democratic movement toward socialism. Jacinda is also a social democrat whose youth wing is called the “world socialist youth”. However, like most social democrats in our age of advanced capitalism, has had one hand tied behind her back. Her tenure did see a return of a higher income tax - albeit much lower than we used to have in the 70’s-early 80’s, and short term CGT, the extended bright line. They work. (I did do my research on CGT “to get it to pay more than it costs” and it is utter rubbish which is why most nations have it.)
Also the phrase “a UBI resulted in an 11% average reduction in workforce participation” is false. Not to mention that the right wing of the economic spectrum such as Milton Friedman are the one who first floated the idea of a UBI.
What the Gov't could do is limit the rise that landlords can apply to their rents to a percentage, then watch the scourge of these terrible rackrenters die in the gutter as they sell their properties off onto a market which renters can't afford to buy in anyway. Back to the old back seat of the Honda for a bed?
It always struck me as very unfair and unreasonable to, effectively, treat the interest paid as income for tax purposes.
What would be the effect of doing the same to other businesses?
Say you had a small trucking business with no other access to the capital markets other than a bank loan. You have borrowed $900 thousand for trucks and equipment and pay $72,000 interest every year on it - on top of all your other direct costs and depreciation etc. That is treated as "profit" and taxed accordingly. Does anyone seriously think that truck transport would get cheaper and more available as a consequence?
It would of course be great at limiting competition from the little guy. The big listed companies would love it.
Essentially the law of supply and demand determines the cost of most things including rents.
A rental property quickly changes from an asset to a liability if left empty as the landlord's overheads (rates, insurance, mortgage repayments, maintenance etc etc) remain the same regardless of whether or not the property is returning an income.