RBNZ's Bollard hopes housing investment tax reform might help rebalance economy

Reserve Bank of New Zealand Governor Alan Bollard has told parliamentarians he is hoping reform of the tax structures around housing investment will help rebalance the economy in favour of investment in exporting rather than property. Bollard told Parliament's Finance and Expenditure select committee he was watching the Government's Tax Working Group closely for signs the bias in favour of property investment might be rectified. The Tax Working Group is due to consider the issues of a capital gains tax or land tax in a discussion next week. It is due to produce its initial report back to the government by the end of 2009. "A flattening of the tax investment structures around housing investment," Bollard said when asked what he'd like to see from the review. "The most obvious part of that would be around the issue of investors flicking on investment housing," he said.

Bollard was speaking to the committee in a regular public hearing after the release of the September quarter Monetary Policy Statement. Elsewhere, he virtually ruled out using the Reserve Bank's capital adequacy powers to force banks to slow their lending to property by requiring they put aside more capital. He said such tools were unsophisticated and very difficult to use in any cyclical sense. Bollard also reiterated comments made in an earlier news conference that the bank had considered cutting the Official Cash Rate from its current record low of 2.5%, but had decided against it because it was unlikely to move the currency lower and may further fuel any resumption of a housing boom. He again referred to the situation in Israel where the central bank there had put up its OCR earlier this month, but this had little effect on the currency. Currencies were currently being driven by international risk appetites and seemed much closer linked to fortunes on stock markets than what was happening with interest rates.