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Robertson says Labour wouldn't be breaking its pre-election promises on tax if it extended the bright-line test; Orr clarifies the RBNZ would like debt-to-income ratios to be added to its toolkit but this hasn't been a priority

Robertson says Labour wouldn't be breaking its pre-election promises on tax if it extended the bright-line test; Orr clarifies the RBNZ would like debt-to-income ratios to be added to its toolkit but this hasn't been a priority
Image sourced from Flickr

Finance Minister Grant Robertson believes Labour wouldn’t be breaking its pre-election promise to not introduce new taxes, other than a new top income tax bracket, if it extended the bright-line test.

Under the test, anyone who sells a residential property within five years of buying it, has to pay income tax on any gains made. The rule excludes the family home and inherited property.

Robertson on Tuesday said he’d asked Treasury to look at ways the government could curtail housing demand in the face of soaring prices. He wanted Treasury to look at the bright-line test, other existing policies, as well as new ones.

Asked on Thursday whether his pre-election promise on tax precluded any changes to the bright-line test, Robertson said, “I don’t believe so, no. It’s not a new tax…

“People are getting well ahead of themselves here. We’re just waiting on that advice.”

Asked whether he would consider introducing a tax-free lower income tax bracket - something that could be coupled with an extension of the bright-line test to address inequality caused from house prices increasing much faster than wages - Robertson said: “We haven’t even got to that point yet… I haven’t even turned my mind to that.”

Robertson wouldn’t particularly welcome tax advice from Orr

Robertson’s comments followed him asking the Reserve Bank (RBNZ) for feedback on a proposal for its Monetary Policy Committee’s remit to be tweaked to require it to “avoid unnecessary instability” in house prices.

Hours after receiving a letter from Robertson on Tuesday, RBNZ Governor Adrian Orr responded by saying he would consider the suggestion. But he pointed out the RBNZ already took account of house prices and stood by the actions it had taken to lower interest rates.

On Wednesday Orr held his ground, and when pushed by media, indicated he would use Robertson’s “invitation” to discuss housing more broadly, including around how government policy like tax affects it.

As tensions between the RBNZ and Minister were put on display, Orr put some of the onus back on the Government to address housing.

However Robertson on Thursday signalled he wasn’t looking for advice from the RBNZ beyond its domain.

“In the letter I wrote, you would’ve seen I asked the RBNZ to reflect on a particular suggestion about monetary policy, and then on their monetary and financial policy. So that’s what I’m looking for from the Bank,” Robertson said.

“Obviously the RBNZ Governor is a free person and he can make whatever comments he wants. But we were very clear in the letter what we were looking for.”

Asked how he would handle any advice from the RBNZ on fiscal policy, Robertson said: “A lot of people give me suggestions about fiscal policy, but we’ve been very clear about what we’re looking for from the Governor.”

RBNZ would like DTIs, but still needs to ‘dust off the research on that’

Turning to the RBNZ, Orr on RNZ’s Morning Report on Thursday gave a more definitive answer than he did on Wednesday on whether the RBNZ wanted the government to add debt-to-income (DTI) restrictions to its toolkit.

These restrict bank lending to borrowers seeking to take out a lot of debt compared to their income.

“We’re dusting off the research on that,” Orr said.

“But yes would be the simple answer. If we’re trying to have effective tools that could head off excessive borrowing, then a debt-to-income ratio is one of those.”

The RBNZ has long held the view DTI ratios should be in its toolkit. The National-led government declined an official request from it in 2016.

But importantly, Orr did not say the RBNZ wanted to implement DTI ratios. The RBNZ has not even done the work to put forward an official request to Robertson for it to be given the tool.

The RBNZ’s focus is on consulting on reimposing loan-to-value ratio (LVR) restrictions in March.

RBNZ General Manager Financial Stability Geoff Bascand on Wednesday noted banks were writing more loans to borrowers with both high DTI ratios and LVRs.

But Bascand said this situation had to be considered alongside the fact low interest rates were making it cheaper to service this debt.

“If you think they [low interest rates] are going to be there for a long time, then you can sustain a higher debt-to-income level. It’s a bit context-specific," he said.

How effective would extending the bright-line test be?

Coming back to the bright-line test, CoreLogic analysis done for interest.co.nz in September showed the portion of houses on-sold quickly has gone down in Auckland, but up throughout the rest of the country, since the bright-line test was introduced by the National-led Government in 2015.

In Auckland, the rule saw the portion of houses bought and flicked off within two years (as per the original rule) decline from 15% in 2015 to 6% in 2020.   

Whereas throughout the rest of the country, this portion increased from 7% to 8%.

Because Labour's extension of the rule to five years only applied to property bought from March 2018, it is too early to tell how effective this was. 

Inland Revenue didn't know much tax had been paid due to the bright-line test, as income earned from the sale of a property is lumped in with a seller’s other income when they come to pay tax. 

CoreLogic senior research analyst, Kelvin Davidson, believed the impact of a tax on property investors’ decision-making had been drowned out by other factors in the market, but pointed out we don't know what would've happened had the rule not been in place. 

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94 Comments

14
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playing with semantics. obviously when you say, no new taxes, people expect the rules to be the same. If changing existing tax laws is not considered "new", you can just raise GST, increase RWT etc etc, and just say, oh, these taxes already existed, we are just modifying it. what a joke.

19
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It worked for John Key.

It may well have worked for John Key but a precedent on something seen as unscrupulous hardly justifies an equivalent act. Rather counterproductive, like saying an apple is palatable because it is less rotten than the other.

At least you don't live in the States where a corrupt official and criminal in his own right is within the law to pardon multitudes of other criminals before leaving office!!! Now there's a joke, and a hilarious one at that. There is no integrity in many governments anymore, with some setting the standards in the western world lower than they have ever been set before. A sad refection on various education systems, but then I guess you cannot educate integrity and honesty, a person has to give that to themselves.

No one seemed to have an issue when previous criminals in the White House did it. Why should Trump be any different?

Who mentioned trump? I assume you thought I was referring to him because he is the most corrupt of them all in American History and the one in the most limelight of current disgusting politicians of no integrity? A general reference to many government officials that are allowed to do things by their countries laws that would put the average citizen in prison for many years.

Taxes are 'unscrupulous' you say? I thought they went to improve the country for everyone...silly me.

But wait CT, there is more. Already as in Christchurch, the wealth tax is being signalled by The Labour faction councillors, via the back door of local rates. Load up the rates on the higher valued properties and the government gets the 15% GST icing on that. Never mind that the rates are already calculated on value meaning the higher that is the more you pay. Never mind the council has no interest in being accountable for existing revenue let alone getting their hands on more. Who needs civil basic services when you can buy $45 mill of bare land on the sly in Central Otago for a pie in the sky airport.

10
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Yeah, exactly what I was thinking. A despicably slippery statement.
Why not introduce a 66% upper tax bracket? It's not a *new* tax. It was existed in the 80s, so it's just a tiny bit of tweaking really. It's clearly not another massive policy delivery fail *coughsKiwibuildcoughs*

Yeah. Absolutely disingenuous.

14
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Extending the bright-line tax to 7 or 10 years won't make much of a difference to house prices.

18
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It might increase house prices due to less people selling.

Bang on. It'll do exactly that. The lock-in effect.

I think they're suggesting something like applying the bright line test to owner-occupiers in particular circumstances.

Ie, materially changing how it is currently applied, not increasing it's time horizon.

.. not a new tax , clearly.

I think people over 60 might hesitate at a ten year commitment.

Most people on this forum and website will probably be aware that it's 10 years bright line already for anyone involved in property trading, property or business related business activities under the tainting rule. So anyone in that game at age 60 will already be affected therefore 10 year brightly is irrelevant not going to deter them. On top of which housing gives better return than TDs anyway AND at age 60 likely to still live another 25, 30 to 40 years all going well. This is the real truth of the problem retirees face getting a return and it's a good problem to have. Never have current retirees been in such good health having good futures thanks to modern medicine and all the social advancements since WW2. So it's a good, albeit, challenging problem to have that people are now faced with an era of low returns.

Over 65s could use Kiwisaver to invest with, say a 5 year time horizon. Better returns than TDs, even in conservative funds.

But it would make the tax system much fairer.
If a worker pays up to 30% tax working in a factory and a property investor makes say $200,000 on a house "flip" and pays no tax, then the system needs changing or the property investor needs to pay tax.!!!

.. and do you actually carry any risk working at a factory ?

That reminds me long ago, a sort of parable by Bob Jones concerning non risk taking individuals who just middle out in terms of ambition and then complain about their lot. He exampled schoolteachers as such. Still he went on to remark that whilst in Georgia he experienced a mortar attack close by by disgruntled teachers, so NZ remains relatively calm so far at least.

Good story FG I have a few skilled people who work for me, some consultants are highly overpaid while other contractors are happy to work for much less which leaves me a bit of room to reward their efforts.

And do you reward their efforts? And if you do how so?

No but he feels good having some room

No but he feels good having some room

What risks do you carry by buying the property?

So you think the amount of tax you pay should somehow be indexed to the amount of risk you take to earn your money? That seems like a complicated system.

That is the system everywhere in fact - including jurisdictions with CGT . CGT rate is invariable fixes and is lower that top marginal tax rate - everywhere it exists , for that very reason.

I'm pretty sure that its not true that how much tax you pay is indexed to the amount of risk you take anywhere. Also not clear how that would work. Should a cop pay less tax than a teacher? Should a cop in South Auckland pay less than one in Remuera?

House flippers pay tax already. Heard of the bright line test?

Roger your name implies you don't pay your share of tax :)

Hah, nope completely the opposite. I pay way more tax than most simply because I can't really deduct anything:

* Single earning household with dependants
* Drive cheap cars - nothing to depreciate
* No investment property - (but I have in the past paid income tax after selling a property for a profit.)
* I work in an industry which solely sells my labour - no significant capital to depreciate.
* Small mortgage, relatively expenses, nothing in the home office angle.
* Only income split what I am comfortable justifying - which isn't much.

My observation is that most people are hypocritical about tax. They talk big about bringing in new taxes, but then when they do their returns it is a different story. We don't need more taxes. IRD simply need to do a better job of ensuring the current taxes are fairly enforced. It is as simple as that.

hats off.. congrats from one honest t/p to another. Many would have issue with that me being a hardworking ambitious investor/developer.

fh..With the name Roger having mainly English and Scottish origins, at the risk of being racist, I'm going with soap dodger rather than tax dodger.

Latest statistics from IRD suggest that only about a third of people caught in the bright line test pay the tax!

Yep, and that is a disgrace and creates an unfair environment where the honest are disadvantaged.

Incentivising dishonesty is not a clever strategy.

Tax avoidance is a National sport. It amazes me how many people concoct schemes to pay little, then complain about hospital food when their ticker implodes.

itsme... total cop out from IRD to say bright line tax and income are lumped together and so they don't have the numbers. Sounds convenient.

Agree. Capital gains taxes appear to have had minimal if any impact on house prices internationally.
Still the right thing to do though in terms of taxation equity.

Yeah just delays selling. Need to raise it to infinite years and remove the exemptions.

11
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Mr Orr is again adding fuel to fire by announcing loan to income ratio thereby creating more panic in FHB to rush and buy.

https://www.newshub.co.nz/home/politics/2020/11/reserve-bank-wants-to-in...

If have to shoot, shoot don't talk Mr Orr or for that matter Mr Robertson or anyone - act now as now is the time of action, not talks

18
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Interesting how breaking election promises from 3 years ago was fine (100000 houses, anyone?), but breaking election promises now is a big no-no, even if half of the country is suffering because of the current situation.

Just to be clear, my purpose in reporting this issue around the bright-line test the way I have is to let people know there's a chance the bright-line test may be extended. It isn't to throw shade on Robertson over the matter. 

14
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Robertson directly spoke to the issue of whether he was breaking election promises or not. It definitely wasn't any kind of shade that you introduced Jenée!

I voted Labour this time and don't regret that choice. They're the best party for the current crisis (of the choices available) IMO, but there aren't many here, who are under the illusions that Labour has made good on their promises in regards to the housing crisis. And National were no better before that.

Why is this so hard for the government to sort out? Can't they see adding a tax to something doesn't make it cheaper. Limiting investors to build by imposing 30% or 40% or whatever LVR to investors simply constrains supply. Here's a thought. Drop LVR to 10% anyone (FHB or investor) who wants to build a new house. 50% LVR to any investor who wants to buy an existing house. Surely we've all learned from CHCH that increasing supply means more reasonably priced homes. But what do I know, I'm just a dumb property investor copying all the other sheep, not an "intelligent politician" ha ha ha!

They could make a distinction in the LVR between investor (*cough *cough speculator) and a developer...

I think what you say has merit but would not need to raise to 50 percent

Add tax = less attractive. Regardless of price.

Politicans is a breed in itself Courtjesterr.

Take U turn or break promises when suit - shameless.........sorry could go on but makes no difference to politicans as are thick skin..............

Good to hear that you and Courtjester never take U turns or break promises. You are the chosen ones to judge us all since you're so much better

11
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What exactly is your problem with my comment?

"Orr would like a DTI added to the toolkit" of course, why could he not have said that straight away? Ask any good Kiwi chippie, it's always better to have more tools than not enough

Thank you Jenee ..

Labour have been getting a barrelling and this is them responding - all be it poorly, but IT IS buying them some time. Note: More Tax Does Not = More Houses, unless tax advantages are given to developers [perhaps?].

Unfortunately our NZ political parties concern themselves with tinkering around the edges, creating largely tax neutral policies. There seems to be no appetite to accept tax policy is an exercise in picking winners and losers. Though just tinkering makes for stable governance .. until it doesn't.

While our housing market continues to resemble a game of Musical Chairs - Supply & Demand coupled with Cheap Money will continue to be the drivers.

Some Will Like, Some Will NOT Like.

10
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The RBNZ LVR restriction should have never come off.
Some banks have voluntarily reimposed tighter lending criteria.

Otherwise its in the government's court
It's not rocket science to fix - but political willingness is far far harder.
We have had appalling strategic failure after failure by government after government to address the issues.
Real (LAND) house prices have been rising since 70s/80s.
1) A population strategy based on maximising total welfare (wellbeing) per capita, not gdp growth. As soon as covid19 is over we risk reigniting the migration tidalwave.
2) Massive government fiscal stimulus to build state housing for the bottom of the market where there is no developer profit
3) RMA fixed/replaced. National standards for all effects (based on social costs benefit) & no zoning & density limitations otherwise - we dont need city plans stacked as high as the sky tower full of rules that planners dont bear the consequences of.
4) A land tax. Its not houses going up in price, but land. It wont be in Jacindas time (she does have the fortitude to show real leadership), but it needs to happen soon after.

15
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Here are 3 extract from the article above:
“We’re dusting off the research on that,”
“We haven’t even got to that point yet… I haven’t even turned my mind to that.”
"The RBNZ’s focus is on consulting on reimposing loan-to-value ratio (LVR) restrictions in March."
Things are moving at a snails pace, it's shockingly slooooooooooooooooooooooooooooow

Make it 99 years, but don't call it a CGT :-)

What would the purpose be of extending the Bright Line Test to 10 years?
To collect more revenue or to deter investors?
If huge profits can be made over 10 years, then paying a third in tax is not going to deter anyone.
If it is to deter investors then the rental market will tighten up.
The biggest speculator / investors are private home buyers who drive up prices with no tax liability at all.
Home buyers and sellers should be taxed on any gains that are not reinvested into their next home.
That would work excellently to reign in house prices.

10
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I agree. What's a 33% tax when you can keep the 67% of your big gains.

100% called it here thanks ol bigdaddy.

Yep in my time as a broker and I've mentioned it on numerous occasions it was the serial "own home" flippers causing the most churn driving prices up. It stands to reason doesn't it... if no tax on own home of course people are going to pile into that big time.

Traders already pay tax. Buy and hold investors pay tax if sell in 5 years and pay tax on rental income so it's the "family home" or "principal place of residence" as the Aussies call it which is repeatedly getting flogged to death.

And the lame IRD measure that if a repeated pattern of behavior is established leads to taxation just seems to never hold water and be enforced.

All of us all know serial flippers who move, move, move, uproot their kids and families in the name of tax free profit again and again and again.

Far out, Robbo is dumber than I thought and that's pretty dumb.

Or, as another poster commented... is he secretly actually really fucking clever and just coming up with these lame, token window dressing ideas to appease the even dumber masses who believe Labour's promises and spin. "Grant! - go and front the media, come up with something... anything to shut down this house price thingee... I'm busy with the baby right now and I've got to take a call from Helen".

Or... going out on a limb here readers, are we actually all living in some hyper real Truman scenario where we're trying to figure out who's the dumbest and cleverest person in the room??

Just a thought.

Jenee, did YOU ask him about lower band tax allowance?
If so, well done, because no one bothered pre election.
Makes you wonder if Labour knows what their existence is for?

14
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Yes, I threw the question out there! 

He wants to dust off his research on #rentcontrolnow

(Yes, I'm going to be a broken record on this one).

https://www.hud.govt.nz/news-and-resources/statistics-and-research/housi...

And these are the stats to 2019. Just today interest.co.nz reported 2019/2020 yoy rental price increases.

Compare those cost increases with this from Stats on incomes falling;

https://www.stats.govt.nz/news/incomes-fall-for-first-time-on-record

Perfect storm.

Thanks, interesting link.

Fritz.. thx good article. "70% of Berliners support the rent freeze". Reckon it might be close to that here. Together with reducing the demand for housing by about 50K (people PA) with a quick memo to Kris and it's all good by the next erection in 2023.

14
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With $128B being pumped into the economy, the only place that it can go is to buying assets - and since none of that money is directed at creating more assets to buy, the only effect is to increase the price of existing assets. If they want house prices to fall, Orr needs to start sucking money out of the economy. Of course the US Fed tried to do that, and world markets practically collapsed. All this talk about taxes or LVRs or DTI is just talking around the elephant in the room - quantitative easing.

Mr Robertson leave your ego behind.

Why was it so easy for your boss to take U turn on CGT last time when it comes to not implementing and now what is stopping to take U turn to introduced CGT Leader with Ego are.....

(.......as have only swear words and will not like to......)

This won't make a blind bit of difference, it needs to be extended to everything no exemptions. That's just so wider society benefits. A taxed crazy profit is still a crazy profit...
They need to prevent hoarding of land and housing. Tax land. They're afraid of breaking the promise of not introducing new taxes, yet they campaigned on a cgt at the previous election and they happily flipped on that one. Now they have so much political capital and a once in 100 years crises yet they still won't do anything.
I think 2 things are happening, either A they have no interest at all in fixing this. Or B they are going to let it come to a natural end, and try to blame National, RBNZ, C19, and our own greed...

How did you miss the DTI position expressed yesterday Jenee?

Hi there, happy to be challenged on this, but I didn't think I missed it...

On Tuesday Robertson told me it was up to the RBNZ to ask for DTIs, which it hadn't. On Wednesday morning the Financial Stability Report didn't indicate the RBNZ urgently wanted the tool. Later on Wednesday morning I asked about it at the press conference (12min 30sec in this video) and Bascand said the RBNZ remained "sympathetic" to having DTIs in its toolkit and would look at it. I updated my story from earlier in the morning with these comments.

Later on Wednesday I interviewed Bascand. The view was that the RBNZ would look at all its macro-prudential options. Then on Thursday morning Orr said on RNZ the RBNZ wanted the tool in its kit. I rung the RBNZ for clarity and did this story.

I am aware other journalists have effectively said, "The RBNZ wants to implement DTIs". The RBNZ has for years wanted the tool, but I don’t think there’s enough evidence to suggest it also wants to implement DTIs in the near-term. The RBNZ is still worried about the state of the economy and is focussed on keeping banks lending - that much is clear. Another thing to consider is that there might be little political will to give the RBNZ DTIs because they could make things much harder for FHBs. 

We bought a IP last week after 2 months worth of open homes with everything selling way above price guide. This week I had a number of agents in Auckland call me due to their listings (all existing houses in a sub $800k range) being passed in at auction. Vendors expectations still high but all 4 major banks bringing back the LVR for investors looks to be already making an impact

Fine line but they are right. A land tax is not a capital gains tax either.

If it's not about tax free gains, and simply supplying housing for the good of society, there should be no noise from landlord land. Noise levels today underline it's all about tax free gains alright.

More change is required to stop parasitic debt stacking.

Precisely. Investors are investing for rental yield. If they are buying with the intention of making a capital gain they are required to pay a CGT under current tax laws.

So the worst thing that could happen is they would pay 39% tax on profits they were never expecting to make anyway.

Yes, yes, yes, bring it on. Extending the bright-line test to a minimum of 10 years would be a good starting point.
But several other actions (such as partial reversal of current reckless monetary settings, immediate introduction of 50% LVR for speculators etc.) are urgently needed.

Why should speculators have an LVR of anything less than 100%

They are businesses. Let them

(a) put up 100% of the cash themselves, or
(b) obtain their finance from Finance Companies

This.

Where were all these hard questions prior to the election????

They were being asked on here. Some voters are experiencing "buyers remorse" - disillusion hangover from their delusions.

Agreed. The hottest issue in NZ had no press over the election.

All this hubba bubba is white noise. Nothing will change because its attracting buyers for the Bonds being sold. The NZD is appreciating, possibly because of a depreciating USD?
While there are buyers of Bonds and Houses, the bubble will grow, and Orr will print more & more & more ...

I'm getting sick of Robertson and Orr kicking the ball back to each other while nothing gets done.
I don't agree with the bright line test being extended any more, 5 years is fine.
I think about retirees, would they want to commit to a house or town for longer, I don't see the bright line test as the issue we have, just another smokescreen really.
Lastly, the RBNZ asked National for a dti in 2016, so they already have a report ready to go, so Adrian chop chop, won't take long to wipe the dust off that file and hand it to Grant.

Good grief. Poor old Grant has lost any credibility he may have had in some circles as an honest straight up politician. Introducing a new tax is introducing a new tax, however you phrase it. Maybe Auntie Judith will be right about the CGT as well, after all.

Never rated him. Always said he is mediocre.

It's only a new tax if it affects you.

This is going to be awesome for us longterm investors as it'll mean less competition.

Thanks... again Labour!!

I mean at this point a cap gains tax is probably a better option. Extending the brightline will just create market distortions.

To me, the bright line test just highlights how crazy it is you can buy a house to make a profit on, and pay no tax on it's sale. Maybe we should have bank accounts with tax free interest if you leave your funds in for 5 years.

You make no capital gain on your bank deposit though. It is impossible to make gains on cash itself. Rental income is taxable the same as interest income. Having said that it is theft to tax the inflation portion of interest income.

House prices rises have no relationship to real inflation.

Rent freeze and slash immigration. Wouldn't need bright line extension. Only building 900 new houses a year wouldn't be too much of a worry. And you Aucklanders could shower more than once a week with all the extra water!

Lets not forget there is one-in-four property speculators dodging housing tax... So the housing speculation is still going on at the moment. Yet these incompetent people are still pass the bucket and finding all the excuses they have to avoid responsibilities. These two need to step down.
https://www.stuff.co.nz/national/politics/300160946/oneinfour-property-s...

So what that graph suggests to me, is that property flippers stopped buying in Auckland, and starting buying in other areas in order to capitalise on the regional price boom outside of Auckland, while Auckland prices stagnated. Just like every other property investor.
Its my opinion, because I'm a big believer in behavioural economics, is that an extension of the Brightline test will actually increase the number of short term property holders not decrease it. Why? Because currently holding a property for 5 years before selling has a tax benefit. 5 years is a stretch, but I guess those owners who had a property for 2-3 years who want to offload it, will probably say "oh well, I can hang on another 2-3 years and get the benefit". Make that 10 years, and the benefit of being a long term holder goes away. Now anyone selling in under 10 years pays the same tax as anyone selling in 1 year. So why bother holding on if its costing you money, time, and grief (especially now since you can't get rid of those bad tenants). So now people will go "no, I'm not putting up with this for 10 years" and will flick the property within 2-3 years like they always had done.
In addition, investors will switch from being medium term property owners to short term flippers. If you can make 10-15% in 3 months by flipping a property, why would you bother holding for 10 years just to gain the tax benefit? Opportunity cost of money dictates you will not commit to a 10 year holding period, and because the tax situation is the same for holding for 3 months as it is for 3 years, you might as well turn over your capital 2-3 times a year, than waiting for 2-3 years for the same gain.
No doubt Labour will implement new taxes in the mistaken belief that this will discourage property investors. Then Jacinda will act all frowny faced when the opposite happens, and everyone becomes a property flipper.

Let's not forget that 'no new Taxes' really means 'Swingeing increases in existing Fees, Contributions, Charges, Levies' and so on...

No promises broken at all.....