Efficacy of using tax to deter property speculation up in the air; Meanwhile National campaigns on reducing bright-line test back to two years

Efficacy of using tax to deter property speculation up in the air; Meanwhile National campaigns on reducing bright-line test back to two years

The efficacy of the bright-line test in curbing property speculation in a market that's been heated for some years, is up in the air.

CoreLogic analysis done for interest.co.nz shows 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.

Under the original rule, most people who bought a residential investment property after October 2015 and on-sold it within two years, had to pay income tax on any gains made.

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

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

When the Labour-led Government came into power, it broadened the rule, requiring tax to be paid on gains earned from investment property on-sold within five years of being purchased.

Because the rule only applied to property bought from March 2018, it is too early to tell how effective its tightening has been.

Nonetheless, Labour is campaigning on keeping the bright-line test at five years, while National is campaigning on taking it back to two years.

National estimates this would reduce the Crown’s tax-take by $50 million in the year to June 2024 and the year to June 2025. These figures have been pulled from a 2018 regulatory impact statement prepared by Treasury and Inland Revenue.

However, Inland Revenue told interest.co.nz it didn’t actually know how much tax had been paid due to the bright-line test to date, as any income earned from the sale of a property is lumped in with a seller’s other income when they come to pay tax.  

As for the ring-fencing of rental losses on residential property, Inland Revenue said it was too early to obtain data on this.

National is also pledging to repeal this rule, estimating this would reduce the tax take by $190 million in both 2024 and 2025.

CoreLogic senior research analyst, Kelvin Davidson, said the sales data showed “mixed messages” regarding the effectiveness of the bright-line test.  

He believed the impact of a tax on property investors’ decision-making had been drowned out by other factors in the market, but made the point that we don't know what would've happened had the rule not been in place. 

“I suspect that in the current environment of low term deposit rates, people are happy to buy property ‘for the long run’. But if they have to sell within five years and potentially pay some tax, then so be it,” Davidson said.

“It seems fair enough to suggest that the original bright-line in 2015 has probably made some contribution to longer hold periods in Auckland, although the 2018 changes may not have done as much, and of course other factors may have dominated anyway.

“Around the rest of New Zealand, hold periods if anything have shortened since 2015, suggesting that bright-line hasn’t been a major concern (or again, has just been swamped by other factors).

“Indeed, given strong growth in property values around ‘provincial’ New Zealand in recent years, some people have probably been happy to carry on as before and have seen getting caught by the bright-line test as a small price to pay for access to the capital gains on offer.”

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61 Comments

16
up

Greens want it. Maori party wants it, Labour secretly have always wanted it. Just do the land tax as it kicks in immediately, not just when sold.

and we all live in leasehold properties? I am ok with an asset tax , it needs to be tax neutral or it's is just going to knock the hell out of values. People with money do hide it in assets and it creates inequality which in turn creates poor outcomes. It's just going to create incentives that many will not be happy with, especially if they have debt.

Do you have a reference that says the Maori Party wants a land tax? Given the substantial Maori holdings of land, the 2010 tax working group (under National) pointed out that their land holdings, coupled with the Treaty of Waitangi, makes this a fraught proposition.

Land Tax is a non-starter until they solve this problem first
Maori Land holdings are 9% of the North Island and 3% of the South Island. Do you exempt all that land before you start. In the following link to an article by RNZ interviewing He Korowai Trust chief executive Ricky Houghton. They have just received $1.8 million in government funds to build 24 homes. They want more. 85 percent of the community was on some form of benefit, 87 percent were single parents. Meanwhile they have 75,000 hectares of undeveloped land lying idle. Wonder how much they pay in rates

https://www.rnz.co.nz/news/business/426263/economist-concerned-governmen...

TOP's RFRM tax (aka what they're calling a property tax) specifically excludes Maori land.

Race-based tax policy. What an enlightened party. They also believe in allocating water ownership based on race.

I believe Maori land is exempt from such tax.

of course the Maori Party would exempt treaty land from tax.

Māori party want a capital gains tax, ghost homes tax and cuts to immigration.

https://www.newshub.co.nz/home/politics/2020/09/nz-election-2020-m-ori-p...

Wait what? The party is promising to act on the very problems that it helped create as a part of Key's coalition government.

Ha! I guess getting the boot by the voters made them have a good look at themselves. Hopefully the same will happen to the Greens.

The party has re-launched itself with new leadership and is effectively a new party with the same name, compared to the old one. They now are saying they'd work with Labour but not National in government, gone is all that two-faced "better to be inside the tent than out" garbage Pita Sharples used to trot out all the time.

data only shows who complied with the law (paid capital gains tax if sold within 5 years). there are many who don't. we all know that there are zillion ways to wiggle out of that.

There will never be a land value tax in NZ. You think Maori will submit to paying the Crown rent for their own land? Don’t make me laugh! You think the rest of the NZ public will submit to being serfs on their own land, paying rent to a landlord government? You must be joking!

I doubt land tax or CGT tax are coming. Good chance that some kind of death/inheritance tax is on the way though.

10
up

There seems to be alot of interest at the moment from the political parties regarding increasing the governments tax take, and yet no (not that I have heard) about the reduction of wasteful spending and inefficient and costly government programs.
Not to mention the consultation industry that is built around governments whom cant seem to make a decision without an exhausting and expensive consultation process first.
How about no more taxes and an increase in efficient spending?

Or we can have more taxes and an increase in efficient spending at the same time? So we can pay off the debts and solve more issues quickly. Don't you think this is a better idea? We are so far behind in terms of infrastructure and medical resource meeting the current population needs.

Can we? Looking at the return ratepayers get from their contribution would suggest otherwise. Too much talking and not enough walking

MMT tells us that taxation only returns the money that the government has created through its spending back to be cancelled. If the government didn't spend first then we wouldn't have the money to pay our taxes with. Taxpayers cannot create money as counterfeiting is illegal, so how can they finance the government.
Beardsley Ruml was a director and chairman of the New York Fed and he had this to say about taxation. Since the end of the gold standard, "Taxes for Revenue are Obsolete". The real purposes of taxes were: to "stabilize the purchasing power of the dollar", to "express public policy in the distribution of wealth and of income", "in subsidizing or in penalizing various industries and economic groups" and to "isolate and assess directly the costs of certain national benefits, such as highways and social security"
https://en.wikipedia.org/wiki/Beardsley_Ruml

Precisely!
Under MMT, Tax, is not needed.

Orr / RBNZ and Robertson / Treasury are practicing defacto MMT and inflating asset prices. Orr is pushing for more and more spending and underwriting it with zero or negative interest rates. There is no plan how the debt can be paid back.

10
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He is out of his depth. He is just copying what other central bank leaders are doing but with a bit more bias towards landlords. Blinkered tunnel vision thinking. Time to sack him.

Lower interest rates encourage more private sector borrowing and debt through the use of money creation by the banks, a separate issue to money created by the government for its own spending.

By private sector borrowing you mean mortgages? Because banks aren’t lending to businesses.

bw,

Nonsense. You clearly don't understand MMT. Taxation plays an essential role in it, as the means of reducing the money supply when inflation begins to become a problem. let me quote MMT economist Steven Hail; :So the role of taxation in the system is to delete some of these dollars from the private sector, to limit the ability of the private sector to spend" and again further on in the article; "Once these dollars are in the system, they are available to pay taxes and taxes play an important macroeconomic role in our economy".

Agreed. Start at the top: "This year taxpayers will pay $62 million in salaries for the 140 public sector CEOs".
https://www.taxpayers.org.nz/ceo_rich_list
There is always an argument that we the taxpayer need to pay market rates. But I say if they wont take a 50% cut then let them go out into the market. I would say most could not get that money in the private sector and definitely not in Wellington. Once you have trimmed them work your way down through the deputy CEO's and so on. Everyone takes a 50% haircut. Start a ZERO COST BUDGETING EXERCISE ACROSS THE PUBLIC SECTOR.

If they halved their pay to $32 million it would save every person in the country $6 per year. Now I assume you think these jobs are easy and any idiot can do them, I’d rather pay the $6 and not risk that assumption.

They are not at risk as in the private sector. When they don't meet targets we have a RESET and just forget previous stated goals. So yes I do think a lot of them are overpaid incompetent idiots. Most of them could not get even half their pay in the private sector in Wellington.

I like how some delusional Kiwis like to pretend that since we share ancestry with Western Europeans, North Americans and Australians, we all have similar economic structures.

In case you haven’t noticed, NZ’s corporate sector is made up of a few disproportionately large oligopolies paying well at the top end and getting most of their grunt-work done at unscrupulous wages. Those seeking better value for their skills leave for greener pastures and corporates here are happy to fill the “skill shortages” with migrant workers.

I don't understand your point? Please explain

For BLT to be affective, it should be made mandatory for all seller to fill a declaration (Just like buyers have to fill for residency status and under money laundering) giving details of any property that they own either individually or jointly or under trust and the same to be filled.

As many do get away with loopholes.

Policy announcement 1: Accommodation Supplement is scrapped. 4 billion more in to pay down debt. Rents will fall as tenants wont have the money. Policy announcement 2: All REALLISED gains on houses, farms and shares are subject to CGT. Rollover relief if sale is going into another property. CPI indexing so not taxing inflation.. Scrap the FIF regime and tax kiwisaver and international equities on a REALISED BASIS

WHat about consequences of withdrawing AS? here is the NZ Treasury assessment of the impact of AS on rental market in NZ: https://www.treasury.govt.nz/sites/default/files/2017-11/b17-3664879.pdf
Most AS households are single adults or sole parents, beneficiaries and working age. Uptake of AS by non-beneficiary households is low. So unless the Government can house the 210k recipients of AS, there will be significant social shock until things are settled.

duplicated.

The significant shock will be felt by landlords. As the options will be take reduced rent and keep the tenant or the tenant will have to move out. Given there are 210,000 landlords wont have a choice as the next cab of the rank to rent your house will also not have the AS.

It equates to 13.5% of households getting subsidized accommodation via the accommodation supplement. They are often get there bond paid for also.

Sure. and what will happen to them? they obviously have no income to pay for rent, even if rent is zero. And on under what scenario landlords will accept a loss making rental? they would be better off to sell the house to someone else (which will drive the house prices down and rents down too, as more people who pay their own rent will find buying advantageous) but you still have 13.5% of households who will need free houses. Unless the government has made adequate provisions for these people, where they will live?
State housing must have been built to the adequate number at which point you can cut AS. You simply cannot cut it out all of a sudden. The more you build state houses, the less you have to pay AS, but then building state houses is also expensive (you will need a lot more money upfront) and not easy to do and it wont be fast.

The 13.5% on the Accommodation Supplement are not getting 100% of there rent paid. Some maybe but for a lot of people it is a top up of rent. So that's what the private landlord wont be receiving. Some get to use their accommodation supplement to pay their mortgage based on what I have read on the MSD website which is just nuts.

NZ has a distortion that significantly favors houses over other forms of investment. A Good article worth reading https://www.newsroom.co.nz/as-safe-as-houses. However, we tax offshore equity investments punitively whether direct or via kiwisaver on an UNREALISED BASIS. We tax the FX movements on foreign denominated investments on an UNREALISED BASIS. But invest in houses and you just never pay tax on gains. Total BS.

Could you imagine the outrage if the property investors in Auckland since 2011 paid tax based on the increment in value of the properties each year when they were not even sold. But the 3.3 million in kiwisaver are oblivious to this stealth tax that is having a major impact on how much they have for retirement.

Bravo! And something that needs wider publication.

This is the tax issue no reporter wants to ask Robertson is kiwisaver. The Government is robbing kiwisavers with its FIF tax regime to the extent they are in international equities.
On 1 April 2020 they happily tax everyone on 5% of their kiwisaver balances even though the vast majority had gone down substantially. Further as they recover during 2020 they will tax them on 1 April 2021 on another 5%. So yes, we get taxed when kiwisaver makes losses and then get taxed again when the recover to pre-existing levels. So this Government is not doing any favours to kiwisavers. It’s a tax cash cow for the Government that nobody wants to talk about. The same applies to anyone invested in equities outside NZ and Australia. All the while gains in houses supported by Orr and Roberston remain tax free. Grow some kahunas Labour and bring in a CGT and tax kiwisaver and international equities on a realised basis.

Bullshevik propaganda.
Any party that brings in CGT will bury themselves across the majority of illuminated voters, irrespective of what party they support.
Those properties were bought with after tax money, the sweat and blood of many small investors, and retired people.
You already have the bright line test, so no need to parrot the CGT up.

You pay for shares in Apple with after tax money, the sweat and blood (just emotional words) but you get taxed on an unrealized basis. So why not houses tax houses via CGT. That's the distortion. Apple shares are taxed via our FIF regime at the lessor of 5% of the value or the difference in movement in market value each income year even if you don't sell. The same is done to our kiwisaver balances. You get taxed even if the loose value in a year. We need CGT on houses, farms, businesses and shares. I am happy to pay it on a realised basis.

The after tax money argument is rubbish. By that theory if you are born into a rich family you can make tons of money from investments and never pay a cent of tax in your life (generations ago someone may have paid tax when that money was “earnt”).

I want one. Happy to pay it.
In the new covid world losses are being socialized everywhere at the moment and the masses in the private sector are going cap in hand to the Government for wage subsidies and lolly scramble payments to industries and businesses such AJ Hacket, Waitomoe Caves etc. Last time I checked these companies profits were private matters for their shareholders.
There is no way I would be seen to be doing this.
RBNZ is creating an artificial interest rate and debt market to save the debt fueled.
If you happy to go cap and hand begging and want your losses socialized you need to man up and take your medicine of a CGT regime to pay for it.

Introduce an extra tax threshold that runs parallel with existing taxes. If you own 2 houses, you move up a band, 3 houses and up another, 4 and again, etc. On top of this introduce CGT on all property. Time to level the playing field. No more NZ elitism.

Since the housing market funds small and med business in NZ, how will you fix the fallout of all of them collapsing when you crush the housing market champ?

This is the ugly reality which willneed to be addressed first before the academic fools can get their pet theories implemented.

Oh no - theoretically if I sold up I'd have to pay 33% tax on a $140k gain in a single year by doing nothing but having access to credit and sitting on my a$$ ( I've really boosted NZ's productivity) Ooops almost forgot about the rental - that's another $70k cap gain..

Its insanity..why would I ever start a business again? Money for nothing and your chicks for free...

Its a pity the productive economy has been in the doldrums for years - lets speculate with QE!

I wouldnt be surprised if Orr came up with another genius plan to raise house prices. Every NZer could take out a hundred credit cards and just use each one to pay off the next. Much like whats happening now with mortgages.

Yip this is why I think the housing market has ponzi characteristics. Those in early are the winners, those who enter in the final stages may never see their money again.

Extend the bright-line test to ten years and enforce it

IRD have had the ability to tax traders in residential property even in the 1976 Income tax act. So they could have been doing something about the property flipping a long time ago but have not had the will.....

Don’t they have to prove intention? If you say you intended a long term rental but then you changed your mind, how can they prove either way? Unless you buy and sell all the time that is.

Intention is not just "what you say". There is case law on it and they can at least use these tests to target flippers of property. At its peak the flipping in Auckland pre Brightline tests was crazy and nobody was paying tax. Maybe you can get away with one but more than that can easily be caught by we have an incompetent IRD at going after property speculators. I have not seen any cases in the last 5 years they have taken....i might have missed them but I did have a look in the past. Resold in 30 days for a big gain should have been caught.

"New Zealnders have no appertite for a capital gains tax" Ok, can we have a referendum on capital gains tax? I dare you......

I am a NZer and I want one. Happy to pay it.
In the new covid world losses are being socialized everywhere at the moment and the masses in the private sector are going cap in hand to the Government for wage subsidies and lolly scramble payments to industries and businesses such AJ Hacket, Waitomoe Caves etc. Last time I checked these companies profits were private matters for their shareholders.
There is no way I would be seen to be doing this.
RBNZ is creating an artificial interest rate and debt market to save the debt fueled.
If you happy to go cap and hand begging and want your losses socialized you need to man up and take your medicine of a CGT regime to pay for it.

Yes I suspect over 50% of NZers want tax to be paid on housing investments (not including the family home)

Ah, so they want to push people towards McMansion building. daft, but predictable.

Just implement a straight up land tax of about 0.5% to (max) 1%, paid yearly, and a commensurate reduction in income taxes to rebalance the tax structure from income only to income and capital.

Voted blue twice, due to Lab inefficiency while I'm in civil servant, until realised they not doing anything for the betterment of overall NZ society, so voted back red in as token of past thank you gesture for being a bit of socialist. A good & a bad both sides, ups/down, very much thank you to interest.co.nz - to educate further myself in Economical senses for the country as a whole. But eventually, will have to push the green button after further study and the only option to add more colour into sketch draw, before moving to OZ once the border is open. For our family case the comparisons of Pros, clearly outweigh the Cons so far.

I would rather a CGT just applied to all property, including family homes. We have to pay for covid somehow. Make it simple and apply to all property, similar to how GST just applies to all goods and services. Prevent people trying to avoid it by putting property under different peoples names. Maybe then, people will start to invest in more productive parts of the economy. Also house prices needs some form of tax fix, it is the only way to solve it. We are just kicking the ball down the street not dealing with it.

If we don't deal with it, we are going to end up with wealth taxes.

Does anybody have any figures showing how much CGT has been paid since the bright line test came into effect in 2015?