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David Hargreaves thinks that regardless of the election result next year, recent changes to the country's housing investment rules may well be reversed

Property / opinion
David Hargreaves thinks that regardless of the election result next year, recent changes to the country's housing investment rules may well be reversed
house-dollars

So, how long do we think Labour’s removal of tax deductibility on interest payments for housing investors will last?

(Spoiler alert, I think the policy will be gone pretty soon – and maybe even Labour itself might remove it if it thinks this will save it some votes. Maybe).

It somehow never felt 'real' to me when Labour unveiled its heavy hitting housing package just on a year ago now. It seemed to come out of the blue and was much heavier handed than anything I expected. It didn’t look measured. It looked drastic. It looked as if it was reactive to current circumstances – rather than taking a balanced view of future requirements.

If we recall, the key elements of that package were the deductibility move and also an extension – to 10 years – for the so-called bright-line test, the capital gains tax that dare not utter its name.

As far as I could see the measures stemmed purely from Labour’s feeling of frustration and impotence in a then raging house market – coupled with how Labour’s apparent inactivity was being seen through the eyes of the public.

The packaged followed some not particularly elegant attempts by the Government in late 2020 to push the Reserve Bank into more directly influencing house prices. The RBNZ politely pushed back.

So, to March 2021. Interest deductibility is cut. Boom.

In many respects I think removal of deductibility is a sensible measure – but only in the context of an overall tax overhaul. And do it after extensive examination of potential ramifications. This wasn’t the case. It looked hastily put together. Kneejerk. Scant consideration of potential pitfalls.  

Hastily conceived rules are a recipe for the dreaded unintended consequences.

Another point to consider is that any measure aimed at housing investment in New Zealand bumps up against an ingrained, call it almost a cultural, mindset.

When Kiwis think investment and savings - they think housing.

Fair enough. We’re allowed to. But this is a potentially very dangerous locked-in way of thinking. It can lead to an ‘all our eggs in one basket’ situation, which is pretty much where we are now, let’s face it.

I thought the comments by National Party leader Chris Luxon on the interest deductibility (as he vowed that a National Government would get rid of it and other Labour tax ‘grabs’) were quite instructional as to the NZ psyche. This quote in particular:

“There’s the removal of interest deductibility on rental properties – a tax on Kiwis who’ve worked hard and put their life savings into a rental.”

That comment speaks to me of a mindset where there’s something noble - to be admired and encouraged - about investing in property. It’s the New Zealand way. It is us. It is the RIGHT thing to do. It’s a right that should be protected.

If you actually look at the comment closely it doesn’t pass muster. It says that Kiwis who ‘work hard and put their life savings into a rental property’ shouldn’t be taxed – but presumably it’s okay for New Zealanders who work hard and put their life savings into a bank to then get taxed on interest income. Ditto for those ‘hard working’ Kiwis who buy shares and get taxed on the dividends. If we all ‘work hard’ and save, why should we be taxed at all? Let’s do away with PAYE!

Yes, I’m being ridiculous. But I do think the above passage demonstrates the pedestal housing as an investment is put on.

There’s always been a need to get Kiwis to see beyond just housing and look more favourably at other asset classes. Diversification of risk.

But arguably the best way to do that is by handing out some carrots, some incentives for people to try different types of asset classes. No, don’t just apply the big stick to housing investment.

That’s where Labour went wrong.

The other thing wrong was that Labour targeted housing pretty much in isolation. It looked like housing and housing investors were getting ‘picked on’.

Sorry to perhaps sound like a scratchy record, but I think our real problem is that this country won’t, not now anyway, contemplate a comprehensive capital gains tax.

Look, we really do need to face up to it at some point. This argument is not new, let’s face it.

If we look at taxation of housing investment in NZ as it stands at the moment, well, it’s pretty darn ad hoc. Along with the interest deductibility move in March ‘21 there was the bright-line tax extension, which as stated higher up this article is the capital gains tax that dare not mention its name.

This is a tax actually introduced by National, the party that apparently doesn't do taxes, in 2015. But when National introduced it, the period it covered was only two years. Those of a sceptical disposition might have felt the new tax was more about simply being seen to do something against a blazing hot house market at the time.

Labour has subsequently picked it up and made it a real, fully-fledged capital gains tax without being a capital gains tax. Whichever way you look at it, this is a tax that was created, almost by accident – and now it’s a central part of how we tax housing investment. Accidental law making gone mad.

So, to get back to the idea of a fully-fledged capital gains tax – well, it should be put back on the table again, I think.

Rather than just attacking perceived problems (like a rapidly rising house market) by unholstering a new tax weapon, we need a properly integrated approach across our entire tax system. That’s surely the way to avoid inequities and unintended consequences.

But the only way we would seemingly ever achieve something like integrated, comprehensive, tax change is to get cross-party support – preferably signed in blood.

Up to the point that the Government ruled out a Capital Gains Tax in April 2019, the National Party had been clearly setting itself up to run its entire 2020 election campaign around 'no' to the tax. So, PM Jacinda Ardern's 'not under my watch' edict was smart politicking in that it completely pulled the rug out from National. But the whole episode was a massive lost opportunity.

An issue like CGT would always be a too-powerful election weapon, with politicians in all parties unable to resist the temptation to use it.

And perhaps likewise that Labour housing package of a year ago is too easy a target for the politicians. Its removal would be a vote grabber.

Now that the tide has turned in the housing market there will no longer be the same sort of urgency for such measures. Isn’t this always the way? The heat comes out of an issue and the problem fades into the background. No need for action now then! Stand down!

But this applies to all the politicians, including in the Government.

In short, if the National Party gets the sort of traction I think it will get for the plan of axing the interest deductibility measure, along with reversal of the bright line test move, then don’t be entirely surprised if Labour itself pro-actively moves to head off the opposition and does a U-turn on those measures itself. It wouldn’t be sold to the public like that, of course.

The Government could claim changed circumstances and say the measures are no longer needed in the current environment. Hey, Labour is welcome to deny that it would under any circumstances do a U-turn on these measures if it wants.

One way or another though, I can’t see particularly the interest deductibility move surviving beyond 2023.

In some respects that will be a pity, but it will be a measure that’s lost really because of the poor way in which it was introduced and implemented.

We do urgently need to do something about an economy that is totally lopsided in terms of its focus on housing.

But we need a comprehensive, integrated solution. Not ad hoc tinkering. Otherwise, we just go round and round from one election cycle to another.

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213 Comments

Labour will be out of office by 2023.

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28

Not much chance of election this year - so no.

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4

Maybe not.  If house prices drop by 40% now, immigrants don't arrive, Kiwis keep leaving then rents will fall just before the next election. The results will be (1) a reversal of the massive increase in emergency housing (2) some really upset property owners (3) the low paid with reduced rents or better housing for the same rent rejoicing.  Since investment property owners are a minority who mainly vote National anyway Labour won't worry about them.  Labour will actually able to say it has achieved its policy goal of better housing for poor Kiwis so they will be reelected.

 

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19

If house prices drop by 40% now, immigrants don't arrive

The Ponzi scheme run by Immigration NZ never runs out. If house prices drop by that much, joblessness in various dependent sectors will drive Kiwis overseas. The Labour-National government, doesn't matter whoever is in charge, will use this as an excuse to ramp up arrivals of students and temporary workers by tens of thousands.

Don't let terminology such as skilled migration or international students fool you; all we do is bring more consumers to artificially prop up our economy. Why else are we allowing below-median wage earners to bring their family along after a so-called immigration reform in 2019?

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18

House prices have to drop by 40% to 50 % from average wage earners to be able to afford a house . With interest rate raising and inflation it could drop even more . Who will buy houses if average wage earners cannot afford them, yes it’s going to cause hard times to people who have purchased over last 3 years but hopefully they made money on way up.

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11

INZ does run a Ponzi scheme and does so encouraged by whoever is in power.  Proving whoever is in power is more concerned with maintaining a gap between themselves and those deplorables who are mere working class. That is those indispensable people who were invisible until Covid-19: cleaners, shelf stackers, bus and truck drivers.

Why else do our governments talk about skilled migration but never publish data on the many immigrants earning below median wages.

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10

Apparently the bulk of NZ's initial settlers was really a "population export business".

"The New Zealand Company overcame these barriers. Founded as a commercial operation designed for investors, it was also based on the widespread view that population growth – regarded as desirable – was related to food production, and that the solution to mass starvation was to export surplus population. Added to this belief were the ideas of the Englishman Edward Gibbon Wakefield, who developed theories about solving social distress. He argued that to make emigration to a colony ‘pay’, and to promote a ‘civilised’ society rather than a dispersed, barbaric settlement, land should be charged at ‘a sufficient price’. This would ensure that only some would be able to afford to buy land, and that landowners would have labourers to work for them."  https://teara.govt.nz/en/history-of-immigration/page-3

Interesting history I had not read before including the early immigration policies.  The history of Edward Wakefield is fascinating to read as well.

I'm not sure what you mean by your last sentence.  Are you saying high value people have the right to have their family with them but "low" value people don't?

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0

Deny the result just like mr donald and have the faithful storm parliament. Anything is possible if you can brainwash the followers like we have been with covid. Some trump supporters believe the autocrats like Putin and Xi are the good guys that are fighting against deep state. Goodness gracious these people have no right to vote 

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4

Spoken just like Hillary Clinton, and Joe Biden's vote counters.

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Only a matter of time. It was never intended to last.

It is against the accounting principles. No expense deduction? Don’t tax on profit.

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4

Interesting timing, given that the bill that legislates this change just passed 2nd reading yesterday, and 3rd reading is generally pretty pro-forma.

I don't see Labour removing it entirely. But I could easily see them pausing the current progressive roll out of the allowable deduction. For 2022-2023 tax year it will be 75%, then for 2023-2024 tax year it will be 50%.

If they pause it at 50% and don't let it go lower, then they can in a sense have their cake and eat it too:

1. They get the immediate impact it had on investor in the property market (their share of new mortgage lending collapsed after March last year)

2. They still get to claim that they've applied more taxes to property investors

3. They get some kudos for giving some relief back to investors

4. Easier to spin as not being a u-turn and talk up about how the situation has changed

The biggest fly in this proposal though, is that the change last year was for any property bought after 27th of March, or whatever the date was, had 0% interest deductibility immediately. So such a change above would be taking those properties from 0% up to 50%.

This would also bring the system more in line with what the UK did - rather than bringing interest deductibility to 0% over a period of years as this government is doing, they moved from an old system to a new system, where it appears you can get a 20% tax deduction across all investment property expenses, rather than your marginal tax rate: https://www.axa.co.uk/landlord-insurance/landlord-tax-relief-changes-ex…

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3

Mr Luxon will reverse every tax imposed by the Labour Government. Its very appealing, when inflation is sky high, and when houses are no longer affordable for many.

I do think that if National wins, that they will not reverse the smoking and CCCFA legislation.

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2

Why do people think that house prices/values can survive high inflation? The first casualty of inflation will be peoples willingness to lend or ability to borrow at current DTI levels. If rates don't rise deposit savings can't keep up with inflation either.

Houses are only able to be priced this high because people are borrowing to "afford" the price.

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18

It all depends on how fast and far wages increase along with inflation. Current house prices look relatively more affordable as wages rise.

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3

The banks will stop you from borrowing the rest much faster than your wages can catch up.

Lets say hypothetically: all of a sudden wage/CPI inflation jumps to 7% but mortgage rates more than double and credit availability halves. Ignoring deposits for simplicity, the value of existing houses halves overnight and it will be 10 years before you get the same amount in dollars for your house (but the real value will be half). This goes for rental income covering the mortgage as well.

Sure, if you investment goal is land (for retirement or possibly income in the long term) rather than money this situation is fine if you can hang on. It will take a very long time to recoup you housing portfolio halving in rent (it may be too late a payback for a boomer, compared to selling for an inflation indexed asset).

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4

A house is only worth what a bank will lend to purchase it.

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7

The 7% inflation isn't a hypothetical... it's already here.  The hypothetical part is just the interest rates.  I'm thinking we watch this space....

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2

I am not sure if rents will fall in a falling housing market, would you buy a house in those conditions? I wouldn't and I think most people wouldn't if they did it wouldn't be falling. Expenses for maintaining a house will not fall, interest will not fall, renters will not be flocking to buy their own because of high interest and falling prices.

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0

Wages have not increased 30% in the last year. 

Nor will they next year. 

The promise of inflating wages to cover excessive debt creation will lead to nothing but future austerity and a continuing squeeze on the middle class. We will end up like the UK Post gfc. Continuing squeeze on daily life with all problems blamed on the new immigrats flooding in. 

All roads come back to the start point. When faced with market instabily, do we a) accept short term pain, or b) print loads of money and let future people deal with the consequences?

Market instability now is largely a result of the overstimulus of CBs. What would have been so bad with a recession in 2020? 

Analysis now should be focused on the roles of CBs with a focus on restricting emergency responses and keeping credit creation at a sustainable rate regardless of market ups/Downs

Also acceptance that 6 to 12 months market shocks are inevitable, and to be welcomed. 

Cause clearly at the moment they are just making s*** up as they go. And we are all suffering for it. 

 

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0

I worked in finance in the early 1980s. Trust me, people borrowed like crazy, because tomorrow it would be even more expensive to buy. How quickly we forget our history.

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3

The early 80s was the end of a period of massive rates (>10%) and inflation (off the back of high numbers to begin with) as opposed to now where we may be transitioning from very low inflation.

After a massive drop in real prices, this mentality may come back. Would you want to hold property for these first few years?

Edit: Looks like houses costed only two times income in the early 80s.

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2

It really depends which comparison year you choose as wages lagged prices in a time of extraordinary inflation. Average house price in 1983 was about $50k, up from <$30k in 1980. Average wage in 1983 was around $14k, up from around $12k in 1980.

Affordability is another story. Trading bank  interest rates were above 10% through the 1980s, the headline average rate is reduced by subsidised Housing Corp, Post Office etc Govt 3% loans - fewer people qualified for these.

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1

Yes and around 12% unemployment at the time too. Houses may have been 50k but folks still couldn't afford them.

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2

From 82-84 NZ had a wage and price freeze. Which would have distorted things a bit. Also in 1983 Muldoon made it illegal to lend money on any building or land at more than 11 percent for a first mortgage and 14 percent for a subsequent mortgage. Using the argument that the Wage and price freeze had "controlled" inflation to 8%. Labour removed the freeze at the end of 84 and inflation rose to 16% in 85 and peaked at 18.9% in 87. 

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0

Great, a property investor formulating a policy to set the housing market to moon.

What else you can expect kiwi leadership both labour and National trying their best to make houses unaffordable.

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25

Foxes guarding the hen house, unfortunately. A real conflict of interest when so many MPs are getting wealthy off free money for houses.

It is no surprise that National will look to leave working Kiwis paying all the taxes and property investors getting a free ride.

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0

We are Kiwis and this is what we do!! What a load of self cheering bollox. Luxons been scoffing from the pig trough too long. I think this is the most predictable and pathetic vote getting campaign from Luxon. No ideas and no vision, just sleezy politics 

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43

By definition a conservative party has no ideas. It worries about unintended consequences of new policies - and with good reason watching Labour's policies rapidly increasing the number of beneficiaries needing emergency housing.  So the National party should never have any big ideas - just a vision of some mythical arcadia that we have lost and only they can return us to.  It was their sleezy politics that prevented me voting for them.

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7

Yeah, even the new National leader with his "fresh perspective" to politics and years of top brass business experience is only interested in sucking up to speculators and ticket clipping businesses. Wouldn't expect any better from Seymour, who should aptly rename his party to US Republican party - NZ Chapter.

Ironically, the business-friendly, pro-market expert parties hates nothing more than market reforms and an even playing field for all!

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9

Let’s be fair John Key had the flag referendum, asset sales and some guys told him about cycle ways. They were some transformational proposals.

Ironically the best thing the Key government ever did was the GST swap which was a broken promise and much maligned but I loved that one.

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1

And National lost because of the flag, asset sales and over-priced under-used cycleways.  Next time they will avoid all new ideas and when backed into a corner just copy Labour's failsafe technique of appointing a commission to review it.  One idea is all they need: the govt is not a wise spender of other people's money.

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2

Sorry which over-priced under-used cycleways were responsible for National losing the election?  This is a very bold claim, any evidence to back it up? 

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4

How wasteful! For only a few million more, they could cut taxes on petrol for 3 months and make sure people keep on polluting and importing as much oil as possible. 

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2

That's an announcement on funding, I asked which over-priced under-utilised cycleways caused the National party to get booted out.

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0

Check the third link I posted.

18 MAY 2017

Govt $333m Urban Cycleways Programme achieves halfway point

Transport Minister Simon Bridges today marked the halfway point for the Government’s $333 million Urban Cycleways Programme (UCP) with the completion of a section on the Little River Link cycleway.

“The UCP is making a real difference to cycling in the regions all around New Zealand, and today’s opening is just another example of this successful programme,” Mr Bridges say

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3

Yep I saw that, but again which over-priced and under-utilised cycleways were responsible for National's downfall. 

What I'm looking for was evidence that they were overpriced and under-utilised and that they caused National's downfall.  

 

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0

Two additional points

1- that $333M spending announcement was in the context of a forecast expenditure of 2015-2018 National Land Transport Programme of $13.6B or $13,600M

2- an announcement does not equate to delivery

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0

The  narrative that property investors are hard working kiwis saving for their retirement certainly isn't what you hear from young people.

There it's more that property investors are parasitic slumlords, increasing their unearned wealth at the expense of the young and poor.

Any winding back from Labour might gain them a few votes from the centre, but they'll lose more than they gain to Greens and TOP. 

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24

The greens have clearly stated they will only ever work with labour. This means that from a strategic perspective, votes lost to the greens are largely irrelevant until the green parts starts to approach parity with labour.

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1

No they said they can't see themselves ever working with National or Act.

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0

Labour should hold their nerve on this. The policies are having the desired effect. House prices are falling, rental choice is increasing. Why should someone who has used equity in their first home be able to finance a second property and claim tax relief. There is no "hard work" involved in that. I would prefer the introduction of Individual Tax Free savings accounts so that those saving their hard earned money are not taxed twice. 

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47

Wait what ? Rental choice IMPROVING??

 

No it is far worse.  Every day I hear more and more stories of tenants whose landlord has sold/is selling and cant find a place. 

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5

I have rental property and do my own accounts. Fortunately mine are near the end of their mortgage life but an investment property with a large recent mortgage will be a timebomb. A property investor lives on the difference between rental income and outgoings - this is fairly marginal so a modest increase in mortgage rates and removal of mortgage interest as an expense turns the chicken laying golden eggs into a wealth consuming ogre.  Expect more properties on the market and even more rapid collapse in house prices.  

 

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10

that sounds like a very good thing for me (and many many others)

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16

Hope that is true.

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6

and therein lies the moral dilemma singautim...you now have a freehold asset while those hard working tenants have absolutely nothing...how about we devise a capital gains sharing society where those who pay the mortgage end up with a share of the gain..instead of using them as serfs to maintain the land-lord

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6

I don't think landlords should benefit from both interest deductibility, and tax free capital gains when they sell up. 

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8

why not?

Do you think it's a good idea to tax on revenue and not profit?

Do you think it's a good idea to attack the foundation of the one asset class that holds most of New Zealands's private wealth? 

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1

YES!!!

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3

Zero sum game thinking.  Communist stuff.  Labour's solution to the wealth divide is to make everyone poor.  If New Zealanders are investing in only one asset class then the government needs to provide serious incentives to invest in other asset classes, and not destroy all the wealth.    

 

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2

There is no extra wealth… it’s on paper money

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2

Perhaps.  You could argue that real wealth is production, innovation, and intellellectual property.  But then there's the Cantillon effect, and the synergistic effect that cities have on innovation production and IP.  Geoffery West wrote a nice book on the latter called "Scale".  Of course realestate rides both waves.  It's more than just paper wealth.

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1

So by your reasoning: My hypothetical company employs 70 people and returns a profit of 1.2m each year. The employees should get a cut of the profit? 

Your rent provides a benefit for the term of the payment. There the transaction ends. 

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3

The policy is basically a copy of the one introduced by George Osbourne in the UK 5 years ago. It's now fully implemented, result high rents, lack of affordable rentals as the small landlords sell, and increase in larger corporate landlords, who charge higher rents (as they have higher overheads and need to show a profit)

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2

Presumably Osbourne's policy has made property not viable as an investment if the investor had to borrow to raise the necessary capital. So the problem was would-be landlords trying to invest when they did not have the money to do so, rather than Osbourne's policy.

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0

Osbournes policy has made the finances of running the rental more expensive, as you are taxed on money that does not exist - as it has been spent paying a mortgage. The result is the landlord has to add money from his personal cash flow if he has enough which then forces the rent to rise or for them to sell the property,  sometimes to a larger corporate landlord (the tax rules do not apply to landlords with more than 10 properties in the UK) New landlords are discouraged by this tax and the BTL (but to let) market has collapsed.  The end result is less affordable rentals and higher rents. 

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3

Making interest non deductible is very sound idea, but when they have previously been deductible for a long period the change is always likely to hurt persons who have invested under the old rule, but that shouldn't stop a finance minister making the change if it's the right thing to do. With Robertson's policy change that change will be phased in over a four period, which should assist investors to adjust. 

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0

Making interest non deductible is a bad idea and goes against all standard accounting practises as it is a legitimate business expense.  The 4 year introduction is the same as the UK law gives landlords 4 years to raise their rents, lose cash flow or sell the rental and quit the market.  All of those things happened and the result is higher rents, less available rentals in fact a shortage of rentals.  This is a bad thing for people that need to rent houses. 

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3

What would be better for a renter would be a house that costs 3 times income and they can buy a house. They are over 11 times income this is criminal behaviour from both governments.

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0

Whether It is a good or or bad idea is beside the point. Non deductibility of interest is a sound idea because it accords with standard taxation practice. ( it is actually irrelevant where standard accounting policies are concerned.) Interest is not a business expense, but an expense that is personal to the landlord, so should therefor be non deductible.

The IRD stipulates that an expense is deductible if it is incurred for the purpose of gaining 'taxable' income. So, if a person purchases a property with the intention of selling it, any profit on that he makes on the sale should be taxable and, presumably, any expense incurred along the way, such as interest, would be deductible. However this would not apply to a property purchased for rental purposes since selling is not the purpose of the purchase.

There are two processes involved, the acquisition of capital (borrowing), and the investment of capital. These two processes are separate. Mortgage interest belongs to the first process and is therefor is not deductible since all that that process yields is money; and borrowed money is not income, taxable or otherwise. Taxable income comes from the second process, and mortgage interest is not a part of that process.

The Income Tax Act, when it defines expense deductibility, does not mention mortgage interest specifically, but if it intends the latter to be deductible, then I believe that that would represent an anomaly in the act.      

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0

Interest is a business expense as the rental property is treated by the IRD  as a business.  It is usualky one of the biggest expenses for a landlord along with other expenses council tax, maintenance insurance etc.  Business accounts have to be provided for the rental and a bottom line figure is arrived at costs minus income which gives profit.  This is what tax ishould be paid on.  By disallowing the interest cost you tax money that does not exist, which will lead to rent rises and a lack of affordable rentals as the numbers do not stack up.  Who do you think should pay the shortfall that is taxing the interest on the mortgage? Should the landlord subsidize the tenant? The whole issue will cause unintended consequences and has not been fully thought through before implementation. 

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I don't think the IRD treats rentals as anything in particular. They just assess tax on the figures you provide. Tax is based on revenue, which most certainly exists. (I don't really see what you are getting at by claiming you are being taxed on something that doesn't exist.) A landlord's taxable income is revenue minus deductible expenses. Interest payable in respect of a loan taken out by the landlord, but not by the business, should not be deductible. Payment of interest is of no benefit to the business. It makes no difference to the business whether or not interest is being paid on the capital invested in it. The clear beneficiary from the loan is the landlord, who obtains, thereby, capital to invest, and who will eventually include another property amongst his personal portfolio once the mortgage is paid off.      

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It was primarily done because entitlement mentality had already prevented other reasonable taxation.

But yes, CGT or an LVT on unimproved value of land would be better.

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  I hear more and more stories of tenants whose landlord has sold/is selling and cant find a place. 

Landlords are always selling, this has always been the problem with renting. Nothing new.  The sales stats show there has been no great selldown by landlords since the rule changes.

 

24th Apr 18, 10:10am by David Hargreaves
The country's facing the prospect of an "exodus" of landlords that will have a "devastating impact"  on the rental property market following the Government's moves to 'ring fence' property tax losses, the Property Institute of New Zealand is warning.

 

Thursday, October 08th 2020
No sign of investor exodus
It looks as though residential landlords are not exiting the market in droves as a result of the Government’s tenancy law reforms and other investor-focused policy changes.

 

Miriam Bell 05:00, Feb 08 2022
Mass exodus of landlords from rental market unlikely, survey shows

 

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5

On a side note @David Chaston, seems to be a bug with the "read more" clicky thing on comments.  This comment is cut short halfway through an HTML tagged out hyperlink.  Clicking on "read more" to see the rest of the commentator's post takes you to the external link, you'll see the address if you hover your cursor over read more.  

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2

So your latest article is BEFORE the March 2021 announcement. 

Take a look at lending since march 2021. 

Take a look at listing numbers and what is being listed. 

Bring me an article that takes into account the action happening since November 2021; this is when listings sky rocketed eg lower hutt going from 150 for sale to now over 600, huge increases in people selling

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08 Feb  2022 not current enough?

 

You think people only just realised in the last two week what the changes mean?

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Didnt see the last article as it would open a link as soon as I hit read more. 

But even feb 2022 a lot has changed since then. What in particular? A little thing called sentiment. 

Why landlords hold otherwise poor returning assets (based on market value v. rent) is the big double digit cap gains, they think wow I better not sell and miss this ride....

Then you get to today - prices falling - holding onto bad assets - everyone is off loading at once as can be seen in the number of listings doubling, tripling in some markets as everyone what's to get out while buyers are still paying this otherwise in a normal world purely insane prices.

 

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3

Simon - where’s that? It’s very different here in Auckland, where I live. There’s more Auckland rentals listed on TradeMe  than I’ve seen for a long while, and emerging signs of oversupply. For example, the rental in front of my place has been on the market for months, and the landlord has just dropped the price. It’s still overpriced IMO. We are also leaving our rental as we have just purchased.  My landlord is now very keen to do all the repairs he wasn’t prepared to do while we were tenants!  As prices continue to soften here in Auckland, I expect more and more people will be in a position to buy and leave their overpriced and poorly maintained rentals. 

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Exactly, at least in Auckland.

I'm monitoring TradeMe and will give sporadic updates.

Particularly interested in the number of 'townhouses' listed for rent, as many new builds are being completed.  

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That would lead to wealth inequality going up faster. At the minute if 1 person goes on holiday and another saves the 10k that would have been spent on the holiday, the rate of wealth inequality increase is slowed by taxing the interest income so that the real return is below inflation ( moving the 2 people closer together in real terms over time ). 
what you are proposing would enable the person who saved instead of going on holiday to increase his/her wealth relative to the one who spent it, this would result in increasing wealth inequality.

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Are you saying that it is unfair for someone to choose not to spend their money? Also wouldn't the person need to save the 10K in the first place before going on holiday? 

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That is essentially the premise of a wealth tax is it not?
You could get 10k by selling a car, collecting your KiwiSaver or winning a small prize in the lotto.

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I see your point. In the UK the tax free savings have a cap to avoid this. In the UK you can save up to $40k tax free but can only contribute $8k in a single tax year. This is a very useful amount for most of us but would be peanuts to the super wealthy. I don’t think the modest savings of wage earners should be treated as wealth. They already paid tax on the income.

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You can put £20,000 into a tax-free ISA per annum.  This is approximately $40,000 NZD.  The interest and dividends that you accrue are also tax-free (unlike the backwards tax system here).

In addition, you can also dump up to £40,000 pounds ($80k) per annum into a private pension.  This can be a useful tool for getting your taxable income below the £100k threshold where you would otherwise enjoy a marginal tax rate of ~60% between £100k and £125k as the tax free personal allowance is withdrawn.

 

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Is it $40 that is the subject of the UK policy, or 40 pounds?.

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Interesting to think about what carrot approached could be taken to shift people away from single-minded property investment.

Obviously Kiwisaver could, and probably should, be made more generous in terms of government 'contributions', meaning a slightly reduced tax take on our retirement contributions. 

Tax on term deposit interest is fairly insulting when the returns are so far behind inflation, but that's hardly incentivising investment in the productive economy.

In terms of shares - the FiF regime could be scrapped to remove complexity from overseas investment.

We are already lucky to be one of the few countries with tax imputation on dividends from NZ shares which is a great incentive.

Perhaps making the grey areas from 'capital gains' on shares would be helpful - at the moment whether you pay tax on gains seems to depend on intention at the time purchase. Perhaps a reverse 'bright lines' - if you hold shares for more than 2 years then in general tax isn't payable, or a tax free threshold on gains on sale to simplify things for small investors? 

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I hope it doesn't survive as in 3 or 4 years time NZ will run out of rentals and the Labour govt (if back in) will wonder why and try and blame other factors

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Run out of rentals because those trapped renting own their own home, you mean?

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Because of houses demolished to make room for more under the medium density residential standards and then those new houses not actually getting built because of reductions in credit availability due to government policy.

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A minimal effect.  Knocking the old place down is left until the last possible moment - after credit has been made available.

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Imagine going to the expense of bowling down houses without having access to funds to complete the work?  Maybe if developers are going around using residential mortgage lending to fund their projects, and commencing work on a conditional pre-approvals?  I would have thought commercial lending terms would be a little more.....commercial.  

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Why would we, as a country, knock our houses down before having the go ahead to rebuild?

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Because there is no point in spending the money required to bring those old houses up to Healthy Homes Standards if you are going to knock it down in a few months anyway.  And there is no point having it sit there empty racking up insurance costs and rates - better to get rid of it and only pay rates on the bare land.  Plus the upkeep is cheaper, no chance of squatters, and the neighbours wont have anything to complain about.

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Not viable to rent due to health homes standards ( cost to bring to standard would take up a year with of rent), unoccupied houses attract higher rates bills than bare land, high labour cost associated with managing tenants. Difficulty removing tenants if your timeline changes. It is fairly common to clear sections long before starting work.

Once you have more than 10 houses as security the bank transfer you to a business banking team, but terms are much the same as residential.

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That slack will be taken up by government house building scheme, which becomes viable when private construction is in the doldrums and land prices drop

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No, it doesn't work that way, or not to a large extent.

Developers and builders that go bust won't be solvent, so won't be able to assist the government with a building project that might be months if not years away from starting.

 

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People nail the frames together and do all the other tasks, not the financial holding entity. If developers go bust, builders will still be able to build for the government or other developers. 

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Don't worry, the developers got money, if most of them are heavily leveraged and not be able to finish their developments, I think it's not the housing capacity we need to worry about, it's whether people can put food on the table and mass exodus that we need to worry about...

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You will have to show some reasoning here - remember there are big exemptions for new builds. 

I admit, house prices may have to fall to make investment property a reasonable proposition again, but that's not a problem for renters. 

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The exemptions to new builds are not being applied by banks near as I can tell. Pretty much every construction loan I’ve looked at recently has required 40% equity and 6 DTI. The most recent one also came with extreme scrutiny of my personal accounts.

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I mean that new builds are still able to deduct interest payments from their rental income, for a period of 20 years. 

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Things are not being built.  Consented yes.  Sold of the plan yes. But built? No.  A section down the road from me which had seven townhouses consented and sold off the plan over a year ago, is still just an empty section.  No sign of any build starting any time soon.  Same with most of the other projects I've seen advertised for sale over the past year. 

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Whereas I've seen plenty of new builds going up in nearby neighbourhoods, quite quickly. Experience may vary.

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I don't think NZ will run out of rentals since no doubt many landlords will not be paying interest.

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Thinking that reversing the changes to interest deductibility would be a “vote grabber” seems fairly dubious to me. Around 14% of New Zealanders own multiple properties (and only a portion of these would be impacted by the changes).

How many of these property investors were labour voters? 
 

The realty is that housing is seen by the voting public as the biggest issue (although I suspect inflation will take over). 

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Yes I think Labour would lose more voters than they would gain - I know quite a few people in their 20's-30's who have been keeping with labour because of the interest deductability rules against property investors. If that is reversed, it might be the final straw for them and no longer vote labour.

Wouldn't surprise me if they do that to see Labour polling back in the 20% region again...may as well vote National or Act if they have no clear difference to other parties.

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uhm...
I think so:

-Left people vote left or, if unsatisfied, more Left (Green, TOP, Maori?)

-Right people vote right or, if unsatisfied, more Right (ACT, ?)

-Traditional people with not much critic spirit don't even wonder what to expect (they just keep voting what they always did), I have the feeling that a good half of the voters are so.

-Programmatic people switch Right and Left depending on programmatic differences (which tend to disappear)

So give group #3 and #4 are pretty much 50/50 in central major parties (assuming), I am expecting more people to move to the extremes.

I am surely going to be dimostrated wrong :D , but would not be surprised to see some TOP mp and more Green ones. ACT is now suffering just because of Luxon, but the honeymoon will not last forever.

 

 

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I'm Right, but Key and his nonsense forced me left.

But most recently TOP. 

I am on the TOP fb group and do worry about some of the stupid stuff being posted which is departing from the core well researched Morgan policies.  They need to be careful or they will become just another Party full of well meaning but out of their depth lefty light weights.

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ok... thanks for sharing.
I think that is less common to move from center Right to "extreme" Left.

But in this case is different, cause TOP don't really make it ideologic (I like them too)

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Exactly the same voted National but key with his petrol bomb adding to house prices and immigration severely disappointed me. Still does think he ruined NZ. Labour are labour but are always trying. So TOP seems to ring true in a few things for me, especially from Start-up small business and innovative ecommerce solutions perspective. You are always going to get loons on all sides, but NZ needs a fundamental strategic change. This property and immigration cheap heroin needs to stop.

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I really couldn't get over his flip flop on GST.  It's one thing for a politician to say they're going to do something, and fail miserably.  But it's another thing to flat out lie about not doing something and then go ahead and do it.    

And then for him to debrief on his time as PM by saying his biggest regret was not changing the flag?  

https://www.newshub.co.nz/home/politics/2018/04/sir-john-key-says-bigge…

Got his knighthood, got board position at NZ's biggest Australian owned bank, got his Honorary Companion in the Order of Australia award.  

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Liar robertson has been exposed, but do you care

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I've never voted Labour, so no not particularly.  

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I see that TOP have ditched the RFRR tax in favour of a land tax. Probably easier for the electorate to understand.

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The first thing labour needs to do is call our nationals cynicism. Labour put taxes on the rich - primarily a higher tax rate for people on over 180k and the interest deductibility change. National is being tricky by saying ‘we will remove all labours tax increases’ and then afterwards ‘whoops how were we to know they would benefit the rich.’ Labour needs to be shouting from the rooftops about who will benefit and who will not benefit from removing these taxes. If people find out that someone on $50k gets $2 a week or whatever while someone on $500k gets 10s of thousands a year that will change minds. 
 

Labour could also do a stealth tax cut for the lowest bracket in this budget that costs what National is planning to spend. And they could say well National promised to spend $1.7B or whatever, we agree New Zealanders need a tax cut so we’ve done one that targets those earning the least. The money is spent, the tax cut is targeted, now let’s move on. Then what will National do?

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Labour isn't exactly in a position to criticise National, given their immoral insistence on taxing the inflation component of pay increases at a time when their leader wants kudos for intervening in a 'costs of living' crisis. Do people need the money or don't they? 

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I'm not sure that the fact the rich benefit more than the poor is a good reason not to put through tax changes. I would argue that tax creep itself, while it may impact the rich more, is a problem in general, and brackets should be adjusted for inflation.

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What about 'income creep'...Compounding 2% wage increases over 10 years mean the gap between someone starting on 50,000 vs on 100,000 grows ever wider,($60,949 vs $121,899) which is why increasing minimum wage & cutting the bottom tax rate is a fairer foward.

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Yes, but say you feel bad for the person who was earning $170,000 and is now earning $200,000 and have been pushed over the line into the 39% bracket.

If you increase the bracket from 180,000 to 200,000 they get the same tax cut as someone earning 500,000 or 1,000,000.

But national aren’t proposing to do that. They are proposing to remove the whole bracket.

So:

• Person A (200k) gets $1,800

• Person B (500k) gets $19,200

• Person C (1M) gets $49,200

What is the policy rationale for this? If you invested all the money in the lowest bracket pretty much every full time worker will get the same benefit.

 

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They don't 'get' anything. 

They just have less forcibly taken off them.

Big difference.

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I don't get this opposition to tax.  Tax is great and the basis of a great nation. People who earn more should pay proportionally more.  Yes, as a high wage earner I hate paying it but I know that if I didn't our nation would be worse off.  All the national infrastructure, institutions, social safety nets prevent us collapsing into a winner takes all dystopia. 

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We really are a country that hates success.

Would you take into consideration that an individual earning $500k, or 10x your $50k employee, doesn't pay 10 x the income tax, they pay 21.84 x the income tax. This isn't proportionate to their additional earnings, its disproportionate. Even if the 39% top tax bracket was scrapped, that same earner still contributes 19.44 x more to the government coffers than the $50k employee (ignoring examples of tax avoidance and focusing on an honest tax payer).

Although I agree there is a wealth divide in ours and most country's, if we alienate the top income earners enough, they seek greener pastures abroad and all of a sudden their contribution to the system is zero. Less tax then either means other tax levers need to be pulled to compensate, or there is simply less tax in the system to be attributed to healthcare, education etc.

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True, we reward those who sit around speculating on land while heavily taxing those who engage in productive work. This hatred of high achievers seems to have come about through property speculators holding too much sway in policy.

We should drastically drop income tax and balance it with LVT on the unimproved value of land. Reward productive hard work, not sitting around on one's ass-ets. Stop the freeloading by the unproductive.

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Luxton said “There’s the removal of interest deductibility on rental properties – a tax on Kiwis who’ve worked hard and put their life savings into a rental.”

The fact is that interest deductibility applies only to capital that an investor has not put into a rental.

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Exactly...if you have already done the hard work then you will be debt/interest free on the rental! So you wouldn't care either way as you have no interest expense at all.

If you haven't done the hard work yet, and all you've done is speculate with debt and the interest is going to be an issue to you....well you haven't done the hard work at all...you've speculated with excessive amounts of debt.

Debt speculation is the complete opposite of hard work. Is debt speculation what we want to encourage? If so excess risk taking is now NZ's definition of 'hard work' which certainly is, in my opinion, a completely insane concept.

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Exactly. You have done nothing except be the risk proxy for bankers bonuses  and drain the benefit of the averageman's hardwork via debt servicing enslavement to foreign shareholders.

Politicians should serve NZ tax payers, not foreign shareholders.

 

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Yes, it applies to capital put in by the bank. I'm inclined to think that paying interest just pushes up rents. I think that if a would-be landlord wants to have a property to rent out he should buy one himself. If doesn't have the money to do so he should make the mortgage payments from his own pocket rather than push up the rent to cover them.

Being unwilling to do do that is one of the factors leading to inequality.

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Prime Minister Ardern is a savvy political operator. She will do whatever is required to win and if that means cuddling up to the neoliberal voters then that's what she'll do.

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Worked for John Key for two terms...but even then cuddling up to the neoliberal voters wasn't enough.

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National's playbook

Cut taxes, win the election.

To patch the shortfall in revenue, raise GST.

Is that not what J did, PM Luxon- a 2.5% increase adds to inflation.

And no to "gold passports", shady and dodgy $.

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Also, sell stuff the taxpayers paid for.

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I'm also not sure it's hitting the people it's intended to. 

My father owns 10-20 homes, mortgage free, so he has no interest to deduct. I on the other hand have one property that I rent, I am going to be thousands and thousands of dollars out of pocket due to the tax changes. So this law has put someone with 10-20 mortgage free homes at an advantage to Mum and Dad investors. Is that really achieving the intended consequence? 

Feels to me more like it was not targeting any particular person, as opposed to trying to come up with any way to cool the housing market. Perhaps policies that are well thought through and targeting the right people may be better?

 

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Your father has done very well for himself.

This is where wealth taxes would come into play - but unfortunately they are completely unpalatable in the NZ political landscape (for now).

But its a very good example of the benefit of being born at the right time and the excessive benefit that gives one demographic over another.

I'm sure there are plenty more people like your father who have become very wealthy from the housing market....and now we have to pay accommodation supplements as tax payers because a large segment of our society can't even afford to pay rent.

The whole housing market/economic system is very broken and needs serious reforms to bring about a more equitable/fair/balanced system - which will result in much better social and financial stability.

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Wish I'd written it: ""The whole housing market/economic system is very broken and needs serious reforms to bring about a more equitable/fair/balanced system - which will result in much better social and financial stability.""

However I'm worried about the serious reforms - other countries have different policies but is there anywhere that we can copy?  Be like Singapore and have the govt own most residential land??

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10-20? You don’t know how many or he doesn’t? Missing houses are usually in the last place you look for them.

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Also - sounds like unless you don't really need a rental property. As long as you're still in the inheritance, you have nothing at all to worry about.

So why do you need to buy rentals?

Is it a self esteem thing?

(I'm not trying to dig here...just trying to understand why you would want to buy rentals when clearly, as long as family relations are ok, you have nothing to worry about - Dad has you sorted)

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It is perhaps interesting to argue whether your father or you deserves to be targeted more.

It seems in his situation he can afford to keep rents lower for longer, and Labour voters should absolutely want this. 

In your situation you need guaranteed capital gains, or rents to stay as high as possible to negate your significant holding costs.

 

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The intended consequence was to "turn the market in favour of FHB".
If you can deduct interest and a FHB can't you have an advantage.
Now you don't.

Please don't start with the "is a business" bs. It is not.

"Mum and Dad investors" are supposed to used money they actually have, not the one that they can borrow. And if they choose so in any case they are rmoving a precious and scarce asset from the market.

There are not enough houses for everybody and they are terribly expensive still.
It is completely fair to remove deducibility from the normal market and allow it only for new builds.
 

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I own one house - the house that I live in. People who own multiple properties were a huge factor in driving up the prices of entry-level housing.

The intent behind this policy is obvious. The ideal number of properties for any person to own is one and no more than that, so I have a feeling you would not be any better off under more 'targeted' measures either way. 

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Your father is better off because he has more money than you. He should be paying tax on the income less expenses. The issue have is your biggest cost is no longer considered an expense.  
It is pretty harsh actually. What they should have done is put a limit on how much debt you can put on your house and claim interest for. This stops people moving debt to make it deductible. 

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Or seeing as it's a business, take out a business loan at 8 - 10% and then you can start claiming expenses.  

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I don't think is harsh enough actually. 

Houses are not zucchini.

You can choose to don't eat zucchini.

Choosing of not having a roof is much more complicate.

Doing "business" on something this delicate is ethically debatable to say the least.

Having even only one homeless person for a first world country is shameful.

It might be "normal" but is shameful nonetheless.
 

Until the point of post scarcity for basic houses is not reached I refuse to accept it as a business. It's exploitation, like slavery.

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In a truly competitive market borrowers would be competing against landlords who don't have to borrow. So any loss that that might entail would just be 'dead rat' that they would have to swallow. Still, nobody is twisting their arms and telling them that they have to jinvest in the property market.

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"If you actually look at the comment closely it doesn’t pass muster. It says that Kiwis who ‘work hard and put their life savings into a rental property’ shouldn’t be taxed – but presumably it’s okay for New Zealanders who work hard and put their life savings into a bank to then get taxed on interest income. Ditto for those ‘hard working’ Kiwis who buy shares and get taxed on the dividends. If we all ‘work hard’ and save, why should we be taxed at all? Let’s do away with PAYE!"

"Yes, I’m being ridiculous."

Maybe a tad tongue in cheek, but very true.

Ive been to a lot of start-up meetings and there are a lot of people that live on dreams and the smell of an oily rag, they work so much harder in a much riskier environment. They don't get molly coddled and have a market that is being pushed hard by banks and government, some business person Luxon is, he buys houses, whoa how original.

But these start-up companies are perfect for a country like NZ in the middle of nowhere. Make money from offshore through biotechnology, batteries, online, ecommerce, education etc. Cheap in terms of infrastructure but billions can be returned. NZ needs to setup an infrastructure where these types of people can flourish, pump money and technical resources into these areas, not fall over themselves for property owners just because people do not have any foresight on how to grow NZ as a whole. There is no reason NZ cannot grow an ecosystem similar to Silicon Valley, we can reinvest but we need a clear strategy for NZ. Not what we have where we rip off other NZers and create a tonne of debt for our future children to mop up.

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Instead the dream way of 'getting ahead' is to turn your neighbour into your debt slave so that you can enjoy a nice retirement.

Its a pretty toxic way of viewing the world...but that is just my view and I know many on here disagree with that which is fine. Just different ways of seeing the world and how you want to experience it, and the quality of lifestyle you want for other people in the community around you. I'd feel terrible knowing that I'm taking rent from somebody who might be really struggling to get by...I'd much rather help them become self sufficient so that they are no longer reliant on the state and can become financially free - as opposed to the current system where many people want to keep others financially repressed for their own benefit.

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I agree, I get more joy when people come along for the ride. Get the guitar out and have fun with others. Helping people to succeed is actually fun. You see it from a lot of investors at the meetings as well, I think they get a buzz from the excitement start-ups generate.

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Labour are weak af, watch them flip-flop on everything leading up to the elections...it's already started with CCCFA etc.

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They stuffed up and needed to change it. It would be worse if they didn’t fix it. 

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It looked drastic. It looked as if it was reactive to current circumstances – rather than taking a balanced view of future requirements.

This is why the United States cannot industrialize as long as the house prices absorb this high a rate of income, and as long as the banking sector is supporting this, and as long as the political parties say we will not tax real estate so that all of the rising land value will be able to be pledged to banks to pay interest instead of to pay taxes. Essentially, it’s the (lack of) taxing of real estate in the United States that has subsidized the increase in housing prices, because housing prices are worth whatever a bank will lend to buy a house. If you have to go to a bank, and if they lend more and more and this money isn’t taxed away, the price is going to go up. So you have the government policy, the bank policy, all trying to promote this high diversion of income into paying land rent. Again, this is the exact opposite of what Adam Smith and John Stuart Mill and classical economics and the whole 19th century had advocated. This has priced American labor and industry out of world markets.

If you have to pay 43 percent of your income for rent, then even if the government were to give you all of your goods and services for nothing, all of your food, all of your clothing, all of your transportation for nothing, you’d still have to pay so much money for rent and for health care that you couldn’t compete with labor in Asia or the Third World or even Europe. And so this is what has essentially excluded the United States from having a successful empire. It’s the greed of the financial sector, basically, and the takeover of the government by the financial sector here as happened under Margaret Thatcher in England and then Tony Blair. You’ve had both countries essentially enter permanent austerity programs, and the only way to cure this is for housing prices to go down. But if the housing prices go down, then the banks will go broke. That’s why Obama said he had to support the banks: because if he’d actually lowered the housing prices to realistic levels, that would enable America to survive, but the banks would go under. Until you’re willing to restructure the banking system, you’re not going to be able to industrialise the American economy.  - Link

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Thanks so much for this Audaxes. The commentary and links from yourself/ SH, Andrew J and PDK over the last 10+ years have been quite the education. Greatly appreciate it. 

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This is very boomer centric view of politics. The problem is the MSM are no longer boomers.

There is real risk they can't control the framing of this and this directly targets investors, who are a disliked group. I can't see the young tolerating giving investors back an unfair advantage if it pointed out to them there was something that made housing cheaper but we decided to get rid of it.

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It hasnt made housing cheaper, its made rents more expensive.  And more expensive rents impact 45% of New Zealanders, whereas what percentage of NZers are first home buyers who might benefit from buying a cheaper home?  0.0024%

 

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What has driven up rents is not the new policy, but the desire of property investors to acquire properties without paying for them. There is an idea, that has been around for decades, that the way to get ahead in this life is to borrow some money, purchase a rental property, and then get the tenant to 'pay your mortgage'. This just pushes up property prices since, if a landlord was to pay his mortgage from his own personal resources, changes in interest rates wouldn't affect his rental business. Mind you, such a plan might entail living more frugally for a while, but then that's probably what you have to do to get rich.

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I don't believe they'll prioritise removing the property tax change. It's a big talking point on these pages, but in reality will win few votes. First cab off the rank will be income tax cuts to reverse tax bracket creep. That will benefit the largest swathe of the population.

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What about 'income creep'...Compounding 2% wage increases over 10 years mean the gap between someone starting on 50,000 vs on 100,000 grows ever wider,($60,949 vs $121,899) which is why increasing minimum wage & cutting the bottom tax rate is a fairer foward.

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The rates need moving up. They also need to serious look at the 30% rate. You go from paying 17.5% to 30% at very modest incomes. 44 hours a week at the new minimum wage will put you in the 30% bracket. It is wrong that they take so much and then give it back in the way of benefits to those who earn more but are deemed worthy. 

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With only around 300,000 property investors in NZ one has to wonder why there is such support from the political class, or indeed why there isnt support for a party that seeks to gain from those facts.

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It’s why they always try and make out that policies that are anti specuvestor are anti tenant. They know if it is reported honestly nobody will shed a tear for them.

Same as Nationals tax policy - its being reported as addressing the cost of living crisis even though most people get nothing and rich people get heaps. The media could report on this but they don’t.

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For divide and conquer to work effectively, one must create the "other".

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Rental housing should not be a risk free asset class with special tax treatment and government underwrite.

Specuvestors needed to learn the lesson that private sector people farming is not a long term bet. They are just lucky that the Reserve bank and Government conspired under the cover of Covid to give the market one more pump before they gave it the needle. Now the values will settle back 10-20%. Those who purchased in 2021 will get a blood nose. Everyone else will just see their paper wealth decrease a little. If you care about the economic future of NZ then just get over it.

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It is not risk free. Just read your newspapers.

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Risk free rate is pretty close to zero. So if an asset appreciates at 30% a year (30% above the risk free rate) is must be deemed to be a highly speculative/highly volatile investment (more so than most shares in recent history) that is exceptionally risky.

"Safe as houses" or "speculative gamble" when it rises 30% above Rf rate?

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Close to risk free if the Reserve Bank and government leap to the rescue at the slightest sign of tough times. See: recent money printing and dropping of LVR limits to prevent price falls.

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Labour introduce a policy then lose the election

National remove that policy and introduce their own

Labour removes that policy and introduces their own... 

Rinse and repeat.

We zig zag loosely towards a goal instead of making any meaningful changes to get us there. 

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Good points - what is the end goal in your view?

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The one party system.

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The no party system - 60 jobs - 60 successful applicants.

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A functioning society? 

We need a separate body of politics that looks after long term problems. Climate change, retirement age, CGT etc. 

The current system doesn't work for big decisions because things that are unpopular but should be done can't be due to fear of being ousted at the next election. Or we get what I outlined above, a change that gets reversed when National get in then they make their change then Labour reverses it.  

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I believe that housing in all areas must be addressed,  but the accomodation supplement must be part of the solution. This subsidy s the driver of increased rents and hence returns on investment properties,  if it was removed rents would by necessity fall along with house values . I cannot suggest how this would be implemented as obviously it can't be done cold Turkey,  but in a stepped manner in order to prevent people being on the street. Another issue in nz tax programs is the lack of a tax free threshold this could be used to assist the lower earners and may be used to assist in the removal of the accommodation supplement, while providing an incentive for people to enter the workforce. 

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Yes the accommodation supplement is essentially just income going into the pockets of landlords. Crazy. Any increase in the supplement, funded by taxpayers in an attempt to assist the poor, is/will be met by increased rents extracted by landlords.

And it makes me laugh that landlords think they're the 'get ahead' type who look down on anyone that needs welfare/assistance from the state....and yet they sit there an collect it weekly from the government via the accommodation supplement.

The hypocrisy of that particular view is extraordinary.

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Worse, the accomodation supplement passes through the hands of the investors into the pockets of the banks.

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The Government bought in the Accomodation Supplement (which, by the way, is also available to owner-occupiers to assist with their mortgage payments) because it is cheaper for the taxpayer to assist a tenant into a privately owned rental than it is to provide Government-owned accomodation.
HNZ loses well over $100 per week on each and every state house, and this cost would balloon if all those receiving the AS were moved into Government housing.
the reality is that the Government - any Government - is an inefficient high-cost landlord.
 

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The govt isn't a std landlord.  They have to house those a private landlord wouldn't touch. 

And no the cost wouldn't balloon if those receiving accomodation supplement were moved into KO housing, as most of them are good tenants, not shitheads.

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Labour won't reverse this. It would destroy any remaining slither of credibility that they have,

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A new leader and it's very possible...

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It would still be a totally non-credible approach, that would be shot down in flames by the opposition.

Won't happen.  

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Like CGT?...

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Sliver not slither. Slither is what a snake does

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Just replace it with:

  1. A sinking lid on the number of houses that any person, trust or business can rent out without a licence (start at 20 and move down to 2 by 2027)
  2. Make securing a licence dependent on all rented homes meeting healthy homes standards by 2024
  3. Support the growth of not-for-profit social landlords
  4. Rachet up the standards
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Just been on TradeMe, and there are stackloads of new build shoeboxes being listed for rent. 

Under the 'townhouse' category in Auckland, 436 results, many of which are new builds.

I'm going to start monitoring the extent to which these listings numbers might grow as more and more new builds are completed in the next 1-2 months.

Interesting looking at advertised rents versus likely purchase price, too - yields of circa 3-3.5% on 4 beddies, circa 3.5-4% on 2 and 3 beddies. Gross. Not great, especially with values falling and high inflation.

It must be said too that there are some ridiculous asking rents, from Duval Group in particular. Good luck getting those! (eg. $500 pw for a one bedroom townhouse in Mangere Bridge!) 

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The same Duval Group offering wholesale investors 10% PA fixed rate returns. Doesn't  sound risky at all.

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Of course not!

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They will all end up being rented to Kainga Ora or other social housing providers.  They are happy to pay those big rents, because its taxpayer dollars they are spending.  This is how the Govt has outsourced their social housing build - by putting owners of crappy shoeboxes under extreme financial pressure and forcing them to rent to social housing tenants because WINZ pays.

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Fair enough to write about interest deductibility. Yes you are right it was a reactive action.  But landlords like me down here in the trenches see the impact of this and the other reactive anti private landlord laws. Those poor people in emergency accommodation did not fall out of the sky they used to be housed by private landlords. The labour government thought about how to fix a problem just like Putin did to fix his problem. 

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Are you comparing landlords to Ukrainians? Possibly the craziest comment I’ve ever read on here. 

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Victim Mentality is a hell of a drug.

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A somewhat false equivalence. Labour attempts to cool the housing market by removing tax breaks. Putin tries to annex parts of Ukraine by bombing innocent civilians.I can’t really see the link myself.

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I appear to recall that thousands of people were living in motels under the National government so this clearly isn't a Labour/National issue.

 

Ultimately we need to accept that our house prices are priced so high that they've become:

a) unaffordable by many to own.

b) unprofitable investments because the prices are too high to extract a profit making yield.

The only solution is to significantly reduce prices - and hey look people can afford rents, landlords can make a profit/good yield, and aspiring homeowners can afford to buy a house. Put mortgage rates back up at 8-10% and watch the housing market fix itself (and don't drop because we have a recession).

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The only problem with this is it will financially ruin many owner-occupiers who have no desire to ever own rentals and never wanted to, while those who are cashing are really just banking deferred tax-free gains and driving values for those stuck in negative equity even further. I mean, you could in theory target assistance at owner occupiers, but do we trust the government to do this logically?

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You could do something more targeted like a direct tax on any house you own which isn't your primary residence. Something like the FiF regime with a tax payable on a deemed return of 5% of the rateable value would do the trick, meaning you pay tax equal to ~1-2% of the value of the house each year. 

Much more simple than current tax returns - sum rateable values of your excess properties, multiply by 0.05, add to your income. 

Have that rental property or holiday home if you like, but pay for the privilege of buying up a scarce resource. 

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Fair comment.

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If you look at the world, the issue is not going to be overpriced houses, but a shortage of people.

We already have too few people to do the jobs available.

Our birthrate is pathetic.

Being screwed by the govt doesn't result in babies.

Germany has already introduced good payments (I think around $3500/ month) for children. Russian had a childless tax of 6%. China is looking carefully at their low birthrate.

Most developed nations have v low birthrates (well below the replacement rate of 2.1)

A shortage of people will lead to higher wages, and a lowering of demand for houses.

There is a lot more to be unpacked in this subject.

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I imagine there are no shortage of houses in places the many migrants come seeking a better life from.  

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You overlook our own  Social Welfare birth incentive scheme.

Its very successful, soo many beautiful young ladies having multiple children to many different fathers.  This is of course excellent as the gene pool of the young ladies little darling is much wider than if she settled for one sire.

And the beauty of the NZ scheme is that the fathers are released from any responsibility.  They can leave the young lady and start a business, become entrepreneurs and get start ups going.

We do  lot well you know. 

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Even better, under Labour the said young mothers never need to go find an actual job and can spend the first three years of their youngest child's life being fully supported by the taxpayer.  Unlike the poor women who have stuck with the father of their children, they only get six months of paid maternity leave (maybe one year if you have a decent employer) and then its back to work you go or no money. 

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Steady on old boy! You will get lumped with me-the privileged, boomer, baldhead, stale white guy.

In all seriousness the main issue facing NZ is children being born into dysfunctional families who can neither, afford, cherish or educate them. The cycle repeats.....ad infinitum and is incurable in our current democracy.

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The great thing is, our recent decades' policy of making it harder and harder to afford housing and thus capital to build from makes it less and less likely the folk at the bottom can lift themselves up. The complete opposite of what was done for the bald boomers.

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To be honest, looking at the bigger picture, New Zealand's tax system is not fair comparing with other countries in my opinion. Clearly, it's more favourable to assets owner and just one specific asset owner. Anyone who get into this country and want to get top of the life will need to play this game. It's unsustainable for the long run. If most kiwis think it's just New Zealand way, it's just what we do and housing investment has to be protected at all cost, I think New Zealand has no future, more and more people will leave here. Sorry for being a bit harsh here...

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I agree and hardly think that saying that is harsh! The sooner a society faces the hard truths, the sooner it can change and walk a new path for the better. At the moment the general leadership we have between government and central banks is pretending issues don't exist and kicking the can down the road pretending that if we don't face our issues, they will some how just resolve themselves/go away.

If this is the 4th turning we are going through, it is generally a period of poor/weak leadership - mostly because you have a divided democracy and people in key leadership roles (say 45-65 age bracket) who are generally doing it fine and see no real need for change (unless they feel empathy towards younger people). They've also had it relatively easy most of their lives (free education, affordable housing, falling interest rates, rising house prices) and think that is just 'normal' and how it always is - as opposed to realising they had it great because of the reforms that came around post 1945 by the greatest generation who set everything up for them. Wait until there are millennials in key leadership roles and boomers are dribbiling into their pj's at the Summerset Village - the NZ we currently know will look completely different (if the Straus-Howe/4th Turning Theory is correct).

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I have lived here since late 2003-in retirement. I could go back to Scotland, but this is home and I enjoy living here in Mount Maunganui. All my immediate family also live in NZ and they also enjoy life here.

However, the longer I live here, while liking much about the country( fantastic for tramping), I have become increasingly aware of the less attractive aspects of life here and sadly, there is much that is at best, second rate.

As this article so clearly points out, Kiwis have this absurd view of housing. I spent my life working in the finacial sector, but knew almost nobody with rental properties. A house was a place to live. There was therefore a much better balance between exposure to the property and stockmarkets. This is so much healthier both individally and for the economy as a whole. It gives a country a much deeper capital market and that's important.

yet, despite the love affair with property, so much of the housing stock is not just second rate, but sheer crap. The state of the housing stock should be seen as a national disgrace, but it's not. The underinvestment in our critical infrastructure is shocking- with one hospital having excrement running down the walls. Don't get me started on the state of healthcare and the inhumane funding of Pharmac. Having been diagnosed with cancer last year, I quickly became very aware of its limitations.

Sadly, I have found that too much of this country is below par.

 

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NZ is a small country, it doesnt do much, therefore it cant afford much.  Everyone who was any good at anything left the country already.  Its really only one step up from its Pacific Island neighbours.  Hardly an Australia.  The ironic thing is renaming it to Aotearoa would actually better reflect its status in the global scheme of things.  Just another impoverished collection of little islands in the middle of nowhere.

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There is a lot of truth to this. 

It's quite stark when you return from proper first-world countries.

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Anyone who wants to get ahead really needs to move to Australia now.  In addition to getting a higher salary, they can now invest in cheaper Australian real estate, deduct their mortgage interest, pay capital gains tax on 50% of capital gains instead of 100%, claim depreciation, and offset annual losses on their investment property against their personal income.  And if you really want to supercharge your investment returns, in Australia you can buy investment property through a self managed super fund and obtain all the tax free benefits that accrue to those.  What does NZ have?  Kiwisaver funds that levy a wealth tax on all overseas share investments?

Its no wonder the NZ passport office is so busy right now.

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Oh, so get into Australia and invest in real estate before it becomes like NZ with too much investment in real estate  and so it gets clamped down on?

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Part of wonders if these people think that everyone can be a property investor and we can all just rent houses from each other. 

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There is a lot of misrepresentation in this article.

Residential landlords pay, and always have paid, income tax at normal IRD rates, on any trading profit that they make from their landlording business.

It is standard tax practice worldwide that any costs involved in creating a taxable income may be deducted from a businesses income before tax is calculated, and this includes interest paid on any loans. Thus Air New Zealand deducts the interest costs of loans it raises to buy a new jet off their income before their tax is assessed. This is not some sort of lurk or avoidance, it is normal accounting practice.

What the Government has now done is prevent residential property investors - and only residential property investors - from deduction this cost off their income. Borrow money to buy a commercial property, a farm, or any other income producing asset and you can continue to deduct but buy a house to rent out and you cannot.

Why?
 

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It was done because of the NZ obsession with property investment at the expense of investment which may actually improve the living standards of the country as a whole. This contributed to extremely high house prices which makes the whole country less competitive and locks our young people out of the stability of owning their own home. People buying up Air NZ shares or warehouses does not have the same perverse outcomes as they aren't competing with first home buyers. 

It is a strange tool to use to hit the target and probably not the one I would have chosen, but it is very clear why it was done. You're probably aware we're not alone - the UK has taken similar steps. 

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Air nz doesn't get subsidized by a taxpayer provided accommodation supplement,  as well as deductibles on gross income , double dipping I think it is called .

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Business != people farming.......

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Air New Zealand was also borrowing at interest rates between 7% and 9%!!!  NZHERALD

It's standard practice worldwide that businesses take out business loans.  If Landlords were taking out business loans then there would be some merit in tax deductions.  Property investment.....it's a business for tax purposes, but a home if we want to borrow money or the tenants want to hang a picture.  

https://www.interest.co.nz/borrowing/business-base-rates

 

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My understanding is that the rules do not apply to new builds so it also encourages residential property investment into new builds which encourages property investment into new housing stock (quantity and quality) which will help with the housing crisis.  

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Jet airliners are a depreciable asset, so in theory the interest should be capitalized and depreciated along side them. However this would be impracticable so it is probably better to simply deduct the interest for tax purposes. Whereas the airliner has a limited life, property is expected to last more or less forever so there is no point deducting interest.

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Why? Because so many residential property investors are making a massive profit while not paying any tax and supposedly making a loss. I guess us PAYE earners got a bit sick of that and the stupid worldwide standard practices. 

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"Borrow money to buy a commercial property, a farm, or any other income producing asset and you can continue to deduct but buy a house to rent out and you cannot."

Businesses also have to make provisions for their externalities and environmental costs. Let me know when can invoice property investors for the wider social cost their piss-taking loss-making caused for years while actual ownership of housing slipped further out of reach for ordinary Kiwis. Be thankful we don't decide to send you the bill. 

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It is not "against accounting principles". And it is doubtful whether non deductibility is against  taxation principles either. However your suggestion that the income should not be taxable is an interesting one. You realize of course that if income is not taxable then all expenses would not be deductible.

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“You realize of course that if income is not taxable then all expenses would not be deductible.”

See, point exactly…

“profit” not “income”.

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Profit is income. However, there is a distinction between, on the one hand, revenue, and on the other, profit or income. Income (or profit) = revenue - expenses.

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Investing in a residential property to save for retirement is the only reaction one can have to the alternative - NZ's pathetic, retirement poverty inducing, Super savings system which is a TTE based system instead of the usual international approach of EET. In other words, NZ taxes the hell out of every step of your retirement savings plan and leaves you with a pittance at age 65. The government super amount is also a joke. If we didn't have residential tax free gains the average persons retirement lifestyle is bleak.

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now property is taxed too, makes it a bit fairer don’t you think?

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Labour were right to not do any working group on this, remember what happened to the capital gains one that came back saying we needed it on everything even though housing was the only issue. I like what they have done, good on them, and shame on Luxon to say that property investors shouldn’t be taxed while everyone else is, what a dick. 

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David, your article is the one that doesn't pass muster. How would you feel if you finally stop bitch and moan about landlords, get a real job to service a big loan, put the borrowed money into whatever class of investment you'd like other than rentals, be it shares or funds, and then get denied to claim tax deduction on the loan interest when you calculate the tax payable from the dividends?

 

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