PM John Key not ruling out further tax changes which might affect property market, but says comfortable with current system

National is not ruling out further tax changes that could affect the property market, although Prime Minister John Key says he is happy with the structure of the tax system following changes made in the 2010 Budget, and actions such as the removal of gift duty earlier this year.

Asked on National Radio this morning whether altering depreciation rules on buildings - which National says is taking NZ$800 million out of the property sector a year - was as far as National thought it needed to go, Key replied:

"Well, you never say never of course in politics - for the most part you don't - but actually I think we've tightened that sector up a lot and we're doing well there. If you go back to what we've done with the tax system, we have heavily reduced the bureacracy and compliance - we were able to get rid of gift duty."

"Gift duty was a tax that raised us just under NZ$2 million a year, and cost the country about NZ$70 million to comply with," Key said.

"We look at the tax system as genuinely a mechanism for incentivising business and investment as opposed to something which ultimately carries a deadweight cost and a compliance cost. We're very happy with the structure we've got," he said.

Treasury is still considering a policy to index interest payments for inflation - a move which would hit property investors who write off mortgage interest payments against their taxable incomes. If enacted, the indexation rules would mean investors could only write off the real interest rate (once it has been adjusted for inflation), rather than the real rate - a move that mean they had to write off less against their income if there was inflation.

Key was not asked about this policy this morning, but Finance Minister Bill English discussed this as an option several months ago.

(Updates with link to previous article)

More soon.