29-01-2010

POLITICAL & REGULATORY REPORT for January 2010

1. News
2. 2010
3. January

Although Prime Minister John Key has ruled out capital gains tax on sale of the family home and administrative issues surround a new tax based on an assumed rate of return on net equity at say 6% (ie disallows the claiming of interest and depreciation losses, etc), the following relevant recommendations are now in front of the Government to decide upon in the coming weeks:

• Increase GST to 15%
• Removal of the 20 per cent depreciation loading on plant and equipment
• Removal of tax depreciation on buildings if evidence shows they do not depreciate in value
• Introduction of a “land tax” at 0.5%

In other political reactions, predictably the Green Party strongly supports a capital gains tax and land tax on investment properties.

The TWG report can be viewed at: http://www.victoria.ac.nz/sacl/cagtr/twg/Report.aspx

[Note that the TWG report did not address the issue of losses generated in the sector. This maybe pursued as a medium-term matter elsewhere].

Any policy changes (the Government may be more inclined to increase GST, implement “depreciation-related” and the land tax recommendations) are to be announced in the Budget with likely effect from 1 April or 1 June 2011.

TREASURY REPORT – Rental housing

The Treasury published (24 December 2009) a set of working papers including one describing a model of domestic housing that can be used to analyse the impact of various housing policy proposals. The model includes rental and owner-occupied housing.

 The paper is highly technical however it concludes that:

• Increases in the stock of housing would reduce rents and house prices
• A reduction in tax concessions for landlords would raise rents and moderate house prices
• Additional subsidies for owner-occupancy would tend to reduce rents and raise house prices
• Significant reductions in rents and house prices would follow a fall in the cost of housing, through, for example lower regulatory and consent costs
• Falling real interest rates result in lower rents, higher house prices and lower owner-occupancy rates
• Despite the widespread attention owner-occupancy rates have attracted, the authors state that they are not a particularly helpful guide to the state of the housing market.

 The Treasury paper can be viewed at: http://www.treasury.govt.nz/publications/research-policy/wp/2009/09-05/

END