Hawke's Bay Property Investors' Association

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19-05-2019

No Capital Gains Tax is welcome news

The Government’s announcement that they are not going to introduce a Capital Gains Tax (GCT) was very welcome. It is disappointing, however, that they are being attacked for their sensible decision.

The Coalition Government have actually listened to the people as well as groups such as the NZPIF and the tax working group themselves. The TWG said that a CGT would not influence property prices but it would increase rental prices.

Many disappointed journalists and commentators have criticised Jacinda Ardern for not spending her political capital on pushing a capital gains tax through. Many have said that it should just be applied to rental property as we are the ones causing all the problems.

This shows a real lack of understanding, which isn’t really surprising given the amount of misinformation that has been publicised around rental property.

As I said in last month’s column, it was extremely disappointing that the three dissenters in the TWG (who did not believe in a CGT) were willing to sacrifice rental property as a trade-off for other industries to avoid the tax. This was naïve at best, given that other assets would eventually have a CGT applied to them if one was introduced just for rental property industry now.

The NZPIF realised that this was a potential outcome when the TWG released their first consultation paper. This paper had a Treasury/IRD study claiming that rental property was undertaxed compared to other assets. The NZPIF contracted economic consultants Morgan Wallace to investigate the study and they found that it was deeply flawed. We provided the Morgan Wallace report to the TWG, who then requested a meeting with us to discuss it. At the meeting they admitted that the study was flawed and agreed with the Morgan Wallace report that rental property, if anything, was over taxed compared to other assets with capital growth potential.

Our action halted any suggestion that rental property could be singled out among other investment assets as solely being worthy of a CGT. It appears that the Coalition Government has accepted this.

We pointed out this, and other information, to NZ First at a meeting held with them a week before the CGT announcement. While NZ First didn’t give anything away about how the decision was going to go, we were grateful that they met with us on short notice and were receptive to what we had to say.

While the CGT announcement was excellent, it still contained comments that could allow the Government, or at least the Labour party, to apply a virtual CGT on rental property such as another extension to the Bright Line Test.

While we hope that this isn’t on their agenda, we have arranged a meeting with the Minister of Housing to clarify the situation. This meeting will have occurred by the time you receive this article.

We hope that Labour will already have information that shows we are as much a part of the productive economy as other industries, we pay tax on over $1.5b of net rental income every year and we actually have more tax rules than any other industry, including the bright Line Test.

A successful economy is made of up many parts and the provision of homes for people to live in is absolutely essential. We hope that Labour and a significant proportion of New Zealanders realise that driving people out of providing rental property is the worst thing that could happen for tenants and first home buyers.

Tags: federation reports

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