01-02-2012
Clear thinking from Productivity Commission
The New Zealand Productivity Commission as an independent Crown Entity established by the Government in December 2010. The Commissions purpose is to help the Government improve laws and regulations that guide and incentivise how individuals, businesses and other organisations make their decisions.
One of their first tasks was to investigate housing affordability. At first glance this doesn’t appear to be a topic of high importance to New Zealand’s productivity, however housing is the single biggest expenditure for most New Zealand households and comprises the main share of both household assets and debt.
The Commission was tasked to answer three broad questions:
- What are the key demand and supply components of housing affordability?
- How can the housing market work better to improve housing affordability?
- What can be done to remove impediments to home ownership?
The NZ Property Investors’ Federation had two meetings with the Commission and made a submission to the review. Our submission was mostly based around taxation of property, factors that affect the property market and background information on investors’. The Federation recommended that the Commission:
- Acknowledge that long-term property investors are providing a much-needed housing and accommodation service to New Zealanders
- Agree that the view that property investors are favoured is not supported by the empirical evidence
- Distinguish between speculation, which people resent, and legitimate investment
- Agree that IRD already has sufficient existing powers to tax speculative investors
- Agree that retaliatory taxes, such as a CGT, levied against ordinary New Zealanders will not significantly make housing more affordable but instead will penalise ordinary hardworking and self-reliant New Zealanders
We were very pleased that the findings of the Productivity Commission largely agreed with our recommendations.
It was especially pleasing that an independent and Government appointed investigator found that “The tax bias in favour of equity invested in owner-occupied housing is not as large as is often suggested”
The NZPIF have argued this point for many years, most recently during the Tax inquiry of 2010, and it is a huge step forward to have such a comment made in this report. Many financial commentators have suggested for years that property has a favourable tax bias without ever stating what that favourable bias was. The general population could be forgiven for believing it to be true given that it was repeated so many times. I certainly hope that these comments from the Productivity commission will be added to those of the Accountants Society and the IRD themselves and put an end to these mischievous comments.
While the Commission was not definitive in saying a Capital Gains Tax was not required, it did say that “A decision on whether to adopt a capital gains tax on housing should be based on a coherent set of principles that have general application, not just to housing.”
This is also the NZPIF view. The Financial Services Sector has often argued for a CGT to be applied solely to property which we have vigorously argued against. It was interesting to note the Financial Services Sectors’ initial pleased reaction to Labours CGT policy, which then became silent when it was revealed that their industry would be caught up in such a tax as well.
Another pleasing tax recommendation from the commission was that no changes to ring-fence losses on residential rental investments from other taxable income are called for. Tax law must always be consistent and should never be used to make one investment more attractive to investors than another.
It appears to the NZPIF that the Productivity Commission approached their inquiry into Home Affordability without any biases and in a pragmatic and robust manner. Let us all hope that this report helps to silence those who would like to see their own industries advance at the expense of the property industry.