NZ Reserve Bank Governor Considers Housing Speculation Tax

by Mary Swire, Tax-News.com, Hong Kong

14 September 2009

The Governor of the New Zealand’s Reserve Bank, Alan Bollard, has said that he would advise doing anything possible to counteract the threat of a too-rapid housing price revival, including taxation.

The Reserve Bank’s current inflation target, set since December 2008, is to keep annual increases in consumer prices at between 1% and 3% on average over the medium term. While keeping the Official Cash Rate (OCR) unchanged at 2.5%, Alan Bollard said that there seems to be no pressure on prices, even though “there is more evidence that the decline in economic activity is coming to an end, and that a patchy recovery is underway.”

However, he added, “the forecast recovery in economic activity is based on monetary policy continuing to provide substantial support to the economy. We expect such support will be needed for some time. As a result, we continue to expect to keep the OCR at or below the current level through until the latter part of 2010.”

“For growth to be sustained in the medium term there is a need for improved competitiveness in the export sector and a continued recovery of household savings,” Bollard continued. “This rebalancing is required to stabilize New Zealand’s external payments position. If the recovery in house prices were to undermine the improvement in household savings, then the sustainability of the present recovery will be brought into question.”

Therefore, he felt that all efforts should be made to avoid the present signs of a modest recovery in the housing market developing into unnecessary or imbalanced property price inflation. While the Reserve Bank always had the option of increasing mortgage rates, he was of the opinion that all other policy options should also be considered.

One of the options, Bollard said, was to impose some form of tax on property speculation. For example, in order to reduce the current tax incentives for housing investment, a tax could be placed on housing not occupied as a first home, or on property purchased and then on-sold within a given period. While there would be a continual watch on banks' lending practices, he therefore hoped for a change in taxation to make speculation in the housing market less attractive, if such house price inflation were to appear over the next year.

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