New Zealand Housing Tax Row Continues

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

18 July 2001

The furore over a proposal to remove the tax advantage from investment in residential property continues apace in New Zealand, as the committee charged with conducting a comprehensive review of the country's taxation system announced that the issue remains firmly on its agenda.

The review committee, headed by Rob McCleod, released an issues paper in June, containing suggestions based on an initial round of consultations. Although the paper ruled out the implementation of a capital gains tax on a realisation basis (as recommended by the OECD in its review of the New Zealand tax system), it did suggest that a 25% tax on owner occupied and rental housing might free up some of the country's investment capital; at present housing accounts for more than 70% of total household savings, which diverts money away from more diversified investments which might improve economic growth.

However, the resultant outcry has made it clear that for the New Zealand public, tax privileged property investment is a sacred cow, and the committee must very carefully walk the tightrope between what is economically viable, and what is politically palatable. However, Mr McLeod professed himself bemused by the uproar that the proposal had created, and said that it was ironic, considering the committee's rejection of both the comprehensive wealth tax and the comprehensive capital gains tax suggested by the OECD, that there had been such a strong reaction to a tax which targets a single material asset.

However, backlash or no, under its terms of reference, the McLeod review board cannot very well ignore such a large issue as this, so it will be up for discussion along with all the other proposals. Mr McLeod was cagey about the predicted outcome of the review, however, saying that the five person team would study the written submissions resulting from the issues paper 'just as a matter of process', before moving on to the extensive round of oral submissions. 'Then we will debate that issue, along with the others. I can't at this stage predict what we will have to say about the matter.'

The proposed tax would cost the average New Zealand householder approximately $1000 per year, and would raise around $750 million, which the McLeod committee has suggested could be offset by a reduction in other taxes.

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