David Seymour on coalition agreement backtrack - 'We're open to changing our mind'

ACT party leader David Seymour is shrugging off the fact he has had to backtrack on a coalition commitment.

Interest deductibility for landlords is being restored from next month - but National's coalition agreement with ACT promised it would be backdated.

Landlords will be able to write off 80 percent of their mortgage interest from 1 April, and 100 percent from April 2025.

The coalition agreement set out a backdated 60 percent deduction in the 2023-24 financial year, meaning landlords would effectively have received a tax refund.

That is no longer the case.

However, Seymour said a backdated 60 percent deduction "would have added more complications".

It was "probably not worth the amount of benefit it would have given", he said.

"If we get into a discussion and we say, 'look, the other person's got a good point', then we're open to changing our mind," he said.

Seymour would not say what ACT got in return for backing down from the agreement.

"What we've done is we've reached a compromise. And I think that's the strength of our coalition," he said.

But Seymour, the associate finance minister, said restoring interest deductibility was simply restoring normal tax practice.

"When you put an extra tax on rental housing, it is the renter who pays much of the cost. And that's why this government, as part of our commitment to bringing down the cost of living, is reversing a strange change that was made to taxation law just a few years ago by the previous government, so that our tax system is consistent."

Revenue Minister Simon Watts told Corin Dann on Morning Report that as a result of Labour's policy, a number of landlords were not breaking even and had left the market.

"That reduction in supply puts pressure on [the market with] less rentals being available and as a result prices go up."

The new policy would put downward pressure on rental costs and was a "win-win" for both landlords and renters.

Under the previous policy, some landlords had left houses vacant, he said.

"We know that some landlords have moved out. They've either sold them or it's just taken that demand out of the market as well. And so from our point of view, restoring this is the right thing to do. It's also consistent with just good tax practice."

Watts denied restoring interest deductability would fuel speculation in the property market.

"It's not our belief that this is the case. The narrative that landlords are villains - which was used a lot in the past - is simply not correct."

"The vast majority of people that have residential rental properties are Ma and Pa investors, and they have one or potentially two properties. They're not people that have multiple properties."

Property investors are relieved about the change.

Sarina Gibbon from the Auckland Property Investors Association said it would put downward pressure on rents.

"Investors are investing for a long term, we are in it to provide housing for our community, and we're just feeling really positive that the deductibility is going to be brought back, and we're going to go back to a principled approach of taxation."

Gibbon said the previous government had a habit of conflating investment with speculation.

However, opposition parties are sceptical the savings will be passed on to tenants.

Labour's finance spokesperson Barbara Edmonds said the government was shutting out first-home buyers, and renters would be worse off too.

"Does that also mean that the savings landlords are going to make will be passed on to renters? They can't commit to that or guarantee that," she said.

Green Party co-leader Marama Davidson said tenants bore the brunt of extra costs, but did not benefit from savings.

"This is a really sad attempt at reviving trickle-down economics, trying to say as long as we give the owning class more cash it's going to trickle down to renters. That has been defunct for decades, there is absolutely no evidence to show that this will benefit renters at all," she said.

And despite claiming restoring deductibility would ease pressure on rents, the government could not promise it either.

"When taxes are reduced, you generally expect that prices will come down. When taxes go up, prices go up. That's the general trend, but like I say, how many rentals are built, how many are being occupied by people moving to the country as migrants, how's the economy and wages going, all of those things can influence the price," Seymour said.

"I'm confident that Kiwis will do the right thing, and I think many landlords actually cherish the relationship they have with their renters," Watts said.

The change will be added to an existing taxation bill currently before a select committee. Seymour said it was unlikely there would be public submissions.

Davidson said the voices of renters would be silenced.

"That's a real sort of finger to the democratic system. Really, that's about denying the chance for the voice of the most impacted, in this case people who rent, denying their voice, denying their advocacy. And that is a real disappointment, and a real danger to a functioning democratic society."