Politics

Landlord tax breaks will blow out by $1b - CTU

10:32 am on 29 November 2023

The new government's Cabinet met ceremonially for the first time on Tuesday. A full meeting is expected to take place again on Wednesday. Photo: RNZ / Samuel Rillstone

The government's move to accelerate tax cuts for landlords means a blowout of about a billion more dollars over four years, according to the Council of Trade Unions.

It could also mean landlords collecting a cheque from the government, with no benefit to renters.

However, National says some of the details are yet to be considered by Cabinet and will not be made public until they are finalised.

The National-ACT coalition agreement states that the government will "restore mortgage interest deductibility for rental properties with a 60 percent deduction in 2023/24, 80 percent in 2024/25, and 100 percent in 2025/26".

CTU policy director Craig Renney told RNZ this would mean an extra $3b over four years staying in landlords' pockets, which would be unavailable to help the government with an already tight budget.

The negotiations with ACT - which had called for immediate, full restoration - meant it was also a bigger shift, and faster, than in the tax policy National campaigned on.

"The cost of returning interest rate deductibility ... rises from the $2.1 billion which is proposed in National's Back Pocket Boost before the election, and it rises to $3 billion, so that's an increase of $900 million," Renney said.

Council of Trade Unions (NZCTU) policy director and economist Craig Renney. Photo: Stuff / ROBERT KITCHIN

He said behavioural change in response to the policy would likely mean the extra $900m ballooning out to well over $1 billion extra.

Renney said ACT had confirmed the changes would take effect from 1 April 2023, meaning the tax reduction would be backdated: a rebate for landlords, while tenants would see no benefit.

"They will have paid the rent which should include the interest charges, but at the same time landlords will be able to claim the tax back - tax that they have already paid on the other side.

"It's going to be Christmas for landlords fairly soon, but it's going to be austerity and cuts for anybody else."

Interest deductibility allows landlords to pay less tax by including mortgage payments as a business expense. Labour changed this in 2021, with the aim of slowing demand for investment properties, helping level the playing field in favour of first-home buyers.

Inland Revenue's analysis of Labour's policy when it was first proposed in 2021 advised against bringing in the changes, saying it was unlikely to boost overall housing affordability, and the potential benefit for first-home buyers was outweighed by the likely increase to rents.

ACT's fiscal plan had estimated an immediate reversal would cost the government $2.65 billion over four years, with leader David Seymour saying it would save the average new investor $6400 in tax - which, if passed on to tenants - would mean $123 per week in rent.

However, there's no guarantee that reversing the policy will see rents fall. National leader Christopher Luxon - who owns seven homes - refused to say he would be reducing rents on his own properties during the election campaign, only that the policy would limit the increases.

Christopher Luxon Photo: RNZ / Angus Dreaver

"We're going to put downward pressure on rents," he told the Q+A programme in September.

When RNZ approached National about the CTU's calculations, the party provided a brief statement.

"The government stands by the commitments made in its coalition agreements. The details of how these commitments will be implemented, including their costs, will be considered by Cabinet, and are likely to be Budget sensitive until details are finalised and made public."

Property Investors' Federation president Sue Harrison said the tax deductibility changes would will bring relief to the housing market.

"We don't want to put rents up so it will stop people from making that decision that they have to raise rents to cover their costs" - Sue Harrison, Property Investors Federation

"It's like any business - you have to pay your expenses and they have gone escalating high, so how do you manage that? You just have to hang on and keep digging into your pocket or wherever you can stave off the bank and the Inland Revenue, and that's what people are doing, that's what the owners of many of these properties are actually doing."

Harrison said it would stop the sell-down of rental properties, helping the supply.