by Matt Ball PR & Advocacy Manager
It’s Budget week, and while I’m not expecting anything of note for property investors – that work was done last year – the Green Party released their budget late last week.
Lots of new taxes, including a wealth tax and a private jet tax, which were well covered in the media, but what most media missed was their promise to once again remove interest deductibility. The Greens don’t seem to like property investors and landlords, don’t see us as businesspeople, and let’s be honest, don’t really care about renters with a policy like this.
By removing interest deductibility (which they call a ‘loophole’) they make it harder to make a profit from providing rental accommodation. The response from investors will be varied, but it will include things like selling down their portfolio to reduce borrowing or increase cashflow, increasing rents, delaying maintenance or upgrades, selling up entirely or not entering the market in the first place. We saw this last time with a significant drop in house sales to investors.
It is a truism in tax policy that you tax the things you want less of – so I guess the Greens want fewer rental properties.
What I’m curious about is what investors’ response will be now that we have real world experience of this policy’s impact. I’ll be selling up – the numbers don’t work for me, but what will you do?
Please complete this one (two part) question survey and let me know.
To read the details of the Greens’ plans for our sector, read chapters 10 and 12 of their budget. It’s short, but you might want to sit down first.
Also on interest deductibility, this article by Thomas Coughlin in the NZ Herald has some interesting comments from the architect of that policy, David Parker. He now thinks maybe he went too far, and to quote the article, he reasons that:
A central component of interest costs is the rate of inflation, but inflation is not a real cost because of how much it reduces a landlord’s debt. … Because landlords can deduct interest costs from their borrowing, they have an advantage over owner-occupiers who cannot claim an equivalent deduction.
Parker believed landlords should not be able to deduct inflation … but they possibly should be able to deduct the margin between the inflation rate and their interest rate.
He said a “pretty good proxy” for this might simply be allowing landlords to claim a 50% interest deduction. “We probably should have stopped at 50%,” Parker said.
What do you think?
Demographics
Shortly after last week’s comments on demographics, Stats NZ released their latest migration data showing record numbers leaving, especially younger age groups. The story is well covered in this NZ Herald article by Liam Dann, so I won’t go into the detail here, but it’s not a pretty picture. We’ve had cycles like this in the past, so I’m hopeful a better economy will turn things around, but it’s not a good sign in the short term.