Wellington Property Investors' Association

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05-02-2010

Tax changes robust enough?

Landlords.co.nz

It is still too early to gauge whether recommendations forwarded by the Tax Working Group are robust enough to be implemented by the government, according to the Property Institute of New Zealand (PINZ).

Despite endorsing any move towards a more sustainable and equitable tax system, PINZ believes the recommendations would "clearly impact upon property owners and investors and place additional financial burden upon those currently investing in an already fragile market," PINZ said.

PINZ president Ian Campbell believes an in-depth debate is required concerning the alignment of the current tax system, plus the removal of depreciation benefits, introducing capital gains tax and land tax upon property owners, and the increasing of GST from 12.5% to 15%.

PINZ believes a cautionary approach is needed if certain recommendations were adopted.

On preliminary review of the Tax Working Group's latest recommendations released last month, PINZ acknowledges that the key element of the tax discussion has been around removing distortions and a re-distribution of the tax base away from salary and wage earners, but that a fundamental principle in tax is that taxes should be imposed on those who can afford to pay them in terms of income.

With land tax, for example, there is not necessarily any relationship between owning land, a capital asset and having the income to pay a land tax, for example Maori trusts and retirees.

Land tax would also add a significant burden to the household, particularly rural land holdings.

PINZ also says the current recommendations discourage future investment and will discourage current landlords from staying in business.

The flip-side of the possible affect to housing and land values from tax changes, is the improvement of home affordability for new entrants into the housing market. But conversely again, it will possibly be harder to save for a deposit if rents are raised because of the trickle-down of higher costs stemming from tax changes (such as a land tax), from landlords to tenants.

In all, PINZ believes if a fairer and more sustainable tax system is to be achieved in the medium term, changes need to retain the stability of property investment in New Zealand.

Source: Landlords.co.nz

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