Lower house prices from CGT: REINZ
AUCKLAND: A capital gains tax would lead to lower house prices as property investors flee the market to avoid getting stung with the new tax, New Zealand’s biggest real estate lobby group says.
But other property experts are not so sure, with one saying anyone who thought a capital gains tax (CGT) would be the grand elixir to get property prices down was ‘‘sadly mistaken’’.
National is also sceptical the tax would result in much movement in the housing market.
On Thursday, the Tax Working Group recommended the Government adopt a capital gains tax which would come into effect in 2021.
Any capital gain on a property before that year would not be taxed.
The working group expected it to raise $8 billion over five years.
The Government will provide its response to the recommendation, among others made by the group, in April.
But the Real Estate Institute of New Zealand (REINZ) said a capital gains tax would have a ‘‘punitive impact on the investment sector’’.
‘‘I would expect more investors to leave the market because of this change because they just don’t want to pay the CGT,’’ REINZ chief executive Bindi Norwell said.
In turn, that would lead to a drop in house prices as it meant there would be more houses on the market.
‘‘That means there [would be] more supply which may push prices down slightly.’’
Ms Norwell said this would occur in the short term as investors left the market before the CGT came into effect in April 2021 — if the Government decided to make it law.
In fact, the Tax Working Group itself said its proposed capital gains tax would lead to ‘‘some small upward pressure on rents and downward pressure on house prices’’.
According to the group’s recommendation, land and investment properties would be subject to a CGT but the family home would be exempt.
Neither Inland Revenue nor Statistics New Zealand have data on the number of New Zealanders who own a second property, so it is hard to say exactly how many people would be affected.
But data from CoreLogic revealed 10% of the 85,000 residential properties which were sold last year — about 8500 homes — were sold to people who owned another property.
CoreLogic head of Research Nick Goodall said the extension of CGT for residential properties would further reduce the attractiveness of investing in property.
He said it would also likely cause a reduction in demand in the property market.
‘‘However, as the tax will not be retrospective, we don’t see it causing investors to hurriedly exit the market due simply to the proposed CGT changes,’’ Mr Goodall said.
National finance spokeswoman Amy Adams said the number of homes that would actually be affected by a capital gains tax was not high enough to move the market.
NZ Property Investors’ Federation executive officer Andrew King said it was difficult to say at this stage what impact a CGT could have on the property market.
But he said other in countries which did have such a tax, it had not had any effect on property prices.
‘‘Anyone that thinks a capital gains tax would be the grand elixir to get property prices down is sadly mistaken.’’ — NZME
FOR better or for worse, it has been quite a week for New Zealand First.
Leader Winston Peters’ kingmaker role in Government gives him unlimited freedom in his unlikely union with Labour, even when it comes to gamechanging issues such as capital gains tax or New Zealand’s interests more widely.
He sets his own boundaries because others dare not set them for him.
And because he regulates himself, he always passes his own test of acceptability, no matter how unacceptable.
His behaviour this week ranged from extremely bad to typically bad to unusually circumspect.
His public attack on former prime minister Jenny Shipley for being a friend of China was conduct unbecoming of a foreign minister, even allowing for his personal antipathy over his former boss.
Her apparent crime — wrong, as it turned out — was that she had written an oped for the People’s Daily praising China and the Belt and Road Initiative.
Finance Minister Grant Robertson and Prime Minister Jacinda Ardern deserved to be furious with Peters this week.
A day before the Tax Working Group report unveiled its recommendations for a capital gains tax, Peters told The Country’s radio host Jamie Mackay farmers would not be affected by a capital gains tax — wrong, as it turned out.
‘‘When it comes to the farming community, they are in for the long haul and there is no way a capital gains tax would have any effect on them at all,’’ Peters said confidently.
‘‘Farmers don’t buy farms to speculate — they buy it for permanence. They are part of the provinces; they don’t do this stuff you see in Christchurch, Wellington or Auckland.’’
His comments could only have been based on one of three things: either he was apprising the public of an incredible recommendation by the Tax Working Group that farmers were to be exempted from an otherwise comprehensive capital gains tax; it was an audacious opening gambit of Peters’ negotiation with Labour over the final shape of the CGT; or he did not know what was in the report and was indulging in a little nostalgia from the 1950s, and that seems the most likely.
Peters was evidently under the impression a capital gains tax was going to apply only to shortterm speculative sales.
In fact farms, except for the family home on the farm and up to 4500sq m of land, measured as a percentage of the total sale price, will be subject to a capital gains tax.
That will apply even when a farm is inherited by or sold to a family member but may be deferred in some circumstances under the rollover relief provisions.
After the tax report was revealed, Peters was unusually circumspect in what he thought about the report.
For the next two months, Robertson and Ardern will negotiate a package that must have the support of New Zealand First but at the same time creates problems for Labour.
Labour cannot fiercely defend the package it really wants — comprehensive — while in delicate negotiations.
Ardern will remain deliberately muted in her advocacy of a capital gains tax, despite her being passionately in favour of it.
A comprehensive capital gains tax is such a potent political weapon, and so unlikely to be implemented, that Ardern cannot run the risk of being associated with it.
Her captain’s call at the last election to allow a CGT to be implemented in the current parliamentary term damaged her campaign and had to be reversed.
Ardern’s relative silence presents a huge opportunity over the next two months for National to hammer home the effects on people’s lives, not least on small businesses, when it is difficult for Labour to defend.
Labour’s case will be made by unions, NGOs, economists and the Greens.
For each graph and statistic wheeled out to support arguments of fairness, National can wheel out hundreds of small business owners who have battled their way to success.
The regions are full of them. New Zealand is full of them.
New Zealand First would be dicing with death if it supported a comprehensive CGT on small businesses, including farms.
After the Government’s tax plan is revealed in April, and assuming it goes with a diluted CGT, National is relishing the chance to blame any CGT on New Zealand First.
It may not be so simple. If New Zealand First can stop the Labour-Greens bid this term to have a CGT apply to farms and businesses, it will have a strong case to argue it would similarly be needed next term.
For as long as the polls have Labour and the Greens with a clear majority over National, New Zealand First may be a more attractive insurance policy against future moves of CGT than National.
What National assumes will be a worse position for Peters and New Zealand First, could in fact put them in a better position to prosecute their relevance in the contest for heartland New Zealand.
But before it does that, however, Peters will needs to brush up on the detail.
Audrey Young is political editor of The New Zealand Herald.