Bright-line ex­ten­sion is a bright idea

Taranaki Daily News - - Comment & Opinion - - Stuff

A cap­i­tal gains tax was long seen as po­lit­i­cal sui­cide in New Zealand, where houses some­times earn more per year than their oc­cu­pants. That meant that when the ‘‘bright-line’’ test was in­tro­duced by the pre­vi­ous Gov­ern­ment, it was per­ceived as a wa­tered-down ver­sion that might dampen prop­erty spec­u­la­tion with­out fright­en­ing the mid­dle classes on polling day. It de­ter­mined that an owner must hold onto an in­vest­ment prop­erty for at least two years to avoid pay­ing in­come tax on the gains. It was in­tended to counter ram­pant on-sell­ing in a wildly over­heated mar­ket. But was two years long enough? As sig­nalled in 2017, the new Gov­ern­ment thinks not and is push­ing the time pe­riod out to five years, prob­a­bly from March on­wards. Rev­enue Min­is­ter Stu­art Nash is in­tro­duc­ing the leg­is­la­tion to Par­lia­ment. The be­lief is that the ex­ten­sion of the bright-line text will dampen spec­u­la­tion even fur­ther and make houses more af­ford­able for those who want to own the home they live in. It can be ex­pressed as good news for owner-oc­cu­piers, bad news for would-be land­lords. As a pop­ulist move, it sits well with Labour’s larger ar­gu­ments against for­eign own­er­ship of New Zealand prop­erty, im­mi­gra­tion changes and the Ki­wiBuild pro­gramme. Five years feels like much more of a bar­rier to short-term spec­u­la­tion and in­vest­ment, and is as close to a real cap­i­tal gains tax as Labour can get with­out put­ting it be­fore the public. But there are also clear down­sides and not just for spec­u­la­tors. Of­fi­cials from In­land Rev­enue and Trea­sury have cau­tioned that it could re­duce the num­ber of houses for sale, push­ing up house prices. An­other per­verse side ef­fect is that rents could rise if the bright-line ex­ten­sion pushes in­vestors out of the mar­ket. The of­fi­cials spec­u­late that a re­duc­tion in the sup­ply of rental hous­ing could out­weigh the re­duc­tion in de­mand for rentals. It is also note­wor­thy that the Auck­land prop­erty mar­ket that looked so over­heated when the bright-line test was first mooted has soft­ened con­sid­er­ably since. There is no longer the sense of ur­gency or panic about houses prices and un­af­ford­abil­ity that dogged the last Gov­ern­ment. In a larger po­lit­i­cal sense, the ex­ten­sion sig­nals an­other wel­come shift away from short-term think­ing and the un­pro­duc­tive ef­fects of hous­ing spec­u­la­tion. While the five-year test may not gen­er­ate much more rev­enue, it should fur­ther dampen spec­u­la­tion. As Nash said, this is the chief ef­fect the Gov­ern­ment has aimed for. He also sees it as a way to put fair­ness back into the tax sys­tem. The point about fair­ness is crit­i­cal and was at the heart of the pre­vi­ous Gov­ern­ment’s typ­i­cally ten­ta­tive re­sponse to the prob­lem. It recog­nised that many New Zealan­ders felt ag­grieved that some were earn­ing un­taxed in­come sim­ply by buy­ing and sell­ing the homes that oth­ers live in. It was a step in the right di­rec­tion, but only just. This goes fur­ther.

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