Time for a bolder bright line

Finance Minister Grant Robertson’s letter to Reserve Bank Governor Adrian Orr has been a highly effective piece of political theatre. But if Robertson and his Government care as much about soaring house prices as the letter suggests, they need to act themselves.

Extending the bright-line treatment around the sale of investment properties is the most obvious and easiest place for them to start.

In the face of mounting pressure on house prices, Robertson appeared to take a bold and controversial step in sending his letter calling for greater consideration of the issue in its monetary policy decisions. But the RBNZ was already backing away from further interest rate cuts in the face of increasingly positive economic news — including the prospect of vaccines.

Economists have been quick to note that the letter is unlikely to make any material difference to OCR decision-making — although the market has viewed it as a nail in the coffin for further cuts.

The Reserve Bank has treated it as an invitation to get more actively involved in the broader house price debate, something that suits the current governor’s expansive worldview to a T.

Orr and Robertson may be genuinely at odds here, but both are cut broadly from the same liberalprogressive political cloth. It’s unlikely this compares to the animosity that marked relations between previous Governor Graeme Wheeler and the John Key Government.

It has certainly been a diverting story. With National and Act both dutifully claiming credit for the move, it has reduced the level of pressure Labour was facing.

Meanwhile, plans for far more significant policy action may already be afoot. At the same time he announced the letter, Robertson revealed he had engaged Treasury to look at the effectiveness of the bright-line tax rules.

These rules provide the timeframes around which profits from the sale of an investment property should be regarded as taxable income.

They are currently set at five years but could be extended to tax more investors — without technically adding any new taxes.

Politically, that gets around the PM’s commitment not to introduce a capital gains tax. Even more conveniently the rules were initially introduced by National and supported by Act. Ironically, this latest move might have flown under the radar had Act not put out a press release claiming it was step towards a capital gains tax by stealth.

Extending bright-line rules would not be a silver bullet for house prices. But it would be a step towards balancing tax treatment that this country needs to take if it is to begin the shift away from a property-obsessed investment culture.

Perhaps the PM was right; a true capital gains tax may have been a step too far for the majority of New Zealanders. But for the majority of her Labour Party supporters it was a no-brainer.

It is that frustration from their own base that is creating the house price pressure for Labour.

Here is their opportunity to act.