‘Tired’ PM stuggles with landlord tax questions
Christopher Luxon spent his post-cabinet press conference talking about how the Government will be overseas and getting out and hustling for business.
However, it was far and away the prime minister’s least assured press conference performance. Yesterday he seemed tired, harried and, unusually for his premiership to date, called time on the conference after a half hour. The frantic 100-days and the long four-week sitting block just ended seemed to have taken its toll.
On Sunday, the Government reinstated interest deductibility for landlords. This was promised by National and ACT Coalition agreement. It is quite sensibly changing the law so that landlords were treated the same and every other business in New Zealand which has interest deductibility on mortgage payments.
This was a change announced by Labour’s Grant Robertson in early 2021 as part of a push to pare back house prices in the midst of the frothy post-Covid house price boom. Far from doing much to help first-home buyers it simply introduced a new inconsistency into the system coupled with an effective tax hike.
The coalition Government’s changes will mean $2.9 billion in taxes the Government won’t collect over the forecast period – a higher figure than either party expected during the election campaign.
However, in the National-ACT Coalition document it promised to basically make the change retrospective, at a 60% deductibility rate for the 2023-24 year. In the end, Cabinet decided to just make it 80% in the coming financial year and 100% in the year after.
Luxon was questioned consistently about this difference, but mostly because he could not – or would not – say what the reason for the change was. He talked around it a lot but it seems that it was because of the fiscal pressures the Government has inherited.
In fact, we know this because David Seymour told The Post in a statement that the coalition had to consider a number of factors while deciding on the interest deductibility policy.
“Namely the economic mess that Labour has left New Zealand in and the complications of making the policy retrospective. We agreed to phase interest deductibility back in a way that is affordable and practical while giving landlords and renters the tax relief they need.”
It was expensive in the current climate and complicated. No problem there, Governments regularly make these sorts of decisions. But, inexplicably, Luxon struggled to answer it.
“It’s not a biggie to either party, and our Government doesn’t think in those terms. We’re thinking very clearly about how we increase the supply of rental properties in New Zealand,” Luxon said.
Now while it it true as a general proposition that lowering costs for landlords should flow through to lower rents, a lot of landlords would have been expecting to get a 60% deduction for the current financial year. As the provider of properties they are also a pass-through agent of costs.
So it’s reasonable that the PM be able to give a specific explanation about why the plan was changed. This was an outcome different to what many landlord would have expected.
One was not forthcoming, instead there was a lot of talk about being a mature Government. The best clue was in the following answer to a question: “I don’t know how I can be any clearer to you. We live in a dynamic world. There are dynamic economic situations and forecasts that we inherit each and every week. We’ve weighed all of that up, we’ve made some adjustments to our policies, our respective policies, we’ve come up with something that we both support, and I’m very proud of it.”
The worrying issue here, is why Luxon couldn’t answer a straightforward question – which he clearly regarded as some sort of ‘’gotcha’’. He also was keen to not deviate from the line that this was not a policy for landlords but for renters. It was a reminder that despite his significant political achievement of winning office, he is still a pretty inexperienced politician. His safe space is still corporate jibber-jabber and, when rattled, he can sometimes struggle to answer basic questions.
That was no doubt picked up in the Taxpayers Union’s Curia Research Poll released on Friday. In it Luxon’s personal favourability fell by a significant 16 points – to below Chris Hipkins. The governing parties are still polling combined at about 55%, it’s very early in the cycle and so on and so on. At this point in the cycle, it doesn’t matter.
But it could if it holds. Because it will indicate that if things go wrong, there is no great reservoir of trust or goodwill for Luxon to draw upon. Building that up over the coming year or two is clearly his number one personal political challenge.
“... We’re thinking very clearly about how we increase the supply of rental properties in New Zealand.”
Prime Minister Christopher Luxon