PM defends scale-back

Prime Minister Christopher Luxon fielded questions about the restoration of interest rate deductibility yesterday after scaling the policy back over the weekend, with the expected cost higher than campaigned on.

From April, landlords will be able to claim for 80% of interest costs, and from April 2025 this will rise to 100%.

Originally, National and ACT had promised in their coalition agreement to also restore the ability to claim 60% of interest costs for the 2024 financial year, ending this month – amounting to a retrospective tax break. But this is no longer going to occur.

Luxon defended the scaling back yesterday, saying it was an “acknowledgement of the fiscal situation we’ve inherited”.

When asked if it was too expensive, Luxon said, “it's just that we're a dynamic government, we're looking at the situation we're in, we made a decision that this was the right policy setting and the right increments of what we could do”.

When asked again if it was too expensive, Luxon said “we appraise the economic environment as it is and will continue to do so”.

He later said: “I don't know how... I can be any more clear 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 have our support, and I'm very proud about.”

Newshub later reported the price tag for the policy was more than National had campaigned on – expected to cost $925 million in 2027/28, rather than the $650m National had forecast.

It would cost $2.9 billion over the four years, which was $800m more than National budgeted, which was $2.1b.

The Government would wear the cost of the change by collecting almost $3 billion less in tax in the coming four years.

On Sunday, Associate Finance Minister David Seymour and Revenue Minister Simon Watts announced plans to reverse the previous government’s phase out of interest deductibility for rentals.

Labour finance spokesperson Barbara Edmonds called it a “tax advantage for the wealthy”.

Yesterday, Luxon said: “One of our major challenges, as you well know is that average rents have gone up $170 week under the previous government.

“A big part of that was the costs that were loaded onto landlords,” he told reporters.

Seymour told RNZ he expected rents to fall – but could not say by how much.

“Unfortunately nobody can tell because it's not the only variable that affects rents – there’s the number of rental properties being built, there is the amount of people immigrating, there's general ... inflation to do with monetary policy [and] the performance of the economy - all of those things will have an influence.”

Property owners would save about $800m each year on tax, he said on Checkpoint.

“That is money that will be divided between landlords and renters alike.”

Sue Harrison, president of the New Zealand Property Investors Federation, said the rental shortage and growing need for emergency housing was partly because changing rules and interest rates had

pushed so many “mum and dad” landlords out of the business.

“The Government has a massive problem. We don’t want the Government owning every rental home in New Zealand. We’ve got to get people out of motels,” she said. “Well over 100,000 people have come into the country and are looking for homes. We need a good system for everybody. ”

Harrison said some landlords had become “embarrassed to say they are landlords, but they are providing homes for people.”

Corelogic chief property economist Kelvin Davidson said it was unlikely to “open the floodgates” of investors because yields were still low and interest rates high.

Most investors buying at the moment were facing having to significantly top up rent payments to cover their mortgages.

It might make the loss a little more acceptable for some investors, but not all, he said.

But he said it was part of a wider trend of circumstances becoming more favourable for investors, including the reduction in the bright-line test and rising rents.

Craig Renney, an economist and director of policy for the Council of Trade Unions, said there was evidence that the nearly $3b would make a difference to the state housing waiting list or beneficiaries, but no evidence it would lead to lower rents.

He said it was not too late to change tack, and “invest in New Zealand, not landlords“.