Tax plan will hit property investment

By VERNON SMALL The Dominion Post | Tuesday, 9 Feb 2010

John Key will unveil measures aimed at cooling New Zealand's love affair with property investment in a speech today that is expected to outline major tax reforms.

Join Stuff this afternoon for live coverage of John Key's speech from 2pm. Join our conversation with a rolling report of the Prime Minister's key points as he makes them, with comment and analysis from our political editor Tracy Watkins, property management expert and NZ Property Investors Federation vice president Andrew King, business journalist Jenny Keown and Business NZ CEO Phil O'Reilly.

The prime minister signalled yesterday that the changes would be included in the May Budget – and said the Government would be ready to implement them "shortly after that".

He ramped up expectations that the speech marked a step up in the Government's economic programme, saying the tax changes were the best way to boost growth.

Cuts to the top personal rate, from 38 per cent to 33 per cent or lower, are likely to be part of the package, but the Government needs to find revenue from elsewhere to do this. "We will be reasonably specific. I don't think you will come away from the speech wondering what we are saying," Mr Key said.

National has a long-term plan to lower all top tax rates to 30 per cent and Beehive insiders have suggested a rise in GST is on the cards.

Details of the changes were so secret yesterday that they were removed from drafts of Mr Key's statement circulated to ministers' offices. But they are certain to include measures that hit rental property investments.

Mr Key said the tax system had been favouring rental property and it was hypothetically possible for some investors to avoid paying any tax. "There is $200 billion approximately invested in that sector and the Crown lost $150 million last year. So you can expect to see some discussion on that in the speech."

It was wrong that some benefited from social spending without paying tax. "There are hundreds of thousands of Kiwis who are paying for you to drive on the roads, for you to access the health system, for you to have superannuation in your retirement, for you to educate your kids. That's not fair and a lot of those people are low to middle-income New Zealanders so I am just trying to put a bit of balance in the economy."

In his 20-minute speech – and in a detailed statement to accompany it – Mr Key is also likely to signal whether the Government will raise GST to 15 per cent to help shift taxation from businesses and wages to consumption. He could not say "hand on my heart" that support parties ACT and the Maori Party would back his proposals.

Other recommendations last year by the Tax Working Group included a low-level land tax and removing the right to claim depreciation on buildings. Property Council chief executive Connal Townsend warned that scrapping this would amount to a 2 per cent increase in business tax.

Mr Key is also likely to outline plans for welfare reform and signal moves to exploit minerals under conservation land.

NEW DIRECTION

Mr Key says he accepted some of the things to be announced today in the Government's policy programme for the year ahead could erode his political popularity, but believes the new direction will benefit the country economically.

He said he believed he would get both political and public support for the programme, which he will delivered in a speech in Parliament at around 2.30pm.

"I believe New Zealanders will see we are serious about a growth agenda, about lifting wages and opportunities for New Zealanders. I think they will see that we've carefully considered the position that there is balance, but we are taking some bold steps, I believe, to transform the New Zealand economy," he told reporters today.

There has been intense debate about all the Tax Working Group recommendations and Mr Key said not everyone would be happy with the Government's decisions.

"We are being asked to make some significant changes, but to do so without the fiscal head-room just to give away lots of extra money. That adds a different and more difficult dimension."

Mr Key said the line the Government was taking could cut in on his political capital, but that was to be expected.

"That may be the case, but in the end you're in politics to make a difference for New Zealand...I want to make sure that in my time in office I make a difference to making New Zealand a wealthier country, where our kids want to stay here.

"In the end political capital is a bit of an abstract concept, and whether people support our vision for New Zealand will be determined at the next ballot box. But in the end I've got to do what I think is right - and this is what I think is right."

Mr Key said preliminary discussions had been held with support parties about the reforms and while their votes had not been "signed in blood", he did not anticipate problems, including final decisions in the May budget and implementing them shortly after.

- with NZPA