NZICA cautions over calls for property taxes

For immediate release
14 September 2009

Media Release:

New Zealand Institute of Chartered Accountants cautions over calls for property taxes

“A capital gains tax is not the magic bullet for economic stability,” says NZICA’s tax director, Craig Macalister, in response to the Reserve Bank’s call to consider a tax on property speculation or to alter the way rental properties are taxed.

Mr Macalister said there was too much propensity for people to look to the tax system as the magic lever to be pulled when some behaviour in the economy needs changing.

“There are many complex factors that come into play: using the tax system to target bubbles in the markets is fraught with danger.

“In relation to concerns about the overheated property market we have seen suggestions in recent times to introduce a capital gains tax, a property speculation tax, or even to limit the deductibility of rental losses as a means of cooling investment in housing.”

Mr Macalister said the wider implications of such calls often were not thought through and frequently overlooked key details, such as the fact that New Zealand already has a tax on properties purchased for speculative purposes and importantly that developed countries have capital gains taxes and other property taxes such as stamp duties, yet still experienced a housing price boom.

“In addition, the incidence of any general capital gains tax may be factored into the price of our housing stock and yet further impact house prices. That is, contrary to cooling prices it could actually increase prices and make home ownership less affordable.

“Similarly a corollary of limiting deductibility of rental property losses may lead to a reduction in supply and an increase in rents, contrary to Government objectives to provide better quality of housing for people.

“It also needs to be remembered that a general capital gains tax could apply to all capital gains from assets, such as the sale of farms, businesses or equities, and not just housing.

“Introducing a tax to try and alter markets and influence the economy needs to be treated with caution. This has the potential to create unforseen distortions and costs elsewhere. A poorly designed capital gains tax may be of little benefit to anyone other than a boon for tax specialists, “ said Mr Macalister.

He added that that the Victoria University Tax Working Group will be looking at a capital gains tax and the appropriate or desired policy settings were such a tax to be considered. This work will very useful in adding to the overall debate about the mix and weighting of taxes in New Zealand and is the better forum for such considerations.

ENDS

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