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Rising house prices prove Govt tax changes have failed

9 December 2011

Rising house prices prove Govt tax changes have failed

New information showing house prices rose 1.7 percent across the country last year, and reached their highest ever level in Auckland, is proof the Government’s tinkering with tax on property investment has failed and highlights the need for a capital gains tax.

“The Government’s tinkering with tax on property investment has proven to be totally ineffective in dampening house prices and shifting investment from housing into more productive sectors,” said Green Party Co-leader Dr Russel Norman.

“It appears the big personal income tax cuts to the wealthiest New Zealanders have undermined the changes to tax on capital by giving those people more to invest in property.”

The Government appointed Savings Working Group found that house prices rose by an additional 50 percent from 2001 to 2007 due to the preferential tax treatment of housing, including the absence of a capital gains tax on housing.

“A tax on capital gains, excluding the family home, is the most effective way to enable more Kiwis to buy their first home,” said Dr Norman.

“A capital gains tax would have the effect of reducing the demand for investment properties, keeping house prices within reach for first-time buyers.”

The Green Party is also calling for steps to be taken to address the supply side of the housing price problem.

“Expanding the supply of state housing will increase the stock of housing in the market, limiting the possibility of another housing price spike caused by a lack of supply,” said Dr Norman.

"There's a huge shortage of rental accommodation, especially in Auckland. The Government can kick-start the construction industry by investing in new state and community sector housing, bridging the gap between the current downturn and the long-awaited Christchurch rebuild.

“An additional 2000 state and community sector houses would cost $670 million and employ 3,100 directly — creating 9,300 jobs in total if indirect and upstream employment effects are included.

Link to the Savings Working Group report:
www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup

ENDS

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