Rents are set to increase as "ma and pa" landlords face a double whammy of property tax changes and a proposed hike to GST.
Prime Minister John Key announced a raft of changes yesterday designed to stimulate the economy in 2010, with plans for a "growth-enhancing tax system" attracting the most attention.
Otago Property Investors Association president Cliff Seque, who represents more than 800 property investors, said he was pleased Mr Key had rejected land tax, a capital gains tax and risk free rate of return tax on residential property.
"That was a politically palatable decision."
However, Mr Key indicated there was still a gap in the current tax system concerning property investments, with more details to be revealed in the May Budget.
Eliminating residential building depreciation, and ring fencing against property losses, were likely to be targets of the Government.
Those changes to the tax regime, coupled with an anticipated rise in GST from 12.5% to 15%, would mean landlords would have little choice but to raise rents, or sell their properties.
"I can see rents going up. I can also see a few landlords having to make the hard decision to sell," Mr Seque said.
Otago University Students Association president Harriet Geoghegan said any rental increases would be a "real shame" if there was no tangible improvement in student living conditions.
WHK taxation consulting principal Scott Mason, of Dunedin, said removing depreciation, was likely to hurt "ma and pa investors".
Some investors would be forced to sell their properties, leading to a downturn in the housing market, he said.
Increasing GST would also impact heavily on lower income families, who spent a higher proportion of their income on necessities, but the Government has indicated it would offset this by increasing benefits, New Zealand Superannuation and Working for Families payments, Mr Mason said.
The Government was also signalling personal income taxes would be reduced across all tax bands.
"The Government would not embark on a policy of increasing GST unless it would benefit the New Zealand economy in the longer term and unless it saw the vast bulk of New Zealanders better off," Mr Key said.
However, social services agencies were sceptical.
Methodist Mission chief executive Laura Black said the "devil is in the detail", but any GST increase would be felt hardest by those on low incomes.
"The concern for us is that people are always struggling."
Ms Black also questioned a proposal to reform the benefit system, as there were not enough jobs available in the current economic climate.
"There has to be jobs to go to," she said.
Presbyterian Support Otago chief executive Gillian Bremner said it was pleasing Mr Key had announced the Government would offset those on low incomes to lessen the impact of any proposed GST increase.
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