Welcome addition to tax law

Prime Minister John Key has finally acknowledged there is a problem in the housing market after months of shrugging off criticism the Government's laissez faire attitude to property problems was unsound.

In a speech to party faithful yesterday, Mr Key announced several measures he hopes will cool the Auckland property market and allow first home buyers to feel more confident about their future.

As part of the pre Budget 2015 series of announcements, Mr Key says Thursday's document will include extra measures to ensure people buying and selling residential property for profit - including overseas buyers - pay their fair share of tax.

Refusing to call it a capital gains tax, Mr Key says the Budget will provide Inland Revenue with extra funding for compliance and enforcement, require non residents and New Zealanders buying and selling any property other than their main home to provide a New Zealand IRD number.

Non residents will be required to have a New Zealand bank account and get a New Zealand IRD number.

A new ''bright line'' test will be introduced to tax gains from residential property sold within two years of purchase, unless it is the seller's main home, inherited or transferred in a relationship property settlement.

Last week, the Reserve Bank made it clear the Government needed to take some steps to help it cool housing inflation.

Houses in Auckland are appreciating in value at an average of $1000 a week - more than some people get paid. Apartments and property in sought after areas can be turned over quickly for profits of tens of thousands of dollars within a few weeks or less.

New Zealanders with mortgages and other borrowings are paying among the highest interest rates in the world because the Reserve Bank is worried if it reduces its official cash rate, the property market in Auckland will be unstoppable.

Mr Key's announcement is welcome because even in the South, where there are not many housing price problems - with the exception of Queenstown and perhaps Wanaka - first home buyers are suffering because of measures introduced to try to cool Auckland's market.

Requiring more information from non resident speculators should finally provide figures on how many New Zealand houses are owned offshore.

Ensuring those non residents have New Zealand bank accounts and an IRD number will hopefully mean they pay the correct amount of taxes, and not profit at the expense of New Zealand taxpayers in general.

The new laws will be introduced by October 1, the same day the Reserve Bank brings in its new lending restrictions for Auckland while freeing up some lending rules for the rest of the country.

There will be consultation, and tax experts believe there are some loopholes which will need to be dealt with during that process. People having to sell a property because of changed circumstances will be caught in the new regulations, and there appears to be no way yet to argue a case against the bright line tax.

It has been late coming, but the Government seems to realise that not only is the Auckland housing market a problem, but also regional New Zealand is hurting because of the growth being experienced in the country's most populous city.

New Zealand needs a strong and vibrant Auckland - it is the country's only internationally competitive city, after all - but not at the expense of regional growth.

There is also a suggestion immigrants will be given extra points to move to the regions.

However, there is no point sending people to places with a welcoming property sector but a declining job market. A balanced approach to economic growth is needed.

The decision the Government now has to make is how long to wait to see if the new rules make any difference.

Buyer behaviour in the next few weeks will be crucial to the success or failure of the new legislation and the Reserve Bank's changed lending rules.

If there is no marked change by this time next year, another piece of a capital gains tax jigsaw is likely to be needed.

 

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