The Government’s announcement of what amounts to a capital gains tax on investor housing is a political coup.

Whilst it exposes National to some risk that it has done a “u turn” it more directly throws the spotlight on Labour’s indecision over tax policies.

Currently those policies are being reviewed with an intention to announce major policy by the beginning of 2017.

But National has its own potential embarrassments.

On April 13 the Prime Minister was asked by Guyon Espiner on RNZ’s “Morning Report” whether he was looking at the tax advantages “in anyway” for property investors.

“Not in Budget 2015,” he replied.

Two days later, the Reserve Bank Deputy Governor, Grant Spencer, made a speech in Rotorua in which he said housing was the most tax preferred form of investment, particularly when it was highly leveraged.

“While there are difficult issues and trade-offs to consider in this area, the Reserve Bank would like to see fresh consideration of possible policy measures to address the tax-preferred status of housing, especially investor related housing,” he said.

Then five days later at his post Cabinet Press Conference, an enigmatic answer from the Prime Minister.

He was asked whether the Government was looking more broadly at areas of taxing rental property investors.


“I haven’t seen any formal proposals today,” he said.

“I am aware that the Reserve Bank continues to talk to the Government about issues.

“They just haven’t provided any advice to us.”

Though he ruled out a “new” capital gains tax he said there already was one.

“How that is applied is a matter for debate.”

Today he was maintaining that the new move was more a tightening up of that existing requirement to pay income tax on any capital gain  that applies to what Inland Revenue calls property speculators and dealers – which it defines as people who buy properties not to live in but with the intention of selling them to make a profit.

But the new “bright line” test will be much more specific essentially allowing only two exemptions s — one on inherited or deceased estate property and the other property, from marital settlements. 

“What we are doing is taking the two years of ambiguity away,” he said.

“But if people start buying and selling properties within two years and two months I assume IRD will go and have a discussion with them like they do today.”

He estimates that the removal of what he calls the “ambiguities” of the current law will net $420 million in the four years following its introduction.

But perhaps the most far reaching of the Government’s proposals announced today relate to restrictions on foreign buyers.

They will now need a New Zealand IRD number and a New Zealand bank account to buy a house.

They may also have to pay withholding tax.

Mr Key said it had been difficult tracking down overseas buyers who should pay tax.

Officials are going to consult with a view to introduction around the middle of next year.

“The presumption will be that they are actually going to have to get their tax back rather than require them to pay the tax,” he said.

The announcement today also included another $29 million over the enxt five years to boost IRD enforcement.

The Greens congratulated the Government though Co-Leader Metiria Turei said the move had not gone far enough.

Labour Leader, Andrew Little, was less charitable and said What was needed was a more comprehensive and wholehearted crack down on speculators, alongside Labour’s policy of banning residential property sales to foreign speculators.