RNZ: Govt claims new tax policy will save tenants money

Govt claims new tax policy will save tenants money
From Checkpoint, 4:07 pm on 11 March 2024
Radio New Zealand

==Background==
The government can't say how much cheaper rent will be as a result of a new tax policy benefiting landlords, but claims it will save tenants money too.
From the 1st of April, residential rental property owners will once again be able to claim tax deductions for the interest on their mortgages.
Labour had started phasing out the tax breakout.
This government says the change back will simplify the tax code.
Associate Finance Minister, David Seymour speaks to Lisa Owen.

https://www.rnz.co.nz/national/programmes/checkpoint/audio/2018929600/govt-claims-new-tax-policy-will-save-tenants-money
https://podcast.radionz.co.nz/downloads/ckpt/ckpt-20240311-1607-govt_claims_new_tax_policy_will_save_tenants_money-128.mp3

Transcript courtesy of
https://riverside.fm/transcription

:
00:00
The government can't say how much cheaper rent will be as a result of it reviving a tax policy benefiting landlords, but it claims it will save tenants money too. From April 1st, residential rental owners will once again be able to claim tax deductions for 80% of their mortgage interest. Labour had started phasing out the tax break. This government says the change back will simplify the tax code. And Associate Finance Minister David Seymour says it will mean cheaper rent. So I asked him.

00:29
How much cheaper? Unfortunately, nobody can tell because it's not the only variable that affects rents. There's the number of rental properties being built. There is the amount of people immigrating. There's general inflation to do with monetary policy, the performance of the economy. All of those things will have an influence. However, the amount of tax being taken out, that will be around about $800 million each year.

00:59
and that is money that will be divided between landlords and renters alike. So you can give absolutely no guarantees by giving a tax break to landlords that it will filter down to renters? Well, actually we can guarantee that. Well, any tax, when you put a tax on a transaction,

01:25
is partially paid by the producer and partially paid by the consumer. That's your economics 101, literally. I used to teach it. And then you ask, well, how much goes each way? It depends on, if you want to get technical, the elasticity of supply and demand in the marketplace.

01:45
and that will vary from different parts of the country. It will depend on all those other factors. Minister, that's great, the formula, but what people want to know if they are renting a property and you are telling them that this will bring rents down, they want to know by how much. Well, and we would all like to know, but if it was possible to know such things, we'd use that kind of information to play the share market and get rich. Unfortunately, there's many variables that have an effect.

02:13
and therefore you can't make an exact prediction. Boer Park though? Well you can know. Did you get any forecasting or something that gives you Boer Park forecasts? Well no, because I know the basic economics. What we do know is that if you stop taxing the sector, just like we allow people to deduct interest costs in every other industry, if you buy a commercial property, a farm, a small business interest is always a deductible expense, by bringing it back into line with the rest of the tax system.

02:43
We know that there's less tax being taken out of the rental housing market and therefore there's going to be more money kept by each side. Whether or not that effect will be overwhelmed by increases in price due to inflation or building of rentals or whatever other factors come into play, you know, it's not honest to pretend you can say that. But Minister, comparing rental properties and property speculators with other businesses, not apples with apples,

03:09
Because any other business that was running at a perpetual loss, and some of these rentals do, would get liquidated, wouldn't they? It's not saying. Well actually that's not true at all. They're gambling on capital gains aren't they? Well, have a look at tech start-ups. Xero for example, one of New Zealand's most successful companies, and today the biggest market cap on the NZX, that actually was running at an operating loss.

03:36
for years and years and years and everyone laughed at Rod Drury and they're not laughing now. I'm looking at property speculation. What do you think that this will do to property speculation? Property speculation only makes sense if there is not enough supply to match the demand. The only thing that will fix housing affordability and get better outcomes for New Zealanders is to make it easier to build a new house. If you don't have enough housing for the number of people,

04:03
then demand outstrips supply prices keep rising and whether or not there's a tax on it just determines whether the government takes its share of the rising prices or leaves it to people and taxes them in other more efficient and rational ways such as allowing interest to be deductible just like it is in every other asset class. But again not the same as every other asset class. Residential mortgages, you get cheaper money for those than you do for example if you're taking out a business loan. So why should landlords in essence get a tax bonus?

04:34
Well, I mean, if we were to buy the premise of your question, we'd start taxing people differently based on their average interest rate for the asset class. I don't think that's a serious proposition. Let me put this to you. An example. For a house worth $750,000 and it's got a half a million dollar mortgage on it, the net benefit from this policy will be $160 a week. Now we had a tax accountant work this out for us.

05:00
So do you anticipate that that 160 bucks a week will go straight to the tenant? In a market where the prices are flat and there's no inflation, then I suspect that what you get is a pretty even split between landlord and tenant. We're in a market that's just had about quarter of it. So 80 bucks a week, you would anticipate $80 a week and a split, you would expect it to go half and half. Half for the landlord and half for the tenant. Is that what you're saying? As I was just about to finish my sentence, Lisa, we live in a market.

05:30
place where, you know, migration according to the previous government's migration settings just led in a quarter of a million people. What I am saying is that it will be lower than it would otherwise be, as they say in economics class, keteris paribus, other things being equal, they will be lower, but once you start getting into this game of what is the financial future.

05:59
and what exactly will prices be in a year's time. If you knew that, you wouldn't be doing your job, you'd be rich. Yeah, but to know the cost benefit of a policy is, well, you'd think is essential when it's costing how much? Three billion over four years? It's going to cost you in lost tax revenue? Well, less than that, and it's not costing us. It's what you don't get. So that's an opportunity cost, isn't it, in economic language? Well, in economic language, it would be an opportunity cost, but you've got to get away from this habit.

06:28
of saying if the government doesn't take your money then that's a cost to the government. Actually the government doesn't have any money, the money belongs to you, and if we don't take it, that's not a cost to us, that's just you keeping more of your own money in the first place that you've earned. And that is David Seymour, the Associate Finance Minister.