Labour still considering capital gains tax on investment housing
By Richard Harman (author)
There is a critical missing policy in Labour’s suite of housing announcements made over the weekend.
Though the policies would extend the current bright line test to apply income tax on the resale of homes from within two to within five years, it stops short of a full capital gains tax.
However, it is not off the table.
Housing spokesperson Phil Twyford told POLITIK last night that Labour would reconvene the tax working group once it was in Government.
“Grant Robertson’s position has been that he’s not going to rule anything out,”aid Mr Twyford.
“All options will be ion the table for tax reform.”
In the 2011 and 2014, Labour proposed a comprehensive 15% capital gains tax on the sale of all assets except family homes and small businesses sold for retirement.
Shortly after he was elected Labour leader in 2014, Andrew Little, said the capital gains tax policy was one of the reasons people didn’t vote Labour in that year’s election.
But Mr Twyford last night appeared to suggest it was still on Labour’s agenda.
"Our conviction is that we'll never properly fix the housing crisis and the tendency that our economy has towards housing bubbles without dealing with the tax settings,” he said.
And speaking at Labour's housing policy launch in Auckland yesterday Mr Little said the party would also look at the issue of tax deductibility of interest paid on mortgages to purchase investment properties.
“ Labour will begin consulting on how to end the loop hole of negative gearing,” he said.
We'll do this in a way that's targeted at speculators, not investors looking for a stable, long-term return.
Labour unveiled a comprehensive set of housing policies throughout the weekend --- most notably in front of a delighted special conference of delegates in Wellington who applauded loudly when Mr Little announced that the party would scrap the Housing Corporation and replace it with a Ministry of Housing.
Ironically the Corporation was established by the Rowling Labour Government in 1974.
By no longer requiring a dividend be paid to the Government from state housing Labour would use that surplus to build more state houses and renovate existing ones.
And the party is proposing to build 10,000 extra houses a year across the country with 5000 in Auckland.
That would require a near doubling of the number currently being built there.
(Last year 6000 were completed).
Mr Little says the party's already-announced “dole for apprenticeships’ policy would provide another 4000 workers for the construction industry.
To assist the process, the party is proposing to establish an Affordable Housing Authority, which would partner with local Government and private sector companies to build the houses.
Houses would be priced at $500,000-$600,000 with apartments and terraced houses under $500,000.
Outside of Auckland prices would be likely to range from $300,000-$500,000.
They would be sold only to first home buyers. A condition of sale would require them to hand back any capital gain if sold on within five years.
National did something similar in 1949 when it offered subsidised interest rates to state house tenants wanting to buy their homes.
They also got a ‘suspensory loan” of 10% of the value of the house which was written off after seven years of occupation.
Construction of the KiwiBuild houses would be financed by an initial $2 billion capital injection, which would be recycled as the houses were sold, and returned to the Crown at the end of the KiwiBuild programme.
What’s notable about the policy is what’s not in it --- apart from the capital gains tax.
Apart from barring sales to foreign residents, there is no real tool to restrain demand such as those proposed last week by the Reserve Bank; a look at immigration and loan to value ratios.
Indeed Labour’s housing policy package does not mention the Reserve Bank.
So Labour is focussing on supply and on restructuring social housing through the new Ministry of Housing.
Mr Little brushed off questions about the transition costs of this.
But given that 80% of all current state house tenants are on a benefit or superannuation, tenants would still have to deal with the Ministry of Social Development as well as the new Ministry.
However, judging by the approval of the party faithful this was a policy designed for them as much as the tenants.
And Mr Twyford seemed to echo that.
“The dogma of the 80s and 90s about the commercialisation of public services – I think it’s time to put that to rest,” he said.