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Finance Minister Grant Robertson believes that the Labor Party would not be breaking its pre-election promise not to introduce new taxes, apart from a new top income tax bracket, if it expands the bright line test.
According to the test, anyone who sells a residential property within five years of its purchase has to pay income tax on the profits made. The rule excludes family housing and inherited property.
Robertson said Tuesday that he had asked the Treasury to look at ways the government could reduce demand for housing in the face of rising prices. He wanted the Treasury to examine the bright line test, other existing policies, and new ones.
When asked Thursday if his pre-election tax promise precluded any changes to the bright line test, Robertson said: “I don’t think so, no. It is not a new tax …
“People are getting a lot ahead here. We are just waiting for that advice. “
When asked if you would consider introducing a lower tax-free income tax bracket, something that could be combined with an extension of the bright line test to address the inequality caused by rising house prices much more Quicker than wages, Robertson said, “We haven’t even gotten to that point yet … I haven’t even turned my mind to that.”
Robertson would not particularly like Orr’s tax advice
Robertson’s comments followed asking to the Reserve Bank (RBNZ) for its comments on a proposal to modify the mandate of its Monetary Policy Committee to require it to “avoid unnecessary instability” in house prices.
Hours after receiving a letter from Robertson on Tuesday, RBNZ Governor Adrian Orr answered saying he would consider the suggestion. But he noted that the RBNZ has already taken home prices into account and has stood firm on the actions it had taken to lower interest rates.
Wednesday Orr stood firmAnd when pressured by the media, he indicated that he would use Robertson’s “invitation” to discuss housing more broadly, including how government policy and taxes affect it.
As tensions between the RBNZ and the Minister flared up, Orr handed back some of the responsibility to the Government for taking care of the house.
However, Robertson noted Thursday that he was not seeking advice from the RBNZ beyond its domain.
“In the letter I wrote, you would have seen that I asked the RBNZ to reflect on a particular suggestion on monetary policy, and then on its monetary and financial policy. So that’s what I’m looking for from the Bank, ”Robertson said.
“Obviously, the governor of RBNZ is a free person and can make whatever comments he wants. But we made it very clear in the letter what we were looking for ”.
When asked how he would handle any advice from the RBNZ on fiscal policy, Robertson said: “A lot of people give me suggestions on fiscal policy, but we have been very clear about what we are looking for from the governor.”
RBNZ would like DTI, but still needs to ‘dust off the research on that’
Returning to the RBNZ, Orr in RNZ Morning Report on Thursday he gave a more definitive answer than he on Wednesday on whether the RBNZ wanted the government to add debt-to-income restrictions (DTIs) to its toolkit.
These restrict bank loans to borrowers looking to incur a large amount of debt compared to their income.
“We are dusting off the investigation on that,” Orr said.
But yes would be the simple answer. If we are trying to have effective tools that can avoid excessive indebtedness, then the debt-to-income ratio is one of those. “
The RBNZ has long held the view that DTI ratios should be in your toolbox. The national government rejected an official request in 2016.
But more importantly, Orr did not say that the RBNZ wanted to implement DTI ratios. The RBNZ hasn’t even done the job of submitting an official request to Robertson for the tool to be delivered to him.
The RBNZ’s focus is to advise on the re-imposition of loan-to-value (LVR) restrictions in March.
RBNZ Financial Stability CEO Geoff Bascand said on Wednesday that banks were making more loans to borrowers with high DTI and LVR ratios.
But Bascand said this situation should be considered in conjunction with the fact that low interest rates are making it cheaper to pay off this debt.
“If you think [low interest rates] you’re going to be there for a long time, then you can maintain a higher debt-to-income level. It’s kind of context specific, “he said.
How effective would it be to extend the bright line test?
Returning to the test of the bright line, CoreLogic analysis conducted for interest.co.nz in September showed that the share of homes that sold quickly decreased in Auckland, but increased across the rest of the country, since the national government pushed the bright line test in 2015.
In Auckland, the rule saw the share of homes bought and rejected within two years (per the original rule) decrease from 15% in 2015 to 6% in 2020.
While in the rest of the country, this portion increased from 7% to 8%.
Because Labor’s extension of the five-year rule only applies to properties purchased as of March 2018, it is too early to say how effective it was.
Inland Revenue was unaware that a lot of taxes had been paid due to the bright line test, as the income earned from the sale of a property is pooled with the seller’s other income when it comes to paying taxes.
CoreLogic Senior Research Analyst Kelvin Davidson believed that the impact of a tax on real estate investor decision-making had been drowned out by other market factors, but noted that we do not know what would have happened if the decision had not been met. rule. instead.
