Extra $1b in tax breaks for landlords with return of interest deductibility

Wednesday, 29 November 2023

Landlords are set to get $3 billion in tax breaks under the new Government’s coalition agreement, the Council of Trade Unions says.

That is $1b more than was expected from National’s pre-election commitment to once again allow landlords to claim back all the interest cost of a mortgage against the rental income received on a property.

National had committed to phasing in interest deductibility over a period of time, but under the coalition agreement the process will now start with a 60% deduction in 2023/24, 80% the year after, and 100% in 2025/26.'

The CTU analysed Inland Revenue data, the National Party’s “Back Pocket Boost” document, and the ACT/National Party Coalition Agreement, and it found the cost of returning interest deductibility would rise from the predicted $2.1b to $3 b.

CTU director of policy Craig Renney said once behavioural impacts were added, this figure was likely to exceed $1b across the forecast period.

It was a direct effect of the changes to the policy which would bring in interest deductibility earlier and faster than previously suggested, and the fact it was retrospective with landlords able to claim from April 1 this year, he said.

“Landlords will be cut a cheque from government, but tenants will not benefit from the rental payments they have already made. That’s hugely unfair and simply rewards landlords for nothing.”

“This $1b additional cost will pile further pressure on a budget that already is having to cope with the $3b loss of the foreign buyer tax.”

It was money that would need to be found from further deep cuts to public services, more debt, or higher taxes, and was an enormous and unnecessary expense, he said.

“There is no economic reason why you would make this change in the way they have.

“Instead, landlords are getting an early Christmas present while tenants and the users of public services get austerity and cuts.”

The changes were also likely to put further pressure on the housing market and would advantage landlords against first home buyers.

Renney said ACT’s manifesto had interest rate deductibility changes starting in 2024, as did the National Party’s, and that meant there was no mandate for change.

But landlords have been vocal about their opposition to the former government’s removal of interest deductibility, and National and ACT both campaigned on its return.

Landlord representatives have said Labour’s changes to tax rules for investors meant interest payments had gone up by thousands, and the result was landlords putting up rents to pay for the increase in costs.

National has said the return of interest deductibility would help to put downward pressure on rents, and would benefit tenants.

But property commentators have disputed that claim, and said changes to the tax rules might slow rent increases but they would not drive rents down.

Renters United president Geordie Rogers said the evidence did not support the claim rents would go down if interest deductibility returned.

The way to counteract rising rents was to build more new housing, but instead of putting $300b towards that, the new Government was choosing to give it to investors, he said.

“It is a perfect illustration of a huge sum of money being paid out into a black hole, and not going towards anything productive.

“Tenants won’t see any benefit from it as it will just go into over-leveraged landlords’ pockets, and they don’t tend to invest in new builds.

“But someone who owns multiple houses in the middle of a housing crisis does not need more money when there are people out there who can’t find a home at all.”

Labour Party finance spokesperson Grant Robertson said the move showed what National’s priorities were as it would rather give a tax break to landlords than look after weaker people.

There were a number of numbers floating around about the costs of reinstating interest deductibility, he said.

“But of the $3b Nicola Willis needed to make up over the forecast period for the loss of foreign buyers tax you could probably add close to a billion dollars in terms of interest deductibility.

“Then you could minus off maybe a billion dollars or so from what she is getting back from tobacco.

“But whichever way you look at it there is an enormous fiscal hole in terms of paying for the tax cuts, even with more people smoking and more people gambling.”

The concept of retrospective tax changes would be very dangerous, he said.

“Put it on the other side of the equation, if we actually added the tax and put that on retrospectively, you can imagine the outcry that would get.”