Are National's Tax promises too good to be true?

In recent years, the Labour government has made a number of changes to property taxes, including removing interest deductibility for rental properties and introducing a bright-line test of 10 years. The National Party has pledged to reverse these changes if elected to government.

Restoring interest deductibility

One of the most significant aspects of the National Party's tax policy is its proposal to restore interest deductibility for rental properties. Under the current Labour government, property investors can no longer deduct the interest they pay on loans for rental properties from their taxable income. This has made it more expensive for people to invest in property, and has led to a decrease in the supply of rental housing.

The National Party argues that restoring interest deductibility will encourage more people to invest in property, which will increase the supply of rental housing and make it more affordable for tenants. However, critics argue that restoring interest deductibility will only benefit wealthy property investors, and will not do enough to help first-home buyers or tenants.

Changing the bright-line test

The National Party has also pledged to change the bright-line test from 10 years to two years. The bright-line test is a capital gains tax that applies to the sale of residential property within a certain period of time of purchase. Under the current Labour government, the bright-line test is 10 years, which means that if you sell a residential property within 10 years of buying it, you will have to pay tax on any capital gains.

The National Party argues that the bright-line test is discouraging people from selling their homes, and is making it more difficult for first-home buyers to enter the market. The party says that shortening the bright-line test to two years will make it easier for people to sell their homes and will help first-home buyers to enter the market.

Introducing a tax on foreign property buyers

The National Party has also proposed introducing a 15% tax on foreign buyers of residential property. The party argues that this tax will discourage foreign speculation in the New Zealand property market and will help to make housing more affordable for New Zealanders.

However, critics argue that the tax will discourage foreign investment in New Zealand and will have a negative impact on the economy. They also argue that the tax will not be effective in reducing house prices, as foreign buyers account for a relatively small proportion of the New Zealand property market.

removing the ring fence rule

Ring-fencing rules for property in New Zealand were introduced in 2019 to limit the ability of residential property investors to offset rental losses against other income, such as salary and wages. Under the rules, rental losses can only be used to offset rental income. Any excess losses are carried forward to future income years, where they can be used to offset future rental income or reduce the taxable gain on the sale of a residential property. National committed to removing the ring-fencing rule in 2020 but have not made this same commitment before the 2023 election.

Impact on property investors

The National Party's tax policy is likely to have a positive impact on property investors. The restoration of interest deductibility will make it more affordable for people to invest in property, and the shortening of the bright-line test will make it easier for property investors to sell their properties.

However, the proposed tax on foreign property buyers could have a negative impact on property investors who own multiple properties or who are planning to sell their properties in the near future.

Impact on first-home buyers

The National Party's tax policy is likely to have a mixed impact on first-home buyers. The restoration of interest deductibility is likely to lead to higher house prices, which will make it more difficult for first-home buyers to afford a home. However, the shortening of the bright-line test could make it easier for first-home buyers to find a property to buy, as more properties will be coming onto the market.

Overall, the National Party's tax policy is likely to have a positive impact on property investors and a mixed impact on first-home buyers.

Conclusion

The National Party's tax policy could have a number of positive impacts for property investors. In the past, however, it has not been uncommon for politicians to go back on their promises so I’ll wait till I see it happen before committing.