Key kicks for touch on property tax

By Rob Hosking

The government has ruled out almost all the property tax changes proposed by the Tax Working Group.

Land tax, capital gains tax, and risk free rate of return (RFRM) tax - all gone.

Prime Minister John Key told Parliament this afternoon in his scene setting speech for the year that
none of the options stacked up.

"A land tax is effectively a lump sum tax on people who own the land at the time the tax is introduced, would only fall on people who hold their wealth in one particular form and would create cash flow problems for many landowners, especially those with lower incomes," Key said.

While RFRM tax has "some conceptual appeal," it would also create cash flow problems for taxpayers as it is applied at a fixed rate - probably 5% of the value of the property, adjusted for the taxpayer's marginal tax rate - every year.

That does mean taxpayers can budget for it, because they know what the tax will be - but collecting a tax in years the investment made a loss is seen as problematic.

That could see rents go up, Key said.

A capital gains tax is progressive and extends the tax net more widely to areas not currently covered, he said.

However, it "would make the tax system more complex to administer and comply with, and may
encourage taxpayers to hold onto assets longer simply to avoid tax".

There will be changes aimed at property investors in the Budget - on May 20 - Key said.

But on what they will be, he was silent.

All he would say is that there are gaps in the tax system "around property investments where income is being derived but, in aggregate, no tax is being paid - in fact the government is actually losing revenue in this sector.

"We will therefore be making changes to the way property is taxed, which will result in increased
government revenue and more fairness for taxpayers."

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