Possible future property tax changes

[GenY]

http://www.nzherald.co.nz/nz/news/ar...ectid=10907427 3. Tax deductions - First home-owners got a tax rebate for the first five years of up to $1,000 a year until 1990. Conversely, landlords could deduct only up to $10,000 of losses on investment properties. Since the 1990s the balance has reversed. People who live in their own homes no longer get any tax deductions for mortgage costs, while landlords can borrow to buy an investment property, pay more in interest than they earn in rent and deduct the losses from their other income for tax purposes - while still paying no tax on any capital gains in most cases. Many countries "ring-fence" losses on investment properties to limit or stop landlords using them to reduce their taxes, and most countries tax capital gains. We could do the same. http://www.nzherald.co.nz/nz/news/ar...ectid=10907426 The tax system treats the investor has having gone into business and entitled therefore to deduct all the costs, including interest, incurred in earning the taxable income, rents.
But most businesses cannot debt-finance themselves to the same extent as a property investor.
Multinationals can, but the tax system has long restricted their ability to claim interest deductions.
It is called the thin capitalisation regime and something similar to its 60 per cent limit on interest deductions might lessen price pressure in parts of the housing market where investors and first-home buyers compete.

[Eugene]

Ring-fencing of losses existed for residential properties in NZ in the 80's

[elguapo]

But most businesses cannot debt-finance themselves to the same extent as a property investor.

Yes they can, just not as cheaply.

It is called the thin capitalisation regime and something similar to its 60 per cent limit on interest deductions might lessen price pressure in parts of the housing market where investors and first-home buyers compete.

Ireland removed the tax deduction on interest for landlords around 2002. The rental market dried up almost overnight and rents skyrocketed. The put the deduction back in a year later. That was at a time you could deduct the interest for your own home too. That has just been removed recently.

[Harvey Specter]

I think a CGT is very likely in the next 10-20 years. NZ is on such an unsustainable debt and spending path that with baby boomers retiring we can't continue without drastically cutting spending or raising taxes.

Unfortunately none of our current political parties have the will or fortitude to cut spending in any meaningful way, and kiwis are too hung up on their precious "entitlements" to vote for change. So rates and taxes are only going to go in one direction.

I also consider it likely Labour will ring-fence property tax losses off. They have talked about this before and if I am not mistaken I think it might actually be their policy.

[elguapo]

I think a CGT is very likely in the next 10-20 years. NZ is on such an unsustainable debt and spending path that with baby boomers retiring we can't continue without drastically cutting spending or raising taxes.

For a CGT to work it has to be on an accruals basis. If it isn't, then people simply don't realise the gain unless they have a loss, or reduced income to offset it. If the goal is to raise more tax, then a CGT is ineffective, hikes in GST are much more likely.

[Perry]

I think a CGT is very likely in the next 10-20 years. NZ is on such an unsustainable debt and spending path that with baby boomers retiring we can't continue without drastically cutting spending or raising taxes.

Unfortunately none of our current political parties have the will or fortitude to cut spending in any meaningful way, and kiwis are too hung up on their precious "entitlements" to vote for change. So rates and taxes are only going to go in one direction.

I also consider it likely Labour will ring-fence property tax losses off. They have talked about this before and if I am not mistaken I think it might actually be their policy.

Unfortunately, I suspect that you're right. It will be ever more quantities
of sticking plaster surgery on a terminally ill economy. The problem for the
politicians and wanna bees is simple:

* Lolly-scramble type financial policies will get them voted in.

* Prudent, long-term financial policies will get them voted out.

That said, I think the baby boomer and entitlement thing is often stated
in a broad and somewhat unrealistic and unfair fashion.

Maybe this rejoinder below also over-states things slightly? But I can
appreciate the author's point. My father remembers the promises that
went with the social security 'tax' of one and sixpence in the pound.
Maybe, back then, they thought a politician was as good as his word.
Silly people!

The National Super Pension is neither an Entitlement, nor a Benefit.

Unbelievable this! As of NOW, PENSIONERS outnumber ANY OTHER type of
voter even by race, religion, or age!!!!

When are pensioners going to wake up and understand?
We have the power to shape legislation
All we need is the will power to do so!

POLITICIANS PLEASE PAY ATTENTION!

'Entitlement,' my arse. I paid good money for my National Superannuation
State Pension and other benefits. (How many NZrs remember the one
shilling and six pence we paid when we first started work?) Just because
they are having to borrow the money, doesn't make my pension some
kind of charity or hand-out.

Gold plated MP pensions and Civil Service Government benefits, along
with free healthcare, outrageous retirement packages, 67 paid
holidays, 20 weeks paid vacation, unlimited paid sick days. Now that's
welfare, and they have the nerve to call me a 'greedy pensioner' and
my bought-and-paid-for retirement pension, an 'entitlement.'

What the hell is wrong with us? Wake up NZ! Someone please tell me
what the hell is wrong with all the people that run this country?

We're "broke" & can't help our own Pensioners, Veterans, Orphans,
Homeless etc., but can spent millions of $$$'s for G-20 events!

In the last few months we have provided aid to India, Greece and
Turkey. And now Afghanistan and Pakistan - home of Bin Laden.
Literally, millions of Dollars, while our retirees living on a 'fixed
income', receive no aid, nor do they get any breaks while our
government and religious organizations pour millions of $$$$s
and tons of food into foreign countries.

They call Old Age Security and Healthcare an entitlement even though
most of us have been paying a premium for it all our working lives.
Now, when it's time for us to collect, the government is running out
of money. Why did the government borrow (steal?) money from our
pension fund in the first place?

We have hundreds of adoptable children who are shoved aside to make
room for the adoption of foreign orphans.

NZ: a country where we have homeless without shelter, children going
to bed hungry, hospitals being closed, average income families who
can't afford dental care, elderly going without 'needed' medication
and having to travel hundreds of miles for medical care with no
reimbursement of cost, vehicles we can't afford fuel for, lack of
affordable housing, and the mentally ill without treatment - etc.

Yet they have a 'benefit' for the people of foreign countries. Ships and
planes lining up with food, water, tents, clothes, bedding, doctors, and
medical supplies.

Imagine if the government gave us pensioners the same support they
give to other countries.

[Harvey Specter]

Pensioners hard done by, pull the other one.... if they are doing it tough IMO it means they have been careless throughout life... how long does it take to save a decent nest egg? Is 45 years not enough?

Not only are people of my generation paying for their current "entitlements" by the time we want the same benefits the retirement ages will be realised and levels of support cut due to it all being so grossly unaffordable. Oh well, people get the government they deserve.

[Perry]

Pensioners hard done by, pull the other one.... if they are doing it tough IMO it means they have been careless throughout life... how long does it take to save a decent nest egg? Is 45 years not enough?

Not only are people of my generation paying for their current "entitlements" by the time we want the same benefits the retirement ages will be realised and levels of support cut due to it all being so grossly unaffordable. Oh well, people get the government they deserve.

And perhaps the professionals they deserve, as well?

So, somehow, that pensioners have paid what was referred to as a social security
tax (aka saving for a nest egg) for all their lives, that can just be dismissed? And
that the present pensioners have paid it for 45 years doesn't count? I.e. Because
of government malfeasance, you have to pay their pensions out of your present
taxes and that somehow becomes the pensioners' fault, rather than the government
that embezzled their pension fund that took decades to accumulate, then vanished?

Unusual logic of yours, to say the least.

About the worst crime I can accuse war veterans & pensioners of is believing politicians.

[Harvey Specter]

The days of cradle to the grave social security is over. Our public debt is getting so large that Greek-style austerity cuts and tax hikes are on the horizon, especially with the spectre of a Labour/Greens/NZF/Mana/Maori Party hydra on the horizon in 2014 or 2017.

My generation is already burdened with crushing taxes which will only get worse over time. Yet due to unsustainable government spending and debt we will enjoy a fraction of the benefits in our old age that the current 65+ bracket and baby boomers will enjoy. With the introduction of Kiwisaver we will see National Superannuation benefits reduce, means testing coming in, and stricter means testing for other benefits like rest home care.

So my point is that it is somewhat precious for pensioners to moan about the level of their "entitlements" when my generation will be carrying a much larger tax and public debt burden and receive a fraction of the benefits that they have received.

And no, I didn't say the tax they had paid would be "ignored".

[elguapo]

Because
of government malfeasance, you have to pay their pensions out of your present
taxes and that somehow becomes the pensioners' fault, rather than the government
that embezzled their pension fund that took decades to accumulate, then vanished?

When was there ever an actual pension fund in NZ? For it to be of the required size, that would be tens, if not hundreds of billions. Can you imagine any government resisting the urge to dip into that? Can you imagine voters resisting to vote for a government that said it was going to dip into it for more lollies?

[Harvey Specter]

I.e. Because
of government malfeasance, you have to pay their pensions out of your present
taxes and that somehow becomes the pensioners' fault, rather than the government
that embezzled their pension fund that took decades to accumulate, then vanished?

I wouldn't call it "misfeasance". Last time I checked NZ is a democracy, we vote in the Government we want and think is best for the country. I think it is more the fact that Kiwis have voted for bigger government and more spending for decades, and now the cupboard is bare. So of course some blame can rest on reckless and short-sighted Governments, but blame can equally lie with the people who voted them in... after all people vote out of their own self-interest the majority of the time.

[Perry]

The days of cradle to the grave social security is over.

Loosely speaking, I agree. However, doesn't that
become the thin end of the wedge that goes:

The days of getting what you paid for are over.

I think some Christchurch people are pondering
that, these days, in relation to premiums paid.

And, as for:

Yet due to unsustainable government spending
and debt we will enjoy a fraction of the benefits
in our old age that the current 65+ bracket and
baby boomers will enjoy.

That sound suspiciously like an entitlement
mentality moan, to me.

[Harvey Specter]

Not a moan. I'm not planning to have to rely on state support in my old age (if there is any left by then).

[Perry]

Well, I think that's as prudent as it was imprudent for
my parents' generation to rely on political promises.
I did not plan it that way, either.

[flyernzl]

I actually find it quite interesting that Government experts are calling for the public to be financially prudent and accumulate sufficent assets to support themselves in their twilight years rather than expecting a state-funded pension, and yet seem hell bent on penalizing (through actual and proposed tax penalties) the major (and for many average-income people, the only) honest method of accumulating such a signifigant sum - investment property.

Say one thing - do another.