10 Mar 2024

Mortgage tax deductions to be restored from April - Seymour

2:31 pm on 10 March 2024
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Photo: Supplied/ Dan Bailey

Landlords will once again be able to claim tax deductions for interest on residential investment property from the start of next month, David Seymour says.

The policy was promised among tax reforms announced by the new coalition government late last year.

Seymour, the leader of the ACT Party and the Associate Minister of Finance, said the change would benefit both landlords and renters.

"The government's restoration of interest deductibility will ease pressure on rents and simplify the tax code," he said.

The move has been hotly debated, with some critics claiming renters are unlikely to see any benefits.

Labour Party finance spokesperson Barbara Edmonds said instead it would line the pockets of landlords and make it more difficult for first-home buyers to get out of rentals and into the market.

The previous Labour-led government removed the ability of landlords to offset their interest expenses against taxes paid on rental income in the hope it would help first home buyers. But Seymour said landlords inevitably had passed that cost on to tenants.

ACT party leader and associate finance minister David Seymour announcing mortgage tax deductions, in Auckland, on 10 March, 2024.

David Seymour in Auckland on Sunday, announcing the return of mortgage interest deductibility. Photo: RNZ / Finn Blackwell

The new changes take effect from 1 April, when landlords will be able to claim 80 percent of their interest expenses against tax, and would be increased to 100 percent, from 1 April 2025.

As part of the coalition agreement with ACT, the government said it would backdate the tax deductions so that 60 percent of interest from residential rental income could be claimed for 2023.

However the plan to backdate has not gone ahead.

"Landlords have been hit with a double whammy of rising mortgage interest rates and increasing interest deductibility limitations during a cost-of-living crisis. These costs are inevitably passed on to tenants, one of the reasons New Zealand has all time high rental costs," Seymour said.

"This heaped pressure on landlords and renters alike by reducing the number of rentals, pushing rents up, and making it harder for Kiwis to save for their first home."

New Zealand needed to encourage investment and development, and this policy would help, he said.

"Competition helps keep prices affordable. Reducing supply reduces the number of options and drives up prices. Removing the ability for landlords to claim interest expenses made residential properties less attractive and reduced the pool of properties for tenants to choose from."

Edmonds said there was no way to ensure the savings landlords made would be passed on to renters.

"They're shutting out first home buyers... It also shows where their priorities are; 2021 data showed there was about 346 landlords who owned at least 200 properties each - they get an average tax cut of $1.3m over the five years this comes back in.

"For us they're prioritising those mega-landlords over lunches in schools for kids, cheaper public transport, and I don't believe this will help with the cost of living."

Council of Trade Unions policy director Craig Renney has previously told RNZ that he was was doubtful the change would benefit renters, and it amounted to the government cutting a cheque to landlords at the cost of taxpayers.

Last year, with the policy backdated to 2023, the CTU estimated it would have cost the government a total of $3b over four years.

Renters United spokesperson Geordie Rogers also told RNZ last year that the changes were unlikely to benefit renters, and it would have been more helpful to provide incentives that would encourage more houses to be built.

However, CoreLogic's Kelvin Davidson said the change would make it more affordable for landlords to keep their properties, helping the supply of rental properties, and it would slow the rise of rents.

The Property Investors Federation said earlier that rental property owners were facing financial difficulties with some forced to consider whether to sell as a result, and "tax deductibility ...is a normal business way of operating."

Timing of the changes' passage through Parliament a concern - Labour

Seymour said the changes would be made to the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill, which is currently before a select committee.

Edmonds said introducing the change at this point side-stepped the democratic process where people would normally have time to make submissions.

"Again they're cutting out that constitutional process that people could have submitted during that select committee process. They could have issued a supplementary order paper and then called for submissions.

"The select committee only just finished deliberating on this particular bill over the last few weeks, so they've had time to put it in and see where the public fall with this.

"It's quite clear ... they just want to ram this through without actually getting the public's view on this."

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