Labour “brave” to end tax break

The NZ Herald thinks Labour is heading down a brave path

Labour’s plan to remove tax breaks for property investors, announced by leader Andrew Little on Sunday, is a risky but welcome move.

The party is proposing to end negative gearing, which allows investors to claim losses on their rental properties as tax deductions on other income. In normal circumstances, losing money would not be seen as good business practice. But in a rapidly rising market, big capital gains from reselling properties can outweigh these nominal losses. For this reason, negative gearing is often seen as at best an incentive to invest in housing and at worst a prime cause of demand-driven house price inflation.

Labour proposes to phase out the practice over five years, so that rental property losses can only be applied to other income from residential housing. It says it will use the estimated $150 million gained in extra taxes on grants for insulation and heating.

But, but… most of those with negative gearing are just people with a single investment property looking to build and protect their retirement funds.  

Little argues that most mum and dad investors don’t even use negative gearing – or if they do, they use it for only a few years until their modest property portfolio starts to make a profit.

Even if that turns out to be the case, it still represents a huge political risk for Labour. Despite the party’s rhetoric, there is no easy distinction between the “fat cats” who are cutting first-home buyers out of the market and the “honest battlers” who are doing the same thing on a smaller scale as they save for their retirement.

How many times has Labour been right?   I bet you that Andrew Little has absolutely no idea how many “mum and dad” investors use negative gearing.

Luckily, all this will be moot anyway.  Just like their Capital Gains Tax, they simply won’t get a chance to roll it out.

And then the next Labour party leader can sweep this idea under the carpet just like Little did with Parker’s CGT.



– NZ Herald

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