What John Key's parliamentary statement means for New Zealand homeowners

Property developers and investors breathed a collective sigh of relief yesterday afternoon when John Key ruled out a land tax, a capital gains tax and an investment property tax in his first statement to Parliament.

But he did not rule out ending tax breaks available through depreciation for property investors.

Following months of speculation which contributed to recent declines in property values around the country due to anxiety about potential property tax changes, the statement could also be good news for New Zealand homeowners, who make up over 60% of the total population. It means that property prices, which are fuelled to some degree by investor activity, may not be hit too hard by any tax changes which are announced by the Government.

Of course, the president of the Property Investors Federation, Martin Evans, slammed Mr Key’s statement, saying “the goalposts have now changed” for property investors which could lead to “a housing shortage in New Zealand” if investment property became less attractive.

On the other hand, Neil Russ, a tax partner in legal firm Buddle Finlay, said the scrapping of depreciation write-offs for property investors would save the Government $1.3 billion annually, according to figures released by the Government’s Tax Working Group.

“Where buildings are sold, they are seldom sold for less than they are acquired for ... and if that is the case, there doesn't really seem to be any support for the proposition that you should get a deduction [on depreciation],” he said.

Today economists said the new tax rules were part of the Government's plan to take the heat out of the property market and encourage investors to look at other forms of investment, such as business and the sharemarket, in addition to property.