30-12-1899

Address to Wellington Property Investors

1. News
2. 1999
3. December

NZ Govt

The following are the key elements of the address to Wellington Property Investors Association by the Hon Michael Cullen.

New Zealanders have had a remarkable love affair with residential property. Perhaps it is something to do with our colonial forebears, who came here looking for a piece of land to call their own. Alternatively, the strong connection that Maori feel to the land has clearly had an influence on the whole of the Kiwi psyche.

Whatever the case, as a people we invest something in the region of 70 per cent of our net household wealth in residential property, as compared to an OECD average of around 50 per cent.

There are some good aspects to that. Owning one's own home is an important platform for family well-being. It tends to make people more resilient when they encounter difficult times.

That is why this government has sought to encourage home ownership through various policies, including most recently the KiwiSaver scheme, which will assist people with the purchase of their first home in three respects:

• First, an extension of the Mortgage Insurance Scheme, which assists people who have a good credit history and the capacity to support a mortgage, but limited ability to raise a deposit;
• Second, a housing deposit subsidy available through KiwiSaver, which will provide assistance with a deposit in the form of a suspensory loan up to a maximum of $5,000; and
• A home ownership education programme to assist first home buyers improve their understanding of what home ownership involves.

In providing this assistance we are conscious of the need to avoid distorting the housing market and encouraging people to borrow beyond their means. We believe we have the balance right.

My government has always respected this as a choice that many New Zealanders make, having weighed up all their options. However, from a broader point of view we have made no secret of the fact that we would like to see an increase of domestic savings with diversification into a wider range of investment vehicles. We think it is important over time that we become a nation of share owners as well as, but not instead of, a nation of home-owners.

As you are aware, the main concerns raised with respect to property are that mortgage-free home ownership provides owner-occupiers with the benefit of an imputed rent and that capital gains go untaxed. The government's view is that New Zealand's income tax base is one of the cleanest in the OECD.

The Tax Review 2001 considered whether capital gains should be taxed on a more comprehensive basis by introducing a separate capital gains tax. They concluded that the disadvantages of a comprehensive tax on capital gains - increasing the complexity and the costs of the tax system - outweighed any theoretical benefits from including the gains in the tax base. The government agrees with this analysis.

So our position on the taxation of property is that the status quo is quite adequate, and that, all things considered, change does not promise significant overall benefits.

In other words, any new form of property tax is off our agenda. In our judgement there is more than enough scope to ensure that the tax system provides New Zealand investors with a largely neutral investment environment.