Excerpts of speech given by Michael Cullen to the Property Council
“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.
“To see why diversification is a good strategy, one needs look no further than the current outlook for the residential property market.
“A slightly weaker labour market and continued slowing in net migration inflows are expected to lead to a fall in residential investment in the next two years. The impact of higher mortgage interest rates (albeit delayed because of the high proportion of home loans which are at fixed rates) will also contribute to the fall.
“In addition, residential rents have not kept pace with construction costs and house prices, with the result that returns from investment in housing are reducing. Our major cities have seen a rapid growth in the number of apartments; but that, combined with a downturn in the numbers of foreign students, has increased the risk of an over-supply in that part of the market.
“Despite all of this, property remains an important element in a well-chosen investment portfolio. From time to time there are calls to introduce various forms of property tax in order to achieve the much-vaunted ‘level playing field’ amongst different asset classes.
“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. A level playing field is, after all, only a theoretical concept. Real playing fields have their soft patches, slight tilts and areas of subsidence. Within certain limits, the players learn to work around them without affecting the quality of the game.
“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”.
