A CAPITAL gains tax to cool the booming property market was a knee-jerk reaction to a cyclical problem, a leading Dunedin tax accountant said yesterday.
Michael Turner, of Polson Higgs, said Inland Revenue already had a suite of rules to audit property speculation, but they were ineffective when the property boom was driven by access to borrowing and the human psyche which viewed property investment in the short term.
"I personally don’t think a capital gains tax is necessary.
"There are plenty of tax rules out there that would capture speculative gains.
"We’ve got a whole lot of Inland Revenue Department resources, existing and reallocated to audit property transactions.
"The culprit is the ability of people to borrow to buy an asset," and a belief that "property is a sure bet", he said when approached for comment.
The Reserve Bank has floated the idea of a capital gains tax as a way to cool the housing market.
Rising house values and borrowing off appreciating house prices is being blamed for putting pressure on inflation, which in turn has driven up interest rates and the exchange rate.
The ANZ bank market focus publication said recent real estate data hints that the housing market may be starting to cool.
In its latest look at the economy, the bank said while real estate data was robust, growth appeared to be slowing.
"It is agreed that it may be perhaps a tad too early to think we are about to see a turn in the housing market, but this may be the first sign of recent tighter financial conditions taking effect," the bank publication said.
The bank said the first sign of any cooling in the market would be next month when the first full impact would be felt of interest rates breaking 9%.
Mr Turner said investors were now paying 9.5% for a mortgage on a Dunedin student property investment that was returning 8%.
Mr Turner said banks would lend on property, whereas they would not lend on shares or other investments.
"The ability to leverage investment is available in the property market because banks will lend on that criteria, but not on most other types of investment."
Most other OECD countries were toning down their capital gains tax, including Aus tralia, which he said was reducing the rate of its capita gains tax because it was com plex and had a negative impact on the economy including the sale of property on which the tax would be paid.
"You have got to watch you don’t squash one problem and create another problem along the way," he said.
Government policy assist ing first-home buyers with deposits could also be unwit tingly stoking the housing market, by creating demand for property and money.
Mr Turner said the Reserve Bank and the Government would have to change people’s psyche to get the market to cool.
"There has been a bit if euphoria with good property prices in recent years.
"It means people are look ing at the short-term and not seeing the bigger picture."
Investments tended to move in cycles.
Six or seven years ago property was not performing well but the sharemarket was.
"I expect in two to three years we will look back and laugh at the whole property cycle.
"We will see the whole cycle on paper and actually be able to track it," he said.
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