This came out of a meeting the Property Investors Federation had with Government ministers and officials to discuss the effects of the brightline test’s extension to 10 years and scrapping the mortgage interest tax deductibility.

Federation president Andrew King and federation executive officer Sharon Cullwick went to the meeting armed with research showing 69% of investors will not be affected by the bright-line change, but removing the ability to claim mortgage interest payments as a legitimate tax deduction will affect 90% of landlords by an average cost of $4,542 per rental property.

The research also shows more than 70% of landlords want to increase rents by a median of $21-$30 a week to keep their rentals.

King says the First Home Buyers Club, Tenants Protection Association (Christchurch) and Renters United in Wellington backed up the federation’s belief that removing mortgage interest tax deductibility was not in the best interest of their members.

A letter was sent to Government ministers pointing out concerns about removing tax deductibility and asking them to reconsider the policy. The letter included the perspective of tenants who will be collateral damage in the change, says King.

“The First Home Buyers Club doesn’t believe it will help their members, but it will, in fact, make it harder for them to save deposits required to purchase their first homes,” says King.

Dismissal

He says the Government’s “dismissal out of hand” of the letter and request the tax policy be dropped was not unexpected. The federation has prepared a plan B proposing modification of how the removal of interest deductions should be introduced.

King says while the IRD is going to undertake public consultation on the new tax change, it will be limited to specific details and not the main structure of the change.

The plan was based on the British Government’s less severe introduction of a similar policy, which King says didn’t have as much impact on investors.

UK mortgage interest claims are limited to a base tax rate of 20%, rather than an investor’s existing tax rate as proposed in the New Zealand policy. This could leave investors on high incomes paying 39%.

The UK also allowed companies holding properties to deduct mortgage interest as before.

“The more measured reduction in claiming mortgage interest as a tax deduction meant only an estimated 18% of rental property owners with debt were affected and rental prices have not been affected to a large degree,” says King.

“In New Zealand 100% of property investors will be affected and we are disappointed to find the UK policy has been considered but Robertson says it is unlikely the Government will look at changing the New Zealand policy’s structure.

“It appears no consideration is being given to advice from tenants, first home buyers and officials from the IRD, Treasury, the Housing and Urban Development Ministry, economists and tax experts who do not agree with this tax change.”