Labour confirms move against negative gearing

Labour has confirmed it will eliminate the ability for landlords and property investors to use losses on one property to offset tax on other income, should it lead the next government.

Leader Andrew Little detailed the policy this afternoon at his party's congress in Wellington. It was first flagged at Labour's conference in July last year.

Mr Little says the policy would be phased in over five years.

His party estimates it would generate an additional $150 million a year in tax once fully implemented, which Mr Little says would be earmarked for a home insulation scheme.

"Right now, speculators can take losses from their rentals and offset that against their personal income. It allows them to avoid paying tax," the Labour leader told delegates.

"This loophole is effectively a hand-out from taxpayers to speculators. It gives them an unfair advantage over Kiwi families."

Anticipating criticism that his policy would hit mum-and-dad investors (which duly arrived from the Property Institute, see below), he added, "One in seven property buyers in the Auckland market right now are people who own five or more properties. They are the people I am targeting. They are the people shutting out young couples trying to buy their first home."

Under a five-year phase in plan, investors would lose 20% of their tax deductibility on losses each year through to 2022.

Property investors' case
Today's negative gearing rules mean that if the if the cost of a rental property in mortgage interest, maintenance, water and rates is more than the income it generates from rent, the owner can get a tax deduction on the loss. 

When the Liberal-led government across the Tasman was considering a move against the practice, the Property Council ran ads saying the elimination of negative gearing wouls see landlords make up the loss in their total income by increasing rents. It also claimed investor-funded construction, which accounted for one-third of new homes, adding that would "grind to a halt". (The Australian argument was only resolved on the eve of last week's Federal budget, when Treasurer Scott Morrison finally relented on negative gearing and only limited changes were put into effect.)

The Property Investors Federation has used a similar argument on this side of the ditch, saying the removal of negative gearing would result in a shortfall in New Zealand's rental housing stock.

It calls Labour's new policy an example of "the politics of envy" and a "direct attack" on mum-and-dad investors 

The Property Institute has accused Labour of resorting to "envy politics" with its policy to remove tax breaks for property investors, claiming the move is a "direct attack" on mum and dad investors.

Labour has previously announced a plan to bar foreign investors from the property market unless they buy a new home, a tax on profits for those who sell a house other than their primary residence within five years, and its Kiwi Build policy to build 100,000 "affordable" homes.

The latest Roy Morgan poll puts National and its allies on roughly level-pegging with the combined Labour-Greens vote, positioning Winston Peters as kingmaker.