Treasury suggested extending bright-line test for 20 years, pushed against interest deductibility, believes rents may rise out of new housing policy

The Governments housing package goes dramatically against the advice of officials in Treasury.
Treasury suggested the Government extend the bright-line test an effective capital gains tax on residential property to 20 years, instead of the 10 the Government has gone with, and pushed back against an exemption for new builds.

Officials also pushed against the change the Government will make to stop landlords being able to write off interest costs from their rental income. This was because they had not had time to fully analyse the potential risks of this change.

Treasury has not formed a view on whether a 10-year bright-line test is preferable to the status quo, the document said.

* Housing policy: What the changes mean for homeowners, investors, first-home buyers, renters and bach owners
* Housing: Government to double bright-line test and end interest writeoff in war on property speculation, will spend $3.8b on new supply

However, a table in the written advice for the Government, which considered both the 10-year bright-line test combined with the exemption for new build homes, rated this option as worse than the status quo.

Finance Minister Grant Robertson said the advice on rents had been mixed.

Officials wrote that a 20-year extension would better meet the Governments goals while not breaking its promise not to introduce a capital gains tax.

In light of the Governments objectives and the above constraints, on balance the Treasurys preferred option is an extension of the bright-line period from 5 years to 20 years with no exemption for new builds.

Treasurys opposition to the new build exemption was mainly based on the threat it would pose to the coherence of the tax system. It believed a more explicit subsidy would be more effective.

An exemption comes with additional administrative and compliance costs, and over time reduces the coherence of the tax system.

While increasing housing supply is important, the Treasury considers there are likely to be better ways to directly support supply, for example through an explicit subsidy for developers.

A spokeswoman for Robertson said the Government would be monitoring any effect on rents.

More soon.


Our Partner