Monday, April 5, 2010

Mike Butler: Tax Working Group errors spotted

Errors have been found in the Tax Working Group’s report on the taxation of rental property by the Zealand Property Investors’ Federation and a leading academic. Writing in the April edition of The NZ Property Investor, federation president Martin Evans said that the working group advised the government that $200-billion was invested in New Zealand rental property, yet it lost $500-million per year resulting in tax refunds of $150-million.

The working group claimed the $200-billion invested in rentals was an over-investment considering the NZ Stock Exchange only has a market capitalization of $55-billion. With 299,607 tenanted properties owned by a private person, trust or business, according to the 2006 census, the average value of each rental property would be $667,540, Evans wrote. “Even allowing for the growth in the number of rental properties from 2006 to 2008, the average value for each rental property is clearly too high when the median price for all properties in 2008 was $335,000,” he wrote.

“The total value of rental property in New Zealand is actually around $80-billion. As much of this amount is in the form of debt, the actual investment in NZ rental property is closer to $30-billion”, he wrote. He also noted that the working group chose to focus on the loss made in 2008 rather than the fact that for the vast majority of the study’s past 28 years, property investment was profitable meaning tax was paid on rental property income.

The academic who cast doubt on the robustness of the $200-billion figure was Michael Littlewood, of Auckland University's Retirement Policy Research Centre. He said in an APN report dated April 5 that a lot of sponginess in the 2006 census split between owner-occupied and rented housing derives from the fact that more than 6 percent of Census results on dwelling tenure were either unstated or unidentifiable, and in another 4 percent of cases the usual residents neither owned them nor paid rent. Also, 4.3 percent of all dwellings are state houses, rented, but not from private landlords.

Littlewood said that the $200-billion looks high or very high when compared with data from the national accounts or from the 2002 household savings survey.

The Key government’s hasty reaction on rental property taxation is not the first time shoddy advice has sent it on a wild goose chase. The Emissions Trading Scheme, which will bring an increase of five percent in the price of electricity and of four cents per litre in the price of petrol from July 1 this year, was based on advice from taxpayer-funded climate-doom zealots.

Government departments such as Housing New Zealand and Work and Income already co-operate with private accommodation providers in the course of their work. I would have thought an enlightened government would seek to do the same.

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