Labour accuses Government of ‘chaos' over National and Act's interest deductibility policy
Prime Minister Christopher Luxon is yet to confirm if the policy to allow landlords to deduct 60 per cent of their interest expenses would be backdated to the beginning of the current tax year.
Speaking to reporters on Friday, Luxon didn't say the policy to allow landlords to deduct 60 per cent of their interest expenses in the 2023/24 year would be backdated to April 1, 2023. This was an upgraded version of what National had promised in its fiscal plan.
When asked whether the deductions would be dated back to April 1, Luxon would only say, "we're working that through with officials. We will work that through with our Cabinet as well. What we are clear about is we are going to deliver income tax relief for low- and middle-income New Zealanders. We are going to unwind interest deductibility."
Senior National Minister Chris Bishop has also been unable to comment on whether the cuts would be backdated to April 1. When asked about backdating the policy, Bishop told Morning Report that "Nicola Willis ... is working through that and she will be making announcements and taking advice on that in due course".
The policy has been derided by Labour as a tax cut for landlords. The former Government removed the ability of landlords to deduct interest costs from their tax bills as an expense. This had the effect of increasing the amount of income on which landlords had to pay tax, and therefore their overall tax bills. Reversing the change will have the opposite effect, reducing the amount of revenue on which landlords pay tax, and therefore their tax bills.
National's coalition agreement with Act pledged to "[r]estore mortgage interest deductibility for rental properties with a 60 per cent deduction in 2023/24, 80 per cent in 2024/25, and 100 per cent in 2025/26″.
It did not specify whether the dates mentioned were fiscal years, which run from July 1 to June 30, or tax years, which run from April 1 to March 31.
Act leader David Seymour confirmed to the Herald early last week that his reading of the deal was that it triggered on April 1, 2023.
"It's tax years - it's got to be tax years ... So the 1st April 2023 to 31 March 2024. That's the year 60 per cent," Seymour said.
The agreement also did not specify when in the 2023/24 year the policy would begin.
The Government had taken heat over backdating the tax, given that backdating the change to April 1 would result in tax refunds for some landlords. Seymour acknowledged there would "potentially" be a "wash up in doing it this way", but that he thought the change was worthwhile. When asked about Luxon and Bishop's comments later in the week, Seymour said that his understanding of the policy had not changed.
"Yes - that's all it could mean," Seymour said, when asked whether the agreement referred to the April 2023-March 2024 tax year.
"Obviously, you know, there's a question over whether the tax rate should be changed, perhaps even after the tax year and, and we got to work through that, but what is clear is the basic principle that landlords are going to get dramatically faster relief on their mortgage," Seymour said.
"Like every policy, we're in a dialogue about, you know, how and when we implement it," Seymour said, but he said the governing parties were also trying to be reasonable to one another about the practicalities of implementing each policy
Labour finance spokesman Grant Robertson said that ambiguity was an indication of the poor drafting of the coalition agreement.
"We were told that the coalition negotiations were intensive, and detailed, and specific, and every day it seems that something new emerges that shows that the coalition of chaos genuinely cannot get itself onto the same page," Robertson said.
Robertson warned that backdating the policy would be incredibly costly. National had costed its own, cheaper version of the policy at $2.1 billion. A CTU analysis of the coalition agreement version of the policy put the cost at closer to $3b.
"National has got a major problem with paying for its tax cuts and this adds to that situation," Robertson said.
