Devil in land tax detail

Prime Minister John Key’s suggestion that a land tax for non-resident property buyers could be introduced has provoked support and condemnation in equal measure.

Key has said that such a land tax is not on the cards at this stage, but it could be an option if soon-to-be-released evidence shows non-resident buyers are pushing up house prices.

Nonetheless, his political opponents have been quick to slam the idea.

Labour’s housing spokesperson Phil Twyford said a land tax could end up pushing up rents as overseas-based landlords pass on the additional costs to tenants.

ACT leader David Seymour said that fiddling with tax rules didn’t address the housing shortage and the Resource Management Act should be changed to stop the artificial choking of land supply.

Other responses to the land tax suggestion have been more positive.

University of Auckland politics lecturers Nicholas Ross Smith and Zbigniew Dumienski have written that a land tax is, arguably, the simplest, easiest to administer and most effective solution to housing unaffordability.

However, Key’s land tax suggestion did not include any detail – which means that nobody knows what such a proposal might amount to in practice.

Withers Tsang & Co accountant Mark Withers said it was necessary to have details on how a land tax would be implemented and administered before its merits could be properly debated.

A land tax would, in fact, be a case of “back to the future”, he said.

This is because New Zealand used to have a land tax, but it was repealed in 1991.

“As a result, reintroducing a land tax might be relatively easy in a legislative sense. But it would mean another layer of stuff to administer – and who, or what, would actually do that?

Withers said that, at this stage, the suggestion raised more questions than it answered.

“For example, what is the tax really for – is to raise revenue or is it to try and turn the housing market round? And, if it is meant to impact on the market, what happens when the market does slow?”

“Also, how would the tax be worked out? It used to be based on the government valuation of the land, but would that be appropriate now?”

Such a tax for non-resident buyers was more feasible, in an administrative sense, now that all such buyers have to provide an IRD number as part of the land transfer process, he said.

But a land tax for non-resident buyers opened the doors to more property taxes across the board, like a capital gains tax.

“It could easily become universally hated, including by those who had to administer it.

“I think there are probably better ways to address the housing shortage. This seems a bit like cracking a nut with a sledgehammer.”