The Property Investors Federation is hailing Labour's decision to leave interest deductibility settings alone, if elected.
By Giles Dexter of RNZ
Labour has ruled out any changes to the settings, with leader Chris Hipkins saying the party was committed to a capital gains tax instead.
In 2024, the government reinstated landlords' ability to claim tax deductions for interest in residential investment properties - essentially allowing investors to claim their mortgage costs against their rental income.
The policy was forecast to cost $2.8 billion over four years, and reversed a decision made by the previous government, which had removed the ability for landlords to offset their interest expenses against taxes paid on rental income in the hope it would help first home buyers.
Despite still decrying the policy as "tax cuts for landlords" as recently as last week, Labour has opted to keep the current settings in place.
Labour was expected to announce its decision following the release of the Pre-election Economic and Fiscal Update, but on Monday, Labour leader Chris Hipkins confirmed there would be no change.
Matt Ball, advocacy manager for the New Zealand Property Investors Federation, said landlords, and therefore tenants, could feel relief.
Ball said the group had been talking a lot to Labour about the impact it could have on the sector.
"It's the impact on tenants that's really important here. These are the people who are at the end of the chain, if you like, and the ones who would have been most severely impacted by this policy," he said.
Ball had previously said reintroducing the ban on interest deductibility alongside the capital gains tax would make investing in residential property unprofitable, and people would exit the industry.
Following Labour's confirmation that interest deductibility would stay, Ball said it would give landlords more confidence.
While he said the CGT "isn't great," interest deductibility was "way up on Mount Everest" in terms of impact.
"When you impose a tax like this, and don't forget it's a new tax, it just goes as a straight cost increase to landlords. And the only options they've got are to put up rents, cut their costs, cut maintenance, cut investment in their property or sell. And so it has a really detrimental impact on tenants, and especially also on landlords," he said.
"So it's good news. It's stability for the sector. We're going to stop flip-flopping between policies, which is fantastic."
Hipkins said when Labour had introduced its CGT policy, it recognised it would also have an influence on what it did around interest deductibility.
"I recognise that tenants are anxious about their rents, and I don't want to give any landlords the excuse of increasing rents at a time when Kiwis are already struggling with the cost of living," Hipkins said.
"Most of the evidence we received in government was that rents are more likely to be influenced by interest rates, and by people's capacity to pay, i.e. salary and wage growth. Those are still the two biggest things that drive rents. But I'm not giving landlords any extra excuse to increase people's rents. They're struggling to pay them now," he said.
ACT celebrates 'backdown'
The ACT Party, which along with National had campaigned to restore interest deductibility at the last election, said Labour's backdown on a policy it had invented was a "victory for common sense."
Leader David Seymour said removing interest deductibility in the first place was a "bizarre wrinkle," which added pressure on investors when all their other living costs were going up.
"The policy was part of a disease afflicting New Zealand politics. Whenever there's a political itch some group is lined up as a scapegoat. The country is left more divided but not more affordable. As a country, we have to stop doing this to ourselves," Seymour said.
However Hipkins told Morning Report on Tuesday its policy had been foreshadowed "when we announced the capital gains tax just under a year ago".
Interest deductibility was not mentioned in the party's policy document, and for months questions about whether it would be retained under Labour have yielded responses that the party's policy would be set out closer to the election.
Hipkins claimed to have answered "quite a range of questions" on interest deductibility when the capital gains tax policy was announced.
He said if Labour had won the last election things would have been different.
"Had we won the election, we wouldn't be having this discussion now because we wouldn't have introduced a capital gains tax and we wouldn't have changed interest deductibility. When the facts change, your position changes."
Asked how Labour would fund its promises given the savings removal of interest deductibility would provide, Hipkins said the party would set out its fiscal plan once the government opened its books for the pre-election economic and fiscal update expected this week.
That would include setting out how the party would pay for stronger pay equity legislation.
"There's a process that you have to go through, and many of those pay equity claims haven't gone through that process, so you can't calculate those accurately," he said.
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