Saturday 20th of February 2010

Property investors have been inundated with reactionary views on what the government plans to do to them through the tax system.

Now a bit of time has passed since Prime Minister John Key outlined the government’s plans to Parliament it’s worth reflecting on what might happen.

The first point is don’t be lulled into a false sense of security. Key dismissed some of the most distasteful ideas such as “comprehensive” capital gains tax, a land tax and a risk free rate of return method of taxing property.

You could almost hear the sighs of relief from investors.

What hasn’t been said though is what the government will do.

It’s pretty clear residential property investment has been singled out as the great evil which needs to be dealt to.

Apparently we all rort the system, pay no tax and are generally bludgers. What bunkum.

My views on this have been spelt out many times – the underlying premise being investors are business owners providing a service. They should be treated just the same as any other business owner and be subject to the same tax rules.

What’s on the cards?

Changes to depreciation for one. Property investors can live with that. After all it’s really just a timing issue and brings forward some revenue for the Crown.

What I wonder is this: Why the government should make a whole set of new tax rules?

It seems to me that Inland Revenue has had quite some success with its so-called Property Compliance Programme. Under the PCP it has been chasing investors who clearly have been buying properties and flicking them on for a profit.

So far they the programme has raised more than $214 million.

This is just the low-hanging fruit. Surely one option is to clarify the rules here and continue to enforce them.

Clarifying and enforcing these rules is something investors could live with too.

If the speculators’ activities could be curbed that would undoubtedly take some of the pressure off house prices. Particularly for those in lower price brackets.