Tax plan will hit property investment

TAX CHANGES: Mr Key signalled that the changes would be included in the May Budget.
TAX CHANGES: Mr Key signalled that the changes would be included in the May Budget.

John Key will unveil measures aimed at cooling New Zealand's love affair with property investment in a speech today that is expected to outline major tax reforms.

The prime minister signalled yesterday that the changes would be included in the May Budget – and said the Government would be ready to implement them "shortly after that".

He ramped up expectations that the speech marked a step up in the Government's economic programme, saying the tax changes were the best way to boost growth.

Cuts to the top personal rate, from 38 per cent to 33 per cent or lower, are likely to be part of the package, but the Government needs to find revenue from elsewhere to do this. "We will be reasonably specific. I don't think you will come away from the speech wondering what we are saying," Mr Key said.

National has a long-term plan to lower all top tax rates to 30 per cent and Beehive insiders have suggested a rise in GST is on the cards.

Details of the changes were so secret yesterday that they were removed from drafts of Mr Key's statement circulated to ministers' offices. But they are certain to include measures that hit rental property investments.

Mr Key said the tax system had been favouring rental property and it was hypothetically possible for some investors to avoid paying any tax. "There is $200 billion approximately invested in that sector and the Crown lost $150 million last year. So you can expect to see some discussion on that in the speech."

It was wrong that some benefited from social spending without paying tax. "There are hundreds of thousands of Kiwis who are paying for you to drive on the roads, for you to access the health system, for you to have superannuation in your retirement, for you to educate your kids. That's not fair and a lot of those people are low to middle-income New Zealanders so I am just trying to put a bit of balance in the economy."

In his 20-minute speech – and in a detailed statement to accompany it – Mr Key is also likely to signal whether the Government will raise GST to 15 per cent to help shift taxation from businesses and wages to consumption. He could not say "hand on my heart" that support parties ACT and the Maori Party would back his proposals.

Other recommendations last year by the Tax Working Group included a low-level land tax and removing the right to claim depreciation on buildings. Property Council chief executive Connal Townsend warned that scrapping this would amount to a 2 per cent increase in business tax.

Mr Key is also likely to outline plans for welfare reform and signal moves to exploit minerals under conservation land.

The speech is expected to be given at around 2.30pm.

The Dominion Post