The Government could pocket $800 million from landlords by removing tax deductions on interest costs for rental properties, described as a "tax loophole".
A just-released dumping of documents related to Budget 2021 shows Treasury predicted the change could generate tax revenue of up to $800 million or more.
"... had the interest deductibility denial been fully implemented in 2018/19, and current interest rates prevailed, it may have potentially generated tax revenue in the order of $800 million higher."
But the documents also note the figure is "subject to high uncertainty and is likely to differ materially from an official costing", and that as the removal is being phased out, "the revenue gain will be limited over the next 3 years".
ACT's housing spokesperson Brooke van Velden says removing interest deductibility "was intended to line Government coffers at the expense of Mum and Dad investors", rather than solve the housing crisis.
Prime Minister Jacinda Ardern said in March she had no regrets moving against what she described as the "tax loophole", because property investors now make up the biggest share of buyers in the housing market.
"I think what we were responding to was incredible need in the space of 12 months seeing house price growth over 20 percent. That was unsustainable. It presented a risk to existing homeowners to potentially a housing bubble. That was a risk for our economy and it was also locking people out of the housing market."
Removing tax deductions on interest costs for rental properties was part of a package of housing policies the Government announced earlier this year, to try and bring down house prices and help first-home buyers.
Income and price caps were tweaked for deposit assistance - although the Government has admitted it got this wrong - and a $3.8 billion fund was set up for councils to dip into for housing infrastructure.
The Government also further cracked down on property investors by increasing the bright-line test - the tax on property investment - from five to 10 years, however it will be kept at five years for new-build investment properties to help incentivise supply.
In the documents, housing officials question how effective the package will be.
"Despite the sizable investment this package proposes, we think it is highly likely that housing outcomes for non-homeowning New Zealanders, among whom Māori and Pacific peoples are heavily overrepresented, will continue to deteriorate."
They also point out that the housing crisis is not a tax issue, "The underlying driver of housing unaffordability is the lack of responsive and affordable housing supply."
Real Estate Institute data shows the number of houses available to purchase in New Zealand is the lowest it has been in 14 years. And the homes that are available are too expensive for many Kiwis, with prices across the country up nearly 29 percent.
However, consents are at record highs, with 44,299 new homes consented in the year to June. The Government has also built 3716 new public houses since 2017, which is part of a total 7934 new public housing spaces.
ACT's solution is to give half of the GST on the construction of a new home that gets consented to councils, to give them more incentive to approve consents.
"We need new ways to fund and build infrastructure, new coordination between central and local government, new rules for consenting land, and new ways of accessing building materials," says van Velden.
"The Government should be asking 'how do we create an environment for investment and development?' Instead, this Government has targeted Mum and Dad landlords and investors with new housing taxes."
