New analysis has shown the cost of interest deductibility changes will put a further $1 billion in the pockets of landlords, said NZCTU Economist and Director of Policy Craig Renney.
“We have looked at the details of the National Party & ACT coalition agreement, and our investigation demonstrates that the cost of returning interest deductibility will rise from $2.1 billion to $3 billion. Once behavioural impacts are added, this figure would likely exceed $1bn across the forecast period. This is a direct effect of the changes to the policy which bring in interest deductibility earlier and faster than previously suggested”.
This is set out in table 1 below:
Table 1: Mortgage Interest Deductibility
| Programme | 2023/24 | 2024/25 | 2025/26 | 2026/27 | 2027/28 |
| Current law | 50% | 25% | 0% | 0% | 0% |
| National Party Proposal | 50% | 50% | 75% | 100% | 100% |
| Coalition Agreement | 60% | 80% | 100% | 100% | 100% |
Craig Renney said, “Crucially, this change would be retrospective – meaning that landlords would be able to claim 60% interest deductibility from 1 April 2023. That means that they will be receiving a rebate on payments already made. Landlords will be cut a cheque from government, but tenants will not benefit from the rental payments they have already made. That’s hugely unfair and simply rewards landlords for nothing.
“This $1 billion additional cost will pile further pressure on a budget that already is having to cope with the $3 billion loss of the foreign buyer tax. This is money that will need to be found from further deep cuts to public services, more debt, or higher taxes – such as those on the new smokers National is hoping pick up the habit. It’s an enormous and unnecessary expense. This is money that could be used to support free prescriptions or half-price public transport, both of which are being scrapped.”
These numbers have been independently assessed by Terry Baucher, Tax Specialist at Baucher Consulting.
Baucher said “It is a highly unusual move to make retrospective tax changes like this. I can’t recall a tax measure like this being brought in after an election with retrospective effect.”
Renney said, “Nobody voted for this change. ACT’s manifesto had Interest rate deductibility changes starting in 2024, as did the National Party Manifesto. There is no mandate for this change. These changes are likely to put further pressure on the housing market and will advantage landlords against first home buyers. There is no economic reason why you would make this change in the way they have.
“Budgets are about choices, and we are going to have a mini-budget in December 2024. The incoming government could have used this money to pay the pay parity bill for Early Childhood teachers, which would cost just a quarter of this cost-blow out. Instead, landlords are getting an early Christmas present while tenants and the users of public services get austerity and cuts.
“National and ACT should abandon this bad plan and instead use the $3 billion to invest in communities and public services across New Zealand. The value of National’s tax package to middle and low-income households has already been weakened with the loss of working-for-families tax credits. This change simply skews the tax advantages further to those with higher incomes.”
Analysis
To complete this analysis, we have used data from IRD, the National Party “Back Pocket Boost” document, and the ACT/National Party Coalition Agreement.
CTU analysis shows that over the forecast period to 2027/28 (the same period used by National in their Back Pocket Boost document) mortgage interest deductibility was due to bring in $3.516 billion in revenue.
With the changes National had proposed, this fell to $1.094 billion – a fall of $2.42 billion. This fall is different from the $2.1 billion set out in the Back Packet Boost report because it uses updated data from IRD (produced in November 2022) which revised the estimates of income.
When the additional changes factored in from the changes set out in the coalition agreement are provided, then the income generated falls to $512 million – a fall of $3 billion. This means that the deal has added a further $600 million to the cost of the changes.
Example
John owns one rental property with a fixed mortgage rate, earning the median rental payment of $580 a week. He earns $80,000 a year in income from his other employment. This gives him a combined income of $110,160.
Over the five-year period from April 2023, the coalition agreement proposals would mean that John had $411,617 in taxable income, against $524,709 on current law. This would mean that they pay $40,385 less in tax over 5 years, before any additional impact of changing the threshold rates for income tax.
The difference between the coalition deal and the National Party proposal adds a further $35 a week in benefit for John.
John’s tenant sees no benefit from these proposals.