Joint Report T2021/535: Further Advice on Selected
Total Page:16
File Type:pdf, Size:1020Kb
The Treasury Tax, Housing and RBNZ Information Release April 2021 This document has been proactively released by the Treasury on the Treasury website at: https://treasury.govt.nz/publications/information-release/tax-and-housing Information Withheld Some parts of this information release would not be appropriate to release and, if requested, would be withheld under the Official Information Act 1982 (the Act). Where this is the case, the relevant sections of the Act that would apply have been identified. Where information has been withheld, no public interest has been identified that would outweigh the reasons for withholding it. Key to sections of the Act under which information has been withheld: [25] 9(2)(b)(ii) - to protect the commercial position of the person who supplied the information or who is the subject of the information [33] 9(2)(f)(iv) - to maintain the current constitutional conventions protecting the confidentiality of advice tendered by ministers and officials [34] 9(2)(g)(i) - to maintain the effective conduct of public affairs through the free and frank expression of opinions [35] 9(2)(g)(ii) - to maintain the effective conduct of public affairs through protecting ministers, members of government organisations, officers and employees from improper pressure or harassment [36] 9(2)(h) - to maintain legal professional privilege [38] 9(2)(j) - to enable the Crown to negotiate without disadvantage or prejudice [39] 9(2)(k) - to prevent the disclosure of official information for improper gain or improper advantage [40] Not in scope [42] 18(d) - information requested is or will soon be publicly available Where information has been withheld, a numbered reference to the applicable section of the Act has been made, as listed above. For example, a [42] appearing where information has been withheld in a release document refers to section 18(d). Copyright and Licensing Cabinet material and advice to Ministers from the Treasury and other public service departments are © Crown copyright but are licensed for re-use under Creative Commons Attribution 4.0 International (CC BY 4.0) [https://creativecommons.org/licenses/by/4.0/]. For material created by other parties, copyright is held by them and they must be consulted on the licensing terms that they apply to their material. Accessibility The Treasury can provide an alternate HTML version of this material if requested. Please cite this document’s title or PDF file name when you email a request to [email protected]. Joint Report: Further advice on selected aspects of the draft Cabinet papers on demand and supply-side interventions Date: 5 March 2021 Report No: T2021/535 IR2021/098 BRF20/21030884 File Number: SH-13-5-3-1 Action sought Action sought Deadline Minister of Finance Agree to recommendations 8 March 2021 (Hon Grant Robertson) Provide feedback on this report to officials Refer a copy of this report to Associate Minister of Housing (Hon Poto Williams) Minister of Housing Agree to recommendations 8 March 2021 (Hon Dr Megan Woods) Provide feedback on this report to officials Minister of Revenue Agree to recommendations 8 March 2021 (Hon David Parker) Provide feedback on this report to officials Contact for telephone discussion (if required) Name Position Telephone 1st Contact John Beaglehole Acting Manager, The [39] [35] Treasury, Housing and Urban Growth Felicity Barker Team Leader, The Treasury, Tax Strategy Phil Whittington Chief Economist, Inland Revenue, Policy and Strategy Hilary Eade Kaiaki, Ministry of Housing and Urban Development, Place-based Policy and Programmes Minister’s Office actions (if required) Return the signed report to The Treasury, Ministry of Housing and Urban Development, Department of Inland Revenue, as appropriate. Refer to Associate Minister of Housing (Hon Poto Williams) (if agreed). Enclosure: Yes (attached) Appendix 1: Options to shift operating expenditure to capital: fuller analysis of accounting treatment 2 Joint Report: Further advice on selected aspects of the draft Cabinet papers on demand and supply-side interventions Executive Summary You have requested further advice in advance of Cabinet on 8 March, regarding selected aspects of the two draft Cabinet papers on demand and supply-side interventions in the housing market. The two draft Cabinet papers are “Backing first home buyers and encouraging property investment into new housing supply” and "Increasing housing supply and improving affordability for first home buyers and renters”. Our advice addresses your questions on: New build exemptions for proposed tax measures • The design of a new-build exemption for the proposed tax measure to limit interest deductions • The definition of a “new build” for the purpose of the extended bright-line test [33] • [33] [33] • [33] • First Home Grants and First Home Loans • Increasing the income cap for First Home Grants (FHG) and First Home Loans (FHL) from the existing limits • The link between the original caps and the distribution of house prices at the time, and what income caps would be today to maintain that original link • Lifting the house price caps for FHG and FHL In addition, you indicated that you would be interested in advice on where construction capacity may exist across regions to absorb increased infrastructure spend. We have provided you with high-level commentary on this matter. We note that this advice was commissioned on 3 March and produced under significant time pressure. T2021/535; IR2021/098; BRF20/21030884 Joint Report: Further advice on selected aspects of the draft Cabinet papers on demand and supply-side interventions Page 3 Recommended Action We recommend that the Minister of Finance and Minister of Revenue: a note that, if you wish to include the extension of the bright-line test in the Supplementary Order Paper to the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill, you will need to make decisions on that extension by 8 March 2021 at the latest b note that the new-build exemption is planned to be included in the omnibus tax bill scheduled for introduction in September 2021 c note that decisions around detailed design issues around the new-build exemption can be delayed until after further work and consultation on the exemption Felicity Barker Phil Whittington Team Leader, Tax Strategy, Chief Economist, Inland Revenue The Treasury We recommend that the Minister of Finance and Minister for Housing: [33] d e f agree that if you choose to increase the income cap for First Home Grants (FHG) and First Home Loans (FHL), that you increase this for individuals from $85,000 to $95,000. Agree/disagree. g agree that if you choose to increase house price caps for FHG and FHL for existing property and new builds, that you increase them as outlined in paragraph 75 Agree/disagree. T2021/535; IR2021/098; BRF20/21030884 Joint Report: Further advice on selected aspects of the draft Cabinet papers on demand and supply-side interventions Page 4 We recommend that the Minister of Finance, Minister of Housing and Minister of Revenue: h discuss this report with officials Agree/disagree. i refer this report to the Associate Minister of Housing (Public Housing) Refer/Not referred. John Beaglehole Hilary Eade Acting Manager, Housing and Kaiaki, Place-based Policy and Urban Growth, The Treasury Programmes, Ministry of Housing and Urban Development Hon Grant Robertson Hon Dr Megan Woods Minister of Finance Minister of Housing Hon David Parker Minister of Revenue T2021/535; IR2021/098; BRF20/21030884 Joint Report: Further advice on selected aspects of the draft Cabinet papers on demand and supply-side interventions Page 5 Joint Report: Further advice on selected aspects of the draft Cabinet papers on demand and supply-side interventions Purpose of Report 1. The purpose of this report is to address your questions on selected aspects of the two draft Cabinet papers on demand and supply-side interventions related to housing affordability. 2. We note that this advice was commissioned on 3 March and produced under significant time pressure. Analysis New-build exemption for proposed tax measures Context 3. You are currently considering two tax measures that are intended to dampen investor demand for existing housing stock, which would improve housing affordability for first- home buyers. These are: a. extending the length of the bright-line test for residential property from its current five-year period; and b. limiting the interest deductions available for income earned from residential property investments. 4. If the above tax measures deter investors from purchasing new properties, then new supply numbers for dwellings are likely to fall. While first home buyers will purchase some of these properties in lieu of investors (noting that currently, at least 75% of current tenants cannot afford to buy a home and an increasing number of people will likely rent for life), there are not enough first home buyers or other owner-occupiers to maintain new build supply at the same level should investor demand in the market significantly reduce. 5. Investors who buy properties off the plans are an important source of development finance for developers. Data from CoreLogic shows that almost 40% of new build properties were purchased by owners of multiple properties (a proxy for investors) in 2020. 6. As maintaining and increasing new housing supply is critical to addressing housing affordability (for both rental and home ownership), a potential exemption from the tax measures for new housing supply is being considered. HUD and Inland Revenue have both recommended an exemption for newly built properties. The Treasury does not recommend a new build exemption. If, however, Ministers wish to proceed with an exemption, the Treasury recommends that the exemption result in exempt properties being subject to the 5 year bright-line test (rather than a full exemption). You have requested further advice on some design details for this exemption, which is provided below.