By Jono Hutchison / 3news.co.nz staff
Prime Minister John Key claims around half of all residential property investors are currently being subsidised by the taxpayer. While the loophole will be closed, the Government is not going to introduce a capital gains tax or a land tax.
Instead, revenue will be sourced from increasing the rate of GST from 12.5 percent to 15 percent.
Some business groups have welcomed the plan, but others say it will only hurt those on middle and lower incomes.
"Fairer" is the word Mr Key has used to sell his tax changes, but that assessment is at odds with what the Tax Working Group say they pitched to the Government.
"It not intended to necessarily make it fairer, it's intended to make the economy grow," says Casey Plunkett. "The way you can make it fairer is to give some of that GST you collect back to people on benefits and people on lower incomes."
Labour leader Phil Goff says there is nothing fair about the changes, and that they only benefit Mr Key's "rich mates".
Mr Key also says he wants to get rid of a tax loophole used by investment property owners. Currently, it is possible to set a rate by which a house is depreciating. Investment property owners can then offset their income with that "theoretical loss" so that they pay less tax.
"The idea that a house - the building itself - would depreciate, isn't fair when, for a lot of buildings, they actually appreciate," says economist Bernard Hickey, "and so for many property investors, they claim depreciation, which is an 'invisible thing' if you like, and then use it to reduce their tax bill going forward."
Investment advisor Graham Goodison says stopping this will hurt property owners, but Mr Hickey disagrees.
"House prices have doubled in the last five or six years. Those people are sitting on capital gains of $300 billion. For them to complain about having to pay a couple of thousand dollars a year to the Government, effectively in some form of tax, just doesn't wash."
In his speech, Mr Key also indicated GST will go up, possibly to 15 percent, an idea not welcomed by many of the public.
"Some families are finding it hard to afford groceries at the end of the day, and to put higher tax on everyday living than what they are already paying, I think that's a bit wrong," says shopper Lisa Bains.
So, if GST goes up to 15 percent, a $1.59 soft drink would cost another 3.3c, and a $1500 TV would cost just over $33 more.
But Mr Key says any costs would be offset by tax cuts across the board and increases to benefits and superannuation.
3 News