APO resource visit counts have been improved. For more information, see our Policies & Guidelines

Discussion paper

Housing, the ‘Great Income Tax Experiment’, and the intergenerational consequences of the lease

30 Apr 2017
Description

This paper provides an analysis of how the New Zealand tax system may be affecting residential property markets. Like most OECD countries, New Zealand does not tax the imputed rent or capital gains from owner-occupied housing. Unlike most OECD countries, since 1989 New Zealand has taxed income placed in retirement savings funds on an income basis, rather than an expenditure basis. The result is likely to be the most distortionary tax policy towards housing in the OECD. Since 1989, these tax distortions have provided incentives that should have lead to significant increases in house prices and the average size of new dwellings, should have reduced owner-occupier rates, and should have led to a worsening of the overseas net asset position. The tax settings are likely to be regressive, and are not intergenerationally neutral, as they impose significant costs on current and future generations of young New Zealanders (and new migrants). Since it does not appear to be politically palatable to tax capital gains or imputed rent, to reduce the distortionary consequences of the tax system on housing markets New Zealand may wish to reconsider how it taxes retirement savings accounts by adopting the standard OECD approach.

Publication Details
Identifiers: 
eISSN: 
1178-2293
Issue: 
University of Otago Economics Discussion Papers no. 1709
License Type: 
All Rights Reserved
Published year only: 
2017
45
Share
Share
Subject Areas
Geographic Coverage
Advertisement