Labour to ring-fence rental property income

Andrew Little jokes that Grant Robertson needs to hold back on spending plans as the extra revenue from removing negative gearing is earmarked for insulation and heating grants. Photo: Lynn Grieveson

Labour Leader Andrew Little has announced a Labour-led Government would ring-fence losses from residential rental properties from other income to end the practice of negative gearing.

Little made the announcement in his address to the Labour Party's annual Congress in Wellington on Sunday, arguing the National Government had allowed the housing crisis to get worse.

"They have let speculators run riot with the help of a tax loophole that means taxpayers effectively subsidise their purchases," Little said.

A Labour-led Government would phase in the removal of negative gearing by reducing the tax deductibility of rental property losses by 20 percent per year over five years.

"This will create a level playing field for home buyers and help families get a fair shot at buying a place of their own," he said.

Little said IRD had estimated negative gearing reduced tax receipts by $150 million per year and the phased-in removal of negative gearing would increase tax receipts by $1.2 billion over the first decade.

Little said Labour would use the extra tax revenue to make grants of up to $2,000 per dwelling towards upgrading insulation and heating. The grants would pay up to half the cost of insulation upgrades and double glazing that meet or exceed the current building code, or of the cost to install a clean and fixed form of heating. Labour estimated the grants would be used by 600,000 households.

Little also confirmed Labour would ban foreign buyers of existing homes within its first 100 days in Government and extend the bright-line test for capital gains on property trading from two years to five years.

Little said the policy was not aimed at small investors who bought a rental property as a long term investment because he said the vast majority didn't use the loophole. Most of the $150 million in tax not paid each year was going to people on the highest incomes.

"This policy is about the big speculators who purchase property after property. It's about those big time speculators who are taking tens of thousands of dollars a year in taxpayer subsidies as they hoover up house after house," he said.