Government has no plans to review investor tax rule changes - Prime Minister Jacinda Ardern

The Government has no plans to review its decision to remove mortgage interest tax deductions for rental properties, with the Prime Minister saying it's something that "needs to go".

Last week, the Government announced it would phase out the so-called "tax loophole" over four years. Property investors responded by threatening to hike rents.

But Prime Minister Jacinda Ardern continues to defend the policy, despite backlash from across the political spectrum. She told The AM Show the Government would keep an eye on the impacts of policies introduced last week; "but, for deductibility, our view is this is something that needs to go".

The Government also increased the bright-line test from five years to 10 - requiring tax to be paid on any gains from a residential property sold within a decade. The family home has always been exempt and Ardern reaffirmed new-builds will also be spared.

She said the Government wanted to pull back the increasing proportion of the property market that belonged to investors. 

Asked by host Duncan Garner on Monday if rents will go up as a result, Ardern said: "We should look at what causes rents to increase; supply issues if there aren't enough rentals - which is why we're incentivising new supply by saying to people, 'if you do want to be an investor - buy a new-build.'

"Let's keep an eye on it - we also had to act, Duncan."

What counts as a new-build?

Ardern was also asked if tax exemptions would include new-builds purchased several years ago.

"For what we do about those who might have bought one, say, 90 days prior [to March 27], we're going out and consulting on the transitional arrangements there," she said.

Jacinda Ardern.
Jacinda Ardern. Photo credit: The AM Show

"We've said if you're buying a new build from March 27, these new changes won't apply to you. For those who might have bought one five years ago, we're working through the definition of how we apply this new change to that group of people and we'll be consulting on it.

"We're open to a transitional arrangement but we want to go out and say, 'how do we draw the line in the sand?' 

"It's very easy to describe it from March onwards - we've given that certainty. For those who might have recently bought a new build, we're working that through and we've given ourselves until October."

Also included in the Government's announcement last week were changes to the First Home Grant and First Home Loan schemes, mainly in the form of higher caps on incomes and property values that qualify.