Jacinda Ardern quotes National MPs to push back on claims bright-line test is a capital gains tax

Prime Minister Jacinda Ardern is pushing back on claims the bright-line test is a capital gains tax in disguise, by quoting National MPs who have said the same thing. 

The previous National Government introduced the bright-line test in 2015 to make property speculators pay their "fair share" of tax, by requiring income tax to be paid on any gains from residential property sold within two years, except for the family home. 

The Labour Government increased the bright-line test to five years in 2018. Labour then proposed a comprehensive capital gains tax, but its then coalition partner NZ First did not support it, and the Prime Minister promised not to introduce one while she's leader

Since then, property prices have continued to climb. The Government was advised last year that the property market could crash in the wake of COVID-19, but the opposite happened, with prices soaring 20 percent in one year. 

With interest rates dropped to record lows to help stimulate the wider economy, demand for housing soared. From June to November 2020, the amount borrowed by investors increased by 116 percent. 

Property investors now make up the biggest share of buyers in the market and last year 15,000 people bought homes who already owned five or more. 

The Government has decided to crackdown on property investors by increasing the bright-line test to 10 years however it will be kept at five years for new-build investment properties to help incentivise supply. 

The Government is now being accused of introducing a capital gains tax by stealth.

Prime Minister Jacinda Ardern speaking to reporters on her way into Parliament.
Prime Minister Jacinda Ardern speaking to reporters on her way into Parliament. Photo credit: Newshub / Zane Small

National leader Judith Collins asked Ardern in Parliament: "How is extending the bright-line test from two years to 10 years anything other than converting what was an income tax on speculators into a capital gains tax on rental properties?" 

Ardern shot back by quoting National MPs who have defended the bright-line test in the past, including former National leader Simon Bridges, and MPs Andrew Bayly and Todd McClay. 

As the Government weighed-up introducing a capital gains tax in 2019, Bridges as National leader was challenged on RNZ about previous taxes introduced by National, like the bright-line test.

Ardern quoted Bridges saying at the time the bright-line test was a "world away" from the capital gains tax the Government was then proposing.

Ardern also quoted Bayly in 2015, saying in Parliament: "Some people characterise this as a capital gains tax. It is not, actually; it is actually an income tax, and everyone has an obligation to pay tax." 

She also quoted McClay in 2015 saying when someone buys a property with the intention of making a profit, "they must pay income tax on that gain"

Ardern said in Parliament the Government was advised by officials that an extension of the bright-line test was "in order" to help stabilise property prices. 

"What I would also say as a general message to those considering investing in property is there will be a place for that in New Zealand - there is. But we ask you though - at a time when we have significant supply issues - to turn your mind to investing in a new-build."

Collins asked Ardern how extending the bright-line test this year will have a different result from the $250,000 increase in house prices that occurred since the last time she extended it. 

"I believe it will have the same impact as the National Party believed it would when they introduced it," Ardern said. 

"We've already had as part of our tax regime, the intent that if someone purchases a home other than their family home with the intention of selling it to make profit, that was intended to be taxable income. 

"Putting a measure on that has been a way that the National Government tried to reduce ambiguity. We are doing the same. We've extended it on the advice of officials."