Interest deductibility

Last year, Victoria University's Chair in Public Finance Norm Gemmell sounded a few warnings about Labour's tax changes. 

• The new 39% rate seemed unjustifiable as a revenue-raising mechanism. The distance between that rate and the trust rate would create problems. Deadweight costs would be high relative to the revenue raised. As Norm put it, "It is hard to avoid the conclusion that the new higher top tax rate is a policy designed to deliver the appearance of redistribution by focusing attention and revenue raising on top earners. However, especially given the way the new policy has been structured, the actual effects are likely to be minimal on equality and small on revenue, but will impose significant costs in terms of the efficiency and integrity of tax revenue raising in New Zealand."
• The housing tax package is a mess. "If tax deductions on housing investment loans are to be denied, what about other types of business loans which future governments think should be favoured or disfavoured?" He warned that the policy did not close a tax loophole but introduced "a major tax distortion to a previously coherent regime." 

Go read the whole thing. Norm knows this stuff. 

Interest.co.nz reports that the government has ruled out allowing build-to-rent investors to deduct interest. There is a carveout for those building to sell, but not those building to rent. Instead they'll find some other special rule for build-to-rent. 

The simpler solution? Drop the whole stupid mess. It introduces a distortion between investment to provide housing and investment in other business activities. Why make it harder to finance new builds, in a housing shortage?