The only change to the tax system the Government’s considering making to improve housing affordability is one it believes is unfeasible to implement in the short term.

The Tax Working Group (TWG) in February recommended the Productivity Commission investigates a tax on vacant residential land as a part of its inquiry into local government financing.

Finance Minister Grant Robertson liked the idea. It was one of only 10 TWG recommendations he in April classified as a “high priority". (The TWG made a total of 99 recommendations, including one to extend the taxation of capital gains, which the Government wrote off).

However the Government, in its 2019/20 tax working programme published last week, said: “It is unlikely that any significant reforms relating to vacant land and property would be feasible in the short term.”

While the relatively brief document didn't elaborate on why, Robertson told interest.co.nz it would take some time to get the design of such a tax right.

Furthermore, he said: "There's a long lead time with tax legislation. We're certainly doing the work now and if that comes through in a way that's positive, we'd be looking to move on it. But there's obviously a legislative timeframe that would be associated with it."

Robertson ideally wanted to see a bill introduced to Parliament before the 2020 election, but said it was a matter of looking at "what's possible".

Put to him that it didn't seem like the Government was moving with particular urgency, Robertson said: "I'm still very interested in it."

IRD and Treasury hesitant

The Productivity Commission, in its draft report on local government financing released in July, said it was seeking advice on a vacant land tax and would report back to the Government by November 30 when its final report was due.

It noted such a tax could incentivise the productive use of land and discourage land banking. On the flipside, it could be hard to define vacant land and therefore the rule could be easily avoided. It didn’t elaborate on the matter.

Meanwhile, both Treasury and the IRD in November 2018 advised the TWG against recommending a vacant land tax be introduced.

They argued there wasn’t enough evidence to suggest such a tax would have the desired effect.

They said the design and implementation would be complex and believed it would be difficult to make a judgement call to determine whether one type of land use should be preferred over another.

They conceded a vacant land tax could be administered by local authorities provided they had invested in rezoning the land and providing infrastructure.

“If there has been no investment, then the ability to impose a targeted rate seems less certain,” Treasury and the IRD said.

Using tax to encourage seismic strengthening on the agenda

The tax working programme also said the Government was considering improving the integrity of existing rules, considering ways of encouraging property owners to carry out seismic strengthening, and reviewing the scope of the bright-line test and the ring-fencing of rental losses.

Here’s a copy of the “land section” of the programme in full: