Inland Revenue officials have warned against tax breaks for the racing industry, saying they could cost the Crown up to $40 million in lost revenue – but the Government is proceeding regardless

NZ First and its leader Winston Peters had been backed at the election by prominent racing industry figures, who demanded those bloodstock tax breaks, as well as an all-weather track and control of the NZ Racing Board.

Now one of Peters' backers – top breeder Sir Patrick Hogan – has been ticked off by the Electoral Commission for breaking election funding rules with a pro-NZ First advertisement. "I didn't understand the rules." Hogan said.

This week's slap on the hand came the same day that Peters stepped up to the office of acting Prime Minister. As Racing Minister, Peters last month announced tax deductions for the buyers of "good looking" horses. It was notable as the only tax cut in the Government's first Budget.

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Peters' policy was a big win for the racing industry, because they had failed to convince the previous National Government to implement the tax relief. Inland Revenue documents seen by Stuff warn of the potential for race horse owners to game the system.

Officials saw no need for tax relief to the industry, but worked on tax rule changes with tighter restrictions. But that policy was dismissed by industry players just before the election.

Peters' policy allows tax deductions for an investor who buys a race-horse and declares an "intention to breed for profit." He said it would cost $4.8m. He'd previously tried to introduce the deductions when racing minister in the previous Helen Clark government.

Details of Peters' new policy are vague. But a strikingly similar proposal was advanced by the Racing Board last year. Officials cautioned against it because the deductions could be claimed even if a breeding business never eventuated. The Racing Board believed the policy would cost around $5 million a year.

IRD didn't accept that figure and put the cost at around $40 million a year because it had the potential to apply to an extra 7000 horses a year.

Former Revenue Minister Judith Collins confirmed she couldn't reach agreement with the Racing Board. She said a 2013 court case involving IRD and a racing syndicate, known as Drummond vs the Commissioner of Inland Revenue, made it difficult to implement the tax breaks that the industry was asking for.

"I wouldn't have or couldn't have opened up a complete change in policy without actually complying with the law. The law was pretty clearly stated in [that case] that just buying a horse and hoping you might breed from it one day was not actually a business."

Collins said she would be "deeply surprised" if Peters wasn't given the same advice. "It does smack of a lack of rigor when it comes to policy development."

Peters said: "The same arguments against bloodstock tax rules were raised during my previous tenure as Racing Minister, they were false then and they are false now. The evidence comes from when the previous Finance Minister Michael Cullen agreed to a similar approach and the positive impact that generated for the industry.

"There are legitimate reasons bloodstock tax investment helps create investment in horse racing which in turn will generate greater revenue for the taxpayer. It will become fiscally positive.

"The National Party has been naïve and poorly managed the racing industry, nor did it maintain the previous rules on tax write downs. The racing industry has become at best static and has not been achieving its genuine potential. The bloodstock tax write downs announced in Budget 2018 help attract new investors to the breeding industry. And next year's Yearling sales at Karaka will be one to watch."

Peters' party got vocal and financial support at the election from industry players. ​

Peter Meecham Sir Patrick Hogan says NZ First had the best racing policy.

Former Cambridge Stud owners Sir Patrick and Lady Hogan broke electoral rules by paying for a full-page advertisement in industry newspaper The Informant in September.

That earned them a slapdowns from the election watchdog this week.

A spokesperson for the Commission said: "It is the Electoral Commission's view that the advertisement was a 'party election advertisement' as defined in the Electoral Act. The advertisement should have had the written authorisation of the party secretary from New Zealand First prior to the advertisement being published. In addition, the advertisement should have contained a promoter statement. "

She said the Commission accepted that the breach was unintentional and the Hogans were unaware of the rules.

"Having considered all the circumstances including the modest expenditure involved and the circulation of the publication, the Commission will not be taking the matter any further. The Commission has explained the rules to Sir Patrick and The Informant and recommended that they seek advice on election advertising in the future."

BRIAR HUBBARD/STUFF Sir Patrick Hogan was ticked off by the Electoral Commission for a pro-NZ First advertisment.

Sir Patrick said the matter was "done and dusted."

"It's not like I spent a heap of money. As far I was concerned it was no big deal. I might have broken a rule but I did it in complete innocence. I didn't understand the procedures."

Sir Patrick said it was a "last minute decision" to place the ad. "I did it to assist in letting the industry know that at least the NZ First party had the best racing policies out there before the elections. All I was doing was saying that's what people should consider. The last three elections they have had the best racing policies of any party. Any of the other parties don't support racing at all."

He refused to say if he had donated to NZ First's election campaign.

NZ First President Brent Catchpole said it had confirmed to the Commission that the party had not authorised the Hogans' advert. "I hadn't been advised that there was no action [from the Commission] but I'm not surprised."