Labour finds $90m accounting mistake in Government’s landlord tax cut numbers

Labour is crowing after finding a $90 million mistake in the Government’s costings for reinstating interest deductions for residential property owners.

A spokesperson for Act leader David Seymour says there is no mistake and the way the policy has been calculated factors in the timing of people actually filing returns and paying tax.

The Government released costings to the Herald on Monday evening, which showed the cost of reinstating interest deductions would be $360m in the next fiscal year, rising to $915m by 2027/28.

But that data included a $0 cost for the current fiscal year, 2023/24, which began on July 1 last year and ends on 30 June this year. That is a problem, because the Government plans to begin phasing-in its policy from April 1 this year, meaning the policy covers three months of the current fiscal year and will therefore need to have that three-month cost charged against the the current year. Interestingly, National did not make the same mistake when it published its fiscal plan before the election, when it correctly added a cost to the fiscal year 2023/24.

A spokesperson for David Seymour denied the cost needed to be booked against the 2023/24 year.

“The Government’s accounts will not reflect the impact of these changes until tax returns for the 2024-25 tax year are received. These will generally not be filed until after the end of the 2023/24 fiscal year (ending June 2024),” they said.

Act’s alternative Budget also charged the cost of that party’s plan to restore interest deductions against the 2023/24 year.

Labour Finance Spokeswoman Barbara Edmonds said that the Government had “forgotten to include $90m of the cost of changing interest deductions for landlords in the current financial year, a scheme costing almost $1 billion more than they bargained for.

“The changes to interest deductions start on 1 April this year. But according to data seen by NZ Herald, the government figures don’t show any impact on the government’s books until the 1st of July. That’s a mismatch of $90m,’ Edmonds said.

Labour revenue spokeswoman Deborah Russell said this showed “atrocious book-keeping.

“According to recent media reports, the policy will cost a total of $2.915b over four years, $800 million more than National calculated. Missing the mark by almost $1 billion is atrocious book-keeping and will leave frontline services to make cuts to cover the Government’s spend on millionaire landlords,” Russell said.

Edmonds repeated calls for the Government to walk back the change and spend the money on social services.

“We have almost $3b that could instead be 439 million lunches for children, it could keep our smokefree generation, it could mean Police are paid fairly for the work they do to keep our communities safe.”

During his post-Cabinet press conference on Monday, Prime Minister Christopher Luxon said he had not seen an updated cost for the policy but that his ministers had.

“I haven’t, but our ministers [have]” Luxon said.

The policy in question will allow landlords to reduce their tax bills by reinstating their ability to deduct interest costs, as has historically been the case.

In 2021, Labour began removing the ability for residential investment property owners to deduct interest costs from their tax bills, which has the effect of increasing the amount of tax investors pay. The three parties of Government campaigned on reversing the policy, which will have the opposite effect and reduce the tax paid by landlords.

The National–Act coalition agreement said landlords would get a 60 per cent deduction in 2023/24, rising to 80 per cent in 2024/25 and 100 per cent in 2025/26.

This was an accelerated version of what National campaigned on, which was to keep interest deductions at 50 per cent in the 2024/25 tax year and increase deductions to 75 per cent in 2025/26, with deductions fully restored in 2026/27.

In the end, talks between the partners saw the 60 per cent 2023/24 deduction dropped, with the policy phasing-in at 80 per cent in the 2024/25 tax year.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.