Well done, Chris. Labour has finally discovered interest is an expense

I never thought I would write these words, so I have made myself a tea and checked twice that nobody has tampered with my medication: well done, Chris Hipkins.

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Labour has apparently reconsidered its position on denying residential property investors the ability to deduct interest costs. This is quite a moment. For years, allowing a landlord to deduct interest incurred in earning rental income was described as an “interest deductibility tax break.”

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A tax break! It was always an extraordinary description. If a business earns $100,000 and pays $30,000 in interest to finance that business, taxing it as though the $30,000 cost did not exist is not closing a loophole. It is taxing money that was never made.

That distinction has always seemed reasonably important to those of us burdened by calculators.

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Nevertheless, after years of presenting deductibility as a lavish concession bestowed upon property investors by a grateful Crown, Labour appears to have undergone one of those rare political experiences known as changing its mind. Or, depending on which side of Parliament you sit on, a flip-flop. I prefer “policy maturation.” It sounds nicer.

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And I am genuinely pleased. Politicians should be congratulated when they reconsider policies that are not working. We spend too much time attacking governments for changing their minds, then wonder why governments persist with bad decisions.

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So congratulations, Chris. Honestly. But there is one tiny housekeeping matter: could we perhaps have our “tax break” apology now?

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The tax break that wasn’t

Imagine applying the same principle elsewhere. A farmer deducts interest on money borrowed to buy another farm. A manufacturer borrows for machinery. A café owner finances a new espresso machine. Apparently the nation is awash with corporate welfare because businesses insist on deducting expenses from revenue before calculating profit.

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The residential rental sector became the great exception. The political objective was understandable: tilt the housing market away from investors and towards first-home buyers. But somewhere along the way, an ordinary cost of earning income was transformed into a special privilege enjoyed by landlords reclining beside swimming pools eating grapes. Most property managers I know would struggle to identify these people.

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Housing Whac-A-Mole

The bigger story is not just interest deductibility. It is what the reversal represents. Labour’s housing journey began with KiwiBuild and the bold promise of 100,000 affordable homes over ten years. It was simple, memorable and politically powerful. Unfortunately, building houses proved more complicated than announcing them.

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And so began the Great New Zealand Housing Policy Whac-A-Mole Championship. House prices rising? Whack the investors. Still expensive? Whack interest deductions. Still not fixed? Whack the bright-line test, planning rules, and anything else that moved. By the end, housing policy resembled three people standing around a malfunctioning barbecue, each confidently turning a different knob while nobody knew which one controlled the gas.

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It wasn’t all Jacinda

It would be too convenient to blame Jacinda Ardern for everything from house prices to the weather in Palmerston North. She was Prime Minister, and the housing strategy belonged to her administration, but she was hardly operating alone.

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Phil Twyford became inseparably associated with KiwiBuild and discovered the painful difference between building houses in a manifesto and building houses in the physical universe. David Parker kept property investors wondering whether a spreadsheet somewhere in Wellington had their name on it. Grant Robertson, facing COVID, unleashed necessary but extraordinary fiscal and monetary support, while ultra-low interest rates poured rocket fuel onto asset prices. Housing went bananas, and politics went looking for somebody to blame.

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And I am genuinely pleased.

Because politicians should be congratulated when they reconsider policies that aren't working.

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We spend far too much time attacking governments for changing their minds and then wonder why governments persist with bad decisions.

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So congratulations, Chris.

Honestly.

But there is just one tiny housekeeping matter...

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Could we perhaps have our “tax break” apology now?

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