Keith Melville

Labour’s decision to retain what it has repeatedly called the Government’s tax break for landlords, amounts to a humiliating concession that Labour was wrong in the first place to weaponise the tax system against residential property investors.

It is also a grudging conclusion that the Government was right to remove that outrageously unfair Labour law, which had been opposed by IRD because it compromised the neutrality of the tax system.

Labour leader Chris Hipkins announced on Monday Labour would not repeal the coalition law that cancelled an earlier Labour law, preventing residential landlords from claiming interest as a business cost when working out their taxable income.

That Labour legislation effectively meant that landlords had to pretend that bank interest paid by them for mortgages on residential rental properties was not a business cost but actually income and was therefore taxable.

That might seem so absurd and egregious to people of rational mind that it could not possibly have been true, but it was true, and it was adopted by a political party that thinks it still deserves sufficient public trust and support to form a government after the forthcoming election.

Imagine the economic chaos if Labour had prevented other major borrowers of bank funds such as farmers from claiming interest as a business cost.

Having spent two-and-a-half years taunting the Government for giving landlords a tax break, and vilifying landlords as speculators responsible for inflated house prices, I hope the hypocritical mess Labour and its supporters have made for themselves, gives them plenty to think about and learn from.

In playing down Labour’s flip-flop, Hipkins said the interest deductibility issue had been overshadowed by Labour’s proposed capital gains tax.

That might be true to some extent but can only be judged alongside Labour’s official position until Hipkins made his announcement, and that was it was again considering cutting interest deductibility for landlords though not by the full previous amount.

I suspect Labour’s backdown has more to do with IRD’s opposition to changing the bank interest rules, than to Labour’s now stated official excuse that its old policy had been superseded by a new one.