Housing package interest policy: Economist questions Treasury’s lack of advice due to ‘time constraints’

A top economist is scratching his head as to why Treasury was unable to provide suitable advice on the “significant” decision to scrap the interest deductibility loophole.

A Regulatory Impact Statement (RIS) from the Treasury revealed it was unable to provide a recommendation on this policy given the “extremely tight time constraints”.

“Given time constraints and lack of analysis, the Treasury does not recommend progressing the interest deductibility proposal without further analysis.”

But speaking to reporters this morning, after appearing at the Finance and Expenditure select committee, Treasury secretary Caralee McLiesh said officials had been working on the policy since November.

“There was definitely time pressure under these proposals but also, there is a process ahead for further details to be designed.”

She could not say how long the Treasury usually gets to analyse a policy like this, as it depends on the remit.

Media were unable to follow up with further questions, as one of her officials pulled her away after telling reporters “that’s enough”.

Treasury secretary Dr Caralee McLiesh during her appearance before the finance and expenditure committee at Parliament. Photo / Mark Mitchell

Independent economist Cameron Bagrie said he was “scratching [his] head” as to why the Treasury was unable make a recommendation on this policy, given it had four months to do it.

“This is a really significant policy change; it should have been up there in terms of their priorities.”

The interest deductibility loophole, at present, is a rule which allows property owners to claim interest on loans used for residential properties as an expense against their income from those properties.

Revenue Minister David Parker said this rule favoured debt-driven residential property investment over more fully taxed and more productive investments.

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Westpac senior economist Satish Ranchhod said the scrapping of this loophole could mean house prices eventually settle down 10 per cent.

ANZ chief economist Sharon Zollner said the moves “should take the wind out of the sails of the housing market”.

Bagrie said it was “troubling that for such a major policy initiative, Treasury didn’t have the time to do the work”.

“It should have been a high priority, given its significance.”