Labour will not touch the tax rules that let residential landlords claim mortgage interest as an expense if it wins the election, leader Chris Hipkins confirmed on Monday, dropping one of the party’s most familiar lines of attack on the coalition Government.
For three years Labour has described the coalition’s decision to restore interest deductibility as “tax cuts for landlords”. Now Hipkins says the party’s planned capital gains tax on investment property makes a second change unnecessary, and possibly counterproductive.
“We’ve made a decision to introduce a simple targeted capital gains tax instead,” Hipkins said, according to 1News. “At the time, rules were changed around interest deductibility the Labour Party, at that point, had ruled out a capital gains tax. Now, clearly, that’s changed, and so we have made the decision not to make any further changes to interest deductibility rules.”
He told RNZ the party had signalled the shift when it first unveiled its tax plan. “We did foreshadow when we announced a capital gains tax that that was changing our thinking around how we would look at interest deductibility in the future, and that has now been confirmed,” he said.
The argument Hipkins is making is that the two policies are linked. Under Labour’s plan, landlords would pay tax on their profit when they sell, and he says altering deductibility as well would unsettle the design of that tax. “If you were to make changes to interest deductibility, it would ultimately change then, potentially, the capital gains tax settings,” Hipkins said.
RNZ reported he also did not want to risk landlords lifting rents at a time when tenants were already struggling to pay them.
The history matters here. In 2021 the previous Labour Government began phasing out the ability of residential landlords to deduct mortgage interest from their rental income, arguing that the tax system tilted the field towards investors and against first home buyers. At that time Labour had ruled out a capital gains tax, and removing deductibility was one of the few levers it was prepared to pull on property investment.
The National-led coalition reversed that after the 2023 election. It restored deductibility in 2024 and phased it back to 100 per cent from 2025. RNZ reported that opposition parties put the cost of the change at around $2.8 billion over four years, and the figure became a regular feature of Labour’s attacks on the Government’s tax package.
Labour’s own tax policy changed in October 2025, when it announced a 28 per cent tax on gains from selling residential investment and commercial property. As reported by interest.co.nz at the time, the tax would apply only to gains made after 1 July 2027, and would exclude the family home, farms, KiwiSaver, business assets and inheritances. Labour forecast it would raise $100 million in its first year, rising to $1.35 billion by 2030, with every dollar going into health care to pay for three free GP visits a year for every New Zealander.
Hipkins has since said the capital gains tax is Labour’s only new tax, and the interest deductibility decision closes off one of the questions critics had been asking about what else might be on the table for property investors.
National was quick to respond. Campaign chair Simeon Brown called the decision an about-face. “After three years of attacking ‘tax cuts for landlords’ and blaming them for the cost-of-living crisis, Chris Hipkins has performed an eleventh-hour u-turn and decided to keep the very policy Labour has spent years condemning,” Brown said.
Brown also acknowledged the upside for tenants, while pressing Labour on its sums. “While this is welcome news for renters who were concerned about upward pressure on rents, it raises serious questions about what other taxes Labour is planning,” he said. RNZ reported he questioned how Labour would pay for its spending promises without the extra revenue that reversing deductibility would have brought in.
That is the real tension in the announcement. Keeping current settings means Labour gives up a revenue source it could have used to fund other commitments, at a point in the campaign when every party is being asked to show how its numbers add up. On the other hand it removes a clear risk to rents, which have become one of the biggest weekly costs for many households, and it makes Labour’s property tax message simpler to sell.
For landlords the practical effect is certainty. Whichever of the two major parties leads the next government, the interest they pay on a rental property mortgage will remain deductible against rental income. What differs is what happens when the property is sold. Under the current Government there is no general capital gains tax, although the bright-line test still taxes some sales within two years of purchase. Under Labour, gains made after July 2027 on investment property would be taxed at 28 per cent whenever the property is sold.
For renters, both National and Labour are now effectively promising the same thing on deductibility, which takes one argument about rents out of the election debate.
The decision is also a reminder of how far Labour’s tax thinking has moved in a short time. The party that once ruled out a capital gains tax, and removed interest deductibility partly because it could not tax gains directly, has now swapped one tool for the other.
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Is Labour right to leave interest deductibility alone now that it has a capital gains tax, or is this a U-turn that costs revenue the country needs? Tell us what you think in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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