Published in The Australian (Sydney), 18 May 2026
When Jim Chalmers stood up on budget night and announced the end of negative gearing on established properties, he assured Australians it was worth breaking a promise for “right and justifiable reasons.”
Grant Robertson, New Zealand’s then finance minister, said something remarkably similar in March 2021 when he broke his own promise not to extend the bright-line test on property. Robertson called his earlier commitment “too definitive.” A New Zealand Herald columnist observed that this sounded a lot like “too honest.”
New Zealanders know how this story ends.
The first thing Australians need to understand is that by the time New Zealand made its 2021 changes, it was no longer dealing with negative gearing in the Australian sense. In Australia, an investor who makes a loss on a rental property can deduct that loss against salary, dividends, or any other income. It is a broad and powerful concession that has shaped the investment behaviour of more than a million Australians for decades.
New Zealand’s system had already become narrower. By 2019, the Ardern government had formally ring-fenced residential rental losses, allowing them to be carried forward against future rental income but never offset against a wage earner’s pay packet. Cross-income offsets were already dead.
Then, in March 2021, the government went further. It removed interest deductibility altogether, even against the rental income it was incurred to earn. A landlord collecting $30,000 a year in rent and paying $25,000 in mortgage interest would be taxed as though that $25,000 cost did not exist.
On top of that, residential investment property sold within ten years would generally be taxed on the gain at the seller’s full marginal rate, up to 39 cents in the dollar, with no adjustment for inflation. A capital-gains tax in all but name, and a crude one at that. Few developed countries would design a capital-gains tax this bluntly: full marginal rates, no indexation, and no serious attempt to distinguish real gains from inflation. New Zealand managed it by pretending it was not a capital-gains tax at all.
In one sense, New Zealand’s reform was narrower than what Chalmers has just announced. Ardern’s government was not abolishing a generous cross-income tax break; that had already been done. But in tax principle, what it did was more radical. It denied a basic business deduction. And it still went wrong.
The timing made it worse. The Reserve Bank of New Zealand began raising interest rates in October 2021, barely seven months after the tax changes. Over the following eighteen months, the official cash rate climbed from 0.25 per cent to 5.50 per cent, the steepest tightening cycle in the country’s inflation-targeting history.
Landlords now faced a triple squeeze: sharply higher mortgage costs, the loss of deductibility for those costs, and a ten-year bright-line test that punished them for selling. Get out was the rational response.
Many did. Investor lending fell and rental supply came under pressure. Supply tightened at precisely the moment a post-Covid migration boom was surging demand. Rents rose sharply.
Not all of that increase can be pinned on the tax changes. Rate hikes and the migration surge played their part. But the directional effect should not be hard to understand: the policy made rental investment less attractive, reduced the supply of rental accommodation at the margin, and put upward pressure on rents.
The magnitude is debatable. The direction is not.
The incoming government’s verdict was unambiguous. Christopher Luxon’s coalition took office in November 2023 and moved fast. Interest deductibility was restored in stages, 80 per cent from April 2024, the remainder from April 2025. The bright-line test was cut from ten years back to two.
The entire Ardern-era housing tax package was put on a path to repeal within months. When a government reverses its predecessor’s signature reform that quickly, you are not watching a policy disagreement. You are watching a political system pass judgment.
A sound income tax taxes income, not revenue. A business that earns $100,000 and spends $80,000 to earn it is taxed on the $20,000 profit. Calling that a loophole misunderstands how an income tax works.
When the Ardern government denied landlords the ability to deduct mortgage interest against rental income, the reaction from New Zealand’s business community went beyond the usual complaints about tax increases. The principle itself was what shocked them.
In what other line of business would a firm be taxed on revenue rather than profit? No government would dream of taxing a farmer on gross sales while ignoring the cost of feed, fertiliser and fuel. Yet that was precisely the logic applied to landlords.
Officials at the Treasury and Inland Revenue both warned against the changes on these grounds. The government overrode them. The principle holds regardless of whether you call the deduction “negative gearing” or anything else.
While Ardern was tightening the screws on landlords, something else was happening. In 2016, Auckland had upzoned three-quarters of its urban land. In late 2021, a bipartisan deal extended medium-density housing rights across the country’s major cities. Consents hit 45-year highs.
Auckland began consenting homes at rates New Zealand had not seen for decades. Rents started falling in real terms, not because landlords were taxed harder, but because more houses were built. No tax change on either side of the Tasman has come close to matching that effect on rents.
Housing affordability is a supply problem, and tax settings can shift who owns the houses but cannot conjure houses into existence. When tax changes drive investors out of the rental market faster than new supply appears, the most vulnerable tenants pay the price.
Chalmers says the system has “got out of whack.” Perhaps. But tax systems are inherited rather than designed from scratch. The cardinal sin of tax policy lies less in imperfect settings than in changing them suddenly, breaking explicit promises, and punishing people who made decisions in good faith under the old rules.
New Zealand ran this experiment under conditions more favourable than Australia’s: a narrower reform, a smaller economy, a faster supply response from concurrent planning deregulation. It still failed badly enough that the next government tore the whole thing up.
Robertson called his broken promise “too definitive.” Chalmers called his “right and justifiable.” New Zealand broke the same promise, ran the experiment, reversed it and learned the obvious lesson: the durable way to ease rents is to build more houses. The Treasurer could skip the middle steps.
