But they have done no modelling of how much the new "bright-line" test might slow the growth in Auckland house prices, he said.
That figure would include owner-occupiers or long-term investors whose circumstances change, forcing an early sale, and perhaps developers who buy an existing house to knock it over and replace it with multiple dwellings on the same site.
But it still suggests short-term investors are a significant force in the market.
There is a puzzle here, however. If speculators are as significant as the 17 to 18 per cent figure suggests, how come the Government expects beefed up enforcement of the laws on when a capital gain on property transaction is taxable - the existing intention-based test bolstered by the new two-year bright-line - will bring in a paltry $420 million nationwide over five years? Turnover in the market isn't that low.
Another thing we don't know is what difference the prospect of having to pay tax would have on the behaviour of buyers looking for a quick profit in the Auckland market, where house prices have climbed 18 per cent over the past year. Losing a third of that capital gain to the taxman still leaves a pretty healthy profit.
Even the short-term behavioural response in the period to October 1, when the new bright-line test comes into effect, is uncertain. Which will be the stronger effect: would-be profiteers filling their boots while the going is good, or existing speculators taking their profit before the chances of escaping tax on it worsen?
Yet another thing we don't know is how significant non-resident buyers are in determining prices.
Anecdotally, very. But good data are lacking, so moves to require tax numbers and New Zealand bank accounts are welcome.
As is the plan to introduce a non-resident withholding tax, which is intended to shift the burden of proof that a property sale is not the taxable kind on to the non-resident vendor.
But again, how much difference this will make to winning prices at auctions is unknowable at this point.
If you think non-resident buyers are a problem, the best and perhaps only way to tackle it is through the tax system, by having and enforcing rules which apply equally to resident and non-resident participants in the market. Otherwise, you are liable to fall foul of "national treatment" provisions in bilateral tax treaties and free trade agreements.
Robin Oliver, a principal of tax practitioners OliverShaw and former deputy commissioner of Inland Revenue in charge of tax policy, is not a fan of a bright-line test where properties sold within two years of purchase (with exceptions including the family home) are deemed to fall on the taxable side of the capital/revenue boundary.
Inland Revenue seems to be very successfully implementing the existing intention-based test, he says, and what is proposed isn't really a bright-line because people can still be caught by the intention test after the two years.
It would be easy to devise ways of getting around it, which officials would have to devise patches for, and before long it becomes massively complex legislation, Oliver says.
In addition, there will be hard luck cases where, say, someone might suddenly face a big health bill and have to sell.
"I don't see it as being damaging, too much, but I don't see it being terribly effective compared to the current rules which seem to be very successfully policed by IRD," Oliver says.
While an intention test sounds hopelessly subjective and epistemologically problematic, variants of it have been around for more than 100 years and the IRD and courts can look at objective things like patterns of behaviour.
But even if the two-year bright-line test is a solution to a problem that doesn't really exist, in the enforcement of a longstanding provision of the tax laws, it could still be argued that it falls well short of addressing a problem that really does exist, namely, the under-taxation of capital income. If you increase your wealth through the sweat of your brow, that gets taxed. If you increase your wealth by merely owning the right asset over the right period, that is sacrosanct and none of the taxman's business? Well why?
It is idle to suggest that the prices investors -- long- or short-term -- are paying for Auckland residential properties are driven by prospective rental yield alone. Not when house price inflation is in the high teens and rental yields closer to 3 per cent.
Rather, it is expectations that capital gains will continue at the double-digit annual rates they have averaged over the past five years, coupled with the fact that purchases can be highly geared -- amplifying those gains -- and interest is deductible.
One view is that the Budget changes are the thin end of a wedge that will move closer to a capital gains tax as commonly understood, if the bright-line is pushed out from two years in the future.
But in any case, there are other ways of skinning the cat, notably to tax a deemed return on the equity in an investment property, similar to the treatment of overseas shares under the foreign investment fund regime.
Variants of this idea have been proposed by the McLeod tax review in 2000 and supported by the Buckle tax working group in 2009.
A more radical and comprehensive version is advocated by Gareth Morgan and Susan Guthrie in their book The Big Kahuna.
John Crawford, a former deputy secretary at the Treasury, has recently proposed a version for rental properties.
Labour's finance spokesman, Grant Robertson, says taxing a deemed return on equity is among the options Labour is looking at.
