Tuesday, 23 March 2021

TUESDAY, 23 MARCH 2021

TUESDAY, 23 MARCH 2021

The Speaker took the Chair at 2 p.m.

KARAKIA/Prayers

DEPUTY SPEAKER: E te Atua kaha rawa, ka tuku whakamoemiti atu mātou, mō ngā karakia kua waihotia mai ki runga i a mātou. Ka waiho i ō mātou pānga whaiaro katoa ki te taha. Ka mihi mātou ki te Kuīni, me te inoi atu mō te ārahitanga i roto i ō mātou whakaaroarohanga, kia mōhio ai, kia whakaiti ai tā mātou whakahaere i ngā take o te Whare nei, mō te oranga, te maungārongo, me te aroha o Aotearoa. Amene.

[Almighty God, we give thanks for the blessings which have been bestowed on us. Laying aside all personal interests, we acknowledge the Queen, and pray for guidance in our deliberations, that we may conduct the affairs of this House with wisdom and humility, for the welfare, peace and compassion of New Zealand. Amen.]

Petitions, Papers, Select Committee Reports, and Introduction of Bills

Petitions, Papers, Select Committee Reports, and Introduction of Bills

SPEAKER: No petitions or papers have been presented. No bills have been introduced.

A select committee report has been delivered for presentation.

CLERK: Report of the Foreign Affairs, Defence and Trade Committee on the International treaty examination of the Protocol to Upgrade the Free Trade Agreement between New Zealand and the People’s Republic of China.

SPEAKER: That report is set down for consideration.

Oral Questions

Questions to Ministers

Question No. 1—Prime Minister

1. Hon JUDITH COLLINS (Leader of the Opposition) to the Prime Minister: Does she stand by all of her Government’s statements and actions?

Rt Hon JACINDA ARDERN (Prime Minister): Yes, particularly the Government’s decision to support more first-home buyers with the deposit on their first home, tip the balance in favour of first-home buyers through our demand measures, incentivise investment in newly built homes, and jump-start developments by funding the vital infrastructure like pipes and transport links needed for new housing. New Zealand’s housing crisis has been decades in the making, and there is no silver bullet and there is no quick fix. It’s an issue that will take time to turn around, but our package of both urgent and long-term changes will increase housing supply, relieve pressure on the market, and make it easier for first-home buyers.

Hon Judith Collins: Can she confirm that under her Government, weekly median rent has increased $120, house prices have increased $250,000, and her KiwiBuild programme has only delivered 792 houses?

Rt Hon JACINDA ARDERN: Based on the member’s question, I’m expecting full support for the package of initiatives that the Government has announced today, because, obviously, that package is in response to the fact that since February of last year, we have seen an over 20 percent increase in house prices in this country, and we cannot stand by and allow that to continue to happen, because it means that houses will be out of reach for our first-home buyers and it means that many families who are in housing literally feel trapped. These measures are about reducing the immediate heat that is in the market—the risk that we have a housing bubble that, if it bursts, will cause issues for our wider economy—and it creates longer-term supply, because that is what will make a difference for renters in the long term, and that is why we’re encouraging investors to invest in new builds by exempting them from brightline changes and deductibility.

Hon Judith Collins: Does she believe that extending the brightline test this year will have a different result from the $250,000 increase in house prices that occurred since the last time she extended the brightline test?

Rt Hon JACINDA ARDERN: I believe it will have the same impact as the National Party believed it would when they introduced it. It was intended, of course, to put greater clarity around the existing intention test that was already in place in New Zealand, and we’ve already had as part of our tax regime that if someone purchases a home other than their family home with the intention of selling it to make profit, that was intended to be taxable income. Putting a measure on that has been a way that the National Government tried to reduce ambiguity. We are doing the same. We’ve extended it on the advice of officials.

Brooke van Velden: Is she concerned that advice from the Ministry of Housing and Urban Development on the HomeStart grant in regional areas stated that “Increasing the existing home grants is more likely to inflate house prices”; if so, is she confident that the policy to increase the grants announced today will not further inflate house prices?

Rt Hon JACINDA ARDERN: Yes. The reason that we have that element of the package is because we also have an element of a package around supply. So, of course, that advice is squarely based on the idea that if you do anything that potentially increases demand without having measures to increase supply, then potentially you cause extra heat in the market. At the same time, we’ve also got measures to dampen down demand particularly driven by speculators in the market, which, of course—the Reserve Bank and others have pointed to the considerable growth in the proportion of the market that is taken up by speculators at present. [Interruption]

SPEAKER: Order! There are, as the member the Hon Mr Brownlee knows, numerous Speakers’ rulings about repetitive interjections. I think that he has given the same interjection on seven occasions, and I think that is now getting to the point of just about disorderly.

Hon Judith Collins: Does she consider families who offer a second property for rent for a period of nine years to be speculators?

Rt Hon JACINDA ARDERN: Certainly the issue we have at the moment is that those who are purchasing on the basis of trading in a market where they make a gain by flipping a house at a point when the market is high are causing extra demand in the housing market. What I would say to anyone who is choosing to purchase a property for the purposes of a long-term investment: make it long term. That provides extra stability for tenants. It means they aren’t being removed from their housing when there is heat in the market. And we also encourage those who may be wanting to invest in New Zealand to invest in a new build. It will be exempt from the brightline changes and from interest deductibility changes.

Hon Judith Collins: Is she seriously telling New Zealanders that people who invest and provide rental housing for nine years are flipping the market?

Rt Hon JACINDA ARDERN: The advice that we’ve been given was that an extension was in order, and we agreed with that advice. What I would also, again, say, as a general message to those considering investment property: there will be a place for that in New Zealand; there is. We ask you, though, at a time when we have significant supply issues: turn your mind to investing in a new build.

Hon Judith Collins: How is extending the brightline test from two years to 10 years anything other than converting what was an income tax on speculators into a capital gains tax on rental properties?

Rt Hon JACINDA ARDERN: Of course, the member is referring to the policy which her party introduced. Again, I would point to the fact that at that time, “A capital gains tax is something that you pay no matter when you buy and sell the property”—that was from John Key. “Some people characterise this as a capital gains tax. It is not …; it is actually an income tax, and everyone has an obligation to pay”—that was Andrew Bayly. Again, “This means … when somebody buys property with the intention of making a profit they must pay income tax on that gain”—that was Todd McClay. And Simon Bridges said that the brightline test is a “world away” from a capital gains tax.

Hon Judith Collins: So which will deliver more houses: the $2 billion given to Kāinga Ora today for land acquisition or the $2 billion given to Kāinga Ora for KiwiBuild in 2018?

Rt Hon JACINDA ARDERN: I can tell you that both initiatives will deliver more than what that last Government attempted to when, for instance, they put out a $1 billion infrastructure scheme for loans to council—knowing, of course, they had limited rating base; they had, of course, limits to how much debt they could take on, as councils—and it simply did not move the dial the way we needed. The $3.8 billion acceleration fund we have for investment in infrastructure will be a game-changer for many, and it’s why, for instance, we have the likes of Nelson City Council coming out and saying this will shift the dial.

Hon Judith Collins: What is her understanding of the difference between an income tax on people who purchase property in order to resell it immediately and a capital gains tax on people who own a property and provide rental accommodation for others for up to 10 years?

Rt Hon JACINDA ARDERN: The same as John Key’s, and the same as many members of that side of the House.

Question No. 2—Finance

2. Hon JULIE ANNE GENTER (Green) to the Minister of Finance: Does he stand by his statement that “we cannot afford to put the current economic recovery at risk by allowing house prices to spiral out of control”; if so, what impact, if any, will the Government’s housing package announced this morning have on the ratio of house prices to household income in the short term?

Hon GRANT ROBERTSON (Minister of Finance): I do stand by my statement from earlier today. New Zealand’s economic recovery from the effects of COVID-19 is among the best in the world, and we do see a risk to the recovery based on what we have seen in the recent increases in house prices. What we want to see in the short term is more sustainable house prices, and that is why we have chosen to use a range of levers that the Government has available to it to reduce upward pressure on prices. It is, however, too early to be specific about the effect of these measures on the ratio of house prices to household incomes.

Hon Julie Anne Genter: Does the Government have a target for dropping the median house price relative to median household income, given that it is more than double where it was in the 1990s?

Hon GRANT ROBERTSON: There are a lot of variables and factors that go into where house prices sit, particularly with regard to a ratio to incomes. We obviously want to see incomes lift. We are also very, very clear that the level of house price rises we have seen in recent months in New Zealand is completely unsustainable, and that’s why we’ve acted today.

Hon Julie Anne Genter: How can the Government make a substantial difference to house price affordability when they are aiming for continued growth in house prices?

Hon GRANT ROBERTSON: Well, I don’t want the member to read into my answers anything other than the fact that we believe that the level of house price rises that we’ve seen is unsustainable. We also want to see incomes lift, but being able to give specific numbers around where we think things will land relies on behavioural economics, other aspects of the housing market, and other players. What we are committed to is making sure that houses are more affordable and more first-home buyers get into houses.

Hon Julie Anne Genter: Has he seen Bernard Hickey’s analysis that if house price growth moderates to 4 percent a year and household incomes rise 5 percent a year, then it would take 50 years—that’s half a century—to get house prices to income ratio back down to the 2001 level?

Hon GRANT ROBERTSON: I’ve seen a variety of analysis, including from Mr Hickey, around these matters. I can only repeat for the member: on this side of the House, we are absolutely determined that we will not see the unsustainable house price rises that we have seen, that we will see more first-home buyers get into their homes, and we will continue to protect renters along the way.

Hon Julie Anne Genter: Why didn’t he increase the brightline test to 15 or 20 years, as recommended by Treasury, and does he think that increasing it to 10 years will cause people to hold on to investment properties for longer to avoid paying tax?

Hon GRANT ROBERTSON: There was obviously a variety of advice that we got from officials on this matter. We think we’ve struck the right balance with the 10-year period. I do think, for a lot of renters, they want to know that their landlords will be in the market for a decent length of time. Stable renting arrangements are good for landlords and renters.

Hon Julie Anne Genter: Has he received any advice on what impact increasing first-home buyer grants will have on house prices in the short term?

Hon GRANT ROBERTSON: Again, there’s a wide variety of advice on that issue as well. What we want to be absolutely clear about here is that we are making this available to more New Zealanders to be able to access the kinds of things that help leverage them into a home. It is true that, I think in 2019, we made the change that you needed a 5 percent deposit. That will mean that from 1 May, an investor would require eight times that level of deposit in terms of the loan-to-value ratios. So I do think those home grants and home loans have a role to play in the system.

Question No. 3—Finance

3. BARBARA EDMONDS (Labour—Mana) to the Minister of Finance: What actions is the Government taking to support stability and fairness in the economy by managing demand for housing?

Hon GRANT ROBERTSON (Minister of Finance): House price increases of the magnitude that we have seen in recent months are not only harmful to affordability, they also represent a risk to economic stability. The changes announced today include measures to tilt the balance towards first-home buyers, including reducing the competition that they face from speculators for typical first homes. None of the measures today affect the family home. There is no one single measure that will turn around a housing crisis of this magnitude, but a combination of all the measures we have announced today will make a difference.

Barbara Edmonds: Will today’s announcement support stability and fairness by incentivising the building of new homes?

Hon GRANT ROBERTSON: The Government wants to turn around the sale of existing homes to speculators so that first-home buyers have a fair shot in the market. We also want investors and developers to keep building new homes—not just for sale, but also for rent—so we have exempted new builds from the changes announced today. The extension of National’s brightline test from five years to 10 years will not apply to new builds. We are also exempting new builds from the changes to interest deductibility, with the exact details of that to be consulted on.

Barbara Edmonds: What reactions has he seen to today’s announcement?

Hon GRANT ROBERTSON: Many and varied. ANZ chief economist, Sharon Zollner, says the bank expects today’s announcements to have a meaningful impact on investor housing demand and to make “a decent start on the complex question of improving house supply.” Infometrics economist Brad Olsen says, “The Government has been told there was a problem … and has acted on it.” I’ve also received several emails today, including one from a member of the public that I’ll quote briefly: “Dear Ms Ardern and Mr Robertson, I am delighted to see the measures you have announced this morning to finally tilt the housing market away a bit from those investors who have been writing off interest costs against rental income and making untaxed profits for so long at the expense of struggling home buyers. The adjustment has been needed for a long time and I am thrilled that finally my youngest son, along with so many young people, may have a chance in the next few years to contemplate purchasing his own home.”

Question No. 4—Finance

4. ANDREW BAYLY (National—Port Waikato) to the Minister of Finance: Does he stand by all his statements and actions?

Hon GRANT ROBERTSON (Minister of Finance): Yes, subject to any clarifications that I have made. In particular, I stand by my statement that this Government was elected to deal with important issues like the housing crisis, and that we will help tilt the market in favour of first-home buyers.

Andrew Bayly: Why has he announced the raft of tax changes, including a tax on capital gains for housing, when, as he noted this morning, less than six months ago he stated that there would be no changes to tax beyond the higher-income tax rate?

Hon GRANT ROBERTSON: I reject a number of the premises in that question, particularly in the first part of that question. It may have escaped the member, but in the last few months we’ve seen rampant out-of-control house price inflation, and the Government is moving to act on that.

Andrew Bayly: Why has he rejected official advice that extending the brightline test to 10 years risks increasing rents by reducing the supply of rental accommodation, while rents have increased by $120 per week since he’s been the Minister of Finance?

Hon GRANT ROBERTSON: This was covered in an earlier question. Alongside the change we’re making to the brightline test, we are exempting new builds from that. This is an opportunity for those people who want to invest in building new homes and adding to our stock to, effectively, get a tax advantage.

Andrew Bayly: Will increasing taxes and costs on mum and dad investors who own a rental property increase the supply of housing?

Hon GRANT ROBERTSON: As I’ve just said in the answer to that member’s question, this is a whole package; it includes increases to supply. What really interests me is we hear from the National Party that there’s a housing crisis, but they don’t want to back anything that will actually change it. That is exactly the approach we saw for nine years. I’m proud that we’re addressing it.

Andrew Bayly: Has he sought advice from officials on any other countries that have taxed their way to more affordable housing, and, if so, which are they?

Hon GRANT ROBERTSON: What I sought advice from and what the Government sought advice from officials on was how we could actually address a housing crisis. The member is characterising that completely incorrectly. What we have seen today from this Government is a package that will increase supply and dampen demand. We’re actually prepared to take actions to back first-home buyers, unlike the member over there.

Question No. 5—Housing

5. PAUL EAGLE (Labour—Rongotai) to the Minister of Housing: What announcements has she made about unlocking housing supply in New Zealand?

Hon Dr MEGAN WOODS (Minister of Housing): Today, I announced the Government’s $3.8 billion Housing Acceleration Fund, designed to jump-start housing developments and increase housing supply across the country. This will fund infrastructure on land we own and in areas where councils can demonstrate both housing need and a willingness for momentum to increase new housing. We recognise that, for too long, housing demand has outstripped supply, and as a result, we have seen house price increases of a magnitude that keeps homes out of reach of first-home buyers.

Paul Eagle: How does this package differ from previous packages introduced to address the housing supply challenge?

Hon Dr MEGAN WOODS: This is the first time since the 1970s that funding of this scale for supporting infrastructure, like roads to go to homes and water to taps, has been so closely linked with land, with the goal of bringing on new housing at pace. We are also supporting Kāinga Ora to borrow $2 billion extra to build a land acquisition programme which leverages its scale to increase the pace of housing developments coming online. These measures will reduce the impact of land banking that has held back housing developments in the past, and ensure a sustained pipeline of new housing.

Paul Eagle: How will this package unlock housing supply by supporting infrastructure investment?

Hon Dr MEGAN WOODS: We’ve listened to local government and developers, who have said that Government investment in infrastructure is the single most important contribution central government can make to increase housing supply. We know that some large projects have lost momentum because there was no certainty that the costs of infrastructure could or would be met. In green lighting developments that could otherwise sit empty, we are accelerating the unlocking of land by providing infrastructure for houses to be built on top of, and enabling developments of, a larger-scale size than we have previously seen.

Nicola Willis: How many, if any, additional houses will be built in the next 12 months as a direct result of the Housing Acceleration Fund announced today?

Hon Dr MEGAN WOODS: I realise that it’s only been a few hours since the release of the package and the member is probably still working her way through the detail of that package, but what I can tell that member is that, in terms of the timing of the fund, we will be making investments in the second part of this year. Some of it will go into our large-scale projects. What the modelling that is clearly in the papers—and I’m sure the member will get to it—shows, in our large-scale projects, we’re looking at 18,000 Government-enabled houses with 11,000 market-enabled. That doesn’t count the other projects that will be brought on between the contestable fund. So we will see more houses brought on in our large-scale projects. In terms of the things coming through council-funded contestable funds, we aren’t likely to see them within the next 12 months, but possibly within the next 18.

Debbie Ngarewa-Packer: Can the Minister highlight how this housing policy announcement will increase supply in housing to low-income whānau, those on waiting lists for social housing, and Māori?

Hon Dr MEGAN WOODS: There is a number of questions in there; I’ll start with the last piece about how this will increase the supply of housing for Māori. One of the things that we have made sure that this fund is orientated towards is not only iwi development but also the ability to fund infrastructure for building on papakāinga and whenua Māori land, because we know that there are huge opportunities for increasing supply on that land, and have made sure that we have orientated towards that. One of the features of the fund is also $50 million that sits within the land for housing account, which actually allows for non-market outcomes, which will allow us to push through affordability, not only for homeownership but for rental accommodation as well.

Question No. 6—COVID-19 Response

6. CHRIS BISHOP (National) to the Minister for COVID-19 Response: When the Government was negotiating a joint decision-making framework with Australia for the proposed trans-Tasman safe travel zone, did the Government develop a back-up plan in case agreement was not reached in the negotiations; if so, what was the plan?

Hon CHRIS HIPKINS (Minister for COVID-19 Response): Throughout our negotiations with the Australian Federal Government, work has been progressing, and is well advanced, on developing a draft response framework detailing the circumstances that may lead to a suspension of green zone travel on either side of the Tasman. The nature of this framework has not been dependent on our negotiating an approach, and it has meant that we haven’t had to start from scratch when pivoting towards pursuing a unilateral approach with Australia. Opening up quarantine-free travel is not a simple proposition, and the conditions outlined by the Prime Minister yesterday reiterate the Government’s ongoing commitment to commence safe travel with Australia when it’s safe to do so.

Chris Bishop: Why did the Government only announce yesterday that they would make an announcement in April about a possible date for a safe travel zone with Australia if, as he said, the Government hasn’t had to start from scratch on the plans for the response framework?

Hon CHRIS HIPKINS: I think if the member listened to the Prime Minister’s statement yesterday very carefully, she set out some preconditions for making the final decision to open free travel between New Zealand and Australia. Some of that requires some interaction with airlines, with airports, and so on. We’re being upfront with New Zealanders that that’s starting.

Chris Bishop: Why is the Government not in a position to confirm the trans-Tasman safe travel arrangements when the Australians opened to New Zealand in October last year?

Hon CHRIS HIPKINS: I think one of the things the member might like to reflect on, and we went through this last week, is that when quarantine-free travel is applying two ways, the volume of people crossing the Tasman will increase exponentially. So it will increase the risk on both sides of the Tasman; it will increase the number of people travelling quite considerably. That is why it is a little different to Australia’s position, where at the moment the number of people arriving in Australia is still significantly constrained by the fact that border restrictions remain in New Zealand.

Chris Bishop: Why has the Government not finalised a response framework that is fit for purpose and ready, when the talks with Australia finished in February and the Government says it’s been working on the issues for months?

Hon CHRIS HIPKINS: There is still a two-way discussion between New Zealand and Australia to make sure that New Zealanders have a clear understanding of what the principles are that will guide Australia’s decision making when it comes to suspending green zone travel by Australia. We would like to ensure that when New Zealanders travel across the Tasman, they understand the circumstances that could lead to them being stuck there.

Chris Bishop: In light of that answer around how there are still discussions happening with the Australians, when was the last time, if ever, he talked to the Australian Federal Minister of Health about finalising these arrangements?

Hon CHRIS HIPKINS: We’ve had several conversations, not in the last couple of weeks, but we have been in contact with one another. I do fully understand his position and the position of the Australian Government. There is still some work to do at an official level, though, which is progressing as quickly as we can. There are still some logistical hurdles to get through: for example, making sure that the operational separation at the airport is not going to lead to increasing risk—that work is ongoing—making sure that the crew separation and plane separation arrangements for green and red zone travel are robust—that work is ongoing—making sure that all of the technical issues that might arise are fully addressed; and making sure that all of the appropriate regulatory regimes and all of the issues associated with that are addressed. There are some flow-on immigration issues that could arise from free travel that is suspended. We need to understand those and make sure that the technical fixes are put in place for all of those so that everybody knows what they can expect when they travel across the Tasman.

David Seymour: Is the problem that the Government still needs to do all that work, or that they have, but too many people would come; which one is it?

Hon CHRIS HIPKINS: It’s neither of those things. There is still work ongoing, yes. There is a degree to which we have to give people notice before we can implement some of the things that have been well worked up, and we continue to work to do that as quickly as we can.

Question No. 7—Education

7. MARJA LUBECK (Labour) to the Minister of Education: What is the Government doing to extend its current level of support to meet the skills needs of the construction industry and other trades?

Hon CHRIS HIPKINS (Minister of Education): The Government is extending the very popular Apprenticeship Boost initiative by a further four months to provide extra support to trades and trades training. Through the Apprenticeship Boost, employers can access a subsidy of $1,000 per month for their first-year apprentices and $500 per month for their second-year apprentices. Extending the boost to run through until August 2022 means that employers can keep getting the subsidy for apprentices who are in their first two years of training, but it also means that employers who have apprentices starting over those extra four months can get some of the Apprenticeship Boost as well, and that could benefit up to 5,000 additional apprentices.

Marja Lubeck: Why is the Government taking this action now?

Hon CHRIS HIPKINS: This is part of a suite of measures that we are putting in place to help address the housing crisis. We know that the workforce shortages in building and construction that this Government inherited is having an effect on housing supply. Extending the Apprenticeship Boost will encourage more people into the building trades and will assist employers to keep their apprentices on, making sure that the workforce is out there and ready to get building.

Marja Lubeck: Why has the Government chosen to address these challenges by extending Apprenticeship Boost?

Hon CHRIS HIPKINS: Because it works. Since launching in August 2020, more than 10,000 employers have signed up and received almost $97 million in subsidies for more than 21,000 apprentices. All industries with formal apprenticeships training programmes are taking up this support, with 32 percent of the Apprenticeship Boost apprentices enrolled with the Building and Construction Industry Training Organisation and a further 22 percent with the Skills Organisation, which includes building and construction - related apprentices like plumbing, gasfitting, drainlaying, electrical, roofing, and scaffolding.

Question No. 8—Prime Minister

8. DAVID SEYMOUR (Leader—ACT) to the Prime Minister: Does she stand by her statement, “between 1991 and 2019, New Zealand house prices had the highest real growth in the OECD at 266 percent”; if so, will the policies announced today reduce real house price growth?

Rt Hon JACINDA ARDERN (Prime Minister): Yes. The policies announced today are one part of a range of programmes the Government is undertaking to address a housing crisis that has been decades in the making and to which there’s no quick fix. These include funding the $3.8 billion of vital infrastructure required in order to build new homes, incentivising investment in the construction of new homes, requiring councils to zone more housing and remove the barriers to intensification, repealing and replacing the Resource Management Act, making it easier for first-home buyers to get into a property, making sure we have the skilled workforce we need to build more homes, and delivering 18,350 more public and transitional homes by 2024 in the largest State-building programme since the 1970s. Cumulatively, we expect these programmes to place downward pressure on house price growth and increase the supply of new homes.

David Seymour: Who’s most to blame for the current state of the housing market out of the previous Government, the present Government, property investors, or even coronavirus as the Minister of Finance alluded this morning?

Rt Hon JACINDA ARDERN: I think, actually, on this side of the House, we’ve been very open over the fact that this has been an issue that has grown over a number of decades, and so rather than get into a situation of poring over which individual action has had the greatest impact, our view is that our job is to get on with the solutions.

David Seymour: If this crisis has grown up over decades, why has this Government waited four years to do anything effective, if indeed it has now?

Rt Hon JACINDA ARDERN: I reject the premise of that question. Of course, some of what I’ve read out on that list—including, for instance, the national policy statement that’s putting an expectation on councils to make sure that they are freeing up land and that they are seeing more intensification—is something that we worked on in the last term. The groundwork—the foundation work—around the Resource Management Act occurred in the last term. Our significant housing build programme for public housing occurred in the last term. What we are doing is acknowledging that we need to keep going, and in particular, in the last year we’ve seen significant house price growth. That tells us there are more levers we need to pull, and we have.

Nicola Willis: Does her promise, announced today, to build 80,000 houses over 20 years override her previous promise to build 100,000 houses over 10 years?

Rt Hon JACINDA ARDERN: The member completely misunderstands the acceleration fund. What I could recommend is that if the member looks at, for instance, the $1 billion infrastructure fund put forward by her party when last in office, the $3.8 billion we’ve put forward is in line with providing infrastructure in the same way, but the most material difference being that this is not a loan; it is a grant and, therefore, we expect wider uptake—and, of course, it is much larger. But we are, of course, expecting that it will be the private sector that is broadly involved in developing the houses on the land. That is vastly different than a Government house-build programme.

Nicola Willis: A point of order, Mr Speaker.

SPEAKER: Well, if the member wants a point of order, she’s got to stay standing up.

Nicola Willis: Sure. The question was quite specific. It was about whether one promise overrode the other. I didn’t hear the Prime Minister address that.

SPEAKER: Well, the member has been round here a very long time and she knows that point of order is disorderly.

David Seymour: How would the Prime Minister describe the effects of today’s surprise announcement that mortgage interest will not be tax deductible for existing property investors in four years’ time on renters?

Rt Hon JACINDA ARDERN: Well, first of all, I would not describe it as a surprise. I mean, what we did say is that we have seen significant house price growth. We asked for advice on how to address that most successfully, and when you look at the evidence around particularly the proportion of the market and lending that has been taken up by investors in the market, it points to us pulling levers in that area. I would also just highlight again for the member that one of the issues, of course, that causes potential increases in rent is simply a lack of supply, which is why we’re encouraging investors to invest in new builds. That is where we really would like their support and we’re encouraging their support.

David Seymour: Is the Prime Minister seriously telling the House it was widely known and expected in the property investment community that her Government would make mortgage interest non-deductible today?

Rt Hon JACINDA ARDERN: No, that is not what I’m saying. What I’m saying is that if you are looking at initiatives that will make a difference to tilting the balance for first-home buyers—as we long flagged we would—and if you’re seeking advice to do something about the increasing impact of speculative demand in the market, then, of course, we would look at a suite of initiatives in this space. I fully acknowledge that not everyone has anticipated that we would do that.

David Seymour: Why should anyone believe that the effects of the proposed Housing Infrastructure Fund will be better than those of the 2016 Housing Infrastructure Fund?

Rt Hon JACINDA ARDERN: Look, the member is, you know, right to ask the question. I think we’ve looked at the lessons learnt from that, and one of the points that councils have made is that, actually, this is one of their biggest barriers to seeing new development in areas of high demand, but they do not have the space on their balance sheets to take on extra debt, which is what the fund in 2016 asked them to do.

David Seymour: What does it say about this Government’s priorities that the supply side changes will happen at some undetermined time in the future, but the tax changes to target property investors are being rammed through Parliament today under urgency?

Rt Hon JACINDA ARDERN: If we could build—physically build—houses at a greater pace than we are, of course we would be doing that. It is a reality of the fact that supply side measures take time. It would be wrong to say that this is the extent of them. Of course, we have already invested heavily in Kāinga Ora and large-scale build projects in public housing, in transitional housing, and that is why when we came in office, we saw roughly 300 houses being built; we now have more than 3,000. That is because we have already moved very quickly, but, unfortunately, supply side takes time.

David Seymour: Point of order. It’s a technical point, but the question was about the legislative priorities. The Prime Minister has given us a commentary on how long it takes for those priorities to take effect, but she didn’t address the question of why they’ve decided to legislate a particular type of response today, which is actually a different question she didn’t address.

SPEAKER: I appreciate the member’s point of order. I think, though, if he thinks about the full extent of his question, it was a little bit more than just the legislative priority. I think the member said, “versus building houses”. At that point, he did open it up for the Prime Minister to give a more extensive answer to his supplementary. My advice to the House, generally, is that the tighter the question the more support the member will get in having it addressed in a tight manner.

David Seymour: Why should anyone believe that a 10-year brightline test will be more effective than a five-year brightline test when the latter failed to be more effective than a two-year brightline test?

Rt Hon JACINDA ARDERN: I don’t know that it’s fair to make that judgment at this point. What I would say, though, is, of course, New Zealand had a pre-existing regime around intent. It had no time frame on it. What I think was right for at least the National Party of the day to have done was to say it would remove the ambiguity. They put a number on it, a year, but there was an intention test that previously had no end point on it. What we’ve been advised is that increasing will meet the reality of the market. Obviously, the recommendation had been to go to 15 or 20. Our view was that 10 would meet the reality of the market.

Question No. 9—Corrections

9. DEBBIE NGAREWA-PACKER (Co-Leader—Te Paati Māori) to the Minister of Corrections: Does he have confidence in the Department of Corrections and its CEO?

Hon KELVIN DAVIS (Minister of Corrections): Yes, and yes.

Rawiri Waititi: Why did the Minister not support the justice system when Judge David McNaughton determined the Department of Corrections acted inhumanely to wāhine Māori at Auckland women’s prison?

Hon KELVIN DAVIS: I sought more information from Corrections; I received an interim report last week. I wasn’t happy with what I read, what I received, and I have directed Corrections to make a number of changes.

Rawiri Waititi: Did the Minister choose to ignore the ruling of Judge David McNaughton highlighting the inhumane treatment of wāhine Māori at Auckland women’s prison, by putting bureaucracy, the inspectorate report, above the ruling of the judicial system?

Hon KELVIN DAVIS: No.

Debbie Ngarewa-Packer: You are quoted as saying—

SPEAKER: Order! Order! Order! I think it’s pretty unlikely that I was.

Debbie Ngarewa-Packer: Right, no, not you Mr Speaker; to our Minister of Corrections—apologies. You are quoted as the Minister of Corrections, as saying—

SPEAKER: Order! Order!

Debbie Ngarewa-Packer: —get rid of the “you”? The Minister of Corrections, thank you—“It’s inappropriate for wāhine in prison to be treated as if their needs were the same as male prisoners.”; if the Minister accepts that this is true, does it also follow that inhumane conditions are unacceptable for tāne Māori, such as in Waikeria as well?

Hon KELVIN DAVIS: Yes.

Simeon Brown: When he said on Morning Report this morning, “Corrections officers in the front line were let down by people higher up the chain”, was he referring to himself?

Hon KELVIN DAVIS: No.

Question No. 10—Health

10. Dr ANAE NERU LEAVASA (Labour—Takanini) to the Minister of Health: What recent announcements has he made on mental wellbeing telehealth supports for youth?

Hon ANDREW LITTLE (Minister of Health): On Sunday, I announced $1 million of funding for Youthline services. Youthline manages more than 240,000 contacts from young people, and last year supported more than 26,000 young people across New Zealand. This $1 million a year of recurring funding will enable Youthline to bring on additional clinical support, which will allow it to provide support to thousands more young people in New Zealand. Youthline provides services across Aotearoa, utilising its phone, email, web chat, and text channels. It’s exactly the sort of flexible and people-centred approach that we’re aiming to develop across the entire mental health system.

Dr Anae Neru Leavasa: Why is it important for young people to have access to mental wellbeing telehealth supports?

Hon ANDREW LITTLE: It’s critical that young people have a broad range of support that they can access that’s youth-friendly and reflects their specific needs and the ways that they communicate. The ages of 12 to 24 are a time of rapid change and development for young people. During this time, they are at the highest risk for the onset of mental health problems and psychological distress.

Dr Anae Neru Leavasa: What difference will this funding make to vulnerable young people?

Hon ANDREW LITTLE: This funding will mean that there is free mental health support available to young people across New Zealand when and where they need it, and they’ll be able to talk to someone via phone, web chat, email, or text. We saw the number of calls to Youthline increase during the COVID-19 lockdown period last year. We want to make it easy for young people to access that support and to keep encouraging young people to reach out for help if they need it. They shouldn’t wait until they are in distress or that they reach crisis point to do so.

Question No. 11—Tourism

11. Hon TODD McCLAY (National—Rotorua) to the Minister of Tourism: Why did he not announce any new support for tourism when in Queenstown last week?

Hon STUART NASH (Minister of Tourism): I did. I suggest the member read my speech I delivered to the Otago Tourism Policy School conference last Friday in Queenstown, as it outlined both a clear vision for the tourism sector in a post-COVID world and a proposed work programme from now until the borders open. The speech is online and freely available.

Dr Duncan Webb: Had too many long words.

Hon Todd McClay: Does he agree with Queenstown—

SPEAKER: Order! Order! It was before the member started, but I think it was a demeaning comment, and the interjection should not be made. Dr Webb will withdraw and apologise.

Dr Duncan Webb: I withdraw and apologise.

Hon Todd McClay: Does he agree with Queenstown tourism operator David Lynott, who said after his visit—and I quote—“We want some definite answers, not just … if[s], buts or maybes. … as anyone knows you need [a] plan.”, and, if so, why, after six months as Minister, didn’t he announce new support and an actual plan to help the struggling tourism businesses last week?

Hon STUART NASH: First of all, I don’t agree. Second of all, I said I did.

Hon Todd McClay: Is he aware yesterday’s announcement of a date for an announcement for a date for the trans-Tasman bubble creates greater uncertainty and means that under-pressure tourism businesses have greater need for new support, not less?

Hon STUART NASH: I disagree.

Hon Todd McClay: Is the reason that he didn’t announce new support for the tourism sector on Friday because he agrees with his senior ministerial colleague Damien O’Connor that—and I quote—“COVID-19 has taught the tourism sector not to be so cocky.”, and does he think tourism businesses that are closing this week are being cocky?

Hon STUART NASH: At the risk of throwing my good friend under a Kiwi Experience bus, I speak for the Government in terms of tourism, not Minister O’Connor.

SPEAKER: That concludes oral questions. I have received a letter from the Hon Judith—

Hon Stuart Nash: Point of order, Mr Speaker.

SPEAKER: Sorry? Oh, we’ve still got one more, have we? Sorry, I apologise. It felt like we’d had enough.

Question No. 12—Small Business

12. JO LUXTON (Labour—Rangitata) to the Minister for Small Business: What reports has he seen on the take-up by small businesses of Digital Boost?

Hon STUART NASH (Minister for Small Business): I receive regular reports from the Ministry of Business, Innovation and Employment (MBIE) on the performance and rate of uptake in the Digital Boost educate programme. Support to small businesses to adapt, recover, and grow is a priority in our COVID recovery plan. The $20 million Digital Boost programme was announced in Budget 2020 and got under way in December. MBIE have advised me that 9,272 users from 8,992 businesses have registered for support with training and to improve their digital skills and their use of technology—57 percent of the businesses were sole traders or have one employee, 19 percent have between two and five employees, 8 percent have between six and nine employees, and 9 percent have more than 10 employees. Feedback continues to be strongly positive, with almost 75 percent of participants rating the programme four or five out of five. Research from MBIE also shows that businesses who are more digitally enabled demonstrate more resilience and are 18 percent more likely to have financial reserves to survive for several months.

Jo Luxton: What are examples of small businesses who have digitally boosted their businesses?

Hon STUART NASH: The examples are numerous, but I can quickly give you three: Te Koha Aotearoa—they are a family-run tourism business based in Franz Josef that enables visitors to make their own pounamu, and by participating in Digital Boost they have built a website for domestic tourists as well as selling their carvings directly online—FIT60, former All Black Keven Mealamu developed a strong web and social media presence as well as a community forum for his fitness business, and all of these skills developed from participating in Digital Boost; and Aligned Movement, a Kerikeri-based boutique fitness and dance studio that has positively benefited by delivering classes via social media, a direct benefit from participating in Digital Boost.

Jo Luxton: What feedback has been received from businesses using Digital Boost?

Hon STUART NASH: Two pieces of feedback come to mind. One user said—and I quote—“I have felt very depressed since COVID hit. Came to the realisation that e-commerce site is the best option for me at this time. I am stoked at these valuable tutorials being available online. They are so inspiring and have lifted my spirit immensely.”, while another said—and I quote—“Thanks, and I sincerely appreciate all of the fabulous tutorials that you have posted. I have already learnt so much over the past couple of weeks since signing up.”

SPEAKER: That, this time, concludes oral questions.

Urgent Debates Declined

COVID-19—Trans-Tasman Travel Bubble

SPEAKER: I have received a letter from the Hon Judith Collins seeking to debate under Standing Order 399 the Prime Minister’s comment yesterday that the Government will be making an announcement on the commencement date of the trans-Tasman travel bubble on 6 April. The urgent debate is a means of debating matters that have occurred. It is not a means of debating things may occur in the future: Speaker’s ruling—[Interruption]—well, we’ll think about that tomorrow—205/3. The application is therefore declined.

Urgency

Urgency

Hon CHRIS HIPKINS (Leader of the House): I move, That urgency be accorded the passing through the remaining stages of the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill and the Regulatory Systems (Transport) Amendment Bill.

The annual rates bill has to be passed by 31 March each year to validate the tax rates for the year. Tomorrow being a member’s day, the use of urgency is necessary to ensure that it happens. Some of the measures announced in the housing package this morning are tax provisions to be implemented through amendments to the bill that are proposed in the Minister of Revenue’s Supplementary Order Paper that is before the House. It is essential that these are in place for the start of the new tax year on 1 April to address the serious housing challenges we face.

The Regulatory Systems (Transport) Amendment Bill also has measures in it that need to be in place by 1 April—for example, the full transfer of powers to the new Director of Land Transport. Inclusion of that bill in the urgency motion ensures that it won’t be delayed by the need to pass the tax bill.

SPEAKER: The question is that—sorry?

Hon Michael Woodhouse: Mr Speaker.

SPEAKER: The question is—

Hon Michael Woodhouse: Mr Speaker.

SPEAKER: This is an urgency motion; it’s not a debatable motion.

Hon Michael Woodhouse: I am proposing an amendment to the motion, Mr Speaker, which I believe I am able to do under the Standing Orders.

SPEAKER: I’m going to take some advice on this particular matter. Standing Order 57(3): no.

A party vote was called for on the question that urgency be accorded the passing through the remaining stages of the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill and the Regulatory Systems (Transport) Amendment Bill.

SPEAKER: Order! I’m going to warn the shadow Leader of the House. He knows what the rules are. He is not allowed to interject during the voting process. He is especially not allowed to comment on parties’ votes during that process. He will cease and desist.

A party vote was called for on the question, That urgency be accorded the passing through the remaining stages of the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill and the Regulatory Systems (Transport) Amendment Bill.

Ayes 77

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10; Te Paati Māori 2.

Noes 43

New Zealand National 33; ACT New Zealand 10.

Motion agreed to.

Bills

Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill

Referral to Finance and Expenditure Committee

Hon MICHAEL WOODHOUSE (National): Point of order, Mr Speaker. I move that Government notice of motion No. 1 be discharged and that the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill with Supplementary Order Paper 23 be referred back to the Finance and Expenditure Committee for further consideration.

SPEAKER: I think the member might have meant “Government order of the day”, not “notice of motion”.

Hon Michael Woodhouse: Oh, did I say—

SPEAKER: Well, the member, I think, has, essentially, moved a nonsensical motion.

Hon MICHAEL WOODHOUSE: Point of order, Mr Speaker. I move, That Government order of the day No. 1 be discharged and that the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill, together with Supplementary Order Paper 23, be referred back to the Finance and Expenditure Committee for further consideration.

A party vote was called for on the question, That the motion be agreed to.

Ayes 43

New Zealand National 33; ACT New Zealand 10.

Noes 77

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10; Te Paati Māori 2.

Motion not agreed to.

SPEAKER: I declare the House in committee on the Taxation (Annual Rates 2020-21, Feasibility Expenditure, and Remedial Matters) Bill.

House in Committee

House in Committee

CHAIRPERSON (Adrian Rurawhe): Members, the House is in committee on the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill and the Regulatory Systems (Transport) Amendment Bill.

Bills

Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill

In Committee

Part 1 Annual rates of income tax

CHAIRPERSON (Adrian Rurawhe): Members, we come first to the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill, and the debate on Part 1. This is the debate on clause 3, setting the annual rates of income tax for the 2020-21 tax year. Note that Standing Order 352 requires that this provision be debated separately. The question is that Part 1 stand part.

Hon MICHAEL WOODHOUSE (National): Thank you, Mr Chair. I’m pleased to take the first call on what I expect will be a long and pretty robust debate on this bill. It does pain me to point out that whereas in the past, taxation, annual rates and remedial matters bills tend to be reasonably bipartisan affairs, that’s no longer the case, for two reasons. The first is—and it is the essence of Part 1 of this bill—the inflationary impact of bracket creep on the after-tax incomes of middle New Zealanders.

Now, this has been a problem for generations. The previous Labour Government, in 2007-08, attempted to address it by passing what turned out to be known as the “block of cheese” amendments, which they promptly reversed in the following year as the global financial crisis started to become apparent. Now, we have an opportunity, I think, as part of the package of measures that the Government has introduced to combat the economic impacts of COVID-19 on our economy, to do something good for those middle-income earners, and that is to raise the thresholds of income tax in order that they are not punished for the increases in costs and the increases in their income that takes them into new tax brackets. The best economic advice, actually, globally, is that those pump-priming responses that have, in this country as well, seen incredibly large sums of money put into the economy in order to sustain jobs and livelihoods and businesses and that, by and large, have been successful, should also be accompanied by reductions in income tax.

Not only are there no reductions in income tax; this Government is doing two things. Firstly, it is acting to increase the top tax rate in the future. It’s not part of this bill, but I’m sure the Minister of Revenue will be introducing a bill in the not too distant future to do the 2021-22 rates of tax, and that will include an increase in the top tax rate to 39 percent. But indirectly, by their failure to act, they are giving every single New Zealander whose income increased over the last period of time and who, as a consequence, has gone into another tax bracket the punishment of more tax, despite the fact that they are incurring more costs and the inflationary impact of those costs mean that they’re not only no better off but are worse off.

So I think it’s really important that when the Minister does take a call to explain Part 1, which superficially is a fairly straightforward part but which has such a huge impact on New Zealanders’ lives—whether or not the Government considered a threshold change, either as part of business as usual or as part of a COVID response, which other countries have done, and, if not, why did they not ask for that advice, and if they did ask for that advice, why they didn’t take it. I can’t see anything more than a perfunctory reference to the issue in the regulatory impact assessment, and therefore it suggests to me that the Government weren’t even interested in a tax threshold change. I find that rather sad because of those impacts.

Inflation is a tax. Economists have said for years that the best way to cover, for example, Government debt as a proportion of GDP is simply to wait until the economy grows as a consequence of inflation to the point where the debt looks smaller on the radar than it otherwise would. Indeed, going back to the previous Labour Government, who crowed about the fact that their net debt to GDP ratio plummeted to nearly zero, what’s not talked about is the fact that they didn’t repay in the nine years of the Clark-Cullen Government a single dollar of sovereign debt. In fact, gross sovereign debt under that Government went up from $37.4 billion, I think it was, from memory, to $37.7 billion. The thing that got debt to GDP down was inflation and the growth of the economy. So I’d like to hear from the Minister in that regard.

ANDREW BAYLY (National—Port Waikato): Thank you, Mr Chair. It’s a pleasure to be talking on this bill. I think we’re in for a long night because we’ve heard today that there’s going to be a major change, which, in effect, relates to tax. I know this first part relates to income tax, but we’ve got a whole stack of things happening with tax in this bill, which does worry me, and I think we need to look at them in the context of what Part 1 is about, which is setting the income tax rates at the same level. I think, just as my colleague was talking about before, this gives rise to a whole raft of issues. I think in a tax context, what are we trying to achieve for the country? What is the purpose of what we’re trying to achieve? Now, obviously, a Government has a demand and an expectation to get revenue, and that’s a fair comment. But what is the best way to do that? What is the best way to achieve the highest tax take and how to support the people that are actually making those payments? In that case, in Part 1, we’re talking about income tax on individuals, but also it relates to corporate tax, to GST, and it also relates to duties, and we’re at risk, I think.

As we work our way through the bill, I think you’ll find the context of what we’re talking about in terms of tax in this bill alone covers issues such as GST on mobile roaming fees—something that we’re going to oppose very definitely and already have stated our position on it. But there’s a whole lot of other tax changes, and I think we are concerned that having come through a global crisis and having now gone through the COVID crisis, which we’re still in the midst of, we’re in a situation where we have got many vulnerable businesses and individuals as part of New Zealand out there trying to survive, trying to get through the next period so they can start to generate some money, hopefully, when the border is opened—hopefully, when the border is opened. So we’ve got people with little cash flow who are really struggling and here we are—we’re just sailing on as if we’ve got nothing to worry about. We’ll keep taxing at the same rate. We don’t need to worry about those hard-working New Zealanders, those hard-working mums and dads who are out there trying to create a livelihood for their families.

I think we should actually be having a much more strategic conversation around where we see tax at the moment, what we’re trying to do to balance the needs of the Government against the requirements and the sensitivities around people who’ve actually got to make those payments, and, by the way, the timing of those payments is quite ruthless in terms of, particularly, for businesses. One of the things we were very keen to see was a change of when the payments were going to be made for businesses, particularly the 15 January payment, which we think is a dreadful time to be forcing businesses to be making tax payments. I think what we haven’t seen from the Government—and I note that the new Minister of Revenue is in the chair and, hopefully, he’s going to bring some innovation to tax over time, because I think we need to be much more innovative about supporting New Zealanders in general to make sure that, yes, we get enough tax, but, actually, we don’t put them in a disadvantaged situation where they have to make those payments.

I want to just concur with my good colleague the Hon Michael Woodhouse. This issue around inflation is a crucial one—it’s an absolutely crucial one—and that’s why we propose a change. It’s called fiscal drag, where, effectively, inflation starts to push people up into a next-higher tax bracket, which would not otherwise have occurred if it weren’t for inflation. We came up with that proposal. We were very strong on it. It was back then when we proposed it, a couple of years ago. It was about a $660 million package, and, of course, it’s probably more than that now, given what’s happened. I think, in terms of supporting New Zealanders—because we do not want to see New Zealanders progressing into higher levels of tax, and that is what’s going to happen with the issue of fiscal drag. That’s why I’d been keen to hear the Minister’s view around those proposals and whether in fact he even contemplated it, whether in fact he actually sought advice from Treasury or the IRD on the importance of it, whether in fact it would help to drive economic activity in New Zealand, and whether in fact it was actually a fair thing to do for all New Zealanders, particularly those hard-working mums and dads.

Hon DAVID PARKER (Minister of Revenue): Part 1 talks only to income tax rates for the 2020-21 year. It says nothing about GST or other taxes. The Supplementary Order Paper 23, which is the Government’s Supplementary Order Paper in my name, makes no changes to Part 1 of the bill, so the only thing that I can see as being relevant that has been raised by members to Part 1 so far is the question as to whether we should have an inflation adjustment of income tax rates so as to prevent what is commonly called fiscal drag.

The Tax Working Group considered this issue, and they noted that the fiscal impact of indexing income tax thresholds to inflation would likely be high, the benefits to low-income earners compared to others would be low, the benefits to higher-income earners obviously would be higher, and the resulting revenue loss and potential reduction in Government services would disproportionately affect low-income New Zealanders, and that the projected increase to the labour supply from the increased investment that would result from lower taxation was modest compared with the projected costs.

DAVID SEYMOUR (Leader—ACT): Thank you, Mr Chair. I’m very pleased to take a call on what I believe is probably the most important single part debated in this House each year, and I want to just spell out—because I think sometimes things get rushed over a little bit here—what it means. We’re debating Part 1, “Annual rates of income tax”, and it says “Income tax imposed by section BB 1 (Imposition of income tax) of the Income Tax Act 2007 must, for the 2020-21 tax year,”—that’s the one just about to finish on 31 March—“be paid at the basic rates specified in schedule 1 of that Act.” If you are to go to the Income Tax Act 2007, Schedule 1, it says if you’re a New Zealander and you earn income, you must pay 10.5 percent of that income to the IRD on everything you earn between zero and $14,000. OK, that doesn’t sound too bad. Then, on every dollar from $14,001 up to $48,000 you’ve got to pay 17.5 percent, and then, on every dollar from $48,001 up to $70,000, you have to pay 30 percent of the income you earn to the IRD. And from $70,001 onwards, it’s 33 percent—almost exactly a third of every dollar you earn gets taken off you by the IRD and put into the Treasury’s coffers.

There’s nothing more fundamental to what Parliament does than deciding what percentage of your hard-earned income gets taken off you by force by the IRD and put to uses over which you have little, if any, control. So I think it’s worth just outlining what this debate is actually about, because there’s nothing, in my view, more important that Parliament does other than giving consent to tax. No taxation without representation—that’s what this debate is about.

I make another observation about what it means, and, Mr Chair, I could take quite a few calls on this, because it’s sort of a favourite subject and it’s important to a lot of people personally and to the long-term future of the New Zealand culture and its economy. But for the rest of this call, let me just give you one useful piece of information, I think, that the IRD website provides about how much tax different people pay on different incomes, because what it says is that people who earn $150,000-plus—that is 3 percent of New Zealanders—pay 24 percent of all of the income tax in this country.

Chlöe Swarbrick: It’s progressive.

DAVID SEYMOUR: That is one in 30 people pay almost a quarter—one-fourth—of all the income tax. Chlöe Swarbrick here, who’s a quick study, she said “It’s progressive.” Well, Chlöe Swarbrick, not much gets past you. Actually, of course it’s progressive, but the point of the story is I don’t think most people realise quite how progressive our current tax rates are, that 3 percent of New Zealanders end up paying 24 percent of all income tax.

Chlöe Swarbrick: How does that compare internationally?

DAVID SEYMOUR: I get people who come to me—oh, and then Chlöe Swarbrick, she’s saying, “What about internationally?”, and that’s the thing that the left love to do. When things aren’t going their way they say, “Oh, there’s 200 countries in the world, I think I can think of one where things are worse.” Well, that’s not the kind of aspirational culture that I think New Zealand should have. At the other end of the spectrum, we hear that actually—

Chlöe Swarbrick: We’re mentioned as a tax haven in the Panama Papers.

DAVID SEYMOUR: Oh, she’s on about the Panama Papers. I mean, this is why the Green Party have the sometimes—no disrespect—kooky reputation that they do.

But let’s bring this back to what it means for New Zealand and its culture. We can also see that people who earn, what, 16, 33, 48—people that earn under $30,000. That’s 48 percent of all taxpayers, and what do they pay in total? Thirteen percent of all taxes—income tax, that is. So 48 percent of New Zealanders, or almost half of all income tax payers, pay 13 percent. So when people say it’s progressive, man, is it progressive. On the one hand, 3 percent of people end up paying a quarter of all the income tax. On the other hand, half the people pay only 13—one-three—percent of the income tax.

Man, is that progressive, and a lot of people say to me, “I don’t mind so much, if only I got a little bit of thanks.”, because, see, this Government takes the attitude that, actually, it’s not progressive enough. They feel that if somebody has money, it’s right to take it, and they would like to go further and introduce another tax rate in the next bill like this next year. They will say that, actually, if you earn over $180,000, it’s 39c in the dollar—getting up close to half your income gets taken in income tax alone.

Now, as the Minister rightly stated, GST, company tax, excise tax on your petrol, tax on your beer, tax on your baccy—that’s all separate from this debate. We’re not even talking about all the other taxes that people put on your income at some point in the cycle; we’re talking about just the PAYE that you pay when you get your wages after working for the fortnight.

The effect of these numbers is not just economic it’s cultural. The effect of these tax rates that this Parliament, this committee, is being asked to recommend to the people of New Zealand is that we are putting mediocrity and tall poppy syndrome writ large in our tax code and we’re putting a simple, efficient, meritocratic tax system to the back of the bus.

See, we teach our children in New Zealand something like this: go to school, listen to your teacher, get home, do your homework, learn, work hard—be nice, in other words—and if you do all that and you do well in your exams, you might get skills that turn into qualifications, and those qualifications can turn to higher learning. If you borrow money and get a student loan and upskill yourself, that can turn into a job, and if you get a job you can get a career, and if you get a career, you can earn money. Then, if you put some aside and save it and invest it carefully, eventually, you can end up comfortable in this country.

That is the New Zealand Dream and the New Zealand story of meritocracy and working hard and succeeding through your own efforts of making a difference in your own life and the lives of those people around you that you care about, and that is the dream of New Zealand. But this legislation is saying “Nope, if you do all of those things, we will triple your tax rate.” Remember? Up from 10.5 percent on your first $14,000 to more than three times that—33 percent on all income above $70,000—and soon a 39 percent tax rate will be introduced as well.

I said that this is the most important debate on a single clause that our Parliament has all year because it’s so much more than a technicality. It decides how much of whose money is taken by the IRD at the behest of this Parliament when they get out, study hard, work, save, and invest. In the long term, it’s more than just numbers; it’s our culture. It’s a choice. It is a conscious choice that we are going to say to kids who do all the things we ask of them, who listen to their teacher, do their homework, study hard, do well on their exams, work diligently, be nice, save some of the money they earn and invest it carefully. We say, “If you do all that kids, guess what? We’re going to take it off you.”

That is what this legislation is about. It is an affront to the values that saw New Zealanders of every class, creed, and race make heroic voyages to the edge of the known world, often at the time, to give their kids a better life. If we were serious about the future of New Zealand, we wouldn’t be passing these progressive taxes. We would have a flat tax that says that if you do things right, the money is yours to keep. Thank you, Mr Chair.

Hon Dr NICK SMITH (National): Thank you, Mr Chairman. I too want to comment on Part 1 of this bill and reflect on the extraordinary situation that we are in urgency debating measures announced this morning, we’ve got a Supplementary Order Paper with over 400 clauses in a complex area, and it’s intended to be law by Saturday, and what sort of mickey mouse legislation we have. How do we reasonably expect this Parliament to give proper consideration to hundreds of clauses when MPs have had access only a few hours ago to the legislation we’re debating in this committee stage?

This specific clause may seem small, but it is the $38 billion clause. It’s the clause that authorises from Parliament the collection of all income taxes for the new tax year. That impacts on every single New Zealand household—an impacting on all of that $37 billion.

I’m one of those that wants to share the view that we should acknowledge about where that tax burden is falling. I hear all the time in the speeches from members of the Government about how unfair and inequitable our society is. Well, I want to point out the facts on clause 3 of this bill. It says that the 10 percent of New Zealanders who earn over $100,000 a year are going to pay 50 percent of the income tax—10 percent of the people are going to be required under this clause to pay 50 percent of the income tax. To give some sense, we’ve got 50 percent of the population—taxpayers—who are going to be required to pay 13 percent. Now, I share with David Seymour, the previous speaker, a view that we should acknowledge that the heavy lifting of funding Government and Government services is being carried by those people that are working hard, doing the overtime, earning the income to actually—

Chlöe Swarbrick: What about nurses, Nick?

Hon Dr NICK SMITH: Well, actually, there are nurses that are earning $100,000 a year, and I hear a hundred speeches from Green members about how the upper-income earners are not carrying their fair share of the burden. My question for the member for Auckland Central: 10 percent of the taxpayers are paying 50 percent of the tax, but have I ever heard that member acknowledge those hard-working New Zealanders that are paying 50 percent of the costs? I would just love to hear the Green Party or any member of the left in Labour acknowledge that over 50 percent of the tax is being paid by over 10 percent of the people. Is that something that the member for Auckland Central or members of Labour—maybe the Minister in the chair, the Hon David Parker, might acknowledge that huge contribution.

The reason it’s relevant is because every single day I hear the members of the Green Party and members of the Labour Party saying that these people that are paying 50 percent of the tax bill need to pay more. In fact, with this bill, we’re going to whack all of those people with a whole lot more tax. That’s what this bill is all about. What we’re going to be ramming on to New Zealanders in the next few days, as we debate this bill, is more taxes.

The last little challenge I’d have for the Minister in the chair, the Hon David Parker: I heard, word for word, Labour members promise “No new taxes.” I heard the Minister of Finance give an absolute commitment that there would be no more taxes. So why are we, under urgency, ramming a tax bill through that does the opposite to what Labour members got a mandate for at the general election last year? It is just another example that you can’t trust Labour—[Bell rung]

CHAIRPERSON (Adrian Rurawhe): The member’s time has expired, thank you. Before I call the Hon Gerry Brownlee, I just want to make a comment on Part 1. There is nothing new in Part 1. It isn’t altered by any of the tabled amendments or Supplementary Order Papers. [Interruption] Thus far, it hasn’t come to my Table. So the debate is only about what’s in the bill.

Hon GERRY BROWNLEE (National): Well, thank you, Mr Chair. You are right: the debate is about what’s in the bill, and what is about to go into the bill is, of course, everything that’s contained in the Supplementary Order Papers (SOPs) that sit on the Table—everything that’s contained in the 50-page SOP dropped on the table at 1.30 this afternoon. They are in the bill, and every one of those provisions relates to what’s here in Part 1 of the bill.

CHAIRPERSON (Adrian Rurawhe): Yes, sorry to interrupt the member, but I’m saying nothing that has been tabled affects Part 1.

Hon GERRY BROWNLEE: Well, with respect, Mr Chair, everything that has been tabled as an SOP affects everything that is in Part 1 of this bill. This bill, in Part 1, sets out, as previous speakers have said, that under Schedule 1 of the Income Tax Act 2007, there are requirements for workers to pay particular levels of tax, requirements for businesses to pay particular levels of tax, and it goes on and on and on. But the bill today also, of course, undoes some of the usually reasonable expense claims that can be assessed against income for people who are paying tax.

I go back to the point that’s been made by the previous two speakers that 10 percent of the workforce—10 percent of the taxpayers in this country is a better way to put it—cover off or pay for 50 percent of that Government revenue: 50 percent of the $38 billion that the Government collects annually in income tax. So the question becomes, if that is such an embraced fact, an embraced circumstance, by the population of this country, why do we need these other SOPs? Why can’t this particular part stand on its own, as it does in this Act, and why there a necessity to start digging into it and pulling it to bits and making it harder for people to invest in a way that has wider social benefit?

One thing that is absolutely certain is that this will see, in my opinion, a number of people recognising their obligations under the Income Tax Act 2007 for the 2021 tax year and beyond—and beyond—start to make investments that will in some way at some point mitigate against some of the tax that they are liable for at the present time. So what we’re going to see is a massive industry of transfer of investment as a result of these provisions that are put in the bill today.

I think it’s very interesting to have listened to a previous speaker who talked, somewhat dismally, I think, about what life is like in this country: work hard, put your head down, make an effort, be entrepreneurial, be deeply committed to your workplace, do your best, day in, day out, through your entire 40-plus years of the workforce, and if you do get up to the top end of the salary scale above $100,000—above $180,000, even—then you pay massive amounts of tax. That seems to me to be a legislated disincentive to growing the New Zealand economy, and we’ve had this as a way of operating for far too long. It’s being exacerbated, I think, by the insistence that we stick to the rates that are in the 2007 Act and incorporate the new $180,000-plus, 39c in the dollar rate but then also have a whole lot of previously accepted mitigations against the tax liability removed in the same bill.

Mr Chair. I’m conscious of what you said about sticking tightly to this part, but we will talk later, and extensively, about the effect that some of the provisions proposed for this bill and the SOPs will have on some of the problems that are supposed to be sorted out by it. In the meantime, it would have been far more innovative for the Government of the day to say, “We can encourage a whole lot of activity if we were to start lowering the tax burden on that 10 percent of New Zealanders who provide half of that revenue now.” Even if we’d said, too, “We’ll lower the burden on some of the 13 percent of taxpayers who pay that chunk in the middle.”, that might have made some difference to some of the problems this bill’s proposing to sort out.

Hon DAVID PARKER (Minister of Revenue): I note, again, that there is nothing in this part of the bill other than income tax rates for the 2020-21 year. I would also say in reference to some of the comments that have been made as to progressivity of the tax system that you can’t assess that in relation to income tax alone. GST, of course, is a regressive tax that’s not affected by this provision. But members who are making sweeping assertions as to the progressivity of the tax system and who they think pays the proportions of tax can’t really make a meaningful contribution without taking into account the effect of GST, which, of course, is not set by this part.

In respect of Mr Brownlee’s comments about other parts of this bill as amended by the Supplementary Order Paper, with respect, Mr Brownlee, you’re wrong. There’s nothing in either this bill as introduced or in the Supplementary Order Paper about interest deductibility.

Hon MICHAEL WOODHOUSE (National): We could spend quite a bit of time just on that very point about the degree to which GST is regressive or not. But the reality is that the higher-income earners pay the lion’s share of GST, and that’s fair enough. I think the question of progressivity, as the Minister mentions, is absolutely central to the debate on what the tax rates and tax thresholds as set out in Part 1 of the bill should actually be.

As Mr Seymour pointed out, we have, because of the wealth transfers such as Working for Families and accommodation supplements, a very highly progressive tax system, and those who receive those wealth transfers—for example, if they’re on incomes of up to $60,000 a year or more—will, effectively, pay no net income tax whatsoever. I think everybody in this House, or at least a good number of members of this House, will say that’s absolutely fair. But the bracket creep and the fiscal drag that is going to be continued as a consequence of not addressing the tax rates and thresholds is actually relevant.

Now, there was reference, I think, to teachers, and, of course, when I left the hospital I managed nearly 13 years ago, nearly all of my senior nurses were not on the top tax bracket. Now a second-year nurse will pay the highest marginal tax rate on their income over $70,000. Depending on their shift configuration and how many weekends they work and how many evenings and night shifts, a second-year nurse or midwife would comfortably exceed the $70,000. In fact, depending on the shift configuration, potentially a first-year nurse could do that as well. So we’re now talking about the potential, if not this year then next, that graduate nurses are going into the top tax bracket, and that was never—never, I don’t believe—the intention of our progressive tax system. Broad-based and low rate it should be, but it is still progressive.

Now, the Minister referred to the Tax Working Group report and quite selectively picked some extracts from that. I think it’s pertinent to consider that the chair of the Tax Working Group was the very person—it wasn’t the “block of cheese” tax; it was actually the “bubble gum” tax in 2007—who firstly, begrudgingly, waited eight years to put tax threshold increases in and then reversed them in the following year, so nobody ever benefited from them anyway. The fact that the Labour Government, when in Opposition, committed to reversing any tax threshold changes a National Government would have put in speaks volumes to the attitude that this Government has towards tax. It might be fair, it might be progressive, but it’s not very smart, and that is because higher taxes are a drag on productivity.

Now, it’s certainly most apparent at the extremes, so, very low tax rates, very flat tax systems, will increase productivity materially. A 100 percent tax on income would mean nobody would bother to go into that tax bracket, because they get no benefit from it. The question is—and it’s, in theory, known as the Laffer curve—where in the middle of those two extremes is the sweet spot to ensure people are most motivated and most productive in contributing to the economy and in creating revenue for the Crown to pay for its health, education, law and order, and social services? We’re not going to answer that question today, but what we can see is if over 12 or 13 short years, senior nurses who weren’t in the top tax bracket have been replaced by second-year nurses going into our top tax bracket, then we have a problem, and it’s one that a Government has to address at some point.

I think what we know now is that no left-wing Government is going to do that. They can’t stand the idea of tax reductions, even in the threshold. The reason they gave for opposing a change, even in the lowest-income tax threshold, was the fact that I would get it, as an upper-income earner. That’s the degree of envy we now have, and their reluctance to increase thresholds is envy.

NICOLA WILLIS (National): I rise to speak on Part 1, clause 3 of the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill before us. As other speakers have mentioned, this is really a pivotal and crucial part of the bill in that it determines what the thresholds and rates for taxation are for income tax. This is very significant because what we see in the bill as it’s presented is a missed opportunity. What we know has happened in the past year since income tax thresholds and rates were last set is that there has been significant asset price inflation across our economy, particularly in the housing area. What we’ve also seen is that there have been some income increases in wages, and, as other speakers have very well laid out, what those income increases have meant for some taxpayers is that they have jumped from being in one bracket of taxation to being in a higher taxation bracket. So by their own efforts, and the increase in the earnings that they’re facing, whether that’s just through inflation or, for another group of taxpayers, through receiving promotions or other things, that inflationary effect has meant that more people are having to pay more tax.

So these rates here represent a missed opportunity because they could have been adjusted to allow for that inflationary impact on overall wage levels. The important thing to realise here is that while the tax rates aren’t adjusting, the Crown is continuing to collect more and more tax. The impact of this on taxpayers is not only that individuals are having to pay more tax but that they are also in an economy where accessing the things they want to with their after-tax incomes is becoming more difficult. That is where housing is a very good example.

The other important thing, of course, about where these tax rates are set is that they relate to income tax. It is significant in this bill that we understand what is meant by income tax, because the rates as set out in this bill, when we were last debating it in this Chamber, were thought of in the ordinary sense of the term—that is, income earned and tax paid therefore. But what we know this will extend to is, in fact, the capital gain on property that is sold within a 10-year period. The capital gain on residential properties that are sold within a 10-year period will now also face these tax rates. While I’m concentrating on this specific part, I do think it’s important that those in the Chamber consider how wide the net of this particular part of the bill can now be cast, because it affects not only the taxes that people pay for income but the taxes that they will pay for new capital gains.

National believes that the tax burden on New Zealanders should be reduced. This is particularly the case during what have been tough economic times, and we see a real missed opportunity here not to adjust these thresholds. What we see over time is that this gets worse and worse cumulatively, so that in fact what we see when we don’t have bracket adjustment—when we don’t have these adjustments—is that over time the Crown is taking more of what people earn, and we think that that is the wrong direction of travel. Where possible, the Crown should be working as hard as New Zealanders are to get more impact out of every dollar to ensure that it is doing more with the tax dollars it gets this year than it got with the tax dollars it got last year. We know that that’s what New Zealanders are doing. We know that New Zealanders with their income are always working to get value for that income, and what we don’t think is fair is that they get placed in a situation where tax rates take more and more of their income over time.

We also note, very carefully, that cumulatively, over time, this means that more and more taxpayers are being put into higher tax brackets where the marginal tax they face for the incremental additional effort they do is increased. This, of course, also has a significant incentive impact, because as people move up through the brackets and move up through the tax rates, what that means for them is that they get to keep less of what they earn for every bit of work and effort that they do. We think that, overall, that has a severely negative impact in an economy where we are wanting to encourage people to innovate, to be entrepreneurial, and to be productive.

CHAIRPERSON (Adrian Rurawhe): I’ll just give some advice to Damien Smith: if you want the call, you need to say “Mr Chair”.

ANDREW BAYLY (National—Port Waikato): I hope my honourable colleague Damien Smith will have the opportunity to speak, because I know he will have a lot to contribute. On that note, I’d like to invite the members from the Government party to stand up. I see Dr Deborah Russell. I know she’s an expert in tax matters, and I’d like her to stand up and tell us why fiscal drag is something we don’t have to worry about—how New Zealanders should just pay more tax just because of inflation. I just urge her to take a call, talk about it, support her Minister in the chair, and just give us the benefit of her wisdom on this matter. Anyway—hopefully.

CHAIRPERSON (Adrian Rurawhe): Now, come to the part.

ANDREW BAYLY: Rapidly, Mr Chair. I want to return to this thing about fiscal drag, which is a dreadful term, I know. It basically says that as you have inflation in the economy, people’s wages go up because of course everyone wants to make sure they’re not missing out and going backwards in terms of wages. So their wages get increased, and, of course, what happens is that people pop into the next higher threshold of tax. So at the end of the day we’re talking about mums and dads paying tax—more money out of their household budget going to the Government rather than looking after their children, paying for their school fees, or paying for their sporting clubs.

I just acknowledge Minister Parker, who stood up and did at least talk about fiscal drag and read something from, I presume, the IRD—a report talking about it and saying it was a significant cost. I just remind the Minister that just prior to that I’d actually told him what the cost was. We costed it when we announced the policy. Back a couple of years ago, it was about $660 million. We don’t do things by halves on our side, Mr Parker; we actually do things, and when we prepare announcements we actually make an announcement and know the fiscal consequences of it, of course. So the cost is $600 million - odd, but you said it is a significant cost.

Well, I think you’re only giving us half the story. You’re always just giving the downside, and I didn’t take you for a pessimistic man, Mr Parker. I thought you were an optimistic person. So you were highlighting the fact that it was going to cost you as the Minister of Revenue a lot of money: $660 million. Well, that’s fine, but, actually, on the other side of the coin, Mr Parker, I’m sure you would know that the Government, of course, is raking in a lot more money—a lot more money. If you go back to the Budget prior to COVID, actually the gross tax revenue of the Government was going to go from $85 billion to $100 billion - odd over four years, and, largely, most of that was to do with fiscal drag, or its inflation impact, and, of course, assumptions around growing our economy.

So I think it’s wrong for you to talk about and highlight how you as the Government are going to miss out on this revenue. I think the question we should be talking about in the context of these tax rates is what is best for New Zealand, and particularly what’s best for mums and dads who are having to pay their sporting club fees for their children. I think this is a really important point and, for some reason, your Government and you as the Minister of Revenue seem to be just trying to blow it away and refer to some skewed report.

The issue in another context: my colleague the Hon Michael Woodhouse has been talking about the impact on nurses, which is a very interesting thing, and, of course, it no doubt applies to teachers—two groups of New Zealand society that we’re all deeply concerned about—and, of course, many are now going straight into very high tax brackets. Just for another context, the Government just recently announced that it was going to increase benefits by $25 a week. We heard a lot of hue and cry about how we’re looking after the most vulnerable members and, of course, talking about increasing benefits—as, by the way, the National Party did for the first time in 43 years when we increased them when we were in power, I hasten to add. But of course that means that people were receiving more income but, of course, paying more tax.

It’s great to talk about the upside when you’re trying to portray the Government as a caring Government but not talk about the downside, which is the increased tax. I think that in this context, we do need to talk about tax rates, particularly at the lower rates, with the $14,000 tax rate cutting in at 10.5 percent. There’s a whole range, a gamut, of opportunities there and nothing from the Minister on any of it.

DAMIEN SMITH (ACT): Minister, it’s strange in these COVID times and in a pandemic that we’re actually in a situation for the second time that a major tax change has been brought here under urgency without what I would consider proper select committee scrutiny. I just wanted to talk about specifics in terms of compliance and the introduction of the top tax rate at 39 percent.

CHAIRPERSON (Adrian Rurawhe): That’s not in this bill. You can mention it in passing, but you can’t—

DAMIEN SMITH: Yeah, but I just want to talk about the trends of where that’s going.

CHAIRPERSON (Adrian Rurawhe): —debate that issue, because it’s not before the committee.

DAMIEN SMITH: We have a responsibility under this bill to provide for a fair and ethical tax bill, and a progressive and practical tax bill, and it’s clear with regards to elements like fiscal drag, the lack of certainty over the revenue that will be coming in this year, which has been estimated to be down by between 6 and 8 percent of income tax levels, that this is the right time to be making these types of decisions. So we have proposed before an overhaul of the tax system and we think the way it’s structured at the moment is punitive. It brings us back to the Michael Cullen era, where people who were trying to get on—and just for the Labour and Green parties’ benefit, everybody in this country has an aspiration to do well and to pay their income taxes and to provide public services, but the toll poppy syndrome that our leader had mentioned earlier is interesting because we want to develop a high-wage economy, yet the Labour Party wants to disincentivise people through their tax structure this year to actually not deliver on that, and it’s something we have to address in the future.

One final thing is that our tax system as it progresses for this year is across the Asia-Pacific region, the fifth-highest corporate tax rate in the OECD. In terms of income tax, we produce on a like-for-like basis around 50 percent of the revenues, like Australia does, but they have a different tax structure and we believe it’s time to readdress that. So every business that is out there, every person that’s earning personal income, is looking today at the way the Government introduces these tax changes and whether it’s fair and ethical, and every week we now seem to be heading into a tailspin where people just don’t know what their tax rate’s going to be. You earn your money and then you try and invest it in a property and, suddenly, you’re taxed again. This isn’t what I would consider to be the most effective use of our tax base.

One last thing to introduce, which I thought Mr Robertson had agreed to, was we’re finding from our research that at this new introduction of taxes, people are exploiting our labour here in New Zealand and setting up in foreign jurisdictions their companies and not paying taxes here in New Zealand. So there’s another problem that’s being compounded by the existing tax structure. So what we’re saying is: give people a fair go, let’s stop introducing taxes under urgency without proper select committee scrutiny, and let’s get back to the spirit of clause 1 of this bill, which is to actually not be unfair, not provide something that isn’t workable, but actually get back to treating people in New Zealand who earn money—whether it’s a nurse, a doctor, or a business person—as someone that we respect and we’re not on the take from.

So, Minister, on the specificity, we can’t support this bill. But we do agree with Labour that we thought until today that a capital gains tax other than 39 percent wasn’t possible, but we’ve learnt today that a stealth tax is where we’re going, and so we need to stop that. I’m afraid the infringement on the tax base is one that we’re all going to have to contemplate in a very quick step time. So that’s our contribution, please, from the ACT Party.

Hon DAVID PARKER (Minister of Revenue): Nothing in Part 1 is being changed by the Supplementary Order Paper, and it has gone through a select committee process. This urgency motion really doesn’t unduly affect the full consideration by the House of that provision in Part 1, which is also the subject of commentary—including minority views—in the report from the select committee.

A party vote was called for on the question, That Part 1 be agreed to.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 45

New Zealand National 33; ACT New Zealand 10; Te Paati Māori 2.

Part 1 agreed to.

Part 2 Amendments to Income Tax Act 2007

CHAIRPERSON (Adrian Rurawhe): Members, we come now to the debate on Part 2. This is the debate on clauses 4 to 65 and Schedules 1 and 2 containing amendments to the Income Tax Act 2007. The question is that Part 2 stand part.

ANDREW BAYLY (National—Port Waikato): Thank you, Mr Chair. Well, this is quite a big part of the bill, and there’s a lot to be discussed in this. First of all, the rules around the main home exclusion for disposal within five years—it would be useful to have Minister Parker just help us work our way through what the exclusions are. As I understand it, there are three exclusions in respect of the brightline test, which no doubt we’re going to talk more about today through Supplementary Order Paper 23. But, in terms of the exclusions for the brightline test, one is if it’s your main home, and I see there are rule changes around that now it can be proportioned depending on how often you are in that home. Also, you can chop back and forth between specified homes and come back to it, but you’ve got a maximum of two over a certain period of time. The second aspect relates to if you inherit property from family—for instance, a parent, or whatever. If you’re inheriting property you are excluded, as well as if you have a marriage breakdown and therefore you may have received the matrimonial home as part of a settlement, and you may choose to sell that because you’re in a difficult financial situation.

I think that the second two are pretty easy concepts to understand. The definition around land, though, has been extended, from my reading of it. I’m just going a little bit from memory here, but it is land that currently has a dwelling on it; land where there’s a commitment to put a dwelling on it; and, thirdly, land that is permitted to have a dwelling able to be built on it, according to the local government rules—how it’s been zoned. So that third category is a fascinating category. That means if you own a piece of bare land and your current use is as a farm, or ranging livestock, or drystock, or whatever, if it’s been rezoned, not of your making but because the council’s passed a unitary plan change, or there’s been a specific requirement and the council’s passed a specific plan change for a certain area—even though you may have not been party to that—are you, in fact, now captured by this, and therefore vacant land becomes caught under these rules? That would then make many people very nervous in any outlying area of a city where the boundaries aren’t clear—there may even be a metropolitan urban limit put in place, but the council may choose to extend it beyond that, or maybe inside the fringe, so we’re all urban zoned. So I’m very keen to understand what exactly is that definition around land that is permitted, as a result of a plan change or whatever—and also that first definition around the home would be very good to get some clarification around.

Hon DAVID PARKER (Minister of Revenue): As far as I understand the member’s description in respect of inherited properties and properties sold as a consequence of a relationship breakdown, it is as the member has described, and I’m sure officials will correct me if I’ve got that wrong. And in respect of the issue that the member refers to in respect of vacant land, I will take some advice from officials and respond a little later.

Hon MICHAEL WOODHOUSE (National): Thank you, Mr Chair. I’m also keen to dive deep in the weeds on Part 2 of the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill. But before I do, I think it is important that we set out, for the record, my party’s absolute surprise, disappointment, disgust, really, at the manner in which the amendments that are the subject of Supplementary Order Paper (SOP) 23 are coming to this House. The whole country found out about what is a significant change to the taxing of what the Government calls capital income. It’s a euphemism. It’s a capital gains tax. We know it’s a capital gains tax. We should just call it what it is and not dance on the head of a political pin just because of the commitments that the Prime Minister made to the public of New Zealand about two years ago and the commitments the Minister of Finance made during the election campaign about the brightline test. And I think he was reported in this morning’s media as saying something like he overextended. Well, that is—

Andrew Bayly: No, over—

Chris Penk: Overly definitive.

Hon MICHAEL WOODHOUSE: Overly definitive. Thank you, Messrs Bayly and Penk. That is the cute way to describe it. I could describe it in a far less complimentary fashion.

Chris Penk: Within Standing Orders?

Hon MICHAEL WOODHOUSE: No, so I won’t. I want to stay for the rest of this debate. But it is what it is. It’s a capital gains tax on just about everything but the first home, and I have a couple of technical questions about the transitional period between now and 27 March. But I’m fascinated by the regulatory impact assessment and the advice that the Minister received, so I have a series of questions about the nature and timing of that advice.

So, firstly, one of the things that our tax framework is built on is a degree of openness and communication with the stakeholders who are affected by it. And as former Minister of Revenue, I’m well aware of the IRD’s previous commitment, at least, to make sure that tax agents, Chartered Accountants Australia and New Zealand, a number of other groups, the subcommittees that have been set up, the small business advisory groups, the Corporate Taxpayers Group, and so on know what’s coming down the pipeline, are able to feed into it, provide technical advice and support, and make the bill better as a consequence of that consultation when it comes to this House.

As far as I can tell, and I’d like the Minister to clarify this, it doesn’t appear as though there has been any of that. And so my first question is: to what degree were those required to implement this, provide advice to their clients, and make the bill better actually consulted before SOP 23 came to this House?

Secondly, the regulatory impact assessment makes a number of references to the deductibility of interest. Now, we know that the deductibility of interest is not part of the SOP. The Government has said that they want to take further advice on that. But my question is: why is it there at all? And did the Government actually intend to include in this SOP provisions that would rule out in part or in full the deductibility of interest on residential rental property investment?

Thirdly, I would like to know when that SOP was drafted and when the regulatory impact assessment was drafted, because I think that will go quite some way to understanding how rigorous the amendments that we are having to consider in committee are going to be.

Treasury’s advice on this was pretty unambiguous: “[It’s] been produced under extremely tight time frame”—that’s the regulatory impact statement—“constraints without consultation or the benefit of robust data, and accordingly there is a risk that the analysis is incomplete or may miss key interactions. It represents the Treasury’s best assessment of the options identified by the Government in the time available.” Well, that’s code for: “We didn’t have any time to get this together. We haven’t been able to consult; we’re not sure what the impacts are. They could be negative, but we can’t give the Government and Cabinet any advice on that.” I’d be interested in the Minister’s comments regarding that process.

Hon DAVID PARKER (Minister of Revenue): I now have that point of advice in respect of Mr Bayly’s question. There is no change to the definition of “residential land” in relation to the brightline test. The exclusions that previously were in the law still apply for farmland and business premises. There is a change in the bill to ensure that vacant houses are not outside of the brightline rules—a relatively minor matter—otherwise it created an incentive, which is even worse, to have a vacant house so as to be outside the brightline rules. There’s also a change to the definition of “business premises” to exclude short-term accommodation provided in houses that are not a person’s main home, and that is in the Supplementary Order Paper. But, other than those two discrete changes, there is no change.

In respect of the “Why is it that we’re passing this under urgency?”, in respect of the Hon Michael Woodhouse’s question, since May 2020 there’s been a 26 percent increase in residential house prices in New Zealand. Various bank economists, as well as some of the international agencies, have been warning that we may be seeing a bubble and that, if the bubble popped, there could be financial consequences that were detrimental not just to the people that bought at the height of that bubble but could also have wider economic damage. Our view was that, if we were to have but a short transitional period, we would actually be encouraging people to get in ahead of the change and we would cause a flurry of activity that could have made the current situation even worse. So, for that reason, we’ve chosen to do this quickly.

We do have a three-day transitional period so that people aren’t caught unawares, and the Inland Revenue Department, as soon as we were making the announcement this morning, was advising real estate agents, accountants, and lawyers of the change, so that people who are about to make an offer in a few days’ time aren’t caught unawares by this. In respect of people who have already made an offer but their agreement is not yet unconditional, those agreements are also grandparented pursuant to the transitional provisions that are in the bill.

Hon MICHAEL WOODHOUSE (National): Thank you, Mr Chair. I thank the Minister in the chair, the Hon David Parker, for that. I think what I heard there is that the Government doesn’t trust the public. I’m having a flashback, actually, to 2008 when Annette King was transport Minister and passed changes to road-user charges under urgency and virtually overnight on the basis that truck drivers couldn’t be trusted not to go out and load up their road-user charge credits at a lower price. Actually, their lack of trust in people acting rationally led to some major protests in cities up and down the country, and it was a precipitating feature of the Labour Government’s demise. I think we could be seeing something analogous to that with this. But I didn’t hear the answer to the Minister’s question about: when actually did the Supplementary Order Paper (SOP) start being drafted? How long did Treasury have to provide advice on the regulatory impact statement?

I’ll add a few questions to that, particularly in respect of the transition now, but, firstly, one other thing I think is a fascinating summary of the brightline test exemption contained in page 60 of the regulatory impact assessment around the degree to which other options were considered—10 years is what we’re going for; 15 years was also considered. Indeed, Treasury’s preferred option was for a 20-year brightline test. Well, that walks, wobbles, and quacks like a duck, frankly; it’s called a capital gains tax, even at 10 years, but Treasury was talking about 15 and 20. My question to the Minister is: did he ask for that advice? It’s very unclear. Did Treasury just simply give him advice he didn’t ask for, or did Cabinet consider a raft of options, including a 15-year brightline test and a 20-year brightline test?

My question on the specific transitional provisions as set out on page 7 of the SOP, “Subsection (1) applies to a person’s disposal of residential land, if the person acquires an estate or interest in the land on or after 27 March 2021.”—now, I think it’s actually in the SOP that there are a series of scenarios—actually, it’s in the advice to the Minister, the commentary on the SOP, and it basically talks about a scenario where if the offer is made and it’s revocable, then the 10-year brightline test applies if the offer is not accepted before 25 March, I think it is. So we have this quite unusual scenario where somebody who wants to buy a house, perhaps made an offer on 21 March, has, effectively, their fate put into the hands of the vendor, who doesn’t have to—so there might not be a deadline, or the deadline might be after 25 March. The only recourse the purchaser has is to withdraw the offer, and I find that quite punitive.

Andrew Bayly: They may not be able to.

Hon MICHAEL WOODHOUSE: No, it is a revocable offer, Mr Bayly. There are various scenarios, including when there is a non-revocable offer. But if the only way to respond to the tardiness of the vendor is to withdraw the offer on a property that somebody actually quite likes to buy, their fate is in the hands of the vendor, and if the vendor is tardy by as little as 48 hours in accepting the offer, the brightline test doubles from five years to 10 years, and the practical cost of that could run in to the tens of thousands of dollars. So I wonder if the Minister could explain why he didn’t or his officials didn’t recommend that even with revocable offers that then put the ball into the court of the vendor—why that’s the purchaser’s problem. I simply don’t understand why it would be that punitive.

Hon DAVID PARKER (Minister of Revenue): In respect of the question about did Cabinet consider longer periods than the 10 for the brightline test that this bill legislates for, yes, we did. The member, the Hon Michael Woodhouse, is correct in his reading of the papers that have been released that Treasury recommended up to 20 years, but Cabinet chose not to accept that advice, preferring the 10-year period that is in the bill. Why was that advice being tendered by Treasury? Treasury, of course, has an advisory role to the Government, and I think, like quite a few of the bank economists and other parties who have expressed opinions on the New Zealand housing market, including some of the international agencies like the IMF and the OECD, they have been worried about the steep rise in prices and worried about whether there is a bubble developing and whether it would pop. In respect of the point that the member asks a question on in respect of transitional arrangements, I will seek advice from officials on that point and respond in a moment, but I would note that, of course, it doesn’t apply in any event to an owner-occupied home.

ANDREW BAYLY (National—Port Waikato): Thank you, Madam Chair. I just want to go back to the Hon Michael Woodhouse’s original question that gives rise to the reason why we’re having this urgency today, which the National Party is very, very concerned about. I’d just like the Minister to answer the question: if the purpose of the change—of introducing an extension to the brightline test and removing the deductibility of interest—is to stabilise the market, then why is there a need for urgency? Because if people had more time to contemplate these changes and actually be able to manage their affairs as they would have expected to up to 9 o’clock this morning, if they’d had a time to work through a process where these things would have been considered in a committee stage, we would have had a much better outcome. What it also would have done, if we’d delayed the introduction of this, is led to a point where if an investor was currently holding a property, they would have been caught under the five-year brightline test anyway, and they could have exited the market at that point.

In terms of the interest deductibility, people could have also taken a view on whether they wanted to buy a house, because it has significant ramifications for the economics of their buying the house. I heard the Prime Minister very damagingly talking about speculators today. In most cases, this is mum and dad investors who are trying to create a retirement fund and look at housing as a legitimate form of investment. As of 9 o’clock this morning, they were brutally told that they could no longer claim the interest. Of course, it’s a stage period and we’re not quite sure about the stage for it, but I cannot see the downside for the Government to have delayed this announcement, to have flagged it and delayed it. Because, effectively, what the Minister is doing by putting this through urgency is actually capturing everyone now under the 10-year rule, automatically, without letting people be informed about it. I’ve got a text, actually, someone wanted to read out to me, that I received since the announcement this morning. They’ve been buying a house, they’re in the process of buying a house, and if they’d known about these requirements they would have done something differently. If your intent was to slow the market down, then maybe those people could have taken a more educated or different view on it, but what you’ve done is basically captured and imposed new conditions on existing people who were happily going along until 9 o’clock this morning, until you Draconianly imposed this new regulation on them that will have a significant financial cost to all parties concerned.

Hon DAVID PARKER (Minister of Revenue): Well we could have done it that way, but we think the outcome would have been worse.

Andrew Bayly: Why?

Hon DAVID PARKER: Because we would have caused an incentive towards people to buy more properties in an already over-heated market taking the more beneficial tax arrangements that would have flowed from them into account. We could have caused even further pressure on the housing market.

Andrew Bayly: You don’t think more would have sold?

Hon DAVID PARKER: In respect of whether there is a problem to remedy, I think recent reports from CoreLogic and Statistics NZ show that there are. In the last quarter, the period for which we have the latest statistics, there has been a sharp rise in the percentage of existing properties that are sold to investors rather than either existing homeowners or first-home buyers, to the point where they now—those investors—are relying on advantageous tax rules that apply when you can heavily leverage a property, which you can in this asset class if you have a portfolio of properties over which you can spread the borrowings. That’s now the largest segment in the purchases of existing property. The percentage according to the graph I have in front of me is 27 percent of all purchases in the most recent data were leveraged multiple-property owners, 12 percent were multiple-property owners with cash, and lower percentages lower than the 27 percent were perforce first-home buyers and for people selling one home and moving into another. So on that basis, we thought it was appropriate to move quickly.

In terms of whether we could have advised the public earlier than the announcement that we made today, I think most members, when they look at the papers that we’ve released today, will see that the Government has moved promptly with this policy and promptly to advise the public.

NICOLA WILLIS (National): Here we are in Part 2, and this is the part of the income tax bill that highlights quite how extraordinary the debate in this House is today, because here, in one hand, I have the bill we thought we’d be debating this afternoon and here, in the other hand, I have Supplementary Order Paper (SOP) 23 which clashes with this bill, introduces an array of new changes, and primarily introduces a capital gains tax that New Zealanders were promised this Government would not introduce. In this contribution, I want to highlight a couple of matters that are very significant.

The first is for us to understand the circumstances in which advice has been given on how this part of the Act will operate. We have a regulatory impact statement that has been released in relation to the SOP affecting this part. Throughout that regulatory impact statement, officials are at pains to again and again highlight the urgency under which they are having to formulate advice. My question for the Minister about this part of the bill is: at what point did the Minister consider that the bill, as it sits before us in Part 2, required dramatic changes? And at what point did he seek advice on those changes? The reason I ask is because we do have some traditions in this House in terms of select committee and the way that things are advised on. And one of those is that actually we do properly examine things. In this case, it’s very clear that officials have had to give advice in challenging circumstances. Did they even get asked for advice before Christmas? Because it’s very clear that the Government was considering changes to this section before Christmas, but it’s not clear that officials were given any runway to properly analyse the impacts here.

What we can see is that there is massive concern about changing Part 2. Treasury were not even prepared to take a view on what the impact of a 10-year capital gains tax would be because they had so little evidence and so little ability for analysis. But what we do know is that there was specific concern about lock-in effects; that is that, because of the way that Part 2 will operate in interaction with SOP 23, people wouldn’t put their properties in the market, that there would be upward pressure on rents, and that the exemption for new builds would create all sorts of administrative problems. And I highlight that because Part 2 does really detail how tax matters are to be interpreted, how they are to be applied, and the specific rules that will apply. Again, I note, quote: “significant time constraints”, “no opportunity for consultation.”

There are in Part 2 two new provisions being proposed which clash that I want to highlight. And one is around the way the main home exclusion operates. In Part 2 as it is set out, the main home exclusion is that main homes aren’t subject to a capital gains tax, the brightline test of five years, as it was to be in Part 2, does not apply to them. But what we learnt today is now actually the SOP will interact with this to erode that exclusion. It’s my understanding that the changes being proposed by the Government today will mean that if, for example, a public servant who owns a home in Auckland decides to take a secondment at one of our public agencies in Wellington for three years, and during that time they wish to keep their family home in Auckland, then what will actually happen if they are renting in Wellington is that they will then be subject to the brightline test if they sell that home in Auckland at a subsequent date, because they haven’t been living in it. Now, the reason this is relevant is that Part 2 specifically details the way the main home exclusion is to operate. And we now understand that, as it’s set out in this part, it is to be amended by SOP 23, and I think it’s important that the Minister highlight why this change has been made, because it has been very significant to New Zealanders the way their main home is excluded from capital gains tax. It seems to me that this could be a capital gains tax by stealth on the family home.

The second area of amendment I will have to come to in another contribution, and that relates to the way that short-stay accommodation is treated. Again, something that in this part is detailed, but which there appears to have been a 180 reversal on in the SOPs we’re debating this evening.

DAMIEN SMITH (ACT): I’d just like to challenge the Minister, Hon David Parker, on some of the facts he provided on underlying demand. Is he saying, so long as there’s strong underlying demand and a shortage of supply, that capital gains tax will not deter speculators because they will continue to buy and they’ll continue to pay a tax? So the logic—I don’t know if anybody at the IRD or Treasury’s thought about this, but if you can buy something for 60 percent equity and it’s as safe as houses, people are going to still do it, aren’t they?

And the second point is: has anybody at Treasury or at the IRD or in Government not been honest today and said “A lot of what’s happening is not about taxing housing, it’s because the fiscal and monitory policy settings of the country have led to these problems.”? Interest rates and the lack of land supply have also accelerated this problem, and taxation isn’t going to fix it. What’s going to happen—and I’d like the people who share our social values to understand as well that Grant’s broken a promise today and so has the Prime Minister. With rents going up $125 a week, I can guarantee you, because I’ve had 20 calls about it, that there’ll be another $100 on rents in this country, and this is a really dangerous game. In terms of supply and demand, the people that are actually purchasing these houses are providing rental property. So the unintended consequences of this extension is that landlords are going to hold and then rents are going to go up, and those people are going to get punished. And those people then are out earning their money and paying excessive taxes.

And the one other point I’d like to ask is: has anybody thought at Treasury or IRD that now every other business in New Zealand can still claim tax deductions but not landlords? So where’s the sense in that? So there’s a couple of fundamental aspects to this where I think today the Government’s created a bigger problem for itself with its tax and expenses rules than they could ever have even thought about, and, more importantly, the broken promises to the people of New Zealand. And I think less houses will be built, landlords won’t sell—they’re going to sit and hold—and the private sector will not get a chance to come to the party here. So I’d like to just see if anybody did address those questions within the thought process of rushing this through.

Hon DAVID PARKER (Minister of Revenue): Thank you for those contributions. I agree that there are factors behind the escalation in house prices that go beyond taxation, including the unprecedentedly low interest rates in the world, which have had an effect on cap rates and therefore asset values. It is, though, having a detrimental effect on inequality and is making it very hard for younger people and other first-home buyers to get into the property market. It has also created the risk of a property bubble, and the Government as well as various agencies that advise the Government have been worried about that. We don’t control interest rates. We do have some influence on macro-prudential tools the Reserve Bank can implement, and the Minister of Finance answered questions about that. That said, this bill is only about the brightline test. It isn’t about interest deductibility and there’s nothing in this bill about it.

While I’m on my feet I will respond to the Hon Michael Woodhouse’s point in respect of irrevocable offers. If someone’s already in a contract—for example, a long-term agreement for sale and purchase of a section often has a long date by which the vendor has to perfect their subdivision beyond which the agreement can be called off. That sort of agreement is not affected by these changes and the old brightline rules will apply to it, not the new ones.

Hon MICHAEL WOODHOUSE (National): Thank you, Madam Chair, and I thank the Minister for that reply. I must apologise because my query was a little bit vague because at the time I couldn’t find the specific example that was used in the commentary on the proposed amendments, which I now have. I wonder if officials may have given him an answer to a different question, so I’ll point through the officials to the examples table on page 13. It’s the fourth row down, which talks about the purchaser submitting an offer as part of a tender process that closes on 16 March. The offer cannot be withdrawn until 22 March, which was yesterday, but the purchaser does not withdraw the offer and the seller does not accept the offer until 27 March. So the Minister’s answer referred to a slightly different scenario of the development of land, where they may have been inevitable delays and the offer is—I think he said—irrevocable. But, effectively, in the tendering scenario in that example, through no fault of the purchaser’s actions—in fact, the purchaser doesn’t even know that they’re successful, so they submit the envelope on 16 March and 11 days later, their tax liability has, effectively, doubled in its term: their liability to pay a capital gains tax goes from five years to 10 years. So there may be a little bit more on that. It was the specific one.

I want to touch on the issues that my colleague Mr Smith was talking about in respect of the impact of these changes on residential rentals. I think he’s right, although I think the biggest impact on residential rentals is going to be if the Government does carry out its plan to remove interest deductibility, which is not subject to this—although I note, similar to the 15-year and 20-year options, the regulatory impact statement does refer to what would happen. In fact, Treasury said, on page 60, “Treasury does not recommend progressing the interest deductibility proposal without further analysis.” So that begs the question of, similar to the 15-year and 20-year options—and I appreciate the Minister’s candour that Cabinet did consider longer terms: did it also consider in this basket of changes doing interest deductibility this week, and did it ask Treasury for advice, and did it decide, on balance, not to do them because there were risks and benefits that were not clearly understood?

My third point is around the impact of residential rental increases, potentially as a consequence of what we are changing. I draw the House’s attention to page 61 of the regulatory impact assessment. It goes to some detail to highlight what Treasury believes are serious risks on the rental market and the cost inflation potential for extending the brightline. In the third paragraph of the middle section, “Where do the costs fall?” it says, “To the extent that rents are higher than otherwise, the costs would fall on renters who do not purchase a home. This would disproportionately affect low-income households, younger people, Māori, and Pacific peoples. Extending the bright-line could decrease the supply of rentals over the long-term … This means the impact an extension will have on rents is difficult to quantify, but there is a risk that there could be upward pressure.”

I don’t believe there are risks—that while they might be difficult to quantify, there is no doubt that risk is real and I believe it will come to pass before even the interest deductibility issues are considered by this House. And it’s on the people who are most vulnerable: Māori, Pacific peoples, younger people, low-income households. So this impact—the impact of these changes—is going to lead to one or both of two things happening: either renters get out of the market, and so they sell their properties to first-home buyers—tick, that’s positive—but those first-home buyers aren’t necessarily in these categories. Therefore, there will be a lower supply of residential rental properties for the very people who are being subjected to dramatically increasing rentals, and that will be exacerbated. Or alternatively, landlords hold on to their properties for longer and therefore seek other means to gain the rates of return that they were seeking, in which case that could also have upward pressure on rentals. It’s basically the status quo continuing. I think the Government does want renters to sell to first-home buyers. That’s the reaction that Treasury warned is going to have the greatest risk of residential rental inflation.

Hon DAVID PARKER (Minister of Revenue): I am responding to the specific question that the Hon Michael Woodhouse has made in respect of page 13 of the commentary on the Supplementary Order Paper. The member’s correct that in respect of an irrevocable offer, there are transitional provisions that mean whether the purchaser does nothing or—well, the purchaser can’t do anything—

Hon Michael Woodhouse: Or doesn’t know whether the tender’s been accepted.

Hon DAVID PARKER: Well, if it’s an irrevocable offer, the purchaser can’t do anything to protect their own position, and, therefore, even if it was subsequently accepted after this three-day warning period, then they are only bound by the old brightline rules.

Andrew Bayly: So you’re saying that’s specifically catered for?

Hon DAVID PARKER: Yeah, that’s specifically catered for. In respect of the person that has a revocable offer, then they have to make an election really quickly as to whether they’re going to proceed with the offer in the knowledge that if they do, they’ll be subject to the new brightline rule, and they of course have the choice of not proceeding by withdrawing their offer, because it’s not an irrevocable offer.

Hon Michael Woodhouse: That’s harsh.

Hon DAVID PARKER: Well, that’s the position. They can protect themselves.

Hon GERRY BROWNLEE (National): I just wanted to ask the Minister some questions about the advice that has been provided that had given the Government such confidence in this extension of the brightline test to actually move it so quickly through the House today. Going back, the brightline test was extended three years ago to five years, and the claims then were that this will, effectively, slow down the investor rate into houses, it will make more houses available for first-home buyers, and it will arrest the runaway prices of houses. Now, is there any similarity between what was said three years ago and what is being said now? I can’t distinguish one.

So we look at it and say, OK, well, if someone bought a house for the average price three years ago, they would have experienced a $250,000 capital gain in the meantime, and they’ll be subject to the brightline test. So you work it all through—and let’s assume they can’t deduct any expenses for sales or anything else that might go on—they would pay the 33 percent on the $250,000 and be left with $170,000 in their pocket. That equates to somewhere between $56,000 and $57,000 a year, which is not a bad sort of return. So the question is: will this make any difference? My suggestion is of course it won’t, because as long as there is constraint in supply, there will always be upward price pressure.

It gets a little bit worse when you dig into this bill, because the interest rate that has been deductible against other income at a rate of whatever their tax rate was—so let’s say it was the 33 percent rate—works out that over the term of a 25-year loan on that average house, it’s around about $156,000 worth of interest. So you break that down to the yearly figure, working on a rate of about 2.65 percent—which may not last longer; it could be more—and the deductible component of that interest is $40 a week. The cost is $120 a week, but the deductible part is $40. My point is that if the $40 part that’s not deductible is gone and the whole cost is $120, why won’t rents rise?

Simon Court: They will.

Hon GERRY BROWNLEE: Of course they will, and the Minister needs to tell us what advice was given to him by their officials that gave them any confidence that this set of moves will have a deflationary effect or a stabilising effect on rental costs in a very constrained market. Do we have an answer to that simple question? What advice did the Government get that gives them the confidence that a brightline test will work and that the removal of the interest deduction planned will in fact also see downward pressure or stabilising pressure on rents?

Hon DAVID PARKER (Minister of Revenue): The answer to that is that officials aren’t sure. The experience in New Zealand has been that rents have not increased at the same rate as prices. We’ve had a massive increase in prices without a massive increase in rents and we’ve had a—

Andrew Bayly: What? Rents have gone up $120 a week.

Hon DAVID PARKER: We have not had the same rate of increase in rents as we have had an increase in prices. There’s quite clear divergence between those two.

In respect of the Hon Gerry Brownlee’s point, on the one hand he says this won’t change buyer behaviour and it will have no effect on prices because it’s all about supply. Well, if that’s right, then why would it necessarily have an effect on rents? Those are the imponderables. I agree that the answers to the housing crisis do not lie in demand side measures alone; they also lie in supply measures, which are outside the provisions of this bill.

CHLÖE SWARBRICK (Green—Auckland Central): Madam Chair—

Hon Gerry Brownlee: Point of order, Madam Chairperson. I asked a question, which you’re allowed to do now, inside my five minutes. I thought I’d be able to further respond to the Minister’s answer to that question.

CHAIRPERSON (Hon Jenny Salesa): I will come back to you, Hon Gerry Brownlee.

Hon Gerry Brownlee: Thank you.

CHAIRPERSON (Hon Jenny Salesa): The member Chlöe Swarbrick has been trying to take a call probably about five times now, and I have been giving a lot of calls to the National Party.

CHLÖE SWARBRICK: E te Māngai, tēnā koe. Tēnā koutou e te Whare. I wish I could say that this Supplementary Order Paper (SOP) 23 and the changes announced today were as bold and as transformational and as sweeping as the property investors’ lobbyists say they are, but, unfortunately, I cannot. The tax loophole which has been alluded to by a number of other speakers actually isn’t included in this Supplementary Order Paper, but I would say that that is the thing the Greens are the most excited about. None the less, I digress.

We have had other speakers from the Opposition saying that this tax loophole change, however, would mean that housing, investment in housing and housing as a business was treated differently to every other business in Aotearoa. If I may make the point, housing is different because no other business or the commodity inherent in it is recognised by the United Nations as a literal human right. As any other business, are you able to remove somebody’s access to that human right because they are not able to afford it? I’d also just like to quickly make the point this morning, outside of this Chamber, on the steps of Parliament, we had the Hīkoi of Hope, and nowhere in that announcement today was the point around accessible housing for those with disabilities.

So this debate is not about tax deductibility when it comes to housing. It is, however, about the brightline test, as outlined in Part 2 of this bill. This is important because it will have some impact, albeit marginal, on the runaway housing prices that we are currently seeing, particularly in my home of Auckland. In Auckland alone, we saw house prices increase by $100,000 in February 2021 alone. Homes are making more money than the people who need to live in them at present.

I’d like to refer to the advice that the Minister received on drafting this SOP, from Treasury in particular, as other members have quoted—and here I quote—“on balance the Treasury’s preferred option is an extension of the bright-line period” longer than 10 years. It goes on to say that it may be relatively easy to avoid tax liability under a 10-year test by delaying the sale of the property. Treasury then went on to recommend a 20- or 30-year—I believe, off the top of my head—extension to that test. My question to the Minister is: is this extension to 10 years, a mere doubling of the five-year test, not kicking the can down the road? Is it not dealing with the substance of the issue, which inherently is wealth inequality in this country? Two-thirds of wealth in this country is held in property, I might add.

It makes a lot of sense to actually refer to the history of the brightline test in this country and in this law in particular. It appears as though there is some confusion by virtue of the contributions in the debate so far. So the brightline test as has been well elucidated by the Minister and others is something that was introduced by the former National Government in, I believe, 2015. Prior to that, inside of the Income Tax Act there was something known as an intention test, where if you intended to sell for capital gain, then you should be taxed on that income. The problem, as was identified by the IRD in multiple reports and annual reviews and otherwise, is that it was incredibly difficult to apply this intention test. That was the reason that that brightline test was first instituted by the former National Government. It obviously then was extended in the first term of this Labour-led Government, and now is seeking to be extended once again. But as I’ve already alluded to, the problem right now when it comes to housing, when it comes to wealth, when it comes to inequality in Aotearoa and how it is continuing to compound is that the housing crisis is no longer necessarily just one of people flipping properties; it’s of people hoarding properties. What we know is that this extension of the brightline test is not going to solve that problem, and Treasury’s advice says exactly that.

So when we have a situation where Business and Economic Research reports that the top 20 percent of New Zealanders own 70 percent of the wealth, when we have the household economic survey released at the end of 2020 saying that the wealthiest 10 percent hold 59 percent of all of the wealth in this country and the poorest half—the poorest half—hold 2 percent, how do we seek to address that? I ask the National Party—I dare them to tell me that those New Zealanders in the bottom half are not hard-working.

Hon GERRY BROWNLEE (National): Madam Chair, thank you, and I just want to, before I talk about Minister Parker’s response to my question before, just make it very clear that the brightline test was brought in in 2015 for the very purpose of clarifying that intention, which had been in the law for a long time and never enforced. It was also in response to a growing concern throughout the country about what were, effectively, foreign buyers coming in, and the belief that foreign buyers were putting upward pressure on house price. Well, we’ve seen that largely decline. We’ve seen new laws come in that pretty much make that a no-goer, but it has not had anywhere near the dampening effect on house price in the last couple of years. The only thing that is driving house price at the moment is supply—nothing surer than that.

It’s worth noting that while the Government wants to say “Well, if you invest in a brand new house you won’t get caught by the 10 years, you’ll only get caught by the five years.” on the basis they want to encourage more new house building, I think more new house building’s obviously a good thing, but don’t forget that on the current new house price, the Government takes in GST alone around about $100,000 inside that price, paid by the end buyer. Of course, all the way along there’s a massive amount of tax paid by all the tradespeople who work on it, all the trades companies who provide services, and, of course, the developers and construction companies, as well. So there is a big factor of cost inside a new house price of which the Government is quite a significant beneficiary.

The Minister said in answer to my question, quite simply, that officials didn’t know whether this would make any difference to rents and didn’t know whether it would make any difference to rising house prices. Well, I would suggest that they simply have a look at this history of the last three years and see what’s happened, as I said earlier: a $250,000 average capital gain on an average house price in New Zealand in three years, and a brightline test that will only take $70,000 from them. I’m not making a case for more tax, by the way. All I’m saying is that you cannot use the tax system to solve a problem of supply, and the thing that is really very, very irritating, listening to speeches today from the Prime Minister, from Mr Robertson, and from others who have made comment in the media, is the complete denial of the supply problem. The idea that you can put up three hundred and something million for pipes and roads and goodness knows what else, and then that’s going to solve it all, is utter rubbish, because unless there is consented land, then there is no further supply, and where there is consented land, there is no shortage of capital for its development.

I heard today, interestingly—particularly after a conversation I recently had with her—the Hon Megan Woods talking about what was done in the 1950s and 1960s, when a lot of houses were built on parcels of land that were allocated well ahead of final survey, well ahead of any infrastructure that was put in, well ahead of, often, roads that were even put in. But it met a need and it met it fast and it delivered for people at a reasonable cost, because it took loads of costs out of the system. This bill puts loads of costs back into the system.

No one is going to look at their extra, on average, $120 a week costs that they can no longer put down as a deduction—effectively, the $40 a week deduction, or numbers around that, depending on the circumstance—and say, “Oh, well, I’ll just take it on the chin.” This is a recipe for rising rents at a rapid rate. We already know that there’s pressure in the rental market. Look here in Wellington, where people have to queue up for hours just to get a look at a rental property, and then they go through a process where we’re hearing stories all the time where they’ve got to answer different questions and all the rest of it. But one way to drop those queues is to put the price up, and there’ll still be someone there, in a tight market, a supply constrained market, to take up that property. So this is simply a recipe for increasing the price of rents and increasing the upward price on houses.

I’ll bet that before we’re here too much longer—maybe one more Budget cycle—the Government will be scratching its head and saying, “Oh, well, that didn’t work too well, did it?” Meantime, what’s that done for people in this country that have aspirations to own a house? Very, very little.

Hon DAVID PARKER (Minister of Revenue): This bill puts no extra costs into a new build, because they are exempt. The member said that the key to supply is more houses; I agree.

Hon Gerry Brownlee: No, I said land—I said land.

Hon DAVID PARKER: More land is part of more supply, and this bill does not increase the costs of that, because new builds are exempt.

SIMON COURT (ACT): Thank you, Madam Chair. This bill is flawed. Treasury has been reported on commenting that they have not formed a view on whether a 10-year brightline test is preferable to the status quo, and even rated it worse than the status quo in their advice. The Prime Minister made the point the package attempts to balance supply and demand issues. We’re debating the brightline test, of which this element is one part of the Government’s package.

The brightline test is an exercise in jealousy, in bitterness, in an intergenerational conflict between those who have assets and homes, and those, as we heard from other members, who wish for their generation to have access to homes at reasonable prices. But it will not solve that problem. It will only make it worse.

Underlying the issue, where I live in Auckland we understand that there is sufficient land zoned for 100,000 homes today, the constraint being infrastructure. We’ve heard today about a package which allocates $3.8 billion to infrastructure. We don’t know what that time is because we haven’t had a chance to have a look at that closely. But if that was over 10 years, that’s about $380 million a year. That’s what Auckland Council already spends on stormwater alone. It’s a drop in the bucket. In fact, it’s a drop in the ocean because the infrastructure deficit, as advised by officials to the Minister of Local Government and to the media, is $110 billion over 30 years, not $3.8 billion or whatever the number is that has been allocated today.

So a brightline test will not do anything to address the fundamental issue of availability of land, of supply, and therefore only serves to exacerbate the existing problems. When the brightline test was proposed under a previous Government, ACT did not support it. ACT’s leader, David Seymour, described it as a capital gains tax by stealth. What we’ve seen over the past few years, with the brightline test extended to five years and the incredible increase in property values since then, combined with other measures that the Government’s had a hand in, boosting the money supply and the availability of credit, is that these measures have not contributed to control prices or limit price growth in any way. The extension of the brightline test today through this bill to 10 years merely vindicates ACT’s original position that it’s a capital gains tax by stealth. It will have no effect whatsoever on house prices. It won’t help another Kiwi into a new home or a second-hand home or even a hut.

Now, on the weekend, I watched a movie with my son: Jack and the Beanstalk. While I was listening to some of the other speakers and to the Minister, and indeed to the Minister of Finance’s description of this brightline test today, it reminded me of a scene from Jack and the Beanstalk with a magic bean. It’s like a magic bean: you plant it and it will solve all your problems. I actually wonder if the Government believes that this is some kind of magic bean, this brightline test. Will it solve the housing crisis, this brightline test—this magic bean? Or will it simply blow up, just like when the giant swallowed the magic bean and it grew inside of him and took over everything, but, in the end, the giant didn’t succeed. This Government won’t succeed with the brightline test.

The fundamental issue with the reforms that we’ve heard announced today and this brightline test is that it doesn’t address the needs of people—those New Zealanders who might find at a certain stage of their life they want a smaller home, they want another home for growing families, or new families, families joining together. These are all things that require flexibility in ownership models, and they require flexibility in the regulation around these kind of things. What would be awful to see is as people grew older and reached the end of their working lives, feeling they were stuck in a home that they couldn’t leave for fear of incurring an awful tax imposition at the end of their working lives, when they simply seek to move to a smaller home and, potentially, even make better use of their land by subdividing, for example.

So there are many, many hooks and crooks in this bill which haven’t been explained, and I would like the Minister to explain exactly how the brightline test will avoid some of those pernicious risks, like trapping people in homes when they’re ready to move on. Thank you, Minister.

Hon MICHAEL WOODHOUSE (National): I always chuckle when we are lectured by that “Yoda of the House”, Chlöe Swarbrick—that font of all knowledge—

Simon Court: Point of order, Madam Chairperson. I think that language was unparliamentary to my colleague Chlöe Swarbrick, who I do work closely with on Auckland issues.

CHAIRPERSON (Hon Jenny Salesa): Thank you, Simon Court. You can’t take offence on behalf of another member.

Hon MICHAEL WOODHOUSE: That font of all knowledge on matters relating to tax law or jurisprudence. I humbly suggest my 25 years as a chartered accountant and a couple as Minister of Revenue gives me perhaps a better long-term perspective on actually the definitional difference between taxable income and capital gains.

Now, the Government has introduced this new nomenclature called capital income, which actually doesn’t have, as far as I can tell—the Minister can correct me—actually a definition within the Income Tax Act. But one thing that Chlöe Swarbrick did say that I have to take issue with is that capital value growth from housing is somehow historically treated differently from other forms of capital income growth, and that’s not true. The Income Tax Act treats the accretion of assets for taxable purposes exactly the same, or at least it did until 2016-odd, when the previous Government bought in the brightline test. If one purchases shares with an intent to gain income from them, usually from dividends, and the share price happens to accrue in value, then that value increase is not taxable. If one buys a business and the goodwill value is in that business, it earns income for the owners and they pay tax on that income. But if the capital asset grows that is not currently taxable.

The purpose of the brightline test is because everybody needs—particularly, in residential rental property investment—to demonstrate that at the point that they purchased the property, their intention was not capital gain, it was income from rental. The purpose of the two-year brightline test was to say, “If you sell the property between one day and two years, we default to a point in the Income Tax Act where you are deemed to have purchased that asset for a capital gain.” Now, one can’t say that actually about a five-year test; one can’t say it about a 10-year test, let alone a 15- or 20-year test, that Treasury was advising on; and, quite simply, Treasury favour a capital gains tax. They realise the language can’t be used with this Government, but that’s essentially what they were saying. They wanted a capital gains tax on everything but the family home, and so there are differences.

Chlöe Swarbrick also sort of danced a little jig around the likelihood that the deductibility of interest will be removed at some time in the future, and, again, that is completely at odds with our tax framework. Our taxation framework requires businesses, firstly, to return all matters of taxable income, but then allows them to deduct from that income those legitimate business expenses incurred in the gaining of what then becomes taxable income. Interest is paid by property developers. It’s paid by the plumber who goes into debt to purchase her business. It’s paid by Rocket Lab if they have gone to the bank. Why on earth, from a philosophical perspective, we would not allow somebody to deduct the full cost of their business expenses simply because they are doing pretty well out of that business is fundamentally wrong.

Now, Mr Brownlee was modest—overly modest, in my view—in his description of the supply side issues related to house price inflation, because he knows more than any what increasing supply will do for house price inflation. He did it in Christchurch. He got rid of the urban limits after the earthquake. The only place in New Zealand where house price inflation is moderate is in Christchurch. Why—because we had such great supply.

Now, what worries me about this is, if by some miracle the Government achieves its goal of moderating house price inflation to something equating the Consumers Price Index, then the very fiscal drag and bracket creep that we were talking about in Part 1of this bill will come in, because inflation will erode the value gain, the capital gain, over 10 years, and therefore a person would have to pay tax even though they were not materially better off. So all of this is predicated on the Government not being able to control the house price tiger that it’s got by the tail.

Madam Chair, I’ll just have a little extra. I know my time’s up, but I’ve just got about 30 seconds more in this question.

CHAIRPERSON (Hon Jenny Salesa): I call the Hon Michael Woodhouse.

Hon MICHAEL WOODHOUSE: So there is a question to this and that is: did the Government get advice on whether or not inflation should be taken account of when it considers the marginal tax to pay on the sale of a property within 10 years? Forgetting the interest problems—and we’ll deal with that later in the year—the jurisdictions around the world deal with this by having a lower capital gains rate. Fifteen percent is usually used as a sort of a catch-all arbitrary rate that says that, well, there’s a time value of money. The longer one keeps the asset, inflation will erode the capital gain. There’s also expenses that can be incurred of a capital nature that aren’t included in the wash-up, so let’s just call it 15 percent rather than the top marginal rate, because this is punitive. If we succeed in getting house price inflation under control, this will be unnecessary, and actually it will work—it will have completely the opposite effect that the Government intends it to if it doesn’t allow for the time value of money.

Hon DAVID PARKER (Minister of Revenue): Thank you, Madam Chair. In response to the member’s last question, I don’t recall advice from the Treasury on that point about—I don’t believe there was advice as to taking into account inflation, so I don’t think that was considered.

In respect of one of the points that the member made, referring also to the Hon Gerry Brownlee’s comments, there are some differences between the Canterbury earthquakes and the current circumstance, but there are also some similarities. I agree that land supply is important. The Government agrees that. It’s one of the reasons why outside of this bill the National Policy Statement on Urban Development requires a lot more land opportunities to be made available particularly in high growth areas both in respect of intensification but also land at the margins.

I would make the point that in Canterbury, of course, there were other things at play including the fact that some people left, so there was for a period a declining population and fewer people to house. There were billions of dollars of insurance moneys that were flowing into the city to make that an easier transition and, of course, there were significant Government contributions, which were wise, which contributed to infrastructure. Of course, there are comparisons to that in other parts of this package that have been announced today, but none of that’s in this bill.

Hon GERRY BROWNLEE (National): Look, I would take issue with some of those generalities that the Minister in the chair, David Parker, just referenced with this current situation being different to what we faced in Christchurch. Yes, there was, for a very short time, a number of people who left the city, but the population was on the rise relatively quickly, within 12 months of those earthquake events, and that’s evidenced by the numbers of people who are registered with the Project Management Offices rather than any particular census data.

Leaving that aside, urban intensification is an important part of housing supply, and we’re going to have to see more and more of it as time goes on. So my question is this: if someone buys a property in an area that is earmarked for more intense housing and they demolish those properties, they then put forward a plan that’s consented for the building of a multiple number of dwellings on that property, how is that going to be treated in relation to the brightline? Will the whole purchase be exempt because of the new dwellings that are built on that land? Will it be apportioned? If the owner decides to hold it for a period of time, how long do they hold it for? What will the overall effect be on the transfer of focus on to the special housing areas that a lot of councils are now developing, as opposed to new subdivision, which is obviously going to be an important part, and the Government is staking somewhat of its future success of this policy on that by the announcement of that large infrastructure fund. I’d like to return to this in a minute if the Minister was able to answer that question.

Hon DAVID PARKER (Minister of Revenue): I may have misunderstood the member’s question, in which case, if I have, he can restate it. But in respect of if there was a development on a piece of land building new houses, it wouldn’t be affected by these new rules because they are intended over time to be exempted. In respect of capital improvements to an existing property, they become part of the asset base and so would be counted in respect of the cost that is assessed against the eventual sale price.

Hon GERRY BROWNLEE (National): So for a clarification on that then: if a developer, for example, buys a multiple number of residential properties, demolishes the buildings that are on it, and then develops those properties, they would be caught as a trader and they would, naturally, pay the appropriate tax in that circumstance. Are they, in that circumstance, not caught by any sort of brightline provisions?

Hon DAVID PARKER (Minister of Revenue): That’s correct, because developers are actually not caught as traders; they’re caught as developers. They’re in the business of buying and selling houses, and, effectively, their houses are their stock in trade and it’s already on income account.

Hon DAVID BENNETT (National): Thank you, Mr Chair. Just following on from the questions and the exemption that the Minister talked about there for new houses, I just want to know what sort of advice he received around that exemption, because the inference is that people that are in the business of—not in the business as in the sense that they would be taxable anyway. But somebody that may want to have a second or third rental property should now look at the new-housing market as their intent to buy rather than the existing-housing market, and I think that’s the inference that we’ve got from the policy decision we’ve seen today.

I’d like to see what kind of research the Minister has around that, because from my experience, looking at somewhere like Hamilton, which has got burgeoning new suburbs, they’re typically people that are in their second or third house. They go through a staged process to get to that new-house purchase, because a new house in the northern suburbs of Hamilton is over $1 million and a new house in the new suburbs of Cambridge is around about that price as well, and that takes into account that you’ve got land values of $550,000 to $600,000 for just the section and then you build on top of that. So it becomes a very high end of the market.

The people that are actually going in there and buying those homes have probably gone through two sales to get there over their lifetime. They’re not necessarily 25-year-olds straight out of university going in and buying those homes; they’re probably someone who bought a home in a cheaper suburb of Hamilton, maybe lived there for 10 or 15 years, raised their children there, paid off that house, and then was able to then purchase a new home and enjoy that in their later years. So it doesn’t make sense to me that you have the exemption there, thinking that property investors will go into there, because that’s not actually their market. The market for those properties is actually probably second or third purchases, that are actually then freeing up homes at the lower end of the market for new homebuyers to come in. So I don’t know if your exemption is actually going to provide as much comfort as you think, because you’re actually restricting a market that actually assists in getting new people into the market.

So any clarity that the Minister can give around what research they did to indicate that that was a sensible policy decision on his behalf would be great to hear, and also what the necessary effect will be, because the person that may be looking at that second or third home as a retirement-type investment, and that’s what this bill, effectively, captures. It doesn’t capture the people that are necessarily in the business; it just captures ordinary New Zealanders that may be looking at a second or third home as an investment. They typically would do that at the lower end of the market, therefore providing opportunities for people to have rental accommodation. They’re going to be very difficult to find, to be able to go into the top end of the market, which would then create a situation which would be difficult for them to invest and provide those opportunities. So I think you might find that the new-house exemption actually works against the policy direction that you’re wanting to achieve, Minister.

Hon DAVID PARKER (Minister of Revenue): Thank you for that question from the Hon David Bennett. In respect of the example that you give, where someone throughout life has moved on from their old house and they’ve purchased another one, as people naturally do, as they save a bit more and can afford a more expensive house, they will be exempt from this because that would be an owner-occupied house.

Hon DAVID BENNETT (National): That wasn’t the question. I understand they would be exempt, and I was using that as the example of who is the new-house purchaser. The new-house purchaser that you’re inferring should be under this policy should be the investor, and that is simply not the person in that market. The person in that market is the person that is exempt because they’re selling their property once or twice to get there. You’re expecting a person to go into that market, which they’re not in now, being the investor-type person with only one or two homes—you know, they’re not a full-blown businessperson in that regime—and you’re expecting them to go into the high end of the market, which is really not configured for them, because it’s configured for people that are exempt anyway and would go through a normal process of the life cycle of moving through suburbs, as you do in a community.

Hon DAVID PARKER (Minister of Revenue): We’re not envisaging—have never envisaged—that the high end of new-house markets will be predominantly a rental market. Other parts of the new-house market are. There is some building for long-term rental, and we are encouraging that by exempting that sort of long-term rental investment by investors from the brightline test, which is under consideration here.

BARBARA EDMONDS (Associate Whip—Labour): I move, That the question be now put.

Hon David Bennett: He didn’t answer the—I’ve got a supplementary question.

CHAIRPERSON (Adrian Rurawhe): No, I haven’t called you yet, Mr Bennett. Who wants the call?

DAMIEN SMITH (ACT): Thank you very much. I just wanted to get specific with accruals and the impacts of this tax policy going forward. As we’re faced with a situation where it’s in urgency, there’s going to be no ability for public scrutiny. There’s going to be no ability to get this through a select committee to actually analyse it properly and provide some rationale to the people of New Zealand about why this is actually better than the status quo.

But I just have a couple of specific questions—it’ll be a short call. We know that house prices have risen rapidly over the first brightline test and risen even more rapidly in the last five years, and now it’s going to 10 years. So what’s actually going to be the accrual difference between five years and 10 years? What are we expecting from the tax take? What are we expecting in behaviour and what’s wrong with the status quo?

Hon DAVID PARKER (Minister of Revenue): If that’s a question as to how many additional properties are likely to be caught with the change to the brightline test, we can’t be absolutely clear because investor behaviour may change as a consequence of the new tax rules, and, indeed, for some people, it will. But the proportion of properties that are generally sold within various time frames are set out, I think, in the documents that are already on the Table.

ANDREW BAYLY (National—Port Waikato): Thank you, Mr Chair. I just want to return to an earlier response I had from the Minister, the Hon David Parker, and I am appreciative he is answering the questions. The first one, I suggested to him that by passing this bill through in urgency without going through the proper consultation process is the wrong thing to do, for a number of reasons, but, principally, one is that people have already acquired property under a certain framework, a certain understanding, and here we have the Government effectively coming over the top of it and unilaterally changing the rules at the stroke of a pen within—whether we pass this bill tonight or tomorrow, but the Government will ram through this bill which will change the rights of ordinary New Zealanders who happen to own rental properties. One is that it gives rise to the issue of democracy, but it also gives rise to the issue of protection of existing rights. Of course, this bill, and passing it in urgency, just rules a steamroller straight through the middle of that and says, “We don’t care, we’re going to do it anyway.”

My view is that, actually, if there was some time taken to actually pass this bill and give it due consideration—and I’ve got a whole lot of technical issues that I haven’t even got to yet, on how this bill might operate. But, if there was the time taken to allow people to consider it and get some proper advice—and I know Treasury and the IRD have got differing views on certain aspects of it, which we haven’t even got to, but clearly they haven’t had time to do the full, proper analysis of it—then one of the things is I think actually it would lead to a better outcome, if you were seeking to stabilise house prices, which I think everyone is seeking to achieve. We don’t want to see a drop, but we do want to see a stabilisation of price inflation.

The Minister made the point that, by ramming it through, what it will do is stop people going out and buying investment properties. I actually think it’ll be the reverse. I think that if people had maybe three months, or maybe a year even, to have a look at the new rules, know that they’re going to be meeting a 10-year test, know that they’re going to be losing their interest deductibility, actually some investors—and when I say the word “investors” we’re talking about ordinary mums and dads who happen to have, and by far the majority have only one house and rental property; they might take a different view, and they would take a considered view, and we would see properties maybe being released that possibly could be bought by first-home buyers, whatever the case might be.

The Minister made the comment before that he thought by ramming this through, it will stop people, investors, jumping into the market. But by saying that, what you’re saying is investors are going to look at this piece of legislation, when it’s passed, and say, “Woo! Great thing. I am going to now have to hold the property for 10 years, because if I don’t, I’m going to have to pay capital gains tax on it. And secondly, I’ve just lost my interest deductibility. So the ongoing profit round my rental that I was looking at and factored into my equation, I’m going to lose it. And that’s a bad thing, but that’s going to make me want to buy this property.”

So I just think that it’s a pretty absurd proposition to say, “The reason we’re going to put this through in urgency is we’re going to stop new people getting into the market.” Actually, I think we should be trying to allow people to exit in an orderly way and manage their affairs. So my first question to the Minister is: has he got any evidence to back up this claim that it should be rammed through in urgency? That’s my first bit. Actually, I’m going to leave it there. I’ll come back on another matter shortly.

Dr DEBORAH RUSSELL (Labour—New Lynn): Mr Chair, we’ve traversed in great detail many of the issues around the brightline test, and there are number of other issues in the Supplementary Order Paper which I think it would be good to devote some attention to across the Chamber. I particularly would like to look at the loss continuity rules, which are of course of considerable benefit to businesses, and they do change loss continuity rules which have been quite substantially based around a very tight percentage of shareholding test, so it’s a very tight numerical rule. Of course, that is then quite easily controlled. So we’re moving from that very tight control on which entities may carry forward a loss and claim the tax benefit of it to a wider test on a continuity of business test. It’s a new test, it’s a different test, there has to be no major change in the company’s business. I would just like to invite the Minister to talk a little bit about what that major change might look like, the sort of business changes that would fall below and above the bar in order to effectively carry forward tax losses.

Hon DAVID PARKER (Minister of Revenue): Thank you to Deborah Russell for that question. It is a significant change and, from memory, I think the cost to the Crown is $60 million of this change, because there will be more losses able to be carried forward that were previously forgone. The theory behind it is that, in order to protect tax losses, some companies are not accessing capital that they need to grow and to employ more people, even though the nature of their business is not changing. They’re caught currently by the numerical rules as to maintenance of a certain proportion of existing shareholders. If it’s disrupted by more than a set percentage, then you can’t carry the tax losses forward. If they haven’t got the capital themselves, and they’re reliant on new sources of capital from new shareholders, they’ve got to choose between losing their tax losses and taking that additional capital, even though they need the new capital. So we’re trying to encourage that and the development of the economy, and extra jobs and extra economic activity, by allowing a less numeric approach, which, as the member has properly identified, is assessing whether the nature of the business is changing rather than a numerical change in shareholding.

There is a risk that we could go back to the bad old days, where there were a lot of transactions which were motivated by people taking advantage of historic losses and changing the nature of the business to take advantage of the tax loss rather than to capitalise the business that was already going on, and Inland Revenue is alert to those risks and has already signalled to the taxpaying community, and the advisers of that tax community, if that proves to be a problem in practice and that we see a return to loss-trading which is not for the benefit of growing the existing business of the company, then they’ll look at tightening up the rules.

Hon PAUL GOLDSMITH (National): Thank you, Mr Chair, and I want to talk about two things in relation to this part. One is the question of broken promises, and the second is the consequences. That Minister, David Parker, who was just standing up of course is on the record wanting a capital gains tax. He’s always advocated for it and wanted it and thought it was the best thing for New Zealand. He was part of a party that lost two election campaigns on it. During the previous election campaign, his successor, Grant Robertson, promised black and blue there would be no further tax changes beyond the increase in income tax for people earning over $180,000 and some potential petrol tax increases. So what do we find here? We find here in this piece of legislation a significant extension of the brightline test. Yes, National introduced the brightline test for two years to deal with the specific issue of people flicking properties and wanting to clarify the law in that relation. This extension to 10 years is unquestionably a significant tax change, and an expansion into a capital gains tax, in effect. Then we have, also, a separate significant change in not allowing the deduction of interest payments for rental properties.

So it’s always been said that in the third term of a Government arrogance seeps in, and what we’re seeing in this Government is a quickening of that electoral cycle so that in only the first year of the second term this Government is showing overweening arrogance and breaking promises left, right, and centre. A couple of weeks ago we had that over the Māori wards, where there was a clear promise to give local people a say on matters affecting them, and then that was broken with the legislation that was rammed through in urgency. And now, two weeks later, we’re back in the committee, again under urgency, breaking another promise that was brought through in the election. So I suppose I have to ask the Minister how on earth he thinks that New Zealanders will be able to believe anything that this Government says if they’re in the habit of breaking promises.

The second thing I wanted to raise was the question of the outcome of this legislation, because it’s my experience that about 50 percent of the laws passed in this Parliament achieve the exact opposite of what they set out to achieve, and that is because the world is very complicated and it’s hard to predict what the consequences of the legislation are, particularly in matters relating to tax law. So that is why the general process is to spend a lot of time in a formulaic and laid out manner consulting with those people who deal with this day in, day out and understand the nuances of what’s going on, so as to reduce the odds of the legislation bringing the exact opposite effect to what we want. We’re not doing that. What we’re doing is we’re ramming this through under urgency.

So what will be the consequences of significantly reducing the returns to landlords for properties that they own? It’s quite possible, it seems to me, that, in conjunction with a whole lot of other things that have happened in the rental property space, this will lead to higher rents, and that will make it more difficult for New Zealanders to have access to affordable housing. It will make it more difficult for families and their children to be able to get by.

We’ve heard a lot about this Government’s intentions around reducing poverty, and they’re going backwards at a rate of knots in so many measures, primarily because of the cost of housing and primarily because of the cost of rental housing. This legislation, it seems to me, may well compound that problem—in fact, make it considerably worse—given the fact, and the Prime Minister has admitted, that the officials don’t really have a clear sense of what the consequences will be for rents. They don’t know, and so we’re going to take a bit of a plunge here, but we do know that there’s been about half a dozen things passed over the last couple of years adding costs to landlords, and they have flowed through to rents. We do know that it’s made it much more difficult for landlords to deal with unruly tenants, and that has quite naturally led to some people getting out of the industry, and that has compounded the shortage of supply. And we know that it’s difficult to magic up a whole lot of new houses, and so, in a period of constrained supply, the most natural thing is that the prices will go up. And so what we have here is broken promises and the risk of higher rents.

ANDREW BAYLY (National—Port Waikato): Yes, so I think the points raised by my honourable colleague Paul Goldsmith were very pertinent. I think the answer actually is in Treasury documents, Mr Goldsmith, which really talk about the impact on house prices and rentals. I know the Minister was shortly just about to jump up and highlight this, but it was pretty clear what Treasury’s advice was, wasn’t it? It talks about considerable uncertainty about the magnitude of the impact on rents. It talks about the disproportionate effect on low-income households, young people, Māori, and Pasifika peoples.

Of course, I’m also looking at the IRD view, and they were very clear about their advice. Inland Revenue recommended against both extending the brightline tests and denying interest deductibility. So I think Mr Goldsmith’s points are actually very valid. Minister, and I’d like to get your views on that and why you think both Treasury and the IRD are wrong in their assertion or their view around the impact this will have, particularly on rentals and rental prices, but also on the price of houses going forward, because both of those are covered.

I’m just conscious of the time up there, Mr Chair. I want to return to a comment and a line of questioning that the Hon Gerry Brownlee was raising before, which hopefully we can do quite briefly. This is the issue around new builds. I understand the answer that the Minister said, that if you’re in the business of building houses, if you’re a trader, you will pay capital gains tax on those returns—you will pay tax on the capital gain of those businesses.

After dinner, you and I, Minister, can have a lovely conversation about the difference between income tax and capital gains tax, I’m sure. But the issue is, I want to specifically ask about this exemption—because it’s unclear what it means—around if someone builds a house, they will only be subject to the five-year brightline test, as opposed to going into the new regime of 10-year brightline tests. So my question is (a), I don’t understand how that provision works, but, secondly, if you were really genuine about trying to get people to build new houses, then you would allow them to build the house and sell that property so it goes onto the open market, so we can get first-home buyers into that property investment, get them on the ladder. What we’ve done here is continued to put a barrier in terms of (a), whether people want to build a new house, because if they do, they know they will be captured still by the five-year brightline. Why didn’t you get rid of it? Why is it even at five years? Why didn’t you address that issue? If you’re really committed to seeing new builds, which, in the main—most new builds are undertaken by small building firms, individuals, and mum and dad investors thinking that they can do something and actually create homes for future people to live in.

BARBARA EDMONDS (Associate Whip—Labour): I move, That the question be now put.

Hon MICHAEL WOODHOUSE (National): I am a bit surprised by that, and I should point out to the committee that we haven’t even started debating the substantive issues that are in Part 2 of the bill as they were introduced to the House and considered by the select committee. So if the Labour Party believe that this is a conversation that they want to vote on now, they might have to prepare for a long evening.

There is a considerable amount of information and changes in Part 2 of the bill on feasibility expenditure, on the GST on global roaming, and on the purchase price allocation methodology changes. We haven’t even got there yet, so we will have a raft of questions for the Minister on those technical changes and we’ve got a long way to go. I just want to point out that I have tabled an amendment in my name, amending the bill at Part 2 to delete the provisions that relate to global roaming—

CHAIRPERSON (Adrian Rurawhe): Sorry to interrupt the member. Members, in accordance with the decision of the Business Committee, for Nicola Grigg and Simon Watts to make their maiden statements, I suspend the committee of the whole for the Speaker to resume the Chair.

House resumed.

Maiden Statements

Maiden Statements

NICOLA GRIGG (National—Selwyn): E te Whare e tū nei, e ngā rau rangatira ma, tēnei tāku mihi atu ki a koutou. Tēnā koutou katoa. I’m thrilled to stand here before this House today, elected by the people of Selwyn in this 53rd Parliament. May I begin by acknowledging them and the National Party members across Selwyn for the generosity they’ve shown me in my journey from candidate to member of Parliament. I acknowledge my National Party friends and colleagues, particularly our leaders, Judith Collins, Dr Shane Reti. I’d particularly like to single out and thank Gerry Brownlee for the unfailing friendship, generosity, and guidance that you’ve shown me over many years. It’s due to your faith in me, Gerry, that I’m here today.

A huge and heartfelt thankyou to my campaign team: James Christmas, Major James Russell, Tait Dench, Bernard Duncan, Murray Smith, and Ben Smith. I’d like to pay particular acknowledgment to my campaign chair and very dear friend, James Christmas. He’s been named in this House by at least two Prime Ministers and an Attorney-General as one of this country’s greatest legal and political minds, yet he is the kind of friend who will deliver pamphlets in a blizzard, babysit your kitten, and turn up with a bottle of chard at the drop of a hat. James, every day I count my blessings for having you in my life.

I’d also like to pay tribute to my former boss the Rt Hon Sir Bill English, who I had the enormous privilege of working for as a press secretary from 2015 until 2018 when he retired. Not long after I was selected by the National Party, Bill rang me—I thought “What do I do now?”—and he said, “Just be yourself. Let the world see the real Nicola Grigg.” I will always be grateful for the opportunities I was given working in Bill’s office.

Above all, thank you to my friends and family for the love and support that you’ve gifted me throughout my life, particularly in the last year. Mum, Dad, Gemma, Amanda, Arthur, you’ve stood by me through thick and thin. The strength and stability of our family is what guides me and what grounds me. Thank you.

From the mighty Rakaia River in the south, to Darfield, Sheffield, and Arthur’s Pass in the west, picturesque Tai Tapu, Prebbleton, and Lincoln in the east and booming towns like Rolleston at its core, Selwyn represents everything that is so special about New Zealand. We are a region full of ambitious go-getters. Ours is an economy founded in agriculture and food production, well served, might I add, by the infrastructure investment of the previous National Government. Selwyn is powering New Zealand’s economy. We’re a region full of young families and immigrants, innovators and entrepreneurs, a place where people simply want to get on with the job of fulfilling their destinies without the spectre of Government breathing down their necks, and they do so admirably. We have one of the lowest rates of unemployment in the country, one of the strongest local economies, and we’re one of the fastest-growing territorial authorities in New Zealand. Selwyn is an exemplar to the rest of the country.

Any newly elected MP for Selwyn will be acutely aware of the expectations set by those who have gone before her. I follow in the footsteps of great New Zealanders like my own forebear, Sir John Hall, Premier of New Zealand at a difficult time in our history, and who later devoted himself to the cause of universal suffrage; and our first female Prime Minister, Dame Jenny Shipley. Dame Jenny is a trailblazer for women in politics. She broke the glass ceiling for the top job in New Zealand. My friend Ruth Richardson is another trailblazer and change agent. Ruth has taught me what having courage of one’s convictions really looks like and how making great change takes great heart. Sir David Carter, a former Speaker of the House, is a long-time source of wisdom and advice to this rookie MP. My immediate predecessor, Amy Adams, served Selwyn for 12 years and was so widely regarded and respected, and made an historic contribution to New Zealand as a Minister of Justice.

There’s another person I want to pay tribute to today: Sir John Hall’s granddaughter, my great-grandmother and National’s first female MP, Mary Grigg. Mary was elected to the mid-Canterbury seat held by her husband, my great-grandfather Arthur, who was killed in action in Libya in 1941. As a total aside and nothing more than evidence of what a small world we live in, our very own Sir Jim McLay’s father was in the field hospital with Arthur when he died. Thank you to Sir Jim for passing your father’s memories onto our family.

Almost 80 years ago this newly widowed mother of three stood in this very Chamber hammering the Fraser Government on some of the very issues that have led me here—farming, rural communities, and women. She spoke fiercely and with deep conviction. In her first eight weeks in the House, she bombarded Ministers with questions on anything from wheat growing, police uniforms for women, maternity benefits, occupational therapy, the need for more radio broadcasts in te reo Māori, car registration, and even the lack of lemons available in Canterbury. She was formidable. In her maiden statement she said: “I was told when I was coming into the House that it was a waste of time to look for common sense in Parliament. I am still hoping to find that is not true.”, and my own personal favourite, “I know I am going to get myself in dreadful hot water, but I should like to say quite honestly that the Cabinet is the cause of weakness and a lack of confidence. No one, even when the Cabinet was originally formed, would have claimed that it was a galaxy of all the talents.” Some might call that 78-year-old prophesy, but I wouldn’t be that ungracious. I can only imagine what she would have made of her eldest great-grandchild standing here today, the 157th woman to enter Parliament. I promise that I will try to bring the same energy to my work in this House as she did, and I too will be looking for more common sense.

I walked out of the parliamentary precinct in December last year, just weeks after arriving, a bundle of nerves, self-doubt, and with a well-advanced case of imposter syndrome. I was quite sure I wasn’t going to be able to handle the hours, the workload, the pressures, the expectations of the role, and, frankly, I dreaded returning. Since then, though, I’ve spent the summer reading American psychologist and researcher Dr Brené Brown. Her book, Daring Greatly, is inspired by Theodore Roosevelt’s “Man in the Arena” speech at the Sorbonne in 1910. In it, he said this: “It’s not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes up short again and again, who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly.”

It is nerve-wracking and uncomfortable entering the political arena and the public eye. But now we’re in that arena, we cannot be afraid to take risks, make unpopular decisions, confront big issues—and sometimes fail—with all the backlash and embarrassment that might come with that. Any holder of public office must dare greatly, and now more so than ever.

This is a place that will make you question everything you ever knew or thought you knew about yourself. You must know your “why”. My why? I am the daughter of six generations of Griggs who have farmed in mid-Canterbury since 1864. I come to this House wanting to represent and improve outcomes for rural New Zealand, particularly rural women and families. Campaigning in Selwyn last year, I saw for myself the very real fear and anxiety that farmers across my electorate feel when slapped with whatever new arbitrary regulation or restriction is handed down to them on any given day by Ministers and their officials. I want us to reject ideology and blame in favour of a relentless focus on science and fact. I want us to choose constructive dialogue over condemnation. It’s my hope that one day, New Zealanders will once again appreciate and, in fact, be proud of our farmers and the contribution that we make to an innovative, thriving, sustainable economy and environment. That is my “why”.

I challenge the Government on the paradoxical approach that it’s taking—on one hand, charging the primary production sector with doubling its export earnings in the next 10 years, while on the other hamstringing farmers and growers with regulations that leave them with little choice but to de-stock. How can productivity possibly increase on those terms? Selwyn is home to some of the country’s leading agritech and agriscience innovators. We have Lincoln University, Lincoln Agritech, AgResearch, Manaaki Whenua—Landcare Research, Plant & Food Research, Ngāi Tahu Farming, Lincoln University Dairy Farms. So given Selwyn, with its university, agresearch centres and incubators, is the epicentre of New Zealand’s agritech and innovation, one would have thought that our producers would meet requirements more easily than most. That they can’t, says to me the Government has it wrong.

Have no doubt: New Zealand’s success in the coming decade is going to be powered by our farmers. We are already world leaders in the clean and efficient production of protein and dairy, and the home-grown science and technology coming out of my community is cutting edge. We need to encourage it and help export it. Sir John Key always used to say we won’t get rich selling to ourselves. Our economic growth must be export-led, and that includes the export of innovation. So let’s dare to build an export empire of intellectual property. Let’s sell to the world our clean tech and our green tech. The economic and social impact of the pandemic means we must dare to make some difficult decisions in the next decade. But first, let’s dare to stop deceiving ourselves that Governments can find solutions to every problem, or that throwing public money at a problem will make it go away.

Anyone who talks to people in Selwyn will soon realise that, as often as not, Governments cause as many problems as they seek to resolve. The thing the public most wants from its Government is competence. When it does regulate, or when this House legislates, we should be drawing on the expertise already out there on the ground. If a Government truly wants to make it easier to earn a living, to address environmental problems, or to increase our exports, it needs to listen. As my old boss Sir Bill used to say, nobody has a monopoly on good ideas, and politicians most certainly do not.

Let’s dare to innovate. Now, I know innovation is a popular buzzword around here, but we in this Chamber cannot innovate on people’s behalf. We can, however, provide the conditions for investment, invention, development, and science. Our capacity to innovate begins in our education system. Every child in New Zealand should leave school knowing that he or she can imagine something, create something, build something, develop something, dream something. Innovation will require us to stop this close-minded mentality where we shut ourselves off from foreign investors and foreign capital. We must open our borders and open ourselves up to the world again. We need trade, we need investment, we need immigration, and we need the growth that these will bring. We need to go all out to attract the best and brightest from other countries to come here and make a contribution to New Zealand. This “fortress New Zealand” mentality will only continue to mire us in mediocrity, and it must stop. Mediocrity is the virus that we should be protecting our country against.

Speaking of innovation and innovators, people who aren’t afraid to push boundaries and do things differently, I am proud that the rūnanga of Selwyn is none other than the mighty Ngāi Tahu. Twenty years ago, Tā Tīpene O’Regan and others dared greatly. They showed vision and fortitude and, in my opinion, set the bar for iwi across Aotearoa as to what intergenerational investment should look like. This House should remember that 2040—just under 20 years away—will mark 200 years since the signing of Te Tiriti o Waitangi. We should all be looking to that milestone with a view of achieving a fair and equitable society. We should ask ourselves: how do we weave our past, our present, and our future together? So I acknowledge Ngāi Tahu as tangata whenua of Selwyn. I look forward to our upcoming kōrero and a future working together.

My mother is a St Hill-Warren of Porangahau in Hawke’s Bay. Her family worked side by side with local iwi, and one of her aunts eventually married into the Mohi whānau. As a result, I count Ngāti Kahungunu as my cousins. This kahu kiwi—her name is Piata—I wear today was gifted to our family by a wahine rangatira of Ngāti Kere, Ngāti Hinetewai, and Ngāti Pihere of Porangahau in around 1854. I wear it as a mantle to remind me to be fair, equitable, and just—as my forebears were—in all that I bring to this office.

I am a member of the National Party because I believe our principles will put New Zealand in the best position to both meet the challenges and capitalise on the opportunities of the coming decade. I am a member of the National Party because I draw my convictions—my political principles—from the reform and liberal traditions from which the party was founded. I am a member of the National Party because I know that we are not afraid to dare to confront the big challenges. I am proud to join a caucus that I know will dare greatly—to ask the hard questions of itself, to rebuild and repurpose to reflect the ambitions and demands of a modern, multicultural, forward-looking New Zealand in the years to come.

Today, I step into the arena. I enter this Chamber with the firmly held belief that those of us in public office have a responsibility to show up—to bring our whole selves and our whole hearts—and lean into the tough conversations and the big issues. We should not play it safe, but we should dare to make decisions and do the things that mean we will sometimes err and we will sometimes come up short. We must dare greatly, and I will try to do that every day the people of Selwyn send me here. Thank you.

[Applause]

SPEAKER: I think, from looking upstairs, it looks like there might be a changing of the guard in the gallery. Could the people who’ve been here for Ms Grigg’s speech please leave now, and it will allow those for the next speech to come in. Thank you. If people want to stay, they can come into the Speaker’s gallery. I can’t see any security people up there, but can you let people in, please? Thank you. I call on Simon Watts to make his maiden statement.

SIMON WATTS (National—North Shore): I look forward to my first term in New Zealand’s 53rd Parliament. It is with a sense of humility and awe that I address this House, but it is also with a sense of continuity. I’m keen to pay tribute to my predecessors who have represented Auckland’s North Shore with distinction, the Hon Maggie Barry and the Hon Wayne Mapp. Thank you for all of the support that you have shown me—support, I’m glad to say and honoured to say, that was echoed around the North Shore.

Thanks also to the people of my electorate for the faith that you have placed in me. Without your support, I would not be here today. I see that many of the North Shore team have made their trip down here today. I want to especially acknowledge David, Andrew, Gary, Azita, Judith, Logan, and Bradley. The significant contribution that you made to my campaign is greatly appreciated. I also want to thank the many volunteers who got me here today, members of the North Shore National Party and my friends, who ensured that a candidate campaigning in his first election was always supported. You matched my determination to reach out to everyone who lives on the shore with enthusiasm and agility. Because of you, our campaign benefited from fresh perspectives, and because of your efforts, we enrolled voters across the political spectrum in conversations about things that matter, no matter and regardless of the political party they would typically vote for. You helped to achieve this because you understood that there is a new expectation in this country. New Zealand needs leadership that enrols all of our energies to tackle the tasks facing us. Challenging times demand more than ever that we work together in the interests of all New Zealanders.

When we campaigned on the shore to clean up our beaches now, not in a couple of years, I knew that there were the people on the left, on the right, and in the centre who agreed. They may not have all voted for me, but right now they are demanding action, and quite rightly so. When I stood up in town hall meetings to say that traffic-clogged roads are a nightmare for commuters and the environment, I knew there were people who had never voted National before who nevertheless agreed that we need more ferry services and expansion, not cutbacks. The Harbour Bridge is the bane of the lives of everyone who lives on the shore. The lack of a second Waitematā Harbour crossing stifles business and chews up time that none of us can afford to waste, regardless of where our political loyalties lie.

So I congratulate the volunteers who worked with me to get the important stuff in front of the people, as did the volunteers who supported candidates from all parties across New Zealand. Whatever your politics, you brought a passionate commitment for our democracy, the ideals that make this country exceptional, and I thank you for that. It was certainly an election like no other, and I thank our president, Peter Goodfellow; regional chairs; party office holders; and staff, who rose to the challenge. I especially want to acknowledge the fortitude and tireless commitment of our leader, the Hon Judith Collins.

In fact, there are so many great people who should be thanked for me being here today. So I’m going to acknowledge them by sharing how they and the experiences they provided me informed my opinions and enriched my understanding of the world. I grew up in a typical rural family with parents who had a healthy respect for the benefits of hard work and a genuine love of the land that provided for us. I remember the time well when my two brothers, Tim and Paul, and I sold wind-fallen apples at our farm gate to finance a family holiday, and we roped in our cousins to help, too. You know, kids can achieve a lot with the right encouragement and support. Thanks, Mum and Dad. You are great role models.

I knew then, as I do now, that I am very lucky, and as a member of this Parliament, I am acutely aware that too many children throughout this country and in my own electorate don’t have the advantages I enjoyed. That knowledge stands beside me today. As an ambulance officer for St John, I’ve been into homes with black mould on the walls, treated children with breathing problems in overcrowded housing, self-harm due to mental health, and I’ve been on the roadside with colleagues as we tried to save the life of yet another person blighted by drugs and crime.

When I decided to complete a Bachelor of Health Science in paramedicine and become a paramedic, I wanted to make a difference, but having spent much of my adult life in banking and in finance, I quickly saw that the system wasn’t working. To deliver change, real change, I’d have to apply all of my skills and experience to the challenge. I set my sights on pushing the health system from within. I became the deputy chief financial officer for one of the country’s largest district health boards while still volunteering on the ambulance after hours. Working simultaneously at both ends of the system opened my eyes to the importance of a bold vision, coordinated approach, and action, not talk. Health and education can’t be siloed from our country’s economic performance, our strategy for affordable housing, or the importance of providing a self-worth for our citizens. It’s all linked, and these challenges need action to sort out not only just the symptoms but the root cause of these issues.

I was diagnosed as a type 1 diabetic at the age of 21 months old. I’ve had a lifetime association with a system that is blessed with passionate professionals yet plagued by broken decision-making. It is time to fix that. We must fix that. We have the people; we undoubtedly have the resources. We must put individuals, families, and communities at the heart of decision making, not existing government structures and ways of doing things.

When I graduated from the University of Waikato with a Bachelor of Management Studies, I, like many New Zealanders, headed overseas to broaden my mind and to gain new experiences. My accounting and finance majors inevitably lead me into banking with stints in Canada and Ireland before moving to London. My OE coincided with the 2008 GFC. At the time, I had a senior role in one of the world’s largest investment banks, and that experience is with me today. I saw that people in glass towers can be heroes too. They can work around the clock to save the livelihoods of people they’ve never met. They can shoulder the responsibility to find a way through an economic calamity that seems without end. The people I worked with through the GFC brought agility to new challenges, insight to complex issues, and bestowed a valuable education on a business graduate from the Waikato.

The importance of decisive, informed decision-making was hammered home to me then, and that experience is with me now. And that experience resonates with the economic challenges that I see in my electorate and as a country as a whole, as we seek a path beyond COVID. An economic rebound that leaves the most disadvantaged behind and that locks young people out of work and homeownership is a mirage. It might look good in the business pages, but if it fails where it counts, in our homes and in our communities, then it’s not worth the paper it’s written on.

Right now, we’ve got a housing crisis in New Zealand, and yet there’s plenty of land to build on. Why can’t Government, in partnership with iwi, community groups, and the private sector, build and supply superbly designed and built homes that people are proud to live in? All that is lacking is our willingness to look beyond what we’ve always done and act.

In world terms we are a young country. And we are blessed with enviable resources and creative people. There is no excuse for a lack of vision. My friends and colleagues will tell you that I have little appetite for bureaucracy, excuses, and time wasters. I want action backed by decisive, informed decision-making. How do we build an economy that empowers everyone to be all that they can be? An economy that shares the opportunities it is creating? How do we get a health and education system that is eliminating waste so that we can ensure those resources are channelled to the people who are making a difference? The answers and leadership will come from our communities, our entrepreneurs, our workers, and, yes, our Government. So that everyone in this country can get on with making their lives better. It is no secret that I believe in limited government, but limited doesn’t mean being constrained in our vision. It means having a laser focus on the stuff Government is meant to be doing. The stuff only Government can do: regulate, legislate, investigate, but also cajole, inspire, and lead.

Sitting on these benches isn’t an opportunity to indulge in our particular and individual interests. Being in Government is about getting the important stuff done and not being distracted from that task. Many, many people throughout this country are capable of making their own decisions. What they want from us is action on the things they can’t influence. Limited government creates laws; it builds frameworks and structures of better governance to support our communities; it is focused on the incentives that will enable the private sector to thrive and generate jobs; and it takes a leadership role on protecting our environment.

A better Government will focus on a bold, long-term infrastructure plan, ensuring Government spending is not wasteful, spelling out the returns to a nation of that investment, creating an environment that encourages local and foreign investment and ensures incentives align with the outcomes we want as a country. Let’s take on these challenges with the vision and teamwork to drive positive change beyond the next election. Our lives are not governed by three-year intervals, so why is our decision making? New Zealanders expect more of this House than that. We need to put in place the ideas today that will guide this country to 2040, not 2024.

It is our responsibility to define a clear road map for New Zealand, and to put in place the measures that will ensure all Kiwis will get there. Being part of a Parliament that’s going to define this road map for our country and act on it is why we are here. All of the people and experiences that informed us on our various paths to these benches in this Chamber are here in this Chamber with us. We owe it to them.

I owe it to my two young boys, Jack and Callum, and to my lovely wife, Shannon. I’m incredibly grateful that they have supported me in my decision to enter Parliament, but they want to see results. There has to be a reason why I spend half the week away from my family in Wellington. We have to deliver outcomes that will resonate beyond this Chamber and continue to resonate for the generations to follow.

I want to finish with a vision mentioned only a few years ago about New Zealand becoming a technology and innovation centre. I’m sure in this Chamber today that there will be members who consider that prediction a fantasy. But is it really so unreal to believe that our future is going to be exceptional? Or is it simply that we don’t have the confidence to go for it? Look at the ideas and innovation created in this country, just as the rest of the world is struggling. See farmers working flat out, factories producing valuable goods, and people from around the world are hammering on our doors to get into a country they know is exceptional even though we don’t sometimes quite believe it. Complacency will condemn us, as will the future generations, if we don’t take this opportunity to lift up this country with both hands. Fellow parliamentarians, let’s make it happen. I thank the people of New Zealand for this opportunity. I am proud—so very, very proud—to be the National member of Parliament for North Shore. Tēnā koutou, tēnā koutou, tēnā koutou katoa.

[Applause]

SPEAKER: Members, there has been permission granted for a waiata. At the conclusion of the waita the House will be suspended until 7 o’clock tonight when it will resume in committee.

Waiata

SPEAKER: Now pakipaki.

[Applause]

Sitting suspended from 6.09 p.m. to 7 p.m.

Bills

Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill

In Committee

Debate resumed.

Part 2 Amendments to Income Tax Act 2007 (continued)

CHAIRPERSON (Adrian Rurawhe): Tēnā rā tātou katoa e te Whare. Members, the House is in committee on the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill. The question the committee has been considering is that Part 2 stand part. The Hon Michael Woodhouse had the call and has four minutes remaining.

Hon MICHAEL WOODHOUSE (National): Thank you, Mr Chair, and can I begin, firstly, by apologising to the committee of the whole House. In the start of this intervention, prior to the maiden statements, I was referring to my tabled amendment to GST provisions, and I realise that actually that is in Part 3, so I will pause my comments around GST on global roaming charges until we get to the appropriate part of the debate.

But my central point remains: my surprise and disappointment that Labour members would seek a closure motion on a part of the substantive matters in which we haven’t even commenced debating. We have spent a considerable amount of time on new additions to Part 2—that is, the Government’s announced brightline tests—and that’s as it should be.

Hon Scott Simpson: So how’s that democratic?

Hon MICHAEL WOODHOUSE: Well, that’s a very good question, Mr Simpson: “Not very.” would be my answer, given that the changes were signalled at 9 o’clock this morning and in urgency, without any sort of—

Hon Scott Simpson: No public notice.

Hon MICHAEL WOODHOUSE: —of public notice, public submissions on this, and no apparent communication or consultation with the tax community, we are going to be ramming this through under urgency. But there is going to be a broader debate, I think, now, not only on the Supplementary Order Paper but on the substantive issues that have been considered by the Finance and Expenditure Committee and by submitters, and I want to start by referring to the amendments to new sections GC 20 and GC 21 of the Income Tax Act, set out in clause 40, that of purchase price allocations.

This was, when it came in to the committee, quite a punitive change where, should there not be agreement on the allocation of purchase and sale price between the vendor and the purchaser, then, effectively, the tax department had the right to, effectively, rule out and consider at nil value the purchase price, essentially removing the deductibility of the expenditure—probably depreciable expenditure so it would be depreciation deductions over time. And rightly so, the committee recommended, and the Government’s agreed, that that wouldn’t be a permanent change and that the bill, as it now is, that we’re considering—completely rewrote those clauses to include the fact that it could be treated as nil until the purchaser and the vendor came to some agreement. So if the deduction was disallowed in one year, it could still be deducted in the future once that agreement was reached. I think that’s appropriate.

What still confuses me, though, is the degree of breach of that clause, because it has in one particular issue an exception to subsection (6)(c) of new section GC 21. New section GC 21(11) states it doesn’t apply to “an item of purchased property that is an item of depreciable property, if—(a) the original cost of the item for person A is less than $10,000; and (b) the total allocated amount for the item and for any identical property is less than $1 million;”. Now, “depreciable property” excludes, in the definition, buildings, effectively. The previous Government has ruled out the depreciation expense as a tax deduction. And so, effectively, if I understand this correctly—and I’d just like the Minister to clarify this—regardless of the perception of an exclusion, a carve-out for property valued at less than $1 million, that isn’t going to include any property whatsoever. I just want to make sure I have that understanding of the section accurate.

NICOLA WILLIS (National): I wish to speak to a very specific part of the bill in front of us, and I do so in the context that this is a bill that explicitly breaks an election promise. Members on the other side of the House need to remember that they told New Zealanders they would not introduce a capital gains tax on residential property, and, tonight in this House, that is what you are voting—they are voting to do, not you, Mr Chair, I apologise. Although—yes. So that is what is happening here. This is an explicit breaking of a pre-election commitment, and it’s in that context that I want to ask the Minister about exactly what he’s up to with the tricky amendments in this bill around main home exclusion.

It has been an agreed principle across the Labour and National Parties that the main home that someone resides in should never be subject to a capital gains tax. The only circumstances in which it has ever been the case that someone’s home that they live in would be subject to a brightline test is where they are engaging in regular transactional activities in order to make speculative gains from selling property. But what we see in this bill tonight is a step further—now we’re seeing that that exclusion for main homes is not as it used to be; instead, if people are no longer living in their home for a period of more than 12 months, then their home is instantly eligible to be affected by the brightline test. Now, this is significant because it is not uncommon for people—for example, for work—to need to move to another city for a period of time and not to live in their main home. There are many New Zealanders.

Let us take the case study of an Aucklander who’s offered a wonderful job in the ever-growing Public Service in Wellington, a secondment. They choose that they want to keep their family home in Auckland—to which they plan to return one day—and they say, “Right, I’m going to go down to Wellington and I’m just going to rent a property in Wellington, but I’m going to rent that for the duration of two years”. The way I read the rules that are being introduced by the Minister and by Labour tonight, is that if you chose not to live in your main home for a period of more than 12 months, then you would instantly face a brightline capital gains tax on your main home if you sold it within the 10-year period.

So I invite the Minister to address that, because if that is the case then I believe that is the second breach of an electoral promise in this bill tonight, because it is making people’s family homes subject to a capital gains tax against the many promises that Labour have made in this area. And if it is not that, Minister, then I want to understand why you’re doing these tricky changes tonight. Why is it that, having had a tax bill that went through all of the stages of a select committee—all of the examination, all of the submissions—that specifically included reference to the way the main home exclusion was working. In clause 5 we had put some detailed changes through and they had been amended at committee. Why is it that you’ve chosen to overrule those and put in a new series of amendments in your Supplementary Order Paper? What is it exactly that you’re after if not more revenue from capital gains, this time going after people’s family homes? So I think that matter needs to be addressed and we need clarity about the basis on which this is happening. I accept that the part does propose a buffer, but the buffer is only for 12 months, and it is not uncommon for people to have one family home, which they live outside of for more than a 12-month period, and I don’t think that in those circumstances a reasonable person would expect that they should face a capital gains tax for later sale.

I will, in future contributions, also look at this issue of the treatment of short-stay accommodation, because there is a similar issue here. This is potentially a new class of taxation on a type of accommodation that has been fairly common in New Zealand—that is, people renting their property for the purpose of Airbnb or short-term rental—and, again, Labour did not signal, at any stage in the election campaign and it had not been signalled at any stage during the earlier debate of this bill, that people with short-stay accommodation would be facing additional capital gains taxes. So in the same way that I ask why their amendments to the main home exclusion, I invite the Minister to give us a bit more information about exactly why these amendments to the treatment of short-stay accommodation are required and included in this bill.

Hon DAVID PARKER (Minister of Revenue): In respect of the short-stay accommodation, I did address that earlier—I’m not sure whether the member heard it—so I won’t go through that again. In respect of the other issue, I will seek advice from officials and get back to you. In respect of the Hon Michael Woodhouse’s point, neither I nor the officials quite understood what it was that you were driving at. So if you want to repeat that point, I’ll get you an answer.

DAMIEN SMITH (ACT): Thank you. I’ve just been through the documentation because I did ask some very specific questions today and the supply side measures, significant time constraints, lack of empirical data, and projected revenue—there’s nothing there, it’s just a grid with noughts and crosses, and that’s no way to run a tax policy or make significant change of this magnitude.

I just want to ask a couple of specific questions then, because the advisers are here and we might get some work done this evening. The Waikato University economics professor Frank Scrimgeour is reported as saying that the extension of the brightline test could result in stranded assets. I feel very strongly about this. At the end of the day, you want a dynamic housing market, and there’s lots of reasons why people’s circumstances change—you can get older, you can lose your job, you can have a restructure of your family, and you end up in a divorce. There’s all sorts of elements there that have to be considered. So do we not want a tax policy that actually allows assets to move rather than be stranded because there’s tax incentives to hold on to them and there might be a greater benefit for somebody else being a different owner? So if we can’t get anything done because everything’s being passed under urgency, could we please look at that one aspect—providing some flexibility to the people of New Zealand to allow them to actually have some certainty around their lives?

One of the other big problems is that we talked earlier about supply and housing—I don’t think any of my questions were asked about accruals on the tax benefits of the status quo, five years versus 10 years. It’s not there, and I’d like to put that on the record. So, you know, one question that I have is: is this it? Will the Government seek to pass any further tax changes this term under emergency or without scrutiny by the Finance and Expenditure Committee? The difference between this amendment and the income tax increases was that the Government did provide a limited signal that they were going to make changes. But in this case, Grant Robertson explicitly ruled out changes to the brightline tests and is now ramming it home under urgency. So how is this accountable and transparent?

So the Minister has received advice from his advisors about the brightline test. The Prime Minister’s wrapped it up in a package surrounded by supply and demand. But if we get down to the specifics of this test, can we actually give the people of New Zealand some flexibility in terms of passing this law—either tonight or tomorrow—and actually look at not only how these assets are being treated from a tax point of view but just from a life point of view and from a flexibility point of view.

BARBARA EDMONDS (Labour—Mana): Thank you very much, Mr Chair. We’ve traversed a number of parts of the bill, and one particular part which I think we haven’t asked about, which I’d like to seek some clarification from the Minister, is around the donated trading stock. Now, I understand this is an anti-avoidance rule. It’s been put in around a business’s particular stock. I understand that during COVID there were a number of businesses who were donating goods, and I just want to understand the changes within the bill: what the mischief was that we were trying to solve throughout it, and what was the policy underlying the Minister’s thinking around the donations of trading stock.

Hon DAVID PARKER (Minister of Revenue): Thank you for that question from Barbara Edmonds. COVID exposed something that probably should have been fixed anyway—an example would be that when COVID hit, various businesses gave materials to food banks or may have given away materials for the manufacture of hand wash, for example, which was in short supply. Under the existing rules that gift was a deemed sale, which created a tax liability on the part of the donor. We as a Government thought that that was wrong in these circumstances and so we are changing the law so that that, in effect, is not a deemed sale and therefore it doesn’t create an income tax liability based on the additional income that currently is deemed to be earned on those gifts.

ANDREW BAYLY (National—Port Waikato): Thank you, Mr Chair. I just want to turn to a conversation before dinner. I asked the Minister for advice or information he had to hand which supported his proposition that the reason for urgency was that, if the Government didn’t bring this in, basically, starting effective from close of business on Friday night, there would be a whole stack of people who would go out and buy properties and try to take advantage of the market. My proposition was that, actually, because of the tax changes, they would make it less likely that people would go and buy properties; in fact, they would more likely want to sell their properties, given they will no longer have interest deductibility and, in fact, they will have to continue to hold the property for 10 years otherwise they will be paying a capital gains tax (CGT). So I’m just hoping the Minister will answer that question, because I think that cuts to the core of why there needed to be an urgent debate and why this is being rammed through like a steam tractor to put this in place very quickly.

The other thing is that we’d just started to have a nice little conversation, before the break, about the difference between whether this is a tax on capital gain or whether this is just a tax on income. So, Minister, I’d really like to have a conversation with you, because I think we should go back. When the Key Government brought in the issue around a brightline test, the underlying philosophy of what John Key and Bill English, particularly, were trying to deal with was the issue of the lack of certainty around what is the intent clause of the Act. Do you intend to sell the property or do you intend to hold it for your own personal use, and what the intent for the short two-year period was, to make it absolutely crystal clear for our good friends at the Inland Revenue Department to be able to enforce the intent clause, which, basically, said, if you hold a property for less than two years, that is deemed to be someone with the intent of buying and selling a house in a short period of time—i.e., flipping houses, which we’ve always talked about previously in this House.

Your decision to move to increasing the brightline to five years—and, of course, today at 9 o’clock, announcing you’ll extend it to 10 years—I think I inferred from your comments earlier that you still saw that as a tax on income. Can I put it to the Minister that the difference between tax treatments is quite important, and presumably, for the Minister of Revenue, it’s very important. So, if I am in the business of buying and selling property, that is an income gain, and I pay tax on it. And so, if I am a property developer, I will pay the gain on that as income. There’s a difference if I am buying and selling a capital item which I do periodically, and so the corollary is that I’m buying and selling a piece of plant, which is a capital item; it’s not my normal tradable stock. So I would suggest to the Minister that, certainly with the five years but very definitely with the move to a 10-year tax, the Government has put in place a regime which means that, if you buy and sell a capital asset—namely, a home—within 10 years, you will pay a gain on that profit from the sale of that capital asset. That is quite a big point of differentiation. I know it’s a bit pointy headed, but I’ve heard the Minister talk about this before, and I’m very interested to see what his reaction is to that.

Hon DAVID PARKER (Minister of Revenue): In respect of that last issue that Andrew Bayly raised: when the brightline test was first introduced by the prior National Government at two years, the then Government was very clear that from their perspective it was tax on the income that is earned if someone sells within that period at a profit, and we apply the same logic to the longer period.

Andrew Bayly: It was a clarification of deemed intent.

Hon DAVID PARKER: Well, you say that was a clarification of deemed intent. They were not the only words that were used at the time. We apply the same language to this. We know that the Opposition disagrees with it, but that’s our logic.

In respect of Nicola Willis’s question, I’m advised that if a person were to have a house in Auckland, they’re away for two years and they rented it out for that period, then there is a change of use and there will be an apportionment in respect of the increase in value depending on the length of period that someone’s away.

Nicola Willis: CGT on the family home!

Hon DAVID PARKER: No, it’s not. No.

Nicola Willis: Yes, it is.

Hon DAVID PARKER: No, it’s not. And if it’s not rented out, then it depends on the facts. If a person regularly visits their Auckland home, then it’s likely to remain the person’s main home and won’t be taxed.

ANDREW BAYLY (National—Port Waikato): So can I just continue that conversation? What I heard from the Minister was that because someone spoke during the time that the initial brightline test of two years was put in place, you have taken those words and said, “For the first time ever we agree with National and we’re going to now use that as a definition.”, and it’s an excuse to carry on taking it from a two-year period to a 10-year period.

My first point I would say to you, very clearly—and I’m sure your IRD advisers over there who are helping you would be clear that there was a lack of clarity around the intent. What we did was made it very, very simple for people and for the IRD, which acts for all of us, to be clear that if someone was buying and selling within 24 months, they would have to pay a gain on that capital asset, right? So that’s quite different from what we’re talking about, because once you take it out to a 10-year perspective, if you’re not a trader in those assets, then that is a tax on an irregular periodic sale of a specific asset, and it is a capital item.

So apart from relying on the National Party’s words—and I don’t know quite what you were quoting, but I’m just trying to deal with it as a tax issue, and you are the Minister of Revenue—can you tell me why I’m wrong to characterise the sale of a periodic asset, namely a house, that you have to hold for a minimum period of 10 years, and if you don’t you will be paying a gain on the sale of that capital asset?

Hon DAVID PARKER (Minister of Revenue): I’ve already addressed that point.

Hon MICHAEL WOODHOUSE (National): I think this question of “deemed intent” is very important, because how Minister Parker portrayed the changes the previous National Government has made needs to be looked at in its broader context. Like Mr Bayly, I’m not sure what the Minister was referring to when he was talking about the National Party saying other things. What really mattered was the policy changes that we made. Now, in order for something to be subject to income tax under the Act, there needs to be a consideration of the deemed intent on purchase. The timing of the intent on purchase and what goes on in the mind of the purchaser is at the heart of something that could be liable for income tax. What we found—which is, frankly, true—is that when an investor turns a property around, purchasing it then selling it within two years, it’s a much harder thing to determine whether their intent on purchase was to gain income from rental, for example. And the purpose of the introduction of the brightline test at two years was simply to say, “If you do it within two years, we consider your deemed intent to have been sale for a capital profit, and therefore that’s on the income account. That is taxable.”

Now what we have is every other class of asset where the rule still applies—deemed intent. If I purchase shares intending to get a profit from dividends, I could hold those shares for 10 years. They could appreciate significantly in value on the stock market, but the increase in that value is not taxable. I could buy my plumbing firm with the intention of selling plumbing services to the good people of Dunedin, and if I’m that good at it, and the value of the capital asset appreciates to the point where there is a capital gain, because my intent is to earn income, that capital gain is not subject to a tax. What we’re now being asked to accept is that there is somehow a co-relation between what the National Party did over two years and extrapolating that out over 10 years—and Treasury wanted it 20—to say that regardless of the stated deemed intent that the taxpayer has on purchase, he or she has to hold that asset for more than 10 years to prove to IRD that their deemed intent was not sale for capital gain.

I would like to ask the Minister to check with officials if my assessment of the current tax law is correct, because this is a significant departure in principle from what we are doing. Now, we shouldn’t be surprised by that. We’ve heard a lot in terms of departures from principles, and the non-deductibility of interest expenditure, which the Government signalled today and which they’re going to do a lot of work on, is an egregious breach of those principles where taxable income should be gross income less legitimate expenses. An interest expense is legitimate, according to the Government, in every other circumstance but the gaining of income by the offering of residential property rentals.

So I would firstly point out that it is a very long bow to draw to say that the National Party’s default deemed intent at two years is the same policy decision that this Government is making over 10 years. It is impossible to conceive that the mum and dad investors that Megan Woods slammed on the radio this evening—90 percent of the residential property market is of people who own one or two properties; 90 percent. So we’re not talking about fat cat property investors here. We’re talking about the mums and dads whose intent was to provide an income stream—quite legitimately—over a long period of time. And the Government is saying, “That’s not true.” They’re calling taxpayers fibbers, basically, by saying, “We would have liked to have gone out to 20 years, but, actually, that looks too much like a capital gains tax.”

Andrew Bayly: No, they’re calling them speculators.

Hon MICHAEL WOODHOUSE: Speculators—exactly. Never mind that a nest egg and repaying the mortgage on that is a very good savings scheme—very stable, probably as stable, if not more so, than business investments and the stock market. But now they’re being called speculators. I just want to make sure I understand whether or not I have got my understanding of the Income Tax Act correct, because deemed intent seems to be the case for every other thing but this.

Hon DAVID PARKER (Minister of Revenue): Neither the original brightline test legislation nor this actually use the phrase “deemed intent”. So the members of the Opposition are articulating as they see it. I’ve explained it as we see it. We obviously disagree.

ANDREW BAYLY (National—Port Waikato): My only request, Minister, as you’ve got a great array of officials here to help you, is that we would very much like to get advice as to whether in fact I am wrong. If I am wrong, I’d like to know so in future—and I know, of course, that the Minister of Revenue would like to know whether he’s right or wrong, because, heaven forbid, we don’t want a Minister of Revenue who doesn’t know the difference between tax on profits and tax on capital gains.

While we’re waiting for that, and I am dying to hear the answer, can I just say to you, Minister, that during the course of the break, I’ve just been informed—in fact, I’ve had quite a few texts from different people today—about a large project worth many hundreds of millions, not a small project, to build a whole lot of new homes—a rent to buy proposition. So we’re talking about creating new homes; we’re not talking about homes that have been there for speculation or in the backyard or whatever. They want to create a new class of homes and build them, and that project, as a result of the 9 o’clock announcement this morning, I’ve just been informed by a senior partner in a very large accounting firm, has, as of this afternoon, been put on hold—

Chris Bishop: Really? Why?

ANDREW BAYLY: Because when they rang up the IRD to seek advice on whether a rent to buy property was in the rules or not, the IRD could not be categorical in its advice—and I’m not surprised, because they only heard about it today, basically. The issue is that these people are going out to the market to seek investors, and as the promoter, as an officer of that entity, they cannot be seen going out and doing this sort of stuff without reasonable cause and without confirmation, and that project worth hundreds of millions of dollars has been put on hold this afternoon. I’ve had another text from a friend who just told me he’d entered into an agreement to buy a property. It’s all now up in the air. As my good colleague talked about today, you will now see an avalanche of projects going on hold. Anyway, I’m sure you’re not particularly worried about that, or there’ll be a reason.

Can I turn to another technical issue. This is the issue around interest deductibility. Under the rules, you will not be able to deduct any interest, so there’s a phase-in period, and in the announcement he talked about the UK period, for example. What is the phase-down period for the reduction on interest deductibility over the next few years? Is it 75, 50, 25, zero in each of the four years before it gets to a close? It would be quite useful to actually understand some of those concepts behind that and why you did it over a four-year period. And, of course, as we’ve all seen and heard—and we’ve talked about it a little bit earlier today—the advice from IRD particularly around this issue was not that comforting in terms of supporting the Government’s proposition. So why did Cabinet come to a different view?

Hon DAVID PARKER (Minister of Revenue): There’s nothing in this bill about that, so I don’t propose to comment about it because it would be out of order.

NICOLA WILLIS (National): I wish to return to clause 5 of Supplementary Order Paper 23, which amends Part 2 as it emerged from the committee. This relates to the main home exclusion from the capital gains tax (CGT), because the context for this bill, and what we have been told about the intent of this bill, is that it aims to impose a capital gains tax on property investors. That is widely understood to be people who own more than one property, mostly, a family home and then another property. But what I now understand, from the comments that the Minister made earlier in response to my questions, is that we now have the novel and extreme situation created by this bill that someone who owns but one property—one property—and that property is their family home, if that person, for whatever reason, is unable to occupy their home for a period of 12 months or more, then they will become subject to a capital gains tax.

Now, I just want to dwell on this, Minister, because is the Minister really telling this House and the New Zealand public that he thinks the following categories of people should have a capital gains tax placed on the sale of their family home? Let us imagine a scenario where someone is gravely ill. They have cancer, or their child has cancer, and they are told that the place where they live—let’s say it’s Hokitika—is no longer a good place to be in terms of accessing the regular daily treatment they will require for their particular kind of cancer. So that individual makes a decision that, whether it’s for their good or the good of their child who has cancer, they are going to rent a property in Christchurch—or perhaps they’re put up in the Ronald McDonald House—for a period of a year so that they can access regular medical treatment. What this Minister, I take it from what you’ve said in your answers to earlier questions, would do to that family—if they chose to keep their family home and rent it out; rent it out for the very good purpose that they’re trying to get a little bit of income to pay for the rental in Christchurch while they’re going through their medical appointments—is say, “Well, it’s no longer your main family home. I’m going to put a CGT on you. I’m going to take tax from you because when you sold your house it was no longer meeting my tax definition of being the family home, because you had the temerity to rent it out.” Now, I find that shocking, Minister, that you would breach what has been a clear commitment to New Zealanders, a very clear promise that Labour would not impose a CGT on the family home.

So I’ve given you the example of someone who has to access medical treatment. Let me give you some other examples of circumstances in which people who only have one property—let’s remember here, in this circumstance this is someone who owns one family home but for some reason is having to live somewhere else for a period of time, could only be for 13 months; might only be for a year and a half—and they, during that period, choose to either rent another place, or perhaps stay with friends, but in any circumstance, that would then mean they become subject to your capital gains tax.

So the other scenarios could be someone who needs to move for work for a period. Someone who, for a period of time, needs to move and perhaps work in Palmerston North for a while because that’s where their business operations are focused while they’re doing a particular project. Or would this, perhaps, be imposed on someone who, for work reasons, is asked to do a specialty secondment?

Let’s think of the example of these wonderful people we have working in our managed isolation and quarantine facilities at the moment. We have army officers, we have medical practitioners, who have moved their lives to run our quarantine systems, and in some cases they may want to keep their family home and rent it out for a while, while they’re gone—rent it out for a little while to keep paying the bills, to keep paying the rates, while they live somewhere else for a short period of time, and what I understand this Minister wants to do is slap them with a capital gains tax.

I cannot understand how this Government is keeping its commitment to make sure the family home doesn’t face a capital gains tax if these provisions are allowed to proceed. What I want to understand from the Minister is why these provisions have been introduced into this bill tonight, and what it is that has caused the family home to now be subject to a capital gains tax, and why that Minister hasn’t given consideration to the life events of people in the realistic circumstances in which some people can’t live in their family home for a period of time. The Minister must explain.

Hon DAVID PARKER (Minister of Revenue): This bill does not introduce a capital gains tax. It is an extension to the brightline test.

KIERAN McANULTY (Chief Whip—Labour): I move, That the question be now put.

Hon MICHAEL WOODHOUSE (National): Thank you, Mr Chair. I just want to go back to the comments that the Minister made about my nomenclature of deemed intent. He may be correct that those specific words are not mentioned, but the general provisions as set out in sections DA 1 and DA 2 of the Income Tax Act make it very clear that deductions are only allowed if they are incurred in the generation of income—and, conversely, the income is only taxable in certain circumstances. So I just want to go back. Regardless of the nomenclature that we use, is my description of intent on purchase of a business or an asset relevant to the question of assessable income on the disposal of the asset? Because I think that’s fundamental. At least if we can clear up the rules of engagement and the degree to which we are deviating from both those principles and rules as set out in the Income Tax Act, it would be much easier to have the conversation about what we’re actually doing.

ANDREW BAYLY (National—Port Waikato): Thank you, Mr Chair. I’m just hoping the Minister is going to actually answer our questions comprehensively rather than just give us the general flick. I suppose, just on that issue, you know, there’s a lot of worried people listening to this debate—I can tell because of the texts coming through.

I suppose this is a more practical point: all of this comes into force by Friday night. Now, I’m sure many of us down here in Parliament think we’re super important, but I’m not sure everyone thinks we’re super important, and for the many hundreds of thousands of mums and dads that own a property, who are now going to be affected by these provisions, what are the steps that the Government is taking to make sure that they know, basically, what’s going to happen within the next 24 working hours? That’s a pretty short time, 24 working hours, three days. I think it’s incumbent on the Government to make sure that people are aware. I know they’ll be hoping that everyone watches news media and the news, etc. on TV, but not everyone does, of course.

As the Minister said before, unless you make an election—if you are in a position where you’ve made a bid on a house or you’re in a process of doing a tender and you don’t know what the outcome is, you do need to make an election that you’re going to withdraw your offer. And I think that is quite a significant thing. I think, probably more importantly—people who are committed to the offer and find themselves in a situation they really don’t want to be in. So I’d just be keen to hear what the mechanisms are in place to advise—not just advisers, because not every accountant’s going to ring their 2,000 client base of their small partnership firm or whatever. How are people expected to know that in three working days, or 24 hours, they’re going to have to make an election, make it happen, put it through, get all the documentation done, all that sort of stuff. And, you know, it gives rise to the whole question about why do this in such a rushed, urgent fashion. As we all know, this is cutting across the personal rights of New Zealanders who have bought and done things that they think of as perfectly legal, and which have been until today, and are now required to make substantial changes in the way that they are operating.

Anyway, so, hopefully, the Minister will respond to that. We still haven’t had adequate response on the capital versus income test. But I’m going to just turn briefly to the purchase price allocation because it’s sort of related and sort of follows on. Here’s another example of this bill which says that, if you’re selling a property, you have to agree with the purchaser what the tax treatment is going to be. So up to now, if you are selling a property, you could go and say, “Well, I’m working out what will suit my accounts, because that’s the way I’ve accounted for that property over the period of time I’ve held it.” And from the purchaser perspective, there’s been an option—and that’s all worked pretty well.

This measure is designed to raise about $44 million, on a current estimate, and what it does now is require for any transaction involving a business to sit down and do the complicated analysis and reach agreement on any transaction worth a million dollars or more. Now, as many of us now realise, you know, house prices in Auckland are worth $1.1 million median average, so a million dollars for a business is actually an incredibly low threshold. There’s a higher threshold for residential property, but this strikes at the core of business transactions. And the requirement to agree the tax treatment and to agree it between the purchaser and the vendor is quite a lengthy one.

The vendor has a right to nominate, and then if it doesn’t do that and maybe—you know, not everyone has tax accountants on their payroll, and they may have to go and hire a tax accountant, and they may want to not do the work because, you know, time involved for a one-off transaction. Then, if they don’t nominate a process, then, of course, the purchaser has got to nominate a person and an approach. And if neither of the parties can come to a conclusion, then the commissioner has got to come to a final, binding decision. It is a real mess for a low threshold of a million dollars. I think it’s really—and I’ve advocated for this in the Finance and Expenditure Committee, a million-dollar threshold for business transactions, is just minute. It’s another case of a huge amount of regulation being imposed on our New Zealand businesses at a time which is a very difficult economic situation. And I’ll just ask the Minister: why on earth did he go for a million-dollar threshold? It is ridiculously low.

Hon MICHAEL WOODHOUSE (National): One of the problems we have in considering such a large Supplementary Order Paper with such a short amount of time, and when we’re amending the Income Tax Act, which is a dizzyingly complex piece of legislation, is that it gets pretty hard to find the nugget that’s buried deeply in the legislation. I was struggling, but I found the relevant sections that I think reinforce the point. They are sections CB 3 and CB 4 of the Income Tax Act.

Effectively, what section CB 3 says is you have to intend to make money. It can’t be a hobby. It can’t be voluntary acts where small amounts of money might be granted for it. Section CB 4, basically, talks about purpose and what I call intent. So the property has to be acquired for the purposes of disposing of it, and that’s the distinction that is made between income account and capital account. If one disposes their shares for a profit but that was not their intention, if they didn’t purchase them with that in mind, then any profit on disposal is not taxable. I come back: what I described as deemed intent is that the two-year brightline, effectively, said that if you dispose of that property within two years, it’s considered to be personal property acquired for the purpose of disposing of it.

Now, a 10-year brightline—it cannot be said that people that are purchasing rental properties, the mum and dad investors that comprise 90 percent of them, should be considered to be doing that with a purpose of disposing of the property. It just can’t apply. So we’re breaking one of the fundamental principles of the Income Tax Act, as set out in section CB 4.

Dr DEBORAH RUSSELL (Labour—New Lynn): Just as a point of clarification, I just wanted to look it up, and it does seem that CB 4 deals with the disposal of personal property, and CB 5 is to do with the business of disposing of—dealing in—personal property. So I’m not sure that it’s relevant to this bill at the moment and, particularly, to the clauses we’re discussing.

DAMIEN SMITH (ACT): Thank you. Just to recap from 9 o’clock this morning, when the announcements were made, 2 o’clock at question time, and now tonight, near 9 o’clock, which is a matter of hours, where this capital gains tax by stealth is being brought in, I still haven’t got answers to my questions. As the advisers are here, I’d just like to recap again what I think’s important and then get an answer, because it’s not in here [Holds up bill], it never will be in here, and the law will be passed before it actually happens.

I have some sympathy for the Minister, because he’s taken the heat for what is an overall strategy by the Minister of Finance and the Prime Minister to wrap several concepts together in one bundle which has implications for our tax system, which nobody’s actually proven yet. So I’ll start with number one.

Treasury’s been reported commenting that they’ve not formed a view on whether a 10-year brightline test is preferable to the status quo and, according to Stuff, rated worse than the status quo in advice. So the question is: what factors were given to the Minister and why was this chosen option potentially similar to or potentially worse than the status quo? I think I asked that question earlier, but I didn’t get the answer.

The second question is: the Prime Minister made the point that the package attempts to balance supply and demand measures. The Minister did partially address this. But what I want to know is what impacts, if any, due to the extension of the brightline test, would not be a result of simply increasing supply, like the Government claims happens as part of the housing policy announced today?

My third question is that house prices have risen rapidly since the extension of the brightline test and have risen more rapidly following the extension of the test to five years. Now it’s going to 10 years. I asked that question earlier. What impacts did the previous changes have on housing demand and why will this now be different? What specific differences accrue at 10 years that do not happen at five years? The Real Estate Institute of New Zealand has come out tonight categorically saying that landlords will hold and this will cause another $100 to $175 on top of the $120 that has already been added to rental prices.

Hon Members: How much?

DAMIEN SMITH: Between $100 and $175.

So one of the big problems in the housing sector that we haven’t addressed is just that there’s simply not enough housing. The risk we have at the moment is we’re meddling on the demand side and then we’re seeing higher prices on the sale of properties and people are going to have to pass that on to people renting. So the final question I’ve got, apart from the fact that I’d like to see no more taxes from this Government as promised, and to get a commitment to that, is: has the Minister received or requested any advice relating to the impact that the brightline test may have on rental prices? And the second part of that question is: has the Minister received or requested any advice relating to the impact the brightline test may have on house prices, and therefore we can put the economic and tax package in the context that New Zealanders can understand? So I’d like to seek those answers to those questions, please.

Hon DAVID PARKER (Minister of Revenue): I believe I have addressed most of those questions already, but I will re-address them. In respect of the period, as the member will have heard in the debate and probably seen in the papers, Treasury recommended consideration of an extension to the brightline test of up to 20 years. We thought that was going too far. We did think that something has to be done on the supply side. I am struck by the fact that the Opposition seem to think the only thing that ever works is supply side measures and that demand side measures never have a part to play. We disagree, on the Government side. We think we have to do both.

In respect of what will be the effect of the difference between five and 10 years, well, we can’t be absolutely certain as to what will be the proportion of properties that will now be affected, because we’re not sure what change of behaviour we’ll see. But as the regulatory impact statement shows in table 1, the holding period for properties held two years or less is 18 percent; five years or less, 42 percent; 10 years or less, 64 percent; 15 years or less, 83 percent; 20 years or less, 91 percent. So that gives members some idea as to the extra properties that will be affected by this, assuming there is no change of behaviour. There could be a change of behaviour; some people may choose to keep some of their property longer.

In respect of rents, the reason why the Treasury and the IRD, or we in Government, aren’t able to give an accurate prediction of that is because it is the combination of demand side and supply side measures operating together. It may well be that over time that combination of measures means that we see a move back towards a higher proportion of the homes that are sold in New Zealand being sold to the people who live in them rather than being purchased by investors.

DAMIEN SMITH (ACT): This must be the first time I’ve seen a tax law passed with no economic analysis or fiscal oversight. The question that hasn’t been answered is: what’s the difference between the status quo and 10 years, and my point about stranded assets—

Kieran McAnulty: Five years.

DAMIEN SMITH: —hasn’t been asked as a question. Let me finish, please, yeah? As long as you guys know you’ve put up rents and you haven’t solved the housing affordability problem by this measure. The final question I have is: are there going to be any more taxes or capital gains taxes that we need to consider in the tax foundation of this country, or is it just going to be made up and rushed through in urgency as we go along?

KIERAN McANULTY (Chief Whip—Labour): I move, That the question be now put.

ANDREW BAYLY (National—Port Waikato): I’ve got to say I’m very disappointed at the Government members on that side of the House. The only person who’s stood up and made a contribution is Dr Deborah Russell. She’s done it twice. All the other times, we’ve had the chief whip, who’s johnny-come-lately, come to this debate trying to move motions to close it down. He can only do it once, I note.

CHAIRPERSON (Adrian Rurawhe): This is a time to speak to Part 2 of the bill. Don’t give us a running commentary. It’s not relevant, as far as I’m concerned.

ANDREW BAYLY: Mr Chair, I want to say to you very clearly: this bill is a very comprehensive bill, and we’ve got about seven more aspects of this bill yet to cover, and we will be intending to speak to them as we work our way through them. So I just want to be on the record that we do not want this debate—because there is a heck of a lot more to go on.

CHAIRPERSON (Adrian Rurawhe): I’m fully aware of what’s in there. Just come to the bill.

ANDREW BAYLY: I want to continue my question last time to the Minister, which we haven’t yet had a response to. I talked about the purchase price allocation method—how there had to be an agreement around that, and they had to be aligned, and it was for a small threshold. One of the things that we actually did cover in the Finance and Expenditure Committee was, in the event of a vendor making a unilateral allocation, there couldn’t be an allocation that was below the vendor’s tax book value. I was trying to allude to it, but it’s all a bit pointy headed, but this is where you have different treatments between a vendor and a purchaser. A vendor might have a certain tax treatment that they’ve applied to that asset. The purchaser may have a different and very legitimate approach to the way they wish to account for that asset. However, this bill changes that and forces them to come to a conclusion.

One of the things that, as a committee, we talked about is that we were worried about distressed sales. Hey, we’re in the middle of COVID. The Government has borrowed $40 billion and, actually, there’s a few businesses in distressed sale. And maybe if Mr Nash did something, we’d actually talk about tourism businesses, who are definitely in distressed point of sale. They are in the process, and we know it because our good member from that area has told us. Down the West Coast particularly, a number of them will be closing, and this is why this part of the bill that the select committee looked into requested that there should be some forgiveness around those in a distressed sale situation—like a tourism operator, as I’ve said. There are many transactions where the actual market value of the taxable property being sold is less than its tax value.

Interestingly, I’ll give you another example: I was talking to a person I’ve known for many years. They bought printing equipment for $850,000. With the decline in the printing industry, they ended up selling it to Vietnam for $26,000, because, effectively, the market was in distress and there was no market buyer in New Zealand and they have flogged it offshore for literally $26,000—I got told that this morning in the airport. So here is a practical example of people in certain industries right now that are really suffering as a result of COVID, and, in many cases, they will be seeking to make the sale. I know that the Minister also has the hat of reviewing all overseas investment applications, and he puts through the emergency 90-day applications. So he is in the position of looking at transactions and approving every transaction during the 90-day period. He actually has to approve every international transaction.

Here is something that the committee has requested: basically, we recommend amending this rule. Under our amendment, any excess of the aggregated tax book value above the purchase price would be applied, first, to reduce the amount allocated to the non-taxable property and, second, once the amount is zero, to reduce the amount allocated to each class of taxable property, pro rata. So I’m just asking about that. That was some specific recommendation that came out of the committee. It would be nice to hear what the Minister says. So if he could answer both those aspects that we covered before.

Hon DAVID PARKER (Minister of Revenue): In respect of the second issue, the member has put it exactly correctly, and that position, as he recommends, is as the bill sets out, and that is being carried forward. In respect of the earlier issue and the criticism of the thresholds, the member will be aware that this is an integrity of the tax base - issue, where, at the moment, different sides of the same transaction adopt a different value for, or a different allocation of, the sale or purchase price across different subsets of assets. The net effect of it is that the vendor does it to maximise their tax position; the purchaser does it to maximise their tax position, and never the twain do meet. And who suffers the loss? Actually, the revenue, because there’s this inconsistency of apportionment. So these thresholds have to be determined in a way that balances compliance costs—

Andrew Bayly: Why the change?

Hon DAVID PARKER: Well, the member knows the reason for the change, because he’s already mentioned the amount of additional revenue that accrues to the Crown if this change is made. Getting the threshold amounts right is a balance between compliance cost and revenue integrity, and that’s why the Government settled for $1 million on most asset sales but excepted the position that had been recommended by the select committee, or by submitters to the select committee, that because, in the case of residential property, there are not the same integrity risks, you can have a higher limit of $7.5 million. That’s the reason for those different amounts. Without doing this, there is an integrity risk with the vendor doing something for their benefit that doesn’t accord with what the purchaser does. We think that the parties should be required through the mechanisms in this bill to agree and, if there is not agreement, there’s a mechanism to resolve that dispute.

RACHEL BOYACK (Labour—Nelson): I move, That the question be now put.

NICOLA WILLIS (National): I wish to return to this issue of the family home, and I would encourage the Minister to address the questions I’m going to put in this contribution and not dismiss them, as he did previously, by saying “There is no capital gains tax (CGT). It’s just a brightline test.” He can play with the semantics all he likes. I have just put on Twitter that the brightline test will now apply to some family homes, if anyone doesn’t live in that family home for a period of 12 months or more, and the questions are flooding in. I would encourage the Minister to address these questions now for the sake of clarity, or else face the wrath of owners of family homes across the country, who are very concerned about the new taxes that his Government appears to be ready to place on their home if, for any reason, whether misfortune or work—that they’re military or that they’re a diplomat—they have to, for some reason, live outside of their home for a period of 12 months or more and choose to rent that home out during that period.

So here, Minister, are the specific questions I’m being asked that I would like to be able to answer and that I think you should, at the very least, ask your officials about and should clarify for this committee. The first is: if I am a first-home buyer, as of Sunday this week, and I buy my first home, if during the next 10 years, from Sunday, while I own that home, I for any reason—maybe I’m an army officer; maybe I’m a diplomat. Maybe I’m a teacher who wants to do a rural relocation for a period of time—during any time during that 10 years, choose to rent out my family home for a period of 12 months or more, is it the case that the brightline test will be applied to that home so that if I sell that home within the 10-year period, having lived outside of it for 12 months, I will pay a full tax on any profit I make on the sale of my home? That appears to be what the Minister said earlier, and if that is the case, then I think first-home buyers up and down the country need to know that not only do they need to be sure they can pay their mortgage for the next 10 years, they need to know that if they choose to rent out their home for a period of 12 months or more, for any reason, they will now face a capital gains tax on that home due to the sneaky provision that the Minister has snuck into this bill. Now, you can call it what you want, Minister. You can call it the brightline test. You can call it a CGT. I don’t really care what you call it; I want an answer to that question.

The second question, Minister, is around those who already own a home and may, for some reason, during the next period of time, have to live outside that home for a period of 12 months or more and who choose to rent it out. Will they be subject now to the five-year brightline test? That is, are they now captured by the previous five-year brightline, which meant that—we used to have an exclusion for family homes, but as I understand it, these provisions now mean that if anyone in the next couple of years lives outside of their home for more than 12 months and rents that home out, they will then find themselves captured by the brightline test, which is currently a five-year test.

Let’s say this circumstance occurs. A family member gets really sick. The family relocate to get medical treatment for their child. They then return. They maybe live in their family home for a few more months and then realise that, actually, they need to sell the family home, because they can’t afford the mortgage any more. What I understand this bill will do is it will slap them with the brightline test. It will say, “Well, you’ve owned the house for less than five years, and you’ve had the temerity to rent it out for 12 months, so just to make your misery more, we’re going to slap you with the brightline test.” That’s what I understand. So those are the two circumstances, Minister. Rule it out now or that’s what I’m going to go on Twitter and make sure that people know is happening.

Hon DAVID PARKER (Minister of Revenue): I’ll speak politely. For a start, the member misstated what I had said earlier. I said that in respect of the properties that are purchased going forward, subject to the 10-year brightline test, if there was a period of more than a year that it was rented out—for example, if it was rented out for four years of the 10 years, then it’s changed to be an investment property in respect of those four years, and there would be an apportionment. Of course, if it’s held for 10 years, there would be nothing.

BARBARA EDMONDS (Labour—Mana): Thank you, Mr Chair. I want to speak specifically to the Minister of Revenue’s Supplementary Order Paper (SOP) 23. Now, when you look at the back to the explanatory note, the Minister has covered the extension of the brightline test. He’s looked at the main home exclusion. He’s looked at the business premises exclusion. He’s discussed the proportionality for those different situations. He’s also looked at the application date for it. The Minister has also spoken to loosening the lost continuity rules due to a call from the member Dr Deborah Russell. Then, if I go through the explanatory note again, we then looked at the donated trading stock. This is the call that asked the Minister the questions around what was the policy mischief of these particular clauses in this part. Then we’ve touched on Mycoplasma bovis as part of the second reading and also part of the feasibility expenditure, some of the particular rules—we’ve covered that in length.

The one particular area of the SOP which probably has not yet been touched is actually the Mycoplasma bovis, just clause 33 and new clauses 20E and 20G. So I’d just like to ask the Minister, given that the unclaimed money, which is also in the SOP, will be covered under Part 3 of this debate, I want to go back to just the small area that has not been touched, and that’s the Mycoplasma bovis. If the Minister can just—given the timing—explain the policy intent to that. If I read the explanatory note, it says, “Clause 33 of the bill introduces an option by which owners of livestock culled for having Mycoplasma bovis may spread their income over a 6-year period. The [SOP] proposes amendments giving affected farmers who have already made deposits in the Main Income Equalisation Scheme or [already made deposits] in the Adverse Event Income Equalisation Scheme an option of switching to the 6-year income spreading option, [and] with the tax effects of the deposits then being reversed.”

So the new clauses, Minister: “New clause 20E and G ensure that the income spread is taken into account when determining the maximum annual deposit for the MIES and the AEIES”—my apologies for having to directly quote from this. Now, I understand the member for Tukituki, in her second reading speech, referred to this as a really positive change, and it was one that was brought to the Minister from Federated Farmers. Can the Minister just clarify those amendments that are currently in the SOP, which are the last part of the SOP to be covered—I’m just checking, Minister: are these remedial changes or are these more significant changes to what was introduced earlier in the bill?

Hon DAVID PARKER (Minister of Revenue): My understanding of these provisions, as the member has already mentioned—it arises out of the M. bovis eradication campaign, which at times requires livestock to be destroyed, which then, because the farmer is compensated for the destroyed livestock, creates income for the farmer based on the compensation that the farmer receives. There are various ways in which already, under the tax Act, farmers can spread income across more than one year so as to avoid a peak that might put them into a higher tax bracket. The effect of this is to enable—in respect of a lumpy piece of income caused by compensation for M. bovis—the farmer to re-elect, if their prior election has become less favourable to them as a consequence of that lumpy revenue. So the re-election then allows them to cure that so that they get a more beneficial tax outcome.

ANDREW BAYLY (National—Port Waikato): Thank you, Mr Chair. We are having a great time tonight, aren’t we? I’d just like to say to the Chair that there’s plenty more to be discussed in Part 2, I haven’t even talked about feasibility expenditure, which is an area that I was particularly interested in.

CHAIRPERSON (Adrian Rurawhe): Well get on with it.

ANDREW BAYLY: But, what I like to do—I’d just say, we like to do things in a logical order because otherwise you just get random on this.

I want to continue the theme that my good colleague Nicola Willis was pursuing. So one thing I’ve got to congratulate the Minister on is that he’s got every tax accountant in the country up tonight, because it’s interesting how many have sent through comments and questions because they can’t understand this bill and/or are trying to get to grips with it very quickly.

But one area I want to turn to, which is—I think aligned to what Nicola Willis was talking about—this issue about the definition of clause 58 around what is a residential home. And my good colleague has highlighted a very practical issue. I’ve had personal experience of a constituent exactly in the situation that Nicola Willis was talking about where, took on a new job, moved, and actually got caught and was very worried about the situation around the brightline test. And, of course, it doesn’t appear that there’s any ability or exclusion. So we know there’s already three exclusions. One is dealing with your own home, if your matrimonial home, or you inherited. This is a case of hard—someone missing out as a result of changing circumstances. This is more than just bad luck, actually, and I think it will happen to a lot of people over the forthcoming years, particularly when you stretch out the brightline for 10 years, not five even; it was probably OK under two, just. But putting that length of exclusion on it means that there’s going to be a lot more people caught by this issue. And I’m just wondering why the Minister didn’t actually think about adding a fourth, which is, really, a hardship clause, around reflecting some of these situations that are reality and will occur, no doubt about it.

So the question I’ve just had from a tax accountant, we were just talking about the definition of a residential house—what’s a “resident” mean—and that’s been redefined in clause 58 and we’ve talked about the implications of the business. But the case in point was if someone is in the situation where they are renting out their house occasionally, like doing b. & b. on an electronic platform, so it seems clear that the legislative change will mean that if you’re using that property, a second property, for—so this is not your home but your second property, such as a bach—occasionally use it to lend it to people who might want to use it, that’s fine, if you are using it regularly on Airbnb, then the interpretation of the tax law is that it would be caught under this new definition. And so the question I’d like to put to you, and, hopefully, your officials can help you, is: are you caught if you have a bach and you’re using an electronic platform, like Airbnb or whatever, Bookabach, are you caught under these rules? And the second thing I want to ask is: how many days are you allowed to do it before you get caught? So, I imagine if you do it a week a year, out of 52 weeks, it’s probably OK. If you do it for a month is that OK? If you’re doing it for more than two months are you caught? Because, gee, that’s quite significant.

And then what does that mean when you sell the property? Are you apportioned for that one or two months out of that first year? Or are you captured if you do it in one year, are you captured thereafter, even though in the years two, three, four, five, six, seven, eight, nine, and 10 you don’t do it? So a couple of questions there. And, hopefully, our officials can help you, Minister.

Hon DAVID PARKER (Minister of Revenue): In respect of the last issue, I think that’s the same issue that your colleague already raised, which would be an apportionment situation.

In respect of the other issue that you say you questioned me about in respect of a bach, well that’s not a primary residence anyway, so there’s no change there because it’s already covered.

CHAIRPERSON (Adrian Rurawhe): Before I call Andrew Bayly, if you’ve got any new arguments now would be a good time for them.

ANDREW BAYLY (National—Port Waikato): Well, I’m just responding to that, actually. So just to be absolutely clear, you’re saying—because you didn’t answer one of my questions, actually—if you do allow your bach to be rented using an electronic platform, there is an apportionment. But presumably there is a threshold at which—because if you’re doing it for eight months a year, are you then deemed to be, because it’s not your main home, caught under these provisions? And my other bit, the nuance also was, if you do it in one of the 10 years, does that mean that you’re forever captured or are you captured because you’ve consistently done it over the 10-year brightline?

Hon DAVID PARKER (Minister of Revenue): The bach is not ever a primary residence, and, therefore, it has always—under two, five, or 10 years—been covered by the brightline test.

Hon GERRY BROWNLEE (National): Mr Chair, under Part 2, you asked for useful argument, if you like, and Part 2 is very extensive—it has quite a lot in it. And I’m just interested for the Minister to perhaps better explain than the bill itself does, under clause 8 New heading and section CC 14 inserted, which deals with International Financial Reporting Standards (IFRS) leases, particularly how they might be affected by the brightline test that comes into play, and, also, potentially, whether or not—in fact, I think it’d be better for me to stop speculating on what it means and give the Minister an opportunity to tell us.

Hon DAVID PARKER (Minister of Revenue): IFRS leases would be affected by the brightline test.

Hon GERRY BROWNLEE (National): Well, throughout this it talks about the property that might be subject to the lease. So for what reason, then, would that property become exempt from any brightline test?

NICOLA WILLIS (National): I just want to clarify how the apportionment that Minister Parker referred to in his earlier reply would work in practice. In the case of a family who rent their family home out for 12 months while they rent another property, how will you work out how much of the property’s gain in value during the period of ownership would be attributable to that 12 months, and therefore the rate of taxation that would apply? That is, if you buy a house, you sell it after nine years, you’ve rented it out for 12 months, how do you work out which part of the gain in value occurred during the 12 months you were renting, and therefore on what basis is the additional tax apportioned? That’s a specific, practical question that I wish to understand.

The second thing I just want to clarify is that, of course, what this Supplementary Order Paper 23 does is it makes the extension to the brightline test to 10 years, but there is a quite separate amendment that makes these changes to the main home exclusion, and that amendment is specifically removing the main home exclusion in these circumstances which we’ve discussed, which is when a main home is rented out for a period of 12 months or more. It seems to be that this would apply to properties that have already been purchased and that would, if they were not the family home, be subject to the five-year brightline test. So I wish to clarify that this new change to clause 5 is not just about homes being subject to the 10-year brightline test but could also capture homes that are already subject to the five-year brightline test.

So there’s two separate questions there. The first is around apportionment, and the second is to clarify that this may apply to homes that have already been purchased and that are subject to existing law around the five-year brightline test. If the Minister could address those, that would be useful.

Hon DAVID PARKER (Minister of Revenue): In respect of this last question raised by Nicola Willis, it only applies to properties purchased going forward subject to the 10-year rule, so it doesn’t have any application to the five-year test. In respect of the apportionment, it’s a fraction of the rented period over a year as a proportion of the total period that the property has been held, assuming it’s less than 10 years.

DAMIEN SMITH (ACT): I would just like, on that last answer, a point of clarification. If a person’s family home is owned for, say, nine years, and for some reason they rented it out for the second year of ownership, is the brightline test apportionment—i.e. the tax calculated, based on the sale price at year nine, or more fairly at the market value at the end of year two?

Hon DAVID PARKER (Minister of Revenue): In respect of the apportionment point, I think I’ve already made that on a number of occasions. In respect of the lease point, officials have indeed confirmed, since I made mention of it earlier, that those leases are only leases of personal property, not real property, so it has no bearing at all on the brightline test.

Damien Smith: Point of order. I’d just like to be really specific because this apportionment box has been opened, and I’d like to get the answer.

CHAIRPERSON (Adrian Rurawhe): That’s not a point of order.

Damien Smith: Well, I’d like to get my question clarified and answered.

CHAIRPERSON (Adrian Rurawhe): Well, then you don’t take a point of order; you take a call.

BARBARA EDMONDS (Associate Whip—Labour): I move, That the question be now put.

A party vote was called for on the question, That the question be now put.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 43

New Zealand National 33; ACT New Zealand 10.

Motion agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that Brooke van Velden’s tabled amendments to the amendments in Supplementary Order Paper 23 relating to Part 2 be agreed to.

Amendments to the amendments not agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that the Minister’s amendments to Part 2 set out on Supplementary Order Paper 23 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 43

New Zealand National 33; ACT New Zealand 10.

Amendments agreed to.

A party vote was called for on the question, That Part 2 as amended be agreed to.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 43

New Zealand National 33; ACT New Zealand 10.

Part 2 as amended agreed to.

Part 3 Amendments to other enactments

CHAIRPERSON (Adrian Rurawhe): Members, we now come to the debate on Part 3. This is the debate on clauses 66 to 102, containing amendments to other enactments. The question is that Part 3 stand part.

Hon MICHAEL WOODHOUSE (National): Thank you, Mr Chair. It was a bit previous before the dinner break on my tabled amendment to GST on roaming charges, and so I’m very happy to take a call on it now and ask the Minister a couple of questions. But before I do, and in relation to that, I want to quote the report the Finance and Expenditure Committee received from our independent specialist tax adviser Therese Turner, someone whom I have very high regard for. She’s fiercely intelligent on these matters and she doesn’t take a backward step. In her overall comment on the bill, she said this: “I’m of the view that making significant changes at the select committee stage of a bill is fraught with the danger of unintended consequences as it’s impossible to identify and deal with every practical situation to which changes may apply.” I find that both prophetic and ironic, given what we’ve just been debating, that we’ve had for some hours, and that the finance committee wasn’t even able to consider changes to it because it never went to that.

In respect of GST on outbound mobile roaming services, the committee heard a number of very, very smart people saying this is not necessary. They were strongly opposed to it. Chartered Accountants Australia and New Zealand said the changes were inconsistent with the destination principle. The proposals seek to impose GST on a supply which is consumed outside of New Zealand. That’s the fundamental principle of the GST Act, which for 35 years has been lauded as the exemplar globally because of its comprehensive nature. There are very few exceptions to the tax on goods and services provided. One of them—well, it’s not even an exception; it’s zero rated—is exports, and this isn’t even an export. This is something that is not even provided in New Zealand to a person who’s in New Zealand. I mean, it breaches every principle of the Goods and Services Tax Act.

The Corporate Taxpayers Group, which successive Ministers of Revenue used to listen to, said the changes will result in costly software upgrades for the telecommunications industry. Deloitte says the revenue that may be obtained from this measure is minimal and not commensurate with the costs involved. So not only is it wrong in principle, it’s wrong practically, because an efficient tax system seeks to raise more revenue than it costs to collect. Now, this is a very interesting nuance to that principle because the costs of collection don’t fall on IRD; they actually fall on agents who are not even gaining the revenue, and so this is just wrong all round.

Ms Turner made a recommendation to the committee that the measure be withdrawn from the bill and be reconsidered at a time when international travel settles into its new normal. So I do want to hear from the Minister about whether he took advice from officials on that, because I know they were pretty firm in committee that they didn’t agree that this broke any of the principles, but also just to inform him, as he now knows, that I have tabled an amendment that deletes these clauses altogether because the sensible thing to do, and the advice that we received from our adviser, was let’s not put this through in haste. It may have significant consequences, not necessarily for IRD but for the people who are going to be charged with reporting that revenue and essentially collecting it on behalf of the Crown.

So I’m just trying to remember which of the clauses they are now. We’re now where? Part 3. I should probably find it.

We should just dispense with it. This is not necessary. It’s not good law, it’s not efficient law, and it breaches every principle of that very, very good piece of legislation, the Goods and Services Tax Act. And as I come to it—here we are—I will be able to inform the House that the relevant clauses that I seek to delete are—lost to me.

Hon Gerry Brownlee: 85.

Hon MICHAEL WOODHOUSE: 85, is that right? Thank you, Mr Brownlee. They’re unnecessary, and my amendment, which I seek members’ support to agree with, is that those clauses be deleted.

Hon DAVID PARKER (Minister of Revenue): In relation to the compliance cost point that the Hon Michael Woodhouse has made, I’m advised that the implementation cost, which is a one-off cost, is estimated to be $1 million, but the annual revenue benefit—and that’s an annual review benefit—is $7 million. In the context of GST, where we generally require people to account for GST if they’ve got $60,000 of annual turnover, which represents only around $9,000 of GST revenue, I think members can see that the scale of this is worthy of the attention of the Inland Revenue Department and that the compliance costs relative to the long-term revenue gain are substantial.

In respect of why we are doing this now, it is to adopt an OECD recommendation, because at the moment there is both double taxation and double non-taxation at times—so, under-taxation. Given that in practice, people increasingly, when they travel overseas, take their mobile device with them, the OECD recommendation—which has been adopted by a lot of other OECD countries already—is that the country that is the source country, if you like, of the person going overseas collects GST on the service that is delivered to that person when they are overseas through their New Zealand providers, and we don’t collect GST, which theoretically we could, in respect of services that are consumed by overseas people with their devices on roaming when they come and roam in New Zealand. So that’s the reason.

Point of order, Madam Chairperson. The final point I will make is a point of order, and that is that this is an amendment which has revenue consequences and it has not been filed more than 24 hours in advance of the bill being considered. Therefore, I submit that it’s out of order and shouldn’t be voted upon.

Hon MICHAEL WOODHOUSE (National): I appreciate Minister Parker’s comprehensive reply to that. The reality is just about every tax bill has income consequences. This is not material, but if he chooses to exercise that discretion, then it will rule the amendment out of order at the appropriate time. That doesn’t stop me from discussing it. I want him to check with officials whether or not the million-dollar price tag for implementing this was their own costs, because, actually, what the submitters said to us was that it was going to cost them much, much more than that and more than the total revenue that would be collected by the Crown, and that was the point I was making about the nuanced difference between these from an efficiency perspective. The income is internalised to the Crown, but the costs are externalised to the agents who are collecting the GST on their behalf.

Now, I want to go to the particular principle of this about double taxation or double non-taxation. Firstly, the Minister mentions the OECD. Well, frankly, we are the exemplar of good goods and services tax legislation, not necessarily the countries that make up the OECD. In respect of the double taxation or double non-taxation, the solution to that—if indeed there is double non-taxation, and I’m not even sure that there is that—is that if an overseas person comes to New Zealand and their roaming devices hook in to Spark or 2degrees or whoever their agent overseas’ partner is here in New Zealand, then they are consuming a service onshore in New Zealand for which the fee should have GST added to it, in the same way that when they arrive in New Zealand and they go to a cafe and they buy a meal that they would have bought at home had they been at home, there’s still GST on that.

So if we are to adopt a consistent principle of taxing once, we should tax overseas people on their telecommunications charges here, and not impose GST on global roaming charges when New Zealanders are overseas. That would be the correct way to fix this, not what IRD are recommending. I’m not sure what the two-way trade is in global roaming charges. It probably favours the overseas telecom providers, given how much they blimmin charge us when we get overseas. Actually, to the degree that there is more or less the same number of people coming and going, it’s probably revenue-neutral, but it’s in principle a much purer approach to apply GST on domestic charges used by overseas people coming here, and not on roaming charges used by New Zealanders overseas.

Hon DAVID PARKER (Minister of Revenue): I’m advised that the estimate of the cost of software upgrades has actually come to the Revenue from the industry.

Hon Michael Woodhouse: Well, that’s not what they told us.

Hon DAVID PARKER: That’s what I’m advised, and they’re confident about that. In respect of the double taxation issue, I’m advised that a number of countries, such as the UK and the EU, are already adopting the OECD guidelines. So that would result in double taxation if we were to tax them for their consumption of roaming services when they were in New Zealand. It would also make it impractical for foreign telco suppliers to sell global or regional roaming packs that include New Zealand, because at the time their consumer uses the roaming services, they may be required to apportion roaming charges depending on each country’s GST or VAT, which becomes impractical for them. I think I’ve dealt with the other issues already.

Hon GERRY BROWNLEE (National): There is a clause in this part, clause 88, “Section 11 amended (Zero-rating of goods)”, and in it, it talks about replacing in the principal Act, in section 11(8D)(a), the words “a supply that is” with “a supply that wholly or partly consists of”, and paragraph (b), which says, “delete paragraph (b) does not apply”. So you then go through subclauses (2), (3), (4) of that, and subclause (5), but you come to subclause (5), and it says “Subsections (1) to (4)”—that’s above—“apply to a supply made by a person on or after 30 June 2014, except for a supply for which the person takes a tax position”, and then it says, “(a) in the period beginning 30 June 2014 and ending before the date in which this Act receives the Royal assent; and (b) that is inconsistent with the amendments made by subsections (1) to (4).” Subclauses (1) to (4), of course, talk about changing the principal Act and then, of course, it all being backdated to 2014. What is the reason for that retrospectivity, or what is gained by that in this particular instance, and is it related to the previous zero rating of telecommunication services, or does it have a much broader application that might catch various activities unintended for such a broad net?

Does the Minister want to answer that, or should I keep talking on?

Hon David Parker: Could I ask the member to refer me to the page and the clause number? I think we’re—

Hon GERRY BROWNLEE: Oh, sorry—yes. Page 62 of the bill, Part 3, clause 88, “Section 11 amended (Zero-rating of goods)”.

Perhaps while the Minister looks at that, I might look at one or two other aspects of Part 3 and carry on from where Mr Woodhouse was speaking, and the sort of inexplicable decision to go after what’s estimated to be $7 million worth of GST collected on global roaming charges. Now, look, some of that global roaming charge will have been calculated at a time where there was significant international travel, where New Zealanders travelled significantly for recreational purposes. What we’re likely to see in the next few years is New Zealanders travelling more for business reconnection, more for business expansion, and for a development of business activity as we try and grow exports out of this country, and you’d have to ask: was that ever a consideration for the rapacious IRD when they made this particular piece of advice available to the Government?

Further: did some Government Minister not think, “Well, we spend a lot of money through New Zealand Trade and Enterprise, through the Ministry of Foreign Affairs and Trade, and through Callaghan Innovation trying to increase exports, trying to grow export markets? Is it really necessary for us to try and collect some money off those businesses as they go about their work overseas?”

Now, the Minister will probably say to me, “Well, if they are a business, this would be an expense they can collect. They can claim the GST back on it.” So that raises the question of why, then, in an environment where we are likely to have a predominance of people who can claim the GST back being required to pay it—why spend the money on it in the first place? It seems to me it’s very much at the tiny end of the scale. If the Minister perhaps is now able to think about that previous question, I’m happy to sit down and have that answered.

Hon DAVID PARKER (Minister of Revenue): I’m not yet in a position to answer the very technical question that’s been raised in respect of clause 88 of the bill, although I do note that it came back from select committee unmodified. It is a very technical change and I will get the answer as soon as I can.

In respect of the other point that the member made, that would be true in respect of being able to offset that against expenditure in the GST return. That would be true in respect of businesses, but not individuals that aren’t travelling for business purposes.

Hon GERRY BROWNLEE (National): But that’s unlikely to be a large number of people in the next short while.

Can I just say with regards to clause 88—where the Minister has said, “Well, it came back from the select committee unamended.”—that, as everyone in this House knows, the select committee process was ridiculously short. It was a very fast process, hurried through, and under a time frame that probably didn’t allow the full extent of coverage or scrutiny on all of these passages. It’s why we actually have a House committee session as well, and, of course, interestingly, the Government was in such a hurry to get this bill through that it failed to put in front of the select committee the 50-page Supplementary Order Paper that’s been provided today. So it’s not unreasonable to ask that simple question about what it is that makes, or appears to make, some of these provisions so retrospective.

Damien Smith: Madam Chair.

Hon GERRY BROWNLEE: Well, I’m on my feet with a few minutes to go—no, look, I’ll let someone else take a call while the answer’s being provided by the Minister.

Hon DAVID PARKER (Minister of Revenue): I now have an answer to the Hon Gerry Brownlee’s earlier question. This, I am advised, is a taxpayer-friendly provision. It’s got nothing to do with GST on roaming services. It’s about the zero rating for commercial land leases, and under New Zealand’s GST system, we zero-rate sales of land between GST-registered businesses. The zero rating also applies to the transfer of lease agreements on commercial land as these are types of interest in land, and these remedial amendments are proposed to ensure that the compulsory zero rating rules that apply to leases of commercial land work as intended.

In terms of the retrospectivity, the proposed remedial amendments apply retrospectively as from 30 June 2014, as that’s the date when the provisions that are being amended first took effect. So the fix goes back to that date. There is, however, a savings provision to preserve the tax positions of any taxpayers who took tax positions based on the provisions that existed prior to the proposed remedial amendments. So my understanding is that no one will be worse off and some people will be better off.

ANDREW BAYLY (National—Port Waikato): Thank you, Madam Chair. That was a very interesting line of questioning from the Hon Michael Woodhouse, and I think it was very pertinent. I suppose it goes back to: what are you trying to achieve as a Government? We’ve already heard earlier tonight that even though the Government was quite clear it wasn’t going to increase taxes, it’s going to raise $44 billion from some of the proposals we talked about before, and here’s another example with the GST on roaming services.

The telco companies thought it was a real imposition to be able to put this in place, and for the reality of it, I think the estimate was actually $6 million to $7 million of GST revenue before, of course, COVID. Of course, we’re now in a situation where the world has changed, and actually most people are not travelling. With the advent of Zoom, or the discovery of Zoom, and other such media, it’s unlikely they’re going to have the same level of international travel. In fact, some of the predictions of international travel show a dramatic drop, not just because we don’t have people flying due to health restrictions but because of a reset of the way people will conduct their businesses. We’ve already seen that domestically, where we don’t have the same level of domestic travel in New Zealand because people are just choosing not to fly on planes, because they don’t need to.

They’ve now got just as good a mechanism with Zoom, and as to the implication around roaming services and the GST, first of all, I think we all now will recognise—unless we’re living under a stone—that the likelihood we’re going to get the $6 million to $7 million of gross revenue from GST that was estimated before COVID is one heck of an assumption that that’s going to continue. So it could easily foresee that the revenue we’re talking about may be as little as $3 million—halved, easily.

First of all, I suppose the question is: has the Minister actually sought any update on recent revenue estimates, given the changes in business practices and, certainly, the impact of COVID? But I think it gives rise to a much more principled discussion, which is: how mean will you be as a Government? How mean do you want to be as the Minister of Revenue? Do you really want to go after businesses for three million bucks when it’s going to cost the telcos to actually put in place the software, which will have an ongoing cost—I note that the Minister tried to imply it was all a one-off cost. It will be an administrative requirement to provide that advice, and so the Government can rapaciously continue to tax these people and achieve the GST returns.

But how much more do you want to impose on business people who legitimately want to go overseas so that they can actually go and create new export markets, grow the economy? Isn’t that what we need to do in a post-COVID world, particularly when we’ve lost $16 billion of international tourism and $5 billion of international students coming to New Zealand? Don’t we actually want to promote and help? Isn’t it time to actually look at a policy initiative like that and say “Oops!”?

Actually, just as the Minister can slap on the Table today Supplementary Order Paper 23 which is like 50, 60 pages long and which leads to a massive amount of people texting in concern, it’s just as easy if we just picked up the Hon Michael Woodhouse’s amendment and go, “That’s right—the world has changed.” Why don’t we just get rid of this clause, because it, basically, is not going to bring any new income? It’s just an imposition on business people and on businesses. It’s a waste of time, so why don’t we be practical? Why don’t we look at how we’re going to grow the economy, and, gee, every day we’re borrowing about $110 million on the bond markets—so that’s about a minute’s worth. In the last five minutes I’ve spoken, I’ve probably blown the three million bucks that you hoped to get as revenue, Minister. Don’t be so mean, Minister.

Hon DAVID PARKER (Minister of Revenue): The member is correct that the Estimates were prepared pre-COVID, and obviously the short-term GST collected on this will be less, and, actually, the benefits to people roaming in New Zealand from overseas will also commensurately be less from this change. None the less, we expect that the short to medium term impact will be overcome as we return to international travel, which is expected to rebound after a successful COVID-19 vaccine.

Andrew Bayly: Not fully.

Hon DAVID PARKER: Well, time will tell.

Andrew Bayly: No one is even predicting that at the moment.

Hon DAVID PARKER: Well, we’ll see. I think the member’s probably right that in the next few years it will be less than was previously predicted. But, as I said, the compliance cost is still thought to be a one-off cost of $1 million, and we think that, overall, it’s wise to proceed.

DAMIEN SMITH (ACT): Thank you very much, Madam Chair. I think we recall from the last debate that this was an area where, suddenly, COVID and its application and its effect on markets and commerce is being discounted. We clearly know that for the next couple of years, we’re not coming on stream the way we were before and that there was a simple solution to this part of the bill, which was to delay this and have more consultation with the industry to May 2024, or scrap it altogether—scrap it altogether—because the fiscal benefits and the monetised costs and the non-monetised costs don’t make any sense.

I’ll call this a stealth tax as well, because businesses—and it’ll be spread across ordinary New Zealanders as well—will not even see this or register this, but it’s our job to pick it up and make some sense out of it. So one of the proposals that I have to the IRD and the Minister and the advisers is to go down those two channels, and let’s take it back and make some sense of it. We delay the implementation date or we scrap it altogether.

Hon DAVID PARKER (Minister of Revenue): I appreciate the member’s concern for the effect of this on business. There is no net effect for business, because they, of course, would be able to claim this GST back in their own GST returns as an input.

BARBARA EDMONDS (Labour—Mana): Thank you, Madam Chair. A lot of the detail sometimes is in the definitions of the bill, and I note that in Part 3—I’m looking specifically at clause 67, Minister—the definition of “tax” in subclause (4)(e) looks at “replace ‘for the purposes of sections 6, 6A,’ with ‘for the purposes of Part 10B,’ ”. Now, if you look at Part 10B of the Tax Administration Act, I understand that’s in relation to the Small Business Cashflow (Loan) Scheme. So is what the Minister’s proposing to do with this particular clause—

Hon David Parker: Which clause, sorry?

BARBARA EDMONDS: So it’s clause 67, and it’s the widening of the definition of “tax”, and it’s in relation to the Small Business Cashflow (Loan) Scheme. My assumption is that, obviously, it’s a remedial. So if I look at what it’s intending to do, is it correct to say that that particular provision in Part 3 is looking to widen the definition of tax to allow a tax refund owed to a taxpayer—to allow them to directly transfer that to their outstanding Small Business Cashflow (Loan) Scheme, or the amount that is underneath their loan?

My assumption is, understanding the tax Acts, it’s possibly for compliance reasons, because if I understand how tax refunds—well, I understand how tax refunds work. The taxpayer has to go to IRD. Unless it’s automatically offset against other tax types, then the taxpayer has to go to IRD and has to request that it be offset to a particular tax type if it’s not within the definition of tax. So if my reading is correct, this remedial, which is in clause 67, page 56 of the bill, and around widening the definition of tax in Part 10B to include the Small Business Cashflow (Loan) Scheme—I just want to clarify with the Minister: is it the intention of that particular remedial to allow the taxpayers to avoid tax compliance costs, for it to be automatically offset against their Small Business Cashflow (Loan) Scheme amount that is due?

Hon DAVID PARKER (Minister of Revenue): Yes, at the election of the taxpayer. So yes, the member is correct that a member could elect that their tax refund is applied directly to repayment of a loan of that type.

Referring again to the matters raised by the two prior speakers as to why wouldn’t we delay the provisions in relation to GST on outbound roaming services: in addition to the fact that businesses get it back, I’m advised that the proposed change doesn’t come into effect until 1 April 2022 anyway, which is over 12 months from now. A further delay of another two years, which would be a total delay of 3½ years, is in our view not justified and it would also come at a revenue cost. On that basis, I’ll also be seeking that the Chair rule that amendment out, which would delay its coming into force.

NICOLA WILLIS (National): I wish to return to this issue in Part 3 around the GST treatment of mobile roaming services, because this was something that we explored in the select committee and we weren’t really able to get to the bottom of the rationale for the changes. Essentially, this imposes GST on roaming services in a way that it hasn’t been done previously. It’s a new tax, and what I want to understand from the Minister is what work, if any, he or his officials have done to judge how much revenue this new measure will bring in and how that marries up versus the additional compliance costs that will be created in chasing that revenue and, specifically, where those compliance costs will fall, because it has been my understanding that the compliance costs, in order to gather that GST will, in fact, fall particularly on telecommunications providers so that the people who are going to have to chase this revenue on behalf of the taxpayer are actually the private companies whose customers are affected by it.

I think it’s important that we have an understanding of whether or not the Minister sees there being a threshold here where the revenue being obtained would be so little as to outweigh the benefit of having this clause at all—that is, potentially having some sort of a review mechanism to allow for the fact that if the telecommunications industry has to undertake incredibly costly upgrades in order to chase what may be a small amount of revenue, the Minister or IRD would admit at that point that this is a poor idea. National Party members expressed in our minority view that we don’t believe that the existing rules are inconsistent with best practice as has been claimed, and we believe that mobile roaming charges should continue to be zero rated. They are exported services consumed by New Zealanders overseas, and applying GST to such services, we continue to believe, is inconsistent with the Goods and Services Tax Act. So it is in that context that I ask: how much revenue will this get, how much will it cost to get that revenue, and who bears the cost of gathering that revenue?

Hon DAVID PARKER (Minister of Revenue): I’ve previously addressed both of those points.

Hon MICHAEL WOODHOUSE (National): Just a brief intervention following up from my earlier intervention. The Minister challenged my assessment that the costs on the telecommunication industry for the GST on roaming charges would be much higher than he thought, and he’s right in terms of the submissions that were made—at least that I can see, and I’ve got plenty of them in front of me. It was initially estimated to be $1 million. I have a recollection that the select committee did actually hear from a submitter in the telecommunication industry that suggested that was a very, very low estimate, but I cannot find the written version of that submission, so I have to accept the point. But I also add my support for the view that Mr Bayly put in that the $7 million of revenue was also significantly exaggerated in the context of COVID, and submitters did acknowledge that because of a significant reduction in the amount of people travelling to New Zealand, that revenue was likely to be heroically overstated.

Nevertheless, my substantive point is actually on the principle, not the costs, and those principles still apply. He mentioned the OECD, and, indeed, we heard quite a bit about this from submitters, particularly the EU, and the EU is different. The UK and the EU are quite different where, essentially, they are domestic providers for the purposes of roaming, where one can actually take their own telecommunications provider with them from one country to the next. That’s not the case and it’s not possible to do that in New Zealand or for New Zealanders to do that overseas. They have to hook in to a local telecommunications provider. It is still a service being provided to a person overseas by an overseas organisation, and for that reason, it should not be subject to GST.

Hon DAVID PARKER (Minister of Revenue): I’ve been handed by officials the submission from Deloitte to the select committee where, on behalf of Vodafone, Spark, and 2degrees, they estimated the upfront cost of implementing the systems changes to capture GST on outbound roaming would cost approximately $1 million.

ANDREW BAYLY (National—Port Waikato): Oh, thank you, Madam Chair. I was just hoping that some of the members of the Finance and Expenditure Committee from the other side were going to make a contribution, so sorry for the delay. I do acknowledge that Ms Edmonds is doing contributions. She seems to be holding up the flag for the Government in supporting this bill tonight. I’m just wondering where our good chair is tonight. I see him sitting over there, the chair of the Finance and Expenditure Committee. I’m hoping he’s going to make a contribution.

Hon Member: Head down.

ANDREW BAYLY: Head down—I don’t know what he’s doing. This is the theme today, which is how we’re going to tax more people today.

Tim van de Molen: Desperate for a call.

ANDREW BAYLY: Desperate for a call, and hopefully he might, given he is the chair and normally plays a part in any tax bill. It’s very rare that they don’t.

I’m worried, because I think this Minister of Revenue is going to go down as a mean-spirited person. I know at a personal level he’s not, but you—and when I say “you”, I’m referring to Minister Parker, of course, not Madam Chair. She’s a lovely person. But I’m finding the Minister’s principles about the way he’s approaching tax tonight to be concerning. If we were in normality, I could probably understand the approach that he is adopting, but we are not. We are in a situation where we’ve got many thousands of businesses facing the likelihood of having to close their doors and having to fire, remove, release many employees that will be valued people that they’ve worked with over time, and I think there are times when Governments need to smell the roses, look at what’s happening around the world, and look at what’s happening in New Zealand. I’m concerned that we’re ending up with a tax bill that is one that is deeply unfair.

I’d urge the Minister to reflect on this going forward, because already today the amendments that have been discussed are quite wide ranging around housing—and I know we’re not talking about this in Part 3, and I’m going to get to that, but I think there is an issue with the approach of the Minister.

I just really want to turn to something a bit different. The unclaimed money aspects of this Part 3 are quite detailed and are quite important—

David Seymour: Tell us all about it, please.

ANDREW BAYLY: —because if you look at clause 100D—and I’m sure, fortunately, I think Mr Damien Smith has been following this very closely, actually, in finance and expenditure. But the unclaimed portion relates to money that hasn’t been captured or claimed in excess of $100, so it could be quite substantial amounts of money, and there’s a new definition of what that means. It refers to “A person, firm, body, or institution … who holds or owes an amount of money is the holder of that money under this subsection if— … the money is not unclaimed … if the money is excluded from being unclaimed [or] the elective holder chooses to be treated as the holder of the money.” My point here is there’s an element in here that I don’t understand. I wish I’d discussed it more at the select committee, but, as was alluded to before, this bill has been rushed through the select committee, and then we get dumped with this big Supplementary Order Paper 23 today, which makes this effort somewhat wasted, in many respects. But the issue—

Tim van de Molen: Chin up.

ANDREW BAYLY: I know I’ve got to chin up, yes, but it’s the hundreds of thousands of New Zealanders I’m more worried about, and I’m sure they don’t have their chin up. They will be watching this debate with much interest, thinking how much money they’ve lost tonight and what they’re going to do with their houses that they’re going to have to sell and pay a lot of tax on.

But I want to just refer to new section 4(5) in clause 100D. It says, “Money payable by a holder to an owner does not meet the requirements … if the money is payable—(a) as a dividend by the holder as a company to the owner as a shareholder”, and also the second part, paragraph (b): “as a rebate by the holder as a mutual association to the owner as a member in relation to the trading transactions of the member”.

Sorry, Minister, it is quite an important aspect, because we want to make sure that people are entitled to get their unclaimed money. I think there’s a lot of improvements in the bill—I fully accept that—but there’s an element in here that probably needs elucidating.

Dr DUNCAN WEBB (Junior Whip—Labour): I move, That the question be now put.

CHAIRPERSON (Hon Jenny Salesa): The question is that Brooke van Velden’s tabled amendments to amendments in Supplementary Order Paper 23 relating to Part 3 be agreed to.

A party vote was called for on the question, That the amendments to the amendments be agreed to.

Ayes 10

ACT New Zealand 10.

Noes 108

New Zealand Labour 65; New Zealand National 33; Green Party of Aotearoa New Zealand 10.

Amendments to the amendments not agreed to.

Hon MICHAEL WOODHOUSE (National): Point of order, Madam Chairperson. Dr Webb moved that the question be put and the question wasn’t put. I just wonder if you could clarify whether or not that was the preceding motion, which would certainly have been opposed by the National Party, and we didn’t have the opportunity to record our vote on that motion.

CHAIRPERSON (Hon Jenny Salesa): When Dr Webb sought the closure motion, nobody else from the Opposition side sought another call. I declined the motion, and because no one else from your side of the House asked for a call, that’s why we went on. The question is that the Minister’s amendments to Part 3 set out on Supplementary Order Paper 23 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 45

New Zealand National 33; ACT New Zealand 10; Te Paati Māori 2.

Amendments agreed to.

The result corrected after originally being announced as Ayes 75, Noes 35.

CHAIRPERSON (Hon Jenny Salesa): The Hon Michael Woodhouse’s tabled amendments to clauses 85 to 89 are out of order as 24 hours’ notice was not given for amendments that may have impact on the Government’s fiscal aggregates.

DAVID SEYMOUR (Leader—ACT): Point of order, Madam Chairperson. Sorry, I may have misheard. I heard the Noes were 35 on that last amendment. Did I hear that correctly, because I understood that ACT and National both opposed it, and you should have had 45?

CHAIRPERSON (Hon Jenny Salesa): Apologies. I read out the sheet as it was given to me. The Ayes are 75; the Noes are 45. The Ayes have it.

The Hon Michael Woodhouse’s tabled amendments—sorry, that was what we’ve just voted on. The question is that Part 3 as amended stand part.

A party vote was called for on the question, That Part 3 as amended be agreed to.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 45

New Zealand National 33; ACT New Zealand 10; Te Paati Māori 2.

Part 3 as amended agreed to.

Motion agreed to.

Schedule 1

A party vote was called for on the question, That Schedule 1 be agreed to.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 45

New Zealand National 33; ACT New Zealand 10; Te Paati Māori 2.

Schedule 1 agreed to.

Motion agreed to.

Schedule 2

A party vote was called for on the question, That Schedule 2 be agreed to.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 45

New Zealand National 33; ACT New Zealand 10; Te Paati Māori 2.

Schedule 2 agreed to.

Motion agreed to.

Clauses 1 and 2

CHAIRPERSON (Hon Jenny Salesa): Members, we come now to the debate on clauses 1 and 2, the title clause and commencement clause.

ANDREW BAYLY (National—Port Waikato): Thank you, Madam Chair. Well, I think this title should change, and I’d be keen to put forward a motion. I think it should read “Taxation (Annual Rates For 2020-21, Feasibility Expenditure, and Remedial Matters) Bill and Let’s Smack Mum and Dad Investors Who Happened to Own a Rental Property around the Head”, because this is what this bill is about. There is some good stuff in this bill that went through the Finance and Expenditure Committee, and we discussed it and debated it, and in the main we are supportive of most of the elements in the bill that deal with improving tax arrangements.

Obviously, we have a deep concern about the tax rates and other aspects as we traverse, such as GST on roaming services, but the issue around this is this bill went through a select committee process. It was focused on the matters which are taxation, and principally the annual rates, which is a key bit, were debated and required to be debated separately. It looked at feasibility expenditure, and there were quite significant changes around that and how they can be carried forward and, if they are removed, how they can be taken back into account if a business subsequently reinitiates a business where some feasibility expenditure was deducted. There’s a whole stack of remedial matters that were dealt with, which in mind were highlighted by Ms Barbara Edmonds, which are all good—all good—to the extent that we dealt with those in a good manner, and I think the commentary to the bill sets out our different views.

We have a minority view which specifically deals with our concerns around aspects in this bill. I’m just looking for it here, but it’s clear, and we wrote that minority view at a time when we thought this bill was going to pass through the House and we were going to discuss the matters raised in it. However, we were presented today with Supplementary Order Paper (SOP) 23 that runs to, I think, 60 pages. I haven’t checked the exact amount, but it’s a fair stack of pages here, with no advance warning. The press, as I understand it, were given an advance copy at 8 o’clock. The announcement was made at nine. We weren’t given an advance copy at 8 o’clock, of course, because it’s all politics. So here we are. We have the media who are given preferential access to this very, very substantial SOP about imposing a significant increase in the brightline test from five to 10 years, in which, of course, now makes it a gain on capital asset, which is a capital gains tax; and of course, deducts the issue, disallows the deduction of interest expenditure on rental properties.

Now, I understand there’s about $82 billion worth of debt relating to rental properties. If that figure is right, this is a very, very significant aspect. There will be many people worried tonight about what this means for them, and most of those, by far the greatest number, will be mum and dad investors who own one rental property. There are very, very few people who own three or more rental properties.

So that’s why, I think, given what we’ve had today with this dreadful SOP that’s going to reverberate around the market and affect the households and families of many New Zealanders, I think to continue to call this bill the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill is actually a misnomer, because when you consider what the SOP includes in it, it is by far the most significant thing we’re debating today, which is how we’re going to smack around mum and dad investors who own one rental property and will tonight be worrying about it, going to bed, thinking about what will they do when in many cases, most of the cases, they are great landlords providing great rental properties for good New Zealanders in a market which is perfectly adequate, and people are enjoying the relationship in terms of living in a good, secure house.

Hon MICHAEL WOODHOUSE (National): I’m not normally one who would play around with titles of bills, but this is definitely an example of where the legislation we are passing—what’s on the tin is not what’s inside, because this bill is called the “Taxation (Annual Rates for 2020-21,”—OK, we’ve done that—“Feasibility Expenditure,”—OK, we’ve done that—“and Remedial [Measures]) Bill”. And so in order for the title to match what we are about to do, passing into law a massive extension to the brightline test, one would need to consider that remedial matter, something that needed to be remedied. It’s not something that needs to be remedied. So I think this bill needs an addition to those three strands. Put a fourth leg on the stool, and let’s call it what it is, “Remedial Matters and a Capital Gains Tax by Stealth Bill”, because there is no doubt that the Government having promised—the Prime Minister having stood up in the Beehive Theatrette and saying, “While I am Prime Minister, a capital gains tax will not be introduced.” and the Minister of Finance saying publicly, I think on 9 September 2020, “Will there be changes to the brightline test? A one-word answer, ‘No.’ ”

Andrew Bayly: But you forgot the laugh.

Hon MICHAEL WOODHOUSE: Oh, and a “Ha, ha!” Yes, that’s right—a nervous laugh, “Ha, ha”—something like that. I’m not very good at mimicry, especially not with the Minister of Finance. But let’s be very clear. This bill is not describing what we are doing now.

I referred to Ms Turner’s very excellent advice to the committee, the select committee, and I want to turn to that again. In respect of purchase price allocation, it’s relevant to an amendment, a tabled amendment that I’m about to put on the Table, and I appreciate the Clerk’s assistance with the drafting, because I hadn’t noticed that the Minister had already amended the commencement date for section 40 of the Act, and that’s in relation to purchase price allocation. Bear in mind, Ms Turner’s comments that she made, which I quoted in Part 2, to the significant changes and the risk of unintended consequences, is “it is impossible to identify and deal [with] every practical situation to which … changes may apply. … For these reasons, I concur with the cautious approach recommended by officials.” Well, that rings a bit hollow right now.

In respect of that purchase price allocation, she made a very interesting point at 4.4 of her report: “The proposed rules are detailed and complex and the consequences of not knowing of their existence, misunderstanding them, or ignoring them are not pleasant, particularly for purchasers.” And then she goes on to talk about the time frame: “That timeframe”—the stated application date is 1 April, bear in mind—“is physically impossible.” So what she recommended to the committee was that the application date of 1 April would apply to commercial land and buildings, including fit-out, and that the application date of 1 April 2022 apply to the other asset classes and that the intervening period be used for two purposes, being education and fine tuning of the proposals.

Now, the Minister has in his Supplementary Order Paper 23, as I understand it, delayed the implementation of section 40 until 1 July 2021 as a partial nod, I think, to those concerns. I don’t think that goes far enough. I think Therese Turner’s advice to the committee was very sage. These are complex changes to the manner in which purchase price allocation goes, and I think it behoves this committee of the whole House to give tax agents and stakeholders every opportunity to educate their clients, because the consequences of getting that wrong are extreme, and they could have whole purchase prices disallowed because of their failure to comply with these new provisions, at least until those things are sorted out. I think it would be only fair because, remember, IRD used to have as its strapline, “It’s our job to be fair.” Well, it’s only fair to give those clients of tax agents every opportunity to understand their obligations so that they can avoid the pitfalls that are being introduced potentially by section 40. So just to summarise, this is the “Capital Gains Tax by Stealth Bill” and the purchase price allocation commencement date, in my view, should be 1 April 2022.

Hon DAVID PARKER (Minister of Revenue): I thank the member, the Hon Michael Woodhouse, for his contribution. He is correct that the Supplementary Order Paper changes the commencement date for the purchase price allocation provisions to 1 July this year, which would leave three—and thereafter it applies to transactions entered into after that date. So from 1 July onwards, those provisions kick in and vendors and purchasers have to agree on a purchase price allocation in accordance with the new rules. The advice that we have received and accepted on the Government side is three months is enough for people to get their head around that. It does have significant financial consequences of many millions of dollars every month, actually. The revenue gain or the reduced revenue loss, I perhaps should describe it as, is predicted to be $170 million over three years. So three years being 36 months, you can see that it’s more than a million dollars a month, and therefore we’ll be voting against the member’s proposal to change that commencement date for purchase price allocation to 1 April next year, and we’ll be sticking with the proposal that’s in the Supplementary Order Paper of 1 July this year.

Hon MICHAEL WOODHOUSE (National): Thank you, Madam Chair. I appreciate the Minister’s clarification that indeed my reading of the amendment was correct. I would make two comments about his case for haste, because I still believe that even a three-month delay is a very short period of time. One is that by his own admission, if the costs of the delay are so high, we’ve had no provision like this in terms of the framework for the punitive aspects of failure to agree a purchase price allocation methodology for years. So what’s another nine months?

The second point I would make is that the very transactions that would be caught by this provision, even if it were delayed until 1 July, are being negotiated right now. So the sale and purchase of businesses is not something that we do like the sale and purchase of a house. They are often very complex and they involve the calculation of after-tax rates of returns for the potential buyer that would be significantly affected by the failure to agree a purchase price allocation methodology. And if they were to be agreed even, say, in the next four or six weeks, the settlement on the sale and purchase of these taxable assets by 1 July means effectively they are caught then as if it was 1 April.

Now, there will be some people that were negotiating some months ago that may not be caught in that net—I accept that—but I don’t think that’s a compelling enough reason to say three months’ notice is sufficient. And I appreciate that the Minister will ask his members to vote the Supplementary Order Paper down, but I think careful consideration should be given to it.

Hon DAVID PARKER (Minister of Revenue): If I could just correct my last intervention, I said that it was being done by the Supplementary Order Paper—officials, correct me—it is actually being done in the version as reported back by select committee on page 9 in section 22BA, in clause 2(22). Section 22BA lists section 40 in the middle of that list of sections that come into force on 1 July 2021. So the—

Hon Michael Woodhouse: So why is it in the SOP then?

Hon DAVID PARKER: Well, I’m advised by officials that it’s not. So if the member sees otherwise, feel free to raise that again and I’ll check that.

Hon MICHAEL WOODHOUSE (National): This is the issue that I’ve been discussing with the Clerks. Their suggested tabled amendment of mine is a proposed amendment to Supplementary Order Paper (SOP) 23, because on page 2 of that SOP, in the second paragraph, it says “Replace clause 2(22BA) (page 9, lines 8 and 9) with: (22BA) Sections 40 and 58(6) and (13B) come into force on 1 July 2021.” So whether clause 40 was already covered by the amended bill that we considered at second reading, it’s certainly in the SOP.

Hon DAVID PARKER (Minister of Revenue): I think the easiest way through that, because I see the—it looks like it’s been done twice, actually. Belts and braces! How I’m going to propose to—

Hon Michael Woodhouse: Yeah, pretty much. Will I put two SOPs in then?

Hon DAVID PARKER: Well, the later one would take effect. Subject to advice from the Clerks, assuming it’s in order the way it’s currently done, it seems to me you end up with clause 2(22BA) in the Supplementary Order Paper (SOP) saying that clause 40 of the bill comes into force on 1 July 2021, in which case the member’s Supplementary Order Paper is in order and doesn’t infringe the 24-hour rule, because it’s an amendment to the SOP rather than to the primary bill. We will none the less be voting against it and you’ll get to the same answer.

Hon MICHAEL WOODHOUSE (National): Thank you, Madam Chair. I appreciate the Minister’s clarification. In the amended bill that we considered at second reading, clause 2(22BA) actually had a number of other sections—17, 20, 27—as well, which are not mentioned in Supplementary Order Paper 23, which suggests that, whereas the intention was for them to come into force on 1 July 2021, they are now not mentioned at all, but there doesn’t appear to be an amendment deleting those, which, I take it, then means that those sections are covered by the catch-all commencement provision saying that they’ll come into force on the day on which it receives Royal assent. I’m not even sure what those sections are, but, if there was an intention to delay by three months, it’s now being removed. I’d be interested in knowing why.

NICOLA WILLIS (National): This is a really clear case where the title of this bill misleads he or she who goes to look in the statute as to what it actually does. The Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill sounds like your typical annual tax bill that simply resets the tax rates and has some other minor adjustments. In fact, what we know is that following the inclusion of Supplementary Order Paper (SOP) No 23, what this actually is is the “Taxation (Introduction of a Capital Gains Tax for New Zealand Properties) Bill”. What the Government has done is it’s snuck in a very significant change to our tax system in the form of an SOP, jammed it into an existing bill under urgency without reference to select committee. If you were to look in the statute book to the future, and you were to look for, OK, when was it that the New Zealand Parliament determined that it would include a new capital gains tax, that it would have this extension, this 10-year capital gains tax, you’d expect to find that somewhere in the title. You’d expect something like the “Taxation (Capital Gains Tax) Bill”, but in fact you would have to go and look for the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill. Quite clearly, the title of this bill should be amended to better reflect its contents.

The most far-ranging aspect of this bill, that will have an impact on thousands of New Zealanders who own a second property, is the fact that it includes an extension, a new capital gains tax. This is specifically something that the Government had previously said it would not do. It’s not something that was foreshadowed in the earlier version of this bill, but it is now absolutely a primary part of what this legislation will do. It should be included in the title, and I would ask the Minister to address whether he has considered tweaking the title to reflect the contents of his legislation.

ANDREW BAYLY (National—Port Waikato): Thank you. I was waiting for the Minister, actually. We were being generous with the Minister, so, hopefully, the Minister is going to respond to Michael Woodhouse’s question.

Look, want to talk about the issue of the commencement date, because I think what we just observed here, with the inquiring mind of the forensic Hon Michael Woodhouse, is we have started to highlight some of the issues.

Whether he is correct or not—and the Minister’s obviously deep in discussions with officials—this just goes to show why this bill, which has such a magnitude around it, should’ve gone through a proper process of evaluation and consideration, not only from a select committee process, where we have people like Hon Michael Woodhouse making very valuable contributions to making sure that this bill is the best we can get, but I think it also raises a wider issue, around this is not an insignificant issue that this new Supplementary Order Paper (SOP) 23 will have on mum and dad investors. It is a major imposition. It has financial consequences that many people will be wondering about tonight and worrying about tonight, and I think this is a real prime example why the Minister should have been much more judicious—in fact, I say the Government should’ve been much more judicious in the way that they brought the SOP to the House.

Now, the Minister of Finance wrote to the Reserve Bank Governor way back in November. There was a response in early December. The Minister’s written back. We’re still waiting for the Reserve Bank’s response. That is one side of the coin, and I heard the Minister saying before “You know they’re thrashing this around. We’re only worried about supply.” Well, actually, it is a comprehensive solution that’s required. This is not the one that’s going to actually achieve that outcome.

But putting this bill through proper scrutiny and allowing New Zealanders who are going to be affected by it—the many hundreds of thousands of New Zealanders who are going to be affected by it—to have a say, to be able to present their arguments, and to make sure that we get this bill in the best possible way would mean that the commencement date actually shouldn’t be what it is, which is on Royal assent, particularly in respect to the SOP. I put it to the Minister that the SOP should be delayed before it has any commencement date, and we know that it takes effect, basically, at the close of business on Friday, which is 24 working hours from now—three days’ time. That is an issue that really is significant because it affects people’s property rights and all that sort of stuff, which are fundamental principles about New Zealand—that we do not cut across people’s property rights without giving them the opportunity to have their say, and we haven’t achieved that at all.

But also, during the course of the night, I probed the Minister on why the urgency. It’s a simple argument around the fact that, well, if we don’t push it through, we think there’s going to be an avalanche of investors who are going to go and buy a property overnight or in the next few days to take advantage of the rules. Well, I think that is a misguided perception, because if you look at what’s taken place, if you buy a property, you will now be locked into a 10-year rule with the brightline test.

Secondly, you know going into it that, knowingly, you will not be able to deduct the interest that you incur in respect to that building that you buy. So why on earth are many people going to be sitting there going, “Gee, this is a fantastic opportunity.”? I think the bigger risk and the real risk is that people will want to exit the market and exit pretty quickly, and what we want to make sure is that we allow that to take place in an ordered fashion. That’s why I think the commencement date needs to change. I think the Minister needs to reflect on that. I know he doesn’t have long, but I think that in respect to the SOP, it is injudicious, it’s unwise, to actually impose this with such a brutal start date. I think the Government’s going to rue the fact that it chose to go down this path that many New Zealanders will not like.

Hon DAVID PARKER (Minister of Revenue): I heard the member Andrew Bayly, but we disagree. I won’t convince him to the contrary.

In respect of the point raised by the Hon Michael Woodhouse, I think the answer, at least in respect of clauses 17 and 20 where they’re no longer listed in the commencement date clause—that’s because if you look at page 15 of Supplementary Order Paper 23, clauses 17 and 20 are deleted. I’ve got it before me here on page 15. Therefore, they no longer need a commencement date. But in respect of the member’s amendment to one of the remaining clauses, 40, we will be not agreeing to his amendment.

Hon MICHAEL WOODHOUSE (National): I thank the Minister in the chair, the Hon David Parker, for that. Actually, I was diving deeply into the documents to look for a reason, as well—and, actually, I draw his attention and officials’ attention back to the substantive bill that we discussed at second reading—clauses 17, 20, and 27 were amended to apply to agreements that were entered into on or after 1 July 2021; whereas, the bill as introduced had that effective 1 April 2021. So the change that we made at second reading actually had the same effect as what the Supplementary Order Paper (SOP) is doing to clause 40.

So the reason it was deleted from SOP 23, as the Minister has just said, was that it was unnecessary. It was unnecessary because it was actually changed before in the bill. What I am not sure that I understand—and the central point that Mr Bayly was making, I think, very much applies in this case—is why the change was made to clauses 17, 20, and, 27, but not clause 40, because the same principle would have applied. Even if clause 40 came in on 1 April, if we had amended the bill to say that it only applied to agreements entered into on or after 1 July, it would have had the same effect. So it does perplex me why we treated three clauses one way and the fourth clause the other. But I now understand that the effect of it is the same: all of the clauses will be amended from 1 July, assuming the Minister is right and we don’t accept my SOP. I’m just not sure why we did it that way.

Hon GERRY BROWNLEE (National): It’s important that any bill that passes through Parliament does have a name that reflects its effect. And I think what we’ve heard tonight is that there is no way in which the current title of the bill reflects the effect that is going to be eventually, by a majority, passed through this committee tonight. It’s currently called the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill. It makes no reference at all to the brightline test. It makes no reference at all to the GST being applied to roaming phones. And it might be easy to say they’re just remedial matters. Well, the brightline test doubling in its length is not a remedial matter. It is a major decision by a Government, with tax implications.

I think the bill would be better named the “Taxation (Annual Rates for 2020-2021, Feasibility Expenditure, Brightline Extension, Property Price Escalation, Rent Escalation Assurance, and Remedial Matters) Bill”, because that’s what the effect of this is going to be; there’s nothing surer. If it was a bill that was perhaps having the brightline test attached to provisions that increased supply of housing, it might be a little more acceptable. But in this case, just stand alone, it’s a bit like saying, “We’re going to take the 52 weeks of the year and turn them into 100. We’re going to take, you know, any number of things here, and do some kind of loaves and fishes exercise to make scarcity go far.” It can’t be done, and tax will not achieve it.

We’ve already had very little response from the Minister to the suggestion that the $250,000, on average, capital increase in an average home in New Zealand in the last three years would attract a tax under the current regime of around about $70,000, but still leaving anybody with that property $180,000 in their pockets: $60,000-odd a year for three years for doing nothing, on average. Now, my point is not to increase the tax, not to go after those people harder, but to ask the question: how’s that happened? How’s that happened? It’s simply because there is a lack of supply. Price of property doesn’t just escalate because people want to pay more for it. And any suggestion that “Oh, it’s all to do with the low interest rates.” is complete rubbish, because if there was a massive supply, then you wouldn’t see these price escalations.

You can think of anything you like that’s out there, that’s in common supply. It’s like at the moment, you look at seasonal fruit or vegetables. In the right season, with plentiful supply, they’re cheap. So the same applies quite simply to housing. There isn’t a plentiful supply. And this is, I think, a smoke and mirrors exercise saying, “We’re going to extend it for 10 years.” It won’t matter to someone who decides that they’re going to invest in this and take those capital gains. They are not going to stop because of this.

I don’t believe in capital gains. I think they’re wrong. I think they are a way of incentivising people to use private finance to provide public good. So I don’t in any way want my speech to be construed as making a case for increasing or bringing in a capital gain. But we’ve got to call this what it is, and it’s sort of like a lame duck attempt. No one can be very comfortable about the fact that that massive amount of capital increase is going to continue regardless of what happens. You can make it 20 years and it wouldn’t make any difference until there is that supply problem sorted out.

So I won’t move it because it’d be a waste of time, but the bill title should have the words “Brightline Extension”, and it should have the words “Property Price Escalation and Rent Rise Assurance” in it. And it should mention the miserly GST raid on roaming charges for, largely, in the next few years, businesses who send people overseas in pursuit of larger exports for this country. If I don’t have a question for the Minister, because my last question—I have at least one question from the committee stage that hangs out there answered. But I hope that they do think about some of these things and come to a conclusion that—

Hon Member: Madam Chair?

Hon GERRY BROWNLEE: There’s one speaker on their feet, only one speaker on their feet at a time—only one speaker on their feet at a time.

CHAIRPERSON (Hon Jenny Salesa): You didn’t call “Madam Chair”.

Hon GERRY BROWNLEE: Oh sorry. My apologies then.

ANDREW BAYLY (National—Port Waikato): Thank you, Madam Chair. Look, I thank the Hon Gerry Brownlee, who is one of the elder statesmen of this House, because he knows what procedural matters need to take place and the importance of what we’re talking about here. And I think we are at risk of being misleading to the public. When Mr Brownlee is saying that this bill’s title should actually reflect the reality of what it is, we need to consider that carefully. I think, you know, you’ve spoken, Mr Brownlee, very clearly about the brightline aspect. Interest deductibility is the other crucial bit in this bill.

So, from that perspective, the title is, in my view, very deeply misleading, and I think we need to enable people who will not have heard about this bill, will not have heard about these changes—because, after all, they were only announced at 9 o’clock this morning, unless you’re the media, who got it at eight. They will not have heard. Not everyone is there. What happens if you’re away on a hunting trip, or a tramping trip, or whatever? You’re on holiday; you’re out of cell phone coverage. So, even though your accountant is ringing you desperately today, tomorrow, you cannot be contacted. In that situation, you cannot sign the forms, whatever, and so therefore you’re in a position where, as the Minister said earlier tonight, in some cases, you do have to make an election. I think those sorts of situations mean that, if we’re in a situation where people are going to be disadvantaged like that, they need to have that clarity around that. We need to have the rules. We should have provided more time. That’s one issue.

But I think, also, in time, people will want to look for the bill, and they’ll go looking for the bill—the few who actually know how to navigate their way around Parliament and Parliament’s website—and they’ll be looking for a bill that talks about “capital gains tax” or “brightline test”, or whatever. It simply won’t be there. And I think, Minister, you’ve had time—you’ve obviously been working on this Supplementary Order Paper for some time. This is a long document; it’s had a lot of forethought put into it. To slap it down on the day of this and to put this through urgency, I think, doesn’t do you any justice as a Minister, and I think we do need to reflect on the title—and certainly the commencement period, as we’ve noted before—but there is just a sense of injustice with this bill, which I think, as I’ve said before, many New Zealanders are going to feel very, very angry about it.

Dr DUNCAN WEBB (Junior Whip—Labour): I move, That the question be now put.

CHAIRPERSON (Hon Jenny Salesa): The question is that clause 1 stand part. All those in favour, say Aye.

Tim van de Molen: Hang on—point of order. The question has to be put that he’s seeking the closure.

CHAIRPERSON (Hon Jenny Salesa): The question is that the question be now put. The question is that clause 1 stand part.

Hon Members: No.

Hon Gerry Brownlee: We’ve got to vote on it.

A party vote was called for on the question, That the question be now put.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 45

New Zealand National 33; ACT New Zealand 10; Te Paati Māori 2.

Motion agreed to.

A party vote was called for on the question, That clause 1 be agreed to.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 45

New Zealand National 33; ACT New Zealand 10; Te Paati Māori 2.

Clause 1 agreed to.

CHAIRPERSON (Hon Jenny Salesa): The question is that the Hon Michael Woodhouse’s tabled amendments to the amendments set out on Supplementary Order Paper 23, amending clause 2(22BA) and inserting new clause 2(22BAA), be agreed to.

A party vote was called for on the question, That the amendments to the amendments be agreed to.

Ayes 43

New Zealand National 33; ACT New Zealand 10.

Noes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Amendments to the amendments not agreed to.

CHAIRPERSON (Hon Jenny Salesa): The question is that the Minister’s amendments to clause 2 set out on Supplementary Order Paper 23 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 45

New Zealand National 33; ACT New Zealand 10; Te Paati Māori 2.

Amendments agreed to.

CHAIRPERSON (Hon Jenny Salesa): Hon Michael Woodhouse’s tabled amendments to clause 2, deleting subclause (10) and amending subclause (23), are out of order, as 24 hours’ notice was not given for an amendment that may have impact on the Government’s fiscal aggregates.

A party vote was called for on the question, That clause 2 as amended be agreed to.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 45

New Zealand National 33; ACT New Zealand 10; Te Paati Māori 2.

Clause 2 as amended agreed to.

House resumed.

CHAIRPERSON (Hon Jenny Salesa): Mr Speaker, the committee has considered the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill and reports it with amendment. I move, That the report be adopted.

Motion agreed to.

Report adopted.

DEPUTY SPEAKER: As we have reached the five-minute discretion that the presiding officer has, the House is suspended until 9 a.m. tomorrow.

Sitting suspended from 9.56 p.m. to 9 a.m. (Wednesday)

TUESDAY, 23 MARCH 2021

(continued on Wednesday, 24 March 2021)

Bills

Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill

Third Reading

ASSISTANT SPEAKER (Hon Jenny Salesa): Members, the House is resumed. We now move to the third reading of the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill.

Hon PEENI HENARE (Associate Minister of Housing) (Māori Housing)) on behalf of the Minister of Revenue: I move, That the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill be now read a third time.

This bill was introduced in June 2020 in the immediate aftermath of the national COVID-19 level 4 lockdown, and the economic landscape has shifted significantly over that time. The Government has had to respond at pace. Since the introduction of this bill, there have been numerous response measures to the pandemic and measures to support businesses and workers. This resulted in the Supplementary Order Paper to this bill released in June of last year, among other changes to increase the automatic tax write-off threshold from $50 to $200 for the 2020 tax year to help ease the financial stress caused by COVID-19.

A second Supplementary Order Paper was released, and this too contained response measures by the Government to address significant issues. Along with further economic recovery measures to promote growth and measures to protect the integrity of the tax system, the Government has already announced the most significant new measure added to the bill: the further extension of the brightline test. This is a response to a housing situation which has been with us for some time, but which has, since the advent of COVID-19, gathered significant steam. The housing issue is now a serious problem, both for would-be homeowners and for the economy. The International Monetary Fund (IMF) has recently pointed out that our ballooning housing market could trigger a pronounced correction. The IMF went on to say that mitigating near-term housing demand, particularly from investors, would help moderate price pressures.

We must take steps to protect our rebounding economy from future shocks. A housing market correction would threaten our recovery. We are not introducing a capital gains tax; we are expanding the brightline test. The brightline test, as members are aware, makes residential property, other than the family home or inherited property, taxable when the property is sold. The current period of the brightline test is five years, which was extended from the original two years.

But research suggests that this is still not enough. The median ownership period of property in New Zealand is typically around seven to eight years. That means that the gains on the sale of most residential investment property are escaping taxation, and the tax advantage gives property investors an incentive to invest in housing over other types of assets. This is unfair as it means that, unlike other forms of investment income, it escapes taxation and distorts investment away from more productive investments. Extending the brightline test to 10 years will help to ensure that people investing in property pay tax on their gains on investment. The extension to 10 years will generally apply to property acquired on or after 27 March 2021.

Residential property purchased before the application date will continue to be subject to the five-year brightline period. This move will help property investors out of the market into more productive areas of the economy, make the tax system fairer, and, at the same time, will make homes more affordable. However, that is not the sum total of the Government’s response. Tax is neither the cause nor the solution to New Zealand’s longstanding housing problem. But it can help. This proposal is therefore part of a suite of measures to achieve the Government’s housing affordability objectives.

I turn now to the other measures added to this particular bill. The first of these is to support business by introducing a new business continuity test for the carry-forward of tax losses, as long as there is no major change in the business activities of the company, taking into account the asset used by the company to generate income. Kiwi businesses are hungry for capital as they strive to get ahead. But one problem they face, especially start-ups, is that they cannot access previous losses if they fall foul of our current loss continuity rules. Our current rules were designed as integrity measures to prevent avoidance through lost trading, but we think they are unnecessarily strict and are hobbling growth. So we are proposing to loosen those rules while still upholding the integrity of our tax system.

Another new item addresses an issue where the tax rules have become an obstacle to businesses wishing to donate goods for charitable purposes. This became apparent as businesses which began to respond to COVID-19 by donating trading stock found that they were liable for the tax on the disposal of that stock. This is a disincentive for charitable giving—for example, a hand sanitiser business is liable for tax if it donates some of its products to a hospital, or a clothing retailer is liable for tax if it donates clothes to a city mission, or a farmer is liable for tax if they donate animals to a food bank. This is obviously not the outcome we want in this COVID environment, so we are proposing an immediate but temporary solution which will apply to donations of trading stock made on or after 17 March 2020 and before 17 March 2022.

Finally, a significant measure will allow Mycoplasma bovis - affected farmers to reconsider previous income equalisation deposits if they retrospectively elect to use the new income spread rules and certain conditions are met. There are also a number of remedial and technical amendments to improve the administration of unclaimed money, support the introduction of a new 39 percent tax rate, and disclosure requirements for certain trusts.

In conclusion, the measures that I have discussed are truly important for Aotearoa New Zealand. In different ways they will contribute to a fairer tax system and support our economic recovery. They join the other measures in this bill, which will have similar aims. I and this side of the House are proud of this bill, and it gives me great pleasure to commend this bill to the House.

ANDREW BAYLY (National—Port Waikato): Thank you, Madam Speaker. I can’t say it’s a pleasure to be talking on the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill. This bill—we spent a lot of time in the Finance and Expenditure Committee dealing with it, and what we thought we were going to be discussing yesterday on this tax bill transpired to be something totally, totally different, with the lodgment yesterday at 2 o’clock of a 60-page Supplementary Order Paper which means a new piece of legislation that is inserted into this bill.

So I think this bill—the title of it is totally erroneous, because the principal clause around this bill is little to do with what we’ve talked about, although some of the measures are OK. But more, I think it should be “Taxation (Annual Rates, Feasibility, and Remedial Matters) Bill and How to Thrash Mum and Dad Investors Who Own a Rental Property and Do a Good Job in Trying to Provide Accommodation to Hard-working New Zealanders”, or, in other words, let’s slap a capital gains tax on people that as at 9 a.m. yesterday morning—although the media had access to the data at 8—found out that the rules have totally changed and have driven a change in their property rights.

Many New Zealanders own rental properties, and in the main, most—the vast majority—only own one rental property. These changes, as a result of this being thrust through like a steamroller last night under urgency, have meant that people have woken up this morning—if they’ve been listening to their radio and they haven’t been away on holiday or they’re not on a camping trip—and will find out, over time, when it seeps out through to the public, that their interest in their property has been fundamentally changed, not only because of the increase in the brightline period from five to 10 years but, probably more dramatically from a financial perspective, they will lose the deductibility on the interest on their house.

Now, that is quite a significant issue for mum and dad investors who do own rentals, and I think that this is going to lead to an increase in rental payments. Mr Robertson received a lot of advice from entities not inconsequential, such as Treasury and IRD. At the most, you could probably characterise the advice as fairly neutral on the impact on rentals, but the strong inference and, in some cases, advice is that these changes will lead to an increase in rental prices. I think if the Government is trying to do that and that occurs, we are in a really bad position, because we’ve imposed all these additional requirements on landlords, including all the other requirements that have been passed over the last couple of years around quality of builds, but if we lead to a situation where our most vulnerable people and the people who are not in a position to be able to buy a new house and are therefore renting, and if we get to the situation where we have an increase in the rents that they have to pay, that will be a terrible social outcome. And I’m concerned that these measures will actually result in that outcome.

We do not want people seeing their rents increase. We’ve already seen rents increase by $120 since this Labour Government has come to power. We’ve seen a rapid escalation in house prices.

The thing is, there is a correlation between house prices and rental costs, of course, but whether this has a chilling effect on people wanting to build new homes I think is a big issue. Last night, I was told by someone actually here in Parliament, a senior partner in an accounting firm, that as a result of Mr Robertson’s announcement at 9 o’clock, a proposal worth hundreds of millions—and I’m not exaggerating—to do a rent-to-buy scheme effectively went on hold yesterday afternoon.

Hon Grant Robertson: Were they building the properties?

ANDREW BAYLY: They were in the process and they were trying to get the money, and as a result of a lack of—in terms of the lack of clarity, they have pulled it.

Hon Grant Robertson: They’re exempt from it. They’re exempt, Andrew—you know that.

ANDREW BAYLY: And one of the reasons why they pulled it, Mr Robertson, is when they went to the IRD, because they’re in a situation—you’re talking about professional advisers here; you’re not talking about people just waltzing around the street. You’re talking about—and it’s hundreds of millions of dollars’ worth of property. They could not get adequate clarification from the IRD about these changes, and so, as of yesterday, they pulled the proposition.

Now, I had other texts last night from people who are in the situation where they’re buying a house. We know, because we covered this last night, that you will have to make an election in the next—well, it’s actually three working days; we’re now down to 22 hours of working time—as to whether, in fact, you want to proceed with a property purchase or not. In some cases, you have to make an election. Now, if you happen to be away, out of phone coverage, whatever, then you will not be in a position to make that election. You will probably have to sign a form. So we’ve got a number of people who will be disadvantaged by this.

This goes back to the whole central issue about ramming this piece of legislation through, trying to get it off the agenda, trying to get it out of the media because they know it’s bad—the media reaction today has been dreadful. [Interruption] It has been dreadful. If you think it’s good, well, fantastic; you must have been listening to something different. Trying to ram it through—what should have happened is that New Zealanders should have had a good opportunity to talk about these changes.

I think, my personal view, is—one of the reasons Mr Parker said that they are trying to ram it through for urgency was they were scared people were going to rush in and buy a whole lot of properties. I think that just shows a lack of commercial nous. If you think about it now, as a result of the changes of what was introduced yesterday, you will be looking at the opportunity of whether, in fact, you want to invest your money into a rental property, knowing that you’ll now have to hold it for 10 years, otherwise you’ll have to be taxed on the capital gains, as opposed to five at the moment. Or the fact is that you will not be able to deduct the interest on that loan that you may use to acquire that property. So the likelihood that people want to pile into the market as a result of yesterday’s announcement I think is just ridiculous.

The more likelihood is many New Zealanders, mum and dad investors, will be waking up this morning going, “Gee, I think I’m going to have to sell that property.” Of course, they either sell that property or, because of their higher interest costs, they’re probably going to start to think about how they’re going to increase their rents. Again, we get back to that double-edged sword. If you’re trying to remove and reduce the price of rents, which we’re all very concerned about, and moderate or stabilise the house inflation, this package doesn’t get there. It does not provide that framework. And I think—this is what IRD and Treasury have said in their advice—there is a potential it will lead to higher rental price. So if that’s what we’re going to achieve, if that’s what the Government wants to be known for, that’s fantastic, but I think we’ve got a real issue with that.

Then, of course, we haven’t—there are other parts of the package yesterday that were announced that we haven’t been able to canvass yet around the infrastructure spend, who’s going to manage it, and whatever.

But I think, essentially, what has happened yesterday is the Government has imposed a capital gains tax. I just want to clarify this point. The Government’s great—it’s the only time I’ve ever seen them want to nick an idea from National. But we did clarify the rules around the brightline test when we brought it in a number of years ago, which was to say that if you have the intent to sell a property within two years, you will have to pay a tax on it. There was a lot of uncertainty around that aspect. What we did, by passing the two-year brightline rule, is give to the IRD clarity around the rule, which said if you sell within two years, you have the intent to buy and sell that property, and that’s why you should pay tax on it. That is a different mechanism from when you move that from a two-year test, a clear intention test, to a 10-year hold period. If you now have to hold your House, your rental property, for 10 years, that is clearly a capital gains tax, because you are not in the business of buying and selling houses. If you are trading houses, then you will always have to pay tax on it. But by moving the goalposts from two to 10 years, as this Government has done, this, effectively, means for tax purposes that that is a capital gains tax. I’m sure the Minister of Finance will know the difference between income tax and capital gains tax. So I think this is a really sad day—

ASSISTANT SPEAKER (Hon Jenny Salesa): Order! The member’s time is over.

Hon GRANT ROBERTSON (Minister of Finance): Thank you very much, Madam Speaker. Before I respond to some of the comments from Mr Bayly and talk about the bill, I want to acknowledge the hard work of officials in putting together taxation legislation. It’s complex, it’s large, it often covers many topics—hence the name of the bill that you see in front of you here—and it’s a very difficult piece of work. So I want to acknowledge all of the officials who have contributed to the legislation that is in front of us, and, indeed, contribute to the taxation legislation generally as we go through the many bills in that space that Parliament covers each term.

We often hear from the Opposition about the importance of addressing the housing crisis and the need for action and the need to provide solutions. And then a Government steps forward with a package that will make a significant difference in housing affordability, and the Opposition says, “Oh no, not that—something else.” Well, the something else that we keep hearing about are things like changing our planning laws. Yes, we need to do that, and we are doing that, and we have a plan to replace the Resource Management Act, we’ve got the National Policy Statement on Urban Development moving through, and we will make those changes.

But none of that would address the fact that we’ve got a lack of infrastructure that we need, and so therefore the Government steps forward with a package on that. But saying that it’s all just supply ignores the fact that the housing market is always a balance of supply and demand measures. So, yes, we must build more houses, and we are; yes, we must make sure that the infrastructure is in place; yes, we must support first-home buyers more to be able to get into that housing market; and, yes, we need more apprentices, and we’re putting more apprentices in place for our construction industry as well. But if we completely ignore the demand side of the equation, then we’re only doing half our job here, and so I think the changes that were put forward in this bill are important ones to be able to manage that demand side of the equation.

I think I want to clear up a couple of Mr Bayly’s misconceptions in that speech he just gave. The extension to the brightline test covered in this piece of legislation here is prospective. So all of those people he’s talked about who made decisions, those decisions stand. We’re talking about an extension about when one buys the property going forward, and I refer Mr Bayly to the excellent wiring diagram that the Inland Revenue put out yesterday as part of this announcement to show what happens to people who are currently in that situation. What this bill does is look forwards, and what it also does—and critically, in this initiative—is that that extension to the brightline test does not apply if you’re building new property. And this is the trick, because we have to address supply and demand together. And what we’ve been hearing—and we’ve all been getting different feedback about this over the last 24 hours—is particularly from property developers, saying, “This is an opportunity. This is a chance to build, and to shift that investment from the speculative part of property investment to property development, to building that extra supply that New Zealanders need.” That’s what we’re hearing from property developers around the country—is that they see that this is the opportunity, with the interest deductibility changes, which also do not apply if you are going to do new builds.

And so here is a package that actually seeks to do two things at once. It seeks to give first-home buyers a better shot, but it also seeks to address some of the supply issues that we’re facing. And so Mr Bayly, in his comments, didn’t really reflect that.

The other element of this bill which has got a little bit of attention this morning from people—I would have thought the Opposition would have given this a bit more attention when they were debating the bill—is the fact that we have clarified the change of use rules when it comes to your home. Now, the interesting thing for me here is that there seems to be some form of amnesia on the other side of the House, because, firstly, the brightline test was brought in by National, and when they did that, they actually did have a formula which said that your main home is your main home, but it set up a cliff-face that that was 50 percent—50 percent. The change made last night means your main home will never be part of the brightline test when it is your main home, but after a 12-month buffer period, we will actually measure when it’s your main home and when it’s not. That’s actually fairer on everybody, and builds on what National already did. So this is, quite clearly, something where they don’t want to remember what they did, and, actually, the provision is fairer.

The bill also clarifies the issue of short-stay accommodation, which was a gap both in the initial creation of the brightline test and then the extension. This is not when you live in your home and you might rent it out once or twice; it’s when you don’t and it’s short-stay accommodation—that is now captured inside the brightline test as well. They are important integrity measures to make the brightline test work in the way that it was intended.

It is vital for New Zealand that we get on with building more houses and create build-ready land. It is vital for New Zealand that we ensure that the mix of supply measures we have can also support first-home buyers with affordability. On this side of the House, we know that the level of house price rises we’ve seen in recent months is completely unsustainable. It is unsustainable from an affordability point of view, but it’s also unsustainable from a broader economic stability point of view, unless we’re prepared to act, and that is what we have done. Time and time again in New Zealand, Governments have been asked by people to act in this space. We have gone after a tax loophole and we’ve closed it. We’ve used the lever that already exists through the brightline test here and extended that. This package is a big part of making a difference in the lives of New Zealanders and of first-home buyers, and I’m very pleased to support the bill.

Hon GERRY BROWNLEE (National): Well, that was a very interesting and very defensive speech by the Minister of Finance on what should be a simple bill, made complicated by the fact that its 77 pages have been added to by a 50-page Supplementary Order Paper, which has in it very substantial changes to the way in which tax is applied to investment properties.

Firstly, let me say that issues in this bill like the unclaimed money provisions, the company transfer provisions where there’s a sale but no particular change or unreasonable change of activity, the Mycoplasma bovis provisions for farmers having to get rid of stock, and the clarified depreciation arrangements on non-residential buildings are all good things, and there are many other small things in here that are of great value, but let’s be clear: this bill refers to, effectively, by its title, a very significant change to tax law—that is, the brightline test, the taxation that comes from sale of an investment property, residential property, inside a 10-year period—as being simply a remedial matter. It’s not.

This is a bill that, with its provision, will see rental costs in New Zealand rise. It’s interesting that even the IRD, who have the greatest knowledge of where the income comes from these sorts of properties, recommended against this course of action. I asked the Minister of Finance today in a select committee how much money has been collected by the Government in brightline tax since its introduction. He didn’t know. He said, “IRD will know.” So I can only assume, since the number is not being put out there by a Government that, apparently, is the most transparent that we’ve had in New Zealand’s history, the number being kept quiet, it’s not very big. And I think that would be why the IRD has said this is not a good thing. It’s why the IRD recognised, too, that it’s likely to increase rental prices.

So let’s take a typical case: mum and dad investors buy a second home. They take out a $500,000 mortgage to buy that second home, and they put some tenants in there at the rental rate that’s going for the day—recognising, of course, that that rental rate, on average, has increased by $120 a week since the Labour Government came into office in 2017; a huge amount. Wages certainly have not gone up by that amount. But leave that aside. Mum and dad put some tenants in their property, and they are paying their $500,000 mortgage. Over the lifetime of that mortgage, they’ll pay $156,000, roughly, in interest at today’s rates of around 2.5 percent to 2.6 percent. At the moment, they can deduct all that off the income that comes off that and they can set it against their own income from other sources. So it’s always going to be a third of the amount.

Now, as it just happens that, on that $500,000 mortgage, the increase caused by the non-deductibility, the increase in the cost per week caused by the non-deductibility, happens to be $120 a week. So, if you were to turn round and say, “OK, what is the deductibility rate on that?”, it’s about $40 a week. So, from the time this bill comes into effect, every investor who has a tenant with a mortgage of $500,000 will be $40 a week worse off. How long will it be before that is recovered? The next time there is a rent review, up they’ll go. And it won’t be unreasonable. If they run off to the tribunal and they lay out their expenses, they show what the deal is, the only conclusion will be that that rental rise is reasonable. So it is naive in the extreme for the Government to think that this is going to put any pressure on flattening of rents.

Then there’s this issue of “Oh, well, it’ll give first-home buyers a bigger chance because a whole lot of those investors are going to run away from the market.” They might—they might—because, actually, at the moment it’s not a bad sort of deal. They’ll be on the five-year brightline; so they’ll sell their house. In the last three years, it’s had, on average, a $250,000 increase in its value. That’s the sort of escalation that we’ve seen, and if they were to pay the brightline, after all their expenses, they’ll still walk away with about $190,000. So, yep, a few might decide to sell—a few might decide to sell—but let’s be very clear: there will be a huge problem created by that, because a lot of rental properties, where there might be three or four people living in them, sharing that accommodation, will suddenly crash down to perhaps two people. And there are agencies out there at the moment who say that is exactly the problem with the rental shortage at the present time.

So here we have a Government trying to fix a problem by actually bringing in laws that will reduce the rental pool and at the same time put rents up for those who are caught in that rent pool. It makes absolutely no sense whatsoever. It’s rushed, it’s fast, and when officials are questioned on it, their answer is “We don’t know.” So they’ve sort of been directed—I appreciate they’ve got to do what the Government of the day wants—but they have not had the chance for a broader consideration to be given to this particular problem. And, behind it all, the finance Minister sits there today and says, “Well, we’re building more houses. This will push more houses being built. The developers are ringing us up and saying this is a great thing that’s going to change the whole market.” I doubt that actually. I’d like one of them to step forward with some decent figures to show us that, actually, this will make a difference to not just their bottom line, because it certainly will, but to the problem of getting first-home buyers into their first home.

Those people looking to buy that first home who have been saving for the last three years are already $50,000 behind in their savings programmes because of that $250,000 increase in average price. Work it out: they’ve got to have a 10 percent or 20 percent, in many cases, deposit for a second-hand house—20 percent. Well, what’s 20 percent of $250,000? It’s $50,000. And they will have had to save that just to be treading water on where they were when they started. So it’s that impossibility for young people, for first-home buyers, that the Government is not addressing, and the idea that you can somehow fix the problem through a tax base is complete rubbish. It is denying the fact that the brightline test captures people who trade in property only. And that’s always been the case. Even if they do pay the tax, they still win, because that’s how markets work when there is a scarcity of supply. I can’t understand why the Government hasn’t looked at some of the examples that they could have, of situations where there was scarcity of supply and there was suddenly a whole lot of land made available for people to build on. It’s happened, yet we have no bill on that. We have this obscure sort of “We’re going to work on the Resource Management Act and perhaps make it more possible.” Well, that will be a very long time coming, and in the meantime there will be no change.

So, a couple of predictions: I predict that rents will rise as a consequence of the actions the House is likely to approve today. I think, also, the idea that, because the brightline test is going to stay the same for a new house and the deductibility will stay there for a new house, there will be a massive transfer of people into buying those houses doesn’t make any difference to the renter—doesn’t make any difference to the person who wants to buy a house. So we’re told today at the select committee that, in the Budget, there’s going to be some more moves to try and help first-home buyers. The best thing that can be done is to recognise that, on a new build, the Government takes a very substantial amount of the price that’s paid for that new build in tax—just work out the GST content alone; it’s massive. And that is applied all the way through. Local government have rules for the construction of subdivisions that make it very, very capital intensive because you can’t start selling until it’s all fully consented and ready to go. Changing some of those things will make a difference. This bill will make no difference. It will have very little effect on supply and a huge effect on the rents paid by first-home buyers.

Dr DEBORAH RUSSELL (Labour—New Lynn): I find it telling that in the first two speeches offered by the Opposition on this bill in this third reading, both speakers have focused on the name of the bill. They’ve focused on the name of the bill and decided that that was an issue worth debating instead of looking at the extraordinary substance of this bill. And there are a number of extraordinarily good, taxpayer-friendly measures in this bill, measures that taxpayers have asked for for a long time and that have now been delivered by this Labour Government. Measures like the feasibility expenditure provisions, which get rid of a black hole where businesses could not deduct some expenditure—we have fixed that. Measures like the donated trading stock rules where a person who was generously donating trading stock, maybe food, to people in need ended up in some cases with a tax bill because of it, so we’ve fixed that. Measures like the business continuity rules, where under the old rules there was a very strict numerical test as to whether or not a business could carry forward tax losses, and now we’ve moved to a substance of business test and that has improved something—something that taxpayers have been asking for. These are substantial taxpayer-friendly measures in this bill, and the Opposition has ignored them.

The Opposition has instead chosen to promulgate ideas which, frankly, are wrong about the brightline test. They’ve asserted that it would have a huge effect on developers, who would choose not to continue their developments. But—and this is really important—the extension of the brightline test to 10 years does not apply to new builds. It’s really important to understand that. If people are ringing up concerned that their new build, their new project, might get caught up in this: it will not. The extension to 10 years does not apply to new builds—straightforward and simple. And the changes to the brightline test are prospective. If someone bought a house two months ago, that falls under the old rules. If someone bought a house one week ago, that falls under the old rules. If someone buys a house today, it falls under the old rules. Because there is a window of opportunity for people to make their business decisions now—right now. It is a prospective measure. It’s going forward, so there is good protection in there for people who are choosing to enter the residential property market.

We have heard objections from the Opposition asserting that we are putting a tax on the family home. We are not. The brightline test does not apply to the main family home. When the main family home is being used as the main family home, the brightline rules do not apply. That is a straightforward thought. So we have protected the main family home, we have protected people who have already made their decisions, we have protected new builds in this extension of the brightline test, and it is very important to have that in mind.

So focusing on the substance of this bill, it protects people who have made their business decisions already, it puts in place measures which we anticipate will help to control the rampant speculation in the property market and to make things easier for first-home buyers, and it puts in place a series of substantial taxpayer-friendly measures in a realm of areas which taxpayers have been asking for. This is a good bill, and I commend it to the House.

CHLÖE SWARBRICK (Green—Auckland Central): E te Māngai, tēnā koe; tēnā koutou e te Whare. I’ve been engaged in this dialogue about this law, which has become far more interesting, actually, subsequent to the Supplementary Order Paper placed on the Table yesterday as a result of the Government’s announcement, than the speeches that we heard at, for example, the first reading when the technical amendments were far smaller to the Income Tax Act. But in those conversations with people on social media, there are a number of folks who are raising the fact that they played by the rules—they played by the rules, and they got ahead by playing by those rules, so they should be able to lock in those gains forever. Then there are those who have also played by the rules but haven’t necessarily managed to get into, particularly, the property market, where not just—you know, two-thirds of wealth in this country held in property, which is, effectively, as noted by a number of different commentators across this country, and notable economists. Property in this country has for a very long time been, effectively, Government guaranteed, not obviously explicitly but effectively.

One of the many reasons for that is because of the fact that two-thirds of wealth is held in property, is because loan-to-value ratios have been so low for so long. It is because those mortgages that are held by investors actually present a huge financial system liability should they fall over. This is why the Greens have been engaged in this dialogue around the need for a really soft landing, because this bubble, as estimated by a number of prominent economists across the world, is very likely to burst unless we meaningfully rise to the challenge in front of us, which is this rampant housing crisis.

Alongside that, the facts and the reality of it, I’ve engaged with a few people in talking about the history of a game which is probably quite renowned or well known to many of us—that’s the game of Monopoly. The game of Monopoly was invented in the early 1900s by an American woman called Elizabeth Magie. She herself identified as a Georgist, for those who are interested in political theory. But the actual original name of Monopoly was The Landlord’s Game, and it was invented as a gamified version of how unfairly a system or economy operates when you continually emphasise the accumulation of private land at the expense of the many. The whole point was to try and educate the players of this game about the importance of directing investment towards productive outcomes. Yet for some reason or another, as The Landlord’s Game by Elizabeth Magie was bought by and, I believe, eventually produced by Hasbro and has turned into Monopoly, the game that kids know and love, it seems to have become the rule book that many a politician wants to reinforce.

But society is not a board game. When the rules are not working for the majority of people, as evidenced by those statistics that I brought to the fore last night that have been incredibly well reported, that the top 10 percent of New Zealanders own 59 percent of the wealth and the bottom half own just 2 percent, and the majority of that wealth is in housing, and when you have wealth inequality, particularly of that scale, that wealth inequality continues to compound and get worse, as we have seen. Society, life, governance, and politics is not a board game. When the rules are not working, we have an opportunity to change them.

There’s been a lot of discussion in this debate so far, particularly from the Opposition, who railed in favour of, you know, the points put forward by the property investors’ lobby, saying that this is just going to increase rents and that this is just how the market works. Well, dare I say it, they’re engaging in a little bit of economic tomfoolery, because the reality is, as we see constantly, market rents are always the highest that the market will possibly allow at that intersection of supply and demand. We know that supply has been so low for so long as a result of successive Governments and their neglect and inaction that there is simply not enough homes that landlords or those who are holding that property are willing to put on to the market at rates that are affordable to those renters. In turn, there is an immense amount of land banking and speculation that goes on, where development should be under way. I can point to a number of car-parks which are just flat tarmac in my electorate, which demonstrate the immense policy and political failure over the past several decades, because that should be a space where density is done well.

I also need to point to the other kind of rhetoric that is often thrown out there when we’re talking about property investors. So often that’s mum and dad investors, and I have heard other politicians in these debates referring to their own parents and how these investments in properties were their retirement plans. Just for the sake of offering a contrast of opinion in this Chamber, because this Chamber isn’t particularly well represented in the form of renters, if we’re talking about mum and dad investors, we also need to talk about mum and dad renters, like my mum and my dad, because there’s a number of those around the country as well. If we’re talking about those mum and dad investors and we’re trying to capitulate that these are the people who are going to be so massively impacted by this, then they must be those who sit at the very top of the pecking order, which makes them a very specific niche of mums and dads, that top 10 percent of our society who own 59 percent of all of the wealth. Dare I say it, the rules have been tilted in their favour for far too long.

So this is one small part—one, I might add, Treasury gave the Government the advice that this should be extended beyond the 10 years, which is currently in the bill; should be to at least 20 or 30 years. The Greens favour it for indefinitely, because the very purpose of the brightline test, by the way, is to just make sure that the test of intent actually applies properly under the Income Tax Act—that is, it initially was intended that if you are selling something with the intention of making an income in the form of capital gains, then you should be paying tax. We’ve just, kind of, ignored that. The reality is that the brightline test simply enables another layer for the IRD to enforce that with far better efficacy.

So the Greens support this bill. It doesn’t go far enough, in our opinion, and I’m sure we’ll have a flurry of other debates about this. I mean, I’m sure that the Labour-led Government and the Labour Party in particular feel as though they’ve hit just right when they’ve got the right wing railing against them and they’ve got the left railing against them on the other side. But there is so much more that we can do if we want to meet the scale of this crisis, particularly the latent crisis of inequality in this country, which, if I may add in my final few moments, flows through to every other challenge that we face, whether it is climate action, or inaction, and the way that that will disproportionately impact our lower socio-economic communities; whether we’re talking about schools and the fact that transience is increasing at an enormous rate, and how that is impacted by the lack of security that parents and that whānau have in certain rental properties and the need to move constantly, yanking their tamariki out of primary school and placing them into another halfway through the term.

Equality should, I hope, in future be the foundation of the kinds of things that we’re talking about wanting to achieve in this Parliament, because I think that we can really get carried away with that kind of economic tomfoolery that I alluded to just before. We have an opportunity and, dare I say it, an obligation in this House to rule for all New Zealanders, and that doesn’t just mean protecting those who currently have done pretty well out of the way that the rules work. Again, I want to just clarify that this is in no way, shape, or form intended to be construed as an attack on those people. It’s simply to say that society functions best when we ensure that everybody has the basics. The Greens support this bill. Thank you.

DAMIEN SMITH (ACT): New Zealand, we have a problem—we have a tax problem. This was a pretty boring bill, actually. I remember taking it to caucus and sitting down with everyone and trying to explain it. That was before yesterday, of course. Just to go back to the previous iteration of the bill, one of the great aspects of it was that we were finally trying to at least attempt to align KiwiSaver moneys in relation to what is happening with moneys in Australia. That’s a $2 billion problem, which, I think, in this whirlwind of a captain’s call on a capital gains tax yesterday, has been lost. But I’d just like to reinforce that is vital work inside this tax bill.

After yesterday, and the stealth tax—call it what you want—I just wanted to point out that on a per capita to GDP basis, we’ve gone back 5 percent. So this is going to affect our wellbeing. And so everybody knows, we have the highest tax to GDP ratio and the highest tax to GDP per capita ratio in the Asia-Pacific region.

Dr Duncan Webb: What about the State and provincial tax?

DAMIEN SMITH: Income tax. So I just want to make a point that in the original iteration of the bill, we were trying to address some simple, fixable aspects, and we were trying to set the rates for the tax base for this year—that was the purpose of that bill. Things have moved on and we now have a situation where—and, I guess, the Government did flag this by capping rents that can be put up on an annual basis, and they have to be thinking now that this premeditated strike yesterday to change the bill was signalled by the finance Minister and it has led to a brightline test where ACT has always been opposed to this test and always seen it as a problem which would grow from an acorn to a giant tree one day and be unstoppable. But I heard, this morning, interestingly, that new modelling has been done on core tax revenue and its implications for the brightline test, and it’s been a captain’s call, effectively. And, you know, what it has led to is another reinforcement that Mr Robertson has joined Mr Cullen as being somebody who’s really happy to go back on their word, and brought into consideration what is, I think, the most punitive tax regime we’ve seen.

So, effectively, against that background, we, obviously, oppose this bill, but we’d like the Labour Party to understand that where there is good policy, the ACT Party will support tax reform—and we do call for a fundamental review of the tax system in the future. Clearly, all our competitors are making themselves more competitive at a corporate tax and income tax level, and the people of New Zealand deserve to get that as well. We are also finding there are distortions that are going to arise from the increase of the higher tax bracket, which means that people will take out and cap $280,000 moneys out of their business, and they’ll find other ways to get it out. But, more importantly, people are setting up in other jurisdictions and exploiting our skilled labour to actually take them under contract and we don’t get any tax capture from either the company or the individual.

I brought a couple of concepts up yesterday because 10 years is a long time—and, obviously, Mr Parker hasn’t budged. But people’s lives can change in a nanosecond. There are two things that happen now. One is stranded assets; people are going to either have to hold on, they can’t make any choices if they go through a divorce, there is no flexibility in this area in terms of providing New Zealand people with a loosening of the choke around their neck, and we still haven’t heard anything back from that. With these tax incentives, or negative incentives, these properties could be going to better hands and younger people, and it is something we felt should be addressed overnight, but it hasn’t been.

One of the things that people seem to forget is that blaming mum and dads and calling them “investors” or “house flippers” is just wrong. It is the lack of supply that has driven up house prices. The Government needs to focus not on using tax as a lever here but actually getting on and building some houses, because they can get money so cheaply—1 percent—yet it is happy to pay four grand a week for a four-bedroom house to rent. So, you know, that is the main priority, and using the tax system to leverage that: it is not going to land it, we’re not going to tax our way out of this. The announcement yesterday reinforces to me that we’ve created an artificial shortage of land in this country—which has a load of land—and until we solve that problem, we are not going to move forward and, you know, investors will now just hold on to their properties.

The big issue here is not just the brightline test; the real issue is the deductibility of expenses. That is going to drive up rental prices—that is just a given. I think the Labour Party have to accept that that is now their responsibility, and they have to accept that this is an unintended consequence—they accept that—for trying to deleverage a system that is using tax as a driver, but that is just one part of the package.

ACT has been saying, for some time, that we need to have some longer-term thinking about infrastructure and partnerships and proposals at a local government level. We also need to be thinking longer term about our tax base. We think that taking money and extracting money from the people of New Zealand, whether it is a nurse or a doctor or a teacher, it just can’t go on for ever. You know, we need to look at foreign direct investment as an alternative source of income for the country. We need to be efficient with our tax system, where—the Minister points to that he won’t look at that. And we need, actually, to think through what happens when Treasury says it doesn’t know what the outcomes of these results will be.

So just going back to GDP growth, and one of the big problems that we see in this area is that we’ve got to be more productive. We’ve got to increase taxes through capturing new companies coming to New Zealand with higher skilled, higher wage jobs, and lift the boats for everyone. There seems to be a sort of bipartisan warfare going on that doesn’t really address the fundamentals of an honest conversation around how we actually improve people’s lives and real wellbeing, as we would call it in the ACT Party.

So we don’t believe that yesterday’s announcement is a magic solution to anything. The rather boring tax bill that we had, there were some good elements to that, which we supported. But on the issue of a higher corporate tax rate and also what happened yesterday, we can’t support this bill. We actually would like to reform a lot of the tax system over the next couple of years with the Minister.

Just to conclude, when you don’t know what the impact of core tax revenue is going to be from extending the tax, it doesn’t really meet the public scrutiny test. We’ve had no opportunity to put this through the Finance and Expenditure Committee. We’ve had no opportunity to consult with the outside world. And, you know, from the Labour Government knocking back the tax decrease in 2017, the petrol tax, the 39 percent tax, the brightline tax, we now understand that everything is going to get passed under urgency. The one consoling factor I had this morning when I asked the Minister was that he said there were going to be no more new taxes in the foreseeable future—but we‘ve heard that before. So ACT cannot support this bill.

Dr DUNCAN WEBB (Labour—Christchurch Central): Tēnā koe e te Mana Whakawā. I agree with the previous speaker, Damien Smith, on one point, and that is that we need to direct investment to the productive economy, and that is what this reform, this brightline reform is aimed at—because we don’t create jobs, products, services, innovation, and ideas by directing investment to investment properties.

We know that, for many years, there has been a tilting of the tax system in favour of residential investment properties, and so this extension of the National Party’s brightline rule simply adjusts exactly that. It says there is plenty of capital about, but don’t put it into residential property, and if you earn—over the course of eight or nine years on an investment property—$100,000, $200,000, $300,000, then you should be taxed on that, because that is income, that is an increase in wealth which you should properly share, you should properly be taxed on.

So, look, the other thing I want to point out: New Zealand does not have—by international standards—a high tax rate. It is quite erroneous to stand up, as the last member did, and suggest that one single sliver of our tax system—income tax—is reflective of the overall tax burden. If we’re going to talk about overall tax burdens, let’s talk about—in other countries—the State and provincial tax, the sales taxes, and the plethora of other taxes. The elegance and simplicity of our tax system is one of its great strengths, and the brightline test is another thread in that, saying here it is, there is an irrebuttable presumption that if you sell an investment property within a given period of time it is taxable because the intention is clear, it’s a statutory presumption of intention that you intended to make money by that increase in value. And I want to point out, that this reform was one that was prompted by the International Monetary Fund pointing out the risk of instability in our financial system because of a rampant housing market driven by investment.

So this is a prudent reform, it’s one to strike balance, it’s one to direct investment in the right place, and it’s entirely appropriate at this time because this Government is one which will take action on the housing market.

ASSISTANT SPEAKER (Hon Jenny Salesa): The next call is a split call.

Hon PAUL GOLDSMITH (National): Thank you, Madam Speaker. Look, I’ll start off with what we agree on, and I think everybody in this House would agree that house prices in New Zealand have been going up too far, and, ultimately, New Zealanders are being forced to spend too much of their wealth and their income on housing. When we talk about our standard of living, we’re all about trying to improve the standard of living of New Zealanders. Well, that’s been weighed down by the enormous amount of money that people are having to put into housing, whether it’s to buy a house or to rent a house. So we’re all in favour of making progress on the affordability of housing.

But then the agreement seems to dissipate, because when I look at the situation, I look and see what the two real drivers of the housing problems that we’re facing are. One is the shortage of supply. There’s not enough housing, and that’s putting up the price either to buy or to rent. So increasing the supply of houses is a critical focus, and it amazes me that four years into this Government—more than—we still haven’t got anywhere on the Resource Management Act reform. There’s lots of talk, lots of announcements, lots of fiddling around. We’re still miles off making any progress on that in order to make it easier for New Zealanders to build houses and to get going. So there’s been lots of hot air, lots of talk, and lots of announcements. We’ve had Phil Twyford walking up and down the country. Phil Twyford was going to fix the housing crisis. Jacinda Ardern was going to fix the housing crisis, when she came in. It was the biggest focus of everything they did. And four years on, they’ve made no progress, really, on increasing supply, apart from a handful of houses. They stopped more houses being built at Ihumātao than the whole of the KiwiBuild saga has generated.

The other thing pushing prices up, of course, is the incredibly low interest rates and massive quantitative easing programme going on in New Zealand and all around the world. It’s not just house prices that are going up; it’s art prices, it’s any single asset that you can look at. The prices are going through the roof because money is being poured into the system; it has to go somewhere. So they are the two things that are really driving up house prices.

But this Government comes along and it turns to tax because it always wanted to. I stood in this House many times last year looking across to Grant Robertson and saying, “People of New Zealand, you cannot trust Labour on tax.” Grant Robertson says, “No, no, no, we’re not making any changes to the tax system beyond putting up the top income tax rate for wealthy New Zealanders, and, secondly, maybe some petrol taxes. But beyond that, we’re not doing anything.” And I would say, “You can’t trust Labour on taxes.” Then all the journalists would say, “Why do you keep asking about this? Grant Robertson has made it clear they’re not doing any more taxes.” So that whole thing was shut down during the election campaign. “We’re not going to put up taxes. We’re not going to have any extra taxes. We’re not going to extend the brightline test. We’re not going to put up taxes.” So what happens? I’m afraid he was telling fibs. He had no intention—

DEPUTY SPEAKER: Order! The member’s been here for a considerable length of time to know not to use that to term. He will withdraw and apologise.

Hon PAUL GOLDSMITH: Withdraw and apologise. The Minister of Finance wasn’t telling the truth. He stood up in the House many times and said that—

DEPUTY SPEAKER: Using the name or the descriptor are equally incorrect and out of order. Final warning, Mr Goldsmith. Get to the bill or I will terminate your speech. He will withdraw and apologise for the second infringement.

Hon PAUL GOLDSMITH: I withdraw and apologise. But the Minister of Finance stood up in this House and said, “I am not going to increase taxes.”, and after the election he increases taxes. So you can say whether or not he’s being economical with the truth or not being clear and consistent. The line that he used is—what is the funny line that he was using? “I was too definitive on the topic.” Well, it may well turn out, when you get to the Budget next month, that he was too definitive on saying that he wouldn’t come up with death duties or gift duties or any other—land taxes—increases to the income taxes, because he might have been too definitive during the election campaign.

The thing about that is in New Zealand, in this country, over the last few decades, after the horrors of the Muldoon and fourth Labour Government year, when Governments came in and broke a lot of promises, we have had a tradition in this country where New Zealanders—

DEPUTY SPEAKER: This is not a general debate. He should come back this afternoon if he wants a general debate. I’ve listened—in the last couple of minutes, you haven’t even spoken to the bill. He should do that immediately. Final warning.

Hon PAUL GOLDSMITH: Well, thank you, Mr Speaker. I’m grateful for your guidance on that issue. But at the very heart of this bill, that has been changed at the last moment for a Supplementary Order Paper to bring in changes to the tax system in direct contradiction of what this Government said during the campaign—I think it is highly relevant to what we’re talking about in this bill. So they’ve broken their promises, and, secondly, having rushed this through under urgency, I make a prophecy right here, right now, that we will all be back in this House fixing this legislation in the next few months, because they will have mucked it up—

DEPUTY SPEAKER: The member’s time has expired.

KIERAN McANULTY (Labour—Wairarapa): Thank you, Mr Speaker. I’m absolutely astonished that that member—the Hon Paul Goldsmith—of all members wants to dedicate a five-minute speech to the last election campaign. What the last election campaign taught us is that New Zealanders are sick of whingeing. They want to hear solutions.

For many, many years, we’ve been talking about a housing crisis in this country and in every single contribution from that side of the House as we do the third reading of this bill—a bill that provides solutions—we’ve heard whingeing. Where are their solutions? What I think New Zealanders wish to hear on this debate of this bill—if they disagree, what would they do differently? All we have heard is criticisms without solutions. In fact, in credit to the ACT Party, Damien Smith–whom I am becoming quite fond of, I might say; a bit of a character and actually talks about the issues. We’ve got a situation now when we are putting forward solutions to the housing crisis. The National Party are offering no solutions and the ACT Party are offering a solution of borrowing because of good interest rates to build houses. Well, that just says the situation that we’re in.

This bill offers a way forward. It expands the solution that the National Party brought in when they were in Government—an idea that they were trumpeting at the time but now they are critical of—and it is a prime example of opposition for opposition’s sake: when it’s their idea it’s good and when it’s our idea it’s bad. The New Zealand public will see through this. They know how serious this housing crisis is and they can see, through this bill, that this Government is actually doing something about it. It incentivises new builds—exactly what we need to do. It disincentivises investment in existing properties and speculation in existing properties outside first-home buyers—it’s exactly what we need to do.

What we need is this Parliament to look at solutions and not politics. It’s a lesson that this party learnt years ago. It’s a lesson that other parties in this House have learnt. It is not a lesson that the National Party have learnt. For some reason they feel that the way forward for their party is to sit and whinge and bicker and moan. Where did it get them last time? This bill is about solutions to one of the biggest issues facing this country and I commend this bill to the House.

BARBARA EDMONDS (Labour—Mana): Sometimes, you don’t know where you’re going until you know where you’ve come from. Some of the history of this proposed legislation that’s in the bill is increasingly important, and having practised tax for over a decade, I’m going to take us through why we’ve got to this point, in the bill.

The history of this provision in the Income Tax Act to capture property speculators is lengthy. It goes back to the Land and Income Assessment Act of 1891, a time of high demand and scarcity of freehold land availability. It sounds familiar, right?

Hon Members: Yep.

BARBARA EDMONDS: Absolutely. So the Government, then, had to act, and that’s why this side of the House is acting as well, because we’re in the same setting as we were in 1891. The underlying policy of the land rules in the Income Tax Act is that where land is treated like a trading asset—and this is important, Mr Bayly—a revenue account property, not capital, then you tax the profits you make from it. The most significant recent changes to this provision was the brightline test in 2015 brought in by the National Government to remove the ambiguity of the intention test.

Now, I left the House last night after the debate feeling a bit of déjà vu. A lot of the contributions that came from the other side of the House were the contributions I heard when I worked on this bill as an official back in 2015 under the National Government, and I make note that I looked back at the committee of the whole House in the Hansard. Last night, a number of the contributions that they made—we had the Minister back then sitting in the chair; he took zero calls during that committee stage to clarify the policy intent of the brightline test when it was introduced in 2015. So I thank Minister Parker, who sat in the seat last night and took 40 calls—we counted it; 40 calls—to help clarify those positions around the main home exclusion, business premises, etc.

I also thank IRD officials. I know there’s probably been late nights. We had a late night last night, so I thank you for your thoroughness in all your workings on this particular bill.

So I go back to the beginning of my contribution—that you don’t know where you’re going until you know where you’ve come from. I’ve come to this House having been brought up in a home where at one point we had 24 people living under one roof. I come to the House to act and to provide solutions. So that’s why I’m proud of this Government for acting, and I commend this bill to the House.

NICOLA WILLIS (National): This bill breaks an election promise. It imposes a new capital gains tax, it puts a new capital gains tax on family homes, and it increases these taxes, it breaks these promises, without any clear evidence about who will benefit. In the last election campaign, members opposite—the Rt Hon Jacinda Ardern, the Hon Grant Robertson—were definitive. They said, Labour will not introduce a capital gains tax. In fact, the Hon Grant Robertson went one step further. He was very definitive and made an absolute commitment that Labour would not adjust the brightline capital gains tax.

Now, despite the revisionist history we have heard in this House today, that is exactly what is happening. Under urgency, this Government is ramming through a breach of its commitment to New Zealand voters, and those opposite should hang their heads in shame. We have had an argument that this is simply an extension to something that was already there.

Let us be very clear: when National introduced a brightline test at a two-year limit, it was specifically for the purpose of stopping speculation and property flipping. But what we see in the law that is being passed in this House tonight is something that will target a broad sweep of New Zealanders. It will impose a capital gains tax on people who are choosing to own a residential property, to rent it out, to be good landlords, to save for their retirement. They have no intention of becoming property speculators, of becoming flippers, of becoming developers. No, they are just good landlords providing a rental property. They will now be captured by a capital gains tax and that is Labour’s doing, and to say that this is somehow a policy that National introduced is farcical and it’s desperate.

So we have to ask ourselves: why is Labour taking this step? Why are they breaking an election promise? Now, what we’ve heard from members opposite is that this is to make housing more affordable and it’s to give first-home buyers a better start. OK. So let’s see: is that actually what this new capital gains tax will achieve? Because, actually, there’s very inconclusive advice on what impact the tax will have on the two main components of housing affordability.

The first is house prices. Well, actually, we haven’t had a single definitive statement from the Minister of Finance, or any member opposite, about what impact this new tax will have on house prices. So the jury’s out on that one.

The second component of housing affordability is rents. And I’ll tell you what, if you’re a first-home buyer, this matters a lot, because rent determines how much money you have left at the end of each week to save for your deposit. So when rents go up—as they have under Labour; $120 a week since Labour came to office—that affects housing affordability.

So we turn to what the officials say about what the impact of this capital gains tax will be on these two core issues: house prices and rents. Now, the first thing that is shocking about this is that the regulatory impact assessment of this bill, which gives us a window into what officials think about it, is that Treasury say they didn’t have time to form a view on what this new provision will do. That is shocking. Here we have a major breach of an election promise on an issue that will affect tens of thousands, if not hundreds of thousands, of New Zealanders, and our main Treasury advisers haven’t even been given time to form a view. But what they do say is that “tax settings are not the primary driver of problems in the housing market,”.

Now, we know that. New Zealanders know that. New Zealanders know that actually what needs to happen here is that a housing shortage needs to be addressed with new houses being built. But Labour stuffed that up. KiwiBuild, which was their idea of how to get houses built—the grand promises; you remember, Michael Wood. You remember promising 100,000 homes. Well, you mucked that up, didn’t you? You actually only managed to build just under 800.

ASSISTANT SPEAKER (Hon Jacqui Dean): Order! The member will not bring the Speaker into the debate.

NICOLA WILLIS: My apologies, Madam Speaker. So Labour know that they’re not really very good at getting houses built. So instead they’ve turned to tax. And the officials say that this tax policy—to quote Treasury—“may put upward pressure on rents.” They then go on to say that it’s very difficult to see how this policy will interact with the other components of Labour’s housing package and what impact that will have on house price affordability. So what we have is a broken promise, grand objectives in terms of what this new tax will achieve, and, yet, no evidence that it will have an impact on the two major indicators of housing affordability. You’d think you’d have better grounds for breaking a promise.

The other area that is very significant, and that we have chosen to highlight, is that this breaks a promise that has been longstanding on the family home. Just yesterday, Grant Robertson said in no uncertain terms that the brightline test does not, and will not, affect the family home. Yet, at the very same time as he was making that promise to New Zealanders, he was also introducing a specific change in this bill to ensure that thousands more people’s family homes will, in fact, be captured by the brightline capital gains tax. I want to step you through the change he’s made because I think that it is an absolute case of a finance Minister sneaking something in, hoping people won’t notice. Well, we’ve noticed and New Zealanders need to know about it.

The rules used to be that you were only captured by the brightline test if you rented out your home for more than 50 percent of the time to which that test applied. So if the rules had stayed the way they were and the Minister hadn’t snuck through his change, what that would have meant is that New Zealanders who bought a house, from next week, and held that house would only be subject to the brightline test if more than half the time they owned it they rented it out. So in the case of someone who owned a house for nine years, if they rented it out for 4½ years, they would have faced a tax obligation, under the 10-year test.

But what Grant Robertson has done is he’s said, “No, no. I’m going to be far more punitive. Anyone who rents out their house for more than 12 months will now be captured by my brightline test.” Now, members opposite have been dismissive about this, but let’s think about the thousands of families, the new homebuyers who are going to be buying houses in the next few months, and the impact it will have on them. They will be brought into the capital gains tax regime.

Let’s talk about who these people are. It’s people who relocate for a temporary period for work, maybe because they have to work on an emergency management scenario or help out at a managed isolation and quarantine facility, and in order to make ends meet while they’re doing that, they rent out their family home. Well, too bad. Bad luck. Under this Government, they will face a capital gains tax.

Let’s talk about the family in tragic circumstances, whose child needs medical treatment at Starship Children’s Hospital, the family need to relocate for a period, they need to stop work—

Hon Poto Williams: 12 months?

NICOLA WILLIS: —and they have to rent their house out for 13 months to make ends meet. Well, what the Hon Poto Williams wants to see happen is that family face a capital gains tax. Well, we say on this side of the House that that’s wrong. The Government shouldn’t try and sneak through that sort of a change.

This bill is a breach of an election promise. It imposes a new capital gains tax, it puts a new capital gains tax on family homes, and there is no clear evidence about whether it will actually fire a bullet at the goals this Government has. What we do know is that when the five-year brightline test was introduced by Labour in 2018, here’s what the impact on house prices was: house prices between when that five-year test was introduced and today went up $230,000.

So the evidence about what the impact of this will be is scant. What this bill shows overall is that when Labour is in doubt, when they’re facing a difficult and complex problem, their instinct is tax it. Their instinct is, when in doubt, don’t trust New Zealanders with their own money; take some for yourselves. When faced with a problem, when faced with a housing shortage, when faced with the inability to build houses, put a new tax on it, cross your fingers, hope it works. Don’t worry about assembling evidence. Don’t worry about the commitments you’ve made to people in the election campaign. Break your promise. Who cares about the risks? Take the money. Tax it. Hope and pray. Well, we’ll see. The jury is out.

HELEN WHITE (Labour): I rise in support of this bill and I am absolutely thrilled to be here, giving this particular speech. What actually appears to be the case is that the Opposition just completely lacks a vision, and this bill does exactly the opposite. There’s a very, very strong vision here. There’s a strong vision about what Government does and what it should do, and in this situation what we see is a bill that consistently encourages investment in the right places in our economy.

We have a bill here that now encourages investors in the housing market into new builds, and that is exactly where they should be. They should not have been speculating on homes that were already there. We need an increase in housing stock, so now we have carrot and we have stick. The carrot here is that if investors go into new builds, the brightline test does not apply to them at 10 years. If they go into new builds, they will actually be producing something of value, and it is recognised here.

It’s a very different situation for people on lower and middle incomes in New Zealand who want to own their own homes. They get a boost by this. They get a right to bid for those houses without those kinds of investors who already have capital and who outbid them every time. They get that right to get that dream fulfilled and that’s a very important thing, and it’s an important thing to child poverty and it’s a very, very big focus of this bill that we are focusing on those lower and middle income earners.

It isn’t something that’s happened by accident. Other parts of this bill also encourage investment. We can see that in the business continuity test, for example, where there is a reshaping so that we are actually encouraging innovation and investment. When people have spent a lot of capital in a business and they’ve grown it and they’ve taken a risk, they get to move into a new place in the maturity of that business by adding a capital investor, and they don’t have to meet the 49 percent ownership any more. We can look at the similar business that they’re involved in, and that, again, does exactly the same thing: it encourages investment.

There’s the issue about feasibility. The feasibility deduction is something where, again, people are encouraged to go out there, take a risk, try something, and, in fact, if it doesn’t work, they can abandon their project and they can recover. It’s a really important part of the bill.

But I also want to talk for a minute just about the other part of this bill, which I think has been really scathingly attacked by the Opposition, and that is the increase of income tax. This is a very fair tax bill, and I come from that bracket that was talked about in terms of income. I’ve come from a high income, but I’ve also worked as an employment lawyer, and I have watched people walk into my office every day who work as hard as they possibly can and they never come near those tax brackets. They’re doing meaningful work, they’re helping people, and when I hear members—self-congratulatory members—talk about how they have worked hard and say that that is why they are on these incomes, I can tell you that it’s way more an accident than that. It’s an accident of class; it’s an accident of education. It’s a good thing to earn lots of money, and I don’t wish them any harm, but it is very, very important that the focus of this Government is in the right place. It is on working people and it is making sure that everyone gets a fair go, and I for one have no problem with paying a higher income tax that is actually fairly minimal in these circumstances.

Everybody shares in this economy. I have children who do not earn that kind of money, and I want to support them. I want to support my community. That’s what income tax is about, and this Government has its eye on the ball.

Thank you. I commend this bill to the House.

A party vote was called for on the question, That the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill be now read a third time.

Ayes 75

New Zealand Labour 65; Green Party of Aotearoa New Zealand 10.

Noes 45

New Zealand National 33; ACT New Zealand 10; Te Paati Māori 2.

Motion agreed to.

Bill read a third time.

ASSISTANT SPEAKER (Hon Jacqui Dean): I declare the House in committee for further consideration of the Regulatory Systems (Transport) Amendment Bill.

Bills

Regulatory Systems (Transport) Amendment Bill

In Committee

Debate resumed from 17 March.

Part 1 Amendments to Land Transport Act 1988

CHAIRPERSON (Adrian Rurawhe): Members, the House is in committee on the Regulatory Systems (Transport) Amendment Bill. When the committee last considered this bill, Part 1—clauses 3 to 10 and Schedule 1—was being debated. This is the debate on the amendments to the Land Transport Act 1988. Simon Court had the call with three minutes and 15 seconds remaining. The question is that Part 1 stand part. The question is that the Minister’s amendments to Part 1 set out on Supplementary Order Paper 16 be agreed to.

Amendments agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that Part 1 as amended stand part.

Part 1 as amended agreed to.

CHAIRPERSON (Adrian Rurawhe): I’m sorry—I’m just seeking clarification, members. Sorry, members, we’re going to have to go back. We have an amendment tabled which should have been included in Part 1, so I’ll just get the correct words. Sorry, members, we’re going to have to do the vote on Part 1 again. The first question—there’s now three questions.

The question is that the tabled amendment in the name of the Hon Michael Wood to the amendments to Part 1 set out on Supplementary Order Paper 16 in his name be agreed to.

Amendment to the amendments agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that the Minister’s amendments to Part 1 set out on Supplementary Order Paper 16 as amended be agreed to.

Amendments as amended agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that Part 1 as amended stand part.

Part 1 as amended agreed to.

Part 3 Amendments to Maritime Security Act 2004

CHAIRPERSON (Adrian Rurawhe): Members, Part 2 was deleted at select committee, so we now come to the debate on Part 3—clauses 14 to 20 and Schedule 2. This is the debate on the amendments to the Maritime Security Act 2004. The question is that Part 3 stand part.

Hon MICHAEL WOOD (Minister of Transport): I’ll just canvass some of the key provisions in Part 3 pretty briefly. As I described in my opening comments to Part 1, what members will find in this bill is that most of the key provisions of the bill flow out consistently across the different parts. They simply apply to different pieces of primary legislation. In this case, it’s the Maritime Security Act in respect of Part 3.

The key provisions here are changes which ensure that the facility of transport instruments are able to apply to this piece of legislation. As we’ve canvassed in the debate around Part 1, this is a really important part of making sure that we have a regulatory system which can be flexible, which can respond to technological changes, and which enables the director of Maritime New Zealand, in this case, to be able to make appropriate changes to the regulatory environment to keep that landscape up to date.

A couple of other changes are just worth mentioning in this part. One is a change to the penalty limits that apply to this piece of legislation. This brings those penalty limits to a level that is consistent with other pieces of transport legislation. We’re currently below the limits that apply across other pieces of transport legislation and, as we’ve canvassed as well, members, we are making a range of clarifications to the way that the exemptions process works.

I note that in the report back from the select committee, we’ve made that change, which, again, is reflected in Part 1—which we’ve previously debated—which just clarifies that when it comes to class exemptions, class exemptions will not be subject to appeal, and that is because they are, in fact, pieces of secondary legislation which can be reviewed by the Regulations Review Committee and are also disallowable.

So those, I think, are probably the key things to cover off in respect of this part, members, and I’m happy to take any questions that members may have.

CHAIRPERSON (Adrian Rurawhe): The question is that the Minister’s amendments to Part 3 set out on Supplementary Order Paper 16 be agreed to.

Amendments agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that Part 3 as amended stand part.

Part 3 as amended agreed to.

Part 4 Amendments to Maritime Transport Act 1994

CHAIRPERSON (Adrian Rurawhe): Members, we now come to the debate on Part 4, clauses 21 to 33 and Schedule 3. This is the debate on amendments to the Maritime Transport Act 1994. The question is that Part 4 stand part.

Hon MICHAEL WOOD (Minister of Transport): Just a brief comment on this part, and that is because I do want to speak briefly on Supplementary Order Paper (SOP) 17, which has been introduced and does affect Part 4 of the bill. It’s a relatively short SOP, as members will see, but it does do something quite important, which is to make sure that our seafarer welfare centres are able to be funded on a sustainable basis through the application of the maritime levy.

This is a really important change. For members who haven’t been particularly familiar with them in the past, seafarer welfare centres, which are located at most of the major trading maritime ports around New Zealand, perform an incredibly important function in terms of ensuring that visiting seafarers to our shores have access to basic welfare services and things like a place off the ship to be able to have some quiet recreation, access to chaplaincy and counselling services, and—really critically over the recent period of COVID—the provision of Wi-Fi services, so that seafarers, many of whom have been stuck at sea maybe for a year or more are able to have some kind of connections with their families back home.

Those are important services that I think all members of the House would want to see continue. Importantly, New Zealand does have an obligation under the Maritime Labour Convention as well to ensure that these services are in place, and obviously there is a reciprocal implication that benefits our seafarers when they’re visiting ports in other places. The problem that we face is that those welfare centres for—well, for a long time have been funded almost exclusively through charitable donations. That is not proving to be a sustainable way of funding what is a critical service that we are internationally bound to provide to seafarers, particularly in the COVID environment, where the ability to access charitable donations has dried up somewhat and there are increased costs and pressures on those centres.

That creates a real funding gap. The Government is currently meeting that gap provision through the Essential Transport Connectivity fund. We are, basically, putting money in through that fund to ensure that those welfare centres can meet their obligations, but we need to make sure that there is a sustainable funding footing for those services. So allowing the maritime levy to be used to support those services is the best way through that we can see. It means that those commercial entities who access New Zealand’s maritime system are making a contribution to ensure that these services are provided.

In the greater scheme of things, it is likely to be a relatively small portion of the total levies that are received. The current funding for the centres across New Zealand is around about $700,000 to $800,000 per year. They’re a pretty small operation. I think they collectively across the country employ seven, eight, nine people—something like that. But this SOP will enable us to have a secure funding base for these very, very important services.

I just wish to draw members’ attention to that particular change. Again, I’m happy to take any questions on that or on any other provisions that are in Part 4.

CHAIRPERSON (Adrian Rurawhe): The question is that the Minister’s amendments to Part 4 set out on Supplementary Order Papers 16 and 17 be agreed to.

Amendments agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that Part 4 as amended stand part.

Part 4 as amended agreed to.

Part 5 Amendments to Railways Act 2005

CHAIRPERSON (Adrian Rurawhe): Members, we now come to the debate on Part 5—clauses 34 to 38A. This is the debate on amendments to the Railways Act 2005. The question is that Part 5 stand part. The question is that the Minister’s amendments to Part 5 set out on Supplementary Order Paper 16 be agreed to.

Amendments agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that Part 5 as amended stand part.

Part 5 as amended agreed to.

Part 6 Amendments to other legislation

CHAIRPERSON (Adrian Rurawhe): Members, we now come to the debate on Part 6—clauses 40 to 47 and Schedule 5. This is the debate on amendments to other legislation. The question is that Part 6 stand part.

Hon MICHAEL WOOD (Minister of Transport): Just a brief comment on Part 6 in relation to Supplementary Order Paper (SOP) 17 as well, because the other change that is introduced through this SOP is a small but important one in terms of the recreational aviation sector. There’s been a longstanding bugbear in that sector that much of the aviation sector uses specialised jet fuel, but in the recreational aviation sector, there are some users, mainly of smaller planes and other aviation vehicles, who do use fuel that fuel excise duty is attached to. The complaint from that sector—which is a not unreasonable one, in my view—over the course of time has been that unlike for other sectors, there is no benefit that applies from that fuel excise duty to the sector.

So in the case of maritime, for example, maritime users who pay fuel excise duty do have the ability to see some of that duty come back in terms of maritime safety for things which are funded through the payment of that duty. We don’t have the same thing applying to the users of recreational aviation. This SOP makes a small amendment which, effectively, puts recreational aviation on the same footing so that the fuel excise duty that that sector pays will be able to be applied to purposes affecting recreational aviation, mainly in the safety space.

That has been a call from the sector. It seems like a fair and reasonable thing to do. It makes it consistent with other sectors as well. I’m sure—and I hope—that members across the committee will support that small change, and, once again, I’m very happy to take any questions on it.

SIMON COURT (ACT): Thank you, Mr Chair. To the Minister, through the Chair: some of the aviation sector—particularly the recreational users—have been very concerned that the fuel excise duty that is hypothecated for land transport has been used for purposes that they do not benefit from, so we appreciate that this change here goes some way towards addressing that.

However, they’ve also made the point in other submissions that through the civil aviation safety levies, they already pay a significant amount of money based on the type of aircraft and what they’re doing. For safety, they are trained to an extremely high standard, which is quite different from the recreational boatie, who can walk into a dealership and buy an $80,000 or a $120,000 boat on a three-axel trailer, take it down to the ramp, and use it with nothing more than a couple of life jackets. That’s all the qualification they need—it’s a chequebook.

The recreational aviation sector and the training sector, which includes flight schools, some of which use up to 200,000 litres of fuel a year—I understand that there’s one in Christchurch at that scale—are really concerned that they’ve been paying the fuel excise duty and receiving no benefits, and now this change, this amendment, will actually have them paying twice. So they’re certified, they’re audited by the Civil Aviation Authority (CAA), and they pay levies to CAA. They have beacons on board, and they are often responsible, as amateur or recreational pilots, for going and participating in search and rescue activities for lost boaties and others at their own cost.

So I would ask the Minister to explain how is this revenue collected from recreational and training and all of those motor gas fuel users who use that fuel in their aircraft—how is that different from the levies that are taken through civil aviation and applied to aviation safety? Thank you.

Hon MICHAEL WOOD (Minister of Transport): Just in response, as the member Simon Court’s question pertained to this particular part of this particular bill, I just think it’s important to clarify that there’s no additional payment requirement that is being created by this Supplementary Order Paper (SOP). What we are simply doing is saying that the estimated value of the payments that are made by the users of recreational aviation through fuel excise duty can be applied to activities that will benefit that sector.

It’s important to note that in the way that section 9 of the Land Transport Management Act is set up, we will only be able to provide benefits to that sector up to the estimated value that is paid in by the sector through fuel excise duty. So, in respect of this SOP and the way that this piece of legislation works, those are the bounds that we work in. My recollection is that the total estimated value is relatively small—it might be around about $500,000 per year. Under this change, myself, in consultation with the Minister of Finance and in consultation with the sector—which is probably quite an important point to note—will be able to ensure that the value up to the value of those levies received can be applied to the sector.

If there are broader questions around how other levies are used, levies that might be applied through the Civil Aviation Act and other pieces of legislation, they’re probably just things that we’ll have to pick up in another forum, but I’m open to a conversation with the member around them. This change is quite a specific one, and I think I’ve probably given an explanation of how that will be applied.

CHAIRPERSON (Adrian Rurawhe): The question is that the Minister’s amendments to Part 6 set out on Supplementary Order Papers 16 and 17 be agreed to.

Amendments agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that Part 6 as amended stand part.

Part 6 as amended agreed to.

Schedule 1

CHAIRPERSON (Adrian Rurawhe): The question is that the tabled amendment in the name of the Hon Michael Wood to the amendments to Schedule 1 set out on Supplementary Order Paper 16 in his name be agreed to.

Amendments to the amendments agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that the Minister’s amendments to Schedule 1 as set out on Supplementary Order Paper 16 as amended be agreed to.

Amendments as amended agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that Schedule 1 as amended stand part.

Schedule 1 as amended agreed to.

Schedule 2

CHAIRPERSON (Adrian Rurawhe): The question is that Schedule 2 stand part.

Schedule 2 agreed to.

Schedule 3

CHAIRPERSON (Adrian Rurawhe): The question is that the tabled amendment in the name of the Hon Michael Wood to the amendments to Schedule 3 set out on Supplementary Order Paper 16 in his name be agreed to.

Amendments to the amendments agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that the Minister’s amendments to Schedule 3 as set out on Supplementary Order Paper 16 as amended be agreed to.

Amendments as amended agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that Schedule 3 as amended stand part.

Schedule 3 as amended agreed to.

Schedule 5

CHAIRPERSON (Adrian Rurawhe): The question is that the Minister’s amendment to delete Schedule 5 as set out on Supplementary Order Paper 16 be agreed to.

Amendment agreed to.

CHAIRPERSON (Adrian Rurawhe): Therefore, Schedule 5 is deleted.

Clauses 1 and 2

CHAIRPERSON (Adrian Rurawhe): Members, we now come to the debate on clauses 1 and 2. This is the debate on the title and commencement provisions. The question is that clause 1 stand part.

Clause 1 agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that the Minister’s amendments to clause 2 set out on Supplementary Order Paper 16 be agreed to.

Amendments agreed to.

CHAIRPERSON (Adrian Rurawhe): The question is that clause 2 as amended stand part.

Clause 2 as amended agreed to.

House resumed.

CHAIRPERSON (Adrian Rurawhe): Madam Speaker, the committee has considered the Regulatory Systems (Transport) Amendment Bill and reports it with amendment. I move, That the report be adopted.

Motion agreed to.

Report adopted.

Third Reading

Hon MICHAEL WOOD (Minister of Transport): I present a legislative statement on the Regulatory Systems (Transport) Amendment Bill.

ASSISTANT SPEAKER (Hon Jacqui Dean): That legislative statement is published under the authority of the House and can be found on the Parliament website.

Hon MICHAEL WOOD: I move, That the Regulatory Systems (Transport) Amendment Bill be now read a third time.

I’m very pleased that we’ve been able to make good progress on this important piece of legislation this morning—record pace, potentially. I just want to acknowledge members from around the House for the way that they have engaged in this piece of legislation throughout its legislative passage, in particular the intelligent questioning on Part 6 of the bill in relation to the recreational aviation sector. I look forward to picking up on those issues with the member as we proceed. But I make that comment because I think there is a good recognition across the House of the value of these regulatory systems bills and in working through them in a collaborative way. Ultimately, everyone in New Zealand and everyone in this House benefits from having regulatory systems that are efficient, that are up to date, that ensure safety, and that allow activities in our country to proceed with as few restrictions on them as possible. I think, given the way in which there’s been broad cross-party support for this bill, we can see that that has come through in the changes that are made by this bill.

Just canvassing a number of those briefly—we’ve been through them a number of times. One of the ones I do just want to dwell on is the introduction of transport instruments as a legislative facility in this bill. In the time that I’ve been in this role as Minister of Transport, the scale of the transport sector has been thrust upon me. This is an enormous sector, covering every way, pretty much, that we move around our country. It is a constantly changing environment. We’re in an era in which technology is constantly impinging and changing the ways in which the transport sector works. It’s a highly safety-critical environment as well, and we need to make sure that we have a regulatory regime which keeps up with those things. There’s just also an extraordinary level of detail.

At the moment, the way in which our regulatory system works to keep on top of all of that is that rules and regulations ultimately all have to come through to the Minister and the Governor-General to ensure that that regulatory landscape is kept up to date, that we keep safe, and that we keep pace with technology. Given the scale of the sector, that is just not a particularly efficient way of proceeding. So what transport instruments do—and this might be seen as a slightly unusual thing for a Government to promote—is to delegate down some ability from the Minister to appropriately and specifically appointed people in the transport system, directors and chief executives, to be able to make transport instruments.

What we have been able to clarify through the course of this legislation—and here I thank the Transport and Infrastructure Committee for the work that they did in this area. Yes, that’s a good thing to do in terms of making the system more flexible, but we also want to make sure that things don’t run away on us. These instruments will, effectively, be pieces of secondary legislation, so the House and the Minister do need to be assured that they will, in fact, be put in place in accordance with the intention of Ministers when they set rules and regulations. So we’ve clarified that those instruments will have to pertain specifically to the purposes of the rules and regulations under which they are set, and I think that that has been an important clarification, and it speaks to the intention that the House has made through the select committee and committee of the whole House process. So I thank members for their support in making those changes.

A couple of the other important little changes that are made through this bill—one that hasn’t received too much comment is that there are a number of potential changes to the board sizes of the key boards that are governed by the various pieces of transport legislation. The Waka Kotahi board, for example, shifts from being between six and eight members to seven to nine members. That deals with a couple of particular issues. One is that an even number is never a particularly helpful number if you’re dealing with contentious issues where people might actually be voting on matters. I’m sure members in this House, who engage in the world of politics, will be aware that an odd number on a committee is actually quite good in terms of being able to make decisions. So that’s something that we’ll be able to provide through this.

But actually, more importantly, that potential change to the Waka Kotahi board size just recognises the sheer complexity of that board, their regulatory functions—their functions in planning, their functions in funding—and the need to get a good composition of people who can ensure that the board has all of the skills that it needs to cover off that very wide set of functions, noting that they manage an annual budget of kinds of around about $4.5 billion. So that just gives a bit more flexibility to make sure that we have the right skills at the board table. Comparable changes apply to both Maritime New Zealand and the Civil Aviation Authority as well.

There are also clarifications in this bill in the way that exemptions may be granted from transport rules, regulations, or under the new regime instruments. This is an important part of the flexibility of the system. We set these rules, regulations, and now instruments. In 99.5 percent of cases, they will apply well to the situations that people find themselves in, but from time to time it is appropriate that exemptions are granted. So we clarify the processes by which they are granted in this piece of legislation but also specifically make some clarifications around how class exemptions for groups may be granted. One of the useful changes that was made at the select committee stage was just to clarify that given that those class exemptions are, effectively, pieces of secondary legislation themselves, they are not appealable through to the courts. People do have recourse through the Regulations Review Committee and also through the fact that they are disallowable instruments. So we’ve provided some clarification and also some protections in those areas as well.

Finally, I’ll just say—we’ve just passed Supplementary Order Paper (SOP) 17 through the committee stage. I’ll just say that I’m really pleased with the two changes that have been made via those SOPs. They did come into the process a little bit later, and that in part is because COVID did reveal some particular issues to us, especially in that area of ensuring the welfare of seafarers who visit our shores. This is something I feel really strongly about—that across our regulatory systems, we need to make sure that the most vulnerable people are looked after. We’ve all heard the stories this year about some of the challenges that international seafarers face. Sometimes that’s Kiwi seafarers who are out there, and sometimes that’s international seafarers who are visiting our shores.

These seafarer welfare centres have a long and noble history. They’ve primarily been set up back in the day by religious organisations. There are, effectively, three component organisations who oversee the seafarer welfare centres in New Zealand. One is rooted in the Anglican Church, one is rooted in the Catholic Church, and one covers off other denominational and non-denominational groupings, so we’ve got something there for everyone. But you just think about it, and we have some seafarers who have, effectively, been living in a big metal box bobbing around on the ocean for a year or more due to the impacts of COVID and the inability of some of those ships to land on shore and for people to return home. So these welfare centres are just critical in terms of the human and social needs of those people. They also act as a really important avenue for seafarers to, in a soft and easier, more comfortable way, raise concerns and complaints about their treatment while they have been at sea. We know that some of those issues are very real.

It’s not over-egging things to say that were it not for this piece of legislation, the change that we’ve made through SOP 17 at the committee, those seafarer welfare centres would face a very bleak future. Their funding streams are under real threat, and those services would potentially be compromised, and that would compromise New Zealand’s ability to comply with the Maritime Labour Convention, which we are signed up to. So I’m really pleased we’ve been able to make that change in particular. I’m pleased to see the support that it’s received across the House.

Again, I’ll thank everyone who’s participated in this process: members across the House, the select committee, those people who submitted on the bill, and, of course, the officials who have been guiding it through the process and providing really good support to me and, I think, the select committee as it considered this piece of legislation. As I said at the outset, these regulatory systems bills are an important way of making sure that we have modern, fit for purpose regulatory systems, and I think we’ve been able to achieve some very good outcomes through the passage of this piece of legislation. I’m pleased to see that it looks like it will pass through the House today and take effect from 1 April. I thank members for their support and commend it to the House.

BARBARA KURIGER (National—Taranaki - King Country): Thank you, Madam Speaker. Thanks to the Minister, who’s really outlined much of the detail in this bill. I would say that the National caucus is happy to oblige on collaborative debate where the Government comes up with sensible solutions. So we find the changes in this bill particularly sensible. It is important for 1 April that this bill is being done under urgency; however, I would ask the Minister to put some further urgency on transport projects, because, over the last 3½ years, we have not seen, under previous transport Ministers, any urgency at all in this department.

This bill really is enabling transport instruments. It will enable the Minister of Transport to allocate the maintenance of detailed requirements within legislation to a specified individual such as the relevant transport regulator. So the whole thing about this bill is to enable a quick response to change, ensuring decision making is sitting at the right level, modernising existing exemptions—lots of what seem like minor fixes but hopefully will help to speed up the system, because we do know that we really do need some speeding up in transport.

What I would actually ask, in relation to this bill, there are other bills that could be done that would help to speed up the transport process, and I refer particularly to bills like the Resource Management Act (RMA). Without that, we’re not going to be ultimately able to speed up transport in a way that is acceptable to this country. I think about a project in my own local electorate—the Mount Messenger project. It was announced by Sir John Key when he was the Prime Minister, in 2016. It was appropriated in the 2016 Budget. It has been supported by people from both sides of the House, including previous local MP Minister Little. It’s been supported by Minister Twyford in his time. It’s been supported by the Prime Minister, and just trying to get it through RMA processes—it’s not that the Government is slowing this one down; it’s actually the processes of the—

Hon Michael Wood: It’s the member’s constituents!

BARBARA KURIGER: Yeah. It’s the Resource Management Act and the process that is undertaken around that. So, while we’re spending time today fixing up the small parts of transport, I urge the Government to work with the National caucus when it comes to the Resource Management Act and see if we can get some sort of collaborative debate going on across the House, because nothing is really being delivered in transport at the moment.

I would also make another request in all of this: there’s a lot of talk about public transport, but 94 percent of personal travel in New Zealand occurs in private vehicles, and there are some things we can do in cities around public transport, but certainly, in electorates like mine, private transport is going to be a thing for a very long time to come. So we need the roads up kept, maintained, and in certain areas we need new builds of roads. So let’s not let ideology get in the way, because it’s slowing down progress on key strategic infrastructure in transport.

So, at that point, I’m going to leave it at that, because I would like to get through this bill and let the Minister get on with his real job of building roads.

GREG O’CONNOR (Labour—Ōhāriu): That previous presentation really epitomises everything that is wrong with the Opposition. Here, the honourable member Barbara Kuriger is criticising a lack of progress on a particular stretch of road that is being held up by her own constituents who are using the very Act to do so that she is so critical of.

But fortunately, we are in an environment where a piece of legislation like this becomes necessary because so much is happening in transport, and, when so much is happening in transport, it means that you’ve actually got to, each time there is a new road, each time something’s done, there needs to be new rules around it—whether it be speed limits, whether it be signs, something as basic as be careful of whatever the local birdlife is. So what is absolutely necessary to keep up with this work that this Government is doing is to ensure we have an efficient regulatory system around it. So what this bill does, it just ensures that there’s a delegation of the ability to ensure that the amount of work being done by this Government, the vast amount of work being done by this Government, that there is a regulatory system that can actually keep up with it.

So what this does is it enables who can actually now make—we’ve heard the Minister describe what transport instruments are, just to ensure we can keep up that efficiency with the vast amount of work we are doing as the Government. But who can do this work, I think those sitting at home will be very interested to know. So in regards to the land transport, it’s Waka Kotahi New Zealand Transport Agency, or “the agency” as it’s often referred to, or the Director of Land Transport can do this. In regards to maritime transport, Maritime New Zealand or the Director of Maritime New Zealand may make transport instruments. It also allows, interestingly enough, Waka Kotahi or Maritime New Zealand to delegate this power to the Secretary for Transport. And so the committee recommends a secretary, so the secretary now can be allocated responsibility.

So, again, what we have here is another piece of regulation which is necessary to keep up with the amount of work, the amount of innovation, and the amount of work being done by this Government to ensure that it is the dynamic Government it will need to be to recover from some fairly moribund time in times gone past. I certainly commend this to the House.

CHRISTOPHER LUXON (National—Botany): It is a pleasure to rise and talk about this bill, because it has actually provided great levity, actually, over the passing of this bill. We’ve had some members talk about the possibility of moa signs in Ōtira Pass; we’ve had others talk about the shape of traffic signals.

Greg O’Connor: Arthur’s Pass.

CHRISTOPHER LUXON: Arthur’s Pass, it was; you’re right, it was Arthur’s Pass. We’ve had others talk about their great love of the Chatham Islands and the food stocks that are there, from the ambassador for the Chatham Islands, Mr Eagle—it’s been fantastic. And we’ve had others talk about their great love of buses. So we’ve really discussed and canvassed quite a big set of issues.

I just want to say that, for me as a new member, it has been really quite refreshing to see how a bill is actually supposed to go through: from bill in first reading, ultimately to how a law is passed. This has taken its time; it has taken over a year to go from first reading to third reading and be passed as a law. We’ve had nine submissions. We’ve had plenty of time to consider all the big issues. And for me, it is sort of interesting, because, on the other hand, we’ve just come out of a taxation or a capital gains tax bill, and also a Māori wards discussion, which were compressed under urgency, and I thought that was the normal process. But it is good to see that there is a good legislative process.

I agree with my colleague Barbara Kuriger; I think that we would love to see some more action. When we talk about a second harbour crossing, isn’t it interesting? The harbour bridge is at structural constraints, we don’t have a plan for a second crossing, and then we are going to whack a SkyPath on the back of it that is going to load up to a structural load. So we need an answer for this side—SkyPath and the second harbour crossing. We need light rail fixed; it has frozen 15 roading projects. We’ve got the Auckland fuel tax, we’ve waited three years for it all to come; nothing is happening there. Let’s Get Wellington Moving—we could talk about that but we have already canvassed that. And we’ve got lots of congested and clogged cities. So there are more important things to do.

But we are supportive of this bill and we commend the Minister on this very worthy and earnest piece of work, because it is important and it is practical and it is very commonsensical. I know that we have talked about it through the second reading and in committee as well. It is doing the practical stuff: enabling transport instruments, clarifying relocation powers, and minor regulatory governance improvements. So it is my great pleasure to commend this bill to the House.

SHANAN HALBERT (Labour—Northcote): Thank you, Madam Speaker. It’s an honour, actually, to hear from my colleague, Christopher Luxon, across the room, and I look forward to his maiden speech this afternoon where he talks about the great things of the Auckland Transport Alignment Project and the $31 billion investment in Auckland’s transport infrastructure.

Understanding the deficit that we’ve had in Auckland’s transport infrastructure for so long—I think a $6 billion deficit we’ve faced over consecutive decades—and as an Auckland MP, each of us knows the impact on our community and the congestion that people living in Tāmaki Makaurau experience on a day-to-day basis. But our reality is that we cannot continue to just build roads in Auckland. That is not the future transport system. I’ve talked often about the need for many, many options—that includes on my bicycle, walking, public transport, light rail—because our vision has always had to be bigger and broader to ensure that we can get Aucklanders moving.

So that’s the exciting thing under this Minister, under this Government, that we’re getting on and doing the mahi. That includes looking into the additional harbour crossing, and if nobody had read up on the reports, we’ve actually done some research and started the work to look at Auckland’s additional harbour crossing and come up with actual options, not pie in the sky ideas that we should do this, that we should do that. We’re actually getting on with unlocking Auckland’s congestion issues under this Government.

So I go back to this particular bill—ahakoa he iti he pounamu, albeit small, this bill is a treasure. Because we know with large investment in Auckland’s infrastructure—$31 billion—addressing those gaps and unlocking Auckland, we’ve got to focus on the little things. And what this bill does is that it enables Government, or the Minister in particular, to delegate responsibilities to CEOs to take care of some of those responsibilities and the instruments that will enable our transport system to unlock itself and get moving.

So without further ado—and I acknowledge the cooperation and collaboration in the House today—I commend this bill to the House.

Hon JULIE ANNE GENTER (Green): Tēnā koe, Madam Speaker. Tēnā koutou e te Whare. The Green Party is supporting this bill. I would like to, just very briefly, speak in support of the words of my colleague Shanan Halbert, who spoke previously.

You know, transport is an area where we have an opportunity in New Zealand to do much better than what we have been doing, in a way that meets the different needs and values of pretty much everyone in society. There’s often a misconception that we have high levels of car ownership and car use because people have chosen that. But when you really look at the history since the mid-1950s, it hasn’t been a choice that has been made by most households; it’s a choice that was made by transport engineers and city planners. It copied the style of development that happened in the United States and most of the English-speaking world at that time, and what we’ve learnt over the last 70 years is that it doesn’t solve the congestion problem, it doesn’t reduce the cost of transport; it increases it.

So we had this unintended consequence of planning rules and of traffic engineering practice that has led to a situation where most New Zealanders have to use a car to get around. And that is actually costing us a fortune in terms of land that’s tied up for moving and storing cars—you know, most of the off-street car-parking we have in New Zealand is empty three-quarters of the time; that’s land that could be used in more productive ways if we manage parking in a different way. That would mean more land in our urban areas for affordable housing, for schools and businesses, and shops and hospitals, green space—all the things that make a city attractive to live in, we could have more land for that if we manage parking in a more intelligent way. I do believe that some of the provisions in this bill will allow for that, and will mean that it’s a little bit less complicated for the Government to allow for changes in rules and regulation that make it easier for councils to be able to charge the appropriate price, for example, when they have to tow a car. At the moment, they’re not able to even recover the cost of towing that car.

So some of those little detailed rules, it’s really important that we have a streamlined process, and that’s one of the things that this bill is doing, allowing for a more streamlined process for updates to rules and regulation that will facilitate a smarter approach to parking management. And this isn’t at all, in any way, about making it more difficult for people to do things; it’s about having fair and appropriate pricing, it’s about a fair allocation of resources, and it’s about giving people true choice.

When you have buses and trains that run every five to 10 minutes at peak time and throughout the day, and on the weekend, that gives people real choice. When the public transport services are more frequent, more people use them, they’re more affordable to provide, and the more people who can use buses and trains, the fewer people clogging up the roads with their cars. It’s the same with active transport: a huge percentage of trips at peak time are short trips. I mean, we’re talking two-thirds of peak trips that are less than five kilometres. Now, that is a distance that can easily be cycled by most healthy adults and even some children, but only if it’s safe. And when the traffic engineers planned everything around cars and trucks, the reality is that that made it less attractive, less safe, and much less viable to use a bicycle for these short trips. And we saw a complete collapse in the number of kids walking and cycling to school. It’s just not an efficient outcome.

And you do hear people say, “Oh, but what about the tradies? They can’t cycle.” Well, in some countries they do, but actually, they don’t need to cycle. The point is that you only need about a 10 percent reduction in cars on the road at peak to have free-flowing traffic on the roads. So we only need a small percentage of those car trips for people to say, “Actually, it is viable for my kids to cycle to school, and it’s viable for me to cycle to work, and actually I can join up the train with the e-bike so rather than driving and having to park at the park and ride, I can actually cycle, and leave my bike in secure storage at the bus station, or put in on the train and get to the other end of the journey.”

This kind of joined-up transport planning is mainstream in many other countries, and New Zealand has fallen behind, and unfortunately there’s been a real politicisation of transport projects, and you really hear this with the sort of campaign right now for a second Auckland Harbour crossing for cars. It just makes no sense; the cost of that would be astronomical, and the benefit to the people getting around Auckland would be negligible, and that’s what the studies that have already been published have shown. So why is it that the parties who supposedly care about the economy and choice are asking for this massive taxpayer subsidy to single-occupant vehicle trips into the city centre at peak time, which is just going to cause more congestion and more pollution? That is the question. They say they want congestion charging, but the reality is if we had congestion charging, there would be way higher demand for public transport, walking and cycling, and car sharing. There would be no need for this additional car capacity at peak time. And so, yeah, I’m all in favour of investigating congestion pricing, but you have to have the alternatives in place, because what’s going to happen is many more people are going to shift from driving alone to wanting to do other things, and if the buses aren’t there, if the trains aren’t there, if they aren’t affordable and frequent, they don’t have that choice.

So, ultimately, I think the direction the Labour Government’s going in is the right direction, but there still is a challenge, and that is in the implementation, because, unfortunately, the New Zealand Transport Agency Waka Kotahi has a real deep, embedded culture of this traffic engineering philosophy, which doesn’t care about cost-effectiveness, doesn’t care about choice, doesn’t see people having the choice to cycle as a real, serious transport alternative. And they have completely ignored the evidence that we’ve seen over the last 70 years that when you increase road capacity, you increase traffic; when you decrease capacity for cars, you actually reduce traffic and you get a better outcome. That is an undeniable fact. There is not a counter example anywhere in the world; that’s why right wing parties in Europe are very supportive of cycling as a mainstream transport option, why they’re supportive of public transport.

So, you know, I look forward to the day in New Zealand when we all are willing to embrace a rational, evidence-based approach to transport that gives people real choice, that solves some of our complex problems around transport costs, long commute times, high carbon emissions, high public health costs of people not being able to walk and cycle, with kids not being free to explore their neighbourhoods and get to school under their own steam. That is something that I think everyone in New Zealand should be able to get together and support, and I look forward to that day, but we commend this bill to the House.

SIMON COURT (ACT): Thank you, Madam Speaker. The ACT Party believes in good quality regulation, good quality public policy. But before regulations are made, it’s important to ask the question, what problem are we trying to solve? And do we even need regulation? Or can we trust those organisations which have the responsibility to build and operate and deliver safely to actually come up with their own safe systems at work. That is a question that will always challenge Government and that ACT will always challenge the Government on. Why do we need more regulations when, in fact, those businesses with skin in the game and who have responsibilities under the Health and Safety at Work Act as persons conducting a business or undertaking already have clear responsibilities in terms of maritime safety, road transport, and civil aviation safety. So while the ACT Party supports the intent of this bill and this amendment, we have grave concerns about the ability of the agencies tasked with enforcing the regulations and auditing to actually do what they are supposed to do.

There are some very serious concerns that have been raised over the past few weeks. We’ve heard from Radio New Zealand that people who were too afraid to submit on New Zealand Transport Agency’s (NZTA’s) role in auditing and checking heavy vehicle certification took the extreme measure of contacting Radio New Zealand using a burner phone to communicate their very serious and legitimate concerns about NZTA’s performance in safety auditing and checking and the lack of professional development in certifying those heavy trucks and buses and other vehicles, which our economy depends on, but also everybody relies on being safely operated on the road.

More recently, in the past few days, Radio New Zealand, the State broadcaster, that fountain of all knowledge and truth, has reported that now the Heavy Vehicle Engineers—that organisation responsible for delivering these heavy trucks and buses and trailers on our roads—has finally found the courage to stand up and repeat those claims in public. The concerns they’ve raised are that despite the regulations and the instruments that NZTA will be given through this bill, they don’t believe that the agency has the competency or the goodwill to actually work in partnership with industry to make sure that all of those heavy trucks and buses and other plant and equipment on the road have actually been designed and constructed and are being operated safely. So it’s all very well to set up regulations with good intent, but the test is actually the outcome. Are the roads safer? Do road users have more confidence when they’re passing a truck on the road? That remains to be seen. So the ACT Party focuses on outcomes, not good intentions, and while we support this bill and its intentions, the proof will be in the outcomes.

Then there’s the matter of a hypothecated tax—the fuel excise duty—which, it appears for many, many years, has been applied to the aviation sector to all of those operators who’ve chosen to switch from the much more dangerous and toxic aviation gas, what is commonly known as Avgas, which contains lead for the purpose of lubricating aviation engines. There’s been a revolution over the past few years, in that small aircraft engines, and larger ones too, now, can actually run on motor fuel, or Mogas. That is the fuel—a high octane, like a 95 or a 98—that you might put in your car. That can also run a six-cylinder engine like in your Cessna Caravan or the other aircraft that you might use to get around the country, to and from regional airports.

It’s not just the commercial operators, but the flight schools. There’s one in Christchurch which uses 200,000 litres of fuel a year. At 70c a litre fuel excise duty, that’s about $140,000 that they’ve been paying to the Government every year in fuel excise duty and having received no benefits from it. The bill that is being debated—and that will most likely be passed—today takes that hypothecated road user tax and now applies it belatedly to a definition of aircraft safety. Those operators have rightly pointed out that they are already paying levies on aircraft safety and aviation safety through their civil aviation levies. The Minister wasn’t able to clearly explain the difference today, and he has offered to have further discussions on that, but it seems like, for many, many years, these people, whether they’re recreational pilots or whether they’re running a pilot training school, have rightly been asking, how do we apply for our exemption? How do we apply to get our fuel excise duty back, when your local lawn mowing contractor can, but we can’t? That seems manifestly unfair.

I have a funny feeling that the representations of that sector and those stakeholders are what have led the Minister to come to the House belatedly with a Supplementary Order Paper to amend the original bill to make sure that NZTA and the Government wasn’t exposed to that risk of having taken a tax hypothecated on road users and the benefits of roads and applied it potentially in a way that is unacceptable to other matters.

We know that if you look at Auckland’s regional fuel tax, for example, hypothecated on delivering better transport outcomes for Auckland, they’ve collected around about $380 million through that regional fuel tax. It’s hypothecated to deliver better connections and better transport outcomes for Auckland. About half of it sits in an account, unused and unallocated, at a time when we know Auckland is choking with congestion, where there are a large number of unfunded, vitally important connection projects like East West Link, which have been approved, which are regarded by all of the stakeholders, apart from one who is challenging this in court and who has missed their point entirely. All of the stakeholders involved in the design and implementation, including mana whenua groups, including organisations like Auckland Council, which has extensive landholdings along the Onehunga waterfront, which are heavily contaminated with old landfills—the Onehunga catchment contains some of New Zealand’s worst contaminated aquifers. And one of the things that the East West Link project was going to do was create a virtual dam around the Onehunga foreshore, contain all that contaminated groundwater and storm water, and actually treat it, and that was going to be a net environmental improvement.

So when we’re thinking about regulations that improve outcomes, rather than just good intention, it’s really important to think about the long-term strategy. What are our objectives here? When we’re thinking about projects that desperately need funding, like East West Link in Auckland, to unlock the economic potential of south-east and south-west Auckland, to create a transport corridor that means trucks can get from their depots and from the rail hubs in South Auckland to the port—when there’s $180 million sitting in a bank account unallocated and unused, that really grates with our stakeholders. So what the ACT Party would advocate for is that any regulation that comes to the House to make regulating or improving the transport systems, the administration of transport, easier should be considered against the need to get Auckland moving and the rest of the country moving and unlock our potential.

So, in closing, the ACT Party supports this bill, but we support this bill because we share the Government’s intention that regulating through transport instruments becomes much easier for the industry to comply with. But what we also insist on is that the Minister holds his agencies and departments to account for their poor performance in the past and to understand why that performance was poor in safety auditing and checking heavy vehicles on the road, and we insist that any transport instruments that are created under this amendment actually have the buy-in and support of stakeholders in the sector, are easy to administer at minimal or reduced cost, and are practical to implement, because it’s only the outcome that this will be judged on. Thank you, Madam Speaker.

TERISA NGOBI (Labour—Ōtaki): Kia ora, Madam Speaker. Can I first just say it’s really good to get support across the House on this bill, and actually it makes sense, because who doesn’t want to ensure the safety of New Zealanders, especially on our roads and our walkways? I also just want to quickly acknowledge the other members, Shanan Halbert and colleague, for his kōrero around the different modes and the fact that this Government is focused on all of those modes and all of New Zealand’s safety while they’re using those transportation modes. Safety is a top priority for our Government, especially on transport, so this bill ensures the effectiveness and the efficiency of our regulatory system. We know that it addresses the currents gaps and errors and duplications that currently exist. The streamlines around the rule-making process will make sure that our transport sector—so our police and our emergency services—are able to address emergencies and issues much faster. Therefore, it’s a no-brainer that this bill has the safety of New Zealanders at its heart, and I commend this bill to the House.

ASSISTANT SPEAKER (Hon Jacqui Dean): This is a five-minute split call—the Hon Mark Mitchell.

Hon MARK MITCHELL (National—Whangaparāoa): Thank you, Madam Speaker. I intend to take just a short call on this, the Regulatory Systems (Transport) Amendment Bill. I didn’t sit on the Transport and Infrastructure Committee, but I thought that my colleague Chris Luxon gave it a very good rundown in terms of the process. I think that because the committee received just nine submissions, that is probably indicative that it is a very technical bill. I’d like to acknowledge my good friend and colleague Paul Eagle for his advocacy for the Chathams. I think that the bill does contain some—

Hon Kris Faafoi: That’s “High Commissioner Eagle” to you!

Hon MARK MITCHELL: Ha, ha! I know that Mr Eagle is a huge advocate and fan of the kai moana in the Chathams, and this is a very good part of the bill. So, well done.

I want to acknowledge the valiant speeches by Greg O’Connor, Shanan Halbert, and Terisa Nga-ba.

Terisa Ngobi: Ngobi.

Hon MARK MITCHELL: Ngobi, sorry. Fundamentally, reading this bill—and, by the way, it says here, “to enable a quick response to change.”; if this bill allows the Government to have a quick response to change, bring some more bills in, and we’ll support them all! We’ll get them all through, no problem at all. Valiant speeches trying to get the bus going a bit quicker: Shanan, Greg, and Terisa, all at the back of the bus there, pushing as hard as they can, those legs going as quick as they can, but, unfortunately, they suddenly realise there are no wheels on the bus—so it is a bit hard to get a bus moving when there are no wheels. The reason why I say that is in response to some of the comments that Mr Greg O’Connor made.

The reality of it is this: if you look around the country—and I’ll take my electorate, for example—the only real transport projects going are the ones that the National Government started. I’ve got the Pūhoi to Wellsford, a very popular road—the road of national significance. I’ve got the Matakana Link Road, extremely important; started by the National Party.

But the one road that we do need in my electorate is Penlink. There’s been a promise by the Government to deliver Penlink, and it is meant to start this year. The funds have been allocated but the funds haven’t been released. So if you want to get the bus moving a bit quicker, release the funds and actually start building some roads.

But we are in support of the bill. It is an important bill. It is an omnibus bill. I am very happy to stand and support it. Thank you.

TANGI UTIKERE (Labour—Palmerston North): Tena koe, Madam Speaker. I am very happy to rise to take a brief split call on the third reading of the Regulatory Systems (Transport) Amendment Bill. Particularly so to follow that member, Mark Mitchell, where I can give him the assurance that this big red bus has wheels and they are going round and round, as opposed to the static nature of the blue bus on the other side of this House, perhaps.

But I do want to say that what we have heard today is that this is an important piece of legislation. It’s practical, it does have common sense, and the fact that it is going to be supported from across the Parliament demonstrates that fact as well. We’ve heard also today about the multimodal approach, with this being an example of where this piece of legislation will play its part, and so I certainly support the views that have already been expressed by colleagues on that particular issue as well.

When I turn back and look at this legislation at a local level, I think of the Manawatū Tararua Gorge project—Te Ahu a Turanga—a great project that is delivering for my local community. Even though that is around connecting east to west, part of that project does have components of active transport as part of it. And so this piece of legislation will ensure that projects such as that can actually relate to the regulatory instrument and the various regulations and rules that will make things a little bit easier for community groups—for communities to be able to support active transport alongside other more traditional modes and means of transport in community as well.

It’s around being refreshed, it’s around keeping up to date and being relevant—and that’s what this Government is all about. On that basis, we will support this bill, and happy to commend it to the House.

PAUL EAGLE (Labour—Rongotai): Thank you, Madam Speaker. It’s always a privilege to talk about anything that’s got the words “Chatham Islands” in it, of course, but, more seriously, this is a bill that really has its history in regulatory compliance and safety. I remember talking in the second reading to this and that was the impetus for doing a lot of this work—you only need to do a short google to look back at the history around compliance. There were lots of issues and I’m proud that this Government has pulled it together and gone, “Let’s get this sorted.” And so we had appointments made. We’ve done some of the detail. It’s not too fancy, but it is important and it does save lives, and I think that’s something that has been lost in some of the speeches, because we’ve got distracted by roads and a whole range of other things. But what this is, this is about compliance and safety, so I’m really proud to be able to speak one last time on this.

In my honorary consul role for the Chatham Islands, I have found out they’ve already been operating as a regional council because things down there—I don’t know how much attention they pay to mainland legislation, but I was informed that we were already a regional council. I guess this just gives them the formal blessing, if nothing else. So good on this paper, good on the Minister, and thanks to all those who have spoken, and, of course, the select committee. I commend this bill to the House.

CHRIS PENK (National—Kaipara ki Mahurangi): Thank you very much, Madam Speaker, for another go at this one, the Regulatory Systems (Transport) Amendment Bill. I have actually spoken on it before, a number of times. I feel like I’ve spoken—

Hon David Bennett: Arr!

CHRIS PENK: —about it on more occasions than it’s come up in this House, so I don’t know how that’s possible, it just kind of feels like that, somehow. I sense there’s an encouragement for me to emphasise the seafarer welfare, but I won’t, in fact.

I just want to make a couple of points pretty briefly. One is, actually, a reasonably serious one. Transport, we often think of in quite technical terms, but it’s the effect on people’s lives, not only from a life safety point of view but also the way that we interact in society, people spending more time transporting themselves when they need to, are away from their families, workplaces, whatever. That was a point that was made really clearly in a local meeting that I attended last weekend in Kūmeu and surrounding areas, and this Friday coming up I’ve got a meeting in Warkworth about issues to that area. And I’m always reminded in the community away from this place how important these matters are for all those in our community.

I think sometimes there’s a discussion that’s really based on a false choice in this place. We hear, on the one hand, roads are evil and should be banned—I exaggerate, but only slightly. And on the other hand, only roads are the way ahead. Of course, that’s a false choice. Of course, the truth lies somewhere in between, which is that if we have the right kind of transport for the right place then we’ll all be better off for that.

This bill does have a pretty mode-neutral feel to it, although I can’t resist any opportunity to weigh in on the subject of active transport. Walking and cycling are good things in themselves, but, representing a rural area as I do, I’d like to fly the flag again, as I do from time to time, for horse transport for those who would ride in areas such as Kaipara ki Mahurangi. It is important for them to be safe. And I wrote to the last Government, the Minister who was the Associate Minister of Transport, I think with that delegation, didn’t get very far with her, but I’ll try again maybe. I’ve reminded myself and my colleague and friend across the House talking about active transport in those terms has reminded me as well.

So the bill’s pretty technocratic, it’s pretty detailed but none the worse for that. I’ve enjoyed the debate and discussion but I don’t wish to prolong it any further. So with that, like others on this side of the House, I commend it to the House.

HELEN WHITE (Labour): I rise in support of this bill, and I do so as a scooter user. I think this is where I differ from Julie Anne Genter, in that I found the bike a little bit difficult to get around on, and a scooter in my area means that you can actually go almost anywhere much faster because of the congestion in Auckland, as our Minister works valiantly to actually put that city to rights in terms of transport, as does the council. I take Julie Anne Genter’s point that what we are doing when we use these other modes is also connecting up with the train system, because a scooter could get me to a train, which would actually get me to Chris Penk’s electorate if I needed to, and maybe on to a horse.

I think that what I’ve seen and observed in this area is a stunning shift in the way that we think about things. What really provoked my thoughts was Maureen Pugh’s comment that the Minister of Transport’s job is to build roads. We have gone so far beyond that now, and you can see that in the changes in this legislation, because the administrators are being asked to do so much more. The boards will be enforced in terms of their numbers, but their tasks will also be different. They are looking at a different way of working in the world.

I remember, when there was a real investment in trains in Auckland, there was a complete underestimation of the uptake of those trains, and the same was true of bus lanes. We just did not know how many people would be involved in those things. So, basically, what we do in this situation is we put in place legislation which encourages the actual market for this, and we can see here this beautiful transport instruments provision which will do that. It will put all the administrative work into the right places. It will reinforce that system. Thank you. I commend this bill to the House.

Motion agreed to.

Bill read a third time.

ASSISTANT SPEAKER (Hon Jacqui Dean): The House stands adjourned until 2 o’clock today.

The House adjourned at 11.40 a.m. (Wednesday)