Taxation (Budget Measures) Bill

It is interesting to see Rahui Katene in the Chamber; I welcome her to the Committee. I am interested to see how she votes on the Taxation (Budget Measures) Bill, because she had a member’s bill pulled out of the ballot that seeks to remove GST from healthy food.

💬 Hon Trevor Mallard: And Kentucky Fried Chicken and chips.

Yes. At the moment we are debating a tax bill to increase GST from 12.5 percent to 15 percent on all items: healthy food, petrol, electricity—everything. Am I right in hearing that that member voted for this bill?

💬 Hon Ruth Dyson: The Māori Party did.

The Māori Party voted for this bill.

💬 Hon Trevor Mallard: Only three of them did.

Where are the other two? Where is Hone Harawira? Hone Harawira puffs out his chest—

The CHAIRPERSON (Eric Roy): Members cannot refer to the absence of members from the Chamber.

💬 Hon Trevor Mallard: Ask why they didn’t vote.

I ask why they did not vote. Are ructions going on in the Māori Party? Is this the split of the marriage between the Māori Party and National? Members should watch this space, and the public should watch this space. The press will have picked up on the fact that only three Māori Party members are voting for this bill. I thought they had more than three members. Two Māori Party members are not voting for this tax legislation. That says something about what is happening here. It says something about the dynamics.

I wonder why two Māori Party members are not voting for this legislation. When I look at the statistics, I see that 71 percent of people in Māori electorates earn $40,000 or less. The median income of all those in the Māori electorates is $21,900. What do we think that an increase in GST will do to the people who have an income of $21,900? I will tell members what it will do. It will increase the price of petrol. It will increase the price of apples. It will increase the price of fruit, vegetables, Kentucky Fried Chicken, rates—everything. It will increase the price of everything for everyone in those Māori electorates, yet three people in the Māori Party are voting for this legislation. That is astounding.

It is quite amazing that Rahui Katene is the one down here providing the votes for this bill. As mentioned, that member has a bill that has been drawn out of the ballot to remove GST on healthy food. That is quite astounding.

I move to Part 3. We have already had a good debate on Part 3. I have some concerns with the Minister’s argument, because the huge rate of inflation will erode the real value of wages and, therefore, their spending power. This Government increased the minimum wage last year. What did it increase it by?

💬 Metiria Turei: 25c.

The Government increased the minimum wage by 25c. How will that help people cope with 5.9 percent inflation?

💬 Craig Foss: Look at page 63: nominal wages are up 14 percent over the next 4 years.

I say to Mr Foss that we are talking about people on the minimum wage. If we look at that member’s electorate, we see that 76 percent of people in the Tukituki electorate earn under $40,000. They got absolutely nothing in tax cuts last year, and they will be hurting this year. I challenge that member to hold a public meeting with all his constituents, with the 76 percent of constituents who earn under $40,000, to see whether he can sell this Budget to those constituents. Will he tell them that inflation will eat it away, that they will not get much at all, and that GST will eat it away? What are those 76 percent of constituents—and let us not forget that the median income is only $22,500—going to get out of this Budget? They will get nothing but pain and heartache.

It will be a winter of discontent. Mr Boscawen has mentioned increasing power prices. Those increases will not come from the emissions trading scheme; they will come from the fact that Mr English said to Mr Brownlee that he wants a greater dividend out of State-owned enterprises. What does that mean? It means an increase in power prices. This will be a winter of discontent for many, many Kiwis, and I tell members that leading up to this election, many people will say that they voted for a change, but this is not the change that they voted for. I would like Mr Foss to organise that public meeting. I will come along and see how he sells this package.

I am going to talk about superannuitants and the old diggers, the people who receive war pensions. Part 3 of the bill will supposedly compensate our superannuitants, our pensioners, for the cost of living as a result of the increase in GST. But that is another cruel hoax, as is much of the Budget, because it does not say that the compensation has an expiry date. The cost of living will increase. In fact, the compensation being offered does not compensate for the true increase in the cost of living, because for superannuitants who live at least a little on the interest from their savings, the increase in GST will lower the actual value of their savings. They may still have $20,000 or $30,000 in the bank, but the value of that will be less in real terms after GST is increased; there is no compensation for that. Although they may receive some short-term compensation in superannuation, in the longer term their savings will not be compensated for. Of course, in the longer term if the Government commits to retaining superannuation at 66 percent of the average wage, in fact the value of that compensation will disappear and erode over time. It has an expiry date on it. If the Government were saying that it was going to permanently increase the level of superannuation in order to compensate for the GST increase, then that would be an entirely different thing. But it is not doing that. The Government will not compensate superannuitants on a permanent basis for the increase in GST. Our senior citizens are being swindled by this Government. It promised that it would not increase costs for superannuitants, but that is exactly what it is doing. Superannuitants will have to face 5.9 percent inflation, which means that the value of their savings in the bank will be worth 5.9 percent less, but the Government is not doing anything to offset that or to help them. Senior citizens are being diddled out of the value of their savings.

The other thing that is directly relevant to this, which I get asked about by superannuitants in my electorate, is the kind of country we are leaving for future generations. That is something that superannuitants think about. They think about their grandchildren; they will be thinking about how this Budget loads up a mortgage on their grandchildren to pay for tax cuts that are disproportionably targeted to those on the highest incomes. Superannuitants are concerned about that, because they want to think they will be leaving the country for their grandchildren in a better state than it was when they found it. But in fact they will not be. This Government is spending that inheritance and loading up debt on future generations. This Government is interested in only the next 18 months. It is interested only in being re-elected.

It is not interested in 10 years from now, when half a million New Zealanders will be retiring. It is making no provision and no saving for that. It has not recommenced contributions to the New Zealand Superannuation Fund. It has not done that. In fact it will not do that even when it gets back into surplus, which was another of its promises. So now that is another broken promise. I ask members how many there have been. I have lost count. I cannot remember how many broken promises we have had out of this Budget. It is full of broken promises. There are broken promises on interest-free student loans, broken promises on early childhood education, broken promises on GST—it is all just broken promises. This is a Government that cannot be taken at its word before an election.

💬 Hon Trevor Mallard: Or after.

People cannot rely on the Government delivering on what it says it will, before an election. As Trevor Mallard has pointed out, we cannot rely on the Government’s word after an election either, because it is a Government that simply shifts around.

John Key is very relaxed about it all. I ask members how prime ministerial his speech was in the Budget debate yesterday; he spent the first 10 minutes laughing and cracking jokes. That was very dignified and prime ministerial! People have rung me to ask whether I think it was undignified; I think that it was very undignified of him. It would have been good to hear the Prime Minister in the first 10 minutes of his speech actually mention the Budget. He can focus on the Labour Party if he likes, but maybe he should have talked about the Budget that his Minister of Finance had just delivered.

Perhaps the Prime Minister is just embarrassed by the Budget; perhaps he is embarrassed about the number of promises he has broken. He was the one who stared down the barrel of a camera and said that his Government would not increase GST. In fact, he said “If we do a half decent job growing the economy then that won’t be happening.” That is a broken promise. By the Prime Minister’s own admission, the Government has not done a good job of managing the economy, because 18 months’ into its term of government it has already broken that promise, and it has already increased GST. This is a Budget of broken promises.

Part 3 of the Taxation (Budget Measures) Bill deals with the property tax changes that are being proposed by the Government around depreciation and capitalisation. Those are two areas where the Greens agree that changes need to be made. We are pleased that there has been a small step in the right direction, but there is nothing like the kind of serious reform that was necessary and could have been provided through a capital gains tax, excluding the family home. We see that the Government has made some small steps while making more significant changes, of course, to the top tax rate. But it has made some small steps in the property area. It has not, however, done anything to deal with the inevitable rise in rents that will result from the changes—any changes—it makes to property tax, a capital gains tax included.

A truly responsible Government that talked and thought about a smart economy that was good for our people and our environment would have a joint approach whereby one not only shares the tax obligation more fairly through property taxes but ensures that there is provision of more affordable rental housing for those families who need it because of the inevitable rent rises. Treasury has, I understand, estimated an increase in rents of some 1.4 percent as a result of these small steps in property tax changes. I think that is a very conservative estimate, and I think it is quite possible that we will see an increase of more than 1.4 percent, because we also have the impact of inflation on rents and a growing need for rental accommodation. We have families who are desperate for somewhere to live.

The Green Party’s Mind the Gap package, which we released on Monday and which provides an alternative set of solutions to deal with inequality and our economic and environmental issues, had not only a capital gains tax to provide the sharing of the tax obligation but a programme to build another 6,000 State houses over 3 years. That would cost $2 billion, and we would need to make sure that we could find that money—$2 billion dollars over 3 years. It would also provide 28,000 new jobs. So not only does it have our package of capital gains tax and building State homes, and not only would it provide an income for the Government and spread the tax obligation more fairly, but it would provide housing for those families who are desperately in need. We would have not just housing but good-quality, warm, dry housing.

One in four households spend more than 10 percent of their income on energy just to keep warm—just to keep warm. Three out of four New Zealand homes are too cold to be healthy. That causes costs to our economy. There is a cost to the economy in excess of $500 million in terms of energy, lost production, and hospitalisation. There are 50 admissions a day for respiratory illnesses. That costs $54 million a year. One hundred and eighty thousand workdays are lost to sickness caused by cold and unhealthy housing. Over $400 million is spent unnecessarily on energy. That $400 million comes from the budgets of our families, who have to spend so much of their income on energy just to keep warm. So we must invest in housing in this country.

Housing is much more important than new motorways. Housing is a core part of New Zealand’s infrastructure. It supports our families so that our families can be productive, healthy, and well. Yet this Government has cut $100 million from the State house building budget. There will be no new State houses built under this Government, because it does not believe that New Zealanders deserve to be housed. It will give money to the road-building lobby—sure, that is fine—but it will not invest in homes for our families so that our families can take care of their children.

We have 10,000 families on the State house waiting list who are desperate for somewhere to live. We have people living in garages. Thirty to 40 percent of our most vulnerable young people in this country are living in unsafe housing, which puts them at risk. Where the investment for those families, those children, and those young people? It is nowhere from this Government.

I will be brief. I want to ask the Minister in the chair, Peter Dunne, a couple of questions in relation to rental property and the loss of the depreciation rights. I must say that I certainly had not contemplated the 50-year rule. It seems to me that it is a relatively neat provision. I thought that the Minister might have reduced it to about 1 percent or something of that nature. I am interested in the administrative handling of it, particularly for older houses—maybe a house that is 60 to 70 years old. One would hope that the procedures would not be too bureaucratic. But that is a minor issue.

The second issue is really the more important one, and that is what economic analysis has been done on whether the measure, which is in Part 3 of this bill, is in fact likely to change New Zealanders’ attitude towards, or love of, investing in rental property. I think one of the big reasons that people invest in rental property is not just the fact that the sharemarket is prone to go up and down but that they tend to understand rental property. From my calculations, the loss of deductions is probably equal to an interest rate rise of about 1 percent. It is equal to an interest rate rise of approximately 1 percent, and I am not sure that that is likely to deter property investors from investing in rental property.

If we take a house in a regional town worth $200,000, and we take 40 percent off that for the value of the land, that brings us down to about $120,000. We then take off $20,000 for chattels; they will still get the depreciation, as I understand it, on the chattels. That leaves $100,000. At 3 percent, property investors will lose the depreciation on that—on $100,000 that is $3,000. Those people are likely to be on the new top rate of tax—and we thank the Minister for that—so after those savings they will lose about $1,000. They will have to pay an extra $1,000 in tax. On a borrowing of $100,000 that is equivalent to 1 percent. If it is as high as 80 percent, then the equivalent borrowing cost is probably only 0.75 percent.

So I am not sure that this provision will change the approach of New Zealanders to rental property, and I wonder whether the Minister received any analysis of it from Treasury or anyone else. I think that what might deter people from moving into rental properties in the near future is the likelihood that interest rates will rise by 3 percent over the next 2 or 3 years. If we look at the prediction at the back of the Budget we can clearly see that mortgage interest rates are likely to rise by at least 3 percent and maybe hit 8.5 or 9.5 percent. I just wondered what economic analysis the Minister had received.

I thank the member for raising the point about depreciation and the way in which the package has been constructed. I thank him for his comments, which, on the whole, I think were helpful. Essentially, what we have done is as follows. The Tax Working Group had an estimate of about $1.3 billion as being the cost of depreciation. When we recalculated the figures they came out at around half of that. What we have done by introducing the 50-year provision is allow for buildings that have a transitory lifespan—for instance, farm buildings, warehouses, and various industrial settings where the short-term use is likely to be around 50 years’ duration. Beyond that, when we looked at residential property and other commercial buildings, it was our assessment that, firstly, most of those are going to endure for more than a 50-year period, and, secondly, over their lifespan, whatever it is, they certainly will not depreciate in value. If we take the example of a turn-of-the-century villa that may have originally gone on the market for £1,000 many, many years ago, even in real dollar terms today it certainly will not have depreciated over time. So the notion that people could then claim depreciation against something that was not depreciating seemed to us to be a bit silly.

I guess the bigger question the member raises, though, is why we did the depreciation measures and did not look at some other measures that might have had a more dramatic effect. There is a question of balance here. We wanted to send a signal to people who entered into property investment for essentially speculative purposes and used the mechanisms that were available to advantage their tax circumstances, as opposed to those who wanted to enter into the property sector because they thought it was a good investment. It is the old argument that the member will be very familiar with about investments being made on the basis of the quality of the investment rather than the tax advantages that accrue.

Our estimate about the likely increase in rents, on the best advice available from Treasury, was that it would be about 1.4 percent, from memory, so we do not expect there to be a significant impact, although over time there will be a modest impact. Again, we have to offset that against the tax changes that are taking place, and look at the broader picture there.

One issue that people will immediately leap on will be to say that we will now see a big explosion in fit-outs, renovations, and other things designed to change the character of a building. The Inland Revenue Department will be issuing a discussion document in the very near future about how we might address that, and we will be working our way through that issue with the sector and other interested parties over the time ahead.

In conclusion, I simply say that any investors who have some doubts as to where they are left as a result of these changes, and about what their appropriate depreciation rate should be, should immediately contact the Inland Revenue Department. A list is being developed. Basically, it is a reformulation of the existing list that takes account of the various situations and circumstances. On the whole I think that the measures we are introducing in this part are a balanced response. They will certainly shift the emphasis to the quality of the investment. But the one thing they will not do, because the tax system is not capable of doing it, is shift what the member referred to as the emotional attachment of people to various forms of investment. There will always be the attraction to property because it does not depreciate over time. What we intend to put in place is a regime that is fair, reasonable, and, ultimately, enforceable.

A party vote was called for on the question that Part 3 be agreed to.

I raise a point of order, Mr Chairperson. I thought that the normal practice was that when there was a short vote, the question was asked as to whether there were any other votes to allow for the possibility of abstentions. I wonder whether that practice is being followed.

The CHAIRPERSON (Eric Roy): Technically that is right and I ask the Clerk to put that. Before I declare the vote, I point out that I cautioned the House yesterday about members calling out during voting, and maybe to reinforce that it may well be time that someone takes a walk, as that used to be the practice. I just affirm that no members will vote in this Chamber under duress, and we need to hear the votes.

I raise a point of order, Mr Chairperson. I understood that this was a confidence vote for the Government and therefore there is an obligation on the part of the coalition and confidence and supply partners to support it. Clearly, that has not been—[Interruption] Therefore, I am slightly surprised at the declaration of a short vote and ask whether that is an indication of some members having now left that confidence and supply arrangement.

It is somewhat rare and unusual to have to do this, but the situation is that parties, of course, cast their votes within the requirement that they can have some people away from the House but can still cast a full vote. All parties are in that position. In this case, not only is public business taking one of our colleagues away but also I understand that two tangi are also part of proceedings. There was an absolute full vote yesterday. When it comes to personal matters there is not a lot the House can do other than, in these circumstances, meet the requirements of public functions that have been committed to and, of course, take care of family business.

I am not sure whether that is a matter of order for the Committee, but it does possibly relate to matters that are related to the order of the Committee. However, the member has had an explanation and I think we should accept that.

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