Taxation (Land Information and Offshore Persons Information) Bill

Thank you very much Mr Chair. There was a lot of competition for that call. I want to focus particularly on clause 2, the commencement clause, and towards the end of my contribution I am going to table a document released to us by Land Information New Zealand under the Official Information Act.

We need to go back in time a little—in this case, to 11 May 2015, in fact—to when Land Information New Zealand was advising the Minister in charge of this bill, Louise Upston, about when this bill could actually come into force and to when Cabinet was considering it. Interestingly, the context around this is, of course, that both this measure—the creation of a “not register” for the purchasing of property because the Government does not want to call it a register, and it has successfully established it in such a way that it will not be an effective register—and the brightline test were both initiatives that were announced in the Budget. It is quite clear that they were rushed through because the Government did not have anything that it wanted to do in the housing space.

Land Information New Zealand found itself advising its Minister about prospective commencement dates for this legislation. In a note dated 11 May 2015, which I will put in front of the Committee shortly, Land Information New Zealand advised the Minister that it did not see any reason why it could not implement the legislation either by 1 July or, indeed, from Budget night, which seems quite ambitious. It put some pros and cons in the note. It said that if it got the legislation in place by 1 July, it would mean earlier compliance with the Government’s policy and it would “be seen to be moving quickly”, which is clearly the main purpose of this legislation: being seen to be doing things.

The cons of the legislation coming into effect on 1 July were that there would be a very short amount of time to consult on the changes with conveyancers and to develop guidelines. This is where things get interesting. The other con was that conveyancers would need to manually record information via a form until Landonline was in a position to be able to manage this. Now, that is a bit of a worry. A significant change to the process of registering land purchases and to the website, Landonline, is not ready. That is the information that Land Information New Zealand provided. It said that by 1 September it was pretty confident that it would be able to get the legislation into position but that it was a bit worried about that.

Land Information New Zealand also noted in the same note that if it were to try to get this legislation to commence on 1 September, it “may lead to a rush of transactions by persons wanting to avoid the IRD number requirements and avoid tax.” I would be interested to know from the Government side of the Chamber whether or not this has actually occurred, but I am not aware that it has. But, obviously, that was one of the risks. To get the legislation in place by 1 October, which is obviously what we are now faced with in the commencement clause of this bill, there was the suggestion that the Government was going to need to use urgency to get the regulations in place by 14 September. Of course, the way that the Government got around all of this was by truncating the select committee’s consideration of the bill. So they come to us today with a clause 2 that has 1 October as the date by which this bill will commence.

The consultation with stakeholders and the process that was gone through has been rushed, and we have already seen in this House—in fact, in the debate earlier today—that, actually, it is confused. We have got the commentary on the bill from Government members of the select committee saying that they know that it is confusing, that they do not know exactly how it is going to be implemented, and that that is the effect of rushing legislation through and of not having a proper process. But the kicker in the advice from Land Information New Zealand is this: they will have to use manual or paper-based systems to record transactions from 1 October until the computer system is ready in December. So when this comes into force from 1 October, commencing as it does under clause 2, it will involve paper-based transactions.

💬 Hon Ruth Dyson: Carbon paper?

Well, possibly—in triplicate. The Gestetner will be working overtime down at Land Information New Zealand because, unbelievably, the Government has put itself in a position where a fundamental change that it is making—Government members stood up here today and told us that this was going to give clearer information, objective tests, etc., and Land Information New Zealand has been telling its Minister that a manual, paper-based system will be in place. Is this the 1960s? What is going on here? What is the risk here that lots of information will actually get lost in the system—that, actually, we will not be able to start creating the database that the Government tells us it will create, because for 3 months, it will all be done with pen and paper. Maybe it will be done on slate? I do not know how far back Land Information New Zealand is going to have to go to find a technology that is actually ready to do this.

I have to note that the information that I am working off, which I have said I am going to table at the end of my call, could be out of date. It is possible. This was a memo from May, released to us under the Official Information Act. But to me this is an absolute debacle. This bill is being held together by string and sticky tape. It is absolutely poorly thought-out. It does not do the things that it was meant to do. On the one hand, it makes things more complicated when they do not need to be—in terms of forcing people to have a bank account and an IRD number when they really only need an IRD number—and on the other hand, it fails because the Government exempts under this legislation the main home from having to be part of the register, which creates an enormous loophole when there is no additional compliance cost. This is an utterly confused piece of legislation.

Most parties—in fact, I think all parties in this Chamber—support the principle of the bill and support the idea that there be a register. We are voting for it because it is a tentative, incremental, little, tiny footstep in the right direction towards giving New Zealanders information.

💬 Hon Christopher Finlayson: But it’s good?

It is OK, Mr Finlayson. I think “good” would be pushing it a little far; “great” would be completely out of the question in hyperbole. But it is OK. What we are facing, looking at clauses 1 and 2, is a bill commencing on 1 October, which was the grand date put in place by the Government, and the agency charged with collecting the data—Land Information New Zealand—is advising its Minister, through its system, Landonline, that a manual, paper-based system will be required until December of this year in order to make this work. Goodness only knows why the Government thinks that this is a good way to make law. It is not. It is a shambles, it is a debacle, it is half hearted, and it is full of holes. How ridiculous it is when you have support for the principles of legislation like this right around the Chamber to then put up such a flawed piece of legislation. If only we had had longer at the select committee, if only there had been more time to consult, and if only the Government had actually wanted to do this and get a meaningful outcome, as opposed to the window dressing that this clearly is.

We go back to the Budget, when this document was put out, and we see that it was rushed. When the Budget papers were released in July, we discovered that none of the housing initiatives that the Government was putting up, which are buttressed by this legislation and the brightline test, had had any work at all done on them last year in the normal course of the Budget process. They were stuck in early in 2015 when the Government was on the back foot on housing. It is still on the back foot on housing. When the Government was on the back foot on housing, it had nothing in the Budget to show, so it thought that it would come up with something to deal with the concern that New Zealanders have that they do not have the information they need to be able to understand who is buying and selling houses in the New Zealand housing market. And, equally, for people who are speculating, the intention test is completely not working, so the brightline test has been brought in. When we come to debate the brightline test in this House, we will similarly discover the perils and dangers of rushing legislation through with inadequate consultation.

I believe that clause 1 and clause 2 of this bill highlight, perhaps more than almost any other clause, just how poorly thought-out this process has been. The fact that Land Information New Zealand told the Government that it could get the system up and running but that it would have to be paper-based from 1 October until December is a complete farce. I seek the leave of the Committee to table an aide-mémoire from Land Information New Zealand to Hon Louise Upston, Minister for Land Information, dated 11 May 2015.

Leave is put for that purpose. Is there any objection? There appears to be none.

Document, by leave, laid on the Table of the House.

I must admit I am a little bit more cynical than my colleague Grant Robertson. They have these things called rap wars. They are quite comical—politicians go against each other. I think what happened here is that it was Louise Upston versus Todd McClay. Todd McClay said that the Inland Revenue Department wants this to go ahead, and Louise Upston said that Land Information New Zealand cannot deliver at the point in time when you want it, and there was a little bit of a war that went on around who was the Minister who was going to win out here. Let us take it a little bit further. This actually has Steven Joyce’s fingerprints on it, if we are honest. This really is a little bit of a mess.

As my colleague pointed out, Land Information’s Landonline system is actually acknowledged as one of the best in the world. It is an incredibly good system. It is held up by many in developed jurisdictions as the way to handle your land transfer process. As my colleague pointed out, to go to a point where lawyers—it will be lawyers, by and large—have to register everything by hand, on paper, is an absolute nonsense. I do not believe that Land Information said to the Government that it is happy with this situation.

💬 Hon David Cunliffe: Back to the 19th century.

Absolutely! I cannot believe Land Information said to its Minister: “This is acceptable to us, let us go ahead with this—it is OK—paper for 6 months, but we will cope.” I do not believe it did that, because I know that a lot of people working for that department are highly competent.

I think what happened was that this was a dictate from way above, probably due to polling. Let us face facts. New Zealanders are concerned about who is owning our land—there is no doubt about that. They are concerned about the bogeyman of foreign speculators coming in and taking away our houses so that first-home buyers cannot get in. The Government said: “What shall we do about this? We’ve got an idea.” They went to Mr Joyce, because he tends to be the ideas man although he does not think things through particularly clearly, and said: “How about first of all we start collecting information?”. But the problem is they did not collect the information in a way that made any sense. The title of this bill is actually the Taxation (Land Information and Offshore Persons Information) Bill, but it does not collect the level of information that is going to make any sense. This is the thing that we simply cannot understand, right across this side of the Chamber.

I know that Tim Macindoe, when he thinks about this—and it is going through his head at the moment—thinks this is a little bit of a nonsense, but unfortunately he cannot do anything about it. I know Mr Dunne, who is a former Minister of Revenue, must be looking at this and going “Oh, goodness me. Thank God I’m not in charge of this.”, because if he were it would be a hell of a lot more robust than it is at the moment. I know the Hon Peter Dunne would not have allowed this sort of legislation to come before the House, like this, at the moment.

It would have been so easy to collect the level of information that is required to provide meaningful data to the people of New Zealand, to the tax department, to everyone. This is what is so astounding. It would have been easy to do. We were quite happy to reach across, in a non-political way, with a solution that allowed that to happen. In fact, we suggested this at the Finance and Expenditure Committee. This was held behind closed doors, so no one would have come out and gone: “Oh, Labour has made this better legislation.” This was a classic case of a select committee that could have worked together to create a piece of legislation that provided a level of information that actually made sense.

But the thing about it is that it is confusing. This is one of a number of pieces of legislation that is going to come through that is going to give effect to the Government’s policy. But the thing about it is that it is confusing. In fact, it is so confusing that even the Minister herself stood up and started talking about a brightline test when she was answering questions. This is not about a brightline test. This is simply about collecting information.

But the other problem I have with this legislation—and this is why the title is so wrong, because it does not reflect the bill in any way, shape, or form—is that it creates what we call a moral hazard. This was brought up by the Green MP. By that I mean that the buyers and sellers of houses only have to give their IRD number after the third transaction. One of the earlier speakers stood up and said: “Well, why do we think New Zealanders are actually going to do that?”. The reason that I put forward is that it is the law, and we like to think that people will obey the law. But, unfortunately, when people think the law is a bit of an ass, or they can get away with it, or it does not really apply to them, then they will not do it. That creates a moral hazard, and it really concerns me. It is the sort of moral hazard that we all face. We drive down the road at 56 kilometres an hour in a 50 kilometre zone, but it is OK. It is only a little bit over the law. This is the sort of bill that creates that sort of law: “It is not really applicable to me.”

There are also a number of tests in here that come back to intent, and this is the whole problem we have with this area of tax in this country. The other thing that is slightly offensive—offensive is the wrong word, but I can see how it could create a little bit of offence—is that it classes New Zealanders who have been offshore for more than 3 years, and have not returned, as offshore persons. It puts New Zealand passport holders in a completely separate category from foreign investors. I do not think that is right. In fact, it was queried in the select committee process, so again we are talking about land information. That is why the bill is called the Taxation (Land Information and Offshore Persons Information) Bill. When you think of offshore persons, you tend to think of foreign speculators, but, no, this is about Kiwis as well.

The other one that was quite astounding—quite amusing, actually—was that before the select committee process we called for submissions. There were not that many submissions. I cannot remember how many—maybe 10 or 12 submitters appeared in front of the committee. But two of the submitters talked about a piece of legislation that is coming after this one. That is the one that is going to be debated in the House—I do not know when—next week. I think the first reading was this week, actually. Even the submitters who had taken the time, effort, energy, and, no doubt, quite considerable resources and money, got it wrong when they were submitting to the select committee. We went up to Auckland to listen to them, and we had to say that the points they were making were very interesting, but unfortunately they do not relate to this piece of legislation.

As my colleague Grant Robertson said, we agree in principle that something needs to be done, and we are backing this legislation. But the thing is it could have been so much better if we had worked together, thought a little bit harder about it, and come up with something that is much more robust. But, as Grant said, why is the Government so fixated with 1 October? Is there something we should know about that salubrious date? Is that the final of the Rugby World Cup, or is it the middle of the Rugby World Cup? I am not too sure. But the fact that Land Information cannot even process the information online when this bill comes through just says that that date is wrong. It would have been so much easier just to change the 15 to a 16 or, I do not know, just work with Land Information.

The chair of the committee understands this. The chair of the committee was exasperated with the level of complexity, where complexity did not need to exist. There was a lack of efficiency, when efficiency could have reigned supreme, if only this had been thought through. But, as I said, what I think this came down to was an edict from upon high that said this is what must be done; now go ahead and do it. The relevant departments could not meet the compliance in time, when this legislation came to the fore, but that is just the way it is going to be. It is not the way to craft legislation, and it could have been so much better.

So who won? Did Louise Upston, with Land Information, win? Did Todd McClay, with the Inland Revenue Department, win? Do you know what? I do not think there are any winners. I do not think there are any winners. I do not think even Mr Joyce is a winner in this, because Dr Clark knows—he has had dealings with Mr Joyce’s stuff-ups for a long time. This just has his fingerprints on it—it really does, does it not? It really does. There are no winners. In the rap wars, I think it is zip. Thank you very much.

It is with some amusement and distress at the same time that I rise to take a call, having only recently learnt of this manual capture of Inland Revenue Department information that is now required as a consequence of this legislation. I want to suggest an alternative title for the Taxation (Land Information and Offshore Persons Information) Bill. I understand my colleagues have suggested alternative commencement dates, perhaps at a time when it will not all have to be recorded with a quill pen on paper but we can adopt some kind of modern system like—I do not know—maybe a computer to record the information. I just want to suggest that maybe we should label this bill for what it is. It is a farce when we have a bill here that talks about doing something, but finds ways of creating loopholes to ensure that that very thing does not happen. Then on top of that we learn that the whole thing was so rushed.

Let us cast our minds back before the election when the Government was under fire for not doing anything about the housing stuff. It ran right through into the new year. This Government has been under fire for its lack of response to the housing crisis in Auckland and the effects that that is having on our economy. And then this year, ahead of the Budget, the Government must have been doing its polling. It must have realised that this issue was really coming to a head in public opinion, and all of a sudden—all of a sudden—it announced a new tax on housing speculation to try to somehow make it look like it was doing something useful. Of course we have seen the advice from Treasury that says that the way it was designed, it will collect only about $5 million in revenue when, if it did not have all the loopholes that have been thrown in, it would have collected $30 million to $40 million and had a bigger deterrent effect. We know that is not effective legislation.

Then we have got this complementary legislation here, which is going through right now, that is about collecting the register of persons, of foreign speculators, and we know that it is designed to exclude most people. It is designed in a way that makes it full of loopholes, so it will not be useful information that is collected. We have rehearsed the debates in the previous stages of this bill, and in the Part 1 and Part 2 debates, about how we will probably find ourselves as a Parliament in the next Government having to repair the work done on this legislation tonight, to fix those loopholes that we find in the legislation. And we know that passing a bill through this Parliament costs more than a million dollars, with all the officials’ time and all of the salaries of the MPs and so on, and we know that we will be back here correcting this Government’s mistakes.

This bill should be called a farce because that is what it is—that is what it is. We have seen this time and time again from this Government, particularly when it comes to IT systems. The Inland Revenue Department computer system, of course, is the grand champion of the scheme. In 2012, on St Valentine’s Day, the Prime Minister made a promise that he would sort out the Inland Revenue Department’s computer system. Well, we are still waiting—we are still waiting—for real action on that. The Prime Minister said in the speech where he talked about needing to address this issue: “Governments should not have to find themselves in a position where they are held hostage to a lack of technology.” And that is where we find ourselves here tonight, 3 years on, with a different computer system, not up to date, and officials being required to handwrite the records from when this bill is enacted in October through to December. And we learn from the Official Information Act material that has been supplied that December is an optimistic date. They might be handwriting next year the records that are recorded in this register! And it might be the case indeed that the Government comes back to correct the bill, to make amendments to actually try to sort this out so that it can push it further out.

💬 Hon David Cunliffe: The corrections issue.

It has done it before—a corrections issue. It has pushed it out before.

This is what happened with the Inland Revenue Department when the Government changed the child support legislation. It discovered that the computer systems were not up to scratch and it had to come back and change the legislation, use more parliamentary resource to go back and backtrack so that it could find and make legislation that actually worked. This is what we may well find with this legislation. We may find that Parliament spends a million or whatever dollars all over again to put through new legislation that repairs this faulty legislation that does not actually collect a register of foreign buyers properly and uses a manual, paper-based system for the initial months, on an optimistic scenario, for collecting the details for a foreign buyers register. I think the case is fairly clear for adding the word “farce” into this title. I wish the Government would have a sense of humour or irony or something and actually consider this serious suggestion from the Opposition benches. I look forward to the Minister in the chair, the Hon Nicky Wagner, taking a call and saying why on earth this should not be called a farce, because I think the case is pretty clear.

I call Simon O’Connor. [Interruption]

I am sorry to interrupt, but I wish to seek leave to table this document, which is from the Official Information Act material. It is a Land Information New Zealand diagram dated 15 May 2015, and it demonstrates the period of time—

The CHAIRPERSON (Hon Chester Borrows): Do not tell me about that. Tell me what it is, and where it has come from, and when you have done that—

It has come from Land Information New Zealand and an Official Information Act—

The CHAIRPERSON (Hon Chester Borrows): Leave is sought for that purpose. Is there any objection?

💬 Tim Macindoe: Is it on the website?

No. It is from Official Information Act material, and it shows the paper-based collection—

The CHAIRPERSON (Hon Chester Borrows): The document has been described. Leave is sought. Is there any objection? There appears not to be.

Document, by leave, laid on the Table of the House.

I move, That the question be now put.

I rise to take a first call in this Committee stage of the Taxation (Land Information and Offshore Persons Information) Bill, and I trust it will be the first of a number that will assist the Committee in finding a way through this. There are two areas that I wish to address. The first is the rationale for the bill. The second is the implementation issues that the bill throws up. To bring the public into the rationale issue, can I pose a rhetorical question: what do the housing shortage, the refugee issue, capital gains tax, and the overseas buyers register all have in common? The answer is that they are all examples of a particular mojo or operating method by this Government. In the face of overwhelming public pressure and an overwhelming policy case for change, the Government concedes a very small, usually ineffective amount so that it has got something that it can say to the public. Never mind whether it will work or not, never mind whether it will solve the problem at issue, never mind whether it is actually practically able to be implemented; it is good enough for the press release and the public relations campaign. That is why we have special housing areas with no houses. That is why we have got a temporary and very reluctant increase to the refugee quota. That is why we do not have a capital gains tax that will work, but we may have a partial brightline test to accompany this. That is why we do not have a valid, operable offshore buyer register but why this bill brings in a partial system for registering offshore persons.

To explain the difference, let me drop down to the implementation issues. My colleague David Clark and my colleague Stuart Nash have both, quite rightly, lampooned the idea that in the 21st century we are having a paper-based set of records of anything, let alone anything as important, sophisticated, and high value as overseas property transactions. If that were known in the international press, I daresay New Zealand would be an utter laughing stock. The second implementation issue is that, as the Hon Peter Dunne well knows—and he did not have silver-grey hair before this—the Inland Revenue Department computer system is not easy. He was there. I used to do the job that he was doing as the Minister of Revenue, and it is a worry. You cannot make a change to one part of the Inland Revenue Department computer system without the rest of it threatening to fall over, and time is agin it. The answer seems to be a billion-dollar computer upgrade—let me say that again: a billion-dollar computer upgrade—with a contingency margin of $500 million. It is hard to believe that anybody could put through Cabinet a project with a contingency margin—that is an overrun—of $500 million. Good luck, Peter Dunne. I hope it works. If it does not, well, we will be sending you flowers in whichever retirement place you elect, because it probably will not be in the House.

Look, this bill makes it worse. We are asking for bespoke changes to the Inland Revenue Department’s operating system eventually, because at the moment it is just pencil and paper, for a system that will not and cannot work. Why can it not work, even if we could get the Inland Revenue Department system to change? Well, that is because it does not actually separate out what the register should be doing, which is identifying offshore speculative pressure and separating that out from the legitimate purchases of New Zealand citizens and permanent residents. If Joe Bloggs in my electorate or yours, Mr Chairperson, moves overseas and decides to sell or buy a property in New Zealand, good luck to him. He is as much a New Zealander as you or I who live in New Zealand. And, actually, one out of five Kiwis does not live in New Zealand. We have the second highest diaspora in the OECD after Ireland. One in five of us lives overseas; we should be able to trade property in our home country—not an issue. Likewise, we should treat permanent residents equally. So that leaves us with non-residents, and the whole issue here is that most other countries, including Australia, have a very simple rule: if you do not live in New Zealand and you do not plan to, you should not be able to speculate on property unless you actually build a house. New Zealand houses should be for Kiwis to live in. This register ought to be an opportunity to make a small but incremental gain on that issue. If we were validly identifying speculators who have no intention of living here and separating them out from Kiwis who may well come back and, in any case, have a right to trade property, then we would have a so-what that was worth the paper-based angst. Not only is this probably not implementable, according to the Inland Revenue Department and Land Information New Zealand but even if you could implement it there is very little point, because in its current construction it will not actually do anything useful. So why, why, why are we here?

💬 Simon O’Connor: Existential.

The answer is, I am afraid, buried in the first part of—we are not going that deep tonight, but I know how it feels being a Government backbencher. When you ask “Why are we here?”, you are saying “Why am I here?”, because you do not get to do anything. At least in Opposition we get to get stuck into issues. This bill is here—

💬 Tim Macindoe: You’re welcome to stay in Opposition for a very long time.

You know, I say this to the whip opposite—he is a decent guy, and I will be honest with him—that we are getting good at this, but we do not want to stay here for ever, so we will be happy to trade you in 2 years’ time, and we are pretty sure that is what is going to happen.

To round off, the reason this bill is here is that it is part of a public relations gimmick by the Government. Faced with overwhelming public pressure to do something about the insane Auckland property market and the increasing influence of foreign speculation, it has bowed to pressure and it has finally started to build some kind of register. Albeit partial, albeit ill-defined, and albeit difficult to implement, it is, in fact, contradicting the earlier words of leaders of the Government. Nick Smith, the Minister for Building and Housing, said a register would be a distraction that would cost mega-millions without doing a thing to tackle house-price inflation. I hope that he was wrong, not for the sake of the Government—it would hurry them to Opposition—but for the sake of New Zealand. I hope that he was wrong.

I move, That the question be now put.

on behalf of the Minister for Land Information: I move, That the Committee divide the bill into the Land Transfer Amendment Bill and the Tax Administration Amendment Bill, pursuant to Supplementary Order Paper 116.