Taxation (Bright-line Test for Residential Land) Bill

Normally—and forgive me, there may well be a wee bit of humour injected into the following speeches in respect of the title because, I have got to say, this bill could have a variety of titles. Most of them, I have got to say, are pretty negative. Todd McClay—this is the sort of “hospital pass” bill from Todd McClay. It seems that since the Hon Todd McClay got this portfolio from Peter Dunne, we have had a litany of difficulties from substandard legislation coming in, from cost blowouts around liable parent contributions, to cost blowouts around—

💬 Chris Bishop: That’s unfair.

—it is not unfair; I am actually defending your Minister—the Business Transformation project, where money just flows like water, or, to use the biblical expression, they are raking in the sheaves in the Inland Revenue Department. Mr McClay walks along—as I have said before, the guy with the shovel behind the elephant to clean up the mess—and we are delivered this. I think this is a nonsense bill. It could be called the “Nonsense Bill”. It could be called the “Todd McClay Inconsistent, Undefined, Incoherent Bill”.

It could be called a lot of things, because as we have seen right through this debate, and I note—to be fair to the Minister in the chair, Paula Bennett, she is not the portfolio Minister—that this is not the first piece of legislation, but the third in the last 2 weeks, where the portfolio Minister has refused to answer any questions and take any calls. To be fair to the Minister in the chair, it is not her basket of goodies, as it were, in a legislative sense, so she may not be well-briefed. She does have some eminent officials behind her, but no questions have been answered. This is a prime example—a prime example—of where the Government has simply blindly wandered into the abyss. The design of this bill was designed to pull the wool over a few people and, as other speakers have said, make it look like they are doing something but not actually addressing the issue.

Terry Baucher, that eminent tax consultant whom we have quoted many times tonight—there is a headline that could be aptly used in respect of this bill. He asks “Is the brightline test an example of enactment in haste, repent at leisure?”—enactment in haste, repent in leisure, I would wager, as would other people. Or as Philippa O’Mara, the director of Engine Room chartered accountants, asked—the headline on her article was “Taxing land transactions: where’s the bright side?”—where is the bright side?

It is interesting that very few, apart from that learned colleague of mine David Bennett—learned colleague—have got up. I will say he took a call. It was an unusual call, but at least he is consistent with his calls. He has got up and tried to defend the bill. But no one—consistent in his inconsistency. No Minister has got up and tried to defend this. No Minister has got up tonight and even proffered an answer to any of the questions, and they have been legitimate questions.

You could call this the “Drive a Bus Through It Bill”, because if we talked about the definition of the exemption in farmland, the definition of “main home”, the great intangible connection to your main home—very psychedelic. That is a bit beyond me, I know. But, you know, it is very psychedelic, the sort of great intangible connection. We have got a change of the guard there. Maybe this Minister might answer some questions. No one has got up to even provide an intangible justification for the incoherence and the inconsistency, or even to bat off the vast amount of criticism from the private sector accounting profession.

I know the Inland Revenue Department cannot do it, because it has to work through a Minister, but it is surprising. This is supposed to be the great, flagship Budget proposal to deal with property speculation. This is where Mr Key put a stake in the ground and said he is going to do something about it, and then the whole thing just simply peeled like an onion as the Chartered Accountants of Australia and New Zealand, Ernst and Young—you name it—and the Law Society all came in and opposed this and said basically that it was bunkum and that it will not achieve in any way, shape, or form any of the objectives that the Government seeks to go after. It will not do it.

Five million dollars is the best estimate of how much revenue will be raised from this bill. Five million bucks, when property speculators are making, what, a thousand bucks a day, I think Mr Twyford said, in terms of increased values and capital gains on property in Auckland, and all it will raise is 5 million bucks. And Mr Bennett said: “Hey, we are going after them.” He made a speech earlier today: “We’re going after them, we’re going after the big fat boys, the property speculators. We’re going after them with the big stick, the big 10-year rule.” Well, if that is the case, if the best he can do is to claw $5 million of legitimate taxpayers’ funds out of them, well, I do not think the stick is that big at all. It is balsa wood—absolute balsa wood. You could call this the “Biggest Hoodwink Yet By the National Government Bill”—

💬 Hon Member: “Smoke and Mirrors Bill”.

“Smoke and Mirrors Bill”, my colleague says, because it is typical of the National Government. It is a bit like the refugees thing. Suddenly we are against it, we are against it, we are against it, then Crosby/Textor and the pollsters come back and say the position is unsustainable—

💬 Chris Bishop: Here we go.

Mr Bishop, in his former profession, would know all about that, of course. He would know all about that, and a few of his mates who are not here now. And suddenly the feet are put to the fire. Mr Bishop gets together with Steven Joyce and a few of the gurus and goes: “Oh, we cannot sustain this position, because the people have woken up. They have woken up from their slumber and worked out we are having them on, so we had better do something.” “Now, we do not want to do too much because that is against our ideology”, says Mr Bishop, “but we had better do a bit, just to make it look good around the edges.” You know, a few refugees here, there, and everywhere, as they did with that issue, and then they come in with a big stick saying “We are going to make a decisive move to deal with property speculators, especially in Auckland.”, and we get this bill.

And Treasury says: “Look, it is not going to work, Minister and Prime Minister. You need a 5-year rule, not a 2-year rule.” That is rejected. Ernst and Young, Chartered Accountants Australia and New Zealand—all the best experts come in and say: “Minister, it’s not going to work. It’s going to do the opposite of what you want. It’s not going to go after the property speculators because they will just hold for 2 years and 1 day. It is going to go after mum and dad, Mr and Mrs Smith, who fall on hard times, have no choice but to sell the house, and they are going to get pinged by it.”

And the Prime Minister and Mr Bishop, because he is a tactician of great note, and Steven Joyce and Todd McClay are in the room, and they go: “Oh, don’t worry about it. We’ll flick this one past the keeper. We’ll fire one out the back line. The people won’t know. We’ll hoodwink them again.”

Well, the problem is that it is very rare, especially in a piece of tax legislation, that you abrogate the generic framework and you get almost the entire profession coming out saying that this is a load of the proverbial—you know, bull. Except it is quality bull for the National Government. This is what the National Government is up against. So you could call it—I know the Chairperson is looking slightly worried but I will not continue that analogy. Trust me, I am not that bad. But this is the “Smoke and Mirrors Bill”—this is the “Smoke and Mirrors Bill”.

For all those young people sitting out there, hoping even as they listen tonight or saw the announcement about this bill, thinking “Hey, maybe for once the Government is going to do something to deal with the speculation, and get a bit of a handle on the property prices in Auckland and around the place so that young people can get a fair go.”—they really probably wanted this thing to work, but people are going to be sadly and tragically disappointed.

I will make Mr Bishop a bet, whatever he wants. I will make him a bet that we will be back here before the next election, putting elastoplast over this. We will regurgitate the Hansard, such that it is, because Mr Bishop did not take a call, Mr Muller did not take a call, the guy there whose name I cannot remember who is on Finance and Expenditure Committee—“Dick Cheney”, or whatever his name is. He did not take a call—

The CHAIRPERSON (Hon Trevor Mallard): Order!

A memory lapse.

The CHAIRPERSON (Hon Trevor Mallard): Order! No, no. I ask the member to sit down. It is an old habit but not a good habit to treat people in that way. If the member genuinely does not remember peoples’ names, then just do not refer to them in that way at all.

💬 Phil Twyford: A senior member having a senior moment.

I am having a senior moment—yes, indeed. But we will regurgitate the Hansard such that it is, but it speaks volumes that not one Minister could get up here and even put up a tacit defence on this—

💬 Phil Twyford: Not even one.

Not even one. Normally they will get up and have a crack and poke a bit of borax at us and at least defend the principle. The Minister of Revenue must have gone down a burrow in this Chamber somewhere, because he has not taken a call on the bill throughout the whole debate. It has been left to other Ministers. Obviously officials are not needed, because they were not asked for any advice because the Government is not going to answer any questions. So we will regurgitate the Hansard as we come back to try to stitch this thing up.

I lament in some ways that we are supporting this bill but, as Mr Twyford and others have said, I suppose anything, anything, even this feeble attempt, this whitewash, this con to the New Zealand people—I suppose even that is better than nothing. But as I have said occasionally over the years, the National Government has got to realise that people are not dumb. People work it out. They will work it out—even that member over there. I give him a bit of credit. People are not dumb. They will work this out. They will work out that it is the big end of town that is getting the advantage here. Let us examine this. Let us make a prediction—

I seek a call on the title and commencement clauses of the Taxation (Bright-line Test for Residential Land) Bill, and I would like to put them the other way round and actually go to the commencement date, which is 1 October 2015. We are not only passing bad law by, I think, the House’s general admission that this bill is not well conceived; it is not effective as it will raise only $5 million. And according to the tax profession it is likely to have the perverse effect not of catching genuine property speculators, who can easily avoid the bill’s imposition by holding property for 2 years and 1 day or redefining it, but of actually hitting families who are in the position where they have to sell for either financial or relationship reasons. That is a perverse outcome.

So why are we doing this retrospectively? Why are we passing in November a bill that has its commencement date in October? I think the answer to that is it is a Budget special. It goes, I think, to Mr Cosgrove’s point that the polling must have come in just prior to the Budget and the realisation dawned on Ministers as they sat feverishly around the Cabinet table that they were in trouble, because they needed to be seen to be doing something about the Auckland property market: what could they do that was simple, quick, and would not actually penalise the constituencies that they are there to represent, which are the owners and holders of big capital? So they came up with this little beauty.

I remember thinking on Budget day: “Gosh, a brightline test. That’ll clarify the former subjective intent test.” I thought: “Well, that might be a good thing, to be fair to them.” And thank you to the profession, because when the accountants came in and the lawyers came in and testified to the Finance and Expenditure Committee, they made absolutely clear that this bill was rubbish—absolute rubbish. Officials, who would be providing free and frank advice—at least if Iain Rennie ever stood up for them—

💬 Chris Bishop: Oh!

Yes, Mr Bishop, if the State Services Commissioner ever stood up for Public Service prerogatives, which in a former life that member specialised in running down because they shall do as the Minister says, not as the facts say. But, nonetheless, officials have said on this bill that it will raise only $5 million—raise only $5 million—so it must have ticked all the boxes for urgent Budget legislation. And then it had a truncated select committee process, which identified but could not fix the fundamental problems with the bill. We have been through most of them in Part 1 of this bill.

Now we are committing the double sin of passing hasty legislation retrospectively. Why? Because it is poll-driven, fruitcake stuff. That is what it is. It is the veil of progress when there is no progress. It is the impression of genuine tax legislation when it is not. That is why we are doing it retrospectively, with a truncated select committee process. It was a rabbit pulled out of a hat to make the Budget look better than it was. That is what the public can all see. It is what the profession can see. I think it actually proves the point to members opposite and to the Government that in the end it is good law—good law based on good advice—that will make a difference.

So what shall we call this bill? What should its title be? The “Band-aid Tax Bill”? The “Crosby/Textor Tax Bill”? With due respect to our revenue spokesperson, the “Clayton’s Tax Bill”? The “Tax Bill You Have When You’re Not Having A Tax Bill”? Is it the brightline test you have when you actually do not want to catch anybody out that might otherwise be your friend, a donor, a supporter? Goodness knows the property speculators and the banking community will not be waiting up at night to see whether this bill has been passed. They will be sleeping soundly in their feather-fluffed beds.

This bill does almost nothing—almost nothing. Maybe that is the proper title for it: the “Almost Nothing Tax Bill”. Or maybe it is the “Waste of Paper and Time Tax Bill”, because that seems to have been its main impact on the House. You would think that after 7 years in office and all the resources of Treasury, the Inland Revenue Department—with its $1.5 billion computer fiasco—that the current Government could have thought of something just a bit more substantive when it was seeking to address, apparently, one of the most critical economic challenges of our age, which is the twin disasters of Kiwi families being locked out of the dream of homeownership and the misallocation of capital towards speculation not investment in productive business.

I think by some oversight this bill has been misnamed. I wonder whether it is possible to put up an amendment in the title and commencement clauses part of this debate to rename it. I think a much more accurate description of this bill would be the “Taxation (Trying to Manage the Optics) Bill”, because that is basically what this bill is. It is an exercise in political cynicism. It points to, I think, an interesting sequence of political responses that this Government has made to the housing crisis. In the first couple of years, it was clearly hoping it would go away—that if it did nothing, if it sort of played dead and played possum, did not move, then maybe the housing crisis would just pass right over them, and nothing would happen. But it became clear, I think, about 3 years ago that the housing crisis was inflicting some pretty serious damage on the Government. It put Nick Smith in the job of being housing Minister. The strategy ever since then has, essentially, been to look as if they are doing something, and this bill is a classic of its kind.

It is all about the optics. It is all about trying to do as little as possible while actually conveying the impression of activity. We have seen exactly the same thing go on with the whole issue of non-resident foreign buyers. Members on that side of the Chamber have denied, denied, denied, and rubbished the idea that offshore speculators were having any kind of negative impact in the Auckland housing market, and then when this bill was announced its companion was a bill that required non-resident foreign buyers of residential property to register with the Inland Revenue Department. Another nothing, another bit of flimflam from the National Party designed to make it look as if it is doing something, even though it has denied that foreign buyers are an issue. It is designed to make it look as if it is doing something, while having negligible impact.

We have seen it with the special housing areas. Again, this was a big flagship initiative to increase the supply of housing, like this bill basically tackling one of the main causes of the housing crisis. In this bill’s case, that is property speculation. The special housing areas, as we saw today, have delivered only 102 houses in Auckland over the last 2 years, but there has been an interesting evolution, actually. At the same time that we have been discussing this bill at the Finance and Expenditure Committee what has happened is that the Government’s strategy has shifted a little bit, interestingly. I think it is so nervous that the Auckland housing bubble will pop on its watch. The very people whom John Key has been pandering to, not wanting to do anything that might disturb the upward trajectory of house prices—up $180,000 on average in the last year—

The CHAIRPERSON (Hon Trevor Mallard): I am now warning the member to actually speak to the bill—it is not a general debate on Auckland housing.

The thing that this bill purports to tackle—the rampant property speculation in Auckland that has been driving prices higher and higher, that has delivered an increase of $180,000-plus on the average Auckland house in just the last 12 months—threatens the very economic stability and financial stability of our markets and the well-being of a third of this country’s population. And probably more, because if the bubble in Auckland bursts, there will be egg on a lot of people’s faces. It will damage the livelihoods of a huge number of people and probably tip the entire economy into recession. This bill will do nothing about that. It will do nothing to foreclose on that scenario, and that is not only an act of political cynicism but an act of utter irresponsibility.

So the finance Minister is reduced to now being a commentator, talking up the risk of the bubble bursting while his Government is shepherding this bill through the Committee—a bill that will make little if any difference at all. All the commentators have said it, from the moment it was announced prior to the Budget. The Law Society, the accountants, Ernst and Young, KPMG—all of the submitters who came along to the select committee have just torn this bill apart and said that it is a chaotic, confused piece of legislation.

The great thing about the English language is that words have different meanings. Sometimes in this sort of legislation it is hard to know which meaning to take. I mean, we are talking about a brightline test. If I look it up in the Oxford Dictionary, which is sort of acknowledged as the pre-eminent dictionary amongst dictionaries, the definition of “bright” is “giving out or reflecting light”. This bill gives out no light whatsoever. Another definition is “vivid and bold”. There is nothing vivid about this, and it certainly is not bold. Another definition of “bright” is “intelligent and quick-witted”.

I remember about 5 or 6 years ago the Inland Revenue Department published a paper on the cost of speculation—i.e., the cost of speculators not paying tax and hiding behind things like the intention test. So the Government brings this bill in. It acknowledges there is a problem, so the Government brings in this piece of legislation, which has the word “bright” in it, in order to fix the problem, and then the Minister of Finance comes out and says: “It’s only going to raise $5 million.” How do you go from a problem of $250 million a year to raising only $5 million?

This is the “not so brightline test”. It is an absolute fail.

If we have a look at the Oxford Dictionary definition of the word “test”, it is “a procedure intended to establish the quality, performance, and reliability of something,”. Well, if this is a test—

💬 Rino Tirikatene: It fails.

—you are dead right, you are dead right—this fails on every single measure. The reason I say that is that, first of all, the industry does not like it; secondly, it is not going to make any difference; thirdly, it has wasted a whole lot of time in this House; and, fourthly, it is retrospective, like my colleague Mr Cunliffe talked about before. This is tax legislation. It is not supposed to be retrospective.

We all know how this law was made. We know how this law was made. Mr Key had one of those brainwaves—you know, “the intelligent and quick-witted”. Unfortunately, the way it was translated—you can imagine it at the Inland Revenue Department. They were sitting there when Mr Key and Mr McClay came out and said: “I know. Let’s put a 2-year brightline test in.” You could hear the guys at the Inland Revenue Department saying “No, please, please don’t bring this before us.”, and he did—and he did. So the Inland Revenue Department officials had to come to the Finance and Expenditure Committee, and you could see them—you can tell when they are forced to put legislation in place that they do not like, because the eyes sort of drop. Mr Cosgrove goes hard and asks “What about this? What about that?”, and they do not really have the answers. The eyes drop. There is no enthusiasm. The Inland Revenue Department—not only KPMG and not only the lawyers but the Inland Revenue Department—knows that this is not good legislation.

But what I would say is that there is one group of people, one industry, that I think believes this is really good legislation, and that is the speculators. It is the speculators. As acknowledged by everyone, this is not going to catch those speculators in any way, shape, or form. The $250 million avoidance industry may now be the $245 million avoidance industry, but there is still a really big industry out there. So this is a bill you have when you are not actually having a bill—I must admit the phrase has been used before. But, goodness me, it is not good legislation.

So I think it should be called the “Not So Bright-line Test Bill” because it will not fix anything, it does not give out any light, it does not reflect anything, it is not vivid, it is not bold, it is not intelligent, it is not quick-witted, and it is not a procedure intended to establish quality. In fact, there is nothing quality about this. There is nothing performance about this. In terms of reliability, it is easily avoided. This is not what tax legislation is supposed to be about.

When we talk about tax legislation around taxing speculator profits, in fact, do you know what? All the experts say it is not intended to drop the price of houses. It is not intended to collapse a bubble or prevent a bubble. It is actually intended to bring those into the tax system who are avoiding it at that point of time. So when Mr Key comes out and says “We’ve got something. We’ve got a test that we know will dampen the Auckland housing market.”, this sort of legislation is not intended to dampen housing markets. It never is, and it never does. What it is intended to do is bring people into the tax system who currently are not in it, and it fails on that account.