Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill

on behalf of the Minister of Revenue: I move, That the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. This omnibus tax bill proposes some wide-ranging reforms to the tax system, all aimed at improving the integrity of the tax system and making it fairer. The bill proposes a new withholding tax: the residential land withholding tax, or the RLWT. The objective of the residential land withholding tax is to act as a collection mechanism for the new brightline test, which requires income tax to be paid on any gains from the disposal of residential land that is acquired and disposed of within 2 years, subject to some exceptions. The residential land withholding tax is aimed at the sale by offshore persons of New Zealand’s residential land, and this is because it can be difficult to collect tax from the proceeds of such sales from foreign owners with no or limited presence in New Zealand. When a property has been bought and sold with the intention of making a gain, those gains have always been taxable.

The new brightline test helps to supplement this rule by creating an easy-to-enforce, objective test. The objective of the measure in this bill is to help ensure that the tax that should be paid is collected. New Zealand already imposes withholding tax on payments where the recipient is likely to have a tax liability and where there are also collection concerns. With the introduction of the brightline test, it makes sense to do the same where foreign owners of residential properties sell within 2 years. It is proposed that the residential land withholding tax be imposed at the point where New Zealand land is sold by an offshore seller, so as to improve the collection of the annual income tax liability for brightline residential land income the offshore person might have. The residential land withholding tax is intended to be collected from the offshore seller by the residential land withholding tax agent of that seller. This person is usually the seller’s conveyancer. The agent would be responsible only for collection, but would not themselves be liable for the residential land withholding tax. It is proposed that the residential land withholding tax would be payable from 1 July 2016. There will be exemption for disposals of inherited land, as well as relief for property transfers as part of a relationship agreement. The residential land withholding tax will support the effectiveness of the brightline test—[Interruption]

The ASSISTANT SPEAKER (Lindsay Tisch): Order! I am sorry to interrupt the honourable Minister. Interjections are about the person speaking, across the benches, not other discussions and comments being made. I would ask you to confine those.

The residential land withholding tax would support the effectiveness of the brightline test and contribute to the integrity of the tax system. This is a good measure because it helps ensure that a lawful amount of tax that should be paid is collected.

Another measure in this bill is also aimed at collecting tax due where currently the full amount is not collected. The strength of our GST rules is that the tax is applied equally and with very few exemptions. This helps ensure that the tax is fair, efficient, and simple. However, currently GST is not collected on most cross-border services and intangibles, including internet downloads and online services. The growth and uptake among New Zealanders of services on which no GST is currently collected, such as online entertainment, have significant implications for the tax base. In addition, there are concerns about the impact that this uneven GST treatment may have on the competitiveness of domestic providers. The amendments in this bill address the non-taxation of cross-border remote services and intangibles in order to maintain the broad base of New Zealand’s GST system and to help level the playing field for domestic and offshore suppliers. The bill proposes that GST be applied to cross-border remote services and intangibles supplied by offshore suppliers—this includes e-books, music, videos, and software purchased from offshore websites—to New Zealand resident consumers, by requiring the offshore supplier to register and return GST on these supplies. Non-resident suppliers will be required to register and return GST when their supplies of remote services to New Zealand exceed NZ$60,000 in a 12-month period. This is, of course, not an issue faced only by New Zealand. The Organization for Economic Cooperation and Development, the OECD, has developed guidelines to establish an international set of principles for determining when countries should have the right to tax these supplies. This is expected to minimise the potential for double taxation or double non-taxation. The amendments proposed in this bill are consistent with these guidelines.

The bill also contains a proposal to help improve student loan repayment compliance of New Zealand borrowers living in Australia. Most student loan borrowers do the right thing and repay their student loans, but borrowers living overseas have a lower rate of compliance than those living in New Zealand. The majority of student loan borrowers living overseas are believed to be in Australia. The proposal in this bill, therefore, is to allow certain information on student loan borrowers living in Australia to be shared between the Inland Revenue Department and the Australian Taxation Office. Having current contact details is important for encouraging borrowers to meet their obligations, so the proposal in this bill will allow the Inland Revenue Department to stay in contact with borrowers living in Australia. This will help the Inland Revenue Department to keep borrowers engaged with their obligations to improve the collection of outstanding payments.

Another measure in the bill also focuses on student loan borrowers. Borrowers who work overseas for approved charitable organisations in approved aid activities, as volunteers or for token payment, are entitled to be treated as if they were physically present in New Zealand. This means that they are not charged interest on their student loans while they are volunteering overseas, for up to a maximum period of 24 months. However, Cabinet’s approval is currently required for a charitable organisation to be listed in the Student Loans Scheme (Charitable Organisations) Regulations 2011, and this can take time, which means that some borrowers are denied the full benefit of this provision. The bill therefore proposes to revoke these regulations and delegate the authority for approval of charitable organisations, for this purpose, to the Commissioner of Inland Revenue.

These are the main features of this omnibus bill. Together, these measures will help improve the integrity of our tax system by strengthening it and making it fairer for taxpayers more generally. It now gives me great pleasure to commend this bill to the House.

I must admit that the first sentence that the Minister, Nicky Wagner, made on the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill was wrong, and it is a real shame. The Minister said that this was a wide-ranging bill. Unfortunately, it is not. It should be, it could be, and it actually needs to be, but it is not. This is a bill that attempts to address three really important issues. However, it just does not do particularly well—in a way that addresses the real issues, or provides solutions to identified problems—and it could have. It just shows that the Government has sort of lost its track when it comes to tax.

Let us start at the beginning. There are three issues this bill attempts to address, as is pretty evident in the title. The first one is resident withholding tax. This is the third bill in a series of three bills that attempts to bring property speculators into the tax net. The problem with the bill, as the Inland Revenue Department (IRD) itself has outlined, is that the cost of implementing this system is $5 million, and the amount of revenue that the IRD forecasts it will get out it is $5 million. It does not even come close to addressing the situation.

Let me give you just a very small example of the scale of the problem we are dealing with. Last year alone the IRD captured about $65 million from taxpayers it believed were rorting the system through property speculation. That is just the IRD going after people when there is not even a brightline test in. The IRD knows, we know, and the Government knows that there is a real problem with property speculators not paying their fair share, and the three bills that have come before the House—this is the last; the third bill—really just do not address the issue at all. It is a real shame, because there was an opportunity—it is gone now—for the Government to really grab the bull by the horns in this sphere and show some real leadership in a way that, I think, the country is after. Certainly, those in Auckland know the scale of the problem. But there has been a complete lack of leadership, which is a real shame.

In fact, I sort of wonder—when Michael Woodhouse was told that he was going to be revenue Minister, he was given a bit of a hospital pass, actually, because there has been a lazy Minister who has done very little in this space. I suspect that Michael will be a little bit better, but I am certainly not holding my breath. But what Michael does have to contend with is an IRD system that is worth about $1.2 billion—do not worry about the $10 billion in the policing system.

💬 Dr David Clark: Opening up a can of worm farms.

Yeah, absolutely, mate—there are a number of worm farms there, Dr Clark. The second issue is GST on online services. Let me give you a quote from the Minister of Revenue himself—the Minister for the next 5 days: “GST should apply to all consumption that occurs in New Zealand. This is what makes our GST system fair, efficient, and simple.” You know what? He is dead right. It should apply to everything, but this legislation does not address the problem. The problem we have got at the moment is that if anyone buys something from a shop—from bricks and mortar—like a pair of jeans, or a CD, or anything like that, there is 15 percent GST on that. That is fair. If you buy one of these items offshore, there is no GST.

It is our belief that what the Government should be trying to do at the least is just level that playing field—not give any sort of competitive advantage to those based offshore; just level the playing field. We are not saying that New Zealanders should not buy stuff online. It is their absolute right to. In fact, it is what 21st century shopping is becoming more and more about. But what we should not have in this country is a system that actually penalises people who are setting up shop, employing people, paying rates, and paying their taxes.

All this legislation does is target offshore suppliers of things like music, e-books, etc. We are talking about companies like Apple, Netflix, and Microsoft, but this is not where the real issue is. We are supporting this bill, and we do think that if you are buying e-books and music and software online, you should be paying GST. But the real issue is to do with buying things like you get in the retail sector, because at the moment an offshore supplier has a 15 percent advantage from the get-go.

This legislation applies only to companies that have $60,000 per annum sales to New Zealand customers. That equates to around about $7,800 in GST. It will bring in money—there is no doubt about that—but we think it should go a lot further. This has been an issue that has been on the table for a long time. We are still waiting for another discussion document, but it has been 7 long years, and the retail sector has signalled this to the Government, and the Minister, for a long, long time.

The third issue is the student loans one. I think everyone would agree that if a student borrows money interest free, then they have entered into a form of social contract with the Government and they should pay that money back. We have no problem with that, but this is not just about doing an agreement with Australia, which is what this bill ratifies—a double agreement between Australia and New Zealand, where New Zealanders who have taken out student loans and who are now living in Australia but are not paying back their student loans in any way, shape, or form will be brought into the net. The agreement is vice versa, as well, so when there are Australian students who have taken out student loans—and they have a similar system to ours—if they are living in New Zealand and they are not paying back their student loans, then they will be forced to as well.

But the problem is actually worldwide. We should be doing these sorts of agreements with the British Isles or the United States, for example. What we should actually do is capture students who have taken advantage of the opportunities that we have provided them through education with the interest-free student loans, and bring them all back into the net, but as it stands we are just going after those in Australia.

In conclusion, this is a bill that could have been bold. It is a bill that addresses three issues that are widely known within this Parliament and certainly within society. The first is bringing speculators into the tax net. We think it could have gone a lot further, and it has not. The second issue is GST on online goods and services, and we believe it should have captured the retail sector. It could have brought in a lot more and it could have levelled the playing field, but it has not. The third issue is student loans. The bill goes part of the way, but it does not address the real issue.

There are three issues here that the Government could have gone hard on, could have shown real leadership on, and you know what? We would have supported it on those. We would have supported it. We are supporting this bill. We look forward to it going to the select committee and to having the experts come in and tell us how things really, really should be, in terms of building robust legislation. But, unfortunately, we are left with a missed opportunity. We will support this bill but I just want to reiterate that it is a missed opportunity. Thank you very much.

What an interesting speech from the Labour Party. I wish that Mr Stuart Nash actually listened to his leader, who has said that they will not be having a capital gains tax. That member, in his speech, said that this bill does not go far enough, that the brightline test, which is going to mean that those who buy or sell property within 2 years have to pay capital gains—that is the true Labour Party. They want to go back to their capital gains tax. Mr Little is just taking away that policy for expediency, trying to rebuild his party. The true spokesperson on revenue in the Labour Party wants a capital gains tax. He said that in his speech today. Listen, all New Zealanders: Labour does not believe—

💬 Stuart Nash: I raise a point of order, Mr Speaker. I think it actually should be recorded that I never once said that I want a capital gains tax. I would not like that to appear in the Hansard at all.

The ASSISTANT SPEAKER (Lindsay Tisch): It is a matter of interpretation—

💬 Hon Clayton Cosgrove: It’s misleading the House.

The ASSISTANT SPEAKER (Lindsay Tisch): No, it is not misleading the House; this is a debating point. But I would ask the member to come back, because I had been listening very closely to what the previous speaker, Stuart Nash, said. I would ask the member to focus on what is in the bill.

The bill brings in a residential land withholding tax, and a withholding tax, basically, is for those who may be offshore purchasers and who sell that property within 2 years. They would have to pay tax at 33 percent on the profit, or 10 percent of the sale price. That is, effectively, charging them on their capital gains, which is what that last speaker said, when he said, “we should be, could be,” and, “I think that it should be further than what it is.”—those were his exact words, and that member wants a full-blown capital gains tax, as we all know.

The other part of this bill was in regard to online services. Nobody has any problem in that area, because it is a difficult area that is a new area of sales that is going on in the market, and the world is looking at ways of dealing with that issue. This is part of the process of providing a taxation solution for that area that will enable New Zealanders to compete in the retail sector with international sellers through the online process. That is expected to raise about $40 million a year, which is important for the New Zealand tax take.

The third element of the bill is the student loan amendment, which, effectively, enables the New Zealand tax system to get further information from the Australian system around New Zealand taxpayers who may have student loans. This is a good bill that deals with those three issues, which are important tax issues.

We note that the Labour Party is supporting this bill, which is good to see. We note, also, that Labour members wish this bill to go further, and that means that they want that capital gains tax, as they want higher income taxes, as they will tell you. We have yet to hear from New Zealand First members, but I am sure they will be voting against this bill, even though they promised to be against international holders of assets in New Zealand—yet they vote against bills that would tax those international people. This is a good bill, and we look forward to the Opposition—

💬 Kris Faafoi: Inspirational!

—actually supporting it, and supporting it properly.

I think Kris Faafoi, my colleague, said it all—that that was an inspirational delivery by that member, David Bennett. That member, who purports to be a guru on tax bills, is the chair of the Finance and Expenditure Committee, whose first utterance was to provide us with a complete series of irrelevant information and a capital gains tax. What he did not say, though, in his sort of obsession with online services, as he wants them to be, was that when we look at the GST on online services, this was going to be, you recall, the big hit for the Minister of Revenue. The Minister of Revenue came out with a discussion document, and he was going to get tough with those people in respect of putting GST on online services. He was going to “level the playing field”, I think the words were, for the retailers of New Zealand—level the playing field.

The Retailers Association and others stood up and applauded him and said this was a wonderful thing, and then he delivered this bit of piffle in here, which, effectively—and I challenge those members to go and ask. They may have been visited by the Retailers Association—I have; other colleagues have—to discuss this and other issues. The Retailers Association is on record as, basically, describing this bill as piffle. Because what it does—it is not the big hit; it does not level the playing field for all retailers—is it selects the low-hanging fruit in respect of e-books, music, internet movies and videos, and that sort of stuff.

If you are competing with Apple iTunes, you are probably not going to be the local music seller from down the road, on the corner, with one staff member. No, you are going to be the big end of town—The Warehouse and those big retail providers. This bill does not deal with any of the things like, for instance, purchasing clothing overseas. It does not deal with any of those imported purchases that the vast majority of small to medium sized businesses are competing with, because it does not touch on or impose GST on any of those areas.

So the Minister Todd McClay came out with a big hiss and a roar and a discussion document saying that he was going to level the playing field, and what did he do? He picked out e-music, e-books, and one or two others and said: “Isn’t this wonderful?”. Well, it will be very interesting to see the Retailers Association and its submission to the select committee when this goes through, because I know there is gross disappointment amongst retailers that the Minister did not keep his promise and did not go far enough.

Yet again, the modus operandi of this Government is that when a problem comes up and it is politically difficult, it holds off and holds off and holds off until it reads the opinion polls and works out: “Hang on”—a bit like the property issue in here—“the people have had a gutsful of this. We’d better be seen, as a Government, to actually be doing something practical.” So what it does is take a minimalist approach—we will get to the brightline test in a minute—to do just enough to be seen to be doing something, or anything, and then it tells the people: “It’s all a done deal.” Well, people are not silly, and those new members over there, who have been elected, ought to realise that.

We come to the brightline test—the resident withholding tax issue. Again, it is worth reminding these members in Government that the 2-year withholding tax—I think the figures are that 15 percent of property in Auckland is sold within 2 years. Most property is held for longer than that. Those who have studied a bit of economics over there, Mr Bayly and co., will know that if you are making 24 percent per annum on an investment—he is awake. I would argue that Auckland property, unless Mr Bayly has got another investment hidden away somewhere in that great portfolio of his that is making more than 24 percent—I reckon that he would agree with me that that is the best game in town. A 24 percent annual return is the best investment you are going to get in New Zealand, bar none, and possibly bar none, in many respects, in a global sense.

Most people, of course, are going to hold for 2 years. Why would you not hold if you are making 24 points a year? So, as we said about the last pieces of legislation that went through around this area, it is not going to work. People will hold for 2 years and 1 day. The professional property investors, of course, will simply change their modus operandi, hold for 2 years and 1 day and then flick, and they will take 24 percent per annum, or 48 percent or 50 percent over the 2-year period. They will take it and they will bank it. This measure will not work.

As evidence of that, it is worth recalling the Treasury advice that was provided to the Minister—and possibly to Mr Bayly, and certainly to Mr Bennett, being the chair of the Finance and Expenditure Committee and a guru on these matters—where Treasury said: “No. If you are going to actually do this, you should put in a 5-year period.” Likewise, with regard to the resident withholding tax put on those domiciled overseas who flick the property within 2 years, the Treasury advice is the same: the Government should be imposing a 5-year period, and that in itself may have some sort of effect in changing people’s behaviour.

But, oh no. Again, what these folks in Government wanted to do after their feet were put to the fire on Auckland house prices, after people—young people especially, and certainly, maybe, a number of young people listening to this debate, and maybe the odd one in the precincts of this House, may one day wish to take part in the Kiwi dream and actually own their own home. Well, when those people started jumping up and down and saying “This is not on.”, the Government again read the Crosby/Textor polls and, after denying there was any housing crisis over the last 7 years—there was no crisis, no problem, and people should be grateful to the Government, it said, for what it had done for them in respect of housing, which was zero—it thought: “Hang on, people are up in arms. We’d better be seen to be doing something.” So what did the Government do? It picked out this little doozy—the previous legislation and this bill—and said: “OK, we’ll say to folks that you’ve got to hang on to your property for 2 years, or if you’re domiciled offshore, you’ve got to hang on to it for 2 years. Otherwise we’ll hit you with a marginal rate of tax.”

The interesting thing is that there has not been an outcry all over the parish. Why? Because most people have said: “Well, we’re going to hold for 2 years, and that’s what we would have done anyway. And”—as I have said—“if we’re getting 24 points per annum in capital gain, why wouldn’t we hold on for 2 years? We’ll just hold and flick.” The professionals, as I have said, will just simply modify their behaviour and hold and flick after 2 years and 1 day.

💬 Hon Nicky Wagner: They’re professionals. They have to pay tax anyway.

Ms Wagner is sort of nodding or shaking her head or gesticulating, or something. Obviously, to be fair to her, she is not the Minister of Revenue. He, presumably, is planning his inaugural trade mission to parts unknown, rather than taking a call in this debate. But the point is that this is another mechanism—the third bill—that we, I suspect, will be back in 18 months or 2 years to amend.

The other aspect of this bill is in respect of student loans. I do not think people would argue with that to any great extent. It is a fact. I have had a student loan. I got my first degree under the old system, when I think it cost about 300 bucks a year and you got about—

💬 Kris Faafoi: Jeez, what does that make you?

—not that old—$1,500 a year under the old bursary, which generally, I am sure, Mr Assistant Speaker and a few others over there will recall, kept you going at the student bar occasionally over the academic year. My second degree was under the student loan system.

It is right that if we incur those debts to the taxpayer and we get the benefit of a tertiary education, we pay those back. There are always equity arguments around the fringes as to the extent and the process and the burden that is visited on those young people if they cannot get decent-paying jobs in New Zealand, but it is appropriate that they do pay that money back, and it is appropriate that we look at the process of information sharing between the IRD and the revenue service of Australia.

The only qualification I would put on that is there have been a number of occasions when the IRD has not got its act together in terms of information sharing within the family of Crown agencies, and one could argue that it should ensure that it gets its act together within that sphere of intra-Crown agencies before it advances off, outside the Crown jurisdiction, to Australia. But, as a first principle, it is appropriate that if a student loan is incurred, people should be meeting their commitments there.

So I say we will support the bill’s referral to a select committee. I know there are other aspects to this bill. There will be some very interesting submissions. No doubt the Retailers Association will come and say “Hey, we had high hopes for a level playing field for our members and we were sadly disappointed.”, but it will be very interesting to see the explanations coming from the Minister and his successor as to why they did not meet their so-called commitment.

I always enjoy listening to the Hon Clayton Cosgrove. He is one of the more entertaining members of the Finance and Expenditure Committee, after Mr Peters, of course. After the recent reshuffle, I was a bit concerned that we would be losing him, but the gods have shined upon us and he is still on the committee. We are currently considering, actually, the highlight of his legislative career: the Keep Kiwibank Bill.

💬 Hon Clayton Cosgrove: Not mine any more—not mine any more.

Not his—he has ditched it already. He has ditched it already. OK, the first reading of the Keep Kiwibank Bill was the highlight of his legislative career. He has now given up on it. But a much better bill that the committee will be considering is this taxation bill. I think actually it could be called the “Taxation (Increasing Compliance) Bill”, because the three main matters that are considered in this bill are about increasing compliance with tax obligations. The change to the residential withholding tax is, I think, going to be good and going to add to the additional tools we have already brought in through recent bills like the requirement for an IRD number to be provided during property transactions and the brightline test that has recently come in. This will complement those two bills.

I have to say to the Labour members opposite who are pooh-poohing this idea and, as they usually do on these types of issues, whinging and moaning about the changes we have made, that if they want to come to Auckland and talk to some of the lawyers and talk to some of the real estate agents who deal with this every day, they will be told that already the changes the Government has made are having an impact. They are slowing things down. This is on top of the fact we are building a whole lot more houses and we are seeing more houses being consented at an unprecedented rate. These are all starting to have an impact.

This bill will also bring about an additional measure that will help in a big way. I do not want to speak for very long. I want to save the Labour members opposite who are probably a bit concerned about what we are saying and all the good things that are happening through this bill. The fact of the matter around GST is that we are able to bring the changes to GST with online services relatively easily through this bill, but I want to allay their fears. There is a consultation document that the Minister of Customs is working on that is going to be going out next year. That will be the opportunity for New Zealanders to be consulted on the potential GST options with actual goods coming across the border. I think that will be a golden opportunity for New Zealanders to contribute their views on what could change.

With regard to student loans, this is a very simple change through this bill that will lead to greater compliance from those who are living in Australia. The greater information that we are going to be sharing between our two countries will lead to greater compliance with student loan repayments, and that is a good thing for the country. I commend the bill to the House.

Kia ora, Mr Assistant Speaker. Ngā mihi nui ki a koutou. Kia ora. I rise to support this bill. The Green Party supports it going to a select committee. It is, in one sense, a non-controversial bill, but there are some concerning aspects within it. Really, what we are debating tonight should be three separate pieces of legislation, not this omnibus bill, because it deals with incredibly different parts. The first is the new Netflix tax, the second is new information and contact detail disclosure from the Australian Government to the New Zealand Government when it comes to student loans, and the third is the brightline test—the capital gains tax when you do not want a thing called a capital gains tax.

We will be supporting this bill. We want to hear the discussion around the select committee. We want to hear from the diverse group of experts and people involved in these three different areas. When it comes to the new Netflix tax, I remember John Key’s promise at the last election of no new taxes. I guess you could make an argument that this is a new tax. I guess you could make an argument that it is extending an existing tax into an area that is not currently being taxed.

💬 David Seymour: Well, which one is it?

There is David Seymour, I guess voting for increased taxes tonight, I am sure. There is a legitimate debate here because New Zealand retailers do feel like they are not on a level playing field. The Inland Revenue Department reports that it is missing out on around $180 million of revenue per annum. So the question is why the Government is going after only this part, which is $40 million of that $180 million of revenue.

The Green Party supports our domestic retailers—we have called for this in the past—but we would also note some questions around the compliance cost. Obviously, the reason this has not been enforced by previous Governments was that the $400 de minimis threshold, which is not being looked at in this legislation, was always seen as a challenge. Sure, the Government would love that extra revenue from the GST receipts on those products, but what is the point if you are actually spending more getting that revenue? So I guess the Government thought it had found a bit of a workaround with having the onus on the provider of goods and services—I am thinking of Netflix, of Amazon.

The question here is whether we are simply going to drive these providers of services to New Zealanders—who obviously they want, because they are subscribing, for example, to Netflix. I am a Netflix subscriber myself. Will we in fact see a perverse effect that these companies, because they feel they are not on a level playing field to other, maybe smaller competitors under that $60,000 GST threshold, will in fact leave our market? What we could in fact see is our New Zealand customers and consumers poorer as a result.

A second concern is whether we have got that $60,000 threshold right. Should it be lowered? I have seen suggestions of $10,000. I think it is an interesting debate to be had around the select committee table.

Thirdly—and I think this is quite an incredibly worrying clause—is around the misrepresentation of receipt of remote services. It has quite an innocuous title, but what we see here—in fact, in the commentary on the bill the officials give the example of Luke. Luke is using a virtual private network to mask his IP address. Tens of thousands of New Zealanders use virtual private networks every day. In this House and in parties opposite me it is no doubt being used. It is quite a common and legitimate form. It is concerning when you see penalties in the order of $25,000 to $50,000 and commentary in public around concerns of whether using a virtual private network itself, without trying to use it to circumvent these new GST requirements, will in fact be illegal. Those questions have been raised; I have not seen them answered. It would be deeply concerning, because there are many legitimate uses for masking an IP address.

On the student loan front, we have seen the Government previously pass laws in this House to arrest you at the border if you are in default. Now we see it about being able to go to your door when the Australian Government passes on your contact details. We do have concerns around this. But, if I may offer a suggestion to the Government, if it wanted to support student loan borrowers overseas—there is $3.2 billion outstanding—and it actually wanted to see that income come in, what it would be doing is negotiating with the Australian Government for those tens of thousands of Kiwis overseas, particularly in Aussie, to pay off their student loans via their income tax in Australia.

I can understand why it is good for our Government—maybe there are transactional costs for the Australian Government. But if we were serious about getting some of that $3.2 billion outstanding, the most convenient way is to make sure those Kiwis working and paying tax overseas in Australia could be putting compulsory repayments into their student loan. It has been ignored by successive Governments, hands have been thrown up in the air saying that it is too hard, but this would be the single most effective thing the Government could do.

Sitting suspended from 6 p.m. to 7.30 p.m.

Tēnā koe e Te Whare, ā, tēnā koutou te whānau o Te Whare Pāremata, tēnā koutou, tēnā koutou, tēnā koutou katoa. Members, when we broke for the dinner suspension we were debating the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. We are expecting our next speaker from New Zealand First.

💬 Fletcher Tabuteau: That is one way to phrase it, Mr Deputy Speaker. Thank you.

Oh, are you seeking a call?

I am. It is my pleasure to stand up and take this call on the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. I just want to start off with the fact that New Zealand firms have been forced to play on an uneven playing field for the last few years. We are talking about businesses that are having to operate in a tax environment that gives advantages to overseas firms. Instead of this Government creating a level playing field, actually the reality is—for whatever reason, whatever decision-making process goes on over on the other side of the House there—that this Government has taken years to come to this stage. It has had to acknowledge the fact that small to medium enterprises in New Zealand have been struggling with a very real issue around competing with overseas firms that have not had to pay the GST on goods and services.

What that has meant is that our local firms here in New Zealand are complying with what is essentially an unfair law that has put them on the back foot. New Zealand First has seen it firsthand. We have spoken to small businesses, we have heard from them, and they have told us that not only has it compromised profits but also it has actually made it very hard to undertake a business in, say, Rotorua, for example. A bookstore in Rotorua is having to compete with online bookstores, but from the outset an overseas firm such as Amazon has a competitive advantage in terms of size, and then it gets 15 percent in terms of the GST on top of that.

It has been unfair, and the Government is addressing it only now. But what we are seeing is a kind of a half attempt and it is even more frustrating. What we are seeing is, for example, that if you buy an e-book on Amazon after this legislation has passed, Amazon will be required to take the GST and pay that, but if you buy the same book in the hardcopy version, there is no GST on that. It just is completely illogical, makes no sense whatsoever, and is completely frustrating not only for New Zealand First but also for the small to medium enterprise businesses in New Zealand that are having to cope with the realities of this Government’s apathy. It is just taking too long, the Government is not serious about a very real issue, and it is compromising New Zealand business. What we are saying is that this tax component is an effort to level the playing field but that it does not go far enough. This Government needs to step up, and it needs to step up very fast. As I pointed out, it is not just small businesses struggling to cope with unfair tax; it is compromising not only their profitability but also the livelihoods of men and women who are working hard in their small businesses, so that needs to be addressed.

One of the other parts that has been raised earlier this evening was the actual revenue collected from the GST. It is not really that big a deal. You are talking about $40 million. [Interruption] I am glad I am entertaining Mr Seymour. He seems to be entertained by just about anything at the moment. But the reality is that if the Government had actually implemented the tax for not just the intangible but also the tangible goods, you would have been talking about some real revenue take. The reality is that that is not the issue at the moment—the fact that we are getting only $40 million from the intangibles’ GST tax take.

💬 David Seymour: What is the issue?

The issue is the levelling of the playing field. The issue is that small to medium New Zealand businesses will then be able to compete with international competition on a reasonably level playing field.

New Zealand First was glad to note the threshold for overseas companies in terms of registering for GST is set at $60,000 per year in income, although we noted that there was a $10,000 threshold proposed earlier in the piece, and we probably would have supported that level as well. I think one of the problems we will find in this particular aspect is actually assessing and getting meaningful information from overseas businesses about what their incomes are and whether they meet the threshold or not.

Speaking to the student loans part of the legislation, you are talking about 110,000 New Zealanders living overseas with student loans, with approximately $3.2 billion still being owed. In this instance, New Zealand First says that good New Zealanders here in New Zealand are obliged to make their contribution. They are being held to account, and so, actually, it is fair and reasonable to expect those students overseas to do the same. It was pleasing to note the streamlining effect of the rules applying to Kiwis living overseas—for example, there was a fix-up of some of the exemptions around Kiwis living overseas who are working for charitable organisations. Their exemption will continue, and they will be able to do good work, as it were, without worrying about their student loan in the meantime.

New Zealand First is concerned about the proposed changes in order to facilitate better and more comprehensive information sharing between New Zealand’s Inland Revenue Department and the Australian Taxation Office. Fair is fair: if New Zealanders at home are repaying, then those abroad should do the same. What we are concerned about, however, is that this Government has refused to put pressure on the Australian Government around its treatment of New Zealanders in Australia and, essentially, making them second-class citizens. The point is that if the rules were applied evenly and fairly and if we were treating New Zealanders in Australia who have been living there for 40 years, for example, the same as an Australian-born citizen, then you could say: “Well, yes, let us get in there and apply this. Let us be vigorous about it, make sure that they are not escaping the net.” The reality is, though, that New Zealanders are living there as second-class citizens, and so I challenge some of those backbenchers over in the Government’s party to actually go and have meaningful discussions first about how to treat New Zealanders fairly in Australia instead of prioritising the collection of student loan debt. There are so many bigger issues to be dealt with in the first place.

New Zealand First opposed the brightline bill because of our own analysis—

💬 David Seymour: The brightline bill?

—the analysis of Mr Seymour, the analysis of every single expert who submitted. Not just one or two of them but every single expert who submitted on the brightline test told us, and saw very quickly, that this piece of legislation would achieve none of the stated objectives that it set out to achieve. In fact, it would add even greater levels of complexity to the situation.

💬 David Seymour: Can the member tell us why?

I will not go into detail, because I do not have the time, but Mr Seymour could do some reading perhaps this evening and get a little bit of the detail.

Because the bell has already rung, I had better jump to my conclusion—[Interruption]—and please my audience. Thank you—thank you. We actually cannot support this bill. Our opposition to the theatrics and empty platitudes from this National Government regarding the brightline legislation are just too strong. Voting for this and supporting this legislation would simply give tacit endorsement of that waste of time, piece of empty puffery—and, no, I am not talking about Mr Seymour. The reality is that there are three distinct parts in this legislation. I genuinely implore the Minister of Revenue to break up this legislation. I ask him to present it as independent pieces of legislation so that New Zealand First could support the good stuff—the common-sense pieces on student loans and taxation—but as to the rest of it, we have got issues, and, therefore, we cannot support the bill as presented to the House this evening. Thank you.

It is a pleasure to be talking on this bill. I have got to say that the previous speaker, Fletcher Tabuteau, talked about apathy. I can tell you that the only apathy I had was listening to that speech. Where was the enthusiasm, the vigour? It was gone, but this is a Government certainly with lots of energy.

This bill is a great bill because it deals with three very important issues. In fact, the first part of this bill is about how we deal with housing. Of course, we have already introduced two bills into the House about that: one dealing with the brightline test and also the one that required foreign buyers to get a bank account and an IRD number. So this bill tonight deals with the third leg of the treble, which is about non-resident people paying their fair share of tax on capital gains or the gains that they derive from buying and selling houses within 2 years. This is money that should be paid to the Government and this is a way of going about and doing that in a legitimate fashion.

What this bill does is it requires offshore persons to pay tax if they buy and sell a house within 2 years. The definition of “offshore person” has four categories: first, all non - New Zealand residents; second, non-permanent residents; thirdly, New Zealanders living overseas who have lived there for more than 3 years; and, fourthly, New Zealanders who have got a resident class visa but have not visited New Zealand in the past 12 months.

What we are doing here is still applying the same exemptions that we applied in the brightline test, which is that income tax is not due if you buy and sell a house for all the appropriate reasons, but what the bill does do is say that if you buy and sell a house and make a capital gain, then you have to pay the lower of the 10 percent of the sale value or 33 percent of the tax on that gain. These provisions come in on 1 July 2016, and they are the third leg of a treble that is seeing the house prices in Auckland starting to flatten off, if not starting to decrease. That is why they are so important and that is why I am so supportive of them.

The second element of this speech is just dealing very briefly with GST. Again, I have heard members of the Opposition talking about the issue of us not listening to people. Well, that is not correct and, in fact, this part of the bill addresses specifically that issue about making sure that our retailers are not disadvantaged from a competitive position where people can buy goods offshore for more than $400 and not pay GST on them. This is a very good provision around that and I commend the bill to the House.

The Green Party will support this bill to a select committee. There are elements of the bill that we strongly support, but there are also elements that we have concern about and we hope that the details of these will thrashed out at the select committee. But, first, just to comment on the overall bill we do feel that it packages three very distinct elements that would be best separated out into three different bills to allow parties to vote accordingly on the different bills.

The point that I really want to focus on today is the GST on online goods and services. As an overall principle, yes, we strongly support it. As said earlier, it is absolutely growing by 10 percent every year. More and more people are doing their shopping online and many are looking to do their shopping from overseas shops and use overseas services as well. However, one of the unintended consequences of this bill could be that some services overseas will decide that it is not worth the hassle and place geo-blocking on to their services.

That is fine if there is a genuine comparable service in New Zealand, but for some services there is not that comparability of access. One really obvious example is the provision of online television and movies. The big four providers in New Zealand—Sky TV, Television New Zealand, MediaWorks, and Spark—none of them provide accessible online services. None of them provide captioning services, none of them provide audio description. On the other hand, Netflix, a big overseas provider, does provide captioning services and all its movies are captioned. So, of course, for the deaf community we like to use Netflix; there is just no choice in that matter. That is the only service that we can actually use. So it is very good that Netflix has said it will continue to provide that service in New Zealand even after this bill has passed, even after GST is charged, but the reality is that is for Netflix New Zealand services, which has quite a limited range of movies. If you go to Netflix US there is a far greater range of movies provided. So what do we want to do if we want to watch a movie with captions? We use the domain name system (DNS) and get around DNS blocking and try to access these movies online, because that is the only way that we are going to be able to watch these movies with captions.

This is not to try to avoid paying GST; this is to try to have access to a service on the same basis as every other New Zealander. So I really hope that when the bill goes to the select committee we will kind of unpick some of these unintended consequences. Although we want to support New Zealand businesses, although we want to ensure that there is a level playing field, the reality is that some of the services and goods that are provided in New Zealand just do not meet the standard for accessibility and this is a really important thing.

We will be looking at what the experience overseas has been with introducing bills in the EU, Norway, South Africa, and so on, to see how they managed to ensure accessible services. Some of these countries have accessible services in their own country when it comes to movies and online TV, but here in New Zealand we do not because we do not regulate that. The really important thing is to try to ensure that where New Zealanders have legitimate reasons for getting around geo-blocking they are not being unfairly penalised and it is not automatically assumed that they are trying to get round geo-blocking to avoid paying GST. That is not the case. Anyway, we look forward to that discussion at the select committee. Thank you.

I call David Seymour—a 5-minute call.

I rise on behalf of the ACT Party in support of the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. This is a bill that takes in a number of very interesting matters of taxation policy and when I think about them—

💬 Grant Robertson: Tell us about them.

Well, for the honourable member, I was thinking of doing just that—and I thought about what Adam Smith once said about an income tax. He said that it would be an intolerable intrusion into the affairs of men and women to impose an income tax, and 300 years later is not this bill a demonstration of Smith’s prophecy? In order to have a brightline test on gains made from sales of housing within 2 years—it all sounds very noble to begin with, that we are going to suppress the price of housing, when, in reality, the real problem with housing is not on the demand side but the supply side. In reality, due to a failure of local government, we have built 40,000 houses in the last decade and 50,000 in the decade preceding it.

It all sounds very noble, but it is not going to work to have a brightline test and an effective capital gains tax on housing. But then we get to the implications of taking that sort of policy approach, misguided as it was to begin with. One of them is that if the State wants to tax people for property transactions, then it must come to Parliament and ask for the power to withhold the proceeds of a sale—either 10 percent of the sale value or 33 percent of the projected capital gain—in order to enforce that tax. Otherwise, in the case of foreign residents, this tax would be unenforceable and impractical, and is it not a reminder that every time we come to the House with noble ideas about collecting revenue on behalf of the State to achieve various social outcomes, it always results in having to extend the power of the State and intrude further into the affairs of people?

I regretfully vote for this measure. I think we are going completely in the wrong direction. But it is a Budget measure, and voting for Budget measures helps me to keep Grant Robertson over there, where he belongs, and these fine people over here, where they belong, and that is very, very important. If I ever have any doubt that that might be very, very important, then all I have to do is listen to the economics of Fletcher Tabuteau. I have to say, I wish I had had the dinner break with Fletcher Tabuteau because it must have been quite the dinner break. I thought that his economics were a little bit unorthodox before, but after that speech I can see that he is three sheets to the wind.

GST on online services is a challenge, or at least reflects a challenge that all nation States face in a globalising world. There are transaction costs to collecting taxes. There always have been and there always will be. That is why Adam Smith said that it is an intolerable intrusion into the affairs of man to collect an income tax. As the world globalises, as people start to consume music from internet-based virtual multinationals, as people begin to order T-shirts from the other side of the world—some of them even big enough for Grant Robertson—people find that it is harder and harder to collect taxes. Yet there is a way that we can pursue broad-based, low-rate taxes in New Zealand, and that is to identify large-scale, high-volume, low-number holders of monopoly powers—in so far as internet providers such as iTunes, for instance, or Netflix—where it is very easy to target the provider for taxes.

I had hoped to inform Mr Robertson about my beliefs with regard to the student loan section of this bill. Alas, I am somewhat out of time, but what I would say is that the rationale for taxpayers to fund education is that it is a public good. Education is not a public good when the person with that human capital leaves the country. So anything that this Government can do to ensure that the returns on that capital are captured back to the New Zealand taxpayer has got to be a good thing. So, on balance, despite the rather intrusive residential land withholding tax aspects of this bill, I commend it to the House. Thank you.

I rise in support of the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. The three parts of this bill are very sensible and very practical, and I am not quite sure why Mr Tabuteau would not agree with any of them. The first part is about student loan information-sharing. That seems a very obvious, very sensible, very practical way of understanding the New Zealanders who have taken out loans and travelled to Australia. That is Part 1—very sensible and very practical. The second part imposes a residential land withholding tax on the gains made by those offshore people who have sold property within 2 years. It is the third part of a trifecta of legislation, and this is just the last piece of it. Again, it enables the Government to ensure that people who live offshore pay their fair share of tax. It is very sensible and very practical. The third part of the bill deals with GST online and deals with the goods and services that are sold over the internet, and it requires people to register for, and pay, GST on services and products that they provide online. That is very sensible and very practical, and that is why I commend this bill to the House.

That contribution from Alastair Scott, who has just resumed his seat, will go down in the annals of parliamentary history for its enthusiasm—perhaps brightened only by Mr Scott’s tie, which I am a great admirer of. As he is a constituent in my electorate, I fully approve of his purchasing goods such as that inside the boundary of Wellington Central.

The Labour Party is supporting the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill on its first reading and referral to the select committee. As has been noted by a number of other speakers before me, it essentially covers three areas, and I am going to work my way through those now. The one I want to focus on for the first part of my contribution is indeed the idea of the imposition of GST on what are called intangibles—remote services sold over the internet. Mr Deputy Speaker, I am sure that you, along with many other New Zealanders have got a Kindle and that you download those books to read over the summer break—those murder mysteries, things that you think about in the dead of night and that you might want to do to your colleagues; that kind of thing, Mr Deputy Speaker. Downloading those books on to your Kindle is the type of purchase that the Government tonight in this House is proposing that GST be put on. It is proposing that it be put on an e-tailer who sells into New Zealand more than $60,000 worth of product a year.

That is a reasonable suggestion—one that has been a long time coming. It has been suggested for some time. I know that people like Spark will be very pleased with that. They have been looking for a more level playing field in their competition with Netflix and other providers of that ilk. So they will be happy. Those who are not so happy include the retailers and the booksellers, and, in fact, Booksellers New Zealand’s chief executive officer Lincoln Gould said that there was nothing for small business and its communities in this bill. He has been joined by Retail New Zealand and its criticism of the bill, which, as it says, does nothing to deal with supporting the small businesses, the main street retailers, who currently work on an unfair playing field when it comes to this. Mr Tabuteau has already given the example of a book that if you did download it to your Kindle would attract GST, but if you then ordered the book in hard copy from Amazon and had it mailed across the world to you, it does not attract GST. So the Government has set up this unfair playing field, because it has done the thing it always does. It has gone after the very, very easiest thing—the thing that does not take too much effort, and it has left alone the issue that New Zealanders, and in particular small businesses and retailers across New Zealand, wanted solved.

The Government has done worse than that. It has told the booksellers, the retailers, of New Zealand that it would be on to sorting this out. That is what it told them at the election last year. The retailers were told in November that there would be a discussion document available on this very issue of how to deal with goods that cross the border, not just the intangibles. What happened when Todd McClay made the announcement of this piece of legislation? He announced that the discussion document scheduled to come out in November of this year will now come out in April of next year—another delay of 5 or 6 months while the Government kicks the can down the road, as it does on so many issues. Any issue that might require a little bit of challenge, a little bit of confronting themselves, it kicks the can down the road. A discussion document in April—I will wager with you, Mr Deputy Speaker, that that will not come out in April. It will be later next year. The can will get kicked further down the road, because this Government never faces up to the tough issues. If the Government is serious about creating a level playing field for New Zealand businesses, especially small businesses, it needs to have the courage of its convictions and put up a regime that actually creates that level playing field and not tinker around at the edges.

The second part of the piece of legislation in front of us today is around the question of the residential land withholding tax. This is, as some other speakers have noted, part 3 in a horrendous trilogy from the Government of stuff-ups in taxation legislation. If it is a trifecta, Mr Scott, it is paying very, very poorly. What we learnt at the Finance and Expenditure Committee last week during the Inland Revenue Department’s hearings is that the brightline test, which we have already been told is going to bring in $5 million—a pathetic sum of money relative to the trading of houses in New Zealand—costs $5 million to implement. So $5 million comes in and it is actually going to cost the Inland Revenue Department $5 million to implement it. It is cost-neutral—genius taxation policy! It is cost-neutral and it fails to actually get to the root of the problem of property speculation.

It will be interesting to see, once again, all of the tax experts come to the select committee, as they did for the first version of the brightline test, to say to the Government: “Your policy doesn’t make sense. It’s got no coherence.” One of the senior partners in the largest accounting firm in New Zealand came to the select committee and said he was “professionally confused” by the Government’s approach in this area. And they will be back. They will be back again to say: “Here you go, confusing the picture even more.” So this really is throwing potentially good legislation after bad. There is very little in the Government’s approach of trying to look like it is dealing to speculation that has been good. This particular piece of legislation deals with those offshore who will be making purchases. It appears to set up a tax that makes some sense in that context, but it follows on from very, very poor legislation. And, once again, it is an example of taxation legislation that is simply inadequate for the problem that it seeks to address. It kicks the can down the road of a difficult issue. It gives the appearance of doing something. If it were not for some of my colleagues, I would call this “Clayton’s legislation”, but that may give the Government the wrong idea about what kind of legislation it is. But it is the kind of legislation that you do when you are not really doing legislation to address the problem.

The third part of the legislation that is in front of us today is that dealing with student loans. To give Mr Seymour his dues, he was about to launch into his views on the funding of tertiary education, which he one day hopes to undertake, I understand. And he actually said something that I agreed with. So we are going to need to mark this down: 8 p.m. on 8 December 2015, Mr Seymour said something I agree with, which is that when the interest-free student loan policy was set up, it was set up to be interest free when you were in New Zealand. It was never set up to be interest free if you went overseas. One of the reasons for doing this—

💬 Mr DEPUTY SPEAKER: Point of order, David Seymour. Let us hope it is, in fact, a point of order.

💬 David Seymour: I raise a point of order, Mr Deputy Speaker. I said no such thing, and the member knows it.

💬 Mr DEPUTY SPEAKER: That is not a point of order; that is a matter for debate, and you have had your debate.

Yes, it was not that good, either.GRANT ROBERTSON So the interest-free student loan scheme was designed so that it was interest free in New Zealand. If you went overseas, interest began accruing. There was some allowance for the kind of OE that New Zealanders undertake, or if you were working for a voluntary organisation or for the New Zealand Government. That is part of this legislation, to tidy up the way in which charitable organisations are defined—those where you do not attract interest when you are working for them overseas, and it is good to see that being tidied up. More discretion is going to be given to the Commissioner of Inland Revenue.

💬 David Seymour: Mercy!

Read the bill, Mr Seymour. It is in there. More flexibility is going to be available to the Commissioner of Inland Revenue to decide whether people are working for a charitable organisation.

But the Labour Party supports following up that debt. We, through the interest-free loan scheme, made that scheme fairer and made that scheme more of an enabler for people to get into tertiary education, but we respect the fact that it is a loan scheme and that the loan does need to be paid back, and the relationship between the Inland Revenue Department in New Zealand and the Australian authorities is close enough to be able to share that information, so that those who do default on their loans can be followed up. This was a loan scheme that the now leader of the National Party said that he would oppose with every bone in his body. When it came in, he said he would oppose it with every bone in his body—well, that has failed. The National Party has continued on with it, it has tinkered around at the edges, it has managed to make the interest-free loan scheme more unfair and more difficult, and it has taken away a number of the student allowance provisions—but on this particular piece of legislation, involving student loans, the Labour Party can support it.

So we will be supporting this bill to the select committee. It is a bill that could have done so much more when it comes to cracking down on speculation in the housing market. But, as is typical of this Government’s approach, it has tinkered at the edges, it has dipped its toe in the water, and run away scared, when it could have actually been doing something to give New Zealanders a chance to buy their own home and be part of the Kiwi dream. Maybe one day, when we get a Labour Government, we can get that to happen.

As the last speaker in this first reading debate, it falls to me to round off the debate. I have listened carefully to the contributions from members across the House, and some have been better than others. Really, I just wanted to acknowledge the very fine contribution from the ACT member, Mr David Seymour, who really did get to the essence and the nub of this bill. There are three primary purposes to this bill: firstly, the student loan information aspect; secondly, the property investment rule changes; and, thirdly, the GST on online services. I know that the select committee is going to do a very thorough job of scrutinising this piece of legislation. I thoroughly commend it to the House.