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

I move, That the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill be now read a second time. As the title of this—[Interruption]

The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! Can we have a bit of politeness for the speaker, please, Mr Lotu-Iiga.

As the title of this bill makes clear, this tax bill addresses three diverse aspects of the tax system that, together, make the system fairer. A strength of the New Zealand tax system is the fact that taxes are applied fairly and evenly, and there are very few exceptions. Policy settings, therefore, also aim to continually address inequity in the system. The proposed new residential land withholding tax and the GST measures in the bill are two such examples. I will recap the contents of this bill briefly.

Tax for the proceeds of the sale of New Zealand residential land by offshore vendors can be difficult to collect from foreign owners with no, or limited, presence in New Zealand. The proposed new tax—the residential land withholding tax, or RLWT—is, therefore, intended as a means for collecting tax on that sale. It is proposed that the residential land withholding tax would be payable from 1 July 2016.

The second major component of the bill proposes that GST be applied to cross-border remote services and intangibles supplied by offshore suppliers, including 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. This would come into force on 1 October 2016.

This bill also contains a proposal to allow certain information on student loan borrowers living in Australia, including current contact details, to be shared between the Inland Revenue Department and the Australian Taxation Office. This will help the Inland Revenue Department to keep borrowers engaged with their obligations and improve the collection of any outstanding payments. A number of other measures in this bill also focus on student loan borrowers, including simplifying the process for the approval of charitable organisations for the purposes of the student loan scheme.

I want to acknowledge and thank the Finance and Expenditure Committee, under the able chairmanship of David Bennett, for its consideration of the bill and its recommendations, which improve it. Firstly, the committee recommends changes that will ensure the residential land withholding tax will be appropriately targeted at offshore vendors. Secondly, the committee advocates the introduction of exemption certificates for offshore land developers that meet certain criteria. This will ensure that the residential land withholding tax does not impede the supply of new housing. Exemption certificates will also be available for offshore vendors disposing of their main home, which will reduce compliance costs.

The residential land withholding tax proposal is part of a suite of measures introduced by the Government to improve tax compliance amongst property investors. Following submissions from the public, the select committee has made recommendations on one aspect of those earlier measures: the requirement for a person who is an offshore person to have a functioning New Zealand bank account in order to apply for an IRD number, which supports identity verification. The committee’s recommendations will ensure that certain compliance costs are mitigated while maintaining the integrity of the requirement for identity verification. I have directed my officials to explore the issues raised by submitters, with any subsequent amendments that may be required being included in a future tax bill.

On the GST measures in this bill, the committee made a number of recommendations mainly aimed at reducing compliance costs and simplifying the proposals. The main recommendation was to introduce a transitional provision for some fixed-term contracts, such as contracts of insurance, that span the date of the rule’s introduction. The effect would be to suspend the usual GST rule, which treats periodic payments as successive supplies and applies GST to each payment. Instead, such contracts could be treated as not successively supplied for the term of the contract, or for 396 days, whichever was earlier.

I should point out that the feedback from the public has been supportive of the proposals, and it pointed out that the proposals are in alignment with OECD guidelines and similar rules that apply in other countries, including the European Union and the proposed rules in Australia. I want to thank those submitters, and the Finance and Expenditure Committee for its consideration of the bill and recommendations on points raised by submitters. The bill has been improved by that feedback, and it gives me pleasure to commend it to the House at its second reading.

The Minister of Revenue is right in that we are supporting this bill, but we think this should go a lot further than it actually does. There was a lot of robust discussion in the Finance and Expenditure Committee around how to make things fair. I do agree that we have a broad-based tax system that is relatively easy to understand, but what this bill has done is bring a level of inequity into the tax system, which I think absolutely needs to be sorted. Let me give you one example of this. What this bill does, as the Minister pointed out, is charge GST for online services and intangibles like e-books, like computer programs, like music, etc. What the Minister did not say is that it is actually applicable only to companies that have a New Zealand revenue of $60,000 a year or more, which, in the scheme of things, I agree is not that much, but it is still reasonably sizable.

But the thing the bill does not do, which a number of New Zealand retailers have been asking for for quite a long time now, is charge GST on tangible goods. New Zealanders can still buy items of clothing—and not e-books but physical books—or anything else online, and these are not subject to GST. My concern about this is it actually provides a competitive advantage to companies that are not located in New Zealand. I think one thing we need to do in the 21st century is to make sure that New Zealand companies do not suffer because they are actually based here. I mean, this is a point in time when we can buy anything we want online, and we accept that. It is a part of the economy; it is a part of the way of doing things. But when New Zealand companies have to charge, from the very outset, 15 percent more than a company located overseas, then there is something wrong, and that is simply because companies overseas are not charged GST on New Zealand sales. What we would have very much liked to see was this bill extended to include goods that are tangible, like clothes.

The Minister said that he has asked his ministry to do work on certain areas of tax. Well, what I would very much like to see—what we on this side of the House would very much like to see—is the ministry doing a whole lot of work around the cost of compliance, the revenue generated, and the economic benefits, etc., etc., of applying GST to all goods from companies that are bringing more than $60,000 worth of merchandise into this country. I know that this would be supported by the vast majority of retailers. The competition is not the bloke down the road; the competition is the fellow on the computer who is two clicks away. I think, when we talk about fairness in our tax system, what we absolutely need to do is apply the fairness test not just to New Zealand companies but to overseas companies.

Of course, this brings us into the issue—which is huge at the moment—about international companies paying their fair share of tax. You know, when we have a journalist from the New Zealand Herald—a journalist, and all credit to him, but not an Inland Revenue Department (IRD) official—highlighting the fact that there is at least $500 million of tax per year that is being avoided, then we have an issue. There are learned tax experts who say that that figure could be as high as $7 billion—$7 billion of tax every year that is being eroded from our baseline due to aggressive tax planning, and in some cases it is illegal. But let us not talk about illegal; let us just talk about aggressive tax planning.

We need to understand the quantum of this, but what this bill has done is actually legitimise tax not being charged on items that are still coming in. So there are a whole lot of people around the country, I have no doubt, who will breathe a sigh of relief. I have no doubt Alastair Scott buys his shirts online from a London retailer, just down the road from where he used to work. But—

💬 Alastair Scott: Lambton Quay.

Well, Todd Barclay, then—whoever. All I am saying is when we talk about fairness, we have to actually walk the walk. It is not good enough to just talk the talk.

Another part of this bill allows the New Zealand tax department and the Australian tax department to talk about student loans and talk about defaulters. We do know that there are about 15 percent of student loan borrowers who live overseas. The vast majority of these live in Australia, I am told, and ex-students overseas owe about $3.2 billion. It is a lot of money. I must admit that if students are defaulting on their loan, it is hard to have a little bit of sympathy for them, and the reason I say that is they signed a contract. They signed a contract with the Government when they took that money—when they drew that money down as part of a student loan commitment—and part of that contract was that they would pay it back.

Having said that, I think we are burying our heads in the sand if we say that the current situation is viable. We need to come up with a solution to get a lot of these ex-students, these student loan borrowers, to come back into the system. At this point, the penalties and interest have blown their loans so far out of the water that a lot of them feel as though they cannot come back to New Zealand when they want to. Again, I would urge the Minister to talk to his officials, to instruct his officials, to see whether they can come up with a solution that would allow these overseas borrowers to come back into the system, where it is a win-win. At the moment, if you are not engaging with the tax department, then the tax department is not going to get any money back. So no one is winning with the situation we find ourselves in.

One of the other things the bill does is it means the Commissioner of Inland Revenue now has to hold a register of overseas charities that New Zealand student loan borrowers can go and work in but be treated as resident in New Zealand. It may seem quite small, but it is actually quite a big deal. The reason I say that is there are a number of student loan borrowers who want to head overseas and work for charitable organisations. If they do that and they do not know whether their charity is part of this register, then they will end up being charged interest on their student loan. This way, because they are deemed as being resident in New Zealand, no interest is charged. It is quite important.

But the really big thing here is actually in the name of the bill, and this is the residential land withholding tax. This is, I suppose, the Government’s way of implementing a capital gains tax when there is no capital gains tax. The interesting thing about this is that it is one of three bills. We had a number of submitters talk about this. Most of them said it really is not going to work, and that 2 years is not long enough. The IRD itself recommended 5 years. It is reasonably easy to—“avoid” is the wrong word, but again, when we are talking about aggressive tax planning, and there is a lot of that going on, you can just hold on to the property for 2 years and 1 day.

But what this does mean, I suppose, at the outset—and it is why we are supporting it, as something is better than nothing, I suppose—is that an overseas resident or an overseas company or trust, or, I suppose, an overseas entity, that is purchasing property in New Zealand but then seeks to sell that property within 2 years has to pay a resident withholding tax. The tax agent will usually be the conveyancer, but not always. The tax has to be paid and then passed on to the tax office. There was a lot of debate about this. In terms of what we were operating under—and we were very clear that this was going to be the 2 years—it was not open for debate at all. But I think we ended up with an “elegant” solution. It is not ideal—2 years is just not long enough.

So there are three messages that I would like to leave. First and foremost, this, I hope, is just an interim solution, because we do not think it is really going to solve the problem in any way, shape, or form. Secondly, the IRD has a lot of work to do to get this bill to the stage where I think it represents fairness in the tax system. We need the IRD to do a lot more work around the cost, the revenue, the compliance, etc., of actually charging GST on tangibles that New Zealanders are buying in an ever-increasing amount, because this is part of the 21st century. They need to be paying GST on goods sold to Kiwis. The third point is I would love to see the IRD do more work on how to bring back ex-students who have student loans but have disengaged from the tax system simply because the penalties and the interest on the original student loan amount have blown out to such a point where these ex-students feel as if they cannot re-engage with the tax system—so they will not come back here.

We all know what we absolutely need in this country is our young people who have been educated here—so we have paid for their education—to head overseas, get their OE, come back, and contribute. So there is a lot more work that the IRD needs to do on this, but we are supporting the bill. Thank you very much.

It is good to see this bill back before the House, after a good period of time at the Finance and Expenditure Committee. Those who listen to the debates on tax bills will know that David Bennett usually gives this speech as the first Government speaker after the Minister. I thought of trying to do an impression of David Bennett, but I just could not manage it—I just could not manage it. So I will go for the calm and nicer version of the speech that Mr Bennett would probably have given.

This bill, as has been outlined, pretty much goes through a range of mechanisms, but primarily we are making amendments to the student loan scheme to have greater information-sharing with Australia. It also has some measures that help to supplement the brightline test that this House has previously passed. It also has some changes around GST for online services. Those are the three main areas that this bill covers.

We had quite good debate in the select committee. I think there was quite a lot of cross-party working on these issues. There was general support for many of the measures. Of course, as Mr Nash has outlined, there are some disagreements about how far we should go or whether we should do it in a particular way, but, generally, the committee worked quite constructively in coming up with some solutions to some areas that were raised in submissions. Can I just say at the outset of my speech thank you to the officials who were supporting the committee members on this bill. Thank you also to the submitters who fronted up. We always get some very high-quality submissions from tax agents and firms that work in this area on a day-to-day basis. They always provide high-quality advice, and it is always appreciated by the committee. Can I also say thank you to a very unsung heroine of the Finance and Expenditure Committee, Therese Turner, who does a huge amount of work advising the committee as well.

A big part of the committee’s time when we were considering this bill was spent around the definition of an offshore person. The way in which the bill was drafted initially, effectively one shareholder or 1 percent of a shareholding in a company could have led to the company triggering the offshore person test, which would have meant one person would require 99 other people, the shareholders of the company, to be subjected to a residential land withholding tax with regard to their purchase. We felt that was a bit unfair, it was going too far, and we should amend that. The definition also would have hit those with a trust. For example, one beneficiary of a family trust, when there could be hundreds or dozens of other beneficiaries—one beneficiary living offshore could have triggered it as well. We felt going for a 25:75 test was more appropriate, so the committee recommended that. Where 25 percent of the shareholding of the company is offshore, that is acceptable, but anything over 25 percent is the point at which it should be triggered. So the test now is 25:75 between offshore and onshore with regard to this test.

Generally, though, this is about providing greater compliance with the brightline test that this House has already passed. Rightly or wrongly, whether you want 2 years longer or whether you want a full-blown capital gains tax, the House has passed a 2-year brightline test to ensure that people pay tax appropriately over and above the intentions-based test that we already have. The House has put in place a brightline test. We now believe that it is appropriate to have this residential land withholding tax as well, to ensure that those living offshore comply with their tax obligations. This will make it easier for them to comply and also ensure that we are able to collect the tax appropriately. That is why we are going down this route and, generally, I think we have landed in a good space.

With regard to paying the GST for online services—yes, there is that debate about tangible versus intangible. This bill tackles only the intangible—intangible goods with regard to offshore companies. Again, I think we have landed in a good space. I think there is a general view from New Zealanders that paying GST for online goods and services is reasonable and is accepted. If you are providing an online service and you are based in New Zealand, you currently have to go through the GST regime. If you are an offshore company right now, you do not. That is inequitable, and that is something we should sort out. It is a lot harder, though, when you come to tangible goods, because there are a whole lot more complications at play, and there is also the difficulty of collecting GST. It is actually easier when it comes to online services because it is a lot clearer as to those online services. That is why this bill tackles only that aspect.

Finally, on the student loan scheme, yes we do have some compliance issues with regard to student loans. Again, we are making further changes to make it easier for the Government and for the Inland Revenue Department to follow up those people who are not complying with their student loan scheme obligations. We have already seen some examples recently of some other measures—for example, people being arrested at the border. These are having a bit of an impact on people who have not paid their student loans. This element, this change, will give us greater information for us to be able to track those people living offshore in Australia with regard to their student loans. I have to say, though, that the solution to student debt is not to give up on student loans and give people a free tertiary education, which is what the Labour Party has proposed. That would have perverse outcomes and would not work, and would blow out the Budget over and above the $20 billion - odd it wants to spend on the universal basic income. Again, it is a bit of a joke.

The Finance and Expenditure Committee did a good job of looking at this bill. I think we have come up with some sensible suggestions and changes, and I commend it to the House.

Here we are again in the House debating a piece of tax legislation and wondering what might have been—what might have been if the Government had actually said: “Here’s the opportunity. A tax bill has come up, and we’re going to take the opportunity to do what the Minister said at the start of his speech, which is to have a tax system that’s fair, that’s simple, and that’s easily understood, with very few exceptions.” If only that were what we are debating tonight, because, once again, we have a piece of legislation from the Government that goes a little way in a couple of areas to improve the situation, but does not do that to the extent that I believe anyone who came to the select committee and made a submission would think was sufficient—[Interruption]

The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! Sorry, the member is very experienced—well, not a new member, anyway—and he knows that he does not stand rudely like that.

As I was saying, what could have been with this bill is that we could actually have gone down the path of creating that fair system, and the irony of the Minister’s comments is that—as I will address in a few moments—there are, in fact, a large number of new exceptions being created by this. So he stands up in the House and says “We are all about having a fair system with very few exceptions.”, and the bill actually creates a series of new exceptions, in large part to deal with legislation that has only recently been passed by this House.

What I would like to have seen in this bill was some focus around the unfairness of multinational tax avoidance. It came up in the committee’s discussions as part of the issue that I will come to in Part 2, around GST on online purchases and the unfairness that is, in fact, being created for New Zealand retailers. This could have been the opportunity. The Government sat on its hands on this issue, as it has for the last 8 years, plaintively waiting for a multilateral solution, which is part of the solution, but completely failing to do what it could do in New Zealand to make sure that every company pays its fair share. The people who are coming home from work listening to this debate pay their fair share of taxes and the companies, the small businesses, and the retailers who came to our committee pay their fair share of taxes, so why should the large multinationals not do the same? But that opportunity was not taken up in this bill, and this speaks volumes for what the reality of the Government’s commitment is to having a fair tax system where every person pays their fair share.

What we did get was, in large part, a discussion about the changes around the residential land withholding tax, and also around the changes for GST on cross-border services and intangibles. They are the two parts of the bill that I am going to focus my comments on today. Firstly, on the residential land withholding tax, I do want to come back to this issue of exactly what it is that we on the committee looked at and decided to make some changes to. The first of those is around the definition of an offshore person, because in the first two pieces of legislation that were part of the Government’s package to do as little as it possibly could do to manage the huge housing crisis that we have, particularly in Auckland, there was the creation of the brightline test. As my colleague Stuart Nash has said in respect of the brightline test, Bill English brought it in. He did not know what the impact was going to be. We finally dragged it out of the officials that they think the Government will make about $5 million. They have also told us at various times in the committee that the Government has probably spent around about $2 million setting the system up—so we are about $3 million ahead at the moment.

As Stuart Nash also said, what we also heard in various submissions on the earlier bills was that, actually, what we would see is people whose change in circumstances forces them to sell a house within 2 years being affected by this bill, but not a genuine property speculator just waiting for 2 years and 1 day and then selling up after that. So it was a weak, Clayton’s response to this, but, in doing so, a definition was created of what an offshore person was. This was necessary in order to be able to tell who it was who would be subject to these rules under the residential land withholding tax.

The problem is that the definition of offshore person was far too broad, and that was eventually acknowledged by the Government after hearing from a series of submitters. In fact, just about every submitter who came to the Finance and Expenditure Committee—all of the large accounting firms, small accounting firms; virtually everybody—said: “This system that you’re setting up here is going to be too complex. It’s not going to work. The compliance costs are going to be such that you’ll actually shut out some people whom we might actually want to be coming here and developing properties.”

So there is a series of changes proposed by the committee around the definition of offshore person, but it seems very strange to me that we are amending legislation that we passed only months ago, and that really came to fruition in the question of the need for a bank account requirement for offshore persons. All manner of issues were raised with us in submissions about this, around the practical difficulties of this. We talked about non-resident seasonal workers. We talked about people who had already been through the anti – money-laundering processes in New Zealand and who had already done the work that was required of this. There were already exemptions available from the requirement to have a bank account for non-resident suppliers of remote services. All of these issues were actually raised when the original legislation went through, and yet here we are—we find ourselves amending that legislation only a mere matter of months later.

So on that count, I do agree with Jami-Lee Ross that the select committee did a good job—[Interruption] I know, that is the second time in my whole parliamentary career that I have done that too—that is, agree with Jami-Lee Ross. This is the second time, and it is because the Finance and Expenditure Committee did actually do a good job of identifying those issues that there were with the bank account requirements and coming up with some changes to those.

I do at this point want to pause and also endorse Jami-Lee Ross’ comment about the support we had from officials and also from the committee’s independent adviser, Therese Turner. We are incredibly well served as a Parliament by Therese’s involvement, giving us advice alongside the advice from the Inland Revenue Department, and they usually manage to come together with some good advice for us. So there are changes there, both around the bank account requirements for offshore persons and the definition of an offshore person.

But I think what this highlights is the way that the Government has gone about addressing what is a significant issue in terms of housing in New Zealand. We have heard in the House in the last couple of days the Government attempt to minimise the issue of affordability of housing in Auckland. We had Nick Smith say that housing has never been more affordable in Auckland than it is today—a statement greeted with appropriate derision by anybody who actually lives in Auckland, when you are living in a city where the house price to income ratio is now 9:1. That is out of control. We are 40,000 houses short, and the best that the Government can do is a tinkering around with this brightline test. It is pathetic, it is hopeless, it is going to bring in only about $5 million a year, and we now have yet another piece of legislation amending the amendments to try to make it make sense and make it possible for those who have to administer this to do so. We support those amendments because at least we should make the pathetic policy National has put up work, but it is only a tokenistic effort.

I want to devote the rest of the time for my speech to Part 3 of the bill, which is the amendments to provide for GST to be applied to cross-border services and intangibles supplied by offshore suppliers to New Zealand resident consumers. There is no doubt that this is a step forward. This is an issue that has been hotly debated, and I think that most members of Parliament would acknowledge that retailers—particularly main street retailers—in their communities have been calling for some fairness in the system. The people who will be happy with this today are the likes of Spark—the people who compete with Netflix and others, the providers of those intangible services, the iTunes of the world. That is good.

We are starting to provide some fairness for those suppliers—good on them—but it was not easy to listen to the submissions of people like those from Retail New Zealand, who came to the committee and said: “Why won’t you extend that same fairness to us and to our members, who are the people who actually get out there and sell that?”. How crazy is it that an e-book has now got this GST applied to it but the hard-copy book has not? It is the same thing—it is the same book—but GST is not being applied fairly.

💬 Hon David Cunliffe: Ridiculous.

How ridiculous is that? In the end, it is because the Government just could not get the hard work done. It shies away from the hard work in the taxation area when, actually, it should be getting in there alongside New Zealand businesses, the small to medium sized enterprises that keep New Zealand going, and giving them a fair go. I applaud Retail New Zealand and the other submitters who came to us with good quality submissions.

When we get to the Committee of the whole House stage, I will also draw attention to a couple of other submissions in this area that offered practical ways of making this happen for all forms of trading, both in terms of intangibles and tangibles. We had a previous speaker, Jami-Lee Ross, say it was too difficult. It is not. We had submitters come to us to tell us exactly how it could be done and done efficiently, and we will raise those issues in the Committee of the whole House.

So we will support this bill. It is, once again, a series of timid steps by the National Government members when they could actually be coming to the House with legislation that does create a fair and simple tax system where everybody pays their fair share. That should be the goal of the House, and I hope we will see tax bills that do that in the future.

It is a pleasure to be talking on the second reading of the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. It is very nice that the previous speaker, Grant Robertson, agrees with much of what we are trying to achieve here, and I thank him for that contribution. Of course, as we have all heard, this is an omnibus bill and covers three key aspects: resident withholding tax, GST aspects, and student loans.

I want to focus a little bit on the GST, but it is worthwhile just going back with regard to the resident withholding tax element of this bill. I think it is just worthwhile reminding people that this is actually the third leg of our treble. We have already brought into play the brightline test, we have brought in the requirement to get an IRD number and a bank account number, and, of course, this is the third bit, which is around resident withholding tax, to make sure that New Zealand is actually able to capture the tax that is due to the Inland Revenue Department. It is a prudent measure in terms of putting in place a mechanism that collects the money at the time of sale. The conveyancer does that on behalf of the Government and does it in a way that means that sufficient money is kept in New Zealand when there is a foreign buyer involved in selling residential land. I think it is a very pragmatic step.

A lot of people said: “Well, it doesn’t raise any money.” That is not the intent of this part of the treble. It is about putting in place a package that means that for foreign owners buying residential land there is now a good cascade of legislation to make sure that those transactions are handled in an appropriate way. If they are selling residential property within 2 years, they do have to pay tax, and we have got a record of who is buying and selling.

In terms of the GST element I think this is a very good piece of work, particularly with the help from officials. We are obviously trying to even up the playing field for the retail sector in New Zealand—an important part of our economy and business. Of course, what we are trying to do here is deal in a pragmatic way with how goods or services are provided by offshore entities to New Zealand businesses. I think it is important to note that this is focused on “B to B”—business to business—to make sure that those foreign firms, if they are selling their services or goods in New Zealand, include in that purchase price the GST.

That should be payable to New Zealand, and, of course, what we have put in place is a minimum threshold that means that if a foreign business is selling more than $60,000 a year, then it will have to register. Of course, that means that there is an account of that. And for those types of services loosely described as remote services, I think it is worthwhile to talk about what we mean. Remote services include digital—and the previous speaker, Grant Robertson, spoke about this; video, music, software—and more traditional services including legal and accounting or advisory skills. It is really important that we put in place these measures, and it is all part of that move towards making sure that New Zealand businesses and retailers can compete. So I think it is a very good omnibus bill and I thoroughly commend it. Thank you very much.

Tēnā koe, Mr Assistant Speaker. Tēnā koutou e Te Whare. The Green Party is supporting this tax bill. It is largely uncontroversial. It does fall well short of the changes that would be needed to have a fairer, simpler tax system that creates a smarter, greener New Zealand where everyone has the same opportunities, which is what the Green Party would like to see. But nobody would have expected that from the National Government, I think—any substantial changes that would actually create a fairer, greener New Zealand. Unfortunately, the last 7½ years have shown that all it is really interested in doing is tinkering around the edges and protecting the status quo.

But this bill—and a lot of credit has to be given to the officials and the well-informed submissions we received at the Finance and Expenditure Committee—does make some completely reasonable changes, although they are small. The three main changes in this bill, which have been mentioned by other members here today, include, of course, the residential land withholding tax, which is bringing in line the rest of the tax system with the new changes from the Government’s brightline test bills, which were a package of bills, the goal of which was to reduce property speculation. Unfortunately, that package of bills is woefully inadequate to actually create a fairer tax system and reduce the harmful tax loopholes that currently exist, which incentivise over-investment in property rather than in the productive sectors of the economy, and which have led, in part, to the rapid increase in house prices in Auckland, which is now spilling out into other parts of the country. So this part of the bill is simply enacting the residential land withholding tax so that offshore buyers, at the point of sale of the house, have a certain amount withheld to ensure that they do meet their tax liabilities here in New Zealand.

The problem with this and the rest of the package is that the brightline test applies only to residential land, which I think is going to be a very difficult test to apply in practice because any land in New Zealand, really, could be used for residential purposes if people go through the right resource consent applications to get consent to do so. It does not make sense that you would gather tax only on residential land when there are capital gains that are realised on other types of land. So it is a really bizarre distinction that the Government has introduced in its brightline test.

The other really obvious problem with the brightline test package is that it applies only to properties that are bought and sold within 2 years. Of course, the vast majority of OECD countries have a comprehensive capital gains tax that usually excludes the family home, which is the Green Party’s policy for New Zealand. For those that have holding periods, the average holding period is 5 years. Many countries have longer holding periods, and that is how you can effectively reduce this perverse incentive to invest in property, where, ultimately, it is usually windfall gains that people are receiving. There is no reason why the income they receive from that windfall of having bought a property and sold it at the right time, during a property boom, should not be taxed just like any other income.

At the select committee, we heard a lot of submissions on this. I think it is quite tricky to apply the residential land withholding tax. There is a certain amount of bureaucracy that is created by it, and that is why it is unfortunate that the rest of the package of the brightline test does not apply to more properties. I think it would make it much simpler and easier, and it would make more sense, to have the residential land withholding tax apply to all property sales because, obviously, if overseas buyers are investing in property in New Zealand and making money off that, it makes sense that they should have to pay tax on the income that they receive from that windfall. That is part of how we have a fairer, simpler tax system that gives opportunities to everyone and creates a thriving economy.

In respect of the capital gains tax, I cannot overemphasise the importance of taxing capital for achieving a whole range of good outcomes for New Zealand, one of which is more innovation and investment in the productive sectors of the economy, research and development, etc., rather than just throwing all of our money into property, and also, from a fairness point of view, ensuring that housing is available to all New Zealands and that it is affordable for all New Zealanders. It is actually really seriously exacerbating inequality to not have something like a capital gains tax, or even an annual capital tax.

The second change that this bill makes is providing for GST to be levied on online services. A number of members in the House have talked about that today. The Green Party can support this in principle because it does make sense to ensure that all goods and services have GST applied to them. In our changing, more globalised economy, people are able to purchase more goods and services from overseas using the internet, and it makes sense that GST should apply to those so that we are not disadvantaging New Zealand businesses that are selling goods and services here in New Zealand. They have to pay GST. It makes sense that online international purchases should also have GST applied to them. But, unfortunately, this applies to only about half of the problem. Actually, it might be significantly less than half the problem because it is only online services and not goods, and in particular low-value goods, that are purchased from overseas. So that is something that the Government still has to deal with. We heard from Retail New Zealand and other submitters that there was this shortcoming in the bill.

I will raise one other issue, which, unfortunately, we did not hear about in the select committee, but my colleague Mojo Mathers has raised it with me. I am interested in seeing whether there are other ways the Government could be resolving this issue, and that is that for the many, many New Zealanders who have hearing impairments or who are deaf, like my colleague Mojo Mathers, Netflix is actually pretty much the only service that is fully captioned because the Government is not requiring captioning of television programmes here in New Zealand or adequately funding it. Many deaf or hearing-impaired people are limited to using services like Netflix, so of course this is going to make it more expensive for them to access those services. There is also the problem of Netflix and similar companies that provide these services cracking down on access to content. We have access to less content here in New Zealand than many other countries have. People like to use a virtual private network to access Netflix in the United States because there is a wider variety of content.

This is an issue that I think the Government really needs to be engaging with because New Zealanders are missing out here, and, particularly, hearing-impaired New Zealanders are going to have to be paying more to watch content that is captioned because the New Zealand Government is failing to deal with the captioning issue here in New Zealand. Obviously, I do not think that it makes sense to exclude Netflix from having to pay GST simply because of this problem, but we should be trying to address the problem with content and captioning here in New Zealand. National really is not taking any steps in that direction that I can see.

Finally, there is the student loan information. This was tricky for the Green Party because, to be quite frank, we do not agree with the policy of loading up students with debt in order for them to have an education. We do not think that is how you build a smart, green economy—forcing students to take out large amounts of debt, which they then have hanging over them for many years after they finish their degrees. We think that we should be providing students with opportunities to get an education. If you do not have that debt hanging over you after finishing your studies, then there is the possibility for you to take risks, to be entrepreneurial and to use the information and skills acquired during your studies to do things that are going to make New Zealand and the world a better and more exciting place. That is good for our economy. So it does not make sense to crack down on students, but that is not the subject of this bill. This bill is tightening up some aspects of it. It is allowing information sharing between Australia, the Inland Revenue Department, and the Australian taxation office.

I would have to ask this question, particularly because only last week the Government admitted it has no idea of the amount of tax that it is missing out on from multinational companies that are avoiding paying tax: why are we putting so much effort into chasing down students who owe money simply because they got an education here, rather than pursuing the estimated half a billion to a billion dollars a year we are missing out on because multinational corporations that are operating in this country are avoiding paying tax? I would like to see more information sharing and work through the OECD to solve the problem of tax avoidance and tax evasion, rather than have us crack down on students. But there is one good provision in the bill, which includes streamlining the rules applying to borrowers who work overseas but are entitled to interest-free student loans because they work for approved charities. I think that is a good thing. So, ultimately, the Green Party supports the bill.

With regard to GST on online services, we in New Zealand First say that the Government has taken far too long to rectify a situation in which overseas firms have a clear advantage over New Zealand retailers. New Zealand firms have been lumped with GST while overseas firms have not. Government complacency has caused the strangulation of New Zealand small to medium sized businesses, threatening their very viability. Actually, Retail New Zealand had to point out to the Government that small businesses are increasingly under pressure, especially in heartland New Zealand, from a GST regime that needs urgent attention. New Zealand First could not agree more with that, and, as a result, this Government’s legacy to small business is actually just one of neglect. While New Zealand firms are ignored in that way, multinational companies are still getting away with billions of dollars’ worth of business that could be going to New Zealand small to medium sized businesses.

We know, from consultation with New Zealand business people, the frustration that they feel, and that has been caused by this tax in relation to the exemption for intangible goods. We do not understand why for so long we have had tax on DVD downloads but not on actual, physical, hard-copy DVDs, for example. Amazon, which, as most know, is the largest source of online purchases overseas from New Zealand, must comply with this type of tax requirement all over the world, but not in New Zealand, and yet it is already set up to comply with these sorts of requirements; it is just waiting to be told to do so here in New Zealand. It is prepared to pay its tax, and not only on e-books but also on hard-copy equivalents. There is no good reason why the Government in New Zealand should force New Zealand firms to have to meet their obligations while firms based overseas selling exactly the same goods should not have to do so. Overseas companies are, therefore, getting a huge competitive advantage over New Zealand companies, and we say that must stop.

We also know that there is an argument that the Customs Service is not adequately resourced and set up to ensure full compliance for those intangible goods, but that is actually a lame excuse for doing nothing about a serious problem affecting New Zealand businesses. It ignores the reality that two-thirds of our online purchases are from 20 big online retailers and all of them are ready to comply, putting the tax on at the point of sale. The Customs Service would actually only have to do mandatory sampling for compliance, and it would not have to open each and every parcel at the border, which some seem to be suggesting. So we do not see that compliance would really be any problem at all.

Turning to the residential land withholding tax part of this bill, we say that this is at best naive and, really, is just a piece of puffery so that the Prime Minister can say “We are doing something to address this problem.” but, in fact, nothing really is being done. This bill and the other brightline test pieces of legislation achieve nothing more, really, than just window dressing. Government estimates of tax to be collected were as high as $17 million, but other numbers provided to the Finance and Expenditure Committee suggested that it could actually be as low as $1 million. So it is not really a very big deal. But the legislation will, in fact, be incredibly expensive to impose on the business community. The Inland Revenue Department thinks that there might even be a negative return given the costs in resources that would be required. If you couple that with the fact that the cost of conveyancing for ordinary Kiwis buying and selling houses would almost certainly go up because of the additional costs imposed on conveyancers and lawyers, you can see where all this is leading—not to a very good place. Some people have actually suggested that those costs could go up by as much as $200 per transaction. When you are imposing more costs for little or no benefit, we say that is actually lunacy.

There has been a lot of discussion about trying to define just what an offshore person might be, too. We have found that it is a lot harder than anyone might think, and it is another reason that makes nonsense of this bill. Even if this residential land withholding tax might possibly change some overseas buyers’ behaviour—although we have already seen evidence that it has not and is unlikely ever to do so—the reality is that this bill does nothing to close the loopholes. Techniques such as option fees will invariably be used to disguise the purchase price and therefore reduce the residential land withholding tax. A separate chattels agreement that uses an inflated value to consequently deflate the property value could be used, again lowering the residential land withholding tax commitments.

There also remains the serious debate on who collects the moneys from the sale of a property first, which is an important matter. Does the real estate agent get the money first, or does the lawyer or conveyancer get the money first? Does a council recovering unpaid rates and selling a property collect what is owing to it first? We think that whole area is a minefield that the bill does not adequately address, especially if the overseas investor has a portfolio of properties in New Zealand. I would like to give an example. If you imagine five or six properties and for some unknown reason the owner has to sell one within the 2-year time period, the withholding tax is calculated on the profits of the sale. So what if this property is managed so that the mortgage on the property is restructured so that it is actually 100 percent of the value the property is being sold at? It is easily enough done. That means the property has gone up in value since it was purchased—almost certainly—but because the vendor has a mortgage on the value that it is being sold for, they are making no profit from the sale of the property for tax purposes. It gives you an idea of just some of the things that can happen that this bill simply does not address.

For all of those reasons New Zealand First cannot support this bill, because we say that it would simply achieve little or nothing and it would just be another factor increasing costs for people dealing with property, with no gain. So we will be voting against it.

I rise to take a short call in support of this bill. I would like to just address a couple of points. The first point is the tax rate that applies to the income that is derived from the churning of houses across the country. The tax rate is the lower of either 28 percent, if you are a company, and 33 percent, if you are an individual, or 10 percent of the sale price. I wonder what that tax rate would be if the Labour Opposition’s universal benefit idea was introduced, where $11,000 is given to every person in New Zealand, naming everyone as a beneficiary. I would be interested to hear from the Opposition what the tax rate would be in this piece of legislation if its universal, bad idea was introduced.

The second point I would like to address is the point made by Stuart Nash. He asked for some sort of leniency for those students who are owed money to the Government, simply because they live in Australia. It was also picked up by the Green speaker Julie Anne Genter, who asked why we are chasing these students. Well, it is pretty straightforward: it is because they owe the money. They owe the money to the taxpayer, and why would they not, and why should they not, repay the money that is owed to the taxpayer? After all, the contract was signed by the student, and just because they live in Australia it does not mean they do not understand their obligations as a student.

I will leave it at that. I have addressed a couple of points raised by the Opposition, and I commend this bill to the House.

Kia ora. Ngā mihi nui ki a koutou, kia ora. I rise on behalf of the Green Party to support this bill, the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. My colleague Julie Anne Genter spoke expertly on two of the big parts of the bill, which are the Netflix tax, if you want to call it that—GST on online services—and the brightline, not-a-capital-gains-tax, kind of capital-gains-tax tax.

What I want to touch on in my short contribution is the student loan changes. There is one that is pretty uncontroversial—I think everyone in this House could agree with it, even the New Zealand First Party—which is the technical clause to make it easier and quicker for the Inland Revenue Department to recognise overseas charities. But the part that I have a serious problem with, and I think most New Zealanders would, is the student loan information-sharing changes with Australia. Sure it sounds good—sharing information with Australia. But why is the Government trying to share information with Australia, and what is the purpose and the rationale behind it? It is simply to crack down, to scare New Zealanders with student loans who are coming back to New Zealand.

What we know about this Government is that it is prepared to arrest New Zealanders with student loans at the border to try to crack down on them. This is a Government that this week, we heard in this House, does not have a clue, is doing hardly anything about it, and has not acted since 2012, I believe, for the $500 million to almost $1 billion in corporate tax not being paid, but, gee, if you do not start paying back your student loan straight away, you might get arrested at the border. This legislation is all about trying to facilitate information so that the Government can track down people with student loans living in Australia. I think this is the wrong way to go about it, because what we also know is that this was intended as a scare tactic to arrest New Zealand graduates with student loans at the border—a scare tactic. We know there are 130,000 New Zealand student loan borrowers overseas—130,000—and 70 percent of them, according to some estimates, are behind in their payments, but this Government in 3 or 4 years has arrested a single person. It is a scare tactic.

The risk, of course, is that it works and New Zealanders are scared of coming home. We have had the New Zealand University Students’ Association say that the Government risks having student loan refugees. What we see is brute scare tactics. If the Government was actually looking at sharing information with the Australian Government, what it should be doing, and the most effective way—unless it cares more about petty short-term politics than actually bringing back income into the New Zealand Crown from those student loan borrowers—is to ask why on earth do we not work with the Australian Government so that all those hard-working Kiwis working in Australia and paying taxes could be paying off their student loans through the Australian tax system. The Government just throws its hands up in the air and ignores it and says that it is in the too-hard basket. It would rather focus on the short-term politics of arresting New Zealanders at the border. It would rather ignore the massive elephant in the room, which is the billion dollars in tax being avoided—a billion dollars that we cannot be spending on schools and hospitals or investing in an innovative economy because the Government is more focused on scaring the hundreds of thousands of New Zealanders with student loans if they go through the border.

When it comes to the last point, which is the idea that we should be looking for more constructive and positive ways to help New Zealanders to pay back their student loans, the Green Party extends its hand to the Government. Why on earth can this Parliament not work together to find ways that do not rely on just the sticks to scare New Zealanders with student loans? Why can we not find the ways, the incentives—the carrots? The Green Party will always work with any party in this Parliament on ways that we can get constructive policy together.

We are supporting this bill because we want to see New Zealand businesses get a fair go when it comes to the tax system. We think that we need to be looking for solutions for the growth in online services. That is why we are supporting it, but we are supporting it with massive reservations because the policy intent of the student loan section is simply to continue the scare tactics, which are not real solutions when it comes to the student loan problem that this country faces.

Tēnā koe, Mr Assistant Speaker. Greetings to all members of the House. I am honoured to take a call on this second reading of the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. The bill introduces amendments to the Student Loan Scheme Act 2011, the Income Tax Act 2007, the Goods and Services Tax Act 1985, and the Tax Administration Act 1994. If there was a bill that could address those particular taxes to create a fair, innovative, futureproof piece of legislation, this was to be it. But, unfortunately, the Government has not delivered on that opportunity at all. Unfortunately, it has been dragging its feet on applying GST to products bought from overseas, and it is failing to back small and medium sized businesses in this country, and that goes beyond the reach of a lot of small businesses in achieving the Kiwi Dream.

Despite National being in Government for 7 years, the best it can come up with is a bill that clearly does not address those critical issues when it could have, at the front end of the administration, and it does not go deep enough. It does not go to help small businesses in New Zealand, which clearly deserve a better deal. Although we should not be surprised at this kind of treatment from the National Government, it has completely lost its way. For example, charging GST on remote services is only one step in the process. There are not many Kiwi companies competing with iTunes or Netflix. Consequently, as an upshot, all this starts to look like it is a tax grab by the National Government rather than an attempt, again, to create a level playing field. The Government needs to stand up for main street businesses, especially small, family-run businesses, and not just those online.

Then we come to the residential land withholding tax. Its intent is to ensure that the brightline test tax on residential property sales is paid by overseas buyers, and that is yet to be proven. It is something that is a necessary part, but again the criticism of this bill is that it does not go deep enough. We do think that it has been a bit half-baked and the opportunity to be innovative has been lost. We on this side believe that addressing the housing crisis through this particular part of the bill will probably not be met, and it is unfortunate that for many, many Kiwis around the country their dream of homeownership will again be beyond their reach. The criticism that the bill has not been well-thought-through goes to, obviously, the Minister of Finance himself admitting that he was not quite aware of the impact on that particular part of this bill.

But it is to the student loan situation that I want to turn my attention a little bit. As a mother of two teenaged boys who have started their first year at university—and I do not expect them to go overseas when they complete their studies—it prompted me to do a bit of research around the student loan situation that is currently facing this country. What I found from getting some information from the library is that there is a trend of student loans clearly going up in this country. In the year 2010-11 what it has said is the closing balance—that is, the total of what is owed at any single point—is just over $12 billion. Fast forward into 2014-15, and the closing balance was $14.8 billion.

So there is clearly huge uptake of student loans in this country, and we should be investing in our young people—we should be investing in our young people—but the point around the exchange with Australia to ensure that we are sharing information is that our young people are not just going to Australia. They are going to other parts of the world, and if we were to make this futureproof to ensure that all students who take out loans enter into a social contract with the Government to pay that money back—they are not just going to Australia; they are going to other parts of the world—it would have been an opportunity for the Government to ensure that we had exchanges with other countries where our students reside.

It is on that closing note that we support the second reading of this bill and look forward to when we get into the Committee stage so we can test some of those clauses in the bill. Kia ora tātou.

This bill is the latest piece of tax legislation aimed at making our tax system fairer and simpler. We are a party that is in favour of a broad based - low rate tax system, and we have improved fairness in our tax system over the last 5 years on a number of different fronts. Two-thirds of the value of the 2010 income tax cuts went to reducing the bottom two tax rates, helping families and households get ahead, and those earning less than $60,000 a year are generally expected to pay a proportionally lower tax rate than they would have done 5 years ago.

I just wanted to make a few remarks briefly in relation to student loans. Meka Whaitiri and I probably share something in common. Although I do not have sons who have just started university, I have just paid off my student loan. As a student who has just paid off a student loan—I am proud to say that I have done that—I think that we have got a very generous system for student loans in New Zealand, much more so than in other countries. I think that we need to be, obviously, keeping an eye on how the loan rates are increasing, but it is something to be proud of at the same time because it means more people are getting a higher education. More people are getting higher degrees, which means that more people can earn more and have better outcomes for their families.

Just finishing that short contribution, it is great that this bill is going through its second reading, and I look forward to seeing it progress further through the House.

This bill is one that contains a number of sensible enough changes and we will be supporting it in the House. It does get on with some amendments that are required to make sure that our tax law maintains its status as being broad based - low rate, and that general approach to taxation has served us well over many, many years.

Of course, on this side of the House we will see another opportunity to make the tax system fairer and more productive overall fall past because there are a lot of things that are not in this bill that could be in this bill. There could be attempts to stop the distortions we have in our economy that see people speculating in the housing market rather than investing in the productive sector. There could be a number of other measures, but I want to speak mainly—the Assistant Speaker will be pleased to hear—about what is in this bill. That includes a number of changes to the student loan area. The problem is evident. When people repay their student loans, they should feel good about that. They should not feel jealous of others who run overseas and flout the law. That does happen. I have certainly heard of instances where people have thumbed their nose at authorities and said that if you are living overseas and you can get away with it, you should be able to get away with it. Frankly, I do not think that cuts the mustard. I think that people who borrow against a scheme with a certain set of conditions should be expected to repay their loan, so I want to take perhaps a slightly more positive tone and congratulate the Government on making some small steps in that direction.

The suggestion of information sharing with the Australian tax authorities sounds sensible enough to me, and also the change where it is required now that, instead of formal notification, the Inland Revenue Department will accept notification in writing—it is logical. We have moved on from the days when you had to have a carrier pigeon or a royal herald deliver a letter, and there is a definition around “formally notifying” that makes it complex, currently, for an email to suffice as a communication. These kinds of updates are sensible; we should welcome them. They are common sense when we are now accepting that an email is a legitimate form of communication.

Other recommendations in the bill—and I was going through a number of them—are about clarification. They are ones where the bill is simply making sure that there are not either loopholes or misunderstandings, and there are a large number in the area of student loan legislation that are proposed. For anybody watching at home, the first portion of this explanatory document—

The ASSISTANT SPEAKER (Hon Trevor Mallard): Order!

—is devoted to that particular task of making sure that the law is clear for people to understand. That is a good thing and it should be affirmed.

The issue of GST is also raised in the bill, and GST on online purchases is tackled in a minor way. The Government has been tepid on this, to say the least. When I was the tax spokesperson a couple of years ago, there was a process set up to come to a view on this. It was pushed out past the election in order to avoid any controversy. The Government certainly could not be accused of leading on this issue. It could not be accused of leading on many issues, actually, except for maybe in the area of payroll debacles at the moment. Generally, it ducks for cover. It is a Government that seems to like managing decline rather than having bright new ideas. In this instance it is allowing for GST to be collected on downloads, and that is a step in the right direction. It, of course, does not address the issue that many retailers in New Zealand have that purchases—you know, if you buy a $50 pair of sneakers or a book from overseas, it does not attract GST. This does nothing to change that, so this bill does not tackle the issue that really is confronting retailers in New Zealand. I think retailers across the country will be very disappointed that after so many promises and such a long process, with soft noises from the Government, the issue has not been tackled. We will see retailers continue to struggle against offshore competitors that do not pay tax in New Zealand and do not have that additional charge required to capture that tax applied to them.

That GST issue is an issue that could and should be dealt with, and it is good to see the Government sticking a tepid toe in the water to address it. It is good to see those tidy-ups on the Student Loan Scheme Act. But, overall, as I say, the Government is dragging its feet. This GST on products issue has been around for a very long time, and it is another example, in my mind, of this Government tilting the field away from small business. Those people who risk their shirts every day, who have a second mortgage on their house to try to get a retail business off the ground, are disadvantaged by the tax law as it stands. This Government seems to have it in for small business, in my view. There have been fewer small businesses created on an annualised basis under this Government than under the previous Government. It has introduced legislation that requires employers to collect overdue child support earnings. That is a burden on a small business owner, when they know the personal details of their employees that they otherwise would not have known. The Government has introduced a lot of red tape for small business. Here we have, again, an opportunity to level the playing field that it has not taken. So small business, again, is disadvantaged against the multinationals, which will avoid paying tax on the items that small businesses must pay tax on when they sell them in New Zealand shops.

But we should not be too surprised. This measure is the best that the Government can come up with, despite being in its eighth year of Government. It is too little, too late. But, as I said, we will support it, because it is a step—albeit a small one—in the right direction. We just think that small businesses in New Zealand deserve better. They do deserve better. There are not many Kiwi companies—and I think that others have touched on this—that are competing with iTunes or Netflix. The issue that the Government is tackling is not one that is facing many New Zealand businesses right now. The issue that is facing most New Zealand businesses has not been tackled in this legislation. The family-run businesses in the main street—they are the ones that are going to continue to be disadvantaged by the un-level playing field that National maintains.

This Government does seem to have an aversion to doing the difficult things. It certainly is letting the Kiwi Dream slip. Homeownership—we now have the lowest homeownership rates in New Zealand since 1951. It does not seem willing to tackle the big issues. It seems prepared to fill up the odd gap here and there in this legislation but not to take on the really big issues of what a fairer tax system would look like overall.

What would a system look like that ensured everybody paid their fair share of tax, not just hard-working middle New Zealanders who go to work every day and those who take the risks and own a small business? The Government does not seem willing to tackle those issues that would ensure that New Zealanders had a growing prosperity, rather than—as we have seen—an almost zero increase, in real terms, in wages across the country. The only increase in our GDP in the last year, we have learnt in recent days, has been as a result of immigration. There has been no increase in terms of wages in New Zealand. That is a sad reality, and it will not change if we do not take on these bigger issues.

As I have said, we will support the bill itself. We will support the small changes that are fingers in the dyke, I guess, of the current system, because it would be worse without them, but it is hard to be inspired by the kind of legislation we are debating here, on a Thursday, which bears the title Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. It is the small stuff, and this Government seems to be focused on the small stuff. I hope that it can do better. I wish that it would lift its aspirations and look to create the Kiwi Dream, like a future Labour Government will do.

I support this bill.

Amendments recommended by the Finance and Expenditure Committee by majority agreed to.

Bill read a second time.