Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill

I move, That the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill be now read a second time. This bill proposes a number of important changes to our tax system. The centrepiece of the bill delivers on the changes announced by the Government as part of Budget 2016 and proposes a major shift in the way businesses currently pay their tax, making these processes simpler and easier. It is important to the Government that these changes are sound, workable, and deliver benefits to the New Zealand taxpayer. I am grateful to the Finance and Expenditure Committee, so ably chaired by its chair, David Bennett, for its careful consideration of all the proposals in this bill and its recommendations for improvements. The bill is in better shape as a consequence.

The key objective of this bill is to simplify taxes for business—in particular, the process for provisional tax. We are proposing to introduce a new calculation method to better match tax payments with income earning. The proposed new calculation approach, the accounting income method, takes advantage of technological advances to smooth the process. It more closely matches income earning with tax payments and reduces compliance costs for smaller businesses. Because tax will be paid as income is earned, businesses using the accounting income method will have more certainty that they are paying the right amount of tax. There is no intention to do away with the other methods for calculating provisional tax; the proposal is simply for the accounting income method to be a fourth option for calculating provisional tax.

The bill also seeks to reduce or remove the application of use-of-money interest to a large number of taxpayers. Combined, these proposals will remove some 67,000 additional taxpayers from the impacts of use-of-money interest. For those using the new accounting income method who pay the required instalments, the use-of-money interest will also not apply.

The bill also proposes flexibility for businesses that could trade their way out of debt. The bill proposes to reform late payment penalties by no longer imposing the monthly incremental penalty from new GST income tax and overpaid Working for Families credits. The provisional tax proposals are part of a much larger programme of changes aimed at modernising and simplifying tax administration in New Zealand.

Viewed as a whole, the modernisation programme will bring great benefit to New Zealand taxpayers and the economy by improving simplicity and certainty. But during the transition from the current to the new tax administration, flexibility will be required, allowing the Inland Revenue Department to quickly overcome transitional issues. For that reason a proposal was added to the bill at the select committee stage to provide the ability to use regulations to deal with urgent transitional issues. The intention is to avoid undue delays to the transitional process and to provide certainty for taxpayers. Introducing the proposal at that stage allowed the public the opportunity to make submissions on the matter and allowed the select committee to fully consider the proposal and submissions.

Submissions to the Finance and Expenditure Committee on this point were focused largely on concerns about the breadth of the regulation-making power. Not all of those concerns as outlined by media and the submitters were that rational, and certainly this type of tool has been used many, many times before by this Parliament to ensure smooth transitions. It was not the huge, “Henry VIII” provision that some had said. However, on reflection, the reading of Supplementary Order Paper 190 could have been construed as much broader than was intended, and therefore the select committee considered those concerns and accordingly has made recommendations.

The key recommendations proposed are that any regulations must be limited to issues that arise during the IT system changes, must not increase a liability, and must not undermine the relevant rights of taxpayers. In my view, incorporating these recommendations achieves the objective of allowing the Inland Revenue Department to respond to transitional issues, but by narrowing the scope of the proposal and building in further safeguards it addresses the concerns of submitters.

The second major component of this bill proposes enabling legislation requiring New Zealand financial institutions, unless exempted, to review their accounts and collect and report information to the Inland Revenue Department on accounts held, or, in certain circumstances, controlled, by non-residents. Where necessary, the Inland Revenue Department will then share that information with other tax jurisdictions in specific countries. The objective is to help eradicate tax evasion.

The legislation gives effect to New Zealand’s international commitment to implement the OECD’s common reporting standard for the automatic exchange of financial account information in tax matters. It will ensure that New Zealand remains fully compliant with international standards for transparency and tax cooperation.

The overriding principle in this proposal is the desire to bring more transparency to international tax matters. This is also true for one other item in the bill: the proposed amendment to our foreign trust disclosure rules. Although our tax settings are sound by international standards, the Government is always open to making improvements to New Zealand’s already strong tax settings if that is warranted.

💬 Dr David Clark: The Minister’s already moved on to the health portfolio. Come on, Minister—some passion.

This is not a valedictory. That is why earlier this year we committed to act on recommendations from the Shewan inquiry to ensure our disclosure rules are fit for purpose and healthy. The proposed amendments to the foreign trust disclosure rules included in this bill will strengthen and help make sure that we maintain our reputation in the context of best practice of international exchange of information.

The remaining changes in the bill are of a practical nature and ensure that the tax rules are applied consistently, that they are clear, and that they achieve their correct policy purpose.

Bringing the bill to its second reading, I again acknowledge the significant contribution made by the submitters and the committee to the clarity and the practicality of the bill. In particular, the committee spent significant time with submitters in carefully weighing the context and controls of proposals introduced by the Supplementary Order Paper, which would allow regulations to be made to facilitate the essential building blocks of the Inland Revenue Department’s business transformation. Submitters can therefore be assured that their concerns have been carefully listened to during open consultation, and the bill reflects the considered view of the committee that the proposals are sound. I commend this bill to the House.

Grant—the question is that the motion be agreed to.

I was waiting for that, Mr Assistant Speaker. Labour is supporting this legislation but with some significant reservations, which I will come to shortly. As with many taxation bills that come before this House, there is an element of tidying up, making the incredibly arcane and intricate measures of the Income Tax Act and the Tax Administration Act a little more usable for those who have to work with them. Elements of the bill do useful things towards that, particularly around the simplification of tax for business.

I want to thank and credit the National Government with picking up Labour’s excellent flexible tax for business policy, which we announced earlier in the year, after seeing the wisdom of that great piece of work put together by Clayton Cosgrove and Jacinda Ardern at the time—an excellent piece of work. I am pleased to see the Government members—it took them a little while—come on board with that tax simplification process, and also the implementation of the automatic exchange of financial information. Again, these are issues that New Zealand has been involved in discussing at the OECD finding their way into New Zealand law, which is entirely appropriate.

On those elements of the legislation, Labour is happy to support what has come in front of the House. The area that I want to devote most of my speech to, though, is the final element that the Minister of Revenue mentioned, and that is that this is the piece of legislation that implements the new disclosure requirements for foreign trusts. Indeed, as the commentary to the bill says, this is as recommended by the Government Inquiry into Foreign Trusts Disclosure Rules, otherwise known as the Shewan report—John Shewan having undertaken that for the Government.

It is worth taking a step back, because this is actually one of the most grubby parts of the former Prime Minister’s time in office, and one that does not reflect well upon him or, indeed, upon the Government. If we rewind the clock to August 2013, the hard-working officials in the Inland Revenue Department (IRD) were telling the Government that it was time to tighten up New Zealand’s foreign trust disclosure regime. They were concerned about the impact on New Zealand’s reputation, the fact that there was a mismatch between what New Zealand did with its lax rules around foreign trusts and what was happening in the rest of the world—that we were becoming a safe harbour for money that people wanted to hide, not, as we were told occasionally during the select committee, for the money of the many people being persecuted around the world. For sure, there may be one or two of those people who look to shift their money to a jurisdiction like New Zealand, but by far and away those who are misusing our foreign trust regime, who are taking New Zealand’s good and hard-earned reputation and trashing it, were the target of the rules that John Shewan suggested and the target of the IRD in 2013.

The Government rejected that approach, but by the end of 2013 it was on the IRD’s work programme to tighten up foreign trust rules, and that set alarm bells ringing in the foreign trust industry. As we now famously know, the Prime Minister’s then lawyer and close confidante, Ken Whitney, got on the phone, or actually approached the Prime Minister and spoke to him. The Prime Minister said: “Don’t worry about it. Talk to Todd McClay. Nothing will happen here.” And do you know what happened? The IRD backed off. Based on the inside lobbying of the Prime Minister’s lawyer on behalf of the foreign trust industry, 3 years have been wasted not tightening up our laws—3 years of opening up a loophole for people who wanted to hide money in New Zealand.

It was a disgraceful response initially from the Government, and it was only the arrival of the Panama Papers that meant that the Government was forced to act. And even then the Prime Minister’s first reaction was to defend the foreign trust industry, not to support or enhance New Zealand’s reputation, and not to tighten the rules to make sure that New Zealand taxpayers who do the right thing can have confidence in their system. No, the Prime Minister’s first response was to defend his old mates. Then, when the pressure went on, he said “Right, we’ve got to do something.”, and so John Shewan was appointed to do the inquiry.

Mr Shewan did a very good report. In that report there were a number of recommendations that have been taken up in this bill and they include much clearer disclosure requirements. We need to know who the trustees are, who the beneficiaries of the trust are, where they live, and what their tax status is. All of that information will now be provided to the IRD, as it always should have been and as Opposition parties have been proposing for some time.

But, critically, this legislation misses out two things from John Shewan’s report. The one I want to focus on now is the fact that he proposed an immediate implementation of phase 2 of the anti - money-laundering rules. These are the rules that would bring real estate agents and lawyers and accountants into the same regime that banks and insurance advisers, and even casinos, currently have to obey, which would bring us just up to the standard of the rest of the world. “This was meant to be done immediately.”, John Shewan said. “We need to safeguard our reputation. We need to tighten the rules.” The Government has not put that in this legislation, and it is a deep weakness of this legislation, because we know it is through the real estate agents, the lawyers, and the accountants that most of that money-laundering activity is taking place.

I saw Suzanne Snively from Transparency International on TV just this week say that anyone involved in the real estate industry in Auckland knows that money-laundering is taking place through that industry. The Government knows that, and it is dragging its feet—it is dragging its feet.

We had Amy Adams tell us that the Government would get this in—it would get legislation into Parliament this year. There is 1 day to go; it is not happening. There will be no legislation this year, which Amy Adams promised. John Key said in May that the Government would be accelerating implementation of the anti - money-laundering thing, and, no, he just applied the brakes. What we know is that Amy Adams was doing her job. She was taking papers to the Cabinet committees, saying: “We need to get this done.” And it was John Key and Steven Joyce who sat at that Cabinet committee and said: “You know what? The heat’s gone off the Panama Papers. We don’t really need to get into this now.” Steven Joyce was no doubt worried about the donors to the National Party whom he might be offending if he actually did the right thing here, so the work was not done. So we stand here today with a piece of legislation that is missing its crucial element.

If we were really serious in this House about cracking down on the misuse of trusts, about making sure that New Zealanders can have confidence in their own tax system, and about making sure that our hard-earned reputation in the world as a fair place where the transparent and accountable tax system is upheld, then this bill would have the extension of those anti - money-laundering rules. But it does not because the Government is still more interested in looking after its mates than it is in looking after New Zealand’s reputation.

Just this week—just this week—we learnt that Jose Mourinho, the manager of the Manchester United football team, stands accused—

💬 David Bennett: Oh, don’t swear. Don’t swear in this House.

I knew this would upset David Bennett. Nothing would upset David Bennett more than his beloved Manchester United getting dragged into this. Well, Mr Bennett, there is nothing to be proud of here. This is a man who stands accused of hiding his money in a trust in New Zealand. Headlines around the world again—“New Zealand is the place to hide your money”.

It is time for this Government to do the right thing—to get these rules in place. We have had discussion documents, endlessly, and now another one is being released to delay this one more time. It is my strong prediction that if we are even lucky enough in this House to see a bill come forward from the Government, there is no hope that it will be passed before the 2017 election. That is another broken promise from the Government.

There are things in this bill that are useful and important for our taxation system, but there is a blot on this Government and on New Zealand for the fact that we have been a destination for dirty money—for people who want to hide what they are doing in the world. The Government had the chance in this bill to do the right thing and bring into force these rules, and it has completely failed.

I want to thank the Greens and New Zealand First for joining in the minority view that stands in this piece of legislation. In that report we call on the Government and say to it, do the right thing. Implement the anti - money-laundering rules so that New Zealanders can once again have confidence in their taxation system.

The Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill does cover the issues that that last speaker, Grant Robertson, has discussed around foreign trust disclosure rules—

💬 Andrew Bayly: Comprehensively.

—and does it comprehensively, as my colleague says there, as well. It follows the report from the independent tax expert John Shewan. I note that the previous speaker said that he agreed with that report, and yet he expects more to be in this legislation than that report required.

The report and its recommendations are the basis of what has been used in this legislation. It deals with the improvements to the registration and disclosure of information, anti - money-laundering rules, and increased information-sharing between Government agencies. So it covers off those issues around foreign trusts that were actually the subject of that public conjecture and also of the John Shewan report. There are a number of changes that are required under that report, and they are formally in the bill. Members will be able to discuss them as they please.

Another big part of the bill is the Business Transformation programme, which the Inland Revenue Department is going through, so there are measures in the bill to support and enable deployment of stage one of that programme, which is essential to update the technology and the ability for the Inland Revenue Department to have the computerised system it needs for the modern world.

Another big part of the bill is the provisional tax regime, the accounting income method (AIM), which basically changes the provisional tax regime. It gives a pay-as-you-go option for small businesses and a way for them to pay tax as they earn income. That was proposed in the Budget of 2016. This accounting income method will make it easier for small businesses to pay their tax payments on an ongoing basis throughout the year.

Other parts of the bill include the implementing of the G20-OECD Standard for Automatic Exchange of Financial Account Information in Tax Matters. That is in line with international requirements and is an important part of this bill as well. There are other measures in the bill around the use-of-money interest that also assist in the process of simplifying the tax payment for business.

So this is a good bill that helps small businesses. It makes it easier for them to pay their tax. It brings in new initiatives like the AIM method, which enables them to pay that provisional tax in a timely way. It also covers off the requirements of the Shewan report that deal with foreign trusts. This is an important bill that strengthens our tax system even further. Thank you.

This is a bill that is a mixed bag. We will be supporting it on this side of the House. It is important. My colleague Grant Robertson has said it, and I will say it in my own words: it is important that we update the tax legislation from time to time—indeed, regularly—so that loopholes are removed, so that it is refined, and so that we collect the taxation that we need in order to fund schools, hospitals, and roads. At the most basic, that is what we are doing with all tax bills that have in their title “and Remedial Matters”, and this is one of them. Most of them have that in their title. It is about making sure that the system is robust and that we continue with a broad-based system of collecting tax, which ensures New Zealanders pay their fair share but also that no one particular group carries an unfair burden of taxation.

That leads me into where I do want to be critical of this bill, because what it does do is it begins to address the issue of New Zealand’s status as a tax haven but does not go all the way. That means it is still more permissive of people who wish to take advantage of lax rules around the world and wish to evade and avoid paying their fair share of taxation around the world. That is something that we on this side of the House simply cannot support as a basic proposition. The Government really is out of touch if it thinks that New Zealanders are not concerned about this—if it thinks that New Zealanders are not concerned about our reputation here and abroad—and the Panama Papers are the tip of the iceberg.

I have to say that Mr Key’s comments at the time of the Panama Papers are something that we should all be concerned about. His immediate response was a concern about the $24 million of ticket clipping that the industry might lose on the way through, rather than about the integrity of the New Zealand tax system and our international reputation. That was his first thought. That was in his first interview on the matter after the Panama Papers broke. That was his concern.

The simplification processes in the bill for small business tax are something that we, of course, heartily support. They are overdue. The Labour Party put forward a proposal that we should simplify business tax and enable businesses to pay as they go, to set their own rate, and this proposal gets most of the way there—most of the way there. It is a little tepid, and I suspect that is in part because of the limitations of the Business Transformation package that has been put in place.

We have known since, I think, about 1993 that the IRD has relied on a tax collection system that is now well past its use-by date. That was years and years and years before Facebook was even a twinkle in the Facebook founder’s eye and long before, of course, many other social media we deal with today.

💬 Chris Bishop: You were going to ban Facebook. You remember that?

This tax system that we work on has been here for a very long time and does indeed need to be updated. The member is quite wrong. He is on the wrong track. It is not unusual for that member to be on the wrong track. He is trying to get a few words in. He is hoping for a promotion in the Cabinet reshuffle. He has got his hand up over there. “Notice me. I want to jump the queue over a few of my mates. I’ll join the forum,” he goes. “I’ll see what I can get out of this in terms of raising my profile.” There is the member opposite. He is always one who is keen to get into the debate, to put his hand up and try to get some advantage over some of his colleagues.

Coming back to the matter in the bill, we support the measures that are being taken to introduce a more simple tax system for businesses. There is no doubt that this is long overdue. The technology is there. It has been done overseas. It was done in the UK a long time ago. It is not something that New Zealand is unique in having—a system of collecting taxes from businesses. It makes sense to do it, and I can only say that it should have happened sooner.

The Labour Party had, of course, the proposal out, and I suspect, as I say, that the National Government has been dragging its feet. John Key said a few years ago that the tax system should not be held back because of outdated technology and that it would be worrying if it was. Well, of course, that is what we are seeing here—the slow and tepid process in that regard.

But to come back to the Panama Papers and the recommendations that came out of the Shewan report that have been incorporated into the bill, we see the anti - money-laundering changes that have not been put in the bill. Some of the proposals out of the Shewan report have been adopted; some have not. The one that my colleague Grant Robertson touched upon is the requirement to have phase two anti - money-laundering law changes implemented immediately. These have not been picked up by the Government.

I think this is of great concern. An ex-McKinsey chief economist estimated in 2012, I think it was, that there was $21 trillion in secret trusts around the world. The industry that clips the ticket on the way through is earning but a pittance of that and is surviving at the expense of everybody else. It is doing business and it is harming New Zealand’s reputation at the expense of everyone paying their fair share and having the kind of infrastructure that would mean that we would not have a failing health system in New Zealand—$1.7 billion has been stripped out by the current Government over the last 6 years in not keeping up with health inflation and demographic changes. We know our health system is struggling. We know that New Zealanders are waiting a long time for operations. We know our school system is struggling, as parents are being asked to give more and more in donations and kids are going to school without their shoes on. That is not adequate.

In this bill is the opportunity to address those secret trusts, and we have seen here that the Government is not willing to go the whole hog. It has stepped back. It has stepped back and said: “No. Real estate agents, you’re exempt—real estate agents, you’re exempt. Lawyers, you’re exempt. We will not bring you into this anti - money-laundering regime at this stage.” So if foreign investors wish to put money into housing in Auckland through real estate—and we know that is happening—they will get away with it under the current regime. They are quite likely to get away with it, and that is incredibly harmful to New Zealand’s reputation, but it is also harmful to New Zealanders.

We know we have some of the most unaffordable housing in the world in New Zealand, and that means that New Zealanders are missing out. But that Government is not interested in everyday New Zealanders and in making sure that everyone has what is needed to provide opportunity for their kids. It has lost touch. It is arrogant. It thinks that now all it has to appeal to are those wealthy tax-dodgers, and that is a great shame.

So although we are going someway here in this legislation to correcting some aspects, we know that there are still some gaping holes in it. We will support the legislation to make the changes that are in there, but, by gum, if it were us writing the legislation, we would be going the whole hog. We would not be leaving these gaping holes, which Mr Bishop will get up in a minute and defend. We would not be leaving those gaping holes in the legislation. We would go the whole hog. We would make sure that New Zealand’s reputation was defended and that we would have a robust tax system.

I have not yet touched upon the fact that in our minority view from the committee, we suggested that greater transparency needed to be brought into the foreign trust regime and that a public register should be put in place. This was a minority view supported by the Labour Party, by the Green Party, and by New Zealand First. The Opposition parties could see the need for a public register.

Obviously, there would be exemptions, I am sure. If there was a feeling that people in vulnerable countries were using the regime for good reason, then that would be the sensible thing to do. But in normal circumstances, the information about who benefits from trusts, how they are run, who stands to benefit, and so on should be publicly available. There is really no good reason why it should not be, or why the tax laws that we have, and those of other countries, should not be upheld.

It is in New Zealand’s interests to have a transparent regime that is robust and that builds faith in the tax system and in Government. Instead, what we have got is more secrecy than we need. We are allowing that situation to continue, where money-laundering can happen through real estate agents and lawyers. It is indefensible that we are not making those changes.

I look forward very much to hearing Chris Bishop defend—and this is a challenge. I challenge Chris Bishop to defend those real estate agents and lawyers not being brought into the anti - money-laundering regime. Why on earth should they not be held accountable in the same way as casinos, for goodness’ sake? Why should real estate agents and lawyers be able to bring money into this country that is not transparently dealt with in the tax regime, when even casinos are required to do that? That is the question that I am looking forward to hearing an answer on from Mr Bishop. When there is $21 trillion hidden around the world by the ultra-wealthy, why should those people still be protected?

I quite like, Mr Clark, the member who just resumed his seat, because generally he is a sensible and pragmatic contributor to the Finance and Expenditure Committee—well chaired by my colleague David Bennett. But every now and then Mr Clark does let his mouth get away on him a bit. With Mr Clark—and this has become a bit of a calling card, I guess you could say, for Mr Clark in the Parliament—he lets his mouth get away on him a bit and sensible comments are mixed with a lot of rhetoric and a lot of kind of very political comments, and that was very much indicative of that speech. There was lots of talk about wealthy tax-dodgers and casinos and the National Government caring only for the rich and the property speculators and filthy lawyers, and things like that.

The reality is, actually, nothing could be further from the truth. This is a sensible bill. It implements, as other speakers in this Parliament have said so far, the recommendations from the Shewan inquiry, but, more importantly than that, it actually makes a series of changes around making the taxpaying process simpler for businesses, and that is something that I know has gone down extremely well with small businesses around the country—our very important small to medium sized enterprise (SME) sector. I know it has gone very well with the SME sector in the Hutt Valley. I know that Alastair Scott was saying to me earlier today that it has gone down very well in his very large electorate of the Wairarapa. In the Hunua electorate—

💬 Andrew Bayly: Very important—very important.

—Andrew Bayly is saying to me it is very important, and I completely agree with him.

It will do a series of things. It is tied into the Business Transformation programme. It will, for example, introduce another option for calculating provisional tax—the accounting income method—to allow people to pay provisional tax as they earn their income. That sounds like a small thing, but actually will make a huge difference to the thousands of SMEs out there.

I heard an attempt by Grant Robertson—I was sitting in my office and I heard his speech—to claim that we had stolen the Labour Party’s tax policy. Well, the National Government is not in the business of stealing anyone’s policies, let alone stealing the Labour Party’s policy. So I find that remark from Mr Robertson quite laughable. The reality is this is a very good bill, and I commend it to the House. [Interruption]

Order! Well, if the member is sitting down, it probably does not matter, but I do want to remind my colleagues that the Assistant Speaker, of course, has read his party’s policy. The question is that the motion be agreed—James Shaw.

I beg your pardon, Mr Assistant Speaker. I was anticipating that Mr Bishop would actually continue. It was a riveting speech.

The Green Party is continuing to support this bill, the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill, through the House—through to the next stages. I just want to say that I think there are a few times in Opposition when you can campaign on something for years and years and years, you think that all that campaigning is falling on deaf ears, and then suddenly it all happens. There are two considerable wins for us—things that we have been campaigning on since 2011, actually—in this bill that I just want to draw attention to. One is, as referenced by Mr Bishop, the tax simplification for small to medium sized enterprises. I am not going to suggest that anybody has stolen the policy that we ran on first in the year 2011, but it is clearly one of those emergent good ideas that a number of parties across the House came to over the course of a few years and that has finally made its way into legislation.

As a former small-business person myself, I think the idea of a pay-as-you-go system is, frankly, one of those things that is going to make life a whole lot easier for small businesses in New Zealand. I am really looking forward to seeing this in action, because, of all the things that you run up against as a small business, how to handle the cash flow implications of the existing system is an absolute pain in the neck. It is a huge barrier to business. Most business people just want to get on with doing their work. They do not want to have to be handling that cash flow management system, and so the pay-as-you-go option I think is a significant breakthrough. As someone who stood on a campaign platform in 2011 and then again in 2014 on that, I am really delighted to see this move closer into law.

In relation to that part of the bill, one of the submissions did point out that there may be an incentive in relation to changes around the fringe benefit tax on motor vehicles that may produce unintended consequences for sole traders—that is, you may see a great deal of investment in very valuable motor vehicles by sole traders in order to take advantage of that particular tax break in terms of larger and more recent models. I think that is something that is a concern and that we need to monitor. I notice that that submission comment has not made it through to any changes in the legislation, so that is something we want to keep an eye on as it takes effect over the course of the next 12 to 24 months.

The second significant win—this is really the main part of the bill, and other speakers, of course, have talked about this tonight—is in relation to the part of the bill that is around disclosure of foreign trusts and how we manage that. Again, I just want to say that for the Green Party this is a very significant part of the bill.

As early as 2012 my former colleague and predecessor Dr Russel Norman had been campaigning strongly on the need to improve the disclosure regime around foreign trusts in New Zealand. He was concerned then about the potential for damage to New Zealand’s international reputation and the idea that New Zealand may be being exploited as, in effect, a tax haven as a result of our weak disclosure rules. That was, of course, confirmed by the Inland Revenue Department, which had approached the Government on a number of occasions in 2012 to try to get the Government to pay attention to this and was rebuffed. The department, of course, had another go in 2013 and again in 2014. On each occasion, the Government essentially was not really interested in doing anything about that.

I really want to give a shout-out to the media on this because—the fact is that the Green Party had been raising this issue in Parliament, had been asking questions in the House, and so on. We had been working on this. But it was not really until the media and some great investigative journalism actually managed to blow this issue open earlier this year—in April of this year—that the Government finally bent to pressure in the face of having front page headlines about then Prime Minister John Key’s personal lawyer and the connections of lobbyists, and the ability of industry lobbyists to have a conversation with a Minister, get a meeting, and have a review buried. Those stories really did lead to the Shewan review, and then the Shewan review, of course, found that many of the proposals that we had been suggesting for several years were quite sensible changes to our foreign trust disclosure rules. Those have formed the backbone of what is in this bill. So we think it is significant.

The other thing that I just wanted to draw attention to has been referenced by a couple of the earlier speakers—particularly David Clark. He mentioned that one of the things that has not made it into this bill is in relation to bringing in phase two of the anti - money-laundering regulations in relation to the housing crisis. The Government has constantly said: “Look, we don’t need to worry about foreign investment in the New Zealand”—[Interruption] I have got 10 minutes, buddy, and Mr Assistant Speaker gets to wave his hand, not you—not yet, anyway.

The problem that we have got is that the Government keeps saying that only 3 percent of transactions in the New Zealand housing market are foreign transactions—right—and we therefore do not need to worry about it as a problem. I just want to say that it is not the number of transactions; it is the amount of money behind them that makes the difference. When you have got an inflated market like our own, where there is a supply problem, even having a tiny number of transactions around the edge of that, where the amount of money behind those—in a world where you have had a huge amount of inflationary money from quantitative easing in the United States and in Europe, and the massive growth in capital in China, there is a huge amount of hot money coming out of China that is looking for a safe haven to park. I think our housing market is valued at something like $70 billion, or $700 billion—it is a lot of money, anyway. Let us just say it is a great deal of money.

When we are trading with each other, there is less of a problem there, but essentially, if you have got a small number of transactions that have got an, effectively, infinite amount of cash behind them, then that has a massive inflationary impact on an already overheated market. Even if it is a very small number of transactions, the impact of money-laundering through the New Zealand housing market is actually significant in terms of the price effect that that can have on our market. I think we need to really support strongly any attempt to put some sunlight on to that problem through this bill.

I do want to raise another concern of one of the submitters, which is that the regime that has been put in place here is very complex, and the burden of compliance, therefore, is probably going to be quite high. The concern of that submission was that if that is true, there is a real danger that the low-risk, clean operators, if you like—the people who are entirely legitimate in terms of the nature of the business that they are doing, using these trust vehicles—will simply depart, because the burden of compliance is too high and their threshold for risk is low because they are clean operators. They like to keep their noses clean. That is why they have got a low burden of risk. The people who have got a higher risk threshold, who are chancers, and who, maybe, are actually using our foreign trust regime for dodgy purposes, may be tempted to stay, because they will say: “OK, well, we will try to dodge or ignore some of these regulations.”

So, in fact, the concern of that submission is that the legislation may in fact have the opposite effect from that which is intended. I think it is really incumbent upon us as this new disclosure regime comes into effect over the next 12 to 24 months that we maintain absolute vigilance and that we really watch the sector closely to see what actually happens as a result of these legislative changes. It may be that we need to revisit it and make sure that it does what it intends to do. It is a very complex piece of legislation—you do need to be a tax lawyer with some years’ experience to really comprehend it—and, of course, that is a real concern. There may be some real opportunities for avoidance because of the complexities here. Having said all of that, we do obviously think it is an important piece of legislation, and we commend it to the House.

Thank you for this opportunity to stand up and say merry Christmas to everyone, by the looks of it. It is probably wise of me to end it there—

💬 Sue Moroney: You can say happy New Year as well.

—and say, yes, merry Christmas, have a happy New Year. I will surprise the members on the other side of the House by saying that in this, the second reading, we will be supporting the legislation. But I have—[Interruption] Aw, Mr Assistant Speaker!

Debate interrupted.

The House adjourned at 10 p.m.