-18, Employment and Investment Income, and Remedial Matters) Bill be discharged and that the bill be referred to the Finance and Expenditure Committee for consideration.

Second Reading

I move, That the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill be now read a second time.

What an extraordinary call that was. Normally, these sorts of bills move through the House. That member, Andrew Bayly, sat in the Finance and Expenditure Committee (FEC). He heard all the deliberations. It went through the normal process. This is the way this Opposition is going to behave—oppositional the whole way. Well, if that’s how you want to do things, be our guest—be our guest. In the meantime, we are going to put forward an aspirational vision for New Zealand. Oppose it all the way—we’ll love it. In the meantime, we’re going to be aspirational.

I would also like to congratulate Mr Fletcher Tabuteau for being elected the deputy leader of New Zealand First. Congratulations, mate—well done. You’ll be a fantastic deputy leader.

This bill sets the income tax rates for the 2017-18 tax year and contains proposals aimed at strengthening the current tax settings to ensure that taxes are applied fairly and evenly—

💬 Brett Hudson: Has anyone seen Ron today?

He can’t listen. But the principal focus of this bill is to simplify and improve taxpayers’ experience of tax administration in New Zealand—something I would think we all strive for. The bill contains measures that will provide the IRD with good, more timely information, direct from employment and investment income payers. Better information will mean greater accuracy of tax collected through the year, which will help prevent people getting into debt. It will also help reduce the annual tax return chore for many. So it’s important to this Government that these changes to our tax administration are well-designed to deliver these benefits to the New Zealand taxpayer. I am very grateful, therefore, to the Finance and Expenditure Committee for their careful consideration of all the proposals in this bill and their recommendations for improvement.

Many of the recommendations focus on further smoothing processes or reducing compliance obligations for businesses, particularly for the process of filing income information to inland revenue. Some employers provide PAYE information to inland revenue on paper, but because of declining demand, the postal service makes fewer deliveries and no longer offers Fastpost. With this in mind, instead of the originally proposed seven working days from payday, or deemed payday, to provide this information to IRD, the proposal in this bill is that these employers have 10 working days. Further, these employers would also only have to file a maximum of two returns per month, rather than for each payday in a month, for information reporting.

In addition to regular paydays, many employers make out-of-cycle payments—for example, to pay a departing employee their final pay on the day they leave. It is now proposed to generally allow employers to report out-of-cycle payments with their reporting for the next regular payday, rather than having to file separately. Again, this limits the number of returns an employer is expected to file and makes life easier for taxpayers—something the members on this side are very happy about. For schedular payments—for example, payments to certain contractors in employee share scheme benefits—it is now proposed to allow an option that would, at a minimum, require reporting on a twice-monthly basis, rather than every payday in a month.

It is also proposed that for payments by non-resident employers to persons on shadow payrolls, the recognition of payments can be deferred by 20 days and add the option of reporting on a twice-monthly basis. This allows them more time to calculate the New Zealand taxable income in PAYE deductions for their New Zealand - based employees. These are the changes recommended to help smooth processes.

Another change recommended related to the repeal of the payroll subsidy. The bill as introduced proposed to repeal the subsidy with effect from 1 April 2018. However, submitters told the select committee that the subsidy should remain in place until PAYE improvements such as payday reporting of PAYE information are bedded in, and the select committee has backed this—well done, FEC. The Government has, therefore, decided to retain the subsidy for another two years, until 1 April 2020—another case of the Government listening to those who appear in front of the select committee, and I congratulate the chair on the great work he did in getting this through.

Some changes have also been made to reduce compliance costs associated with proposals for reporting investment income. The main change means that payers of investment income will not be required to report on exempt recipients.

I now turn to the second major component of the bill: proposals to modernise and improve the taxation of employee share schemes. The main objective of the proposed reforms is to ensure that, as far as possible, the tax position of both the employer and the employee is the same, whether remuneration for labour is paid in cash or shares. This includes ensuring that the share scheme cannot be structured to give employees tax-free remuneration. It’s about paying your fair share. For example, under current law, an employee can be given a disguised share option without ever being taxed on that benefit, whereas the provision of an actual option is taxable when the option is exercised.

The Government is very keen to improve the fairness and integrity of the tax system, so the proposal in this bill will remove this distortion and bring this form of remuneration more in line with other forms of remuneration. The Government expects that employers will particularly welcome the ability to claim a deduction for employee share scheme benefits without the need for complex structuring. The bill also clarifies and modernises the provisions related to widely offered share schemes, because the benefit that can be offered under these schemes is relatively modest and it’s tax exempt. The trade-off for this is that the provision of the benefit is also not deductible for the employer.

Five new charities are proposed to be added to the list of donee organisations in schedule 32. These are Byond Disaster Relief New Zealand, Flying for Life Charitable Trust, Médecins Sans Frontières New Zealand Charitable Trust, the Tony McClean Nepal Trust, and Zimbabwe Rural Schools Library Trust.

Now, I would also like to advise members that I intend to release a Supplementary Order Paper that will give effect to the Government’s intention to extend the current brightline test for residential property sales from two years to five years. This is about the integrity and the fairness of the tax system. I would have thought that this was something that every New Zealander is passionate about—fairness and the integrity of the tax system. It sort of boils down to paying your fair share—that’s all it is. The thing about this is that when it arrived in select committee in the last term, it was debated vigorously, and the Government, unfortunately, came up with two years. But we have said that the fair way to do this—the fair way to bring the people who flip houses, who speculate on property, into the tax system is through changes to the brightline test.

In bringing the bill to its second reading, I must again acknowledge the significant contribution by the Finance and Expenditure Committee to the clarity and practicality of the bill, and especially the chair, who I think does a fantastic job—well done, Mr Chair. In my view, these recommendations have greatly improved the bill and, as mentioned, have brought a level of clarity, fairness, and integrity to the tax system. It is my pleasure to commend the bill to the House.

Second Reading

Thank you for the opportunity to take a call on this bill. Just to be clear, for Mr Nash’s benefit, given that this bill is literally a bill from the previous Government, introduced by my colleague the Hon Judith Collins, we are, of course, keen on its main aspects, its main provisions. But, can I say, it sticks in the craw, on this side of the House, for the Minister of Revenue to salute the performance of the Finance and Expenditure Committee of this Parliament and then refuse to send his brightline test to the Finance and Expenditure Committee for even a cursory analysis of whether it is the right thing to do or not. This is how shoddily this Government has behaved.

That bill was reported back to the House by the select committee last week, and one day later—one day later—the Minister of Revenue announces that he will release a Supplementary Order Paper (SOP) on the brightline test, extending it to five years. That is an appalling way for the Minister to behave—an appalling way for the Minister to behave—to actually disrespect the Finance and Expenditure Committee while at the same time coming down to the House and saying they did a good job: “They do a great job, but I’m not prepared to put this significant policy change in front of the Finance and Expenditure Committee.”

I’m sorry, but that is appalling from the Minister, and it shows that the Government is determined to hear absolutely nothing from anybody as it rushes to extend the two-year brightline test to five years—nothing from anybody. It will allow a short process in the House, but no submissions—no submissions from the people actually affected: people who have investments. These are not imaginary people; these are mum and dad Kiwis who have investments in property, Mr Jones, and others—

💬 Hon Stuart Nash: These are speculators, Mr Joyce.

—who are not speculators. I’m sorry; for Stuart Nash to sit there and call them speculators is arrogance in the extreme—arrogance in the extreme—because it is not fair to call those people speculators when you will not even invite them to submit on your policy change, because you are afraid, Mr Nash, to hear what they’ve got to say.

It gets worse than that, because the Inland Revenue Department doesn’t even want the brightline test extended to five years. Inland revenue have opposed the change. They have said that the two years is the better brightline period, mainly because this reduces overreach. Treasury notes also the risks of overreach. So the two advisers to the Government—and these aren’t just any old departments; this is inland revenue and Treasury; these are probably some of the most senior advisers in the Government—have said to the Government, “Don’t do this, because it will not achieve what you’re seeking to do.”, and it’s been ignored by the Minister, which compounds the fact that he cynically decided to hold back this policy change until after the Finance and Expenditure Committee had reported back the bill. I say shame on the Minister of Revenue, and I say shame on the Minister of Finance for allowing the Minister of Revenue to behave in this manner. If this is the way it’s being done, then New Zealanders have the right to say, “This Government has no interest in protecting our interests, whatsoever.”

There is no urgent need for this. The Minister could have come to Parliament a few weeks ago. This is not a hard change—he said so himself; it’s two years out to five years. Why didn’t he come at the beginning of the year to the Finance and Expenditure Committee and say, “I’m going to propose this Supplementary Order Paper. Why don’t you take some submissions on this? Why don’t you give the opportunity of the New Zealand public, of New Zealand investors who own these properties?” Why wouldn’t the Minister come to the select committee and say, “Why don’t you go out and take some submissions?” It would not have been a hard thing to do.

And I’m sorry; I see no other way of looking at this than it is the arrogance of such a new Government to not be prepared to consider other views on something that is so important. These are people that own property, that have bought property, that have bought it on the basis that they can behave in certain fashions, and this Government, without even offering those people the opportunity to make a submission, has come into this House literally a day after the bill was reported back—one day after; how can you not see that as the most cynical thing?—and brought it to the House and said, “We aren’t going to take submissions. We’re not going to put it to the select committee.” This, I believe—sorry, Mr Nash—is very arrogant at this stage in this Government’s life, Mr Nash. It is very arrogant indeed, especially when the Government’s officials—Inland Revenue aren’t prone to oppose increases in reach for themselves. It doesn’t happen often that Inland Revenue says, “Hey, we actually don’t want these powers you’re proposing to give us.” They have said that this is not good policy.

So, again, one would think that the Minister would say to Parliament, “Yes, it is policy.” And Mr Jones has rightly said, “Labour actually campaigned on it.”, and Labour did campaign on it. I don’t want to go back and talk about the poll results, Mr Jones, but 37 percent only gets to 50-odd percent with two parties that didn’t campaign on it. That’s the way that works, Mr Jones. And so, here we are. We have an SOP that isn’t supported by the majority of this House, except by a coalition arrangement, that comes to the House after it would have had the opportunity to be considered at select committee. That is shoddy behaviour by this Government, and they should be ashamed of it because there is no need for it. It is early short-term arrogance of a type that, actually, you see in dying Governments, not in Governments that see themselves as taking up the Treasury benches responsibly.

And I come back to the most important point: this is not a theoretical discussion. This is not a theoretical discussion; this is a discussion that affects the investments of New Zealanders. This is not an interesting technical point; this is how they can treat their nest eggs, their investments: mum and dad, who’ve bought a second property, how they can treat their investments when they sell them. It’s got nothing to do with speculators. In fact, inland revenue says it’s not going to catch speculators. Inland revenue says it’s going to overreach and capture legitimate property transactions—that’s what inland revenue says. And the Government is determined to hide behind the fig leaf of saying that it’s for speculators. That fig leaf is getting very, very small.

The other thing that this Government needs to be put on notice about is that they are after property investors. They’re after mum and dad property investors. It’s not just this; this is alongside other issues like negative gearing, like a capital gains tax. Again, these are real people. To Stuart Nash, they might be theoretical people and “It’s OK, we won, you lost, therefore, you have to put up with this.” That might be his view, but, actually, it’s not about this side of the House; it’s about ordinary hard-working Kiwis who’ve saved up a nest egg, who are behaving in a certain way because the law allows them, and who are not getting even the opportunity of submissions to a select committee to be able to consider how this stuff will affect them—not even the opportunity of sending it to a select committee for a discussion.

So Mr Nash can salute the Finance and Expenditure Committee all he likes, except he’s not prepared to send his policy decision to the Finance and Expenditure Committee. He’s not prepared to do that. He, I’m sorry, is running scared of public analysis of this change. He is running scared of being tested by the public on this change. No Government should be like that, particularly one that considers itself a new Government. This is the smell of a dying Government already.

This should have gone to the select committee. This party will support the bill, but we will oppose this Supplementary Order Paper and the way it’s been treated. Thank you, Mr Assistant Speaker.

Second Reading

I’m delighted to rise in support of the bill and the Supplementary Order Paper. I want to thank the previous speaker, the Hon Steven Joyce, for his detailed exploration of the 197 pages of detail that emerged from the Finance and Expenditure Committee on this important tax bill that covers a wide, wide range of areas. But actually, of course, he spoke about the three-page Supplementary Order Paper.

I understand it’s been a long, long, difficult day for the National Party, and I want to fill in a few of the gaps—a few of the things that he missed in his comments about this piece of legislation that’s been in the works for about nine months, and on which the select committee, across the House, has engaged very constructively. But before I do that, I think I would be remiss if I didn’t provide a little bit of additional commentary on the Supplementary Order Paper that we do have before us here today.

What I want to start with is an example that was provided by CoreLogic, the public policy organisation who’s done a lot of work about the housing crisis and probably understands the state of the New Zealand housing market more than most other organisations who are out there. Here’s an example that they raised in recent public debate about the brightline test. As it happens, it relates to my own beautiful electorate of Mount Roskill, where a property on Raurenga Avenue sold for $1.95 million on 30 August 2016. It was then settled in November. In June of the next year, it was flipped for $2.8 million—in nine months a huge, big capital gain of $836,000.

The changes that this Government is going to implement in the housing market, inclusive of this capital gains tax, are about moving towards a fairer and more reasonable regime that says to New Zealanders, “Yes, we’re going to treat you fairly.” If you go out there and you work hard in your job, you get paid your salary, you get taxed on it. If you have a whole range of other investments, you get taxed on it. But in cases like this one, people who are making huge capital gains are not necessarily being taxed on them, and that absolutely is one of the factors that is contributing to a property market that is absolutely out of control. Every single member of this House, if they care to ask around, will find people in areas that they represent who have simply been driven out of the property market.

I’ve got to reflect on Mr Joyce’s comments and his passionate plea for more time to look at this issue. Well, after nine years of utter inaction in the housing crisis, nine years in which hundreds of thousands of people have been driven away from the dream of homeownership, nine years in which homeownership rates have slipped to their lowest level since the early 1950s, when Sidney Holland was the Prime Minister in this House, this Labour-led Government says, “We’re not going to sit on our hands any more. We’re actually going to do something.” We are going to implement those commitments that we made at the time of the election, when people said, “We want a new Government that will actually take action on the housing crisis.”

What did we have from Mr Joyce? We had him deferring to the Government departments. Well, of course we take advice; of course we listen to our Government departments, to consider what they have to say. But leadership in Government means knowing what your policy is, it means knowing what the problems are, and it means marching towards some solutions with some determination.

It doesn’t mean you always simply say, “Yes sir; yes madam. We’re going to listen to what Treasury or the IRD say.” We’ll listen to what they say, but this Government will actually take action on the issues. One of the reasons that we have properties like Raurenga Avenue, with a capital gain of $800,000 over nine months, is because for nine years that previous Government did absolutely nothing about this issue. So I have to say that I’m absolutely in support of this Supplementary Order Paper.

I’ve got to also mention the sort of emotive point that Mr Joyce came back to—that somehow this is going to impact your honest, hard-working mum and dad investor looking for a nest egg. Well, those kinds of investors aren’t flipping properties within five years. Those kinds of investors are setting up a long-term investment for their retirement. It is simply scaremongering, it is simply inaccurate, to say that a five-year brightline test—

💬 Brett Hudson: Ask Inland Revenue. Inland Revenue have a different point of view to you, Mr Wood. Try asking Inland Revenue or Treasury.

—which is aimed at cracking down on those speculators, is going to have any impact on those long-term investors. That is simply not the nature of it. Let’s also just respond to the high dudgeon that we hear on the other side of the House. What that previous Government did, after the last election, when they were forced into doing something, to look like they had any solution to the housing crisis, is pretty quickly they introduced the brightline test. It was a two-year brightline test.

But let’s be realistic about this. There’s no great point of principle here. We’re talking about making it a longer brightline test, to make it more effective. That is what we are talking about, and that is what this Government—

💬 Brett Hudson: The officials don’t agree with you, Mr Wood.

That’s right. Well, you keep backing the officials. You keep pretending, Mr Hudson, that there is nothing wrong.

What I would say to the new National Party Opposition, with their new leadership, is that if they keep putting their heads in the sand and saying, “There is absolutely nothing wrong with the housing market.”—if that Opposition continues pretending that all is fine and dandy with the housing market, with the lowest rates of homeownership since the 1950s, after nine years of their watch, then please go ahead. New Zealanders know that there is something wrong. This Government knows that there is something wrong, and we are quite happy to be the ones who do something about the matter.

Having dealt with that little issue, I want to return to some of the other aspects that come through in the bar 2 version of the bill that has been reported back from the select committee. Notwithstanding my previous comments, I actually do want to pay tribute to members of the House, from all different parties, who are part of the Finance and Expenditure Committee who worked through what was a pretty complex piece of legislation. I think they’ve come to a really good outcome. I want to acknowledge the former Minister Judith Collins, who’s in the House, who put the bill before the select committee prior to the last election, and the current Minister Stuart Nash, who’s shown a willingness to engage around the issues and come back with an improved piece of legislation.

The bill that is before us does a few key things. One is that it confirms the tax rates for the current tax year. That is, of course, rather important. We want to make sure that the money that we appropriate from the good residents of New Zealand is done so lawfully. But it also has a number of measures within it that modernise and improve the tax system, and these, to a large extent, relate to the Business Transformation project—quite a lot of changes relating to pay day, the frequency of reporting, moving to a pay-day reporting system, and investment income reporting.

The benefit of these changes is that they allow the Inland Revenue Department and the broader apparatus of Government to have better and more timely information, and in doing so, we are more likely to ensure that we’re actually taxing individuals at the correct amount. So while there are potentially some small burdens that fall on those who have to file, in terms of more regular filing—and I’ll address some of the changes made at the select committee here—the benefits for taxpayers across the board are actually quite significant, in my view.

The third key purpose of the bill, at the outset, was improving the settings, to ensure that we retain that broad based - low rate tax system that has pretty wide support in the New Zealand tax community and in this Parliament. You do that by making sure that you’re taxing fairly across all areas of economic activity. The key one that this bill looked to address was the area of employment share schemes where, after quite a lot of dialogue over a number of years, Inland Revenue Department, the past Government, and this Government have arrived at the conclusion that we do need some improvements to ensure that earnings that are received as a result of employee share schemes are effectively taxed in more or less the same way as earnings that people receive in other ways. There was a concern that our previous regime didn’t achieve that.

In the time I have left, I just want to touch on one or two of the key changes that the select committee made. One of the ones that I really want to focus on, which I think was a good change, that we got agreement on across the committee is what’s called the payroll subsidy. This is a small amount that is paid to ensure that largely small employers have the ability, have a bit of support, to go through a payroll intermediary, to make sure that their tax has been filed electronically and in the right way.

This is quite a useful innovation that was introduced a number of years ago. It gives those quite small employers, mainly, just a little bit of extra support to make sure that they’re paying their tax in the right way. The original proposal of the bill was to do away with that payroll subsidy. In the view of the committee, that was a bit hard line, a bit arbitrary, and a bit ideological. In our view, it is entirely appropriate, particularly when this bill puts a number of new obligations, in terms of the frequency of filing on employers, to provide just a little bit of support to those small employers.

So the payroll subsidy has been reformed, under the bill that has emerged from the select committee. We’re keeping it in place for two more years, to allow people to transition into the new requirements. It will now be more targeted, so it will apply just to those employers who file under $50,000 of tax each year. But those employers, as a result of the select committee’s work, will still have access to that payroll subsidy. I think that was a very good change indeed.

So overall this is an important bill. It modernises our tax system. I commend it to the House, along with the Supplementary Order Paper. It will bring back a little bit of fairness to our property market. Thank you, Mr Assistant Speaker.

Second Reading

Oh, thank you, Mr Assistant Speaker. It’s been a delight to listen to the discussion this afternoon and, as the former Minister who brought this bill first to the House, it’s good to see it continued on, except with one exception.

I want to talk about the brightline test changes. So, for a start, as someone who has been involved in tax and the tax system for a long time before I came to Parliament, speculators are already subject to tax. The issue was whether or not they were found to be speculating at the time that they bought and sold properties. So it’s always been a taxable activity to buy and sell properties with the intention of profit. The issue has always been about finding them in the first place. With the tax administration changes and also the electronic transfer of documents, it’s a lot easier for departments to be able to police this issue.

When the two-year brightline test was brought in—or was proposed, I should say, and brought in—by National, it already caught many people who had been engaged in what’s been called by Mr Wood “flipping properties”. It’s an entirely different thing to say two years and then five years. I thought this Government wasn’t going to have new taxes before its working tax group came back with its response. What we know is that this is actually quite a severe imposition of tax on people who weren’t expecting it.

When we look at the five-year brightline test, what that actually means is that no new houses are going to be built with this—nothing new in terms of building. We’ve heard a lot about how there’s not enough housing, particularly in Auckland, that some people are making more money—well, in which case they should pay tax if they’re buying properties for the purpose of reselling and making profit, and they already would have been caught by that, if that was their intention. So what about in those relationships where a relationship breaks down after a couple have bought, for instance, an investment property to rent out? What about that? Is that going to be now caught by the five-year brightline test? The answer is, it most likely will be, or else people are going to have to try and prove somehow how they can get out of it.

The Inland Revenue Department has undergone tremendous transformation, particularly with the Business Transformation project, but there is more to come. None of that is actually easy for the department, and when the department says that this bill or this proposed change is going too far and it will catch too many people, this Parliament should listen. The Inland Revenue Department is an incredibly professional bunch of people, and what they do when their advice comes through—my advice to the new Minister of Revenue is that he should listen. I’ve found that they are very responsive in trying to deal with solutions, but I’ve never before heard where a Department of Inland Revenue has said, “Hang on. I think this is going to wrongly catch too many people—too many investors.”

Is it, in fact, the purpose of this Government to drive mum and dad investors out of a market where they’re already leaving? Is that their point? None of this will affect the big investors. None of it will affect the people who don’t have to worry that, if a mortgage rate goes up, they don’t have to bother about selling the property because they’ve already got enough money. This will open up a market to people who don’t have to go to the banks to ask for money to borrow. This is actually not going to add one new house into any market, let alone the Auckland market.

So what happens to this Tax Working Group if it comes back and says a five-year test is too much? What happens then? Are we going to come back again? Why has this not gone back to the Finance and Expenditure Committee? I heard Mr Wood say that this has the support of their side of the House. Well, actually, on that basis, then nothing should go to select committee, should it, really. Any bill put up by the Government should just go straight through! Because why would you want to hear from the people who might know more?

Is it that this Government is too frightened to ask the people for their comments? Are they too frightened to hear from the tax experts—the people who actually understand the area and what happens when you overtax? Are they too frightened to hear from the property investors as they say that all this is going to do is to feed the property investments of those who are already extremely wealthy, who will actually no longer have to compete with the mum and dad investors? Are they too frightened to hear that?

What we’re seeing is a Government that is actually filibustering its own bill—well, actually, our bill, by the way, which they took over. Why are they doing that? It’s because they’ve got nothing new to talk about, because otherwise this bill would just go through without any comment at all. So they’re relying on us having to say, “This is not good enough.” A Government that’s too frightened to go to the select committee to ask for the advice of experts is a Government that doesn’t expect and is too frightened to actually make those big decisions.

So I’d say to this Government and to the new Minister, so what happened to your promise of no new taxes before the Tax Working Group came in? What happened to GST on goods, which you said you couldn’t do until after the Tax Working Group? What happened to everything else you promised that you couldn’t do until after the Tax Working Group?

This is just another capital gains tax on mum and dad investors and, as I say from my experience in this area, there’s going to be a lot of big investors who’ll be very happy because it will take the small investors out of the market. And if the Inland Revenue Department is saying it’s too much, you should be listening.

Second Reading

I rise to speak in favour of the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill. It’s very disappointing that the only element that the Opposition can focus on is that particular provision that has been swept into this new bill as a consequence of democracy.

The mandate for this amendment to stretch the brightline test from two to five years derives its legitimacy from democracy. Now, OK, I accept that National went through a process today that defeated democracy, but rest assured: those who were disappointed today will be leading the pack in several years’ time; of that we’ve no doubt.

But let’s come back as to why we should support this bill. Both sides of the House should try and find common ground when, really, what we’re doing is refining the actual administration of our taxation system. Now, the particular select committee that’s dealing with this, ably chaired by Mr Wood, follow in the footsteps of my good self in 2005—we tried to find unanimity on that committee.

Now, let’s just quietly go through and identify why this is a bill that really, other than a small diversion between two years and five years—the principle was enunciated, and the principle was legislated by the other side of the House. What was that principle? That there would be a test to curb the appetite of speculators, the effect of which is to drive first-home buyers out of the market. So the principle didn’t come, necessarily, from this side of the House; the principle was enunciated and legislated on that side of the House.

Now, it’s not surprising after an election, after a mandate has been delivered—formed a glorious coalition Government—that that overdue business should be taken care of, and now it has been. It’s disappointing that tawdry politics have been made of this point, but anyhow, let’s continue on.

The key point that, really, the officials have brought to the attention is that there’s got to be a continued improvement of efficiency in identifying ways of how people can honour their tax obligations in the most efficient way possible. Now, those obligations will grow in volume as a consequence of great things that are going to happen in the provinces. And, without a doubt, through $60 million - odd, then we’re likely to see an uplift of $364 million worth of happy activity and 700 jobs. Naturally, it’s important that the tax system prepare for the inevitable expansion of economic activity that will happen in these benighted, neglected areas, forgotten about over the last nine years—but more on that later. Far be it from me to use up the entirety of the House’s time reciting the many press statements of affirmation and support that have been thrown my way; modesty precludes me from talking about it any further.

I’m just going to sort of say a little bit more as to why this particular extension does not defeat the purpose of the Tax Working Group. Now, the Tax Working Group is a substantial assemblage of people that I have to acknowledge. One, in particular—and I’m sure that the former Minister of taxation would agree with me—is Joanne Hodge. I must acknowledge her in particular—a highly skilled, senior woman tax practitioner, tax analyst, senior partner at one of our bigger law firms. She deserves to be mentioned, because to survive in that world, not only as a practitioner and a professional but also as a women and a mother, they deserve—

💬 Hon Judith Collins: She’s also married to Rob McLeod.

Ah! She’s worked it out. Married to Rob McLeod—yes, of course—both of them high quality people.

💬 Hon Judith Collins: Good people.

Oh, were you taking a point of order?

💬 Hon Judith Collins: No, no.

Well, I must continue.

💬 Hon Todd McClay: He sat down.

No, no, I never sat down. Madam Assistant Speaker, I heard her call for your attention.

ASSISTANT SPEAKER (Poto Williams): Just a moment there—

💬 Hon Todd McClay: I raise a point of order, Madam Speaker. Just a point of clarification: he may not have intended to, but I’m sure part of his anatomy did touch the chair unexpectedly. It’s the same as sitting down; he’s given up his right to speak.

ASSISTANT SPEAKER (Poto Williams): No, I don’t require—[Interruption] I did not call you—just a moment—I did not call the member; neither did I call the Hon Todd McClay to speak, either. We were in the process of changing shifts, so at this stage—thank you very much for your intervention—I will allow the Hon Shane Jones to continue with his speech.

Thank you very much, Madam Assistant Speaker. Democracy could have been wrecked but for that unwise intervention on the other side of the House from the member for Rotorua.

Let me continue and point out the other areas. Now, the bill deals with petroleum mining decommissioning amendments—hmm!

💬 Hon Todd McClay: What does that mean?

What it means is that we’re in a transition economy. We’re heading towards carbon neutrality but gas still has a role in a modern economy. I think that’s what it means, in terms of my contribution.

But I would say these particular areas, and, indeed, our tax changes—not only the administration of the system and the efficiency and the maintenance of the subsidy and the affirmation that there should be constant vigilance against speculation. And there’ll be a debate—there’ll be a debate—as to whether or not there’ll be additional views thrown into the mix from the Tax Working Group. In fact, before I was rudely interrupted, I was just acknowledging a tremendously talented member of that Tax Working Group, Ms Joanne Hodge. But anyway, I don’t want to cause her to be brought into the debate any further and possibly pilloried by the other side of the House.

In terms of the quality of the work that does take place in relation to that select committee, I’m disappointed that there be a hint, on that side of the House, that there’s not collegiality there. I go back to the days when Don Brash was there, John Key was there, Bill English was there—and I think the worst possible day was when Rodney Hide was there, but because the pea weevil [Gestures to Mr Seymour’s seat] is not able to participate in this particular debate, I won’t talk about Mr Hide any more.

In relation to employment income information, changes that were introduced by the last regime, naturally these are refinements; these are matters in terms of quality administration. And it’s wrong for either side of the House to actually worsen the prospects of the professional advisers, who have a duty to ensure that the system raises revenue legitimately, that people are made aware of their obligations and are assisted when they may fall behind in their obligations, and, most importantly, that the system deals with the changing styles of business operation, the changing styles of connectedness—I think it was Mr Nash who talked about the fact that the postal system is grossly changed. In fact, out my way it’s almost like a pony express, up there in the Far North. But help’s on the way. As I understand, infrastructure will improve as a consequence of a certain fund, but more on that into the future. I keep the other side of the House waiting for a new round of great care.

So New Zealand First supports this bill. New Zealand First supports the work of the select committee and the stance of the Minister in bringing forward the test in terms of five years, because, let it be known, the principle was founded by that side of the House. Now, all this side of the House is doing is adding a year or three to that principle. For those reasons, we support the bill and look forward to the committee stage where, no doubt, people will have a chance to ventilate. But it’s important that we give hope and we give confidence to that group of New Zealanders who have been priced right out of the property market, and we’re doing very practicable things in a host of ways, including this particular bill. I support the bill.

Second Reading

Thank you, Madam Assistant Speaker. I want to congratulate the last speaker, the Hon Shane Jones, on his appointment, or election, as deputy leader of the New Zealand First Party today. That’s great news. I know it’s something he’s always wanted to do. But what surprises me is that we heard Shane Jones speak so eloquently about taxation. Tax and Shane are not words that go together so very, very quickly or easily. But it must be because he, deep down, knows that the current Minister of Revenue is making a huge mistake here. Now, Shane Jones is an honourable man. He believes the public has a right to have a say, and I know that, deep down, he is willing to stand by any proposal that he would make as a Minister.

On the other hand, we have a new Minister of Revenue, who, to be fair, has not had a great start in the first 100-odd days. At least he got to deliver his second reading speech, because last time he was in the House to speak on a bill he didn’t get to, and that’s a great shame because somewhere there was an official that did a lot of work to write that speech that he was going to read out, but he didn’t get to deliver it.

Then we had his announcement about how he was going to make it fairer for small shopkeepers up and down the country by delivering a tax on online shopping. Instantly, he was put back in his corner, surrounded by officials to protect him, because the finance Minister says, “No, we’re not going to do that. We’re not going to raise any taxes at all until the Tax Working Group has had a chance to have its say.”

And now, here we are: the new Minister of Revenue speaking broadly on a piece of legislation that—with the exception of a Supplementary Order Paper he snuck into this House only a day after the Finance and Expenditure Committee finished its consideration and consultation widely with the public—he’s had nothing to do with, because it was developed by the last Government. It was delivered to this House by Judith Collins, who, as revenue Minister, said, “Tax policy is important in New Zealand. We won’t always get it right, and we believe in the system that’s been in place Government after Government, Minister after Minister, that says when you’re going to make a change in tax policy you have general consultation on it before it goes to Parliament, and then you allow the committee to go through it in detail so the tax community can make sure it will work.”

Now, I was the Minister of Revenue when the brightline test was brought in some years ago. We sought advice, and we looked carefully at exactly where that balance would be. As a Government of the time, we said, “Actually, if you buy a property with the intention of making a capital gain on it, you must pay tax on it—on that capital gain. In fact, if you buy anything in New Zealand—shares, property, a car—with an intention of making a capital gain, then you must pay tax upon that.” But around property, we did realise there could be some uncertainty, and, to clarify that, we would make a brightline test of two years. The advice from Government agencies, from Treasury, and from IRD was to be very careful about that balance because you don’t want to target mum and dad New Zealanders who own property, who rent that out, or it may be something that, for them, will be a nest egg.

The thing about taxation is you need to go and talk to the experts and the wider industry because they will actually tell you whether it’ll work or not, and whether they agree with you. I found as Minister, they would help you make sure that what you were doing would work. So we announced the brightline test before a Budget, and we didn’t rush it through Parliament, we allowed the select committee to consult on it, to work on it. There were people that came in support of it, there were people who spoke against it, and then this House had a full discussion on it.

So I say to the current Minister of Revenue, who hasn’t had a great start as Minister of Revenue in this House, that he’s making a fundamental mistake here. He says he’s about openness and transparency, but the very first thing he actually really gets to do—it’s not this piece of legislation, because it’s Judith Collins—is slam a very important change on the Table of this Parliament the day after the select committee finished its deliberation. And there is just no need for that at all. He owes it to New Zealanders, to mums and dads, and to the tax profession to allow, even for a short period of time, the select committee to go back and have a look at that.

And I’ve got to say, I’m not only surprised but quite appalled by the Green Party, who when they were in Opposition were always wanting people to have a greater say. They wanted proper open processes through Government, and there were many occasions where, as a Government, we might have wanted to shorten the period of time for a select committee, and the Greens actually always would stand up against that and say New Zealanders deserved a say. For them to come to this House today and vote for this—there’s one of two reasons: either the Labour Government told them they had to, or already Winston’s baubles of office are eroding the integrity that the Green Party have always shown, and they’ll have to take that up with the outside world and others.

So it’s disappointing that it’s being rushed through. There is no need. Five years is something that the public deserve to talk about and have a say on. It is something the select committee could very easily open up on, for a few weeks or a little longer, and seek support and advice from the public. For Stuart Nash to come to this House—the first thing he did was not deliver a speech, because he made a mistake; the second thing was announce a new tax to support small New Zealand businesses on overseas online shopping, and then he was told to pull that back, he wasn’t allowed to do it; and now he’s snuck this Supplementary Order Paper 13 into the House on the Table the day after the committee finished its deliberation. It does not suggest he’s going to be a Minister of courage.

Second Reading

Thank you, Madam Assistant Speaker. It is a pleasure to follow on from Todd McClay and that rousing speech. It’s not often someone gets to deliver a rousing speech on a tax omnibus bill, but Todd somehow managed to pull that off. I’d just like to start my comments by responding to a few of his, because Mr McClay gave quite a long sort of history of the passage of this bill through the House, and the various stages that it went to, and so on, but he neglected late in that history to mention one thing: that there was an election, and that all of those people that he was saying don’t have a say actually did have a say. What they said was that we should change the Government, and one of the reasons why they wanted to change the Government was they were absolutely fed up with a National Government that was continuing to offer massive concessions and allow the investment community to continue to inflate New Zealand house prices way beyond the ability of ordinary Kiwis to be able to afford their own home.

So the transition from a two-year brightline test to a five-year brightline test was one of the debates of the election campaign. It was one of the policies that we stood on, that the Labour Party stood on, and, I believe, that New Zealand First stood on, as well, and we won the election. Consequently, I would argue to Mr McClay’s point that, actually, the public have had a say, that they did want to see a further extension of the brightline test, and that that is one of the reasons why they voted to change the Government. And so we are, I think, entirely within our rights as a new Government to change the policy that the last Government had. That’s what happens when you have an election and you change the Government.

The other thing that Mr McClay mentioned was he was referring to this notion of having a go at mum and dad investors who just want a nest egg for their retirement. What he says is that that is the primary reason why you would leave the brightline test at two years rather than at five years. But if you think about it, when people save for their retirement, if they’re investing or if they’re saving, they tend to do so for periods of longer than five years, right? If you’re trying to put something away, if you’re trying to get an investment that’s ready to go for your retirement, if that’s your nest egg, the idea is that, actually, you would be investing in that over a substantially longer period of time than two years or than five years. So the idea that extending the brightline test from two years to five years is somehow going to punish people who are just making an investment for their retirement is completely fallacious. I reject that notion.

What it will do in respect of people who are just trying to make a quick buck through the loophole of not having a comprehensive capital gains tax on property is that it will continue to dampen down that side of the market, and that is what we want to do. We actually want to make sure that the people who buy houses do want them for the long term, either as owner-occupiers or as actual investors whose intention it is to make their money on that house by renting it to people who want to live in it, not by having the house make more money in any given year than the average income. The idea that people should somehow be able to not pay tax on an asset that simply inflates by way of its existence, without any improvement and without necessarily anyone even living in it, just sitting there—the idea that it’s somehow going to destroy people’s pension savings by extending the test out from two years to five years, I think, is ridiculous. So Mr McClay’s speech was a fine one. It was delivered with passion. It was also completely incorrect, entirely fallacious, and we reject all his arguments.

One of the other things that Mr McClay pointed out was that the Green Party voted against this bill on its first reading, and he suggested that we were somehow corrupt for switching our vote. Of course, the National Party’s never switched its vote on anything ever, and never changed its mind based on the evidence. Obviously, continuing to back something regardless of changes in information or regardless of changes in the bill—I also reject that notion. In fact, the main reason why we voted against the bill at the first reading was that the then National Government could not, or would not, give us assurances that the clauses in the bill that related to concessions to the oil industry for the decommissioning of oil platforms at the end of their life didn’t somehow constitute a particular concession to the oil and gas industry. Since then—in fact, since we came into office—we’ve been able to assure ourselves that the simplification of the decommissioning rates that applied to the oil and gas platforms are actually exactly the same rates that apply in any industry to any end-of-life remediation activity—

💬 Brett Hudson: That’s what our Minister said at the time.

—and so therefore do not constitute a particular concession to the oil and gas industry above and beyond what applies to any other industry. That was our main concern, and I’d like to invite Mr Hudson, who clearly doesn’t have enough to do, to spend a bit of time watching Gareth Hughes’ first reading speech, in which he spent the entire time talking about that concern that it was a particular concession to the oil and gas industry. The fact that we’ve been able to clear that up, now that we’re in Government, I’m very pleased to say, removes the barrier for us to be able to vote for the bill.

In addition, the changes to the bill since we became the Government—in particular that extension of the brightline test from two years to five years—give us a more compelling reason to vote for the bill, as well. And so because this bill does align with Green Party policy, in terms of ensuring that there are no particular concessions to particular industries above and beyond what would apply to any industry, and because it does continue to help us with that transition from a sort of overheated investment-based property market to one where people can actually afford to buy and live in their own homes, or where investors are encouraged to get into the business of investing in homes in order to provide homes for people to live in and not simply to allow those prices to inflate and trade them back and forwards with each other like some kind of financial instrument that they don’t have to pay tax on—because it does those things, we’re very pleased to support this bill. Thank you, Madam Assistant Speaker.

Second Reading

Thank you very much for the opportunity to talk on this bill here. Look, we have in this country a long-established framework for the development of tax laws, and this last-minute Supplementary Order Paper 13, changing the brightline test from two to five years, is moving outside of that basic framework. I think it is very disappointing from this new Government that’s come in with all sorts of sanctimony around how it will be an open, consultative Government—they’d create a new style of Government, they’d be always engaging and open and transparent—and what do they do when they get into Parliament? They bring in significant changes to important legislation like this, which will have wide ramifications on the economy, and they have made a cynical decision not to take this back into select committee so that Parliament can have a reasonable chance to have a look at it.

So just to remind people who’ve been watching, what we’ve got here is a significant change to the brightline test when it comes to people trading in properties. The previous Government brought in a two-year brightline test, and, at the last moment, the Government has introduced a change to take that from two to five years. Now, we see that the clear advice from officials is that this is a bad idea, and, certainly, you can argue about that. Of course, no Government is obliged to take all the advice it has received and just agree with it, but you would think, given the strength of the concerns raised by both Treasury and IRD officials, that the Government would take the time to consider this fully.

I mean, I look at, for example, some of the comments from officials around the possible impact: extending this brightline test to five years might have a reduction in the supply of residential rental properties, and anybody in the country knows the pressure that the rental market is having at the moment in terms of supply. So one of the real risks of this move is that due to the reduction of speculators and investors buying and renting out property, it’s likely to put upward pressure on rents, and higher levels of homeownership among former renters is unlikely to completely offset the pressure on rental prices. This is because owner-occupied homes typically have a lower occupancy rate than rental homes, so the reduction in the supply of rental housing caused by some investors exiting the market will probably outweigh the reduction in demand for rentals.

So that’s just one example where the Government is taking a plunge on a significant move. We don’t know what the consequences of it will be. There’s certainly many signals from officials that they could be negative—they could have an impact in reducing the number of properties available for rental, which is a major issue in our big cities at the moment. What they’ve done, in terms of process, by introducing this at the last moment without the ability for the select committee to take it through carefully and have a considered debate about the merits, or lack of merits, of this change, I think is a disgrace.

On that basis, while we support the overall bill, we’re not at all happy with what they’re doing here, and it sends a powerful and negative message about how this Government will operate. I just hope that before long, they’ll change their ways.

💬 Paul Eagle: Thank you, Madam Speaker.

Second Reading

I haven’t called the member yet. I understand—you can stand. I understand this is a split call. Paul Eagle, you have five minutes.

Second Reading

Thank you, Madam Assistant Speaker. It’s a pleasure to be here. First of all, can I just acknowledge the new leadership team from the Opposition—not here right now, but that’s OK. I’m sure—

ASSISTANT SPEAKER (Poto Williams): Order! [Interruption] Order! You cannot refer to members who aren’t present in the House.

OK. I tried not to mention any names, Madam Assistant Speaker, but that’s good. But, look, what I will do is say thank you to those who have brought this bill to us.

When I got a note from the whip, who said, “Look, the reason why”—look, I don’t sit on the Finance and Expenditure Committee, but what I do represent is what’s being hailed today as those mum and dad investors, commonly referred to in nearly every speech from the Opposition. The whip said to me, “We’d like you to come down and talk on behalf of those people, the decent Kiwis who make up New Zealand.”, referred to time and time again in the House this afternoon, and so it’s an absolute pleasure. Really, when you talk to these people—they have names, but we’ll just call them collectively the mum and dad investors—they would simply like to see some action, particularly around the brightline test, but I’ll certainly get to that in a minute.

What I like to do, when I see bills that are about the thickness of a Manawatū telephone book, is really look through them and say: what are we talking about in this bill? When I look at the words, I see words that talk about simplifying and improving and reducing the annual tax chore, and I think that’s an admirable task. We’ve been really negative this afternoon, going through what’s not right, what should have happened, what could have happened. But the objective of the bill is, really, to simplify, improve, and reduce the annual tax chore. I think that’s an admirable objective, considering for those like me and for many it’s an onerous task. Many who are confronted with detailed documents from the tax department can often find it confusing. Even finding your tax code can be confusing. So I want to just applaud that objective, first and foremost.

Secondly, the bill talks about a greater accuracy around the level of tax collected, to prevent people from getting into debt. That’s a second admirable objective. I thought, wow, here’s a piece of work that’s been carefully brought together, for the interests of those mum and dad investors, so they can not only reduce the annual tax chore but prevent themselves from getting into debt—all at the same time helping out the good old Government, to ensure that we have some accuracy around the amount of tax that gets collected. These mum and dad investors are really sick of the questioning and the ideology that protects the wealthy. What they really want is initiatives that will stop their exasperation. You know, I have an electorate office, thankfully, where people do complain about our tax system, so I’m really proud that this bill has got to its second reading.

In terms of the Supplementary Order Paper (SOP), which has been talked about in negative terms, I’m shocked when I hear some of the negativity, because when I look at that, the Government has been clear in its campaign—clear in its campaign—to say, “Look, that’s what we were going to do, and now we’re going to do it.” So where’s the shock in that? A former Prime Minister used to openly say, “Oh, we’ve had an election. That’s what I said I was going to do, and now I’m doing it.” So, certainly, the SOP that’s been put forward, I fully support.

As the Green Party co-leader—sorry, Madam Assistant Speaker—who’s not here said, there’s every right there to cater for those people who want to invest for a long period of time. The intention is not to punish those people; instead, rightfully, punishing those who want to flip property quickly. There was certainly an announcement this afternoon about a chap who did it in Auckland, who flipped something very quickly. The intention of this bill is to dampen that type of speculation. I commend this bill.

Second Reading

I call Brett Hudson. You have five minutes.

Second Reading

Thank you, Madam Assistant Speaker—pleasure to rise. We are supporting the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill in this, its second reading. The bill keeps our tax system working efficiently and will help prepare us for the sort of work we’re doing with Inland Revenue’s Business Transformation.

As previous speakers, including the Minister, have pointed out, the Finance and Expenditure Committee did some great work to bring the bill back to the House in an even better shape. So it is really quite unfortunate that, with all that good work done by that committee—fairly clearly a very capable committee—the Minister decided, one day after the report was returned, to introduce a Supplementary Order Paper (SOP) around the brightline test, which means that that public consultation and submission process has been subverted. This Government does not want to listen to the public on that important matter—a matter that affects so many of them. I think the stats show that its around about 120,000 to 125,000 people that own something like no more than three investment properties, so when people talk about mum and pop investors, that is definitely who they are talking about.

So the Government’s determined they don’t want to listen to the public. They’ve also shown they don’t want to listen to officials on this, because Treasury and inland revenue are both saying that the measure won’t have the intended effect and could have some very adverse consequences. So we’re left wondering, on this side—and I think the public also are left wondering—just who they are consulting with. It appears, to us at least, that they’ve set up this little echo chamber that is a Cabinet room, where they’re sitting around a round table talking to and at each other and thinking that, somehow, that constitutes proper reflection and consultation on legislation.

Just to compound that, we have the Greens, who formerly opposed this bill when it was introduced under the previous National-led Government, who, as Mr Shaw pointed out, did raise issues about the taxation for the mining and oil exploration—end of business tax treatments. If he had referred instead to National Ministers’ comments in the first reading, he would actually have known and been able to acknowledge that the concerns they had were addressed by the then Government in the first reading. But, instead, the Greens appear just to have changed their minds because they now find themselves on the other side—just another principle the Greens appear to have sacrificed for the baubles of office. They’ve done it on this particular bill, they’ve done it on the waka-jumping bill, they’ve done it on urgency being introduced to the House—they even did it last year on the Kermadec Ocean Sanctuary bill. Quite frankly, I listened to Mr Shaw’s speech and I thought of Groucho Marx—Groucho Marx—who remarked, “These are my principles; if you don’t like them, I have others.”

That, I think, absolutely accurately describes the Green Party that we have in this 52nd Parliament, and I’m pretty sure that the public see that and the public will remember that. This SOP is an absolute disgrace, but the bill we will continue to support. Thank you.

Second Reading

I want to take my colleagues on both sides of the House back to some of the basic principles of taxation, and the particular principle that I want to go right back to is the one enunciated by Adam Smith in his great book Inquiry into the Nature and Causes of the Wealth of Nations, way back in 1776. In that remarkable text, he set out some rules for taxation, and the first one he came up with is to do with fairness and proportionality. I’ll just give you the words—[Interruption]

ASSISTANT SPEAKER (Poto Williams): Order! [Interruption] Order! I apologise to the member. If I could just encourage members to take their seat on this side of the House. Thank you.

Thank you, Madam Assistant Speaker. I’ll give you the actual words that Adam Smith used in his great text, the words that, being a bit of a tax wonk, I’ve committed to memory: “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue … they respectively enjoy under the protection of the state.” That sounds a little complicated, especially, perhaps, for people on the other side of the House, but let me take it simply: it, basically, means that each citizen of the State ought to contribute to the support of the State in proportion to the revenues they earn. It’s a canon of fairness, of fairness in taxation, and, traditionally, under tax principles, we talk about that fairness in two ways. We talk about it in terms of vertical fairness, the idea that people who earn more ought to pay a little more in tax. They can contribute in proportion to their abilities. That’s a well-established principle in our own tax code.

But there’s another interpretation that is even more relevant to the debate today, and that’s talking about horizontal equity or horizontal fairness. It says that whether you earn your income in the form of salary and wages, if you earn it in the form of employee share schemes, if you earn it in the form of a capital gain on a house—doesn’t matter how you earn that income; it should all be taxed the same. It shouldn’t be taxed differently just because it’s one form of income versus another; it should be taxed the same. That’s the principle of fairness, and it is well enunciated in this bill that is before us today, where many of the provisions in this bill are about fairness between taxpayers.

I want to address, in particular, a topic in this bill that has not been discussed this afternoon, and that’s employee share schemes. This bill does something very worthwhile with respect to employee share schemes, and let me take you through it. What can happen under employee share schemes is that an employee can be given shares or given an entitlement to shares. Now, under the law as it stands, that becomes their income and they can be taxed on that income, but, in actual fact, often those shares have to be held in a trust, or maybe they are only given optioned, so, in fact, the employee really only becomes entitled to them five, maybe 10, years later, by which time the shares have increased in value. But instead of being taxed at the time when it’s finally vested in them at the increased value, they’re only taxed at the old value—the lower value when they were first given the entitlement to the shares. In other words, by taxing it right now instead of 10 years in the future, they are taxed on the value right now and none of the increase in value, and yet that increase in value is part of their income.

So what this bill does is it says that just like salary and wages, that increase in value in the shares ought to be taxed, and that’s precisely what some of the rules in this bill do around employee share schemes. It’s not about trying to tax people more, it’s not about trying to give people an unfair advantage; it’s about fairness in taxation, whether you earn your income in the form of salary and wages or you earn it in the form of shares that increase in value. That’s all about fairness, and that’s one of the reasons why I commend this bill to the House.

But there are a number of other issues in this bill that I think are quite important and that I do want to speak to this afternoon, having an opportunity to speak on tax. In particular, I want to address the brightline test. Now, that’s a fairness issue as well, and that’s saying, in a very straightforward fashion, if you earn income through speculating in housing, then we will tax it in the same way as we would earn income through taxing salary and wages. Now, as members on the opposite side of the House have pointed out, if you buy something with the intention of selling it, any increase in value ought to be taxed anyway, but, of course, it is very hard to read intentions, particularly when it comes to residential property. What the brightline test does is it says that instead of us trying to guess what’s in a person’s mind, we just deem that if you sell a house under the existing legislation within two years—under our proposed legislation within five years—then you will be deemed to have bought it with the intention of resale and therefore you’ll be taxed on it.

Now, the members on the opposite side of the House agree with this principle. They agree with the principle of a brightline test. It was put through under their watch. In fact, they’ve raised two objections to this afternoon. They’ve said that putting it out to five years is really complicated and it should have gone to a select committee, and they said we didn’t go through the generic tax policy process (GTPP). Now, Mr Goldsmith noted that we have a very good tax policy process in this country, the GTPP, or the generic tax policy process. You know, we did go through all the technical details of a brightline test back when the National Government instituted the two-year brightline test. There was a robust generic tax policy process back then with the two-year brightline test. So there has been an excellent tax policy process with respect to the test that’s in the legislation at the moment.

So what’s the difference now? Well, when I look at this Supplementary Order Paper (SOP) 13 for all these complications that, allegedly, should have gone back to a select committee, I don’t see that that they’re there. In fact, if the members on the other side of the House had bothered to read the SOP—it’s freely available, right there—they would see that virtually every clause in that Supplementary Order Paper simply replaces “2 years” with “5 years”. It makes no difference. So this is the type of thing—it is literally just replacing “2 years” with “5 years”. There are no complications. All the rules around the brightline test exist already. It is a very straightforward and simple piece of legislation. So it cannot be an objection to technicalities introduced by this bill—[Interruption]

ASSISTANT SPEAKER (Poto Williams): Order! [Interruption] Order! [Interruption] Order, members.

It cannot be an objection to the principles under this SOP. It cannot be an objection to the technical details under this SOP. It cannot be an objection to anything other than the difference between two years and five years. Then they claim that officials objected to five years, but that’s just an utter nonsense. What they said was there was no clear evidence between two years and five years. What they said was it was impossible to tell how it would go. So there is no real objection to five years other than that the members on the other side of the House don’t like it. I submit that that is not a sufficient reason to reject this Supplementary Order Paper. Frankly, if they cannot understand the difference between two years and five years in the technical way of replacing it in legislation, I suggest that perhaps they don’t belong in this House at all.

So, I put it to you, that like a lot of tax orders, it is a very straightforward measure and it is about addressing the critical issue of fairness in taxation. We want to be fair, on this side of House. That’s what underlies a lot of the measures in this particular bill—a bill that was introduced by the party that was then in Government and that this party has worked with to make it right, a bill that is now looking in pretty good shape after a really good generic tax policy process and a really good select committee process. We’ve listened to the objections from people who submitted to the Finance and Expenditure Committee. We’ve adjusted the bill when necessary. We have implemented our election promises and made it quite a straightforward measure, so we are implementing the basic principle of fairness in taxation. I commend this bill to the House.

Second Reading

Don’t you love it when those socialists talk about fairness? Ha, ha! Fairness to the New Zealand public would have been to actually go to the election and say, “We’re going to put in a capital gains tax.”; not to hide away from it and to rubbish it and to hide behind a working group that was to come out so that the public could vote at the next election around capital gains taxes.

Michael Wood has said today in this House, “This capital gains tax …”. That last speaker, Deborah Russell, talked about fairness and how it meant that they could bring in an ability to tax capital gains. The Labour Party wanted, and always has wanted, a capital gains tax, and when it comes to election time, they go out to all the constituencies, all the public meetings, and they never admit that they want a capital gains tax. Then, as soon as they come into this House, when they have a moment of time where they do not have to go through consultation, and a moment of time when they can hide it from the public, they will put through a capital gains tax. That is the Labour Party. And if they were true socialists, they would be honest with people when they’re out there, and yet they are duplicitous in their nature. They come into this House and pass things under the darkness of night to get away from actually having the absolute integrity that the public would get through consultation and a select committee process. But we know that’s how the Labour Party operates. We’ve seen that on many occasions in this House, from the Dairy Industry Restructuring Act Amendment Bill to taxation at this time, but there are, in this case, actually some examples where this legislation is just purely bad form.

Now, let’s take the case of a relationship break-up within five years. Now—

💬 Dr Duncan Webb: Read the rules. You’ve got that wrong.

Oh, so the Labour Party is saying that they’re not taxed. They are taxed. If there is a relationship break-up within five years and there is a second house or a holiday home, that can be taxed under the five-year rule, because it is not their home of residence. In those situations, that is what the Labour Party is going to do. Generally, those situations are very difficult situations. There are a lot of issues going on between the partners. The Labour Party are going to make vulnerable partners spend five years waiting for this period of time to elapse before that house can be sold, otherwise there’s going to be taxation consequences.

💬 Hon Chris Hipkins: Vulnerable partners selling the beach house!

Oh, so the beach house—an investment property. Often they will be highly mortgaged, in a young family environment, and they will have little or no equity there. And when you’ve got two partners that then want to go out and set their own houses up, how are they going to do that? The best advice they will get is to wait five years and then try and get their own money out to get their own property; otherwise, they’re paying capital gains tax on it. That is the intended consequences of this legislation, for the Labour Party, and that is what they’re going to do to ordinary New Zealanders that may have an issue. They will have that problem.

This is just another example of how democracy has been eroded in this House. We see it every day in question time, and now we are seeing it once again in legislation that hasn’t gone to a select committee, that hasn’t be given to the public, to explain issues like that, which are actually real and honest issues that are a problem in this legislation. That is why we are seeing a Government that has got no respect in the community and a question time that is also not respected. We need to make sure that we have integrity in this House, and that has been lost by that party.

Second Reading

Thank you, Madam Assistant Speaker. What a pleasure it is to rise to speak to this excellent piece of legislation.

💬 Kieran McAnulty: Oh no, it’s a socialist!

Well, it is a socialist piece of legislation because tax is fundamentally socialist. It is about a fair system. Can I also say what a pleasure it was to work on the select committee on this piece of legislation, particularly with Dr Deborah Russell, who is an expert in tax, much unlike the former speaker David Bennett, who, of course, had to try and clean up member Collins’ mess when she suggested that there was a relationship property issue here. What’s worse is when he tried to clean up that mess by referring to the investment property in the beach house, he just made a dog’s breakfast of it. If people are going to have investment properties, then of course they should be caught by the brightline rule, and, what’s more, the very rule he’s complaining about is a rule put in place by the National Party to address this. So it’s his own carve-out—how ridiculous.

💬 Kieran McAnulty: You can’t tell me he doesn’t know what he’s saying, surely?

Oh, look—astounding as it may seem, it’s no surprise they’re on that side of the House—tax law is difficult, it’s onerous, and we do need to strike a balance. As we all know, tax law is complicated, and the balance between fairness, clarity, simplicity, and brevity is hard to strike, but I think we’re working hard on it here, because good tax includes not just good tax policy and good tax settings but good tax administration.

While we’ve been talking about the brightline, well, I actually want to talk about some of the other things that are going on here. The Inland Revenue Department is working on its transformation, its business transformation, and this is part of that transformation. This legislation, largely instituted by the former Government, is about progressing that business transformation. I do want to say, however, that there will be some pain in that transformation. Some of the amendments made in select committee are about evening that pain out. I also want to identify that the change within IRD will be hard on its people, and, indeed, in its annual review, this was made clear. I would implore the revenue to be very careful as it transforms its business to look after those hard workers within IRD, who do such valuable work.

But, really, what this is about is about reforming the administration of the tax system to make it much, much more workable. So if we look, for example, even at some things that might appear technical, like the payroll subsidy—a subsidy that is paid to tax intermediaries to assist smaller businesses. Now, the original bill had this being abolished in one fell swoop, but after listening to advice—and, I must say, the independent advice given to the committee was extremely useful—it became readily apparent that a rapid cutting off of this would cause considerable chaos, particularly amongst small businesses. So whilst the subsidy properly ought to go, it’s going to be phased out over time so that there can be that additional period of time for businesses to get used to it, to let those wider changes bed in. It really is those smaller employers in particular that we need to look out for.

Payday reporting was the other thing that really cropped up. This is the idea that employers need to report in as timely a manner as possible their PAYE obligations. Of course, the better reporting occurs, the more efficient tax collection is. So what we’re really aiming towards is getting the most timely and accurate reporting we can so that the tax paid most accurately reflects the employee’s actual obligations. That’s got to be a good thing, as we move, hopefully, towards a system where there is as little adjustment as possible in those end-of-year tax returns.

However, we again have to remember that there are businesses, very small businesses—and, in fact, on the other side of the House they did a good job in pointing out that many rural businesses actually have considerable difficulty in using, for example, online returns simply because of the lack of internet access. The committee listened carefully to submitters and took that on board, so when we come to payday reporting, there were substantial changes made that will affect small businesses so that they don’t have to report quite as frequently. In fact, twice a month is satisfactory on a routine payment, not necessarily in perfect sync with payroll but at the 15th of the month and at the end of the month, particularly when they’re still using paper. We’ve got to recognise that, indeed, some people still will use paper, whether that be because they’re really—believe it or not—not quite up to using web-based applications or also because of that internet access in very remote areas. So, you know, that is a really useful amendment made by the committee, and I commend the committee for the hard work it did and also for the submitters and the advice given.

The other important aspect—technical, but important—was resident withholding tax. There were useful discussions around the fact that interest payments are frequently made, sometimes substantially, even between family members. Now when there’s, for example, a family loan, what a lot of people perhaps wouldn’t realise is that the person who is being paid that interest needs to report that as well as the payer of that interest. So this is the resident withholding tax framework. Of course, we know that we have to give our IRD numbers to the bank so that they can report the interest they’re paying us, but we don’t realise that in many transactions—even amongst family members, small businesses, friends, and colleagues—those transactions also ought to be reported and that interest actually sits in there as income. Obviously, in some of those situations, the compliance of that reporting would be unduly onerous, and so the select committee imposed a $5,000 threshold on the interest payments there. So a lot of those smaller family loans and the like now won’t be captured.

So, look, what this really is about is about getting our tax settings right, getting a system that doesn’t catch people by surprise, a system where people’s tax obligations are as easy as possible to comply with, but also modernising our tax system so that the tax system can be administered in as real time as possible using the best technology available. We’ve got to bring a whole lot of people along with us to do that, and I know the IRD itself and the commissioner are working hard on that, the employees of the IRD are working hard on that. And it is the place for us in this House to really support that through getting these settings as right as we can, to make the transition as easy as possible, so that we don’t unduly burden small businesses in particular—rural businesses in particular—and those hard-working New Zealanders who really are trying their very hardest to earn a living, so that the administration costs there are reasonable, they’re not flying through the paperwork and not doing the jobs that they’re actually being paid for. That’s what this bill does.

So what we have here is a very thoughtful tweaking—admittedly, it is administration legislation, but it is good that we come back to this House regularly to readjust these settings and to think carefully every time about our tax policy and our tax settings and the administration of our tax Act to say, “Let’s make it as workable as we possibly can.”, because when we do that, what we will get is greater compliance, more timely payment of tax, and what we will get, indeed, is a responsive revenue.

So, look, what we have here is a vastly improved—and I can’t conclude without saying that the brightline five-year test is also a significant improvement. The National Party recognised that steps were needed here, the step they took was not enough, the property market remained rampant, and so we—as we should and must; as every good socialist would—changed it so that it worked properly. We extended that period to five years because that will make a significant difference. This Government has said time and again—and I’ll say it again—it is committed to bringing the housing market under control so that ordinary New Zealanders can afford their own home and they can buy their own home, and this is just yet another plank of this Government’s aim to do exactly that. So not only is this a great improvement to the system of tax administration; it’s another step forward by this Government to making housing affordable in New Zealand. Thank you, Mr Assistant Speaker.

Bill read a second time.

I move, That the order of the day for the second reading of the Taxation (Annual Rates for 2017