Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill

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

For the benefit of members, I’ll provide a quick recap of the objectives and the content of this bill. One thing I will say before I do start that is that I thought that the Hon Steven Joyce, who shepherded this bill through the House in its first reading, might be speaking on this. It would be good to hear what he has to say about this, but I acknowledge that he has a very important speech to give in about an hour anyway.

Firstly, the bill sets out the income tax rates for the 2018 year, leaving them unchanged from the previous year. This is the sort of bill that is introduced every year and normally has support right across the House as it has, I think, for the nine years I was here previously. The centrepiece of the bill, however, as members may recall, is a set of measures designed to make the process of interacting with the tax system as simple as possible. The principle behind the proposals is to make the tax obligations easy to get right. This is actually the fundamental principle behind Inland Revenue’s Business Transformation project. It is not about necessarily just realigning the tax system; it’s a complete change in culture. It’s a customer focus.

The proposals in this bill aim to achieve this by providing Inland Revenue with accurate, more timely information from the payers of employment and investment income. Inland Revenue can use this information to fill in the necessary information in the equivalent of a tax return. Gone are the good old days when you had to sit at the kitchen table with a whole lot of receipts and fill in your return and send it back. This saves the taxpayer from this chore, but they can check the information if they wish. It will also help ensure that people are paying the correct amount of tax by enabling the IRD to ensure that the appropriate tax rate is being used—again, back to this whole customer-centric focus of Inland Revenue. In designing these principles, it has been important to minimise the compliance burden based on employers and on payers of investment income. Accordingly, the bill has been amended since its introduction, with the objective of easing that burden for the payers of such income.

The other major aspect of this bill is its measure to modernise and strengthen the tax rules relating to employee share schemes. These rules have been in place for many years now and it is time to ensure that the rules are sound and align with our objectives for the tax system as a whole. In particular, we want to make sure that there is no tax advantage in receiving remuneration by way of an employee share scheme instead of other forms of remuneration. Basically, it’s about protecting the integrity of the tax system.

The bill also includes business-friendly proposals aimed at easing compliance costs or removing unnecessary obstacles. A proposed amendment will create an exclusion from the dividend rules for certain company demergers, in particular demergers by listed Australian companies. The bill also contains proposals to extend the brightline test from two years to five years. The brightline test currently requires income tax to be paid on any gains from residential property sold within two years of acquisition, subject to some exclusions. The two-year brightline test was put in about three years ago, in 2015, but we did not feel—we just did not feel that two years was enough to stop speculators gaining untapped capital gains. As was talked about at the time, how the Income Tax Act works is it’s based on an intention test, and what that means is when someone buys a rental property or a second or third or fourth property, it is the intent under which they buy that property that will determine whether they pay tax on the capital gain. For example, if they have an intention to buy the property for a capital gain, then they have to pay tax on that capital gain. If they buy the property for the intention of making a rental yield, then they do not have to pay tax on any capital gain made.

The problem with this is it is very, very difficult to prove intent. It was interesting—I remember sitting in a meeting with the then Governor of the Reserve Bank. We had a look at Auckland house price increases—in fact, across the country, but the Auckland ones stood out because they were going through the roof—and we asked the Governor of the Reserve Bank what the rental yield was in these properties and he said it was under 3 percent. So we asked, then, if people were buying these properties for capital gains and he said, “Almost certainly.” He couldn’t say unequivocally, but “Almost certainly.” What we found was that people were buying these properties, flipping these properties, and not paying tax, because all they had to say to the Inland Revenue Department was, “We were buying these for rental yield. Our circumstances have changed, which forced us to make a sale.”

What we found when Inland Revenue did a little bit of analysis around who was complying under the two-year brightline was that, in fact—it was quite a small sample size—only 50 percent of those who should be paying tax on a capital gain actually were complying. I don’t think that many people know that Inland Revenue gets all this information from Land Information New Zealand. So when people think they can get away with avoiding tax, then they are actually wrong because Inland Revenue has the ability to interrogate every little bit of property data that comes through. So I would urge people who will need to pay tax under the two-year brightline—or, once this bill receives Royal assent and they have purchased a property after that, then under the five-year brightline—to please comply. It makes it easier on everyone because Inland Revenue will find you if, in fact, you are not complying.

As far as I was concerned, this measure was about preserving the integrity of the tax system, which is vital. There are some other consequences. You know, it may have a little bit of a dampening on the housing market, which is not a bad thing for first-home buyers and Kiwis who are hoping to get into the market. But by and large, as far as I was concerned as the Minister of Revenue, it was about preserving the integrity of the tax system, because what we were finding is people were making capital gains and not paying tax on that and I just think that was manifestly unfair, which is the reason why we moved it from a two-year brightline to a five-year brightline.

I just do want to outline that none of the terms and conditions or exceptions that existed under the two-year brightline have changed whatsoever, so in this bill the only thing that has changed is the term from two years to five years. I also want to say that the Government considers extending this test is important to ensure, as I’ve sort of alluded to, that property speculators do pay their fair share, and I don’t think there’s any Kiwi watching or in New Zealand who does not think that people should be paying their fair share—not too much, not too little, just their fair share; it’s all we ask. Because speculators can drive house prices beyond the reach of many Kiwis, this pressure will help dampen or may well help dampen the property market.

These are the main features of the bill, and it is a bill which will improve taxpayers’ experience of tax administration and make the tax system fairer. I would like to thank the policy officials and the drafters who worked on the details of the bill, the organisations and the individuals who made submissions on the proposed legislation, and the Finance and Expenditure Committee for its consideration and recommendations to improve the workability and fairness of the provisions. As someone who sat on the Finance and Expenditure Committee for about six years, I know the work that the members put in to ensure that they are well versed and they read the submissions. I know the amazing work that the officials put in to actually answer not only members’ questions but also submitters’ questions and queries, and just generally interact and liaise in a very, very positive way with key stakeholders in the tax system. These tax bills are by their nature quite complex, and that is why I know that the work that goes into them is hugely appreciated. I commend the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill to the House. Thank you.

Thank you, Madam Assistant Speaker. I rise, of course, to take a call on the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill. I do so with some regret because this is a bill that the National Party led the development of when we were in Government, this is a bill that my colleague Judith Collins introduced to the House, and this is a bill that in the normal course of events we very much would have been supporting in the normal way. But, on this side of the House, we cannot support this bill because of the egregious and, I think in fact, duplicitous way in which a stealth capital gains tax is being imposed on New Zealanders through this piece of legislation.

The now Government when in Opposition, when campaigning to be Government, realised how badly they had got their tax plans wrong and made it clear to the public at that stage that they would not introduce a capital gains tax without taking it to the electors at the next election. They made a big song and dance because they realised what an allergic reaction New Zealanders were having to their tax and spend, tax-grab plans, and so they promised—they promised—the voters, “We will not bring in a capital gains tax unless we take it back to the voters in 2020.” This bill is a stealth capital gains tax by any other name.

You just heard the Minister of Revenue, the Hon Stuart Nash, in that last contribution twice reference the fact people are making capital gains and they are not paying tax on it as his justification for this Supplementary Order Paper (SOP). Now it’s bad enough that they have broken their promise to not take a capital gains tax to the electors at the election—that’s bad enough. But not only that, they didn’t even allow the public the decency, the basic right, of being able to submit on it through a select committee. Why? Well, there was no urgency. There was no urgency because they had been talking about this for some months, but absolutely duplicitously they waited until the day the bill was reported to the House to slip in an SOP, deliberately ensuring that no one could comment on their plans and point out the issues.

Now why would they do that? Well, for two reasons: one, they know how unpopular this will be, and, two, because even their own officials were saying to them two years is a much better period for capturing speculators than five years.

💬 Fletcher Tabuteau: No, they were not.

I refer you, Mr Tabuteau, to the regulatory impact statement by the IRD, which says exactly that. It says the IRD are of the view that a two-year period for the brightline test is a far better period and avoids overreach. Now why is that? We’ve heard a lot from the other side of the House that there’s a two-year brightline test anyway, so why not just make it five? Well, that just smacks to me of a failure to understand the very nature of this test. At two years, there is a body of evidence that suggests the likelihood that people buying and selling within two years are more likely than not to be speculating. After two years, there is a far less likelihood that that is the case and you are capturing—deliberately, it seems—genuine investment behaviour.

Now if the argument is, “Well, they’re making a capital gain so they should just pay tax on it.”, as the Minister said twice in his contribution, be upfront, tell us you’re introducing a capital gains tax, and take it back to the voters as you promised. But they’re not doing that. They claim that this is just about capturing speculators. Well, two things: first of all, speculators are already liable to pay tax under our income tax rules, and we heard the Minister go on a number of times about how good the IRD are at capturing people who are due to pay tax. He said, “They will find you. Don’t think you can’t pay tax. They will get you.”

Speculating and buying a property for the purpose of flicking it on and making a capital gain is already taxable. Now, we introduced the two-year test because we know, as I said, that within that period of time there is far more likelihood than not that that was likely the intention. We stopped it at two years on very good advice—and, by the way, after testing this with the public, after inviting submissions, after announcing it in the Budget, in fact before the Budget, and then taking it to select committee. We in the National Party are not afraid of public discussion. Two years is the period of time where you are most likely to capture that speculation behaviour. When you go beyond that to five years, you are fundamentally changing the nature of this test, and the fact that the Minister of Revenue doesn’t understand that is deeply concerning.

You read the regulatory impact statement of this bill—which I have done, and it’s clear that members opposite haven’t—there are a number of very serious risks raised. The first is this one of overreach. This tax, on the face of it, is not designed to capture capital gains; it’s designed to capture speculators. In fact, the only thing it will do is bring in a de facto capital gains tax, in breach of the promise that the now Labour Government made to the electors and in breach of their basic human decency of allowing those interested and those who’ll actually be paying for this tax to have a say on it.

It also highlights the risk of what’s called lock-in, and that’s creating economic conditions and rules where you don’t see the efficient use of assets in the system. If we want to see New Zealand grow, it’s important that our assets are used in an economically rational way, and, again, the official advice is that this creates the opposite incentive.

Then, the third risk from this extension of the brightline test, all of which the public never got a chance to feed in to, because they were denied that by this arrogant Government, who thinks they know everything and don’t have to let the public have a say, is that it will have—and this is not just my view; this, again, is the view of the officials from the regulatory impact statement—an impact on our rental market. So, much like the foreign investment changes that the Government is pushing through the Finance and Expenditure Committee at the moment, while they talk about helping the property market, it will have the opposite effect, because you will disincentivise New Zealanders from investing in property. You will decrease the incentive for people to want to grow the housing stock and to buy and hold properties for people to rent. Now what does that do? Well, very simply, it pushes up the cost of rentals.

Now, I’ve had a period of time as the Minister for Social Housing and I can tell you the one thing that drives social housing demand—

💬 Jamie Strange: Scaremongering.

—is when the price of rentals in that lower quartile continues to move up and those on housing pressure can’t afford the rental market. They’re forced into State housing. So this is a bill that we know—that isn’t scaremongering. That is what the official advice is telling the Government, that they wanted to sweep under the carpet.

This is a bill that will tax people who shouldn’t be taxed, it will deliberately impose a tax on those who shouldn’t have to pay it, and it will push up the cost of rentals to those who can least afford it. It is an outrage to suggest that this bill will help home affordability. It will have the exact opposite effect, as will the foreign investment changes that this Government is putting through. It is outrageous that they didn’t allow a select committee to have its say on increasing taxes on New Zealanders, and it is outrageous that they’re imposing a capital gains tax after promising the country that they would not do that without taking it to the election.

This bill has become an outrage, it has become an abuse of process, and it has become absolutely what we have come to expect from this Government. On this side of the House, we oppose it.

Thank you, Mr Assistant Speaker. It’s a pleasure to rise on behalf of New Zealand First and this Government, especially in a timely reply to that member Amy Adams’ contribution on this Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill. I just want to take the opportunity to address the contribution from the previous speaker. She spoke about it being a stealth capital gains tax. What she failed to ignore in her contribution was that it was that previous party, when they were in Government, that introduced what they then called at the time a brightline—what did they call it?—a brightline test.

💬 Mark Patterson: It wasn’t a tax.

It wasn’t a capital gains tax then. No, no, when they introduced it, it was a brightline test, and they vehemently denied any kind of argument that this was a capital gains tax. But no, today, that member, on behalf of her party, spoke about a new capital gains tax, despite the evidence in front of her today—the evidence that has been sitting there for several years. For several years, they brought this legislation through, and this is not new. In fact, the Minister of Revenue was very pointed in reminding the House and the New Zealand public that, actually, it is only the time period that has changed under this legislation.

Let’s be very clear: nothing else in this Supplementary Order Paper (SOP) 13 has changed apart from the time period in this legislation. We are simply extending that period.

Then the Minister—the previous speaker, I should say—seemed to get her facts muddled up, which is a polite way of saying it.

💬 Kieran McAnulty: “Is confused”.

Confused. So the idea, when they introduced it—I say “they”; I say that when the members opposite, the National Party, introduced it—they said that this was to address, and they acknowledged it at the time, although there was no housing crisis, the speculation in the market. The National Party spoke about this brightline test addressing speculation in the market, and yet the previous speaker got up and told this House that this will not fix speculation. But that’s why they introduced the brightline test in the first place.

She spoke about the select committee process. Officials, at the time, spoke very clearly and, in their report, outlined why the two-year brightline test would not work. It is in the report at the time. They said it would not work, it would not change behaviour, and, actually, on top of all of that, no extra revenue would be collected by the Government with the introduction of the brightline test.

Let’s continue to call it a brightline test, shall we? Under the new analysis, the officials have told us that in terms of revenue collection, yes, there now will be a revenue collection of approximately $50 million after the first two years, rising over a period of time as about 2,000 transactions are caught up in this SOP, this brightline test. So I’d put it to that member who spoke previously that this will address the negative aspects of speculation.

So when they introduced it, they acknowledged that this wouldn’t affect investment. A good person who wants to invest in property and have a rental property and rent it to New Zealanders is building rental capacity in the market. Now, let’s be very clear today, in front of the people of this House, that this will not change that. Investors will continue to invest in property because they will not be caught up in the speculation and flipping nature of the current speculative property market. So good investors who want to rent properties to Kiwis will not be caught up in this—we need to make that absolutely very clear; in fact, quite the opposite.

What we will discourage will be that flipping—so, you know, to buy a property at a price and then flip it on with extra costs. It won’t stop it. People can still do that, if they wish, and, in fact, some of the confusion in the original submissions in the Finance and Expenditure Committee was around what the tax was attached to. So, just for the purposes of the contribution today, the tax was on the profit made. So if, you know, someone bought a property on the Wednesday, flipped it on the Friday, and made $100,000, they would pay the tax on that $100,000, not on the entirety of the value of the property. I had a whole other contribution prepared, but I couldn’t let, I will class it as misinformation, go by without being addressed, from that previous speaker.

Look, this is more than just the SOP, and so with the short time I have left, I will just make the point that we have—we’re trying to address four main issues here, and I think, for me, one of the biggest issues is around the Inland Revenue Department’s Business Transformation process. The previous Government committed very large sums of money—very large sums of money—to kind of modernise Inland Revenue. Now, this Government has committed to that because we will acknowledge it’s the right thing to do. We need to modernise the whole taxation process. We need to enable the good transacting of information in a timely transparent manner.

That is what the Inland Revenue Department is trying to do with their transformation process, and that is what this House is trying to do with this remedial matters bill. So we’re designing good policy so that the Inland Revenue Department can work on good practice. That is a dual combination that is incredibly important for the people of New Zealand who, when you think about it—it’s a continual struggle in terms of tax and compliance. Yet it needs to be fair. We need to be working in the best interests of New Zealanders, but everyone needs to pay their way. So this transformation process, enabled by this legislation, very much does that. So, in that, it will be a success.

Specifically, we’re talking about reforming the administration of the PAYE system, in particular the provision of employment income information. I was going to touch on that in detail later on, but I just wanted to acknowledge the contribution—the to-ing and fro-ing—in select committee, because there was a good level of debate about that reporting period. I acknowledge the National Opposition members on the committee who were worried about small business and compliance in terms of reporting that PAYE material. There is now flexibility built into this legislation so that small businesses are not caught up and unduly, and perhaps unfairly, penalised for non-compliance in the now. So that was a good, robust part of the debate.

The second part relates to the collection of investment income information. The third part is changes to the taxation of employee share schemes, and I acknowledge the Minister who touched on that. It’s about equity. Essentially, we don’t want businesses to be able to use the share scheme to kind of offset tax obligations in terms of remuneration of employees and use that as a method simply for tax avoidance purposes. So here we are now, balancing the playing field with that.

I’d like to say, actually, that when business made their submissions, everyone understood—whether it was in the previous party’s time in Government or in the recent discussions—the intent there and what we were trying to achieve. Business itself, said, “Yes, slightly more complex and it might put a little bit of pressure on us, but if you do it this way, we’ll be happy to report.” So what do you know, that’s the way we’re doing it.

The fourth part there was, of course, the annual rates 2017-18—nothing’s changed there from the previous year, so not much to be said. The other one was the Supplementary Order Paper, which I have touched on in quite significant amounts.

Unfortunately, I have to conclude but I’ll say that this piece of legislation fits in with this Government’s intent to very much work smarter, not harder; to make the whole process, not only for the Inland Revenue Department but for the people of New Zealand who are obliged to pay their taxes—to make that whole system more streamlined, easier. Let’s avoid mistakes and let’s create a fair and transparent system. Thank you, Mr Assistant Speaker.

Thank you, Mr Assistant Speaker. I’m actually a little bit sad that we won’t be able to support this bill, because this was, actually, an extremely good bill, based on not only, obviously, the tax rates, which are somewhat historical, but really around the fabulous Business Transformation project that the National-led Government approved of, funded, and worked with the Inland Revenue Department on so that the whole collection of tax would become far more modern and in keeping with the way in which most people conduct their businesses, and far more suitable for the 21st century.

I am very concerned that the new Government has taken this excellent bill, that was in my name, and adulterated it with yet another attack on people who happen to own properties. I say that as someone who was once a tax lawyer and is very proud of the fact that we have a very fine tax system in New Zealand, mostly unadulterated by ridiculous political statements and grandstanding. This particular bill has been able to be used as a way of attacking people on the basis that they own property and that they are now going to need to own this properties for five years, otherwise they’ll be labelled with that dreadful label of “speculator”.

So what I’ve found with the current Government is so much of their rhetoric is around calling people names, giving them labels that everyone can hate and despise, and one of those is “speculator”. We’ve heard it around landlords; we’ve heard it around people who buy properties who rent them out—we’ve heard about them. It’s the politics of envy. It’s the politics of attacking people who are not quite the same. It was the same politics around the Chinese-sounding names that the current members of Parliament from the Labour Party and others decided to attack people who were apparently speculators. It is a real shame when that sort of rhetoric comes into a Government or comes into a Government’s policy and they actually use a bill like this, which is actually all around form and process and procedure, to make political points. That is actually what the current Government has done with this excellent bill.

Apart from that appalling attack on people who happen to own properties and rent them out, this bill has been the culmination of a lot of work from a lot of people over a lot of time. It has taken a big chunk of the Government’s budget because we felt that it was a very important piece of work that needed to be done. Nobody is going to vote for a party based on their Business Transformation Inland Revenue project, but, unfortunately, that is the sort of work that needs to be done. It’s like the work that needs to go into a house that’s not necessarily on show. It’s the pipes. It’s the electricity. It’s the things that actually make things work.

So when this bill has been taken and used for the five-year brightline test to apparently ensure that speculators pay tax on gains from property speculation, it begs the question that speculators already have to pay tax on property speculation, because when people buy and sell properties for the purpose of making a profit, they are actually in the business of making a profit and they are therefore already taxable. But what this change to the bill does is it brings in mum and dad investors, the mum and dad investors who will now be caught by this and who are going to have to explain and find some way to get around the fact that, for instance, what if one of them has become sick and they can no longer afford to continue to top up the difference between the interest payments and the rental that they’re receiving? Who’s going to deal with that for them? Well, they’ll have to go off to a lawyer, they’ll incur costs—they’ll do all these other things.

What it does do is it drives small investors out of the market. This will not make a scrap of difference for big investors because big investors are already working and will continue to work their way around the tax system, because big investors can afford to do that. This is actually going after mum and dad investors who come up to the age of 60 or 50 or whenever they decide. They actually want to have some savings for their retirement and they want to be able to get a property, whether it’s a property for their children to rent. It’s these people who will be caught. It’s these people who are going to find that if they have to sell their property for some reason—they die, lose a job, become ill—it’s these people who’ll have to go cap in hand and ask for exemptions and see what they can get round. Actually, it’s going to be very hard for them to get around any of that, and that’s a real shame, because it’s these people who should be in the market as well as the big investors in the rental properties.

The alternative is that the State will actually have to provide all the rental properties. That is no doubt something that the people on the other side of the House will think is a great idea: let’s have the State own everything. While representing an area like Papakura, let me tell you, the State is the worst landlord ever. The State is the worst neighbour ever. One of the things we get a lot of complaints about in my office in Papakura is around the quality of housing provided to Housing New Zealand tenants, so don’t talk to me about “The State will provide.” The State provides not that much really, but it takes an awful lot of money to provide not that much. Let the private sector do what the private sector is very good at, which is providing housing for people, as they always have. Have a look at the suburbs. Have a look at the suburbs that the State has provided. They’ve provided us with Clendon, in Manurewa. It’s provided us with Ōtara—now, finally coming out of the malaise given to it by “the State provides”. Have a look all around New Zealand, and look at the worst housing, and it’s owned by the State. So don’t tell me that the State will provide.

I tell you that the State will take. It will take from people who should be able to get on, to earn a living, to be able to invest in property, to be landlords, to be decent people, to care—to care—to go and fix the spouting on a Saturday or a Sunday, because that’s what you do when you own a place. Those people—the people who don’t put up the rent when they should because they’re worried about the tenant who’s having trouble; the people who mow the lawns. That’s something the State doesn’t do much of. It’s the people who mow the lawns because the tenant either can’t or won’t do it—those people; mum and dad investors. What’s so evil about them? What is it that the Labour Party hates so much?

We know New Zealand First hates them, because they could be Chinese. We know that. But why would the Labour Party do that? Why would the Labour Party do that? Actually, this bill is an indictment, as it’s been adulterated by this Government—I almost said something I shouldn’t say. Ha, ha! The reason it’s an indictment is because—apart from the fact it’s all about envy—this Government said they weren’t going to add any more taxes without waiting for their working group to come back. This is a new tax. It is a tax. It is a tax, and it’s an envy tax. That’s what it is. It’s a tax against mum and dad investors, and it’s an utter disgrace.

I’m going to take a novel approach, following on from the previous address from Judith Collins, and focus most of my speech on the contents of the bill that’s before us, and that, of course, is the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill. I will at some stage, a bit later on in my address, get to Supplementary Order Paper 13, which addresses the issue of the brightline test. That’s a relevant matter, in the course of this debate. But, of course, it is not the only matter.

This is an important bill. One of the reasons it’s an important bill is that it validates the income tax rates for the previous year and makes the activities of the State, since 1 April 2017, legal. I have to say, on behalf of the Government, we support that. Actually, the National Party, in deciding that they are, at this point of the bill’s passage through the House, not going to support that would, in fact, potentially create not an $11.5 billion fiscal hole in the Government’s accounts but a $30 billion hole in the Government’s accounts over the past year, during which time they were in fact the Government for most of that time.

Moving on from that, I just do actually want to note the very good work of the Finance and Expenditure Committee on working on this bill. I do actually want to note the contribution of the Hon Steven Joyce on his last day in the House. He was the ranking member of the National Party on the select committee as it considered this bill.

It is a bill that is, in fact, rather complex, because in addition to confirming the income tax rates for the year, it did deal with a range of fairly complicated and technical matters relating to investment and employee income, relating to employee share schemes, and relating to a whole range of matters in terms of local government taxation, relating to demergers of Australian-listed companies, and relating to oil exploration taxation matters. And, actually, the select committee, made up of members from around this Chamber, worked together extremely well and extremely constructively with officials—and I acknowledge them here as well—to deal with those complex matters, to respond to the range of very good submissions that came before us around this bill, and to produce a bill that’s come back to this House that I believe is considerably improved on the bill that came into the select committee. So just my acknowledgments to Mr Joyce, but also to all of the other members of the select committee who did that work.

In addition to the setting of the annual rates for the 2017-18 year, the bill, as Mrs Collins mentioned, deals with a range of measures to improve the efficiency and the fairness of the New Zealand taxation system. This is something that is really just in the ordinary business of any competent Government. Because technology is moving so quickly and tax practice is moving so quickly, we consistently need to be reviewing the rules to make sure that our system works efficiently and fairly.

One of the key drivers of that, in this case, is, of course, the Inland Revenue Department’s Business Transformation project—a project that started under the previous Government and continues under this Government, and is an investment of several billion dollars to ensure that we have a modern, fit for purpose, 21st century tax system. It enables us to take advantage of the benefits of technology, to make things easier for those at the coalface—whether they’re employees, whether they’re employers, whether they’re investors—to make sure that they can communicate with the revenue efficiently and in a timely fashion. By getting that information to Government, to the Inland Revenue Department, in a more reliable and a more timely and a more accurate fashion, it enables us to make better decisions—better political decisions, better social policy decisions—with the information that we receive.

Some of the key provisions of the bill relate to pay-day reporting of employee information. One of the main areas of submission that the select committee received just related to how we could make sure that that increased onus on employers to be reporting that information didn’t overreach and didn’t create such a degree of burden on those businesses that that effectively was more significant than the benefits that we received.

So the select committee did quite a lot of work in this area to make sure that those employers, particularly those who didn’t reach the threshold for mandatory electronic reporting, had the ability to continue reporting in a way that was reasonably efficient, without having to consistently be caught in an endless cycle of reporting. So there are a number of quite important changes that were instituted here—for example, around shadow payrolls, where information might come in after an employer has done the previous pay-day reporting. Under the original provisions of the bill, there’d have to be a whole separate reporting occur there. What the select committee said is, “Well, actually, let’s not be over the top. Let’s wait until the next round of reporting, and just make things a little bit simpler.”

But probably the change that I’m most happy about that was made at the select committee stage related to the question of the payroll subsidy. The payroll subsidy has been in place for a number of years, and, effectively, it’s a subsidy which means that employers who are using a payroll intermediary who assists those employers in making sure they are meeting their obligations—it was a little subsidy that just helped to cover the cost of that. And particularly for smaller employers who sometimes do struggle with the complexities of the tax system, that just made things a little bit easier.

The original bill, in my view, on a fairly hard and ideological ground, abolished that payroll subsidy. What the select committee did, by listening to submitters, particularly those submitters who were submitting on behalf of small businesses, was to say, “Let’s retain the payroll subsidy, at least for the next couple of years, as we’re going through this period of significant change with employee reporting, and let’s target it a bit more, so that small employers in particular can have that payroll subsidy to deal with the additional costs that may be created by some of the complexities in this bill.” I think that is a change made through the select committee process that is going to be appreciated by many of the small businesses out there.

I do now want to turn to the Supplementary Order Paper and the question of the extension of the brightline test from two years to five years. We’ve heard a great deal of hyperbole about it in the House today, including this gem from the Hon Judith Collins who talked rather worryingly about the amount of adulterating that might be occurring in this House. I hope there’s not too much of that.

But what Mrs Collins said is that the extension of the brightline test from two years to five years was attacking those who own property. Quite frankly, hearing that coming from a former Government that oversaw the greatest decline in the number of New Zealanders able to own a property is chutzpah in the extreme. What the Government’s reforms in the area of housing and the taxation of investment properties are about is, in fact, unlocking the Kiwi Dream of more people being able to own their own homes. Under the watch of that previous Government, the homeownership rate of Kiwis fell to its lowest level since 1951, and so this Government is not going to stand here and be lectured and told that these changes, which target those who flip properties for significant profit, are somehow going to make it less likely that ordinary Kiwis can own their own homes.

We heard a lot from the Hon Amy Adams using the word “overreach”—pulling out the word “overreach” from the regulatory impact statement. Well, I, in fact, want to comment on the under-reach of that previous National Government in doing anything about the housing crisis that unfolded on their watch. In fact, if we turn to the regulatory impact statement that the Hon Amy Adams referred to, what does it tell us? It weighs up a range of things, but it tells us that the five-year option, as compared to the two-year option, had similar economic fairness and, in fact, overall better administration than the two-year rule.

It goes on to say that, in fact, prospective first-home buyers could benefit from the proposal to extend the brightline test to five years. That is because, in doing so, we reduce the incentives on investors to hold and flip properties in the short term and therefore increase the supply of housing for those people who are legitimately buying housing, as first-home buyers, for their families.

In concluding, this is a bill which is about building a more fair and a more efficient tax system. It does that by confirming the personal tax rates rather than cutting them, plus allowing the Government to invest in the social and physical infrastructure that our country needs. It does so by modernising New Zealand’s tax system by bringing in provisions that allow us to take advantage of the Business Transformation project to make things easier for taxpayers and to get better information to Government to make good decisions.

Through the Supplementary Order Paper, we have a small brick in the wall of this Government’s programme to once again make housing affordable for all New Zealanders. I commend this bill to the House.

Before I call the next speaker, can I ask for people coming into the gallery to take their seats quickly, and can we reduce the noise level coming from the gallery and inside the Chamber while the members are speaking.

Thank you, Mr Assistant Speaker. It is a great pleasure to speak on this tax bill and to see the great interest there is in the broader community in this legislation and this speech. I once wrote a book on the politics of tax, the history of tax, and I didn’t sell that many copies, which always frustrated me because the title was We Won, You Lost, Eat That!, a quote from a previous Minister of Finance. I thought it was interesting, but it never captured the mood of the public, so it’s great to have this crowd here today.

So what we’ve got here in this legislation before us is the annual rate of tax, and it’s worth just having a little look at the tax rates that we have. As you’ll be aware, on the first $14,000 of income people pay 10.5 percent; up to $48,000 it’s 17 percent; up to $70,000 it’s 30 percent; and 33 percent at the top. What it represents is a massive redistribution of income and wealth on the basis of this country. So we have the top 3 percent of income earners paying a full 25 percent of the entire income tax that’s paid in this country, and the top 9 percent of income earners—those earning more than $100,000—pay a full 41 percent of the total income tax in this country.

So there is massive redistribution going on in this country, and why do we do that? Because we value social cohesion in this country. We do want all New Zealanders to succeed and have the opportunity to succeed, and that is why we take such a large proportion of the income from a relatively small proportion of the population and redistribute that generously, and also invest heavily in public services. It’s quite legitimate for there to be plenty of debate about how much redistribution we do in this country, but nobody could make the argument that we don’t do a lot already. That, as I say, is fundamentally because this is a decent society and one that is very keen to see that all New Zealanders have the opportunity to succeed and thrive in their lives. So we don’t burden poorer families with excessive taxation, but we take much more from wealthier families who can afford to pay.

It’s interesting to note that the tax thresholds that were down for change from a previous finance Minister, the Hon Steven Joyce, who we’re about to hear from soon this evening—those changes to the thresholds, which were modest changes dealing with the inflation that we’ve had over the last few years since they were changed, are not going to be happening because of a change made by this Government. They were firmly of the view that it would be wrong for wealthier families to receive some relief from taxation, but as a perfect example of the incoherent—morally and intellectually incoherent—Government that we have, having taken away those modest tax cuts, the next thing they did was offer free tertiary education to the wealthiest families in this country at the same time. How they saw the coherency of those two positions—not being prepared to allow modest tax cuts, but also making sure that the wealthiest families in this country do have free access to tertiary education—is beyond me. So that’s what we’ve got.

We’re left in the situation here, on the National side, of not supporting this legislation. We don’t do that lightly, because it’s fundamental tax legislation. We usually support these bills on a bipartisan matter, but we’ve decided to oppose it primarily because of the last-minute and highly unusual and irregular introduction of a Supplementary Order Paper (SOP) which changes the brightline test for property speculators. We’re concerned about that primarily because, notwithstanding the many great speeches that have been delivered from the other side in the last few years about not going through detailed select committee processes on substantial legislative changes, that is exactly what they’ve done in this Government. They’ve introduced a major change to the tax legislation extending from two to five years the brightline test, so that if somebody buys a property that’s not their own home and sells it within five years, they are automatically deemed to be trading and will pay income tax on the profit of that house.

I’m just concerned that I seem to be losing the interest of the House, but this is important stuff. [Interruption]

💬 SPEAKER: Order!

What we’re getting—and I’ve got a couple more minutes to go, and I just wanted to take you through the details here. What we’re seeing is the imposition, at this late stage, in an SOP, of a significant change to the tax legislation, which has not had the scrutiny of the House through the select committee process. Nor has there been opportunity for the many New Zealanders who may be affected by this tax change to raise concerns about the details.

One of the primary concerns, of course, is that if you extend from two years to five years, the net outcome of it may be that we reduce the supply of residential rental properties, which is likely to have an upward pressure on rents. I don’t like to have heckling from former members of the House on my right when I’m trying to deliver this tax speech! And I would call upon the Speaker to impose some discipline on the situation here—heckling from former members of the House when I’m trying to make the point that what we have here is an iniquitous tax bill that we won’t be supporting on the basis that it doesn’t help one jot in terms of dealing with the fundamental issue, which is providing more houses so that more New Zealanders can get access to affordable housing. If that is the thing that we’re focused upon, then bringing tax changes which will, as the Government’s own advisers have said, have the risk of actually reducing the supply of residential rental properties and thereby putting pressure on rents, is to me one more example of the incoherent and irrational basis upon which this Government has conducted its Government in the last couple of years.

Now, I just would make one final point before I come to a conclusion, and that is that the National Party’s leading member in the scrutiny of this bill in the select committee process was the Hon Steven Joyce. He carried out his duties in that context diligently and with great aplomb, and that, I think, is a reflection of the way that he has spent his 10 years in Parliament, and I do want to pay my personal tribute to the wonderful work that he has done. I’m sure he can leave this place confident in the fact that he’s made New Zealand a better place for being here. Thank you very much.

Notwithstanding the suggestion from my left from the Rt Hon John Key that the member’s time be extended, in accordance with Standing Order 360(3), I call on the Hon Steven Joyce to make his valedictory statement.

Debate interrupted.