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

Well, it was Albert Einstein who said that the hardest thing in the world to understand is income tax, and coming from a genius of that stature, we can only begin to think how complex it is. But this bill is a step towards—perhaps a baby step—making income tax easier to understand and easier to comply with, and, if I may say, that’s an important part of what tax should be.

Tax, of course, is the foundation stone upon which this country is built and upon which the Public Service depends. It is, of course, essentially the price we pay for a robust welfare system, and those robust systems that the public depend upon. It’s simply not right to think of tax as an onerous obligation; it’s simply a part of participation. So, in a sense, the other function, of course, that this plays—and that this party is looking at—is the rebalancing of wealth, income, and equality within our society. However, tax poses special challenges, and this bill is no exception to that.

The complexity of tax law for a legislator is a huge challenge. Our Income Tax Act, which I took a moment to look at today, is 3,351 pages long, and that, I must say, is a challenge to anyone. In a sense, complexity of that nature is a tax break for tax lawyers because only tax lawyers can understand it. So we really do have some issues here, and this bill aims at simplifying that by using the tools which are at our disposal—and, in particular, online tools and tools of integrated reporting are part of that. So, in terms of that financial complexity, that legal complexity, and also—what we’re seeing more often—that cross-border complexity, we need to use all of those tools at our disposal.

So good tax law needs to be understandable, accessible, and predictable as well, and that’s one of the important parts of this fine-tuning—fine-tuning which, I must acknowledge, was put in place by the National Party and picked up by Minister Nash. But this is really part of our financial and Treasury infrastructure, and we must keep it up to date. So this, in a sense, is housekeeping.

We’ve got to stay one step ahead of those cunning tax accountants and make sure that where they look for a loophole, we are right behind them, and that’s what’s happened—particularly in respect of employee share schemes—here in this piece of legislation. Those timing questions, the questions of when those shares are valued—the accountants have looked at that and seen essentially a mismatch in there. Like rust, they never sleep. Like rust, they will erode the very structure of what’s going on there if we give them a chance, so we do need to come right up behind them to tidy up those employee share schemes and get the valuation dates right so there’s no mismatch there. You can’t have people essentially gaming the system by choosing when the date upon which the shares that the employees are entitled to occurs.

So, you know, we’ve got to follow up those issues but also make tax law predictable. It is essentially intuitive, so that there’s not any surprising twists and turns and so that a good-faith and honest approach to the tax system will result in the correct amount of tax being paid, and, of course, that is a constant struggle. It’s a struggle between an attempt at simplicity—and, if I may say, an attempt which we need to continue to work on; we do need to simplify our tax law—fairness, and staying ahead of those gamers.

So this is an ongoing struggle, because accountants and lawyers will continually follow the money and look for ways to pay tax legally but minimally. There is no such thing as the spirit of the law when it comes to tax. There’s just “How much I have to pay and how much I don’t.”, and so we’ve really got to get these rules right. So that’s why we have over 3,000 pages of an Income Tax Act, and I must say that this bill, sadly, will add to that somewhat, so there is work to be done. As we know, this Government is continuing to do work around tax and will continue to be vigilant, both in respect of this kind of administrative work—this maintenance work; getting rid of the rust—and also looking at the very structure.

💬 SPEAKER: I’m giving a hint to the member that just saying “We’re considering the bill.” is actually not good enough at the third reading stage. The member should be talking about it—not a general treatise on tax.

Well, thank you, and what I was going to say, Mr Speaker, in terms of the tools that are being brought to bear, the movement towards online—in fact, I have mentioned that, as well as the employees’ share evaluation, already. So I am familiar with the bill and, I must say, sitting on the Finance and Expenditure Committee was certainly an education.

But the use of the online filing is an important part of this bill. The idea that we get nearly real-time filing of PAYE returns is an important part of this bill. Of course, one of the things that we need to do—and which the select committee did—was to make sure that whilst those employers who can will file on a pay-day basis, we don’t leave behind those who aren’t yet able to do that, because there is a concerning minority of people who are unable to file online. The select committee process improved the bill in that way by ensuring that those people could still file manually and didn’t have to do it in an unrealistic framework. So that’s important, particularly given the volume of tax returns that are out there. In fact, over 12 million returns were filed last year. This is actually part of the Business Transformation project, and for the IRD that kind of volume of tax returns isn’t manageable in the absence of that kind of work.

Of course, the other thing that’s in there is recognising withholding tax payments for interest. This bill—again, in select committee—was adjusted to make sure that it was achievable and that there was no unexpected rule there in terms of having to declare withholding tax. Whilst withholding tax on interest is, of course, critical—it’s income that needs to be taxed—the fact of the matter is that there are plenty of small arrangements out there. Again, the tax advice received in select committee was extremely valuable in identifying those taxpayers who would be essentially ambushed by the requirements that were being placed on them—particularly those loans and transactions where the interest payments were less than $5,000. So, in that respect, it was a very important improvement on that bill, because unless we do that, we’re going to have people defaulting on their tax obligations in an entirely unreasonable manner.

The other thing, of course, that’s gone on here is the subsidy for payroll agents. Now the fact of the matter is that they do serve an important function, but we must be vigilant about any subsidies out there. So it is quite right that those subsidies will be gone by 2020, but that date was, again, extended so that there was a little more transition time—particularly, again, in respect of the small and medium sized businesses, because, as we know, those businesses don’t have huge amounts of resources to adjust their taxes and they may well be doing their own accounts. To take away that subsidy would be to thrust the burden back on them, and this is about compliance.

So the real theme of this bill is to make compliance easier by a range of tools. But those tools have to be adjusted in themselves to make sure that they’re not placing unduly onerous obligations on taxpayers but, at the same time, are making tax administration as efficient as possible, so that the collection of tax is being done at as low a cost as possible and the opportunity for tax avoidance and evasion is reduced as far as possible.

Of course, the other important thing this bill does is that it affirms existing tax rates. There will be no new taxes in this bill. So look, if you’re paying more tax, yippee! What that means is that you’re making more money, the world’s a better place, and that’s a great thing for you and for us. Thank you, Mr Speaker.

Thank you, Mr Speaker. It’s a pleasure to take a call on the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill third reading. I was not privileged to be part of that select committee in the earlier stages of this bill, so I’ll choose to comment on a few issues that have been raised in the course of the debate tonight and one or two other things I think are important.

I found the last speaker, Duncan Webb, really interesting, because I almost agreed with most of what he said, but one thing he did say which I thought was quite extraordinary was that this Government’s aim, really, is to rebalance the wealth income inequality within our society. Well, I can assure him that if taxation’s got anything to do with this, when you rebalance wealth in a society, you just chase it overseas. That’s the first thing that’ll happen if you’re going to start rebalancing our wealth. That’s an unbelievable thing, I think, for any Government to aim to do. I certainly have no problem with equality within a society or with people paying their share of income tax, but I think to make a statement like that is extraordinary.

The next thing I want to address is a couple of statements that Fletcher Tabuteau made. I don’t want to address the statements he made so much as the results of what he talked about. Tax is an interesting beast, really, because if we don’t make it simple, we’re in trouble, and I’ll talk more about that a little later, but you either tax things to incentivise better behaviour or you tax things because you want more money. Frankly, if the brightline test being moved to five years is a tax to incentivise better behaviour, I think it’s very odd. It seems to me it’s just purely a grab for more money, frankly, and the interesting thing about that grab for more money is it doesn’t penalise your normal property investor, because they’re there for life. It doesn’t penalise the people in New Zealand that invest in property to create an income. It penalises the mum and dad investors in this country, who put their little bit of life-savings they’ve got into something that they can touch, go down to on a Saturday morning, make sure it’s still there, and make sure it benefits them in their retirement.

The reason it penalises them is because, often, those people are forced, for one reason or another—sometimes by Government policy, even; sometimes by the need to pay tax—to sell those properties at a time that they’d never planned to sell them at. This sort of tax, really, in my view, penalises those people and doesn’t penalise the people that it’s aimed to get at, at all, and that’s a fact.

If you think about a normal property investor, they’re in property for the life. They are there to rent properties, whether they’re commercial or whatever they are, to the people who occupy rentals or use commercial premises for rental, or whatever. So I think that to put a tax like this on initially—so, a two-year brightline test—is there to incentivise better behaviour. A five-year brightline test is basically there, in my view, to penalise, or is a money-grab to penalise, people who have gone into investment for one reason or another. So I think the family investors, the average person who has a little bit of money invested in property, are the people who are going to suffer the most as a result of this.

I think there are some very good points to this bill. I think it’s necessary to simplify our tax system. I think the simpler our tax system is, the better off people are. One of the real challenges—and I’d agree with the previous speaker, Duncan Webb, on this—we’ve got in New Zealand is actually understanding the tax legislation. A lot of people who get into trouble with taxation, and perhaps not paying it, are people who haven’t fully understood the tax legislation, haven’t understood how it should be applied, and haven’t asked or sought out satisfactory advice on it. I think that anything we do to simplify that tax situation is very positive, and the transformation of our taxation system, which was begun under the National Government of the last era and continued by this one—and full credit to them for continuing it; I think it is very positive for us. But I also think that the less tax we have—not less tax; the less taxes we have in New Zealand—and the less broadly we spread that net, from a different taxation point of view, the better off we are as a country.

As I said earlier, I have no problem with people paying their share of tax. I think we need to be very careful, though, in this country that we don’t continue to penalise those people who make this country go round, and those people are the average workers who go out there every day, pay PAYE, save their little bit of money and invest it on the weekends. If we continue to tax them, continue to increase rates on them, continue to put more costs and, frankly, more compliance on them, there will be a revolution one day. That’s the challenge we’ve got in this country, in my view.

So I’ve got no problem supporting this bill—supporting the bulk of this bill; certainly not supporting the bill through the House, but I do think there’s some very good parts to it, and we’ll see where it gets to. Thank you.

Just prior to the break, we had the delight of listening to the closing remarks of the Hon Steven Joyce. We sat back and we got to have a little giggle about some of the trials and tribulations that one faces as a parliamentarian, but it also triggered my interest to see what types of comments and recommendations had been before this House as we were considering this bill, the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill.

Now, by and large, it seems, under the good stewardship of the former Minister and a majority of his senior colleagues—and we’ve listened to their commentary this afternoon. By and large, they seem to support the substantive matters in this bill. We look down and it’s, you know, proposals to reform the administration, the PAYE system—so that’s around simplicity—and accessibility, ensuring that people can access the tax system in a more user-friendly way. We’ve got proposals relating to the collection of investment income information, proposed changes to the taxation of employee share schemes, and the setting of the annual rates of the income tax for the 2017-2018 year. All of these themes seem to be relatively agreed to, but the sticking point, if I listen to the remarks of our colleagues from across the House, seems to be around a wee rule that they introduced in 2015, the brightline test—the brightline test. It was a cracking policy then, and it remains a cracking policy now, and I’m absolutely heartened to see that we’ve finally got a Government that’s taking some of these issues seriously.

Now, just on my way back from the dinner break, I had the misfortune of falling down a blimmin hill on my way back down here and I ripped my pants and had a biker zoom past me, and I realised I needed a band-aid. Then I was reflecting on the policy that they introduced in 2015, when they amended and introduced the brightline test, and I realised it was just an ad hoc band-aid that they had sought to rely on to address this housing “not crisis” crisis and to appease and make some goodwill amongst the populace. Then I was reflecting on, “Well, surely there must be something else to it.” If they really are not going to support this fundamentally important tax bill—and, by and large, it’s an omnibus bill. I stumbled across this fantastic quote, and they said, “Well, what is the difference between the two-year and the five-year rule? You have five years and one day”—[Interruption]

💬 SPEAKER: Order! [Interruption] Order! I’m struggling to hear the member’s colleague, and we have two people sitting in the whips’ seats who are involved in a conversation with Mr King, and it’s to stop.

Thank you, sir. I stumbled across this fantastic quote, and the quote is “What’s the difference”—in reference to the brightline test—“between a two- and a five-year rule? You have five years and one day—same problem. It’s exactly the same thing.” I want to thank the Hon David Bennett for that contribution in 2015.

And then I was thinking, “You know, well, OK—righty-o.” Here we are, we’ve got a Government that’s recognised that there are some fundamental crises that exist within this country right now—housing’s right at the top of that. When we’re looking at—look, by and large, a majority of this bill is great law that this whole entire House can agree to. But the sticking point is about whether or not we should extend the brightline. There was a failure in the previous administration to recognise that there is an absolute housing crisis, and if some of the members opposite would take a minute just to step outside of their fine dwellings and fine environments, they’d realise that the people that are crying mostly about this bill aren’t your mum and dad investors and so on and so forth, as we’ve heard bleated from across the other side of the House. This particular provision, the Supplementary Order Paper introduced by the Minister, is about taking off the pressure valve on a system, on a housing market, that’s completely overheated.

💬 Brett Hudson: No, it’s not.

It’s absolutely overheated, and the same submissions that my colleagues from across the House made in 2015 can apply now. I read again: “The heart of this bill is all about introducing greater fairness for all taxpayers, and it’s about introducing greater fairness”—sorry, for all taxpayers. And it’s not about ensuring that those who are speculating on—it’s about those that are speculating on property do pay—

Order! The member’s time has expired.

Thank you, Mr Speaker. It’s a pleasure to rise on this Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill, a bill of which a great deal could be supported but for one egregious, anti-democratic action by this new Government, which means that in all good principle, we cannot support this bill in its third reading.

Before I get on to the substance of the bill, I just want to remark on a previous speaker’s, Duncan Webb, quote of Einstein. I believe his quote was actually accurate. There is enough evidence or anecdote to suggest that Einstein may well have said that, but I’d just like to remind members: always be careful, and bear in mind that great, sagacious American President, Abraham Lincoln, who noted that 80 percent of the quotes you get off the internet are false. So the bill itself has much to commend it.

💬 Hon Christopher Finlayson: Speaking of Einstein, here’s Tracey Martin.

Keeping the tax—well, indeed! Who briefed Miss—so the tax rates remain the same. That’s a good measure, but, really, the single thing about the bill which is something we could all commend is the work it does to help smooth the pathway for the Business Transformation programme at the Inland Revenue Department. That programme will enable the tax system in New Zealand to run so much more efficiently for all manner of income earners or for personal income earners, for businesses, for investors, and for Government itself.

So what we can do as a Parliament to help to ease the processes, the information elements and sharing around that, are very important steps to helping to ensure that New Zealanders and New Zealand businesses can operate more effectively and in compliance with their taxation obligations into the future. It is something we can commend. Unfortunately, though, after the bill was returned to the House from the Finance and Expenditure Committee, the Government, I would say—my perception is—very cynically, a day or two later, introduced this idea of a five-year test for the brightline test. It is something that, because they would certainly have already determined that they wanted to do this, could have been introduced in the select committee process either prior to or as a Supplementary Order Paper, and it could have been debated in select committee. New Zealanders, individuals, and businesses from across the country could have had their say—could have had their say—just like officials did.

Well, officials did have their say, and the officials noted that it came with risks of locking people into investments which may prove suboptimal for them. It might also result in fewer house builds, particularly rentals. It may end up having overreach that means it actually ends up taxing people who are not speculators but merely are in circumstances where maintaining or retaining that investment property or properties does not make good sense for them for a full five-year period. Their call was, when they first advised our previous Government, that two years was an arbitrary measure but a good measure where you could have a high level of confidence that you would capture the speculators at that threshold, but shifting the threshold to five years would instead just mean that you’re taxing so many people for whom their motives are as pure as this Government believes itself to be—even though it is not, in our view.

So they’ve introduced the thing which is, quite frankly in my view, anti-democratic, because they could have put it in earlier, they could have allowed the public to have their say, but instead they ran from what they expected, I believe, the response to be and instead waited till that moment when they could introduce it and subvert our democratic processes.

We find ourselves now here, in this third reading, with a bill which was actually the bill that the previous Government introduced, except for that one element, the one element which makes it impossible for us to support the bill and where we are prepared to take this principled stand. It is normally a bill we would support, and support without too much debate, but we will take this principled stand so that New Zealanders know that we stand here, backing hard-working Kiwis who are just looking to succeed and who deserve a Parliament that backs them to be successful, deserve a Parliament that actually has confidence in them and is helping them to get ahead, instead of a Government who treats all success as bad, and they’ve never met a tax they didn’t like, and they just see an opportunity to take more money from hard-working New Zealanders. We oppose this bill.

Thank you, Mr Speaker. I rise to support the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill. I offer a short call mainly to focus on the brightline test—how this proposed legislation will extend the brightline test to five years so that it requires that income tax is paid on any particular capital gains from residential property purchased and sold within five years. Of course, those are properties which are not lived in as the home property.

I’ve heard quite a bit from the Opposition side of the House tonight about how this will detrimentally impact on hard-working Kiwis and their investments. I just want to bring us back to the fact that we also need to support hard-working Kiwis who just want a house to live in, let alone to invest in, who just want a house to be able to be affordable to either own or rent, and that we’ve really got to rebalance. We’ve gone out of whack in the way that we have upheld houses in this country with the lack of regulation and the way that houses in this country have become such a focus of investment in a way that isn’t balanced for our economy and especially for our families. Even in the National Party’s 2009 Tax Working Group, they themselves identified that this inconsistent taxation of capital in New Zealand breached all principles of a solid, good tax system, particularly distorting investment decisions. So we’ve got to pull that back a bit, particularly because speculators in recent years—I was having a look at some of the figures; some of the speculators were able to flip houses on the very same day of settlement for six figure sums—on the same day; on the same day. I’ll just mention very quickly that it’s been no secret that the Greens support a comprehensive capital gains tax. We do support this extending—

💬 David Seymour: On the family home?

Not on the family home. We do support extending, from two years to five years, the brightline test, but it’s been no secret that we do support a comprehensive capital gains tax.

But I just want to pull us back to setting up, sort of, what the Opposition are calling mum and dad investors in competition with our New Zealanders who also just need the chance to live in affordable rental homes or even have the chance to buy their own first home to live in. That’s why we have to address and use the tools that we can to rebalance the way that houses have been used as businesses in this country rather than just as homes, and that ends up pushing everybody down the homelessness continuum in this country. So that is why the Greens are very clear in our support for this, and we will of course keep pushing our discussions. No piece of legislation in this House sits alone in a vacuum. Of course we will address all the other areas of the housing build, supply, regulation, rent controls, State housing, and social housing that need to go alongside this sort of legislation, but we should get back to a principle of rebalancing investment so that we can make more sound and more diverse investments, instead of relying on houses not just as investments but as massive corporate property development portfolios.

So I totally applaud the work that we have started. This is a start to that rebalancing taxation work and investment rebalancing work that we have to do for our economy and for our communities and that we—the Green Party—will keep pushing for further comprehensive tax regulations and changes and further comprehensive capital gains tax on property. Thank you.

💬 David Seymour: Mr Speaker.

💬 Andrew Bayly: Mr Speaker.

David Sey—well, unless the member wants a five-minute call. David Seymour.

Thank you, Mr Speaker. I rise on behalf of the ACT Party in opposition to the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill. There are three parts to this bill, and I’ll start with the good, which is that this bill addresses all manner of mischief in our complex taxation system. It’s a great tribute to the officials, to the Ministers from both sides of the House who have worked on this bill over the past year, and, I might say, to the members of the Finance and Expenditure Committee that issues such as the treatment of an offshore insurance market place such as Lloyd’s of London have been accommodated in this bill in such a way that our taxation system is neutral towards activities and raises revenue fairly. So I think it is worth acknowledging the work that so many people have done on deeply technical and difficult matters so that our taxation system maintains integrity.

The second part that I’ll draw your attention to—it’s actually Part 1 of the bill—is setting the annual rates. The tax rates in this bill are completely unchanged for another year, and for another year, families in this country, through no fault of their own, simply because inflation has increased their nominal take-home earnings but not what they can actually afford to buy, they find themselves pushed into higher tax brackets for the same purchasing power. Families in this country on the average wage find themselves paying thousands of dollars more every year in income tax simply because not only the current Government but the one before it for eight long years refused to adjust tax brackets and have pushed more and more people into higher and higher tax rates just through inflation. That is a great shame and this bill tonight should be giving relief to the taxpayers of New Zealand and allowing the people who earn the money to keep more of it.

But the part that’s attracted the most debate tonight is not the technical amendments, it’s not the tax rates, although those are important and should be given more attention; the part that’s attracted the most attention tonight is the extension, somewhat surreptitious as it’s been pointed out, of the brightline test to five years from two. You see, if you sell a house, a house that is not your primary residence—and let’s not go into how the IRD judges whether it’s your primary residence except to quote Adam Smith, who said that an income tax would be an intolerable interference in the affairs of everyday people. But let’s just say that you sell a house within five years, you will now pay tax on any capital gain that you make. Tonight, this Parliament is introducing a de facto capital gains tax to New Zealand housing. Let’s make that absolutely clear.

Let’s not listen to the braying from the National Party who find themselves in this absurd position of arguing that a two-year brightline test is not a capital gains tax but a five-year brightline test somehow is. Amy Adams said that that’s in the regulatory impact statement and I can tell the people sitting at home that the regulatory impact statement says no such thing. The message to the National Party is that if you want to fight socialism, don’t adopt it. If you don’t like oak trees, then don’t plant acorns, because taxes are like acorns: they grow. [Speaker holds up bill] If you plant an acorn and you start a tax, it will inevitably grow, as it is growing in this bill tonight, Mr Speaker. We have a capital gains tax being introduced on houses tonight and it is happening because this Government punishes success, because this Government resents the accumulation of wealth, but also because the previous Government, in introducing a two-year brightline test, enabled a five-year brightline test. Thank you, Mr Speaker.

Thank you, Mr Speaker. It’s a pleasure to be talking on the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill tonight. We seem to be trading quotes, so tax always reminds me of this quote: it’s from Matthew chapter 13. It says, “Whoever has, will be given more and he will have an abundance. Whoever does not have, even what he has will be taken away from him.” I believe that sort of sums up tax to some extent.

I thought, as the previous speaker, David Seymour, noted and, I think, across on the other side, this bill does cover a lot of ground, and a couple of areas that no one’s traversed previously I just thought I would highlight. The first one is around employment share schemes. One of the important things about this bill was to look at modernising and improving the tax treatment around employment share schemes. It particularly affects young innovative companies that don’t have cash often to reward their employees and it’s therefore an important part of the fabric of promoting a vibrant economy in New Zealand.

Of course, what the bill does is actually make sure that the tax treatment on shares given to employees is tax-neutral until the time that they have, effectively, fulfilled the requirements to get the shares issued and to be paying tax at that point in time. The corollary applies with regard to the employer, so to make sure that the employer pays the tax at the right period and therefore matching it up on an equivalent basis. I think this is important because it clarifies the employment share schemes. There’s been a lot of debate about it. We had a lot of debate in the Finance and Expenditure Committee about it but I think we landed in a good position with it.

The other thing I just want to note is that one of the issues is with the demerger of companies and many New Zealanders hold shares in listed companies where they end up by demerging. What I mean by that is—you might take Fletcher Challenge, and if you go back many years ago when they split the operation into a whole lot of subsidiary entities, the shareholders in the head company all ended up with equal allocations in the subsidiary companies.

Now the situation that applies at the moment is where New Zealand shareholders own shares in Australian companies that demerged, Australian shareholders are appropriately treated and are not disadvantaged by tax. But under previous rules or current rules, New Zealand shareholders, if they are issued shares in a demerged entity, that is, effectively, deemed a dividend, and what this bill does is address that situation to make sure we are not disadvantaged.

But I do want to put on record that new section ED 2B inserted by clause 45 of the bill—this deals with Australian companies, and I think one of the outstanding issues relating to this is that we need to put in place equivalent arrangements for companies in New Zealand listed on the stock exchange who demerge, and New Zealand shareholders should also be able to benefit from an equivalent treatment. This has not been treated in the bill and it’s one of those matters that is probably going to be picked up—and I hope it’s going to be picked up—the next time similar taxation legislation comes before the House.

But I just want to turn to the last thing, which I believe is a travesty. This is the issue of Supplementary Order Paper (SOP) 13 which was callously introduced after the committee—after a long, long period of time where this committee worked collaboratively to work through this complicated tax bill. Only after it was completed was an SOP, going to seven pages—we’re not talking about a minor SOP. We’re talking about a significant change, where this SOP was presented to the House after we had completed our report, which meant that it could not be referred back to the committee.

I actually proposed a motion in the House that this SOP should be returned to the committee for a full debate. Unfortunately, the coalition Government voted that down, and so what we now have is this bill that has this significant addition to it, which, as some of the speakers have reported, extends the brightline test from two to five years.

What the issue is is the unintended consequences that I believe that this SOP represents. It represents the fact that with 40 percent of the New Zealand households, or houses owned in New Zealand that are owned by New Zealand mums and dads, from now on, unless they are selling their house as a result of a dissolution of a marriage or as a result of inheriting a property, or if it’s not their home—if any investment property, or whether it’s a property they bought for their children, or if for any other reason they bought a second home, which could be for the most valid of reasons, it will mean that now they are under the rules of this new SOP of five years. So that means that if someone gets into financial trouble for some reason, they are now subject to this five-year brightline test. I think the unintended consequences are significant, and I’m very, very disappointed it’s come through into this bill. Thank you.

The Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Bill has followed a familiar pattern with tax legislation. There are several tax bills that come into the House every year. It’s regular work for this House and it’s regular work for the Finance and Expenditure Committee. As is usual with this particular bill, both sides of the House worked on it together. The Opposition before the election and the Opposition after the election agreed, in large part, with this bill. There were some quibbles, some tidy-ups, some corrections that came through in the select committee process, but, actually, it was pretty much a matter of joint work between all the parties in the House and all the people who worked on it. So it’s an example of fantastic Government across all the branches of Government, from all the people who participate in governing in our democracy, from the officials to professional bodies, to experts, to actors in civil society, and to politicians, working together to get it right. So there’s a lot of agreement on this bill, and when we look at the reasons why we agree on a lot of the measures in this bill, it goes straight back to basic tax principles.

Now, earlier, my colleague Marama Davidson talked about the way that people do try to get around the tax system. So, like motorists are always trying to find a faster route, or a rat-run, through the suburbs, tax accountants and lawyers always will find a way through tax legislation to ensure that their clients are better off, and that results in unfairness. Now at least some of the measures in this bill are to do with evening out the tax Act again.

I think the employee share scheme rules, which both sides of the House agreed on, are an example of this—ensuring that there is fairness between income earned as salary and wages and income earned in the form of employee share schemes. It’s a basic fairness measure. The demergers that my colleague Mr Bayly referred to are an example of fairness—of trying to achieve fairness in the tax system. The petroleum mining decommissioning clauses—again, it’s about achieving fairness in the tax system. I think that’s why there’s been a large amount of agreement on both sides of the House.

Some of the new rules in this tax Act are to do with reducing compliance costs, making it easier for employers to pay tax. I think one example of that is the treatment of advanced payments of holiday pay. That could be a bit tricky for employers to manage, but those advance payments of holiday pay are now covered under the extra pay rules. It’s quite a technical point, but it makes life easier for employers. And, of course, there is a whole lot of work in this bill that is to do with getting the Business Transformation up and running at IRD. Again, that’s a matter of reducing compliance costs, making our tax system run more fairly, and all sides of the House, all parties in the House, agree on these rules.

There is, in fact, only one major difference between the Opposition side of the House and the Government side of the House on this bill, and that’s the reason they’re proposing to vote it down. The point of difference is to do with the brightline test, and I actually struggle to understand why the Opposition is opposing the brightline test. Look, it cannot be the structural mechanism of the brightline test. It cannot be the actual rules around it, because the Opposition, when they were in Government, were the very people who put those rules into place. So it cannot be to do with the way that the rules are structured, and, more to the point, there was a full-scale consultation process about the way those rules were structured when the brightline test was brought in by the then Government, now the Opposition. So it cannot be the structural nature, the structural mechanisms, of the brightline test.

It cannot be the complexity of this change. Now, Mr Bayly has told us that there was a seven-page Supplementary Order Paper, as though this somehow hinted at complexity. But when you read that Supplementary Order Paper 13, you will see that, consistently, all it is doing is changing the number “2” to the number “5”. Now, Mr Bayly may regard that as a complicated measure, but I assure you, it’s quite a simple matter to change a “2” to a “5”. That is not a complex issue. So it cannot be the complexity of the issue that is the reason for their opposition to this bill.

It cannot be the idea of taxing property sales. Property sales have long been taxed in various ways by our Income Tax Act. In fact, the Act has a plethora of rules for taxing property transactions. If you buy with the intention of resale, you are subject to tax on any gain you make. If you buy and sell in the course of business, you are subject to tax on any gains that you make. If you are a property developer and you subdivide a property, you are going to be subject to any gains that you make there. There is no prohibition against taxing the gains on the sale of property in the Income Tax Act; we actually think it’s a good thing to do. It cannot be just the very idea of taxing property sales, so the only thing I can think of that they object to is the change from two years to five years. Somehow, they see there is a huge and massive change in that that was not already in the tax Act.

I think it would help them to understand a little bit about what this brightline test actually does. Now, I’ve just spoken about the rules for taxing property in the Income Tax Act, and they are complicated and difficult. In particular, when it comes to taxing a property that has been bought with the intention of resale, absent the brightline test, you have to be able to understand what the intention was when the property was purchased. Now that’s a hard thing to do—to get into someone’s mind—so what the brightline test does is it is a deeming provision. It simply deems that if you buy a property and then sell it within two years, you are deemed to have bought it with the intention of resale, and therefore, you will be subject to tax on it. All we have done is shifted it from two years to five years. The deeming now occurs for properties that are sold within five years. It’s a simple and straightforward matter.

But what objections have they raised to this? I think one objection—in fact, the major one they’ve really made—is that they think, somehow, it is going to be unfair. They said, “What about people who get sick? What about people whose financial condition changes? What about people who fall on to hard times?”—interesting to hear the National Party caring about that. But, you know, let’s just remember what’s going on here. If you have fallen on hard times and you have to sell your investment property, you will only be taxed on it if you make a gain. Taxing it is a sign that you have actually made a gain. Tax only occurs on income. You have actually made a gain on sale; something good has happened. Far from falling on hard times, you will recover your investment and a bit extra. It’s only the little bit extra that’s going to be taxed like any other form of income.

Then we had the Hon Judith Collins, and she was terribly worried about investors who might have bought a property and fallen on hard times and then they find that the rent they charge didn’t cover the interest expense. Now I’m just confused by that. Because, you see, what sensible investors go in to an investment knowing that the income they get from it will be less than the expenses? That can’t have been an investment; they must have bought it for some reason. They must’ve bought it for the capital gain, because there can be no other reason to enter in to an investment if you’re going to make a loss on it every year. Now, frankly, if you are buying a property in order to get the capital gain then I suggest that that gain needs to be taxed. Frankly, it is generous—it is generous—ensuring that only properties that are sold within five years are subject to that capital gain. And I sincerely hope that our Tax Working Group will sort some of these issues out.

I am very pleased to have the last words—the last words—in this debate, and to say that this brightline test is an example of the fairness and the integrity that the members of the Opposition were touting as signs of a good tax. I urge them instead of continuing their opposition to this Act to see sense, to see reason, to stand up, and vote for this excellent bill.