Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill

on behalf of the Minister of Revenue: I present a legislative statement on the Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill.

💬 SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.

I move, That the Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill be now read a second time.

The bill covers a wide territory. Half of it is focused on ensuring the tax system can continue to function efficiently. To that end, the bill contains a number of remedial items. In addition, the proposals introduced by Supplementary Order Paper (SOP) 64 address the issue of interest deductions as a business expense for residential investment properties, and I will come back to that proposed amendment later on.

Remedial work is important to ensure that the tax rules remain fit for purpose. The bill also contains measures designed to ensure that the tax system keeps pace with business practice and minimises compliance costs. As a sign of the times, the bill therefore contains proposals relating to e-invoicing and the GST treatment of cryptoassets, amongst other things.

The Finance and Expenditure Committee has made welcome recommendations on the bill, and I do want to briefly outline those changes and thank the committee for its work. Now, these changes include a recommendation on the proposal to extend the relief of use of money interest, which is charged for late payment of taxes for those affected by COVID-19. The committee has recommended extending it to the 2021/2022 year.

The bill also proposes to introduce measures to modernise GST information requirements. One objective of this is to reduce the compliance costs, but where businesses might face costs for some proposals, the committee has recommended that the application date be deferred to 1 April 2023, to give businesses time to adapt. The bill proposes a new pooled alternative rate option for calculating fringe benefit tax on attributed benefits to support changes resulting from the new top personal tax rate. The committee has suggested a simplified threshold of $160,000 salary and $13,400 attributed benefits to make it easier for employers to work out whether employees should be on the highest or second-highest fringe benefit tax rate. Another recommendation from the committee relates to the local authorities measures in the bill. The committee recommends extending the dividend exemption to partly owned council-controlled organisations (CCOs) and holding company CCOs with 100 percent public ownership.

I’d like to thank the committee for their work on this bill. Their recommendations have added value. As part of their consideration of the bill, the committee also considered measures that originated from Supplementary Order Paper 64, which I would like to outline for the benefit of members. The SOP is a significant one as it contains measures to curb residential property investors’ appetite for existing residential stock. It’s the Government’s goal to level the playing field for existing homes in order for first-home buyers and those moving into a new home to have a level playing field compared to those investing in residential property. Investors can generally outbid first-home buyers, so we want to make residential properties less attractive for investors, while stimulating investment in new housing. The proposals introduced by Supplementary Order Paper 64 will help to achieve that goal.

We’re proposing the removal of interest deductions as a business expense for residential investment properties, but allowing deductions for property developers or people purchasing a newly built residential investment property. The proposal will not affect the main home. That proposal has attracted a fair bit of attention from media and commentators. Yes, it is a principle of our tax system that expenses incurred in earning income by a business should be tax deductible. However, investing in property to reap a capital gain doesn’t seem like the way to grow the economy, and it means people trying to purchase a home to live in have a harder time buying. Tax is not the cause of the problem, but it does contribute.

It seems that massive residential property investment in New Zealand has been fuelled in part by the tax treatment of residential investment property, which frequently involves no taxation of gains on sale. That, in combination with full deductibility for interest on what is often high levels of debt, makes residential property investment a very attractive investment option currently. That demand drives prices up, making it difficult for first-home buyers to compete with investors. That’s why, last year, we extended the brightline test to ensure that more of the gains on sale are taxed. Now we are addressing the interest expense deductions. Deductions for interest expenses on residential properties will be restricted from 1 October 2021. I’m interested to see that commentators are predicting an end to the housing boom in New Zealand. They point to mortgage affordability as a prime reason. I believe the interest deductibility policy plays a part in that. The policy will be phased in so that interest deductions on a mortgage on a residential investment property acquired before 27 March 2021 will be progressively reduced between 1 October 2021 and 31 March 2025. Interest incurred in relation to a property purchased after 27 March ceases to be deductible from 1 October 2021.

The proposals in this bill aim to dampen investor demand for existing residential properties but also minimise obstacles to supply. To that end, the bill contains some exclusions which will allow deductions to continue to be available for some taxpayers. By allowing interest deductibility for property developers but removing it from other investors, we will continue to encourage supply.

We’re also proposing some key exemptions to support the supply of new housing. We’re proposing that property development and new builds will not be subject to the new rule. This should help boost supply by channelling investment towards expanding the housing stock and away from direct competition with first-home buyers and owner-occupiers for existing housing stock. In addition, new builds would be subject to a five-year brightline test rather than the 10-year test.

Non-residential properties, for example, commercial or industrial properties, would not be subject to the new rules. Also excluded are employee accommodation; farm land; care facilities such as hospitals, convalescent homes, nursing homes, and hospices; commercial accommodation, such as motels, hotels, and boarding establishments; retirement villages; and rest homes. The main home would not be affected by the new rules.

Interest related to any income earning use of an owner-occupier’s main home, such as a flatting situation, would continue to be deductible. Community housing providers will not be affected by the interest limitation rules if they are charities or otherwise tax exempt. We also propose to exempt Kāinga Ora and its wholly owned subsidiaries from the interest limitation rules.

As I mentioned before, these proposals have been considered by the Finance and Expenditure Committee, and I thank them for their work. They have made some valuable improvements to the bill, particularly in the exemptions area. For instance, the committee’s recommendations align with the Government’s intention of adding to housing stock and include ensuring that new-build land should include certain dwellings on the earthquake-prone building register, or former leaky buildings that are at least 75 percent re-clad, also clarifying that commercial-to-residential conversions can qualify as a new build. In addition, the committee has recommended that the main home exclusion from the brightline test should apply to a new main home while it is being constructed, unless the time taken is unreasonable. It clarifies that if part of a property is sold, the brightline period only resets for that part, not the whole property.

The housing issue is a serious problem that has been decades in the making, but it is not just a problem for first-home buyers but for the wider economy. The International Monetary Fund has warned that New Zealand’s ballooning housing market could trigger a pronounced correction. Acting on this now helps to protect our economy. I commend this bill to the House.

Thanks, Madam Speaker. It’s a pleasure to be talking on the Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill. Of course, we will be opposing this bill, because the first thing it does is it entrenches the high tax rates that this Labour Government has imposed over the last four years. Secondly, it brings in, through a Supplementary Order Paper (SOP)—which is rather strangely done, under procedure of introducing these new rules around the brightline, through an SOP introduced by Mr Parker, the Hon David Parker, rather than being embedded in the bill.

So, first of all, I’d just like to say there are some elements of this bill that are good and we supported. I think the Minister, in reading out his speech just before, actually adequately catered for and dealt with the issue of the contribution of the Finance and Expenditure Committee’s work on it, which—I acknowledge all my colleagues. But I think there were some good things. The first thing was the issue around cryptocurrency—dealing with the GST element on that, and ensuring that cryptocurrencies weren’t subject to GST rules. Also, allowing for GST on the domestic leg of a parcel, as an example, that has come from internationally—say, from Australia—when it gets delivered to the home address in New Zealand. This bill, when it’s enacted, will mean that the GST component of the domestic component is not payable on that transaction.

I think there’s also things like penalties around sales suppression software, and this is software that deals with issues where electronic records are falsified at the time of point of sale, and that’s very appropriate. The last issue that the Minister mentioned in his speech around the seismic-engineering provisions—you know, here we are in Wellington, and seismic issues are very paramount. The small changes that were made around seismic issues are a small step in what seems an incredibly long time of this Labour Government wanting to do anything to help people who are in seismically compromised buildings. They’ve hardly done anything in this regard, so this is a small step.

But I think, first of all, this bill comes at a time when we—all New Zealanders—are facing an uncertain time. I think if you’re going to introduce a tax bill, you have to be mindful about what is actually happening. Of course, we’ve got a Government that is just out there spending money something incredible. Mr Robertson has doubled New Zealand’s debt in a mere 22 months. That is some record by any finance Minister’s record around the world. Not many people can claim that they’ve doubled the debt of a country in less than two years. Of course, a lot of that is because he’s done a whole lot of wasteful spending—wasteful spending—and we heard about that earlier. The $500 million they’re going to spend on restructuring the health industry in the middle of a pandemic—what piece of logic ever drives someone to do that? Then, all this stuff around those three waters that so many New Zealanders really don’t like.

But, of course, as we all know in this House—petrol at three bucks, grocery bills going up like crazy. All that Minister who just spoke before—his only response is “We’ve got to regulate it”. Well, of course, a lot of that price increase has come about because of Government policies. We’ve seen house prices—and I heard the Minister talking about this in reference to the brightline. House prices up $400,000 under the Labour Government over the past four years. Rents up $140 dollars a week. Wow, what a record.

When you look at the context of tax, which is what this bill is about, what have we seen over the last four years? Well, we’ve seen that Auckland regional fuel tax imposed on Aucklanders. Gee, there’s a big difference. I got some petrol from Pōkeno the other day, which was at least 20c cheaper than what I was paying just inside the Auckland border. The proposed light rail tax—yes, that tax is coming not too soon, hopefully, because we’ll stop it. Then we’ve got the brightline test, which I’m going to talk about shortly. The removal of interest deductibility—which, of course, is just another tax on people, mums and dads, that own houses and rental accommodation. Then we’ve got the top 39 tax, which this bill enshrines—the 39 percent on anyone earning over $180,000. It’s the mean tax. It’s the tax about imposing it, socking it to the high-earning New Zealanders who work hard. And then—

💬 Hon Scott Simpson: Envy.

—envy tax, as my colleague says—worst of all, probably, because of its potential financial consequences, is the proposed latest job tax scheme that I think will be the crowning moment of Mr Robertson before he’s voted out of office, hopefully, because that is such a huge cost not only on employers—but, of course, the Government doesn’t worry about employers. They’re good. They always believe that business owners are good for it. But it also means that every New Zealander who works will end up paying a tax as well. Of course, it’s for protecting those so-called people who are going to lose their job and get a guaranteed payment for six months.

So Christopher Luxon in the weekend said we are going to repeal all these new taxes, and I think that’s a pretty good start, because what that shows is that National is different from the Labour Government. Of course, what the Government has done is it has imposed a whole lot of tax impositions on New Zealanders. When Christopher Luxon talked about removing these taxes, everyone said, “Oh, it’s about tax cuts.” Well, it’s not. It’s about taking away all those tax increases that have been imposed by the Labour Government over the last few years. That’s what it’s about. It’s not about a tax cut. It’s about stopping all those increases being imposed by the Labour Government.

Now, let’s talk about the brightline. The brightline is being imposed on anyone keeping a property up to 10 years, and what it will mean is that many New Zealanders will now be caught under these brightline rules. There’s been some change in the legislation that we’re talking about today which means that if you’re building a house or renovating a house, if it takes longer than 12 months, then that will count towards the 12 months and you won’t be penalised. But the bill makes no provision for those New Zealanders who are posted overseas as, perhaps, part of New Zealand’s foreign affairs grouping or ambassadors or even staff in our consulates around the world. It does nothing for our military people who are posted overseas on military assignments on behalf of the New Zealand Government. It does nothing for people who move into retirement villages and want to keep their house for a certain period of time and find they keep it longer than 12 months. Because those people, many of them might not be in such a position—they might have health issues—or are not aware or just simply don’t have the ability to do that in time. It does nothing for those who go into hospital and who don’t know how long they’re going to stay for, or may not even be in a situation where they can respond to this issue. If they are out of their house for longer than 12 months, then they will end up paying this capital gains tax.

This capital gains tax is pernicious, and we will change this rule. Most people change their houses within five to seven years, and this bill does not anticipate the life events that many New Zealanders have. Many people, unfortunately, divorce. Over 50 percent of people divorce in New Zealand. It is unfortunate, but it’s a fact of life. Many people have health events. It changes their circumstances. It changes their jobs. It may mean that people get relocated to other areas and, therefore, they may be captured under these rules. That’s why if you’re going to apply these rules, they need to be very careful.

The last thing is around the interest deductibility, and I know my colleagues are going to talk about it, but there are about 258,000 Kiwi mums and dads who own rental properties, who earn less than $30,000 on them. That means they only own one rental house. This bill is all about socking it to them because they’re regarded as investors. They’re not. They’re just ordinary Kiwis trying to save for their retirement.

The question is that the motion be agreed to.

Thank you, Madam Speaker. I am delighted to take a call on this Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill. It is an excellent tax bill, and an excellent bill. As with all tax bills, it does address a number of issues, and I’m delighted to see that the Opposition agrees that these issues need to be managed, such as the role of GST with respect to cryptoassets, such as modernising GST information requirements, such as trying to reduce compliance costs, and so on. There’s a change to the way that fringe benefit tax can be calculated and paid for some employees. Again, this change doesn’t change the actual amount of tax that is being paid, but it does reduce the compliance costs involved for employers.

These are all good measures, and they support our employers, they support our business people, and they reduce compliance costs. In amongst the changes in the bill are some measures that protect our tax base, such as the rules around disallowing sales suppression software. And, as ever, the Finance and Expenditure Committee has done an excellent job in considering this bill. But it seems that there are some issues with which the Opposition disagrees on this bill, and I was listening carefully to Mr Bayly and, of course, thinking about what the Opposition has been saying in recent days. There are three issues that they have problems with in this bill. The first one is around interest deductibility, the second one is around tax rates, and the third one is around the brightline test. I’ll see how I go in addressing them.

There is a significant change in interest deductibility in this bill, introduced by way of a Supplementary Order Paper (SOP), and the change is significant because it really does show a change from previous practice. I wish to direct the attention of the House towards section DA 1 of the Income Tax Act. It is the “General permission”. And what it says is that a person is allowed a deduction for an amount of expenditure—so you can get a deduction for your interest expenditure—to the extent to which the expenditure is incurred in deriving assessable income. Or, if you’re doing it through a business, it’s incurred in the course of carrying on a business, creating assessable income. Here’s the thing when it comes to interest costs on housing: a great part of what is earned through housing, through owning houses, is not assessable income; it’s a capital gain. And, in the tax law in New Zealand, capital gains, for the large part, are simply not assessed. They’re not regarded as assessable income. It’s a tax-free capital gain. Why, then, should you get an interest deduction for income which is not part of the tax base? It’s not incurred in deriving assessable income. Why get the interest deduction?

Now, as it turns out, that happens to be a matter of what has happened in previous, well, decades, I suppose. For a long time, it has been very difficult to sort out what portion of an interest expense is related to earning assessable income like rents and so on, and what portion of it is traceable to earning the untaxed capital gain. So, as a matter of convenience as much as anything, people who have borrowed money in order to buy a rental property have been able to deduct the entire amount of interest. But, in doing so, they’ve had an over-deduction. They have deducted, been given, almost as a courtesy, the right to deduct more interest than really ought to have been deducted. So what this bill does is it reverses that. From now on, people who are deriving an untaxed capital gain from rental properties will not be able to get the interest deduction. It’s that straightforward about what is going on.

And, even then, there are some concessions around this. When it comes to the brightline test, if the brightline test is applied and your capital gain on selling a house is assessable, because you’ve sold it within five or 10 years of acquiring it, depending, you’ll get the interest deduction. So, if you do have an assessable, taxable capital gain, as happens under the brightline test, you will get the interest deduction. But, if your capital gain is not assessable, you will not get the interest deduction. It’s a very significant change, and it’s about housing; it’s about addressing some of the housing needs in our community. We know that there is a crying need for more affordable housing. We know that house prices have been sky-rocketing upwards. We know that this problem is created by all sorts of things, from the lack of housing supply in recent years to some of the restrictive zoning rules there have been in some cities, and so on. We know that there is no one, simple solution to the housing crisis, but we know that part of the problem, at least, has been caused by the fact that investors have been able to deduct interest charges, and, so, to leverage up their investment in land, they’ve been able to force up house prices this way. We know that, at least in some part, we will help to constrain house prices by removing interest deductibility.

It is a complex and difficult matter, and it is one that the select committee addressed during its examination of this SOP. I wish to draw the attention of the House to the section of the select committee’s report—it’s on page 7 of the report—looking at inflation rates and interest deductions. It’s very interesting because—I’m sorry; I didn’t quite mean that pun! It is fascinating because, typically, what goes on with interest rates is that some portion of the interest rate is a real rate; some portion of it is a nominal rate related to inflation. And, reading through the select committee’s report, it seems that, because of the effect of inflation on interest rates and the interaction of inflation and interest rates, in the last quarter, the December 2021 quarter, landlords who were claiming the full interest deduction at the nominal rate were claiming something, an expense, for what wasn’t a real expense at all, because of the effect of inflation. Look, the interaction of interest rates and inflation and tax deductibility is a complex issue and is not addressed in this particular bill, but it is something that we ought to be looking at over the time. In the meantime, what we are trying to do here is introduce a measure that will help—that will help—with the housing crisis.

I wish to address briefly the brightline test, which Mr Andrew Bayly referred to, and the new brightline test rules, which are 10 years—10 years. So, from now on, if you buy and sell a house within 10 years, unless it is your main home, you will be subject to the brightline test. Mr Bayly was concerned about people who might go into hospital, people who might go overseas, people who might go into a retirement village, and, in a sense, these are good concerns, but that ignores the detail of this change to the brightline test. Under the new rules, what a person does first of all is consider whether a dwelling has been their main home, and if they have owned it for less than 10 years but it has been their main home, the brightline test doesn’t apply. If they’ve owned the property for, say, eight years, it’s been their main home for, say, seven years, and then they’ve moved to a different home, sold it after eight years, gotten a capital gain on it—and remember, that’s actually a good thing, because you end up better off—a proportional amount of that capital gain will be subject to taxation. In fact, in the case where you’ve owned the house for eight years, it’s been the main home for seven years, just one-eighth of the capital gain would be subject to taxation. And, remember, you’re only paying that tax because a good thing has happened: you’ve made a capital gain. So, on the whole, you’re better off. So there are protections in this new brightline test for people.

Finally, I wish to address the issue of tax rates. This is an annual rates bill, and in the annual rates bill, as a constitutional necessity—it’s in section BB 1 of the Income Tax Act—we must set the annual tax rates in an annual tax bill. So the House addresses, every year, the issue of what level taxes should be set at, and the Opposition is opposing this bill, has opposed other bills, because they think there should be tax cuts. It’s a mantra of theirs: that individuals know better than the Government how to spend money, and therefore there should be tax cuts. I want to put that mantra a different way. I want to put it a different way because it ignores a fundamental agreement we have in New Zealand—a fundamental agreement that there are some things that we have chosen to do together. We have chosen to provide health together. We have chosen to provide education together. We have chosen to provide welfare together—

Order! Unfortunately, the member’s time is up.

Madam Speaker, a very good afternoon and I rise on behalf of National and as the member of Parliament for North Shore. I tell you what—I wasn’t going to comment on the previous speaker but then she just made a statement in that speech which I think sums up the reality of this Government and where they stand around taxation. She just stated in that speech that the Government knows how to spend money better than Kiwis and individuals. That is exactly what she just said in this House and that is absolutely the opposite position of where we stand in this House and I think any Kiwis out there when they hear that Government knows how to spend their money better than they do should have significant concerns around this Labour Government and the future of it.

This bill, the Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill second reading, National oppose this bill. As we’ve heard from prior speakers, there are components in regard to the GST elements in the main that National do think are sensible but that’s pretty much where it ends. I do acknowledge the chair of the Finance and Expenditure Committee, Duncan Webb, across the row there who I think did an excellent job in terms of facilitating the conversation around the table, acknowledging we have different positions on this, but, in terms of his chairing of that conversation, it was fair and reasonable and I acknowledge that and I acknowledge the other members around the House on that Finance and Expenditure Committee. I’m lucky to be a member of that with my colleagues.

But National have been very clear around the elements of this legislation that we do not support and I’ll work our way through those three components because I think it is important to provide a little bit of context in terms of, one, why we do have the position we have around opposing those changes and why we believe that that is not in the best interests of Kiwis around this country in terms of their ability to get ahead and be successful and live successful and prosperous lives.

The ideology that we are seeing in this bill really comes down to a Labour Government that is focused on tax, tax, tax. The elements that are embedded within this bill, while an annual rates change, are all in the main increases of taxation and go right against the principle, or the element that I’ve referred to right at the start, around the fact that hard-working Kiwis out there in our communities—communities of the North Shore, communities of the Coromandel, communities of the Bay of Plenty that are working hard out there in terms of, you know, whether they are tradies, or they are primary industries, or working in whatever aspect around our sector—the money that they earn is earned through difficult and often challenging effort and they deserve to be able to keep as much of that in their back pockets, and right now, with the degree of inflation that we are seeing in this country, those dollars aren’t going as far as what they used to do and that’s impacting on households around this country.

But the opportunity here for this Government is actually to provide some degree of relief, some degree of support, to our local communities and local individuals and taxpayers across this country and they could have used this opportunity to do that. They could have used this opportunity to actually reflect on where we are, with the fact that our tax rates have not kept up with inflation over the number of years, and they could have used that opportunity to make those adjustments to make our tax system more fair. But they haven’t. They’ve done the complete opposite of that and they’ve done that in areas which are going to hit home on some of our most vulnerable communities.

The element around limiting interest deductibility for residential investment properties is, in and of itself, quite a complex statement, but if I put it into simple language: if you earn $100 of income, normally under the old model before this legislation coming through from Government, you would be able to offset that $100 of income with some expenses and the interest expenses that are incurred through the borrowings on that—earning that income—would be deductible. So, therefore, if you had $100 of income, say if the expenses were $10, then you would be taxed on $90. But the implication of this legislation, in effect, is that individuals are going to be taxed on the entire $100 in the main and that is going to impact the back pockets of hard-working Kiwis. They are stopping what is, in effect, a legitimate business expense. Nowhere else in our tax legislation are they making this exemption, and they are saying it’s because of the issues around our housing market etc., etc.

New Zealand does have a housing crisis. We do have significant issues around the affordability of housing, the increasing rent for individuals that have the inability to afford to buy a house, and this is one of the single biggest issues in this country and it is not something that, on this side of the House, we’ve got our head in the sand on. But I think the other side of the House, in terms of the Government, have, because what they are, in effect, trying to do is not going to solve or help that problem. Actually, the IRD has stated that this initiative specifically will reduce housing supply and push up rents—the complete opposite of what is required by hard-working Kiwis across this country from this Government, and they are not using the opportunity to resolve that; they’re actually going to be making it worse.

I also want to talk about the brightline test. National—we’re part of that and we acknowledged when that was brought on that that was a sensible piece of legislation with a period of two years. That makes sense, that is sensible, that deals with the problem. But then that’s been increased to five and now, under this, increasing to 10.

💬 Hon Member: What’s that called, Simon?

Well, that’s flipping or dubbing—

💬 Hon Member: A capital gains tax.

—or a capital gains tax, at its lowest level. When a person sells a house within 10 years after purchasing it, then they are going to be taxed on the sale proceeds of that home. And that is not acceptable. That increase, increasing to 10 years, is going to bring in a large number of taxpayers into that net. It is unnecessary and even with the adjustments that have been made through the select committee process, through clause 48, proposing new section CB 16A(6)(d)(ii)—just for those at home who are looking up the Income Tax Act, and I know there will be a few, no doubt, that aspect will go some way but it is not going to deal with the underlying issues.

The test around “reasonable efforts” is a broad statement, and I think the reality is that that’s going to have to go through a period of assessment through tax advice, etc., compliance costs that are to be brought into that, and, again, a lack of certainty. As speakers before me have said, it is going to exclude particular groups that we’ve discussed already: those who are undertaking military service overseas. I have the Devonport naval base in my community. A huge number of individuals who proudly provide service to our country in terms of our defence forces—those are the individuals that will be potentially impacted by this type of legislation change. Parents that are assisting their children to buy a home when they’re going to university across this country will be potentially negatively impacted by this.

But what is important about the brightline test and the interest deducibility aspect is National will repeal both of these points when we come into Government in 2023. And we have been categorical over the weekend with our leader, Christopher Luxon, instead putting a very clear statement in the ground. Where does National stand around these increases in taxes? National will repeal those two aspects of that legislation.

I, finally, want to finish with the aspect around the 39 percent tax rate increase—income over $180,000. It was actually initially discussed that this would only impact a small number of Kiwis. Well, it turns out, through the IRD Official Information Act request, that this will impact—114,000 Kiwis across this country will be impacted by this increase in taxation. Another example of just blatantly doing the Robin Hood model that this Labour Government are so good at: take the money off those individuals who are successful; take the money off those individuals who are prosperous and that are working significantly hard for this country; take that money off those individuals who are taking risks to try and grow and develop this country; and tax, tax, tax at any cost.

And you know what? What sort of message does that send to the young people in this country who are looking for ambition, who are wanting to be successful? It is saying to them that under a Labour Government, we will tax, tax, tax you, and that is going to be the reality. The National Party overall oppose this legislation. We do not believe that it addresses the underlying issues that face this country. It will not help us in terms of moving forward, and we do not commend this bill to the House.

Kia ora e te Mana Whakawā. I’m really pleased to rise to speak to this excellent and progressive Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill. Before I get much further, I must say I find the suggestion from the Opposition that you have to earn over $180,000 a year to be a hard-working New Zealander to be pretty repugnant. I know many, many people out there who are earning far less than that, and I will come to that soon.

The importance of this bill is hard to overstate. Setting the rates of tax is something we should constantly be turning our minds to, as Dr Russell mentioned earlier. It’s a constitutional principle that we must come to this House annually to strike the rate of tax in New Zealand. New Zealand’s taxation regime, as confirmed by this bill, is frequently referred to as a low-rate, broad-based system. That is to say that, by and large, the tax rates are modest, and I include the 39 percent rate in that for those earning over $180,000. Australia’s top tax rate is 47 percent; Canada, 53; the UK, 45; and the US, 43. So we have a low tax rate system.

💬 Hon Michael Woodhouse: How many people pay it?

Have a look at the OECD website. Have a look; it will tell you as a multiplier of the average wage what it is, and ours is a high threshold. So our system’s also progressive. In terms of that $180,000 rate—the top 2 percent—what the other side are saying is that they want tax breaks for the top 2 percent, and I won’t buy it. Our system is progressive. That is to say, the less you earn, the lower rate you have; the higher you earn, the higher rate you have. That seems fair to me and I’m very happy to confirm it.

So we have a low rate at the lowest level. If you went up to $40,000, 10.5. It goes to 17.5 at $48,000, 30 percent at $70,000, 33 percent up to $180,000, and 39 over that. Not everyone agrees with these tax rates and we have heard again and again that the 39 percent rate should go. The ACT Party in the select committee report said it simply punishes people who work hard—as if other people don’t work hard. And we’ve recently heard the National Party saying much the same, and they talk about fiscal drag. We’ve recently heard over the weekend that the National Party would reduce tax and do away with this rate. That’s just a retread of just about every single National Party leader that has gone through this House—and, goodness knows, there’s been a few!

Let’s talk about hard-working New Zealanders. I want to talk to you about an actual hard-working New Zealander: Chloe—not the one over there but another one I know. She’s a single mum. She’s got a pre-schooler and she’s got an intermediate school kid. She works three days a week as a support worker, one day a week for a not-for-profit. So she’s got two jobs. She’s looking after two kids, and she earns $48,000 a year, or thereabouts. What would the tax cuts give her? They’d give her $112 a year. What would the tax cuts give someone who earned $288,000 a year—which just so happens to be what the Leader of the Opposition gets paid? They’d get $7,522. If you earn $288,000, you get that much. If you’re a hard-working New Zealander with two jobs and two kids, you get $112. That is not a New Zealand I want to live in, and that is why there won’t be any tax cuts of that ilk from this side of the House. It’s $112 for Chloe, and $7,000 for Chris, thus exacerbating the very inequality that this party is committed to addressing. So that’s why the majority of the select committee did not agree with the ACT Party and did not agree with the National Party, and agreed to confirm the reasonable and progressive tax system we have.

Let’s turn to housing. We’re working on addressing the inequalities which have exacerbated the housing problem, and we’re making progress. One of the things we want to do is address the issue of interest deductibility. In a high-inflation environment, that is even more important. I want to try to step aside to something a little more technical. We asked advisers what the impact of inflation is on interest deductibility and we were told very clearly that the whole tax system works on nominal interest rates. That’s kind of the headline interest rate, not real interest rates, and they can differ significantly. The real interest rate in simple terms is the nominal interest rate—the number—minus inflation. So when inflation is high, interest rates can be low, and effective tax rates are even lower. So advisers noted in December that the interest rate on a floating loan was 4.9 percent, and inflation was 5.9 percent. What’s the real interest rate, then? Negative 1 percent.

💬 David Seymour: Oh!

I know; it’s math. It’s called mathematics. What is more, to be able to deduct the nominal interest as an expense, when you’re actually, in real terms, paying a negative interest rate, is deducting for something which isn’t an expense at all, and that’s just one of the reasons why it’s entirely inappropriate to have interest deductibility in this framework. So that’s going to come in progressively from 1 October, but, at the same time, I want to make it clear that we wanted to encourage new home building. So new home builds are exempt. Commercial boarding houses—we explored that, and we moved to exempt those, and also significant repairs on dwellings which would not otherwise be habitable. That includes earthquake-prone buildings and leaky buildings, or buildings that have been subject to a weathertight homes notice.

But looking further, there are a whole lot of other remedials, as we say, in there, and I just want to touch briefly on cryptocurrencies, recognising here in the tax legislation that there are financial assets that shouldn’t be subject to GST and financial arrangement rules, but also just around the definition of a cryptoasset. Anyone who’s looked at it—and the Finance and Expenditure Committee was looking at this—recognises the distinction between cryptocurrencies or cryptoassets and these non-fungible tokens—assets which people see as having intrinsic value and which they sometimes pay large sums of money for. We wanted to make a distinction between the two, so we defined what a non-fungible token is, and said a cryptoasset isn’t that. A non-fungible token was defined as a cryptoasset that contains unique distinguishing identification codes and metadata. We were assured by advisers that that’s quite distinct from simply registration numbers that you might see on a bank note, and we know that things like bitcoin and ethereum do have identifiers but they aren’t unique codes.

So it’s actually an important point to make sure that that works and to make sure that the parliamentary intent is well known as crypto becomes more widely used. And, of course, there are a whole lot of other remedials as well, including local body income, making sure that tax from council-controlled organisations is exempt from tax and also GST invoicing. It was, in some ways, news to me that when I purchased something worth hundreds of dollars at the hardware store, I was supposed to give my identifying details, my name and address. We looked at that and said it’s not how the real world works. At the committee, we suggested that there be $1,000 a day de minimis threshold to make sure that it’s workable for everyday hard-working New Zealanders and to make sure that, really, it wasn’t an onerous burden.

Setting the tax rates every year is important. The suggestion from the National Party, the same old tax cuts, isn’t going to work. Hard-working New Zealanders like Chloe need a decent tax system and good infrastructure, a good health system, and good education. That’s why this tax bill is part of the system that does it. I commend it to the House.

E te Māngai, tēnā koe. Tēnā koutou e te Whare. It was fascinating to hear a speaker from the National Party just before talking about all of these university students whose parents are buying houses for them. It really was an insight into the world or social hierarchies within which the National Party are rubbing shoulders, and it’s definitely not representative of the 1.4 million New Zealanders who rent in this country. But I digress.

My content of this speech today will focus primarily on the large Supplementary Order Paper 64—which many have already addressed—on tax deductibility and brightline changes, because there is a housing affordability crisis in this country, but it is not one that is being felt equally. We know that because we know from Statistics New Zealand data that it is the case that those who rent spend a higher proportion of their income on housing, and, of course, also on other essentials. Those, on the other hand, who have speculated on housing like they are playing a game of Monopoly have profited handsomely, particularly over the last two years, while New Zealanders on the other end of the spectrum are, frankly, being screwed. They’re not being screwed in a vacuum, though. They are being so by intentional decisions by that Economics 101, rational man who exploits the system.

Those who have land banks, those who have speculated and sat on inflating assets without breaking a sweat—they have been let off the hook. That hook is the social contract. It is recognising that capital gains don’t come about by virtue of one individual’s genius, but, in fact, as a result of the investment that all of us, as ratepayers and taxpayers and New Zealanders, make in our communities and our neighbourhoods and in our country, in the infrastructure of the transport projects, in the water, internet, and energy infrastructure, in schools and in hospitals, and in walking school buses, māra kai, and community gardens.

Some people say to me, “Don’t hate the player; hate the game.” Well, unfortunately, the legislation that we are passing through its second reading this afternoon continues to leave largely unaffected those rules which entrench exactly that game. According to CoreLogic, since March 2021, when the Government announced these policies of removing interest deductibility and extending the brightline test, the average house price in Aotearoa has increased by 22.5 percent—over $190,000. Those gains alone are over three times the median income before tax, and we know that most of those massive capital gains will not, in fact, be taxed.

Those on the right—my literal right and the right of Parliament—would like to argue that we shouldn’t tax wealth like work, because it hasn’t been realised. But then they’ll turn around and say that even when it is realised, we also shouldn’t tax it then—surprise, surprise—which is why it’s worth pointing out that the Income Tax Act 2007 was actually always supposed to enable taxes to be paid on income, regardless of where that income came from, which is why it was the case that originally, the National Party, when in Government, made amendments, as others have alluded to, in 2015, to introduce that brightline test to simplify and ensure IRD’s rightful collection of tax on capital gains income. But, of course, it did not go far enough, and neither will the changes in this bill with the extension of this brightline test as proposed, because, at this point, this advance into this crisis, we are not addressing the fundamental problem. The fundamental problem is one of a feudalistic wealth divide supercharged by political decisions and intentional neglect by virtue of an over-reliance on, particularly, unconventional monetary policy over the last two years.

In the early 2000s, some reckoned that house prices were radically increasing or escalating because some people were engaged in what we called then “flipping properties”—that is, buying them quickly, doing some minor improvements, and selling them on. But the crisis we have today is far worse. No one is really even pretending to improve properties that they’re sitting on any more, or too much. The crisis now is one more so of affording—that is, the hoarding of wealth and more capital gains in the hands of a few while more and more New Zealanders, those 1.4 million New Zealanders, who rent struggle to pay that rent, let alone get into a first home.

Since the Government ruled out a capital gains tax in April 2019, CoreLogic shows that the average price of housing has increased by over 50 percent—by almost $350,000. This recent surge shows that merely tilting the balance, as, indeed, these changes were heralded as doing, does not take us far enough. It shows that an over-reliance on economic policies intended to steady the ship in the midst of a global pandemic, instead of directing support to those who are disproportionately exposed, resulted in exactly the disproportional impact—that is, inequality—as predicted by the Reserve Bank of New Zealand and Treasury back in early 2020.

A recent Newshub - Reid Research poll showed the highest public support yet for the Government revisiting a capital gains tax, with almost 55 percent of New Zealanders agreeing and only a third disagreeing. It’s no secret in this Chamber that the Greens have long called for a comprehensive capital gains tax and, of course, wealth taxes. We know that tax is not a silver bullet, and we know that we need to also have more public housing, rent controls, and a rental warrant of fitness to ensure everybody in this country, regardless of whether they own or they rent, has a warm, safe, dry, secure home. But tinkering simply will not cut it, because even if house prices were to fall by 10 percent this year, as some economists are indeed predicting, we would still be only back to where we were about six months ago.

The Greens know that we must learn lessons from the past, because a house price crash could, in fact, lead to a credit crunch and higher unemployment, with people losing their houses and, over time, wealth concentrating even more so at the top end of town. This cannot go on, but we cannot let these potential issues scare us into ignoring the problem and potentially making that risk far worse were it to just happen to us. The Government must act and intervene to protect people as we take the heat out of this housing market.

Despite hearing a lot from members of the National Party about how they are opposing this bill today, they have no real ideas for addressing this housing crisis. In fact, they actually propose those which would continue to exacerbate it. “More supply,” they keep saying, “but, no, not State houses—not that supply.” “We need less regulation.”, they say, “Unshackle the market.” Well, look where that free market has got us. With their ideas and their track record back when they were in Government, the rich just got richer.

We, in fact, heard very similar noises from former National and, I might add, Labour Governments back in the 1980s and 1990s, responding to inflation concerns at the time. The devastation of that historical deregulation, the funding cuts, and the tax cuts are scars that are still evident in our country today. You’d think that all of us would want to learn from that history, but a recent snatch from the Leader of the Opposition demonstrated that he can’t quite distinguish between capitalism or socialism.

Business as usual simply will not cut it. This bill is not too bad and it’s not too good. The sky won’t fall in—as members of the Opposition are screeching about—but, unfortunately, it is not quite the Goldilocks zone either, because this is not just right.

I am, and the Greens are, really hoping that the work programme under way with the Minister of Revenue, the Hon David Parker, on fair tax gives us a little more than just another Government report to gather dust, but, in fact, we hope it leads us to far greater action to not just tinker or tilt to rebalance the scales but to properly engage and support all in the team of 5 million. Thank you, Mr Speaker.

Thank you, Mr Speaker. I rise on behalf of ACT in opposition to this Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill. As the title suggests, this is a piece of legislation that sets the tax rates and makes some technical changes to the way GST is collected and makes some technical changes to the tax system. As anyone who’s had the misfortune of spending some time on tax policy knows—or having to pay it, more to the point—it is fiendishly complex, and every year the Government has to introduce a bill to Parliament to fix up the things they got wrong last year. But the most important thing is setting the rates, so we’ll talk a bit about that.

And then, the next most important thing is that it’s also got a Supplementary Order Paper, a late addition to the bill, that would add some extra changes. It’s going to add a mortgage interest deductibility change, so you can’t deduct your mortgage interest from taxation if you’re a landlord. And it’s going to extend the brightline test to 10 years. We’ll talk a bit about that too.

But let’s start with those tax rates. The most significant change is that the tax rates stay the same as last year, except one. There’s a new tax rate of 39c only on income over $180,000. And what’s wrong with that? Some people would say “You know what? Stuff them. There’s not many of them. They’re earning lots of money. Let’s just take it.” Well, actually, there’s everything wrong with that. We tell people—especially young people in this country—that working hard and getting good qualifications and succeeding and saving their money and investing carefully is the right thing to do. And we tell them that it’s wrong to pick on people and take their stuff, especially if there’s only a few of them—that it’s wrong to pick on minorities. Then, this Labour Government comes along and says, “Well, there’s a small group of people with some money and we’re going to take a bit more of it because we just can.” Well, I think that is absolutely morally and ethically wrong and we should say no to it. We should get rid of that 39c rate that’s being introduced here. And that’s one of the things that I’m campaigning for.

And then they’ll say, “Oh, but we get so much money. We need it for health and education.” Oh, really? Well, in the last year, the Government’s income—from income tax and GST and excise tax on petrol that keeps going up with the oil price—well, that’s gone up $14 billion. How much do they think they’ll get from this new 39c tax on income over $180,000? Well, the estimates are about $400 million. So $14 billion—that’s just the extra in the last year—versus $400 million. It’s not about paying for things; it’s about punishing people, and it’s wrong. The ACT Party stands against punitive taxes that pick on people just because we can take their money. That is the opposite of what we tell young New Zealanders, and it’s the opposite of the values that should be in our tax code. It’s the opposite of the values that will make this country a prosperous and joyful place to live. It’s picking on people because you can.

Then, there’s the GST change. Well, look, no major truck there. It’s mostly, kind of, I guess, technical stuff, and that’s needed to be done from time to time. You know, technically, if you buy something for a few hundred bucks at Bunnings, you’re required to give your name and address for GST purposes. No one does that, and the idea that that requirement’s being removed to fit with actual reality is a good thing.

But then, you come to this brightline test, the idea that if you buy and sell the same house within 10 years, you have to pay income tax at your marginal rate on any capital gain you make. Now, this is a very good lesson in tax policy, and, frankly, it’s a good lesson for the National Party, because the National Party is jumping up and down, saying “Oh my god, the brightline test is now 10 years.” Well, I remember someone saying in 2015, when the National Party introduced the brightline test, that this tax is the acorn of a capital gains tax. It’s a measure that will grow from two years to five to 10 to 15 years. You watch, it will eventually apply to a wider range of homes. It’s the acorn the National Party has planted that will grow into a full-grown capital gains tax. That was me in 2015. And guess what! Now it’s a 10-year brightline test; we’re halfway there already after just a few years.

And my message to anybody, including the National Party, is: if you don’t want a new tax, don’t introduce a new tax, because, you see, taxes are like acorns; they grow. You know, King Dick Seddon, the rather portly man who has a statue out the front, in 1891 he stood in a house, not literally this one but one like this, and he said, “We’re going to have a 5 percent income tax.” Well, who could be opposed to a 5 percent income tax? The ACT Party would love a 5 percent income tax now. But taxes are like acorns; they grow. From 1891, 5 percent; 2022, 39 percent; and at some points in our history, 66 percent. If you introduce a tax, it grows, and the right thing to do with the brightline test is get rid of it, because, at the end of the day, there is no way that putting taxes on housing is going to make them more affordable. There’s no way that putting a capital gains tax on housing has solved a housing affordability crisis anywhere in the world. It hasn’t worked in LA or Vancouver or Sydney or London.

And it’s pretty easy to understand why: house prices go up when there’s too much demand and not enough supply. A capital gains tax just means that the Government gets to be a silent partner, taking some of the capital gain for itself. It doesn’t change the prices; it just changes where the capital gain goes. And if you think the Government’s better at spending it than people, then you haven’t spent enough time in Government, understanding how this place works. So we should just get rid of the brightline test, not as the National Party just said, “Oh, it’s OK if it’s two years, not if it’s 10.” If you introduce it at two, you get 10, and we’ve seen that.

But the worst part of this new bill is the mortgage interest deductibility. It’s such a good lesson in how tax and policy works with this Government. You know, we’ve got a new phrase coming out. It’s called “Jacindanomics”. Jacinda Ardern, the Prime Minister, said, when this idea was introduced, we are going to “tilt the market towards first-home buyers”. And what she meant is: if landlords can’t deduct their mortgage interest, then maybe it’ll be cheaper for someone to live in their own house than own it and rent it out. So you can understand what she’s thinking.

But here’s the problem: first of all, a lot of very poor people can’t afford a house. They need a landlord; they need a house to rent. So we forgot about them in this equation. But here’s the other problem: the main effect of this policy is that we’re going to take more money out of housing and put it into the Government’s coffers through the Inland Revenue Department. And, on average, a landlord is going to pay another $4,000 a year in tax because they won’t be able to claim back a deduction for their mortgage interest.

Now, the average New Zealander is much smarter than the Labour Government. They can sit there and ask the simple question: if the tax department takes $4,000, or $80 a week, off my landlord, what might happen to my rent? And we heard Brooke van Velden, ACT’s housing spokesperson, question Megan Woods, the housing Minister, and Megan Woods did everything she could to avoid the basic conclusion any tenant in this country can work out: well, if the Government takes four grand off my landlord, my rent’s going to go up—and that’s what’s happening.

And here’s the real kicker and the problem with “Jacindanomics”: you see, most first-home buyers will, by definition, if they haven’t bought a home yet, then they’re first-home buyers, and if they’re first-home buyers, they don’t own a home, and if they don’t own a home, they’re either homeless or they’re renting. And I hope they’re not homeless. So if they’re renting, what does it mean to have a policy that taxes landlords and puts rents up? It’s going to take money away from landlords, who are going to pass it on to tenants who are first-home buyers. So when this Government tries to tilt the market towards first-home buyers, it taxes first-home buyers and makes them worse off. And the problem is: this Government doesn’t know how to solve any problem other than putting up tax and taking more money away.

There is a better way for our country and it starts with values. It starts with something I said in my maiden statement to this House. The simple question is: do you believe wealth is a zero-sum game, or do you believe that in the right conditions people can grow wealth, make everybody better off, by trading value for value and getting stronger together? If we stopped regulating and taxing and punishing groups of people, from this Government in this House, I think we would find that many more flowers would bloom. We would find it’s possible with good infrastructure funding and planning to build a lot more homes and solve that problem. We could be a much better and more prosperous country, but not with this punitive tax legislation. Thank you, Mr Speaker.

Thank you, Mr Speaker. Well, it’s really fortunate that we do have the Infrastructure Acceleration Fund in order to build more houses, so I will now take a call on this tax bill, in particular, the Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill. As noted in the commentary, as reported back by the Finance and Expenditure Committee, the bill has three main purposes: (1) improve the current tax settings by ensuring that the current tax rules are working as intended; (2) to modernise the tax administration settings; and (3) set the annual tax rates for the 2021-22 tax year, as this is required by an Act of Parliament. I will speak to some of these purposes, paying particular attention to the areas where the Finance and Expenditure Committee have recommended changes, or where there are diverse views.

The annual rates bill is always important as it sets the annual tax rates for the tax year. By a majority, the committee recommends that clause 3 of the bill remain unchanged. Why the majority and this side of the House recommends that clause 3 remain unchanged is that what is proposed by the Opposition—tax cuts and the removal of the top tax rate—is not what the country needs at this time. Maintaining the tax system helps maintain the revenue base, which is necessary to fund the services and functions that so many New Zealanders depend upon. It also provides clarity and certainty at a time when there is so much uncertainty. Providing a tax cut would disproportionately benefit high-income earners over lower-income earners, and that has been well explained by the deputy chair of the committee, Dr Duncan Webb.

I don’t need to add any impetus to a point well made out by Dr Webb, other than to support what was said by the Prime Minister earlier in question time today, and that, to address inflationary pressures—which as the Opposition mentioned in their minority view to the revised tracked version of the bill—this side of the House would look to transfers, both through the welfare and the tax system, to support lower and middle income earners. That’s why we’ve overseen a $5 increase in the minimum wage, benefiting around 300,000 workers; increased Working for Families changes, that will lead to 346,000 people better off by an average of $20 each week; and the winter energy payment, which will start again from 1 May. The Government’s plan is providing targeted support to New Zealand families to deal with the cost of living, while also investing in critical infrastructure—importantly, keeping a lid on debt. That’s why this side of the House has not recommended any changes to clause 3.

Modernising the tax administration settings, which is the second primary purpose of this bill, is grounded in the principle that, although New Zealand has relatively strong tax settings, it is important to maintain the tax system and ensure that it continues to be fit for purpose. It also means that the tax system adapts to changes in business practices so that clients’ costs are kept at a minimum. The tax changes to the tax treatment of cryptoassets contained in the bill are an example of modernising the tax system. Easy Crypto last week released the results of a survey that showed around 18.4 percent of adult Kiwis reported investing in cryptocurrency, compared to 17.7 percent who reported having investment property. The bill will exclude cryptoassets from the GST and financial arrangement rules to ensure that those rules do not impose barriers on cryptoassets as a method of innovation, investment, or capital raising.

One recommendation the committee has put forward is to the definition of “cryptoasset”. Some submitters suggested that the definition as contained in the bill could be problematic. With over 15,000 different types of crytoassets, the definition needs to be wide enough to cover those assets. The committee recommends removing the fungibility requirement from the cryptoasset definition. We agreed, on the committee, that the fungibility requirement could be ambiguous, as the intention was actually to exclude non-fungible tokens, and the changes in the revised track version of the bill reflect this intent better.

We also recommended some changes to the exempting of cryptoasset brokerage services from GST, and clarified that derivatives over cryptoassets should receive the same tax treatment as derivatives over shares. We also clarified in new clause 79(2) that an option to acquire or dispose of cryptocurrency is an accepted financial arrangement.

I’d also like to point out an issue that was raised by a number of submitters, including the Chartered Accountants Australia and New Zealand, that there should be a simplified method of returning taxable income for holders of cryptoassets, designed so that holders of these assets would not have to keep track of all trades in order for the profit or loss on each one to be calculated and included in a person’s annual return. Officials’ response to this submission was that, while a simplified method would be desirable, more work would need to be done as part of the tax policy work programme, as opposed to an insertion in this bill. I raise that here in the House as I agree with our independent adviser Therese Turner—and we also thank her for the work that she did on this bill—that officials should look at this as part of the work programme—hopefully, in the near future, given the increasing investment in cryptoassets by Kiwis, and to help taxpayers comply with their tax obligations for these classes of assets more easily.

Lastly, I’d like to speak briefly to the change of the interest deductibility rules, which has already been canvassed pretty widely today. I only need to speak briefly, as Dr Deborah Russell has brilliantly summarised the policy underlining these changes. The principle of our tax system is that expenses incurred in earning income by revenue, by a business, should be tax deductible. Therefore, as a capital gain from the disposition of real property isn’t taxed, then the expense of the interest shouldn’t be deducted. It’s the Government’s goal to level the playing field for existing homes in favour of first-home buyers and those moving to a new home, compared to those investing in residential property. Investors can generally outbid first-home buyers, so we want to make residential properties less attractive for investors, while stimulating investment in new housing. So, by removing interest deductions as a business expense for residential investment properties but allowing reductions for property developers or people purchasing a newly built residential investment property, we look to help balance that.

By allowing interest deductibility of property developers and purchasers of new builds but removing it from other investors, we will continue to encourage supply. This should help boost supply by channelling investment towards expanding the housing stock and away from direct competition with first-home buyers and owner-occupiers for existing housing stock. That’s why the previous comments by the leader of the ACT Party around “you should have an infrastructure fund” I addressed very quickly in my first note, which was that’s why we have an Infrastructure Acceleration Fund—is to help with the supply.

The last thing that I would like to be able to just briefly touch upon was something that was raised by Dr Duncan Webb in his speech around high inflation rates affecting interest deductions, and that’s covered under page 7 of the commentary. The members from the Labour Party thought it was quite important that we have this, which is why it’s part of the majority report. Given the changes to the interest deductibility rules, we asked advisers about the relationship between inflation and taxation. We were interested in how high inflation rates would affect deductibility of interest costs as an expense. We were told again, as reported in the commentary, that the tax system works on nominal rather than real interest rates, and that these rates can differ significantly.

The real interest rate, in simple terms, is the nominal interest rates minus the inflation rate. This means that when inflation is high, the effective tax rate is lowered. For example, as mentioned by Dr Webb, advisers noted that the interest rate in December 2021 was 4.9 percent, and inflation was 5.9 percent. Therefore, the real interest rate was negative 1 percent. We note, in respect of the December 2021 quarter, landlords who claim interest as an expense deduction at the nominal rate will be claiming a tax deduction for something which was, in real terms, not an expense at all.

So, Mr Speaker, I’d like to thank you for the opportunity to be able to take a call on this. I know we’re going to have a really vigorous debate in the committee of the whole House. I can sense it from over here, but I’d like to be able to thank the officials for all the work that they’ve done on this bill, for their assistance during the select committee stage and, in particular, again, we’d like to thank the submitters, as well as Therese Turner for her independent advice and on helping the committee. I commend this bill to the House.

I call the Hon David Bennett—five minutes.

Thank you, Mr Speaker. That member Barbara Edmonds just tried to rationalise this bill by saying that because you can’t tax the capital gains, the interest deductibility should not be claimable. That was her rationale for this bill and to have that. That is just bizarre tax planning, because, actually—[Interruption] No, it’s not, because the income that anybody earns on that house is taxable. The rent that the landlord gets is taxable income to that landlord. They can claim, in the past, an interest deductibility but they are taxed on their income, and that is where that was quite a deceitful speech from that member, trying to make a rationale for something that is not correct. If she’s a tax lawyer, God help us! She’s got no idea. There is tax on revenue. We are talking about revenue. We are not talking about capital. There’s a huge difference in tax between revenue and capital.

💬 Ingrid Leary: Point of order. I believe that member referred to my colleague as deceitful. That’s against the Standing Orders.

💬 Hon Michael Woodhouse: Point of order. I’m sure I don’t need to point it out, but the question of the accusation that Ms Leary has levelled at Mr Bennett requires intent, and David Bennett never said that it was her intent to deceive. He mentioned that the speech had an element that could be considered that. There was no question of intent.

ASSISTANT SPEAKER (Ian McKelvie): Thank you.

Now, if we look at this bill, what does it do? It puts up tax rates for those that actually get out there and earn some income. It takes away the ability to take an interest deductibility for those people in the business of providing rental homes. All of this will create a dumbing down of New Zealand society. There is no incentive to go out there and earn more. There is no incentive to buy an asset that provides a service for other people. If anybody has to follow these rules, then that will lead to, as the ACT Party said, an increase in rentals for those seeking accommodation. That will directly hurt the very people that the Labour Party always campaigns on saying they’re looking after.

This will hurt middle to low income New Zealanders more than anybody else because there’s no incentive for the best and brightest in New Zealand to stay here. They might as well go to Australia on the next plane. There’s no incentive for somebody to have a rental house and to own that as a business, because they can’t get any interest deductibility on that business against the income of that business, which is the rent they receive. As David Seymour rightly said, that will force those people, then, to put up the rents. So, on one hand, the people that are on low or middle incomes in New Zealand won’t have the job opportunities, because those on higher incomes won’t want to invest in this country, and at the same time, their costs are going to go up in their rentals.

This is great economic policy from the Labour Party. It actually hurts middle and low income New Zealanders, the very people they purport to represent. Where’s the answer from the Labour Party? They’re quiet. They’re sheep. They had all this great economic analysis five minutes ago. Where’s your answer? There is none. They are hurting the very people that hurt the most under an inflationary environment. That is the effect of this legislation. It is dumb legislation. It is at the wrong time for New Zealand, where you have inflation. It will create an environment where employers that want to have the best people will have to increase their wages, which means more inflation going to that part of the market. It means that those that have rental accommodation will increase the rents, putting more inflation in that kind of the market. The net effect of both of those is to increase inflation overall.

It’s going to hurt middle and low income New Zealanders. It is dumb policy. It’s not going to earn the Government a terrible lot, considering what they’re going to have to pay to keep up with that inflationary environment. Are they going to increase the benefits, increase payments, increase accommodation supplements to match that? Is that the great plan? And that increases inflation again, and then the Government has to do the same thing again. It is the stupidity of the Labour Party that caused this, and it is the stupidity of their policies that will create even more friction in New Zealand.

Nobody voted for the Labour Party and these policies. They were only put into place by Winston in a moment of rage. But the effect of them will be to hurt New Zealanders, and this policy is detrimental to the very people that we should be looking after now. The low and middle income New Zealanders will pay the price for these dumb rules. They will be the ones that lose their jobs, they will be the ones paying higher rents, and they will be the ones that lose out of this legislation.

Thank you, Mr Speaker. I’m beaming into the House today on International Women’s Day from Hastings, in our sunny region of Hawke’s Bay, where we’ve been experiencing a new housing building boom right across the region, which includes seeing new homes for the private residential rental market.

As a member of the Finance and Expenditure Committee, speaking in favour of the Government’s Taxation (Annual Rates for 2021-22, GST, and Remedial Matters) Bill, the new legislation sends a very strong message: if you are planning to invest in housing for the rental market, build new. Build new and contribute to the housing supply, because the more we build, the more affordable housing becomes for more people. Even if you are a mum or dad investor who has a rental property that you’ve been renting out and may well have had it for well over a decade, here is a real opportunity to take advantage of interest deductibility and only a five-year brightline test by building new and investing in new housing. Be part of fixing the housing crisis by selling your existing rental and having a new, modern investment by investing in a new build for the rental market.

Now, we know that large investors can generally outbid first-home buyers. So in this legislation we want to make sure that residential properties are less attractive for investors, whilst stimulating investment in new housing by removing the interest deductions as a business expense for residential investment property but allowing deductions for property developers or people purchasing a newly built residential investment property. By allowing interest deductibility for property developers and purchasers of new builds but removing it for other investors, we will continue to encourage supply. And this should help boost our housing stock by channelling investment towards expanding new builds and away from the rent competition with first-home buyers and owner-occupiers for existing housing stock.

Now, as well as this, we’ve said that new builds would be subject to a five-year brightline test, rather than a 10-year test. So this legislation is already working. And I can give local examples that show that the work we’re doing in select committee in signalling this legislation and hearing submissions is working. I’ve spoken to a small investor who is using the equity in her existing properties to look at building two new, warm, affordable rental properties, and, once they’re built, she’s going to sell up her existing rental stock. She’s excited about the opportunity of adding houses and supporting the rental property market. At Camberley, I recently visited a new property development of 10 three-bedroom, warm, dry rentals—all interest as a deductible for this investment. Now, as well as this, the houses can be sold after five years and will not be subject to a capital gain brightline test because they’re built new.

Affordable rentals are very important to helping deal with the housing crisis. This Government recognises that new rentals play an important part so that families wishing to rent can. These are positive things that are happening and the message I have is: build new—build new.

Like my colleague Anna Lorck, I would like to acknowledge International Women’s Day. It’s a day when we can reflect on the gender pay gap, when we can break the bias, and we can remember that our Prime Minister is not “some girl in a skirt on a power trip”, as described by one of the protesters at Parliament, but rather a respected leader on the global stage who has saved thousands of lives, who has kept our economy on a strong footing throughout this pandemic, and, in the words of David Seymour just now, who is tilting the market to first-home buyers.

I’d like to just address the rather shouty comments from Andrew Bayly and David Seymour on tax. They’re repeating the speech from Chris Luxon over the weekend, which was about reducing the top tax rate or eliminating it altogether. That was, basically, a 3,650 word speech about tax cuts for rich people. Now, this was a week when the world order was changed by an aggressive foreign invasion of a democratic neighbouring State, when New Zealanders experienced dramatic scenes like we haven’t seen before outside Parliament, when other New Zealanders have continued to hunker down, bracing for Omicron. So it’s a brave new world, and what did the Leader of the Opposition have to say about that? Tax cuts. And, by the way, in all of those 3,650 words, not a single mention of Māori. So no thought of how Māori feature in the economy, either as tangata whenua or as citizens of New Zealand. I may be showing my age here, but Mr Luxon’s suggestions have come straight out of the John Key playbook. In fact, they’re no different than any of the other several leaders that we’ve had lately, whether that’s Collins, Muller, Bridges—the list goes on. An election bribe is just that.

I am getting to it, Mr Speaker, but I’m responding to the tax cuts question, because the tax cuts that are mentioned by the Opposition will actually be worse for most New Zealanders. I refer now to my colleague Dr Duncan Webb, who talked about the suggestion that they made that if they were passing this bill, they would take away the top tax rate. Now, that would leave a person on $25,000 a year $100 or so richer, and a person on $250,000 a year about $7,000 richer. So there’s a massive difference in benefit there. As Twitter has put it, doing those kind of tax breaks is really about giving better service to those who are already flying in first class. It’s refusing to clean up any other section of the plane, and it’s refusing to actually refuel the plane.

If I turn now to Supplementary Order Paper (SOP) 64, which deals with interest deductibility in the brightline test, this Government believes every New Zealander should live in a warm, dry, safe, secure house, whether that is through owning a home or through rent. There is no quick fix to the housing crisis, as other speakers here have said. The Prime Minister said today at question time that we are absolutely focused on fixing this.

Now, our policies are on track to do this, and what we’ve heard from the Opposition today is that when it comes to interest deductibility, even though they will admit that there is a housing crisis, they would do absolutely nothing. National would rather sit on their hands and do nothing. So let’s be clear: this SOP 64 doesn’t impact renters, it doesn’t impact first-home buyers, and it doesn’t impact owner-occupiers. It impacts not those who invest in new builds, and those new builds increase housing supply. So it affects highly leveraged speculators who own two, three, four, five, or 25 houses.

Now, why do some people in this country own 25 houses when others can’t even afford to get a roof over their head? Well, that’s because those groups of investors are one of the only groups in this country who have never had to contribute anything from the profit of their investment. The inaction of doing nothing for that group is actually not only worse for first-home buyers; it makes inequality worse. So National cannot, in all honesty, say they’re interested in closing the inequality gap, when these tax cuts that they propose, and what they don’t want to support in terms of interest deductibility, is about feathering the nests of their rich friends and trying to buy their way into Government with promises of tax cuts.

We’ve heard from the Minister that the IMF is warning that doing nothing about the ballooning housing market could end up in a slump. Now, that has knock-on effects for the economy. We have to tackle this head-on, and it’s incredible to me that the National Party, the ones who say that they’re a safe pair of hands, would rather do nothing and be so wilfully blind to this risk. I commend this bill to the House.

Well, I credit Ingrid Leary for her deeply socialist roots being so clearly on display there, because what she’s, basically, said is that she hates rich people—she cannot stand success and innovation and people getting ahead; she thinks it’s something that happens by accident. And that’s the sort of theme that we’ve had permeating this debate all the way through.

But I want to start with something that hasn’t yet been said, about the Supplementary Order Paper (SOP) that has been implemented into this bill, and that is about a broken promise, because, by any measure, a 10-year brightline test is nothing more or less than a capital gains tax on every property but the family home. And what did we hear from the Prime Minister in the previous Parliament? That she would resign before a capital gains tax was implemented. Well, I’ve got a suggestion for her: she can do just that, because that is exactly what this bill is. It is the implementation of a capital gains tax.

Now, we’ve had some—and it’s customary, actually, with Dr Deborah Russell, and today with Barbara Edmonds—really interesting philosophical discussion about tax jurisprudence, if you like. One of the things that neither of them said about this whole idea that tax is made on income account is the question of intent. And I think we got a good description from Barbara Edmonds about that, and the case for a capital gains tax on capital account as opposed to income account—that’s true—but, in order to have an income account, one needs intent; one needs to sell a good for a profit, with the intention of making a profit and paying a tax on that profit. And, for so long, the question of housing and profit and intent has gone to the intent on purchase, and that’s generally the same with any capital good. We already have a tax on that capital gain if the intention was to sell it for a profit. Developers know this. People who do up and sell houses know this. People who claim that, when they purchase a rental property, that was their goal—they weren’t, up until the brightline test, having to pay tax.

A two-year brightline test—and I go to the point that David Seymour made in criticism of the previous National Government. A two-year brightline test was our “flipping” rule. You were deemed to have purchased it with the intention of selling it for a profit if you sold it within two years, and that actually caught quite a bit of the activity that was going on there. Five years, and then 10 years, is a capital gain tax because the average length of time a person holds a property is about seven years. So there’s a huge net being cast here. And, despite Ingrid Leary’s criticisms of the so-called landlords that own 25 or 30 properties, that is not the picture of the rental market in this country—90 percent of those properties are owned by mum and dad investors, nurses, police officers, teachers, Labour voters, or at least they were till this came in this year. Because what they tended to do was keep rental as low as they could; they knew there would be some upside on capital gain, and there was interest deductibility.

And if—well, I did this analysis about a year ago; so it’s probably completely out the window now. An average priced house in Auckland with the average mortgage, charging the average rental, would, if interest was deducted, probably generate no income—no taxable income, that is—and be cash neutral. Now, because the interest deductibility is removed, that mum and dad investor, that teacher, that police officer, that nurse has to find about $7,000 in order to pay a tax bill they didn’t previously have. Now, that, by coincidence, happens to be the increase in rental in Auckland—$7,000 in the last year—and so this idea that, I think, one of the speakers said, that this wasn’t going to affect renters, is nonsense. Rents have gone up already because of this bill, and it hasn’t even been passed yet. That’s outrageous.

Now, the Minister, on behalf of the Minister of Revenue, talked about the benefits to existing housing supply, and I’ve already rejected and refuted that, but he then went on to talk about the exemption on new housing supply being a benefit in terms of how many houses are going to be built. Well, were that the case, I would applaud it. Even if it is on this policy, the Minister of Commerce and Consumer Affairs has, through the Credit Contracts and Consumer Finance Act legislation, made it so hard now for people to actually get finance to buy new houses that he’s actually offsetting any benefit that might have accrued from that. I had a call from a developer in Dunedin, in that Minister’s home city, who is trying to build a 24-apartment block—the only new properties in the city that will qualify for the housing supports threshold—and he can’t get anybody to sign up, because new-home buyers, first-home buyers are having so much difficulty in obtaining mortgage finance. And there’s nothing here in benefit if that Minister doesn’t get off his butt and fix the problem he created last year through the punitive regulations that were designed to stop loan sharks but that have actually slowed down sensible lending to first-home buyers.

Now, let’s talk about the tax thresholds, because we’ve had “Oh, fat cats!” and “Other countries have got 47 percent and 53 percent.” My question to Dr Duncan Webb in that regard is: who’s actually paying it? How many people are paying it? Because, the moment you get that differential, tax planning kicks in. It kicked in under the Clark Government, when we last had a 39c top tax rate. It’s kicking in now, and, so, very little revenue will be generated by this. It is an envy tax, and it needs to go. I note Barbara Edmonds, in referring to page 7 of the select committee report, described the Finance and Expenditure Committee’s concern at high inflation rates and their effect on interest deductions. It’s a pity the committee didn’t talk about high inflation rates and the impact on people’s taxation thresholds. In the first reading on this bill, I talked about a senior nurse at Middlemore Hospital; 10 years ago, his or her salary would have been 10 percent below the 33 percent tax threshold. Now it’s 10 percent above the 33 percent tax threshold, and that nurse is paying $2,000 a year more in tax not because his or her salary has gone up but because that’s how much more tax to pay on the equal number of dollars.

That’s the cost of bracket creep, and we know that minimum wage workers on 44 hours a week are now going to have a marginal tax rate of 30 percent. And this Government doesn’t think that matters. In fact, Dr Russell told us what we all know: that the Government thinks they can spend the taxpayers’ money better than the taxpayer can. And the Prime Minister, in question time today, tried to dance on the head of a pin to say it’s not inflationary when we do it, but it would be inflationary when the individual does it. What a load of nonsense. The reality is that this is punitive. The only beneficiary of inflation at the levels that we’re seeing now is Grant Robertson, and the coffers are filling and he’s spending like a drunken sailor—only that’s an insult to drunken sailors, because at least they spend their own money. He is spending the taxpayers’. And the reaction that we’ve heard from the socialists at the very suggestion that modest increases in taxation thresholds is somehow favouring the rich is crazy, crazy socialist economics.

We will be introducing a number of amendments to this bill because we believe that the public know better how to spend, save, and keep their own money than Grant Robertson and this socialist Labour Government do. They will be defeated, but we will make it very clear that we back New Zealand taxpayers to spend their money better than these guys.

Thank you, Madam Speaker. I rise to take a call in support of this bill, having been on the Finance and Expenditure Committee, and I’d first like to thank the advisers for the help they gave, particularly Therese Turner, who was extremely informative and robust about what she said about this bill and helped us all.

I wanted to talk, first, about what Michael Woodhouse has just talked about, which is the issue about first-home buyers, because you would have thought that he was on the side of those buyers. Actually, the levers that have been pulled in this legislation are going to make a big difference to first-home buyers. When I first bought a house, a lot of my friends were investing in houses, and they were doing it because they went to seminars where they were told a couple of things. They were told, “You won’t have any of the money that you gain on these houses taxed. No profit will be taxed.” And they were also told, “And there’s this clever thing you can do: you can get the interest back on your mortgage. So mortgage yourself to the hilt, and then, when you’ve got one property and that actually goes up in value, buy another and another and another.” I have friends in that category who have made a fortune out of housing, and those houses have not been particularly warm and dry. Let’s face it. They have been rented out to people as the law has allowed, and so there have been a lot of people lose out in that situation. Actually, one of the groups that’s really missed out until now are first-home buyers, because they compete with that group of people.

The National Party and the ACT Party can talk about mum and dad investors all they like, but, actually, the majority of that problem is the actual psychology of investing in housing without thinking of it as being a home. So what this law does—its change in the amount on the brightline test for 10 years and the interest deductibility changes, which are phased in—is it puts people on notice that, as Anna Lorck said, you need to buy new. If you want to be an investor in housing, by all means. If that’s where you’ve got your skill base, by all means. But do it right. Do it right by your society and actually invest in new builds, so that you’re doing something productive.

You know, Elizabeth Warren, who ran for candidacy in the Democratic Party in America, talked about this as one of our major issues in modern society: that everyone is investing in houses, and all the money gets caught up in houses when it could be going in some other things. It could be going into productive aspects of our society. I think we need to start to think about homes, not houses, and that’s a very important change in our society.

Now, people do need homes in this country because of years and years and decades of neglect, and what Labour is doing with regard to that is it’s actually building the infrastructure which makes it possible for all those new builds to be built. So if you’re thinking about switching into new builds, then you’ll find that the Government’s helped you out, because it’s built a lot of the infrastructure without it being burdened on councils, and it’s actually made it possible for those to take place.

I wanted to talk for a minute about one of the things that David Bennett said, because David Bennett talked about how there was a double-dip here: that you had to pay interest on the rent but you also had to pay the tax that was now going to be due on the mortgage. I think it’s worth reminding David Bennett that there was a paper in 2020 that was published in Stuff, and it said that 37 percent of those investors were maximising the losses in their places of rental so that they didn’t pay any tax at all. That mentality is not great; it’s actually a problem, and we need to actually look at ourselves and think, “Is that a fair society?”

So, finally, I want to come to the main part of this bill, which is actually about the tax rates coming up. The tax rates are going to 39 percent for people over $180,000, and it’s graduated. So it’s only on money above that. It’s not a lot to pay for a society, and, as Duncan Webb put it, it means for Chloe, who was the caregiver under the proposed counter-proposal—that she’d be paying $112, because she had that much in a tax rate change. Whereas, actually, Mr Luxon would get something like $7,500, even with his current job—

ASSISTANT SPEAKER (Hon Jacqui Dean): Order! Can I invite the member to come back to the bill. This is a second reading. Thank you.

So the actual issue here is: who should be paying that tax? Actually, I absolutely reject the statements of the ACT leader, which suggest that hard work is somehow linked to your income so strongly. The people that I’ve noticed working really hard, who need the tax system to work for them, are actually those people like Chloe. They are our health workers. They are our nurses. They are our bus drivers. They are our essential workers in supermarkets. Those are the people we need to put first; not people on $180,000 a year. Those people are doing OK. They are actually doing fine.

So we need to focus on people who are actually facing a serious challenge to their ability to make ends meet, and this bill does that, and I’m proud of it for doing it. I am pleased to be the final speaker in this bill, because I get to say these things at the end of what actually has been—some of it—quite frankly, claptrap. I commend this bill to the House.

The question is, That the amendments recommended by the Finance and Expenditure Committee by majority be agreed to.