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

Members, we now come to Part 3. Members’ amendments to adjust rates of income tax were debated under Part 1 of the bill but will be voted on at the end of this debate. Part 3 is the debate on clauses 46 to 133 and Schedule 1A, “Amendments to Income Tax Act 2007”. The question is that Part 3 stand part.

Thank you, Madam Chair. Moving on to new ground and I think this is the substantive part of the bill, as, no doubt, the Minister is well aware of it, in terms of what it means for property owners. And so the first bit I want to talk about is my Supplementary Order Paper (SOP) 137, which is the issue of deductibility of interest. What the Labour Government is proposing here is a fundamental shift from a well-established principle, which I don’t think has been ever broken before, which is that expenses that relate to a taxable activity are deductible against the taxable income, and, of course, what this bill does is do away with the ability of property owners who may own a rental property, who are paying tax on the rent—and yet cannot deduct the interest. It is a fundamental change to the strong principle of matching deductibility against accessible income, and that is why we absolutely disagree with the Government on its approach and that is why my SOP 137 goes through and highlights all the relevant clauses of this bill and deletes them, which would mean that it would limit the interest cost deductibility for investment properties.

I suppose the interesting thing is just how significant an issue this is. We spent some time in the committee looking at this very issue and it is significant when we asked the officials to go away and look at the numbers about how many people actually are getting a deduction against their rental properties, because I know the Government loves to characterise these mum and dad investors as rapacious investors—use the term “investors” but often with the implication that they are rapacious—they are only there to further their own interests, they’re such a bad thing, they’re cutting everyone out of the market. So I said to the officials, “Tell us how many there are.” Well, that was a first issue. The officials actually had a great deal of difficulty actually determining how many of these so-called rapacious investors there were. So they did come back, only after we asked them specifically, and they came back with an estimate. They had to base it on the 2019-20 year and the 2020-21 year, and they did it off the data returns.

What staggered me is that this information actually wasn’t known before the Government actually started talking about this so publicly, and pushing—and I see the Minister of Housing in the Chamber tonight, which is good to see—absolutely denigrating these mum and dad investors and saying how bad they were. I would have thought that they’d actually have a handle on it and it wasn’t until, really, in the Finance and Expenditure Committee. We said, “Go away and give us some numbers.” So they came back with an estimate and they said that there is a population pool of approximately 350,000 landlords who could potentially be affected. That was their best estimate: 350,000. So that’s the total pool of these mum and dad investors.

So the next question was, “OK, how many of those have some borrowing against their rental property?” And so they went away and they did some more work. “If the number of potentially affected landlords is limited to landlords that have claimed interest expenses, the number of landlords potentially affected by the proposed interest under the new rules is approximately 258,000.” I’m hoping you’re going to allow me to carry on here. And so 258,000. So the next question was, “So we’ve got a quarter of a million mum and dad investors who have these properties and who have got some form of borrowing on them: in some cases very little, in some cases, not much.” And that was the next question.

So then we said to the officials, “Out of those 258,000 rapacious investors, how many—or what sort of portion of income were they making? How much money were they making off these people?” So it’s a pretty important thing, right? So they came back—again not definitive. And again, I was staggered that we didn’t have this information prior to the Government making its wonderful pronouncements here in the House and elsewhere. But officials said that approximately 75 percent of landlords have gross rental income of less than $30,000 per annum right away and just under 60 percent—to be precise, for the record, 58 percent—have gross rental income of less than $20,000 per annum. Now, the Hon David Bennett here is a very smart numbers man, accountant, and he will know: if you’re earning less than $30,000, what is your weekly rental? What’s the weekly rent will you be charging?

💬 Hon David Bennett: 700 bucks.

No; just under 600 bucks. What’s the average rent in New Zealand? I’m looking around the Chamber. Maybe the Minister can tell the Chamber why I’m asking them, posing this question. We do know rents have gone up by 150 bucks under Labour, right? So if you go to Auckland, actually, if you look at the summary for rentals in Auckland, somewhere between $650 and $800. If you go to Invercargill, it’s obviously less. So what this is saying, by implication—the extrapolation of this figure of $30,000 rent a year, and most people, 75 percent of landlords, earn less than $30,000—is that they only have one house. So of the 258,000 people that own a rental, 78 percent owned one rental.

Now, I put it to you that they are not the rapacious investors that the Minister of Housing and the Labour Government have continuously maligned and slighted and been dreadfully harassing. This cuts to the core of what the Government is trying to achieve in this piece of legislation. It is wrong to suggest that these rapacious investors—so-called mum and dad—who have chosen to invest in one property should be now subject to a tax regime that cuts across the core of what it is, that if you run a commercial enterprise you have to pay tax on the revenue, on the $30,000, but you cannot deduct the interest costs. As it’s been pointed out quite recently, with these tax changes, which will come into effect over the next four years—right now many of these mum and dad investors who have been putting their money into these rentals to provide a house for those many thousands of people who cannot afford a house, or those people wanting to buy their first house, they cannot claim that money, and therefore they are losing money this year.

It’s interesting, you know, as mortgage rates increase—and we’re likely to see 6 percent, 7 percent by the middle of next year—many of these mum and dad investors will be losing up to $7,000, $8,000 a year, on the current estimates. So, far be it from these people being seen as rapacious investors ripping people off; these are people who invested in a house, often for their retirement purposes, who provide a good standard of living. Not all mum and dad investors are great landlords, but the vast majority are. This is why we absolutely oppose this interest deductibility part of this bill, and that is why we put up Supplementary Order Paper 137. I think the Government actually needs to stand up and explain very cogently why they see this as such a bad aspect, because I don’t think the facts stand up for it.

The trend in New Zealand over recent decades is that a declining percentage of our population owns their own home. More homes are owned by landlords owning multiple homes and fewer as a percentage—

💬 Andrew Bayly: Well, that’s not what this says.

The trend is quite clear. The trend is clear that over recent decades the proportion of New Zealanders who live in their own home has decreased and the proportion who are renting has increased. In respect of the breakdown of those, between landlords who own lots and lots of properties and who own one extra, as Mr Bayly was talking about, there was an interesting article by Valocity reported in a Stuff series based on their data that they gathered. And one of the more astounding stats there was that “Over 22,000 homes”—and I’m quoting from them—“are owned by an elite class of large investors who each own more than 20 properties”. That’s the equivalent of Invercargill or Nelson—all of the houses being owned by 906 people, whose portfolios continue to grow.

How do they do that? Well, we know that they’re able to outcompete over time first-home buyers, really, because they’re the ones that are dropping out of the market, by leveraging their existing asset, plus the asset that they’re purchasing, effectively often borrowing 100 percent of the cost of the new property with the debt spread over the new property that they’re purchasing and the old property that they already—not the old property, but the properties that they already own. The effect of which has been putting upward price pressure on properties. It’s been one of the contributing factors to house price inflation. I know there are a lot of other factors in there, including the lowest interest rates that the world’s ever seen that have been visited upon the world, probably by Mr Greenspan and his mistakes prior to the global financial crisis in monetary policy around the world since. But against the background that there’s a decreasing number of people living in their own home, this side of the House believes that the tax advantage that comes from tax deductibility of those high rates of leverage that can, really, only be obtained as an investment methodology from this class of investment is undesirable socially, and we believe that justifies the measures that are proposed.

Thank you, Madam Chair. I rise on behalf of the ACT Party to talk about the interest deductibility changes that this Government is proposing. I believe that they are divisive changes. When the Government and the Minister proposed them last year, it was stated that these interest deductibility changes were supposed to help tilt the market away from speculators and tilt them towards first-home buyers. The ACT Party did what the Government should have done, and we actually went out and we talked to people who would be affected by this change. There are a lot of people whose financial security is now in jeopardy because of these divisive changes. But the real issue here is that it’s not actually going to make people better off. This doesn’t help build more homes for first-home buyers to actually live in. In the meantime, it actually pushes up rents. We saw from the advisers’ own advice last year that the average landlord is going to have an imposed cost of about $4,000 extra per year because of these changes. It shouldn’t be a surprise to anybody who would be able to realise that that cost has got to go somewhere. Most landlords don’t want to put up their rents on good tenants, but they will be forced to.

I’ve gone around the country, and I’ve spoken to a lot of property investors and mum and dad landlords who have said that they’ve intentionally kept their rents below market rates because they have good tenants, and they know that they should be charging them more but they like their tenants and they want them to stay, but, because of limiting interest deductibility, they will be forced to put up rent on people that they never wanted to put it up on. For that reason, it’s divisive.

It also tries to scapegoat a class of people who are actually providing accommodation in New Zealand—a job that the Government doesn’t do very well on. It should actually be the role of private investors to help supply rental accommodation in New Zealand. There is a place for that, and it’s very unfortunate that this is even happening.

I want to take the opportunity to share a couple of examples, because the ACT Party reached out to people who would be affected by this law change, and we had 15,000 people sign a petition asking for this not to happen. There were really, really heartbreaking examples. There are a few that kind of spring to mind to give a little bit of balance to this debate.

This woman says, “I would prefer if this letter could please be read out in Parliament. My husband and I both have disabilities. My husband can’t work, because of his back injury, and I have diabetes and PTSD. Now, the reason we bought a property was in order to support ourselves and our two adult sons who have a disability. We accept the minimum rent to cover the mortgage and miss out on charging market rent for both of my two older sons. One of my adult sons has schizophrenia, and the other has a head injury and dyspraxia. We are constantly busy working with mental health, WINZ, network personnel, and social workers, acting as their advocates. Everybody is very supportive, but my husband and I are nearly 60 years old, and we have put our retirement on hold so that we can ensure our sons live in safe, dry, and secure accommodation. These two properties are plain bedroom flats. They are warm and safe. We don’t get paid to support our adult sons. They’re 28 and 30. Nor do we expect any additional support on top of what we already receive. We are very grateful for what we do receive. But the Government is relentless to try and make our lives even more difficult. I’ve made two suicide attempts in the last 12 months and ended up in hospital. Everything is related. I see more people like me in my situation who are overlooked. I’ve asked Grant Robertson to make an exception for people like us in this policy, but it was fallen on deaf ears.”

It is an absolutely tragic situation. There are people in our society wanting to do the right thing and support their own families. They don’t want to rely on Government support, but they are being forced to sell the homes that they bought, to help support their own family members to make sure that those children would have a stable home to live in. I think we should admire people like that, and it is a real tragedy that this Government—and the changes made to limiting interest deductibility—will mean that those two disabled sons may be forced into Government-run accommodation rather than being able to live in a home owned by their parents.

The second is a lady who lives in Porirua, and she has a home that she rents out. It’s pretty nice. Her tenants wanted to rent that home for another four to five years, because they’re well-settled in the area with work and school for their boys. But now they’re going to be moving out in three days. This person had to ask them to move out because they knew that these changes were happening. Before that, they offered to sell them the house, but these tenants said that they could not afford it because it would cost them an extra $400 a week in a mortgage repayment, the rates, and the insurance. This landlord felt very bad and had to apologise to them and explain to them that they just cannot simply continue to keep this house, because they will end up having to pay $150 extra a week from their salary, just so that they can live in it. That $150 per week is not something that they can actually afford. This home that has been a stable, secure home for a family and kids going to the local school will be sold, and likely that person who was living there will have to move on.

There’s also another example: somebody who has four dwellings that are specifically designed as student accommodation—because they’re a block of flats. It’s unlikely that a first-home buyer is ever going to want to buy this block of flats. What’s going to happen? They’re going to have to end up either putting up rent on students who will live in these flats, or selling an entire block of flats. You know what? No first-home buyer is going to be buying a block of flats. That is just not something that they would do. The Government did not exempt blocks of flats from the interest limitation rules that they’re putting in. There will be people in small, little units in shared titles who will have their rents increased because the Government decided that first-home buyers should buy them. There is no market for that.

The ACT Party opposes this bill because it’s divisive and because the changes that it will make to people’s lives are so negative, the costs outweigh the benefits. But there is also an element in my Supplementary Order Paper (SOP)—because I drafted this SOP to scrap these interest deductibility changes—of the brightline test. The brightline test should also be scrapped completely. It was an acorn that has grown into a fully-fledged tree. It was two years, it’s gone to five years, and it’s gone to 10 years. There is no need for us to take it back to two years. It should be scrapped completely because you need to cut it from the root, otherwise it will spring forth into another tree again. It is an acorn that has grown.

We need to get rid of it, in particular for the types of people that have been emailing me, like a man who lost his job in Auckland and managed to find a job on a farm where the home was supplied for him. He’s now renting out his primary residence in Auckland, but, because he’s now got this job in another town, he’s going to be captured by the brightline test. That’s really unfortunate, because he says, “All I can do is sell, and maybe never get back on the market—never be able to afford another one—or just acknowledge that I am not going to be able to get the capital gains that everybody else would be able to get.”

It is a divisive law. It’s not going to work. It’s going to push up rents for people who could least afford it, and we need people to supply rental accommodation in New Zealand. There is a place for landlords. They shouldn’t be vilified for actually wanting to do the right thing, and we should actually be proud of people who want to put aside a nest egg for their own financial security.

Can I begin by saying that, you know, that’s a heartfelt story that was told then, and I’m sure I speak for other members on my side—I won’t speak for other members on the Opposition, although I’m not suggesting they would have any other sentiment—of course we respect the difficulty of raising and looking after disabled family members, and have the utmost respect for people who do that.

In respect of some of the underlying issues that the member Brooke van Velden mentions, I would say that, on this side of the House, we don’t think we get wealthier as a nation by bidding up the price of existing houses and selling them to each other at ever higher prices. It doesn’t generate any productive increase in productive output.

And as to the suggestions that this is going to increase rents, the statistics that were put by the Leader of the Opposition, for example, to the Prime Minister today, said that rents have gone up, I think the figure was 16.4 percent in the period from October 2017 to December 2021. Interestingly, during the period from August 2013 to October 2017, the rate of increase in rents was exactly the same: 16.4 percent. Interestingly, in the StatsNZ rental price index for the year annually in New Zealand, January 2021 to January 2022, rents went up by 4.6 percent nationally, which is pretty much the rate of inflation. In respect of Auckland, the increase was 2.7 percent, and we on this side of the House say that’s because, in the end, the driver of prices is the cost of new housing and the supply of new housing, and because we’ve got building activity strongly outpacing population growth in Auckland now—something that the last Government never achieved; they went backwards—we’ve had Auckland price increases of 2.7 percent, year on year. In terms of the national statistics, in February 2022, the national rental price index fell by 0.6 percent from the prior month.

So I don’t think the statistics bear out the dire predictions that are being made by the Opposition, and I think they do tend to support the view that the key to slowing rent increases is new supply, which we’re seeing in Auckland, which is why Auckland rent increases have been at a lower rate than in the rest of the country. I would also note that, in respect of our efforts to intervene, we have deliberately skewed the field towards investment in new housing, and so the brightline test is softer in respect of new houses, and the interest limitation rules don’t apply to them for the first 20 years of the new build.

So we think we’ve got the balance right and we think the stats will bear that out and we don’t think that the underlying trend of decreasing homeownership that we have been seeing in our country is desirable, socially or economically. I heard the members saying that they like the fact that people are encouraged to save and put away a nest egg. I agree with that, and I think that is most important for the home occupier, and I am happy on this side of the House to be preferring the interests of the home occupier over those who rent other properties.

Thank you, Madam Chair. I hope New Zealanders have listened carefully to that Minister tonight, because he’s, basically, said that the Government will intervene in this market because they don’t like the results of the market. He’s saying that there’s 906—I think that was the number he used—large-scale rental owners that dominate the market and that’s why the Government has to stop it.

💬 Hon David Parker: That’s not quite what I said.

That’s exactly what he said.

💬 Hon David Parker: No.

Well, let’s go to any other industry in New Zealand; the steel industry. Let’s go to any other part—that’s part of the building industry. Should we break up Mitre 10 and Bunnings Warehouse because they’re too big? Shouldn’t we have a little store on each corner where you can get one plank of wood and one nail? That’s the theory that he is using.

He doesn’t want to have a business of rental houses. They do not believe that that is a legitimate business. And if you take that to the necessary extreme, then let’s go into other parts of the building and construction industry. If you want to reduce the price of houses, let’s do that, why don’t we do that? This isn’t market failure—that’s what he’s arguing. This is actually a market showing what actually needs to be done. Market failure is when Government’s intervene, thinking they know best. He is, essentially, nationalising the New Zealand rental market by this kind of programme. That’s his plan. Let’s go nationalise the New Zealand energy market! Let’s go nationalise New Zealand steel market! Let’s go nationalise it all!

Because in that great socialist utopia that exists, if Government can control it, it will be right. That is his plan. And he’s saying, “Oh no, rents won’t go up, there’s no chance that’s going to happen.” Well, if people can’t earn an income where they can take off the deduction for the interest, they’re going to have to put more income in there, aren’t they, to pay to mortgage? They still have a mortgage. They still are in the market. There’s nobody going to the banks and saying, “Oh, you only own one house, so you don’t have to pay this interest rate and if you had 900 houses you have to pay much, much more.” That’s not how the real world works. This is doomed to failure because it is the Government putting its hands into the market. It has never worked in New Zealand’s history and it will never work now.

Now, that Minister will pat himself on the back and say, “I’m here for those people that can’t get there and you trust me because my decision tonight will change it all.” There’s no way in hell he’s going to make any judgment tonight that’s going to make any difference. If anything, it’s going to consign the people at the bottom to higher rents and when they’ve got higher rents they have less income that’s disposable, when they’ve got less disposable income they have less savings, and when they have less savings they can’t buy a house, so they have to keep renting and renting, paying more and more rent, and the circle keeps going on.

So it’s brilliant economics, Minister; it’s going to fail, but we wish you all the very best in your little dream world, and we look forward to you actually explaining to New Zealanders why you don’t think somebody should be able to own more than two houses in New Zealand, why you think it’s a bad thing for somebody that’s got capital to use it for somebody else that hasn’t got capital to have a roof over their head, or do you know best, and if you limit it to one or two houses [Interruption] and take away—and you said you do.

💬 Hon Dr Megan Woods: No, I said you shouldn’t say you.

Well, that’s the answer. The Minister of Housing says she does—she says she does. She said, “Yes, I do.” Well, there we go. We know their answer, and it will be a failure just waiting to happen. So all those Kiwis out there that genuinely want to get a house should be listening to the failure that is this Government and their silly economic policies.

I found that intervention from the Hon David Bennett illustrative of the difference in values, one side of the House to the other. He explicitly said then that he doesn’t mind dominance in the housing sector as you find in every other sector. I think that shows a difference between this side and that side, because for us on this side, actually, homes are not just another asset class, and we think that it is desirable to have higher rates of homeownership. We don’t see it just as another asset class to allocate, like shares or steel or the other industries that he mentioned. He then also, ridiculously, said that we’re nationalising the housing market.

💬 Hon David Bennett: You are.

We’re not.

💬 Hon David Bennett: You are.

The Government’s not purchasing these houses. These houses aren’t coming into the ownership of the Government. They’ve been purchased by other people.

In respect of another issue, we certainly do not have perfect tax settings around housing in New Zealand—we don’t. And it’s been one of the reasons why house prices in New Zealand are amongst the least affordable in the world: it’s because of the tax bias in favour of that asset class, and that partly relates to interest deductibility, because interest payments are not wholly an expense. Even if I was to accept the National Party logic here—and I don’t—and even if I was to accept the theory that housing is like any other asset class and all related costs should be deductible, that’s only true of real costs, and it’s not true of the inflationary component of an interest payment. If members want me to go into this in more detail—

💬 David Seymour: Oh, please. Second call.

I’m happy to, because an interest payment is not all a real cost, because part of it is compensating the lender of the money for inflation, and—

💬 Andrew Bayly: How much is that of it?

It’s roughly half. Over time, if you go over a period of 20 or 30 years and you say that inflation over a longer period averages 3 percent per annum, let’s say for this sort of asset class there’s a margin above inflation of 3 percent. The real interest rate that is being paid by the borrower is only 3 percent, even though they’re paying a nominal rate of 6. And they get a deduction, effectively, from the inflationary component of their interest payment to the lender, which is compensating the lender for the diminishing value of the loan. At the end of the year, the real debt of the borrower has decreased by 3 percent in after-inflation terms.

At the moment—

💬 Hon David Bennett: Rubbish.

What’s that? Rubbish?

💬 Hon David Bennett: If that is the case, then how come—

CHAIRPERSON (Hon Jenny Salesa): The Minister is still in the middle of his speech. If the member would like to ask a question—

💬 Hon David Bennett: He was asking a question. I was replying.

CHAIRPERSON (Hon Jenny Salesa): If the member would like to ask a question, he can do so later.

We know, particularly for many properties, that their pattern is that they experience an inflationary gain in their property, they re-leverage their property to buy another property, and they maintain their level of debt in respect of their property portfolio at high levels, and they forever, essentially, for many decades, get a tax deduction for the inflationary component of their interest payment, which is not a real cost, and they pay nothing on either the inflationary or the real gain.

So there is an economic illiteracy on the part of people who say that we should persist with tax settings that reward speculative investment, and to the extent that you take a tax deduction for an inflationary part of your interest payment and you pay no tax on either the inflationary or the real part of your gain, you do have a distortionary tax setting, which is one of the reasons why house prices are so inflated in New Zealand and one of the reasons why residential rental owners have multiple properties and can outbid a first-home buyer, and that sits behind one of the reasons why, over recent decades, we’ve got declining homeownership rates.

I call Simon Court—I’m sorry; Simon Watts.

Thank you, Madam Chair. Twice in one night, and I appreciate that humour—

CHAIRPERSON (Hon Jenny Salesa): My apologies.

—because listening to that last contribution from the Minister, I was starting to get a little bit worried about some other thing. I think, for those five or so people that are still watching this at home and haven’t gone to sleep after listening to that, I think they will be significantly disappointed because what we’ve just heard, really, is the difference around ideology, around driving the denial of interest deduction on the mortgages for rental income versus the case where interest deduction is allowed on any other form of business income. Right? So we’ve got a complete inconsistency that’s being created within the tax system. And one of the benefits of the New Zealand tax system is that, actually, we’ve got a reasonably fair and broad-based system, right? But what is happening as a result of this specific change in Part 2 is the denial of interest deductibility, based on an ideological view that this is going to have some miraculous impact in terms of improving the issue that impacts pretty much the majority of Kiwis and is the most significant issue facing Kiwis—which is around housing affordability and housing access—which is an absolute fallacy.

And it’s not just me saying that. Can I quote to you from KPMG’s submission to the Finance and Expenditure Committee in regards to interest deductibility—and maybe KPMG are also believing that this is that, but I will quote from the front page, and it says “We understand that standard economic approaches would suggest the above propositions generally do not hold.” What they were referring to there is the concept that this denial of interest deductibility will actually have an effect around decreasing the ability for property investors to pay less when they purchase properties, in effect, trying to bring back the price of houses, and the other aspect is around a reference around the change in rents.

So what the difference is, I think, and as the Minister tried to look at the difference between, you know, this side of the House—and that side of the House, actually—when we think about taxation, we think about how do we use taxation in order to deal with factors that are true market failure. And what we’re trying to deal with here through this is an ideological tax that makes the members on that side of the House, and a small number of supporters in this country, think, “Oh, that feels good, that’s going to deal with the problem.” Well, it’s not, and it’s not going to deal with the problem. That’s the shame about this aspect of Part 2 of the bill.

The analysis to support the anticipated effect on the housing market of not allowing interest deductibility is pretty much sparse, if not available, and that was also commented for a number of submissions through the Finance and Expenditure Committee process. The other aspect that we haven’t—and I’d be interested to hear the feedback from the Minister around, is the complexity that this change brings into our tax system. As I said before, we have a simplistic, a reasonably simplistic, tax system. But what we’re bringing in play now is a complete inconsistency that will bring complexity which, really, again, will only probably derive benefit for those advisers out there.

Lastly, it is interesting to note that both the IRD and Treasury also advised the Government against the denial of interest deductibility. So it’s not just this side of the House at this time of the night saying that this is a completely ridiculous idea and hearing the other side of the House saying that, actually, “Government knows best and Kiwis don’t quite understand.” Well, I’m sorry, it doesn’t work like that. And that is backed up by a number of advisers, a number of people around this country. I back Kiwis, I back smart, sensible Kiwis out there that know what they’re doing with their own money and know that this is an absolutely an ideological tax that will not benefit and not bring any change to the housing market that so significantly needs change in order to make sure that our future generations have a house to live or to rent and to live a great life in this country.

I move, That the question be now put.

Thank you very much, Madam Chair. I’d just like to quickly refer back to the contribution to this committee stage by Brooke van Velden, because I think she highlighted graphically, and in a way that clearly moved the Minister, one of the central problems with this policy of removing mortgage interest deductibility from landlords renting out homes. You see, the Minister of Revenue stands up and he says, “Our goal is to make sure that more people are owner-occupiers and fewer people are landlords with tenants.”—that’s their goal—and the problem with that is that the people who are currently tenants are collateral damage, and some of them are very vulnerable people in very difficult situations. That’s the central problem.

When the Prime Minister introduced this policy and said that her Government wanted to “tilt the playing field towards first-home buyers”, what she didn’t say—what she didn’t say—was that she would be tilting it away from anyone who was a tenant, and I can’t work out if this is wilful ignorance or her just having made a political call. I asked the Prime Minister in question time today why did she think that adding extra tax to landlords in a tight rental market wouldn’t be passed on in rents, and she couldn’t explain why she thought that, but I think most people can figure it out.

If you put an average of $4,000 extra tax on to a landlord and the market’s tight—and it’s not as though tenants can go elsewhere—guess where that cost is going to end up! Paid for by tenants, some of the most vulnerable people.

Here’s the next irony, which is that most people who are tenants actually do—as the Minister said—want to become first-home buyers, and that means they’re saving for a deposit. But if you put a tax on the housing sector and increase the tax on the housing sector, then of course you’re taking away from their ability to save to be depositors who buy a first home. There you see the own goal of epic proportions that comes from failing to properly understand the situation and the problem, and it’s worth just stopping to think about what sort of extra cost is going to be put on to landlords and passed on to tenants.

Well, at the moment, if you have an interest cost, you can deduct it, and if you have a mortgage, say, on a home of half a million dollars and you have income of $48,000 or above, then you’re going to be paying 30c or 33c—so about a third is your tax rate—and if you have a 3 percent mortgage and you’re paying about a third tax that you can no longer deduct, then you’re paying 1 percent. That’s what it costs now because of no more interest deductibility from this legislation. So 1 percent of your mortgage—that’s what you’re paying. But remember, I said that that’s with 3 percent mortgage rates.

Now, I listened carefully to Adrian Orr. It’s not always in the best interests of my welfare and health to hear what that guy’s on about, but the thing he says is that we’re going up with interest rates. If you imagine 6 percent interest rates, then all of a sudden it’s 2 percent of the cost of your mortgage, and if you’ve got a half-million-dollar mortgage, then it’s not $5,000 or $100 a week; it’s $200 a week that you have to pass on to tenants. This has got to be the biggest rent-increasing policy that a Government has ever brought through, and the problem is that in the rush to help first-home buyers, people who are tenants are collateral damage, and, ironies of ironies, people who are tenants often want to be first-home buyers and are saving for a first home.

That’s why I support the amendments on Supplementary Order Paper 135 put on the Table by Brooke van Velden, but that’s just one reason. The second reason I support that is actually the changes that are proposed to the brightline test, and when I say “changes”, I mean “Get rid of it.”

I should say a little bit more about mortgage interest deductibility, because these two policies that Brooke van Velden’s amendments would get rid of from the tax law have something in common: a failure to define the underlying problem. You see, the problem with falling homeownership rates—and on that we have common ground with the Minister; it has got harder for Kiwis to own their own home—is not the tax treatment. The reason that there is inflation and the reason that people are finding it harder to afford a home is because there are too many people chasing not enough homes. Until you’ve solved that fundamental problem, then these changes to taxes, whether it be mortgage interest deductibility or having the brightline test at 10 years or five years or two years or any length of time, the only thing you’re going to do is redistribute a shortage of houses and change the people who don’t have housing, based on who the Government’s favoured political group is at any time. That’s not real problem-solving. That’s not real change and solutions. That’s politics, and that does not make New Zealanders better off.

If you come back to this question about mortgage interest deductibility, well, actually, the Minister is right that inflation is not deductible. But you have to ask yourself: why is there so much inflation in housing? Well, because there’s a shortage. That’s the real problem. He’s not solving the real problem; he’s trying to treat the symptoms of it.

Why is it that we have a shortage of housing? Well, land-use planning and infrastructure funding, building regulations, making councils the building regulator—those are the problems that need to be solved. This will not solve them at all.

The problem could have been seen from another angle, which is that income tax—I claim no expertise in these matters, but it appears to be on income, and income is revenue minus expenses and interest is an expense. So if having income tax on income, which is revenue minus expense, with interest being an expense, hasn’t created a bubble in the price of Toyota Corollas or desks or chairs or anything else that is freely available—and when the price goes up, people create more of them—maybe the problem with housing is not the tax treatment that applies to everything the same, but maybe the problem with housing was the supply of housing, or, to be really precise—because I know that the Minister loves to nerd out on this stuff—the supply elasticity of housing, and maybe if we fix the real problem, we’d be in a better space.

But the other reason I think we should support Brooke van Velden’s amendment is that it gets rid of the brightline test. I know there’s another amendment that I can’t support that reduces it to two years, and that amendment is also guilty of a failed problem definition. You see, the problem with housing in New Zealand is not the length of time that people own them. It’s not people that own houses for less than two years or less than five years or less than 10 years. The problem with housing in New Zealand is just there are more people than there are houses, and because people are bidding them up, the price goes up, and they become unaffordable, and that destroys a lot of the opportunity that New Zealanders should have. And when the National Party comes along and says, “Oh, we’re going to stop people flipping them.”, that’s not the problem.

The length of time people own a house is not the problem here, and, by the way, the problem is not tax treatment, because here’s another problem with failing to define the problem. You see, the problem is there are not enough houses for the number of people, and when supply doesn’t match demand, prices go up. Well, in putting Government taxes on rising house prices, the prices still rise, but it’s just that the Government becomes a silent partner in the speculation, and we don’t want the Government to be a silent partner in the speculation. We want to build more houses and not have a problem with the prices going up, so that people can afford them.

So getting rid of the brightline test is the right thing to do—not make it two years so Labour can put it back. Labour, National, Labour, National; two-year, five-year, 10-year—depending on who’s in power. We actually want to get rid of it. As Adam Smith said, an income tax is intolerable interference into the affairs of people, and this brightline test is actually one of the worst because you have to prove where you live for 10 years and it’s outrageous. So we want to get rid of that brightline test altogether, and we want to restore mortgage interest deductibility for housing, because that is allowing us to focus on the real problem.

I move, That the question be now put.

The question is that the Minister’s tabled amendment to the Minister’s Supplementary Order Paper 134, amending clause 80C, be agreed to.

The question is that the Minister’s amendments to Part 3 set out on Supplementary Order Paper 134, as amended, and in the Minister’s tabled amendment, be agreed to.

Brooke van Velden’s amendment to clauses 48, 56B, 64BB, 64DB, 64E, and 80C, set out on Supplementary Order Paper 135, are out of order as inconsistent with a previous decision of the committee.

The question is that Brooke van Velden’s remaining amendments to Part 3 set out on Supplementary Order Paper 135 be agreed to.

Andrew Bayly’s amendments to Part 3 set out on Supplementary Order Paper 137 are out of order as being the same in substance to amendments on Supplementary Order Paper 135.

The question is that Andrew Bayly’s amendments to Part 3 set out on Supplementary Order Paper 136 be agreed to.

The question is that David Seymour’s amendments to adjust tax brackets and remove the 30 and 39 percent brackets set out on Supplementary Order Paper 140 be agreed to.

The question is that Andrew Bayly’s tabled amendment to adjust tax brackets by the rate of inflation be agreed to.

The question is that Andrew Bayly’s tabled amendment to remove the 39 percent tax bracket be agreed to.