Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill

Members, we now come to our final debate—clauses 1 and 2. This is the debate on clauses 1 and 2, “Title” and “Commencement”.

I wish to speak to some issues around the commencement dates. These are complicated clauses in tax bills. Normally, a commencement date is a pretty short thing, but in a tax bill, we have a whole page of commencement dates for various sections. Actually, there are two pages. And then, in the Amendment Paper, there’s another series of commencement dates.

It’s pretty hard and pretty dense reading. I don’t want to go through and debate every single commencement date. That would be an exercise in futility. But I do just want to bring up one issue in respect of the global anti-base erosion rules. Now, I might have missed it somewhere. I can’t find where the commencement dates are. So all the global anti-base erosion rules are contained within new section HP. I’ve scanned through the commencement date clauses, and I’ve scanned through the commencement date clauses in the Amendment Paper as well, and I can’t find them.

Now, this is quite important, and the reason is that in the legislation and the policy work as originally done around these global anti-base erosion rules, the time when these rules were going to be adopted in New Zealand, when we were going to put them in place—remember they are the rules that are sitting on the OECD website—was going to be when a critical mass of countries was going to be adopting them. So we needed a critical mass of countries to adopt an income inclusion rule and a critical mass of countries to adopt an under-taxed profits rule. So that’s a pretty open-ended statement—what is meant by “a critical mass of countries”. Now, that’s clearly a policy issue, and something that the Minister will make a decision on, as to whenever a critical mass has been achieved. But we heard advice, I think, that the critical mass had been achieved. So I was looking for some commencement dates.

So I just wonder if the Minister could speak to that, in terms of what counts as a critical mass of countries, and in particular what other countries have actually adopted these rules—obviously, there’s a critical mass; it’s not just the number of countries but it’s also which countries have adopted the rules—but then also where those particular commencement dates are sitting in the bill. As I said, I did look for it, but I couldn’t find it, and I’m sure the officials will be able to tell the Minister rather more quickly than either he or I could find it if we looked for it ourselves. So, if the Minister could just address that: where to find the point, but also that issue around the critical mass.

Thank you, Madam Chair. I am seeking to debate with the Minister the first clause in this bill that he’s presented to the House—it is the title. This Act is the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill 2023, but it is no longer that, because we have now dealt with in this committee an amendment which deeply changed what this bill did.

And it wasn’t something that went through select committee, it wasn’t something that the public were consulted on; it was something that was introduced in this Chamber in the committee of the whole House stage and therefore avoided all of the sort of process which is fundamental to our lawmaking about taxation, because taxation is something that we treat in a way which is consultative. It must be something that people buy into and it goes to the very fundamental role of Government to levy taxation to provide public services to the people who need it. So this bill should change its name to the “Taxation (Punishment for First-home Buyers at the Expense of Landlords) Bill 2023”, because this bill goes to the heart of the way that we design an economy which provides for first-home buyers to get into the market.

Former Prime Minister Keith Holyoake would be rolling in his grave at the kind of change that the National Government is wreaking on our economy for first-home buyers—for people who aspire to work hard and buy their first home. Instead, they have provided two changes in this bill that would fundamentally skew the market towards landlords and property investors, over and above first-home buyers.

Minister, when I was buying my first home, I was, I think, 25 years old, which is a really cool position to be in because I was in a professional job and earning a good salary, and I was really excited to buy my first home. I was going to weekend open home after weekend open home for a year, competing with landlords and property investors who not only had the capital backing from banks that they were easily able to borrow but competitive tax settings that meant it was easier for them, that it was, in fact, their incentive to offer more at home loan auctions than I could as a first-home buyer because their tax settings were better than mine were. We will return to a home-buying market where first-home buyers are systematically—because of the way this is regulated—locked out of the market.

Minister, I have asked you a number of questions about what is the appropriate proportion of first-home buyers in the market. You did not answer that because the appropriate proportion of first-home buyers is as many as we can get. Everyone in this committee should agree that first-home buyers should have a good run in this country, that New Zealand is the kind of country where our tax settings allow first-home buyers to get into the market, to work hard, to do well for their families, and to have some savings not only in their property but also in their bank account so that they can retire with dignity. This bill flies in the face of that. We should change the title of this bill to “Punishment for First-home Buyers”, because, at a fundamental level—and everyone in this committee should agree that taxation is not about punishing any particular group or embody some perspective and morality. It’s about providing the necessary building blocks as a society that allow everyone the opportunity to flourish and thrive. These taxation changes do not do that.

Well, thank you very much, Madam Chair. Look, I appreciate the energy in regards to that contribution, but when the select committee reviewed the title of the bill, which actually was the title that was put on the bill by the prior Government, which we didn’t look to seek to change: the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill. I appreciate that is what it is, but we’re pretty happy with the title and the title being proposed does not align with the expectations.

In regards to the questions that were asked in terms of the consensus—this was around the Hon Dr Deborah Russell’s questions around critical mass. Some of the other countries are Canada, the UK, Japan, and Australia in terms of just some examples of those other ones in terms of that broader cluster.

The question specifically around the date of commencement is in clause 2(19), and I so acknowledge there are three pages of commencement dates, but that is not inconsistent with tax legislation. So that covers the questions that have been asked to date.

Thank you, Madam Chair. I want to develop the issue that was raised by the prior Labour Party speaker Arena Williams. Can the Minister confirm that in respect of these revisions to interest deductibility, the full nominal amount of an interest payment is going to be deductible, not just the real interest component. In other words, the inflationary compensation that is paid by a borrower to a lender will, once again, be tax deductible to the landlord. Because if that is correct, then, as Arena Williams just said, this legislation should be titled “The Bill Which Reduces the Proportion of First-home Buyers in the Market”.

It is absolutely clear that when that change was made by the prior Government, the marginal price paid for existing homes moved from being paid by landlords leveraging their property to purchase yet another property to add to their property portfolio, and moved instead to first-home buyers. Prior to the change, the proportion of homes being sold to landlords kept increasing; after the change, instantly—instantly—the economics changed because the landlords could no longer deduct all of their interest payments—

💬 Arena Williams: That’s right—within one quarter.

Within one quarter it had changed. Now, there is a proper argument as to whether—

💬 Tim Costley: What happened to rents?

Rents actually did not go up by further than inflation. That’s an interesting question from the Government member, because Nicola Willis keeps standing up in this House and saying rents went up. Well, they did, but they actually didn’t go up by more than inflation.

CHAIRPERSON (Barbara Kuriger): OK, so we’re on title and commencement, so can we come back to the bill, thank you.

So the real interest rates now—the landlord will get a deduction for more than their real costs, and, as a consequence, this bill should be renamed. It is substantially different from the bill as introduced.

Indeed, the Amendment Paper to the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill—the Amendment Paper from the Minister or the department—runs to 55 pages long. It is a substantially different bill to that which was introduced, and its title should reflect that, particularly given that these issues that have been introduced by way of amendment late in the piece have not gone through select committee. So people who are accessing this statute through the legislation website should have a signal as to what the true effect of this bill now is, which is to change the proportion of buyers in the residential property market, increasing the number of landlords at the cost of first-home buyers, who just want one House to live in. They don’t want a hundred houses, a portfolio of a number of properties; they want just one.

I invite the Minister to confirm that, in fact, the excessive deduction of interest will be restored here, and I want to hear how he can justify, economically, landlords being able to deduct the full nominal amount of interest rather than just the real amount of interest, which doesn’t include inflation.

Thank you, Madam Chair. If the member seated over there doesn’t wish to close the debate, I would be prepared to yield, because he is obviously very interested in the comments made by my colleague, and there was some back and forth. So I am very happy to yield, and if I may come back to my call, provided he doesn’t close down the debate.

I move, That debate on this question now close.

Gosh, I was getting very excited then, particularly with all the debate that was coming from the other side of the Chamber.

I’m well aware, Madam Chair, that there are rules that say that any changes and suggestions for changes to the title of the bill must be said in seriousness. And so I do, Madam Chair. I believe that this bill would be better called the “Taxation (Annual Rates for 2023-24, Multinational Tax, and New Powers) Bill”. The reason that I say that is that what this bill does, in two particular areas—and I haven’t heard satisfactory responses from the Minister—is give new powers to the Commissioner of Inland Revenue. One is around retrospectivity on the child welfare deductions. I did ask a number of questions about whether a New Zealand Bill of Rights Act vet had been done, and what his analysis was on the retrospectivity, and we haven’t had a chance to debate Schedule 7. But if I look at the title and commencement date and then I look at Schedule 7, it’s got very sweeping language around the sections to do with child payments and the deductibility and the exemptions coming into force on, before, or after the date of 26 October 2021. So that is quite a big power for a bill that is purporting to only influence taxation rates of 2023. Hence my suggestion that we talk about the new powers of the commissioner in the title.

The second reason is, of course, around the information-sharing powers. Now, I raise this because I didn’t get a satisfactory answer from the Minister about this. Again, he didn’t respond to my question about whether the Privacy Commissioner had provided advice. When the previous Government introduced the taxation principles bill, one of the biggest outcries from the then Opposition was that this was going to provide far too much power for the Commissioner of Inland Revenue and, ultimately, for politicians to be able to see information relating to the tax affairs of its citizens. And yet that is what this provision does. Section 220B enables, on the face of it, the commissioner to get far more information than what the bill says on the tin.

CHAIRPERSON (Barbara Kuriger): Can we come back to the title and commencement.

Well, absolutely, Madam Chair.

💬 Tim Costley: You talk about the title and commencement and I won’t close it.

Look, I’m very happy to yield if you’re prepared to talk about title and commencement. But the point is that that does give the commissioner much further powers than what the Minister has conceded, and we should reflect that in the title of this bill, so that people are really aware, when they go into taxation, that this is not only looking at multinational tax for 2023-24 and remedial matters but it is giving the Commissioner of Inland Revenue new powers. That should be on the tin—that is what the bill does—and I would like to hear the Minister respond to that, please.

While most of that was out of scope, the aspect in regards to the New Zealand Bill of Rights Act (BORA) vet that was noted by the member Ingrid Leary, I can assure the member—and I note that she wasn’t on the Finance and Expenditure Committee—there was a BORA vet undertaken for this bill and introduced as part of that, and there were no concerns that were raised in regards to that. The retrospective nature has been covered already, is a taxpayer-friendly aspect, and, basically, that’s as much as we need to talk about on that aspect.

I move, That debate on this question now close.

I will take a call from the Hon Barbara Edmonds, but I want this to be very close to title and commencement, please.

Thank you, Madam Chair. My question is around the effective date for the proposed amendments for the offshore gambling profits that arise on or after 1 July 2024. So those are the particular clauses around the application date, or the effective date, of those changes.

One of the questions that one of the members—the Hon Jan Tinetti—had asked the Minister was around the regulatory framework, particularly around the harm minimisation being set up before this tax came into application, which is 1 July 2024. And the regulatory impact statement does make reference to offshore gambling providers about their ability to be able to be ready in time to collect those taxes by 1 July 2024. It does question it. Officials do say that the probability is low because of the alignment with the GST, which is already a current tax. But my question is: is the Minister aware that in the situation where the regulatory framework has not been set up before such taxes have been introduced, other OECD countries have shown that, actually, that very small gap between the regulatory framework being set up and the implementation of the new tax has shown that there’s been a lot of black-market operations in between that very small gap. So I just want to check in with the Minister that the 1 July 2024 date is the date of the advice that officials have given in relation to taking into account any of the lessons from the OECD about when they introduced the regulatory framework as well as introducing a new tax on offshore gaming providers.

I move, That debate on this question now close.

The question is that the Minister’s amendments to clause 2 set out on Amendment Paper 20 be agreed to.

Madam Speaker, the committee has considered the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill and reports it with amendment. I move, That the report be adopted.

Motion agreed to.

Report adopted.

In accordance with the determination of the Business Committee, this bill is set down for third reading immediately.

Third Reading