Genter Julie Anne: Taxation (Bright-line Test for Residential Land) Bill — In CommitteeText is incorporated into the Bound VolumeGenter Julie Anne: Taxation (Bright-line Test for Residential Land) Bill — In Committee[Sitting date: 10 November 2015. Volume:710;Page:7827. Text is incorporated into the Bound Volume.]JULIE ANNE GENTER (Green): I rise to speak on the Taxation (Bright-line Test for Residential Land) Bill. The Green Party is supporting this bill but we do have great misgivings as the legislation could be substantially better and have a greater impact in terms of reducing the problem of unaffordability in the Auckland housing market. To that I will be putting forward two amendments today to try to improve this legislation and I would like to speak to those Supplementary Order Papers more in detail but I will start just by stating why it is important—why this bill is important and why dealing with the Auckland housing crisis is important.It is important because every New Zealander has a right to live in a warm safe secure affordable home. Every child in New Zealand should have a warm dry secure affordable place to call home and that is increasingly out of reach for a number of low-income Aucklanders and people elsewhere in the country. We have had problems with unaffordability in Christchurch. So for the Green Party we know that we cannot build a prosperous society if people do not have a place to call home and it is of utmost importance that we prioritise that as a society.But there is a second reason why it is important and that is the financial stability economic stability and health of the country. The fact is that the Auckland house price crisis is a major risk to the financial stability of the country and that is why the Reserve Bank in particular and many others have been very very concerned about Auckland house prices. If we have a bubble and it collapses there will be consequences for the New Zealand economy. It is quite possible that it would be enough to send us into recession even if our banks are solvent. There would be enormous economic repercussions and of course the faster house prices increase the harder they fall when the bubble finally does pop.And of course we know that many people have been asking the Government to act on this issue for a number of years. The Green Party has been calling for a levelling of the playing field of property with other investments and other income through a capital gains tax since at least 2002 if not before that.We know that in 2010 Treasury pushed very hard for a comprehensive capital gains tax and that was its preference. A capital gains tax would still be our preference as a fair way to deal with it. If one earned income because one bought a house that then increased in value over a period of time—if that is an additional 100 grand or 200 grand as may be the case in Auckland—why should one not pay tax on that income just like nurses and doctors and builders and teachers pay tax on their income? It is only fair.But back in 2010 when Treasury pushed this National Government hard to implement a capital gains tax it also proposed a halfway house or a kind of compromise measure which was the brightline test. At that point the brightline test was designed as being 5 years which is the minimum amount of holding period for the vast majority of OECD countries that have similar laws. Unfortunately the legislation we have before us today is not 5 years—it is 2 years—and I will be putting forward an amendment to extend it to 5 years because as we heard from submitters a longer period would be much more effective at achieving the stated objectives of the bill and it is the norm in OECD countries.Of course if National had actually acted on Treasury’s advice back in 2010 we might not have the problem that we do today to quite the same extent. The average house price in Auckland in October 2010 was about $530000; now the average house price is $918000 as of October 2015. So during that 5-year period when there was total inaction from this Government we had an increase of nearly 75 percent in the average house price in Auckland. That is an almost $400000 increase for each house and of course if that change in value is realised by people who are buying and selling properties during that period all the money they earned on that will of course be completely tax-free.And so why would people not invest in the housing market in Auckland? The Government is sending the signal through the tax treatment on property that that is where they should put their money even though it means that it is harder for families to afford homes in Auckland and it is a risk to the financial stability of the country. So I understand why people who have invested in homes may not want to pay tax on their income because currently they have got quite a sweet deal but it is not what is in the interests of the country as a whole—to not deal with this problem.So to the legislation before us today. I was very disappointed and I think it is safe to say that virtually every submitter who came to talk to us was disappointed in the legislation as it was drafted. We simply did not have enough time. Even though the Government has known about the problem and has been advised by Treasury to act on it for over 5 years the legislation when it finally came before the Finance and Expenditure Committee had a curtailed process.We had a shortened period for hearing from submitters. We had a number of questions that we put to officials that they really did not have adequate time to address. Therefore the legislation I think is really lacking and is not the best it could be. We heard from a number of submitters that it is incredibly important that legislation particularly tax legislation be coherent and consistent and this bill does not meet that test.One way in which it does not meet that test is that supposedly the bill is meant to buttress the intentions test. The intentions test has a 10-year period and applies to all land but this bill before us today the Taxation (Bright-line Test for Residential Land) Bill applies only to residential land. This is problematic in several respects and a number of submitters stated this during the hearings of the select committee. Firstly it is difficult to define residential land. This is going to be very problematic and I am not sure that those on the select committee particularly Government members and officials really understand just how difficult it is going to be to define land.Within the bill it refers to the zoning of the land as a test as to whether or not it can be residential. The truth is that under the Resource Management Act pretty much any type of land whether it is zoned industrial commercial or mixed use could be used for residential purposes if the applicant applies and gets a resource consent. So because of the way our resource management law works it assumes that you can pretty much do whatever you want if you have got enough money and enough lawyers to apply for the resource consent and get it from the council which is a pretty high bar admittedly.I think it is going to prove very problematic because there is a huge amount of land that is being land banked by speculators on the anticipation that eventually it will be available for residential use but it is currently not used for residential purposes—it is currently farmland or industrial land on the outskirts of Auckland. So I think we are going to have a problem with the definitions. My proposal to solve that problem with the definitions is simply to stop having the distinction. Why would we want to have a distinction about residential land? It does not matter what the land is used for. It is simply clearer if it applies to all land. If there is not a problem with speculation in commercial land industrial land or farmland then it is not going to be a problem.The intentions test applies to all land; certainly this legislation should apply to all land. It removes a potential loophole by which suddenly other types of land may become a problem. Because we have got the law applying only to residential land there may be sudden demand for property speculation in any type of land that is not residential and that is within the vicinity of Auckland and that is used for other purposes.So I think that it would simply make it a much clearer piece of legislation it would help better address the purpose of the bill and it would not create any loopholes. Certainly I think we heard from most submitters that they agreed that it would make more sense if the bill was going to pass that it apply to all land equally not just residential land and then we no longer have this problem with the definitions. I really do think it is going to prove very very difficult to isolate what is residential land and what is not because theoretically land use can change—it does change all the time and particularly in fast-growing urban areas like Auckland.So my Supplementary Order Paper today which I would ask members of the Committee to consider voting for to improve the bill is Supplementary Order Paper 139. What that does is it removes the references to residential land so that the bill applies to all land. The other Supplementary Order Paper I will be putting forward is Supplementary Order Paper 138 and that is to extend the time frame from 2 years to 5 years.One of the criticisms we heard from submitters during—