Nash Stuart: Taxation (Bright-line Test for Residential Land) Bill — Third ReadingText is incorporated into the Bound VolumeNash Stuart: Taxation (Bright-line Test for Residential Land) Bill — Third Reading[Sitting date: 12 November 2015. Volume:710;Page:8010. Text is incorporated into the Bound Volume.]STUART NASH (Labour—Napier): I do stand in support of this bill. But I must admit I do find it a little rich when someone like Alastair Scott—with all due respect to Mr Scott who I think is a man of substantial means—rents a property out of choice. It is a little different from a poor family that rents out of economic necessity. I suspect the house that Mr Scott rents is a little different from some of the houses that we find in South Auckland. But I could be wrong. Maybe Mr Scott was in a mouldy house with no curtains and no heating etc. It just does not sort of seem right.The other thing is that I have to smile at the ACT member starting to talk about Norman Kirk a towering man of huge principle and then at the end of his speech he says: “It is with regret that I support this bill.” Well I can tell you that Norman Kirk stood up for what he believed in. There is no way that Norman Kirk would have ever done anything just because he felt he had to support another party. He would have stood up and he would have banged the desk and said: “This is what I believe in; this is what I stand for; this is what I am doing.” Not like that member. So that is a little disingenuous. I think it just epitomises what the ACT Party stands for or does not.It is generally accepted that tax legislation of this nature is not there to quell house prices. This sort of tax legislation is there to actually bring people into the tax system who are outside the tax system at the moment. I remember reading a paper in about 2010 that said the problem of avoidance in the speculative housing industry was valued at around $250 million a year—that was the size of the issue. It was very big; the Inland Revenue Department recognised the size of the problem. We now 5 years later have a bill that the Government says is going to raise about $5 million. This bill fails the test around tax legislation on so many features and in so many areas. The first one is it does not meet the requirements. It is not there to bring people into the tax system.The thing is there is a test at the moment under current tax legislation and it is called the intention test. What that basically means is that if a person has bought a house with the intent of making a capital gain then they have to pay tax on that at their marginal tax rate. However if they bought the house with the intention of making a rental yield and then they sell that house they do not have to pay any tax. It is notoriously difficult to prove someone’s intent if they are arguing the other way. What this piece of legislation actually admits is that the intention test is not working because if it was working then we would not need legislation in place to capture those who we believe are avoiding tax.But the problem with this—the problem with this—is that it is there for only 2 years. What this is called is lock-in: someone buys a property they know that all they have to do is to hold it for 2 years and 1 day and they can sell it and they do not have to pay any capital gains. The intention test still exists but again what a smart investor does is they always go out and say: “I’ve bought this as a part of a balanced portfolio. It is there to make a rental yield and I am going to hold on to this for as long as necessary.” Then they sell it after 2 years. The Inland Revenue Department (IRD) may come knocking and say: “You bought that with the intent of making a capital gain.” All the investor has to say is “No I didn’t. Talk to my accountant talk to my lawyer talk to my portfolio manager. I bought this with the intention of making a rental yield.” and the IRD walks away because it knows it will never win that argument in court.The IRD did have a look at this and it actually ran two scenarios. It said “Let’s try a 2-year scenario and let’s try a 5-year scenario.” and it actually admitted that a 5-year scenario would have a much better outcome in terms of catching speculators than a 2-year one would. There would still be lock-in there is no doubt about that. In fact the Australian capital gains tax—how that worked is that if you bought the property before the capital gains tax came in then you do not have to pay capital gains tax when you sell this property. And that has created a problem in Australia because there are a whole lot of people who own properties for capital gain that they bought way before the capital gains tax came in. That is what will happen with this one. Five years would have been better—there is no doubt about that—and I have no doubt that Mr Scott knows this. I have no doubt that Mr Bayly knows this. Because when you look at it this is capturing $5 million from speculators in an industry where avoidance has been estimated at around $200 million.The other thing about this piece of legislation is that it is retrospective. It was signalled by the Government and there is no doubt about that but if you follow the line that this took it very much looks like this was a Government making policy on the hoof and then it thought: “Well in order to put effect to this policy we are going to need to pass legislation.” So in effect anyone who has bought a house on or after 1 October—keeping in mind this legislation will probably come in at the end of this month or as soon as it receives Royal assent—they come under this 2-year brightline test. This is not a good way to make legislation for two reasons. The first one is who would bother to put a submission in knowing that the Government had signalled this—that the bill already said it was going to come in on 1 October and there is nothing you can do about this? This was a fait accompli.The fact that we had tax advisers the fact that we had large accounting companies the fact that we had legal firms coming and saying this is not fit for purpose—I think they did it because they felt they needed to be heard knowing that the odds of them making a difference were remote. But at least they came to the Finance and Expenditure Committee and said that this piece of legislation does not give effect to the Government’s policy this will not have the intended effect that we need in the Auckland housing market and it will not raise the level of revenue for the Government that a well-thought-out brightline test would.The second thing I would say—oh no not the second thing; the third thing I would say or even the fourth—is that I think the main home exclusion is unclear. There are so many points about this bill—can I have 20 minutes to speak on this Mr Assistant Speaker? There are so many points about this bill that just are not right. It uses that famous legal term “if the land has been used predominantly for most of the time”—“if the land has been used predominantly for most of the time”. Is that a test in terms of whether it is a family home or not or “the greatest connection”?Mr Bishop always says: “Well there is a legal definition for this. It has been determined in the courts and we know that if it is bad legislation then judges will have to determine what parliamentarians meant.” My view is that judges should not have to determine what Parliament meant when it passed legislation because that legislation should be so clear that we do not need to take it to court. But this legislation will be taken to court and again it creates uncertainty and it creates ambiguity which is not great tax legislation in any way shape or form. It fails yet another one of the tests.Another point is that I do not think the family home test actually meets 21st century reality. By that I mean that if you sell two or more family homes within the 2-year period then you come under this test. Myself I got a job in Taupō with Fletcher Challenge then I moved to Auckland and then we sold that house and we bought another one. This was in my younger days when I could afford to buy Auckland homes. I would have been caught under that test and there was no way at all that I was speculating in property. I was just buying a family home.So to wrap up we are supporting this bill. I think this is a very poor process in terms of creating tax legislation. I do not think that this piece of legislation will have the desired effect that the Government wanted it to have. I think that the Government could have done a lot more in terms of revenue raising in terms of addressing the core issue which is people avoiding paying tax and also—an unintended consequence—in terms of just putting a bit of a cooling on the Auckland house market. It is not good legislation and I hope that the Government will come up with something more substantial that is actually going to meet the requirements of the IRD of Aucklanders and of New Zealanders. Thank you very much.