Parker David: Questions for Oral Answer — Questions to MinistersText is incorporated into the Bound VolumeParker David: Questions for Oral Answer — Questions to Ministers[Sitting date: 21 May 2014. Volume:699;Page:18161. Text is incorporated into the Bound Volume.]3.Hon DAVID PARKER (Deputy Leader—Labour) to theMinister of Finance: Has he received any report from the Treasury disproving the analysis from Westpac’s chief economist that a proposed 15 percent tax on capital gains on investment property would have a significant effect on the net present value of residential rental property investments; if so will he table that Treasury report?Hon STEVEN JOYCE (Associate Minister of Finance) on behalf of theMinister of Finance: Firstly for the benefit of the member I note that Westpac advises that its absolute clear preference is for a comprehensive capital gains tax on all properties in New Zealand. I have not received a report from Treasury on the particular proposal the member refers to. However Treasury has advised on the expected general effects of capital gains taxes over and above the one we actually already have which applies when assets are bought and sold for profit. Again I should point out that Treasury’s preference if there was to be a capital gains tax is that it should be a comprehensive one as well. Anyway Treasury said that although a capital gains tax would deliver no long-term reduction in house prices and “the majority of the effect”—Hon David Parker: Oh rubbish.Hon STEVEN JOYCE: —well you can disagree with Treasury; we know that you do not accept its advice any more—“would be felt by tenants through higher rents”. So the majority of the effect—this is according to Treasury which Mr Parker does not listen to—would be felt by tenants through higher rents. Another report said that the devil is in the detail and that working out whether the pros outweigh the cons of a capital gains tax “would be a very substantial exercise.” The Inland Revenue Department’s view which was also reported by Treasury was that the practical disadvantages were likely to outweigh the advantages.Hon David Parker: I seek leave to table the Treasury report dated 27 September 2012 on information on a capital gains tax limited to investment housing.Mr SPEAKER: Order! The document has now been well described. It is a Treasury report dated 27 September 2012. Is there any objection to that Treasury report being tabled? There is not.Document by leave laid on the Table of the House.Hon David Parker: Does he agree with the advice in that Treasury report that the taxation of capital gains on investment housing excluding the family home will redirect investment into savings and the productive economy?Hon STEVEN JOYCE: I do not have that particular quote from the member but I do have the quote—which I suspect is from the same report—that says that there would be no long-term reduction in house prices and that the majority of the effect would be felt by tenants through higher rents. Once again Treasury’s preference is for a comprehensive capital gains tax on every single New Zealand house.Hon David Parker: Does he agree with the advice of Treasury in that same report that the taxation of capital gains on investment housing excluding the family home will “reduce the price of housing and increase affordability of owner-occupied housing;”?Hon STEVEN JOYCE: No and in that case any suggestion that putting a capital gains tax on 25 percent or thereabouts of New Zealand housing would have that sort of effect is an exaggeration. If you want to see an example of where that has been done and where it has not been successful look at Sydney Australia.Tim Macindoe: What other comments have Westpac economists made about an additional capital gains tax in New Zealand?Hon STEVEN JOYCE: I have seen two other quite relevant comments from Westpac economists highlighting very significant drawbacks of adding an additional capital gains tax. The first is that they point out that it is unlikely to happen because it would be complex to administer and worse much of the burden would fall on tenants who tend to have low incomes which is exactly the same advice as received from Treasury. The second comment I have seen from Westpac economists is that top-end properties rather than low-end properties would be less affected by a capital gains tax so price differentials between high-priced houses and low-priced houses would widen. That is because investors are less prevalent at the top end of the property market. So it is rents at the bottom end of the market that would be most affected. So once again the Labour Party in its attempt to fiddle around with the economy would lift costs on those members of society who could least afford that. There are two very good reasons in addition to many others that an additional capital gains tax is yet another dead-end for Mr Parker.Hon David Parker: Does he agree with the advice of Treasury in that report that the taxation of capital gains on investment housing excluding the family home will “reduce the level of foreign borrowing compared to the status quo.”?Hon STEVEN JOYCE: The reality is that we have a capital gains tax on investment properties right now. We have tightened rules for loss attributing qualifying companies we have prevented property investors from using rental losses to inflate Working for Families payments and we have increased the Inland Revenue Department’s funding to target property speculators and that has been raising $2.5 billion in additional tax. So the Opposition acts like there is not a capital gains tax on investment properties now and there is.Tim Macindoe: What other reports has the Minister seen from Westpac about the New Zealand economy?Hon STEVEN JOYCE: It is interesting that Mr Parker’s new friends at Westpac have been actually considering the nature of the New Zealand economy after the next election. They say that depending on the outcome of the next election the marketimplications would be substantial. For example if a certain outcome occurred they would see a downturn in domestic demand a period of slower economic activity due to business uncertainty businesses holding off on investment and hiring decisions and difficulties for a new Government to keep Government spending in check. It would push up interest rates. That is the Westpac prognosis under a Labour-Greens Government.Hon David Parker: Why does he not stop the pretence and admit that National’s housing policy has been totally ineffective and adopt Labour’s comprehensive housing policy which addresses both demand and supply by implementing a capital gains tax excluding the family home building 100000 affordable houses and restricting purchases by offshore buyers?Hon STEVEN JOYCE: In Mr Parker’s bubble that would make a difference but actually they are the policies that some parts of Australia have had for some time and their house prices are higher than New Zealand’s. This Government’s policies of freeing up the supply of housing have doubled the number of houses being built over the last 3 years and those numbers are continuing to climb—Phil Twyford: Rubbish!Hon STEVEN JOYCE: It is absolutely correct. This Government is focused on managing growth positively for jobs for Kiwi builders and Kiwi construction workers not clamping down with yet more taxes to drive the economy back into recession which is the proposal of the Labour Party.Tim Macindoe: What other reports has the Minister seen opposing an additional capital gains tax because of its many drawbacks and problems?Hon STEVEN JOYCE: Weirdly I have seen a very interesting speech to the Property Investors Association conference which was in July 2005. This speech which was unusually good by a Minister for the standards of the time noted that the Government of the day agreed with a review known as the McLeod Tax Review which concluded that—Hon David Cunliffe: Tell us about Rob Muldoon.Hon STEVEN JOYCE: Be quiet Mr Cunliffe; I am coming to your punchline. The review concluded that the disadvantages of such a tax such as its complexity and costs outweighed any theoretical benefits. The speaker at that conference went on to say that the Government of the day believed that the status quo was entirely adequate and that any form of new property tax should be off the agenda. That speech was delivered by none other than the then Associate Minister of Finance David Cunliffe.