Parker DavidDAMIEN SMITH (ACT): The Supplementary Order Paper that was tabled had the Government applying interest deductibility limitations to large developers to give them a benefit. We wanted to explore with the Minister of Revenue why this is not applicable to all landlords and if we could have the reasons why please.Hon DAVID PARKER (Minister of Revenue): The tax treatment of property in New Zealand has been problematic for a number of years and it's led to distortions in the economy which has been one of the reasons why in recent decades the proportion of existing homes in New Zealand that are owned by people who live in them has decreased and the proportion of homes that are owned by people who own multiple homes and rent them out has increased. So the balance between owner-occupation and landlords if you like has changed. We don't think that's socially desirable on this side of the House. It's in part being caused by the ability of a landlord who's already got a property portfolio being able to leverage that portfolio to borrow effectively the full amount of the next purchase. Now there are some constraints around that according to bank rules that are imposed by banks or by the Reserve Bank. But in general terms the ability to 100 percent leverage the next property has meant that landlords have been able to outbid the person who just wants one home for themselves because of the tax position that they are in and the ability to leverage that class of assets through a mortgage to pay for the extra second-hand home. So we as a Government moved to limit that by saying that we were phasing out interest deductibility for landlords for existing homes. That happens progressively over a number of years and we're partway into that. And it's actually one of the reasons that's credited by the Reserve Bank and various other commentators for the fact that this dramatic house price inflation that we had that was creating a bubble—which if it had popped quickly would have created risks to the economy more broadly. But it would also have caused significant harm to the more recent purchases of those properties if they were leveraged and they were for example a first-home buyer rather than a person who sold one home and bought another one in the same market. Now as we did that we also were conscious that we actually do want an increase in rental stock more in line with the rental markets that we see overseas where professional rental market investors get involved in larger developments. And so we initially agreed that there would be a period for which they would have this interest-free. There was a view expressed by the Minister of Housing that we discussed at Cabinet that we needed to have absolute clarity around that that we were really trying to stimulate that part of the rental market for the large landlords if you like that type of long-term professional landlord rather than a short-term landlord. We wanted to make it absolutely clear that we were not trying to discourage that sort of investment because we do need that additional rental stock. So that was the reason why the extension of interest deductibility for that type of investor was agreed. And that's also the reason why we didn't think that it should necessarily flow through to all other rental investors. We are trying to stimulate that section of the market.