O'Rourke Denis: Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — Second ReadingText is incorporated into the Bound VolumeO'Rourke Denis: Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — Second Reading[Sitting date: 31 March 2016. Volume:712;Page:10129. Text is incorporated into the Bound Volume.]DENIS O’ROURKE (NZ First): With regard to GST on online services we in New Zealand First say that the Government has taken far too long to rectify a situation in which overseas firms have a clear advantage over New Zealand retailers. New Zealand firms have been lumped with GST while overseas firms have not. Government complacency has caused the strangulation of New Zealand small to medium sized businesses threatening their very viability. Actually Retail New Zealand had to point out to the Government that small businesses are increasingly under pressure especially in heartland New Zealand from a GST regime that needs urgent attention. New Zealand First could not agree more with that and as a result this Government’s legacy to small business is actually just one of neglect. While New Zealand firms are ignored in that way multinational companies are still getting away with billions of dollars’ worth of business that could be going to New Zealand small to medium sized businesses.We know from consultation with New Zealand business people the frustration that they feel and that has been caused by this tax in relation to the exemption for intangible goods. We do not understand why for so long we have had tax on DVD downloads but not on actual physical hard-copy DVDs for example. Amazon which as most know is the largest source of online purchases overseas from New Zealand must comply with this type of tax requirement all over the world but not in New Zealand and yet it is already set up to comply with these sorts of requirements; it is just waiting to be told to do so here in New Zealand. It is prepared to pay its tax and not only on e-books but also on hard-copy equivalents. There is no good reason why the Government in New Zealand should force New Zealand firms to have to meet their obligations while firms based overseas selling exactly the same goods should not have to do so. Overseas companies are therefore getting a huge competitive advantage over New Zealand companies and we say that must stop.We also know that there is an argument that the Customs Service is not adequately resourced and set up to ensure full compliance for those intangible goods but that is actually a lame excuse for doing nothing about a serious problem affecting New Zealand businesses. It ignores the reality that two-thirds of our online purchases are from 20 big online retailers and all of them are ready to comply putting the tax on at the point of sale. The Customs Service would actually only have to do mandatory sampling for compliance and it would not have to open each and every parcel at the border which some seem to be suggesting. So we do not see that compliance would really be any problem at all.Turning to the residential land withholding tax part of this bill we say that this is at best naive and really is just a piece of puffery so that the Prime Minister can say “We are doing something to address this problem.” but in fact nothing really is being done. This bill and the other brightline test pieces of legislation achieve nothing more really than just window dressing. Government estimates of tax to be collected were as high as $17 million but other numbers provided to the Finance and Expenditure Committee suggested that it could actually be as low as $1 million. So it is not really a very big deal. But the legislation will in fact be incredibly expensive to impose on the business community. The Inland Revenue Department thinks that there might even be a negative return given the costs in resources that would be required. If you couple that with the fact that the cost of conveyancing for ordinary Kiwis buying and selling houses would almost certainly go up because of the additional costs imposed on conveyancers and lawyers you can see where all this is leading—not to a very good place. Some people have actually suggested that those costs could go up by as much as $200 per transaction. When you are imposing more costs for little or no benefit we say that is actually lunacy.There has been a lot of discussion about trying to define just what an offshore person might be too. We have found that it is a lot harder than anyone might think and it is another reason that makes nonsense of this bill. Even if this residential land withholding tax might possibly change some overseas buyers’ behaviour—although we have already seen evidence that it has not and is unlikely ever to do so—the reality is that this bill does nothing to close the loopholes. Techniques such as option fees will invariably be used to disguise the purchase price and therefore reduce the residential land withholding tax. A separate chattels agreement that uses an inflated value to consequently deflate the property value could be used again lowering the residential land withholding tax commitments.There also remains the serious debate on who collects the moneys from the sale of a property first which is an important matter. Does the real estate agent get the money first or does the lawyer or conveyancer get the money first? Does a council recovering unpaid rates and selling a property collect what is owing to it first? We think that whole area is a minefield that the bill does not adequately address especially if the overseas investor has a portfolio of properties in New Zealand. I would like to give an example. If you imagine five or six properties and for some unknown reason the owner has to sell one within the 2-year time period the withholding tax is calculated on the profits of the sale. So what if this property is managed so that the mortgage on the property is restructured so that it is actually 100 percent of the value the property is being sold at? It is easily enough done. That means the property has gone up in value since it was purchased—almost certainly—but because the vendor has a mortgage on the value that it is being sold for they are making no profit from the sale of the property for tax purposes. It gives you an idea of just some of the things that can happen that this bill simply does not address.For all of those reasons New Zealand First cannot support this bill because we say that it would simply achieve little or nothing and it would just be another factor increasing costs for people dealing with property with no gain. So we will be voting against it.