Nash Stuart: Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — Second ReadingText is incorporated into the Bound VolumeNash Stuart: Taxation (Residential Land Withholding Tax GST on Online Services and Student Loans) Bill — Second Reading[Sitting date: 31 March 2016. Volume:712;Page:10120. Text is incorporated into the Bound Volume.]STUART NASH (Labour—Napier): The Minister of Revenue is right in that we are supporting this bill but we think this should go a lot further than it actually does. There was a lot of robust discussion in the Finance and Expenditure Committee around how to make things fair. I do agree that we have a broad-based tax system that is relatively easy to understand but what this bill has done is bring a level of inequity into the tax system which I think absolutely needs to be sorted. Let me give you one example of this. What this bill does as the Minister pointed out is charge GST for online services and intangibles like e-books like computer programs like music etc. What the Minister did not say is that it is actually applicable only to companies that have a New Zealand revenue of $60000 a year or more which in the scheme of things I agree is not that much but it is still reasonably sizable.But the thing the bill does not do which a number of New Zealand retailers have been asking for for quite a long time now is charge GST on tangible goods. New Zealanders can still buy items of clothing—and not e-books but physical books—or anything else online and these are not subject to GST. My concern about this is it actually provides a competitive advantage to companies that are not located in New Zealand. I think one thing we need to do in the 21st century is to make sure that New Zealand companies do not suffer because they are actually based here. I mean this is a point in time when we can buy anything we want online and we accept that. It is a part of the economy; it is a part of the way of doing things. But when New Zealand companies have to charge from the very outset 15 percent more than a company located overseas then there is something wrong and that is simply because companies overseas are not charged GST on New Zealand sales. What we would have very much liked to see was this bill extended to include goods that are tangible like clothes.The Minister said that he has asked his ministry to do work on certain areas of tax. Well what I would very much like to see—what we on this side of the House would very much like to see—is the ministry doing a whole lot of work around the cost of compliance the revenue generated and the economic benefits etc. etc. of applying GST to all goods from companies that are bringing more than $60000 worth of merchandise into this country. I know that this would be supported by the vast majority of retailers. The competition is not the bloke down the road; the competition is the fellow on the computer who is two clicks away. I think when we talk about fairness in our tax system what we absolutely need to do is apply the fairness test not just to New Zealand companies but to overseas companies.Of course this brings us into the issue—which is huge at the moment—about international companies paying their fair share of tax. You know when we have a journalist from the New Zealand Herald—a journalist and all credit to him but not an Inland Revenue Department (IRD) official—highlighting the fact that there is at least $500 million of tax per year that is being avoided then we have an issue. There are learned tax experts who say that that figure could be as high as $7 billion—$7 billion of tax every year that is being eroded from our baseline due to aggressive tax planning and in some cases it is illegal. But let us not talk about illegal; let us just talk about aggressive tax planning.We need to understand the quantum of this but what this bill has done is actually legitimise tax not being charged on items that are still coming in. So there are a whole lot of people around the country I have no doubt who will breathe a sigh of relief. I have no doubt Alastair Scott buys his shirts online from a London retailer just down the road from where he used to work. But—Alastair Scott: Lambton Quay.STUART NASH: Well Todd Barclay then—whoever. All I am saying is when we talk about fairness we have to actually walk the walk. It is not good enough to just talk the talk.Another part of this bill allows the New Zealand tax department and the Australian tax department to talk about student loans and talk about defaulters. We do know that there are about 15 percent of student loan borrowers who live overseas. The vast majority of these live in Australia I am told and ex-students overseas owe about $3.2 billion. It is a lot of money. I must admit that if students are defaulting on their loan it is hard to have a little bit of sympathy for them and the reason I say that is they signed a contract. They signed a contract with the Government when they took that money—when they drew that money down as part of a student loan commitment—and part of that contract was that they would pay it back.Having said that I think we are burying our heads in the sand if we say that the current situation is viable. We need to come up with a solution to get a lot of these ex-students these student loan borrowers to come back into the system. At this point the penalties and interest have blown their loans so far out of the water that a lot of them feel as though they cannot come back to New Zealand when they want to. Again I would urge the Minister to talk to his officials to instruct his officials to see whether they can come up with a solution that would allow these overseas borrowers to come back into the system where it is a win-win. At the moment if you are not engaging with the tax department then the tax department is not going to get any money back. So no one is winning with the situation we find ourselves in.One of the other things the bill does is it means the Commissioner of Inland Revenue now has to hold a register of overseas charities that New Zealand student loan borrowers can go and work in but be treated as resident in New Zealand. It may seem quite small but it is actually quite a big deal. The reason I say that is there are a number of student loan borrowers who want to head overseas and work for charitable organisations. If they do that and they do not know whether their charity is part of this register then they will end up being charged interest on their student loan. This way because they are deemed as being resident in New Zealand no interest is charged. It is quite important.But the really big thing here is actually in the name of the bill and this is the residential land withholding tax. This is I suppose the Government’s way of implementing a capital gains tax when there is no capital gains tax. The interesting thing about this is that it is one of three bills. We had a number of submitters talk about this. Most of them said it really is not going to work and that 2 years is not long enough. The IRD itself recommended 5 years. It is reasonably easy to—“avoid” is the wrong word but again when we are talking about aggressive tax planning and there is a lot of that going on you can just hold on to the property for 2 years and 1 day.But what this does mean I suppose at the outset—and it is why we are supporting it as something is better than nothing I suppose—is that an overseas resident or an overseas company or trust or I suppose an overseas entity that is purchasing property in New Zealand but then seeks to sell that property within 2 years has to pay a resident withholding tax. The tax agent will usually be the conveyancer but not always. The tax has to be paid and then passed on to the tax office. There was a lot of debate about this. In terms of what we were operating under—and we were very clear that this was going to be the 2 years—it was not open for debate at all. But I think we ended up with an “elegant” solution. It is not ideal—2 years is just not long enough.So there are three messages that I would like to leave. First and foremost this I hope is just an interim solution because we do not think it is really going to solve the problem in any way shape or form. Secondly the IRD has a lot of work to do to get this bill to the stage where I think it represents fairness in the tax system. We need the IRD to do a lot more work around the cost the revenue the compliance etc. of actually charging GST on tangibles that New Zealanders are buying in an ever-increasing amount because this is part of the 21st century. They need to be paying GST on goods sold to Kiwis. The third point is I would love to see the IRD do more work on how to bring back ex-students who have student loans but have disengaged from the tax system simply because the penalties and the interest on the original student loan amount have blown out to such a point where these ex-students feel as if they cannot re-engage with the tax system—so they will not come back here.We all know what we absolutely need in this country is our young people who have been educated here—so we have paid for their education—to head overseas get their OE come back and contribute. So there is a lot more work that the IRD needs to do on this but we are supporting the bill. Thank you very much.