Goff Phil: Taxation (Bright-line Test for Residential Land) Bill — In CommitteeText is incorporated into the Bound VolumeGoff Phil: Taxation (Bright-line Test for Residential Land) Bill — In Committee[Sitting date: 10 November 2015. Volume:710;Page:7830. Text is incorporated into the Bound Volume.]Hon PHIL GOFF (Labour—Mt Roskill): The Government has introduced a half-hearted and ineffective measure that will not achieve any of the goals that it says that it is setting out to achieve. It will not stop speculation. Treasury itself made that very clear in its report to the Finance and Expenditure Committee. What it will do is mean that the speculator will sell 2 years and 1 day after they have purchased the property. It will not achieve the goal of cutting out the rampant speculation that plays a role in forcing up house prices in Auckland at the present time in a totally unprecedented manner.House prices have gone up $180000 in the last year in Auckland—$180000 which is more than $3000 a week. Is this a bill that shows the Government is on the side of the family home buyer? No. This is a bill that shows that despite what the focus groups say it should be doing this is a Government that is on the side of the property speculators who fund so many of the National Party’s election campaigns.Will this bill stop the exorbitant inflation in house prices? The answer from everybody making submissions to the select committee was that it will not do that. It will not reverse the situation where we have the lowest homeownership rate in the country in 64 years and where 57 percent of Auckland adults are renting because they cannot afford to buy their own home—57 percent of Aucklanders are renting.Alastair Scott: What’s the problem with renting?Hon PHIL GOFF: I will tell you what is wrong with that. Most New Zealand families have the dream—the Kiwi dream—of being able to have a home they can call their own. That is what most Aucklanders still want. This bill will not achieve that outcome.What this bill does do is make one half-hearted admission—and it is in the regulatory impact statement—that I have not heard in 6 years from this Government. It says: “The Government is concerned with high house prices particularly in the Auckland area. Property speculation is seen as one of a number of causes of the current prices.” I thought it was the Resource Management Act—that is all Nick Smith ever talks about.Phil Twyford: Or the council.Hon PHIL GOFF: I thought it was the council’s fault.Finally the one worthwhile thing in this bill and why we will probably support it reluctantly because it is better than nothing but only just—only just—is an acknowledgment that property speculation is playing a role in forcing up house prices causing a housing bubble and stopping New Zealanders achieving what everybody in this Committee has as part of their Kiwi dream which is owning a home of their own. But it will not work.The regulatory impact statement says why Part 1 of this bill will not work because the regulatory impact statement identifies what the actual problem is with the Income Tax Act. This is a quote from the advisers to the Government. Why did it not listen? The regulatory impact statement says the intention test—that is the test at the moment. You pay tax if you are speculating only if you intend to sell the property afterwards. And do you know what the regulatory impact statement says? It says it “makes gains from the sale of land taxable when bought with an intention of resale. This ‘intention test’ is difficult to enforce due to its subjectivity.” It says the test “is particularly difficult to enforce in relation to residential property”.We have an Income Tax Act that is not working. We have people speculating on property and not paying their tax. That is hundreds of millions of dollars in tax avoidance. But what will this bill achieve in terms of cutting off that tax avoidance? Do you know what it says it will achieve?Hon David Cunliffe: $5 million.Hon PHIL GOFF: $5 million a year. You know that is probably the capital gain on one house in Kohimārama. It is ludicrous. That admission in this regulatory impact statement shows the nonsense of the Government’s claim that this bill is going to achieve anything at all. This bill will not achieve that.The other problem with this bill is that it did not follow—and we are talking in Part 1 about the Income Tax Act. There is a particular procedure that is always followed when there is an amendment to the Income Tax Act. Income tax law is incredibly complex and it is prone to having unintended consequences. What normally happens is there is a discussion paper. It goes out to the experts they chew through it they come back with recommendations for change and then it comes into the House. Then there is a period of 7 or 8 weeks at least for people to make considered submissions on the process. Did any of that happen with this bill? The answer is absolutely not. It was introduced as part of the Budget for political reasons because National’s polling and its focus groups showed that the public is disgusted that this National Government is not doing anything about property speculation—about people making money without paying their fair share of income tax.Why is it that the cleaners who clean our offices tonight on their low minimum wages—barely enough to scrape together a subsistence income—will pay tax on every dollar that they earn and the people who are making hundreds of thousands of dollars a year on each property they speculate on will pay no tax at all? Why is it that that is fair? Why is it that that is just? Will this bill do anything about it in Part 1? The answer is no.Do you know how long people were given to make submissions on this bill? It was about 10 days—10 days for a complex piece of legislation. When the people who know something about tax law went to the select committee—the chartered accountants for example; the Law Society; KPMG—every one of them said that this legislation would not work and that this legislation would not achieve its objectives. They said that if the Government was going to catch anybody with this legislation it was the person who sold for genuine reasons not the speculator because the speculator can hold on for 2 years and 1 day and the person who has to sell because of financial difficulties cannot do that. Those submitters damned this legislation. They said that it was incomprehensible. They said that you needed better enforcement of the existing rule not this piece of legislation. This legislation is political trash according to those submitters. It does not do what the Government claims needs to be done. It will not achieve its purposes.The chartered accountants said that speculators will not change their behaviour to hold a property just longer than 2 years and that is why I support what Julie Anne Genter has put before the Committee and I support what Treasury said we should be doing which is 5 years. With 5 years you might deal with some of the speculators; if it is 2 years they will hold on. They will hold on and they will make a lot of money in a short period of time and they will pay no tax on it.This bill will not help people achieve homeownership. This bill will not stop rampant house price inflation. This bill will not require people to pay the tax that they ought to pay on income that they are earning and the sort of tax that every other decent hard-working New Zealander has to pay. This bill is not much better than a speculators’ charter and Government members should hang their heads in shame that they bring something so inadequate into the House when in my city—David Bennett: Your city—what city?Hon PHIL GOFF: —yes the city I live in and I am proud of; that city—57 percent of Aucklanders cannot buy a home of their own. More than half of the adults living in Auckland cannot achieve the Kiwi dream of homeownership and what does the Government do in response to that? It says “There’s a political problem out there. Let’s flossy something up so that it looks like we’re doing something.” but it has come back with a piece of legislation that actually achieves very little.If it were not for the symbolism of the fact that speculators ought to be taxed—that we stop people making a fortune from doing nothing at the expense of the family who buys the property and who will work another 10 years to pay off their mortgage—we would not support this bill. It is an acknowledgment that speculation is a problem and it is an acknowledgment that the law is not working but it fails to solve the problem. It is political floss; it is not real political action.