Taxation (Bright-line Test for Residential Land) Bill — Third ReadingText is incorporated into the Bound VolumeTaxation (Bright-line Test for Residential Land) Bill — Third Reading[Sitting date: 12 November 2015. Volume:710;Page:7994. Text is incorporated into the Bound Volume.]Taxation (Bright-line Test for Residential Land) BillThird ReadingHon TODD McCLAY (Minister of Revenue): I move That the Taxation (Bright-line Test for Residential Land) Bill be now read a third time. The changes in this bill were announced by the Government in Budget 2015 as part of a package of proposals to improve compliance with the current land sale rules and to help ensure that people pay their fair share of tax on gains from those property sales. Detailed proposals were released for public feedback in June which has helped to shape the measures proposed in the bill.The centrepiece is a new brightline test to supplement the current intention test in the Income Tax Act and make it clear that income tax must be paid on any gains from residential property purchased and sold within 2 years. After the 2-year period the current intention tests will remain. This means where somebody buys property with the intention of making a profit they must pay income tax on that gain. The Inland Revenue Department (IRD) will be watching transactions as part of the requirement to provide IRD numbers at the time of sale. This will allow it to enforce income tax rules against those who might try to avoid their obligations outside the 2-year period.The Government has provided the IRD with $29 million in Budget 2015 to focus on property tax compliance. In total it has $62 million over 5 years which is expected to generate an additional $420 million of property-related tax revenue. There are likely to be up to an additional 100 compliance officers as part of the property compliance team.The only exceptions to the brightline test are as follows: an owner’s own home inherited property or property transferred in a relationship settlement. Furthermore the proposed test will apply to the disposal of residential land only and not to business premises or farmland. It also clearly identifies the start and end of the 2-year brightline period. The proposed tests will apply to the gains from residential property acquired on or after 1 October 2015 and disposed of within 2 years. These are the main provisions in the bill. What we have is a straightforward easy to enforce rule that will help improve compliance with tax rules for land sales and make the tax system fairer.As always I am grateful for the efforts of all those who have contributed towards the successful package of this bill so far. My thanks go to the officials who have worked on the policy development of this proposal in the bill and to the drafters who worked on the detail of the draft legislation. I also want to thank those who made submissions both in the earlier period and on the bill to improve its application in practice. Finally I want to thank the Finance and Expenditure Committee for its consideration of the proposed measures and recommendations to improve them overall.Hon Clayton Cosgrove: It’s all David Bennett’s work.Hon TODD McCLAY: As the bill now stands we have a very practical mechanism for achieving greater fairness and transparency across the House.As unusual as it is I want to thank Clayton Cosgrove for also deciding although speaking heavily against this bill to vote for it and I look forward to the party vote to confirm that. I have great pleasure in commending the Taxation (Bright-line Test for Residential Land) Bill to the House.Hon CLAYTON COSGROVE (Labour): I thank the Minister of Revenue for his charitable comments; I am not sure I can return fire on that score. This is a complete and utter waste of time—a complete and utter waste of time.Hon Todd McClay: But you’re going to vote for it.Hon CLAYTON COSGROVE: Yes—yes the Minister is right. We will put a tick in the box because even this bill which is not even a fig leaf—not even a shadow of a fig leaf—is better than nothing.Hon Simon Bridges: We don’t want to see you with just a fig leaf.Hon CLAYTON COSGROVE: I just read out the words of one Terry Baucher—what was that “Junior Gerry” in the front row? He is an accounting professional who said quoting from a submission: “ ‘We do not believe that the introduction of a bright-line test for residential land is sound tax policy.’ That was the Chartered Accountants Australia and New Zealand’s (‘CAANZ’) opening sentence in their submission to Parliament’s Finance and Expenditure Committee regarding the Taxation (Bright-line Test for Residential Land) Bill.” It is complete bunkum. Even the Minister used the phrase “own home”. He could not even get his own definition right. The definition in the bill is “main home” but I have some sympathy because the definition in this bill is not consistent with the Income Tax Act or the Land Act and he has got another definition there of the “main home”.This was going to be the big hit. This was Mr Key and Mr McClay going away and saying: “Hang on. After years and years of the feet of this Government being put to the fire about the problem of Auckland and New Zealand house prices spiralling the polls have told us we cannot sit there with our hands behind our backs and do nothing. We have got to do something.” So in the usual Tory way they come out and say: “We will do just enough to make it look like we are doing something substantial.” Treasury said to them: “If you are going to do this and you actually want to limit the housing sale churn you have got to have 5 years.” That is what Treasury said—Treasury said 5 years. These guys said 2 years.Submitter after submitter—and these were not Joe Public; these were learned people from the accounting profession Ernst and Young Chartered Accountants Australia and New Zealand the Law Society and others—came before the select committee and shot bazooka holes through this piece of legislation. [Interruption] Many of them said basically that it will have no effect except it will have a perverse effect for the ACT member in the front row David Seymour—I am sure he will listen to this—in that submitter after submitter said that his mates the property speculators of course will simply change their behaviour. They will hold for 2 years and 1 day and then start all over again. If it is Joe Average who falls on hard times—somebody passes away the income earner perhaps or something happens and a family or a property owner falls on hard times—and has to sell then they are nailed by this. They are nailed by this inside 2 years. There is no provision in here—unlike for instance in the KiwiSaver legislation where there are provisions I believe very tight ones around hardship—to deal with that.Then you look at the definitions. This is going to be the big hit—the big hit. Those members are going to go after the property speculators they said. As capital prices go up a thousand dollars a day in Auckland they are going to go after the big-time speculators. Then the Inland Revenue Department (IRD) and Treasury reported that the total amount of revenue they are going to raise from this is a mere $5 million. If you look at the figures and the house price inflation that has been reported in recent days—20-plus percent in Auckland—that is pitiful: $5 million is all they are going to get. That is absolute prima facie evidence that this is just a political pamphlet. This is just something to make it look like the Government is doing something. But the people who will get clobbered are mum and dad Joe Average who fall on hard times and are forced to sell inside the 2-year period. They are the ones who will get taxed. Then you come and you look at the definitions.I must say the Minister took a call today. Thank God for that. It took until the third reading for the Minister to take a call. He never took a call in the Committee stage—never took a call. He had every other portfolio Minister sit there and never answer a question—utterly indicative. I have sympathy for him. The poor old soul takes over from Peter Dunne the poor guy. The Prime Minister must have come to him and said: “Mate here’s a live grenade. Swallow this one brother.” And it is indefensible because the best the Minister could do was get up and read the IRD’s notes in the third reading not having answered one question.One of the other speakers for the National Party today might tell us because one of the questions we raised was: what does this mean? One of the definitions of a “main home” is—get this—the home “with which the person has the greatest connection”. I do not know. Maybe there are a few hippies over there—a bit of the old psychedelic pūhā. Maybe they are levitating a bit. Maybe they are feeling their softer side.The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! The member will resume his seat. We have had some public comment about members making accusations about other members’ drug taking. That will not continue.Hon CLAYTON COSGROVE: Sorry Mr Assistant Speaker. Can I put it this way: maybe they are imbibing legitimate substances that are giving them a wee gee up but maybe they can tell us what “connection” means. What a wonderful word that is: “connection”. How are they going to actually—actually how is the IRD going to sort of look through the crystal ball and in some socialised way tell us how someone is connected to a property? Is it that they go down to the local pub on the corner three or four times a week? Maybe they are there for a day maybe their kids are there—no definition no explanation from the Minister nothing.You have got to also look at Auckland. So you are getting what 20 points plus per annum—20 points plus per annum. I think the percentages are that 15 to 17 percent of properties are turned over inside 2 years and we know which end of town that is. But why would you not hold for 2 years and 1 day if you are getting a 20 percent return which is better than anything I have seen that the investment community can get? This is not going to stop—this is not going to stop. This might stop a few people. They might have a look. They might have a quick look and say “Maybe we’ve got to change our behaviour.” but this is going to have virtually zero impact.We will put a tick in the box though. It was rushed through the Parliament rushed through the select committee process—a David Bennett special. He did not want any in-depth inquiries and official advice. Feel sorry for the officials because you always know when an official cannot answer a question what that means—or will not answer a question. It means that they do know the answer but the Minister has told them that they cannot answer that question because it will be an embarrassment to the Government. They are very professional officials that we have.This legislation is bunkum absolute bunkum. From the Law Society from the Chartered Accountants Australia and New Zealand group right through everybody has said to a man and woman that this is not going to work. We have had a Minister who simply adopted I suppose the Peter Dunne philosophy of life which is to go down the burrow pull the lid over the top and hope that the grenades do not shatter over his head. Say nothing do nothing—pardon?Phil Twyford: Do burrows have lids?Hon CLAYTON COSGROVE: Oh well they do with this guy—sinking lids in this case. We will support the bill but I make this point: we will be back here I wager—I thought it would be 2 years; a change of Government. I suspect we will be back here possibly as the courts deal with some of this legislation to fill the holes patch it up and try to make it work—try to make it work. I know who is going to be speaking next: that eminent chartered accountant that expert from Hamilton and Waikato who knows everything about these sorts of—I humble myself before him. I would like him perhaps to deal with some of the questions we raised in the Committee stage—to deal with the “main home” definition.Phil Twyford: You’re dreaming.Hon CLAYTON COSGROVE: Well I live in hope. I am a charitable guy as the Assistant Speaker knows. I live in hope that some of the questions raised by the Law Society by Terry Baucher and by others—the exemptions for farmland; you could drive a bus through those. The main home exemption the trust exemption—you could drive a bus through them. Given that Mr Bennett is such an expert I am sure he might do what his Minister has not done and actually get up and explain to us. Say for instance—to make it easy for him—what is the connection to the main home? What is that? What intangible concept is that which IRD is going to be dealing with? Why is there an exemption for farmland and how is it going to be administered?I will make a bet with him. I will make a bet. The accounting profession is out there today and it has got all the loopholes lined up—it is like a colander. They may as well deliver a briefing paper with their cohorts with a whole lot of holes in it. They are working quick fixes and workarounds to this legislation. It is an embarrassment to this Government. It will prove to be an embarrassment to this Government and I look forward to the speeches when they return to this Parliament and we have to amend it because this is not a big hit. This is not a small hit. This is what one could only describe as quality bull.DAVID BENNETT (National—Hamilton East): The Taxation (Bright-line Test for Residential Land) Bill—this is the third reading—is a bill that is sponsored by Minister Todd McClay. I wish to acknowledge Todd and the work he has done in this area especially around tax. It is also a part of a programme of looking at the wider housing market in Auckland and is one of those initiatives to look at that market. When we look at it it is important to look at the fundamental principles of tax law that underpin this area. That last speaker Clayton Cosgrove ignored those in his speech. The fundamental principle is that if you sell a property within 10 years that property is taxable if the intention was to buy or sell within that period of time.When we hear the Opposition members they are always going to say the word “speculator”. They will say: “Speculators are exempt from this. They’re not getting caught by this legislation.” That is rubbish. That is absolute rubbish. The fact is that if someone is a speculator then they are in the business by definition of buying or selling a property. If they are in the business of buying or selling a property it is taxable under New Zealand law. If a property is sold within the 10 years then they have to explain that. All this bill does is say that within the 2-period you are deemed to be basically selling and buying as a speculator would or as a property developer would and so that is taxable.The Opposition is supporting this bill which is a bit weird if they have so many problems with it. You would wonder why they are actually supporting it. But I think that there are some big difficulties in the Opposition. First of all is that they had a programme of a capital gains tax and that capital gains tax policy failed at the last election. I know Mr Assistant Speaker you want me to talk about this bill and this is a taxation on the sale of property and the capital gains tax is exactly the same as that. The Labour members opposite in the last weekend at their conference have put that to bed. They have said that they are not going to have a capital gains tax and that is fine. They have obviously changed their tune but before that we heard from the Opposition—I think the Green Party still holds to a capital gains tax but the Labour Party does not.Hon Member: Yeah we love it. Great idea.DAVID BENNETT: Yes well the Green Party agrees with the capital gains tax but the Labour Party has put that to bed. But the Labour Party also talks about a 5-year rule—that it would be comfortable with a 5-year rule. Well what is the difference between a 2-year and a 5-year rule? You have 5 years and 1 day—same problem. It is exactly the same thing the same problem.Phil Twyford: I thought you were good at maths David.DAVID BENNETT: The member over there says “do the maths”. Well the thing is that member ignores the fundamental principle of tax law which we talked about—that if the intention is buying and selling within 10 years—it does not matter whether it is within 2 5 or 7 years. Within the 10 years if the intention is buying and selling then it is taxable. That is the thing. The 10-year rule is the pre-eminent rule. This is a subset of that rule. The intention—Phil Twyford: If the intention test is enough why bother with this bill?DAVID BENNETT: Well you are supporting it which is good to see. It is good to see.The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! The member is not asking me at all here.DAVID BENNETT: No exactly. The member should stick to the Standing Orders and not try to—The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! The member will now resume his seat. I was trying to help the member stop the unhelpful interjections. The member knows that when the Speaker makes a ruling even from his seat the member is not meant to refer to it.DAVID BENNETT: This bill is actually really important. The Labour Party is supporting it which is great to see but when members opposite talk about a 5-year test that makes no difference because the 10-year rule is the pre-eminent rule. It is the main test in this area of tax law. The 2-year rule is really deeming transactions within that period of time to be considered taxable under tax legislation.When we look at the connection test—well that will be something that will be defined through the interpretation of it. It is not something that the legislation would want to define in this sense because it is something that needs to take into account different circumstances and different factual situations that may arise. That is common in tax law. That is why we have tax definitions and help through the tax department with its recommendations of what would be considered in and out of such a test. Also it is something that gives a bit of flexibility over time to look at different circumstances that may arise. The Inland Revenue Department usually gives examples and it will do so as it provides more information in cases like this so that taxpayers are fully aware of what the situation is.The connection test is as would normally be expected in any tax law. It would not be expected to be defined to the extent that the last speaker asked for. If it was defined to that extent then that would actually create the opportunity for people to get around that definition because they would look at just getting around that part and it needs to have that flexibility within how the application of that test would be.This is an important piece of legislation. The Labour Party is opposing it in principle but then voting for it in practice and it shows its conflict when it comes to this area. The Labour Party does not have a consistent approach. We have seen that in regard to capital gains taxes. We are seeing that again in this House this afternoon. This is a piece of legislation that will have an important effect on the Auckland housing market as other pieces of legislation that were connected with this bill have shown to have had an effect. If we look at the last month’s property price information from Auckland we can see that stabilising and that is after the implementation of the last piece of legislation that connected with this. So it is important that we support this bill and we look forward to it going through the House.PHIL TWYFORD (Labour—Te Atatū): We are voting for this bill. We are voting for it because it is better than nothing—but not by much.The question you have to ask is why the National Government so often particularly on the housing issue brings so much flimflam to this Parliament. This bill is one in a long line of flimflam housing measures. Take for example Nick Smith lifting tariffs and anti-dumping duties. It was the centrepiece Budget announcement and his own officials have declared that it has had no discernible impact—no impact on prices nada zilch nothing. With the special housing areas the other great flagship initiative 102 houses were built in the last 2 years—102 houses. And this bill the Taxation Bright-line Test for Residential Land Bill is likely to go down in the annals of this House as a measure that will have very little impact. All of the informed commentators the experts from the day that this Government announced this bill have said that it will not deter speculators and it will not make any difference to the price of Auckland houses. It is simply there as a piece of political window dressing.But why—why—does the National Government constantly do this? The reason is that speculators generally who are purportedly the target of this bill are the friends of the National Party. The last thing the National Government wants to do is to make a significant difference to property speculation in Auckland because that is where it gets its money that is where it gets its support. The last thing National wants to do is choke off the supply of foreign money. For years now the National Government has denied that property speculation is even a problem. I have lost count of the times that Ministers have stood up in this House and denied that property speculation is a problem. If you listen to them you would think that it is only a question of supply.Now with the IMF and the Reserve Bank telling us that the Auckland housing crisis poses a real risk to the whole economy and that Auckland is teetering on the brink of the housing bubble bursting National is panicking. Government members are terrified out of their wits that this housing bubble will burst on their watch. They are petrified that their inaction combined with low interest rates high immigration a structural shortfall of housing in Auckland of about 30000 and rampant property speculation will see the bubble burst on their watch. They are absolutely terrified about it. They are terrified that their inaction will be blamed for causing the housing bubble to burst and they are terrified that anything they do will trigger a bust in the Auckland housing market which would undoubtedly cause major economic and social damage. That is why this bill is so insubstantial. That is why it will make very little difference. Treasury said it will be lucky if the bill generates $5 million in revenue when we know there are billions and billions of dollars’ worth of tax re capital gain going on in the Auckland housing market as we speak.What is it about this bill that makes it such a dud? The very premise of the bill the 2-year test is an invitation to speculators to hold on to their properties for 2 years and a day. It will deter only the most short-term of the quick-flick merchants. Treasury warned that the 2-year limit would be ineffective. It said: “Push it out make it 3 years or 5 years.” It said that 2 years would be ineffective. The experts came along; they said that the bill was incoherent and it would be ineffective. One of the senior tax experts in the country said that it was professionally confusing. It will not capture speculators but it will capture ordinary Kiwis who by no fault of their own—because of relationship breakup because of a death or because of illness—are forced to sell their house. Those are the people whom this legislation will punish but it will capture very few speculators and it will not make very much difference at all.It is riddled through with problems. The definition of “main home” is a joke. It is ridiculous as Clayton Cosgrove said that if you have to choose between two homes that the person claims are their main homes it is the place of “greatest connection”. This is a made-up definition. It is going to be a field day for tax lawyers.Chris Bishop: Welcome to legislation Phil.PHIL TWYFORD: Would you like me to quote The Castle again? Because if you insist I will.Why all these problems? Because it was a chaotic rushed political response to the opinion polls that were telling the Government that the public thought it was doing nothing about the Auckland housing crisis and Bill English was desperate to see some kind of measure incorporated into the Government’s Budget package.What should the Government have done? It could have done something much more effective and more substantial. That opportunity is still with the Government. It could support my member’s bill which was pulled out of the ballot today. If the Government wanted to do something that would have more effect than this pathetic Taxation (Bright-line Test for Residential Land) Bill it could support Labour’s policy to ban non-resident foreign buyers from purchasing existing homes. That is the Australian Government’s policy. It has successfully channelled $30 billion of offshore money into building new homes in Sydney and Melbourne in the last 12 months. Would that not be a nice problem to have? It is a policy that works it is effective and it is actually generating foreign investment that is invested productively in the building of new houses in Australia so why would you not want that?But this Government went off to the Trans-Pacific Partnership agreement and it did not even try to negotiate a carve-out for this kind of legislation to ban foreign buyers from buying existing houses in this country like the Australians did and like several other countries did. It does not care. This National Government stands on the side of property speculators both domestic and foreign. It does not care about Kiwi families who are struggling to get a foothold in the property market. It should not surprise us because the National Party is the party of speculators.It does not believe in productive investment in businesses and the economy. It does not care about Kiwi first-home buyers. It is happy to sit back and watch homeownership levels fall to the lowest in 64 years. It is happy for homes in Auckland to be left as ghost houses empty because their foreign owners do not care about renting them out for people to live in because they are happy to make a 25 percent year-on-year capital gain on those houses. National is happy with that situation. It is happy for people to live in cars and campgrounds and garages because it is so petrified that if it does anything significant its housing crisis—the National Party’s housing bubble—will burst before the election and it will be blamed for the massive economic and social damage that will be left in its wake.It is not fair or strictly correct to accuse this bill the Taxation (Bright-line Test for Residential Land) Bill of being a poor case of legislative drafting. It is not the fault of officials. It is actually a perfectly good example of legislative drafting because this bill does exactly what the National Government wanted it to do and that is not very much at all. It is emblematic of this Government’s entire response to the Auckland housing crisis. It denied it it denied it it denied it. It hoped that it would somehow just go away. It did not want to pay attention to it. Then for the last 3 years while Nick Smith has been the housing Minister we have seen an endless procession of micro-initiatives photo stunts and press releases—all designed like this bill to convey the impression of activity. Simon Bridges knows that is right. He is laughing. He knows that Nick Smith is a liability for this Government. He knows that the public of New Zealand want to see real action.The public want to see a crackdown on speculators. They want to see a policy that actually results in houses being built that people can live in not this ridiculous policy of this National Government that has led to 102 houses built in the last 2 years. They want to see a crackdown on speculators not this flimflam. It is a pretence. It is a joke and the public can see through it. This Government does not want to do anything about it. It does not want to move because it is petrified that if it actually takes action against speculators if it actually builds houses it will trigger a bust in the housing market and the egg will be all on its face.CHRIS BISHOP (National): Phil Twyford just said that this bill was about a bunch of blather and flimflam. Well I have got to say that that is deeply rich and ironic coming from that member. That member has spent the last 2 years while he has been the shadow Minister for housing going up and down the country speaking flimflam and blather himself. This is the guy who supported loan-to-value ratios before he opposed them. This is the member of Parliament who supported the thrust of the Government’s social housing reforms before he decided that they were a bad idea and he was opposed to them. In fact he even turned up to the social housing providers’ conference and told them that transferring ownership of social housing to the private sector or to the community sector was a good idea and that they would do a good job and that often they were better than the State before he decided to oppose that.So this is the person who is the king of outrageous slurs and accusations. You can see it every day in question time. You can see it every time he gets up and speaks in the House—the anger and the venom against Nick Smith who was mentioned about 14 times during his speech. So for Phil Twyford who launched by himself a personal vendetta and campaign against people of Chinese ethnicity in this country to turn up in this Parliament and say that this bill is full of blather and flimflam is I find deeply ironic.I think it is worth reflecting on the campaign that the Labour Party—or Phil Twyford I should say—has launched against people of Chinese origin. It was deeply offensive. It was deeply repugnant to New Zealand values. And it was deeply strange coming from a party that in 2002 quite rightly issued an apology to people of Chinese backgrounds for the poll tax of the 1860s. So to turn round in 2015 in multicultural New Zealand—The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! The member Phil Twyford who preceded this member did take a very wide approach to the bill but he did not take a full 2 minutes until he mentioned it. I want to invite the member to at least address the bill.CHRIS BISHOP: The Taxation (Bright-line Test for Residential Land) Bill is a good bill. It is not as the previous member said a political response to the housing crisis. It is not as the previous member said something that the National Government is introducing only because to do anything more than that would be to disadvantage its rich mates. I think on all three readings of this bill Phil Twyford has made the outrageous slur against the National Party that we are doing something or are not doing something because of interests outside this House because of money or because of donations or things like that—outrageous. That is not the point of this bill. This bill is all about fairness in the taxation system. It is all about making sure that people do actually comply properly with tax rules. My colleague David Bennett has given a very good elucidation of how the bill does that.I briefly want to focus on this issue of the main home exemption. Members opposite in all three readings of this bill have criticised this provision the exemption that the bill provides for the main home. In particular they have criticised the exemption that is provided or the definitional term around the person with whom—Hon Clayton Cosgrove: The connection.CHRIS BISHOP: Yes as Mr Cosgrove says with whom the person has the greatest connection. They said I have got to say some really silly things about this provision. So let us run through what they have said.The first thing that they have said—Grant Robertson said this in the first reading and other members have repeated it subsequently—is that this is an invention. In fact we have just heard Phil Twyford say: “This is an invention. This term does not exist in law.” Well yes that is true. As I think I said in the second reading or it might have been in the first reading of this bill actually this is a Parliament. Parliament makes law and sometimes we use terms that do not exist already. It is not actually that radical. Sometimes we pass pieces of legislation that contain words that have been combined to make a phrase that does not currently exist. So that is not actually a particularly good point of rebuttal to the idea that this is a good bill—that the phrase is an invention. OK? So that is the first point.Secondly in response to this I have talked to the officials. The phrase “the greatest connection or with whom the person has the greatest connection” is a carefully chosen phrase. It is carefully chosen because although it might not exist in New Zealand’s statute law right now it does exist in case law. Members opposite should know anyway that the laws of New Zealand are not just based on what we pass here in Parliament or on regulations that the executive passes but also on what has built up through case law. That phrase has been carefully chosen and it would allow the courts to apply this law properly.What was the second thing they said in response? We heard this from Jacinda Ardern yesterday. Jacinda Ardern got up and said: “Oh this is totally subjective. This is just subjective. It is just a subjective test.” No it is not a subjective test. It is not up to the person to define that. It is an objective test.The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! Sorry—I apologise to the member. Members have a set amount of time for which they can speak. It is not the role of Opposition members to try to shut them down in the way that members are trying to do at the moment.CHRIS BISHOP: Thank you Mr Assistant Speaker. It is not a subjective test. It is an objective test. So Jacinda Ardern is completely wrong. If people try to claim that they have a greater connection to the crib or the bach they will have to prove that. It will have to be objectively proved. They will have to produce evidence and the courts if it gets to the courts will have to examine the evidence and they will find one way or the other. Again it is like explaining the judicial function to members opposite. It is like Public Law 214 at Victoria University. David Parker must be ashamed of some of the stuff that gets said by members opposite.What is the third thing that Labour Party members have said? They have said that this will just let people classify the apartment they live in in Wellington when they come to Parliament every week or they will be able to classify their bach or beach house as the place with which they have the greatest connection and they will be exempt from the law. As I said before that is not going to happen.This phrase does not exist in law as it is at the moment but that is not remarkable. That is not an argument against passing the law. It is just a statement of fact. So some of the criticisms from Labour members in response to this bill have been very silly. This is a good bill. This is a bill that will improve compliance with tax law. It will make our tax system fairer. I commend this bill to the House.METIRIA TUREI (Co-Leader—Green): This is yet another one of those examples where there is a major serious policy hole in New Zealand that is causing New Zealand families enormous amounts of economic and social pressure. Thousands of New Zealand families especially young families are completely unable to access the housing market because of massively increasing house prices particularly in areas like Auckland. This is a major crisis for those families and this Government instead of actually making a policy contribution that will help young New Zealand families get their foot into the front door of their first own home is providing a meagre piece of legislation that does nothing to address the problem but has all the spin wrapped around it that it wants to get out.This Government has done this a million times in New Zealand. It is one of the reasons why we are continuing to have major problems in the housing market and why so many New Zealanders remain locked out of purchasing their own home. This bill will not make a huge difference to that. We are supporting this legislation at least because it opens a crack where we can perhaps improve the situation after 2017 when these guys are thrown out. They are clearly incapable of running the country and governing the country in the best interests of young New Zealand families. It is a too little too late attempt to try to curb what we all know is rampant house price inflation in Auckland and elsewhere in the country.I want to be clear about this for New Zealanders who may be hearing this debate for the first time. There is already a theoretical law in place that if you buy a property with the intention of selling it on for a profit you are technically a speculator and you are subject to paying tax on the profit. But this is a test of your intention—what you intend to do with that house. It is highly subjective and virtually impossible to enforce. Very rarely is there tax gathered on the profit that a speculator would be making on these homes. This supposed brightline test that the Government is talking about is meant to support lean up against and buttress that intention test. It is a requirement along with other requirements. The brightline test this legislation says that if you buy an investment property—not your main home or not necessarily a home—and sell it within 2 years you are subject to income tax on the profits that you make from that sale. That is what this law does. The previous law has an intention test. This new law is supposed to provide a 2-year requirement—if you sell in that time you will need to pay tax on the profits.There is increasing evidence that the New Zealand housing market is being driven up by speculation. Just this week the IMF and the Reserve Bank have both identified increases in housing unaffordability as a serious risk to the New Zealand economy let alone to the stability and well-being of New Zealand families. The Reserve Bank in its Financial Stability Report talked about rampant house price inflation fuelled by property speculation all putting the economy at risk. It said: “Rising investor activity has been an important driver of price developments and”—it went on—“international evidence suggests that investor loans have a higher tendency to default in the event of a major downturn in the housing market.” So this increasing speculation particularly from foreign buyers puts the whole economic situation particularly in Auckland and elsewhere at real risk of a downturn and that means people losing money on their houses if things go bad. That is the kind of risk that National is putting New Zealanders under with miserable policy like this that does not go far enough to actually fix the problem.The IMF report which was called “New Zealand:Staff Concluding Statement of the 2015 Article IV Mission” was quite explicit that New Zealand urgently needs to build more houses in Auckland in particular and that given the time frame that is needed to make that happen—and you know it takes a while for that to happen—we therefore need tax incentives for housing speculators to be removed. One of the tax incentives is that if you buy a property and then sell it on you do not have to pay any tax on the profit that you make. You can gain an income without any kind of tax. So even the IMF is saying there is a real need to remove the tax incentives.A capital gains tax is pretty common. It exists in virtually every OECD country around the world but it has not been that politically palatable in New Zealanduntil recently. The Green Party has long held a policy of a capital gains tax. Rod Donald was talking about it in 2005 I have done work on it since 2010 and other Green MPs will continue to advocate for a capital gains tax because it is one of the tools—not the only tool; it is not going to solve the problem—that we need to help dampen the housing market that is causing so many problems. I do note with some disappointment that Labour has decided not to proceed with a capital gains tax given all of the evidence that shows that it is a one of the necessary tools that needs to be put in place so that young families can have a chance of buying their own home.National ever anti-tax as it is has never had the courage to campaign on a policy that would be objectively good for the economy as a whole.The ASSISTANT SPEAKER (Hon Trevor Mallard): The member will resume her seat. Members cannot accuse members either individually or collectively of lacking courage. It is against the rules so the member will withdraw that comment.METIRIA TUREI: My apologies. I withdraw Mr Assistant Speaker. A capital gains tax would close a critical tax loophole that we have on New Zealand property. It would reduce speculation and it would provide an incentive to invest in the productive sector of the economy as opposed to housing. These are all parts of the puzzle that need to fit together.One of the other reasons why the Green Party is committed to a capital gains tax and a good policy as opposed to this miserable one is that it also goes towards helping reduce wealth inequality. This is one of the issues that arise when you have a big gap between those who own wealth in this country and those who do not. Max Rashbrooke in his new book Wealth and New Zealand makes a very strong argument that it is not just about income inequality or income measures. He argues for equitable measures to assist New Zealanders so that everyone has access to an asset base. One of those measures actually the Green Party proposed earlier this year before the Budget. This was a kids’ KiwiSaver. This was at a time before the Government kicked the guts out of the KiwiSaver scheme by removing the Government contribution. But if it were committed to sensible policy that would help deal with wealth inequality the kids’ KiwiSaver would mean a small contribution from the Government from birth and a small contribution from the family so that at the time a child reached 18 years of age they would have a small asset base of well over $10000 that they could use to buy a house or to invest in their education.That is one way of dealing with wealth inequality; a capital gains tax is another one of those measures to help deal with that. The fact is in this country that 10 percent of New Zealanders—just 10 percent of New Zealanders—own 52 percent of the country’s wealth. Ten percent of this country owns more than 50 percent of the wealth in this country. On the other hand you have half of the country—half of all New Zealanders—and how much wealth do you think they might own? Half of the New Zealand population owns just 5 percent of the nation’s wealth—the nation’s assets. The gap in wealth inequality is massive and housing is part of that gap. It can be a solution to bringing New Zealanders together and closing the wealth gap. Otherwise if we continue with miserable piecemeal measures as National keeps providing and a complete failure by National to really understand the issues for New Zealand families that wealth gap is simply going to grow.A capital gains tax is one of the tools that we can use to help close that wealth gap so that there is greater equity in New Zealand so that there is greater equity between families—and we all know why that is important for our kids and for their future: so that young families have access to purchasing their own home for the security and stability that that provides and that when you have a stable community with a strong housing base and with a strong asset base then everybody is doing better. We know that a capital gains tax is essential; it is a great shame that National simply does not know or care about that. This is at least is a small—very small—step towards making some progress. Thank you.RICHARD PROSSER (NZ First): I am pleased to rise on behalf of New Zealand First to take a call on the third reading of the Taxation (Bright-line Test for Residential Land) Bill. New Zealand First opposes this bill. There is any number of reasons why any party—in fact every party in this House—could and in fact should be opposing this bill. New Zealand First’s primary reason for opposing it—our primary objection—is that it quite simply will not work.As Mr Cosgrove said this bill is a waste of time. It is strange that he did. It has put me in the rather odd position of being able to agree with Mr Bennett who in a rare moment of cogency questioned why Mr Cosgrove and others from Labour would bag this bill and then vote for it anyway. I have to ask the same question. In New Zealand First of course we do not just talk the talk we walk the walk. We say the reasons why we are going to oppose the bill and then we oppose it. Perhaps Labour could take a leaf out of our book rather than the other.But as Mr Cosgrove said the bill is a waste of time. It is a waste of time money and effort. It does not acknowledge the underlying problems that affect residential property in New Zealand. It does not admit where the obvious faults lie and it does not address any of the root causes of discrepancies between supply and demand in any honest or effective manner.So this bill is not about a brightline test. It is about a “dumbline” test. It is a dumb bill that introduces a dumb regime that represents a dumb approach to what is a very real problem and it highlights the way that this Government has tried—and failed I might add because people have not swallowed the line—to dumb down every aspect of the foreign ownership debate that it does not agree with. There are holes in this bill again as Mr Cosgrove noted that you could drive a bus through. I might suggest that perhaps it should be a housebus because housing and more to the point the lack of it is what this issue is all about and what this bill purportedly attempts to address.Chartered Accountants Australia and New Zealand has said that this bill is not sound tax policy. Treasury itself has stated that it will not capture the speculator. Anyone who is happy to wait for 2 years and 1 day after buying a property and before selling it again will not be inconvenienced by this bill either. Trusts and companies are exempt from it. Farmland and business premises are exempt from it. Foreign buyers and in fact anyone who wants to land bank and simply has a need to expatriate money from wherever they are in order to get it out of the reach of various authorities in other jurisdictions and who are not motivated necessarily by the prospect of short-term speculation will not be affected by this bill but the action of their purchase will nevertheless remove New Zealand residential properties from the reach of New Zealand buyers. The Minister of Finance himself has said that any transaction that is likely to be captured by this bill is very likely to already be liable for capital gains tax under existing legislation.So this bill and the other related and rather limp responses that the Government has belatedly brought to this House as a result of a multitude of increasingly loud voices protesting the sell-off of New Zealand quite simply do not address the real issues and because of that it quite simply will not work. Making foreign buyers obtain a New Zealand tax number which a tourist here for a weekend can apply for and get will not slow down the overseas speculator who is out to get their hands on New Zealand residential property.As for making them obtain a New Zealand bank account when almost all the commercial banks in this country are foreign owned—no one is going to refuse to open an account for a foreign buyer who turns up with a fistful of dollars or any other currency come to that. So that is not going to slow them down. Neither is making them wait 2 years and 1 day before they clip the ticket on what is an ability to trade in New Zealand residential property which an overwhelming majority of New Zealanders quite simply do not want them to have in the first place.New Zealanders do not want foreigners buying our country. No one has any objection to immigrants whom we choose to allow to come buying a home to live in. But there is a world of difference between that and the kind of unbridled speculation and purchase that has been allowed under this and previous Governments where anyone at all from anywhere at all with access to very cheap zero percent foreign finance can come to New Zealand—or not come to New Zealand; they can get on the phone—and buy up any number of houses and properties that they like frequently sight unseen at whatever money the seller demands at whatever money the market commands and at prices that are beyond the reach of New Zealand citizens permanent residents and first-home buyers. New Zealanders do not want that and the Government’s own supporters do not want that and they have been saying so with increasing volume and increasing stridency. This bill and others like it—the other measures that this Government has brought in—are a rather half-hearted attempt to provide a sop to those concerns and it will not work.The answer to what is this very real problem is to limit the purchase and ownership of New Zealand houses to New Zealand citizens and permanent residents who are exercising their permanent residency and to no one else. As Mr Twyford mentioned his bill addresses this too. We are very very glad to see that Labour has adopted this longstanding piece of New Zealand First policy and when Mr Twyford’s bill comes up I am sure our caucus will be only too keen to discuss it. Taking that action will fix the supply and demand problems and it will fix the looming Godzilla that is the Auckland housing bubble. This bill will do no such thing. For that reason New Zealand First cannot and does not support it. Thank you.JAMI-LEE ROSS (National—Botany): I am happy to speak in support of this bill which is another forward-thinking policy from the Government that is showing already before it has even been legislated for that it is having an effect and is working. I am enjoying the fact that the Labour Party despite all its rhetoric today in the House is having to swallow some dead rats and vote for a Government policy that is working. I have to say that this appears to be capping off a bad week for the Labour Party. It started off at the weekend with its poorly attended conference when it had to ditch unpopular policies like its great capital gains tax of the election. Labour members have now decided that it is not popular so they are not going to go with it. Then the cheerleaders in the Dominion Post slated the conference starting off the rest of the bad week for them. The politically motivated dummy-spit yesterday and the day before did not work either and now they are going to have to stand and vote in favour of this bill because they know that this is a policy that New Zealanders want to see implemented.It is not a case of doing small things and having no effect. In fact we are seeing already before this policy is even legislated that Auckland house prices are starting to slow down. The policies we have implemented—such as requiring an Inland Revenue Department number from those offshore who are purchasing housing and requiring those who speculate on housing and buy and sell within 2 years to pay tax as they should do through the brightline test—are having an effect. The increased construction that we are seeing in Auckland through the special housing areas the fact that 19000 houses have been consented already out of 47000 potential houses and seeing that supply coming on board is having an effect and will have more of an effect going forward into the future.This bill is something that New Zealanders have been demanding and it is something that the Government is delivering on. New Zealanders expect the Government to be taking action on those who speculate on property. I am pleased that the Labour Party members despite what they have said in the House today are going to be supporting it but bear in mind that when it comes to Auckland housing and prices going up the best thing that we can do is support more supply and get more houses built. So when they stand on their feet and say they support that and when they actually stand and support what the Government is doing by increasing the spending and increasing the value of construction in Auckland then I will be proud of them. But until that day New Zealanders know which side of the House is taking action and which side of the House has got the policies—and that is the Government and we are implementing them.MARAMA DAVIDSON (Green): E Te Māngai o Te Whare tēnā koe tēna tātou katoa e Te Whare. Taking action that is interesting. There is a lot more action that needs to be taken when you are coming from my communities my networks and my experiences. But I rise to speak in this third reading of the Taxation (Bright-line Test for Residential Land) Bill on behalf of the Green Party as our spokesperson on social housing. As my co-leader Metiria Turei has mentioned earlier in this debate the Green Party is supporting this bill as it is a small step in the right direction. However this bill also represents a massive missed opportunity for this House to take the real action we actually need—meaningful action—to address the Auckland housing crisis and to support young families who have been completely shut out of the property market.All tamariki in this country and indeed all whānau have the right to live in a warm dry and affordable home. It is the basic necessity of life and it has been something that New Zealand has stood quite proudly on for generations. Yet this seems to be taken for granted and in fact disregarded. I have heard a couple of National backbenchers I think it was yesterday shouting out “What’s wrong with renting? What’s wrong with renting?” when Labour was talking about the high incidence of renters in this country. How many of those MPs rent? How many would give up their homeownership to take their place as one of those renters? They are yelling out “What’s wrong with that?”.Hon Anne Tolley: Well what is wrong with that?MARAMA DAVIDSON: “What is wrong with that?” We need a choice. We need the choice. And that pride in homeownership for Aotearoa that New Zealand is built on has been disregarded by an increasingly out-of-touch third-term Government. Come into my community come into my iwi come into my hapū and come into my networks and talk to us about how much easier this bill will make life for their families.As I mentioned in my maiden statement just last week in my community of Manurewa and indeed across the whole country whānau are living in homes so filled with mould that it is making their kids sick often with what are Third World diseases. Shame! What are we? Shame. This is simply disgraceful in what is a land of great plenty. For these families the dream of owning their own healthy home will remain that—just a dream. Under the current policy settings so many people—too many people—simply have no chance.Listen I have been into the homes of families who have young children and who absolutely have no other choices. They are in mouldy homes that are making their children sick even with numerous notices from health practitioners and from local community health workers who are saying on paper: “These people need to be assisted into healthier warmer homes.” This family has tried so hard to get into the private rental market and to get into a healthier home. They have tried. I looked at this mother’s face. She wanted the best for her seven children. She wanted the best. She wanted to be independent and get into a better situation but she is coming up against road blocks at every turn—road blocks that this Government has chosen not to push out of the way. And she has aspirations that are great for her family and for her children but this bill and these measures do not go far enough. She has been discriminated against—[Bell rung]—and she is not able to get into the private market. How long was that? Sorry—The ASSISTANT SPEAKER (Hon Trevor Mallard): One minute to go.MARAMA DAVIDSON: Thank you—oh goodness.The ASSISTANT SPEAKER (Hon Trevor Mallard): It is only a 5-minute speech.MARAMA DAVIDSON: There you go. So actually the Green Party has a whole package of solutions to ensure that all New Zealanders are able to live in a warm dry and affordable home. Among these solutions is our progressive ownership scheme our homeownership scheme that will enable young whānau to purchase equity in their State rental houses. I do not know how aware any of the people in this House are to exactly how difficult it is for lower-income and even single-income families to even dream about any sort of deposit. Even a deposit of $5000 would be virtually impossible for far too many families whom I am connected to. I look into their eyes and know how hard it is. Why is that choice not available for all of us? You know we would of course introduce comprehensive taxes on capital gains—The ASSISTANT SPEAKER (Hon Trevor Mallard): Order!MARAMA DAVIDSON: Am I up now?The ASSISTANT SPEAKER (Hon Trevor Mallard): You are.MARAMA DAVIDSON: OK. Thank you Mr Assistant Speaker.DAVID SEYMOUR (Leader—ACT): We are indeed a House of Representatives and was that last speech from Marama Davidson not 5 minutes of raging self-righteousness with very little to do with the bill? This bill is a public policy abomination. It is one the ACT Party will be supporting because it is a Budget commitment and supporting Budget commitments helps to keep those people over there in Opposition and these people over here in Government. From what we have just heard—I thought the bill was important before Marama Davidson’s speech but now I think it is absolutely vital to the future of this country.The Labour members may be interested to know that I have just been reading a lot about the Rt Hon Norman Kirk. Was Labour not a great party when it was led by him? I think most famously he said that New Zealanders want somewhere to live someone to love somewhere to work and something to hope for. I think it is a very important question for New Zealand in 2015—why is it that it has become so much harder for a society vastly more technically sophisticated than we were 40 years ago to provide places that people wish to live in at prices they are able to afford? Some people may say the answer is “Don’t have seven kids if you’re not entirely sure that you can afford to support them.” but other people would say that at least it should be easier to afford homes than it was 40 years ago. Some people say: “Oh it’s because of the free market.” Well what sort of free market is it when the Government has the monopoly on planning—The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! I was as the member pointed out relatively lenient on the previous speaker who is a new speaker with regard to relevance. This member is an experienced member now and the leader of a party and he will follow the rules and speak to the bill.DAVID SEYMOUR: I am differentiating between supply side and demand side measures when it comes to attacking housing affordability. It is worth stating that in the Auckland region we built 5000 houses a year throughout the 1990s and only 4000 in the past decade. That is the material reason for a lack of housing affordability in Auckland. I think it is worth noting that it is not a free market when it is the Government that is responsible for providing the infrastructure.This bill is a bill that will do nothing to help with housing affordability in Auckland because nobody ever built more houses in order to pay more tax. That is what at best might happen as a result of this bill but as we heard in the excellent submissions to the Finance and Expenditure Committee even that is going to occur to an extent less than what real estate agents I know earn in fees—less than $5 million a year in projected revenue. That reflects the fact that as we heard in submissions we are only going to take in revenue from those who own a second house find themselves stranded and really cannot sell. Everybody else who is involved in serious property investment will easily manage their affairs to avoid a 2-year brightline test.It is with some regret but suffice to say as demonstrated by the previous speaker some considerable necessity that I support this Budget measure of the brightline test. But let it be put on record that this tax is the acorn of a capital gains tax. It is a measure that will grow from 2 years to 5 to 10 to 15 years. You watch: it will eventually apply to a wider range of homes. It is the acorn that the National Party has planted that will grow into a full-blown capital gains tax. From the point of view of those of us who believe in simple market-oriented policies and those of us who want rational public policy for New Zealand this will be viewed as a very dark day indeed. Thank you.ALASTAIR SCOTT (National—Wairarapa): I rise in support and to take a brief call but I would like to address the previous Green Party speaker Marama Davidson vis-à-vis her question of who on this side rents a place. Up until the last few months I was renting a place in Wellington. It is not such a bad thing. There are advantages in renting. You do not have to front up with the capital. You do not have to replace the fridge or the freezer when it breaks down. When the roof leaks the landlord comes in. There are a lot of advantages in renting. There is no shame in renting and it is part of the market place and the reality that we live in today.I would like also to address a comment from Mr Twyford. I will ask the question to Mr Twyford: how much has a foreign investor made in the last 12 months when he has purchased a house in Auckland—how much has a foreign buyer made? The answer is zero—the answer is zero simply because Mr Twyford has forgotten to consider the effect of the foreign exchange rate. The value of the Kiwi dollar has dropped approximately 25 percent and negated any gains that a foreign investor has madein Auckland whether it be in the New Zealand housing market or whether it be in the New Zealand sharemarket. Because that is of course another class of asset which I am not sure whether Mr Twyford is willing to ban. I am not sure whether he is wanting to ban foreign investors in our sharemarket and in our bond market or just in our housing market or whether it is our buildings or farmland or any industry that might relate to his bill. It seems odd that he would want to ban only one class of asset.Getting back to the bill this is an excellent bill. It is for a 2-year limit. It could have been 1 year it could have been 3 years; it happens to be 2 years. There is an exemption for the family home with the greatest connection. Some of these guys on the other side have a problem with that. It is very simple. There are exemptions around whether one is divorced or has inherited property which is obviously sensible. This bill is based on logic. It is sensible legislation; it is not based on whether a person’s name is of Chinese descent. It is not based on whether the money comes in from offshore or not; it relates specifically to the trader who is wanting to speculate in the housing market in New Zealand. On that basis I commend it to the House.STUART NASH (Labour—Napier): I do stand in support of this bill. But I must admit I do find it a little rich when someone like Alastair Scott—with all due respect to Mr Scott who I think is a man of substantial means—rents a property out of choice. It is a little different from a poor family that rents out of economic necessity. I suspect the house that Mr Scott rents is a little different from some of the houses that we find in South Auckland. But I could be wrong. Maybe Mr Scott was in a mouldy house with no curtains and no heating etc. It just does not sort of seem right.The other thing is that I have to smile at the ACT member starting to talk about Norman Kirk a towering man of huge principle and then at the end of his speech he says: “It is with regret that I support this bill.” Well I can tell you that Norman Kirk stood up for what he believed in. There is no way that Norman Kirk would have ever done anything just because he felt he had to support another party. He would have stood up and he would have banged the desk and said: “This is what I believe in; this is what I stand for; this is what I am doing.” Not like that member. So that is a little disingenuous. I think it just epitomises what the ACT Party stands for or does not.It is generally accepted that tax legislation of this nature is not there to quell house prices. This sort of tax legislation is there to actually bring people into the tax system who are outside the tax system at the moment. I remember reading a paper in about 2010 that said the problem of avoidance in the speculative housing industry was valued at around $250 million a year—that was the size of the issue. It was very big; the Inland Revenue Department recognised the size of the problem. We now 5 years later have a bill that the Government says is going to raise about $5 million. This bill fails the test around tax legislation on so many features and in so many areas. The first one is it does not meet the requirements. It is not there to bring people into the tax system.The thing is there is a test at the moment under current tax legislation and it is called the intention test. What that basically means is that if a person has bought a house with the intent of making a capital gain then they have to pay tax on that at their marginal tax rate. However if they bought the house with the intention of making a rental yield and then they sell that house they do not have to pay any tax. It is notoriously difficult to prove someone’s intent if they are arguing the other way. What this piece of legislation actually admits is that the intention test is not working because if it was working then we would not need legislation in place to capture those who we believe are avoiding tax.But the problem with this—the problem with this—is that it is there for only 2 years. What this is called is lock-in: someone buys a property they know that all they have to do is to hold it for 2 years and 1 day and they can sell it and they do not have to pay any capital gains. The intention test still exists but again what a smart investor does is they always go out and say: “I’ve bought this as a part of a balanced portfolio. It is there to make a rental yield and I am going to hold on to this for as long as necessary.” Then they sell it after 2 years. The Inland Revenue Department (IRD) may come knocking and say: “You bought that with the intent of making a capital gain.” All the investor has to say is “No I didn’t. Talk to my accountant talk to my lawyer talk to my portfolio manager. I bought this with the intention of making a rental yield.” and the IRD walks away because it knows it will never win that argument in court.The IRD did have a look at this and it actually ran two scenarios. It said “Let’s try a 2-year scenario and let’s try a 5-year scenario.” and it actually admitted that a 5-year scenario would have a much better outcome in terms of catching speculators than a 2-year one would. There would still be lock-in there is no doubt about that. In fact the Australian capital gains tax—how that worked is that if you bought the property before the capital gains tax came in then you do not have to pay capital gains tax when you sell this property. And that has created a problem in Australia because there are a whole lot of people who own properties for capital gain that they bought way before the capital gains tax came in. That is what will happen with this one. Five years would have been better—there is no doubt about that—and I have no doubt that Mr Scott knows this. I have no doubt that Mr Bayly knows this. Because when you look at it this is capturing $5 million from speculators in an industry where avoidance has been estimated at around $200 million.The other thing about this piece of legislation is that it is retrospective. It was signalled by the Government and there is no doubt about that but if you follow the line that this took it very much looks like this was a Government making policy on the hoof and then it thought: “Well in order to put effect to this policy we are going to need to pass legislation.” So in effect anyone who has bought a house on or after 1 October—keeping in mind this legislation will probably come in at the end of this month or as soon as it receives Royal assent—they come under this 2-year brightline test. This is not a good way to make legislation for two reasons. The first one is who would bother to put a submission in knowing that the Government had signalled this—that the bill already said it was going to come in on 1 October and there is nothing you can do about this? This was a fait accompli.The fact that we had tax advisers the fact that we had large accounting companies the fact that we had legal firms coming and saying this is not fit for purpose—I think they did it because they felt they needed to be heard knowing that the odds of them making a difference were remote. But at least they came to the Finance and Expenditure Committee and said that this piece of legislation does not give effect to the Government’s policy this will not have the intended effect that we need in the Auckland housing market and it will not raise the level of revenue for the Government that a well-thought-out brightline test would.The second thing I would say—oh no not the second thing; the third thing I would say or even the fourth—is that I think the main home exclusion is unclear. There are so many points about this bill—can I have 20 minutes to speak on this Mr Assistant Speaker? There are so many points about this bill that just are not right. It uses that famous legal term “if the land has been used predominantly for most of the time”—“if the land has been used predominantly for most of the time”. Is that a test in terms of whether it is a family home or not or “the greatest connection”?Mr Bishop always says: “Well there is a legal definition for this. It has been determined in the courts and we know that if it is bad legislation then judges will have to determine what parliamentarians meant.” My view is that judges should not have to determine what Parliament meant when it passed legislation because that legislation should be so clear that we do not need to take it to court. But this legislation will be taken to court and again it creates uncertainty and it creates ambiguity which is not great tax legislation in any way shape or form. It fails yet another one of the tests.Another point is that I do not think the family home test actually meets 21st century reality. By that I mean that if you sell two or more family homes within the 2-year period then you come under this test. Myself I got a job in Taupō with Fletcher Challenge then I moved to Auckland and then we sold that house and we bought another one. This was in my younger days when I could afford to buy Auckland homes. I would have been caught under that test and there was no way at all that I was speculating in property. I was just buying a family home.So to wrap up we are supporting this bill. I think this is a very poor process in terms of creating tax legislation. I do not think that this piece of legislation will have the desired effect that the Government wanted it to have. I think that the Government could have done a lot more in terms of revenue raising in terms of addressing the core issue which is people avoiding paying tax and also—an unintended consequence—in terms of just putting a bit of a cooling on the Auckland house market. It is not good legislation and I hope that the Government will come up with something more substantial that is actually going to meet the requirements of the IRD of Aucklanders and of New Zealanders. Thank you very much.ANDREW BAYLY (National—Hunua): It is a pleasure to be talking on this third reading of the Taxation (Bright-line Test for Residential Land) Bill. Particularly after the previous speaker Stuart Nash I was getting so worried. I was getting so confused with what he was saying and then he says at the end that he supports it so I am just glad that he has got it clear in his own mind.This is a Government trying to deal with an issue of market failure and of course the Opposition always wants to claim that market failure is due to the Government. Well it is not. What we have had is an issue through the global financial crisis where houses were not being built and consequently there has been a shortfall in the number of houses simply because developers were not prepared to take the risk.What I do know is that this Government is now actively trying to deal with this market failure. The case in point is the 104 special housing areas that are now in place in Auckland.Stuart Nash: Andrew you’re being disingenuous.ANDREW BAYLY: I can tell you within my own electorate of Hunua—and you should stay and listen to this bit—The ASSISTANT SPEAKER (Hon Trevor Mallard): Order!ANDREW BAYLY: Sorry. Excuse me Mr Assistant Speaker. In my own electorate of Hunua from my own assessment of all the developments I know are coming to the market over the next 6 years there will be 13000 new homes built in the next 6 years. That is a substantial number of houses representing roughly about 30000 people moving into my electorate.What this bill does is amend the Income Tax Act 2007 by inserting a new clause that requires property owners and investors to pay income tax on any property that they sell within a 2-year period. Most people seem to get very confused about this. This is an income tax which is exactly the same as you would pay if you were buying and selling shares on the stock market. If you are deemed to be a trader you pay income tax just as this bill is seeking to apply to those trading in houses.The 2-year rule is slightly different. In the normal course of events it applies from the date of registration or the acquisition date of the land through to the date that that property is sold. There is a slight amendment for apartments where the initial date of the 2-year period applies when entering into an agreement to buy the property and that is an important little distinction that has been applied. Also it is very clear that this applies only to residential land. If it is the case that you have a corner store that has a residential property at the back only if more than 50 percent of the building is deemed to be occupied for the purposes of business would it be excluded from this legislation.So what this bill also does is make three very clear exemptions. The first one is if you are buying and selling a property within 2 years and it is your normal house of residence—and that of course applies to most transactions in the country. That exclusion is one that all New Zealanders can rely on—i.e. if they buy and sell their house and they live in it they will be excluded from this full stop. The second exclusion is if you are selling a property within 2 years of having a matrimonial dispute and the third is if you inherit some property.I think the most important thing about this bill—and this is the bit that the Opposition certainly has not talked about today—is that it should be seen in the context of a number of new initiatives that this Government and the Reserve Bank have brought into force. So just dealing with the latter we are all aware that the deposit rate the loan-to-value ratio that the Reserve Bank has applied to the Auckland market has moved to a rate of 30 percent.This is a heavy requirement on banks to make sure that they are not lending extraordinary amounts of money to people and to make sure that the deposit rate that people have to have before they can enter into funding agreements with banks is at a suitable level. That already is showing some benefit. The Reserve Bank Governor at the Finance and Expenditure Committee was remarking on it yesterday—that we are now seeing a flattening off of property prices in Auckland.But the second thing is in terms of the legislation that this Government has already passed we passed the Taxation (Land Information and Offshore Persons Information) Bill. This is the legislation that dealt with the question of requiring investors to make sure they get a bank account and an IRD number.On that note I think this is a very comprehensive bill. We are going to see another piece of legislation next year dealing with resident withholding tax. In that context I commend it to the House and I am happy to support it.A party vote was called for on the question That the Taxation (Bright-line Test for Residential Land) Bill be now read a third time.Ayes 105New Zealand National 59; New Zealand Labour 28; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Bill read a third time.The result corrected after originally being announced as Ayes 107 Noes 12.