Taxation (Land Information and Offshore Persons Information) Bill — In CommitteeText is incorporated into the Bound VolumeTaxation (Land Information and Offshore Persons Information) Bill — In Committee[Sitting date: 09 September 2015. Volume:708;Page:6437. Text is incorporated into the Bound Volume.]Taxation (Land Information and Offshore Persons Information) BillIn CommitteePart 1 Amendments to Land Transfer Act 1952GRANT ROBERTSON (Labour—Wellington Central): It is a pleasure to take a call on Part 1 of the Taxation (Land Information and Offshore Persons Information) Bill. I mainly want to focus in this first call on this part on the definition of “main home”.But before I do come to that it is important to note that the purpose of this bill the huge Government initiative that lay behind this bill was to respond to public concern about the lack of information about who was buying and selling homes in our country. I have to say that ultimately when we look at Part 1 of this bill which amends the Land Transfer Act it is a seriously underwhelming piece of legislation in terms of achieving the goals that the Government has set for itself in trying to address this issue of the lack of information. The shorthand for this bill for people has been the “Foreign Buyers Register Bill”. That is the thing people say when you talk about this legislation in the communities and cafes and halls of New Zealand as they no doubt will be discussing this bill. It fails utterly to live up to that anecdotal name. There are so many loopholes. There is such a lack of clarity about the definitions within the bill.Ultimately I believe we will be back before very long possibly under a new Government changing this because we have failed to do the rhetorical thing that the Government said it would do which is create that register give New Zealanders the confidence and the information to know who it is who is purchasing homes get past the anecdotal issues about who it is and actually get down to the nitty-gritty of making policy based on evidence about how we can ensure New Zealanders can live the Kiwi dream of being able to buy their own home. For New Zealanders of long standing or New Zealanders who have recently arrived whoever they are that ideal of being able to buy their own home is being compromised at the moment in our view. This piece of legislation could have been the vehicle by which we gave New Zealanders that confidence and that information but unfortunately it fails on many counts.The first of those counts that I want to come to is the definition of “main home” that is contained in clause 4 of the bill—the redrafted section 156A of the Land Transfer Act. The Finance and Expenditure Committee has made some changes to the definition of “main home”. It did this in part in response to submissions raised by a number of people. I think particularly the New Zealand Law Society submission was influential on members of the committee in terms of where the definition should go. It would be fair to say that we are in uncharted territory here. This is not a definition that we will find apart from the Act that we passed yesterday anywhere else in New Zealand law and that was of concern to the select committee. I think it is worth noting—Dr David Clark: So many changes.GRANT ROBERTSON: I know. I think it is worth noting that the changes that have been made in the definition of “main home” drew the attention of the select committee. There is a minority view from the Labour Party and from the Green Party as well but even the Government’s own members in their responses in the report back noted just how difficult and interesting this definition would be.I just want to quote briefly from the committee’s report just the final sentence. So this is National members on the committee: “We recognise that there could be some confusion about the rules and have been assured that guidance material would be provided for buyers sellers and conveyancers in addition to more detailed explanatory material provided in IRD’s tax information bulletins.” That is as good as it gets from the Government in trying to create a register of foreign buyers. It puts in place an exemption for the main home—and I will come back to why I am concerned about that exemption—and its own members in the select committee report say: “We recognise that there could be some confusion about the rules”.Why on earth is the Government bringing to this Parliament law that it is confused about? That is not what we are here to do. We are here to create clear lines for people to follow. This is an area where we want accurate information. The problem here is that the definition of “main home” is the creation of an exemption within this law that effectively can turn into a loophole. The confusion as it has been stated for us by Government members of the select committee comes in this part of the bill.The definition of “main home” within the bill has been changed. One of the key elements that was removed after the Law Society’s intervention was a reference within the definition to members of a person’s family. The original definition of main home was “for a person the 1 home—(a) that is mainly used as a residence by the person and any member of the person’s family living with the person;”. So the Law Society among others came to the select committee and said: “Well that’s going to cause some trouble isn’t it?”.Members of Parliament will be very family with this scenario. Potentially if somebody spends a lot of time away from their home but their family stays in the home that is the main family home. If an MP as an example were to own a home in Wellington and a home in Dunedin as Dr Clark does which would be the main home depending how much time they spent there? If an MP comes—as many MPs in this House do—from far away from Wellington and moves their family to Wellington in order for children for instance to go to school but they keep the home in their home electorate which most wise MPs would do if they want to be re-elected which is the main home? That is just an example from MPs but you could take that to a lot of other jobs that require people to be in two cities or in more than one city at a time.So the select committee looked at that and quite rightly decided to deal with that issue by removing the reference to a person’s family living with them. So the new definition of main home is “main home means for a person the 1 dwelling”—dwelling rather than home; we will return to that issue in a moment—“(a) that is mainly used as a residence by the person (a ‘home’); and (b) with which the person has the greatest connection if they have more than 1 home”. This is the nub of the problem with this clause. The phrase “greatest connection” is an invention. It is an invention of this piece of legislation. It has got no case law that lies behind it. It has not been tested and I venture to suggest it will be interpreted wildly differently by different people as they go through this process.Again what we are trying to establish here is a register that can let New Zealanders know who is buying and selling houses in our country. By creating an exemption for the main home in that register the Government opens a loophole. Then in the definition of “main home” it creates a further loophole by putting in place a definition that says “the 1 dwelling … with which the person has the greatest connection” I would venture to suggest that this is going to be a significant problem and I would ask perhaps the Minister in the chair the Hon Louise Upston—and I feel a bit reluctant to ask the Minister to take a call or get to her feet but I would ask Government members or the Minister to actually help explain to Parliament and to New Zealanders why they need to exempt the main home at all.My colleague Julie Anne Genter has Supplementary Order Paper 121 to in fact delete the definition of “main home” because this is not a question of whom a tax applies to or anything like that. That is a different piece of legislation we have dealt with. This is simply about creating a register. There is no great encumbrance upon people having to register the fact that they have a main home. I would say 99 percent of the people who have a main home in New Zealand will already have an IRD number and already have a bank account which are the two tests that come in Part 2 of the bill in terms of being on the register. So there is no great compliance issue. In fact all we are doing is creating a gap in the information that we are trying to create—the information database we are trying to create. So from our point of view and we say this in our minority view there is no reason to create a main home exemption and in fact by creating such a loose definition within “main home” we have a significant problem.When we look at the question of greatest connection this does offer an element of subjectivity which is the reason why Government members on the committee have described the potential for confusion in what happens. I do need to say this. The officials who came to the committee did say to us that it will not be subjective; it will be an objective test. I simply do not believe that.Hon LOUISE UPSTON (Minister for Land Information): I do want to put on record firstly my thanks for the work that the Finance and Expenditure Committee has done. I appreciate that a truncated period of time makes that challenging so I do want to just first of all put that on record and also I appreciate the officials who have worked very closely with the select committee.I do want to make sure that those who are listening to this debate are clear about the intention of this legislation. It is one of a number of measures and pieces of legislation that we announced in Budget 2015 that are predominantly about making sure that we collect tax from property speculators and there is a view from some that that is a component of housing affordability. So I do want to correct the member Grant Robertson who spoke before me. The intent of this bill is not to have a register; the intent of this bill is to make sure that those who have houses those who invest in housing particularly those who are speculating pay their tax fairly and squarely where it lies.As I said this is a suite of a number of pieces of legislation. Another bill was introduced yesterday around the brightline test. Actually there are a number of pieces in this puzzle to make sure that hard-working New Zealanders are comfortable and confident that somebody who speculates in property in New Zealand whether they live in New Zealand or are from overseas pays the tax that is due. So that is why in terms of the exemption for the majority of New Zealanders who own their own home or live in their own home this does not apply to them. That would have been incredibly bureaucratic. What we are trying to do in this Government is make sure we do not create additional rules and regulations for no reason.This bill exempts the majority of homeowners who buy their own home and who may sell it change it in 5 years’ or 10 years’ time so that there is not a requirement on them to provide this information. The bill is very clear about those whom we want to collect tax from to make sure that we have the right information so that the Inland Revenue Department can enforce actions on those property speculators. Also I think an important point that has not been raised today is that it also makes sure we have information to ensure that New Zealand and housing in New Zealand is not used as a place to launder money. Thank you.Dr DAVID CLARK (Labour—Dunedin North): I find the suggestion from the Minister for Land Information this bill increases compliance somehow and that it makes things simpler rather extraordinary when the evidence presented by the speaker prior my colleague Grant Robertson pointed clearly to the strange legal concoction that sits in this bill: the notion of feeling the greatest connection to a property. It is something that appears in no other legislation and is something that makes the definition of a “main home” very vague indeed.I want to just reflect for a minute on the kinds of greatest connection people may feel—to explore this loophole. I suspect for many speculators the properties with which they will feel the greatest connection are the ones they make the most money from because that is why they are connecting to the New Zealand property market. It will have very little to do with where their family is living. It will have very little to do with those things that we may regard—those of us who live in one home and own one home—as the reasons for connecting to a home.This legislation is designed it seems to have big loopholes in it. It is designed in a way that will not collect the kind of information that the public is very interested in: the register of buyers which has been sought for some time. This is legislation that will encourage offshore parties to obtain New Zealand bank accounts for no practical reason and to make no use of the accounts other than to obtain an IRD number and it is legislation that is unlikely to achieve its goal.Those who wish to exploit the loopholes are given every encouragement through this legislation. It is not as the Minister suggested legislation that will increase compliance or make life easier and simpler; it is bad legislation. We on this side of the Chamber are opposed to the putting through of bad legislation. The only reason that we will be issuing any support for this bill is that it is a gentle step along the way. It is highly likely that a future Government will be back here correcting the mistakes in this legislation and a future Government will be making it legislation that increases compliance and that actually achieves the principles that were laid out in the arguments for having such legislation in the first place. I hope that that Government will be a Labour Government because I doubt very much that this Government will have the audacity to come back again in such a short time to correct legislation with so many loopholes and impracticalities about it.I wonder what other reasons for “greatest connection” there may be. Why else would people have reasons for having a great connection with properties? What legal issues will be fought? What tests will be put in place to understand what the most legitimate reason for the greatest connection to a property is? It seems an entirely subjective test on the surface and it is going to require a great deal of legal debate and probably litigation to sort out what that may mean in different contexts. It is very strange that the main home has been exempted. People who have a main home here are highly likely to already have a bank account and an IRD number. Simply to complete the purchase of the original home for most peopleI would suggest involves having a bank account in New Zealand—or for most New Zealand citizens in any case.So this legislation is vague open to misunderstanding and confusion and although it does improve on the current lack of information regarding overseas house purchasers it is needlessly weak and a half measure—the kind of half measure we are coming to expect from this Government. It is disappointing that we will find ourselves revisiting it before too long when we could be doing it properly in the first place at more limited expense to Parliament rather than spending a million or more dollars of costs to put through a new piece of legislation to tidy up after this Minister. I would ask the Minister again what she understands by “the greatest connection” to the property how that will be legally defined and what kinds of debates she expects will happen before that definition is tied down. These are questions that this Parliament needs answers to if we are to understand how this legislation will work.ALASTAIR SCOTT (National—Wairarapa): The previous speaker Dr David Clark obviously has some sort of selective hearing. The exemption of a family home does not increase compliance. The increase in compliance is relevant to offshore purchasers of property; it is not aimed at the 99 percent of Kiwis who own their own home and will only ever have one home. So there is no issue. That is why there is an exemption—it is just common sense and it is a very simple concept to understand. The house with the “greatest connection” is quite clearly where the person spends most of the time has their family and there is a case for it being where their heart is. That is the home where the person has the greatest connection and it is very sensible and very much common sense and one only needs to think in a practical and reasonable manner to understand what a home is and which home would be of the greatest connection.This legislation is not aimed at the average Kiwi person. It is aimed as the Minister for Land Information has said at the speculator and it is aimed to gather information so that we can understand who is buying the houses and how long they are holding them for. It is part of a suite of legislation and we have already talked about the brightline test legislation in its first reading. This is the bill that gathers that information which enables more work to be done around assessing what is only fair and reasonable—that is to tax people who are gaining speculating and making profit through trading of property. Although that is already in the tax legislation  this bill makes the intention to tax those who purchase a property with the intention of making a profit much more clear.So this is all that this legislation is doing: it is clarifying and making very clear that the aim is to tax those who buy a property with the intention of making a profit whether they are New Zealand residents or reside offshore. This legislation is a way of forcing people to reveal information about themselves and reveal information around their tax status in their offshore country. It forces them to identify themselves by making it compulsory to get a bank account and an IRD number as the Minister has said to go some way—or a long way—to nail potential money-laundering.It is not as complicated as the Opposition would make out. It does not create the loopholes that are suggested. It is very simple. The house with the greatest connection is the main home and that is the house that will be exempt from these information-gathering regulations. I commend the bill to the Committee.JULIE ANNE GENTER (Green): As speakers in this debate have already indicated this bill is one part of a suite of bills and the Green Party would like to congratulate the Government on taking this very tiny probably ultimately ineffective step towards cracking down on property speculation in the Auckland housing market. That is what this suite of bills as the Minister for Land Information said is intended to do.This particular bill is about collecting IRD numbers in respect of property sales and purchases. We support that. It is going to be incredibly useful to understand exactly what is going on in the property market because up until now we have not known how many of the buyers are using foreign capital to purchase homes in Auckland. We do know that almost half of the sales in Auckland at the moment are to investors so that is part of the reason that it is more difficult for first-time home buyers to afford houses. We have a huge number of investors in the market and of course you would because the tax treatment for property investment is favourable to property investors and not favourable to first-time home buyers. So this bill is just about getting the information—getting the IRD number.We heard from submitters who are professionals involved in this field that it is not going to be an overly burdensome task to get the IRD number because they are already collecting a whole bunch of other information at the same time. I am sure everyone knows that the IRD number is a pretty short number that does not add a huge administrative burden when the conveyancers already have to collect information and Land Information New Zealand is already collecting information on the property sales and the purchases so all that it is doing is attaching the IRD number. We heard in the Finance and Expenditure Committee this morning from officials that it has been problematic not having the IRD number because people use different names or different spellings of the names—they use all different sorts of things and it makes it more difficult for officials to understand whether or not it is the same person buying and selling homes.So that is why the exemption that is put into this legislation is so problematic—the “main home” exemption that most of the speakers here have referred to. It means that we are not going to be collecting information for a whole heap of property sales and purchases. We continue to have this difficulty for officials in knowing who it is who is buying and selling houses because—Hon Louise Upston: I raise a point of order Mr Chairperson. I would be concerned if that member was referring to matters before the select committee that were not related to this bill. There may be implications for that member if she is.The CHAIRPERSON (Lindsay Tisch): So I just remind the member if you are quoting information from a select committee and the select committee has not reported back that is privileged information and the member would be in trouble if you were divulging information in this debate that has not been released and has not been tabled by way of a report back. So from now on be very careful about anything one might say.JULIE ANNE GENTER: Thank you Mr Chair. What officials said during the select committee in respect of this bill was that it was going to be helpful to have IRD numbers because when we do not have the IRD number we do not know simply whether it is the same person because all they can refer to is the name and there can be quite a lot of variance around that. So it makes it more difficult.The Minister here in the Chamber today Louise Upston and other speakers from the Government have claimed that requiring people to give their IRD number when it is their main home is an added unnecessary burden that makes it more bureaucratic. I am just going to read directly from the submission from the Chartered Accountants Australia and New Zealand which said: “The exemption for a transferee’s or transferor’s main home should be reconsidered.” That was its recommendation. “The main home exemption makes the rules more complex and limits the volume of information on property sales that is gathered and therefore the value of that information.” It said it in the select committee’s own report from the members not the minority view. It said: “We acknowledge that making an exception for a person’s main home adds complexity to the rules and would limit the information available about property transactions”.So nobody is arguing that we should not have the “main home” exemption in the other bill before us which is the brightline test bill but we are saying that it does not make sense to have the “main home” exemption for collecting the IRD numbers. In particular it is going to make the tax rules more difficult to enforce because there is this added exception that says that you are required to give the IRD number if your main home is the third property that you have sold within 2 years. So if one has bought and sold the property that they consider to be their main home three times in 2 years when it is the third time they are required to give their IRD number and they will be subject to the brightline test.The problem is how is anyone going to know if it is their third time buying and selling a property if we have not had their IRD number for the first two sales? Part of the problem that the Government is trying to address here is the fact that our current tax rules around speculation require this intention test and of course no one is going to declare their intention to buy and sell a property simply for the capital gain if they know they are then subjected to the capital gains tax. I would argue that here there is a bit of a loophole because obviously why would somebody declare and put down their IRD number the third time if that means that they are suddenly going to be subject to the brightline test? It makes more sense to collect the same information on all property sales and purchasers. Then we have all the information that we need. There is no additional unnecessary bureaucratic burden coming from putting down an IRD number with the information. There is already a lot of information being collected and assimilated by Land Information New Zealand. Having the IRD number simply makes it easier for us to enforce the tax rules.So I would ask members in the Committee today to rethink their position and to consider what was proposed by Chartered Accountants Australia and New Zealand and what was brought up by a number of other submitters including Ernst and Young. This is not a dramatic change to the legislation. We are not proposing that people should not be exempt from the brightline test for their main home but we are saying that in this piece of legislation which is simply about collecting the information and making sure an IRD number is supplied at point of sale or purchase the IRD number is collected and we have the information on who is buying and selling homes. It will make the tax laws easier to enforce it will give us more information and it does not cost anyone money to put their IRD number down on a form that is already being filled out.I have Supplementary Order Paper 121 and I would ask the Minister to consider it. I know it is late in the piece to consider changes to the bill but this whole bill has gone through under a very truncated process and it would be really unfortunate to introduce this unnecessary complexity to the rules. The way that Supplementary Order Paper 121 works is it deletes the definition of “main home” in clause 4 in new section 156A(1). It will of course need to be teased out in other legislation if we are going to have the exemption for the main home in the brightline legislation. But most important in clause 4 it deletes the new section 156A(2)(a). It just deletes all the exemptions. It means we collect the same information on every property transaction. It will actually make it easier to enforce and it will give us more information.So I would really ask all members in the Chamber here today to consider making this simple change. It will make this legislation better. It will make it easier to enforce tax rules on speculators and I think that would be something that all parties in this House could agree on.FLETCHER TABUTEAU (NZ First): Thank you for the opportunity to speak about the Taxation (Land Information and Offshore Persons Information) Bill. I just want to address some of the responses from the Minister for Land Information earlier in the Committee stage. I would suggest that the National Government is kind of deliberately missing the point there. This was supposed to be about a full and comprehensive register so that we could understand what was actually happening in the New Zealand home market.This draft bill is absolutely redundant as it currently stands. The Minister pointed out that this is a set piece. It is designed to be used in conjunction with other legislation before the House at the moment. New Zealand First strongly attests that even those two pieces of legislation combined will have absolutely no effect on the actual issue at hand which is a burgeoning and out-of-control Auckland housing market.The Minister talked about a multi-pronged approach and then she spoke about this being a tax-gathering exercise. She said: “We need this data so that we can gather the tax.” But the Inland Revenue Department itself has actually said that this bill combined with the other piece of legislation will serve no point whatsoever and next to no additional taxes will be collected. There will be little or no difference made whatsoever. The Minister spoke about it being necessary to simplify the current confusion around legislation but again we were told by experts in this area that this will add another level of complexity.We already have legislation that seeks to address this issue and it speaks about intent. Now we are collecting data so that we can use it to apply it to another piece of legislation which although not contrary simply confuses the issue even further. The Inland Revenue Department again has told this Government that this legislation will have no effect whatsoever.I would like to come to the point raised by many of the speakers on this side of the Chamber and that is the exclusion of the main home. We have heard from the other side of the Chamber that the reasoning for this is that it somehow adds high levels of complexity and it confuses homeowners. They might not know what is going on and they might be concerned that they are going to be taxed even though 99 percent of them it was said own their own home and they are not investors or speculators and it does not apply to them.But it was eloquently put by the previous speaker that the lack of that collection of information actually does create a big hole in the whole process because there are exemptions to the main home exemption and they are those people who are in the process of buying their second or third property. This was well pointed out—how do we know that they are up to that stage in purchasing property if we are not keeping a full and comprehensive database of all people buying residential property in New Zealand? It does not add complexity. It has been stated by experts and it has been stated by the Inland Revenue Department that it is a simple process. Most New Zealanders already have an IRD number—certainly those buying these properties do—and it will add no level of compliance cost to the whole process.I would like to add the point that our own Institute of Chartered Accountants of New Zealand has said that the use of IRD numbers in all transactions is sensible. It does not add to the level of complexity. Mr Bayly will appreciate that that is coming from a group of experts who are telling us that it is sensible and well meaning and will serve a purpose.I will just finish off by talking about this use of the definition “the greatest connection” in section 156A(1) inserted by clause 4. I would add that this Committee by talking about the greatest connection is adding another level of complexity to what should be simple legislation. We were told about where the heart is and there was immediate rebuttal from this side of the Chamber about how you measure that. They talked about—STUART NASH (Labour—Napier): I would just like to pick up on what the last speaker Fletcher Tabuteau was talking about and also what Mr Scott alluded to. He said that the main connection in new section 156A(1) in clause 4 is very easy because it is where the heart is. But when we were in the Finance and Expenditure Committee this is where the problems really arose. Obviously “where the heart is” is not a definition at all but the concern that Labour members had was that often it is not where the heart is but perhaps where the wallet resides. So what we actually did is we asked the Inland Revenue Department as well as our expert adviser to go back and provide us with a number of examples of how this might work in certain circumstances. The Inland Revenue Department to its credit obviously came back with a whole lot of examples that laid out “main dwelling” but I suppose my point for relaying this story is that it is not an easy test. Mr Robertson pointed out that members in this House are often very much in the same position. We spend 3 or 4 days a week in Wellington and 3 or 4 days a week in our home electorates. We could claim theoretically that our main dwelling is in Wellington because the one that is owned in Eketāhuna is not worth nearly as much as the one in Wellington. So I am just saying there that there is the possibility for a little bit of moral hazard.I would like to also talk about what Julie Anne Genter was discussing in her Supplementary Order Paper 121. The point she made was actually quite an interesting point. She said: “If you have to give your IRD number on only the third time you do this then why would you do it?”. Well the simple answer I have got is that that is the law and under the law you have to do it. But what it does introduce is a level of moral hazard in that if everyone says “Well you know it might be the law but you know I travel at 55 kilometres in a 50 kilometre zone. It doesn’t really matter. It might be breaking the law technically but it doesn’t matter.” then what you actually end up with is a piece of legislation that does not meet the intended purpose.We just think that it is quite easy to remove that moral hazard. There is something called the sale of purchase agreement. It is a standard agreement. It is actually put together by the Auckland District Law Society which is in the middle of a review process at the moment as we speak. We discussed this with the Inland Revenue Department. We discussed it at the select committee. We thought it would be very easy just to add in a field “IRD number”. There are about 10 or 12 different clauses in this agreement. You just tick the box for the IRD number and you enter it in. It just removes any sort of moral hazard and it removes any complexity.The reason I say that also is that the Minister for Land Information herself stood up and said: “Well we want to remove complexity from legislation. We want to remove complexity from the whole process of buying and selling property.” I found that slightly interesting because there is something called Landonline and it is acknowledged actually as one of the top pieces of land transfer software in the world. New Zealand is rated usually first or second in the world in electronic transactions. As it is at the moment every land transaction that occurs in this country has to be registered online with the Minister’s own department. So what we are not doing here is asking for added complexity; in fact I would argue the opposite. What we are actually doing is removing the level of complexity of asking people to make a choice or a decision around whether they have to provide an IRD number or not. We just say let it be compulsory. Let us make sure that everyone has to provide an IRD number. Then there are no questions there is no instance of moral hazard and there is no complexity.When we talk about complexity I would like to come down to section 156D in clause 4. This talks about omissions and errors. I have a couple of concerns here because what it seems is that we are getting into the intention test yet again which I think has bedevilled a little bit of the whole question of whether we do or do not have a capital gains test in this country. Obviously we have to have a clause in the legislation that governs omissions or errors of information.David Bennett: Is this in the bill?STUART NASH: Yes it is. It is new section 156D “Omissions and errors”. What it says here is: “An omission or error … must be corrected …”. That is true but section 156D(2) says—and this is where I am slightly perturbed—“An omission or error in any tax information provided in accordance with section 156B(2) or (3) or any other failure to comply with sections 156B and 156C does not—(a) affect the validity of any registration of an instrument to transfer a specified estate in land;”. So what this is actually saying is that if there is an omission or an error then the contract is still binding—the contract is not void.I have come across this before in other land information legislation where what is happening with overseas investors for example is that they are just doing things retrospectively but where it gets a little confusing for me is when you go down to section 156E where it talks about false or misleading tax information. It defines what is actually false or misleading. It says “to that person’s knowledge or with intent to deceive”. I wonder whether that “or” should be “and” because I do not know whether you could actually have an intent to deceive without having that person’s knowledge if you know what I mean. So what I am saying here is that if you have an intent to deceive then you are doing that with knowledge.This is where I come back to—I am jumping around a little bit but it is still in the “Omissions and errors” section. Where it talks about omissions and errors to me there is a difference between an omission and an error. For me an error is something that is done—how do I say this—without malice and without intent whereas an omission I would argue is actually done with intent. So an error denotes a mistake; an omission perhaps implies something more sinister. So actually I would have liked to see new section 156D(2) talk just about an error and then section 156E talk about an offence of providing false or misleading information with an omission included under there because I actually think an omission is a proactive action as opposed to just a general mistake.But the interesting thing is that it talks about the fine for committing misleading information—keeping in mind that it does not affect the validity of registration. So the fine for committing an error does not exceed $25000. I know on the face of it $25000 sounds like a lot of money but in essence when we are talking about large-scale property deals even if we are talking about buying a house in Herne Bay or a single dwelling in Auckland a $25000 hit if you give false or misleading information is not a lot. The deal still goes through and I assume this is governed by the—what is that piece the contracts administration—Grant Robertson: Credit contracts.STUART NASH: Credit—no. Anyway what you could actually do—and again it comes to that moral hazard—is you could say: “You know what? I’m going to provide that misleading information or false information. I’m going to take the hit for $25000. It’ll go through I’ll pay the fine and then what I have to do under this legislation is go ahead and correct that information. So I’ll do that but the $25000 hit is actually worth it.”What happens is if an investor provides false or misleading information a second third or fourth time that fine increases to $50000—well I should say that it does not increase; it does not exceed $50000. So again we may find that $50000 for jaywalking would be hugely excessive but $50000 for providing false or misleading information when we are talking about a high-end property deal in a place like Auckland or even Tawa—this is not just defined to residential property—is actually a price that people are prepared to pay to get that deal to go through. I actually would have in this case—and I am pretty liberal on this—liked to see those penalties be a lot harsher. The one thing I really would have liked to see in fact for false and misleading information is that the deal is automatically void so that what it really does is it deters people from entering into that sort of moral hazard of providing false or misleading information but taking that hit which I think is actually quite important.We have had a number of speakers talk about main homes and again I just want to come back to this because it is important and it did take up an inordinate amount of the select committee’s time. I think Julie Anne Genter’s Supplementary Order Paper 121 is in essence talking about a main home register. But where the confusion arose and I think where the—GRANT ROBERTSON (Labour—Wellington Central): I want to pick up where my colleague Stuart Nash left off. I want to do that by responding the intervention Mr Scott made earlier when he told us that we have nothing to worry about in terms of the definition of an exemption for a main home being based on the idea of “greatest connection”. He said it is fine because “home is where the heart is”. So now we are going to base law in this House on some kind of Hallmark greetings card basis. That is how we will do it. We are trying to provide certainty to the people of New Zealand and we have to go on Mr Scott’s feelings—what is in his waters. That is what we have to base the law on—Mr Scott’s feelings.I am actually not surprised that Mr Scott is struggling a bit with this law because he could easily get up in this Chamber and be the embodiment of the problem here. Is home—and home is where the heart is—in the lovely suburb of Kelburn in Wellington Central? Or is it in Martinborough where you might want to represent some people? Where is that—where is the heart there? Is it where you live? Actually we will if I get some time Mr Scott use you as an example as we work our way through the definition of “greatest connection” because I think you are living proof of the problem that we have got here.It is completely ridiculous to have a member of the Government stand up and tell us that it is fine because “greatest connection” is “home is where the heart is”. That cuts to the internal inconsistency of this part of the bill because on the one hand we were told by Minister Upston when she took her call that this is fine and it is an objective test and then Mr Scott got up and said that it is based on a feeling about where one’s home and heart are.Sue Moroney: It’s the vibe.GRANT ROBERTSON: Exactly—the vibe. That is the problem here: an untested definition is brought into this House and it creates a loophole. This is not an objective test no matter how much the Government might want to tell us that it will be an objective test.To make that point in the commentary on the bill provided by Government MPs they say in the same paragraph where they say that there will be confusion that they expect the factors to define “greatest connection” to include a series of things. They do not say “These are the things” that will be defining what the greatest connection is but “We expect”. That is as certain as this law gets—an expectation of Government members about how the term “greatest connection” will be defined. That is poor lawmaking. It is rushed lawmaking. It is not going to help New Zealanders understand as much as we need to about who is buying and selling properties in this market. It is emblematic of the confusion that lies in this law.To make that point even further in one part of the commentary on the bill the Government members have removed the original reference that was in the bill as to whether any member of a person’s family is living with that person. That has now been deleted out of the bill because according to the Government that is not relevant in terms of the definition. I am reading here that “It is irrelevant to the definition of ‘main home’ whether or not a person’s family lives with them”. If you go two paragraphs down you will see that one of the expected factors for deciding whether somebody has a “greatest connection” which will be the thing that defines where their main home is is where their immediate family lives. So they take it out of one section of the bill and then include it in the list of expected factors for deciding whether or not someone has a “greatest connection”.This is confused lawmaking. It is not clear in an area where we need to be clear. But fundamentally what no Government member has been able to do is say why the main home should be exempted from this process. Louise Upston when she stood up to speak before said that it is because this is not actually a register. She said it is about making sure that people pay their tax fairly. Well actually that is in another bill. That is in the Taxation (Bright-line Test for Residential Land) Bill. This bill is actually about collecting data and collecting information.The Government’s reasoning for why it would be so complex for people to provide an IRD number on the purchase of their main home is laughable. I want to read again from the commentary on the bill: “… the majority of us accept that not making such an exception [for the main home] would greatly increase the volume of information to be managed by Land Information New Zealand and the Inland Revenue Department and could lead people to worry needlessly that the transaction would be taxable even though in most cases it would not be.”Let us unpick that justification for exempting the family home—that “it would greatly increase the volume of information to be managed by Land Information New Zealand and the Inland Revenue Department. It is absolute nonsense. Most people purchasing what would be their family home already have an IRD number. There is no increase in compliance for what I would venture to suggest is probably 95 percent of the people involved in those transactions. As Julie Anne Genter and Stuart Nash have already said it is a regular part of conveyancing to simply fill out a form and include one box on it that has your IRD number in it. I know my IRD number off by heart. I am not going to say it now lest someone tries to steal my identity but I do know it off by heart. Most people would.David Bennett: Phil Twyford might put it on a list for you.GRANT ROBERTSON: David Bennett’s number is 3 or 4 as he is so old—is it not? But their IRD number is easily remembered by most people. It is not a difficult thing. In terms of the Inland Revenue Department there is no compliance increase at all and for Land Information New Zealand the increase is a very very minor one. Again there is a confusion here—and we will come to it in Part 2 of the bill—as there is an unnecessary compliance burden being put in place by the Government. But this is not it. In this part of the bill it is absolutely one of the easiest things we could do: make a small change to the sale and purchase agreement. Conveyancing lawyers do this work anyway. Most people buying their main home will already have an IRD number. That is not a decent justification for exempting the main home.The second part of the Government’s justification for exempting the main home is that it could lead to people worrying needlessly that the transaction would be taxable even though in most cases it would not be. How does that work? You are not given an obligation to pay tax just because you supply an IRD number. People who have IRD numbers know that they have IRD numbers. You supply IRD numbers at all sorts of times of your life and you do not have an expectation that you will necessarily be paying tax. These are empty reasons for exempting the main home and in the end they compromise the quality of the data.This is a confused piece of legislation. Part 1 is a particularly confused piece of legislation. I do urge members of the Committee to consider supporting Julie Anne Genter’s Supplementary Order Paper. We will have a much better set of data if we do not have silly exemptions in the law as proposed by National.In the time I have remaining I want to move to a couple of points that have not been raised. One of those is the changes in new sections 156A(2) 156B and 156C in clause 4 around the meaning of exempt transfer. This really is a classic example of how complicated it can get once you start making exemptions. This is about the idea that you would not be able to exempt transactions that were not undertaken by individuals—that were perhaps undertaken by trusts or companies. The original drafting of the law apparently did not make this clear and so the Finance and Expenditure Committee had to find a process through this to clarify the situations in which a piece of land might have multiple uses.Again here we get ourselves into a confusing situation. So now we end up with an amendment to section 156A(2) to specify that the main home exemption would be available “when most of the land was used for a home by the owner and when it was so used for most of the time the person owned it.” as the commentary on the bill states. Well we are opening a can of worms about what “most of the land” and “most of the time” means. The obvious examples here are perhaps farms where people will live on different parts of the land at different times. They might have a home that they have on the land plus a property further away within the farm. Which of those is their main home? Creating exemptions around that creating exemptions around that kind of land is simply creating loopholes and is unnecessary.This may well make for a tidier definition—I accept that; I accept that the officials have proposed things that will make a tidier definition—but by creating these loopholes and exemptions we simply make for complex law.Very briefly the last clause that I want to mention is one that we actually support which is around the question of the changes to the information to be supplied in tax statements.JAMI-LEE ROSS (Junior Whip—National): I move That the question be now put.A party vote was called for on the question That the question be now put.Ayes 63New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 57New Zealand Labour 31; Green Party 14; New Zealand First 12.Motion agreed to.A party vote was called for on the question That the amendments set out on Supplementary Order Paper 121 in the name of Julie Anne Genter to clause 4 be agreed to.Ayes 59New Zealand Labour 31; Green Party 14; New Zealand First 12; Māori Party 2.Noes 61New Zealand National 59; ACT New Zealand 1; United Future 1.Amendments not agreed to.Part 1 agreed to.Part 2 Amendments to Tax Administration Act 1994STUART NASH (Labour—Napier): The purpose of thisis I suppose to ensure that we comply with a number of international anti - money-laundering pieces of legislation—the work that is going on around the world. We agree with that. However again what we see with this is just the adding of a whole lot of complexity that does not necessarily have to be there.The main concerns that were brought up around this sort of thing is how long it actually takes for the Commissioner of Inland Revenue and the Inland Revenue Department to allocate certain numbers—bank accounts and transfers and all that sort of carry-on. It is actually quite a complex process if you are an overseas investor. Well no the definition is not “overseas investor”; actually the definition is “offshore person”. This is where a little bit of confusion arises and I think that what you will find is that there will be some Kiwis who are a little perturbed to find that under legislation they are treated differently from New Zealanders who actually live in New Zealand. If we have a look at the definition—this is in clause 9(3)—“offshore person” actually means: “(a) … (i) a New Zealand citizen who is outside New Zealand and has not been in New Zealand within the last 3 years:”. This would apply I would suggest to nearly every single young Kiwi who has finished university has gone over to London or wherever and has done their OE. Who knows?Of course they have got bank account numbers here; most of them have got horrendous student loans and that sort of carry-on. But what they may find is that they have earned some money they have come back and they want to buy a house in New Zealand and this is not a hypothetical situation in any way shape or form. I would suggest that there are many people—probably all of us in this Chamber—who would know people in this situation; that is if we have not been in this situation ourselves. In fact I wonder whether when Mr Scott came back to New Zealand he was defined as an offshore person when he was going to buy his vineyard in Martinborough. Mr Scott had you been back within 3 years when you bought your vineyard? You might well have been described as “an offshore person” and a number of Kiwis actually are. We know this.What happens is that they go overseas they have got student loans they have not got much money they work incredibly hard—well maybe not for the first year but in the second third and fourth years they work incredibly hard—and they are on the internet the whole time looking to put roots down in this country. Actually about 3 weeks ago in my electorate office I was talking to a guy who came in because he wanted to get involved. He had just come back to New Zealand from overseas to settle down. So this is not a situation that is hypothetical. I think he or any Kiwi would find it a little perturbing to find that they are actually subject to different rules from New Zealand citizens especially when the only passport they hold is a New Zealand one. They are New Zealand citizens but according to this legislation they are also classed as “offshore persons”.So what the offshore person has to do is they have to give a tax number and a bank account number to the Commissioner of Inland Revenue—when we say “Commissioner” that stands for the Inland Revenue Department itself. But what it says here in new section 24BA “Offshore persons’ bank accounts and tax file numbers” is that “(1) The Commissioner must not allocate a tax file number”—so an IRD number—“in response to an offshore person’s request unless the Commissioner first receives a current bank account number for the offshore person.”The discussion around this that opened up in the Finance and Expenditure Committee was about timing and requirements. For example if a person wants to open a New Zealand bank account then they have got to have various forms of ID—and we have tightened this up quite significantly in this country which is good because we needed to. I think the world has done this as mentioned due to anti - tax avoidance measures around the world. But what a person has to do is provide a whole level of authorisations and identifications in order to get a bank account number but they cannot get a tax file number until they have got a bank account number.Often when you are looking at property there is the imperative of time and so if first of all an investor has to get a bank account number and then a tax number we do not know how long this will take. We have quizzed the Inland Revenue Department about this and it gave us assurances that it would not be onerous. It would get it done within a reasonable amount of time but it could not pinpoint down a certain number of days. So what we were really pushing the Inland Revenue Department for was to give us a number that the lawyers—GRANT ROBERTSON (Labour—Wellington Central):I want to pick up this question of the way in which this particular part deals with the bank account.Jami-Lee Ross: Nashie—another 5 minutes?GRANT ROBERTSON: There will be plenty more opportunities for Mr Nash. We share and share alike over here Jami-Lee Ross. Actually what I would really like is for Jami-Lee Ross to get up and take a call and tell the House why it is that every single person who is purchasing a home in New Zealand now has to provide a bank account number when the Inland Revenue Department the people we rely on for the advice on this told us it was not necessary. That is what it said. In its regulatory impact statement this is what the Inland Revenue Department had to say. It said that the requirement to have a New Zealand bank account to obtain a New Zealand IRD number is unnecessary for individuals and of limited benefit as the Inland Revenue Department already has the power to require relevant identity verification upon application for an IRD number. That was the advice of the Inland Revenue Department.We heard before in Part 1 of this bill the deep concern of Government members about unnecessary complicating bureaucratic processes being put in place—it is a terrible thing to have to provide an IRD number that you have already got that you already use for a whole lot of other purposes. Government members are very worried about adding layers of bureaucracy and adding complexity but then they get advice from the Inland Revenue Department to tell them that it is completely unnecessary for people to have a bank account number and they ignore it. They are utterly confused.I actually honestly believe that members opposite do not really understand what has happened here. This was a rushed piece of legislation just as the Taxation (Bright-line Test for Residential Land) Bill was a rushed piece of legislation and I just do not think they have got their heads around it. We had some pretty odd and interesting situations as amendments were proposed at various points in the process and the officials went away to see whether they could deal with them. It was a shambles and this Part 2 of the bill really is where the rubber hits the road in that regard.So let us be absolutely clear here. The Inland Revenue Department has said the provision of a bank account is completely unnecessary. In fact when people go to get an IRD number there does need to be identity verification but I would suggest that it is actually somewhat more rigorous than just opening a bank account. It is pretty clear that if someone offshore is going to purchase a property in New Zealand they will get a bank account. It will be the only thing it is used for—in order to get the IRD number. It will not actually be used for anything else. Perhaps unsurprisingly banks may not be too worried about that. There will be a little fee involved that will be of some use to them so they are not too worried about it. But actually it is completely unnecessary and completely bureaucratic.Again I want to refer as colleagues have already done to the submission of Chartered Accountants Australia and New Zealand. It made the same point that the Inland Revenue Department made in its submission—that there is no assumption that there will be any greater assurance achieved in this process by our looking to have to have a bank account number. It really does very very little in regard to that.The second point made by the Inland Revenue Department and indeed made by Chartered Accountants Australia and New Zealand—and I will just quote the Inland Revenue Department here—is: “It is not apparent that for individuals the general anti-money laundering (AML) checks that a New Zealand financial institution would carry out would yield significantly more information than Inland Revenue collects as part of the current IRD number application process;”.So that is the process here. There is not actually any benefit but there is a significant additional burden of cost burden of complexity and burden of bureaucracy. We are not achieving anything by having the requirement for a bank account number.I simply ask members on the other side to consider what it is that they are doing here. On the one hand we have been told that this is not about a register and it is not about providing that information; it is about making sure that people are paying the right amount of tax as Louise Upston said. That is actually another bill; it is not this bill. In this bill it is about getting data. So on the one hand we are now not getting the comprehensive data that we should get because we are exempting the main home but on the other hand we are in fact through this legislation placing an unnecessary burden on people in terms of providing a bank account number.I want to hear from members of the Government as to why it is that they are imposing this when the Inland Revenue Department told them not to and when the chartered accountants told them not to. What do they know that those people do not? Because it is not clear to me.Dr DAVID CLARK (Labour—Dunedin North): I join my colleague Mr Robertson in requesting that advice because members opposite do seem to know a lot better than others or they think they do if we are to take this bill at face value. As I have suggested in my previous contributions on different parts of the bill I think that this is actually about providing convenient loopholes. I really do. I find that the most plausible explanation for the higgledy-piggledy mess that we have here.I want to draw attention to some of the information supplied in the commentary on the bill that goes through the information exemptions under the regulations. For those watching eagerly at home or listening to their wirelesses those listening to wirelesses will hear the rustle of paper as I flick through. Those watching on the big screen will see there are pages of exemptions and amendments and definitions and so on required by this legislation which I contend would not be required—would not be required—if it was the case that this was just a simple register of offshore buyers plain and simple. We would not need complex descriptions of when a person meets the test and when they do not and I refer here to Part 2 clause 9 which amends section 3 of the Tax Administration Act—page 11 for those with the tracked changes copy of the bill and on to page 12. It defines what an “offshore person” means.It means—and I will read it out for those who have not been following the debate—“(i) a New Zealand citizen who is outside New Zealand and has not been in New Zealand within the last 3 years: (ii) a person who holds a residence class visa granted under the Immigration Act 2009 and who is outside New Zealand and has not been in New Zealand within the last 12 months: (iii) a person who is not a New Zealand citizen and who does not hold a residence class visa granted under the Immigration Act 2009:”. Then a series of regulations that will be created lies under the description of “a body corporate or an unincorporated body of persons” and trusts unit trusts and so forth.We have this complex system for describing it in the legislation and then a requirement for regulation that sits under it precisely because the Government has exempted the main home and is trying to exempt various categories of person from having to fulfil this requirement because it is not actually interested in collecting a full database of who is buying and who is not buying. It wants to appear to be doing something but the only logical explanation for where we have got to as a Parliament with this kind of weak legislation these half measures is that the Government is doing this quite deliberately.I want to look specifically at the types of person who would qualify under a trust if I can find the right page—as I search madly through the many many pages of description of who is in and who is out—to find the definition of that “offshore person”. A person will be described as offshore—generally speaking a non-individual when we talk about trusts and others—if it is a body corporate incorporated outside New Zealand or 25 percent or more of its shares are owned by a body corporate incorporated outside New Zealand. You can see that these little tests that we have got along the way are going to require advice from accountants and others who will be advising people who are trying to get through loopholes in any case. You have got here a whole support structure for an industry of persons who are dedicated to foreign speculation and supporting foreign speculators in New Zealand. That is precisely what we were told this Government wanted to counter.Here we go: under clause 9(3)(b) referencing section 7(2)(b) to (f) of the Overseas Investment Act offshore person means a partnership or other unincorporated body other than a trust if 25 percent or more of its partners or members are offshore persons according to those sub-definitions. Then we have got various subcategories of 25 percent and whether their voting power is exercised in which way and where they live. A trust is an offshore person if an overseas person or persons constitute 25 percent or more of its governing body or have a beneficial interest in or an entitlement to 25 percent or more of the trust property or are 25 percent or more of those who have the right to amend or control the amendment of the trustee or are 25 percent or more of those having the right to control the composition of the trust’s governing body. There are layers upon layers of definition of a trust of who would be in that 25 percent. An overseas person means a unit trust if the manager or trustee or both are overseas persons or if they have a beneficial interest in or an entitlement to 25 percent or more of the trust property and so on and so forth.In clause 10 there are rules around the nature of the bank accounts that can be set up. Whether they are non-bank deposit takers or what people would consider regular banks has to be specified in the law. There is a whole bit of the legislation in Part 2 I think dedicated to the penalty regime that must be set up to try to catch those people who do not wish to comply and want to find their way through the loopholes in the legislation and exactly what kinds of ways through the legislation they can construct and not construct. So overall what we have got is legislation that does not achieve and is designed it seems not to achieve the kind of register of interest that an ordinary person at home would have expected from this kind of legislation.The whole Parliament sits here and spends a considerable amount of time putting this through officials report to committees we have advice from members of the public from the chartered accountants as volunteers or as society members and the Law Society puts in submissions pointing out the much more logical way things could be done—then over on the other side of the House we have a Government that is either too arrogant to take that advice or too out of touch or somehow thinks it will get away with this and people will not notice that it is making law that simply obfuscates and does not achieve what it is designed to achieve.It is part of a suite of similar half measures. Treasury estimated I think that $5 million in tax might be collected—and that was in the other accompanying measure—but if a much more simple system was set up $30 million to $40 million in tax would be collected. It saw that there are holes in this suite of legislation that you could drive a bus through. Then in the commentary on the bill we have got advice around becoming an offshore person—for anyone who wants to become an offshore person there is advice in the commentary. The penalties of course are specified as I have already said.I want to draw my contribution to a conclusion by saying that this is the kind of legislation that we might expect from a Government that is trying to make it look like it is doing something when in fact it is trying very hard to do nothing at all.STUART NASH (Labour—Napier): There is one thing that we have not discussed that was brought up at the Finance and Expenditure Committee. It did take a little bit of time to work through it and understand the consequences. This is actually going back to section 24BA in clause 10 which is headed “Offshore persons’ bank accounts and tax file numbers”. A little bit has been said about this and I will quote section 24BA(1): “The Commissioner must not allocate a tax file number in response to an offshore person’s request unless the Commissioner first receives a current bank account number for the offshore person.”Where the Labour members had some concerns about this is that as we know we are a destination for a lot of young travellers. People who come over here work in the orchards. They work during the tourist season and then they disappear. Back in the day when people were paid wages obviously everyone had a bank account. That is how transactions were done. But what we saw as an unintended consequence of this—and this was also I must admit brought up in a submission from Chartered Accountants Australia and New Zealand—was that if a traveller or a young person was passing through and wanted say an orchard job or a grape job they would need an IRD number to get paid. In Hawke’s Bay there are a lot of travelling seasonal workers. But what they will require in order to get an IRD number is a bank account.The unintended consequence that was raised by Chartered Accountants Australia and New Zealand and the Labour members was that this provides upon a certain group a level of compliance that perhaps should not be there or is unnecessary—so for example if I want to go and work in an orchard or a Chilean person for example does. We have a number of these agreements with different countries. Let us say they want to go and work in an orchard in Hawke’s Bay. They need an IRD number in order to get paid. Well gone are the days when you got paid under the table in Hawke’s Bay orchards. I do not know what it is like in the Wairarapa but it certainly does not happen in Hawke’s Bay.So they need an IRD number but they also need a bank account. To have a bank account you need various forms of ID. I am assuming that your passport would do but normally when you open a bank account you need two forms of ID and it is usually two forms of picture ID. What has happened in recent times is we have tightened up the law due to as I mentioned earlier tax-avoidance provisions and concerns. In fact it is in the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. It is quite a large piece of legislation. But what it has done is tighten up the means to achieve a bank account.So what the Chartered Accountants Australia and New Zealand said and what we said is that we do not think that actually having a bank account in the first place should be a prerequisite for getting an IRD number because it may provide a level of compliance that is unnecessary for a certain group of people who are coming in here. In fact one group that was actually used as an example was oil rig workers. They come in here and they earn a substantial amount of money. This is not my example but it was certainly brought forward—it might have even been by the Inland Revenue Department but it was certainly by someone with much greater understanding of this than I have.They come in here and they are paid in New Zealand dollars because they are in the New Zealand tax jurisdiction. They sort of fly in and fly out. But their money is paid into an offshore bank account because that is the nominated bank account and that is the way it apparently works in the industry. But they will now need a New Zealand bank account. Again it just provides a level of compliance that we think is unnecessary and I say that especially because the Minister has stood up and said that they want to limit compliance and get rid of complexity. But we think that this is just opening up a level of compliance and complexity that does not necessarily need to be there.But as the Chair knows incredibly well how the select committee process works and the reason I think it is fantastic is that we get a whole lot of experts in and they put forward their views on how to better draft legislation that is workable in the real world. In terms of Part 2 we heard from Ernst and Young and the Chartered Accountants Australia and New Zealand. PricewaterhouseCoopers put in a couple of submissions—three or four actually. We heard from the New Zealand Bankers’ Association ANZ and Chapman Tripp. They were all querying the need to actually get a bank account number before you get an IRD number. The concerns ranged from the time it actually took—JAMI-LEE ROSS (Junior Whip—National): I move That the question be now put.A party vote was called for on the question That the question be now put.Ayes 63New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 58New Zealand Labour 32; Green Party 14; New Zealand First 12.Motion agreed to.Part 2 agreed to.ScheduleThe question was put that the amendment set out on Supplementary Order Paper 117 in the name of the Hon Louise Upston to the schedule be agreed to.A party vote was called for on the question That the amendment be agreed to.Ayes 107New Zealand National 59; New Zealand Labour 32; Green Party 14; ACT New Zealand 1; United Future 1.Noes 14New Zealand First 12; Māori Party 2.Amendment agreed to.Schedule as amended agreed to.Clauses 1 and 2GRANT ROBERTSON (Labour—Wellington Central): Thank you very much Mr Chair. There was a lot of competition for that call. I want to focus particularly on clause 2 the commencement clause and towards the end of my contribution I am going to table a document released to us by Land Information New Zealand under the Official Information Act.We need to go back in time a little—in this case to 11 May 2015 in fact—to when Land Information New Zealand was advising the Minister in charge of this bill Louise Upston about when this bill could actually come into force and to when Cabinet was considering it. Interestingly the context around thisis of course that both this measure—the creation of a “not register” for the purchasing of property because the Government does not want to call it a register and it has successfully established it in such a way that it will not be an effective register—and the brightline test were both initiatives that were announced in the Budget. It is quite clear that they were rushed through because the Government did not have anything that it wanted to do in the housing space.Land Information New Zealand found itself advising its Minister about prospective commencement dates for this legislation. In a note dated 11 May 2015 which I will put in front of the Committee shortly Land Information New Zealand advised the Minister that it did not see any reason why it could not implement the legislation either by 1 July or indeed from Budget night which seems quite ambitious. It put some pros and cons in the note. It said that if it got the legislation in place by 1 July it would mean earlier compliance with the Government’s policy and it would “be seen to be moving quickly” which is clearly the main purpose of this legislation: being seen to be doing things.The cons of the legislation coming into effect on 1 July were that there would be a very short amount of time to consult on the changes with conveyancers and to develop guidelines. This is where things get interesting. The other con was that conveyancers would need to manually record information via a form until Landonline was in a position to be able to manage this. Now that is a bit of a worry. A significant change to the process of registering land purchases and to the website Landonline is not ready. That is the information that Land Information New Zealand provided. It said that by 1 September it was pretty confident that it would be able to get the legislation into position but that it was a bit worried about that.Land Information New Zealand also noted in the same note that if it were to try to get this legislation to commence on 1 September it “may lead to a rush of transactions by persons wanting to avoid the IRD number requirements and avoid tax.” I would be interested to know from the Government side of the Chamber whether or not this has actually occurred but I am not aware that it has. But obviously that was one of the risks. To get the legislation in place by 1 October which is obviously what we are now faced with in the commencement clause of this bill there was the suggestion that the Government was going to need to use urgency to get the regulations in place by 14 September. Of course the way that the Government got around all of this was by truncating the select committee’s consideration of the bill. So they come to us today with a clause 2 that has 1 October as the date by which this bill will commence.The consultation with stakeholders and the process that was gone through has been rushed and we have already seen in this House—in fact in the debate earlier today—that actually it is confused. We have got the commentary on the bill from Government members of the select committee saying that they know that it is confusing that they do not know exactly how it is going to be implemented and that that is the effect of rushing legislation through and of not having a proper process. But the kicker in the advice from Land Information New Zealand is this: they will have to use manual or paper-based systems to record transactions from 1 October until the computer system is ready in December. So when this comes into force from 1 October commencing as it does under clause 2 it will involve paper-based transactions.Hon Ruth Dyson: Carbon paper?GRANT ROBERTSON: Well possibly—in triplicate. The Gestetner will be working overtime down at Land Information New Zealand because unbelievably the Government has put itself in a position where a fundamental change that it is making—Government members stood up here today and told us that this was going to give clearer information objective tests etc. and Land Information New Zealand has been telling its Minister that a manual paper-based system will be in place. Is this the 1960s? What is going on here? What is the risk here that lots of information will actually get lost in the system—that actually we will not be able to start creating the database that the Government tells us it will create because for 3 months it will all be done with pen and paper. Maybe it will be done on slate? I do not know how far back Land Information New Zealand is going to have to go to find a technology that is actually ready to do this.I have to note that the information that I am working off which I have said I am going to table at the end of my call could be out of date. It is possible. This was a memo from May released to us under the Official Information Act. But to me this is an absolute debacle. This bill is being held together by string and sticky tape. It is absolutely poorly thought-out. It does not do the things that it was meant to do. On the one hand it makes things more complicated when they do not need to be—in terms of forcing people to have a bank account and an IRD number when they really only need an IRD number—and on the other hand it fails because the Government exempts under this legislation the main home from having to be part of the register which creates an enormous loophole when there is no additional compliance cost. This is an utterly confused piece of legislation.Most parties—in fact I think all parties in this Chamber—support the principle of the bill and support the idea that there be a register. We are voting for it because it is a tentative incremental little tiny footstep in the right direction towards giving New Zealanders information.Hon Christopher Finlayson: But it’s good?GRANT ROBERTSON: It is OK Mr Finlayson. I think “good” would be pushing it a little far; “great” would be completely out of the question in hyperbole. But it is OK. What we are facing looking at clauses 1 and 2 is a bill commencing on 1 October which was the grand date put in place by the Government and the agency charged with collecting the data—Land Information New Zealand—is advisingits Minister through its system Landonline that a manual paper-based system will be required until December of this year in order to make this work. Goodness only knows why the Government thinks that this is a good way to make law. It is not. It is a shambles it is a debacle it is half hearted and it is full of holes. How ridiculous it is when you have support for the principles of legislation like this right around the Chamber to then put up such a flawed piece of legislation. If only we had had longer at the select committee if only there had been more time to consult and if only the Government had actually wanted to do this and get a meaningful outcome as opposed to the window dressing that this clearly is.We go back to the Budget when this document was put out and we see that it was rushed. When the Budget papers were released in July we discovered that none of the housing initiatives that the Government was putting up which are buttressed by this legislation and the brightline test had had any work at all done on them last year in the normal course of the Budget process. They were stuck in early in 2015 when the Government was on the back foot on housing. It is still on the back foot on housing. When the Government was on the back foot on housing it had nothing in the Budget to show so it thought that it would come up with something to deal with the concern that New Zealanders have that they do not have the information they need to be able to understand who is buying and selling houses in the New Zealand housing market. And equally for people who are speculating the intention test is completely not working so the brightline test has been brought in. When we come to debate the brightline test in this House we will similarly discover the perils and dangers of rushing legislation through with inadequate consultation.I believe that clause 1 and clause 2 of this bill highlight perhaps more than almost any other clause just how poorly thought-out this process has been. The fact that Land Information New Zealand told the Government that it could get the system up and running but that it would have to be paper-based from 1 October until December is a complete farce. I seek the leave of the Committee to table an aide-mémoire from Land Information New Zealand to Hon Louise Upston Minister for Land Information dated 11 May 2015.The CHAIRPERSON (Hon Chester Borrows): Leave is put for that purpose. Is there any objection? There appears to be none.Document by leave laid on the Table of the House.STUART NASH (Labour—Napier): I must admit I am a little bit more cynical than my colleague Grant Robertson. They have these things called rap wars. They are quite comical—politicians go against each other. I think what happened here is that it was Louise Upston versus Todd McClay. Todd McClay said that the Inland Revenue Department wants this to go ahead and Louise Upston said that Land Information New Zealand cannot deliver at the point in time when you want it and there was a little bit of a war that went on around who was the Minister who was going to win out here. Let us take it a little bit further. This actually has Steven Joyce’s fingerprints on it if we are honest. This really is a little bit of a mess.As my colleague pointed out Land Information’s Landonline system is actually acknowledged as one of the best in the world. It is an incredibly good system. It is held up by many in developed jurisdictions as the way to handle your land transfer process. As my colleague pointed out to go to a point where lawyers—it will be lawyers by and large—have to register everything by hand on paper is an absolute nonsense. I do not believe that Land Information said to the Government that it is happy with this situation.Hon David Cunliffe: Back to the 19th century.STUART NASH: Absolutely! I cannot believe Land Information said to its Minister: “This is acceptable to us let us go ahead with this—it is OK—paper for 6 months but we will cope.” I do not believe it did that because I know that a lot of people working for that department are highly competent.I think what happened was that this was a dictate from way above probably due to polling. Let us face facts. New Zealanders are concerned about who is owning our land—there is no doubt about that. They are concerned about the bogeyman of foreign speculators coming in and taking away our houses so that first-home buyers cannot get in. The Government said: “What shall we do about this? We’ve got an idea.” They went to Mr Joyce because he tends to be the ideas man although he does not think things through particularly clearly and said: “How about first of all we start collecting information?”. But the problem is they did not collect the information in a way that made any sense. The title of this bill is actually the Taxation (Land Information and Offshore Persons Information) Bill but it does not collect the level of information that is going to make any sense. This is the thing that we simply cannot understand right across this side of the Chamber.I know that Tim Macindoe when he thinks about this—and it is going through his head at the moment—thinks this is a little bit of a nonsense but unfortunately he cannot do anything about it. I know Mr Dunne who is a former Minister of Revenue must be looking at this and going “Oh goodness me. Thank God I’m not in charge of this.” because if he were it would be a hell of a lot more robust than it is at the moment. I know the Hon Peter Dunne would not have allowed this sort of legislation to come before the House like this at the moment.It would have been so easy to collect the level of information that is required to provide meaningful data to the people of New Zealand to the tax department to everyone. This is what is so astounding. It would have been easy to do. We were quite happy to reach across in a non-political way with a solution that allowed that to happen. In fact we suggested this at the Finance and Expenditure Committee. This was held behind closed doors so no one would have come out and gone: “Oh Labour has made this better legislation.” This was a classic case of a select committee that could have worked together to create a piece of legislation that provided a level of information that actually made sense.But the thing about it is that it is confusing. This is one of a number of pieces of legislation that is going to come through that is going to give effect to the Government’s policy. But the thing about it is that it is confusing. In fact it is so confusing that even the Minister herself stood up and started talking about a brightline test when she was answering questions. This is not about a brightline test. This is simply about collecting information.But the other problem I have with this legislation—and this is why the title is so wrong because it does not reflect the bill in any way shape or form—is that it creates what we call a moral hazard. This was brought up by the Green MP. By that I mean that the buyers and sellers of houses only have to give their IRD number after the third transaction. One of the earlier speakers stood up and said: “Well why do we think New Zealanders are actually going to do that?”. The reason that I put forward is that it is the law and we like to think that people will obey the law. But unfortunately when people think the law is a bit of an ass or they can get away with it or it does not really apply to them then they will not do it. That creates a moral hazard and it really concerns me. It is the sort of moral hazard that we all face. We drive down the road at 56 kilometres an hour in a 50 kilometre zone but it is OK. It is only a little bit over the law. This is the sort of bill that creates that sort of law: “It is not really applicable to me.”There are also a number of tests in here that come back to intent and this is the whole problem we have with this area of tax in this country. The other thing that is slightly offensive—offensive is the wrong word but I can see how it could create a little bit of offence—is that it classes New Zealanders who have been offshore for more than 3 years and have not returned as offshore persons. It puts New Zealand passport holders in a completely separate category from foreign investors. I do not think that is right. In fact it was queried in the select committee process so again we are talking about land information. That is why the bill is called the Taxation (Land Information and Offshore Persons Information) Bill. When you think of offshore persons you tend to think of foreign speculators but no this is about Kiwis as well.The other one that was quite astounding—quite amusing actually—was that before the select committee process we called for submissions. There were not that many submissions. I cannot remember how many—maybe 10 or 12 submitters appeared in front of the committee. But two of the submitters talked about a piece of legislation that is coming after this one. That is the one that is going to be debated in the House—I do not know when—next week. I think the first reading was this week actually. Even the submitters who had taken the time effort energy and no doubt quite considerable resources and money got it wrong when they were submitting to the select committee. We went up to Auckland to listen to them and we had to say that the points they were making were very interesting but unfortunately they do not relate to this piece of legislation.As my colleague Grant Robertson said we agree in principle that something needs to be done and we are backing this legislation. But the thing is it could have been so much better if we had worked together thought a little bit harder about it and come up with something that is much more robust. But as Grant said why is the Government so fixated with 1 October? Is there something we should know about that salubrious date? Is that the final of the Rugby World Cup or is it the middle of the Rugby World Cup? I am not too sure. But the fact that Land Information cannot even process the information online when this bill comes through just says that that date is wrong. It would have been so much easier just to change the 15 to a 16 or I do not know just work with Land Information.The chair of the committee understands this. The chair of the committee was exasperated with the level of complexity where complexity did not need to exist. There was a lack of efficiency when efficiency could have reigned supreme if only this had been thought through. But as I said what I think this came down to was an edict from upon high that said this is what must be done; now go ahead and do it. The relevant departments could not meet the compliance in time when this legislation came to the fore but that is just the way it is going to be. It is not the way to craft legislation and it could have been so much better.So who won? Did Louise Upston with Land Information win? Did Todd McClay with the Inland Revenue Department win? Do you know what? I do not think there are any winners. I do not think there are any winners. I do not think even Mr Joyce is a winner in this because Dr Clark knows—he has had dealings with Mr Joyce’s stuff-ups for a long time. This just has his fingerprints on it—it really does does it not? It really does. There are no winners. In the rap wars I think it is zip. Thank you very much.Dr DAVID CLARK (Labour—Dunedin North): It is with some amusement and distress at the same time that I rise to take a call having only recently learnt of this manual capture of Inland Revenue Department information that is now required as a consequence of this legislation. I want to suggest an alternative title for the Taxation (Land Information and Offshore Persons Information) Bill. I understand my colleagues have suggested alternative commencement dates perhaps at a time when it will not all have to be recorded with a quill pen on paper but we can adopt some kind of modern system like—I do not know—maybe a computer to record the information. I just want to suggest that maybe we should label this bill for what it is. It is a farce when we have a bill here that talks about doing something but finds ways of creating loopholes to ensure that that very thing does not happen. Then on top of that we learn that the whole thing was so rushed.Let us cast our minds back before the election when the Government was under fire for not doing anything about the housing stuff. It ran right through into the new year. This Government has been under fire for its lack of response to the housing crisis in Auckland and the effects that that is having on our economy. And then this year ahead of the Budget the Government must have been doing its polling. It must have realised that this issue was really coming to a head in public opinion and all of a sudden—all of a sudden—it announced a new tax on housing speculation to try to somehow make it look like it was doing something useful. Of course we have seen the advice from Treasury that says that the way it was designed it will collect only about $5 million in revenue when if it did not have all the loopholes that have been thrown in it would have collected $30 million to $40 million and had a bigger deterrent effect. We know that is not effective legislation.Then we have got this complementary legislation here which is going through right now that is about collecting the register of persons of foreign speculators and we know that it is designed to exclude most people. It is designed in a way that makes it full of loopholes so it will not be useful information that is collected. We have rehearsed the debates in the previous stages of this bill and in the Part 1 and Part 2 debates about how we will probably find ourselves as a Parliament in the next Government having to repair the work done on this legislation tonight to fix those loopholes that we find in the legislation. And we know that passing a bill through this Parliament costs more than a million dollars with all the officials’ time and all of the salaries of the MPs and so on and we know that we will be back here correcting this Government’s mistakes.This bill should be called a farce because that is what it is—that is what it is. We have seen this time and time again from this Government particularly when it comes to IT systems. The Inland Revenue Department computer system of course is the grand champion of the scheme. In 2012 on St Valentine’s Day the Prime Minister made a promise that he would sort out the Inland Revenue Department’s computer system. Well we are still waiting—we are still waiting—for real action on that. The Prime Minister said in the speech where he talked about needing to address this issue: “Governments should not have to find themselves in a position where they are held hostage to a lack of technology.” And that is where we find ourselves here tonight 3 years on with a different computer system not up to date and officials being required to handwrite the records from when this bill is enacted in October through to December. And we learn from the Official Information Act material that has been supplied that December is an optimistic date. They might be handwriting next year the records that are recorded in this register! And it might be the case indeed that the Government comes back to correct the bill to make amendments to actually try to sort this out so that it can push it further out.Hon David Cunliffe: The corrections issue.Dr DAVID CLARK: It has done it before—a corrections issue. It has pushed it out before.This is what happened with the Inland Revenue Department when the Government changed the child support legislation. It discovered that the computer systems were not up to scratch and it had to come back and change the legislation use more parliamentary resource to go back and backtrack so that it could find and make legislation that actually worked. This is what we may well find with this legislation. We may find that Parliament spends a million or whatever dollars all over again to put through new legislation that repairs this faulty legislation that does not actually collect a register of foreign buyers properly and uses a manual paper-based system for the initial months on an optimistic scenario for collecting the details for a foreign buyers register. I think the case is fairly clear for adding the word “farce” into this title. I wish the Government would have a sense of humour or irony or something and actually consider this serious suggestion from the Opposition benches. I look forward to the Minister in the chair the Hon Nicky Wagner taking a call and saying why on earth this should not be called a farce because I think the case is pretty clear.The CHAIRPERSON (Hon Chester Borrows): I call Simon O’Connor. [Interruption]Dr DAVID CLARK (Labour—Dunedin North): I am sorry to interrupt but I wish to seek leave to table this document which is from the Official Information Act material. It is a Land Information New Zealand diagram dated 15 May 2015 and it demonstrates the period of time—The CHAIRPERSON (Hon Chester Borrows): Do not tell me about that. Tell me what it is and where it has come from and when you have done that—Dr DAVID CLARK: It has come from Land Information New Zealand and an Official Information Act—The CHAIRPERSON (Hon Chester Borrows): Leave issought for that purpose. Is there any objection?Tim Macindoe: Is it on the website?Dr DAVID CLARK: No. It is from Official Information Act material and it shows the paper-based collection—The CHAIRPERSON (Hon Chester Borrows): The document has been described. Leave is sought. Is there any objection? There appears not to be.Document by leave laid on the Table of the House.SIMON O’CONNOR (National—Tāmaki): I move That the question be now put.Hon DAVID CUNLIFFE (Labour—New Lynn): I rise to take a first call in this Committee stage of the Taxation (Land Information and Offshore Persons Information) Bill and I trust it will be the first of a number that will assist the Committee in finding a way through this. There are two areas that I wish to address. The first is the rationale for the bill. The second is the implementation issues that the bill throws up. To bring the public into the rationale issue can I pose a rhetorical question: what do the housing shortage the refugee issue capital gains tax and the overseas buyers register all have in common? The answer is that they are all examples of a particular mojo or operating method by this Government. In the face of overwhelming public pressure and an overwhelming policy case for change the Government concedes a very small usually ineffective amount so that it has got something that it can say to the public. Never mind whether it will work or not never mind whether it will solve the problem at issue never mind whether it is actually practically able to be implemented; it is good enough for the press release and the public relations campaign. That is why we have special housing areas with no houses. That is why we have got a temporary and very reluctant increase to the refugee quota. That is why we do not have a capital gains tax that will work but we may have a partial brightline test to accompany this. That is why we do not have a valid operable offshore buyer register but why this bill brings in a partial system for registering offshore persons.To explain the difference let me drop down to the implementation issues. My colleague David Clark and my colleague Stuart Nash have both quite rightly lampooned the idea that in the 21st century we are having a paper-based set of records of anything let alone anything as important sophisticated and high value as overseas property transactions. If that were known in the international press I daresay New Zealand would be an utter laughing stock. The second implementation issue is that as the Hon Peter Dunne well knows—and he did not have silver-grey hair before this—the Inland Revenue Department computer system is not easy. He was there. I used to do the job that he was doing as the Minister of Revenue and it is a worry. You cannot make a change to one part of the Inland Revenue Department computer system without the rest of it threatening to fall over and time is agin it. The answer seems to be a billion-dollar computer upgrade—let me say that again: a billion-dollar computer upgrade—with a contingency margin of $500 million. It is hard to believe that anybody could put through Cabinet a project with a contingency margin—that is an overrun—of $500 million. Good luck Peter Dunne. I hope it works. If it does not well we will be sending you flowers in whichever retirement place you elect because it probably will not be in the House.Look this bill makes it worse. We are asking for bespoke changes to the Inland Revenue Department’s operating system eventually because at the moment it is just pencil and paper for a system that will not and cannot work. Why can it not work even if we could get the Inland Revenue Department system to change? Well that is because it does not actually separate out what the register should be doing which is identifying offshore speculative pressure and separating that out from the legitimate purchases of New Zealand citizens and permanent residents. If Joe Bloggs in my electorate or yours Mr Chairperson moves overseas and decides to sell or buy a property in New Zealand good luck to him. He is as much a New Zealander as you or I who live in New Zealand. And actually one out of five Kiwis does not live in New Zealand. We have the second highest diaspora in the OECD after Ireland. One in five of us lives overseas; we should be able to trade property in our home country—not an issue. Likewise we should treat permanent residents equally. So that leaves us with non-residents and the whole issue here is that most other countries including Australia have a very simple rule: if you do not live in New Zealand and you do not plan to you should not be able to speculate on property unless you actually build a house. New Zealand houses should be for Kiwis to live in. This register ought to be an opportunity to make a small but incremental gain on that issue. If we were validly identifying speculators who have no intention of living here and separating them out from Kiwis who may well come back and in any case have a right to trade property then we would have a so-what that was worth the paper-based angst. Not only is this probably not implementable according to the Inland Revenue Department and Land Information New Zealand but even if you could implement it there is very little point because in its current construction it will not actually do anything useful. So why why why are we here?Simon O’Connor: Existential.Hon DAVID CUNLIFFE: The answer is I am afraid buried in the first part of—we are not going that deep tonight but I know how it feels being a Government backbencher. When you ask “Why are we here?” you are saying “Why am I here?” because you do not get to do anything. At least in Opposition we get to get stuck into issues. This bill is here—Tim Macindoe: You’re welcome to stay in Opposition for a very long time.Hon DAVID CUNLIFFE: You know I say this to the whip opposite—he is a decent guy and I will be honest with him—that we are getting good at this but we do not want to stay here for ever so we will be happy to trade you in 2 years’ time and we are pretty sure that is what is going to happen.To round off the reason this bill is here is that it is part of a public relations gimmick by the Government. Faced with overwhelming public pressure to do something about the insane Auckland property market and the increasing influence of foreign speculation it has bowed to pressure and it has finally started to build some kind of register. Albeit partial albeit ill-defined and albeit difficult to implement it is in fact contradicting the earlier words of leaders of the Government. Nick Smith the Minister for Building and Housing said a register would be a distraction that would cost mega-millions without doing a thing to tackle house-price inflation. I hope that he was wrong not for the sake of the Government—it would hurry them to Opposition—but for the sake of New Zealand. I hope that he was wrong.BRETT HUDSON (National): I move That the question be now put.A party vote was called for on the question That the question be now put.Ayes 77New Zealand National 59; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 43New Zealand Labour 31; New Zealand First 12.Motion agreed to.Clause 1 agreed to.Clause 2 agreed to.Hon CRAIG FOSS (Minister for Small Business) on behalf of theMinister for Land Information: I move That the Committee divide the bill into the Land Transfer Amendment Bill and the Tax Administration Amendment Bill pursuant to Supplementary Order Paper 116.A party vote was called for on the question That the motion be agreed to.Ayes 108New Zealand National 59; New Zealand Labour 31; Green Party 14; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 12New Zealand First 12.Motion agreed to.Bill to be reported with amendment and so divided presently.