Dunne Peter: Taxation (GST and Remedial Matters) Bill — In Committee Speaker Recalled In Committee Procedure Third Reading 
Dunne Peter: Taxation (GST and Remedial Matters) Bill — In Committee Speaker Recalled In Committee Procedure Third Reading 
[Volume:669;Page:16110] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 At the outset of this debate on Part 2 of the Taxation (GST and Remedial Matters) Bill I thought it might be useful to put on the table the context in which the debate is occurring to help shape future contributions.  
The member who just resumed his seat David Cunliffe made reference to the work of the Tax Working Group. I guess the seminal figures from its report were the $200 billion investment in rental housing that was generating net rental losses of about half a billion dollars and approximately $150 million in tax revenue losses in 2008. The Tax Working Group recommended a series of changes including a capital gains tax the ring-fencing of losses and a land tax which the Government announced in February of this year that it was not proceeding with though it said it would look at other measures. In the Budget the changes to the loss attributing qualifying companies regime were foreshadowed. As I indicated in the debate on Part 1 a process was then entered into that led to the changes that are coming before the Committee today.  
I think it is important to make the following point as well. We have about 130000 loss attributing qualifying companies in New Zealand. Parenthetically I observed that their growth exploded during the term of the previous Government principally as a consequence of people using them for vehicles to avoid paying the 39 percent top tax rate. Be that as it may it is a fallacy to assume that all of those companies are property related. In fact only approximately one-half of them are in the property sector. There are somewhere in the order of 80000 loss attributing qualifying companies with a property bent to them.  
The member who spoke earlier talked about $2.3 billion in tax losses by implication in the property area. In fact the actual loss is estimated at about $800 million in the rental property sector. The issue then becomes how much of that can be recouped and how much of it is an appropriate target if you like bearing in mind the fact that there are a number of other activities for which the loss attributing qualifying companies model is a perfectly legitimate and proper vehicle to operate within.  
It is not correct to say—whether it be the $2.3 billion total tax take or even just the $800 million in respect of property-related loss attributing qualifying companies—that moving to standard company treatment automatically recoups all of that revenue because of the loss offset provisions and the fact that losses can be carried forward for a period of time. It is correct to say that those losses would be deductible at a lower rate than deductions from the shareholders’ personal incomes and that the move to a partnership regime with full flow-through could then be transferred on to an individual shareholder.  
The point is that the changes that are being made here were driven by the Tax Working Group’s initial recommendations. The Government’s initial thinking related to the whole sweep of the qualifying company regime which has been modified through the process that we embarked upon which I referred to earlier. The modified regime is introduced in the provisions of Part 2 and those provisions will be better targeted at the audience at which they are aimed. Also the fact that in 2012 we will review the dividend regime which we have announced will mean that the capacity to make the complete conversion to full company status will be much easier. 
Hon David Cunliffe 
: Why no urgency for that? 
Hon PETER DUNNE 
: The simple reason is that moving at that point in time is about as urgent as one can get given the fact that we want to make other changes to move out the ability to attribute loss from 1 April next year. It is quite a staged process. 
As the member rightly pointed out in his opening comments loss attributing qualifying companies have exploded in number. One can argue the reasons for that. I think it is perfectly clear that the escalation of the top tax rate to 39c had a lot to do with it. There is also the fact that the tax losses attributable through the loss attributing qualifying companies regime grew something like 400 percent during the previous decade.  
This issue has been worked through very carefully indeed. We have sought to obtain a reasonable balance between dealing with the issues that the Tax Working Group set out as requiring attention and not adversely affecting a number of loss attributing qualifying companies and qualifying company - related activities that take place over forestry agriculture fishing tourism and a whole range of other activities.