Nash Stuart: Taxation (GST and Remedial Matters) Bill — In Committee Speaker Recalled In Committee Procedure Third Reading 
Nash Stuart: Taxation (GST and Remedial Matters) Bill — In Committee Speaker Recalled In Committee Procedure Third Reading 
[Volume:669;Page:16111] 
STUART NASH (Labour) 
: 
 The interesting thing is that there is general agreement across the Chamber that the loss attributing qualifying company regime has probably been abused a bit. The substantial part of Supplementary Order Paper 187 in the name of the Hon Peter Dunne as has been mentioned by my colleague the Hon David Cunliffe and by Minister Dunne deals with loss attributing qualifying companies. It is a large part of the Supplementary Order Paper. The Minister talked about the fact that change in this area was signalled in the Budget. We know that and we accept that. He said he had consulted widely—and we know that too; we understand and accept that—and this Supplementary Order Paper is the result of that consultation.  
I suppose that where we have great difficulty is with the fact that that is the way all tax bills come to their genesis. A proposal is announced somewhere. A Minister comes up with a working group or a suggestion or it is flagged somewhere that change needs to occur. So there is consultation with the Inland Revenue Department and papers are written—and Mr Chair knows the process better than I do. A paper goes out and it comes back and as a result of that a bill is drafted. We totally accept that the Minister has followed the right process right up to that point. However the process is only about half-completed when it gets to that. We now have a massive Supplementary Order Paper which is actually larger than the bill itself. At 71 pages this Supplementary Order Paper is larger that the bill. In fact it is larger than all but two of the nine tax bills that have come before the House in this term. So it is quite a massive Supplementary Order Paper and there is a lot of detail in it.  
This sort of Supplementary Order Paper goes out for consultation to tax experts which is all very well but what about the ordinary New Zealanders who will be affected by this change? That is my concern. As the Minister pointed out there are about 130000 active loss attributing qualifying companies and my understanding is—I think we got this from the officials—that a lot more than 50 percent of them are used to shelter rental properties. But that does not matter—the bottom line is that there are a lot of these companies. Their numbers have exploded and they are used so that people can minimise their tax. This bill makes changes but I suppose where I and my colleagues are coming from is the view that we need to complete the rest of the process in order to allow us to have robust legislation.  
When I look at the amendments to clause 74 on the Supplementary Order Paper I see new subclause (6C) which states: “The definition of LAQC is repealed.” So immediately 130000 companies are affected. I do not know how many shareholders are in them but a lot of New Zealanders are affected by this measure. An incredible number of New Zealanders are affected by it. The Supplementary Order Paper then goes on state in new subclause (6D): “The following is inserted in its appropriate alphabetical order: ‘look-through company …’ ”. So this is not a small Supplementary Order Paper that will affect about 10 people. It makes huge changes to tax legislation and that is our point. It would have been preferable for the Supplementary Order Paper to be referred to the Finance and Expenditure Committee for our independent adviser to be available and for us to be able to question officials—and we have a lot of questions about this. We are not necessarily saying the measures in the Supplementary Order Paper are wrong. But we are aware for example that the officials put forward two proposals to the Minister about how to deal with loss attributing qualifying companies. This is only one of them. The other one was to actually remove loss attributing qualifying companies from the legislation altogether. We would like to know why that was not considered.  
Those are the sorts of questions that we as members of Parliament elected by New Zealanders to represent them could have put to the Finance and Expenditure Committee and to the officials. We could have asked to be advised by our independent tax expert because as I mentioned no one on the Finance and Expenditure Committee is a tax expert. We acknowledge that. That is why we have Ms Turner in there representing us and helping us out. We could have asked a number of questions with regard to this measure. That is where our concern comes in.  
I talked about a number of the questions that we asked and the Minister said about $800 million is lost from the rental property market by the use of loss attributing qualifying companies. I know that loss attributing qualifying companies in general in 2008 took about $2.2 billion out of the tax receipts. That is a substantial amount of money. Even if maybe only half of the loss attributing qualifying companies operate to shelter rental properties and it was only $1.1 billion it is a substantial amount of money by anyone’s reckoning. When we talk about making cuts of $13 million from night classes we can see it is a substantial amount of money.  
The Minister said these changes were signalled in the Budget and I accept that. I think that clawing back depreciation will make a big change and we supported that. However one of the questions that I really would have liked to ask in the select committee—and I would like to ask the Minister this—is why the Government did not simply ring-fence losses to do with rental properties as opposed to providing for a look-through company where people can still offset against their income losses made when they were loss attributing qualifying companies. I know that the structure takes away any sort of arbitrage between the loss attributing qualifying company rate and the marginal tax rate and that is where all the losses came through. That is not a bad thing. But I am not a tax expert and I would have loved to hear the reasons and the rationale behind that. We get briefing papers from the Inland Revenue Department like you would not believe. They arrive in forests. It allows us to get our heads around the rationale behind tax legislation.  
I want to know why people were using loss attributing qualifying companies to hold their rental properties and why they were not using other types of entities. Why did they not just hold those properties themselves? Fundamentally we are talking about losses. We understand that look-through companies mean that people have to attribute profits from those companies to their marginal tax rate but why were they using loss attributing qualifying companies for losses? Surely the company structure would have allowed that; surely just holding properties as an individual would have allowed that. I know about the arguments around liability but those are questions that I would have liked to ask.  
What are the practical impacts of the changes to the loss attributing qualifying company regime? Will they affect the amount of rental housing out there? We know the market is very very soft at the moment; any real estate agent will tell us that. I was talking to a lawyer last night who deals in property and he said it has just dried up. He said one of the reasons is the changes that have been made. We talked about loss attributing qualifying companies and he said changes probably needed to be made but when I asked him what sorts of changes were needed he was sort of umming and ahing. This person is a lawyer who deals with this legislation as part of his job every day. That is why I say the Minister took the Supplementary Order Paper to a certain point in the process but he needed to take it further.  
The Minister said the bill was made available to the public on Tuesday. I would like to ask any member or anyone who is watching—I know we cannot refer to people watching on the TV—what is meant by a look-through company. Was anyone aware of this proposal? Was it published as a half-page ad in the  
New Zealand Herald 
 that loss attributing qualifying companies would no longer exist and would become look-through companies? I wonder whether any of the experts that the Minister consulted published in their newsletters that a Supplementary Order Paper would come before the House before Christmas that would get rid of loss attributing qualifying companies. I very much doubt it. If the usual process had been followed submitters would have had the opportunity to comment. We normally allow a 5-week lead time for tax bills that are referred to the Finance and Expenditure Committee. Notice goes out in a whole lot of ads so that people can look at an ad and make a conscious decision on whether they want to have a say on a bill. I doubt whether many people knew about this measure. Let us remember there are 130000 loss attributing qualifying companies and a larger number of shareholders. I very much doubt whether even a small fraction of that 130000 would know what a look-through company is.  
This is what a select committee process would have been able to bring out into the open. It could have provided consultation and released documents. There have been documents out there and changes have been signalled but this Supplementary Order Paper was not signalled. I think it is the reasonable expectation of the vast majority of New Zealanders that any form of tax legislation that with a drop of a hammer wipes out 130000 legal entities should be open to public consultation. I doubt whether any member in this House would not agree that if Parliament suddenly does away with 130000 of anything there should be some level of public as well as expert input. This Supplementary Order Paper is bigger than the bill. We have a major concern about that. No one can get their heads around this. We understand what look-through companies are now because we had a briefing from the officials. We have a sort of a feel of the consequences but we do not know what they all are at all. I am keen to know whether the Government looked at any other changes. Did the Minister consider or take any other changes out to consultation? Did the Minister ask the experts?