Genter Julie Anne: Taxation (Bright-line Test for Residential Land) Bill — First ReadingText is incorporated into the Bound VolumeGenter Julie Anne: Taxation (Bright-line Test for Residential Land) Bill — First Reading[Sitting date: 08 September 2015. Volume:708;Page:6335. Text is incorporated into the Bound Volume.]JULIE ANNE GENTER (Green): The Green Party’s overall objective is to create and build a cleaner fairer economy that works for all New Zealanders not just for those who are already doing quite well. To that end we have been advocating for a tax shift for some time. One aspect of that is closing the current tax loophole in housing. That is going to be one way to address part of the problem with Auckland’s out-of-control housing market. We have seen house prices in Auckland increase by 20 percent just in the last year. The current house price to income ratio in Auckland is about eight. To put that into perspective in Wellington it is about four. There are other cities overseas that are experiencing worse house price inflation relative to incomes but there are not very many cities like that. Overall that is bad not only because it makes it more difficult to ensure that every New Zealander has a warm safe dry and secure place to call home which is incredibly important but also because it is a risk to the economy as a whole and the Reserve Bank has been talking about that for some time.There is a whole bunch of issues that we need to address in order to deal with housing affordability. On the one hand we have to deal with the demand side so that starts with closing the tax loophole on property. That is only fair. It is only fair that we would tax income from property sales in the same way that we tax income from other types of work. It does not make sense that the income of somebody who makes hundreds of thousands of dollars simply because they bought a house in Auckland at the right time and sold it later would not be subject to tax in the same way it would be for those people who go to work every day and earn their pay cheque.It also distorts the market to have this tax loophole because it means there are all sorts of problems. The first one is that it contributes to wealth inequality in New Zealand. We have growing wealth inequality in New Zealand. That is the gap between those who have and those who have not. It distorts how people make investment choices. They are more likely to invest in the housing market than into the productive sectors of the economy the way we actually earn our way in the world. That in turn contributes to our current account deficit which can affect the overall financial stability of the country. So we want to close the tax loophole on housing. There are different ways of doing that. I do not believe that this bill goes very far in that direction but it is a tiny little step so we will reluctantly be supporting the bill at its first reading and we will look forward to the submissions and conversations in the select committee although I suspect it is not going to be a very protracted process because the Government needs to get this through as quickly as possible.Other ways that we can address the demand side problem in Auckland include limiting the impact of foreign capital. That is not to say that we are opposed to people migrating to New Zealand and living here. If they are going to migrate and be residents or citizens that is great; but if we do not put some restrictions on the sale of property to foreigners then we end up having a lot of foreign capital coming in and that ultimately is not beneficial for New Zealanders. It makes it harder to ensure that all New Zealanders have a place to live. It bids up the value of houses in places like Auckland. So that is problematic and the Green Party has a very practical solution to that which is simply that if you want to buy property in New Zealand you have to be a resident or a citizen. It is pretty simple and lots of other comparable jurisdictions overseas do just that.Another way that we can reduce the demand pressure on housing in New Zealand is by protecting renters. We actually have some of the worst or least comprehensive regimes for looking after those people who are renting here in this country. It is for that reason that the Green Party proposed recently a warrant of fitness on rental properties. It is really really important that everybody no matter whether they are living in their own home or whether they are renting is sure that their home is warm and dry and secure. We have a real problem with substandard housing and without regulations what ends up happening is that we have a race to the bottom and we have really poor cold shoddy rental housing.Protecting renters impacts the demand side in two ways. It takes pressure off those who maybe do not want to buy a house but just want to have a secure place to live—at the moment they have got no guarantee of being able to live in a place and ensure that it is being looked after so there is more pressure for people who maybe want more flexibility to go ahead and buy a house—and of course it gets those dodgy landlords out of the housing market who are currently landlords simply because they are sure that they can make a tax-free capital gain in the future. They are not actually investing in the housing stock and they are not looking after their tenants. It is really important that we protect those renters. That is going to help get some marginal landlords out of the market and it is also going to take pressure off those who are looking to buy houses.On the supply side which the Government is always talking about there are some things that we can do and that the Green Party advocates. One is allowing more multi-family dwellings in places where land values are really high—that is places that are close to lots of jobs and close to education. At the moment we have a number of district plans particularly the proposed unitary plan rules in Auckland around the residential zones that actually prevent intensification. So there is a market out there for people who want to live in high-quality apartments town houses and character flats and they simply are not being provided because Government regulation actually makes it uneconomic and impossible to provide. So this is an area where one would hope that the Green Party could build an area of agreement with those who are constantly banging on about reducing local government regulations that are onerous yet this Government actually is not doing much in that area. I have not seen anything so far that would enable more high-quality apartments to be built where people really want to live.The other supply side issue is of course the involvement of the Government in providing homes. We think that the Government should be providing more State houses. If you look at the places where housing markets are working really well in OECD countries there is significant involvement from the Government in the provision of houses whether that is at the council level or at the central government level. I note that the Royal Commission on Auckland Governance recommended that there was quite an important role for councils to play in providing social housing and that of course has been completely ignored by this Government.So we will support this bill with extreme reluctance because it does take some tiny steps towards closing the tax loophole on housing. But I can see immediately from the bill as introduced that there are a couple of problems with it. Firstly the 2-year time frame is way too short. I think that in Treasury’s recommendations—if you go back a few years to when it was recommending to the Government that it take action on this which it finally has—it was looking at at least 5 years. But really why have a time limit at all? Does it matter what the intention is? If we have people who are earning money because they have bought property at the right time and sold it at the right time why should that income not be subject to tax just like income is subject to tax if you are an engineer or a doctor or a factory worker? Why not?We already have exemptions in this bill for the family home and for cases like inheritance and relationship break-ups so it is unclear to me why we need to have this 2-year time limit. I do not think it will do much. It certainly will not raise much revenue. Also it is going to affect a fairly small proportion of house sales and since we already have the exemption for family homes I do not see why we would not have at least a longer time frame or no time limit at all. If it is not your family home pay income tax on the income earned from owing the property.The other problem with this bill of course is that it applies only to residential land and really this fails pretty much all tests of how you would be implementing a tax regime if you want it to be simple if you want it to be comprehensive and if you do not want a lot of exemptions. This limiting it to residential land is I think extremely problematic. The distortion that exists with the tax loophole on property is not just a distortion that is impacting housing; it also exists for all types of land even if it is zoned for other uses.I think that the National Government ultimately has bowed to public pressure and to the pressure being put on by economists and by the Reserve Bank who said it had to do something about Auckland’s out-of-control property market because it is a risk to the economy and it is not good for people living in Auckland. But this bill is too little too late. It is not going to make a difference. The Green Party will reluctantly be supporting it because it is better than nothing but it is certainly not enough.