Dunne Peter: Taxation (Budget Measures) Bill — In Committee 
Text is incorporated into the Bound Volume 
Dunne Peter: Taxation (Budget Measures) Bill — In Committee 
[Sitting date: 20 May 2010. Volume:663;Page:11168. Text is incorporated into the Bound Volume.] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I thank the member for raising the point about depreciation and the way in which the package has been constructed. I thank him for his comments which on the whole I think were helpful. Essentially what we have done is as follows. The Tax Working Group had an estimate of about $1.3 billion as being the cost of depreciation. When we recalculated the figures they came out at around half of that. What we have done by introducing the 50-year provision is allow for buildings that have a transitory lifespan—for instance farm buildings warehouses and various industrial settings where the short-term use is likely to be around 50 years’ duration. Beyond that when we looked at residential property and other commercial buildings it was our assessment that firstly most of those are going to endure for more than a 50-year period and secondly over their lifespan whatever it is they certainly will not depreciate in value. If we take the example of a turn-of-the-century villa that may have originally gone on the market for £1000 many many years ago even in real dollar terms today it certainly will not have depreciated over time. So the notion that people could then claim depreciation against something that was not depreciating seemed to us to be a bit silly. 
I guess the bigger question the member raises though is why we did the depreciation measures and did not look at some other measures that might have had a more dramatic effect. There is a question of balance here. We wanted to send a signal to people who entered into property investment for essentially speculative purposes and used the mechanisms that were available to advantage their tax circumstances as opposed to those who wanted to enter into the property sector because they thought it was a good investment. It is the old argument that the member will be very familiar with about investments being made on the basis of the quality of the investment rather than the tax advantages that accrue. 
Our estimate about the likely increase in rents on the best advice available from Treasury was that it would be about 1.4 percent from memory so we do not expect there to be a significant impact although over time there will be a modest impact. Again we have to offset that against the tax changes that are taking place and look at the broader picture there. 
One issue that people will immediately leap on will be to say that we will now see a big explosion in fit-outs renovations and other things designed to change the character of a building. The Inland Revenue Department will be issuing a discussion document in the very near future about how we might address that and we will be working our way through that issue with the sector and other interested parties over the time ahead. 
In conclusion I simply say that any investors who have some doubts as to where they are left as a result of these changes and about what their appropriate depreciation rate should be should immediately contact the Inland Revenue Department. A list is being developed. Basically it is a reformulation of the existing list that takes account of the various situations and circumstances. On the whole I think that the measures we are introducing in this part are a balanced response. They will certainly shift the emphasis to the quality of the investment. But the one thing they will not do because the tax system is not capable of doing it is shift what the member referred to as the emotional attachment of people to various forms of investment. There will always be the attraction to property because it does not depreciate over time. What we intend to put in place is a regime that is fair reasonable and ultimately enforceable. 
A party vote was called for on the question that Part 3 be agreed to.