Brownlee GerryHon GERRY BROWNLEE (National): Well that was a very interesting and very defensive speech by the Minister of Finance on what should be a simple bill made complicated by the fact that its 77 pages have been added to by a 50-page Supplementary Order Paper which has in it very substantial changes to the way in which tax is applied to investment properties.Firstly let me say that issues in this bill like the unclaimed money provisions the company transfer provisions where there's a sale but no particular change or unreasonable change of activity the Mycoplasma bovis provisions for farmers having to get rid of stock and the clarified depreciation arrangements on non-residential buildings are all good things and there are many other small things in here that are of great value but let's be clear: this bill refers to effectively by its title a very significant change to tax law—that is the brightline test the taxation that comes from sale of an investment property residential property inside a 10-year period—as being simply a remedial matter. It's not.This is a bill that with its provision will see rental costs in New Zealand rise. It's interesting that even the IRD who have the greatest knowledge of where the income comes from these sorts of properties recommended against this course of action. I asked the Minister of Finance today in a select committee how much money has been collected by the Government in brightline tax since its introduction. He didn't know. He said IRD will know." So I can only assume since the number is not being put out there by a Government that apparently is the most transparent that we've had in New Zealand's history the number being kept quiet it's not very big. And I think that would be why the IRD has said this is not a good thing. It's why the IRD recognised too that it's likely to increase rental prices.So let's take a typical case: mum and dad investors buy a second home. They take out a $500000 mortgage to buy that second home and they put some tenants in there at the rental rate that's going for the day—recognising of course that that rental rate on average has increased by $120 a week since the Labour Government came into office in 2017; a huge amount. Wages certainly have not gone up by that amount. But leave that aside. Mum and dad put some tenants in their property and they are paying their $500000 mortgage. Over the lifetime of that mortgage they'll pay $156000 roughly in interest at today's rates of around 2.5 percent to 2.6 percent. At the moment they can deduct all that off the income that comes off that and they can set it against their own income from other sources. So it's always going to be a third of the amount.Now as it just happens that on that $500000 mortgage the increase caused by the non-deductibility the increase in the cost per week caused by the non-deductibility happens to be $120 a week. So if you were to turn round and say "OK what is the deductibility rate on that?" it's about $40 a week. So from the time this bill comes into effect every investor who has a tenant with a mortgage of $500000 will be $40 a week worse off. How long will it be before that is recovered? The next time there is a rent review up they'll go. And it won't be unreasonable. If they run off to the tribunal and they lay out their expenses they show what the deal is the only conclusion will be that that rental rise is reasonable. So it is naive in the extreme for the Government to think that this is going to put any pressure on flattening of rents.Then there's this issue of "Oh well it'll give first-home buyers a bigger chance because a whole lot of those investors are going to run away from the market." They might—they might—because actually at the moment it's not a bad sort of deal. They'll be on the five-year brightline; so they'll sell their house. In the last three years it's had on average a $250000 increase in its value. That's the sort of escalation that we've seen and if they were to pay the brightline after all their expenses they'll still walk away with about $190000. So yep a few might decide to sell—a few might decide to sell—but let's be very clear: there will be a huge problem created by that because a lot of rental properties where there might be three or four people living in them sharing that accommodation will suddenly crash down to perhaps two people. And there are agencies out there at the moment who say that is exactly the problem with the rental shortage at the present time.So here we have a Government trying to fix a problem by actually bringing in laws that will reduce the rental pool and at the same time put rents up for those who are caught in that rent pool. It makes absolutely no sense whatsoever. It's rushed it's fast and when officials are questioned on it their answer is "We don't know." So they've sort of been directed—I appreciate they've got to do what the Government of the day wants—but they have not had the chance for a broader consideration to be given to this particular problem. And behind it all the finance Minister sits there today and says "Well we're building more houses. This will push more houses being built. The developers are ringing us up and saying this is a great thing that's going to change the whole market." I doubt that actually. I'd like one of them to step forward with some decent figures to show us that actually this will make a difference to not just their bottom line because it certainly will but to the problem of getting first-home buyers into their first home.Those people looking to buy that first home who have been saving for the last three years are already $50000 behind in their savings programmes because of that $250000 increase in average price. Work it out: they've got to have a 10 percent or 20 percent in many cases deposit for a second-hand house—20 percent. Well what's 20 percent of $250000? It's $50000. And they will have had to save that just to be treading water on where they were when they started. So it's that impossibility for young people for first-home buyers that the Government is not addressing and the idea that you can somehow fix the problem through a tax base is complete rubbish. It is denying the fact that the brightline test captures people who trade in property only. And that's always been the case. Even if they do pay the tax they still win because that's how markets work when there is a scarcity of supply. I can't understand why the Government hasn't looked at some of the examples that they could have of situations where there was scarcity of supply and there was suddenly a whole lot of land made available for people to build on. It's happened yet we have no bill on that. We have this obscure sort of "We're going to work on the Resource Management Act and perhaps make it more possible." Well that will be a very long time coming and in the meantime there will be no change.So a couple of predictions: I predict that rents will rise as a consequence of the actions the House is likely to approve today. I think also the idea that because the brightline test is going to stay the same for a new house and the deductibility will stay there for a new house there will be a massive transfer of people into buying those houses doesn't make any difference to the renter—doesn't make any difference to the person who wants to buy a house. So we're told today at the select committee that in the Budget there's going to be some more moves to try and help first-home buyers. The best thing that can be done is to recognise that on a new build the Government takes a very substantial amount of the price that's paid for that new build in tax—just work out the GST content alone; it's massive. And that is applied all the way through. Local government have rules for the construction of subdivisions that make it very very capital intensive because you can't start selling until it's all fully consented and ready to go. Changing some of those things will make a difference. This bill will make no difference. It will have very little effect on supply and a huge effect on the rents paid by first-home buyers."