Russell DeborahDr DEBORAH RUSSELL (Labour—New Lynn): I want to take my colleagues on both sides of the House back to some of the basic principles of taxation and the particular principle that I want to go right back to is the one enunciated by Adam Smith in his great book Inquiry into the Nature and Causes of the Wealth of Nations way back in 1776. In that remarkable text he set out some rules for taxation and the first one he came up with is to do with fairness and proportionality. I'll just give you the words—[Interruption]ASSISTANT SPEAKER (Poto Williams): Order! [Interruption] Order! I apologise to the member. If I could just encourage members to take their seat on this side of the House. Thank you.Dr DEBORAH RUSSELL: Thank you Madam Assistant Speaker. I'll give you the actual words that Adam Smith used in his great text the words that being a bit of a tax wonk I've committed to memory: The subjects of every state ought to contribute towards the support of the government as nearly as possible in proportion to their respective abilities; that is in proportion to the revenue … they respectively enjoy under the protection of the state." That sounds a little complicated especially perhaps for people on the other side of the House but let me take it simply: it basically means that each citizen of the State ought to contribute to the support of the State in proportion to the revenues they earn. It's a canon of fairness of fairness in taxation and traditionally under tax principles we talk about that fairness in two ways. We talk about it in terms of vertical fairness the idea that people who earn more ought to pay a little more in tax. They can contribute in proportion to their abilities. That's a well-established principle in our own tax code.But there's another interpretation that is even more relevant to the debate today and that's talking about horizontal equity or horizontal fairness. It says that whether you earn your income in the form of salary and wages if you earn it in the form of employee share schemes if you earn it in the form of a capital gain on a house—doesn't matter how you earn that income; it should all be taxed the same. It shouldn't be taxed differently just because it's one form of income versus another; it should be taxed the same. That's the principle of fairness and it is well enunciated in this bill that is before us today where many of the provisions in this bill are about fairness between taxpayers.I want to address in particular a topic in this bill that has not been discussed this afternoon and that's employee share schemes. This bill does something very worthwhile with respect to employee share schemes and let me take you through it. What can happen under employee share schemes is that an employee can be given shares or given an entitlement to shares. Now under the law as it stands that becomes their income and they can be taxed on that income but in actual fact often those shares have to be held in a trust or maybe they are only given optioned so in fact the employee really only becomes entitled to them five maybe 10 years later by which time the shares have increased in value. But instead of being taxed at the time when it's finally vested in them at the increased value they're only taxed at the old value—the lower value when they were first given the entitlement to the shares. In other words by taxing it right now instead of 10 years in the future they are taxed on the value right now and none of the increase in value and yet that increase in value is part of their income.So what this bill does is it says that just like salary and wages that increase in value in the shares ought to be taxed and that's precisely what some of the rules in this bill do around employee share schemes. It's not about trying to tax people more it's not about trying to give people an unfair advantage; it's about fairness in taxation whether you earn your income in the form of salary and wages or you earn it in the form of shares that increase in value. That's all about fairness and that's one of the reasons why I commend this bill to the House.But there are a number of other issues in this bill that I think are quite important and that I do want to speak to this afternoon having an opportunity to speak on tax. In particular I want to address the brightline test. Now that's a fairness issue as well and that's saying in a very straightforward fashion if you earn income through speculating in housing then we will tax it in the same way as we would earn income through taxing salary and wages. Now as members on the opposite side of the House have pointed out if you buy something with the intention of selling it any increase in value ought to be taxed anyway but of course it is very hard to read intentions particularly when it comes to residential property. What the brightline test does is it says that instead of us trying to guess what's in a person's mind we just deem that if you sell a house under the existing legislation within two years—under our proposed legislation within five years—then you will be deemed to have bought it with the intention of resale and therefore you'll be taxed on it.Now the members on the opposite side of the House agree with this principle. They agree with the principle of a brightline test. It was put through under their watch. In fact they've raised two objections to this afternoon. They've said that putting it out to five years is really complicated and it should have gone to a select committee and they said we didn't go through the generic tax policy process (GTPP). Now Mr Goldsmith noted that we have a very good tax policy process in this country the GTPP or the generic tax policy process. You know we did go through all the technical details of a brightline test back when the National Government instituted the two-year brightline test. There was a robust generic tax policy process back then with the two-year brightline test. So there has been an excellent tax policy process with respect to the test that's in the legislation at the moment.So what's the difference now? Well when I look at this Supplementary Order Paper (SOP) 13 for all these complications that allegedly should have gone back to a select committee I don't see that that they're there. In fact if the members on the other side of the House had bothered to read the SOP—it's freely available right there—they would see that virtually every clause in that Supplementary Order Paper simply replaces "2 years" with "5 years". It makes no difference. So this is the type of thing—it is literally just replacing "2 years" with "5 years". There are no complications. All the rules around the brightline test exist already. It is a very straightforward and simple piece of legislation. So it cannot be an objection to technicalities introduced by this bill—[Interruption]ASSISTANT SPEAKER (Poto Williams): Order! [Interruption] Order! [Interruption] Order members.Dr DEBORAH RUSSELL: It cannot be an objection to the principles under this SOP. It cannot be an objection to the technical details under this SOP. It cannot be an objection to anything other than the difference between two years and five years. Then they claim that officials objected to five years but that's just an utter nonsense. What they said was there was no clear evidence between two years and five years. What they said was it was impossible to tell how it would go. So there is no real objection to five years other than that the members on the other side of the House don't like it. I submit that that is not a sufficient reason to reject this Supplementary Order Paper. Frankly if they cannot understand the difference between two years and five years in the technical way of replacing it in legislation I suggest that perhaps they don't belong in this House at all.So I put it to you that like a lot of tax orders it is a very straightforward measure and it is about addressing the critical issue of fairness in taxation. We want to be fair on this side of House. That's what underlies a lot of the measures in this particular bill—a bill that was introduced by the party that was then in Government and that this party has worked with to make it right a bill that is now looking in pretty good shape after a really good generic tax policy process and a really good select committee process. We've listened to the objections from people who submitted to the Finance and Expenditure Committee. We've adjusted the bill when necessary. We have implemented our election promises and made it quite a straightforward measure so we are implementing the basic principle of fairness in taxation. I commend this bill to the House."