Parker David: Questions for Oral Answer — Questions to MinistersText is incorporated into the Bound VolumeParker David: Questions for Oral Answer — Questions to Ministers[Sitting date: 12 November 2013. Volume:694;Page:14539. Text is incorporated into the Bound Volume.]4.Hon DAVID PARKER (Deputy Leader—Labour) to theMinister of Finance: Will the Government tax realised capital gains on investment property; if not why not?Hon BILL ENGLISH (Minister of Finance): The Government already taxes capital gains on property speculation where property investment is for the purpose of trading. The member may not be aware of that. In addition to this the Government’s 2010 tax changes on property disallowed deductions for building depreciation and this raises around $700 million per year from property investors a much larger number than any estimate we have seen for the foreseeable future for a further extension of the capital gains tax. Further extension of the current tax on capital gains is likely to have high compliance costs and that is a conclusion that three tax inquiries and several Governments have come to over the last 20 years. If it excludes the family home it will not raise much difference it will not raise much revenue and it becomes effectively a tax on successful businesses. In overseas jurisdictions it has not improved housing affordability.Hon David Parker: Why does he think the profits on the sale of investment property are of such critical importance to the economy that they should not be taxed but instead be cross-subsidised by every other taxpaying business and worker in New Zealand?Hon BILL ENGLISH: I would point out two things as I pointed out in the primary answer. First where any property is bought for the purposes of selling the gains on that are taxed at current income tax rates. It is called an income tax but actually it is a capital gains tax on trading investment property. The member may have seen recent publicity about the scope of the Inland Revenue Department’s activities in ensuring that everyone who does trade in property pays full income tax rates not the half-baked rate that he proposes in his proposition of 15c in the dollar. They are actually taxed at 33c currently. Secondly the changes made in the 2010 tax package do collect $700 million per year from property investors which is a much larger number than any revenue that he has posited as a result of his partial extension of the current capital gains tax.Jami-Lee Ross: In considering various tax options for New Zealand what international evidence has the Minister seen on the effects of capital gains taxes on housing affordability?Hon BILL ENGLISH: I have seen reports from Australia on the effects of a partial capital gains tax limits on foreign investment a so-called mansion tax and compulsory savings. If these policies are meant to improve housing affordability then they have not because housing affordability is worse in Australia than in New Zealand. Just today there is a report being published showing that first-home buyers now make up the smallest proportion of the housing market ever in Australia. So the housing market in Australia now consists of fewer first-home buyers than ever so we would be a bit careful about following that policy prescription.Hon David Parker: What proportion of investment property sales pay tax as traders; is it closer to zero percent than 100 percent?Hon BILL ENGLISH: I do not have that information to hand but I can assure the member that the Inland Revenue Department is vigorously pursuing every investor who trades in property.Jami-Lee Ross: What reports has the Minister received on the case for a new capital gains tax in New Zealand?Hon BILL ENGLISH: I have received the report of a speech to the Wellington Property Investors Association in July 2005. It noted that the Government-appointed tax review in 2001 considered a new capital gains tax and concluded that the disadvantages of such a tax—its complexity and costs—outweighed the theoretical benefits so it did not recommend such a tax. The speech also noted that the Government of the day agreed with that conclusion that the status quo was entirely adequate. The speech was delivered on behalf of the Minister of Finance Michael Cullen by his associate David Cunliffe.Hon David Parker: Is it fair that every dollar earned by a salary or wage earner is taxed every dollar spent by working New Zealanders on consumption is taxed yet wealthy people who sell off investment properties for millions of dollars ordinarily pay no tax on their capital gains?Hon BILL ENGLISH: In the first place investors in property do pay tax on their capital gain if they are trading. That is really important. Secondly they no longer have the benefit of depreciation deductions which means they are paying $700 million a year more tax than they were. But the fundamental position has not changed. A capital gains tax might have an effect if it is comprehensive—that is if it covers all capital gains in the economy. But no one is proposing that and I do not think there is anyone in the House here who believes that it is practical to implement such a tax in New Zealand.Hon David Parker: Given that the majority of the public agree that a capital gains tax excluding the family home would be more effective in taking the heat out of the property market than loan-to-value restrictions why is it that under this Government we have loan-to-valuation restrictions that hurt young people and first-home buyers in favour of property speculators?Hon BILL ENGLISH: Firstly the Labour Party was actually a couple of years ago saying that we were old-fashioned on monetary policy in not implementing macro-prudential mechanisms like loan-to-value ratios. Of course now that the Reserve Bank has done that it is not so keen on it. Secondly a comprehensive capital gains tax might have a benefit but no one is prepared to implement that including the Government. A partial capital gains tax has no real impact on housing affordability including for first-home buyers and we need only to look to Australia to see that.Hon David Parker: Is not the truth of the matter that conservative Governments like National try to hang on to tax advantages like the lack of a capital gains tax on investment properties because this is what is in the interests of their backers?Hon BILL ENGLISH: If the member is wanting to make that assertion then he should explain why David Cunliffe made a speech when representing the Minister of Finance arguing against a partial capital gains tax. And when I have heard the member’s explanation of that we can continue the debate.