English Bill: Questions for Oral Answer — Questions to Ministers 
English Bill: Questions for Oral Answer — Questions to Ministers 
[Volume:640;Page:9936] 
3.  
Hon BILL ENGLISH (Deputy Leader—National) 
 to the  
Minister of Finance 
: Has he asked Treasury for any advice on new forms of taxation of property investment or any changes to the current regime? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 Following the joint recommendation of Treasury and the Reserve Bank in their  
Supplementary Stabilisation Instruments 
 report of February 2006 I agreed that further work should be done. One option that emerged as having potentially positive impacts was the ring-fencing of losses from residential property investment. This of course would not be new. It was the law in New Zealand before 1991. 
Hon Bill English 
: What is the Government’s policy on ring-fencing losses from investments in rental property? 
Hon Dr MICHAEL CULLEN 
: The Government does not have a formal policy position on that. I personally believe that it is worth investigating because since the repeal of those provisions in 1991 there has been very very substantial growth in losses which have substantially outgrown the actual rental income. 
That clearly points to heavy gearing of the purchase of rental property and probably has contributed to an overheated housing market. 
Hon Mark Gosche 
: Has the Minister seen any other advice on changes to the tax system? 
Hon Dr MICHAEL CULLEN 
: Almost daily. I regularly see reports of Mr Key calling for large-scale tax cuts while Mr English is saying that now is not the time for extensive tax cuts. According to Mr English this is “hardly a sin because while John articulates a confident and aspirational view about the future I focus on putting together the numbers and the programme”. So what should we believe: the aspirational view or the numbers? 
Rt Hon Winston Peters 
: On the words in the question or any changes to the current regime is the Minister aware of comments made by the Governor of the Reserve Bank that amount to admitting now 13 years on that high immigration is leading to high house prices in Auckland and is leading to high indices in respect of the inflation rate and then to high interest rates; could he tell me where the Governor of the Reserve Bank his staff and his predecessor have been these last 13 years and will the governor too be called a racist for raising the effect of immigration on inflation and high prices in this country? 
Hon Dr MICHAEL CULLEN 
: I think Dr Bollard did quite rightly point to the fact that very strong levels of immigration—particularly through 2002-04—placed significant further demand pressure into the economy. There have been a number of other factors as well. It is also worth remembering of course that we have a very tight labour market and strong shortages of skills and immigration is part of the answer to that problem. 
Sue Bradford 
: Does the Minister agree that all returns on investment should be treated equally by the tax system whether annual income or capital gain and whether from property or from shares; if so when will his Government introduce policy to this effect? 
Hon Dr MICHAEL CULLEN 
: Generally speaking that has been the underlying principle of taxation changes over the last 20 years and that is why Mr Oliver in responding to questions at the select committee pointed out that taxation on housing in respect of capital gains is not tax advantaged compared with any other asset class. That comment was completely misunderstood. It is also true however that housing purchasing is one of the very few areas where one can actually borrow 100 percent of the purchase price with no prospect of an actual return on equity except in terms of the capital gain at the end of the process. 
Hon Peter Dunne 
: Will the Minister confirm that work to develop a capital gains tax is not on the Government’s work programme? 
Hon Dr MICHAEL CULLEN 
: That is correct. The Government is not working on a capital gains tax. To take the logic of Mr Oliver it would have to be a generalised capital gains tax across all asset classes and the Government has no intention of introducing such a regime. 
Hon Bill English 
: Is the Minister aware that at the select committee the Inland Revenue Department made it quite clear that housing does not enjoy any tax advantage and can I take it from his previous answers that the Government is looking to bias the taxation system against housing by ring-fencing losses from investment in housing? 
Hon Dr MICHAEL CULLEN 
: Firstly the member completely misquotes and misrepresents what Mr Oliver told the select committee. What Mr Oliver told the select committee was that on the issue of capital gains housing was not tax advantaged in comparison with other asset classes. He went on to say that it does benefit from more general features of the tax system such as deductibility of interest appreciation deductions and of course the point I have just made that one can borrow 100 percent of the asset and offset the losses from that against other income. There is no other asset class where one can borrow 100 percent of the purchase price with no expectation of a return in terms of income as opposed to capital gain at the end of the day. That is why Mr Key supports the position I have taken. 
Hon Bill English 
: So is the Minister now saying that he intends to change the tax law to prevent people from taking the benefit of losses on one single investment—that is housing—although they can take losses on everything else and that he is going to change the tax law in order to make banks change their lending criteria? 
Hon Dr MICHAEL CULLEN 
: What I am saying is that when we can sort out the difference between the aspirational view and the numbers view of the National Party there may be consensus around a sensible change to the taxation regime. 
Hon Bill English 
: Can the Minister confirm and make it clear to the House that despite the Inland Revenue Department advice that there is no particular tax advantage for housing he is involved in a work programme with Treasury that is designed to implement tax law that ring-fences losses made on rental housing? 
Hon Dr MICHAEL CULLEN 
: I repeat: the member is wrong. The Inland Revenue Department has not given that advice. I— 
Hon Bill English 
: They did. They did. 
Hon Dr MICHAEL CULLEN 
: No. The Inland Revenue Department told the select committee—no matter how many times the member misrepresents it—that there is no difference in asset class and Mr Oliver himself has advised me on that fact. Indeed the Inland Revenue Department supports ring-fencing of housing losses. 
Hon Bill English 
: If the Minister is so convinced that housing has some tax advantage can he please advise the public and investors exactly what it is because the Inland Revenue Department expressly told the select committee in answer to my two direct questions that there is no tax advantage for housing? 
Hon Dr MICHAEL CULLEN 
: Mr Oliver was responding to the issue around capital gains on housing versus capital gains in asset classes. That is what he told the select committee and that is what he has told me. I invite the member to try to borrow 100 percent of the purchase price of any other asset where he would make no return on that investment by way of income and would simply have to wait for a capital gain at the end of the day. The bank would laugh him out of the door. 
Hon Bill English 
: When does the Labour Government plan to implement a policy ring-fencing the tax losses on rental housing? 
Hon Dr MICHAEL CULLEN 
: When Mr Key wins the argument with Mr English because I know that Mr Key supports this particular move.