Edmonds BarbaraBARBARA EDMONDS (Labour—Mana): Thank you Mr Speaker. Well it's really fortunate that we do have the Infrastructure Acceleration Fund in order to build more houses so I will now take a call on this tax bill in particular the Taxation (Annual Rates for 2021-22 GST and Remedial Matters) Bill. As noted in the commentary as reported back by the Finance and Expenditure Committee the bill has three main purposes: (1) improve the current tax settings by ensuring that the current tax rules are working as intended; (2) to modernise the tax administration settings; and (3) set the annual tax rates for the 2021-22 tax year as this is required by an Act of Parliament. I will speak to some of these purposes paying particular attention to the areas where the Finance and Expenditure Committee have recommended changes or where there are diverse views. The annual rates bill is always important as it sets the annual tax rates for the tax year. By a majority the committee recommends that clause 3 of the bill remain unchanged. Why the majority and this side of the House recommends that clause 3 remain unchanged is that what is proposed by the Opposition—tax cuts and the removal of the top tax rate—is not what the country needs at this time. Maintaining the tax system helps maintain the revenue base which is necessary to fund the services and functions that so many New Zealanders depend upon. It also provides clarity and certainty at a time when there is so much uncertainty. Providing a tax cut would disproportionately benefit high-income earners over lower-income earners and that has been well explained by the deputy chair of the committee Dr Duncan Webb. I don't need to add any impetus to a point well made out by Dr Webb other than to support what was said by the Prime Minister earlier in question time today and that to address inflationary pressures—which as the Opposition mentioned in their minority view to the revised tracked version of the bill—this side of the House would look to transfers both through the welfare and the tax system to support lower and middle income earners. That's why we've overseen a $5 increase in the minimum wage benefiting around 300000 workers; increased Working for Families changes that will lead to 346000 people better off by an average of $20 each week; and the winter energy payment which will start again from 1 May. The Government's plan is providing targeted support to New Zealand families to deal with the cost of living while also investing in critical infrastructure—importantly keeping a lid on debt. That's why this side of the House has not recommended any changes to clause 3. Modernising the tax administration settings which is the second primary purpose of this bill is grounded in the principle that although New Zealand has relatively strong tax settings it is important to maintain the tax system and ensure that it continues to be fit for purpose. It also means that the tax system adapts to changes in business practices so that clients' costs are kept at a minimum. The tax changes to the tax treatment of cryptoassets contained in the bill are an example of modernising the tax system. Easy Crypto last week released the results of a survey that showed around 18.4 percent of adult Kiwis reported investing in cryptocurrency compared to 17.7 percent who reported having investment property. The bill will exclude cryptoassets from the GST and financial arrangement rules to ensure that those rules do not impose barriers on cryptoassets as a method of innovation investment or capital raising. One recommendation the committee has put forward is to the definition of cryptoasset". Some submitters suggested that the definition as contained in the bill could be problematic. With over 15000 different types of crytoassets the definition needs to be wide enough to cover those assets. The committee recommends removing the fungibility requirement from the cryptoasset definition. We agreed on the committee that the fungibility requirement could be ambiguous as the intention was actually to exclude non-fungible tokens and the changes in the revised track version of the bill reflect this intent better. We also recommended some changes to the exempting of cryptoasset brokerage services from GST and clarified that derivatives over cryptoassets should receive the same tax treatment as derivatives over shares. We also clarified in new clause 79(2) that an option to acquire or dispose of cryptocurrency is an accepted financial arrangement. I'd also like to point out an issue that was raised by a number of submitters including the Chartered Accountants Australia and New Zealand that there should be a simplified method of returning taxable income for holders of cryptoassets designed so that holders of these assets would not have to keep track of all trades in order for the profit or loss on each one to be calculated and included in a person's annual return. Officials' response to this submission was that while a simplified method would be desirable more work would need to be done as part of the tax policy work programme as opposed to an insertion in this bill. I raise that here in the House as I agree with our independent adviser Therese Turner—and we also thank her for the work that she did on this bill—that officials should look at this as part of the work programme—hopefully in the near future given the increasing investment in cryptoassets by Kiwis and to help taxpayers comply with their tax obligations for these classes of assets more easily. Lastly I'd like to speak briefly to the change of the interest deductibility rules which has already been canvassed pretty widely today. I only need to speak briefly as Dr Deborah Russell has brilliantly summarised the policy underlining these changes. The principle of our tax system is that expenses incurred in earning income by revenue by a business should be tax deductible. Therefore as a capital gain from the disposition of real property isn't taxed then the expense of the interest shouldn't be deducted. It's the Government's goal to level the playing field for existing homes in favour of first-home buyers and those moving to a new home compared to those investing in residential property. Investors can generally outbid first-home buyers so we want to make residential properties less attractive for investors while stimulating investment in new housing. So by removing interest deductions as a business expense for residential investment properties but allowing reductions for property developers or people purchasing a newly built residential investment property we look to help balance that. By allowing interest deductibility of property developers and purchasers of new builds but removing it from other investors we will continue to encourage supply. This should help boost supply by channelling investment towards expanding the housing stock and away from direct competition with first-home buyers and owner-occupiers for existing housing stock. That's why the previous comments by the leader of the ACT Party around "you should have an infrastructure fund" I addressed very quickly in my first note which was that's why we have an Infrastructure Acceleration Fund—is to help with the supply. The last thing that I would like to be able to just briefly touch upon was something that was raised by Dr Duncan Webb in his speech around high inflation rates affecting interest deductions and that's covered under page 7 of the commentary. The members from the Labour Party thought it was quite important that we have this which is why it's part of the majority report. Given the changes to the interest deductibility rules we asked advisers about the relationship between inflation and taxation. We were interested in how high inflation rates would affect deductibility of interest costs as an expense. We were told again as reported in the commentary that the tax system works on nominal rather than real interest rates and that these rates can differ significantly. The real interest rate in simple terms is the nominal interest rates minus the inflation rate. This means that when inflation is high the effective tax rate is lowered. For example as mentioned by Dr Webb advisers noted that the interest rate in December 2021 was 4.9 percent and inflation was 5.9 percent. Therefore the real interest rate was negative 1 percent. We note in respect of the December 2021 quarter landlords who claim interest as an expense deduction at the nominal rate will be claiming a tax deduction for something which was in real terms not an expense at all. So Mr Speaker I'd like to thank you for the opportunity to be able to take a call on this. I know we're going to have a really vigorous debate in the committee of the whole House. I can sense it from over here but I'd like to be able to thank the officials for all the work that they've done on this bill for their assistance during the select committee stage and in particular again we'd like to thank the submitters as well as Therese Turner for her independent advice and on helping the committee. I commend this bill to the House. ASSISTANT SPEAKER (Ian McKelvie): I call the Hon David Bennett—five minutes."