Salesa Jenny; Bayly AndrewPart 3 Amendments to Income Tax Act 2007CHAIRPERSON (Hon Jenny Salesa): Members we now come to Part 3. Members' amendments to adjust rates of income tax were debated under Part 1 of the bill but will be voted on at the end of this debate. Part 3 is the debate on clauses 46 to 133 and Schedule 1A Amendments to Income Tax Act 2007". The question is that Part 3 stand part.ANDREW BAYLY (National—Port Waikato): Thank you Madam Chair. Moving on to new ground and I think this is the substantive part of the bill as no doubt the Minister is well aware of it in terms of what it means for property owners. And so the first bit I want to talk about is my Supplementary Order Paper (SOP) 137 which is the issue of deductibility of interest. What the Labour Government is proposing here is a fundamental shift from a well-established principle which I don't think has been ever broken before which is that expenses that relate to a taxable activity are deductible against the taxable income and of course what this bill does is do away with the ability of property owners who may own a rental property who are paying tax on the rent—and yet cannot deduct the interest. It is a fundamental change to the strong principle of matching deductibility against accessible income and that is why we absolutely disagree with the Government on its approach and that is why my SOP 137 goes through and highlights all the relevant clauses of this bill and deletes them which would mean that it would limit the interest cost deductibility for investment properties. I suppose the interesting thing is just how significant an issue this is. We spent some time in the committee looking at this very issue and it is significant when we asked the officials to go away and look at the numbers about how many people actually are getting a deduction against their rental properties because I know the Government loves to characterise these mum and dad investors as rapacious investors—use the term "investors" but often with the implication that they are rapacious—they are only there to further their own interests they're such a bad thing they're cutting everyone out of the market. So I said to the officials "Tell us how many there are." Well that was a first issue. The officials actually had a great deal of difficulty actually determining how many of these so-called rapacious investors there were. So they did come back only after we asked them specifically and they came back with an estimate. They had to base it on the 2019-20 year and the 2020-21 year and they did it off the data returns. What staggered me is that this information actually wasn't known before the Government actually started talking about this so publicly and pushing—and I see the Minister of Housing in the Chamber tonight which is good to see—absolutely denigrating these mum and dad investors and saying how bad they were. I would have thought that they'd actually have a handle on it and it wasn't until really in the Finance and Expenditure Committee. We said "Go away and give us some numbers." So they came back with an estimate and they said that there is a population pool of approximately 350000 landlords who could potentially be affected. That was their best estimate: 350000. So that's the total pool of these mum and dad investors.So the next question was "OK how many of those have some borrowing against their rental property?" And so they went away and they did some more work. "If the number of potentially affected landlords is limited to landlords that have claimed interest expenses the number of landlords potentially affected by the proposed interest under the new rules is approximately 258000." I'm hoping you're going to allow me to carry on here. And so 258000. So the next question was "So we've got a quarter of a million mum and dad investors who have these properties and who have got some form of borrowing on them: in some cases very little in some cases not much." And that was the next question. So then we said to the officials "Out of those 258000 rapacious investors how many—or what sort of portion of income were they making? How much money were they making off these people?" So it's a pretty important thing right? So they came back—again not definitive. And again I was staggered that we didn't have this information prior to the Government making its wonderful pronouncements here in the House and elsewhere. But officials said that approximately 75 percent of landlords have gross rental income of less than $30000 per annum right away and just under 60 percent—to be precise for the record 58 percent—have gross rental income of less than $20000 per annum. Now the Hon David Bennett here is a very smart numbers man accountant and he will know: if you're earning less than $30000 what is your weekly rental? What's the weekly rent will you be charging?Hon David Bennett: 700 bucks.ANDREW BAYLY: No; just under 600 bucks. What's the average rent in New Zealand? I'm looking around the Chamber. Maybe the Minister can tell the Chamber why I'm asking them posing this question. We do know rents have gone up by 150 bucks under Labour right? So if you go to Auckland actually if you look at the summary for rentals in Auckland somewhere between $650 and $800. If you go to Invercargill it's obviously less. So what this is saying by implication—the extrapolation of this figure of $30000 rent a year and most people 75 percent of landlords earn less than $30000—is that they only have one house. So of the 258000 people that own a rental 78 percent owned one rental. Now I put it to you that they are not the rapacious investors that the Minister of Housing and the Labour Government have continuously maligned and slighted and been dreadfully harassing. This cuts to the core of what the Government is trying to achieve in this piece of legislation. It is wrong to suggest that these rapacious investors—so-called mum and dad—who have chosen to invest in one property should be now subject to a tax regime that cuts across the core of what it is that if you run a commercial enterprise you have to pay tax on the revenue on the $30000 but you cannot deduct the interest costs. As it's been pointed out quite recently with these tax changes which will come into effect over the next four years—right now many of these mum and dad investors who have been putting their money into these rentals to provide a house for those many thousands of people who cannot afford a house or those people wanting to buy their first house they cannot claim that money and therefore they are losing money this year.It's interesting you know as mortgage rates increase—and we're likely to see 6 percent 7 percent by the middle of next year—many of these mum and dad investors will be losing up to $7000 $8000 a year on the current estimates. So far be it from these people being seen as rapacious investors ripping people off; these are people who invested in a house often for their retirement purposes who provide a good standard of living. Not all mum and dad investors are great landlords but the vast majority are. This is why we absolutely oppose this interest deductibility part of this bill and that is why we put up Supplementary Order Paper 137. I think the Government actually needs to stand up and explain very cogently why they see this as such a bad aspect because I don't think the facts stand up for it."