Russell Deborah; Salesa JennyDr DEBORAH RUSSELL (Labour—New Lynn) (remote): Thank you Madam Speaker. I am delighted to take a call on this Taxation (Annual Rates for 2021-22 GST and Remedial Matters) Bill. It is an excellent tax bill and an excellent bill. As with all tax bills it does address a number of issues and I'm delighted to see that the Opposition agrees that these issues need to be managed such as the role of GST with respect to cryptoassets such as modernising GST information requirements such as trying to reduce compliance costs and so on. There's a change to the way that fringe benefit tax can be calculated and paid for some employees. Again this change doesn't change the actual amount of tax that is being paid but it does reduce the compliance costs involved for employers.These are all good measures and they support our employers they support our business people and they reduce compliance costs. In amongst the changes in the bill are some measures that protect our tax base such as the rules around disallowing sales suppression software. And as ever the Finance and Expenditure Committee has done an excellent job in considering this bill. But it seems that there are some issues with which the Opposition disagrees on this bill and I was listening carefully to Mr Bayly and of course thinking about what the Opposition has been saying in recent days. There are three issues that they have problems with in this bill. The first one is around interest deductibility the second one is around tax rates and the third one is around the brightline test. I'll see how I go in addressing them.There is a significant change in interest deductibility in this bill introduced by way of a Supplementary Order Paper (SOP) and the change is significant because it really does show a change from previous practice. I wish to direct the attention of the House towards section DA 1 of the Income Tax Act. It is the General permission". And what it says is that a person is allowed a deduction for an amount of expenditure—so you can get a deduction for your interest expenditure—to the extent to which the expenditure is incurred in deriving assessable income. Or if you're doing it through a business it's incurred in the course of carrying on a business creating assessable income. Here's the thing when it comes to interest costs on housing: a great part of what is earned through housing through owning houses is not assessable income; it's a capital gain. And in the tax law in New Zealand capital gains for the large part are simply not assessed. They're not regarded as assessable income. It's a tax-free capital gain. Why then should you get an interest deduction for income which is not part of the tax base? It's not incurred in deriving assessable income. Why get the interest deduction?Now as it turns out that happens to be a matter of what has happened in previous well decades I suppose. For a long time it has been very difficult to sort out what portion of an interest expense is related to earning assessable income like rents and so on and what portion of it is traceable to earning the untaxed capital gain. So as a matter of convenience as much as anything people who have borrowed money in order to buy a rental property have been able to deduct the entire amount of interest. But in doing so they've had an over-deduction. They have deducted been given almost as a courtesy the right to deduct more interest than really ought to have been deducted. So what this bill does is it reverses that. From now on people who are deriving an untaxed capital gain from rental properties will not be able to get the interest deduction. It's that straightforward about what is going on.And even then there are some concessions around this. When it comes to the brightline test if the brightline test is applied and your capital gain on selling a house is assessable because you've sold it within five or 10 years of acquiring it depending you'll get the interest deduction. So if you do have an assessable taxable capital gain as happens under the brightline test you will get the interest deduction. But if your capital gain is not assessable you will not get the interest deduction. It's a very significant change and it's about housing; it's about addressing some of the housing needs in our community. We know that there is a crying need for more affordable housing. We know that house prices have been sky-rocketing upwards. We know that this problem is created by all sorts of things from the lack of housing supply in recent years to some of the restrictive zoning rules there have been in some cities and so on. We know that there is no one simple solution to the housing crisis but we know that part of the problem at least has been caused by the fact that investors have been able to deduct interest charges and so to leverage up their investment in land they've been able to force up house prices this way. We know that at least in some part we will help to constrain house prices by removing interest deductibility.It is a complex and difficult matter and it is one that the select committee addressed during its examination of this SOP. I wish to draw the attention of the House to the section of the select committee's report—it's on page 7 of the report—looking at inflation rates and interest deductions. It's very interesting because—I'm sorry; I didn't quite mean that pun! It is fascinating because typically what goes on with interest rates is that some portion of the interest rate is a real rate; some portion of it is a nominal rate related to inflation. And reading through the select committee's report it seems that because of the effect of inflation on interest rates and the interaction of inflation and interest rates in the last quarter the December 2021 quarter landlords who were claiming the full interest deduction at the nominal rate were claiming something an expense for what wasn't a real expense at all because of the effect of inflation. Look the interaction of interest rates and inflation and tax deductibility is a complex issue and is not addressed in this particular bill but it is something that we ought to be looking at over the time. In the meantime what we are trying to do here is introduce a measure that will help—that will help—with the housing crisis.I wish to address briefly the brightline test which Mr Andrew Bayly referred to and the new brightline test rules which are 10 years—10 years. So from now on if you buy and sell a house within 10 years unless it is your main home you will be subject to the brightline test. Mr Bayly was concerned about people who might go into hospital people who might go overseas people who might go into a retirement village and in a sense these are good concerns but that ignores the detail of this change to the brightline test. Under the new rules what a person does first of all is consider whether a dwelling has been their main home and if they have owned it for less than 10 years but it has been their main home the brightline test doesn't apply. If they've owned the property for say eight years it's been their main home for say seven years and then they've moved to a different home sold it after eight years gotten a capital gain on it—and remember that's actually a good thing because you end up better off—a proportional amount of that capital gain will be subject to taxation. In fact in the case where you've owned the house for eight years it's been the main home for seven years just one-eighth of the capital gain would be subject to taxation. And remember you're only paying that tax because a good thing has happened: you've made a capital gain. So on the whole you're better off. So there are protections in this new brightline test for people.Finally I wish to address the issue of tax rates. This is an annual rates bill and in the annual rates bill as a constitutional necessity—it's in section BB 1 of the Income Tax Act—we must set the annual tax rates in an annual tax bill. So the House addresses every year the issue of what level taxes should be set at and the Opposition is opposing this bill has opposed other bills because they think there should be tax cuts. It's a mantra of theirs: that individuals know better than the Government how to spend money and therefore there should be tax cuts. I want to put that mantra a different way. I want to put it a different way because it ignores a fundamental agreement we have in New Zealand—a fundamental agreement that there are some things that we have chosen to do together. We have chosen to provide health together. We have chosen to provide education together. We have chosen to provide welfare together—ASSISTANT SPEAKER (Hon Jenny Salesa): Order! Unfortunately the member's time is up."