Norman Russel: Taxation (Bright-line Test for Residential Land) Bill — First ReadingText is incorporated into the Bound VolumeNorman Russel: Taxation (Bright-line Test for Residential Land) Bill — First Reading[Sitting date: 08 September 2015. Volume:708;Page:6340. Text is incorporated into the Bound Volume.]Dr RUSSEL NORMAN (Green): The origins of this bill really are in the Auckland housing market which is on fire. If you look at a 1960s house in a suburb that is not particularly in the centre of town you are talking about a doubling of price over the course of 4 years from $400000 to $800000. It is a housing market that is completely out of control—a 20 percent rise in the last 12 months.It is no mystery why this is happening. It is pretty well understood in fact. You have got a combination of migration pressures that are putting a huge amount of demand side pressure on Auckland; you have got a significant tax incentive because of course capital gains are tax-free in New Zealand more or less; and of course on top of that you have got a big surge in foreign demand. That is not just happening to Auckland; that is happening right around the Pacific Rim whether it is Sydney Melbourne Vancouver other cities in the United States and elsewhere. There is a big surge and of course China is a part of it. It is not the whole story but it is a significant part of it.On the demand side that is the issue and then on the supply side essentially what we have not been able to provide is affordable medium-density high-quality housing in sufficient volumes to meet that demand and so the increase in price is kind of inevitable. This bill that we have in front of us and the companion bill the Taxation (Land Information and Offshore Persons Information) Bill are an attempt to deal in a very minor way with that out-of-control housing market. You could think of it as trying to put a thimbleful of water on a giant fire. So we will be supporting these bills because they are positive moves if ever so small.This bill in a way is trying to deal with the issue around capital gains and how you tax capital gains. What it does is it says: “OK if you’re an investor and you flick the property on in a couple of years you pay tax on those capital gains and at your marginal rate.” That is a positive thing. It creates a brightline test around what kinds of income get taxed and what do not so that is a good thing. Unfortunately it sits alongside the intention test which is a very difficult piece of tax law because the intention test around tax law says that it all depends on whether you intended to flick the property on. Were you trying to make capital gains out of the property or not? Of course that is a very subjective thing and makes it very difficult for the Inland Revenue Department to deal with.The Green Party has for a long time supported having a consistent capital gains tax on investment properties—so excluding the family home. The reason for that is pretty simple and this law does go some of the way towards dealing with that in a very small way. We will support it for that reason. But a capital gains tax—the idea behind it is simply that whether your income comes from wages or whether your income comes from capital gains you should pay tax on that income. So we all pay our taxes and that is how we fund public health and public education.This bill makes some progress in the smallest way possible towards introducing a kind of a capital gains tax which is a bit better than the intentions test capital gains tax which is rather confusing and difficult to enforce. It is a brightline test which does have the benefit of clarity. Even if this new legislation will make only a marginal difference none the less it is good.What it means is that you pay tax on capital gains. If you think about it most people in New Zealand do not make capital gains. Capital gains tend to be restricted to those unsurprisinglywho have capital to invest which is a very small minority of the country. Most people earn wages and they pay taxes on those wages as we all should and that means that that is how we pay for things. So why should people not also pay tax on capital gains which is a kind of income? That of course is the idea behind having a capital gains tax which pretty much every other OECD country other than New Zealand has introduced to some extent or another to deal with this exact issue.It is a very common tax within the OECD to deal with the issues around fairness in the tax system but it also has other benefits. It also has some dampening effect on house prices by dealing with one of the drivers on the demand side. But we also do need to deal with some of the other drivers on the demand side and of those the offshore demand particularly is a significant problem. The companion bill in a very minor way also tries to deal with the offshore demand problem but we also really need to deal with the supply side problem.Medium-density high-quality housing—that is Auckland going up instead of out—is also central to the solution to this problem. If we do not get our heads around that then we are going to continue to have this kind of pressure on house prices not to mention the impacts on transport climate change and all the rest. Thank you.