Source: New Zealand Parliament – Hansard
ANDREW BAYLY (National—Port Waikato): Thank you, Madam Speaker. I can’t say it’s a pleasure to be talking on the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill. This bill—we spent a lot of time in the Finance and Expenditure Committee dealing with it, and what we thought we were going to be discussing yesterday on this tax bill transpired to be something totally, totally different, with the lodgment yesterday at 2 o’clock of a 60-page Supplementary Order Paper which means a new piece of legislation that is inserted into this bill.
So I think this bill—the title of it is totally erroneous, because the principal clause around this bill is little to do with what we’ve talked about, although some of the measures are OK. But more I think it should be “Taxation (Annual Rates, Feasibility, and Remedial Matters) Bill and How to Thrash Mum and Dad Investors Who Own a Rental Property and Do a Good Job in Trying to Provide Accommodation to Hard-working New Zealanders”, or, in other words, let’s slap a capital gains tax on people that as at 9 a.m. yesterday morning—although the media had access to the data at 8—found out that the rules have totally changed and have driven a change in their property rights.
Many New Zealanders own rental properties, and in the main, most, the vast majority, only own one rental property. These changes, as a result of this being thrust through like a steamroller last night under urgency, have meant that people have woken up this morning—if they’ve been listening to their radio and they haven’t been away on holiday or they’re not on a camping trip—and will find out, over time, when it seeps out through to the public, that their interest in their property has been fundamentally changed, not only because of the increase in the brightline period from five to 10 years but, probably more dramatically from a financial perspective, they will lose the deductibility on the interest on their house.
Now, that is quite a significant issue for mum and dad investors who do own rentals, and I think that this is going to lead to an increase in rental payments. Mr Robertson received a lot of advice from entities not inconsequential, such as Treasury, IRD. At the most, you could probably characterise the advice as fairly neutral on the impact on rentals, but the strong inference and, in some cases, advice is that these changes will lead to an increase in rental prices. I think if the Government is trying to do that and that occurs, we are in a really bad position, because we’ve imposed all these additional requirements on landlords, including all the other requirements that have been passed over the last couple of years around quality of builds, but if we lead to a situation where our most vulnerable people and the people who are not in a position to be able to buy a new house and are therefore renting, and if we get to the situation where we have an increase in the rents that they have to pay, that will be a terrible social outcome. And I’m concerned that these measures will actually result in that outcome.
We do not want people seeing their rents increase. We’ve already seen rents increase by $120 since this Labour Government has come to power. We’ve seen a rapid escalation in house prices.
The thing is, there is a correlation between house prices and rental costs, of course, but whether this has a chilling effect on people wanting to build new homes I think is a big issue. Last night I was told by someone actually here in Parliament, a senior partner in an accounting firm, that as a result of Mr Robertson’s announcement at 9 o’clock, a proposal worth hundreds of millions—and I’m not exaggerating—to do a rent-to-buy scheme effectively went on hold yesterday afternoon.
Hon Grant Robertson: Were they building the properties?
ANDREW BAYLY: They were in the process and they were trying to get the money, and as a result of a lack of—in terms of the lack of clarity, they have pulled it.
Hon Grant Robertson: They’re exempt from it. They’re exempt, Andrew—you know that.
ANDREW BAYLY: And one of the reasons why they pulled it, Mr Robertson, is when they went to the IRD, because they’re in a situation—you’re talking about professional advisers here; you’re not talking about people just waltzing around the street. You’re talking about—and it’s hundreds of millions of dollars’ worth of property. They could not get adequate clarification from the IRD about these changes, and so, as of yesterday, they pulled the proposition.
Now, I had other texts last night from people who are in the situation where they’re buying a house. We know, because we covered this last night, that you will have to make an election in the next—well, it’s actually three working days; we’re now down to 22 hours of working time—as to whether, in fact, you want to proceed with a property purchase or not. In some cases, you have to make an election. Now, if you happen to be away, out of phone coverage, whatever, then you will not be in a position to make that election. You will probably have to sign a form. So we’ve got a number of people who will be disadvantaged by this.
This goes back to the whole central issue about ramming this piece of legislation through, trying to get it off the agenda, trying to get it out of the media because they know it’s bad—the media reaction today has been dreadful. [Interruption] It has been dreadful. If you think it’s good, well, fantastic. You must have been listening to something different. Trying to ram it through—what should have happened is that New Zealanders should have had a good opportunity to talk about these changes.
I think, my personal view, is—one of the reasons Mr Parker said that they are trying to ram it through for urgency was they were scared people were going to rush in and buy a whole lot of properties. I think that just shows a lack of commercial nous. If you think about it now, as a result of the changes of what was introduced yesterday, you will be looking at the opportunity of whether, in fact, you want to invest your money into a rental property knowing that you’ll now have to hold it for 10 years, otherwise you’ll have to be taxed on the capital gains, as opposed to five at the moment. Or the fact is that you will not be able to deduct the interest on that loan that you may use to acquire that property. So the likelihood that people want to pile into the market as a result of yesterday’s announcement I think is just ridiculous.
The more likelihood is many New Zealanders, mum and dad investors, will be waking up this morning going, “Gee, I think I’m going to have to sell that property.” Of course, they either sell that property or, because of their higher interest costs, they’re probably going to start to think about how they’re going to increase their rents. Again, we get back to that double-edged sword. If you’re trying to remove and reduce the price of rents, which we’re all very concerned about, and moderate or stabilise the house inflation, this package doesn’t get there. It does not provide that framework. And I think—this is what IRD and Treasury have said in their advice—there is a potential it will lead to higher rental price. So if that’s what we’re going to achieve, if that’s what the Government wants to be known for, that’s fantastic, but I think we’ve got a real issue with that.
Then, of course, we haven’t—there are other parts of the package yesterday that were announced that we haven’t been able to canvass yet around the infrastructure spend, who’s going to manage it, and whatever.
But I think, essentially, what has happened yesterday is the Government has imposed a capital gains tax. I just want to clarify this point. The Government’s great—it’s the only time I’ve ever seen them want to nick an idea from National. But we did clarify the rules around the brightline test when we brought it in a number of years ago, which was to say that if you have the intent to sell a property within two years, you will have to pay a tax on it. There was a lot of uncertainty around that aspect. What we did, by passing the two-year brightline rule, is give to the IRD clarity around the rule, which said if you sell within two years, you have the intent to buy and sell that property, and that’s why you should pay tax on it. That is a different mechanism from when you move that from a two-year test, a clear intention test, to a 10-year hold period. If you now have to hold your House, your rental property, for 10 years, that is clearly a capital gains tax, because you are not in the business of buying and selling houses. If you are trading houses, then you will always have to pay tax on it. But by moving the goalposts from two to 10 years, as this Government has done, this effectively means for tax purposes that that is a capital gains tax. I’m sure the Minister of Finance will know the difference between income tax and capital gains tax. So I think this is a really sad day—
ASSISTANT SPEAKER (Hon Jenny Salesa): Order! The member’s time is over.