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Patrick Gower interviews Finance Minister Bill English:

Patrick Gower interviews Finance Minister Bill English:

Finance Minister says he doesn’t know what difference his tax on capital gains will make to housing affordability and admits it may not have an impact on Auckland house prices.

When asked about his comments from 2013 that extending the tax “will not make much difference” and “overseas… has not improved housing affordability”, English says “we don’t know exactly what impact it will have… we’re hypothesising a bit”.

English denies the tax on capital gains, travel tax and raising benefits are U-turns, despite National’s “no new taxes” election promise and John Key rejecting benefit increases on The Nation last year.

(Key quote, October 2014: “‘If it’s just a matter of a bit more money on the benefit, the one point I’d make there is that welfare broadly costs about $8 billion a year. So if it was just as simple as a bit more cash and that was at the heart of the problem, I would strongly suggest governments would have fixed it in the past.”

English says developers will be given public land on which to build houses and won’t have to pay until the house is sold, but can’t confirm whether the developer will pay the price of the land when they are given it or when the house is sold.

“That will be a matter for negotiation… it will be fully transparent”

Says “as many [homes built on public land] as possible” will be affordable. “We’re unlikely to be building hundreds of McMansions across the Auckland landscape.”

Confirms offshore buyers will face a withholding tax, after last week simply saying it was simply being investigated by officials.

Says the Government would only act to limit foreign buyers if the new data showed they were having a “pretty significant” impact on the housing market.

English insists new travel tax is a levy not a tax, but won’t say all the money raised will go to border control.

Says National is keen on auto-enrolment for KiwiSaver and without the $1000 kickstart it will be “considerably cheaper”. “Once we implement this policy we’ll just go back and see what the costs are likely to be”

Lisa Owen: Well, call it a tricky Budget, a battler’s Budget or political master stroke – Thursday’s Budget certainly confounded expectations. Before the day, we knew the surplus had been missed and taxes on capital gains extended, but no one was picking an increase in benefits and tougher work obligations for beneficiaries, cuts to KiwiSaver and a new travel tax. In the election campaign, National campaigned on no new taxes. Now we’ve had two inside a week. So when political editor Patrick Gower talked with Finance Minister Bill English yesterday, he began by asking if National had misled voters.
Bill English: No, we didn’t. The airport levy is a user charge. And across government, we have user charges for all sorts of things. We’ve been changing, for instance, the charge on passports. I don’t think anyone would suggest that that’s a new tax. And in this case, we’ve got demand at the border – lots more people turning up. It’s a problem of success. We’ve got biosecurity risks, and so we’ve taken the opportunity to shift the cost from the taxpayer to the user.
Patrick Gower: So it’s a charge at the airport, so every cent of that will go back to airport security. Is that what you’re saying? Every cent of that, just like a passport charge, because that’s what a charge is?
Well, that’s yet to be seen just exactly where it all goes, but the users are certainly going—
So it goes, for instance, into the consolidated fund?
That’s yet to be seen exactly where it’s all going to go, but—
Because it’s just word games, isn’t it? It’s just word games about these two new taxes, that they are—
Well, it’s just word games calling it a tax. It’s the same with the housing issue.
But it’s important, though, isn’t it? Because this is what you said – no new taxes.
That’s right.
And we’ve got two taxes in a week.
No, I simply disagree with that. With the housing, we’ve made it pretty clear what we’re doing is working with existing tax law. We’re bolstering it, we’re making it enforceable, and I think most people would see that the impact on the housing market’s going to matter a lot more than the word game over whether it’s a new tax or not.
So on that, what do you say to those who argue that this extension of that existing capital gains or this change in tax rule won’t make any difference, won’t raise much revenue and will just add to compliance costs. What do you say to them?
Well, it’s a bit hard to tell with this kind of tax. In the first place, we don’t know exactly how much influence buying and selling houses within in two years has on Auckland house prices. If it’s having a big influence, then the change in rules will have an impact. If turning houses quickly by speculators isn’t really having much influence on Auckland house prices, then we probably won’t see much influence— much impact on Auckland house prices.
So it might have an impact; it might not?
That’s right. We’re not quite sure. And the other thing that happens with these taxes you may not collect more revenue, but it may change behaviour in a way that means you don’t collect revenue.
Well, just on that, because I want to quote you, actually, on this from 2013 in Parliament, ‘Further extension of the current tax on capital gains is likely to have high compliance costs, and that is a conclusion that three tax enquiries, several governments have come to over 20 years. If it excludes the family home, like it does, it will not make much difference.’ These are your words, Minister. ‘It will not raise much revenue. In overseas jurisdictions, it has not improved housing affordability,’ so what’s changed?
The Government’s position around the tax hasn’t changed. We’re making it more enforceable. We’re bolstering it.
But you’re talking about it here, and you’re saying that the tax won’t work 18 months ago, so what I’m trying to get my head around is what’s changed.
Well, we don’t know exactly what impact it will have. One thing that has changed for the Government is we’ve found a simpler way to enforce existing law, which is the provision of IRD numbers and tax numbers from offshore jurisdictions.
Yeah, but that’s slightly separate to the new tax rule. So you’re saying today that your words could actually be right, aren’t they? Your words from 2013 could actually be right. This tax might not end up having any impact.
Well, you know, we’re hypothesising a bit, so we’ve always had the view that the main driver of house prices in Auckland is supply. Some people have said that foreign buyers speculating is what drives Auckland house prices. Now, I’m a bit sceptical about that. These measures will have some impact on foreign buyers who are speculating, but I think it’d be a brave person who would say they know what difference that will make to house price inflation in Auckland.
Okay, so it may make no impact at all?
Well, we’ll find out.
Now, on the foreign buyers, the provision of the IRD number, if you get information back from that that shows that foreign buyers are an issue, more of an issue, perhaps, than you think, will you act on that? Will you act on that? If the information proves what a lot of people think is happening with foreign buyers, will you do something and act on it when you get that ‘perfect information’, as the Prime Minister calls it?
Well, that’ll be what the Government will have to consider at the time. Between now and whenever that information shows up, there’ll be a withholding tax come in, where if an offshore buyer who is technically a non-tax resident sells a property, then there’ll be a withholding tax payable to IRD before they can execute the transaction. Then we’ll see what information comes out over time about who’s buying what, and I wouldn’t want to pre-judge how the Government will see that, but we’d surmise that that the foreign buyers may have some influence. It would have to be pretty significant for the government to decide to take draconian action about it.
On that new plan in the Budget – the public land being opened up to private developers. Have you got some idea of how much will be affordable on that public land?
Well, it hasn’t been predetermined, but we would like as many of them as possible to be affordable for middle-income New Zealanders who are looking for houses. We’re unlikely to be building hundreds of McMansions across the Auckland landscape. There are plenty of other people doing that.
But you will allow these developers that use this public land to build houses that aren’t in the affordable zone if it means them making money is part of the deal to get them on there?
That actually is a good point. You’ve got to get a mix here to make the economics add up, but this policy gives us a very direct—opportunity for direct negotiation with developers around the quantity, type and value of the housing that we build.
What’s a good figure for you? Because you must have a figure in mind. Is it 80%? What’s a good number that you’d be after?
Well, as many as possible, but I wouldn’t want to pre-empt a commercial negotiation process. We’ve got to make sure that we’re getting value. It’s got to be viable for a developer to come along and do it. Certainly, that preference is for more affordable housing if we can secure that.
So on that, the developer, they obviously don’t pay the government for the land until the house has sold. That’s the deal, right? When is that land priced? Is it priced when they come in at the deal, or it priced when the house is built later on?
Again, that will be a matter for negotiation, and we will use a comparable structure to Christchurch. I wouldn’t want to get ahead of a commercial process.
But that commercial process is important, isn’t it? Because it’s public land, and it may be that a developer can get some windfall profits out of this.
Well, it will be fully transparent, as are the deals happening in Christchurch.
Do you think that the Auckland Council should be doing the same thing – going out, auditing what it owns in Auckland, what it’s not using in Auckland and essentially doing the same thing as the Government and saying, ‘Hey, this should have some affordable housing put on it.’
We’ve been having those exact discussions with Auckland City Council just in the last couple of weeks. They’re reorganising their own operation. Remember, Auckland City is an amalgam of eight or nine other councils, so they’ve inherited a lot of land from other councils. They seem to have got to the bottom of that, so it is quite a positive environment there, where the Government and Auckland Council and Housing New Zealand and Tamaki Redevelopment Company will all be up there over the next 6-12 months procuring new houses, new supply on public land, for Auckland.
So we could see Auckland Council free up some of its public land as well? It might not just be government land?
Yeah, Auckland Council will be going to the market with land that Auckland Council owns. There will also be some we do together, such as in Tamaki, where Auckland Council has some land. We have a lot of land, and there are opportunities to work together.
So this 430ha that’s been put up in this Budget announcement, is that all of it, or is that just the start of what we’re talking about here?
Well, at the moment, that seems to be the extent of under-utilised Crown land that is appropriately zoned.
I want to look at the hardship package now. Raising benefits – straight after the election, John Key rejected benefit increases on this programme, saying, ‘If it was just a matter of a bit more money on the benefit, I would strongly suggest governments would have fixed it in the past.’ So why this, another U-turn, essentially? Why more money for the benefit?
Well, it's not a U-turn. There's two tracks here — one we've been working on three or four years and that is looking at individual families in communities and at the kind of issues that lock them into long-term dependency and what the experts call persistent deprivation; that is people on a very low income for year after year — six, seven years — and that's under our label of social investment, and we're starting to make some real progress in understanding the cycle of violence, low income, no education, no employment and criminal offending that locks families in. Alongside that, though, as the Prime Minister indicated on election night, some of these families are in sufficient hardship that can't wait round while we deal with multi-generational problems; they need some cash now, and the evidence from MSD surveys has been that, you know, there's families where children can't get enough to eat and enough clothes, and so they need some cash to help.
So, on that, you know, you said when families rely on a benefit, it has to be enough for children to get a decent upbringing; is 25 bucks a week, is that enough for a decent upbringing in your mind?
Well, it's going to help. I don't think we pretend that it's going to meet every need that any family would want. It's going to help—
It's decent, is it? It's decent.
Well, as we've said— Look, it's going to relieve some of the burden of hardship there, bearing in mind that we want to make sure that there's still pretty clear incentives for these families to get into work, because work is the best way out of welfare dependency.
And on this kind of thing we're talking about it's a long way from the National Party of Ruth Richardson. It's a long way from the National Party of Don Brash, you know, that you were part of. What's going on here. What's the change? It is quite different, isn't it? Are you copping some flack from the right wing of the party?
No, I think it would be a bit of a mistake to see it in those kind of political terms. I mean the National Party is still the National Party, but, you know, as the Prime Minister signalled pretty clearly on election night, this is a National government that has spent quite a bit of time on social-type issues because these are the drivers of government spending; it's what makes government big — is we've got all these social problems, which in 30 years— well, there hasn't been much progress until the last three or four years when there's been some real progress, so we're working now on an environment where we have confidence in our welfare and housing reforms, which do help people to transition out of dependency, and, in that context, then you can probably put a bit more money in. In the past, there wasn't the confidence, actually, that you'll get people out of dependency, and there was a real concern if you gave more money to the households, they'd just stay where they were.
And on the KiwiSaver — kick-start's gone now. I mean let's— Are you sort of robbing the piggy bank to get the surplus? Are you discouraging people from joining KiwiSaver, saving that money, to help you get across the line with that surplus?
No, we’re not. Look, the best thing that’s happened for savings in recent years is the tax which back in 2010 that cut the tax on savings, when with income tax cuts, and put more of the taxation burden on spending. The net effect of that is more incentives to save, to work, to invest, and New Zealand savings rates are now— have been positive for five years for the first time in decades.
So on that, auto enrolment, which you have promised, it’s now actually cheaper to do that, isn’t it, because you don’t have to pay the kick-start if you auto enrol people. When will we see auto enrolment?
Well, we haven’t put a specific date on it, but we’re still keen on that concept, because it tips a lot of people into KiwiSaver and they again— who aren’t there, and they have to make the choice to get out.
And it’s easier, it’s cheaper now, isn’t it?
That’s right. It would be considerably cheaper, and once we implement this policy, we’ll just go back and see just what the costs are likely to be.
So will that happen, auto enrolment, or will that happen when you get back to surplus, or can you do it sooner? Will we see it before the next election?
Well, getting back to surplus would certainly help. I mean, as we head into surpluses, we have the capacity to do things like auto enrolment and then eventually to restart contributions to the New Zealand Super Fund.
All right, Minister, thank you very much for your time.
Thank you.
Transcript provided by Able. www.able.co.nz

ENDS


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