1. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
Is it Government policy to introduce the ring-fencing of losses on investment property?
Why did he suggest ring-fencing losses on investment property when, on 25 July 2005, he told the Wellington Property Investors Association seminar that “our position on the taxation of property is that the status quo is quite adequate, … change does not promise significant overall benefits … In other words, any new form of property tax is off our agenda.”; or is that just the sort of thing he says before an election?
Hon Dr MICHAEL CULLEN Link to this
Since that time we have had 2 years of continuous increases in the heat in the property market, increasing interest rates, a high dollar, and, more important, the publication by the Reserve Bank and the Treasury of their suggestions around supplementary stabilisation instruments, including, of course, suggestions around changes of this sort. I am not afraid to discuss ideas when they enter the public arena.
Hon Mark GoscheHon Dr MICHAEL CULLEN Link to this
The Government is concerned about the long-term impact of the high dollar on the productive sector of the economy. I agree with the Canterbury Manufacturers Association that we need to have a debate on these issues. That is why Treasury and the Reserve Bank produced their supplementary stabilisation instruments report, and why, I assume, there is a select committee inquiry. What I cannot accept is Mr English’s approach of turning a blind eye to the problems of exporters.
R Doug WoolertonWhat was the effect of the tax changes surrounding investment properties made in 1991 by Ruth Richardson?
Hon Dr MICHAEL CULLEN Link to this
We moved from a position where net taxable income on rental property was about 80 percent of the gross income on rental property to one where over the last few years the net taxable income has averaged about 10 percent of the gross income on rental property. That suggests an interaction between the taxation regime and the ability to gear on property that is causing significant over-investment.
If ring-fencing tax losses and biasing the tax system against housing is not Government policy, does the Minister intend to advocate it until it is Government policy, or does he agree with the position of a spokesman from the Prime Minister’s office that that is a matter that will be dealt with by the Finance and Expenditure Committee inquiry, which increasingly seems to be where economic policy is meant to be made under Labour?
Hon Dr MICHAEL CULLEN Link to this
I get the impression—perhaps I am misled—that there is a discussion going on in a range of fora at the present time around these possibilities, but I am surprised to see an Opposition spokesperson suggesting that it is wrong that a select committee should be able to discuss what policy should be for either the short or the long term.
Hon Dr MICHAEL CULLEN Link to this
No. Unfortunately, there are no silver bullets in economic policy, but I am open to exploring options to address what is a serious issue facing this economy. All I have heard from Mr English is that he thinks interest rates should have been raised higher earlier and Government spending should be slashed. He is not prepared to engage in any intelligent discussion of other options, even those proposed by Treasury and the Reserve Bank.
Jeanette Fitzsimons Link to this
Will the Minister’s investigation of supplementary measures look at individual measures such as ring-fencing and isolation, or will he explore the effect of a holistic package that could combine ring-fencing with a capital gains tax on all investments except the family home, and more Government investment in low-cost rental housing?
Hon Dr MICHAEL CULLEN Link to this
I think it is fair to say that, if one was looking at a capital gains tax, which I am certainly not, it would apply to all asset classes. I think the arguments in favour of such a tax, which probably 20 years ago were quite strong, become much, much less strong in the intervening period of time, for a whole host of reasons. So I think that that is actually not a very worthwhile avenue to explore, not least because it comes, in effect, at the end of a process, rather than trying to address the over-investment at the start of the process.
Now that the Minister sees his main political role to be criticising Opposition propositions to reduce taxes, will he also be criticising the statements made by the Associate Minister of Finance Trevor Mallard, who announced in the Melbourne Age today that Labour will be cutting personal taxes in the next election, probably by increasing thresholds?
Hon Dr MICHAEL CULLEN Link to this
On the second point, I have already announced that it is likely we will be making announcements—I did so before the Budget—around changes to personal tax rates. Mr Mallard expressed a preference for one option. There are many, many options around how one can address the issue of personal taxation. On the former matter, it is a rare event when the Opposition expresses a clear view on policy. It will have to get used to being kicked around that for the remainder of this term of Parliament, as it comes up with the remaining three ideas between now and the election.
Rt Hon Winston Peters Link to this
Why has the Minister of Finance not considered four silver bullets over the last 20 years—or now, so belatedly—such as: a national savings strategy, a wise immigration policy, an export-sympathetic series of policies that have been adopted by other First World countries, and, last of all, a respectable investment regime safeguarding investors in this country, thereby removing our obsession with housing over these last 20 years?
Hon Dr MICHAEL CULLEN Link to this
It is certainly correct that in the last few weeks we have moved significantly on the savings regime, with bold moves that I think people are beginning to really understand how significant they are and how much they will benefit a very wide range of the public. We made announcements this week around the regulation of non-banking financial providers. We are looking at further ways to underpin exporting. I think what underlines a number of these moves is that there is no such thing as the Holy Grail of a perfectly level playing field. A perfectly level playing field in taxation often results in quite different outcomes in different parts of the economy.
Which Minister of Finance should we listen to: the actual Minister of Finance, who has now floated two disastrous proposals to try to cool down the housing market, being the interest rate levy and the ring-fencing of losses on investment, or the Associate Minister of Finance, who is announcing policy that the Labour caucus actually supports and that everyone believes will happen in the next Budget?
Hon Dr MICHAEL CULLEN Link to this
I advise the member always to listen to the once and future Minister of Finance in that regard, and the member is talking to him at this precise moment.
Why is it that Labour Prime Minister Helen Clark would keep Dr Cullen in the finance portfolio, when Trevor Mallard has now taken over next year’s Budget, Winston Peters is running the savings policy, a select committee of Parliament is running monetary policy, and, according to Morning Report this morning, Russel Norman is doing his media?
Hon Dr MICHAEL CULLEN Link to this
I would never be reduced to the last state of affairs; I am sure of that particular matter. I am actually running the process for next year’s Budget. What the member might care to explain on such a matter is why his leader went to Sydney and told the trans-Tasman leadership forum he was totally in favour of the Australian relationship and the single economic market, and Bill English told the mood of the boardroom in Auckland he did not care much about the Australian relationship and he disagrees with Mr Key on so many issues we are running out of paper to write them down on.
Can the Minister confirm that in fact he has already moved into Opposition, because he spends most of his time as Minister of Finance criticising the policies of the Opposition at the same time as miscueing and failing to execute all his own proposals?
Hon Dr MICHAEL CULLEN Link to this
In an average 14-hour day I probably devote about 5 minutes to the Opposition. I find it difficult sometimes to stretch it out that far.
Jeanette Fitzsimons Link to this
With regard to stabilising an overheated market, who does he think he is accountable to as Minister of Finance: 200,000 property investors, or 3.9 million New Zealanders who need an affordable roof over their heads?
Hon Dr MICHAEL CULLEN Link to this
In the first instance, I am accountable to the Prime Minister. In the second instance, I am accountable to this House. In the third instance, I am accountable to New Zealand as a whole.