There was one very important word in Jack Tame’s interview with shadow finance minister Nicola Willis on TVNZ’s Q+A this morning about National’s policy to introduce a 15 per cent foreign buyer tax on the sale of houses over $2 million.
It was evident from what Willis said that National had not sought advice on tax treaties before the party’s taxation policy release on Wednesday by herself as finance spokeswoman.
Yes, they had sought advice on trade agreements, she said, but when Tame pressed her about tax treaties, this is what she said: “We have subsequently talked to people about tax treaties because the view about tax treaties is that it does depend on whether or not the foreign buyer charge is seen as a tax or not, and also depend on the country you are dealing with.”
“Subsequently” means after the policy release.
That suggests National overlooked the possibility it might breach the rules of New Zealand’s bilateral tax agreements until it was too late. That gives it a very strong incentive to say it doesn’t, even if it does. And National is saying with the utmost confidence that it doesn’t.
It is leading to an important dispute that goes to the credibility of the policy and perhaps ultimately to National’s claims to be better economic managers.
It is also an important dispute because the 15 per cent tax, which Willis has stopped calling a “tax”, is by far the biggest revenue-raising part of the party’s $14.6 billion policy.
Willis said it would raise $2.9b over four years or at least $715m a year to fund National’s tax promises.
She and National leader Christopher Luxon have attempted to dismiss questions about breaches of tax treaties as merely political opposition.
Willis labelled it a sign of desperation that former Revenue Minister David Parker would bring up the matter of New Zealand’s tax agreement with China that says Chinese nationals cannot be taxed more than New Zealanders.
Luxon today, when asked about it after the party’s campaign launch, said he was not going to take lectures from Finance Minister Grant Robertson about holes in their plan and that the policy was “rock solid”.
The trouble for Luxon and Willis is that while National is not willing to release its own advice on the policy, tax experts and economists are openly casting doubt on it.
Q+A presented statements from Auckland University tax law expert, Professor Craig Elliffe, who is director of the New Zealand Centre for Law and Business.
He cited not only the tax agreement with China but similar non-discrimination clauses in agreements with the United States, Britain, Canada, Japan, Mexico, Hong Kong, India and Australia.
Elliffe said he expected a “significant possibility” of a challenge by the taxpayers concerned, and the treaty partners could terminate the agreement or negate other parts of the agreement.
The non-discrimination clause in New Zealand’s tax agreement with the United States says: “Citizens of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is more burdensome than the taxation and connected requirements to which citizens of that other State in the same circumstances are or may be subjected.”
Elliffe is not the only expert disputing the policy. Economist Shamubeel Eaqub told Newshub Nation on Saturday that the revenue estimates on the foreign buyers tax were “bullshit”.
The debate with experts is different to the one about the impact of Labour’s policy to remove GST from fresh and frozen fruit and vegetables. Not a single expert could be found to praise it - but it was about the degree to which low-income households would benefit from the policy, not whether it could legitimately be done.
This debate is about whether the policy breaches the rules signed up to by New Zealand. It is about legitimacy.
The argument Willis took was that because Chinese residents were currently totally banned from buying houses in New Zealand, China’s Government surely would not object to a relaxation of that ban even if it were conditional on a 15 per cent tax.
“Let’s get in the real world,” she told Tame. She did not believe China would cause a “diplomatic incident” because its citizens would be going from a total ban to a conditional relaxation.
“That’s a step forward in terms of their rights with regards to New Zealand, not a step backwards. So we are confident that this can be diplomatically managed.”
She and Luxon continue to say they are comfortable that their policy can be implemented.
They also appear to be betting that if they say that confidently enough, people will believe them.
It would be a lot easier to believe them if they released the opinions on which their confidence is based.