- Debate resumed from 21 August.
Hon Dr MICHAEL CULLEN (Minister of Finance)
: The current bill, the Income Tax Bill, contains the redrafted parts from Part F to the end of the bill, which I think is Part Z by sheer coincidence, and re-enacts and consolidates earlier parts, renumbering various sections. It is the culmination of 15 years’ work towards making New Zealand’s most widely consulted law more accessible and user-friendly.
The Income Tax Act is a very old piece of legislation, dating back to 1891. Over the years it has been hugely amended and recast, and expanded significantly to reflect the changing nature of tax and business. It was not until the early 1990s that the legislation was comprehensively reviewed, from a basic structural and presentational perspective, by the Valabh committee, the consultative committee on the taxation of income from capital. That committee’s report highlighted various weaknesses in the legislation, and proposed a number of solutions. These included reorganising the legislation into a more logical and coherent structure, and consolidating certain parts of the legislation. It also recommended a commitment to modern drafting techniques and plain language in redrafting.
A major feature of this mammoth exercise has been the close collaboration, through all stages of the project, between the public and private tax sectors. Submissions from professional groups and individuals have played an important part in resolving a range of issues during the project, including the issue of transitional structural policy, and technical and drafting questions. The guiding principle throughout has been not to change the law as expressed in the current tax legislation but to re-enact it in as user-friendly a form as possible. The resulting bill, hopefully to be enacted later, is a tribute to the process, and to the people involved in bringing the bill to its second reading: the members of the rewrite advisory panel under Sir Ivor Richardson, the drafters, the tax specialists in both the private and public sectors, and the successive Ministers of Revenue, I think beginning with the Hon Wyatt Creech. He was the Minister who began this process of the rewrite of the Income Tax Act.
I finish by pointing out that we are the only country in the world that has successfully completed this project. Other countries have attempted to do so, but have had to abandon the project part-way through. That in part is because some of those countries have much more complex tax legislation than New Zealand—surprising as that may seem to many users of our tax legislation—and it is actually very, very difficult to complete the process.
Hon PETER DUNNE (Minister of Revenue)
: First of all I acknowledge the Minister of Finance, who moved the third reading of this bill a few weeks ago during my absence from the House while I was at a funeral. I am grateful for his taking charge at that point. It was appropriate, because he is one of those Ministers of Revenue he referred to as having been involved in the passage and development of this very lengthy legislation over the last 15 years.
The work began in the early 1990s, in the time when the Hon Wyatt Creech was Minister of Revenue. My own involvement began in 1996 when, after becoming Minister of Revenue for the first time, my first visitor was Sir Ivor Richardson, to update me on work with the rewrite project and to advise me that I would be overseeing the introduction of the second stage of the legislation, which was the core provisions section.
When I became Minister of Revenue again in 2005, my first caller was the same Sir Ivor Richardson, to advise me that one of my early tasks would be to oversee the introduction of the final stages of this bill. So I am personally delighted to see this five-volume rewrite exercise completed. I am delighted to acknowledge the work of Sir Ivor, Robin Oliver and the team at the Inland Revenue Department, the rewrite panel, and all who have been involved over the years in bringing to fruition a task that many would have thought was beyond us.
The Minister of Finance referred to the fact that we are the only country to have begun such an exercise and to have completed it. My understanding is that the United Kingdom began such an exercise, but after a length of time not dissimilar to ours, abandoned it because it was too difficult. The Australians began but stopped halfway through, and as a consequence now effectively have two income tax Acts, and more problems ahead of them.
That this exercise is significant should not be underestimated. For the first time we now have in plain English, and in one set of documents, our income tax law. It will make it easier for those who work with the law—the practitioners and the law officials themselves—to navigate their way around our complicated law. That in itself will assist in making compliance with our system that little bit better.
I will indicate the next stage for the rewrite panel. Now that the panel has steered this project through its various stages, one might be forgiven for thinking that we are quite happy to let the panel members enjoy a little bit of leisure. But I advise the House today that we see an ongoing role for this panel, in overseeing the processes of redrafting and in ensuring that public consultation has been brought to a successful conclusion. The panel will continue in operation to deal with any unintended changes that have arisen as a result of the rewrite of this law.
One of the things that we all know about tax law is that it is dynamic. It is never set in place for any particular period of time, and it needs to be constantly revisited. We are very fortunate to have a rewrite panel, under the calibre of leadership of Sir Ivor Richardson, to keep an eye on these things as we move through.
When I was in Canada a few weeks ago I was intrigued to be presented with a copy of that country’s first income tax Act, which was passed during the exigencies of war in 1917. It is a very slim document, not much thicker than one of our Order Papers. It has a couple of operative clauses to which I was attracted, and I was very tempted to move a
late series of amendments to this bill to incorporate those clauses. The first clause states that the Minister of Revenue shall levy: “what taxes he sees fit upon what individuals he sees fit, and that in pursuing those individuals for those assessments he can employ whatever method he likes and can deputise whatever set of officials he likes to carry out that duty for him.”
I was very attracted to those provisions. They may well be the next stage of the rewrite process of this bill! It would be much simpler in many senses. But I think that in itself that demonstrates just how complex tax law has become right around the world since those days when income taxes were still a very novel concept.
This is not the sort of issue that will excite huge public interest, but it is one that people should be very satisfied at the outcome of. It has been one of the most mammoth projects that has been undertaken in the history of this Parliament. It is no coincidence that the consequence is probably the largest single piece of legislation ever to be passed by this Parliament.
I simply conclude by acknowledging again the contribution of the rewrite panel—in particular, the strong leadership of Sir Ivor. I acknowledge successive Ministers of Finance for their work, and successive Finance and Expenditure Committees for their work, as well. I also acknowledge all of those who have worked with the officials to bring this very important and lengthy project to what I regard as being a particularly successful conclusion.
Dr the Hon LOCKWOOD SMITH (National—Rodney)
: National will support this motion, because this really has been a bipartisan effort to rewrite New Zealand’s Income Tax Act. As has been acknowledged, it was actually started by the then National Government during the 1990s. The current Minister of Revenue, as he said, was involved in 1996 in that process.
Just reflecting on the comment the Minister of Revenue made a moment ago, I would hate the thought of someone like Dr Cullen having the power to levy whatever taxes he chose on the people of New Zealand. Dr Cullen has been proven to be one of the most rapacious tax collectors as Minister of Finance that this country has ever seen. It is just staggering to think that in the 7 years, almost 8 years, that this Labour Government has been in office, the average fulltime wage has gone up from about $36,000 to about $45,000, something like that. One would think that was quite a significant increase in income, yet after we adjust for the fact that a person has gone into a higher tax bracket after going over $38,000 of income—after we adjust for that fiscal drag and calculate how much tax they are paying today, and after we adjust for inflation over that time period—the average income earner in New Zealand under this Labour Government is actually worse off.
That is why I say that Dr Cullen has proven to be one of the most rapacious tax-gatherers this country has ever known. It is just outrageous that during a time of economic growth—not much to do with this Labour Government; world economic growth has been pretty good—because of the foundations laid by the third Labour Government in the mid-1980s and then by the National Government of the 1990s, the Labour Government has cruised under pretty benign world economic conditions. It was a wonderful opportunity to raise standards of living in New Zealand. But what has happened? The average income earner in New Zealand is actually—in real dollar terms, after accounting for tax—worse off than when Labour came into office. I think that is an indictment on this current Labour Government.
I, too, add my thanks for the work done by Sir Ivor Richardson and his team on this income tax legislation rewrite. I also acknowledge the massive input by a group of officials at the Inland Revenue Department, who I think serve New Zealand particularly well. I want to acknowledge one of the senior officials, Robin Oliver, who has done a
lot of work for successive Governments on tax policy. He is an outstanding public official for New Zealand, and I acknowledge the tremendous contribution that he and his team have made to this daunting process.
When one looks at the bill on the Table of the House this afternoon, one wonders whether they actually have had to strengthen it to hold the bill, because 3,000-odd pages of it is certainly a weighty piece of legislation.
Having said that I congratulate those who were involved in this work, I do want to raise a concern that I have. One of the successes of the successive, ongoing rewriting of parts of this Act—as various parts have been rewritten over the years—is that there has been thorough examination of the rewriting work at the Finance and Expenditure Committee. New Zealand’s accounting experts have been able to come along to the select committee and argue fine detail, such as whether “place of abode” means the same as “dwelling place”, those kinds of things. It may sound meaningless whether “place of abode” is the same as “permanent dwelling”, or language like that, but in fact these issues were proven to be important for tax purposes. So the select committee had to reason with the officials, and make sure that the wording that was used in this new rewrite did not change the meaning of our tax law.
I believe that that was a very important part of the process, and that it helped make the successive rewrites of the various parts work for New Zealand. What happened in the final stages was that, right at the last minute, the Government brought into this House Supplementary Order Paper 136—a Supplementary Order Paper of 250 pages. That Supplementary Order Paper contained a rewrite of legislation that was passed by this House basically in the last 12 months—such things as the Taxation (Savings Investment and Miscellaneous Provisions) Act of 2006, which was the Act that brought in the very complex legislation around the changes to taxing offshore portfolio investment. That Act brought in what Labour calls the fair dividend rate. I would not call it a fair dividend rate, but that is what Labour chose to call it.
That Supplementary Order Paper brought a rewrite of those kinds of provisions into this rewrite of the Income Tax Act. What was important about it—and I really emphasised this at the Committee stage of the bill—was that the select committee never got to hear what tax experts up and down the country thought about the incorporation of those provisions, which were not written in the language of this rewrite. Those provisions were not written in the language of this rewrite of the Income Tax Act, yet they were incorporated into it. I presume the language was changed to actually make it consistent with the rewrite of this Act. The select committee was unable to hear any submissions on that work—and it involved a lot of work, because there were 250 pages of tax legislation in Supplementary Order Paper 136.
What troubles me still further is that during the final consideration of this rewrite by the Finance and Expenditure Committee, I questioned officials about some parts of the income tax that had not actually been rewritten at that stage. For example, parts covering Part M and Part N, but particularly Part M of the Income Tax Act, because Part M, in particular, covers the legislation surrounding the family tax credits. This Labour Government did not introduce these family tax credits—they were introduced by the then National Government, in fact, in the 1990s—but it has expanded them and made them hugely more complex since it has been in office.
What we were told at that final Finance and Expenditure Committee consideration of this legislation is that the material covered in Part M was just too complex to include in this rewrite—“too complex” was what we were told. People who are familiar with our Income Tax Act, and familiar with Part M—the whole Working for Families tax credit part—will tell one that it is incredibly complex legislation. Very few people understand it. That has now been incorporated into this rewrite that we are debating in this third
reading this afternoon. The select committee has had no chance to hear tax experts’ views about whether the complexities of Part M have been adequately covered in this final version of the bill that we are debating in this third reading, and it will go into our law this afternoon.
That is what troubles me about this Labour Government’s final handling of this long and important rewrite—so carefully handled, right up until this last stage, and then at this very last hour, with Supplementary Order Paper 136 being rushed into the House, such complex and important parts of our legislation being incorporated into the rewrite without the chance for the select committee to debate or hear the views of our tax experts up and down the country on it.
Finally, let me make these points about this tax legislation, because the Income Tax Bill covers most of our tax law. Tax issues have become a major focus in recent weeks, with proposals by both major parties in Australia for a coherent programme of tax reductions. Under the proposals in Australia, low-income workers are going to be so much better off than will be the case under this Labour Government’s tax policy here. For example, a low-income person in Australia earning up to, say, $16,000 a year, once those proposals are implemented in Australia would be paying no tax—no tax at all. That same person earning $16,000 in New Zealand under this Labour Government’s tax laws covered in this bill will be paying $2,790 in tax. That is $2,790 more on $16,000 of income than someone would pay in Australia. That is almost $54 a week more tax paid here in New Zealand by a low-income earning person than in Australia.
That is just one issue. Take the Government’s much-vaunted Working for Families tax package. It says that it has raised so many children out of poverty. What the Government seems to ignore is the poverty trap, as so many women in this country try to work their way off a domestic purposes benefit. We all know the figures, or at least Labour should. If a person is earning $10,000 a year he or she is still getting most of his or her domestic purposes benefit. To get off the domestic purposes benefit, that person has to be earning over $25,000 a year. To earn that extra $15,000 a year that person basically has to work an extra 20 hours a week at $15 an hour—an extra 20 hours a week. At $15 an hour that person will get to keep about $1.60 of that $15 an hour. That is a poverty trap for low-income people, and these Labour members do not give a stuff about it. They do not care, because Working for Families at the last election was just a big vote-buy, just like interest-free student loans. They did not care a jot about low-income people, and all those anomalies are in this Income Tax Bill.
R DOUG WOOLERTON (NZ First)
: New Zealand First supports the rewrite of the Income Tax Bill. It is true, and I do not know whether everybody knows, but this rewriting of our tax legislation goes right back to the days of Roger Douglas in this Parliament. It has been a huge, huge task, and one needs only to look at the formidable tomes on the Clerk’s desk to see the size of the work. The rewrite was to bring the law into modern-day language. In many cases it was to line it up with Australian tax law. As Dr Lockwood Smith has said, it is ongoing, and he makes a criticism of that. But he does know, and he admits, that all tax law is ongoing. One can never capture it all in one lot and have the world stand still after that.
Encompassed in this, of course, are the new changes that Dr Smith talked about. New Zealand First has been a particularly strong advocate of the Working for Families package that is an add-on to this tax law. We are fans for that legislation because we do not believe that flat tax cuts right across the board do the job any more in New Zealand. We believe they are unsophisticated. We do not believe that they send the right messages. We do not believe they reward the right people, and we do not believe that they do the right thing for the economy. Everybody knows that a tax cut right across the
board will reward those who earn more money to a greater degree than those who earn less.
It is true that the Working for Families package came out at about the time of the last election. I used to tell people that my son and his wife had just had another little child and my daughter-in-law had given up working for a period of a year or so. I said that the tax cuts that were proposed by one side of the electoral spectrum at that stage would have given me, personally, about a $90-a-week tax cut, and would have given my son, his two young children, and his young wife nothing. In fact, the Working for Families package gave him in excess of $100—just over, I think—per week, and gave me nothing. I think that that was right. I thought that was right and proper then, and I think that is right and proper today.
As well as that, Dr Smith talked about an issue that I know genuinely concerns him, and I respect his concern. He talked about the poverty trap and getting out of poverty, and he talked about the area we call “round the margins”, where one goes back to work and is reasonably highly taxed on the first few dollars earned over a certain level. That is recognised in the Working for Families package, and I say with due respect that it was criticised by the National Party because it goes right up to a household income of $70,000 or thereabouts. That was the way that we got around that poverty trap business. I think everybody would accept that although $70,000 is not a king’s ransom, it is certainly a long way from poverty. I think it is right in this modern age that we first of all look at the income for the household and that we take—
Dr the Hon Lockwood Smith: You are still facing a 60 percent effective marginal tax rate at $70,000.
R DOUG WOOLERTON: Yeah; at the margins. I understand that argument and accept it, and I know the member is genuine about that. But we have here a solution to that. We can provide that solution by messing around at the margins or by taking the tax cut higher up the scale, which is what the Government chose to do. We think that that is the more elegant solution. There is always a problem around the margins when people move on to the next tax rate, but we believe that it can be dealt with better if people are getting a tax cut to that level. I do not believe, as I said before, that a tax cut of the same percentage across all income levels provides justice. I think it would provide more inequities than the solutions that the Labour Government—ably supported by New Zealand First, I might add—has come up with.
Having said that, I think it is appropriate to congratulate the people who have involved themselves in this huge task. I understand that a tax rewrite has been undertaken in Australia and also in England with varying degrees of success. But we have a bill before us; it is here, and I think it is a wonderful achievement by the people who have embarked upon it. I must admit that some members of the select committee were rather more into the detail than I perhaps was, and I am sure that they will speak in more detail on the bill. But I pride myself on the fact that while there are others to do that level of detail I will look at the overall effect. I am happy to do that, and it does not worry me at all that I did not go through every page. We have people far more qualified than members of Parliament to do that, and they do literally slave over every word that is in these huge tomes we have before us.
Before I sit down, I want to talk about tax compliance in this country. Tax compliance waxes and wanes, but although tax is compulsory it is far better morally and legally if we can have a high level of voluntary compliance. In other words it is far better if people do not have to have the tax department sending them letters, piling on the compound interest, and threatening to take them to court and from there to jail. I have to say that in the past the people who have been in charge of our policy and our taxation system in New Zealand have understood absolutely that in this country we do
rely on a high level of voluntary compliance. They have altered the structures so that if a business is contemplating a deal, shall we say, it can go to the tax department and it can get, if not a binding opinion, an opinion on whether it will meet the criteria. I think that a taxation system and regime that allows that to happen and encourages working with the department and vice versa is absolutely what we should have in an enlightened country like New Zealand.
I am not saying that people enjoy paying tax. I am not saying that they should not work sensibly and within the law to get around paying excessive amounts of tax, but we should never have a situation that allows tax cheats and we should always have a situation that encourages compliance. At the end of the day it is tax that pays for schools, hospitals, roads, railways—
Craig Foss: The surplus.
R DOUG WOOLERTON: —and many of our other services. The surpluses will, I have no doubt, in time be used for those purposes, which are needed by us and by all citizens.
CHRIS TREMAIN (National—Napier)
: Mr Woolerton does himself a disservice in terms of his acknowledgment of his contribution to the Income Tax Bill. He, like other members of the Finance and Expenditure Committee, did pay strong attention to the detail of the bill. I agree that all of us did not read through every page of the 2,704 pages that comprise the bill, but we certainly paid due consideration to the anomalies that were raised by the submitters on the bill and by the officials. I think Mr Woolerton—like all members—paid due heed to those anomalies in consideration of the bill. Today, I join with him in supporting this motion going forward.
Before discussing some of the detail of the bill, I will take just a minute to acknowledge the work of David McGee. As a new member of this House I want to put on record the enormous support he has provided to new members. He has been an extremely approachable man and is extremely knowledgable. He has been highly supportive of new members of the House in all aspects. I want that to be put on record.
The Income Tax Bill marks the final chapter in a project that began back in 1992. I do not want to spend a lot of time on that, as Ministers Cullen and Dunne have canvassed the issue. It was commenced back in 1992 with Wyatt Creech, who was the then Minister of Revenue. It began in 1992 with the Valabh committee, which recommended that the structure of the Income Tax Act be simplified, made easier, and refined, and that it should be rewritten in plain language. That has been the whole objective of this particular bill. Seventeen years later we stand to debate the final stages of what has been a truly mammoth bill. Members of the gallery might want to have a look down on the table at the size of the legislation we are debating here today. My congratulations go to Sir Ivor Richardson and to the officials for undertaking this behemoth—this huge review of the tax legislation. I say well done to those people; they should take a bow.
The purpose of the bill is to make the legislation easier to understand. On behalf of accountants in the Hawke’s Bay and in Napier and of friends in the accounting fraternity—the likes of Andrew Bayley, Tony Mossman, and Giles Pearson, who are simply salivating over this new legislation and its simplification and over what that has done for them in their particular roles—I tell members that the fact that it is in plain language will be a big help for them. Its language is clearer and more concise. The writers of the bill have managed to get rid of a lot of the legal or archaic terms that have been associated with the historical legislation. It has been consolidated with far greater clarity and a heap of repetition has been cut down.
In terms of the bill’s style, the changes are significant, but its overall intention remains exactly the same. That intention is the framework that holds together the
policies of progressive Governments on the way New Zealanders are taxed. Under this Labour Government, new records have been set in the policy, in terms of the levels of taxation that hard-working Kiwis are now being asked to pay. My able colleague Dr Lockwood Smith referred to the rapacious—I think that was the word he used—ability of Dr Cullen to collect tax. We need only look at the statement of financial performance of the House in 2007 to see that the total revenue levied through the Crown sovereign power is some $56 billion—$56 billion is being levied by the Crown right now. We have only to go back to the same financial statements on 30 June 2000 to see that the level of tax that this Government was taking from hard-working Kiwis was $34 billion. We have seen an increase of $22.1 billion in the space of 6 or 7 years. It is unbelievable. That is a whopping $5,525 of additional tax per man, woman, and child in this country collected over just that short period. That is a 64 percent increase in direct taxation of this country. It is huge.
Under this Government there is unlikely to be change any time soon. This Government—in the Prime Minister’s words—is intent on building up the kitty. It is building up the kitty for this Government to fight in the next election. I have the proof. It is good that Minister Cunliffe is in the Chamber today, because he will be able to verify the proof of this building up of the kitty. I would like to refer him to the Cabinet paper from Michael Cullen’s report dated 19 April of this year. I specifically refer him to point 23 of that Cabinet paper. It states: “To maintain our commitment to the long-term fiscal objectives,” which is Cullen-speak for building up the kitty, “I may need to make some adjustments to future Budgets. These are likely to be:”—members should listen for it—“… that we do not adjust tax thresholds in the medium term thereby retaining fiscal drag and potentially allowing tax to GDP ratios to rise slightly.”
Chris Auchinvole: Which means?
CHRIS TREMAIN: I will get to it. The members of the gallery and public probably have no idea what it means. I will certainly explain it. The paper states: “Accordingly, this paper seeks Cabinet’s agreement”—which the Cabinet signed off on; I am sure Minister Cunliffe will agree with that—“to rescind our previous decision to adjust income tax thresholds … Within the projection period (i.e. from 2011/12 onwards) we will adjust tax thresholds for inflation, but some portion of fiscal drag might need to be retained to finance our decisions.”
Let us ponder some of those statements for a minute or two. Firstly, the report states that the Government will not adjust the tax thresholds. That means that as one’s income goes up one will be taxed at higher levels of taxation. One will simply fall into higher marginal tax brackets, so will be taxed more. Secondly, the report states that in the medium term the Government will not adjust anything. Medium term tends to be 5 to 15 years, so we are looking at a Government that will not do anything for our taxation in the medium term. It is in this Cabinet paper. The Government will retain fiscal drag. It will actually allow hard-working Kiwis to end up in higher tax brackets, paying more tax on their earnings. What is more, the Government acknowledges that it will allow the tax to GDP ratio to rise. That means that, going forward, it is prepared to collect a higher amount of tax over the whole national income.
The Government is acknowledging that it is not prepared, despite this massive tax take, to give any back to hard-working Kiwis.
Chris Auchinvole: Is Dr Cullen a historian?
CHRIS TREMAIN: Yes. So how can hard-working Kiwis trust this Government when its members now stand up and say they might think about tax cuts at the next Budget, but in this Cabinet paper, signed off by the Minister across the House there, Cabinet says it is not going to adjust tax thresholds in the medium term, it is going to retain fiscal drag, and it is going to allow tax to GDP ratios to rise? That is what they
are saying, and they say it in this Cabinet paper. So the talk we get over there about maybe having a look at tax cuts in the next Budget does not stand up to muster, because the truth is in this Cabinet paper, signed off in April 2007. I want Kiwis to have a good long think about that.
In summary, we are here debating this Income Tax Bill tonight. It has been a mammoth piece of work. It sets the foundations for the wider tax structure—the framework within which policies of Government around tax are set. But, Mr Assistant Speaker, I have to tell you that the way this current Government is taxing hard-working Kiwis, it is no wonder that more and more Kiwis are leaving this country, going overseas, and seeking careers in other countries. Thank you, Mr Assistant Speaker.
Hon DAVID CUNLIFFE (Minister of Immigration)
: We are debating the Income Tax Bill at its third reading, and it is an appropriate opportunity to reflect upon the hard work of the Finance and Expenditure Committee, its advisers, and the Inland Revenue Department over a very long period of time doing a mammoth task of cleaning up a bill that had been sequentially amended, with sticking plasters in patches, and had become very, very difficult legislation for both practitioners and members of the general public—like Craig Foss—to interpret. The advantages of the rewrite are that it is a comprehensive rewrite, that it is in plain English, and, importantly, that the rewrite itself does not change tax policy.
Some time ago, when I was a member of the Finance and Expenditure Committee working on earlier stages of this bill—which probably shows how long it is that it has been in the pipeline—it was very clear, and it has remained clear since, that this is not a vehicle for changing tax policy. There is a generic tax-policy process that we follow to do that involving extensive consultation with the industry and with the public, and this is not that. This is a tidy-up, it is a rewrite, it is a once-in-a-generation clean slate for legal draftspeople, which will leave both the practitioners and the public better off. In that regard it is something that, really, no reasonable person anywhere in this House would disagree with. It makes sense to have good, plain English law. It makes good sense to have a rewrite of legislation—mammoth task as it was—that helps everybody to understand his or her obligations.
So what, then, has the Opposition done with this debate? Rather than looking like a Government-in-waiting—which would imply that it had a certain seriousness about its approach to Government, governance, and policy; that it had done the hard yards in the back rooms; and actually had some ideas to contribute that would help grow our country and make us more productive—the Opposition has used this serious opportunity to repeat some old saws of economic “Billiteracy”. In the House today the Minister of Finance again drew attention to some of the rubber numbers that Mr Bill English, the Opposition finance spokesman, has used in regard to the hypothetical “Joanna Average”. The only good thing about that example is that it was nice to see the National Party departing from its historical sexism and actually calling the person “Joanna”—we give it some compliments for that.
But the issue is that National members got the numbers wrong; they got the numbers way wrong. The situation of the sole income worker without children on the average wage was calculated on the basis of using gross income instead of net income, and that error meant that Mr English understated the net increase in income by a factor of three—that is, the $500 increase, according to Mr English, was, in reality, according to Treasury figures, a $1,751 increase. We cannot have a shadow Treasurer who cannot do maths—
Hon Harry Duynhoven: Let alone work out GST.
Hon DAVID CUNLIFFE: —let alone work out GST, and let alone tell the difference between gross and net income. We in Labour can tell the difference between
gross and net income and we can tell the difference between gross and net debt, which is why we know that under Dr Cullen’s prudent stewardship we have gross debt down to around 20 percent of GDP and we have net debt down to below 0 percent.
The New Zealand Government’s books are in credit for the first time since we built the railway tracks in the 19th century. That is how good we are in terms of prudent governance, and it is a very, very important thing to remind members opposite—like Mr Foss, who sees the Finance and Expenditure Committee as a private tax consultant—that New Zealand’s fiscal strength is the foundation of all other growth.
It is the core business of a Minister of Finance to mind the cheque book, without which our accounts would slide into disarray. Why is that? There are three key reasons. Firstly we must maintain the debt anchor at prudent levels, and, as I have described, we have more than achieved that. Secondly—and members opposite may not have twigged to this fact—New Zealand has a very significant savings gap. New Zealanders spend about $111—this was the figure last time I looked—for every $100 they earn. That gap is reflected in our national accounts and in our external accounts. The Government has to maintain a surplus, because Kiwis maintain a deficit. If the Government did not do that, there would be the giant sucking sound of foreign capital leaving the country as our credit rating took a nosedive. The Government is encouraging better private savings habits. That is why we have the Superannuation Fund, that is why we have KiwiSaver, and that is why we have KiwiSaver Plus, all of which will make an immense strategic difference to New Zealand. But there is a third reason—which is extremely important as well—which is that we are an economy running at full speed at the moment, or as near to our non-inflationary maximum as we can sustainably go. The Governor of the Reserve Bank is warning that any further fiscal pressure would have an upward impact in interest rates.
It may not have dawned on members opposite that Government spending and tax cuts are both inflationary. It is one thing to have a strong balance sheet, it is one thing to have a strong fiscal position, but it is quite another to be able to spend that money without encouraging inflation. What does that mean for mum and pop Kiwis? It is very simple. There is no point in giving them a $20 a week tax cut if their mortgage goes up by 100 bucks a week. They would be 80 bucks a week worse off. That is the kind of maths that the Opposition—soon to be Opposition again for another 3 years—just cannot get its head around. Prudent fiscal management means looking at the Government’s accounts, and it also means looking at the macroeconomic balance, and the two have to be handled in tandem.
So how does the Opposition resolve this conundrum? Quite simply, it does it by flip-flopping. Bill English is contradicting himself virtually weekly, and John Key just does not know how to put a sock in it. He is so desperate to be liked by everybody he talks to that he just keeps talking. He keeps talking to the point where he keeps contradicting not only himself but also his finance spokesman. Take the example of broadband. Mr Key said: “We’re going to invest big in broadband.”, Mr English said: “No, we’re not.”, then Mr Williamson said: “Yes, we are.”, and Mr English had to say: “No, we’re not.” Who knows what the National Party position is; it would just be better if it formed it in private, rather than in public debate. In the last week Mr English has said that the Government keeps too much of its surplus. Then he said that the Government spends too much of the surplus. The National Party says it will not spend any more. Bill English said: “We are going to bring some discipline to Government spending.” That sounds fantastic, but at the same time it is criticising the Government for having too much discipline! Come on, National Party! Give us a clue; what is National’s policy? What would it do if it were in Government? Here is a hint: if it does not give the public the impression that it could actually govern, it will never get the chance. Goodness me,
the Greens have more chance of finding their way to the Treasury benches as prudent fiscal managers than the current Opposition does, because at least the Greens are consistent.
Craig Foss: They know their numbers.
Hon DAVID CUNLIFFE: They know their numbers. They want to run an expansionary fiscal policy in virtually any circumstance. But at least they are consistent. Bill English cannot tell the difference between expansion and contraction; he revolves the two weekly, like a revolving exit door.
I think the National Party needs to put Tau Henare in charge of its Treasury portfolio. There is a man with clear views. There is a man with clear opinions, who has the almost universal respect of his party. He is a paragon of virtue, a paragon of consistency, and would never fall into Bill English’s trap of contradicting himself and his leader on an almost weekly basis. Maybe a great brown hope is soon to emerge from west Auckland, and I do not mean John Tamihere—nor do the people of Waitakere. But that is another matter.
To sum up, this is not a tax policy debate. It is not—nor should not be—a fiscal policy debate. This bill is a once-in-a-generation tidy-up of legislation that has had layers of amendments laid down on it like sediment on the seafloor. It was time to give it a good dredging and clean it up. That is what has happened.
If I can end as I began, it is a matter of enormous credit to the Finance and Expenditure Committee over many years, enormous credit to its professional advisers, and enormous credit to the members who have worked long and hard on this bill that it is here in the House for its third reading. Mostly, I want to pay due respect to the Minister of Finance, Dr Michael Cullen, who has led this process over the last few years, determined as he is to match good law with sound and prudent fiscal management. That has been the foundation for the longest sustained expansion in New Zealand’s post-war history.
Dr PITA SHARPLES (Co-Leader—Māori Party)
: Tēnā koe, Mr Assistant Speaker. For most tangata whenua across Aotearoa, today will not be remembered for being the day the Income Tax Bill passed its third reading in the House, but today may have taken on some interest if tangata whenua had been aware of the connection that can be made between this Income Tax Bill and the seventh Māori monarch, Kīngi Tuheitia Paki.
Tuheitia is a direct descendant of King Tāwhiao, who lived from 1825 to 1894. Tāwhiao, the second Māori king, was absolutely committed in his drive for Māori autonomy. He established a Parliament, Treasury, and a bank to house Treasury. His Cabinet included Ministers of Pākehā affairs—that sounds good—lands, justice, laws, and taxes. Revenue was raised by voluntary donations, ferry charges in Waikato, tithing, taxes, fees, and fines taken by the local rūnanga. It was all paid into the king’s Treasury. Indeed, as the record goes, it was King Tāwhiao who had the first banknote in New Zealand printed. So significant was this early monetary foundation that, to this day, the Reserve Bank of New Zealand retains King Tāwhiao’s profile in its formal coat of arms.
Having established the symbolic relationship that exists between Tūrangawaewae Marae in
Ngāruawāhia and the debating chamber, it remains only to be seen what practical, contemporary relevance the Income Tax Bill has for tangata whenua today. Has the pursuit for rangatiratanga that was first anticipated by King Tāwhiao borne fruit in the way in which the current Act will apply to income derived in the 2008-2009 and later income years? Did the drive for the Bank of Aotearoa anticipate that in 2007 only 10 percent of Māori would make it to the top income quintiles, as compared with 25 percent of Pākehā? Did the Māori people, in their desire for financial autonomy, ever
expect that many of them would be unable to retain a high proportion of income through the impact of GST, student loans, and now KiwiSaver?
The Income Tax Bill is motivated by the objective of making the legislation clear, while also minimising changes to the effects of the legislation and the associated compliance requirements of the Act. It all seems so uncomplicated—the genuine desire to rewrite the law to make it clear, plain, and consistent. They are laudable goals. The problem, however, is not just in the remedial amendments and corrections to the Act; the problem lies in the very nature of the taxation system, which is for the benefit of some users and not others.
Over the last few months we have seen New Zealanders placed in a precarious financial position due to the market failure of their investment in Bridgecorp, VTL, and Nathans Finance. We have also witnessed a Hamilton businessman from Rafia Trading Company being able to clock up evaded GST and income tax payments of more than $1.1 million, with associated interest and penalties of about $2 million, and New Zealanders who have either been dealt a savage blow by the vagaries of an uncertain market, or who themselves have dodged and deceived their taxation responsibilities. But the criminal offence that we find most objectionable is the deliberate cryptic and complex confusion the State has instituted in the wilful elimination of some families from the tax credit system.
We have talked previously about the way in which the Government has bracketed together three component parts of the existing taxation structure: minimum family tax credit, which used to be family tax credit; in-work tax credit; and family tax credit, which used to be family support. We are to refer to them now as the singular Working for Families tax credit.
If all of that sounded scrambled to us, just imagine what it is like for so many families who do not know the actual value of the component parts of the system, who are not able to calculate their entitlements and abatements, and who are therefore unable to know how to work the system to maximise their income, and to know when and how abatement makes it unprofitable.
The very real fear we have is that too many families will find it too confusing to apply for their tax credits and will simply miss out. The system reeks of the emperor’s new clothes. The obvious truth is that Working for Families and the in-work payment discriminate against specific, targeted parents, despite the proclamation by the Government that it is a Government that cares. It is a Government that says it cares for young trainee apprentices, even though the majority—54 percent—of those enrolled in 2001 and 2002 dropped out of the Modern Apprenticeships programme.
It has taken 15 years to rewrite the Income Tax Bill into its current version of some 3,041 pages. It was a pleasure to note the recommendation of the Finance and Expenditure Committee that Part M should be redrafted to give effect to the purpose of clarifying and simplifying the legislation. Given the complexity of the Working for Families tax credits, the select committee recommended that any review of Part M should be taken separately. Those are views we certainly support.
We endorse the intention of promoting accessibility of the rewritten version to be easily understood by non-specialists, but we remind the House that it is not simply a matter of renumbering or reformatting on the basis of the advice of the Rewrite Advisory Panel that the House is being asked to consider this afternoon.
Today we are considering the influence of the neo-liberal policies that, at the very least, have not created the equitable distribution of wealth through wages and benefits. This has resulted in large disposable income increases for high-income earners, in direct contrast to ongoing decreases for low-income earners. At the very minimum we would
expect that the worst-off families in Aotearoa have an adequate income to invest in and sustain their children’s future.
Back in 1886 the prospectus of Te Maungatautari Whare Utu, the Bank of Aotearoa, included the following statement: “whereas the Māori People so banking have been grievously wronged in their dealings with these Europeans, who have largely profited thereby: and whereas our hearts being greatly grieved at this robbery of our people: be it known therefore that we the Chiefs of the tribes aforementioned, in council assembled, have decided to start a Bank for the use of the Māori people.”
The quest for self-determination resulted in the establishment 121 years ago of the Māori bank. In 2007 there is continuing and solid evidence to support the initiative of such an institution, but the ongoing responsibility and opportunity provided within the Treaty partnership should also be seen in income tax reform and based on the equitable distribution of wealth.
The Māori Party suggests that at its very basic form the income tax rewrite project could have provided the means to progressively transform the in-work payment into a form of family support that could be transferred and that could benefit all children on the same basis.
The ultimate outcome of the transformation project could have been to achieve a universal family benefit that truly acknowledged the unique role of parenting and caregiving, and that treasured and valued the significance of children as the wealth of the nation. Now that would have been a day that all New Zealanders would remember this third reading of the Income Tax Bill for.
CRAIG FOSS (National—Tukituki)
: It is a pleasure to speak on the third reading of the Income Tax Bill, volumes 1 through to 5. I follow some very good and informative speakers, and I follow some quite hopeless ones. I was very interested to see that the Minister of Immigration spoke on this bill. I do not think he has spoken on the bill in its earlier readings—perhaps he did; I am open to be corrected—and perhaps that gives us yet another clue as to the various changes in the upcoming Cabinet reshuffle.
The Minister of Immigration got up and started to accuse the National Party speakers of not talking about taxation, then wandered into talking about broadband himself. I do not know quite what is going on there, but he did give a very nice accolade to his master, Dr Cullen. Obviously, the Cabinet positions have not been settled yet.
The bill is five volumes and 3,031 pages long—I think a couple have sneaked in since last time I looked—and, yes, this is its third reading. The bill has been 15 years in the making. Yet I note in the commentary that time constraints have prevented some issues from being addressed, which personally I find quite amusing. Two items in particular that will not be addressed by the rewrite are legislation surrounding KiwiSaver and changes to the foreign investment taxation rules and regulations, which are covered in the commentary on page 2.
As a member of the Finance and Expenditure Committee, I note that hardly a week goes by without there being yet another change, Supplementary Order Paper, or amendment to existing legislation or bills currently before our committee that cover KiwiSaver or the various foreign investment tax rule changes that were announced last year. I think it would have been quite a good measure to allow a bit more time after the 15 years to get those changes incorporated into this simplification of existing law.
I acknowledge the chair of the Finance and Expenditure Committee, Mr Shane Jones, who helped us get through this process. I wonder who will be our next chair as Mr Jones also nudges someone aside in the upcoming Cabinet reshuffle. I acknowledge my fellow committee members and the former members of the committee, as previous
speakers have acknowledged. We have gone through, I think, four or five Parliaments during this rewrite, as well as Governments led by both the major parties.
I acknowledge Sir Ivor Richardson in particular. He is a mountain in New Zealand parliamentary legislative history and an absolute rock. Whenever he spoke to our committee there was silence. Everyone paid a lot of attention to him and to his writing and various opinions.
I was very pleased to hear the Minister of Revenue say earlier that the tax rewrite committee will be staying together to make sure there are no issues surrounding what we end up passing here. I think that is a very good idea. We could extend that idea not only to other legislation but perhaps to various rewrites of other legislation. Perhaps we could address some termination clauses in much of the legislation this Houses passes.
There was much collaboration across parties, and also consultation with interested parties and experts from many Government departments, particularly the Inland Revenue Department, of course. I note, though, that the collaboration and cooperation seen around this legislation rewrite could serve as a lesson. Would it not be nice to have such an approach by the Government of the day, whoever that might be, to fundamental changes to various New Zealand laws, such as the Electoral Finance Bill, which is currently being bulldozed through various select committees by the current Government and which is probably one of the most Draconian pieces of legislation this country has ever seen?
What is missing from this bill? There is no mention of indexation. Yes, the Income Tax Bill is a rewrite of existing legislation but it does not really allow for a framework of indexation. In fact, as my colleague Mr Chris Tremain, the MP for Napier, said earlier when he pointed out the absolute deceit of Dr Cullen in Cabinet papers, essentially what Dr Cullen is doing is pumping up the economy, inflation, and interest rates. That therefore drags people into a higher tax bracket and gives Dr Cullen more money to spend and spray around in election year.
Perhaps we could rename election year as the year in which the Labour Government talked about tax cuts, because it is the only time that tax cuts seem to have even been on the agenda. As we recently witnessed last term with the infamous “chewing gum” tax cuts—as miserly as they were, at least they were something—as soon as the election was out of the way and the Government had just scraped in, the tax cuts were snatched off the table. That was outrageous. Funnily enough, the Government has moved on to run even greater and higher surpluses—or, to translate, it has continued its overtaxation.
Of course, the Income Tax Bill we are talking about here, which is having its third reading, does not mention Australian tax law, although it does touch on various international relationships. But it would be very interesting to talk to some of those 500,000 Kiwis who are enjoying Australian tax law and tax rates. It is also interesting that the two major parties in Australia, both the incumbent and the challenging Labor Party, endorse the philosophical righteousness and the correctness of taking only as much revenue from hardworking workers—Aussies and Kiwis over there—as is needed to run the Government in the best possible and most efficient way. They see the multiplier; they do not see the static. They are not stuck in the mud like the current Government over here. They see not taking as much in tax revenue from Australians as being an investment in Australia. Their aim is not to keep the punters down and control them, as the current Government here constantly tries to do.
I would like to raise another very, very important matter. Tax is very complex, and taxation law is very complex. Indeed, we have five volumes of it here. New Zealand income tax is even more difficult and complex because we have so many tax rates. Many, many taxpayers need to contact the Inland Revenue Department to ask questions about various tax matters. Funnily enough, the department runs various tax helplines
and 0800 numbers for people with questions about GST and income tax, etc. People can call a certain number in a certain area if they want to ask about tax law.
I asked the Minister of Revenue how many phone calls, broken down by year and number called, had been made to those various helplines over the past 5 years. It was a pretty simple question. I imagine that data is held by the Inland Revenue Department, because it seems to manage to give us average waiting times for all the people who have called, for example.
I asked the Minister how many people are calling each number. It was very, very surprising to me, and I am sure to other members, that when the Minister replied he was not prepared to answer the question. He did not think it was in the public interest to do so. He did not think it was in the public interest to know how many people are calling which helplines to ask about income tax.
Here we are, after 15 years, passing a bill about income tax. I think that is absolutely outrageous. I have a lot of respect for our Minister of Revenue, but on this issue I am afraid he let me down. I will be asking further questions about it, because the answer I was given was absolutely outrageous. There will be further questions and further commentary about that issue. How can it be? How can the Government know whether the income tax law is working if it does not know how many inquiries the Inland Revenue Department is getting—according to the Minister?
I quote from the intention and objective of this bill: “The objective of the rewrite project is to make the legislation clearer so that taxpayers can more easily determine and observe their income tax obligations.” I suggest to the Government that it opens up the lines of communication, otherwise it will be in further trouble.
I would also like to address a matter that a previous speaker, the Minister of Immigration, muscling his way into the finance portfolio, alluded to earlier. He talked about New Zealand debts being at a prudent level. He said that gross debt was 20 percent and that our net debt was zero. He is wrong; debt is about 17.5 percent gross and is positive about 3 or 4 percent net. He said that is prudent; it is imprudent.
Dr Cullen will get up and rave on about borrowing for tax cuts and about how outrageous it is. Dr Cullen is borrowing for tax cuts. He issues Government bonds. Government bonds are 70 percent owned overseas. The Government does not need to borrow that money, so how is he funding the corporate tax cuts he announced in the last Budget? How is he funding the $1 billion of corporate tax cuts he announced in the last Budget? He is borrowing. We should not let him get away with it. He cannot have it both ways. The Government is not prudent; it is imprudent.
There is one other point I want to make before I sit down. Minister Cunliffe, who spoke previously, asked where National’s taxation policy is. If the Government were to announce the 2008 Budget tomorrow, then National would be announcing its policy not far behind. When the Government announces its 2008 Budget, we will give more details of our policy. We are supporting this bill. Thank you very much, Mr Deputy Speaker.