Hon PETER DUNNE (Minister of Revenue)
: I move,
That the Taxation (Consequential Rate Alignment and Remedial Matters) Bill be now read a first time. Later on I intend to move that the bill be considered by the Finance and Expenditure Committee, that the committee report finally to the House on or before 16 November 2009, and that the committee have the authority to meet at any time when the House is sitting, except during oral questions, and during any evening on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c).
The purpose of this motion is to bring forward the report back of the bill to ensure that the bill can be enacted before Christmas. The reason for that is to ensure that financial institutions that are affected by measures contained in the legislation will have the time they need in order to implement the changes by 1 April next year.
At the outset I tell the House that this bill will not be as complex in its size as the similar bill that I introduced last July 2008. In the future we will have two tax bills a year if required. One will be, essentially, a remedial matters bill, and the other will be a major policy bill. The Taxation (Consequential Rate Alignment and Remedial Matters) Bill comes into the former category.
Although most of the changes and updates it proposes are in the nature of good housekeeping, together those changes and updates are designed to give clarity and certainty for taxpayers, particularly when dealing with the recent changes to the personal tax rates. With this in mind, the main feature of the bill is the alignment of the resident withholding tax rates on interest and portfolio investment entity tax rates with the personal tax rates as they currently apply, and the 30 percent company tax rates introduced in 2008.
The alignment of resident withholding tax and portfolio investment entity tax rates with the new personal and company tax rates was deliberately delayed to allow time to consult with the financial institutions that have to implement changes to their systems as a consequence. The resulting application dates that are contained in the bill reflect the outcome of the consultation process and are designed to give banks and other financial institutions enough time to update their systems.
The new resident withholding tax rates on interest paid to individuals, as introduced in the bill, are 12.5 percent, 21 percent, 33 percent, and 38 percent, depending on a person’s income. The bill also introduces a new default rate of 38 percent for people who do not choose a rate with their bank. This new default rate will apply to accounts that are opened on or after 1 April 2010. For those who already have a bank account at 1 April 2010 and who are on the current default rate of 19.5 percent, the default rate will move to 21 percent from 1 April 2010 in line with the new personal tax rates. Those people will then be given 1 year in which to contact their bank to confirm that 21 percent is their correct rate, or, if it is not correct, to choose another resident withholding rate. If they fail to confirm either the 21 percent rate or to choose another rate, their resident withholding rate will automatically go up to the 38 percent default rate from 1 April 2011.
The idea behind setting the default rate at the highest personal tax rate is to motivate people to contact their bank or financial institution and to choose a resident withholding tax rate for their interest income that aligns with their correct personal tax rate. Using the highest rate as the default rate is the same approach we have used for investors’ portfolio investment entity tax rates since 2007. It has worked well for investors and for managed funds, and I am confident it will work equally well in this instance.
In a tandem measure, the bill also introduces a new 30 percent resident withholding tax rate on interest for companies that invest in financial institutions, again to reflect the 30 percent rate for companies introduced in April 2008. This new rate will be optional for financial institutions for 1 year from 1 April 2010, and after that time the 30 percent rate will become compulsory.
Similarly, the bill brings the portfolio investment entity tax rates into line with the new personal tax rates so that investors in portfolio investment entities are not disadvantaged compared with those who invest directly. Those rates will also apply from April 2010. Again, this is designed to give portfolio investment entities sufficient time to update their systems.
To complete this suite of changes, a new 12.5 percent secondary tax code and a new 12.5 percent withholding tax rate for extra pays are being introduced to be consistent with the new personal tax rates structure. These changes are the cornerstones of the bill. Together they will give greater certainty both for earners and for payers of interest income, and will ensure that the correct amount of tax is paid on that income.
As I mentioned earlier, the bill also introduces several measures of a housekeeping, or technical, nature. The first of those measures is designed to support the Inland Revenue Department’s drive towards greater administrative efficiencies by moving much of its current paper-based communications with taxpayers to electronic means. Under the current tax rules, taxpayers must consent for the department to provide a communication electronically. The bill introduces changes that will allow notices to be sent electronically to taxpayers if the department has reasonable grounds to believe that the communication will be received by the taxpayer. That will clearly allow better communication between the department and the taxpayers involved.
Another measure will give the department the discretion to allow taxpayers who have made a minor error in their return that involves $500 or less in tax to correct that error in
a subsequent return. This taxpayer-friendly change will result in lower compliance costs for taxpayers and will certainly reduce their exposure to use-of-money interest.
Reducing compliance and administrative costs for taxpayers and the Inland Revenue Department is also behind a new measure to give the department more flexibility when it comes to issuing personal tax summaries. Currently, the department is required to automatically issue end-of-year personal tax summaries to several categories of taxpayer, including those with more than $200 of employment income withheld using certain tax codes. Changes proposed in the bill will remove this requirement so that the department will not have to issue as many personal tax summaries.
Again, in the interests of smoothing the administrative functions between the department and taxpayers, the bill addresses a longstanding difficulty for tax agents in the timing of distributing income to the beneficiaries of trusts. Under current law, trustees have a fixed 6-month period after the balance date to allocate income to beneficiaries. For tax agents, this timing requirement can create undue pressure at a time when their client’s business tax requirements must also be met. To help alleviate this pressure, the bill introduces changes that will allow tax agents more time to allocate beneficiary income.
The remaining measures in the bill cover a range of technical changes to clarify the rules for taxpayers and to correct minor errors in the Income Tax Act 2007, as recommended by the Rewrite Advisory Panel. Among these measures is a change to clarify the tax treatment of expenses incurred by participants in the climate change - related Permanent Forest Sink Initiative so that they receive the same tax treatment as other foresters. A further technical change clarifies the GST treatment of the new waste disposal levy that was introduced on 1 July this year.
Those and other changes in the bill are described in detail in the separate commentary on the bill, which I understand has been distributed to all members. On that basis I commend the Taxation (Consequential Rate Alignment and Remedial Matters) Bill to the House.
Hon DAVID CUNLIFFE (Labour—New Lynn)
: We thank the Minister who has just resumed his seat, and wish the House to note that Labour will be supporting the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. The bill contains consequential changes to tax rates in line with recent tax rate and threshold adjustments, and it includes a number of other remedial and technical measures that are sensible and that in some part follow from work streams initiated by the previous Government. Indeed, the previous Minister was much better than the current one, which just shows that it is how one holds the pen that counts.
Of course, this is also an opportunity to reflect upon the context within which these changes are being made, and the broad shape of the Government’s tax package introduced on 1 April this year. The context for that discussion is the deep recession that the country now finds itself in, and the fact that we can expect between another 60,000 and 79,000 job losses and that 1,300 New Zealanders are joining the dole queue every week—1,300 every week. In other words, the expected jobs created by the cycleway account for 1 day’s worth of new unemployment. I will say that again. The cycleway provides 1 day’s offset against the wave of unemployment we face.
This is a serious situation, and it causes us to reflect upon the changes to the tax system that saw incentives removed from KiwiSaver and from research and development tax credits in order to fund the lowering of the top personal income tax rate to 38c in the dollar, and to reflect upon the threshold changes, which overwhelmingly provided benefit to upper-income earners.
It has been a matter of debate in this House that across the whole of the Government’s proposed tax reforms, one-third of the tax cuts would go to only 3
percent of taxpayers. It is on record in this House that the Opposition has criticised that on two principal grounds. One ground is that at a time of recession and stress in the homes of ordinary, hard-working New Zealanders, making sure that 97 percent of the population does not benefit from a third of the tax remission is hardly appropriate, on social equity grounds.
But, secondly, at a time when every penny of fiscal stimulus counts and when we are getting lectures about how scarce the Government’s access to capital is, it is essential that every cent is effective and well spent. Sadly, the tax changes that require this consequential legislation are not effective. The truth is that National has delivered $120 a week to somebody on, say, the Prime Minister’s salary, and nothing to someone with children who is on the median income. That can be neither fair, nor good economics. You can bet your bottom dollar that people with kids, who are on the median income, will be spending every cent of tax remission they get, and someone who is on the Prime Minister’s salary can probably afford to squirrel some of it away, thus taking it out of circulation.
Let us spend a minute talking about KiwiSaver, in the context of the Prime Minister last Wednesday giving a major signature speech on economic policy to show us the plan, and, on Thursday, Fitch Ratings putting us on negative watch. The timing was probably not accidental, because Fitch Ratings, like the rest of us, had been waiting with bated breath to see what the plan actually was. It was like an old Holden that, when we lifted the bonnet, we found had no engine. There was no “There!”, and that is why Fitch Ratings decided to place us on negative watch. Fitch Ratings, like Moody’s and Standard and Poor’s, the other two rating agencies, drew particular attention to two deficits—the savings deficit and the external deficit. It was in order to cover the savings deficit that they have insisted that the Government either run surpluses or limited deficits on its books. But that is a patch, not a resolution of the fundamental problem.
In that context, it really does beggar belief, for all the reasons that we have discussed, that the Government would withdraw half of the value of the incentives in the KiwSaver programme—the single most successful programme in our history for getting New Zealand’s savings rate up—and use those funds to give a tax break to upper income earners. It beggars belief, and it will not have done anything to encourage Fitch Ratings, Standard and Poor’s, or Moody’s, as they keep this economy under review. It is just simply not sensible economics, and I think the Minister of Revenue knows that.
If that was true of KiwiSaver, is it not also, perhaps, even more true of the issue of innovation? We know that we are a primary-producing country with an external deficit. We are not paying our way in the world. It is really quite simple. What we make from our exports, plus New Zealanders’ investments overseas, is less than we pay for our imports and the returns we have to give to foreigners who have invested here. That is the current account deficit—both the trade balance and the financial balance. It is simple. Moody’s, in particular, stressed in their review of the New Zealand economy that New Zealand will never get out of the hole it is in unless it produces and exports more. There is an element of communality between the Government and the Opposition on that issue. We both think productivity matters, and I think we both think the export balance matters. What we disagree on is that the Opposition believes that in order to improve those things we need to get innovation up, and in order to get innovation up it has to pay for businesses to innovate.
Businesses respond to incentives. I think even Roger Douglas would agree with that point. One of the strongest incentives is the tax system. There was almost universal support within the business community—the “Mood of the Boardroom” survey stated it was well above 80 percent, if I recall correctly—for the research and development tax credits, and it is a real shame that they were scrapped to fund these tax write-offs for
upper income earners. We do not need to be cushioning upper income earners at a time of recessionary crisis. We need to be fuelling the engines of exporting and productivity, and we do that by innovating, by creating a competitive business environment, and by the Government lending some sense of direction and strategy so that private investors can make their capital investment decisions, their hiring decisions, and their production decisions alongside those of the Government. It is, therefore, in that context that this bill is important.
There are some supplementary measures in this bill—not only the tax rate changes, but also the threshold changes and in particular the PIE, or portfolio investment entity, rates. No, that is not a new Government initiative for healthy food in schools; far from it. We have had enough of that today. They are the rates that prevent New Zealand savers from being overtaxed. It is an initiative of the previous Government that has been, I am pleased to say, adopted by the new Government. It is designed to avoid the prior situation where people’s savings were taxed at the top marginal rate in the savings institution, regardless of their own personal rate. We are pleased that the Government has adopted the far-sighted proposal to look through the savings rate of the institution to the tax rate of the beneficiary, and adopt vehicles like portfolio investment entities that allow that to flow through.
Having said that, the devil is always in the detail. It is very important, as the Finance and Expenditure Committee members know, that the structure of the tax law surrounding portfolio investment entities is simple, it is principled, it is difficult to rort, it is not too complex, and it does not create undue compliance costs. We need to monitor the application of these rules to ensure that the original policy intent, which is shared across the House, is, in fact, borne out in its application to day-to-day policy.
There are other changes in this bill. There is the correction of some errors and some remedial matters to do with the permanent forest sinks initiative, the beneficiary income rules, and so forth. But for the public listening to this debate today, although it is true that the Opposition is supporting the bill and although it is true that it makes important and sensible consequential changes without which the tax system would be a mess, it is also true that the context within which we are debating this is, in our view, an inappropriate one. The context is that two-thirds of the money goes to people in the 97 percent of the population who are in the middle and the lower income brackets, and one-third of the money goes to the top 3 percent. That is not a good idea when capital is starved, and it is especially a bad idea when we have to wind back KiwiSaver to do it.
CRAIG FOSS (National—Tukituki)
: Tēnā koutou, tēnā koutou, tēnā koutou katoa. Surprisingly, I find myself in agreement with a couple of the last comments made by the previous speaker, David Cunliffe, about the need for clarity and a robust framework around taxation issues. I appreciate those sentiments. I think he is right in that across the House generally, in the precincts of this place, and across the community there is a general acceptance of the need in our taxation system for clarity, modernisation, and alignment in order to make it as simple as possible and to make compliance as easy as possible.
I say one big “Kia ora” to the Minister of Revenue, who in his speech noted that this bill is nothing like the bill introduced in July last year by the previous Minister of Finance. That bill was about 850 pages long, and I think we have about 50 pages here, and, again, do I look forward to that structure. Because of that process we have discovered that there will be maybe two bills per year—there is bound to be an exception to that along the way, I am sure—on policy and remedial matters. At least the professionals downtown will appreciate that we are trying to provide some structure around our legislative programme, and provide some certainty. I acknowledge the previous Minister for the intent there.
The Taxation (Consequential Rate Alignment and Remedial Matters) Bill is very similar to this ambitious National Government in that it is taxpayer-friendly, and I will come back to some of those matters in a moment. But, to feed off the previous speaker, I say it is very important to note for those listening the hundreds of millions of dollars of taxpayer assistance, tax relief, and fiscal benefits that this new National Government has brought in after only 9 months in office, as opposed to 9 years for the previous administration. It is very important to note—because it sometimes seems to be forgotten in the speeches made by members on the other side of the House—that this policy was laid out before the election. So the New Zealand public very heavily endorsed the policies and processes of this new National Government.
This bill clarifies, modernises, and tidies up many, many matters. It aligns certain investment tax rates with income tax rates, bringing clarity, certainty, and simplification to all facets of our tax system. This bill is not contentious—at least, not at this stage. I do not think anyone has raised any contentious issues during the first reading, but some issues may arise during the select committee process.
Stuart Nash: It’s another Labour bill!
CRAIG FOSS: That member has found something contentious in it, and we look forward to discussing the contentious issues he is thinking of. We can discuss those issues at the Finance and Expenditure Committee if we vote to send the bill there this afternoon. I am sure the hard-working members of the Finance and Expenditure Committee will discuss those matters and, hopefully, come to an arrangement whereby, hopefully, this bill can be reported back as scheduled, as the Minister alluded to in his speech.
I appreciate the Labour member Mr Cunliffe noting that Labour is supporting this bill—other members on that side may want to note that as they write their speeches—and I freely acknowledge the professionalism with which the member is approaching issues in and around tax. There is politics, but the intent to have a better tax system is generally accepted across the House, and I am grateful for that. I look forward to the continuing professionalism and cooperation of all members of the select committee as we facilitate the bill through, and if we look at the dates, we see that there is a pretty tight report-back time. As chairperson of that select committee, I am sure we will have some discussions in and around that. Hopefully we can facilitate that, and, again, it is noted that the previous member said that Labour would be supporting this bill and will also be in discussion with other parties.
The main features of this bill, as the Minister of Revenue outlined, are the alignment of resident withholding tax rates—they are the tax rates paid on interest income—with the new primary rates that this Government brought in in previous legislation prior to Christmas. It goes without saying that those rates should be the same. We are trying to make the tax system as neutral as possible and to disincentivise any one particular form of investment over another, to allow our economy to grow.
Most important, the bill brings in one new rate. The current marginal income tax rates and the present resident withholding rates of 19.5 percent, 33 percent, and 38 or 39 percent will become 12.5 percent, 21 percent, 30 percent, 33 percent, and 38 percent, and the application dates on those are all 1 April 2010. However, there is a caveat to the 30 percent rate, and taxpayers can opt in earlier. That is being taxpayer-friendly, and that is recognising their circumstances. Taxpayers can take advantage of new and lower tax rates, which were voted for the last election and are now being brought in by this very ambitious National Government.
On that note, I will end, and I look forward to the next speakers as they continue the endorsement of this very good bill. Thank you.
Hon DAVID PARKER (Labour)
: The previous speaker, Craig Foss, is correct in saying that the Labour Party will be supporting the technical provisions of the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. I will deal with a couple of the specific changes to the legislation proposed by this bill before dealing with what is not in the bill, which I also think should be highlighted.
First of all, the previous speaker was correct in saying that the default resident withholding tax rates are being changed. When people earn interest in this country, it has tax deducted from it before it is paid to them by the person who is paying the interest. The rate at which interest is deducted is set out in law, and that is the resident withholding tax rate. This bill adjusts the resident withholding tax rates to update them for recent changes in income tax rates, so that the amount paid by way of a deduction from the interest one earns corresponds with the amount of tax one is likely to pay as a taxpayer. One of the most major changes in recent years has been to the corporate tax rate; it was reduced from 33c in the dollar to 30c in the dollar. This bill adjusts the resident withholding tax rate, the default rate at which tax is deducted from interest payments that are earned by companies. It decreases the resident withholding tax rate for companies from 33 percent to 30 percent.
It is worth reflecting on why that is necessary. It is because the previous Labour Government cut the corporate tax rate. At times we have heard from National Party members that they are the party of business. They like to pretend that they are the ones who know how to grow the economy, when in reality many people in New Zealand know that it was the previous Labour Government that had the better handle on economic policy, as reflected in the fact that we cut the corporate tax rate from 33c in the dollar to 30c in the dollar.
By way of contrast, I say the effect on resident withholding tax rates being changed in this bill as a consequence of National Party policy is, in the main, to change the top personal tax resident withholding tax rate from 39 percent down to 38 percent. Rather than giving a leg-up to the most productive parts of our economy—encouraging companies to save more so they have more to invest, having a lower tax burden so that companies have more money to reinvest in productive enterprises, and improving the productivity of our companies, which is what the previous Labour Government was achieving through reducing the corporate tax rate—the National Government has focused its tax cuts on those who already earn the most in a personal sense in New Zealand, by reducing their tax rate at the margin from 39c in the dollar to 38c in the dollar.
The effect was that the highest-earning people in New Zealand, who were already in a better position economically than everyone else in New Zealand, were given another tax break in order to make them even better off. Whereas a middle-income family with children, a family that might be struggling to pay a mortgage, rising power prices, and other costs, got nothing from the Government’s tax package, those who were the highest earners had a tax reduction, and that tax reduction is now being reflected in this consequential bill, which changes their resident withholding tax rate.
Therein lies one of the differences between Labour and National. We understand it is important to have a strong, productive economy. In order to encourage that we do not need to reduce the tax rate for the highest earning people in the country, but we do need to make things easier for companies.
Peseta Sam Lotu-Iiga: What happened to exports in the last 5 years?
Hon DAVID PARKER: I had an interjection there from someone who was saying Labour never reduces taxes, but of course we did reduce the corporate tax rate. It is an interesting fact of history to reflect on which Government before the previous Labour
Government reduced the corporate tax rate. Does the member know the answer to that question?
Peseta Sam Lotu-Iiga: We’re talking about exports.
Hon DAVID PARKER: Oh, he is talking about exports, but he does not know the answer to that question. It was actually a prior Labour Government that last reduced the corporate tax rate before we did it again in the last term in Government. That is somewhat ironic—[Interruption]. The National Party voted against the Budget that reduced the tax rate for companies from 33c to 30c in the dollar.
It is also time to reflect on what has happened since the election. Of course, by the time of the last election the writing was already on the wall as to the effect of the downturn in the world economy on the New Zealand economy, and the fourth estate was already on to it. During the last election campaign, the media asked the then National Opposition how it could promise its tax cuts, given that the world economy was declining so sharply. By that time the IMF was warning that a very sharp international contraction was already occurring, and New Zealand was already in recession, as the Hon Bill English continually reminds us from day to day. Yet at the time of the election he was willing to ignore those realities when he was promising unaffordable tax cuts. Not only was the IMF issuing those warnings and New Zealand already in recession but also, by that time, one of the big international banks, Lehman Brothers, had failed. We had an IMF warning, New Zealand was in recession, and Lehman Brothers had failed, yet at the time of the election the National Party pretended that these things would not have any material effect on its ability to fund its election promises.
Well, we all know now that that was untrue. Since the election we have seen the National Government resile from some of its tax cuts. It left tax cuts in place for the most wealthy in New Zealand, whose personal tax rate it cut, as is reflected today in the cuts in the resident withholding tax rate for those highest income earners, but it cut most of the other tax relief it had planned for low and middle income people. That left a terrible disparity whereby most of the tax relief was given to the people who needed it the least. In addition, because of National’s reckless promises in the election and its belief that it had to keep at least some of its promises to cut taxes—and, as I have said, it did that for the most well-off—the Government had less money in the kitty than it would have, had it not made those rash promises. That is why the Government had to cut the pre-funding of the New Zealand Superannuation Fund. One consequence of those changes to the tax rates for the highest-paid people in New Zealand was the inability, in the Government’s view, to properly pre-fund New Zealand superannuation.
Currently about 500,000 people in New Zealand are reliant on superannuation. That number doubles over the next decade or so, or it may be over the next 2 decades. I am unsure of the exact number—forgive me for that failure of memory—but over the next period that figure doubles from 500,000 to 1 million people. That figure as a proportion of the workforce changes, as well. The proportion of people who are reliant on Government finances for their superannuation as a percentage of the labour force increases very substantially. It is a real challenge for future Governments to fund that, and that is why there appeared to be at the time of the last election virtual unanimity across the major parties that there was a need to pre-fund some of the cost of that through the New Zealand Superannuation Fund. This was to avoid an intergenerational inequity. Subsequent generations would otherwise be carrying the burden of paying superannuation to an increased pool of superannuitants, despite a relatively smaller proportion of working-age population in employment. That is why there was, apparently, almost universal approval for the New Zealand Superannuation Fund across both the National and Labour parties. But of course we all know that was a fraud. In
reality that was not the case, and when National came into Government it sacrificed the pre-funding of superannuation in order to fund its tax cuts for those who were already the best off.
Further, the National Government did away with the research and development tax credit, and I absolutely agree with my colleague David Cunliffe in saying that change was inappropriate. New Zealand has to invest in more high-value products for export if we are to overcome our current account deficit and become wealthier as a country. There are two essential ingredients to that. One is encouraging savings, which I will come to, but the other is providing appropriate incentives for business to invest. One of the ways that most countries in the world incentivise investment in the appropriate capital equipment and new products is through a research and development tax credit. We need only to look across the ditch at our closest economy and our biggest economic competitor in these areas, Australia, to see that Australia has a research and development tax credit. It is also clear that at one stage the Australian Government cut its research and development tax credit, and, lo and behold, the research and development spend by its corporates went down. The Australian Government addressed that by introducing another variant of its research and development tax credit.
New Zealand has neither of those provisions. We do not have any research and development tax credit. We are a glaring anomaly when we compare ourselves with most OECD countries, and that anomaly coincides with our under-investment in research and development and, therefore, our poor performance relative to a lot of overseas countries in lifting our productivity so as to improve the wealth of our nation and improve our ability to fund health services and responses to environmental things like climate change, etc. Abandoning the research and development tax credit was a real mistake by the National Government, and this bill does not fix that.
Similarly, if we have a deficit in savings—and New Zealand certainly does—we must have appropriate interventions like KiwiSaver, which was also cut.
Dr RUSSEL NORMAN (Co-Leader—Green)
: I rise to speak to the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. The Green Party will not be supporting this bill. We did not support the original set of tax changes. These consequential changes flow out of that original set, so we continue not to support them.
The reason we do not support them is that they are bad policy and they are wrong policy. They are bad policy for a number of reasons. If we are to try to deliver a stimulus package, giving very large tax cuts to the very well-off is not the best way to deliver it. In fact, it is the worst way to deliver a stimulus package. If we were to design a tax system for a recession and we wished to deliver a stimulus to our economy to try to keep people in jobs, giving large tax cuts to the well-off would be exactly the wrong thing to do. That is why we are not voting for this bill, and why we did not vote for the original changes. It is bad policy.
It is also wrong policy. It is ethically wrong. It is wrong to give tax cuts to those who are already the wealthiest. That is just wrong. There are no two ways about it and there is no other way to look at it. We have a society that is racked by inequality. New Zealand is a society that has gone through enormous inequality as a result of the changes started in the 1980s that have made us more and more unequal. In fact, we are a world leader in inequality. Thanks to the policies of the 1980s and 1990s, New Zealand is a world leader in inequality. We have become unequal faster than any other country on the planet, and that is something we should be ashamed of.
Carol Beaumont: It is a great shame.
Dr RUSSEL NORMAN: It is a shameful thing. In one of the most unequal countries in the OECD, to give very large tax cuts to the well-off, while giving absolutely zero—nothing—to those who earn under $40,000, is immoral. It is not just poor tax policy; it
is immoral. It is not compassionate conservatism or God-fearing conservatism; it is wrong and immoral. To give very large tax cuts to the very well-off is the wrong thing to do. It is the unethical thing to do, and that is why we will not vote for it. I call on Labour not to vote for it, either. Why would Labour vote for this bill? It does not even support it.
The bill is also bad policy because it means that the stimulus package we are delivering now has to be borrowed from future generations. The tax cuts, one way or another, have to be paid for by borrowing. We are taking from future generations to pay for the stimulus package or to pay for the tax cuts, whichever way one cares to look at it. Our Government borrowing will be much higher, by the order of maybe $10 billion over the next 10 years or more, as a result of these tax cuts. Because of the tax cuts we are giving to the very wealthy, we have to borrow more from future generations to fund either those tax cuts or the stimulus package, whichever way one looks at it. It means that future taxpayers have to carry a higher level of debt as a result of these stupid tax cuts—tax cuts that are bad policy.
Mr Cunliffe quite rightly said earlier that when we give tax cuts to the very wealthy they tend to save them. If we give tax cuts to those at the bottom end of the income spectrum, they simply spend them. That is why tax cuts targeted towards those at the bottom actually have a much greater stimulatory effect than tax cuts delivered to those at the top. So it is not only wrong policy because it is immoral and unethical and it is not only bad policy because it means that future generations will have a higher level of Government debt as a result of this but also it does not even give us the stimulus we want.
This is dumb policy not only because of what it is but also because of what is not there. What are not there are measures to address the fundamental problems in the New Zealand economy, such as the housing bubble. We all know that the housing bubble and the misappropriation of investment funds into investment properties in New Zealand is a major problem. Everyone talks about it. Everyone says it is a major problem, but no other party in this Parliament has the guts to stand up and ask what we are going to do about it.
We know what we have to do about it: we have to change taxation rules so that they target investment properties. Currently, taxation rules favour investment properties. The taxation rules say to people with a bit of extra money to throw their money into investment properties because it is a great thing to do. Accountants from the top of the country to the bottom are telling people on middle to high incomes that they should put their money into investment properties. That is what they advise people day in and day out. The reason they do that is that the tax system rewards people for doing it. We are stupid. We have a tax system that rewards people for doing exactly the thing we know is the wrong thing to do in our economy, which is to throw billions of dollars into investment houses.
If we are to address this major problem, we need to change the tax laws. We know what has to be done. We have to ring-fence the losses around investment properties and we have to introduce a capital gains tax excluding the family home so that we start to target the capital gains that come out of investment properties, so that investment properties are no longer as tax-friendly as they are currently. That law change will provide a disincentive for all of those billions of dollars to get thrown into investment properties. None of the other parties in the House are willing to grasp that nettle, because they are frightened of telling the people of New Zealand the truth, which is that we have to change our tax system if we want to save our economy. It is a simple truth. We all know it is true but no one, aside from the Greens, is willing to stand up and say it. Gutless! So we need to change the tax rules.
One of the of the other impacts of the current policy is that as the Reserve Bank does its damnedest to try to target the housing bubble, it wrecks the entire rest of the economy, in particular the tradable sector, because it increases interest rates in order to try to suppress the housing bubble. That is what it is trying to do in order to try to stop inflation, but all it does in the process is increase interest rates and increase the New Zealand dollar right across the board so that the entire tradable sector is at a disadvantage against imports. Because we will not adopt the basic policy measures that we should adopt to target the housing bubble, the entire New Zealand productive sector has to suffer.
We say we will have a high - interest rate, high - exchange rate policy in order to try to suppress inflation coming out of the housing bubble. What a brilliant policy! We will wipe out the entire productive sector. What a brilliant economic strategy! We will have a high-currency, high - interest rate policy in order to try to suppress the inflation coming out of the housing bubble. We could not possibly have policies that target the housing bubble—no, that would be too smart! We do not like doing stuff like that! We want to have the dumb policy that suppresses the entire productive sector rather than target the housing bubble, which is the cause of the inflationary pressure in the New Zealand economy! Everyone says it; everyone knows it is true. We cannot possibly have a policy that targets the cause of the inflationary pressure in the New Zealand economy—no! We have to have a high - interest rate, high - New Zealand exchange rate policy that suppresses the entire productive sector! So we have a trade deficit. It is a brilliant strategy! We have a trade deficit, we add it to our current account deficit—it gets incorporated every year—and we are doing a great job adding to our debt.
When we say to the people who had just been laid off from the sawmill in Gisborne that the reason they are getting laid off is we will not have a capital gains tax, they might scratch their heads and wonder what on earth we are talking about. But, of course, the connection is quite straightforward. One of the reasons the New Zealand productive sector is doing so poorly is that we have a high New Zealand dollar. One of the reasons we have a high New Zealand dollar is that we have high interest rates in this country so we are an attractive place for money to come. It is a stupid policy. Right now as a result of that policy people in our country are being laid off, and we should change it.
I want to touch on just a couple of other things that should be in this tax policy but are not. The thing is, whether or not we like it, tax is not just about raising money for Governments to spend; it also influences behaviour. Not only does it influence behaviour in the housing market and investment properties but also it needs to move our economy in a more sustainable direction. We need to adopt policies around taxation that explicitly say we have to move our economy in a more sustainable direction—that is, tax policy that targets waste, pollution, and resource use. Only by changing relative prices will we transform our economy to be much more sustainable. The way we change relative prices is using targeted taxation. That is just a simple economic fact, and we need to incorporate that fact in our taxation system. If we are serious about making the economic transformation, then we need to make our economy a sustainable one—that is, sustainable environmentally, let alone sustainable economically. Currently we do not have an economically sustainable economy, which is why our current account deficit is 8 percent of our GDP and is completely out of control. Our overseas debt is completely out of control. Our overseas debt is the second worst in the world, after Iceland. Well, I say to wake up, guys, because Iceland just went under. We will be next unless we do something about our overseas debt and our current account deficit. That is called a sustainable economy.
So we will not be voting for this bill, because it does not address any of the core issues. It is a bad bill, it is an unfair bill, and it does not address any of the key problems in the New Zealand economy.
TE URUROA FLAVELL (Māori Party—Waiariki)
: Tēnā koe, Mr Assistant Speaker. Kia ora tātau katoa i tēnei Wiki o te Reo Māori.
[Greetings to you, Mr Assistant Speaker, and to all of us in this Māori Language Week.]
Franklin D Roosevelt once said that “Taxes, after all, are dues that we pay for the privileges of membership in an organized society.”
Koinā tana kōrero. Mā te pire nei, e whakahouhia ai ngā paearu whai tūranga, i runga i ngā rerenga kētanga ki te Income Tax Act 2007. He pire tēnei ki te whakatika i ngā ture e hāngai ana ki ngā reanga tāke e puritia ana, kia ōrite ki ngā reanga tāke o nāianei. Ko te pire nei, he hāngai ki ngā rerekētanga i mahia ai i mua; he whakahou hoki i ngā ture tāke.
[That is what he said. With this bill, the membership form is updated, and the organised society gets a facelift, as consequential changes are made to the Income Tax Act 2007. This is a catch-up bill, one that makes the necessary changes to
certain withholding tax rates to ensure they align with recent tax rates and threshold adjustments. The bill catches up with earlier tax changes, as well as making changes to update tax law.]
So amendments are made to the Income Tax Act 2007, and also to the Income Tax Act 2004, the Goods and Services Tax Act 1985, the Tax Administration Act 1994, the Income Tax Act 1994, and the Māori Trustee Amendment Act 2009.
E hoa mā, e toru ngā wāhanga motuhake nei o tēnei pire hei aro tahitanga mā te Paati Māori. Tuatahi, ko te whakamāramatanga o tēnei mea te pākihi ngāherehere, kia tapirihia ko ngā mahi permanent forest sink initiative me kī ko te permanent forest sink initiative, āe kia ōrite tonu te utu tāke ki ngā kaimahi ngāhere katoa. Kei roto nei te kupu whakamāhukihuki kia āhei ai te hunga permanent forest sink initiative ki te tuhi i āna utu hei “utu pākihi” i roto i te kaupapa tāke. Kei te mōhio tātou o te whare nei, ko tēnei mea te permanent forest sink initiative he mahi tiaki i te taiao. Mā te whakatipu anō i te ngahere e whiwhi ai te tangata i ngā piro whai-ao. E ai ki ngā ture tāke o nāianei, ahakoa e riro mai ai te kamupene ngā piro whai-ao, ehara i te mea ka whai mana hei pākihi ngahere. Ko te raru ia, he pai ake ngā hua tāke o ngā pākihi ngāhere i ō ērā atu pākihi. Nō reira, ko te rāwekeweketanga e kitea ana i roto i tēnei pire, he whakaae kia noho ai ngā permanent forest sink initiative hei pākihi ngahere i raro i ture. Nā te mea e tika ana kia ōrite te utu tāke o ngā permanent forest sink initiative ki tā ngā pākihi ngahere, kua tīnihia te tautahi o te “pākihi ngahere” i roto i te wāhanga YA 1 o te Ture Taake 2007, kia noho tau ai te permanent forest sink initiative i roto. Koinā te āhuatanga tuatahi.
Ko te āhuatanga tuarua, ko ngā rāwekeweketanga ki te ture Tāke Hokohoko 1985, kia utuhia te tāke hokohoko o te kaupapa paranga i raro te ture Whakakore Parahanga 2008. He kaupapa nui tēnei e whakatumeke mai i a mātou na te mea 27 rā noa iho tōna pakeke, ā, kei te rāwekewekehia anō. Kei te hiahia ki te whakarongo ki ngā kōrero o te Minitā mo ngā tāke e whakamārama mai ana he aha i kore ai ia i aro atu ki ngā āhuatanga GST i mua i te whakamana i te Waste Minimisation Act hei ture.
Hei kupu whakamutunga, ko te take tino whakaharahara, ko ngā rerekētanga e pā ana ki te tāke pupuritanga. Nā te uaua ki te whai i ngā tohutohu maha o te tāke, i ētahi wā he ngāwari ake te mahi moni tūturu i te whakakīkī i ngā tono tāke. Kei roto i tēnei pire ngā reanga tāke pupuri hou, i runga ake i tērā, ka utua ki ia tāngata kia ōrite ki ngā rerekētanga ki ngā tāke ake ā-tāngata. Hei tā te pire nei, ki te kore te tangata e whāki i te utu tāke tika ki te pēke, ka 38 pai hēneti te rahi o te tāke e utua. E ai ki ētahi, he huarahi
nanakia tēnei ki te akiaki i te tangata ki te tuku i te utu tāke tika mō te huamoni ka riro mai i ngā pēke.
He pai tonu ki a au ngā kōrero a te māngai tāke o te Deloitte ki Ōtepoti, a Peter Truman. E ai ki a ia, ki te whakaturehia tēnei pire hou, ka nui atu te utu tāke ki runga i te pūtea tuku. Hei tā Mr Truman i tātari ai, kei te patua-ā-pūkoro e te Kāwanatanga te hunga e ngoikore ana ki te tuku i te reanga tāke tika ki ngā pēke, anā ko ihu māngere rāua ko ihu wareware tērā. E ai ki ngā whēako o tēnei mātanga tāke o Te Tai Tonga, ko te rahinga o te tangata kāore i te tuku i te reanga tāke tika ki ō rātou pēke, ā, ko tērā te hunga ka patua e te pire nei. Nā runga i tērā, me noho whakahirahira te rautaki whakatairanga o te Tari Taake, kia tae mārama, kia tae tika ngā tohutohu ki te hunga mahi huri noa i Aotearoa. Nō reira, kei te tautokona e mātou te pānuitanga tuatahi o te pire nei i runga i te mōhio, hei te wā komiti whāiti e puta mai ai te mātauranga me te māramatanga.
- [An interpretation in English was given to the House.]
[There are three features of this bill in particular that the Māori Party wants to comment on.
The first aspect is the new definition of forestry business to include permanent forest sink initiative activities, so that all foresters receive the same tax treatment. Basically it clarifies the state of play, so that the expenses of participants in the permanent forest sink initiative can now be treated as forestry business expenses for tax purposes. The permanent forest sink initiative, as the House will be aware, is a climate change initiative in which a person intending to reforest can, in exchange for meeting certain conditions, receive emission units. Under current practice, the earning of these emission units may not
always constitute a forestry business under the Income Tax Acts, whereas forestry businesses are entitled under the Act to more favourable tax treatment than other businesses. So the simple change introduced in this bill is that the reference to forestry business is now amended to include initiatives under the permanent forest sink initiative.
Since permanent forest sink initiative foresters should receive the same treatment as foresters who carry on a forestry business, the amendment defines “forestry business” in section YA 1 of the Income Tax Act 2007 to include permanent forest sink activities.
The second area of interest relates to the proposed a
mendments to the Goods and Services Tax Act 1985 to provide that GST is payable on the waste levy imposed by the Waste Minimisation Act 2008.
This is particularly of interest, in that it has been only 27 days since the new waste disposal levy was introduced and already we are changing it. It would be interesting to hear from the revenue Minister how the Waste Minimisation Act 2008 could have been passed into law without the necessary adjustments such as GST being taken into account.
Finally, the last—and probably the most significant—of all the changes is that related to the resident withholding tax. Sometimes it appears as if more brain and effort are required in understanding all the tax compliance requirements in order to complete the income tax form than is required to make the income in the first place. The bill introduces new resident withholding tax rates on interest paid to individuals, to bring them into line with recent changes to personal tax rates. In particular, the bill introduces a new default rate of 38 percent for people who do not notify their bank of their correct tax rate. The changes to the default rate are being described as a type of perverse incentive to motivate people to use the correct tax rate for the interest they receive from their financial institution.
I was interested to read the analysis of Dunedin Deloitte associate tax director Peter Truman. It was his opinion that the tax changes being proposed by the Government would catch investors unaware, leaving them paying more tax on their investment
income. According to the analysis by Mr Truman, the Government is increasing its tax take from those who are not motivated or organised enough to advise financial institutions of their correct tax rate. In the experience of this Te Tai Tonga tax director, many New Zealanders did not get around to notifying their financial institutions of their correct tax rate and so may be unfairly penalised by the change in law. It is for this reason that we think it is really essential that the Inland Revenue Department plan out a top-notch communications strategy to ensure the message gets through to all New Zealanders. We will support this bill at the first reading, and look forward to views about how effective the proposed changes will be, at the point of select committee
AMY ADAMS (National—Selwyn)
He mihi tēnei ki te tangata whenua, ā, e tautoko ana i tēnei reo o Aotearoa.
[This acknowledgment is to the people of the land, and I endorse this language of New Zealand.]
I am pleased to rise today and take a call in support of the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. As speakers before me have already discussed, it is appropriate in this debate to take a moment to reflect on the wider tax basis and the reason for this bill, because we all accept that this bill brings into place consequential and necessary steps as a part of that tax programme.
It is worth reflecting back to the state of the economy that this Government inherited when we came into power on 8 November last year.
Chris Hipkins: Here comes a piece of fiction!
AMY ADAMS: Whether or not the Labour Opposition wants to acknowledge it—its members had their heads in the sand for 9 years, and we are not expecting that to change—we had an economy of declining growth. Our export sector, which will lead us out of this recession, had been in recession for 5 years under the previous Government. We had a rising current account deficit, high inflation, and rising unemployment. The very simple reason for that situation is that the Labour Government was absolutely, fundamentally incapable of celebrating success. It could not bring itself to do it. It refused point-blank to do anything that would incentivise hard-working New Zealanders and that would reward people for hard work. It was anti-profit and anti-business. That is a big part of the reason we inherited the economy we did, after that Labour Government squandered 9 years of lost opportunities.
The National-led Government will not make that mistake. This Government understands that it is the hard-working, taxpaying New Zealanders who keep this economy going, and that they deserve to be supported. That is why this Government delivered personal income tax cuts after a mere 6 months in Government, not after the 9 long years that the Labour ex-Government—and I emphasise “ex-Government”—made hard-working New Zealanders wait for their tax cuts. It could not accept that people should be incentivised for being productive or rewarded for getting off their backsides and going out and helping to build an economy, create jobs, and create wealth. Members opposite think that “profit” is a dirty word, but we do not, and we will support taxpaying New Zealanders. That concept might seem radical to the Labour caucus, but the National Government supports people who work hard, create wealth, and create the standard of living that New Zealanders aspire to. In a nutshell, that is why this Government acted quickly to bring in personal tax cuts, and why we now have before us the Taxation (Consequential Rate Alignment and Remedial Matters) Bill.
As we have already heard, the major policy item in the bill simply aligns various tax rates with the new primary rates for active income that were recently set for personal and company taxpayers. The main areas that that change applies to are the resident withholding tax area and the portfolio investment entity area. We are ensuring that we do not allow overtaxation where the appropriate rate for personal income has been
reduced, and that those taxpayers are able to elect an appropriate equivalent rate for both their resident withholding tax and their portfolio investment entity income. Similarly, we see consequential changes in the retirement scheme contribution rates and secondary employment rates, among others. Just looking at the portfolio investment entity rate for a moment, we see that it is important that those who choose to invest through a vehicle like that are not put at a relative disadvantage to taxpayers who invest directly.
The other things I want to touch on briefly are some of the consequential matters that have not, perhaps, received as much discussion time. They are obviously not the main focus of the bill but are worthy of mention. I want to mention one in particular, because I have had some involvement with it in a past life—that is, the change to the beneficiary income allocation rules. Put very simply, the beneficiary income allocation rules require that for trust income there is an election as to whether that income can be retained within the trust or allocated to the beneficiary, who would then pay tax on that income at his or her own rate. Up till now, the income must be allocated within 6 months of balance date. This bill will enable those trustees to make a decision to allocate the income to the beneficiary not within an arbitrary 6-month time frame but at any time up until the tax return for that trust is required to be filed. It may not be a world-moving tax change, but members should believe that it is a very sensible and practical change that will enable trusts properly to allocate their income as they work through their trust return processing. They can see what their returns for the year were and they can work out the most beneficial way of setting out their incomes. I definitely support that change.
Another taxpayer-friendly change is very simple. It enables taxpayers to make minor corrections in their returns. Again, that is very simple and taxpayer-friendly. There is every reason to support the bill, and I am very pleased to see that support across the House.
I have gone over some of the main parts of the bill. The bill is worthwhile, it is necessary, and it aids the general overriding tax policies of clarity and consistency. For that reason, I am very pleased to support this bill. I commend it to the House.
STUART NASH (Labour)
: I stand in support of the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. I support the bill because I recognise we need a tax system that is simple and easy to understand by as many people as possible. I also support the need to align rates across investment class, because that is very important. I also support the bill because it is a Labour bill. Like the vast majority of good bills passed by the House, it is a Labour bill, but we all know that the Labour Party is the party of tax efficiency, without a question of doubt. After all, what party last cut the company tax rate?
Dr Cam Calder: Labour.
STUART NASH: Who?
Dr Cam Calder: Labour.
STUART NASH: I tell you what, what was the party before that?
Dr Cam Calder: Labour.
STUART NASH: The last time that Labour cut the company tax rate, the Nats voted against it. Those guys voted against cutting the company tax rate. That is unbelievable. National calls itself the party of business, but it is not. The vast majority of good bills that have been passed by the House since I have been here, in my limited time, have all been Labour bills. When we look at the big National bills, they are bills to build thermal power plants, the 90-day “fire at will” bill, the Auckland governance legislation, and the Budget, which has cut adult community education and the training incentive allowance. That is hardly building a productive economy, I must admit. The irony is that the
training incentive allowance was cut by a Minister who, by her own admission, dug her way out of adversity through education by accessing the training incentive allowance, and adult community education was cut by a Minister who was an adult community education tutor in Napier. That irony has not been lost on many New Zealanders. It is dreadful.
Peseta Sam Lotu-Iiga: Tell us which classes.
STUART NASH: I was in a class last night where the ages ranged between post-retirement to just-left-school. That was a night class that will be cut and they could not believe it. They were learning a very important skill. They were socialising. For a lot of them the class was the highlight of their week. The government is getting rid of it; it is cutting it. We tried to find a logical argument. We could not find any logical argument for cutting it. This is a Government of cut; it is cutting it all. But do not worry; if people are wealthy enough to send their children to a private school, then they did get a boost. They got a $35 million boost, because that is what the Government gave to private education. That is unbelievable. In fact, people who are lucky enough to send their children to private education were probably in the top 3 percent who got 33 percent of the tax cuts. I repeat: 3 percent of taxpayers got 33 percent of the tax cuts. Is that fair?
Kelvin Davis: No way!
STUART NASH: That is not is fair at all. It is a travesty. [Interruption] Talking of equitable, I challenge the ACT member Mr Boscawen, who holds himself out to be a people’s person in the financial regulation area, the man who will solve it all, to come on board for Labour’s investigation of the banking sector. He has done it for the finance sector; he should come across and help us be part of this. He wants to do it; he is an independent MP within the ACT Party, he acts independently, he should come across and be part of the banking inquiry that ordinary New Zealanders want to see happen because they are hurting. I tell Mr Boscawen to come across—no, do not come across, be independent, voice your will; you are one of us, I know that. When it comes to the banking sector, Mr Boscawen wants to know what is going on with the banks.
But let me tell members a little bit about this. I think the Nats find it quite confusing, because they keep talking about “stimulus”. Let me tell you about stimulus. There is something called Keynesian economic theory. Sam Lotu-Iiga might have studied this at Cambridge; I am not too sure. He is on the wrong side of the Chamber, and he knows it. He should come across here. Keynesian economics is mirrored by such philosophers as Hyman Minsky, for example, and echoed by Paul Krugman, for example—he was the winner of the 2008 Nobel Prize for economics—and by Ben Bernanke in the United States. Do you know what they said? What one needs to do is stimulate supply by creating demand! How do we do that? How do we create demand? We give money to those who spend it, to those who desperately need it. What should not be done is to give money to those who have a whole lot of money—the top 3 percent of taxpayers—because they tend to save it or they tend to retire debt. At this stage of the economic cycle, what we do not want is people taking this so-called stimulus package, and taking the money out of circulation by sticking it in the bank. That is called supply-side, or Friedmanite economic, theory—what used to be known as the trickle-down theory. And it does not work.
Peseta Sam Lotu-Iiga: Neoclassical!
STUART NASH: Sam knows that. You sat around that National caucus table when they announced these tax cuts, and you must have been shaking your head thinking: “The people in Maungakiekie will crucify me when they see this.” I feel sorry for you, mate. If you are a New Zealander and you earn under $40,000, and you are a taxpayer, you received nothing.
Jo Goodhew: I raise a point of order, Mr Speaker. I just wish to raise with you that it seems rather often that you find yourself drawn into this debate, at the moment. I wonder whether you might remind the member that the use of the word “you” brings the Speaker into the debate.
The ASSISTANT SPEAKER (Hon Rick Barker): The member is quite correct. The member is making reference to “you” and “your”. The Speaker in the Chair is not responsible for Keynesian economics or a range of other things, and the reference should be indirect. I invite the member to continue.
STUART NASH: Mr Assistant Speaker is right, of course, because he is a believer in Keynesian economic theory, as is anyone who has a social conscience in this country, which I do not think many people on the other side of the House have. But that does not matter, because hard-working, tax-paying New Zealanders who earn under $40,000 a year did not get a tax cut. In fact, one would have to be in the top 3 percent to get 33 percent. But it does not matter. John Key received $120 a week in his tax cut. Someone on a medium income with children received nothing. At the Finance and Expenditure Committee—Sam was there—we asked Mr English—
Jo Goodhew: I raise a point of order, Mr Speaker. On the first occasion that I noted that the member was using only part of one of the member’s names, we let it go. But the member is still using the member Sam Lotu-Iiga’s name incorrectly. I ask you to remind the member of the convention of the House.
The ASSISTANT SPEAKER (Hon Rick Barker): The member’s point of order is quite correct. Members are to be addressed correctly, and their names are to be used in full. There are no short-cuts in this matter. Although we like to be familiar on occasions, this is not one of those occasions.
STUART NASH: As I was saying, at the Finance and Expenditure Committee we asked Mr English whether, given the state of the current economic climate, which all the financial commentators from around the world are saying is getting more dire by the day, he will implement the tax cuts. Mr English said yes, he will, because it is what the people of New Zealand voted for. I wonder whether the 190 people on the East Coast who lost their jobs today voted for that. I very much doubt it. Seventy-five percent of people in the Napier electorate did not receive a tax cut. I wonder whether they voted for that.
It is bad luck for the owners of high-tech businesses. National cut the research and development tax credit to fund tax cuts. What is the vision? Where is the aspiration? The New Zealand biotechnology and agricultural sectors have been left behind. We pass free-trade agreements in this House, yet we do not support our businesses with research and development in order that they may take up the opportunities and optimise their potential.
I will give members some startling figures. The National members talk about aspiration, research, and driving growth. Let me tell members that, as a percentage of GDP, Australia’s spend on research and development is 1.15 percent, Japan’s spend is 2.62 percent, the UK’s spend is 1.1 percent, and the US’s spend is 1.89 percent. The OECD average spend on research and development is 1.56 percent of GDP. New Zealand’s spend is 0.51 percent of GDP. We talk about productivity. I wonder what Dr Brash had to say about that when he cut the research and development tax credits.
The KiwiSaver incentives have been cut for workers. Now a worker has to earn over $50,000 or contribute more than the current 4 percent before he or she gets the maximum Government allowance. This is a time when savings rates are shocking. There is a dilemma: we want people to save and we need people to spend in order to stimulate demand. However, the National Government gave no money to those who
need to save, and not a dime, penny, or cent to those who would have spent it. It is a backward step. It is unbelievable. Where is the logic? Where is the plan?
Another 60,000 to 80,000 job losses is the prediction. About 1,300 people per week are joining the dole queue these days. Businesses are struggling and families are stretched. So what will this Government do to help people? It failed to deliver when it mattered. It failed the people of New Zealand. During the 2008 election people turned blue whilst holding their breath, waiting for a vision promised by the Nats. But now people are turning red with rage. Like Mr Key I cannot wait for the 2011 general election either. Thank you.
JOHN BOSCAWEN (ACT)
: I was not intending to take part in the debate on the first reading of the Taxation (Consequential Rate Alignment and Remedial Matters) Bill, but I will answer the challenge of Mr Nash. Mr Nash said to come and join the debate, to go and join his side of the House because I am one of them.
We have two classes of citizens in this country: the privileged and the underprivileged, the haves and have-nots. Once upon a time the Labour Party would stand up and fight for the underprivileged. What did we hear from Mr Nash? We heard criticisms of the amount of funding that is going into independent schools and education. A very small number of people have the privilege of an independent education, which is an education that is paid for by parents. An independent education is an education that the privileged in society can afford. This country needs a form of funding where the funding follows the child. The Government needs to put funding into the hands of parents who live in South Auckland to give children the capacity to go to independent schools. Let us give the people in South Auckland and the underprivileged access to quality independent education. When I hear the Labour members standing up for the rights of children in South Auckland to go to the best-quality schools we have and to give them the best chance in life, that is when I will consider supporting Labour.
We have also heard a lot about savings. I give credit to the Hon David Cunliffe. He had the courage to say last week that this country needs to recognise the fact that we cannot afford to continue to provide superannuation to people at the age of 65. Mr Cunliffe had the courage to say that we need to look at raising the age-limit to 67. He was not talking about people who are 64 right now; he was talking about people who are 54, giving them 10 years’ notice to plan for the future. The reality is that we have a two-class society. We have the privileged and underprivileged; we have the haves and have-nots. We have the people who can look forward to their retirement with sufficient money saved and not depend upon the Government. But we also have two-thirds of society who retire fully dependent upon the Government and upon politicians providing their miserable pension. How can we expect a family to live on $20,000 a year? That is the pension for a family.
I support savings, and another thing I give credit to the Labour Party for is KiwiSaver. Mr Nash talked about KiwiSaver incentives. Who is saving in KiwiSaver?
Stuart Nash: Hard-working Kiwis.
JOHN BOSCAWEN: I tell Mr Nash that the well-off are saving. Once again, incentives for people to save are giving money from people who cannot afford to save but still have to pay taxes to those on higher incomes who are in a position to save. If Mr Nash is concerned about shifting resources from low-income people to people on higher incomes who are in a better position to save, then he should not provide incentives to save. I congratulate Labour on setting up KiwiSaver. It was set up with an incentive of 4c in the dollar. That incentive has been reduced to 2c in the dollar and it should probably be 0c in the dollar. If I had my way saving would be compulsory. I said that before in my maiden speech.
I conclude my comments here, but I come back to the fact that we have a two-tier society. We have two classes of citizens: we have the privileged and the underprivileged, the haves and have-nots. When the Labour Party is prepared to consider ways of funding education that will allow people on low incomes with low wealth to get the best in education, then I will consider its offer seriously. Thank you, Mr Assistant Speaker Barker.
DAVID BENNETT (National—Hamilton East)
: Following that speech about—
Chris Hipkins: Remind us what he said about tax cuts.
DAVID BENNETT: Labour members are yelling out something about tax cuts. We had an economics lesson earlier from the social conscience of the Labour Party, Stuart Nash. He was telling us that the Labour Party’s agenda is that it will give money to people who will spend it. Labour thinks that for New Zealand to get out of the economic recession, the Government should give money to people who will spend it. How about giving money to people who will invest it? Why do we not actually support the productive side of the economy rather than the spending side of the economy?
The whole reason our economy is in the position it is in now—of having a high current account deficit—is that we spend more than we earn. That is the fundamental problem. The Labour Party wants to see more spending and less investment. It does not want to see a productive economy that will deliver the results we want; it just wants to live for now and give money to people so they can spend it. The Labour Party sees one great big money-go-round. That is what Labour has always seen, and that is what it saw when it was in Government for 9 years. The previous Labour Government thought that if it just put the money in the economy, it would come back around and everything would be fine. Well, the chickens are coming home to roost in Labour. People are realising that we need a productive economy. We need an economy that can resist the world challenges out there and deliver some results. That is what the National Government will build: a productive economy that delivers a firm and secure economic base for New Zealand.
I think that the Taxation (Consequential Rate Alignment and Remedial Matters) Bill is a good stepping stone. It aligns some of those rates in investment with what we have in our taxation system. If we want our people to invest, then we want people to save, and to have tax rates that respect those savings. This legislation aligns those tax rates with the tax cuts that were brought in earlier.
Labour talks about how it is a party of taxation, and how it is a party of tax cuts. The reality is that it had 9 years and did not give any tax cuts to hard-working New Zealanders. Labour had its chance in the best economic conditions for a commodity-producing country but it did not deliver. It is a bit rich for those members to come into Parliament now and try to be seen as the most taxpayer-friendly party in this Parliament, when the reality is that New Zealanders understood that that was not that case.
This legislation is a matter of aligning tax rates with the rates that were given in the tax cuts earlier in the year, and deals with things around the interest rates. The resident withholding rates will be consequentially amended to reflect those changes in tax rates. The change is good for investors, it is good for the New Zealand economy, and it is good for delivering a stronger future for New Zealanders. Labour cannot understand that and will never understand it. It still votes for legislation because it wants to be seen as being politically correct, as it has been doing for the last 9 years. Thank you.
RAYMOND HUO (Labour)
: The Taxation (Consequential Rate Alignment and Remedial Matters) Bill is a technical bill that continues one of Labour’s work streams and makes some necessary changes. Tax cuts have been made to the individual and company tax rates. The bill introduces new resident withholding tax rates on interest income to align them with the new tax rates. The new rates for individuals will be 12.5
percent, 21 percent, 33 percent, and 38 percent, depending on their income. The bill introduces a new default rate of 38 percent for people who do not notify the bank of their correct tax rate. The new default rate will apply to accounts opened from 1 April 2010. That change has raised some concerns, and I will come back to that matter later.
Other changes in the bill include, firstly, aligning tax rates on portfolio investment entities with the new personal tax rates. Secondly, the bill introduces a new 12.5 percent secondary code and a new 12.5 percent withholding tax rate for extra pays. That brings the withholding rates on employment income into alignment with new personal tax rates. Thirdly, there are other changes concerning forestry and climate change, and tax returns and trusts.
It interests me that this bill is a good reminder of some important issues. The first issue is in relation to the magic words “tax cuts”. The National-led Government came into office with grand promises of a tax-cut programme that would benefit everyone. Many will recall that, at the end of last year, this honourable House was put into urgency to pass legislation to enable the National-led Government to implement tax cuts. Not long ago, this honourable House was put into urgency again so that the Government could cancel those tax cuts. In other words, in its very first Budget in May the National-led Government broke its No. 1 election promise, which it campaigned on tirelessly, and cancelled the next two runs of tax cuts. Sure, it did pass a tax cut package, but that gave one-third of the tax cuts to only the top 3 percent of taxpayers, or to borrow Mr John Boscawen’s word, to the top 3 percent of the “privileged” taxpayers. The April 2009 changes to personal taxation affect only people earning $40,000 or more, so 71 percent of taxpayers, or, again to borrow Mr Boscawen’s words, those who are “underprivileged”, received no tax cuts at all. It is regrettable, particularly at this time of the economic downturn, because there would otherwise be ample opportunity for the Government to redirect its tax plan to ensure that the tax cuts would benefit those who needed them the most and who would have spent them. This would also have served to boost the economy and save jobs.
Secondly, another magic word, or I should say, magic name, is Dr Don Brash, who has recently been appointed by the National-led Government to lead the productivity task force. This naturally brings us to the issue of productivity. It is deeply regrettable that the research and development tax credits were scrapped by the National-led Government. It appears that the sole reason the National-led Government scrapped the research and development tax credits was to fund its tax package. It is illogical because, as I said earlier, the No. 1 grand promise of a tax cut programme benefiting everyone was broken. Moreover, to fund the No. 1 election promise—which was broken anyway—at the cost of innovation and productivity recalls the ancient Chinese idiom “killing the hen to get the eggs”. New Zealand business expenditure on research and development is one-third of the OECD average, namely 0.51 percent of GDP. Treasury considered that figure a drag on New Zealand’s productivity growth and competitiveness, and advised the Government to retain the tax credit. That advice was given on the basis that the credit offered a more effective means of incentivising business research and development than discretionary grants, as the credit was more driven by business and could reach many more firms.
The main disparity between New Zealand and other countries is in the low research and development spending from business as a percentage of GDP. Total research and development spending in New Zealand, as mentioned by my colleague Stuart Nash, is only 0.51 percent. That is low compared with spending in Australia of 1.15 percent, in Japan of 2.62 percent, in the UK of 1.1 percent, in the US of 1.89 percent, and the OECD average of 1.56 percent. International evidence shows that well-designed research and development tax credits can, and will, have a positive impact on
productivity growth. Treasury advised the incoming Government that the research and development tax credit should be retained. Therefore, a sensible move by Dr Don Brash would be to advise the National-led Government to reinstate the research and development tax credits.
Furthermore, it is equally regrettable that, by cutting the incentives for KiwiSaver, the National Government is decreasing the amount that New Zealanders will save. The low savings rates and the spending habits of New Zealanders are two obvious reasons behind the KiwiSaver scheme. The Government’s move has created huge uncertainty for the over 1.1 million New Zealanders who have already signed up, and it takes opportunities away from future generations.
The fourth issue is related to the changes made to the default rate. The bill introduces a new default rate of 38 percent for people who do no notify the bank of their correct tax rate. We have heard concerns that those tax changes being proposed will catch investors unaware and may see them pay more tax on their investment income. Mr Peter Truman was quoted in the
Otago Daily Times as saying: “many New Zealanders did not get around to notifying their financial institutions of their correct tax rate, … Therefore, we have the Government increasing its tax take from those who are not motivated or organised enough to advise financial institutions of their correct tax rate.”
As a member of the Finance and Expenditure Committee, I look forward to submissions on this bill. Thank you very much.
PESETA SAM LOTU-IIGA (National—Maungakiekie)
: Tēnā koe, Mr Assistant Speaker. Ka whakanui au i te reo o te tangata whenua, ka whakanui au i te reo o Aotearoa. Tihei mauri ora.
[Greetings to you, Mr Assistant Speaker. I celebrate the language of the people of the land and of New Zealand. Behold the sneeze of life.]
I acknowledge that this is Māori language awareness week, and it is pleasing to me personally that people have made an effort to acknowledge one of our official languages in this country of Aotearoa New Zealand.
I rise to support the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. I will not get into the detail of the bill. It is, really, a bill that is about aligning certain tax rates, and it is, as many of the prior speakers have alluded to, part of the wider tax package that this Government is putting in place. Suffice to say that the major policy item in the bill is the alignment of those various tax rates with the new primary rates that the Government has set out in its tax cut policy.
Many of the prior speakers have alluded to the fact that this measure is part of a wider initiative to increase the productivity of our country. Increasing New Zealand’s productivity, of course, increases job opportunities and increases the standard of living that we are used to in this country, and it is certainly something that all parties in this Chamber support. Of course, taxation reform is part of a wider programme of regulatory reform that aims to remove red tape and other such regulatory compliance, as well as to remove other barriers to increasing productivity. It is also part of the Government’s programme of investment in infrastructure. That infrastructure is not just physical infrastructure, as in roads, schools, and other buildings and the like, but also infrastructure like broadband, which the Government will roll out in the next few years. The Government also sets out to improve productivity within the public services. We have been quite clear, in our direction and policy setting, that the public services need to be improved. We are also setting out an agenda on education, and upskilling those who want to upskill themselves in order to produce the jobs—the value-added jobs of tomorrow—that will improve the productivity of this country. Many prior speakers touched on innovation, and having a world-class taxation system is just the icing on the cake.
Many of the speakers opposite me referred to productivity, yet, despite the very favourable economic conditions in the last 9 years, all that the previous Government had to show for that was an annual productivity growth rate of 1.1 percent between 2000 and 2008.
Dr Cam Calder: 1.1 percent?
PESETA SAM LOTU-IIGA: The figure is 1.1 percent, I say to Mr Calder. That is staggering, given the favourable economic conditions. The biggest show in town was Government spending—not the productive sector, not the export sector, but Government spending.
This Government inherited quite a mess. We inherited rising unemployment, high inflation, a rising current account deficit, and an export sector that has declined for 5 years in succession. That is right; the export sector has declined for 5 years in succession. But guess what! This Government has a plan. This Government is about improving productivity. This Government is about delivering $1.68 billion to be spent on education. What are we doing that for? To increase the productivity of our economy. What is that needed for? To increase job opportunities in this country. Yes, this Government has a plan. It is spending over $1 billion extra over 3 years on the State highway network. Guess what! Business confidence has remained positive. Guess what! We have had an upgrade in our credit rating, which will save the taxpayers of this country in respect of interest rate increases. It will save us money on our mortgages; it will save us money on our borrowing costs. I am glad that the Leader of the Opposition is here to listen to this, because he does not listen during question time. But he will listen to a colleague—a colleague from the central Auckland region.
So I speak in support of this bill. It is part of a wider package of reform that this Government is pushing forward with. I say we should look out for productivity in the future, look out for increased job opportunities, and look out for stability. I reiterate that I speak in support of this bill. It is only a minor part of our reform, but it is an important part. Thank you, Mr Assistant Speaker.
A party vote was called for on the question,
That the Taxation (Consequential Rate Alignment and Remedial Matters) Bill be now read a first time.
||New Zealand National 58; New Zealand Labour 43; ACT New Zealand 5; Māori Party 5; Progressive 1; United Future 1.
||Green Party 9.
|Bill read a first time.
Hon Dr WAYNE MAPP (Minister of Defence) on behalf of the
Minister of Revenue: I move,
That the Finance and Expenditure Committee consider the Taxation (Consequential Rate Alignment and Remedial Matters) Bill, that the committee report finally to the House on or before 16 November 2009, and that the committee have authority to meet at any time while the House is sitting (except during questions for oral answer), during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c).