Part 1 Annual rates of income tax
Dr DAVID CLARK (Labour—Dunedin North)
: I am very pleased to be able to take a call on Part 1 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, where we are being asked—
Todd McClay: Not as pleased as the chairman.
Dr DAVID CLARK: —to confirm the annual rates of income tax, and I hope it also pleases the chairman that I take a call at this stage. The rates of income tax are very critical to outcomes in our society, and I want to put firmly my view that this part of the bill is one of the ones that we struggle with the most. We will support the broader bill, but I would like to have a quick look at the outcomes that can be attributed to the current rates of income tax, and ask the Minister of Revenue why we should confirm these particular sets of tax rates now.
Recent reports have indicated pretty clearly that we are doing poorly as a society. We are becoming more and more unequal. A good deal of this inequality in our society comes as a direct result of the so-called tax switch in 2010. And we know that in that tax switch 44 percent of the value of the tax cuts that National gave out went to the top 10 percent of earners, and just 2 percent of the value of those tax cuts went to the bottom 20 percent of earners in New Zealand. That tax switch benefited greatly those at the top—some pocketing an extra $1,000 a week—while those at the bottom very quickly had any tax cut gobbled up in GST.
There have been reports in recent days and weeks that indicate that the effects of the current tax rates are disastrous—increasingly disastrous. In fact, they were labelled quite accurately by the leader of the Labour Party as a bloody disgrace. Firstly, I want to look at
The Netherlands Study, commissioned by Every Child Counts, which came out on the 22nd of this month. It indicated very clearly that we need to invest in policies that support children and parents, and ensure that they have the right tools and support, if we want to eradicate poverty in this country. And all the evidence shows, according to the
report, that poor outcomes for kids in poverty cost taxpayers a good deal, and that is estimated at between $6 billion and $8 billion a year. New Zealand spends around a third less each year than the Nordic countries on this. The Netherlands spends less than half, but continues to achieve excellent outcomes. That is the first report.
The next report that we have had recently was the
Household incomes in New Zealand report, which indicated that inequalities in New Zealand are worse than ever. The median income across all households fell by 3 percent between 2009 and 2011. That follows 15 years of steady growth in those median incomes. We also know that without Working for Families, a Labour policy, things would be a lot worse in terms of that inequality in our country, and the outcomes for our citizens in poverty would be a lot better if we had both Working for Families and a fairer set of tax policies.
The fall of 3 percent in real terms in the income of those people on the median wage is one thing, but we also know that the same thing led to an effect where the proportion of kids in poverty in New Zealand has gone from 15 percent to 21 percent between 2007 and 2011. This is through policies that can be tied back to a number of things, including things like health care and other proactive measures, but also very firmly tied back, actually, to particular tax choices that we make.
We are being asked here, I remind the Committee, to affirm the annual rates of income tax in Part 1. We are being asked to say that the current set of policies the Government has in the tax area are fair and are leading to positive outcomes for our citizens. I wish to argue that they are not.
The Children’s Commissioner’s report is the third of these reports that has come out recently that points to very unequal outcomes that I wish to draw attention to. It indicates a 25 percent incidence of child poverty—270,000 children in poverty. The costs of a poor start, as we have said, amount to around $6 billion for those children living in poverty, which we pick up as taxpayers every year. So I want to argue that this particular set of tax rates benefits the wealthiest in our society in the short term, but is actually bad for all of us in the long term as it leads to disinvestment in social goods, and also disinvestment in those things that are good for all of us in the economy, including public services, and the right incentives, as I said, to grow our economy.
We have also learnt in recent days that 90 of the 100 wealthiest New Zealanders are not on the top tax rate—90 of the 100 wealthiest New Zealanders are not on the top tax rate—and that, in fact, a full 50 percent of those with wealth over $50 million are not on the top tax rate in New Zealand. They are able to structure their affairs in such a way that they do not pay their fair share of tax. Labour stands for fair taxes in a fair economy, and we would impose a capital gains tax that would make sure that people did not avoid paying the tax that they are due to pay, that they would carry their fair share in terms of taxation, but also that a neutral signal is sent to the investors in respect of the productive sector. When people invest their money, they make a choice about whether it is better for them to invest in productive assets, which are good, in fact, for all of New Zealand in terms of exports, or to choose, as they currently often do, to put money into the housing sector, where the returns are artificially distorted by the absence of a capital gains tax.
There are only three countries in the OECD that do not currently have a capital gains tax. This Government is choosing not to put one in. We are told—the rumour is—that that is because the current tax capabilities in the department are not up to scratch. The computer system could not handle a capital gains tax, and that is one reason why the Government cannot go near it. Mr Key has pointed to that in a Valentine’s Day promise. He talked about $1 billion that needed to be spent to remedy this problem. That does not seem to have been spent. We have no timetable, no understanding of when our tax system will be able to handle the changes that we need as a country. In fact, we are left
confirming current policies, by and large, because our tax computing system will not handle the big changes that New Zealand needs to grow its economy, to be an effective country in terms of addressing the issues of poverty, and also to make sure that businesses have the environment they need to grow exports. Instead, what we are faced with is a growing balance of trade deficits and children increasingly living in poverty. The largest gap between rich and poor that New Zealand has ever had on record is what we are faced with this week.
It is a bloody disgrace. David Shearer is right. We need to address these things. We need a fairer tax system where all New Zealanders know that if they put their shoulder to the wheel, they can get ahead, they can contribute, they can put food on the table for their families that is nutritious and healthy, and they can afford to buy the shoes they need for school, the raincoats, the textbooks, and all the other things that are necessary for kids to succeed and not feel like society is against them.
I put it to you that this current annual rates of income tax confirmation should be thoroughly questioned by all sides of the Committee, because in so far as National has a plan to address these issues of poverty—
Todd McClay: We have a plan. We have a plan.
Dr DAVID CLARK: —and inequality, it is not working. We have heard of 120-point plans. We do not actually see any plans with measurable targets. As Mr McClay points out, they say that they have a plan, but we do not see any with measurable targets, and we certainly do not see any targets being achieved. The real economy is smaller now than it was when National came here. The only thing that keeps the economy growing is population growth. Real wages are lower than they were in 2008. The median wage, we have learnt, is down 3 percent, and people are suffering. This Government is not delivering the brighter future that was promised. It is delivering a poor shadow of that, and New Zealanders are tiring of it. They wish for stronger tax policy that would address these inequities, and instead we are asked to confirm the status quo. I put it to you that that is not an adequate solution. Thank you.
TODD McCLAY (National—Rotorua)
: I have just said to my colleague beside me, the senior Government whip Michael Woodhouse, to wake up. You are not allowed to sleep in this House. He said that it was not his fault—he had listened to the beginning, the middle, and the end of the speech from the last member, David Clark. How is it that two MPs from Dunedin, one from Dunedin North and another MP representing Dunedin South, can have such a different grasp of reality when it comes to issues as important to New Zealanders as this? One is grounded in reality, and one in the area of fanciful land, and, of course, it is Mr Woodhouse who has his feet firmly on the ground.
What we heard from the last speaker in this debate was wishful thinking. The one point that I take from what Mr Clark said was to impose more tax. He said: “Impose more tax.” He said that David Shearer is right; impose more tax. Well, he is actually not right, he is left, but he is so much further left than what people in this country want at this time that it concerns me greatly for members opposite, who believe that their leader is right. Impose more tax on New Zealanders.
We heard about a capital gains tax—capital gains tax. We heard about it again, recycled from the last election—a capital gains tax on all businesses and farms, on all houses, on beach houses, on everything that New Zealanders own. Those members will stand up in this Chamber and say: “No, no. That wasn’t what we meant before the last election. Indeed, we had a good plan before the last election and New Zealanders just didn’t understand it.” We hear that from the Labour Opposition all the time. I would say that not only did New Zealanders understand, but they rejected imposing more tax, they rejected an unfair capital gains tax, and they elected the policy that is before us, delivered by the honourable Minister in the chair, the Minister of Revenue.
The Finance and Expenditure Committee had an opportunity to hear from all New Zealanders on this piece of legislation, the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, and on Part 1, and we took extra time, as we often do in the Finance and Expenditure Committee, to listen to those submitters on their views. Although there were a range of views, I believe that the bill that has been brought back to this Committee clearly follows the views of those whom we heard from, from all around New Zealand. Those views were simple. They were that David Shearer is wrong—do not impose more unnecessary tax, we do not want a capital gains tax; it will penalise us. We want a tax system that will benefit New Zealanders, and give them an opportunity to invest in themselves and go forward. I commend this wonderful piece of legislation that the Minister of Revenue has brought to the House.
Hon DAVID CUNLIFFE (Labour—New Lynn)
: It is a pleasure to take a call on this Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill—they always have such exciting titles. It is, of course, instructive to listen to the speech of the member who has just resumed his seat, Todd McClay, because he finished off by making a monumental blunder, which was to say that because Labour might be considering some new forms of taxation to neutralise investment signals across the economy—a very good thing, any economist would say—he is leaping to the conclusion that that would therefore mean a higher net tax burden. In fact, that is not necessarily the case, as it was not the case that the Government’s own tax switch was not tax neutral, but $1 billion in the red over 4 years. That is leaving aside the fact that upper-income earners, of course, got a massive tax windfall, and medium-wage earners, just for example, have gone backwards, because their real wages, even before tax, are 3 percent lower today than they were when the current Government took office.
Looking at the title of this bill, and looking at Maggie Barry opposite and thinking about annuals and perennials, I am reminded that although the rates revision is an annual gardening term, the Minister in the chair is in fact a perennial Minister of Revenue. In fact, so perennial is the Minister that he is now amending his own amendments to his own bills on previous amendments from previous Governments. A bit like the perennial spinach that keeps people fed with greens during the winter, there is the perennial—I think you would say he is a spinach-type of Minister. There is no icing on that cake—well, maybe there is, actually. He is more a meat-and-potatoes man, is he not?
In all seriousness, this seemingly innocuous bill does give the Labour Party some delicious opportunities to remind the good people of New Zealand, for whom we are working so hard, that we had some excellent policies for them that they narrowly—narrowly—failed to grasp at the last election, some of which are still going to occupy an important place in their futures. For example, there is KiwiSaver. This bill tinkers with KiwiSaver. National’s big, bad savings secret was—wait for it—first off, it reduced the member contribution rate from 4 percent to 2 percent. That was brave—that was brave. Now it is putting it up by precisely half the amount that it put it down last time—stirring stuff from the National Government! It half re-amended its own amendments.
Todd McClay: It’s time for another shave. Ring the bell.
Hon DAVID CUNLIFFE: Would the member for Rotorua like to consider that one in relative silence? That would be lovely. The really important thing about this is that Labour’s universal KiwiSaver plan achieved the objective of growing New Zealand’s savings rate by—wait for it—four times the rate of National’s tepid plan, part of which we are rather sadly and forlornly debating tonight. That is four times more opportunity for New Zealand mums and dads to save for their future and to build up a nest egg. For somebody who starts out in work in their mid-20s and saves at the minimum wage, that was going to be at least half a million dollars by the time they hit 65—a really important
complement to their superannuation and a real opportunity to get a deposit on a house, to have a nest egg, and to buffer them from major ill fortune. But remember that Labour’s savings plan would have had a rate of savings increase four times faster than this tepid little amendment in this bill.
Dr David Clark: Four times?
Hon DAVID CUNLIFFE: Four times—Kiwis would be four times better off under Labour’s plan than under this so qualified little change, which only half reverses the previous backsliding.
Then, of course, we get on to the subject of GST. There are GST amendments in this bill. Well, go ahead, make our day. New Zealanders are not going to forget that GST has been raised by this Government on every single New Zealand family and on every single product: the school books, the shoes, the raincoats, the milk, the bread—you name it, GST on these has all gone up to 15 percent. Kiwis cannot afford that—they cannot afford that. That was why Labour offered some relief in that area in the last—
Hon PETER DUNNE (Minister of Revenue)
: I cannot let the moment go without injecting a note of reality into this debate on the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. The previous speaker, David Cunliffe, has waxed lyrical about KiwiSaver.
Hon David Cunliffe: That wasn’t lyrical; that was prosaic. I waxed prosaic.
Hon PETER DUNNE: Well, he attempted to be lyrical. It certainly was very
Harvardian prosaic, shall we say. The point I want to make is simply this: the allegation put forward is that enrolments in the KiwiSaver scheme have somehow stalled since this Government came to office. I was there, as the member acknowledges, when the KiwiSaver scheme was devised, and I should tell the Committee that in its original conception the plan was that we would hit—wait for it—700,000
KiwiSavers by 2015.
Todd McClay: How many are there?
Hon PETER DUNNE: Seven hundred thousand by 2015. In February 2009, we topped a million.
Chris Hipkins: That’s because it was a good idea.
Hon PETER DUNNE: And the member opposite says it was a good idea. The members opposite are arguing, if they would just bear with me for a moment, that the steps this Government has taken have been to the detraction of KiwiSaver. As I say, we have topped a million
KiwiSavers in February 2009. A little over 2½ years later, we are within days of hitting 2 million. The point I want to make to the Committee is that if this scheme has been so tarnished, so tinkered with, and so destroyed, how come we have doubled its membership in 2½ years? I would have thought that had the claims the member was making had validity, we would have seen a downward tail, but, in fact, here we are going to be by the end of 2012 not at 700,000 but probably three times that original prediction, and twice what we were early in 2009.
I listened to the previous speaker bar Mr Cunliffe, Dr David Clark, and Mr Cunliffe as well talk about the Labour Party’s taxation plans, and I listened in vain. What I heard from both was a lament about current circumstances, the fact that incomes have fallen, with no reference to the global financial crisis, the biggest crisis to hit the world since the Great Depression—no reference to that. And then I heard two suggestions made as to what we could do to rectify the situation. One was to bring in a capital gains tax. That was rejected by the electorate last year. It has been rejected by the electorate every time a political party has campaigned on it at every election over the last 30 to 40 years. It was also rejected substantially by the Tax Working Group in its work in 2009-10. But the Labour Party clings to it, and when it realises it will not work, it then falls back on the claim that the only reason we do not have it is because the Inland Revenue Department’s computer will not let us design one. The reality is that we are about to
embark on the biggest re-design of our technology since the introduction of the first system in 1991, and we will be making announcements about that and the scope of it a little later in the year.
So we are left with this: a lament from the Opposition about the annual tax rates and a failed plea that the overall solution lies in a capital gains tax. Then Dr Clark made the point that low-income people and middle-income people have been the big losers from the 2010 tax changes. In fact, the bulk of the expenditure on those tax changes in 2010 were on changes to the bottom two steps. I do not think the Labour Party opposes the reduction in the bottom two steps of taxation, which was where the bulk of the spending occurred. So what we come down to is this: the one thing that they have not said tonight is that their bold new plan is to put the top tax rate back up. What happened the last time they did that, in 1999, was that we saw a massive explosion in the number of trusts—we saw a massive explosion post-1999 in the number of trusts—and tax avoidance and tax evasion, and one of the reasons why we deliberately aligned the trust and the personal rates in 2010 was to stop—
Hon Member: Who was the Minister of Revenue?
Hon PETER DUNNE: Michael Cullen. The reason we deliberately aligned those rates was to stop that process—[Bell rung] Mr Chair—
Hon David Cunliffe: I raise a point of order, Mr Chairperson. I seek to raise a point of order under Standing Order 107(2), “Misrepresentation”. The guidance in paragraph (2) is that “A member may not introduce any new matter or interrupt any member to explain a misquotation, misunderstanding, or misrepresentation.”, and Standing Order 107(1) says that the member should rise when the member has resumed his seat. So now that the Minister has resumed his seat—
The CHAIRPERSON (Eric Roy): Sorry, can you just tell me what the point of order is.
Hon David Cunliffe: The misrepresentation is quite simple. The Minister has waxed on for 5 minutes suggesting that I had alleged that KiwiSaver was in decline—
The CHAIRPERSON (Eric Roy): Order! I am on my feet. The response the member should take is to take another call to correct it, not to correct it by seeking to do it through a point of order, which is not a way of introducing debating points.
Hon PETER DUNNE: Mr Chairman.
Hon David Cunliffe: Mr Chair.
The CHAIRPERSON (Eric Roy): I will hear the Minister, who—
Hon David Cunliffe: I’m seeking a call, as per your instructions.
The CHAIRPERSON (Eric Roy): Yes, and I am giving the call to the Minister.
Hon David Cunliffe: He’s just had one.
Hon PETER DUNNE: I sought the call again.
The CHAIRPERSON (Eric Roy): He sought the call, and I had given him the call. You raised the point of order, and I am now referring back to the call.
Hon David Cunliffe: I raise a point of order, Mr Chairperson. Without wishing to second-guess a call that has already been given, you will remember that I was seeking a call previously when you gave the call to the Minister. I know that you are impartial, and I wonder whether there is any room for you to reconsider your decision by giving the call back to the Opposition so that the—
The CHAIRPERSON (Eric Roy): OK. Order! I hear the member. Please sit. I hear the member. Firstly, let me say that once a call is given, it is given. That is the nature of this place, and there is no rescinding of a call once it has been given. Also, members might consider that it is part of the institution of this Committee that a Minister responding to speeches has unlimited calls, and they generally get a call. I have given the call to the Minister. He shall now take the call.
Hon PETER DUNNE: Thank you, Mr Chairman, and lest members be concerned, I doubt that I will take the full 5 minutes, because I was simply winding up on the point that the argument that the Opposition has put forward about the changes that it requires to be made to the tax system has been pretty inadequate. We have got an argument about raising the top tax rate, when we know that what happened the last time that happened was an explosion in the number of trusts and an explosion in avoidance opportunities, and the reason we have aligned the trust rate and the personal top tax rate was to curb that. The figures that the member—I am not sure whether it was Mr Cunliffe or Dr Clark; I cannot recall which one of them—quoted from the Council of Trade Unions’ release earlier in this week fall neatly in the middle of the period where that realignment was occurring. So the argument about how much people in the top income brackets in New Zealand were paying in tax needs to be taken into account from two perspectives. Firstly, it falls within that period where we were shifting out of those massive evasion and avoidance opportunities created by trusts, and, secondly, the figures also show an improvement from the previous time that survey was conducted.
I am happy to support Part 1. I think it is an eminently sensible part of the bill. It confirms the annual tax rates. It confirms the direction in which we are moving. It confirms a reasonable and fair tax system for the vast majority of New Zealand taxpayers, and it gives them the opportunity to get ahead in their own lives.
The CHAIRPERSON (Eric Roy): I am going to the Hon David Cunliffe.
Hon DAVID CUNLIFFE (Labour—New Lynn)
: Thank you, Mr Chairman, as it gives me the opportunity to point out several inconsistencies in the contribution of the Minister in the chair, the Minister of Revenue. Firstly, at no stage has the Labour Party or this member said that KiwiSaver was in decline, merely that the rate of growth of savings under Labour’s plan was four times that of the rate under National’s plan. The disturbing thing is that the Minister of Revenue cannot tell the difference between a plus sign and a minus sign in front of a financial aggregate. That is of deep concern. This bill in fact does explain something, because, as we noted earlier, this bill is raising a contribution rate that the same Minister previously dropped. It may be that he was confused on one or both occasions and has not meant to do another U-turn in policy, but it may be that it is deliberate, and I ask the Minister to take a call and explain to the Committee whether he is confused or whether he actually meant to change his previous amendment again.
But there is, of course, a bigger debate here, and that is about how we grow New Zealand business. What we need for New Zealand businesses to grow—we get told as we go around the country—and what we hear from businesses is that they want the capital for growth. They want to be able to invest in good, Kiwi jobs.
David Bennett: They want a National Government. That’s what they want.
Hon DAVID CUNLIFFE: And in dairy farms, says the “member for dairy farm accumulation”. They want dairy farms, they want businesses, they want to be able to invest in them, I say to—what should we say—the “member for tax efficiency in the rural sector”. That is a very good phrase. Members can figure that out amongst themselves.
The issue here is that when all the incentives in the tax system are for people to get rich quick through property and not to build honest businesses, this country suffers. We do not have as many higher-paying jobs. We do not have as many people in work. Unemployment in New Zealand has gone back up to nearly 7 percent, years after the current Government told us it would be back down towards 5 percent. This is a scandal of epic proportions in New Zealand. New Zealanders are really suffering. The current Government does not have a plan. It has deserted the hopes and dreams of New Zealanders. If this is as good as it gets—changing the savings contribution rate from 2
percent to 3 percent, after having cut it from 4 percent to 2 percent—then we really can conclude that this is a visionless vacuum of a Government.
It makes no difference then whether this is an annual or a perennial bill—you know, an annual bill from a perennial Minister, which is where we started this little debate—because this Government is going to be time-limited, not perennial, and because New Zealanders are going to wake up and they are going to understand that if they want their kids to have a future in this country, they are going to need a Government with some vision and some guts and some boldness that is actually going to have a plan to make some changes.
Maggie Barry: They’ve got one.
Hon DAVID CUNLIFFE: Oh, they have got one, says the “member for annuals”. They have got one, she says. They have got such a great Government that those members did not ask the question of whether asset sales ought to have a Treaty examination before they started. So other than upper-income tax cuts, which we are debating in this bill, the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, they pinned their economic strategy on flogging off the family silver. But just like the renowned celebration in the brewery, they could not even organise that properly. They could not organise a celebration in a brewery. They could not even flog off their own family silver—actually, New Zealanders’ family silver. So inept are they that they did not ask themselves the question: “Oh, I wonder whether there’s a Treaty problem. I wonder whether we should ask iwi. I wonder whether we should ask the Waitangi Tribunal.” Why does that matter in the context of this bill? They have just got themselves another $6 billion of fiscal hole because they could not even manage to do the wrong thing effectively.
They are so hopeless that they are doing the wrong thing ineffectively, which I suppose is a good thing, but it only proves how hapless, hopeless, and ineffective they are. So I implore New Zealanders, these clowns may think they are perennials, but let us lop them off at the growth buds, let us turn them into annuals, and let us have an election this year.
MICHAEL WOODHOUSE (National)
: It is my pleasure to take a call on this bill, the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. But before I do, I must admonish my colleague the member for Rotorua, gently, for his faux pas in describing me as the member for Dunedin South. Of course, I am the member in Dunedin South. In fact, if you ask the constituents of Dunedin South, they would probably say that I am the member for Dunedin South. The interesting thing is that if you ask the constituents in Dunedin North, they would say that I am the member for Dunedin North, as well. So I do understand the confusion.
But in respect of the call from the member who is the Dunedin—
Hon David Cunliffe: I raise a point of order, Chairperson. It is clearly outside Speaker’s directions for a member to refer to himself, even in the imagined third person, as the member for Dunedin South, when we all know that he has been the member rejected by—
The CHAIRPERSON (Eric Roy): Order! That is making a political point. The member actually made no such claim.
MICHAEL WOODHOUSE: Thank you, Mr Chairperson. That saves me speaking to the point of order. I will say of the member for Dunedin North that I think he is the revenue spokesman for Labour, and I will give him this: he is definitely smarter than the previous spokesman on revenue that Labour had. Remember Stuart Nash? In fact, I must say that I was very, very worried that Mr Cunliffe was actually going into that territory that Mr Nash used to go to, in wanting to tax farmers’ revenue. Remember that? Labour wanted to tax farmers’ revenue.
The other credit that I will pay Dr Clark is that he is becoming very good—very good—at telling half a story extremely well. It is true, according to recent reports, that 50 percent of New Zealand’s top earners are not on the top tax rate. I want to elaborate on the comments of Mr Dunne, the Minister of Revenue, about why that is. I will remind members about the Tax Working Group report that was released in 2009. It said that up until the late 1980s and early 1990s, we had one of the least distortionary tax systems in the world. By the time National came back to office in 2008, it was one of the most distortionary in the world, with a punitive top tax rate, but legitimate tax-planning opportunities for those high-income earners to move their income into trusts and into companies. Which was the Government that allowed those tax loopholes to occur?
Todd McClay: Who? Who was it?
MICHAEL WOODHOUSE: It was the previous Labour Government—actually asleep at the wheel, in my view. But it is crocodile tears now to say that those top earners were given the opportunity to legitimately tax-plan and then criticise them for taking those opportunities. I am very proud of the fact that this Minister and this Government have actually reduced those opportunities, closed those loopholes, and reduced the tax rate away from a punitive 39c in the dollar and down to 33c in the dollar.
But, more than that, in Dunedin North and at the University of Otago one of the biggest things that people said to me during the campaign last year in respect of student allowances was that the student allowance was available to the very poor and the very rich, and the thick middle was not getting the opportunity to take student allowances, and that was not fair. We agreed, and we have changed that by changing the definition of income for the calculation of student allowances—something that Labour should have done at the very start, when it put in place the interest-free student loan scheme and the student allowance system that it did.
I want to remind this Committee, when that side bleats about tax rates, that we now have three-quarters of the taxpayers in this country paying no greater than 17c in the dollar marginal tax rate, and their full tax paid is about 15c in the dollar. Nearly half of the families in New Zealand pay no net income tax, after Working for Families, accommodation supplements, and other income transfers. We think that that is pretty fair. What we do not think is fair is to tax further the 17 percent or so of New Zealanders who are paying about 70-something percent of net income tax in this country. That is punitive. That is envious. That is jealousy.
Dr David Clark: Why is poverty growing?
MICHAEL WOODHOUSE: And here he is—he interjects. This is another good “half a story, very well told”, because median take-home income has grown every year under this Government. The net take-home pay gap with Australia has closed, and the only reason that the
Gini coefficients are starting to drift away, in the same way as they closed last year, is that very high-income earners took an extremely large whack, and it is growing again. Maybe that top income bracket has grown slightly faster than the bottom two tiers, and the solution to that is jobs and growth, and job strategies—none of the things that we hear from Labour.
In fact, in respect of monetary policy, Labour wants to loosen monetary policy to reduce exchange rates. Those strategies are really the fly on the elephant’s butt, I have to say, because it is simply not possible to move them in the way that Labour wants to. But there is no detail whatsoever. I am still completely in the dark about what monetary policy Labour would follow, were it in power. It talks about a capital gains tax, but who would be affected? It talks about putting the top tax rate back. We all understand what that means. No detail—
ANDREW WILLIAMS (NZ First)
: Thank you, Mr Chairperson. I will take a little call now, if I may, on behalf of New Zealand First. A small pun on words.
Richard Prosser: Not a prior call.
ANDREW WILLIAMS: No, not a prior call; a little call. In the famous words of Benjamin Franklin, “The only things certain in life are death and taxes.” Further to that, Albert Einstein is attributed as saying “The hardest thing in the world to understand is income tax.” If that is coming from Albert Einstein, we would all agree that certainly the subject of tax, although it is a very dry topic and a very complicated topic, is indeed a very necessary topic, because apart from death it is the other main thing that we will all contribute to in our lives. Also, there is an unknown quotation from another individual, who said: “People who complain about taxes can be divided into two classes: men and women.” That pretty well sums it up as well.
In terms of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, in a sense this is moving the deckchairs around on the
Titanic. It is somewhat extraordinary that many of the measures that are having to be brought in through this bill—and we do support it, because anything is better than nothing—are very much a lot of tinkering around the edges, in the opinion of New Zealand First. It certainly is not the overhaul of the tax system that we in New Zealand First have long sought for many, many years.
In respect of some of the measures in this bill, it is only putting back what has been taken away. We concur with previous speakers: KiwiSaver contributions by employers were reduced from 4 percent to 2 percent just a year or so ago, and to now come back in this bill and put them back up to 3 percent is basically an admission that reducing those employer contributions was an error in the first place. We are disappointed that this House is having to basically redress errors of that nature from the past.
It also says in the bill that there will be taxes on bonus shares issued by companies. Again, we do wonder whether that will apply to the bonus shares that will be issued for the State-owned assets that are proposed to be sold off by this Government. Will those bonus shares that are going to be offered to the supposed mum and dad investors—otherwise known as Mr Fay and Mrs Richwhite—end up with taxes being paid on them because of this bill? Who would know?
Also, in terms of this bill, it does require taxpayers who choose to file a return to file ones for the previous 4 years. That does tighten things up a bit so that people cannot just cherry-pick with their tax returns and pick good years and not file in other years. If you are going to be an ongoing taxpayer and expect to get refunds or have to pay tax, you have to be consistent year after year for the previous 4 years. That is a sensible solution.
But there are many other areas of this bill that are pretty dry to people who might be listening out there around New Zealand. Basically, there are things such as the clarification that the late payment fees charged by businesses, and the credit card service fee for tax and social service payments, will be subject to GST. It prevents liquidators and receivers from switching the basis on which they account for clients’ GST obligations. It confers charitable status on four overseas-focused charities. The bill also provides various remedial amendments to ensure that legislation operates correctly and is consistent with the original policy intent, including the following. It amends the portfolio investment entity rules to ensure they are applied correctly, it ensures that the rules introduced in 2011 for look-through companies are consistent with the policy intent, and it clarifies the loss limitation rules for limited partnerships. It also clarifies the definition of “hire purchase agreement”, repeals an exemption to foreign investment fund rules, and provides an optional method of valuing certain shareholdings under the rules. Lastly, it introduces new rules for the transfer of emissions units by public bodies in certain circumstances.
Most of these are pretty dry and pretty boring to be read out, but it does show that this bill has a great deal of content in it. It is a fairly hefty and weighty bill, with an awful lot of information in relation to taxation, much of which will go over the heads of most people. But, in so doing, much of this bill does tidy up some loose ends of the taxation system. It does bring things into line. It does provide some improvements in areas, after recommendations from the Inland Revenue Department and Treasury. Therefore, it can only be advantageous in terms of a better tax system.
But at the end of the day, it is still tinkering. It still does not get around the fact that, for instance, although we are trying to pull in the nickel-and-dimes here, and although we are trying to tighten up small loose ends here, this Government only 2 years ago gave very, very large tax reductions to the wealthy of this country of several billion dollars per year. We now, in hindsight, must be wondering why on earth we did that. We end up having to tinker around the edges, like in this bill, while giving away billions of dollars to those who could certainly afford to not have those tax reductions. Let us hope that in the future there will be proper tax reform and there will be proper tax reviews so that we do not have to continue to just tinker, and that there will be genuine tax reform.
The CHAIRPERSON (Eric Roy): Dr Megan Woods. [Interruption]
Dr MEGAN WOODS (Labour—Wigram)
: There is no need to be so rude to my colleague as to refer to him as that. It is with great delight that I take a call on this Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill of 2011. When we look at the purpose of this bill, when you are coming down to the House to speak on a bill such as this, you do not actually realise that you are walking down to speak on a piece of legislation where nowhere is it clearer that this is a Government without a plan. This is a piece of legislation that in the part of the bill that we are currently debating sets the rates of taxation. As the Minister in the chair, the Minister of Revenue, has said, it sets the rates of taxation and puts out what the Government’s plan for managing the economy is.
This is, as previous speakers have said, tinkering around the edges. It is tinkering around the edges while the economy tanks. We are spending $10,000 a minute here for members opposite to explain their plan. It is not a 104-point plan, it is not a 110-point plan, and it is not even a 10-point plan. It is the no-plan plan. There is simply no plan here. It is tax policies that can be used to address the inequalities that we are facing in New Zealand. These are inequalities that have never been higher. All we hear from members opposite is a chorus of “It’s the global financial crisis.” Well, here is a message for members opposite: it is a choice you make with your policies that you make the poorest people suffer the most in times of economic crisis. That is a choice that you make, and your tax switch of 2010 only exacerbated this situation.
David Bennett: Rubbish!
Dr MEGAN WOODS: We are told by members opposite that this is rubbish. Well, this is not rubbish. Here is a fact that members opposite might like to consider: the tax switch that members opposite put into place widened the gap between someone earning $30,000 and someone earning $150,000 by $135 a week. I am not talking about that being the difference; that is how much the gap widened. We are told by members opposite that, actually, we have seen a rise in incomes since National has been in power. No, we have not. What we have actually seen is a fall in real incomes. We have seen a fall in real incomes for the first time since the 1990s—the last time that National was in power. What we are seeing is that the poorest people are suffering.
The day after the 2010 Budget, John Key proclaimed that the tax reforms that his Government was introducing had been designed to be broadly fiscally neutral. We now have a definition of what “broadly fiscally neutral” means to members opposite—to
Todd McClay, the member for Rotorua. Apparently a billion dollars is “broadly fiscally neutral” to members opposite, because that is the size of the whole of the tax switch that they put into place. I would like that member to take a call and tell us what is fiscally neutral about a one billion dollar hole of inequity. That is something that he is not even over the detail of, as most of the members opposite are not. What happened with the tax switch is actually we had a set of policies that crashed the revenue side of the Budget. We have a dwindling Government revenue base, and this has forced more borrowing. We have members opposite who have the audacity to call themselves good economic managers—good economic managers who think that a billion dollars is broadly fiscally neutral. They have the audacity to paint Labour, which consistently kept the books in order and ran large surpluses, as spendthrifts. They simply have no plan, and they simply have no way of looking at it.
Labour put up excellent alternatives to this approach at the last election, and we have not heard one compelling argument from members opposite about how that would not have modified the economy. We are told there was no detail around Labour’s capital gains tax policy. This is just ridiculous. There were pages and pages of modelling. We also had a savings plan that gave some surety to people and ensured that they were going to stay in that scheme. What we did not have is the up and down and changing that erodes people’s confidence in KiwiSaver that we are seeing with this piece of legislation. Is it 2 percent? Is it 3 percent? Is it 4 percent? That level of uncertainty is no way to encourage Kiwis into the scheme and to keep them there. My colleague David Cunliffe has addressed that.
We have been told many things tonight in the course of this debate. One of these that we were told was from the member rejected by Dunedin South. He has stood up and told us that at the last election, every time he went on campus in Dunedin North he was told by students that only the very rich and the very poor students could get student allowances. Well, he is a member of a Government that has certainly set about fixing that. If you are a postgraduate student in this country now, no student will get a student allowance. The Government has certainly introduced equity into this area. It is one of the few places where it has actually introduced equity, because no one, no matter what their level of income, can get a student allowance under this Government to do the very research that will benefit this country and will actually do something to address the levels of inequality that we are seeing in this country, which members opposite are claiming are not a problem.
We have growing inequality in this country. We have a Government that has no plan to address it and a Government that refuses to believe that it has a choice in the context of a global economic climate. It has made choices that have meant the poorest New Zealanders have borne the brunt of this recession. Their incomes are lower, their taxes are higher as a result of their tax switch, and they are worse off. Government members can bury their heads in the sand or they can read the international reports. Reports are coming out daily that are showing that their Government has failed when it comes to addressing inequality in this country and has failed to put in place any plans that will address inequality into the future. This piece of legislation that we are looking at here today does nothing but show that this is a Government without a plan. It is a tax system that is wedded to benefiting the highest-earning New Zealanders the most and doing nothing to address inequality in New Zealand.
Dr RAJEN PRASAD (Labour)
: It is a good place to take off from, where my colleague Dr Megan Woods just left off. We are talking about Part 1, clause 3 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, and talking about confirming the basic tax rates. Of course, there is a purpose as to why we collect tax. It
is so that we can develop the country but also address those things that need addressing as a matter of urgency.
It was no accident today that knowing that the Children’s Commissioner was going to put out a major report on a significant area, about children and child poverty, in the midst of that, what did the Minister for Social Development do? She announced again, probably for the third or fourth time, that there has got to be drug testing of beneficiaries. If that was not a distraction, then I do not know what is. That was the only purpose for that. It was already announced. It was an old policy. The point here is that we are talking about tax and we are talking about the need to take tax so that we can address those really important issues that our children are facing today. There can be no doubt that our children are suffering. I do want to confirm what my colleague Megan Woods said, which was that the Government is going backwards. The Government is out of touch with the ordinary needs of Kiwis. Certainly, the Government is out of touch with the needs of our children, particularly children living in poverty. Of course, if you did have a fairer tax system, then that would not be the case. The needs of our children, particularly the most vulnerable, would be addressed, and would be addressed quite systematically.
Here in a major area is one of the implications of the kind of tax system the Government is confirming tonight and the tax rates the Government is confirming. It is not as if it is all going well, because in order to fund the tax breaks and the tax cuts they did get, we all know—the Government members can deny it as much as they like—that we are having to sell our assets in order to make up for this fiscal hole. But the real sad thing is what is happening to our children because of what the Government is doing. I expected Todd McClay to know a bit more about it. After all, he is the son of a former Children’s Commissioner. He ought to know what our children are actually suffering.
Todd McClay: If I start listening I will be the only one in New Zealand, so I won’t.
Dr RAJEN PRASAD: What the Expert Advisory Group on Solutions to Child Poverty did say—it actually is a very, very good report, Mr McClay. I commend the member to read it, because this is the A team in New Zealand of experts in the particular area of child poverty. You could not get a more illustrious, well-informed team: Professor Jonathan Boston, Dr Tracey McIntosh—
John Hayes: They’re all communists.
Dr RAJEN PRASAD: Dr
Airini, Dr Fiona Cram, Professor Mark
Henaghan, Professor—I beg your pardon, what did the member say?
Sue Moroney: He said “They’re all communists.”
Dr RAJEN PRASAD: Well, what would that member from Masterton know? That member does no justice to his own constituents, because they would want to know that that member knows these New Zealand experts. Phil O’Reilly—maybe the member knows that person? Maybe the member does. Professor Richie
Poulton, Dr James—this is an impressive list, and what they have come up with is the most comprehensive plan I have seen, which ought to be funded by a proper tax system, which is what this clause is about. They have put a lot of thought into this. I commend the member to read the summary, because that is probably as much as the member may be able to digest at any one point. Hear what this group has done. It has put together a comprehensive plan as to how all of the things that need to be addressed—aiming for that one dot on the horizon called eliminating child poverty—are addressed in this report. I say to the members opposite that, actually, the tax system that this clause is about is a system by which the resources are brought together to address this.
You see, for children, now is the most important time. In this House we talk about the needs of children as if the numbers—you know, if we increase it by 5 percent or 6 percent, that is enough. But for children born today their time here is the most serious
time, and they need these services now. So whether it is in housing, whether it is in health and education, whether it is
Māori children in poverty, Pasifika children in poverty, community-based and place-based partnerships, income and employment, or implementing actions and measuring progress, all of these matters are addressed in this particular report. It is the most comprehensive one. And I do commend, particularly, the Minister for Social Development to actually take it into account. I say to the Minister in the chair, the Hon Peter Dunne, that a taxation system ought to be good enough to support these kinds of activities. They have to be in multiple areas.
So far, what the Government has done—and the Minister in the chair said “Well, most of the expenses in this area have increased.” Well, it has not increased enough. I am sure that those who, like me, received a significant tax cut in the tax cuts the Government gave would happily give it away—happily give it away—if we could be guaranteed that the needs of our children in poverty, our children who are suffering, our children who will cost us multiple billions of dollars in a very short period of time, would be addressed now. We as a society would be proud to eliminate child poverty. The reports are here. These programmes that the group has come up with, these ideas that the Children’s Commissioner’s expert group is advising, are really very, very sound, Minister, and they are worth listening to.
There is no point just addressing one thing. There is no point just doing drug testing in a particular area or doing a little bit of punitive social policy in a particular area.
Todd McClay: Come on, speak to the bill.
Dr RAJEN PRASAD: Mr McClay, it is about comprehensive programmes to address the needs of our children. Read the report from the expert panel. This is the problem with members opposite. They do not think. They do not read it. They pick on a small element of party policy, their particular ideology, which is quite caustic, and they do not actually assist the children who ought to be supported through our taxation system. This is about—
Louise Upston: Oh, taxation! He mentioned it. Woo
Dr RAJEN PRASAD: This is about the taxation system, I say to Louise Upston. That is what I am talking about. We are confirming in Part 1, clause 3, the tax rates, I say to Louise Upston. It is the tax rates that provide the State with the resources to address the fundamental problems in our society. Unless we do that, we produce the problems of tomorrow. This is why this Government has no plan. This is why this Government is lost. This is why this Government is going backwards.
Louise Upston: No, we’ve got too much of a plan—you can’t keep up.
Dr RAJEN PRASAD: A very small number of people might be feeling better. I am sure the member opposite is feeling better, but, really, our society is not. People out there do not have jobs. They are leaving New Zealand in droves. They are going overseas. None of those figures, none of those figures, that, that—the goals—
Todd McClay: That, that, that!
Dr RAJEN PRASAD: —that the other side set up, the Prime Minister set up, in the election campaign are being met. Mr McClay, they are not being met. Fifty thousand people are leaving for Australia annually. It is a growth record, the biggest record in 50 years. How can Mr McClay be proud of this? A 52 percent increase in unemployment, and nearly 50,000 more on benefits. How is that something to be proud of, Mr McClay? How can that member say, and how can that party say, that the taxation system is fair? They are saying that the taxation system, the rates we are confirming here today, is what will make this society great. No. It will pick winners and losers. That side wants to pick winners out of a small group of people, but this side is interested in all of our people. It is interested in a fair economy. It is interested in equality—
John Hayes: Pity the community doesn’t agree with you.
Dr RAJEN PRASAD: We have become a very unequal society, I say to the member from the Wairarapa. We have become that, and unless we have a taxation system that is good enough to meet those needs that our most vulnerable have, then what kind of society are we creating? What are we bequeathing to our children?
John Hayes: An excellent one.
Dr RAJEN PRASAD: Well, the member might be happy that 50,000 people are leaving and that there are more children in poverty. The member might be happy with that. Well, this side is not, which is the fundamental difference between this side and that side. This is what we are here to fight for and to expose at every opportunity—the kinds of systems and policies that that member and his party come up with, and what this bill is confirming today. Throughout the bill, there are matters of that kind. We will talk as we go on and discuss other parts about the flip-flop in the policy of the other side, but this has gone on for long enough. How long will that member sit up and put up with this society going backward?
JOHN HAYES (National—Wairarapa)
: I move,
That the question be now put.
SUE MORONEY (Labour)
: Thank you very much for the opportunity to speak on the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. I am speaking on Part 1, which, I think, is the most disappointing part of this bill because it simply reinstates or puts in place the annual taxation regime that was brought in by this Government in 2010. I have called Part 1 disappointing, but, in fact, it is actually damaging. It is actually damaging, because, as we have heard from many of my learned colleagues, it is actually reinforcing and endorsing the tax switch from 2010—or, as many of the people I come across these days call it, the tax swindle of 2010—and that is, in fact, hurting our country. It is damaging to our country, because this is the part of the bill that entrenches the growing inequality that is happening in New Zealand society. And it takes only three lines in this particular bill to do it.
It might be interesting for members of the public who are listening to this debate to know that all of the issues that we are traversing here from the Labour side of the Chamber are because we are concerned about the direction of the country. We do not accept that it is OK for the economy to be tanking in the way it is. We do not accept that it is OK for people’s incomes to be dropping versus their cost of living. We do not accept that it is OK that the only brighter future New Zealanders are finding at the moment is to buy a ticket to go across the Tasman and relocate their families there. We do not believe that that is OK and is a good enough future for this country.
It takes only three lines in this particular bill that does all this damage, because effectively what this part does is say that we are going to just continue on with the regime that has got us in the place that we are in. That regime is one that this Government particularly put in place, and specifically put in place, and it is one that grows inequality. It did in 2010. It increased GST. GST, of course, impacts on every single person, but it impacts mostly on low-income people because low-income people spend every cent they earn just to make ends meet, and just to get by on a week-to-week basis, so that means that every dollar they earn is subject to GST. However, for people on very high incomes, they are spending only a small proportion of their weekly income and therefore having to pay out the higher GST that that Government put in place. Let us not forget that the Government put that higher GST in place without telling the electorate it was going to do it if it was elected. It went to the election pretending that it would not raise GST. In fact, John Key promised he would not raise GST, and then after National won the Treasury benches, what did it do in one of its very first Budgets? It raised GST. And it had told the New Zealand public that it would not do that. It promised, in fact, that it would not do it, but there you go; that is what it did. The Government did that on the basis of a so-called fiscally neutral tax switch, which
brought in the income tax regime that we are reinforcing and endorsing in Part 1 of this bill here this evening.
That new income tax regime is the very mechanism, combined with the GST that I have just described, that has specifically driven the growth in inequality in New Zealand. It has specifically revved it up. When Government members talked about supercharging the economy, actually they planned to supercharge the growing inequality gap. That is what they supercharged, and they supercharged it by bringing in this particular set of income tax changes, which we are now reinforcing and endorsing in Part 1 of this bill. What we know is that the top 10 percent of income earners in this country got vast amounts of income back. In fact, I have stood in this House before and accused the Prime Minister of pocketing personally $1,000 extra in tax cuts from that particular regime and he has never denied it. If it was not true, I would expect the Prime Minister to actually be denying that in Parliament, but he never has, because the truth is that people on very high incomes did pocket in the order of an extra $1,000 a week. That is not just what they are earning; that is the extra amount that they got at the same time as lower-income people actually got a tax cut that was way, way smaller. It was certainly smaller than $1,000 a week. Most of the people in the area that I come from in Hamilton record having got about $20 a week in tax cuts. By the time they had suffered that increase in GST, that tax cut was wiped out. Also, if they had young children it was more than wiped out by the increase in the early childhood education fees that happened in the same Budget in 2010.
The costs on New Zealand families have increased under this Government, but this income tax regime, which we are reinforcing here in Part 1, is actually the very specific mechanism that has grown inequality in New Zealand, and that is not good for anyone. What is particularly not good for those people who are suffering the inequality and suffering at the poverty end of the spectrum is that, actually, we all lose. We all lose from an unequal society because there is research for Africa, literally—and I probably should not talk about that continent when I am referring to inequality and poverty. There is a lot of research that reinforces that unequal societies actually have the largest amount of social problems. We see that reflected in our own country, do we not, with growing inequality that is reinforced by this income tax regime, which we are now establishing in this bill that we are talking about tonight. With that growing inequality come growing crime, growing underachievement in education, and all the associated problems that come in society. So we all pay when we get this wrong, and Part 1 is reinforcing a tax regime that is growing inequality in our country.
It shows that the Government does not have a plan to do anything different. It does not really understand the pressures on families at the moment, and it does not think that there is anything necessary to change the current situation in this country. Government members find it perfectly acceptable that the economy is
flatlining. They find it perfectly acceptable that thousands of New Zealanders are just leaving in their droves to go to Australia because that is the only way they can see a future for their families. They think that it is OK. Well, on this side of the Chamber we do not think that it is OK. We think that the economy and the income tax regime do need a bit of a shake up, and we particularly want to start thinking about other ways that we can get some income from tax reform.
So it is Labour that is coming out with the fresh ideas that will give this economy a kick-start. It is Labour that has got the courage to actually address four big issues that are facing our economy. In fact, if this Government had the courage to do the same thing—
The CHAIRPERSON (Lindsay Tisch): Order! The member cannot imply that someone or a party does not have courage. I ask the member to withdraw that comment.
SUE MORONEY: I withdraw that comment. What I was trying to describe was the difference between Labour and National, with Labour having the courage, actually having the courage, to address these four big issues.
And what are those four big issues? Well, we actually need to deal with the capital gains tax issue in this country, because we are one of only three countries in the OECD that do not face up to this issue. There is the unfairness that people with so much extra income can invest in houses—other than the one that their family lives in—as investment properties, and when they sell those houses and earn a lot of capital gain from that, there is not one cent of tax paid on that particular income. That is what we have. We have a capital gains tax problem in this country and that Government is not fronting up to that.
We also need to increase our savings through universal KiwiSaver. It was Labour who actually had that vision. Talk about the brighter future; this is where it resides, on this side. It was Labour that brought in KiwiSaver, it is Labour that has the plan to move that through to being a universal savings scheme, and it is also Labour that will establish research and development tax credits.
A party vote was called for on the question,
That Part 1 be agreed to.
||New Zealand National 59; New Zealand First 8;
Māori Party 2; ACT New Zealand 1; United Future 1.
||New Zealand Labour 34; Green Party 14; Mana 1.
|Part 1 agreed to.
Part 2 Amendments to Income Tax Act 2007
Dr DAVID CLARK (Labour—Dunedin North)
: I am delighted to take a call on Part 2 of the income tax bill—sorry, the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, to give the bill its proper name. I am delighted to take a call on Part 2, which addresses changes in the Income Tax Act 2007. There is a lot of meat in this part of the bill. Although, as I have said in my earlier contribution, the really big issues facing the economy are not addressed in this bill—I would not want my comment to be mistaken for saying that I thought they were—it does deal with a number of important issues. Some time was spent dealing with these in the select committee process.
One of the issues was around taxation of bonus shares. We find—there were some interesting submissions from Contact Energy and others on this issue—a concern that a share issued by a company under a profit distribution plan is defined as a dividend. Those who put submissions in on this matter, which appears in clause 7 and other clauses in this part of the bill, raised the concern that this really might lead to a type of behaviour that was the opposite of saving, to dissaving. Whereas the Government currently speaks a big game on saving, in fact, elsewhere in the assets sales legislation we find the Government is actually trying to pay people loyalty bonuses to hold shares—quite the opposite to what seems to be the intention in this part here. We will also note as we go on that in the KiwiSaver area, the Government has been all over the show. It has flip-flopped backwards and forwards on KiwiSaver. All of that indicates that this Government really does not have a plan for savings. It has—
John Hayes: Yes, it does.
Dr DAVID CLARK: It has a plan, in so far as it has a plan one week and then it changes that plan back the other way the next week, Mr Hayes.
John Hayes: Flexible.
Dr DAVID CLARK: It is a “flexible” plan, Mr Hayes says. The National Party has flexible plans, and I think the truth has come out there. The plans do change from week to week according to which way the wind is blowing—
Dr Megan Woods: Just like kids moving out of poverty.
Dr DAVID CLARK: —and probably very similar to the way in which, as my colleague Dr Megan Woods points out, kids move in and out of poverty. Look, we do not accept that on this side. We do not think that these are trivial matters. As I raised in Part 1, we are very concerned about matters of poverty that are created through the current system of unfair tax distribution that we have in New Zealand. We stand for a fairer tax system that is actually pro - economic growth. The Labour Party is keen to see our economy grow, as it did under the Labour Government’s last period of stewardship—25 percent in real terms. The economic cake grew by a full quarter in real terms under the last Labour Government. Under this Government, real wages have dropped. So the issue of taxing bonus shares stands as an interesting little commentary in this part of the bill, because it says that the Government is discouraging savings, as it has done in other areas where it has been paying people in the assets sales area and has had quite different positions on KiwiSaver.
Clause 17 in Part 2 of the bill refers to software development write-offs and the deduction of liabilities for unsuccessful software development. We in the Labour Party support this measure, because it is a way of ensuring that people are not discouraged from investing in this area and from developing intellectual property. We wish to see this proceed, because we need to be earning the really good margins that we get from our intellectual property. There are real big opportunities in New Zealand in the area of information technology. We can play to that weightless economy. We turn out, we are told, the fourth-best students in the world, according to Programme for International Student Assessment rankings, and long may that continue, so long as the Minister of Education does not disassemble our very highly functional secondary sector. As long as we continue to turn out these graduates, we have the opportunity to capitalise on that for the growth of our economy. This clause, which deals with write-offs in the software development area, is surely a good thing.
On clause 96—I am skipping about. There are many more clauses, and I am sure the Minister of Revenue will tell us of the many other useful small changes in this bill. We might classify them as tinkering, but many of them are, indeed, worthy changes. Clause 96 talks about the changes to schedule 28 and notes that 2 percent is replaced with 3 percent. The Minister can correct me, but I am assuming that this refers to the KiwiSaver changes that also appear in the later part of the bill. These changes to KiwiSaver rates are something, again, that we would support. It is excellent to see that the Government is adopting a change of direction in respect of KiwiSaver. This is one of those flip-flops that we would applaud. We only worry that it may be something that the Government may flip back on the other way. If I could just for a minute say why that is a very real risk. If we look at what National did in December 2008, we can see that it cut the minimum contribution rates for employees and employers to 2 percent. It was to have been progressively raised to 8 percent default rate of gross income by April 2011 for employees and 4 percent default rate for employers. National cut that, and now in this legislation it is being brought back a little way, and we will see, no doubt, further changes. We are not sure in which direction. Mr Hayes describes it as a “flexible” policy, so we will look for more announcements next week, perhaps from Mr Hayes, perhaps from the Minister in the chair, Peter Dunne, or perhaps from the member up there at the back, our good chair of the Finance and Expenditure Committee, Todd McClay.
National in 2008 discontinued the employer tax credit that effectively subsidised employers for their costs in providing KiwiSaver. It discontinued the fee subsidy of $40 per annum, which was aimed at ensuring that accounts with low balances were not eroded through taxes themselves. And, of course, it repealed sections of the Employment Relations Act, which also made it harder for saving. If we contrast that with Labour, which has had a much more consistent view on KiwiSaver, which, indeed, introduced KiwiSaver—the original KiwiSaver model was announced in Budget 2005—we saw incentives for members to save. There was a $1,000 kickstart for each member joining, a fee subsidy that the Government confirmed to $40 per member per annum, and a housing deposit subsidy of up to $5,000. Budget 2007 saw Labour build savings further, investing an additional $3.2 billion in KiwiSaver over 4 years.
Those changes show a consistent policy from Labour of encouraging savings. Indeed, we have heard earlier contributors to the debate refer to the retirement savings system that was put in place by the Labour Government and later repealed by the Muldoon-led National Government. If that system had continued, we would have had several hundred billion dollars worth of savings and had an undoubtedly much higher GDP as a country, as we would have had savings looking for a home and that home would have been in good business ideas. We know that in Australia, which introduced a similar system later, they now have A$1 trillion worth of savings looking for a home.
Sue Moroney: How much?
Dr DAVID CLARK: A trillion dollars. New Zealand has a very low savings rate because it was introduced only latterly in a comprehensive way by Labour, and then National has flip-flopped on that. So clause 96, which replaces 2 percent with 3 percent, is a modest and tentative step by National, which is probably not yet sure whether it really believes it is a good idea or not. It is running out of opportunities to make changes, because it does not seem to have any ideas, but it keeps trying this little tinkering thing here and this little tinkering thing there.
We have spoken earlier about the difficulties with implementing real change because the Inland Revenue Department’s computer system is on its last legs. Mr Dunne indicated that there will be announcements later in the year. I hope we will get some very real progress soon. On Valentine’s Day this year, the Prime Minister said that it was an appalling position that the Government was in—that is a full 6 months ago—where the Government could not introduce real change in the tax system. That has got to be a real, real worry for New Zealand. Most Western economies have a tax system; in fact, I believe that all Western economies have a tax system. It should not be too hard to rebuild our one in line with those that are in operation elsewhere in the Western World. If we do not do that, if we do not get on to that urgently, we will be stuck with a tax system that is falling over, that cannot implement proper change, and that cannot make sure that we have the tax policies that we need to grow our economy, rather than leave it in the stagnant position that it is in currently, where real wages have dropped under this Government, rather than grown, where unemployment has risen, and where we have migration to Australia at record rates.
Hon PETER DUNNE (Minister of Revenue)
: May I begin by responding to perhaps the last point that the member David Clark made, relating to the Inland Revenue Department’s FIRST computer system. It is a 1991 system. Since it was introduced in 1991 we have bolted on to it, under successive Governments, in no particular order, child support, Working for Families, KiwiSaver, and one or two others as well that will come to my mind as I go through. So we have a very complicated system. But I want to assure the House in Committee that there is no danger of imminent collapse. The system continues to do today what it always has done. Its capacity to absorb new change is what is at issue. I think the Committee needs to be
very clear that we are not talking about the imminent collapse of our technology. We are talking about the need to upgrade, modernise, and bring it forward, to enable us to do the things we do now and will go on doing, and also any new initiatives that come along. There will be, as I said earlier, announcements later this year about the plan, and I am sure that the member will be supportive of it when we do announce the whole raft of plans that will need to be taken to upgrade this system.
I want to pick up on a couple of other points that the member made, because they are the critical parts of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, although they are by no means the totality of Part 2 of it. The first one I want to talk about is the profit distribution plans—the bonus share issue. The member attempted to draw a little bit of an analogy between what he saw as restrictions in this area and opportunities created for KiwiSaver investment. In fact, the changes that have been made regarding profit distribution plans are simply to prevent what was a potential element of double taxation, had those schemes been applied as they were being developed. As the member may recall, we consulted fairly broadly with those who were affected, before developing the plans that came through in the legislation that the Finance and Expenditure Committee considered. So I do not accept the proposition that this is in some way a restriction on savings opportunities. It is actually preventing a potential element of double taxation, and it is also ensuring that we have a common standard, if you like, for profit distribution plans with similar schemes within the tax system in terms of saving and investment and the tax treatment thereof.
The member also spoke about the amendments relating to the writing off of unsuccessful software development. This is a very important issue, actually, because it is one that occurred in retrospect. There had been for some time an assumption that these deductions could be made. Then we discovered that that was not in fact the case. So what we are effectively doing in the amendment in the bill is making clear in statute what had been a common understanding until such time as there was doubt cast upon its validity. There will be a number of occasions when we make changes like this. They are broadly taxpayer-friendly, and it is appropriate that we do so.
I want to come back to the comments about KiwiSaver. I want to say to the member that he can argue as much as he likes about the relative incentives that this Government and the previous Government have offered to KiwiSaver savers, but the reality is that KiwiSaver membership has more than doubled since this Government came to office. KiwiSaver membership is now three times what the previous Government estimated it would be by 2015. KiwiSaver membership is now not far short of 50 percent of New Zealanders, and it will continue to grow. What the Government embarked upon in 2008 was a programme to ensure the financial viability of KiwiSaver in terms of the Government’s investment, long term. What the changes being proposed from April 2013, in terms of the increase in the contribution rate, recognise are two things: firstly, a recommendation from the Savings Working Group; and, secondly, the fact that because of the nature of the changes made a little earlier, we feel more comfortable about the long-term viability of KiwiSaver. Members need to be reminded—and I think it was a correct decision that the previous Government made—that KiwiSaver individual investments are not Government guaranteed, because they are held in private funds. Therefore, the Government’s responsibility here is to make sure the regulatory regime, the administration of the KiwiSaver scheme, is as sound as it can be, to protect, to the best extent possible, the interest of the KiwiSaver members. I am very proud of the fact, as I say, that we are not too far away from having the 2-millionth KiwiSaver identified. I think that is a terrific achievement and I actually think both sides of the House can take some credit for that.
I want to just draw attention to some of the provisions that are contained in the Supplementary Order Paper that I have moved, because Supplementary Order Paper 98 applies to a number of the provisions of this particular part. These are a number of amendments that are related to the outcomes arising from the Canterbury earthquake. What we have embarked upon quite deliberately since February 2011 has been a series of remedial pieces of legislation, as and when needed, to give effect to situations that arise as a result of the earthquake and the rebuild. These changes in this particular Supplementary Order Paper are all taxpayer-friendly, but they all deal with situations that we could not have anticipated pre-earthquake.
I say to the Committee that although I am very pleased to be bringing this range of measures before the House in Committee today, I do not expect that these will be the last. This is an ongoing work in progress, if you like, as the rebuild gets under way and issues become identified about the nature of some of the arrangements, particularly those between insurers and builders, issues relating to the nature of business activity and the disruptions that it has suffered, pool depreciation rules, treatment of damaged assets that are uneconomic to repair, etc., etc. This is very much new territory. I want to commend the Inland Revenue Department officials who have worked on this, because they have been diligent in identifying the problems that have arisen. We have consulted with the local community in Christchurch, with the business community, and with tax professionals, to make sure that we are addressing the particular problems that are emerging, and we will continue to do so, as and when necessary, until such time as Christchurch is back on its feet. They may not appear to be significant—and taken individually and collectively they are probably not—but they are beneficial to those people seeking to re-establish, particularly, business and other activities in Christchurch.
They are the main aspects of Part 2 of the bill. It is essentially remedial, it is all very positive, and I think, in general terms, it will be regarded as taxpayer-friendly.
RAYMOND HUO (Labour)
: The Minister of Revenue, who has just resumed his seat, talked about the reality. According to the Minister, the reality was that the savings of the scheme have been more than doubled. By pure mathematics, that more than doubling of the figure would have been doubled further if the National-ACT Government had not cut the contribution by half.
To be fair to the Minister in the chair, the Minister of Revenue, there are good initiatives in this part, Part 2, and in other parts, and we will talk about the new initiatives when we move on. To be equally fair to the general public, the New Zealand taxpayers and voters, I think the Minister would appreciate the difference between the two words “botched” and “ditched”. What the National Government ditched was the compulsory superannuation scheme in December 1975, and what this current National-ACT Government has botched was the KiwiSaver, and it is still botching the scheme. If only Muldoon and the National Government of the day had not terminated the scheme, it would now be worth more than NZ$240 billion and would have transformed the New Zealand economy into a world-beater over the past 30 years. According to Brian Gaynor and other leading economists, Muldoon’s dreadful political decision instead transformed New Zealand from a potential Switzerland of the southern hemisphere into a low-ranking OECD economy. It was the worst economic decision in the past 40 years.
Hon Judith Collins: Tell me about the Crafar farms. What does your party think about the Crafar farms? Sell them to the Chinese—I just remembered that.
RAYMOND HUO: Well, the Chinese community would appreciate the dire consequences. The dire consequences and also the ripples of that decision are still being felt to this date. In fact, if the scheme had not been ditched, then New Zealand would be much better positioned economically, would be able to own many more assets, and would not incur that much Crown debt.
Talking about the Crown debt, I enjoyed the questions for oral answer—or Q and A—in this House between the Prime Minister, the Rt Hon John Key, and the Rt Hon Winston Peters in May. According to those Q and A, at the end of 2008 Crown debt was at $6 billion, it increased to $50 billion in 2011 under the National-ACT Government, and it is expected to reach $75 billion by 2015.
To go back to the superannuation scheme ditched by the National Government in December 1975, based on the $240 billion projection—
Dr David Clark: $240 billion?
RAYMOND HUO: —$240 billion—each worker would have had $111,200 of superannuation assets, compared with the current—how much—$6,300, and A$86,821 in Australia. The scheme would have represented 146 percent of GDP, whereas Australian superannuation, which is considered to be the benchmark for the world, represents only 82 percent of its GDP. That is according to Brian Gaynor, and that is a 2007 projection. As a result of the Australian scheme, the average 30-year-old Australian is expected to retire with superannuation savings of about A$400,000 now—that is according to Devon Funds Management in 2010.
Australia started its superannuation scheme much later than the New Zealand scheme that was ditched by the National Government in 1975. The Australian scheme has since accumulated assets of over A$1.3 trillion—growing at over A$100 billion per annum. So based on this, Australian banks were able to recapitalise during the depth of the global financial crisis.
John Hayes: That was a good benefit for us, too.
RAYMOND HUO: Indeed, Mr John Hayes. Australia now intends to lift the current contribution to compulsory superannuation from 9 percent of wages to 12 percent. It is also interesting to note that in Singapore the contribution is 20 percent of wages. When National came into power in 2008, as a couple of my learned colleagues mentioned in previous contributions, the National-ACT Government cut KiwiSaver, which is a similar scheme to the compulsory superannuation in 1975, from 4 percent of workers’ contributions to 2 percent.
Hon Judith Collins: But that was 37 years ago—37 years ago. I thought that member wasn’t even born then.
RAYMOND HUO: Well, for the information of that Minister, Judith Collins, for the first time in 13 years—for the first time in 13 years—New Zealand’s credit rating was downgraded in September 2011. Worse still, the lower credit rating is likely to increase the costs of borrowing for the New Zealand economy under that National Government, and because of New Zealand’s poor savings record, thanks to the National Government and thanks particularly to Prime Minister Robert Muldoon, we cannot source these funds domestically but have to rely on offshore markets, making our position even worse during the global financial crisis.
The current National-ACT Government has obviously realised that it has done something wrong. So through this bill—
Darien Fenton: Something? A whole lot of things.
RAYMOND HUO: Well, I tried to be polite. Through this bill it intends to raise workers’ contributions from 2 percent to 3 percent. National has been flip-flopping all over the place on KiwiSaver, but, in general, it has not been consistent in its objection to superannuation schemes similar to the one that it ditched over 30 years ago and the one it is botching now. I am curious whether that attitude is driven by ideology or is purely for the sake of it.
Muldoon’s decision over 30 years ago has had dire consequences. Like most Western countries, our population is ageing. By 2050 the ratio of workers per retiree will have fallen from 5:1 currently to 2:1, and superannuation costs will have grown from 4
percent to over 9 percent of GDP. Thanks to Muldoon and his successors, the gap between rich and poor has grown wider in New Zealand. While a small group of rich and privileged are becoming wealthier, New Zealand as a whole has become poorer and is gradually becoming an economic backwater.
JOHN HAYES (National—Wairarapa)
: I would like to bring us back to “Planet New Zealand”, away from “Planet Labour”. Before I speak about Part 2 of the
Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill and the changes in Part 2 that we are debating at this point, I think we have to look at the global reasons as to why we are making these changes and why we are introducing this bill. We are doing it because we want to make a more competitive and productive economy. With reference to the previous speaker, Raymond Huo, I have got to say to you that I did not ever feel that Mr Muldoon was about making a more productive economy or, certainly, a competitive one.
It is only by lifting our economic performance that we can create jobs, boost incomes, improve living standards, and provide world-class services for the people in my electorate, the Wairarapa electorate. That is what we want to deliver to them.
I would like to reinforce comments made by the Minister of Revenue. Before we made changes to KiwiSaver the scheme was costing the Government $1.2 billion a year and rising in subsidies and tax breaks. We had to borrow that money from overseas. As the Minister said, that was not sustainable. So what we have done is we have kept the $1,000 kick-start payment from the Government. That has not been changed in this bill. It is not changed in Part 2. We have reduced the Government’s borrowing and increased private sector contributions to KiwiSaver. Why are we doing that? To increase national savings. So for the year ended 30 June 2012 and beyond, the tax credit was halved to 50c for every dollar contributed by members, up to a maximum of $521 a year. That is what this bill provides for.
From 1 April 2012 employer contributions are being taxed at a rate broadly equivalent to an employee’s marginal rate, and then from 1 April 2013 this bill provides for the minimum employee contribution to increase to 3 percent. The compulsory employer contributions will increase to 3 percent as well. That is not a flip-flop. It is about saying that we managed to get the scheme under control. It is now sustainable. We have to give Kiwis confidence that future Governments can afford to maintain KiwiSaver. They will be future National Governments, of course. The Government is going to spend, as a result of these changes, $2.6 billion less over 4 years on member tax credits. We will encourage private savings, and the employer and Government contributions, including the $1,000 kick-start, will continue as an attractive savings option.
The changes in Part 2 are creating a simpler and fairer tax system that rewards hard work. That will be a foreign concept to many of the people across the Chamber, despite the protestations of the ex - Families Commissioner, who delivered nothing in his period of tenure—
Hon Judith Collins: Absolutely nothing. Spent $9 million a year for nothing.
JOHN HAYES: —and spent $9 million a year for no delivery, no outcome whatsoever. What we will be doing through these changes is protecting the vulnerable—the very people he professes to be concerned about.
We have delivered across-the-board tax cuts and we are delivering more money to working New Zealanders. Two-thirds of the cuts to income tax went into reducing the bottom two tax rates. So now we are in a situation where the changes in Part 2 of this bill will mean that three-quarters of earners are paying no more than 17.5 percent in personal income tax. We have cut the company tax, in this bill, to 28 percent, ensuring our businesses remain competitive. When you are concerned about families—or you
profess to be—you will find that a family with two children can earn up to $50,000 for that family and pay no tax at all when you take Working for Families into account. [Interruption] I would just like to repeat that, because I was being rudely interrupted. I want to stress in response to the concerns—or the professed concerns—across the Chamber that a family with two children can earn $50,000 a year and pay no tax at all. Zero tax. How much is nothing, zip, zero? That is the tax a family with two children will pay. So what is going on in this community and our families, and certainly my constituents in the Wairarapa know this, is that after-tax wages are increasing faster than prices under this Government.
I have heard various speakers on the other side of the Chamber slandering Richwhite and Fay, and I want to point out to them that they have not read the changes that we are proposing in this bill. What the bill does is take steps to tighten the private property tax rules by eliminating depreciation, removing the loss attributing qualifying companies rules, and improving Working for Families and integrity measures. The Inland Revenue Department’s funding for audit and compliance—and I congratulate the Minister of Revenue for his work in this area—has been increased, and we expect that to generate substantial revenue in the 4 years to 2014-15. But, of course, under the people from the Opposition who are criticising this legislation, their alternative would be to bring in a capital gains tax. They want to more than double the employer contribution to KiwiSaver costs, and they want a big gap between the company rate and the top personal rate, which encourages tax avoidance. We do not, on this side of the Chamber, stand for those changes.
In Part 2 we will see that the application date for changes to profit distribution plans, under which bonus shares issued by a company will be treated as a taxable dividend, will be deferred from 1 July 2012 to 1 October 2012. If you were to read the bill and the parts of the bill that we are making changes to, you would see that it is very straightforward. Other changes to GST provisions have also been made, such as clarifying the definition of “land”, and where new apportionment rules for zero-rating supplies can be used. The foreign investor tax credit scheme will be extended to investors in foreign investment portfolio investment entities, with application from 2013 and 2014. And, as several speakers have noted tonight, Part 2 provides for the deductibility of unsuccessful software development costs. That will apply from the 2006-07 income year, rather than from 2007-08. As the Minister said, these are very taxpayer-friendly changes.
The KiwiSaver membership start date will be clarified for persons who joined through their employer. The start date determines when a person is able to withdraw their savings after 5 years of membership if aged 65 years or older. I would think that that would apply to the former Families Commissioner. Further amendments allowing certain shareholder employees of close companies to receive the in-work tax credit will also apply from 2011, rather than 1 April 2012, to enable eligible individuals to claim a tax credit for the 2011-12 income year. Finally, I should say that in Part 2 the bill is going to clarify the tax position of insurance companies where there is a transfer of business during the income year.
I congratulate the Minister on bringing to the House this bill and a series of very coherent changes to the bill, and a series of coherent tax policies that will ensure that all New Zealanders will be better off and that people will be better in work, will get more money in their bank accounts, and will be able to save more through the policies that are being introduced by the Minister. I commend this bill.
Dr RAJEN PRASAD (Labour)
: What an interesting, fully read speech from that member, John Hayes, who has been in this House long enough to have at least short-term memory recall not to have to read his speech. But there you go. I thought the last
part, congratulating the Minister, was from the heart, which was very good, but most of it was read.
We actually support Part 2 of this particular bill, the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. There is very little in there that we would have difficulty with, because, as the Minister in the chair, the Minister of Revenue, said, this has gone through—as the officials have done—those things that would make the operation of the tax system better. As members on this side have said, we support those changes that are being made in Part 2. Whether it is the higher purchase definition, which has been parked, or unsuccessful software development, these are all good provisions. But I would have expected that member who just sat down to at least—
Darien Fenton: Who is it?
Dr RAJEN PRASAD: Mr Hayes, I think his name is—Mr Hayes. I would have expected him to be at least fairer about a number of things. Mr Hayes, it is your party that changed a very good KiwiSaver scheme. Now this is going back up again, and perhaps the member might simply acknowledge that and say: “Ah, we made a mistake. We’re going to move it up there. This is the best we can do.” When the Helen Clark Government passed that particular bill, that member’s party did not support it—did not support it at all. It is very, very interesting that the member now owns it, calling it a great scheme, etc. Well, remember where it came from. Remember what the genesis of that was.
I think Raymond Huo made a very good point, reminding that member and those opposite—and I know the Hon Judith Collins is bored by this because it was not recent enough, but sometimes the facts of history have to be repeated, Mr Hayes, so that others do not repeat the mistakes of the past. Some elements in Part 1 do
do that, but in this part, no.
But the member John Hayes did begin to talk about things he knows nothing about. That member knows nothing about the Families Commission and nothing about its achievements. In fact, he actually tells things not the way they were, but he makes them up—that member has made them up. For the benefit of that member—because the challenge was direct, and named me and named my former position—what did the Families Commission achieve? The Minister in the chair is very familiar with this. All of the work in the family violence prevention area had the imprint of the Families Commission under my leadership, Mr Hayes. Is there any piece of that that his Government would take away? There is not one. That member acknowledges that there is nothing that that member knows anything about. So, Mr Hayes, if you do not know about something, do not say anything about it; rather, read your speech. I would put up with that.
Does that member know that most of the thinking around paid parental leave was done by that commission? That was probably the best piece of work on paid parental leave. The member looks surprised. The member did not know about that. The jaw dropped just then. I think the member knows nothing about it, yet the member is very quick to criticise.
Going back to family violence, it was that member’s party when in Opposition that actually stood aside from the task force, from the ministerial group that worked on family violence prevention. That party stepped aside from it. That member’s party had no interest in that. There is a whole bunch of areas around parenting, but I say to the member that if the member is defending this part of the bill, it needs no defence, because this side agrees with most of it.
We do have some criticism about how the changes around KiwiSaver have come about. In Part 5 it comes up again, if the member has read the bill right through. But there are reasonable parts of the bill. This side of the Chamber will always be
reasonable if things come up. Part 2 of this bill addresses many of those things in our taxation system that need to be tidied up. We are supporting it, and we are supporting it very, very clearly and unequivocally.
But this side will not take an approach like Mr Hayes just took. He was accusing members on this side—
Dr MEGAN WOODS (Labour—Wigram)
: I am very happy to take a call on Part 2 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill. I want to touch on a couple of areas specifically, and talk about some of the reasons why Labour is supporting this part of the legislation. I want to first of all touch on Supplementary Order Paper 98 and the provisions that are there to support Canterbury businesses, and to thank the Minister in the chair, the Minister of Revenue, and the select committee that looked at this legislation, the Finance and Expenditure Committee, for a very pragmatic and very common-sense—if I can use the term—set of measures that will be put in place to help Christchurch and Canterbury businesses get through.
These are some very technical taxation issues that will make a real difference to the viability of so many businesses in Christchurch, and they do deserve to be commended. These are things that we never thought we would have to deal with in our taxation system, such as how it is that we treat depreciation on assets or even land that has been damaged and then paid out on, and how it is in the taxation system we are going to deal with such massive amounts of insurance receipts and income, and where that sits in terms of financial years. There are a lot of very technical issues that need to be dealt with for Christchurch businesses, and we in Labour support those measures that are being put in place and can see the real difference that they will make to so many businesses in Christchurch.
The other piece of the legislation, in terms of the shopping list that Part 2 does, that I want to touch on—and a couple of colleagues have already touched on this, as well—are the provisions around unsuccessful software development. I think this is a provision that actually shows the potential of what the taxation system can do, in terms of the kinds of levers it can offer beyond mere revenue generation and collecting of revenue in our economy. What we have here is a provision that is intended to provide for expenditure on software that needs further development to become depreciable property. That is, if it is going to need further work on it, it can be depreciated.
What we are seeing here is the use of the taxation system to encourage businesses to take some risks, to innovate within their business processes, and to look at software development that might be used. What we are seeing here is that there is actually going to be a way in which the taxation system can offer those benefits for projects that do not actually make it—for unsuccessful software developments—because we do need to have the courage to innovate, and we do need to have the levers and the mechanisms in place that do that.
I guess one of the things that has been talked about, and the Minister talked about it tonight, is that this is one of the things that can make us a more competitive and productive economy. This is a very small start, but I think it really draws into sharp relief for me and my colleagues on this side of the Chamber what a real opportunity we lost by getting rid of the research and development tax credit, using the taxation system in a real and meaningful way to be able to innovate.
- Progress to be reported presently.
- The Chairperson reported progress on the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill, and no progress on the Trade (Safeguard Measures) Bill.