Taxation (Consequential Rate Alignment and Remedial Matters) Bill

Hon DAVID CUNLIFFE Link to this

It was a test to see whether we were noticing, chairman Foss says. It was a test to see whether we were awake. Well, this is a test to see whether the Government is awake. That is not a good thing to do. The Opposition passed that test. If it happens again, it will look like the Government is playing fast and loose with the Magna Carta and playing fast and loose with ordinary New Zealanders.

I think that is probably enough said, but I would be interested to see whether the Minister will take a call and explain to the Committee what advice he received on that matter and whether it was knowing forethought or unknowing accident that meant that that egg was caught just before it hit the floor, as it were, of the legislative process. But it did not break.

Finally—and I know that my colleague Stuart Nash is very, very keen to make a contribution on this bill; he has been prepping for it for quite a while—with regard to the Permanent Forest Sink Initiative, I think New Zealand feels like it has a collective hangover today, because it is the day after that dreadful emissions trading scheme bill went through the House by the skin of Ngāi Tahu’s nose. It just got through, and it is a very sad day for New Zealand. I cannot let the opportunity pass to say that we remain absolutely convinced and convicted that generations of New Zealanders will look back on us this week and ask how and why we did that. The provisions of this bill around the Permanent Forest Sink Initiative make it very clear that the Income Tax Act will end up bearing part of the weight of that future obligation. It is real money, it is real debt liability, and it is real bad news for our children. Thank you.

STUART NASH Link to this

Half the emissions trading scheme bill—exactly. That is of huge concern. If we had not picked that up, well over 3 million New Zealanders would have been overtaxed. That sounds like a lot, because people will say that there are only 4 million New Zealanders in this country, but we have to remember that we are talking about resident withholding tax here. That means tax paid on the money in bank accounts that have been set up for children who are 1, 2, 3, or 5 years old by their parents, because if we have bank accounts, it does not matter how old we are, we are liable to pay resident withholding tax on the money. That means that everyone with a bank account—not just people earning salaries and wages, but everyone with a bank account—would have had to pay that tax. The vast majority of those people are actually on the 12.5 percent rate, not on the top 38 percent rate.

That is why the Labour Party completely agrees with the due process that every bill is supposed to go through in this House—that is, first reading, second reading, Committee stage, and third reading. We end up with robust debate and we allow New Zealanders to come in, stand in front of a select committee, prepare their submissions, and voice their concerns about, or often their support for, various legislation. That is robust democracy in place.

On that note, I will speak briefly about Supplementary Order Paper 93, which the Minister in the chair, the Hon Peter Dunne, has put forward to amend the bill. I will speak about new clause 70B, which the Supplementary Order Paper proposes to insert, the one about GST on inbound tour package services. This amendment is quite unusual, because it clarifies that GST applies to inbound tour operators. This was a fuzzy bit of the law. Some people paid GST and some did not pay GST, but there was real concern over the intent of the law. Obviously, if we have a law that is as unclear as this, then we need to do something about it. What this law does is to say that from the period from 1 July 2007 to 30 June 2008, a zero rate will be applied. So in essence it is saying that if an inbound tour operator has a concern with this and approaches the Minister of Tourism—who is the Minister of Tourism?

STUART NASH Link to this

It is John Key; that is right. How this happened is that John Key, as Prime Minister, I understand, attended a conference of tour operators, and he was asked about this. He said he would sort it out for them. That was seen by many as the Prime Minister saying: “Don’t worry about it. I’ll sort it out.” He has finally learnt that, in fact, what he has to do—like every other politician from Prime Minister down—if he wants to make a law change is go through due procedure.

The legislation is actually saying that in that period a zero rate will apply. That sets a slightly dangerous precedent, because if people have already paid GST, like a lot of people did, they will get a refund. If they did not pay it, then that is fine: “Don’t worry about it, guys. You’ll be right.” The precedent that may set is that other people who have concerns about the law or who might see a little bit of fuzziness will say that, goodness, if those people can have a retrospective holiday from their tax, or get their tax wiped retrospectively, then so can they. Labour obviously supports this bill. We will support this Supplementary Order Paper because it is probably the right thing to do, as the law was so unclear. But I would just highlight the fact that it sets a little bit of a dangerous precedent, and certainly Labour would not like this to be done too often.

Let me talk about some other things in the bill. As Mr Cunliffe mentioned, resident withholding tax was the main gist of this bill. It was the area where the vast majority of the debate was centred. But there are other things. The portfolio investment entity rate was changed to line up with the company tax rate. Those rates were put in place with KiwiSaver, and the jury is still out on whether the portfolio investment entity is the right structure to have. There were submissions on that at the select committee, but we decided that anything to do with portfolio investment entities, apart from rate alignment, was not part of the committee’s ambit, so we did not discuss it. The tax rates on secondary employment and extra pays are being aligned with the new primary tax rates. That is what a lot of the bill is about. Further, there is a new 12.5 percent tax rate for secondary employment income, and extra pays are being introduced. Again, that just aligns it with the bottom marginal rate, which is important for people who have two or three jobs. They are paying the secondary rate of tax, and they then have to go through the process of claiming refunds. That change is important. We talked about the Permanent Forest Sink Initiative, and Mr Cunliffe also talked about it.

If I could digress ever so slightly, I would say that Mr Foss stood up yesterday and said that he was disgusted at some of the language that was being used. I sat there, thinking “Goodness me!”. I will say what disgusts me. It is the fact that we are putting on a $100 billion liability. What can we say to our children, when they say: “Dad, what went on in Parliament back then?”. We will say: “Well, son, we spoke against it. We fought against that, but that was a National bill.” But that will be changed anyway, because Labour will be back in Government in 2 years’ time. Members should not worry about that.

The bill amends the Income Tax Act 2004 and the Income Tax Act 2007 to include a forester who receives emission units under the Permanent Forest Sink Initiative, with its special income tax rules to apply to a forestry business—it is quite technical. There are changes to the beneficiary income rules. There is electronic communications. Electronic communications allow the Inland Revenue Department to send out electronic notices if there are no reasonable grounds for the department to believe that the communication would not be received by the person concerned. We debated this quite a bit. The issue was what is the definition of “reasonable grounds”. We understood the logic behind this. The Inland Revenue Department sends out, I believe, something like a million pieces of mail a day. Is it a million a week?

STUART NASH Link to this

Well, whatever it is, it is a huge amount of mail. What this will hopefully do is streamline the process. It is an efficiency measure. But we just need to be clear on the definition of “reasonable grounds”, and, therefore, in what circumstances a person could reasonably be expected to have received an email. Someone suggested that with the modern email systems these days, if someone opens an email it automatically sends something back, saying that it has been received. Unfortunately, the Inland Revenue Department’s email system does not allow for that. Hopefully there will be money to change that, so people can confirm the receipt of messages, which would make things a lot easier. The tax recovery obligations were good.

In relation to personal tax summaries, the Tax Administration Act is being amended to provide the Inland Revenue Department with more flexibility. Again, that is to allow a reduction in compliance costs and provide efficiency for the taxpayer and for the department’s administration. Again, that goes to the heart of the problem of 100,000 pieces of mail a day being sent out, and reduces that. There was slight concern expressed, however, by submitters like KPMG that it would disengage people from the tax system, or they would not automatically get a tax summary, and therefore they may not be aware that they are owed a refund. We hope that the Inland Revenue Department will manage that process.

There was the correction of minor errors. That was a proposal that allows the Inland Revenue Department the discretion to allow taxpayers to correct minor errors in tax returns. It is about $500 at the moment. Some submitters suggested it should go as high as $10,000, but the committee heard the department’s submissions on that and took its advice. The committee believes it should stay at around $500.

One issue that we debated for a little while was the requirement to pay disputable tax, which will itself be non-disputable. The Inland Revenue Department currently has the power to require, in exceptional circumstances, certain taxpayers to pay tax in dispute before the dispute is decided. That is to address risks such as flight risk. We understand this has been put into force only twice in the last 10 years, so it is quite rare. But KPMG in its submission said: “We believe that this change is more than just a remedial amendment, as it removes the right of appeal available to taxpayers. We struggle to see how any amendment which removes the ability of taxpayers to dispute the commissioner’s position can be properly described as remedial.” We talked to the Inland Revenue Department about that, and the department assured us that it is used only in absolutely exceptional circumstances. We said, OK, we would agree on it, but, again, it is something that we would like to monitor. In effect, it takes away the right of every taxpayer to challenge in a court of law the commissioner’s decision.

STUART NASH Link to this

Yes, it does. In the end we decided that the risk was worth this legislation going ahead. We heard KPMG say that it is sort of OK, so we stuck with it.