Taxation (Consequential Rate Alignment and Remedial Matters) Bill

Hon PETER DUNNE (Minister of Revenue) Link to this

I move, That the Taxation (Consequential Rate Alignment and Remedial Matters) Bill be now read a third time. This bill’s content is technical in nature. It introduces a number of measures to fine tune earlier changes to the tax rules. I will speak very briefly about these.

The principal feature of the bill is the alignment of the resident withholding tax rates on interest with recent changes to personal tax rates and the 30 percent company tax rate introduced last year. As a complementary measure the bill also aligns the portfolio investment entity tax rates with the new personal tax rates so that portfolio investment entity rates will be 12.5 percent, 21 percent, and 30 percent. It also adjusts the income thresholds at which the portfolio investment entity rates apply so as to ensure that people who invest in portfolio investment entities are not disadvantaged relative to direct investors. Other minor changes have been made to help reduce compliance costs for taxpayers and to smooth the Inland Revenue Department’s administrative functions, including allowing the Inland Revenue Department to accept corrections of minor errors in subsequent returns, and allowing tax agents more time, if needed, to allocate beneficiary income. In addition to these changes the important Supplementary Order Paper 93, in which several urgent tax measures are proposed, has been added to the bill.

The first of these measures proposed under the Supplementary Order Paper deals with the longstanding debate that has surrounded the GST treatment of facilitation services for tour packages for overseas visitors to New Zealand. Under the changes proposed, these services will be subject to GST at the standard rate of 12.5 percent, but the legislation also includes a transitional provision allowing inbound tour operators to zero-rate these services for the year ended 1 July 2008, which will help minimise any adverse affects on any inbound tour operators, including those operators who did not zero-rate services for that year. The second item proposed under the Supplementary Order Paper makes changes to the supplementary dividend rules in the Income Tax Act to allow newly signed tax treaties with Australia, Singapore, and the United States to come into force. The third set of changes introduced by the Supplementary Order Paper, and which I should make reference to, will ensure that the recipients of New Zealand’s superannuation and the veterans pension will remain subject to New Zealand tax while they are travelling overseas, but if they decide to live overseas the pensions will not be subject to New Zealand tax.

I want to record my thanks to all of those who have worked on the passage of this bill so far. My particular thanks are due to the Finance and Expenditure Committee members for their consideration of the bill, for passing the test, and for the recommendations that they put forward to improve the outcomes for taxpayers. I also thank the drafters and the policy officials who worked on the detail of the bill, those who made submissions on the changes it proposes, and to everyone who took an interest in it. Finally, I thank those members of the select committee and those members of the House who have contributed to the debates on the bill for their input and for their contribution to its progress. I am more than happy to commend the bill to the House.

Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this

Labour supports the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. Labour believes this bill is a technical bill that continues one of Labour’s work streams and makes some necessary changes to the underlying tax law. In the Committee stage debate the Committee has considered the role the Finance and Expenditure Committee played in ensuring the House was not presented with a bill that would have unfortunately ended up with some 3 million New Zealanders paying more tax than they legally owed. The Committee reflected on the fact that that would have been an unwise and improper precedent for this House to set and it further reflected that it shows the importance of a proper select committee process.

The Minister of Revenue in his closing remarks in the Committee stage quite rightly said that this was a tax bill unlike the previous one, and we thank him for that because the process in the previous tax bill, the international tax bill, was a bit of a shocker, I think is the technical term, and we faced inordinate pressures. But at least the material for that tax bill was presented to the select committee, albeit with a very tight turn-round, and that does stand in contradistinction to the process followed by the emissions trading scheme bill that was considered yesterday.

It is on the record of this House, in the annals of this House, that the emissions trading bill was deadlocked in its select committee and discharged back to the House without amendments, and, indeed, without even seeing a departmental clause by clause report or a redline. That was added to by the fact that very substantial Supplementary Order Papers, including a late amendment around a very important Treaty clause, were presented to this House for consideration on the day on which the final bill was passed. We are happy that this was not a bill like that bill, and happy that the select committee could play its role, which was with the help of officials and a very useful submission from the New Zealand Bankers’ Association to make a significant change around resident withholding tax default setters. So we have ended up going for the default rate at the modal income tax rate of 21c in the dollar, not the 38c in the dollar that was originally proposed by the Minister. He has been appropriate in accepting the recommendation of the committee. It should not, in the best of all worlds, require a committee’s intervention on a matter such as that, but we are very pleased that the committee was able to work together to achieve the change.

There are a range of other matters in the bill. I do not think the House needs us to go through all of them. There has been comment before about the Permanent Forest Sink Initiative, the tax treatment of that, and what defines a forestry business. It has been a matter of consideration at the Committee stage and in the second reading debate that has thrown into relief the provisions of companion legislation around climate change. My colleague Mr Nash has taken us through a summary of other important changes around beneficiary income rules, electronic communications, tax recovery obligations, personal tax summaries, GST and waste disposal levies, and various other remedial matters. It remains at this third reading to commend the Taxation (Consequential Rate Alignment and Remedial Matters) Bill to this House.

In closing, I guess it is not a bill that is likely to see itself on the front page of a major daily newspaper, but New Zealanders may reflect upon the fact that in giving this bill good consideration, this is Parliament doing its job cooperatively, and, indeed, consensually, in the interests of all New Zealanders.

CRAIG FOSS (National—Tukituki) Link to this

It is tempting, but I will not take the previous speaker’s bait. I will speak briefly and pick up on the acknowledgment and thanks of the Minister of Revenue and the previous speaker to all those who got the Taxation (Consequential Rate Alignment and Remedial Matters) Bill to its third reading. I also acknowledge the cooperation of members and parties in facilitating the bill’s progress through the House tonight to the third reading.

Most of the issues were discussed during the second reading, and, as the previous speaker also noted, there was consensus all round on this particular bill. I thank the Minister for his continuing with the general tidying-up, cleaning up, modernisation, and synchronisation of our various tax laws and regulations within New Zealand. He is keeping a constant eye on the big picture and, of course, a constant eye on what is going on in Australia when carrying out the reviews that our various pieces of legislation must undergo. There is also a reflection on modern technology, by hopefully saving the taxpayer a few stamps with the 100,000 mail-outs per day from the Inland Revenue Department. I say that is absolutely unbelievable. I think the person who will not like that is, interestingly, the new appointee to New Zealand Post, who might have somewhat of an interest in the issue.

National commends the bill to the House. Again, as Finance and Expenditure Committee chair I acknowledge the officials and advisers who got us to this point. I will pick up on the point that other members have made, that the committee worked very well together to come up with solutions or amendments to the bill that were accepted by officials, and by the Minister and his colleagues. It is a great example of good process, and long may it continue.

SUE KEDGLEY (Green) Link to this

The previous speaker, Craig Foss, said that there was consensus all round on the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. I will clarify by saying that actually there is not complete consensus in this House because the Green Party will be opposing this bill.

People have suggested that it is simply a technical bill, and it is true that there are some technical issues in here that the Greens support. The bill clarifies issues around, for example, the waste disposal levy, which the Green Party supports, but overall the consequential changes in this bill are changes to the original bill. It was introduced in mid-December 2008, just after the election, and it was a bill that we strenuously opposed. These changes flow out of that original bill, and for that reason the Green Party opposes them. We oppose them because we oppose the giving of very large, very substantial tax cuts to the well-off, while giving absolutely zero—zilch—to those who earn under $40,000 a year. We believe it is immoral and unethical, because by doing that we are further increasing the already huge gap between rich and poor in New Zealand and the incredible inequality we have in New Zealand.

The extraordinary thing is that thanks to the policies of the 1980s and 1990s, New Zealand has become a world leader in inequality. New Zealand may not be a world leader in many things any more, but it has become a world leader in inequality because our society is becoming more and more unequal. In fact, it has become more unequal at a faster rate than any other country on the planet. That is extraordinary. It is something we should be deeply ashamed of, and this bill, which amends the original bill, will continue to make our society more unequal at a faster rate than that of any other country on the planet. This bill is making amendments to a bill that gave very substantial tax cuts to the well-off and nothing to those who earn under $40,000 a year. Through that original bill, we effectively will force New Zealanders to borrow around $10 billion over the next 10 years because of those tax cuts to the wealthy. This means that we will have to borrow more from future generations to fund those tax cuts.

I also point out that not only is it unethical to have this sort of tax policy, but also it is bad policy. When tax cuts are given to those who are paid under $40,000 a year they tend to spend that money, so it is stimulatory, whereas when tax cuts are given to the very rich, as the original bill did, in general they tend to save that money. The Green members think that although this bill contains a number of consequential and technical amendments that we do not oppose, we opposed the original bill and, therefore, we oppose these amendments to that original bill. Thank you very much.

RAHUI KATENE (Māori Party—Te Tai Tonga) Link to this

I will take a very brief call to raise three points of particular interest to the Māori Party in the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. The first point is that the bill’s definition of “forestry business” includes Permanent Forest Sink Initiative activities so that all foresters receive the same tax treatment. It is highly appropriate to be considering this legislation in the light of the new emissions trading scheme that was passed into law last evening with the Climate Change Response (Moderated Emissions Trading) Amendment Bill. The Māori Party was proud to advocate for the creation of large scale permanent forests to breathe new life into an environment that has often been taken for granted.

Planting permanent forests is an intrinsic good in its own right, and it will also reduce the amount of money that taxpayers will be liable to pay to meet this country’s financial obligations under the Kyoto Protocol. The afforestation provisions that the Māori Party negotiated as part of the amended emissions trading scheme legislation will enable iwi to plant permanent forests on Crown land and to accrue carbon credits in return. The Permanent Forest Sink Initiative encourages indigenous tree planting by issuing assigned amount units for carbon uptake. We have also asked for a review of the initiative with particular emphasis on the impacts on landowners. A review of the Permanent Forest Sink Initiative would increase the incentives for all landowners to plant trees. We are pleased, in the interests of equity and fairness, that the inclusion of the Permanent Forest Sink Initiative in this bill means that all foresters receive the same tax treatment.

The second point I raise is the amendment to ensure that GST is payable on the waste levy imposed by the Waste Minimisation Act. The Māori Party supported every stage of the Waste Minimisation Act as it was taken through this House by former members the late Rod Donald and Nandor Tanczos. Our policy position acknowledged that waste disposal can damage and destroy the mauri, the life essence, of our land by reducing or destroying the life-supporting capacity of soils. The establishment of a waste levy incentivises us all to try to think carefully about the amount of waste we take to the landfill. It encourages us to recycle, reuse, repair, respect, and replace. We in the Māori Party believe that peoples have a fundamental right to clear air, land, water, and food. This right means being protected from the production, release, and disposal of toxic and hazardous waste. It also brings with it a collective responsibility to ensure that we use the resources of the Earth in ways that preserve the planet for current and future generations. We are pleased to support the amendment to provide for GST being payable on the waste levy imposed by the Waste Minimisation Act 2008, as part of the long-term plan to protect our environment.

Finally, we note the importance of the amendment to the definition of “associated persons” in the Goods and Services Tax Act 1985. The definition of “associated persons” will be amended to ensure that the activities of charitable and not-for-profit bodies that do not involve the supply of goods and services in exchange for payment, such as collecting or making donations, are not subject to GST rules as they are not performed for profit. The Māori Party really supports this move, which is another significant step in reducing the barriers that can get in the way of enabling the not-for-profit sector to continue to contribute so significantly to the well-being of our communities. We therefore are pleased to support this bill.

STUART NASH (Labour) Link to this

I rise in support of the Taxation (Consequential Rate Alignment and Remedial Matters) Bill for the last time, in this debate on the third reading. It is basically a technical bill, but it is a very necessary one. I was a little surprised and disappointed to hear the Green speaker Sue Kedgley say that they are voting against the bill. The Green member on the Finance and Expenditure Committee, Dr Russel Norman, never once voiced any concern or any prejudice against this bill. Perhaps if he had at any stage, we could have addressed some of his concerns. But not once did he articulate any concerns, so it is a bit of a shame to hear that the Greens are voting against it. I thought we had full consensus on the committee. The bill is not about cutting tax, at all; it is just about aligning tax rates. In fact, this bill will probably make it a lot easier for taxpayers. But that is democracy.

As articulated by the chair of the committee and my colleague David Cunliffe, I would like to thank the Inland Revenue Department officials and the independent advisers for the work they have done on the bill. It is greatly appreciated, and I think we have good legislation here. People talk about technical and non-technical bills. However, in my very brief experience, every tax bill is technical in nature, because tax, by its very nature, is complex. Even though the mandate of the Finance and Expenditure Committee and the Inland Revenue Department is to make tax legislation as simple as possible, tax is not simple. Simple is an education Minister standing in front of a secondary school teachers union conference and reading them a children’s story, and telling Parliament it was a very good read. It might be at the same intellectual level as those on the Government side of the House, but I tell members that it is not for those on this side. Simple was also putting forward a bill that will cost every New Zealander around $45 a week up to 2050—such a liability of a legacy for future generations. That is simple, but this tax bill is not simple. That is why we are very reliant on the advice and the excellent work done by officials and advisers, and I thank them very much.

This bill has “remedial matters” in its title, because it contains remedial amendments to the Income Tax Act 2007, the Income Tax Act 2004, the Goods and Services Tax Act 1985, the Tax Administration Act 1994, the Income Tax Act 1994, and the Māori Trustee Amendment Act 2009. That is why I am a little disappointed in the Green member, because this bill makes tax just that much easier for taxpayers. It meets the six tests that any tax legislation should meet: economic efficiency, revenue adequacy, revenue integrity, simplicity of administration and compliance, coherence, and equity and fairness. As I mentioned, and as all my colleagues alluded to, there were concerns over the equity and fairness of the bill, and the Labour members of the committee have a slight level of disquiet over the fact that so many people—I think it is around 1.4 million New Zealanders—will still be overtaxed on their interest as a consequence of this bill. People asked where the 1.4 million figure comes from. Children from 0 years of age and all the way up, whose parents have set up their bank account, pay resident withholding tax as well, so there are a lot of taxpayers who are affected by this. However, I think we have come to a good compromise. There are a lot of people who will be overtaxed, but the Inland Revenue Department has assured us that it will put education strategies in place that will mitigate the risk of overpayment. We have accepted that, and we will follow progress with interest.

The main issue that the bill addresses is to align resident withholding tax on interest paid to individual taxpayers with the new marginal tax rates. I spoke at length about it in the second reading debate—