Taxation (GST and Remedial Matters) Bill

CATHERINE DELAHUNTY Link to this

—ha, ha—because I am not actually a tax expert and my co-leader is not here to do it, and because I really do like keeping to the point. However, if it were October the Green Party would have a great deal to say about the rise in GST. As it is not October, and as I will probably not be the Green member who makes the speech in October, all I can say is that I am appalled by the concept of the increase in GST. I know that we passed legislation last night that will hurt people, and the GST increase will hurt people more. I was ashamed to be part of Parliament last night, and I have had many emails from people on the subject of that legislation.

However, this bill is the Taxation (GST and Remedial Matters) Bill. Tax is the price we pay to live in a civilised society. For the taxation system to work, everyone must pay their share and be seen to pay their share. Tax loopholes and tax avoidance undermine the collective sense of trust, and trust is a key word in our society. We have only a short amount of it around, so we really need to have this legislation. When overseas-owned banks unlawfully avoided paying $2 billion in tax, they did not just take money from ordinary New Zealanders; they undermined our collective will to pay our share, which is a serious matter in a society increasingly bereft of trust. Hence—

CATHERINE DELAHUNTY Link to this

—we strongly support closing tax loopholes.

The Greens will support the bill, but as I am making a short speech I will be happy to yield the balance of my time to Trevor Mallard. Thank you.

Hon TREVOR MALLARD Link to this

No, no; I have plenty to say. There are some really important changes within Part 3 of this bill that amend the Tax Administration Act. One of the questions I have is whether these changes go far enough, especially in respect of the late payment penalty in this particular area.

This is a bill that we will, of course, support going to the Finance and Expenditure Committee. But I agree with Catherine Delahunty’s comments about the GST increase, and I want to reinforce the point that a number of us will be debating it publicly. However, there are some sensible changes in this legislation and a number of remedial amendments.

The Government is hammering families by increasing GST. It put the power prices up; it put GST up on top of that. What does the Government say to the superannuitants and beneficiaries who are being hammered? It says there will be 5.9 percent inflation, but it will not give them a similar increase under this legislation. I cannot see it in this bill, and it should be here. Although this bill is quite distinct, in that it is different from the Budget GST matters, it is a very, very good reminder of them. I thank the Government for making sure this bill got to its first reading stage and is about to head off to the select committee, because people will be given another opportunity—after debating it under Budget urgency—at the select committee to debate and focus on GST and the regressive nature of that tax.

It was interesting today in the House to hear Mr Boscawen in his first set of answers as a new Minister, one who has become a Minister in relatively unusual circumstances—

Hon TREVOR MALLARD Link to this

No; we knife people in the front in our party, not in the back in the way that Rodney Hide did. We certainly do not go around stealing papers out of members’ offices when they have “Defence: Top Secret” on them.

Hon TREVOR MALLARD Link to this

I think we are seeing a slight sign of tension amongst the ACT Party; it is having a pretty bad effect on the whip. I say to him that I do have some sympathy for him. I was the whip in the 1987-90 Government, and it is fair to say that, on the basis of keeping a Government party together and keeping it cohesive, I did not do a very good job. I say to that member that I would have thought that with just five members, he could keep them on track. If the member talks to Roger Douglas, he will hear that even in the worst times the relationship—

Hon TREVOR MALLARD Link to this

I will get back to GST. That Government introduced GST, in 1986. By 1987 there was a proposal for a flat tax, and I am sure we would have had to have a Taxation (GST and Remedial Matters) Bill in order for it to be introduced. The point I am making to the member is that he will have to do quite a lot better as whip if he is to hold his party together. Now the member is doing Len Brown imitations. I am not certain that that is an appropriate thing for him to be doing within the House. I do not know whether it is parliamentary to mimic local body candidates in that way.

I think we should now focus on this bill. The provisions for the prevention of phoenix schemes, which undermine the integrity of the GST rules, are very useful. There is no doubt that when GST was first introduced, it was seen as pure and simple. There was a major drop in the income tax that people paid. When I became a member of Parliament in 1984 the top rate was 66c in the dollar, and it was reduced to 33c in the dollar when the GST legislation came in. People saw that as a fair cop: there was a big drop in the marginal rate of taxation, but GST came in. Around that time we did not have phoenix schemes, or cash arrangements, or things like that. But over a period of time, what has happened—and I would be interested in Mr Bakshi’s contribution to this particular issue—is that, particularly in some trades and in some ethnic communities, a cash economy has been operating and GST payments have not been made. There has been a change of culture in New Zealand. Having this sort of legislation to try to tighten up some of those gaps and to reduce the opportunities for that to happen is important.

I also think it is good that the bill is clarifying a situation in the GST rules with which some taxpayers have had difficulties. There is no doubt that there is a need for clarification. I think that any of us who are doing good constituency work know that sometimes the rules do not work towards resolving the problem. There are occasions, especially with regard to the penalty regime, where the Crown ends up in a worse position as a result of the implementation of the rules, which are very, very tight.

There is stuff on KiwiSaver amongst the remedial matters in the bill. The Labour Party, in later speeches on this bill, will say the bill is an opportunity to do what the Prime Minister said is needed, which is to bring in a savings culture. It is good that KiwiSaver is being brought up again, within the scope of this bill. Seeing as it is within the scope of this bill, the Labour Party—

DAVID BENNETT Link to this

Well, that is familiar territory for him, I am sure. The basic nature of this bill is to close a tax loophole where phoenix schemes have been involved. Essentially, in order to close this loophole the bill requires that the GST be recorded at a zero rate for land if the buyer is also GST registered. That avoids the situation where, had the rate not been set at zero, the Inland Revenue Department could have been liable to pay the GST, the company might not be in a position to fulfil its obligations, and there is potential for fraud under the scheme. So this bill closes that loophole.

The bill has a number of other important subsidiary clauses that deal with simplifying some of the rules concerning GST. There are also some legislative changes in regard to KiwiSaver, fringe benefit tax, joint bank accounts, penalties, portfolio investment entity schemes, overseas donations, and superannuation. Effectively, this bill covers off an element of the taxation system that is important, because a taxation system needs to be robust, fair, and equitable, and we need to make sure that the legislation is such that people cannot take advantage of the system through schemes or the way that they structure their affairs. This bill is important in doing that, so that people can see the fairness and equity that they demand be represented in the taxation system. We support the passage of the bill through the House.

DAVID GARRETT Link to this

I do not need to grease up to him now. We are friends. We are good friends. I learn a great deal from Sir Roger. Every day, in fact, Sir Roger and I—well, not every day, but most days—share dinner together. We break bread together, as friends do. I find his advice extremely helpful on many political matters.

I will tell a wee story, because I think it is a very good one. In a greasy spoon cafe in Auckland, which I frequent now and again when I wish to return to my class roots, I go in and have a feed of eggs and bacon with all the trimmings. I never wear a suit, of course, but I am the only person there who wears a suit in daily life; it is frequented by truck drivers and digger operators and those sorts of chaps. I was in there about a year ago, and a group of people were having lunch and talking about the insulation scheme. One of them said the scheme sounded all right, but someone had to pay for it. My ears pricked up, and I thought that was a bit unusual. Then the man said: “You know that [bleep] Sir Roger Douglas? He had it right. That [bleeping] GST, even the rich [bleeps] have to pay that, mate. That is a [bleeping] good idea.” I thought that was marvellous. A man who makes his living driving a digger is able to recognise what a brilliant thing GST is.

It is good that we are here in 2010, a bit over 20 years later, making a few tweaks and adjustments to make sure that the wide boys whom Mr Boscawen despises so much have it just a bit harder to defraud the good, honest workers, like those chaps whom I met in that cafe that day and with whom I had a good talk, and whom that horrible shouter over there supposedly represents. ACT is very happy to support this bill.

RAYMOND HUO Link to this

Ni hao. The Taxation (GST and Remedial Matters) Bill makes a number of tax-related amendments and introduces some sensible changes and a number of remedial amendments. Labour will support the bill’s referral to the Finance and Expenditure Committee.

Broadly speaking, the bill makes a number of amendments to GST, including zero-rating land transactions where both parties are GST registered. There are adjustments for changes in use, nominated persons, and the GST treatment of accommodation. It also makes a number of other changes to the KiwiSaver legislation, the tax treatment of Government-allocated emissions trading scheme units, portfolio investment entity schemes, and the tax treatment of superannuation funds.

A basic element of the GST system is that transactions between businesses should be GST neutral. However, infrequent transactions of significant assets, such as land, often create GST consequences for which businesses may not have planned. There is also a substantial risk to the tax base through phoenix fraud schemes that involve new revenue for the Government. So clause 10 requires GST-registered suppliers to charge GST at the rate of zero percent on the supply of land when the purchaser is also GST registered. A transaction between a registered supplier and a non-registered purchaser remains subject to the existing rules. So that is the first point.

The second point is that adjustments are made for changes in use. The current change-in-use rules that apply when assets are used for both taxable and non-taxable purposes will be replaced with an approach that apportions the input tax deductions according to the attributes of goods and services. The third point is on transactions involving nominated persons. GST is a tax on transactions, and most transactions involve only two parties—that is, a vendor and a purchaser. The legislation is not designed to cater for arrangements in which a purchaser nominates another person to receive the goods or to settle the transaction, or both.

The fourth point is that commercial accommodation provided by GST-registered persons is GST taxable. Broadly speaking, accommodation in a dwelling is excluded from the tax base because if GST was applied to rent, owner-occupiers of residential dwellings would have preference over tenants who reside in rental properties. The definition of dwelling is intended to apply in circumstances that have a reasonable level of sustainability between renting and owning a home. This goal is not currently achieved because of the potentially wide interpretation of the term “dwelling”.

This bill amends the definition of “dwelling” and “commercial dwelling” to clarify what types of accommodation fall within the ambit of the definitions and to ensure a better alignment of the GST treatment of equivalent types of accommodation. Interestingly, this bill makes a number of amendments to KiwiSaver. It is regrettable that the Government did not use this bill to undo the damage it did to the superannuation scheme by cutting KiwiSaver. National gutted KiwiSaver by halving the amount of money that the Government put into it, so it decreases the amount that people will save.

We have been talking about the savings problem in New Zealand for some time now. National’s response was to cut KiwiSaver, which had been the first real attempt to lift private sector household savings in New Zealand. It also cut payments to the Superannuation Fund. Bill English has spent the last couple of days bemoaning our level of indebtedness to the world. Unfortunately for him, after 2 years in Government both Treasury and the Reserve Bank are forecasting the problem to get worse. National’s belated decision to set up a savings committee is an admission that it knows it has been caught without a credible plan or milestones to catch up with Australia. Two years, two Budgets, and now it plans to set up a committee. Labour understands, and always has, that the biggest difference between New Zealand’s economy and our neighbour Australia’s economy is Australia’s better savings record. KiwiSaver spearheaded Labour’s commitment to turning this round, but National gutted the scheme as soon as it came into office and suspended contributions to the Superannuation Fund.

I will quote the New Zealand Herald editorial entitled “Compulsory super best way forward”: “So compelling is the case for compulsory superannuation that it is a mystery why the Government is setting up yet another working group. It needs only look across the Tasman, where the concept has proved so successful over the past two decades that almost two-thirds of Australians now support an increase in contributions to their compulsory scheme from 9 to 12 percent. … The core issue is the sustainability problems of NZ Superannuation as the baby boomers move into retirement. The Government’s response to this has been sharply constrained by two acts.” The New Zealand Herald cited the two acts: “The first was the Prime Minister’s unfortunate remark that he would resign if his administration ever changed the entitlements for national super. The second was the Government’s suspension of Cullen Fund contributions. Another road that pays for retirement needs will have to be carved out. Importantly, compulsory superannuation would provide the added benefit of building a much-needed savings base and reducing the country’s reliance on borrowing from overseas.”

On that note, there are two other intrinsic issues. The first one is that our young people are struggling and our elderly Kiwis struggle to make ends meet. If someone is on a middle income and is not one of the privileged few but one of the many ordinary New Zealanders, then that person is struggling, too. Another problem, as observed by Bernard Hickey, is that around 62 percent, collectively, of our extra savings is invested overseas. Currently, 69 percent of the Superannuation Fund is invested offshore, once the cash invested here is included in the total. It is 81 percent without that cash. Just over 40 percent of the $5.5 billion invested in KiwiSaver has been invested overseas as well. To sort out the problem, the obvious answer is to save more domestically, and the obvious mechanism is to make KiwiSaver compulsory, while also retaining the current universal New Zealand superannuation system as a safety net. Thank you very much.

Hon SHANE JONES Link to this

We have heard from Mr Garrett; we know that he has dealt with ”Private Roy”. He can go back to his seat now. We do not want to be distracted by that matter.

Mr Gilmore said this legislation pertains to GST. GST is a key feature and a consumption-based tax, and anything that simplifies it ought to be supported.

I really want to turn to the elements that relate to KiwiSaver. It is a tragedy that KiwiSaver has been wrecked by the current Government, and although we will support these amendments, I point out that they are of a technical nature. The underlying architecture of KiwiSaver has been rudely injured, and almost fatally injured, as a consequence of the parsimony and uninterested attitude of the current Government in respect of supporting savings. But wait; help is on the way! KiwiSaver ought to be a simple process. KiwiSaver is designed to achieve what the Prime Minister talks about, but unfortunately very rarely acts upon—that is, making up for the lost ground in relation to the nation’s savings deficit. If the Government had continued the fit of generosity and commitment that the previous Labour Government showed to gross savings, KiwiSaver would have increased those savings.

I talked today to a senior member of the Wellington commercial community, who had had the good fortune to bump into a bank, and that bank told the person that its customers are now growing far more enthusiastic about the idea of seeing their regular balances and the improvement in their savings position. They are disappointed not only that the Cullen fund is being gutted but also that KiwiSaver contributions may be under threat as a consequence of the niggardly approach that the current Government has taken.

The bill will go to the Finance and Expenditure Committee. It is interesting that Mr Bill English was formerly a member of that committee, and, indeed, when John Key replaced Don Brash, Bill English replaced John Key on that committee. I recall Mr English, on a number of occasions, talking about the importance of dealing with the country’s indebtedness. KiwiSaver is a fantastic instrument to enable that to take place. It is not the only type of savings we have in New Zealand, but it will likely grow poorer if all we see are minor, technical changes in terms of the greater debate that has been neglected by the Government. It is akin to pettifogging. What have we seen? A committee has been created to address the underlying problem. That committee is likely to come up with a set of ideas that will come perilously close to the time of the election contest, and the opportunity of the last 3 years will, unfortunately, have been lost. It will have been lost because 3 years have been squandered to deal with the underlying opportunity to take a risk and actually grow people’s enthusiasm. I sense the word “enthusiasm” coming from the other side of the House as members there seek to embrace a deeper commitment to savings.

It is a moot point as to whether savings ought to be compulsory, but we should not overlook the fact that the Australians have a compulsory system. As a consequence of that, Australia’s savings record outstrips ours, and as long as we do not have a compulsory system we will have to live with that gap. We know that the gap is something that the current Government has become painfully aware of.

Hon SHANE JONES Link to this

A reasonable question has been posed. The man was referring to you, Mr Assistant Speaker. I will not ask you what you are doing. You are transfixed as a consequence of this debate on a Thursday afternoon. This is not an issue of what this side of the House is doing; this is an issue of what the Government has not done, and all it is able to bring forward are some very minor, almost parsimonious changes that will not make a difference to the real challenge that lies ahead of us.

I give an assurance that this side of the House is progressing well on its savings policy. All types of people are bringing not only their ideas but their support, anticipating the emergence of an innovative set of policies and a plan, because half of the task that we have before us is turning up with a plan. I will not repeat what other members have said—there is a paucity of thinking and a total absence of a plan from the Government—but I will say that the reason why we support these changes is that our policy iterations will be sophisticated.

Hon SHANE JONES Link to this

Although these changes are of a technical nature, they actually build on the architecture that was laid down by Dr Cullen. It will probably stand as a part of the proud legacy of the previous Government that an overdue step was taken in respect of the savings architecture and savings culture. That culture appeals to garden-variety Kiwis and it definitely appeals to businesses. We have a few reactionary forces and random voices threatening to emulate Hone Harawira’s style of politics and revolt in the event that employers are required, as a consequence of a compulsory savings policy, to contribute to an employee’s savings, but that is a matter of their theatrics. The deeper issue is that New Zealanders want to save, they want encouragement to save, they want a simple process where they can save, and they want to know that their savings will go into enterprises that will deepen the reservoirs of capital and enable talented people to remain in New Zealand and grow enterprises as a consequence of having access to capital that has an indigenous origin. Although businesses are enjoying the prospect of greater savings, they know that they cannot rely purely on bank finance or imported capital. But, over time, whether they are small start-up firms, firms in the middle of their growth trajectory, or very large firms that have managed to spread out to other jurisdictions, they will have access to a range of professionally managed savings schemes. Slowly but surely, we will recover the lost ground, which is continuously being lost, unfortunately, day after day, through the Government’s inattention and, I suppose, confusion as to what to do.

Let it be said that all successful economies thrive on the basis of accumulated capital and productivity. We will support this legislation today because it is a small attempt to address that, and because it is consistent with our general bipartisan approach to matters of important economic enterprises. We know that businesses and garden-variety Kiwis want to get behind a savings culture and a savings enterprise that will make a difference to the long-term wealth-generating capacity of the country, and to prosperity at the level of individual New Zealand families, New Zealand communities, and, dare I say this, of the overall New Zealand economy. It is fitting that we should arrive at this point where I signal that we support the bill. There will be a few refinements, as befits the intellect that we will bring to the task. Thank you very much.

PESETA SAM LOTU-IIGA Link to this

—as well as a GST increase, to be fair. But they are looking forward to this package and to the Government continuing in this way. I support this bill.