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Taxation (Income-sharing Tax Credit) Bill

First Reading

Thursday 23 September 2010 Hansard source (external site)

DunneHon PETER DUNNE (Minister of Revenue) Link to this

I move, That the Taxation (Income-sharing Tax Credit) Bill be now read a first time. At the appropriate time I will move that the bill be referred to the Finance and Expenditure Committee. Income sharing for parents with dependent children has long been a core policy of United Future. The introduction of this bill forms part of our confidence and supply agreement with the National-led Government.

The income-sharing proposals that this bill introduces have been the subject of two separate rounds of public consultation under two successive Governments. During the term of the previous Labour-led Government a Government discussion paper was released. Again, that was part of a confidence and supply agreement commitment, and it followed full consideration by Cabinet. The document canvassed people’s views on the idea of income sharing, an arrangement that allows couples with children the option to split their income for tax purposes so that each partner is taxed on an equal share of their combined income. Because income tax rates rise according to the amount earned, under such a scheme parents could ultimately end up paying less tax if, for example, one parent works full-time and the other chooses to remain home to care for their children.

Around 90 percent of the submissions on that first discussion paper were in favour of some form of income sharing on various grounds, including that it recognises the contributions of full-time parents in their homes and communities, and that it balances the assistance available to parents who are in the workforce. I should acknowledge that at every stage of that process, the previous Government was constructive and helpful and appeared to operate on a good-faith basis. All of that makes Labour’s current opposition to this legislation much harder to understand.

I constantly receive very positive feedback from everyday New Zealand families about income sharing. New Zealanders react to hip-pocket realities. They know that income sharing is good for them, and that no amount of political double-speak from politicians who might oppose it will stop them from recognising when something actually benefits them. The reality is simple: up to 310,000 New Zealand families and nearly three-quarters of New Zealand children stand to benefit by anything up to $9,000 a year, and parents will have the choice of spending more time raising their children. The key word here is “choice”. Those who oppose this bill are in effect saying they wish to deny New Zealand families a very helpful choice in the way they might wish to raise their families.

The second consultation round took place in December last year, during the term of the present Government. We sought feedback on how income splitting might be delivered as an annual tax credit, similar to Working for Families assistance. Again, most submitters supported this approach. The bill introduced today reflects public feedback from both consultation rounds and sets out who would be eligible, how the tax credit will be calculated, the rules around how to apply for the credit, and how it should be paid. I particularly acknowledge the support of both National and the Māori Party during the development of this legislation and in its first reading today.

In essence, under an income-sharing arrangement each partner in a relationship caring for dependent children under 18 years of age would be taxed on an equal share of their combined income. At the end of the tax year they would be able to apply to the Inland Revenue Department for a tax credit, based on the difference between the amount of tax they would have paid on an individual basis and what they instead pay based on half their combined income.

Members may have noticed that I am using the term “income sharing” rather than the term “income splitting”, which was used during the consultation process. Adopting the new term “income sharing” is a deliberate choice. First, it more accurately reflects the status of couples with children as equal partners in raising their families. Second, it provides a more accurate description of the arrangement in law. The bill defines parents as being spouses, civil union partners, or de facto partners, similar to the Working for Families legislation. They would have to be New Zealand tax residents for the whole tax year before they could claim a tax credit, and one of the partners would also have to be the principal caregiver for the dependent child or children. Under the provisions in the bill, the shared care credit would also be available to parents when they have separated, if they have subsequently re-partnered and are sharing responsibility for caring for their child or children for at least one-third of the tax year.

Although the income-sharing arrangement has the potential to benefit many families, it cannot, and is not intended to, be a suitable arrangement for all couples with children. For some, depending on their income, the option to claim the credit will be of marginal value; nor will the credit be available for certain parents who do not meet the eligibility criteria, such as sole-charge parents. I am aware that some will view this aspect of income sharing as an infringement on human rights; some members have no doubt observed the report from the Attorney-General under section 7 of the New Zealand Bill of Rights Act that accompanies this bill.

On this matter, I need to make the obvious point that no one benefit fits all. That is why we have targeted assistance for groups with particular financial and social needs. Arrangements are already in place for people who are sole-charge parents—for example, through the childcare subsidy, the minimum family tax credit, childcare rebates, and the domestic purposes benefit. For many families, income sharing recognises the real financial choice that many couples with children often have to make about whether they work full-time and employ others to care for their children, or whether one partner stays home to care for the children, possibly on a part-time basis.

The proposals that this bill contains will give parents more choice about their work and caring roles. As such, those proposals give greater recognition to the equal role and value of both parents in raising their children. Too often we hear the lament from parents that they would have loved to be able to spend more time at home with their children when they were growing up, but simply could not afford to do so. Income sharing extends that option to many more parents, and gives them choices that they currently do not have. In my view, it is not for this House to continue to deny them those options.

I hear the argument from those who oppose income sharing as being unfair, because they say not everyone will benefit equally. Although differing income levels will mean differing levels of benefit, it is exactly the same with any income-related tax change. I cannot see any logic in denying parents the choice of income sharing if it suits their circumstances. After all, if they were in a business relationship, they would be able to share their incomes for tax purposes in precisely the way that this bill proposes, yet I do not hear any suggestion that that is unfair. Raising a family is surely the most basic and important business that every one of us will ever be involved in. Therefore, surely it is only right to give parents as many options as possible to enable them to do so to the very best of their abilities. Against that background, it is with considerable pride and pleasure that I commend this bill to the House.

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

I rise to take a call on behalf of the Labour Opposition on the first reading of the Taxation (Income-sharing Tax Credit) Bill. I will take this opportunity to recognise and acknowledge the effort that the Minister of Revenue, the Hon Peter Dunne, who has just resumed his seat, has put into this issue over a number of years. The consultation on this issue was first undertaken under the previous Labour-led Government, and it has to be acknowledged that this has been a passion of the Minister over a good part of his parliamentary career.

I think it fitting that the House acknowledge that the intentions of this bill are good. Certainly, I would not demur from the Minister’s statement that the raising of children is the most important function that any of us could undertake. I say further that the pressures upon families in our country at the moment are intense. They are intense, because New Zealand has found itself caught in the grip of a world recession, which it is struggling to emerge out of, and many of our families have seen their principal income earner face enormous challenge and wage restraint. Jobs have been lost, there are 160,000 unemployed, and only today we learnt that the latest GDP growth figures were only one-quarter of those forecast by the Reserve Bank. Growth is collapsing. Our economy is in trouble and our families are in trouble, so no New Zealander would demur from the idea that it would be a wonderful thing if we could give some relief. That is why we will be making announcements over the next week that will contribute to that goal. It is no surprise that in the consultation undertaken on this bill, 90 percent of respondents thought it would be a wonderful idea to receive a $500 million tax windfall. What I want to know is who the 10 percent are who did not want it.

AdamsAmy Adams Link to this

The childless.

CunliffeHon DAVID CUNLIFFE Link to this

Perhaps it was the childless, but one can hardly be surprised that people were enamoured of the idea of receiving free money. But in all seriousness, this, I guess, is where we part company with the Minister.

If one is concerned about addressing the issue of child poverty in New Zealand—which is where this is fundamentally headed—then the Labour Party believes there are much, much better ways to achieve that goal. Indeed, we are working on breakthrough policy in that area in order to bring it to the New Zealand public at the 2011 election. Certainly, there are better ways to provide flexibility for families and partnerships as to how they structure childcare. It was Labour that brought in paid parental leave, and it may be possible for us to look at making extensions to the current level of paid parental leave. I commend my colleague Sue Moroney for her work in that regard, and for her development of a member’s bill in pursuit of that idea. It may also be possible for us to extend the 20 hours’ free early childhood education allowance that the previous Labour-led Government brought to New Zealanders. Both those measures would be done at significantly less fiscal cost than the $500 million price tag of the measure that is contained in this bill. Most important, either of those measures, or, thirdly, a restructuring of the tax and benefits structure around the lowest-income New Zealanders, including beneficiaries, would achieve better health and social well-being outcomes at a lower fiscal cost than this bill proposes.

I have to take issue with the Minister when he said that any measure that affected the taxation of families would have a similar result, which is that the more one earns, the more one gains from the tax change. This is capped, so that the benefit of the tax splitting—and I do not think it is particularly appropriate that we use the word “sharing”, because that is a kind of “touchy-feely”, spin-filled word; it is actually income tax splitting—goes up to a threshold of $140,000 a year. The effect of that is that the closer one is to the $140,000 threshold, the more tax remission one gets. But the needs of the children are greater, the lesser the income one gets. That is perverse. It is the children of the poorest who are struggling the most, yet this tax benefit goes mainly to the children of the middle class. They may be the Minister’s constituency, but they are not the area of greatest social need.

The next problem is one of design. This is a cumulative effect. It comes on top of two previous sets of tax changes that already favour the upper middle class. Firstly, we had the reduction by the incoming National Government, with indecent haste, of the 39c tax rate to 38c. That was a windfall to upper-income earners, including—to be fair to the Minister—people earning over $140,000, and in Budget 2010 we have seen the reduction of that income tax rate extended all the way to 33c. Although there may be some design advantages in equating it with the trust tax rate, it cannot be removed that this again is a windfall to the top income earners. In fact, a full third of the tax remission goes to the top 5 percent of income earners. I will say that again: a third of the tax remission goes to the top 5 percent of income earners in the Government’s plan.

SmithHon Dr Nick Smith Link to this

What about the GST?

CunliffeHon DAVID CUNLIFFE Link to this

The member raises the subject of GST. Well, here we go again, because I am bound to remind the House and the New Zealand public that if the Government was so convinced that there was a net benefit to ordinary New Zealanders after the tax switch and after inflation, then it would have had the moral courage to put the inflation impact in its online tax calculator. But did it? No, it did not. What did the Budget documents tell New Zealanders about the net impact of the tax switch and inflation? Well, there is one number: 5.9 percent inflation next year—and with that figure it takes until 2014, two elections away, for an average or minimum wage earner to break even. Well, that will be joyfully received in the hills and dales of Remuera, but it will not be so well received in my electorate of New Lynn nor, I would say, even in the Minister’s electorate of Ōhariu.

QuinnPaul Quinn Link to this

What about in your household at St Marys Bay?

CunliffeHon DAVID CUNLIFFE Link to this

My very proud electorate of New Lynn, I say to Mr Quinn, I am very happy to say, has returned me to Parliament for three consecutive terms, and I am now enjoying a fourth term. So it cannot be random, can it, I say to Mr Quinn. Something must be happening out there in order for the good people of New Lynn to do that. In fact, Mr Joyce is rushing to New Lynn tomorrow, as it happens, to celebrate the opening of the railway station that Labour paid for. How tremendous it is for him to grace us with his presence to kiss the babies, cut the ribbon, and open the railway station. All the hard work was done by Michael Cullen, along with, if I might add this, the dutiful efforts of the MP for New Lynn. Merry Christmas, New Lynn. There is $300 million worth of first-class infrastructure, brought to the area by the previous Labour-led Government, and how very nice it is of Steven Joyce to come and celebrate with us in our humble community. We shall roll out the red carpet for him; he can be assured of that.

I come back to the bill. I acknowledge the Hon Peter Dunne who is one of the longest-serving members of this House. I believe that he is a member who has his heart in the right place. We do not demur from the intent of this bill, and we do not demur from the idea that every Kiwi child needs to be given a helping hand and a fair start. But if we had $500 million to spend in pursuit of that aim, we would not spend it on the provisions in this legislation. Nor would we do that following the two consecutive tax changes in two consecutive Budgets that have already delivered a windfall to the upper end of taxpayers, and unfortunately that is what this bill does, up to the point of $140,000 a year. The returns increase up to that point, and then flatten off. Labour will be bringing forward to the public of New Zealand policies that are better designed, more far-reaching, and have more impact on the position of the children of the poor. Labour will bring to the electorate a new opportunity for every Kiwi child to get ahead, for every Kiwi family to have the pressure reduced, and for those who have had it the toughest the relief will be most tangible. Thank you.

AdamsAMY ADAMS (National—Selwyn) Link to this

I am very pleased to have the chance to take a call on the Taxation (Income-sharing Tax Credit) Bill. Let me say at the outset that the concept that the bill puts before the House is one that I have both a great deal of interest in and a number of significant concerns about. Equally, it is fair to say it is an issue that generates a lot of public debate and interest. When the Minister’s press release about the upcoming introduction of the bill came out, I was involved in a function all day and had missed the announcement. The thing that brought it to my attention was the steady stream of people who came up to me throughout the rest of the day and the next morning, wanting to talk to me about it and express their views, which were pretty passionately held on both sides of the debate. Clearly, it is an issue that will generate a lot of interest.

I certainly can see a lot of merit in having a select committee look at the bill and then put the issues out there and debate them. As the House knows, it is part of National’s supply and confidence agreement with United Future that National will work with United Future in respect of this bill, and certainly support it going to the select committee. I am very pleased to do that, because I think it is an important issue. The matters that it traverses and touches upon are fundamental, as Minister Dunne said in his opening remarks. There can be nothing more important in our society than the raising of children, and the supporting of families in doing that.

I will run through the two halves of the debate, as I see them, and the issues that impact on me. Certainly, on the positive side it appeals to me that we would be able to encourage families to set up their childcare arrangements in a way that best suits them. I have often been a believer that there is no one-size-fits-all arrangement when it comes to how parents should raise their children and how parents should work. If one parent wishes to stay home full-time to raise the children, and it was simply financial matters that were not allowing that to occur, then obviously it would be wonderful to be able to give parents that opportunity. I know that having two parents going out to work for 20 hours a week each, rather than having one parent working for 40 hours, would certainly be financially more valuable to the family. But that has a cost, too, in consistency and in time spent together. There is nothing more difficult than raising children, particularly in the very early stages of parenting. Frankly, I know when I went back to work as a young parent, it was pretty much for a rest. Working as a lawyer was considerably easier than being at home with a young child. But if this is the best thing we can do for our families and our children, then every member of this House would want to support families in doing that, as far as they can do so.

There are some really strong drivers within me that want to support the concepts in the bill. But on the flip side I do have concerns, and they have been predominantly picked up by the Attorney-General in his report under section 7 of the New Zealand Bill of Rights Act about the position that the bill leaves sole parents in. The Attorney-General’s report talks about the bill being discriminatory against sole parents. The negative comments that I have heard from people in my community are largely around that issue. Does the bill unfairly place sole parents at a disadvantage to married parents? Will parents be encouraged to stay together in a marriage they might not have stayed in, but for that ability? Who knows? These are issues that we need to look at. The fact that the Attorney-General was so concerned that he issued a section 7 report is not something we can take lightly.

The other factor that we need to be very mindful of, and the previous speaker, David Cunliffe, touched on it, is that we are all very aware of the difficult and strained financial times we are in, and a proposal such as this does have a significant fiscal impact. In a perfect world we would never have to worry about these things, but the fact is that we do. We have to be very mindful as a Government to consider the fiscal costs of the proposal.

As I said in my introductory comments, I have a lot of interest in the proposal, I see merit in it, but equally I have a number of significant concerns. For my part, as a member of the Finance and Expenditure Committee, which the House is so moved to send the bill to should it pass its first reading, I will be incredibly interested to go through the process of public submission and debate on the proposals, and I will do so very much with an open mind. For that reason, I am very pleased to support the bill at its first reading.

NashSTUART NASH (Labour) Link to this

I stand in opposition to Minister Dunne’s Taxation (Income-sharing Tax Credit) Bill at its first reading. There are two things I would like to say about this bill. First, this proposal does not increase equity; rather, it further increases the gap between those who earn the most and those who struggle to make ends meet. Second, I will outline a couple of points made by experts—not in Parliament, but in the real world—who have spoken on this bill.

In reading this bill, and listening to the Minister’s answers to oral questions in the House today, it is hard to believe that this Minister of Revenue was also the Minister of Revenue under the previous Labour Government. His apparent lack of empathy with those who are really battling is baffling. Mr Dunne himself is about to get a tax cut of around $140 a week, but a person on the median wage in the electorate he purports to represent will get about $5 a week. That is simply not fair or equitable. This bill is not fair, either. Mr Cunliffe earlier alluded to the Minister’s passion about this issue and said it was commendable. Well, I would not use the word “commendable”; I would use “misguided”. If the Minister concentrated his passion on securing real benefits for all Kiwis, then I would commend him. But that is not the case with this legislation. It does not benefit all Kiwis, at all. It is not about families; it is about high-income families, who do have choices.

The Minister speaks a lot about choice. However, choice implies a level of economic freedom; necessity does not. As the Inland Revenue Department noted in its report on income splitting: “It might be perceived as unfair that the benefit from income splitting increases as primary earner income increases, providing more benefit to couples with higher incomes.” So the real question is whether income splitting helps those who really need it—those who were torn between returning to the workforce full-time, working part-time, or staying at home to look after children. The answer to the question is no. We should remember that Mr Dunne’s proposal is applicable only to families with dependent children. It does not help those who really need assistance. Working for Families is in place to help struggling families, and Mr Dunne suggests that we have both. The median household income is about $60,000, and the median wage for those in paid employment is around $41,000. Therefore, many households have both parents working full time, and they would not benefit from income splitting. Those families who genuinely do have choice around whether one parent works, or both parents work, tend to be those who earn the most. It just makes sense.

For the benefit of members opposite who have no understanding whatsoever, I will outline three scenarios. They assume a two-parent household with at least one dependent child and one partner who works. The first household, with a salary of $40,000, will get $8.65 a week under Mr Key’s tax cut and about $23 a week with income splitting. They will be about $32 a week better off. The second household, with a salary of $100,000, will get about $38 a week with the tax cut and $163 a week with income splitting. They will be $202 a week better off. However, those who earn $140,000 a year will get $66 a week with the tax cut and $180 a week with income splitting. They will be $240 a week better off. A household that earns $40,000 a year—about 70 percent of Kiwis earn $40,000 or less—will be $32 a week better off, but a household on $140,000 will be $240 a week better off. How does that promote equity? In fact, the regulatory impact statement, which accompanies the bill, spells it out. It states: “The most significant gains would go to higher single income households with the lowest gains going to low-income families.” Nothing has changed on the other side of the House; it is simply not fair.

A couple where one partner earns $140,000 a year and the other earns nothing will get $9,000 more a year. This bill is not about families; this is about high-income families. Mr Dunne said that not everyone would take this up. What? Of course they will take it up. Those people will say that they pay enough tax and will grab that $9,000. It is the people who earn $140,000 who will benefit, not the people who earn low incomes. The Inland Revenue Department costed this proposal at around $500 million a year. We should remember that the Government cut the budget to the early childhood education sector by $250 million over 4 years. That will really cost struggling parents. I would have thought that pumping more money into high-quality early childhood education would be the type of policy that provided choice for struggling parents. Mr Dunne set up the Families Commission, yet he sits with a Government that cut funding to the early childhood education sector. That has set that sector back 10 years. That is the real travesty that Mr Dunne and United Future should be fighting. That is what he should be standing up for, if he value parents and children. Mr Dunne says that anyone who opposes this bill does not value families and is engaged in the politics of envy. That is the sort of rhetoric we hear when there is no logical argument to back up a claim. There is no logical argument to back up this bill.

That brings me to my second point, which is to relay the comments of a couple of experts who have spoken about this bill. First of all, let us be honest, and Amy Adams outlined it: the reason we are debating this bill is that it is a supply and confidence agreement between Mr Dunne and the National Government. When I questioned Mr Dunne about this at the Finance and Expenditure Committee, he said it was in the supply and confidence agreement. That was all he said. When I questioned the Minister of Finance, Bill English, at the select committee about the possibility of income splitting, he ruled it out. He said it was not well targeted, it was inequitable, and it probably would not go ahead. He also said that there were better targeted approaches to this. And there is a targeted approach; it is called Working for Families, which was put in by the previous Labour Government and helps 300,000 families in this country. That is targeted assistance; this bill is not.

We are going through the motions. The National Government will vote for this bill to go through to the select committee, we will sit there, and we will hear submissions in the knowledge that the bill will be voted down in the second reading. Bill English has pretty much said as much. The Attorney-General, Chris Finlayson, has said as much. He said the bill was discriminatory, and we all know that whatever Chris Finlayson says must be right, as the guy walks on water—he has told us as much himself. The New Zealand Herald’s economic reporter called this bill unfair, unaffordable, and unlikely to happen. Mary Holm said that it was bad prioritisation of spending and would do nothing to help low and middle income New Zealanders. There are very, very few people outside a little square box on that side of the House who actually think this is a good idea. It will definitely not help those who really need it.

In conclusion, I say that this proposal is not equitable. It will not help those families who are really struggling at the moment so make ends meet. It will do nothing to alleviate child poverty. It does not provide choice, because choice implies a level of economic freedom. At the moment there are many families where both parents work out of economic necessity and earn $40,000 or below. This bill will not help them, and that is why I oppose this bill. Thank you very much.

NormanDr RUSSEL NORMAN (Co-Leader—Green) Link to this

I rise on behalf of the Green Party to speak on the Taxation (Income-sharing Tax Credit) Bill—or the tax-splitting bill as it is probably more accurately described. The Greens will not be supporting the bill; we do not think it is a good bill.

The reason, fundamentally, is that if one were to spend $470 million a year with the objective of supporting parents, one would not spend the money in this way. Spending $470 million, nearly half a billion dollars, a year on a scheme in which 70 percent of the value of the credits goes to couples with a joint income of $70,000 or more is not a well-targeted scheme. To look at it the other way, it is a well-targeted scheme; it is just that it is well targeted towards those who are at the upper end of income earners. Those who are towards the lower end will get very little benefit from this scheme. Even if we look at a family where both parents work and earn a modest income of $35,000, we can see they will not get anything from this scheme.

This scheme is overwhelmingly targeted at two-parent families where one partner is on a pretty good income, and they are the ones who will benefit the most from it. That is just the nature of the scheme. Of course, one could argue that it is a good idea to spend half a billion dollars a year to support families where one person earns a lot of money and the other one does not. But I argue that in the kind of society in which we live, which is highly unequal and has very widespread poverty, spending half a billion dollars a year on that particular group is not a very wise way to spend money. Part of that reasoning relies on the Green Party’s view that inequality is a problem. For those who do not think that inequality is a problem and are happy to increase inequality through a measure such as this, then it is not an issue. But if one thinks that inequality is a problem—New Zealand is one of the most unequal countries within the OECD—then this scheme will only exacerbate the inequality that we already have.

It is also just straight discrimination against sole parents. Sole parents, of course, will not benefit from this bill. Sole parents will contribute towards the half a billion dollars a year in foregone taxes that it will cost the Government, but they themselves will not benefit at all from this bill. It discriminates in a straight and unadulterated way against sole parents. The Green Party thinks sole parents should not be discriminated against. We think sole parents have a pretty tough job and they deserve support. For us, it does not seem right that we should spend half a billion dollars of taxpayers’ money on a benefit that is not accessible to sole parents.

One may argue—perhaps those from the moral majority or from a conservative point of view argue this—that sole parents have something wrong with them, that they should be punished because they are sole parents, and that that is why we need a bill that punishes them and gives money to people who are in relationships. But the Green Party does not take that view. We think sole parents have a tough job and we should support sole parents, rather than—

BridgesSimon Bridges Link to this

Don’t be silly! No it doesn’t. Helping families to parent doesn’t mean you’re hurting solo parents.

NormanDr RUSSEL NORMAN Link to this

I hear the National member interjecting. National is voting tonight for a bill that discriminates against sole parents. I say to every sole parent in New Zealand that tonight National is voting for a bill that discriminates against sole parents and gives half a billion dollars a year to people on the basis that they are in relationships. It says that if people are sole parents, they will not get a cent of that money. National will vote for a bill tonight that discriminates against sole parents to the tune of half a billion dollars a year, and that says to those people who are sole parents: “Tough luck, we are not going to support you.” The Green Party will not support that. We think that sole parents have a tough enough job; they do not need the taxation system to discriminate against them further.

We think that if the Government wants to support parents, and we totally understand that the drive of the member behind this bill is to support parents, then there are better ways to do that. Labour introduced Working for Families, which discriminates against the very poor because it does not include those who are on benefits. Why does the Government not extend Working for Families to those who are on benefits, so that some of the poorest parents in our country, who are out of work through no fault of their own but because there is this thing called the recession, could get some support? The Working for Families package, which the Green Party supported because it does help to reduce inequality, does not help those at the very bottom. So if the Government has half a billion dollars to spend every year on supporting families, then why does it not direct that money to families who are in the bottom income range, rather than to those who are in the middle to upper income range as this bill does? If the Government has half a billion dollars a year to spend on supporting families, why is it giving it to those at the top? Why does it not give it to those who are in the bottom deciles? It seems to me that extending Working for Families to those groups would be a better way to spend half a billion dollars a year.

There is also the option of extending paid parental leave. The advantage of paid parental leave is that it provides support for parents with newborns and young children so that they can be paid during the first part of their child’s life. If the Government has half a billion dollars a year to spend, then why does it not spend it on that? It seems to me that is a much more targeted way to spend half a billion dollars a year. It is not an insubstantial amount, and it does surprise me that National, which tells us that we are short of money, is happy to vote for a bill that will cost $470 million a year when 78 percent—three-quarters—of the value of the credits will go to couples with a joint income of $70,000 or more a year. That is the problem.

National is proposing to vote for a bill that costs half a billion dollars, and, overwhelmingly, the benefits will go to those at the upper end, despite the fact that we live in a society that is grossly unequal and has more inequality than pretty much any other country in the OECD—or the developed Western countries. Tonight National is voting for a bill that will add to the inequality by directing taxes towards those at the top. Why do we not vote for a bill that will direct some support to those at the bottom, so that we reduce inequality in our country rather than increase it?

I think others have acknowledged that the member in charge of this bill, Peter Dunne, is promoting it with good intent, and I acknowledge that. Also I know a lot of people think this bill is a great idea when they first hear about it, and, of course, many people in this House would be beneficiaries of this bill, were it to pass. Although the Minister in charge of the bill has good intentions and although the bill on first appearances seems to have some benefits, the fact remains that it is an extremely problematic bill. It will not help those who need help the most. For that reason the Green Party will not be voting for it tonight.

BennettDAVID BENNETT (National—Hamilton East) Link to this

I will take just a short call on the Taxation (Income-sharing Tax Credit) Bill, and to follow on from the last speaker, Russel Norman, I think it is a bit rich for the Green Party to come into this House and try to put fear into New Zealanders and say certain people will miss out with this scheme.

Taxation law is targeted. It is targeted in the Working for Families package at people who have children. If people do not have children, then they miss out. This bill is targeted at those families who have children. It is a tax break for them. That is the nature of it, and it is being considered as part of the coalition agreement. The Green Party says it is the party that looks after the vulnerable and the weak. It is very sad to see that the Green Party’s whole argument against this bill is based on trying to make out that the vulnerable and the weak, as the Greens perceive them, do not benefit from legislation, and therefore the Greens will not support the legislation. That is a sad indictment on the Green Party’s politics.

I think we should congratulate the Minister of Revenue, Peter Dunne, on this bill. He has been an advocate for this measure for many years. When members meet people in the street, they hear them talk about this quite often. People understand the concept, and they are very keen on it in many ways. It is in the best interest of this Parliament to have the debate and to see the bill referred to the Finance and Expenditure Committee, so people will have a chance to have their say. We congratulate the Minister on bringing it forward.

JonesHon SHANE JONES (Labour) Link to this

Kia ora. I stand with my colleagues to oppose the Taxation (Income-sharing Tax Credit) Bill. I note that it will be referred to a select committee, and every interested New Zealander will have an opportunity to come and make submissions. I want them all to know that this bill will not emerge from a chrysalis like a butterfly that will fly away and deliver goods; it will die at the feet of the Government. It will certainly not be supported by us. If people want to go through the ritual of making a submission and demonstrating that they believe it is important to entrench inequity through our tax system even more than do the changes that the current Minister of Revenue has presided over, then they should make their submissions. But the submissions will be an exercise in learning about how select committees can be manipulated by the executive and turned into squawk-boxes that serve only to reward minority parties for their support to keep going a broad policy that worsens inequity and rewards a very narrow range of New Zealanders.

There is an element of piety about this bill, as befits its architect. There is a sense that a narrow range of New Zealanders, because they live in a style that one might associate with the 1950s, ought to be rewarded, while those who are in genuine need ought to be ignored. It is possible that this bill fits a broader picture, and the broader picture is that tax concessions and tax give-aways are the best way to reward the class of citizenry that supports a particular political party. That is essentially the economic development policy of the Government, through its tax give-away.

We absolutely oppose this bill. It carries on the multibillion-dollar tax give-away entered into earlier this year. That in itself is premised on an assumption that if a narrow range of New Zealanders get a significant tax slice and a reduction in their tax rates, it will catalyse the economy and somehow unleash a level of dynamism, and more firms will emerge and more jobs will be created. Of course, it will have the opposite effect. This bill proposes to take money away from the most vulnerable and direct it towards a very narrow range of New Zealanders—

BridgesSimon Bridges Link to this

No, it doesn’t. The vulnerable don’t pay tax.

JonesHon SHANE JONES Link to this

That young man should learn that it is better to confess ignorance than to provide it every day. As the Māori say, “Pai kē atu me whāki i te kūare, kaua e whangaia tō kūare ki tētahi atu.”

[“It is better to disclose being ignorant; do not cast your ignorance upon someone else.”]

But such a suntanned mascot would not understand what I have just said.

Labour will not be supporting this bill. We hope that the public realise that we will never treat tax policy in such a narrow, iniquitous fashion.

I am called on to elevate the importance of the contributions made by a genuine lawyer in this House—not one who pretends he lives in the Bay of Plenty but who lives in Auckland, and not one who models himself on Perry Mason but unfortunately lacks a sense of being well adjusted. I will talk about a real lawyer in this House: Mr Chris Finlayson. He has pointed out that this bill represents an egregious example of discrimination. That man understands the law and has a style of delivery as befits someone who craves attention from the legal fraternity.

We thoroughly agree that this bill ought not to be supported, because not only is it very discriminatory but it is ill-judged. It is ill-judged for a host of reasons. It does not treat families in their broadest context. It does nothing to create jobs and growth. Where will the jobs come from under the current mix of policies that we are forced to endure week after week? Each year there is a tsunami of young men and women leaving school—quite apart from those who have been dislocated from the job market. Where will the jobs come from? They will not come from a tax break that is predominantly for the wealthy. They will certainly not come as a consequence of a tax break for the self-satisfied. That will not happen.

In fact, New Zealanders were hoping to receive, as part of broader tax reform, a lever that would enable jobs to grow and firms to generate more foreign exchange earnings by investment and innovation. This bill does nothing. This bill takes $5 billion and rewards a narrow category of New Zealanders. It deepens inequity and it rewards vested interests, which is why we cannot possibly agree with it.

The notion of income splitting is only one way of lessening the problem of people not having enough to pay their way. A far better way would have been to not proceed with the tax cuts that will benefit only a very narrow range of people, and, similarly, to not proceed with the imposition of a GST reform that will worsen the cost of living statistics. I tell members that once the by-election in Mana starts and that side of the House—although I have a great deal of respect for its candidate, unlike other members of that small sub-caucus group of the broader caucus. She will find—[Interruption] I have to acknowledge Mr Paul Quinn, because in the gallery today are some kaumātua from my rohe, from Taemaro, from the Waikōhatu block. I know that Mr Paul Quinn has been endeavouring to assist that very proper, respected lawyer Mr Chris Finlayson, unlike the younger member, who has yet to visit the kōhanga reo.

Once the Mana by-election rolls out, we will see that the GST reforms, such as they are, have worsened the prospects for the average family to pay its way, and to meet its regular bills on food, on buying school clothes, and on buying sports gear. We do not have to explain why we have it. The responsibility is on that side of the House to explain why this punitive measure has been visited upon the most vulnerable in New Zealand society, at a time when they can hardly afford to meet all their daily expenses, as a consequence of the global meltdown.

Mana is where we will see how these ill-conceived ideas impact on people in a political way. That will be a dress rehearsal for the big game next year. I do not refer, obviously, to the golden oldie game; I refer to the election, which will be fought and won by those who oppose such acts of false piety as we see in this bill, and the ill-conceived ideas that are designed to reward a narrow class and forget about the bulk of people, who have significant issues that they cannot address. Their cost of living problems have spun out of control as a consequence of that Minister of Revenue, who, fortunately, will not be here after the next election. Kia ora tātou katoa.

QuinnPAUL QUINN (National) Link to this

Kia ora, Mr Deputy Speaker. I have sat here throughout this debate on the Taxation (Income-sharing Tax Credit) Bill, and I have to say that the contribution from the Opposition benches has been extraordinary in the rhetoric—the absolute rhetoric—it has delivered. We have just heard a speech from Mr Jones, and he spent the first part of it giving us a lecture about parliamentary process. We have just heard a sophomore give the kaumātua of this House a lecture on parliamentary process. For goodness’ sake! Who are these people? I suggest to Shane that he sticks with being a sophomore, which he is, and that he just waits—

JonesHon Shane Jones Link to this

I raise a point of order, Mr Speaker. Although my name comes from a well-known cowboy movie, I would prefer to be referred to as the Hon Shane Jones.

TischMr DEPUTY SPEAKER Link to this

Yes; the member knows he must use the member’s full name, not an abbreviation or one name.

QuinnPAUL QUINN Link to this

Can I seek your guidance?

TischMr DEPUTY SPEAKER Link to this

I have dealt with the matter. Continue with your speech.

QuinnPAUL QUINN Link to this

Am I allowed to call him Mr Shane Jones?

TischMr DEPUTY SPEAKER Link to this

You are trifling with the Chair. I call the member to continue.

QuinnPAUL QUINN Link to this

Oh well, I will call that sophomore the Hon Shane Jones. It is clear that—

JonesHon Shane Jones Link to this

I raise a point of order, Mr Speaker. I do not mind being regarded as a sophomore, but I am of Māori-Croatian descent, not of Moorish descent!

TischMr DEPUTY SPEAKER Link to this

It is one all. I invite the member to continue.

QuinnPAUL QUINN Link to this

I say to that gentleman, who has obviously been rattled, that he should take guidance from the kaumātua of this House, who needs no lecture on parliamentary process.

We heard a contribution from the Greens, who seem to think that life is all about mediocrity and that the only way to get ahead is to have people achieve mediocrity. That is extraordinary, because the simple reality of life is that in terms of getting people to aspire upwards we have a basket of programmes, and this is just one of them.

National will support the first reading of this bill so that it can be properly explored and examined. That is a very proper process. We hear time and time again from members on the Opposition benches about stuff needing to go through the proper process and saying that we should send it to select committees. Yet here we are doing exactly that, and they still criticise us. I suggest to Opposition members that we are following proper process. This is an excellent bill. It is another building block in helping families and people within the community—in this particular case, middle-income people—to try to get ahead through income sharing.

This Government also has programmes for those whom some people refer to as the most vulnerable. The Opposition needs to understand that families earning $50,000 or less do not pay tax under this Government. We are concerned about those families, and that is the sort of support we are giving. With those few words, it gives me great pleasure to say that I look forward to exercising my vote and supporting this bill at its first reading. Thank you.

HuoRAYMOND HUO (Labour) Link to this

I thank the Hon Peter Dunne for confirming that this Taxation (Income-sharing Tax Credit) Bill is a direct result of the confidence and supply agreement between United Future and the National-ACT Government. It explains a lot. Thanks also go to Ms Amy Adams and my good friend Mr Paul Quinn for their contributions, because the concerned parties will read between the lines of their Hansard copy very carefully.

Labour opposes the bill on the basis that it is badly targeted. It favours wealthy parents over families that really need extra support. The Hon Peter Dunne said in his speech a moment ago that the key word is “choice”. If that is the case, if we consider this year’s Budget we realise that the choice has gone from a genuine tax switch to a tax swindle. On 1 October 2010 GST will rise by 2.5 percent. New Zealand taxpayers who are in the top 1 percent of income earners will benefit from 50 percent of a $40.3 billion tax package. A third of that package will go to the top 5 percent, and people in the middle and at the bottom of the income range will go backwards after inflation. That is National’s choice.

The Hon Peter Dunne also mentioned the Working for Families scheme. The Taranaki Daily News published a very good opinion article on 6 September 2010, and I will read it out: “Since individual tax rates rise according to a person’s total income, a single income family currently pays more tax than a family with two people earning the same combined income. The proposed income-sharing rules would mean families with the same family income would pay the same amount of tax, regardless of whether one or both partners had derived the income. The eligibility requirements for the new tax credit largely mirror the current Working for Families requirements. Around 60 per cent of families that would qualify for the new income-sharing credit would also be recipients of Working for Families tax credits. Seventy-eight per cent of the benefits of the proposed tax credit are likely to go to families with combined incomes of more than $70,000. The greatest benefit would go to families with one high income earner.”

The Hon Peter Dunne said the key word is “choice”. I say that the key word here is not “choice” but “top-up”. The article went on to ask why families who already receive Government assistance require a further top-up under a different scheme. Working for Families already provides assistance to tens of thousands of families with children. Further, many families who receive assistance through Working for Families already pay little or no income tax. Providing further assistance through an income-sharing scheme will only add to the distortions in the current tax system. The recommendations made by the Tax Working Group—many of which were adopted in this year’s Budget—aim to remove these distortions. An income-sharing tax credit would add complexity to the system and introduce another level of distortion. The key word here for the National-ACT Government is “confusion”.

The other area where the National-ACT Government is confused is where it seems to be happy to provide further tax relief to working families with children, at the expense of single people, families with no dependent children, sole parents, and families with partners not in work. The fact that the same level of benefit would apply to a family with one child as to a family with five children seems to be very confusing. It is not surprising that Treasury, the Ministry of Social Development, the Department of Labour, and the Ministry of Women’s Affairs—together with Labour—are all expressing serious concerns about the policy. The Inland Revenue Department confirms that the credit would not be available to all families, and in particular it would not assist sole parents. The most significant gains would go to higher single-income households, with the lowest gains going to low-income families.

Treasury advised against introducing the credit because it costs too much, is unfair, and is poorly targeted. The Ministry of Social Development commented that income splitting provides additional income for a limited population, with the most significant gains being for higher-income households, and the lowest gains for low-income families.

The Department of Labour highlighted the policy’s potential to reduce the incentives for secondary earners, in particular, to participate in the labour force, and to invest in their own training and development. The Ministry of Women’s Affairs pointed out that by increasing effective marginal tax rates for secondary earners—who are mostly women—the proposal would encourage partners to have specialised roles, thus discouraging women’s participation in the workforce and increasing their share of unpaid work. The ministry continued: “The credit appears inconsistent with the Government’s policy on labour force participation.” The ministry also considered the proposal to be unfair to sole parent families. So the key word here is “inconsistency”.

Finally, in the New Zealand Bill of Rights Act report, the Attorney-General concluded that the bill limits the right to be free from discrimination, and that that limitation could not be justified under that Act. The key word here is “discrimination”. Thank you very much.

BridgesSIMON BRIDGES (National—Tauranga) Link to this

I can sum up my views on the Taxation (Income-sharing Tax Credit) Bill very briefly: I really, really like the idea of Kiwi families being eligible to share their income for tax purposes. I like it because it is pro-choice and it is pro-families.

However, in relation to this bill, I suppose I reserve my judgment on its practicalities, particularly in the tough times we are in, when this policy will be an expensive one for the taxpayers’ coffers. Therefore, I think we really do have a high threshold to cross; the bill must be very high-quality law before, in the end analysis, it would be signed up to by National.

I will say again why I like the idea, with an example. I went very recently to a decile 10 school in my electorate. It is a fantastic little school, and, as I said, it has the highest rating that can be achieved, so the students, if you like, have very wealthy parents. But when I went into the first-year class of new entrants, I was astounded to learn from the teacher that over the last 5 or so years she had noticed a real change, whereby children were coming in who did not know the alphabet, who did not even know numbers, and who did not know any nursery rhymes. The growth in those children was astounding. We talked a bit about that and, effectively, we came to the view that it was because mums and dads both work. They are busy and when they get home they are tired, and the like.

This idea of sharing incomes for tax purposes is pro-choice and pro-families. It allows families to do something to have more options, and it could—and I will not be naive about it—be a nudge in the direction of ensuring that children get a much better start.

I know that Labour says that income sharing does nothing to address child poverty and child poverty is a very important issue. No one disputes how important child poverty is. No one disputes what an issue we have with child poverty in this country, but that is not a reason in principle to not do something for other families who may not be scraping the bottom of the barrel, but who nevertheless deserve and could do with some additional choices. The idea of income sharing provides for that.

As I said, I very much like this idea. I am looking forward to seeing how things go through the select committee process. There are serious practical issues and there is the cost of this policy, but in principle it is a very good idea.

Link to this

A party vote was called for on the question,

That the Taxation (Income-sharing Tax Credit) Bill be now read a first time.

Ayes 62

Noes 54

Bill read a first time.

The result corrected after originally being announced as Ayes 64, Noes 54.

DunneHon PETER DUNNE (Minister of Revenue) Link to this

I move, That the Taxation (Income-sharing Tax Credit) Bill be referred to the Finance and Expenditure Committee.

Link to this

A party vote was called for on the question,

That the motion be agreed to.

Ayes 59

Noes 54

Motion agreed to.


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