Income Tax Bill

To reiterate briefly, the bill represents the third stage of the progressive rewrite of the Income Tax Act. It introduces rewritten legislation contained in the first five parts of the Act, and re-enacts the remainder of the Act. This means that Parts A to E, which comprise about half of the total Act, will be in modern language and style, while other parts are in traditional statutory language and style. Those other parts will be rewritten in future stages.

The Income Tax Act is said to be one of the most consulted Acts in New Zealand. In my experience, it is also one of the most insulted Acts in New Zealand. The reason for rewriting the Act is to produce tax law that is clear, plainly written, and structurally consistent, without substantially changing the policy content of the current Act. The purpose, of course, is to have tax law that is easy to use and to understand—which will save time and money.

The bill is the largest to have been introduced into this House, and it has grown during its passage. It is the result of years of work involving a great many people: drafters, policy analysts, tax experts, lawyers, professional associations, panels, language experts, consultants of all kinds, submission writers, and now parliamentarians. I do have to point out, though, for members opposite that I am not aware of any special consultation with tangata whenua over the Income Tax Bill. It has been a monumental effort. While members will no doubt point out how big the bill is, it is very small compared with the corresponding United States legislation, which runs to many, many more thousands of pages than this particular bill does, and in this case the size of the country does not matter very much in terms of its tax legislation.

I am delighted the bill has reached its third reading. I would like to thank all those who contributed to it, especially the drafters and analysts of the rewrite project team, the members of the rewrite advisory panel, the members of the Finance and Expenditure Committee for their careful scrutiny of this large and complex bill, and the various Ministers of Revenue who are my predecessors, recognising in particular two current members of the House, David Carter and Peter Dunne. I commend the bill to the House.

National will be supporting the passage of the Income Tax Bill. As the Minister of Finance correctly pointed out, it is an extremely large piece of legislation—the largest to have gone through the House. It is legislation that National first started working on in 1994. I think that most New Zealand taxpayers will welcome the opportunity to have—if the bill delivers what we all hope—clear tax law that is written in plain language so that everyone can understand it.

I want to make special mention of the fact that the bill clearly covers situations where there are unintended consequences. Should there be, in effect, a change in tax policy as a result of the passage of the Income Tax Bill, then the opportunity will be taken to ensure that that is corrected, and that taxpayers do not suffer a loss from that particular event.

I particularly want to mention that National does not support the reaffirmation of the tax rates. I say that because members may have noted in the release of the KPMG world tax survey a couple of weeks ago that New Zealand is out of step with the rest of world. They may have noted that in the survey for 1999, the year in which the Labour Government took office, New Zealand ranked well in terms of average rates of taxation in the OECD—the 30 richest countries in the world, of which New Zealand is one. In those days we had a corporate tax rate of 33c in the dollar, and the average rate in the OECD, according to the KPMG survey back in 1999, was 35c. Now, today, after 4½ years of a Labour Government, we still have a corporate tax rate of 33c in the dollar, and the average rate in the OECD is 29.96c. We have moved from a favourable position to an unfavourable position, and we on this side of the House sadly regret that.

We know the Minister of Finance’s view on the reduction of taxation of any sort—that it is not something he has been encouraging. In fact, since this Labour Government administration has been in office it has raised taxes 17 times in one way or another, and has caused the average household now to pay $2,600 more than it did. Since Labour has taken office it has taken $1 billion more from businesses and households all across the country, every year. It is a Government that is sitting on an operating balance excluding revaluations and accounting changes of $5.6 billion last year, yet the Minister of Finance does not want to accept the National Party policy of reducing corporate tax rates.

I want to take just a moment before we all rush off for our Easter break to quote from Brian Fallow’s finely written article in this morning’s New Zealand Herald, in which he talked a little about the KPMG tax survey. He included a couple of quotes from the outstanding KPMG tax partner Brahma Sharma, one of which I will read to the House: “ ‘The first is that many jurisdictions are competing for foreign investment and while there may be nothing new in that, what we are experiencing is an intensity in global tax competition for internationally mobile capital’, he said.” Brian Fallow went on: “This is making analysis of potential investment destinations increasingly sensitive to tax. The other lesson is that globalisation is highlighting weaknesses in the traditional basis of taxation, for example the ease within which companies can shift their country of residence and shift the source of their profits from one jurisdiction to another.”

Not so long ago we saw just how likely it is that that will take place, when Air New Zealand had to announce to the Stock Exchange that it was facing a potential liability of up to $107 million, relating to its aircraft-leasing business and the tax arrangements structured through its Hong Kong vehicle. That just shows the level and extent to which taxation can and will be moved around the world by companies in order to enjoy lower levels of taxation. The Minister, in a rush of blood to the head, blurted out in the House a few weeks ago that he was investigating banks. Of course, he was not meant to tell the House that in quite that way. After that rather rash moment, he rushed back to his department, which was fielding calls from all over the show, and it hurriedly rushed out a statement—

💬 Hon David Cunliffe: Banks should pay their tax.

Well, of course banks should pay their level of taxation, and we believe in broad-based tax payment; we were just surprised that the Minister, in such a rash moment, managed to make that statement. I simply make the point that we know that, in the global world we live in, transfer pricing and low levels of corporate taxation are critical if New Zealand is to preserve its tax base, and we wish that the Income Tax Bill addressed that. We also wish that it provided for lower levels of company taxation, so that New Zealand companies could enjoy growth and the opportunity to go forward and build a better and brighter New Zealand.

On that note, National will be supporting the bill. But for New Zealanders who long for a day of lower levels of taxation across the board, I simply advise them, as they go on their Easter break to enjoy time with their families, to pull out a National Party manifesto, wait 18 months, and see all their dreams come true. A National Government will deliver for them what they want. If they are enjoying one of those huge Easter eggs that Sue Kedgley brought into the House earlier, may they enjoy it with a nice cup of tea.

I hate to disenchant the previous speaker, but I should be extremely surprised if, in doing the rounds of the beaches over the Easter break, I find one New Zealander, other than a historian, stretched out on a deckchair with a copy of the National Party manifesto. That party will be consigned to the dustbin of history—yet again, very soon.

The last thing the House needs, just as we are all contemplating the Easter eggs, is a long speech about a tax bill, but I briefly want to say that this Government thinks that this legislation is long overdue. It is very good to have seen some bipartisan cooperation on it; the Finance and Expenditure Committee has done a very good job on it, and we look forward to being able to pass it through.

This is not a debate in which we want to spend the whole time talking about tax rates, but it is important that the Government maintains a healthy fiscal balance to offset what is largely a private savings gap, because of the New Zealand habit of raising big mortgages to pay for real estate. The previous speaker will know, of course, that the operating balance excluding revaluations and accounting changes is not a cash surplus. I look forward to seeing the passing of this bill.

I would like to add a few comments to those that have been made on the third reading of the Income Tax Bill. Firstly, Dr Michael Cullen said that with tax legislation of 2,400 pages we should see ourselves as being relatively well off compared with the United States, whose legislation is much longer. On the other hand, it is my understanding that the United Kingdom’s Income Tax Act is quite slim compared with our volume. Maybe we should ask ourselves a few questions about why that is. I think the basic difference is the way in which tax has evolved in the two different jurisdictions.

That is one point. The second and more important point is probably to do with the fact that we keep on writing more and more income tax legislation to try to keep up with the increasing propensity of some sections of our society to try to avoid their tax liabilities. I think the real long-term answer is for us as a nation to give a high priority to the teaching of ethics in our school system. United Future feels quite passionately about the forming of good character in our citizens, and I am thinking of the simple advice written by St Paul a couple of thousand years ago, which was simply: “Pay tax to whom tax is due.” If we could introduce that concept into our school system, I think we could really bring into the consciousness of all our citizens that we do have obligations to take our full share of the tax burden.

I am not suggesting for a moment that any New Zealanders should pay one more cent of tax than they are liable to pay, but they should not endeavour to dodge paying tax either. If this country could achieve better standards of honesty in that regard, we could stop writing more and more tax law to try to block the loopholes that all the smart people seem to find in order to dodge tax. Then we would all be better off, and compliance costs would come down all round.

I would like to suggest to all New Zealanders that they do not spend their Easter season reading the National Party manifesto, because if they think that by reading it all their problems are over, they would be wrong. I can only suggest they find a different creed, because I am sure they will find that manifesto to be barren in the extreme.

I conclude by once again thanking the officials who have worked hard not just for months but for years to frame this new legislation. I wish the new generation of university students in New Zealand, who will have to learn this tax law as part of their professional formation, all the very best. Compared with the experience I had in trying to get through single paragraphs that went on for 14 lines, I think their learning task will be simpler as a result of all the work that has been done on this bill. I take this opportunity to wish everyone a very happy Easter.

In speaking to the third reading of the Income Tax Bill, I want to focus on a submission that I briefly touched on at the Committee stage. It was a submission from Business New Zealand, PricewaterhouseCoopers, the Institute of Chartered Accountants of New Zealand, and the New Zealand Law Society. The group’s submission stated that a transitional provision should indicate that the provisions of the rewritten Act must be interpreted in light of the corresponding provisions of the Income Tax Act 1994, and of associated judicial interpretation, other than intended policy changes. The transitional provision should also make clear that the rewritten Act is not intended to change the meaning and effect of the Income Tax Act 1994.

To make a long story short, officials agreed in the end that the bill should contain transitional provisions that indicate that no change in the effect of the law is intended. Where the meaning of the provision in the rewritten Act is unclear, or gives rise to absurdity, the old law is to be used as an interpretive guide to ensure that no unintended changes in the law occur. Transitional provisions should not apply to notified changes in law arising in the rewrite, nor to subsequent amendments to provisions in the rewritten Act.

Officials agreed with this approach, as it will ensure that the plain words of the rewritten legislation have full effect from the commencement of the new Act, in conjunction with the Government’s wanting to promote retrospective legislation to correct unintended changes. These further transitional provisions will provide the level of protection sought by the practitioners. In other words, this provision gives critical certainty that the old law should be an interpretive guide, but an interpretive guide only.

Lastly, I note also that in debating this bill as it passed through the different stages, some members brought up the issue of the 19.5 percent tax rate for Māori authorities. In speaking to the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Bill in March 2003, I moved an amendment on behalf of New Zealand First that all sections of the New Zealand community should be able to take advantage of the proposal that related to basic tax rates of 19.5 percent. New Zealand First did not support that part of the bill, because we felt it was unfair. I reiterate that New Zealand First wants to treat all New Zealanders equally, and at that time I put forward an amendment to give effect to this view.

The Federation of Māori Authorities welcomed that Supplementary Order Paper. One of our Māori members, Edwin Perry—and I have his permission to share this—is the chairman of a trust managing 4,000 acres. He has 80 beneficiaries, and they have told him that they do not want to be treated any differently from anybody else, either.

In closing, New Zealand First always supports good legislation, opposes bad legislation, and is glad that this bill is being passed.

The Green Party is very pleased to support the third reading of the Income Tax Bill. We would particularly like to thank the officials for the very extensive work they have undertaken in rewriting and redrafting the bill to make it more readable and accessible. We commend the bill to the House.

The ACT party is opposing this legislation. We are doing so for a number of reasons. Of course, we are the low-tax party. [Interruption] I ask the member why, having given his speech, he wants to give another one in the passageway right beside me. The ACT party has a number of reasons for being against the bill. There are actually 2,421 reasons.

💬 Darren Hughes: Each one is a page.

Each one of them is a page, and as I said to the Committee it did not persuade—

💬 Darren Hughes: You used that joke as well—two old jokes.

I am going to use it again. The member says he is a joke. I think it would have been better if he had completed his schooling before he came here, but that is just an old-fashioned view that I have.

There are 2,421 pages of tax law, and the Government says it is making the law simpler! I say to members that if they have a look at any of the clauses, they will find that they are gobbledygook. The Government needs all this legislation for a very good reason, and that is that this Government is taking 40 percent of the total wealth of New Zealand, something that New Zealanders would not voluntarily hand over to it and to whoever its coalition colleagues are today. One never knows who they are; they keep changing—whoever it is who is supporting this Government. That is why the Government needs it. Of course, if we had a low, flat rate of tax, we could have a statute that was only 12 pages long, and it would be very easy to understand.

There are 2,421 pages in this bill. I could have taken any page within the bill, but I want to repeat in this third reading the ones that I chose as examples in the Committee stage. Let me give just one example. I will read from clause 2 of Part A of schedule 1: “The basic rate of income tax for the taxable income of a Maori authority is 19.5 cents for every $1 of that taxable income.” That means a Māori business pays 19.5c. Then we go over the page to find paragraph 5, “Companies”, which states: “On all taxable income … the basic rate of income tax on the taxable income of a company is 33 cents for every $1 of that taxable income.” That is from a Government that says it does not treat different races differently. I am not opposed to Māori companies paying 19.5c—that is getting pretty close to the right tax rate. What I am opposed to is that someone who is not Māori has to pay 33c, for just one reason: because that person does not happen to be Māori.

Then the Government says that the provision is needs-based. I assure members that I can find many non-Māori companies that can say they have a need to pay a 19.5c tax rate, and they may well have poor shareholders. Indeed, members should look at the case of companies that have children as shareholders: they have to pay 33c under this bill, unless they are Māori.

Continuing to Part B of that schedule—because I am just picking a couple of pages out of the legislation—we find another objection to the bill, which is the rate of tax on every dollar of taxable income. It states that on so much of the taxable income as is more than $60,000, the rate is 39c in the dollar. This year 20 percent of all full-time workers will pay the 39c tax rate. What is wrong with that? The answer to that is on this election credit card with the phoney photograph on the front, which I keep in my wallet. It states: “My commitment to you.” and “ We will deliver”, and is signed by Helen Clark. Bullet point seven states: “No rise in income tax for … 95 per cent of taxpayers …”. This year 20 percent of full-time taxpayers who, but for Helen Clark and the Labour Government, would have paid 33c in the dollar are paying 39c. That is not just a broken campaign promise; it is an “envy tax”, because every single year since the tax rate was increased, the Government has had a taxpayer surplus—it is not a Government surplus; it is a taxpayer surplus—and that surplus was actually paid by middle-income New Zealanders. There are very few wealthy New Zealanders; those who are wealthy were driven off to London and other places overseas years ago. That surplus was paid by people who earn just $60,000 a year.

Dr Cullen and, apparently, the National Party both think that people who earn $60,000 are wealthy and can waste money. I want to give them both a reality check. Raising a family on $60,000 a year is not easy. That is not being wealthy. Yet this Government tells us—and it is doing it again today—that it is prepared to tax families that earn $60,000 a year 39c in the dollar.

It is just an “envy tax”, and that is why the ACT party will not support the Income Tax Bill. We are opposed to it, and we say that middle-income New Zealand should be the priority of this Government. The people who are paying for this Government’s extravagances are ordinary, working New Zealanders. It may well be that ACT will be the only party to vote against the bill. Well, so be it; we will vote against it. And we will say on behalf of those ordinary New Zealanders who paid the tax that they ought to be the priority for getting a tax cut. I draw it to the attention of members opposite that it would be possible to give a tax cut of $100 a fortnight to every full-time taxpayer. It would cost only $4 billion, and the Government surplus at the latest count is $6.9 billion.

💬 Jill Pettis: And you will sell everything else off to do it.

Now I see the Labour whip is screaming her head off. She thinks people on more than $60,000 a year are wealthy. She is prepared to sock it to people on $60,000 a year, even though she got into office by promising that only 5 percent of all taxpayers would pay the 39c tax rate. That member is quite prepared to take a call, I hope, to defend the fact that this Government, which publicly says on television: “Oh, we treat all races in New Zealand fairly and equally.”; does not do that in this Income Tax Bill. I quote from clause 2 of Part A of schedule 1: “The basic rate of income tax for the taxable income of a Maori authority is 19.5 cents …”. One looks over the page to find that the tax rate paid by non-Māori is 33c.

If that were the only provision in the bill I did not like, it would be enough reason for voting against it, but, as I said before, there are 2,421 reasons for voting against this bill. When the tax code is as big as this, it ought to indicate to members opposite that there is something rotten about income tax in New Zealand.