Taxation (Annual Rates, Venture Capital andMiscellaneous Provisions) Bill

We now come to the debate on Part 5, clauses 146 to 235, which includes a debate on the schedule. The Government has issued a veto certificate under Standing Order 315 in relation to the amendments in the name of Gordon Copeland set out on Supplementary Order Paper 284. Therefore, the amendments are out of order and no question will be put on them. The veto certificate may be debated in the context of the debates on this part and on clause 2. Copies of that certificate are available for inspection at the Table.

I want to go straight to clause 194, “Refund of excess tax”. I want the Minister to recall the earlier questions that I raised in the debate on Part 4 with regard to the change—to 4 years—in the time limit on the commissioner’s ability to consider whether excess tax had been paid and, if it had, to refund it. The Minister helpfully considered my question and sought advice. As I understand the answer he gave, he said that I could rest assured that he was not as tight as I thought he was, and that if the commissioner considered that a mistake had genuinely been made, then the taxpayer still had the 8-year period to lodge an application with the commissioner, have it considered, and, provided that it was within the 8-year time frame, have the commissioner refund the excess tax paid.

I have considered carefully that explanation with regard to the question that I raised in the debate on Part 4, and I am now raising it again with regard to clause 194. My concern is that I am struggling to find a reason why the 4-year limit would apply. It seems to me that if, after the event, a taxpayer is in the position of finding that he or she has paid an excess amount of tax, then quite obviously a mistake has been made. Where else could a situation arise where a taxpayer, subsequent to the event, is able to consider—presumably, with professional advice from an accountant—that he or she has paid an excess amount of tax, to go back to the commissioner, and to prove it through a due process? Where else would that not be because a mistake had been genuinely made? So I simply ask the Minister for a more fulsome explanation.

💬 Hon Dr Michael Cullen: Which clause is this?

I tell the Minister that I am talking about clause 194, and I am happy to rearrange the argument again for him. I would certainly also ask him to elaborate on the answer he gave earlier on the clause in Part 4 that I spoke to. My point is that the answer the Minister gave was that I had nothing to fear, and that if a mistake was genuinely made, then the taxpayer had the 8-year period in which he or she could satisfy the commissioner that it was a genuine mistake, and receive back the excess tax. The very point I am raising is when does the 4-year limit apply. Why else would a taxpayer go to the commissioner and say: “Sorry, we have a mistake here. We have paid an excess amount of tax and we want it back.”, if it was not a genuine mistake? I am struggling to think of a situation. There may be a legitimate explanation from the Minister, and I am thankful that he is now seeking advice, but why else would a person ever find that he or she had paid an excess amount of tax, if that person had not made a mistake? It just defies logic.

I see that there is a lot of activity around the officials’ desk, so it is certainly something that is worrying them. It is important that we get tax law right; it is so important, and I see Steve Chadwick is agreeing. The Minister’s explanation on an earlier part is relevant to Part 5 because of clause 194, but it does seem as if the explanation, which was genuinely given, may not have fully answered the questions I raised. If the Minister is prepared to take a call now, I need not outline the argument yet again, but we simply want to know the situations where the 4-year limit applies. I consider that the 4-year limit can apply only in the situation where the taxpayer has made a genuine mistake, but the Minister in his explanation to the Committee earlier this evening said that if a genuine mistake has been made, then the taxpayer has 8 years to pursue it. It seems incongruous. The Minister has an answer, and if he is prepared to explain it, I am happy to receive it.

I raise a point of order, Mr Chairperson. I apologise for not raising this at the time that the vote was put on Part 4 standing part, but after receiving advice from the Clerk, I have only now had an opportunity to look at the Standing Orders.

The Clerk has advised me that the vote on Part 4 standing part was 59 all. Standing Order 298(1) indicates—and this is the advice that the Clerk gave me—that where a question is proposed that each clause stand part or as amended stand part, in the case of a tie the clause, part, schedule, or any other provision stands part of the bill. In other words, it progresses at that point. The question I have is this. Standing Order 154 makes it clear that in the case of a tie on a vote the question is lost. The question for you to rule on, Mr Chairman, concerns which of those Standing Orders takes precedence in this case. It would seem to me, at first glance, that as Standing Order 154 was obviously a Standing Order before Standing Order 298, it may carry substantially more weight than a latterly agreed to Standing Order. I see the Leader of the House, who is also the Minister in the chair, shaking his head. He is probably offering the alternative view that a later Standing Order clarifies an earlier one. But from the point that that vote was taken, and the 59-all draw was called on the part, there has been some confusion on these benches as to what that means for the progress of that part. I would seek your clarification on that, particularly in light of Standing Order 154.

The old Standing Order, which Mr Cullen will remember, was that in the event of a tie there was a casting vote—that the Chair should vote to enable the Committee to consider the question again. So if the matter arose during the Committee stage, the Chair would vote with the Government, which was proposing the bill, or with the proposer if it was a member’s bill. However, when we get to a third reading the principle reverses if there is not a majority of MPs—that is how it used to be. When looking again at the voting we have now, now that we have multiple parties, the House decided that it did not want to have casting votes by the Chair. In fact the Chair’s votes are cast at every stage by the whips. So the principle is that if a vote in the Committee stage is 59:59, in fact the vote does stand. But it is an interesting situation because—and the Minister of Finance will be aware of this—if there is the same result in the vote on the third reading, members had better be ready for an early election, because this is a confidence measure. All tax measures are confidence measures, and speaking for the ACT party, I say “Bring it on!”.

Indeed, having been a member of the Standing Orders Committee that wrote those particular Standing Orders, let me say that Mr Prebble’s recollection is absolutely correct and the Standing Order was written in precisely this form. In other words, a tie in the Committee stage keeps the matter alive. Clearly, if the vote is repeated at the third reading, the bill is lost. Mr Prebble is also completely correct: because this is a taxation bill, particularly one that confirms the annual rates of taxation, it is a confidence measure, and if it is lost the Government would have to proceed to an election immediately, or the Governor-General could be invited to find an alternative Government, which is most unlikely in the current situation. When I look at the latest opinion poll I could possibly say “Bring it on!” from our perspective, as well, but I think 3 years is a better term of rigour.

The CHAIRPERSON (Hon Clem Simich): I thank Mr Power for raising that, and it has been so well explained I do not need to deal with it. Yes, one is a general Standing Order; the other one is specific and relates to the Committee. Standing Order 298 relates to the Committee. Standing Order 298b has precedence. But I thank the member for raising it.

I raise a point of order, Mr Chairperson. It is just a point of clarification. So the ruling is that we—I guess it is the standard rule of statutory interpretation—follow the more specific clause rather than the more general. Is that the case?

That is how it can be read, yes. But Mr Prebble and, to an extent, Dr Cullen more fully explained the issue. I thank all members.

I would like to speak to Supplementary Order Paper 284 in my name, which inserts new clauses 185A and 229A in Part 5. As is well known to the Committee now, my Supplementary Order Paper adjusts the tax brackets for the effects of inflation between 1 April 2000 and 1 April 2005. The current rates of income tax were introduced to Parliament on 1 April 2000. They were affirmed every subsequent year by Parliament, including this year. Accordingly, the first opportunity to change the rates will be 1 April 2005. It has been estimated that inflation between 1 April 2000 and 1 April 2005 will be about 13 percent. If the tax brackets are not adjusted for inflation, taxes therefore are increasing in real—that is in purchasing power—terms. That fact was confirmed to the House by Dr Michael Cullen in answer to a question on 3 November 2004. He agreed that that was factually the case—that if we do not adjust the brackets for inflation, then in real terms taxation increases. The present brackets were established at $9,500 for the low-income rebate, and then at $38,000 and $60,000. My amendment proposes that the figures be changed from $9,500 to $10,750, from $38,000 to $43,000, and from $60,000 to $68,000, just to ensure that New Zealanders pay the same real rate of taxation as they did on 1 April 2000.

I brought this matter to the Committee in my Supplementary Order Paper now because this is the last opportunity we will have to adjust the basic rates of income tax prior to the 2005 election. The next opportunity will be 1 April 2006, the other side of that election. Dr Cullen has not indicated to the Committee at this stage any intention of adjusting the income brackets for the effects of inflation at any time. He has specifically said that he has no time horizon in view for that, and that he has no movement in inflation in view before he would take such a step. I worry very much, therefore—and current polls indicate that the Labour Government may well be returned in the 2005 elections—that we may wait another 5 years before we see any adjustment whatsoever to the basic rates of income tax in New Zealand. By that time, I would sincerely hope that most New Zealanders would be earning $60,000 or more, at which point we would all be paying tax at the rate of 39c in the dollar. That is the logical outcome of doing nothing. Therefore, I believe it is an unacceptable position for the Minister simply to say he will do nothing. Dr Cullen agrees that the situation is wrong, and agrees that income tax is going up, but says he has no idea when he will adjust the tax brackets—if at all; if ever. The people of New Zealand need to understand very clearly tonight that that is the position of the Minister of Finance, and that he has indicated no other position in spite of various attempts in the House in question time, by both myself and members of the National Party, New Zealand First, and ACT, to get some indication from the Minister as to whether he will move on this matter.

I think it is pertinent, given those realities, to remind the Committee of the commitment that Prime Minister Helen Clark made to the nation in 1999. I want to read from the so-called credit card. Item No 7 stated that the commitment was that there would be no rise in income tax for the 95 percent of taxpayers earning under $60,000 a year. By the Minister’s own admission, income taxes have, in fact, increased for people earning less than $60,000 a year. Because he has not adjusted the brackets, more people have shifted from paying 19.5c in the dollar to paying 33c in the dollar, and, of course, a lot more people have moved from paying 33c in the dollar to paying 39c in the dollar. It is also true that more than 5 percent of people are now earning more than $60,000 a year. I just do not think it goes down at all well with the people of New Zealand for the Labour-Progressive Government, aided and abetted by the Greens, to say that my proposal is just a tax cut for the wealthy. That simply does not cut any ice.

This part includes the early payment discount of income tax, which I guess sounds a lot better than it actually is when one goes through it.

💬 Hon Dr Michael Cullen: Oh, be generous, go on!

Well, if one gets a 6 percent discount, one has to pay the other 93.3 percent a year earlier than one is liable to pay it. So it is not a measure that I think too many small businesses are going to take hold of. But there is one interesting point under clause 193, which inserts new subpart MBB. In MBB 4, “Some definitions”, it states that a small-business taxpayer means a taxpayer who is a sole trader or partner, and “does not use a company or a trust in the conduct of the business”. Now why is that? Why is it restricted to sole traders who conduct business on their own account, or as a partner, and it is not available to anyone who uses a company? Using a company has become less expensive, and easier, since the abolition of stamp duty, because the Companies Office got its act together and now runs a very low-cost register of companies, and it is actually popular, even for sole traders. So I would be interested in why that is. Why are small businesses who operate as companies excluded?

In fact, I would have to say that I was surprised to see how narrow the definition of a small business is. This was sold as a major step forward in small-business compliance. We find, though, that it is restricted to quite a narrow group of business owners, and I would like to know just what that is. The group is narrowed even further by saying that the small-business taxpayer is someone who derives assessable income that is predominantly from the business, so that cannot be someone who is paid a wage or a salary, I presume, even by the business. If one is a PAYE taxpayer—more than predominantly, I suppose, means more than half—then that person does not qualify, and it is not allowed to include dividends, royalties, rents, or beneficiary income. That is a bit more understandable. But I would like to know why companies are banned. That is what I would like to know.

I also have another question for the Minister, and maybe officials can answer this. In the commentary on the bill there is a whole page on the use of the colon. I thought I would try to find an example where that commentary was warranted; and about why colons are so important in tax legislation. We find that New Zealand is unique in the world in the way that it uses colons, and colons in tax legislation in New Zealand mean “not ‘and’, nor ‘or’ ”. That is what they mean. In clause 180 we see a colon being put in where there was not one before. So I would like the Minister to explain the difference in respect of clause 180, “Distributions by Māori authority”, when it states: “In section HI 4(1)(e), `consideration.’ is replaced by `consideration:’.”

💬 Hon Dr Michael Cullen: You have the point.

So I have the point of it? So it is not “and” nor “or” after “consideration”? Well, given that there is a whole page of commentary on it I presume that that must be significant, because it is unusual to see tax officials discursive on punctuation, and given the other weighty matters in here, I would like to know just why—

Progress reported.

Report adopted.

The House adjourned at 9.56 p.m.