Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill

Part 2, as I mentioned when we were heading towards closure last night, covers the amendments to the Tax Administration Act 1994. The main set of issues in Part 2 in respect of that Act relates to compliance, and this is obviously very important, because New Zealand’s tax system relies on voluntary compliance. We do not have a huge army of inspectors out there going around inspecting all employers to see that they are complying with our income tax requirements in relation to PAYE, or to our GST requirements. As a PAYE taxpayer and a GST taxpayer, I do my own returns. One does get checked from time to time, but the system essentially relies on voluntary compliance and therefore on a certain amount of goodwill, because it is impossible to check every taxpayer. That is where the provisions in Part 2 are so important.

There are three clauses in Part 2 that in particular cause concern. The first of them I mentioned last night—and I will not go over it in full detail again this morning—is clause 184, “Unacceptable tax position”. I mentioned last night that in 2006 Parliament tried to fix this problem. Parliament accepted that the way in which the unacceptable tax position provisions were applied was unreasonable, unfair, and in fact did not lead to sensible voluntary compliance with our law. So in 2006 Parliament amended the law to try to give the commissioner the opportunity not to impose unacceptable tax position penalties on people where it was unreasonable. The net outcome of that was unsatisfactory. We did not succeed in 2006 in fixing up the unacceptable tax position provisions. So subsection (2) in clause 184(2) makes it very clear that GST and withholding tax payments will henceforth be excluded from unacceptable tax position provisions, leaving only income tax in there, and the thresholds are changed for income tax to try to make that a little more fair, as well.

But the key issue I was referring to last night is that clause 184(3) makes these new provisions come in from 1 April 2008. National is arguing that this is unreasonable. They should be backdated to when Parliament tried to fix the problem before. If we believe that in fact our effort to fix it in 2006 did not work, we should fix it now and backdate it to when Parliament wanted the change. Parliament wanted the change in 2006, so the amendment I have tabled amends clause 184(3) to replace 1 April 2008 with 1 April 2006 to make this clarifying provision come in from when Parliament intended it should.

I covered that in detail last night, so I will go on to the next issue, which relates to clause 188, “Reduction in penalty for voluntary disclosure of tax shortfall”. Again, this is very important, because, as I said, our system relies on voluntary compliance. Therefore, it is really important that taxpayers, when they realise they have done something wrong, actually tell the Inland Revenue Department that they got it wrong, that they disclose to the department they made a mistake, and that they pay the additional tax required. That way we collect more revenue. It is really important that when people make these voluntary disclosures they do not get penalised for it, because if they get excessively penalised for it, they will not do it; they will try to cover up their mistakes and get away without paying the extra tax.

The issue here is that clause 188 reduces the penalties for voluntary disclosure, and that is good; we all agree with that. But again the provision is coming in from 17 May 2007, and all the professionals feel that, again, because we tried to deal with this unsatisfactorily in 2006, it should be backdated to when Parliament tried to fix this problem and failed.

So there are two key clauses in relation to which Parliament tried to fix the problem last year and it is accepted that we failed because the legislation is back in the House now. We are actually trying to fix up what we tried to fix last year, because when we tried to fix it last year it did not work. In the meantime, people have been caught through the commissioner not applying the law in the way Parliament expected that the commissioner would. We expected the commissioner to do certain things, but it did not happen. Hence, I have put forward these two amendments to backdate these provisions to when Parliament intended that the change should happen.

I will take a brief call to respond to the points that have just been made, because I think the spin that has been placed on the events of the last couple of years by Dr Smith does not accurately reflect the position. Let me rehearse the situation as it occurred, and I speak with some long-term interest in this, having been the Minister of Revenue at the time the original voluntary disclosure, disputes, and penalties regime was put in place, over a decade ago. When I returned to this portfolio after the last election, the issue of the way in which the voluntary disclosure rules and unacceptable position rules were working was raised with me. The upshot was that in a similar piece of legislation to this last year, I introduced what I said at the time was an interim measure—that we would work on a detailed solution, which is the solution contained in this bill.

So I do not accept the proposition that what we did then we are now correcting because it had not worked. What we did then was put in place an interim solution, recognising all the way through that a more detailed solution would emerge, and that solution is contained in this bill. The consequence of that in terms of the commencement dates, aside from any administrative complexity that going back to 2006 might give rise to, is that the dates more appropriately take effect from the time of the passage of this legislation, or, in relation to the provisions of clause 188, from the time of the Budget announcement in May this year.

I acknowledge that Dr Smith has put forward his amendments, and I acknowledge the fact that he had the courtesy to come and discuss those with me sometime yesterday. I appreciate that. I had officials consider those amendments and give me some advice about them, and we are satisfied that a couple of issues arise. Firstly, there are practical difficulties with the timing change; there are revenue implications that are potentially significant. The second issue is that we are not persuaded that the situations he sets out, in particular with regard to clause 188, are in fact desirably changed by legislation or not even provided for in the current provisions. So we are not disposed to support those amendments, but I acknowledge the way in which he brought them forward and I appreciate the fact that he had the courtesy to alert me to them in advance and enable us to give some consideration to them. But I put on record that the genesis of this is not a recognition that what we did last year failed; the genesis of this is that what we did last year was to say that there was an interim regime pending the development of more final rules, which are given effect to in this bill.

I take the opportunity in this urgency debate to speak to Part 2. This part specifically deals with amendments to the Tax Administration Act 1994. I want to use my 5 minutes to ask the Minister in the chair, the Hon Peter Dunne, about the way in which this policy will be introduced, particularly in respect of clause 175, with the insertion of section 139AAA and the new proposals around the late filing penalty for GST returns. I know that it is a matter of some interest, or more than some interest, for many constituents around the nation. I know that Parekura Horomia’s constituents throughout his electorate will be interested in this particular issue, and I look forward to the Minister taking a call about the late filing penalty for GST returns. Māori businesses and Pākehā businesses will be impacted by this, will they not, Mr Parekura?

💬 Hon Darren Hughes: Mr Parekura!

Mr Horomia. They will be impacted by it. Many small businesses around this country deal with taxation and the taxman. They know that dealing with taxation—the filing of GST returns, fringe benefit tax returns, PAYE returns, resident withholding tax, and provisional tax—creates large compliance costs for them in terms of getting their returns done. The key issue is whether we are creating a regime that will enhance the provision of these returns or will exacerbate the provision of these returns. That is the point I am making. Although we write into legislation the particular penalties that may accrue here, we are actually changing the system quite dramatically from what it was.

In clause 175, which inserts section 139AAA into the Tax Administration Act, we are changing the system so that a business that is working on an invoice basis will be charged $250 if it has a late return. If it is working on a payments basis, or on more of a cash basis, then it will be charged $50 for the late filing of a return. This is particularly in relation to GST. That changes the system somewhat from what it is currently. Those late filing charges have not been placed on taxpayers when they put in their returns, but there has been an assessment of the revenue that would be taken. In that regard the Inland Revenue Department has not been lenient—“lenient” would probably not be the correct term—but it has been helpful. I know of certain situations where businesses—for example, my own business—have put in tax returns and for one reason or another they may have been late. Often in small businesses that happens accidentally, not because there is any purpose to try to defraud the department. I remember one time when on holiday, I asked someone else to do a particular return for me and it was just never done. In those situations the department has been lenient and has come back and allowed us to put in the return, as long as it was within a particular time. With these fines, we will see a fine of $250 or $150—whack! This will happen as soon as a business is late in putting in a return.

I just want to know from a policy point of view how the department will deal with those late returns. I know that small businesses around the nation will be interested in this matter. Minister Horomia’s constituents will be interested in it as well, so I ask the Minister in the chair, Peter Dunne, to take a call on that.

I guess the key point I am making is that although we may relax penalty regimes or change them to encourage compliance and try to decrease compliance costs, it will do nothing if the Inland Revenue Department is pernicious in throwing these fines into place and starts getting small businesses’ backs up. These people pay most of the tax in this country. Not only do they pay provisional tax, fringe benefit tax, and GST but also they employ the majority of people in this country. Those employees pay a significant proportion of tax in this country, and on that basis it is very important that the Inland Revenue Department stays onside with small businesses. They are a key part of our nation, and that is why I am asking how the department will deal with the situation where a return is late. Will it be Draconian in the implementation of the $250 fee for a person working on an invoice basis, and will it be hard on a taxpayer on the $50 basis?

It is my pleasure once again to speak on Part 2 of the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill. When looking at this bill, we see it is a very, very comprehensive bill. The thing we have to think about when putting together legislation like this is that we should be putting together legislation that is streamlined, that is in accordance with all the other tax legislation, and that flows nicely, instead of putting together piecemeal legislation that will then create complexities for the people who use it. Although the Inland Revenue Department gives out booklets to guide business people and anybody else who has to use this type of legislation, at the end of the day there has been a history of those booklets having errors in them.

The electoral funding legislation is an example of a situation where the Electoral Commission put out booklets telling people about its summary of that legislation and how it would impact on their lives and their returns, only to find its interpretation was different from the law. The commissioner’s interpretation was different from the law itself. The onus is on the person concerned to go back and understand the law and not to rely on those booklets, which are guideline booklets for people.

My concern is that this tax legislation is very, very complex, and we cannot really expect Joe Bloggs on the street, the dairy owner, the owner of the chemist shop, or the person who owns the garden centre, people who are really busy in their businesses, to go ahead and read this legislation because they cannot rely on the guidance provided by the Inland Revenue Department in the booklets that it gives out. At the end of the day, the onus is on people who are filling out returns to get things right themselves and to understand the legislation. So it is very important that we try to keep the tax legislation as streamlined as we can, because it does impact on most New Zealanders. It is important that it is not complex.

I become concerned when I see big bits of legislation—and the legislation before us is massive—and also big Supplementary Order Papers around the legislation. That means that maybe the legislation has not had as much discussion as it should have had, if there are such big Supplementary Order Papers supporting it. I would like to think that discussion is available. For example, there was obviously not enough discussion around the finance lease provisions of this legislation when it was put out. I am hoping that the Government has a good strategic view on that issue, and that we have a vision for where we want to be with regard to taxes in the future and a view on whether this legislation is a good vehicle to take us to where we want to be.

I would like to talk specifically to one measure in Part 2 of this legislation today: new section 34B inserted by clause 153, which is about tax agents. Tax agents play an extremely important role in terms of getting people’s tax returns right to begin with, and also in ensuring that if they get them right, then the Government and the Inland Revenue Department are maximising their net revenue because they know they are capturing all the revenue they should get. As time has gone on, tax agents have become more and more important in our society, as the tax legislation has become more and more complex. Now, the onus is on those accountants—it is normally chartered accountants who are tax agents; that is not always the case, but quite commonly they are chartered accountants—to have a good understanding of this legislation. Also, they are now accountable for the returns that they put in. If people represent themselves as tax agents and as professionals, they are liable, I do believe, for any errors in those tax returns.

So when we are talking about penalties, I say it is important that this legislation gets the provisions on tax agents and the listing of tax agents absolutely right. The legislation states in new section 34B(2), inserted by clause 153, who can be a tax agent. It can be a person who “(a) prepares the returns of income required to be furnished for 10 or more taxpayers; and … a practitioner carrying on a professional public practice”. A person providing that information also has to update the commissioner about the changes around him or herself. The Law Society has brought out a really good submission on clause 153, where it talked about its issues in relation to that. When it talked about new sections 34B(2)(b) and 43B(12)(c), it talked about the Tax Administration Act and how it should apply to the size of an organisation, so that the obligation to provide an updated list of partners or members is relaxed in the case of organisations over a particular size.

In big organisations where a tax lawyer or a tax accountant does the returns for that big organisation, or in a chartered accountancy practice where returns are being done for many, many organisations, there can be a very high turnover in staff in the organisations themselves where those people work. Part of the requirement here is for the tax agent to provide details of shareholders of closely held companies, partners in partnerships, and members of unincorporated entities. It may not be appropriate in all cases to go back to the commissioner and keep on telling the commissioner about the changes in those organisations. In some instances, changes could be occurring nearly weekly. That is a massive administration nightmare for some of the big organisations. It is also another form of cost for the people who use those organisations, because every time the organisation fills out a new form more time is spent on doing administration, the cost of which is then passed on to the clients. That is particularly the case in large partnerships, where partner turnover is such that lists of partners would be required to be updated several times a year.

The submission from the Law Society pointed out that maybe we should include a size threshold in new section 34B(12), or enable the commissioner to dispense with those requirements in certain cases, having regard to the size of the organisation. When looking at tax agents, I think it is important to see the whole range that is offered there. We need to have provisions in this legislation that do not make it more onerous on those tax agents, moving forward.

The other area that the Law Society talked about was the type of foreign investment fund and the determination on the type of interest in foreign investment funds and the use of the fair dividend rate model. That is in clause 165 of the bill, which seeks to repeal sections 91AAO(2) and 91AAO(3) of the Tax Administration Act 1994 and to repeal their effect on a retrospective basis. In this clause we are talking about a retrospective basis going back to 2006. That is a long way to go back in legislation, considering we are coming into 2008. Section 91AAO(2) provides the principles by which the commissioner would be guided when issuing determinations as to the availability of the fair dividend rate model. The society disagreed with the proposal to repeal that provision, though it did accept that there might be an alternative form to amend it.

The repeal of that provision would allow the commissioner to determine whether the fair dividend rate method applied to an investment, without giving taxpayers any basis for reviewing that decision. The commissioner would not be required to follow the published criteria. If criteria were published, there would be an amendment as the commissioner saw fit. If the fair dividend rate method has any validity, then the principles as to when it does and does not apply must be capable of expression. Those principles should be expressed in section 91AAO(2) of the Tax Administration Act, so that the commissioner is not left to make and change the law in that area at his or her own discretion and without principled guidance.

I think it is also important to look at the penalties around people when they are doing their voluntary tax, because tax is voluntary. As my good friend beside me Chris Tremain from Napier said, many, many people do make stupid mistakes, and normally they are just stupid mistakes—they are an error. It is really important to allow the Inland Revenue Department to keep having some discretion, so it can go in and say someone is a good taxpayer, and it knows he or she has made a mistake. The inputs may have been put in the outputs and the outputs in the inputs by mistake, because the schedule was accidentally upside down in the spreadsheet when the taxpayer was compiling it. Many people do that. Many people do not have accounting systems in their small businesses, and they run things off spreadsheets all the time. It is easy to look at a revenue line and an expenditure line, and to put inputs and outputs in the wrong way around. It is actually really, really simple to do that in a small business.

I welcome the welcome from those members on the other side, and I would like to note that we are under urgency at the moment. The only good thing about urgency is it gets the members on the other side of the Chamber to work before lunchtime. I say good morning to Mr Swain, in particular, and I am sure my fellow Finance and Expenditure Committee members will comment on that one later.

Part 2 deals with the nuts and bolts of this legislation, although as I noted last night it is a moving feast. I presume it will not change much from the version for which we have had notice in total of not even 12 hours yet, which, as I have noted, quite frankly I find a disgrace and not a good look for Parliament at all.

Part 2 talks about tax credits, tax rebates, etc., and I think it is important to note two things. The attraction of a tax credit, a tax rebate, be it a research and development credit or be it a rebate, as mentioned in Parts 1 and 3 and on Supplementary Order Paper 167, is that the higher the tax burden the more attractive are rebates and credits, and special favours. As previous speakers have noted around various bills covering KiwiSaver, taxation, etc., many submitters to the Finance and Expenditure Committee are now saying essentially “me too” because they would like a share.

I think it is important also to note that the Inland Revenue Department has had a lot to do with the formulation of this bill, and it will be administering it, and the Minister of Revenue is in the Chamber, and to note two of the key points of the “desired future” of the department. The second major point—and there are five of them—is that the Inland Revenue Department’s desired future is: “We make it easy for customers to get it right and hard to get it wrong.” Well, after I do not know how many pages of a bill, plus the Supplementary Order Papers, I think that is around the wrong way at the moment. The redundancy rebate was announced yesterday—in fact, the Minister himself talked about a simpler, less complex regime. Essentially he argued for a flat tax on redundancy payments, but we will talk more about that in Part 3.

I also note that Dr Lockwood Smith’s Supplementary Order Papers tried to address issues where that regime is not made easy. Also, the fifth point in the “desired future” of the Inland Revenue Department states: “We are professional, approachable, effective and efficient.”

I have talked about a few of the clauses in Part 2, particularly clause 147, which is about the keeping of business records. The majority voted for a change to the heading to section 22 in the principal Act, from “business records” to “business and other records”. On a first look, that is fair enough. Perhaps it is a modernisation. It is a different way of keeping records, or is it spreading the tax matrix even wider and higher and longer and deeper? In fact, what are “other records”? To me, that reads as: “Just hand over any, all, and total information about your relationship.”, particularly as it concerns superannuation contribution resident withholding tax rules.

We have had a recent example of the Inland Revenue Department putting the onus on and increasing the cost structure—and the Minister touched on it before—around the fair dividend rate changes of last year. He mentioned that there were worries at the time, that the earth was going to freeze over, etc. Actually, the costs have gone up because the onus there was that the record keeping had to go back to the year dot in order to claim the $50,000 de minimis for the various fair dividend rate issues in the earlier taxation bills.

Clause 147C, which inserts a new section 28B into the principal Act, again puts the onus further down the track, where the investor again changes to the portfolio investment entity regime: “Investor to advise portfolio tax rate entity of investor’s tax file number”. Again, on the face of it, most people accept that. I think it is on our bank statements now. But, actually, must we do that? There are already provisions. There is a 45c tax rate to be charged if people do not do that—it is the non-declared tax rate and tax code. I do not quite understand why that might be there. Perhaps there is a simple answer and the Minister could address it.

I will respond briefly to a couple of the questions that have been raised. I want to go back to Dr Smith’s comments earlier. I have now received some information about the interim measures that were put in place over the last year, which he may be interested in. I am advised that since the legislation was passed last year, the commissioner has received some 604 applications not to apply penalties, and of those 604 applications 393 have been agreed to. That is about two-thirds in the year to June 2007. It is clear, contrary to the assertion that has been made, that the interim measures actually have worked out extremely well. If two-thirds of the applications for relief have been agreed to, then I think that is a pretty high hit rate. I think it sets a good platform for the changes that are contained in the current bill.

Mr Tremain asked some interesting and valuable questions about the new GST filing rules. Just to refresh the point on this, I note that we are moving from a system where at the moment effectively a penalty is applied to the principal outstanding to one where in certain circumstances a fee of either $50 or $250 becomes payable. The concern he was raising was related to how arbitrary the application of those fees would be. In other words, could we have a situation where at the moment, under the current regime, that amount might be added to principal and take some time to be resolved but a flat regime of specified amounts could apply immediately?

I want to assure the member of a couple of things. Firstly, the way this regime will work in practice is that where a taxpayer clearly is in error through the employer monthly schedule, then the Inland Revenue Department will advise that person that the GST payment is late and that subsequent breaches will be penalised. The late filing penalty will be imposed on any returns that are filed late in the 12 months following that first breach. So if all the returns are on time, then the process kicks off next time around. So I want to assure him that the concern he expressed, as I understood it, related to whether the removal of the current regime and its replacement with a flat fee would mean that people would simply be stung like an instant traffic fine. The answer is no. They will receive a warning, and if there is a breach for the second time within that 12-month period, then those fees will apply.

I again want to make the point that this change is really designed to simplify the process, to make it easier for people to comply, and to get away from a situation where the way in which the current rules apply often means that the debt imposed is much greater than simply having a fee regime. But we are not going to turn the Inland Revenue Department in this instance into a set of GST traffic cops who go around stinging those who fail to meet that first date. There will be that warning period, then the follow-up if the breach is repeated within the 12-month period.

I appreciate the advice the Minister has just given us about the situation in respect of unacceptable tax positions and shortfall penalties. But I might say to this Committee that the concern about backdating the provisions in this bill is not just something that the Opposition has dreamt up. There are many in the profession who believe it should be backdated to 2003, and National has simply said that that is unreasonable and that we should go back to when we tried to fix it up. I accept what the Minister has said—that the effort to fix it up last year has improved the position for many taxpayers. But this is a balance of the Government’s desire to keep maximum revenue and its responsibility to be fair to taxpayers. The changes that are made in this bill are designed to try to make the system more fair to taxpayers, and it therefore should be accepted that what will be left now from 2003 on—but we suggest backdating it to only 2006—is that there will be some taxpayers left who will be treated unfairly by the way this Parliament sees this situation today. That is not right.

I want to go on because we are running out of time, I sense. My most important amendment is in fact to clause 191. If we look at clause 191 we see it looks very simple. It is simply headed: “Section 141KB repealed”. So it is important that members understand what section 141KB is in the existing Act. What section 141KB is all about is that it gives the commissioner discretion to cancel some shortfall penalties. That was the provision we brought in to try to deal with some of these problems. But what section 141KB gave the commission to do was to deal with issues covered by section 141B. Now, section 141B is the section that deals with unacceptable tax positions. So what is being repealed here is section 141KB, which gave the commissioner discretion to deal with what were considered to be unacceptable tax positions.

The amendment I want to make is this: none of the provisions in this bill deal with simple mistakes. It is what my good colleague Katrina Shanks was talking about. She is an experienced person in this area, and she knows that people filing tax returns can make simple mistakes. Let me give the Committee an example of what I mean. Some taxpayers pay the correct amount of tax, but file the wrong tax return. They have made a mistake. According to the tax returns filed they have not paid the correct tax, because according to the return they were meant to have filed they have paid no tax. Those taxpayers have paid all the tax they should have paid but filed the wrong return, so that cannot be recognised as the correct tax paid. What happens? The taxpayer gets penalised for making a mistake—in fact, the correct terminology is “not taking reasonable care”—which is covered in section 141A.

My amendment to clause 191 simply retains the title of section 141KB—“Discretion to cancel some shortfall penalties”, and would enable the commissioner to deal with unfairness in both unacceptable tax positions and not taking reasonable care—in other words, deal with issues that arise under sections 141B and 141A of the existing Act. My amendment would enable the commissioner to use the discretion when faced with a clear mistake—when someone has paid the full amount of tax owing, yet has done something wrong technically. The officials look a bit puzzled. The Institute of Chartered Accountants of New Zealand is deeply concerned about this, not just Lockwood Smith. The institute is concerned, because it sees this happening amongst its members all the time. People make these simple mistakes, and although they have paid the correct amount of tax, they are penalised. Is that fair?

I really put it to the Minister, and urge the Committee, to give full consideration to the amendment that I have placed on the Table. All it would do is give the commissioner the discretion to not impose shortfall penalties where it is obvious that a mistake has been made. The Government has all its revenue. If the Committee says that it will not accept my amendment because it would have fiscal implications and that it was lodged with less than 24 hours’ notice, I would argue that that decision was not valid because the amendment just gives the commissioner the right to exercise discretion. The Government is not going to lose any revenue. A technical mistake might have been made, but at the moment the commissioner cannot deal with that issue in a fair manner. I urge that my amendment be given consideration.

I move, That the question be now put.

I would like to speak to two other clauses in Part 2—first to clause 173 and then to clause 184, which talks about the International Financial Reporting Standards. Clause 173 deals with provisional tax and rules on the use of money interest. There is always discussion about this, but in particular this provision looks at the rules around the use of money interest—that is, when there are excess funds at the Inland Revenue Department, the department has use of funds. At the moment it pays a credit rate of, I think, 6.5 percent, or, if the taxpayer supposedly has moneys due, he or she has use of the funds owed and is charged something like 13 or 14 percent—about a 7 percent spread. So that is a 7 percent spread between the money that is owed to a taxpayer and stays at the Inland Revenue Department and the money that it is essentially lending to the taxpayer. Any bank or financial institution would give its right arm, its left arm, and probably both its legs to have an interest rate spread between deposits and loans of over 7 percent. That is absolutely outrageous. I think the term there is “usury”.

There has been much commentary, even from members on the other side and from the smaller parties, on the unfairness of charging interest rates like that and actually driving people into further debt, borrowing to pay the borrowings to pay the borrowings. The amendments proposed by my colleague Dr the Hon Lockwood Smith try to address some of the issues that bring people into that position. Again I will quote from the Inland Revenue Department’s desired future details: “Society has confidence that appropriate action will be taken against customers who do not apply.” That also implies that those customers who are doing the right thing and pay the right money at the right time, but perhaps tick the wrong box in the form they send in, also need to know there is good faith on the part of the Inland Revenue Department. I would be interested to hear the comments of the Minister in the chair, the Hon Peter Dunne, on the good-faith ambitions of the Inland Revenue Department and whether it will be addressing the difference between its borrowing rate and its lending rate.

Clause 184, as Dr Lockwood Smith touched on earlier, talks about the unacceptable tax position. Towards the end of clause 184 is an explanation of what does and does not put someone in an unacceptable tax position. Interestingly, it talks about the International Financial Reporting Standards, which have been recently adopted. I believe that there is such a thing as the New Zealand version of the International Financial Reporting Standards. Is that deliberate or is it just to internationalise it? We have asked Treasury about this quite a few times at the Finance and Expenditure Committee, and even the Government accounts have been reproduced under the New Zealand Financial Reporting Standards as opposed to the International Financial Reporting Standards. I apologise to the many listeners out there who think that this may sound like gobbledygook, but, sadly, this is taxation law. Even Landcorp in its annual report suggested that the International Financial Reporting Standards made a mockery of its reporting, etc. So Landcorp cannot understand it.

I believe that in a recent paper Treasury said it was looking to readdress the necessity of the New Zealand Financial Reporting Standards, or at least how it was created and measured against the International Financial Reporting Standards and whether it was having a desired outcome for New Zealand. In many instances the fluctuations in their profit and loss accounting, and, therefore, their tax obligations, were flying around all over the place and not giving a solid and transparent report to whomever their agents might be.

There is one other clause in here that we discussed at the select committee—and I apologise for not finding it right at the moment—but the Minister or the officials may remember it. It addresses KiwiSaver and refers to KiwiSaver members being able to forgo interest in relation to funds at the Inland Revenue Department or, I believe, at some entity.

I move, That the question be now put.

I rise to take a call on this bill because when we talk about the implication of putting penalties on people who do not file GST or other returns, simply for the sake of having a mandatory penalty, it smacks of a Labour - United Future - Progressive Government that has no comprehension of what it is actually like to be in business. These people have never been in business. They have probably never filed a GST return—apart from for a union. For them to now put in a mandatory penalty just for the sake of it shows their comprehension of what it is like for the people who actually earn the money that pays the wages of those members, who sit on that side of the Chamber and tell them what to do through tax bills such as this.

The Minister has come back and made a valid point that there will be some discretion within the 12-month period, and that people’s history in relation to the filing of returns will be looked at. That is fair enough. That is what happens now. The Inland Revenue Department looks at people’s history of filing returns. If they have a history of being a good filer of tax returns, then it will sometimes waive the penalty, let them get away with it, and say they made a mistake. That would be the appropriate approach, and the department does that now. It looks back over the past year at one’s filing history.

What is the purpose of putting on a $50 mandatory filing fee? Why put on a $50 or $250 mandatory fee for people who fail to file on time? The only purpose can be that the Government wants to sting hard-working employers in this country. It wants to hold business back and it wants to increase compliance costs—to be the bane of hard-working New Zealand business people, basically. The Labour Government wants to restrict and compromise the ability of those people to carry on their own approach in their businesses. There is no need for an extra filing fee for late filing. The Inland Revenue Department still can use discretion, and that should be sufficient. There is no need at all for these fees. The Government should take a call on this issue and explain why it wants to introduce these fees. There is no good rationale to do so. It is merely another attempt to put more compliance costs on to small business, and it shows that the Government lacks any comprehension of what it is like to have a small business and have to file GST and other returns on a compulsory basis over a number of months in a year.

I encourage the Minister to take a call and explain the rationale for introducing these fees.

The amendments in the name of Dr the Hon Lockwood Smith to clauses 184, 188, and 191 are out of order because there may be an impact on the fiscal aggregates, and they were lodged with less than 24 hours’ notice.

The question was put that the following amendment in the name of the Hon Peter Dunne to the proposed amendment to clause 151(4) set out on Supplementary Order Paper 168 in his name be agreed to:

to number the paragraph being inserted after section 33A(2)(d) as “(db)”.