Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill

I rise to talk about Part 2 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill. This bill, as everyone who has spoken on Part 1 has said, is intimidating by its size more than anything else. As a new member, particularly one on the Finance and Expenditure Committee, I had the unfortunate experience in my first committee meeting of being given this bill and told that we were deliberating on it the very next day. It was entertaining to pick up certain parts of it and go through and read it the night before, and I must admit that it was an education in the realms of arcane tax law.

I will touch on one particular part of Part 2, where migrant workers are discussed. I will talk about four clauses: clauses 383, 408, 417, and 454. The interesting thing about the clauses that talk about the changes for migrant workers is that migrant workers are a very important part of the New Zealand economy. Migrant workers are defined as those who are here for a maximum of 7 months, or perhaps 9 months in special circumstances, within an 11-month period. Part 2 of this bill does a really neat thing for migrant workers, I think. Those workers play an important part in seasonal work in New Zealand. The changes that the committee made to this part include putting in a special tax rate for migrant workers, taking it from 19 percent to 15 percent. That is a 4 percent reduction, and what a neat thing that is to do. For the people and communities that rely heavily on migrant workers, that tax reduction will be a great thing. There are six ski fields in the Selwyn electorate of my good colleague here to my right, Amy Adams. Ski fields rely very heavily on migrant workers in the winter months.

This tax reduction will be a great thing for migrant workers. Equally, it will be a good thing for people in the electorate of my other good colleague Colin King, the MP for Kaikōura—he is the MP whom Paul Henry did not recognise—as vineyards rely very heavily on migrant workers. I know that Mr Burns, one of the members opposite, is a vineyard owner. He probably has a few migrant workers on his operation across the road. I enjoyed a bottle of that member’s vintage last week, I think, after taking part in a charity debate. It was not bad, I must say. For the migrant workers who come to New Zealand, for those thousands of people who come to the ski fields for the winter months or to the vineyards in the summer months, or perhaps even for the odd shearer who comes in to fill some gaps we have in looking after other parts of our rural sector, that 4 percent deduction in the special tax rate of 15 percent, down from 19 percent, will be a great measure.

That is particularly true for our friends from the Pacific who come here from Kiribati, Vanuatu, and places like that, where that little bit of extra income is incredibly important for them to be able to sustain their lifestyle back home. The remittance that they send back to the people in those Pacific countries is a really important part of the income that they use to provide not only for themselves while they are here in New Zealand but also for their families back home. I think, equally, for those ski field workers—obviously not many ski field workers come from the Pacific Islands; I am yet to hear any property developer come up with any ideas about that—who have that reduction from 19 percent to 15 percent, that is an extra 4 percent that they will have to put in their back pockets, or to spend on the good parts of the tourism industry in New Zealand, which helps a tiny little bit more to keep the economy growing in the way that we want to see. We are all about the economy growing.

I see that the member from Kaikōura is now in the Chamber—the member whom Paul Henry forgot, from the great electorate of Kaikōura. Anyway, I want to touch again on another part of this bill, and that is the other interesting bit in Part 2, which talks about the international tax rules for insurance companies. In particular, we have talked about the controlled foreign company regime. There are some changes in the insurance sector. There are some interesting examples where a growing number of New Zealand - owned companies are looking at expanding offshore, or have existing equity-based investments that they operate offshore. I can think of one mutual company in particular, in Christchurch, that is an iconic New Zealand insurance company. It has increasingly been looking at ways to expand outside of New Zealand. It is one of the dominant players in the New Zealand insurance industry. Part 2 of this bill—this behemoth of 900 pages—has some little things in it that will actually help that company expand, and just get a little bit extra for its members. It is a mutually owned company, so its members are its policyholders. Again, that is a good example of those people being able to reinvest a little bit more profit into their business to keep New Zealanders working in this time of recession and economic problems.

I think Aaron Gilmore was very, very unkind to his colleague Colin King. I know who Colin King is, and I knew who he was before he came to Parliament because he was a three-time winner of the Golden Shears contest. Paul Henry does not know who he is, but who cares what Paul Henry thinks? We certainly do not. No one listens to him.

The other thing is that Colin King put me to shame. We met in the changing rooms, both fully clothed, and he asked me whether I was going to play for the New Zealand Parliamentary Rugby Team this year. I said that I was getting a little old, and was thinking about it but was not too sure. Colin said to me that he was wondering whether he should this year, as he was turning 60. He said maybe he would have 1 more year. It just shows that life begins at 60. I tell Colin not to worry about what Paul Henry says; we do not, and no one else does. I think it is dreadful that Aaron Gilmore could question his commitment and who he was. But I come back to the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill.

💬 Colin King: It’s a taxing subject.

It is a very taxing subject, I agree, and I am very impressed that the member plays rugby at 60. I do not think Aaron Gilmore will be out there when he is 60. In fact, he will not be in Parliament when he is 60, so that is OK.

Anyway, I get back to the payroll giving provisions. This is a very important part of the bill. It is quite a nice part. Mr Gilmore waxed lyrical about the wonderful things this bill was doing; well, this is another thing. Eleven submissions were received on the proposed payroll giving scheme, and five confirmed their support for the concept of payroll giving and the tax credit mechanism of delivering tax relief on payroll donations. Even so, most submissions were concerned to ensure that compliance costs of the scheme for employers were kept to an absolute minimum. We agree with that. Earlier, I talked about the five basic objectives of tax legislation, and compliance was one of them. Otherwise, the benefits of the scheme might not be fully realised, and I think we all agree that this is very important legislation that allows people’s benevolent spirit to come out. I think the Prime Minister, John Key, said to people that if they did not like the tax cuts they could give them to charities. Well, this legislation allows that.

A common theme throughout the submissions, though, was the need to provide greater clarity in the legislation. We addressed this theme in the Finance and Expenditure Committee. The Inland Revenue Department officials came back and gave us great peace of mind that it had, in fact, been achieved. There was concern that the participation in payroll giving would be voluntary for employers and employees. KiwiSaver was voluntary; it is a shame that the Government cut that off at the knees. But this is voluntary, and it allows people to give money out of their pay to their favourite charity.

There was also concern about the roles and responsibilities of employers, employees, and donee organisations, and also sanctions for non-compliance. This quite important point was brought up and discussed in reasonable depth. This point is around what happens if a company goes broke and money is being contributed by an employee but it is not paid out. Again, the Inland Revenue Department officials came back and assured us that employees would not lose their tax deductibility—their tax credit—on this, which was fantastic. For the most part officials agreed with the submissions, and they ensured that the underlying policy intentions would be achieved, and this would provide overall integrity to the scheme, which is what I was talking about before. Again, tax integrity must be a fundamental part of any tax legislation.

A further prevailing theme in the submissions was a desire for the legislation to prescribe the details for payroll giving scheme arrangements. As proposed, the bill simply provides a tax mechanism to deliver tax relief for payroll donations on a pay period basis. It does not prescribe the nature of the arrangement of relationships between employers, employees, and donee organisations, or how the schemes should be set up. Matters that need to be decided upon between the relevant parties include, for example, the process for establishing a scheme that works best for all parties concerned, the use of intermediaries, the level of employee education around payroll giving—again, this comes back to the fundamental objective I talked about, which is the ability for the taxpayer to be able to access information on tax—and the process for selecting donee organisations to participate in the scheme. I think we said that they had to be registered charities, and all registered charities were to be put up on the Inland Revenue Department website so one could determine straight away if a charity was registered, which is fantastic. This is a very important part of the legislation, and it affects a lot of people.

I am hoping that once this legislation is put through, a lot of Kiwis will donate to these organisations, because I think probably all of us—well, all of the Labour MPs, anyway—have been around a lot of the social service agencies and the charities in our electorates and have found that these guys are suffering. Their workload has increased dramatically, as we find that legislation that the National Government has put through begins to erode the social fabric. These charities need the most help at this particular time, and this bill does that.

As I was saying, the matters that would need to be decided upon by relevant parties include the process for selecting donee organisations to participate in the scheme—as mentioned, they had to be registered charities—the number of donee organisations that can participate in the scheme, which came down to registered charity status, and that is fantastic; the level of engagement between the donee organisations and the employee donors, which refers to how an employee can interact and contribute to the charity itself; and any minimum payroll donation threshold. The non-prescriptive nature of the proposed scheme is intended to provide flexibility to allow relevant parties to work together to establish schemes that work best and to manage the associated costs. I think all members in the Chamber will agree that if someone is to donate money to a charity through his or her payroll, it must be done on a voluntary basis. It must be worked through, one on one. The vast majority of charities and the vast majority of employees want to know what is going on and how it works. The key policy outcome of payroll giving is that it has the potential to establish a genuine partnership between businesses and the community, while supporting employees’ community activities. As mentioned, this is becoming more and more relevant in these tough times.

The voluntary nature of the scheme also reflects the ethos of giving, which is very important. It sets up a system that facilitates, but does not mandate, giving. Anything that would be compulsory around payroll giving would not be acceptable to anyone, from employees to employers. That is why this provision was put in. It is not a mandate; it is voluntary.

💬 Paul Quinn: Are you going to give it to my campaign?

I am sure Mr Quinn gives a substantial part of his salary to a registered charity. This provision will help Mr Quinn to make that transition to giving a lot easier. He will be supporting this, I have no doubt.

The Inland Revenue Department has a very good way of getting information out to the general public. It does this through a Tax Information Bulletin. The Inland Revenue Department said that it would publish all this information that we are talking about at the moment in a Tax Information Bulletin so that taxpayers, employees, employers, and donee organisations could have access to all this information that allows them to optimise their processes. That is very important. The proposed scheme would deliver pay-day tax relief on payroll donations by way of a tax credit, which is most important. Employees will receive a tax credit on the amount of their donation made each pay day. Employers would offset the credit against the PAYE calculated on an employee’s gross salary. The tax credit would then be calculated to set a rate of 33.3 percent. Employees who make payroll donations would not have to keep receipts or wait until the end of the year to claim the tax benefits of their donations.

We all know how this works. We have all given money to registered charities, and they have given us a receipt. We have thought that in order to claim it back, we must put in a tax return, but that is too onerous, so we do not bother doing it. This legislation removes that and makes it a lot easier. The scheme would also operate in addition to the current end-of-year tax credits claim system. Therefore, employees who do not or are not able to give through payroll giving can still claim tax relief on their donations through the end-of-year process, as a consequence of this clause in Part 2.

I support Part 2 and I thank Mr Foss, who worked this through. I also thank Inland Revenue Department officials, who provided much-needed advice on Part 2. To our consultants and our drafting experts, I say thank you very much.

I also want to speak on the payroll giving provisions of Part 2 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill, particularly in respect of clauses 448 to 484. I want to speak about this matter because some good changes were made in this particular area at the Finance and Expenditure Committee, although it could be said that all the changes made to the bill by the committee were good. We made quite a few suggestions and had wide discussions about improvements to the original bill that arrived at the committee some time in late 2008. I will touch on some of those issues.

As we went through this particular part as originally drafted—and the previous speaker did pick this up—we learnt that only those people who file their PAYE returns electronically would be able to participate in the payroll giving provisions of this bill. We had a wide-ranging discussion about that. We erred on the side of keeping it simple, because we noted that a growing number of employers were submitting returns electronically. Although only 19 percent of them did file returns electronically, that figure constituted mostly the larger employers. Therefore, a large proportion of the working population of PAYE taxpayers was actually being picked up by that. We had some issues in and around that matter, and, as I said, the trade-off we made at the end of the day was to keep the electronic filing as in the original draft of the bill, but with some caveats added to it, which I will get to in a moment.

One of the things that concerned members about this particular measure in the original bill—and I acknowledge that the suggestions from various advisers have been picked up by officials and this issue is addressed in the amended bill—was that in good faith an employee may want to set payroll giving up with an employer who files returns electronically. But we were very concerned that if something untoward was to happen—if the business was to go under, if the charity itself turned out not to be a charity, or if all sorts of other mischief happened—the employee in that instance should not miss out. So we tried to work that issue through, and quite a few recommendations came from that, to the point where we recommended that donations be held in trust for an employee until such time as they were remitted to the donee organisation. Even though it is an electronic process, there are quite a few checks and balances to go through in the process before the monies get to the intended organisation. In the good faith that is payroll giving, in the context where it comes from, we wanted to make sure that employees had faith in the system and the ability to know that it would be working on their behalf.

There was a problem, however, arising from the fact that the charities concerned must have charitable status. But we learnt, as one submitter pointed out, that when we check with the Inland Revenue Department, we find, if members can believe this, there are actually 1,330 donee organisations with names beginning with the letter ‘A’. So, of course, quite complex issues could arise there. The question was where the burden should lie in terms of checking the status of organisations. We did a bit of a test on the Inland Revenue Department’s website, and it was found to be wanting. We did gain a commitment from Inland Revenue Department officials, and this is in the commentary on the bill also, that they would upgrade the ability for employers—in this instance—to go to the appropriate place on the Inland Revenue Department website and quickly look up an organisation without their systems going down, and to have transparent, timely, and robust information available at all times. That was an example of good committee action, good committee discussion, and the committee as a whole making the recommendation there—a fair balance, and I think a well-intentioned one. I think the previous speaker alluded to that.

Most members in this House, I am sure, would agree with the intent, at least, of payroll giving. I will be speaking to other parts of this bill later on.

It is a pleasure to join the discussion in Committee of Part 2 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill, and, in doing so, I will first reflect on the Minister’s closing comments in respect of Part 1 on the theme of the timetable for this bill, which apply equally to this part. It is absolutely true, as the Minister has described, that a number of substantive provisions of this bill, including issues such as payroll giving and tax pooling rules, which are the subject of this part, have been—transcending the change of Government—debated in the public domain over some considerable period of time. There have been discussion documents and the generic tax policy process has been in evidence. That is all a good thing. I would not want our earlier comments about the rushed nature of the bill to be misunderstood in that regard.

But having conceded that point, I hope that the Minister would also concede that, in hindsight, the deadline for the report back of the bill in this Parliament, once the change of implementation dates had been agreed, could have been extended. The pressure on officials, on the independent tax advisers, and on the committee itself was extreme. That is not to ask for sympathy for poor old politicians. We know how far we would get with that—

💬 Amy Adams: Not very far!

Not very far, no, because as the public knows, we all get rather larger allowances than the chief executive of Telecom New Zealand, and work only 3 hours a day! That is a long 3 hours; there is nothing longer than tax legislation to measure time.

💬 Hon Peter Dunne: Are you doing overtime?

We are doing overtime today, for which we are not paid time and a half.

💬 Amy Adams: We’re not paid at all!

No. Members opposite have no doubt done the maths and worked out what their hourly rate is, but I digress.

The fact remains that there is—even in this part that amounts to about 30 percent of the text of this doorstop—an incredible amount of detail that politicians, because they live such exciting lives, find it within their responsibilities to have to scrutinise. As the public may know, select committees are the places where we join together in a relatively non-partisan kind of a way and work through the detail on the basis of advice. So, the long and the short of it is that I stand by the earlier comments that that process could have been better. We were under such time pressure that Part 2 could have benefited from further discussion.

Let us turn to some of the substantive provisions. There is general agreement—and Labour will be supporting the part—that the payroll giving provisions are meritorious in general and should be supported. Payroll giving is the idea that employees can nominate a set of charities for whom direct deductions can be made through their payroll process on an ongoing basis—that is only to be commended. New Zealanders are generous people. We care about our neighbours, broadly defined, we give a reasonable percentage of our incomes towards overseas aid, and New Zealanders come forward for everything from the Daffodil Day appeal, to telethon, and to a whole range of other charities. Payroll giving is a way of making it easy. New Zealanders can fit it once, forget it, and support the charity of their choice. This legislation is permissive, it is not compulsory, and we hope that the detail will stand the test of time.

Similarly, we support the concept of the tax pooling rules. Tax pooling is a system, as the public may know, that allows taxpayers to benefit from the aggregation of the unders and overs between different taxpayers who, through a tax pooling agent, can collect those flows into one pool and pay an aggregate on their behalf. The impact of that is that the unders and overs, to a certain extent, balance themselves out, thereby lowering the cost of the holding capital, and, perhaps, through timeliness, also reducing any penalties that might accrue for late payment. A professional manages the tax pool, there is general good notice of deadlines, and the system works well both in the interests of the taxpayer and of the department that benefits from the aggregation and timely provision of those flows.

Contained in this section of Part 2 are a bunch of rules that, in detail, facilitate and, indeed, extend the ability of taxpayers to pool their tax payments. The Finance and Expenditure Committee made a number of amendments—for example, new section RP 17B(1), inserted by clause 405, and the amendments in clause 406, and so forth. The committee gave reasonable attention to those matters. We turn then to the subset of those intermediary rules that affect PAYE, and I will pick that up in a further call.

I want to make a few comments about payroll giving, and I am grateful for the support for this that members from across the Chamber have indicated in their remarks this afternoon.

Payroll giving is an important step forward. It was first foreshadowed in the discussion document that was issued in 2006, which arose from the confidence and supply agreement that United Future had with the previous Government over a charitable tax regime.

💬 Hon David Cunliffe: You’ve had one with every Government.

With every Government so far, yes. I am not sure whether the current agreement is the second leg of the double or the third leg of the quinella, but I remind members that the first part of the process was—

💬 Amy Adams: A trifecta!

Never mind. I am not a racing person, as the members can see.

💬 Hon David Cunliffe: Not a racist.

That neither.

The first part of the changes to the tax law was the changes to the rebates for charitable donations that came on 1 April last year. The change to bring in payroll giving was something we were very keen to see, for all of the reasons that members have enunciated. This scheme draws very heavily on the scheme that was implemented in Australia.

By nature of being a voluntary scheme, people will have a choice about going into it. We have resisted, and I think the committee was wise to resist, some of the submissions that tried to prescribe too narrowly the organisations that might be considered for this scheme. I think that is a choice for the taxpayer, and it is a matter of the employer having the systems to be able to deal with it.

Mr Foss made the point about the original limitation to electronic filing companies. The figures that I had originally—I think they have moved a little bit since—were that around 16 percent of businesses in New Zealand were filing electronically, but that covered about 70 percent of the workforce. I think those figures have moved upwards a little in the last couple of years. So this policy initiative will be available to most New Zealand taxpayers, should they choose to take advantage of it. For those of a certain age, it will be very similar to the old days when we made our National Provident Fund or Government Superannuation Fund contributions. The net figure was the one taken after those contributions had been deducted. That is when we got our rebate.

One thing that will be important, and I say this by way of observation, is that once this scheme takes effect—and with the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill passing at around this time, 1 December will be the effective date for the start of payroll giving—employers and those who have been associated with similar schemes elsewhere will need to be part of an advisory group of people drawing to both employees’ attention and employers’ attention how this scheme works, how simple it can be, and how it is a win-win for both. We will be working separately with appropriate people, to make that information available.

I hope that in time there is another raft of issues that we can deal with, with regard to charitable giving. We have work under way at the moment on the question of access to imputation credits for charities. That work is on hold to some extent, pending the outcome of the Australian Government’s tax review and any issues there that might be determined regarding the mutual recognition of imputation credits across both countries.

This scheme is part of a concerted suite of measures designed to promote a culture of giving in New Zealand, designed to make it easier for people who wish to give to charities to do so, designed to boost that support, and designed to recognise the large number of charitable organisations that there are in New Zealand—Mr Foss referred to 1,100-plus alone beginning with the letter “A.” There are many, many charities in this country, and the charitable registration process is part of that. I am currently reviewing the number of donee organisations that are eligible for tax deductibility, and that review will be completed a little later in the year.

I simply wanted to thank members for their support for this provision. It is an important one, it is a welcome one, and it is an extremely positive step forward.

I am very pleased to speak on Part 2. I particularly want to focus on the move, through this bill, to make clear some of the issues around relocation and overtime meal allowances. This is quite a vexed issue, and it has been a concern to many people in the trade union movement for quite some considerable time. As I understand it, about 15 years ago changes were made to the tax treatment of allowances. In the past the commissioner had been required to determine whether an allowance was taxable or exempt. That requirement was taken away, and instead the onus was put back on the taxpayer to determine whether the allowance was taxable or exempt. Also, the test changed from whether the expenditure was incurred as a necessary part of the employee earning his or her income, to one based on whether the expenditure would have been deductible by the employee, were it not for the prohibition in the Income Tax Act whereby employees cannot claim expenses in relation to their employment. I think the way these things have been tackled is somewhat Kafkaesque in its logic.

In essence, I was pleased that the committee was able to clarify at least two areas. In respect of relocation expenses, where an employee is required, due to the nature of the change of his or her employment, to move town or even move across a city, the employee is able to claim and able to deduct some expenses in relation to the extra costs that are incurred, and also in relation to overtime meal allowances. For an employee who is in the situation where overtime is either a regular pattern or is an occasional imposition or request by his or her employer, obviously the employee is incurring expenses that he or she may not have been able to anticipate in the case of sudden overtime, if you like. In the case of what is built into overtime, clearly the employee is not able to return to his or her home and have meals with the family, and do this at the same price that an employee may pay on a worksite or near a worksite, if he or she needs to pop out from work to get some food.

I am very pleased that the committee was able to agree, at least in part, with the submission from the Council of Trade Unions. The council has been put in a most unlikely collegial relationship by the Institute of Chartered Accountants, which acted on its behalf. It was a seminal moment to see representatives of the accountancy profession aligning and agreeing with members of the trade union movement that there was an area that needed to be clarified in favour of employees in this respect. I am very pleased that the committee has been able to deal with that issue.

I certainly look forward to my colleague Mr Nash’s contribution forthwith, because he has been a tremendous and very studious supporter of the process of the select committee, as has Mr Burns, reflecting very clearly the interests of the broadcasting industry and of course the Council of Trade Unions.

The relationship between the New Zealand Council of Trade Unions and the Institute of Chartered Accountants was so close during part of this bill that we conjectured we might witness the formation of a new body—the “CTUCA”; the “Council of Trade Unions and Chartered Accountants.” But, no, despite agreement on the substance of the bill, the merger did not quite occur, and we look forward to hearing more in that regard. Certainly, they had their eye on both the principle and the detail, and who in this House would not wish that to occur—because, of course, it would simplify our job. I am sure members opposite would be only too willing to support anything that the “CTUCA” could agree on.

💬 Hon Trevor Mallard: I can think of a few things.

Our Labour spokesperson wishes to demur from some of that, and probably with good reason.

I would like to take us back to an issue that covers Part 2 and several other parts, which are the depth and breadth of the bill. I would like to read briefly from the commentary on the bill: “The size of the bill, and the depth and breadth of the material it covers, have made our consideration more difficult than it might have been otherwise.” That statement is, by the way, a unanimous statement of the committee. It is part of the covering language that applies to all of the parts of the bill, so it is not the view of only the Labour members of the committee; it includes the view of the Government members.

The commentary on the bill continues: “In trying to meet the report due date for the bill, we and our committee consideration processes have been put under considerable pressure. We do not consider it desirable to put a number of very distinct and significant proposals into one bill simply because they relate to one area of law. In future, we would prefer to see such proposals introduced to the House as separate, more manageable bills. If such proposals are not divided sensibly, the House might wish to accord significantly more than the usual consideration time to committees charged with considering such bills.” Mr Chairman, I hope that you will deem the Committee of the whole House such a committee and that we will be able to take more than the usual time to consider the important matters around payroll giving, around charitable donations, and around the tax treatment of meal breaks, which are important to employees nationwide.

The commentary on the bill goes on to state: “Ministers should remain mindful that if departmental advisers are appointed to advise committees on such bills, they will need to meet committee deadlines and information needs under pressure.” That, I think, is both a compliment to the hard work of our officials and a polite warning to the powers that be that the pressure was, at times, excessive.

This part includes new section CW 62B, inserted by clause 39, which deals with the tax treatments of reimbursements and honoraria paid to volunteers. It is an opportunity for this Committee to once more recognise the importance of the work of volunteers. In that regard, it is pretty important that we accept the principle that in many of our non-governmental organisations there is a very strong volunteer component to the work that they do. Many of those organisations do not fully cost their overheads in terms of the volunteer time, and in what sector is that more apparent than the adult and community education sector?

These clauses give us further reason to remind ourselves that recent changes that saved only around $10 million in expenditure from that sector have the impact of undermining or de-leveraging from that sector the virtually unpaid contribution of the many thousands of volunteers nationwide who are supporting the night classes and community courses by providing expertise and by assisting on a voluntary or near-voluntary basis in running those courses.

We all know the phrase “penny wise and pound foolish”, and I wonder whether it is possible to be “pound wise and penny foolish”, because, really, those services cost only pennies but they have been the target of some of the first cuts the Budget. That is one of the things that worries Labour—the new funds allocated for Budget 2010 are only about half of the new funds in Budget 2009, and Part 2 really draws those issues high in our consideration.

I move, That the question be now put.

I must admit I am very thankful for Peter Dunne’s speech earlier about payroll giving. I have always had difficulty in reconciling that someone could jump from Labour to National, or change political philosophies, over the space of a fortnight. For me, the principles of social democracy run through my veins, and I could never ever compromise such principles. I am pleased that Mr Dunne had unfinished work from when he was Minister of Revenue for Labour, and became Minister of Revenue for National for the sole reason of getting this important legislation through. That is fantastic. As I mentioned, the principles of social democracy run through my veins, and I could never compromise such principles, and that is why I certainly back the payroll giving scheme, as outlined by Minister Dunne and spoken about by my colleague David Cunliffe and my Opposition colleagues.

I will elaborate on the tax pooling, which David Cunliffe talked about. It relates to section 15O to section 15T, in clause 435, and is quite an important part of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill. Provisional taxpayers do not always know how much their tax liability will be for the year, and, therefore, how much provisional tax they need to pay. If they get the calculation wrong, then they are subject to two-way use-of-money interest on the underpayment or overpayment of their tax liability. Provisional tax pooling was introduced in April 2003. It was great legislation and was implemented by the previous Labour Government—of course. It allows compliant taxpayers to reduce their exposure to use-of-money interest on underpayments as a result of uncertainty about their provisional tax payments, by purchasing funds from, or depositing funds with, a tax pooling intermediary. This is a very important facet in today’s economy, because there is a lot of uncertainty around the recession into which the National Government’s policies are driving us.

Tax pooling generally involves a taxpayer depositing money with a tax pooling intermediary. The deposit earns interest, which is good. The intermediary deposits that money in its pooling account with the Inland Revenue Department. The taxpayer may use his or her funds—the deposit—in the future to pay outstanding tax liabilities, or sell the funds to the tax pooling intermediary. If the taxpayer sells the funds to the intermediary, the intermediary can then sell the funds to another taxpayer for a fee. It may sound quite complicated, but, in fact, it is quite a simple process and quite an important process. It optimises the tax system. It is a very good process—of course it is; it was put into law in 2003 by the Labour Government.

💬 Hon David Cunliffe: It was an excellent year for tax policy.

It was a very good year. Was that the year we dropped the corporate tax rate?

💬 Hon David Cunliffe: One of the years.

As I have mentioned several times, Labour was the only Government in a generation to drop the corporate tax rate. We are the party of business and we are the party for farmers. But, anyway, let us talk about tax pooling. Many small to medium sized enterprises would say that tax pooling has made paying their provisional tax a lot easier. Labour is the party of the small to medium sized enterprise, and Phil Goff will be the next Prime Minister of this country—bring it on!

On the payment of a fee the intermediary transfers the funds to the other taxpayer’s income tax account as at the date the money was deposited with the intermediary. Usually, that will coincide with the provisional tax due date.

This is such a good bill because it was introduced by the Labour Government. Minister Dunne was a Minister in that Government. It is great that we have such a sense of conviviality around this bill. We all support it and we all love it because it was Labour tax legislation.

💬 Hon David Cunliffe: We trained him and gave him to the National Party.

We did, indeed. Tax pooling enables provisional taxpayers to access money at lower interest rates than if they failed to pay provisional tax on the due date and were subject to use-of-money interest. It also enables taxpayers who have overpaid their tax to get a higher return from selling their funds than they would receive from the Inland Revenue Department. Of course, we are not suggesting that the Inland Revenue Department would charge a hell of a lot more than a bank would on an overdraft facility, or that it would charge a lot less on a deposit than a bank would, but this legislation smoothes things out. I say to Mr Cunliffe that it is interesting, because I often hear that in 9 long years Labour did nothing, but we do not hear that from the Finance and Expenditure Committee.

I move, That the question be now put.