Taxation (GST and Remedial Matters) Bill

I move, That the Taxation (GST and Remedial Matters) Bill be now read a first time. At the appropriate time I intend to move that the bill be considered by the Finance and Expenditure Committee, that the committee report finally to the House on or before 15 November 2010, and that the committee have authority to meet at any time while the House is sitting, except during oral questions, during any evening on a day in which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187, and 190(1)(b) and (c).

Since its introduction in 1985, New Zealand’s GST system has been internationally praised for its simplicity, its efficiency, and its transparency. Overall, our system operates very well. The overwhelming majority of taxpayers find the GST process straightforward, and GST itself is an efficient means of raising revenue for the Government’s various economic and social programmes. But over the passage of time, and with the growing complexity of our business environment in this country, some parts of the GST system have been identified as a cause for concern for taxpayers and the Government alike. The purpose of this bill is, therefore, to address those concerns by strengthening certain rules to maintain the integrity and the fairness of the GST system, and by simplifying others where taxpayers have told us that they are no longer certain about how those rules should be applied.

In order to protect the integrity of the taxation system and the revenue base, the bill introduces new rules to prevent so-called phoenix fraud schemes. These schemes involve the Inland Revenue Department refunding GST to a registered purchaser when there is no corresponding GST payment made by the supplier of the transaction. This is because the company is deliberately wound up to avoid the paying of GST. This particular practice has been of special concern in the property sector, when the amount of GST involved is often quite substantial. In order to prevent this practice, new rules will require GST-registered vendors to charge the GST at a zero rate on most transactions involving land, or in which land is a component, if the purchaser is also GST registered. That is a straightforward solution to a growing problem that has allowed a minority of taxpayers to avoid paying the tax that they should pay.

As members of the House will recall, the closing-off of this loophole was signalled by the Government in Budget 2010, as part of the reforms to promote fairness and integrity across the taxation system. It also follows from a consultation process that was undertaken from the latter point of last year onwards on these very matters.

The second part of this bill aims to bring greater clarity to certain parts of the GST rules, to make it easier for taxpayers to understand their particular GST obligations. In turn, that will help to reduce compliance costs for businesses. The purpose of these measures is to clarify those parts of the GST rules where taxpayers have been experiencing difficulty in accounting for GST or interpreting the legislation. For example, the current change-in-use rules that apply when assets are used for both taxable and non-taxable purposes—a case being when assets are used partly for business and partly for private purposes; that mix—will be replaced with an approach that apportions the input tax deductions according to the actual use of those goods and services. The GST boundary between residential accommodation, which is GST exempt, and commercial accommodation, which is not, will also be clarified. Similarly, the GST rules around transactions involving nominees, where the purchaser has nominated another person to receive the goods and settle the transaction, are being clarified as well.

Finally, to complete the GST reform package, the bill deals with an unintended timing problem for non-profit bodies in accounting for GST when they supply a large asset, such as a house for a person in need. This is an important change so that the GST rules do not act as an undue impediment to the decisions that non-profit bodies must make in the course of undertaking their work for others.

The remaining amendments in the bill are wide ranging and largely remedial in nature. They include allowing portfolio investment entities a deduction for credit impairment provisions, clarifying the tax treatment of superannuation funds under the National Provident Fund, clarifying the way that emissions units allocated by the Government under the emissions trading scheme are to be recognised for income tax purposes, and clarifying the fringe benefit on premises exemptions. This has been a particular problem that has arisen, and the law needs to be clarified to ensure that the clear intent of the fringe benefit tax legislation is being recognised in the law as it stands.

Overall, the bill presents a sound package of measures that will help to protect the integrity of the GST system, promote greater fairness across the taxation system generally, and give greater comfort to those who enter certain business transactions that the decisions they make will be compliant with the law. I need to make the point that this bill is not about the increase to the GST rate that comes into effect on 1 October, nor is it about whether certain suppliers—for example, of food—should be exempt from paying GST or zero-rated for GST purposes. Those matters were decided by this House in the legislation that was passed back in May. This bill is about delivering upon the Government’s promise to strengthen the integrity of the taxation system and ensure that people cannot misuse the system to avoid paying their fair share of tax. Consequently, it is with pleasure that I commend the bill to the House.

I rise to support the Taxation (GST and Remedial Matters) Bill in its first reading, and I wish to talk about two things tonight. The first thing that I wish to talk about is what an absolute shambles the whole introduction of the GST increase is turning out to be. The second thing is what a legislative necessity this bill is.

This bill contains a whole raft of amendments, which the Minister has highlighted. It involves changes to Acts ranging from the Income Tax Act 2007 right through to the Local Government (Auckland Transitional Provisions) Act 2010. So it is wide ranging in its scope and reach, and its amendments are part of the ongoing process of improving legislative integrity. But one cannot go past any GST bill without commenting on the absolute shambles that the whole implementation of the GST increase is turning out to be. It is, quite frankly, a disgrace.

Tonight I was listening to the member for Whanganui, Chester Borrows, speak. That seat will be taken by Labour’s Hamish McDouall at the next election. When Chester Borrows stood up, his first comment was along the lines that it was great to be able to stand up and implement policies that the Government had campaigned on. Then he finished his speech by saying he is proud to be part of a Government that does what it promises to do. Chester Borrows is a good man. He will be a list MP next time, and he is a man with a conscience. But Chester Borrows is also part of a Government that is implementing a policy that the National leader promised not to implement. I bet that he feels mighty uncomfortable about that, as do many of his colleagues.

It all started when the previous Leader of the Opposition, one Mr John Key, stood up in front of the nation and laid the fears of ordinary New Zealanders to rest as they were sitting in their living rooms. He said to them that National would not raise GST if he became the Prime Minister. In fact, in answer to a specific question from a reporter who asked whether Mr Key could rule out raising GST to 15 percent, Mr Key replied that National would not be raising GST. Mr Key looked into the camera and said National would not be raising GST. There was no ambiguity in that statement; there was no hidden meaning, and no doublespeak. It was just plain English: National would not raise the rate of GST. How dare Mr Borrows stand up here and say he is proud to be part of a Government that is implementing policies that it campaigned on? I wonder how proud he is to be part of a Government that is implementing policies that it said it would not campaign on.

Well, Mr Key did raise the rate of GST. The implementation of this increase has been a bloody disaster. We are still 6 weeks away from this implementation. On 10 August a large accountancy firm, Ernst and Young, threw up its hands in frustration and in a press release stated “As we face the harsh reality of the 1 October GST increase to 15 percent many are realising this is not a modest increase and the issues are actually more complex than anyone first imagined.” Ernst and Young is a large private accountancy company and would normally welcome any new tax measure, as it creates work and generates fees. However, this time even Ernst and Young are finding that all the changes to GST are totally ill-conceived, very poorly planned, and very poorly communicated. I have heard stories that Inland Revenue Department staff are reaching the point of revolt, as they just do not have the information at hand to answer questions arising from this whole process.

What will the cost of this process be? Every small company that runs the accounting package Mind Your Own Business, currently known as MYOB, will pay $229 plus GST for its accounting upgrade, and $269 plus GST for its payroll upgrade. That is $498 plus GST for every small business in this country. My advice to MYOB users is to purchase the upgrades before 1 October, because they will save themselves $12.45 in GST. Of course, not every small business runs MYOB. But this is a pretty standard, off-the-shelf accounting package. So let us hypothesise here; let us say around 100,000 small to medium sized enterprises use some form of accounting package. That is a cost of around $50 million being taken out of the New Zealand economy. We can thank Mr Dunne for that. In fact, I think it is pretty fair to say—and we have our deputy party leader here—to Mr Dunne that he will not be the Minister for Revenue in 18 months’ time in the sixth Labour Government, like he was in the fifth Labour Government. I think it is pretty safe to say Charles Chauvel will ensure that Mr Dunne is, in fact, no longer an MP.

There is a second point I would like to make, which is about the legislative necessity of this particular remedial matters bill. By definition, remedial matters bills are supported because they play an important role in tidying up legislation and closing down holes or gaps that people may be exploiting. That is certainly the case with this bill. I must admit, though, that when I saw another tax bill on the Order Paper I wondered about what kind of pain Mr Dunne was planning to inflict on New Zealanders. I wondered about what dreaded scheme Mr Key and Mr English had concocted to take more money from the majority of hard-working New Zealanders. Then I remembered that this Government does not have a plan. I have not seen any plan for growing the economy, for creating jobs, and for providing for a long-term, sustainable future for New Zealanders. In fact, I am still waiting for a plan from the “Hollow Man”.

The headline provision of this bill is that it requires GST-registered vendors to charge, subject to certain conditions, GST at the rate of zero percent on any supply to a registered person involving land, or in which land is a component. This measure is intended to prevent phoenix fraud schemes that involve the Inland Revenue Department refunding GST to the purchaser, with no corresponding payment being made by the vendor because the supply company deliberately winds up before making a payment. Basically it closes down a fraud and gets rid of a scheme that people are using to rip off you and me—the taxpayers who work incredibly hard, and who pay their share. I will get a little technical now. However, this is most important, because I want to run through very briefly some of the changes that this bill may give effect to. These changes may not affect many people, but those who are affected need to understand that the law will tighten up around these areas. That is an important part of this bill. The House should be aware that if the bill gets support for its first reading—and there is no reason to assume that it will not, because, as I mentioned, Labour is supporting it—then everything that we have spoken about will go through the select committee process and be open to submissions, unlike the increase in GST that went through the House in May of this year.

We are talking about the sharing of KiwiSaver information, the on-premises fringe benefit tax exemption, joint bank accounts, the application of overseas donee status to certain charities, the treatment of superannuation funds administered by the National Provident Fund, Auckland City Council restructuring, and the taxation treatment of emissions trading units. People will have a chance to make submissions to the select committee on all that sort of technical stuff.

To sum up, I spoke broadly on two key things. The first one is that this is an important bill, because it makes a series of changes that are necessary to preserve the integrity of the taxation system, to close loopholes, and to make changes that are necessary as the regulatory environment changes. This bill is likely to go through to a select committee so that the people of New Zealand can have their say and exercise their democratic right on it. They can make submissions, speak to their ideas, and challenge the process, unlike the tax bill that increased the rate of GST to 15 percent. New Zealanders had no say on that, and that was my second point. New Zealanders had no say in that matter. In fact, it was even worse than that. New Zealanders were told by Mr Key that National would not raise GST, but it did. That is not democratic. He did not take it to the electorate, which Chester Borrows is so proud of saying the National Government does. Mr Key sideswiped the democratic process. He told the people of New Zealand something that he went back on. He flip-flopped.

There is no plan, no strategy, and not even any milestone—just gallstones. They are very painful and are impossible to pass without urgency. Thank you.

As tempting as it is, I will just stay to the Taxation (GST and Remedial Matters) Bill—just briefly, because members have obviously been enjoying themselves tonight.

First, I acknowledge the Minister of Revenue. I also acknowledge the bill’s tight time frame. If the bill passes its first reading it will to go the Finance and Expenditure Committee.

In spite of the rhetoric, most members accept that there is ongoing change: markets change, systems change, things change, and, yes, GST is changing. But, as the Minister noted, the debate here is not about the quantum of GST at all; it is about the administration of GST and closing some of the loopholes. Some of the changes even address matters that members opposite have been spending a bit of time on lately, in and around various property schemes.

GST debates are generally about where the GST rate is set, but I think that across the House the integrity, fairness, and transparency of the GST system have been well noted. Previous Governments over many years have left it relatively unchanged, although there have been many, many tidy-ups along the way.

As previous speakers have noted, yes, there are some headline items here, including the phoenix schemes, and I am sure the select committee will spend a bit of time learning about them. There are also a lot of remedial matters, which we will see as we go through the detail of the bill. For members who are interested, it is well worth noting that much of this came from the GST: Accounting for land and other high-value assets discussion paper released in November 2009. I also note that there are two regulatory impact statements in and around this bill, but, interestingly, I cannot quite quantify what is going on under the phoenix schemes, although obviously there is some mischief going on there.

I will pick up on one point made by the previous speaker, Stuart Nash, in relation to issues around the implementation of various Acts and things. Most important, the bill amends the KiwiSaver Act 2006, which was brought in under the previous administration. Much of this bill amends part of that Act, which has had quite a few appearances before this House in Supplementary Order Papers and remedial matters bills, piggybacking on other legislation to fix it up because it was brought through in haste quite some years ago. But there is general acceptance that some changes are needed. I am particularly in favour of the changes to KiwiSaver that make KiwiSaver itself more relevant in relation to data changes and the way in which most consumers expect their data to be able to be used by default providers and the Inland Revenue Department in this modern age. It reflects consumers’ expectations and it is a good example of legislation keeping up with current practice.

I look forward to this bill coming before the hard-working Finance and Expenditure Committee. I commend the bill to the House.

The Taxation (GST and Remedial Matters) Bill makes a number of amendments to KiwiSaver, and I will speak this evening about the National Government’s lamentable record on savings. It is a lamentable record that stretches back more than 35 years. It is totally regrettable that the Government is not using this bill to undo the damage done to the KiwiSaver scheme when it passed legislation in a rapid rush prior to Christmas 2008, in order to fund the first round of tax cuts for its wealthy mates. But here we are, less than 2 years later, with the Government beginning to realise that saving is important to this nation and its future, and starting to look at how it can make amends.

The National Government gutted KiwiSaver by taking away the requirement that over time employers contribute 4 percent to the KiwiSaver schemes of their employees. Australia, as a comparison, has a 9 percent employer contribution to the superannuation savings of Australians; we had a scheme that was moving to 4 percent, but this Government cut that in half in order to fund tax cuts for its rich mates. What an absolute disgrace!

Labour, when in Government, talked about, and acted on, the savings problem in New Zealand for years. We introduced KiwiSaver and the Cullen fund, but National’s response was simply to go in and cut what had been the first increase in household savings in a generation. It went back to the time of the Kirk-Rowling superannuation scheme, which was axed by another National Government, Rob Muldoon’s Government, in 1976. If that scheme had still been in place, we would have a kitty of some $300 billion—

💬 Hon Steve Chadwick: How much?

We would have $300 billion in the kitty, which is the estimate I heard this week, and we as a nation would be able to draw on that. We would be a wealthy and prosperous nation if National, when in Government, had not played politics with superannuation and savings 35 years ago. What a disgrace! And National did it again 2 years ago in the run-up to the election of 2008. National promised New Zealanders tax cuts, and then quietly mentioned that it was going to cut KiwiSaver to fund them. What a backward step, what a retrograde step, and what a short-sighted step. Now, within 2 years, this Government has to acknowledge that what it did was wrong, and that it was short-sighted. It is now scrambling around trying to form a committee to look at savings, because it did such a reprehensible and retrograde thing such a short time ago.

Labour understands, and has always understood, that the difference between the Australian and New Zealand economies is not about mining; it is about saving. But this Government has cut the scheme introduced under Labour, which was to start us towards a savings regime that would give us some measure of complementarity with the Australian savings regime. It has also parked the funding that was going into the Cullen fund, despite the fact that the Cullen fund is now starting to make very positive sets of returns, having bounced back from the recession, as most investment schemes have done to date.

National is absolutely rudderless on this issue of savings. It is desperately now trying to set up a savings task force. I wonder whether Don Brash will be invited to head that one. When a Government has no idea what to do, it gets a task force or a committee together, and that is what this Government has been reduced, absolutely reduced, to doing. National’s history on the whole issue of savings has been a disgrace.

I recall the Winston Peters - initiated referendum in the early 1990s—I voted in support of that—for a compulsory savings regime. It was supported by no more than a handful of New Zealanders, but here we are 20 years later and we are seeing compulsory savings start to come back into focus, and appropriately so in our view. But I noted from tonight’s news that Winston Peters has a new crusade. He will be standing in the seat of Helensville, and he will be challenging the Prime Minister for that seat. Many New Zealanders will be looking forward to that contest and will be judging this Government on its record on issues like savings.

National’s record on savings, even in the last 2 years, has been shown to be shallow and entirely focused on winning an election and not focused on the future prosperity of New Zealanders. National was entirely focused on winning the last election, bribing New Zealanders, and telling them that they could have their cake and eat it too. Within a few months, National had to backtrack and pass legislation to partly put it back in the box, and now this Government is scrambling around to find a way forward on savings. A solution was in hand with the KiwiSaver regime. The employer contribution would have been at 4 percent, to put us on track towards some sort of comparison with Australia in terms of our savings record.

Let me remind members again that there would have been $300 billion for New Zealanders in accounts today if a National Government had not cut it in a disgraceful fashion, and if it had not pledged to New Zealanders at the 1975 election that they could have Government-funded, taxpayer-funded superannuation at the age of 60. It was an absolute travesty. New Zealanders knew in their hearts that it was wrong, and it has taken us a generation to begin to sort it out. Now the National Government is scrambling around again, trying desperately to find a solution to the whole issue of savings, when solutions were put in place by the previous Labour Government. It was all done for the sake of electoral appeal. National knew that tax cuts would not work, most especially as an international recession of the most severe consequence since the Depression was starting to take hold, and still John Key stood on a platform and said: “Yes, absolutely, New Zealand. I promise you these tax cuts are affordable.” They were not affordable and he knew it. He made his money in the financial markets. He knew that markets could be knocked around by an international recession, yet he still went to the polls in November 2008, telling New Zealanders that they could have their cake and eat it too. He said they could have tax cuts, and he funded them by cutting the very sensible KiwiSaver scheme, which the previous Labour Government had implemented. Now we are seeing National scramble around, desperately trying to find a way forward.

This bill also amends the Goods and Services Tax Act. Some of the amendments are entirely sensible and appropriate, but I cannot let the moment pass without noting that we will on 1 October see an increase in GST to 15 percent. We know that New Zealanders are bracing themselves for that increase. In fact, it is already starting to happen. This month, in my city of Christchurch, the bus fares have gone up by 10 percent ahead of the GST rise that is coming in October. The bus fares have gone up by 10 percent. Yes, part of that increase is due to another piece of National legislation requiring that at least half of the cost of bus fares is met by passengers, but bus companies are also saying they have to start factoring in GST of 15 percent. Long before New Zealanders get any sense of relief from tax cuts—which were, supposedly, going to be nirvana for them, but which they know that they will not be; they know that the rise in GST will knock them for six—we are already starting to see the GST increase being factored in by businesses across the country.

I have been looking for a new electorate office in my electorate. The state of the economy is shown in the fact that I have been offered premises at half the price that those premises were being offered at 2 years ago. That is the state of the economy before the GST increase impacts on New Zealanders and their livelihoods, and they have to find another 2.5 percent from already stretched incomes. Christchurch is a city where people cannot find jobs, and where we have had 12,000 job losses over the past year—12,000 job losses. We are seeing that impact on restaurants that are empty, on hotel beds that are empty, and on a service sector that is feeling the pinch, and that is before the GST rise of 2.5 percent takes effect from 1 October.

This Government stands condemned. It has cut savings. It is increasing GST. It has a shameful, shabby record, about which members opposite should be feeling absolutely disgraced. This Government’s record on saving is appalling. It has neglected saving for 35 years, it did that at the 2008 election, and it is doing that again today.

Debate interrupted.

The House adjourned at 10 p.m.