Taxation (GST and Remedial Matters) Bill

I rise to take the first of a series of calls on Part 2. Part 2, as the Chair has rightly described, essentially covers pages 3 to 61 of the Supplementary Order Paper, concluding at the amendment to insert new clause 75B. It therefore covers the bulk of the matters under consideration on the Supplementary Order Paper.

💬 Hon Trevor Mallard: No, there is some really bulky stuff further on.

There are some substantial matters that come into Part 3 as well.

💬 Hon Trevor Mallard: It is bigger than the last part, but there is more substantive stuff to come.

This will be a long day, Mr Chairman. This will be a long day. The opportunity presents itself to repeat that the Labour Opposition, along with others, I understand, has been forced to change its vote on the bill as a whole because of the nature of this Supplementary Order Paper. This Supplementary Order Paper introduces fundamental changes to tax law that affect billions and billions of dollars of Crown revenue. For people who may be just tuning in, the changes were not introduced at the select committee, they have not gone through the proper tax policy process, they have not had the opportunity for public submissions, and they have not had the opportunity for submissions by members of the profession. The changes have not had the benefit of advice from the independent tax policy adviser who assists the Finance and Expenditure Committee.

In so doing, the Minister of Revenue has torpedoed what was a consensus on this bill. He had all parties in the House agreeing to the technical parts of this bill, which alone were in the bill up until today’s debate. By introducing under the cover of urgency this massive Supplementary Order Paper, which is by far the most far-reaching part of the bill—and indeed I would argue that this part of it, in particular, is the most far-reaching part of the bill—the Government is introducing a fundamental change to our tax law.

I want to take a moment, and I may need to spread it across a couple of calls, just to set out for the public the essence of the change that is proposed in this part to the loss attributing qualifying company regime and its replacement by the look-through company regime. I will start by summarising the importance of loss attributing qualifying companies. They were first introduced in 2003 under the previous Government, when there were only 63,000 of them, and the total loss attributing qualifying company losses claimed, according to the Parliamentary Library using Inland Revenue Department statistics, were $709.8 million. By 2008—that is, leaving out the last 2 years of rapid growth—the number of loss attributing qualifying companies had already more than doubled in number, to 129,900, reporting total loss attributing qualifying company losses claimed of $2.258 billion per annum. That is an extraordinary amount. We should just remember that the total corporate tax take is only about, from memory, $9 billion a year. This is losses avoided of a bit over $2.25 billion. So over a quarter of the corporate tax take is the subject of flows through the loss attributing qualifying company structure. That is extraordinary. A quarter of all corporate tax goes through loss attributing qualifying companies.

In urgency, without bothering to go to a select committee or the public, the Government is undertaking fundamental changes to this process. Not only is that surprising but in so doing the Government has ignored the recommendations of its own Tax Working Group. The Tax Working Group did not say that we should fine-tune loss attributing qualifying companies around the margins, call them something different, and allow 95 percent of the deductions to continue. The Tax Working Group told the Government that it had a fundamental problem because the existence of those structures is allowing an enormous amount of losses to be claimed. We were told that losses on residential property investment alone, which is a subset of this total, were in the order of magnitude of half a billion dollars of tax avoided per annum.

It is absolutely necessary to step the public through why this matters and why the travesty of process that Parliament is enduring today also matters as a consequence. The Government’s changes, by its own admission, account for around a quarter of the property avoidance alone, or—taken across the whole loss attributing qualifying company avoidance of 2 years ago, which has been growing rapidly, but let us use the 2008 figure—$2.25 billion, which is about 5 percent of the total. It is extraordinarily weak. Why is it weak? Because the look-through companies that are set up in this part still allow property losses to flow through past the company boundary to the personal income of the investor. So although it is a small step forward and it means that we cannot write off a company loss at 30 percent or 28 percent, we can write it off at the marginal tax rate of the investor, which is slightly less of a free shot to the corporate and property community, but not much of one.

The fundamental question that was never able to be debated in the select committee because the Government sneakily avoided putting it to the select committee—this fundamental change affecting billions of dollars—is why company losses should flow through to the personal income tax statements of an investor at all. Parliament has not had that first principles debate. There will be some reasons for that; I do not deny that. And I do not deny that to remove all of them—sometimes loosely called ring-fencing—would be a major step, but I have to say that Labour has not been convinced that those reasons are sufficient in these tough times to justify the loss of billions of dollars of hard-needed tax revenue. The erosion of the tax base is just too great, and it is compounded by the $14 billion of tax revenue given away by this Government over the planning period in Budget 2010. Is it any surprise that Bill English just this week had to admit that the Government now faces a fiscal deficit of $11 billion this year? Eleven billion dollars! And the Government is not cracking down on $2.5 billion of tax avoidance. It is legitimising it by changing the name of the vehicle and creating a new industry in restructuring for tax lawyers.

💬 David Bennett: Can’t hear him.

Well, I will keep talking until Mr Bennett does. He will be here for a very, very long time, because we think this matters.

💬 Hon Tau Henare: No one can hear, and no one wants to hear.

I will take the advice of Tau Henare, the well-known chocolate-covered banana—I do not know why Trevor Mallard thinks he is chocolate-covered. I personally like the word “butternut”—you know, brown on the outside and yellow in the middle. I thought that was a good one but Trevor liked chocolate banana. Either will do me. I will take the member’s advice and lean into the microphone.

The point is that an enormous amount of pain will be borne by ordinary New Zealanders who will witness what the Minister of Finance has already described as another effort at fiscal consolidation in the New Year—that is, another razor gang. He will have to prune hundreds of millions of dollars out of the three-quarters of the Budget baseline—hundreds of millions—that goes into health, education, and welfare, and the only reason he needs to prune it is that the Government is not cracking down on tax avoidance. Here was its opportunity to do that. Here was the opportunity to say that companies should be able to carry forward company losses—there is no argument about that. The intertemporal transfer of company losses is absolutely legitimate, but writing off company losses against personal income has to be questioned in these tough times—it has got to be questioned. Parliament was entitled to that debate, and it was entitled to the full McCoy; it was entitled to the debate at the select committee. The public was entitled to submit on whether they wanted property companies writing off $500 million of tax losses when we cannot afford teachers in our schools, when we cannot afford to pay for a rest home in Taihape, and when we could not afford home care for the elderly in the Manawatū.

At the outset of this debate on Part 2 of the Taxation (GST and Remedial Matters) Bill I thought it might be useful to put on the table the context in which the debate is occurring, to help shape future contributions.

The member who just resumed his seat, David Cunliffe, made reference to the work of the Tax Working Group. I guess the seminal figures from its report were the $200 billion investment in rental housing that was generating net rental losses of about half a billion dollars, and approximately $150 million in tax revenue losses in 2008. The Tax Working Group recommended a series of changes, including a capital gains tax, the ring-fencing of losses, and a land tax, which the Government announced in February of this year that it was not proceeding with, though it said it would look at other measures. In the Budget the changes to the loss attributing qualifying companies regime were foreshadowed. As I indicated in the debate on Part 1, a process was then entered into that led to the changes that are coming before the Committee today.

I think it is important to make the following point, as well. We have about 130,000 loss attributing qualifying companies in New Zealand. Parenthetically, I observed that their growth exploded during the term of the previous Government, principally as a consequence of people using them for vehicles to avoid paying the 39 percent top tax rate. Be that as it may, it is a fallacy to assume that all of those companies are property related. In fact, only approximately one-half of them are in the property sector. There are somewhere in the order of 80,000 loss attributing qualifying companies with a property bent to them.

The member who spoke earlier talked about $2.3 billion in tax losses, by implication, in the property area. In fact, the actual loss is estimated at about $800 million in the rental property sector. The issue then becomes how much of that can be recouped, and how much of it is an appropriate target, if you like, bearing in mind the fact that there are a number of other activities for which the loss attributing qualifying companies model is a perfectly legitimate and proper vehicle to operate within.

It is not correct to say—whether it be the $2.3 billion total tax take, or even just the $800 million in respect of property-related loss attributing qualifying companies—that moving to standard company treatment automatically recoups all of that revenue, because of the loss offset provisions and the fact that losses can be carried forward for a period of time. It is correct to say that those losses would be deductible at a lower rate than deductions from the shareholders’ personal incomes, and that the move to a partnership regime with full flow-through could then be transferred on to an individual shareholder.

The point is that the changes that are being made here were driven by the Tax Working Group’s initial recommendations. The Government’s initial thinking related to the whole sweep of the qualifying company regime, which has been modified through the process that we embarked upon, which I referred to earlier. The modified regime is introduced in the provisions of Part 2, and those provisions will be better targeted at the audience at which they are aimed. Also, the fact that in 2012 we will review the dividend regime, which we have announced, will mean that the capacity to make the complete conversion to full company status will be much easier.

💬 Hon David Cunliffe: Why no urgency for that?

The simple reason is that moving at that point in time is about as urgent as one can get, given the fact that we want to make other changes to move out the ability to attribute loss from 1 April next year. It is quite a staged process.

As the member rightly pointed out in his opening comments, loss attributing qualifying companies have exploded in number. One can argue the reasons for that. I think it is perfectly clear that the escalation of the top tax rate to 39c had a lot to do with it. There is also the fact that the tax losses attributable through the loss attributing qualifying companies regime grew something like 400 percent during the previous decade.

This issue has been worked through very carefully indeed. We have sought to obtain a reasonable balance between dealing with the issues that the Tax Working Group set out as requiring attention and not adversely affecting a number of loss attributing qualifying companies, and qualifying company - related activities that take place over forestry, agriculture, fishing, tourism, and a whole range of other activities.

The interesting thing is that there is general agreement across the Chamber that the loss attributing qualifying company regime has probably been abused a bit. The substantial part of Supplementary Order Paper 187 in the name of the Hon Peter Dunne, as has been mentioned by my colleague the Hon David Cunliffe and by Minister Dunne, deals with loss attributing qualifying companies. It is a large part of the Supplementary Order Paper. The Minister talked about the fact that change in this area was signalled in the Budget. We know that, and we accept that. He said he had consulted widely—and we know that too; we understand and accept that—and this Supplementary Order Paper is the result of that consultation.

I suppose that where we have great difficulty is with the fact that that is the way all tax bills come to their genesis. A proposal is announced somewhere. A Minister comes up with a working group or a suggestion, or it is flagged somewhere that change needs to occur. So there is consultation with the Inland Revenue Department and papers are written—and Mr Chair knows the process better than I do. A paper goes out and it comes back, and, as a result of that, a bill is drafted. We totally accept that the Minister has followed the right process right up to that point. However, the process is only about half-completed when it gets to that. We now have a massive Supplementary Order Paper, which is actually larger than the bill itself. At 71 pages, this Supplementary Order Paper is larger that the bill. In fact, it is larger than all but two of the nine tax bills that have come before the House in this term. So it is quite a massive Supplementary Order Paper, and there is a lot of detail in it.

This sort of Supplementary Order Paper goes out for consultation to tax experts, which is all very well, but what about the ordinary New Zealanders who will be affected by this change? That is my concern. As the Minister pointed out, there are about 130,000 active loss attributing qualifying companies, and my understanding is—I think we got this from the officials—that a lot more than 50 percent of them are used to shelter rental properties. But that does not matter—the bottom line is that there are a lot of these companies. Their numbers have exploded, and they are used so that people can minimise their tax. This bill makes changes, but I suppose where I and my colleagues are coming from is the view that we need to complete the rest of the process in order to allow us to have robust legislation.

When I look at the amendments to clause 74 on the Supplementary Order Paper, I see new subclause (6C), which states: “The definition of LAQC is repealed.” So immediately 130,000 companies are affected. I do not know how many shareholders are in them, but a lot of New Zealanders are affected by this measure. An incredible number of New Zealanders are affected by it. The Supplementary Order Paper then goes on state in new subclause (6D): “The following is inserted in its appropriate alphabetical order: ‘look-through company …’ ”. So this is not a small Supplementary Order Paper that will affect about 10 people. It makes huge changes to tax legislation, and that is our point. It would have been preferable for the Supplementary Order Paper to be referred to the Finance and Expenditure Committee, for our independent adviser to be available, and for us to be able to question officials—and we have a lot of questions about this. We are not necessarily saying the measures in the Supplementary Order Paper are wrong. But we are aware, for example, that the officials put forward two proposals to the Minister about how to deal with loss attributing qualifying companies. This is only one of them. The other one was to actually remove loss attributing qualifying companies from the legislation altogether. We would like to know why that was not considered.

Those are the sorts of questions that we, as members of Parliament elected by New Zealanders to represent them, could have put to the Finance and Expenditure Committee and to the officials. We could have asked to be advised by our independent tax expert, because, as I mentioned, no one on the Finance and Expenditure Committee is a tax expert. We acknowledge that. That is why we have Ms Turner in there, representing us and helping us out. We could have asked a number of questions with regard to this measure. That is where our concern comes in.

I talked about a number of the questions that we asked, and the Minister said about $800 million is lost from the rental property market by the use of loss attributing qualifying companies. I know that loss attributing qualifying companies in general, in 2008, took about $2.2 billion out of the tax receipts. That is a substantial amount of money. Even if maybe only half of the loss attributing qualifying companies operate to shelter rental properties and it was only $1.1 billion, it is a substantial amount of money by anyone’s reckoning. When we talk about making cuts of $13 million from night classes, we can see it is a substantial amount of money.

The Minister said these changes were signalled in the Budget, and I accept that. I think that clawing back depreciation will make a big change, and we supported that. However, one of the questions that I really would have liked to ask in the select committee—and I would like to ask the Minister this—is why the Government did not simply ring-fence losses to do with rental properties, as opposed to providing for a look-through company where people can still offset against their income losses made when they were loss attributing qualifying companies. I know that the structure takes away any sort of arbitrage between the loss attributing qualifying company rate and the marginal tax rate, and that is where all the losses came through. That is not a bad thing. But I am not a tax expert, and I would have loved to hear the reasons and the rationale behind that. We get briefing papers from the Inland Revenue Department like you would not believe. They arrive in forests. It allows us to get our heads around the rationale behind tax legislation.

I want to know why people were using loss attributing qualifying companies to hold their rental properties, and why they were not using other types of entities. Why did they not just hold those properties themselves? Fundamentally, we are talking about losses. We understand that look-through companies mean that people have to attribute profits from those companies to their marginal tax rate, but why were they using loss attributing qualifying companies for losses? Surely the company structure would have allowed that; surely just holding properties as an individual would have allowed that. I know about the arguments around liability, but those are questions that I would have liked to ask.

What are the practical impacts of the changes to the loss attributing qualifying company regime? Will they affect the amount of rental housing out there? We know the market is very, very soft at the moment; any real estate agent will tell us that. I was talking to a lawyer last night who deals in property, and he said it has just dried up. He said one of the reasons is the changes that have been made. We talked about loss attributing qualifying companies, and he said changes probably needed to be made, but when I asked him what sorts of changes were needed, he was sort of umming and ahing. This person is a lawyer who deals with this legislation as part of his job every day. That is why I say the Minister took the Supplementary Order Paper to a certain point in the process, but he needed to take it further.

The Minister said the bill was made available to the public on Tuesday. I would like to ask any member, or anyone who is watching—I know we cannot refer to people watching on the TV—what is meant by a look-through company. Was anyone aware of this proposal? Was it published as a half-page ad in the New Zealand Herald that loss attributing qualifying companies would no longer exist and would become look-through companies? I wonder whether any of the experts that the Minister consulted published in their newsletters that a Supplementary Order Paper would come before the House before Christmas that would get rid of loss attributing qualifying companies. I very much doubt it. If the usual process had been followed, submitters would have had the opportunity to comment. We normally allow a 5-week lead time for tax bills that are referred to the Finance and Expenditure Committee. Notice goes out in a whole lot of ads, so that people can look at an ad and make a conscious decision on whether they want to have a say on a bill. I doubt whether many people knew about this measure. Let us remember there are 130,000 loss attributing qualifying companies, and a larger number of shareholders. I very much doubt whether even a small fraction of that 130,000 would know what a look-through company is.

This is what a select committee process would have been able to bring out into the open. It could have provided consultation and released documents. There have been documents out there and changes have been signalled, but this Supplementary Order Paper was not signalled. I think it is the reasonable expectation of the vast majority of New Zealanders that any form of tax legislation that with a drop of a hammer wipes out 130,000 legal entities should be open to public consultation. I doubt whether any member in this House would not agree that if Parliament suddenly does away with 130,000 of anything, there should be some level of public, as well as expert, input. This Supplementary Order Paper is bigger than the bill. We have a major concern about that. No one can get their heads around this. We understand what look-through companies are now, because we had a briefing from the officials. We have a sort of a feel of the consequences, but we do not know what they all are, at all. I am keen to know whether the Government looked at any other changes. Did the Minister consider or take any other changes out to consultation? Did the Minister ask the experts?

I move, That the question be now put.

I want to speak on clause 28 of the Taxation (GST and Remedial Matters) Bill. I note Supplementary Order Paper 187, which refers to some changes to clause 28 in respect of Government grants to business, most particularly payments in the nature of a grant or subsidy to a business, a grant-related suspensory loan, advances, and the tax treatment of those Government grants.

I want to speak in support of Government grants to businesses and the tax treatment of them because it is a very timely issue. As all members of this House well know, my city of Christchurch was knocked around very badly by the 4 September earthquake. There is a very strong need at this point in time for businesses in my electorate, particularly in my central business district, and across Christchurch and Canterbury—

💬 David Bennett: It’s not your CBD.

The central business district is in my electorate of Christchurch Central. [Interruption] Yes, it is, and we are seeing hundreds and hundreds of businesses that are struggling to survive. They were coming through the recession, and now, through no fault of their own, they are struggling. We have experienced a once-in-750-year disaster, and the case for Government grants and assistance is extraordinarily strong.

There is no precedent for what happened in Christchurch. It is acknowledged, from the Prime Minister down, that this was a once-in-750-year event. The commentary from the Prime Minister and from other Ministers in the Key-led Cabinet was that whatever it took to assist Canterbury to get back on its feet would be done. Yet on Monday of last week the Minister for Canterbury Earthquake Recovery, in the face of a number of approaches to him from business organisations for assistance for Canterbury business, announced a derisory package that provided—

The CHAIRPERSON (Eric Roy): Can the member show me the relevance of his comments to Part 2.

I am relating them to clause 28, which—as amended by the Supplementary Order Paper—provides for the tax treatment of Government grants to businesses. I say that there is a very strong case for businesses in Christchurch to be provided with grants and with the tax treatment inherent in this Supplementary Order Paper so they can survive and start paying tax again.

Those businesses at the moment have suffered a turnover loss of as much as 80 percent since the 4 September quake—80 percent. They need the assistance that this clause envisages. We are not seeing any assistance. The announcement that came provided a sum of $100,000 to promote Canterbury businesses, shared with the good folk of Kaiapoi, and $80,000 for Christchurch when they are needing suspensory loans, grants, and tax assistance as envisaged by this clause. So we have the tax treatment provided for under this clause, but we are not getting, and we will not see, assistance for businesses. According to the Minister when he was in the House yesterday, this is because there are thousands of businesses in Canterbury that are thriving. I would like to see a Canterbury member opposite stand up and recite a list of thousands of Canterbury businesses that are thriving and do not need the Government support and the tax treatment provided in clause 28.

I am not aware of thousands of Canterbury businesses that are thriving. I am aware of hundreds and hundreds of Canterbury businesses that are on their knees and have asked for Government support and assistance as envisaged under clause 28. It is envisaged that we would see suspensory loans provided or a provision of a grant to a business to assist it, most particularly through the Christmas and New Year period, which is the time when those businesses are trying to hang on to staff and pay their holiday pay in the face of a business environment where they may be getting only $1 in $2 of the income that they were getting on 4 September, or worse. That is why the Government, in the legislation, provides for suspensory loans, for grants to assist businesses, and for assistance as envisaged by this clause, which provides for the tax treatment of those businesses.

So the Government is acknowledging that it has a role to play, and, therefore, it needs to have the appropriate tax treatment when there is the provision of assistance to businesses. Yet we are not seeing the assistance to those businesses under the Government. We are providing for the tax treatment of assistance, but we are not seeing the assistance. The outcome for the Minister of Revenue, as hundreds and hundreds of businesses go to the wall, will be less revenue. If there is no assistance provided—with the appropriate tax treatment, as provided for in clause 28—the Minister will have less revenue.

There is another consequence. There is a sucking sound going on in Canterbury at the moment, particularly in my electorate of Christchurch Central, which is home to the central business district. The sucking sound is the sound of jobs disappearing. Every person who is displaced by a business that can no longer afford him or her—because of the turnover and lack of assistance as envisaged under clause 28, and the tax treatment provided—and every person who goes home with their final pay cheque, if they get it, is one more person who is not spending money, not buying their lunch, not buying a coffee, not buying a cup of tea, not buying a glass of beer after work, not buying a pair of shoes, and not shopping in the central business district. That further impacts on the viability of those very businesses that are attempting to survive.

Those businesses quite rightly look to the Government. They know that the Government has provided for suspensory loans, for grants, for assistance, and for appropriate tax treatment. They are not asking for inappropriate tax treatment; they are asking for an assistance package that will give them the chance to remain viable and continue employing people. I ask the question of members opposite, some of whom represent regions like the Waikato, which is suffering at the moment from another drought. My heart goes out to the farmers of the Waikato. I saw a chap on TV last night in tears, and my heart goes out to him. But it has to be said that farming comes in cycles, and droughts hit farming on a regular basis. Farmers obviously have to do their best to try to provide for those droughts—it is part of the cycle.

An event that happens once in 750 years is not part of a cycle, and business cannot provide for it. They cannot predict it. That is why Governments through the ages in New Zealand have been there to assist New Zealanders and assist New Zealand businesses with the appropriate tax treatment, as provided for under clause 28. But those businesses are not getting that assistance, and I want to know from members opposite why they are not.

I noted the Minister for Earthquake Recovery in the House yesterday talking about thousands of thriving businesses and suggesting that people were getting perfectly adequate information from the Earthquake Commission. That is not what I am hearing, as the member representing Christchurch Central, from the central business district. I am hearing from businesses that are looking to the Government for some support and assistance—the Government that they, in most instances, probably voted for. Small and medium sized enterprises—like the cobbler who has a shop in the City Mall and is the brother of Aaron Gilmore—probably voted for the National-led Government, believing that they would get a fair deal. I would like to know whether Aaron Gilmore would like to see some support and assistance for his brother in that enterprise. I do not know what his turnover downturn is, but I would like to know. I would like to know whether Aaron Gilmore’s brother is being affected and whether he would like to see, through clause 28 and its tax treatment, some support and assistance for his business, along with many hundreds and hundreds of others. I met his father in another cobbler’s shop where I was getting my shoes repaired, and I believe that he holds similar sentiments—that it is the role of the Government at times of crisis and times of need to provide assistance.

Those businesses will get appropriate tax treatment under clause 28 of this bill, and I wholly support that. But there cannot be appropriate tax treatment if the assistance is not provided, and that assistance is not coming. There is a deafening silence from the National members from Canterbury. They are not standing up for their constituents and telling Minister Brownlee: “It is not good enough.” We are seeing viable businesses shed staff and close their doors when all they need is some support, reassurance, and assistance, with the appropriate tax treatment provided under clause 28 in this bill. We have seen none of those members stand up. They are silent, and they should be standing up for their constituents.

I move, That the question be now put.

Without commenting on your judgment, Mr Chairman, which I will strongly support, I say to members opposite that Part 2 of the Taxation (GST and Remedial Matters) Bill, which are amendments to the Income Tax Act 2007, is already, without the Supplementary Order Paper, a very substantial part. But coming into the bill by way of a Supplementary Order Paper, a massive change in taxation policy for New Zealand has been brought. It is a most inappropriate way of doing it, and because it has not gone to a select committee, the precedent has always been that there will be an extended debate on those matters. The Speaker’s rulings have regularly been over many years that when legislation has not gone to a select committee the Committee of the whole House stage is extended.

💬 David Bennett: When did you become the Speaker?

The ignorant upstart from Hamilton, who knows nothing about the way Parliament runs, should know that when bills do not go to a select committee there is an extended hearing at the Committee stage. I say to members that I thought we were cruelly cut off after 2.5 hours on Part 1, and Part 2 is much more substantive, especially because this part imports the loss attributing qualifying companies in. As I indicated to the Minister in the chair earlier, I noticed an issue very late last night. I have been focusing on it only this morning, and there are a lot of questions, and without wanting to bring the Chair into the debate at all, there are some interesting questions on the handling of livestock in the bill. I want to know whether—I see a look on the face of the Chairman, who has no idea—

The CHAIRPERSON (Eric Roy): The member must not bring the Chair into the debate, or his speech will be terminated. This is an important part of the bill. I will not tolerate that.

It is an extremely important part of the bill, and one of the reasons it is important is the effect it will have on farmers and on sharemilkers as their loss attributing qualifying companies are unwound. To be fair to the Minister, it is mentioned in the bill, but we do not know how it is to be applied, because the House has not had the benefit of a select committee hearing.

I do not know—and the Minister in the chair, the Minister of Revenue, may want to give me a nod or a wink if he wishes—whether Federated Farmers were consulted on the effect on livestock of the unwinding of the loss attributing qualifying companies. The Minister is finding out; the officials are not sure. I would be surprised if they were, and I would be surprised if Federated Farmers had got their heads around this important taxation change for them. Normally, of course, a bill goes off to a select committee. I am looking at Damien O’Connor; I will wise him up and I am sure he will want to take a couple of calls, now that we have identified the qualifying area. The Minister may like to tell us whether Federated Farmers have been apprised of the changes that will affect their members as a result of the undoing of the taxation arrangements for loss attributing qualifying companies and the new arrangements. I ask what the implications are for sharemilkers of the exit exemptions, for example. What happens when there is a date difference between the taxation year for the sharemilker and the dates that apply in this bill as far as the unwinding of the loss attributing qualifying companies is concerned?

Dates for sharemilkers are particularly important. Their years are different years, for reasons that those of us who have lived in rural areas understand. They have their changeover, and their years are, quite properly, lined up in that way. But there is no sign that that has been taken into account in the large section of amendments that are sitting in Supplementary Order Paper 187.

There are a number of formulae in this part of the legislation. Under the heading “Deduction” in new section DB 65(2), which is to be inserted in the Income Tax Act 2007 by new clause 30BA on the Supplementary Order Paper, there is a calculation involving a starting pool where a figure of 0.02 is used. It is then multiplied by the number of whole months over 12, which obviously works out the proportion of the year. I ask the Minister where that figure of 0.02 has come from. I have been looking for the definition of the starting pool and I have been unable to find it defined within the legislation. I am happy for the Minister to point it out. I have worked my way around taxation legislation in the past, but I have not yet been able to find in this Supplementary Order Paper a definition of starting pool, and I have not been able to find it in the substantive amending legislation, either.

There is a figure of 0.02, which I presume is 20 percent—I presume it is a 20 percent depreciation factor. But if deductions are no longer available for depreciation, then I am not sure of the relevance of that figure, or of the figure of 0.15 that is used later in the legislation, as well. I think these are relatively reasonable questions, and I am sure members on my side—although having said that, I think that earlier on they have had the wool pulled over their eyes once or twice as they have been dealing with this legislation—would have been able to work their way through the legislation and gain some understanding of the answers to them. But when looking at this Supplementary Order Paper, as I have done, I do not think we have got it right. The proposed new clause 41D, which is proposed to be inserted in the bill by Supplementary Order Paper 187, relates to the attribution rules calculation for amalgamated companies. For amalgamated companies involved in loss attributing qualifying companies that are moving to the see-through arrangements, we have some calculation rules for attribution. If we, as a Parliament, are to be passing these attribution rules, then it is important that we understand them and know that they are right. I am not saying they are enormously complex, but it would be good—and it certainly would happen at a select committee—if people were able to work their way through them, fully understand them, and make sure that we are doing the right thing.

We have to decide what we are doing as a Committee of the whole House. We are meant to be approving the detail of this bill. Until quite recently, we would have been going through it on a clause by clause basis, or even, as we did when I was first here, on a line-by-line basis, working through and making sure we were satisfied that we understood what we were passing into law. It is fair to say that often there would have been a smaller group of people looking at it—people who had the technical expertise—but they would have almost certainly done it on the basis that it had been to a select committee, and that has not happened here. If we look at the proposed new clause 41H, which is to be inserted in the Income Tax Act 2007 as part of the proposed new clauses 41B to 41N on the Supplementary Order Paper, it inserts new section HA 7B, “Grandparenting requirement”, after section HA 7 of that Act. It states: “A qualifying company must have been a qualifying company at the end of the income year before the first income year that starts on or after 1 April 2011.” I ask how that affects people who are sharemilkers. Which year is it, as far as sharemilkers are concerned?

I move, That the question be now put.

I will follow on from some of the points made by my colleague the Hon Trevor Mallard. I start by asking David Bennett, one of my colleagues across the Chamber, whether he might get up to talk to us about some of the implications of the Taxation (GST and Remedial Matters) Bill for sharemilkers. I understand that, being an MP from the Waikato, he has some knowledge on the matter of sharemilkers. I am sure that he will want to stand up and try to deal with some of those very important questions about these tax changes and the implications they may have for sharemilkers.

I rise to talk on Part 2. As Trevor Mallard has said, this is a huge part with a whole range of provisions that traverse some quite wide territory, including matters relating to emissions units, superannuation and the treatment of various superannuation matters, and the calculation of tax credits of multi-rate portfolio investment entities and exceptions for foreign portfolio investment entity equivalents. A whole range of quite substantive matters is amended in this very large part of the bill.

Members on this side of the Chamber are concerned that despite all the good work, despite the consideration by a select committee—my colleague Stuart Nash has referred to some of this concern—and despite the ability to deal with those matters collaboratively as a Committee, we have instead found that we have ended up opposing this bill because of the substantial Supplementary Order Paper 187, which has raised a whole range of very significant matters, in addition to what was already a very significant bill, without the select committee having had the ability to consider it. We consider that to be a serious abuse of process.

Of course, it probably is not a surprise to see that that is happening, because time after time with this Government we have seen an abuse of process and a lack of commitment to our democratic process and to the proper use of select committees. It has fast tracked significant legislation through shortened select committee process or through the use of urgency. Here we are in urgency again, and it is an abuse of process.

This Supplementary Order Paper was introduced at the eleventh hour, and MPs have had very little time to consider it in detail. At 70 pages, it is actually larger than the original bill, which at its first reading was 57 pages long. The provisions of the Supplementary Order Paper should have gone to a select committee. This is the first opportunity this Parliament has had to consider the provisions of the Supplementary Order Paper. The complexity of tax legislation—and I am certainly no expert on tax legislation—means that it benefits more than most legislation from full select committee processes. We need people to consider it and we need to get expert advice on it.

I turn to the provisions of the Supplementary Order Paper. A number of my colleagues have already looked at the changes to loss attributing qualifying companies. On first appearance we would probably have had very little problem with a number of areas, and were likely to want to support them. We do not want to see people abusing the system to minimise or limit their tax liabilities.

I will also talk specifically about the provisions relating to the broader definition of “income” for social assistance. On the face of it, it sounds like a very sensible provision to include income from family trusts, fringe benefits in certain circumstances, income from a cash portfolio investment entity that is not locked in, and income from a spouse living overseas. People are structuring their affairs to inflate their entitlements, and we have concerns, clearly, if that structuring is being used to abuse things such as Working for Families, which is designed to assist people who genuinely need it, not people who can structure their income in certain ways to get assistance that they are not in need of.

I note that wage earners and salary earners generally end up paying the tax they have to pay. Their affairs are generally simple, and they end up paying the tax they are liable to pay. On this side of the Chamber we do not see it as appropriate that those who can structure sources of income to minimise their tax liabilities should be able to access entitlements that they do not need. To that extent, there are probably some very sensible provisions in this Supplementary Order Paper.

Talking of wage earners and salary earners, I also note the fact that this Government has made it more difficult for people who rely primarily on wages and salaries to make ends meet. Those people are struggling at the moment. They pay their full tax liabilities, and they are struggling. A number of the changes that the Government has made in employment relations legislation mean they will struggle more. Those changes will potentially reduce their income. People who are dismissed without reason or right of redress, of course, lose income. People who cannot access assistance from their union organiser to organise themselves to collectively bargain and improve their income will also effectively suffer on wages that are lower than what they need. That has tax implications too. We all should be aspiring to the completely opposite situation, where we lift wages and have employment relations legislation that makes it easier for people to organise and improve their wages.

Going back to the provisions of Part 2, I reiterate that this is already a very complicated bill. It has already had a lot of work done on it, and has had a degree of support across the House. I think it is incredibly silly for the Government to have done what it has done in abusing the process by tabling this Supplementary Order Paper, which means that we will end up voting against the bill. The Government could have done what it was trying to do, particularly make changes to loss attributing qualifying companies and the definition of “income” for social assistance, and we may well still have supported it. The Government could have done that using a different mechanism. With that comment, I repeat that Labour will not be supporting this bill.

I move, That the question be now put.

The CHAIRPERSON (Eric Roy): The question is—

💬 Hon David Cunliffe: I raise a point of order, Mr Chairperson. We respect your right to rule on the point at which closure motions can be taken. However, you will recall that earlier in the debate on this part, the debate drew attention to the fact that this is the most substantial part relating to the new Supplementary Order Paper. It covers some 60 pages of the Supplementary Order Paper. There are complex interrelationships between the amended clauses and this bill, which we are having to cross-check against the base reference clauses in the main bill. I submit to you, Mr Chairperson, that this is an opportunity for you to show your excellent judgment and consider, in light of the absence of any select committee process, whether there has in fact been full, due, and proper time for the Committee to consider the implications of this part of the bill, which affects billions of dollars of tax loss.

The CHAIRPERSON (Eric Roy): I take very seriously the issue of calls, and I apply a number of measures on each occasion. I have given a very considered opinion. I will put the question. If members deem that decision to be unsatisfactory, they should vote against the closure motion.

I raise a point of order, Mr Chairperson. I hesitate to interrupt you, but as you will be aware, you will shortly put some amendments. I wish to draw the Committee’s attention to the fact that my colleague Mr Burns has not yet had the opportunity of a call to discuss the amendment in his name, which you are shortly to put to the Committee. I appeal again to your sense of good judgment. Less than an hour has been spent on debate on this part. You are about to put before the Committee amendments that have not had the opportunity for discussion, even by the member who has put them.

The CHAIRPERSON (Eric Roy): The closure has been put, and the Committee has voted and expressed its will. In respect of the first question, which is the typescript amendment in the name of Brendon Burns, it is ruled out of order because it does not meet the fiscal aggregate rule as laid out in Standing Order 320(1).

The question was put that the following amendment in the name of the Hon Peter Dunne to the amendment set out on Supplementary Order Paper 187 in his name to insert new clauses 62B and 62C be agreed to:

to omit new section ME 13(3), other than the heading, and substitute the following subsection:

“(3) If, in the absence of this subsection, the total value of payments that would be included under subsection (1) in the family scheme income for the year of the person and the person’s spouse, civil union partner, or de facto partner is less than or equal to $5,000, then the payments paid or provided to the person are not included in the person’s family scheme income for the income year.”