Taxation (GST and Remedial Matters) Bill

I was hoping that you, Mr Chairman, would call me in the debate on the last part, but that is OK.

The CHAIRPERSON (Eric Roy): You’re getting a very fair deal.

It is a very fair deal, I agree. You are a very fair Chairman.

We are back, once again, to amendments made in this 70-page Supplementary Order Paper, which was tabled on Wednesday. I wonder whether there is a little dissent between the honourable Minister in the chair, the Minister of Revenue, and his National colleagues. I say that because of what happened about 10 minutes ago, before the Hon Pete Hodgson took a call. The Minister stood up and said he thought we could deal with this if we had a couple more calls on the part. We could deal with it here and now.

That was sort of agreed. Labour members understood that that was what would happen: there would be a couple of calls and we would deal with it, because it was quite an important matter dealing with members’ out-of-town expenses. As soon as that was agreed upon—and I thought it was agreed upon—the Minister in the chair went outside—

💬 Chris Tremain: I raise a point of order, Mr Chairperson. This has nothing to do with Part 5 of the bill. Again, this is a tight part and he is talking about what might have happened historically. Can you ask him to focus on Part 5, please.

The CHAIRPERSON (Eric Roy): Yes, I think we should debate Part 5.

I agree. I suppose I was just very surprised that National tried to call a closure motion before the Minister returned to the chair. That is why I was a bit surprised.

Part 5 basically deals with amendments to the KiwiSaver Act 2006. There is a summary of proposed amendments in the Supplementary Order Paper. First of all there is a consequential amendment that relates to the introduction of look-through companies. We have talked about these at length and no doubt we will be talking about them a lot more. The amendment gets rid of loss attributing qualifying companies and brings in look-through companies without any proper consultation at all. The Supplementary Order Paper has not gone to a select committee. Mr Brendon Burns, who is a very valuable member of the Finance and Expenditure Committee, the Hon Shane Jones, who is a very important member of the select committee, and the Hon David Cunliffe have not been allowed to look at this amendment and understand the implications of the changes to the KiwiSaver Act and look-through companies. If it had gone to the select committee we would have been able to question tax officials and we would have been able to question our expert adviser and come up with a reasonable debate and a good line on how it will work. We would have been able to satisfy ourselves that, in fact, this is good, sound legislation.

The irony is that when I look in the Supplementary Order Paper at new clause 94B, which talks about look-through companies, I see that we would not necessarily disagree with some of this legislation if we had had the opportunity to analyse it in the way that members of Parliament should and the way that the people of New Zealand expect. That is the concern we have about this legislation. I am not too sure whether we have made that clear, but that is the concern we have about it.

I will talk about clauses 94 to 99. A summary of the proposed amendments states: “If a KiwiSaver scheme provider winds up their operation and ceases to exist, Inland Revenue manages the transfer of members to a new scheme,”—that sounds good; it is a great idea—“following notification by the scheme trustees or the Government Actuary. Several remedial amendments to the scheme wind-up provisions within the KiwiSaver Act 2006 will fine-tune the current provisions, ensuring they give full effect to the scheme wind-up policy intent. These amendments clarify the date a member is allocated to a new scheme, add a requirement for scheme providers to supply the IRD number (tax file number) they hold for transferring members, and remove the requirement to send additional information packs to existing members.” It is one of those common-sense amendments—if we take out the Supplementary Order Paper and put it to one side—that actually makes it easier for people to become involved and to stay involved within the KiwiSaver provision and within the tax regime.

As either the Hon Trevor Mallard or the Hon Pete Hodgson—someone on the Labour side—mentioned, tax legislation is probably too big at the moment. I was talking to a Queen’s Counsel about 6 months ago and he said that Singaporean tax legislation is about one-tenth the size of New Zealand tax legislation and there are no problems with the Singaporean regime in terms of the level of avoidance we have here. It may be, of course, that tax avoiders in Singapore get whipped—I am not too sure whether that is the case—which might act as a deterrent. But the point is that we have a lot of tax legislation, it is very complex, and it is quite hard to understand.

My colleague Pete Hodgson outlined that point before. As a very senior member of Parliament and as a former Cabinet Minister who knows legislation like the back of his hand—and he knows his hand very well; he was a vet—if he finds this legislation hard to understand, how will New Zealanders who are concerned about the complexity of legislation find it? Pete Hodgson knows legislation, he knows how to read it, and he knows how to cross-reference it, yet even he is having difficulty. That is no disrespect to my colleague’s intelligence, because we all know that “vetenariany” school—I cannot even say it properly, can I? Vet school is one of the hardest to get into. Well, it is now; it might not have been when Pete Hodgson got in, but I suspect it was probably even harder.

I come back to KiwiSaver. KiwiSaver is a hugely successful scheme—

💬 Brendon Burns: A great Labour scheme.

—put together, of course, by Labour. But we do not need to go on about all successful schemes being put together by Labour! We absolutely need to make it easy and as simple as possible for people to remain in schemes for whatever reason they decide, even if, for example, a provider winds up. If a provider winds up and the person putting money into that scheme wishes to remain in KiwiSaver—and why would they not—this amendment makes it easy for them to do so.

Basically, once KiwiSaver scheme trustees resolve to wind up their scheme and nominate an effective date of closure, they have 14 days to lodge a copy of notice with both the Government Actuary and the Commissioner of Inland Revenue. Currently section 50 of the KiwiSaver Act 2006 determines that when the Commissioner receives notice from a provider of the impending wind-up of a scheme, the member must be allocated by default to another scheme as soon as is practicable. Section 51(4)(b) of the Act determines that the final date for allocating the member to a new scheme should be 3 months after the date on which the notice has been received.

The problem we had, and the problem that the Finance and Expenditure Committee dealt with, is that these sections do not take into account the effective date of closure nominated in the notice by the scheme that is being wound up. This is what clauses 94 to 99 deal with. It is likely to be the date that transfer of membership has been arranged for. These clauses just tie it up, clarify it, and make it a lot simpler. It makes it easier for Kiwis who are in KiwiSaver to make sure they do not miss out in any way.

To have the final allocation date set at 3 months after the date that notification was received can cause an early transfer of members. Again, it is one of those unintentional consequences that we need to mitigate. This affects the scheme providers’ obligations to continue to meet the provision of their trustee until the scheme is wound up.

We have here a Supplementary Order Paper that changes some of the provisions of the Act. Of course, Labour members cannot support it, because we have only just seen it. A lot of us were out, we had planned days in our electorates, we were at school prize-givings, and we were doing all the things that good constituency and list MPs—and list MPs who are going to be constituency MPs—do, so we did not have a good opportunity to analyse new clause 94B, which is about the automatic enrolment rules that will not be applied. We have in clauses 94 to 99 of the bill the sort of common-sense tax legislation that Labour has always supported in the past because it has gone through the right process.

To be a little more detailed, clauses 95 and 96 talk about the allocation of certain people to default KiwiSaver schemes and the sending of investment statements. They do not take into account, as mentioned, the effective date of closure nominated by the scheme that is being wound up. It is likely to be the date that it has been arranged for. We have not talked about it at length, but we gave it due consideration in the select committee, as we would have given due consideration to new clause 94B, if that Supplementary Order Paper had been its own bill. One could make a very strong argument that a Supplementary Order Paper that is larger than the bill should perhaps be the bill itself, and the bill should be the Supplementary Order Paper. Having said that, I say that that is not a good way to do things. All tax legislation should be in a bill that goes through the proper process; I do not think anyone would doubt that at all.

Clause 98 deals with the issuing of information packs. Currently, section 59(a) of the KiwiSaver Act provides that KiwiSaver information packs should be sent to members when their scheme is winding up. Again, this makes sense, because we do not want people to be operating in the dark. The lack of financial literacy in this country has led to massive losses. I know the Retirement Commissioner is working very hard to address the issue of financial literacy, and I say that it is about time. It is a wonderful initiative that I think we all support—I know the Ministry of Education has got behind it—because the level of financial literacy is dreadful.

Here we are, debating Part 5, clauses 94 to 100, of the Taxation (GST and Remedial Matters) Bill. Again, I note with some disdain the fact that part of the Minister of Revenue’s 70-page Supplementary Order Paper 187 relates to clause 94 of Part 5. The comment I will make relates to the need for very great care to be taken with matters involving superannuation. We deal with issues that traverse generations when we make changes to superannuation. Of course, KiwiSaver is the basis for saving introduced by the last Labour Government, and this legislation amends the original 2006 Act. The signals are that this is probably a technical amendment, but the Government does need to tread very carefully in respect of superannuation, given its track record, which is poor, to say the very least. It dates back to Sir Robert Muldoon’s change to superannuation in 1975, changing from a contributing scheme to a “pay as you go” scheme for national superannuation. This was a retrograde step that ended a contributing scheme that would have seen New Zealand as a much wealthier nation today if it were still in place. It continued through to Jim Bolger’s “no ifs, no buts, no maybes” on the surcharge, which was rapidly overturned as soon as National got into Government. It was followed in 1995-1996 by the Shipley administration taking national superannuation from 65 percent of the average wage back to 60 percent of the average wage. That was also regarded by New Zealanders as wholly inappropriate, and that Government was judged in large part in 1999 on the basis of that, leading to a change in Government.

So this Government needs to tread very warily when it comes to making changes to superannuation. That is why, when debating Part 5 of the bill and noting that we have a Supplementary Order Paper introducing new clause 94B without any consideration other than this rapid debate in the Chamber under urgency 2 weeks before Christmas, Labour members have to express very real concern, because superannuation is something that stretches from teenagers—in fact, even further than that. We have a number of children who have been enrolled in KiwiSaver, with parents starting a saving regime, obviously encouraged and sparked by the Government contribution. I say that is fine, if it gets the saving habit established. The Government contribution was introduced in the KiwiSaver Act 2006, which is amended by the Part 5 of the bill, most of which I acknowledge came through the select committee in the appropriate process, but we do have the 70-page Supplementary Order Paper from the Minister, which has come out of nowhere, as far as Labour is concerned, in the last 48 hours. It has a new clause that is making changes without any opportunity for input or consideration, other than the very narrow window of opportunity provided here in the Committee stage and in the third reading of the bill. We have to note considerable concern about that.

Supplementary Order Paper 187 makes changes in respect of those receiving payments such as accident compensation or parental leave payments who are not deemed to be in new employment. This may well be a technical change, but as experience has shown over the years, when it comes to tax legislation, and, most especially, when we see tax legislation that affects superannuation, we need to proceed with great caution. Obviously, this debate is ongoing. We received the report of the Retirement Commissioner just this week, which suggested changes to the age of eligibility for superannuation. Obviously, those are issues that Parliament may have to consider at some point. But, at the moment, what we as a Parliament have in front of us in this Committee is a change introduced by Supplementary Order Paper to the legislation.

I note that there are always good ideas about superannuation. When we were debating KiwiSaver back in 2006, there were a host of things. It is appropriate that good ideas are given consideration by Parliament. It may be that Supplementary Order Paper 187 is introducing a change that is well considered, worthy, and makes the appropriate changes, but it does need to be aired properly through the parliamentary structure and through the select committee process.

Kia ora anō tātou. To ensure that members on the other side of the Chamber realise the particular legislation we are dealing with, I say that we are on Part 5 of the Taxation (GST and Remedial Matters) Bill, which contains the amendments to the KiwiSaver Act 2006. I fear the quality of the debate is about to change as the Minister of Revenue, Mr Dunne, leaves. That comment is neither positive nor negative; I just leave it for members to dwell upon.

I draw our attention to clause 220B, “Information sharing”. During the course of the deliberations at the Finance and Expenditure Committee, I was one of the members who expressed concern in relation to an earlier discussion document in which officials contemplated the provision of information to credit agencies in the private sector about the indebtedness of citizens and what obligations or disputes they might have, such as the liabilities of parents who have fled to Aussie while their kids are still here, or the filing of late tax returns and residual obligations that are being worked through. Fortunately, this portion does not bring legislative life to that suggestion in the discussion document. But, for the purposes of the KiwiSaver scheme, it says it is possible—and I should imagine that it is absolute common sense—that there be the sharing and provision of information.

It is always timely—and it is an important part of the role of the parliamentarian—to point out the danger of creep. The danger is that what seems to be an innocuous change or a modest regulatory amendment develops a momentum and life of its own. I guess I want to repeat to the Minister in the chair, the Minister of Education, and our colleagues on the other side of the Chamber that whenever we are dealing with information, we must ensure that the procedures and parameters around who manages that information, and the purposes for which the information is being sent or dedicated, are tightly constrained.

We all know as public figures that information when misused, or information that might fall into the wrong hands, can have a destructive impact on how fellow New Zealanders or the community may view our suitability for a role. Indeed, it can be used for a host of improper purposes. The Minister and the officials need to be extremely sensitive to that. A number of parliamentarians, by and large, do not want to obfuscate or worsen the pathway ahead for the officials working on tax legislation, but members should know that a host of us are regularly petitioned by garden-variety Kiwis about their dealings with the State agencies, about whether information being provided to them is both accurate and completely comprehensive, and about whether all the information that is being held is actually necessary.

There is a reference here to initial steps to winding up the KiwiSaver scheme. I do not want to repeat what earlier speakers have said; my colleagues have made our point. A small forest has been cut down and transformed into the Supplementary Order Paper. Mr Cunliffe and others have highlighted that. But without a doubt, these technical amendments presage a deeper, more savage set of changes that are on the way. I am sure my senior colleagues will address that matter in more detail than I will, but I cannot let my small contribution at this stage end without making the observation that I think there is a great deal of potency in the term “winding up of KiwiSaver scheme”. The attenuation and the weakening of KiwiSaver started from the moment that the last election was held and—unfortunately for us—lost.

I believe we will hear a great deal more from other speakers as to whether these technical changes actually reflect a deeper agenda—that is, the winding up of the KiwiSaver scheme as we know it.

I move, That the question be now put.

I rise to take my first call on Part 5, on the especially important topic of KiwiSaver. The proof of the pudding, as they say, is in the eating, and KiwiSaver has been eaten by almost one out of every two adult New Zealanders. There are 1.5 million - odd members in the KiwiSaver scheme, so I think people have voted with their feet and joined it. It has been a remarkably successful scheme, evidenced by the fact that it has grown so strongly.

Unfortunately, in the last 2 years, the rate of growth of the value of savings in the scheme has not kept pace with its earlier growth, and that, I would suggest, is a direct reflection of the way the current Government has cheapened the scheme, giving its employer buddies a free ride by reducing the employer contributions, and thereby, strangely, putting relatively more of the weight of contribution on to the Crown and the taxpayer, and that is potentially threatening the scheme.

It is very interesting that the Government has chosen a back-door Supplementary Order Paper to begin the next wave of tinkering with the KiwiSaver scheme. The KiwiSaver concept is up for discussion at the moment alongside other savings instruments in the context of the Savings Working Group, which is an academic group that has been brought together with heavily circumscribed terms of reference by the Minister of Finance, who says that it cannot look at compulsory savings or other things, but it can look at the opportunity costs of various ways of increasing the savings rate.

Before going into that, and the impact this part will have on that, in a bit more detail, I just have one definitional comment about the word “savings”. It has been overused at the moment by the Government. It contends that our recovery is not happening because New Zealand households and families are saving so much. Actually, that is a bit of a stretch of the definition. People are not consuming so much, because their real incomes are going down and they do not have as much to spend. Now, being broke is not the same as having stuff left over and putting it in the piggy bank. The piggy bank is dry. In fact, sometimes there is not food on the table. I just ducked out to go to the doctor for my throat infection, and do members know how much it was? It was $91. That is $91 for a general practitioner consultation. When Kiwi families are paying $91 to go to the general practitioner, I tell members, there will not be much left over for KiwiSaver or anything else. Who was it took caps off general practitioner fees? The current Government. So things are going to hell in a handbasket all around the country.

Our worry, in short, is that the amendments in this part to KiwiSaver are the thin end of a bigger wedge. We are worried that this Government will take the hatchet to KiwiSaver in the same the way it has undermined the New Zealand Superannuation Fund by suspending pre-funding for a decade. We are very, very cautious about what will come out of the Savings Working Group, and why. I hold in my hand the report of the Tax Working Group that lay behind some of the rest of this gargantuan Supplementary Order Paper. The Government first set very tight terms of reference and then it proceeded to ignore most of the recommendations, picking and choosing the few it wanted. Of course, the burden of most of the Supplementary Order Paper was in relation to replacing the loss attributing qualifying company regime with new look-through companies, which are a slightly more tepid version of loss attributing qualifying companies, but which still allow people to write off income from a company against personal income. We question in these tough times whether the country can afford those kinds of avoidance opportunities.

Part 5 has a range of clauses, like new clause 94B on the Supplementary Order Paper, which make technical amendments to the way KiwiSaver operates so that automatic entry rules will not apply. Well, automatic entry has been perhaps the single most important reason why so many people are in the KiwiSaver scheme, because once they start and pick up their Government contribution, then they get into a good savings habit. That is what real savings is; it is not just failing to consume because someone is short of money—it is actual savings habits that build the wealth of the family and the nation going forward. We are very concerned, and we oppose new clause 94B, which starts to undermine those automatic enrolment rules.

I move, That the question be now put.

I rise to speak to Part 5 of the Taxation (GST and Remedial Matters) Bill. Part 5, as the Hon David Cunliffe was saying, relates to amendments to the KiwiSaver Act 2006. The amendments in the bill have been scrutinised by the Finance and Expenditure Committee, which is something. The amendments—clauses 94 to 100C, which is “Schedule 1—KiwiSaver scheme rules”—relate to various provisions around the commissioner provisionally allocating people to default schemes, the completion of allocation to default schemes if a person does not choose his or her own KiwiSaver scheme, involuntary transfers, the sending of information, initial steps in winding up KiwiSaver schemes, and the like. That is what is in Part 5. Those amendments include allowing information to be shared between the Inland Revenue Department and a person’s scheme provider, wind-up provisions that ensure full effect is given to that to clarify the date on which the member is allocated to a new scheme, a requirement for the scheme providers to supply the tax file number, and so on.

I was not on the Finance and Expenditure Committee, but at least this bill was dealt with at the select committee. The Supplementary Order Paper makes changes to this part as well. Again, for the record, like my colleagues, I add my concerns that we have not had the ability to scrutinise the provisions of the Supplementary Order Paper. Taxation legislation is complicated, issues around superannuation are complicated, and these things need to be done properly. This is the sort of area where mistakes can be made and unintended consequences can occur, and we need to know the full implications of what is being proposed.

It is fair to say that we do not trust the Government in relation to KiwiSaver, and on good grounds. We do not trust the Government in relation to KiwiSaver because the experience to date has shown that this Government does not have a commitment to KiwiSaver. Basically, the record so far in terms of KiwiSaver has been to gut it. That was one of the very early acts of this Government.

KiwiSaver, as we should all recall, was an important attempt by the last Government to lift private saving, lift household saving, and assist individuals to save for their superannuation. More than that, it was an attempt to provide a pool of private savings that would then be available for investment, including investment in this country, which is something that is very, very lacking. It is one of the structural weaknesses in this economy and in our country that we do not have a pool of money available for investment into our own businesses to ensure that we create quality jobs and provide the goods and services that we want as a nation. We have recently seen commentator Standard and Poor’s, for example, talk about our problem with saving and our level of overseas indebtedness, particularly in the private sector.

We need to deal with this weakness. It has taken a long time, but the Government seems to have finally latched onto that. What has it done? It has set up a Savings Working Group, but, of course, it did so after gutting KiwiSaver, which was a real attempt to do something about individual saving, household saving, and the pre-funding of New Zealand superannuation. These things are serious.

As it happens, yesterday I went to a briefing by Dr Judith Davey about our ageing population, which adds another dimension to the importance of saving for superannuation. The Retirement Commissioner has just released a report on the issue of superannuation; this is a huge debate for us. The demographics are absolutely compelling in terms of our ageing population and the implications for the country in terms of the provision of superannuation. KiwiSaver was a very important part of the mix, which Labour feels very proud about, and we do not trust this Government in relation to KiwiSaver.

I go back to Part 5 and the amendment to it in the rather large Supplementary Order Paper, which was dumped on this Committee and is now being dealt with in a very poor manner. We do not want to see the Government deal with this legislation under urgency.

I move, That the question be now put.

I will hear one more, but I just say to members that this is the Committee stage. It is about the nuts and bolts of the bill. The presentations so far have been very wide ranging, and they should not include historical recounting of KiwiSaver or political positions.

I will do my best to comply with your observation, Mr Chair. Of course, one of the difficulties we have had is that, with this bill going through under urgency and with an Supplementary Order Paper that is larger than the bill itself being dropped on the Committee, members of Parliament who have not sat on the Finance and Expenditure Committee have not had the chance to go through it quite as thoroughly and forensically as they would like to. So we would dearly love to comply entirely with the—

💬 Sandra Goudie: So what’s in the bill, then? We’ve had enough of that, so what’s in the bill, then?

Sandra Goudie pipes up from over there, and it is a great pleasure to hear her, because she has done nothing—I was going to say all day, but in fact I think it is all year. I think she has not had anything to do all year. Now she squawks at the last minute, on a Friday—

💬 Sandra Goudie: I raise a point of order, Mr Chairperson. In spite of the comments that you have just made in regard to speaking to the perimeters of the bill, the member has clearly flouted that advice.

The CHAIRPERSON (Hon Rick Barker): Firstly, that is not a point of order. I am in the Chair and I will judge relevancy. Secondly, the member interjected, and invited a response. If the member wishes for the Hon Darren Hughes to keep on task, then let him keep on task. As we know, he is prone to a few distractions.

Thank you, Mr Chair. The principle of cause and effect is well and truly alive in the Committee of the whole House today. I want to keep my comments limited almost exclusively to clause 100B, which, I say to Sandra Goudie, is on page 66 of the bill. The clause has the word “contribution” in it, which is not normally a word associated with her. But none the less there it is, at the top of the page: clause 100B, “Crown contribution”. This goes to quite a technical aspect of the KiwiSaver scheme, which is the inability of a member of the public who is in the workforce, and paying PAYE, to join the KiwiSaver scheme. I would like the Minister in the chair, the Minister for Courts, to make a contribution and clarify the amendment to clause 100B—and this is not part of the Supplementary Order Paper; it is part of the bill as reported back from the Finance and Expenditure Committee—to substitute the words “a member” with “a member before they reach the New Zealand superannuation qualification age”. For the benefit of the Minister in the chair, I point out that this is at the top of page 66 of the bill.

I think that goes to quite an interesting point about the scheme as it is in operation. At a time of enormous unemployment in New Zealand, when prices are rising faster than wages, the only economic sign of a glimmer of hope is in the numbers of people aged over 65 in the workforce. That group of workers is growing every time Statistics New Zealand, that very fine agency, reports on the make-up of the labour market. It is an interesting point. So where this connects right into clause 100B is that we have an increasing number of workers over the age of 65, but this clause prevents their membership of KiwiSaver even though they are taxpayers.

I would like the Minister to make a comment about that. Clearly, the Government has looked at that issue again. It was not part of the original KiwiSaver scheme. We know this Government has made a lot of changes to the original KiwiSaver Act. Part 5 sets out some additional changes to the 2006 legislation of the previous Labour Government, but this is another change on the issue of whether a member can remain in KiwiSaver as they turn 65 or whether they can decide to join when they are over the age of 65. So there has now been an overt policy decision from the Government, which has now worked its way through the process into clause 100B, and I would be very interested to know whether the Government ordered extra work to be done and made a decision to exclude those people from KiwiSaver. If clause 100B was not there, there would be alternative wording in respect of those who are eligible for the qualification age for New Zealand superannuation. But the insertion of clause 100B shows that there has been a decision not to extend the scheme. So if the Minister could perhaps go over that for us, it would be a very useful piece of information.

People do say to us: “Look, I’m working 40 hours, I’m paying tax, and, yes, I’m claiming New Zealand superannuation. But I have paid taxes over 45 working years for that entitlement.” In New Zealand we have a universal entitlement for superannuation. KiwiSaver is, of course, 8 percent of that person’s wages, so they would be forfeiting, by choice, that money from their own salary or wages, whatever it might be, in order to be able to pay it into the scheme, and the tax credit that comes with it, arguably, is funded by the current PAYE that that person is paying on their income. So that Crown contribution through the tax credit includes, I presume, the $1,000 kick-start for people who join KiwiSaver. One of the attractions of the scheme is that people receive $1,000 immediately. That is a different form of Crown contribution. I think we want some clarification around clause 100B. In respect of a person over 65 who joins the scheme and pays in the 8 percent, they do not get the tax credit, but I am not sure whether they get the $1,000 kick-start. That could be an alternative approach for the Crown contribution that is made at that time.

I move, That the question be now put.