Taxation (GST and Remedial Matters) Bill

Part 6 is quite a narrow part. I would like to correct a mistake I made earlier when we were talking about Part 4. I said that it was the only part in this 57-page bill not to be touched by the 70-page Supplementary Order Paper, but I stand corrected. Part 6 is also not touched by the Supplementary Order Paper. I wonder whether the Minister has something to table, because he has made considerable amendments to the rest of this bill and I suspect that perhaps he wants to make amendments to this part. It does not seem right that one or two clauses sit outside this Supplementary Order Paper, so that people have had the ability to debate them! I am being facetious; I apologise for that. I must admit that this process borders on the ridiculous a little bit. As a New Zealander, let alone as a member of Parliament, I find it a little insulting that again we are standing here debating a tax bill that has gone through a very rigorous process, only to have a 70-page Supplementary Order Paper lumped before us. I do not think that is how New Zealanders want tax legislation passed in this Parliament—in fact, I know it is not what they expect.

I come back to clauses 102 and 103. These are basically technical amendments concerning the approved issuer levy. I will give a little bit of background. Recently concluded tax treaties with Australia and New Zealand include a new exemption from source country tax for interest derived by banks. For interest derived from New Zealand, the availability of this exemption depends on the borrower paying the approved issuer levy, unless the borrower is not eligible to elect to pay the levy, there is no such levy, or the rate of the levy exceeds 2 percent of gross payments.

I know this sounds rather technical, and it is rather technical. It is a technical amendment, but I think it is very important because it concerns banks and tax treaties. New Zealanders need to know about anything that concerns banks. It needs to be out there. Anything that concerns tax treaties is most important as well. As we know, under this Government a lot of New Zealanders are deciding to up and leave. The details of tax treaties between New Zealand and other nations need to be available. If they decide to read the treaties that go on between our wonderful country and the country they are travelling to, they should be able to do so.

The proposed amendments in clauses 102 and 103 clarify the circumstances in which a person is eligible to pay the approved issuer levy. They make it clear that a borrower can pay the approved issuer levy in order to qualify for an exemption under a double tax agreement. I must admit that the Finance and Expenditure Committee has seen a lot of double tax agreements come before it recently. My colleague the Hon David Cunliffe will have something to say about this bit. He has put a lot of work and effort in with the Inland Revenue Department to make sure that the information before the select committee with regard to double tax agreements is robust. I know he has had some concerns, and I am sure he will talk about them when he takes a call on this part.

These amendments will address uncertainty around the treatment of interest paid to foreign banks operating through a branch in New Zealand. We know that apart from Kiwibank, the major banks are foreign-owned. I have a mortgage with a foreign-owned bank. I should have had it with Kiwibank, but I must admit that the Westpac guys who came up to Wairoa did an absolutely fantastic job in dealing with workers there and getting stuff out of KiwiSaver. I take my hat off to them. Their community relations were very, very good, and I just put that out there.

As I mentioned, these amendments will address uncertainty. There is no doubt about it: if there is one thing that should not exist in tax law, it is uncertainty. Tax law needs to be certain. Taxpayers need to know the difference between right and wrong, and I am sure the commissioner will agree with that. The last thing he wants to do is put out a whole lot of rulings. We know what happens when there is uncertainty in tax legislation. We saw it recently. The banks ended up paying about $2 billion, I think, when they believed they knew the tax law, while the commissioner believed that the tax law said something else. It went through various courts in this land, and the commissioner was right. It shows what happens when we have ambiguity in tax legislation. Clauses 102 and 103 remove that level of ambiguity, which is great.

The interest that I was talking about is not subject to non-resident withholding tax, so the approved issuer levy mechanism is not relevant domestically, which is good to know. It is not relevant domestically. But the new treaty exemption could still apply if the loan was made from offshore instead of through a New Zealand branch. I suspect that in these tough economic times a lot of the big companies are looking for finance outside of the New Zealand domestic market. The reason I say that is that if members look at our interest rates, they will see that they are quite high compared with those of a lot of our competitors. A lot of businesses are sourcing funds offshore at much lower interest rates—that is, if they have the ability to do so; a lot of small to medium enterprises do not have the ability to do so, but a lot of big companies do. Again, these amendments clarify tax legislation around this area.

More generally, the amendments ensure a better fit between terminology used in relevant tax treaties and arrangements whereby a borrower chooses to pay the approved issuer levy under domestic law. The new treaty provisions ask specifically whether the borrower is eligible to elect to pay the approved issuer levy; this bill ensures that domestic law directly addresses this question. Again, the changes come back to the whole point of clarity, but also they come back to the point of responsibility. Every taxpayer—whether an actual person, a small company, a trust, a portfolio investment entity, or a huge corporate—must act in a responsible way when it comes to paying their tax. This puts the responsibility back on them. The Inland Revenue Department asks whether an entity is eligible to pay the approved issuer levy. As has been mentioned, the amendments will ensure that domestic law directly addresses this question, which is most important.

The amendments are also intended to make the existing law more transparent, and I suppose that is the reason why we are still debating this bill in the Committee stage at this point. We need a level of transparency in tax legislation. Transparency is vital if we are to get our tax legislation passed in a way that is robust and that really adds to the overall legislative programme. The reason I say this and the reason I have concerns about this is we have seen with this Supplementary Order Paper—in my view and, I think, the view of my colleagues and the Greens—that this is not a transparent process. We cannot have a 57-page bill go through an intensive select committee process and then suddenly have a 70-page Supplementary Order Paper rapped on the Table. That is not transparent. In this bill clauses 102 and 103, which are technical amendments on the approved issuer levy, provide a level of transparency.

Clauses 102 and 103 went through the Finance and Expenditure Committee and we debated them. Our expert adviser, Ms Turner, provided notes to us on them, and we queried the Inland Revenue Department officials on the implications of the approved issuer levy. It got to a point where we understood it and we were very clear about it from a layperson’s perspective and from a technical perspective, so we can stand up with a working knowledge of the approved issuer levy. Those clauses went through a very robust process, so we are happy that they get passed with this bill. It is just such a shame that a Supplementary Order Paper larger than this bill has not been through that transparent process.

As has been mentioned, clauses 102 and 103 are intended to make the existing law more transparent rather than substantially alter its effect. Not much has changed. These amendments are technical, so not much has changed except a level of transparency, and we all demand that. I think it is very reasonable for taxpayers to expect a level of transparency. I do not think there would be any question, doubt, or argument about the necessity for transparency in any sort of legislation, let alone tax legislation.

It is not considered necessary for the amendments to apply retrospectively, because they do not alter the law substantially. We talked at the select committee for a moment about whether those amendments should apply retrospectively. It was decided that we should probably not apply clauses 102 or 103 retrospectively, because they are only technical. We are not changing the substance; we are creating a level of transparency.

I rise to take a call or two on clauses 102 and 103 in Part 6 of the Taxation (GST and Remedial Matters) Bill.

💬 Hon Trevor Mallard: What about 101?

Well, I am not sure it is in Part 6, but I am particularly focused on clauses 102 and 103 if it is all right with my colleague. I say it is my right to be focused on whatever clauses I jolly well want. I think Mr Mallard is angling for a job as a whip. But he is doing his job pretty well.

💬 Chris Hipkins: He wants Gerry’s job!

Well, that brings to mind the question that has fascinated philosophers for many, many years. If Gerry Brownlee is the third-smartest guy in the National Party—I need not finish the sentence. In fact, the reason we are all here enjoying our time together in the Chamber is twofold: firstly, the abhorrent Supplementary Order Paper amending the bill, and, secondly, the organisational genius of said Gerry Brownlee, who has completely mishandled the Order Paper by dumping a huge, huge collection of bills on it, and this is only No 2. This is only the second bill up. Members opposite will be here all weekend, I fear.

But, anyway, back to clauses 102 and 103. What is interesting about these clauses, which amend sections 86I and 86L of the Stamp and Cheques Duties Act 1971, is that they are amended to introduce references to an exemption under a double tax agreement. Those relate to the non-resident withholding tax rules of the Income Tax Act 2007. The context is that we have recently concluded double tax treaties with Australia and the United States, which include a new exemption from source company tax for interest derived by banks. Together with clause 79 those clauses clarify the circumstances in which a person is eligible to pay the approved issuer levy, as my colleague Mr Nash has just said. They make it clear that the borrower can pay approved issuer levies in order to qualify for an exemption under a double tax agreement, even if paying the levy makes no difference to the way the transaction is dealt with under domestic law. That clarifies an uncertainty that existed when the double tax agreement was written, and that brings us right to a very, very important point. The process by which the underlying double tax agreements have been negotiated and brought through the House is itself deeply flawed, and I will explain why in a minute.

There is a huge irony in having to introduce by stealth a massive amendment, part of which, by Supplementary Order Paper that has not gone to the Finance and Expenditure Committee, is to correct mistakes or ambiguities in double tax agreements that supposedly had them. Our Labour team argued consistently in the Finance and Expenditure Committee that the process of examination of double tax agreements is fundamentally flawed. It is flawed because there is an oxymoron called a national interest analysis. Why do I say it is an oxymoron? It is neither national nor a good definition of interests, nor is there much analytical content. These tend to be once-over-lightly narrative descriptions of the treaty that has been under negotiation. They are brought to the committee late in the process, after the negotiation has concluded and before the agreement is ratified by the House. But when members of Parliament in a select committee ask difficult and searching questions about the balance of interest in the double tax agreement, we receive a stock of standard responses. The first one is not to bother our pretty little heads about it, because it has already been done and dusted and it would be improper to intervene. Well, I am sorry, but that is not what the Standing Orders prescribe. The Standing Orders very explicitly prescribe for a detailed and rigorous select committee examination under about a dozen different subclauses—

💬 Chris Tremain: What has this got to do with 102 and 103?

These clauses are amending ambiguities that arose in the Australian and United States double tax treaties, which went through the same committee this should have gone through, but which did not receive thorough enough examination, for exactly the reasons I am about to go on and describe. Now what were those reasons? What are the flaws? The member opposite has asked for more detail, and he is a senior member, he is the senior Government whip, and I try my best to obey whips. We are just getting to the interesting part now that Chris Tremain has requested more detail.

The first of, I think, four key structural defects in the process of consideration of double tax agreements is that there are supposedly network effects. That is, we are told by our officials that it makes no sense to consider one double tax agreement in isolation from a whole spectrum of double tax agreements of neighbouring or related countries. Yet they are brought to the committee often one at a time. How could the committee and how could Parliament possibly offer proper scrutiny of one double tax agreement when it supposedly makes sense only as part of a network? There is supposedly some separate headline negotiation or analysis that covers the whole system. It is just that it is not visible to Parliament and it does not come to the select committee.

The second point is that there is a lack of data. Let me give a very good example, not in relation to the double tax agreement covered by this clause but by one very similar—the New Zealand - Singapore closer economic partnership agreement. That agreement was described by officials as being likely to reduce New Zealand’s trade in goods but to expand its trade in services and its investment opportunities. Well, that is a perfectly reasonable trade-off to make, but guess what? The New Zealand department of statistics does not record data for trade in services, or investment flows, in sufficient detail to answer the question, in the rear-view mirror, of whether we have come out ahead. So 3 or 4 years after this Parliament passed the New Zealand - Singapore closer economic partnership agreement, it cannot even now undertake the analysis to find out whether the New Zealand taxpayer, the New Zealand economy, is better off or worse off, because the New Zealand Government does not collect the statistics that would enable that analysis to occur. I find that absolutely amazing.

However, it gets better—or worse. Even if we had the data, we should not expect anybody in officialdom to have crunched it, because the national interest analyses are an analysis-free zone—an analysis-free zone. They are narrative descriptions of “We trade this bit for that bit. We think we might be better off.” OK, “Tell us why you think that.” You know, there are no numbers, typically, in a national interest analysis on a double tax agreement such as those covered by clauses 102 and 103. Well, that is ridiculous. How can it be an analysis if it is qualitative on a tax treaty? Or in one that I recall, it was an upfront loss of tax of $20 million. That was the cost side. On the benefit side, there was supposedly a qualitative compliance cost reduction. “Well, how big is it?”, we asked. “Can’t tell you.”, said the officials. “Well, is it bigger than or less than $20 million?”, we asked. “Can’t tell you.”, said the officials. “Why can’t you tell us?”, asked the members of Parliament, “Is it a secret?”. “Well,” they said, “there are two problems with that”—and that brings us to the fourth of the four reasons why these clauses are an embarrassment for the Government. Not only is there a network effect, a lack of data, and a lack of analysis, but also, hey presto, there is a lack of process, too.

The lack of process is that there is no point in the chain of the negotiation where the essence of the negotiation is able to be subject to sufficient public scrutiny, because the Government negotiators go in secret to negotiate with the negotiators of the other party. They do not bring the bill to Parliament until after it is negotiated, which is fair enough, but no tracking analysis is brought to the select committee. It is brought to the select committee for analysis only after the negotiations are completed. When on one occasion we found a clear example where the negotiation had come out badly for New Zealand, we were told: “You can’t say that.” “Why couldn’t we say it?”, we asked. “Because we don’t want the other side to know they won.” In another example where it came out very well for New Zealand, and the public would have wanted to know, we were told: “You can’t say that.” “Why not?”, we asked. “Because we don’t want the other side to know they lost.” “Then why are we doing this?”, we asked. We were told: “Because you have to.”, and we said: “Well, shouldn’t it be meaningful?”. And here we are today, in Parliament, under urgency, on Christmas Eve, now re-correcting clauses 102 and 103, because they were not done properly the first time.

I move, That the question be now put.

I rise to talk to Part 6 of the Taxation (GST and Remedial Matters) Bill, which is clauses 101, 102, and 103. The biggest part of it is clause 102, and it is likely that there will be a reasonable amount of focus on that clause. These are amendments to the Stamp and Cheque Duties Act 1971. Stamp and cheque duty was much more important in 1971 than it is currently, because it was both a method of revenue collection and a policy tool. It was used as an intervention to head the economy in particular directions, and I think it is fair to say that continued through until about 1984. Since 1971 there have been a number of changes. For example, there has been a lot of work in the area of double tax agreements.

The focus in clause 102 is on the approved issuer levy and the effect on what is liable for stamp and cheque duty in regard to it. The new section 86I, which is to be substituted in the Stamp and Cheque Duties Act by clause 102, indicates in subsection (2) that despite the non-residential withholding tax rules, a payment of interest under a registered security is treated as having been paid by an approved issuer only to the extent to which the approved issuer levy in relation to the security is paid by, or on behalf of, the approved issuer. I ask the Minister in the chair, the Hon Georgina te Heuheu, why that is the case. I would have thought there was an obligation to have it paid in full. I know that this Minister is not the primary Minister in charge of stamp duty and related matters, but I wonder about the question of liability for the part that has not been paid. Where an issuer levy should have been paid but has not been paid, I ask whether there is still an obligation for stamp and cheque duty to be paid in that case. I do not mind if there is a nod or a wink from the Minister in the chair to indicate what the particular approach is. Of course, I would prefer it if she took a call on this matter.

This is a serious question. If an issuer levy that should have been paid has not been paid, I ask whether there is still a liability for taxation on it. If someone has income that has not yet been received under our accrual system, I ask whether the tax is payable on it. We have moved away from the days when the Chair was involved in some of these matters, and we do not work entirely on a receipts and payments basis now. We have an accrual system, and we work on the basis of income and expenditure. But it appears that there is some reversion to a receipts and payments approach, rather than having an accrual system and an income and expenditure basis, in this particular case. I want to know whether that is an accurate characterisation of what is occurring here. Is this something that is new, or is it something that has been there? I ask this because we cannot tell by looking at the amendment and by looking back at the legislation as to whether that is the case.

I then go to clause 102, which inserts new section 86I. I might need to correct myself, as I think I might have said “section 86(1)” earlier. But it is section 86I, so I think I need to put my glasses on. Subsection (2)(b) of that section states: “the amount of the levy, based on the leviable value of the registered security at the time of the payment of the interest, is paid—(i) at the rate set out in section 86J; and”—

I move, That the question be now put.

I am very pleased to take a call on Part 6 of the Taxation (GST and Remedial Matters) Bill, which concerns amendments to stamp and cheque duties. The first thing I will do is commend the Minister in the chair, the Minister for Courts, for the fact that this part has no relationship to the onerous 70-page Supplementary Order Paper 187, which was made available to us parliamentarians in only the last 48 to 50 hours. What this part relates to has at least been through the appropriate process in terms of consideration by the Finance and Expenditure Committee of all the changes that the Government was seeking to make.

These changes relate to the Stamp and Cheque Duties Act 1971, which is a period not familiar to some members, and reference an exemption under a double tax agreement. The history of that, as some members will know, is that the recently concluded tax treaties with Australia and also with the United States include a new exemption from source-country tax for interest derived by banks, so, together with clause 79 in this bill, clauses 102 and 103 clarify the circumstances in which someone is eligible to pay an approved issuer levy. The approved issuer levies make it clear that a borrower can pay the levy in order to qualify for the exemptions under the double tax agreement, even if paying the levy makes no difference to the way in which the transaction is dealt with under domestic law.

So this measure addresses some uncertainty that exists around the treatment of interest paid to foreign banks operating through a branch here in New Zealand. It is an appropriate move, but I ask the Minister in the chair to take a call to relate to us the difference between the stamp duty regime here and those in other parts of the world. I am particularly interested to know about Australia’s. I understand that stamp duty still applies to property there, and at quite a high level. I believe that it is up to about 2 percent or more in some Australian states. It will be interesting to know whether the Government has ever given any consideration to that issue in terms of any of the tax changes it is bringing through in the course of this Parliament.

The approved issuer levy is a domestic law mechanism that can provide relief from the non-resident withholding tax on interest paid. The non-resident withholding tax on interest paid to an unrelated foreign member can be reduced to nil if the borrower agrees to pay a 2 percent levy. Borrowers agree to do this where the lender would simply demand more interest to cover the non-resident withholding tax.

We have those newish treaties in place now—tax treaties with Australia and the United States. They are a good thing. They make it easier for businesses to operate across the Tasman, and across the Pacific through to the United States. Goodness knows, we need businesses to be better able to operate in what has been the most difficult business environment in living memory. We want to see the tax treaties with Australia and with the United States operate at the best possible level, to ensure that businesses are able to operate efficiently and effectively without any extra costs attached. So what this measure does is include an exemption from source-country tax for interest derived by banks. For interest derived from New Zealand the availability of the exemption depends on the borrower paying the approved issuer levy, unless the borrower is not eligible to pay the levy, or there is no such levy, or the rate exceeds 2 percent of gross payments.

These proposed amendments attempt to clarify the circumstances in which someone is able to pay the approved issuer levy. They make them clear, and the Finance and Expenditure Committee considered these issues in some detail. That is how the process should be. When we are dealing with issues as complex as these we need to focus on them in the select committee, rather than their being passed by way of a Supplementary Order Paper. These are complex matters. They can relate to large sums of money in which New Zealand has a very keen interest. Obviously, we want to make sure that when we introduce technical amendments of this type we do so in the most appropriate fashion. That is done here in Part 6, where clauses 101, 102, and 103 introduce amendments in relation to the Stamp and Cheque Duties Act 1971. That is the appropriate place.

I move, That the question be now put.

I have not participated in this debate, but after coming down to the Chamber, listening to the discussion, and looking at the bill—and I acknowledge the good work my colleagues are doing here—I will take a call on Part 6. The bill states that its intentions are to remove tax avoidance opportunities, to have better alignment, to maintain the integrity and fairness of the goods and services tax, and, obviously, here in Part 6, to make some amendments to the Stamp and Cheque Duties Act 1971.

I was recently in Victoria in Australia. A previous speaker in this debate said that he understood that stamp duties in Australia are quite significant but he was not sure of the amount. My understanding is that if one sells a house in Victoria the stamp duty is either 4 or 5 percent and it is paid directly to the state Government. That is in the land of opportunity, the wonderful country that this Government has chosen to compare us to. The Prime Minister has said on many, many occasions that we have to step up and match Australia. Well, here is an opportunity to align with Australia. I do not think that anyone, and certainly not the Labour Party, would advocate the introduction of a 5 percent stamp duty on the sale of property.

I have a question, and it is one that the Finance and Expenditure Committee could have teased out if it had had the time to go through this bill. How can Victoria, in Australia, the country we have to aspire to match, have stamp duty of 5 percent and still maintain a high level of income and a high level of economic activity, and, indeed, to choose the Prime Minister’s words, be a better place to live? That is what the Prime Minister has said on many occasions. He has said that that is what we should be looking for.

In relation to non-resident withholding tax and the alignment with Australia, my colleagues have said that we must align with Australia as much as possible so that we remove the distortions, and I think that most of us have accepted that that is a good direction in which to move. What, then, is the issue of stamp duty in terms of its impact on the relative prosperity of either country? Is it a good thing or a bad thing? We have been told that less tax is always good, except that this Government has put up taxes in a whole lot of areas. It has not just increased GST but also it has put up taxes on petrol and charges for vehicle registration.

I ask the Minister in the chair, the Hon Georgina te Heuheu—should she choose to take a call—to tell us how the amendments to the Stamp and Cheque Duties Act will bring about an alignment between Australia and New Zealand. How is it that Australia can have such high stamp duties, as well as GST and a whole lot of other things, and still be better off than New Zealand? Will the changes we are making in this legislation, and in the rushed Supplementary Order Paper, make a significant improvement to the tax regime or to the way we operate the system in this country?

I will not say any more than that, other than to say that it is a question I asked a few weeks ago in Australia. I have now had the opportunity to ask the Minister. Perhaps she could take a call and tell us. Maybe she does not know, or maybe she might acknowledge that the select committee might have found out. But, of course, we are rushing this legislation through unnecessarily. I am sure that the changes in Part 6 will be amended in the very near future, because we are not going through this in a thorough way. Thank you, Mr Chairperson.

I move, That the question be now put.