Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill

I move, That the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill be now read a second time. It is the ongoing focus of the Government that all taxpayers pay their fair share of tax, thereby reducing the national debt burden. However, this must be tempered by the need to ensure that tax rules are not unduly onerous.

Since this bill was introduced, two items of note have been introduced into the bill by Supplementary Order Paper 167, and these were subject to submissions during the select committee process. The first was the proposal to treat lease inducement payments and lease surrender payments as taxable income for the recipient and as tax-deductible expenditure for the payer. The objective of this proposal is to remove a distorting factor that currently means that business decisions can be influenced not by prudent investment factors but by tax consequences. The Government is focused on supporting businesses to help grow our economy, and by removing distortions in the tax system we help investment to flow into more productive areas. This proposed change to the tax treatment of lease inducement payments and lease surrender payments will also make the tax system fairer.

The second addition to the bill addresses salary trade-offs, and aims to achieve greater fairness between those employees who receive a non-cash benefit as part of their remuneration and those who receive cash-only remuneration. One part of this reform would have changed the way some employer-paid car-parks in central Auckland and Wellington were treated for tax purposes, but this was withdrawn following consideration of compliance costs.

Another key factor of this bill relates to livestock valuations. Members may recall that in Budget 2012 a change was made to the livestock valuation scheme that made elections to use the herd scheme generally irrevocable. This was a question of fairness, as some farmers were simply electing in and out of the herd scheme in order to gain a tax advantage. The bill contains detailed supporting rules to buttress the general proposal of irrevocability, and to provide appropriate exceptions and other compliance-driven charges.

I began my speech by saying that tax rules must strive not to be unduly onerous. Included in this bill is the proposed change to the tax treatment of assets used both privately and for earning income. Concern has been raised about the complexity of these rules. It is worth noting that this perceived complexity will not affect the majority of taxpayers. Complexity arises only where taxpayers have placed assets into complex ownership structures. Where assets are held in simple structures, the rules are relatively straightforward. The rules are only as complex as they need to be to ensure that the issue of how to tax these assets is addressed fairly and equitably. It is in the Government’s interest to keep tax rules simple, as that ensures a greater rate of compliance, and every effort is made to keep the rules simple.

I would like to thank the Finance and Expenditure Committee for its work on this bill. I do know that there was significant interest in many of the provisions contained in the draft legislation, and I believe that the committee and, in part, the chairman have done an outstanding job on our behalf. It is therefore with pleasure that I commend the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill to the House. Thank you.

I recognise the honourable member David Cunliffe.

Well, Mr Assistant Speaker, I am pleased that you do. We have worked together for about 15 years, and I am glad you still can.

I rise to take a short call to support this Taxation (Livestock Validation, Assets Expenditure, and Remedial Matters) Bill. In doing so, I wish to offer a sincere apology to my Labour colleagues gathered here on the benches because I am afraid, colleagues, I am going to have to say something nice about National members. Firstly, I would like to acknowledge the work of the then chairman of the Finance and Expenditure Committee, now the Minister of Revenue, who has just resumed his seat, the Hon Todd McClay, who did a pretty decent job of steering this bill through the select committee and earned Labour’s support for it.

Secondly, I would like to compliment David Bennett. I do not know that I have ever done this on camera in my entire parliamentary career, but I actually have to say David Bennett did a good thing with this bill, because David Bennett actually knew enough about the accounting of farm accounts, because he is an accountant who specialises in fiddling farm accounts, and he knew from past experience some of the lurks and perks. He was able to generously share that with the Finance and Expenditure Committee, and ironed out some of the kinks that I have a sneaking suspicion his clients might have benefited from once, twice, or two or three hundred times in the past.

I also want to compliment Paul Goldsmith, the new chair of the Finance and Expenditure Committee, who inherits the large shoes left by Todd McClay. We wish the new chair well. And here endeth the lesson, because that is all the being nice I have got time for tonight—on with the business.

What is fascinating to New Zealanders about this bill is not so much what is in it but what is not in it. What is not in it is the thing that was able to unite the Council of Trade Unions and well-known right-wing blogger—no, not Simon Lusk, not Cameron Slater; the next best thing—Matthew Hooton. So, as Todd McClay once so rightly said: “Anything Matthew Hooton and the Council of Trade Unions can agree on, I’ll be sure to rubber-stamp.”—true. Matthew Hooton said enough is enough, and I agree with him on this. Any tax that has compliance costs double the value of the revenue that it raises has got to be a nonsense.

💬 Sue Moroney: It was a dog.

It was a dog, and it barked. What is most interesting is not that the Government finally, under pressure from the good old Labour Party, stripped the car-park tax out of this bill, it is that it took the Government months and months to see the obvious. It may have been that the Hon Peter Dunne—God rest his soul—the former Minister of Revenue, may have been just a little bit preoccupied with various spooky things to notice that this car-park tax was an absolute dog, but it got past the goalie. It got into the public domain, and the Minister was backing it. It caused such a furore that in the end, with its tail between its legs, the Government had to come crawling to select committee members and beg its removal, which, of course, being generous and good-hearted people, we were only too happy to assent to on behalf of New Zealanders.

I lay that before you because this is fascinating. This is a bill that we all agree on, now that the Government has stripped the worst stupidity out of it and now that it has incorporated some of David Bennett’s learnings from a past life, as he has turned from poacher to sort of gamekeeper—gamekeeper within the context of the National Party, the poachers’ party, but, hey!

This is a very interesting bill because the car-park tax is actually not a stand-alone tax. It is one of the fab four—the fab four stupid taxes that the National Government has been working on this year. The second one is the so-called iPad tax. It is going to put—or it was, before we got on to it—fringe benefit tax on everybody’s private use of their cellphones and their iPads. They would have to go through their phone bills and account for which were their private calls and which were their public or business calls, and then pay fringe benefit tax on their private calls. If that were not hard enough, imagine trying to do that with your data use. What if you were on an all-you-can-eat, bundled-up, total-for-the-month data plan? How would you apportion that?

Well, in comes the Labour Government—the Labour Opposition, not quite yet the Government, but soon to be. The Labour Opposition just points out these few factoids to Government members. They finally got their heads around the fact that the iPad tax was never going to work, and they finally killed it before it got to the select committee so they would not have another car-park tax debacle.

Nobody told the National Government—how do you like this? It decided it was going to tax your iPad use, but it forgot to tax Apple, the people who make the iPads. I do not want to be personal about any particular company, and, of course, its accounts are its own business—I am sure it is all legal anyway, he says, under privilege—but the truth is that Apple paid a total tax in New Zealand last year of about 1 percent.

💬 Hon Michael Woodhouse: 1 percent of what?

About 1 percent of profit—about 2.5 percent of revenue, about 1 percent of profit. That company apparently makes almost no money in New Zealand. If the Minister over there has not noticed, its stuff is not cheap. How is it that Apple and Google and the like can operate for pure charity in a jurisdiction like New Zealand? The answer is that the Government is too stupid to write rules to make them pay their fair share of tax. It is so obvious that even the OECD has taken up the cudgels, and the Government has finally had to admit it is behind the eight ball, and it is going to fix it up. But it will probably need Labour’s help, with David Parker and others, to actually do the detail, because it has not got a clue.

If that were not bad enough, the third of the fab four stupid taxes that the Government has been beavering away on—Minister, listen up, because we are coming after you on this one—is the clergy tax. This is an abomination because, quite literally, the Government will probably burn for years over this. It wants to impose fringe benefit tax on clergy housing, and in one fell swoop put most of the churches out of business. My old man, my dad—God rest his soul—was a wonderful man. He cared about the poor. They called him the “Red Reverend”—I wonder why. He was an Anglican minister. I tell you I grew up in a family that did not have two bucks spare at the end of the week because—duh—clergy do not get paid much. They do it for love, literally. They survive because they get a rent-free, or near rent-free, house to live in because they do not get paid a full salary. Except that the National Government wants to impute a supposed value on their clergy housing and then make them pay fringe benefit tax on the total amount, even though they have never received it.

💬 Hon David Parker: What would they do if they heated their houses?

Good God, imagine if someone heated their houses. There might be a heating tax as well. I tell National this: I am going to maintain the deal we had with the Hon Peter Dunne—and he is honourable, I think—which is, if you fix it, we will not complain about it. But please do not bring the clergy tax to the select committee, because Paul Goldsmith does not need a nightmare like the iPad tax. Ladies and gentlemen, if that were not dumb enough, wait for the fourth instalment of the fab four stupid taxes the Government has been working on.

💬 Sue Moroney: More?

💬 Hon Member: Another one?

Yes, there is more. You know that the National Government crows that it is rebuilding Christchurch. It is, of course, the beneficiary of major reinsurance flows that are helping the sagging economic growth rate—strip it out and it is at only about half the normal long-run average growth rate, as David Parker pointed out so well. National wants to tax temporary accommodation for Christchurch rebuild workers. It is going to slap fringe benefit tax on temporary accommodation for people like engineers from Auckland who moved down to Christchurch to help the good people of Christchurch get back on their feet. Wham, end of the month, fringe benefit tax! If you have been staying in a hotel, you lucky person, you got to have hotel food—fringe benefit tax on you.

Where has the National Government been? It is OK for someone like Jami-Lee Matenga “Soprano” Ross, because he has never had a real job, and we can forgive him. He came straight from kindy to Parliament. But seasoned international diplomats like the current Minister of Revenue should be worldly enough to know that taxing clergy on income they have never earned, taxing Christchurch rebuild workers because they have to have a roof over their head in winter in Christchurch, taxing iPads but not taxing Apple, and taxing car-parks, which would cost twice as much to do as the revenue it raised, is, technically speaking, brain-dead. So please, National, do not make us fix all of that again. Please fix it before it gets to the House.

I see that time is up. It is a great shame, because there are, in fact, many, many other stupid things that National is doing in the tax portfolio, but I shall have to wait for the Committee stage to bring more of those exciting instalments to the New Zealand public. Thank you very much.

It was very educational, as always, to listen to our colleague Mr Cunliffe, who is always very full and detailed in his contributions at the Finance and Expenditure Committee, and we hear that in the House as well. He is very detailed and thorough.

💬 Hon David Cunliffe: Greaser.

Indeed. So we are looking forward to his continued cooperation and guidance in the weeks and months to come. This bill, the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill, is just a piece of tax maintenance. Everybody knows that tax is not something that people necessarily want to pay more of than they need to, so the ingenuity of individuals and businesses knows no bounds, and with every new piece of tax law there is a new attempt to find some way around it. There is a never-ending exercise of keeping up to speed with what is going on, and this bill really follows on in that pattern.

The main items that I want to focus on are the livestock valuation changes, which will be of great interest and significance to those people living out in the areas beyond the Bombay Hills. The proposals in particular expand on legislation in Budget 2012 that provided that elections to use the herd scheme to value specified livestock are irrevocable unless an election to exit was made before 18 August 2011. There are generally two ways that farmers can value their livestock, mainly beef and dairy cattle and sheep, but also deer, goats, and pigs—

💬 Hon Member: Rabbits.

—at balance date for tax purposes. I am not sure about rabbits, but certainly pigs and goats. The herd scheme treats livestock more as if they were a capital asset, using national average market values, with changes in values from year on year being a tax-free capital account.

Farmers could elect out of the herd scheme with a short advance notice period. There can be legitimate reasons for electing out of the herd scheme, and it is particularly the case if there is a change in the farming regime from breeding to fattening, for which the cost-based regime is more apt. This bill explicitly recognises this by allowing an election to exit the herd scheme for a type of livestock when there has been a change in the fattening regime. But the proposed rules will require persons who acquire livestock from associated persons to use that associated person’s herd scheme election and base herd numbers, if any. This associated person’s rule will apply to matrimonial property settlements and to the tax consequences of death. I think that is important. If that were left unchecked, I think there would certainly be a continuation of some avoidance of tax in that way.

I also want to speak briefly about assets and expenditure. When we dealt with holiday homes, aircraft, and boats in particular, this was source of considerable discussion during the select committee phase. I think it is fair enough that everybody should pay their fair tax, and for schemes where the private use of some assets is very significant and the actual income-earning use is insignificant, then we should be more detailed and thorough in our way of taxing that.

When we talk about fairness in general we should just remember, nevertheless, that three-quarters of income earners in New Zealand face a tax rate of less than 17.5 percent. We hear quite often from the other side of the House about tax cuts for the rich and so forth, but, again, we should remind ourselves that every family in this country with two children and earning around $45,000 to $50,000 effectively pays no income tax in New Zealand.

💬 Sue Moroney: Thanks, Labour.

We do not need to worry about the origins of it; that is the fact. So there is an enormous amount of redistribution going on in this tax system, and continuing to maintain it in such a way that it still yields the dividends that are required is very much what this bill is about. On that basis, I commend it to the House.

I was interested to hear the last speaker, Paul Goldsmith, talking about a change to fattening regimes in respect of the livestock herd scheme and saying that a change to the fattening regime allows a change in the way in which livestock is accounted for for tax purposes. Of course, one of the reasons why the scheme had to be changed is that until now the fattening regime was the farmers, who were able to fatten their returns by reducing their tax burden by misusing changes between livestock herd schemes.

I want to address one other issue—a serious issue, I think—that was raised by Mr Goldsmith in his contribution. He gave us a percentage of the number of people who are on the lowest income tax rate. What he did not say is that that includes some of the wealthiest people in New Zealand, who earn more economic income than low-income earners. David Cunliffe will be able to tell me the percentage of high-income earners who are not on the highest marginal tax rate.

💬 Hon David Cunliffe: About 60 percent of the top 100.

Recently we had a report that—

💬 John Hayes: You made that up.

No, he did not, actually. I read the same article. Approximately 60 percent of the most wealthy people in New Zealand have not been paying the highest marginal tax rate. National’s answer to that was to drop the highest marginal tax rate, but even once we have done that some of the wealthiest people in New Zealand mask their economic income as being capital income on capital account, which enables them to not include it as taxable income. So although they might have low taxable income in terms of the statutory definition of income found in our taxation legislation, they have a lot of economic income on capital account, which is not taxable in New Zealand. I want to point out that this bill does nothing to address that.

I further want to emphasise what the OECD, one of the agencies that advises the New Zealand Government, said in respect of that. It said in its June report on the New Zealand economy that “Income inequality is higher” in New Zealand “than the OECD average.” So already, in respect of income, inequality in New Zealand has reached the point where income inequality is worse than the average in the OECD. This is the New Zealand that we think of as being an egalitarian country, but it has become less egalitarian than the average in the OECD.

Then it said that this is partly because “the system of taxes and transfers reduces inequality less than in most OECD countries.” That is another quote from its report. “The system of taxes and transfers reduces inequality less than in most OECD countries.” In other words, our tax system is less redistributive than most tax systems in the OECD.

Then it goes further and drills down as to what the main causes of that are, and none of them—none of them—are addressed by this bill. It said in its report that the biggest problem in New Zealand in terms of both inequality and economic efficiency in terms of the tax system is that we do not tax capital gains. I am going to read out what it says, because the position in New Zealand is far from moderate; it is extreme: “New Zealand belongs to a group of five OECD countries with particularly high pre-tax capital-income inequality. … As much of this income, especially at the top levels, takes the form of capital gains, the lack of a capital gains tax in New Zealand exacerbates inequality (by reducing the redistributive power of taxation). It also reinforces a bias towards speculative housing investments and undermines housing affordability, as argued in the 2011 Survey.”

So the Government in 2011 was told that one of the worst things with the New Zealand tax system is the fact that we do not tax capital income, unlike most OECD countries, and that, as a consequence, we are a less equal society and our economy is less efficient because people chase speculative land-based capital gains because of the tax bias. The 2011 survey told the Government that. Here we are 2 years later, we are looking at another tax bill that could have addressed the issue, and it does not.

It is absolutely clear that it is one of the reasons that we have rising inequality. We have got rampant house price inflation running in Auckland at the rate of 15 percent per annum, where first-home buyers increasingly cannot get a foot in the market, where homeownership rates are declining, where increasing numbers of houses are owned by the few, and where increasing numbers of young New Zealanders, especially, cannot afford to buy one house and are increasingly reliant on intergenerational wealth transfers—inheritances—in order to buy a house, rather than realistically being able to save in order to buy a house. One of the reasons for that, and an important reason that would be easily fixed in New Zealand is that we need to have a capital gains tax.

The National Government members jump up and they say: “Oh, the only capital gains tax you can have is one that includes everything, including the primary home.” Well, the Labour Party does not favour taxing the family home. When we hear the National Government using that as an excuse, we ask: “Well, what do other countries do?”. Virtually every other country that has a capital gains tax, or some sort of equivalent to that, exempts in one way or another the primary home or gains from the primary home.

So not only have we had the idiocy that was in the original taxation bill—the car-park tax and the other mistakes that David Cunliffe has capably addressed tonight—it does not address this fundamental flaw in our tax system. Neither does it fix the fact that under a recent tax bill the Government increased petrol tax beyond that needed to fund roading.

💬 Hon David Cunliffe: Wonder why.

Yes, I wonder why it did that.

💬 Hon David Cunliffe: Wafer-thin surplus.

I think it might be the wafer-thin surplus too, Mr Cunliffe. It did that because it wants to achieve its surplus target. We agree that we should be achieving a surplus target—

💬 Hon David Cunliffe: We would have done it.

—yes, we would have done it—but when you have given 40 percent of your income tax cuts to the top 10 percent and then you increase petrol tax for everyone, including the poor, in order to achieve that, well, it just does not seem fair. When you increase GST—which, as a proportion of low-income people’s income, is a higher tax than it is for wealthier people, who do not spend as high a proportion of their income on “GST-able” goods and services—that too is regressive and hurts the lower-income people in society.

What else does this bill not address? Well, we have heard a lot of talk from the Government that it is spending a lot of money, it says—well, money—on food in schools. Two and a half million per annum—

💬 Jacinda Ardern: 18c per child in poverty per week.

—18c per child in poverty per week—not a large amount of money. It is stealing a Labour Party initiative, but it wants to do that. It does not have many good policies of its own, and good on it for doing something in respect of child poverty. When it gets as bad as it is under this Government, even this Government feels that it actually has to deal with some of the symptoms of poverty, even if it is not dealing with the causes.

But do you know how much it is overcharging us for ACC, which it does not fix in this bill? Our ACC levies are, over the next 2 years, $700 million too much. That is 300 years’ worth of the food in schools amount. It is funding the equivalent of 300 years of its derisory $2.5 million contribution through food in schools to poverty, which it has made worse through its tax policy, and it is not fixing the ACC side of it. I warrant to say that for the families that those children are coming from, the extra that those same families are paying on those ACC levies is probably more than the $2.5 million that the Government is putting in. It is taking with one hand what it pretends to give with the other.

This legislation—which we are voting for because it actually in a couple of very minor ways improves the tax system—does nothing to improve these major deficits in our tax system, which are both holding back our economy and increasing inequality. I despair sometimes that we pretend in this country to be an egalitarian country when we know that inequality is rising, to the detriment of us all, and when some of these things can be so easily fixed in a way that not only makes society fairer and addresses child poverty—because the tax take across society becomes fairer—but also makes the economy go better. I cannot understand why the Government is not willing to do these things that will make us grow better.

I rise to speak on the second reading of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. Tax policy is an opportunity to get better outcomes and to get smarter outcomes. The Green Party tax and monetary policy is precisely that: to use tax policy to encourage productive behaviours that are sustainable and that are good, like work and like certain types of consumption, and to discourage those things that are not good for a society and that increase pollution, congestion, and other ills. This bill was an opportunity to get a reasonably good outcome from tax policy. Most of the proposals in it are pretty minor; they are just tightening up loopholes.

During my second reading speech I would really like to focus on one opportunity that has definitely been missed out of this bill. That was the opportunity to extend fringe benefit tax to employer-provided car-parks in the Auckland and Wellington central business districts. Unfortunately, we did not get to have a very informed and rational debate on this particular issue. That is what I really regret, because there was actually a report to the New Zealand Transport Agency that was published earlier this year, February 2013, entitled Company cars and fringe benefit tax—understanding the impacts on strategic transport targets. This report went through and thoroughly analysed what the different travel trends are. It analysed how many trips are by company car, how many are resulting in an employer-provided car-park, and the impact that those incentives of employer-provided car-parks have on people’s travel choices—that is, the way that it increases congestion, the way that it undermines our investments in public transport, and the forgone revenue from that.

Unfortunately, when this bill came to the Finance and Expenditure Committee, no one on the select committee, nobody speaking to the select committee, and not even the officials from the Inland Revenue Department were apparently aware of this report and the research that had gone into it. So it was not possible for us to have a debate using the information that had been collated by researchers on what the impacts of extending fringe benefit tax to employer-provided car-parking in the central business district could be, and how that could be done in a way that would achieve the best outcome for businesses, for Auckland and Wellington, for our transport investment, and especially for people living in the Auckland and Wellington central business districts. So that was unfortunate.

On top of that we had some submitters from the FBT Action Group, who came to the select committee with some quite surprising figures about the compliance cost of extending fringe benefit tax to car-parks. Their calculations about the compliance cost, which have been referred to by previous speakers, were based on some assumptions—first of all, that the fringe benefit tax would apply to 200,000 car-parks, and that it would require 110 minutes per car-park per year, which is pretty unlikely, really, when you think about it. But the worst part is that there are not 200,000 car-parks. We have the numbers on employer-provided car-parks in the Auckland and Wellington central business districts. There are only 24,000 employer-provided car-parks in the Auckland central business district. This estimate of compliance cost was done on an assumption of 200,000 car-parks, and that is 10 times as many. There are even fewer car-parks in the Wellington central business district, of course, than there are in the Auckland central business district. The vast majority of people travelling to work in the Auckland and Wellington central business districts do not travel by car. Seventy percent of the people who work in the Wellington central business district do not travel by car; they come in by public transport, walking, or cycling. Over half the people who travel into the Auckland central business district at the moment travel by public transport, walking, or cycling.

So the issue with the employer-provided car-parks not being taxed as a benefit is that it is unfair to the majority of people in New Zealand, especially those working in the Auckland and Wellington central business districts who do not receive this benefit. They are taxed on their income. They would be taxed on their public transport passes if their employers provided those to them. The very conservative value of a car-park in the Auckland central business district is $2,725 a year. The value of an annual public transport pass for all stages, on average, is $2,700. So the subsidy for people to drive alone into the Auckland central business district is greater than the value of offering a public transport pass to people travelling into the Auckland central business district.

Let us get back to the fundamentals. The purpose of fringe benefit tax is not primarily to raise revenue; it is to ensure that employers and others are not trying to avoid paying tax by providing benefits that result in distortions. The purpose of extending fringe benefit tax to car-parks was to achieve greater horizontal tax equity, but the primary reason would be to get smarter transport outcomes. The best way to get smarter transport outcomes is to remove the unintentional subsidies that exist for people to drive alone to work in the Auckland and Wellington central business districts.

There were some allegations that extending fringe benefit tax to car-parks would disadvantage people who worked shifts and could not possibly take public transport, and people on low incomes. The reality is that the vast majority of people driving to work in the Auckland and Wellington central business districts are on high incomes, so continuing to subsidise car-parks is actually a regressive move. It takes away resources that could otherwise be put to the general public of New Zealand. It takes resources away from them and says that, no, we are going to let people who are earning over $100,000 a year in the Auckland and Wellington central business districts continue to drive alone in their company cars and clog up the roads, rather than using our resources in an efficient way and making sure that the prices are direct.

Ultimately, this bill was a lost opportunity to have a debate. It is true that the way that fringe benefit tax was proposed to be extended to car-parks probably was not the most efficient way of doing that. We in the Green Party would have wanted to see—and we did ask officials for—some investigation on how this could apply fairly to car-parks throughout urban areas wherever their value is high, as it does in Australia. Instead of being limited to one geographic region that was arbitrarily chosen, it could have applied to car-parks valued above a certain threshold. That would have ensured that there was not the unintended consequence of incentivising development outside of the central business district, where it would be harder to provide high-quality public transport.

Another important thing that the Green Party would have liked to see were changes to the proposal so that it would not apply to shift workers and people on low incomes—for example, cleaners who come into Auckland to clean at Skycity. There is no reason why it should apply to them. Ultimately, they were just the minority, and we think that those issues could have been dealt with, had we had an informed and substantial debate. But we were not able to have that debate, in part because we did not have the information available to us at the Finance and Expenditure Committee. The Government and Labour were quite quick to jump on the numbers provided by the FBT Action Group, which provided quite erroneous numbers based on 200,000 car-parks, when there are only 24,000 employer-provided car-parks in Auckland’s central business district.

Ultimately this is about choice, and we want to make sure that the tax system is fair and that it rewards people for making choices that consume fewer resources. That is a key tenet of Green Party tax policy: to make sure that the tax system is fair and that it does not subsidise behaviour that results in greater pollution, greater congestion, and greater health costs. I am going to read just a short section from this report on the benefits of addressing parking distortions: “Employer-provided parking is a benefit available only to those who drive and it has greater value in areas where parking prices are high. Those who benefit most in dollar value from free parking at work are those who also drive when congestion is worst. In addition, the most valuable land used for parking is in the CBD and if primarily used for [employer-provided] parking is an unproductive use of CBD land. While it may not be a direct tax policy to subsidise people to drive and park in the CBD of New Zealand’s four main cities, by ignoring the taxable value of employer-provided parking, it is a policy by omission.” In other words, it is the policy of this Government to subsidise people to drive into the central business district at peak times, thereby undermining our investments in public transport and worsening congestion, while foregoing revenue from high-income earners. Thank you.

I rise to speak to the second reading of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. As has been pointed out by other speakers—and I am to going to talk about what is in the bill, as opposed to what other people wish was in the bill, which we have heard quite a bit about from the speaker who just resumed her seat, Julie Anne Genter—this is a bill that proposes to broaden the tax base, with changes that are going to make the tax system fairer and the economy stronger. That is its bottom line. This bill introduces amendments to several inland revenue Acts and regulations. The sponsor of this bill, the Hon Todd McClay, outlined those earlier, so I am not going to repeat those.

It includes supporting provisions to the livestock valuation rules, which make elections to use the herd scheme generally irrevocable. This is a fairly complicated area. It is one that, I am sure, my esteemed colleague, an expert in this matter, David Bennett will be talking about in due course.

This is a bill that does focus on helping businesses. As an example of that, our current GST laws can present an obstacle, and we need to address this to stay globally competitive. GST, as we all know, is a tax on consumption. It is not a tax on business. It should, therefore, be neutral for both resident and non-resident businesses. This bill deals with that aspect.

Lease inducement and lease surrender payments are another area that is, perhaps, a little arcane to many of us. It is something that looks at proposed amendments that will modify the capital revenue boundary for two specific commercial land - related lease payments—namely, lease inducement payments and lease surrender payments. That is also going to be tidied up by this piece of legislation.

In my electorate of the North Shore, people took a bit of an interest in assets expenditure. Some assets such as holiday homes, aircraft, and boats are often used to earn income for their owners and also used privately. When you are looking at issues of fairness in tax, this is an area that requires examination. These sorts of assets are commonly referred to as mixed-use assets. The situation as it stands now is that tax rules allow deductions for expenditure incurred in earning taxable income, and disallow deductions for expenditure that relates to the private use of an asset. However, these sorts of rules can be difficult to apply to expenditure that does not clearly relate to either the income-earning or private use of an asset. Some examples of that include expenditure while the asset is not being used, and expenditure on general repairs and maintenance. They are a couple of examples that many of us have had some experience of. The current practice is that many owners of such mixed assets deduct all the expenditure that relates to the period within which the asset is not being used, leading to excessive tax deductions.

So, once again, looking at issues of fairness and balance, this bill proposes new rules that prescribe the amount of deductions that owners of certain assets can claim. Minister McClay, the sponsor of this bill, stated in the first call on this bill tonight that tax rules must try not to be too onerous. In my opinion, this bill succeeds in that very well, and I commend it to the House.

I take a call on behalf of New Zealand First for the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. I note also that in the commentary of this bill it says that one of the purposes of it is “to improve the fairness of existing tax law and regulations, protect the tax base, and minimise the burden on businesses.”

New Zealand First will be supporting this bill now, in particular since the car-park tax has been removed, which we all felt at the time was a ridiculous suggestion, where something like $17 million in revenue was going to be taken in taxes, but it was going to cost businesses something like $30 million in their administration costs to actually provide that tax to the Government. That was going to be a nonsense, and it was also a nonsense that it was going to be applied to only the Auckland central business district and the Wellington central business district. Then it would provide some huge anomalies as to where you would actually determine companies were located, and who would be paying for car-parks in those areas and who would not be. It would be a crazy situation where literally over the road from one company you could be just slightly outside the boundary and be paying for car-parks, while just a short distance away another company would be getting away scot-free. That was going to be a ridiculous situation.

New Zealand First will be supporting this bill for a number of reasons. We do agree with improving the taxation system. We do support any measures that help streamline the taxation system and help make it a more efficient system. It is a very meaty document. It is very, very technical and detailed, so I will not go into a lot of it, but I will point out some of the areas that we do now support.

We do now support the change to the livestock valuation rules that has come through with this, and we see that as now being sensible.

We do support the fact that it makes some important GST changes, such as removing the inequitable situation of non-resident versus resident businesses in this country.

It also provides tax deductibility for expenditure on trees and plantings for erosion, shelter, and water protection purposes. Again, we feel that that is a very fair thing to do, where farmers, or anyone else, are in a situation where they are having to put in trees to try to stop erosion and also to provide important shelter. Particularly in this last week or two, we have all been very mindful of the shelter that has been required for animals in the South Island in particular and in parts of the North Island. It is a good thing to provide tax deductibility for the planting of shelter and also in terms of water protection purposes. That is a good means of providing a tax deductibility situation.

This bill also gives donee status to three charity organisations that operate internationally. They are very worthy organisations and do therefore warrant being included in that particular status.

It also eliminates tax treatment mismatches to certain foreign currency hedges. If there are mismatches in that foreign currency hedge area, then that is another good area to be cleaning up and ensuring that there are not inequities there.

Overall this bill helps to strengthen the tax system. It makes it easier for taxpayers—both personal and corporate taxpayers. We think it has a lot of merits, and, as we have always said in Parliament, New Zealand First will support good policy. We will support policy that assists this country and assists the Government to operate in the most efficient manner that it can. In this respect, New Zealand First will be supporting the bill.

It is an interesting night to be here in the House, debating this bill, the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill, because looking across the Chamber, the phones are clicking away frantically as people are realising that there has been a leadership spill across the Tasman in Australia, and we now have a new Prime Minister—K-Rudd—in Australia, and I wish him the very best for his 100 days in office. You can see these Labour people looking at the polls, clicking at what is going on in Australia, and you can feel change coming on the other side of the House.

💬 Hon Simon Bridges: He reminds me of Cunliffe.

That is why Mr Cunliffe got up and spoke tonight and said absolutely nothing in 10 minutes. What he was trying to do—

The ASSISTANT SPEAKER (H V Ross Robertson): Order! The tax bill.

—was to talk about issues that we discussed at the Finance and Expenditure Committee and that he did not have problems with at that point. It is interesting also to reflect on the comments this evening from Andrew Williams, who I do not think attended any of our select committees. It was always his leader, Winston Peters, who made a very strong contribution to our work, and it is very good to see New Zealand First supporting this legislation.

This legislation underpins one of the Government’s four priorities for this term, which is building a more competitive and productive economy. That is what Julia Gillard did not do. It is only by lifting New Zealand’s economic performance that we can create jobs, boost incomes, improve living standards, and provide the world-class public services that New Zealand families need. The centrepiece of the Budget in 2010 was a major tax package reforming the tax system to make it fairer, more sustainable, and a better support for economic growth. That is why I really strongly support this bill.

I would just like to quickly touch on the fact that this bill continues the Government’s focus on ensuring everybody pays their fair share of tax, while at the same time we continue to support the economy. This bill is a bill that focuses on helping businesses. It is important to the Government that New Zealand businesses are supported in becoming more competitive against the rest of the world, which is why this economy is heading north and many other economies are heading south. Our current GST laws can present an obstacle, and to that end we need to address this—and the bill does it—so that we can stay globally competitive. GST is a tax on consumption, not a tax on business, and it has got to be neutral for both resident and non-resident businesses. This bill allows non-resident businesses to register for and claim back GST in a broadly similar way to companies operating here in New Zealand.

I think that this other issue around GST is the issue affecting global trade, which will be resolved in the bill. Where a New Zealand - resident manufacturer charges an overseas customer for the creation or modification of tools required to produce specific export products, a new rule is proposed in this legislation that will allow these tooling costs to be zero rated for GST. It also confirms that farmers’ riparian rights to planting are immediately deductible, and that will be very helpful to farmers in the Wairarapa. With those few comments I support this bill unreservedly.

It is outrageous that the Tories over there can dare mention the words “fair” and “taxation” in the same sentence. This bill, the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill, does change some taxation provisions—I accept that. But let us not forget that this Government came into office and changed the taxation regime, firstly, to cut taxes, lower taxes, reduce taxes—call it what you like—for the most wealthy in this country, or for the wealthy who pay tax, because many do not anyway. The second thing the Government did was increase GST, which is the most regressive tax we have. That is, the poorer people of this country pay the most GST, relative to their incomes. This bill is an attempt, the best National Government attempt, the best Tory attempt, to bring fairness to the taxation system.

We have heard about the different technical provisions in the bill. As Labour spokesman on primary industries I guess it is only fair that I talk about the livestock valuation parts of this bill. I accept that the technical amendments there will probably bring some more consistency. There will be some farmers who might be aggrieved. There have been exceptions made on the back of advice from the Finance and Expenditure Committee, and I think the bill is an improvement in that way.

What I would like to do, because it is relevant, is raise deadstock issues, not livestock issues. This Government has been embroiled with incompetence, a lack of oversight, and a lack of direction by the Minister on deadstock issues for some time. The first is meat, which is the result of deadstock. Most farmers try their best to manage that process—not to have it come around too early—so that they can provide the livestock to become deadstock and then to become meat for export. But the National Government, in a blind ideological approach to Government services, has thrown the responsibility for farming, for forestry, for fishing, for food safety, for biosecurity, and for food certification—all of these things—into one incompetent agency, the Ministry for Primary Industries, which has been shown over the last few weeks to be unable to do the job that it should be doing, or that the separate agencies should be doing. I do not blame it. There has been major upheaval. Unlike the Minister over there, the Minister for Primary Industries, who dumped on his officials, I do not blame them. I blame the Government for throwing them all into one agency and then saying: “Carry on as you were.” The deadstock management issues in this country are hopeless, both going out—

💬 David Bennett: What a load of crap.

Well, the member over there jokes about it. If you want to talk to people in the meat industry, Mr Bennett, they will tell you that they do not trust the Minister’s explanation as to what happened at the Chinese border. In fact, the Minister’s explanation is somewhat contrary and contradictory about when he was informed. When did he first know about this? When was the Ministry for Primary Industries notified about this?

💬 David Bennett: What about the bill?

We will find out. Do not worry, Mr Bennett. We will find out the truth of that, because it is absolutely important that the response to not only the livestock taxation issues but the deadstock management issues by this Government is appropriate.

Can I say there is another issue, not about the export of deadstock but about the import of deadstock. On 12 May—that goes back some weeks, almost 6 weeks—a farmer in the Bay of Plenty identified a limb in palm kernel expeller. One and a half million tonnes of this comes in. It is a by-product of the palm oil industry and it is brought into this country to help the livestock so they do not become deadstock. The Labour Government originally allowed about 80,000 tonnes of this in total during a period of drought in the early 2000s. That trade has now grown to 1.5 million tonnes. There is a dependency on it by the dairy industry and others to keep livestock from becoming deadstock when there are feed shortages, and also to boost production. The dependency is somewhat dangerous, given the reality that the new Ministry for Primary Industries, overseen by an incompetent Minister and an incompetent Government, has been unable to provide the security through the biosecurity pathway, and we saw a limb of an animal come into this country.

It took effectively from 12 May until 17 June for the Ministry for Primary Industries to identify the limb—to take it away and test it, and then to announce that it was a cloven-hoofed animal. A cloven-hoofed animal means that it has two bits of hoof, like this. I say this for the city slickers, you included, Mr Assistant Speaker Robertson, maybe, although I know that you do know these things. Cloven-hoofed animals are the ones that are affected by foot-and-mouth disease. They are the ones that can possibly carry that, coming from countries where foot-and-mouth is endemic—Malaysia or Indonesia. But the Ministry for Primary Industries could not tell us where that palm kernel expeller came from. Its systems of oversight for the importation of palm kernel expeller are totally inadequate.

Two farmers went to Malaysia off their own bat, went on an official tour, and then took a side tour. They thought they would take the initiative to really investigate what was going on. They wrote a report and delivered it to the Ministry for Primary Industries last November, and the Minister and the Government sent officials over only just in the last month or so to check out the claims in the report. They came back and said no, there is low risk, and there are very safe systems for the most part. In fact, if you read the report carefully, it does leave a few gaps there. I will not say that the report was untruthful; I will say that the Minister should have taken his rose-tinted glasses off when he read the report. Clearly, in it there were signals that there are major gaps in the system, and the discovery of an animal limb in palm kernel expeller on a Bay of Plenty farm is a major concern for primary sectors in this country.

Let us go back to the point about the systems that the Ministry for Primary Industries uses to check. On 12 May it got the limb, on 17 June it said it was not a sheep or a New Zealand animal, and then today—and I find it, quite frankly, unbelievable and will be following up on it—it said no, it was a sheep. Well, if it takes that long to work out what a leg of a sheep is in this country, how good are the systems that we are relying on?

This bill here makes some attempt to make some adjustments to implement a National Government taxation system that is fair, they say. It addresses some issues for livestock taxation, but what I say in this House tonight is that this Government has ignored deadstock, meat industry, and biosecurity issues that are of huge significance to our economy. The Minister of Revenue over there might think that we are broadening the scope of the bill. The taxation gathered through these measures goes to pay for core Government services. If this incompetent Government allows foot-and-mouth disease into this country because it has not run a proper biosecurity system, we will not have livestock taxation issues.

This Government cut funding for biosecurity. It has had warning after warning that we are at risk, particularly through palm kernel expeller, yet did it in the last Budget increase funding? No, it did not. Did it cut funding? Well, yes, it did. The Minister for Primary Industries says: “Oh, there was a carry-over.” I do not believe the Minister that there was a carry-over. I believe there was a cut to front-line funding. When you ask people in the biosecurity system, they say they are demoralised, they are concerned, and they are alarmed with what is going on.

I say here in this House: if this incompetent Government allows in such a disease, our economy will be on its knees, the farming sector will be on its knees, and we will not have to worry about livestock valuation issues because we will have hundreds of thousands of deadstock. That is not what we need in this economy, and it is about time the National Government got on and focused on the real issues, like biosecurity protection for our primary sectors.

I just want to take a brief call. The last bastion of Labour Party policy that it could have put up around agriculture has now totally been destroyed by that member, the Hon Damien O’Connor, talking for 10 minutes on deadstock when we are talking about a livestock taxation bill, the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. It just shows how out of touch he is and how incorrect his assumptions are. I look forward to the Green Party policy on agriculture because that will be the true left-wing policy on agriculture soon, now that the Labour Party has abolished that role for itself.

There is a capital gains tax in New Zealand. There are a couple, actually. If you buy or sell property within 10 years, you get a capital gains tax. There is a capital gains tax in the livestock valuation that farmers have to pay each year. When farmers pay their tax, they have a capital gains tax calculation on their profit on the stock. It is not actually money made. It is not income coming into them. It is a capital gains tax, and this is a capital gains tax that has been existing in New Zealand’s tax law for a number of years. We are tightening the rules around that, so that people cannot take advantage of that by choosing one method of valuation over another. That is the right thing to do, because people were abusing the system and that needed to be changed, and the Government has stepped in and done that. I thank members of the Finance and Expenditure Committee on both sides for working constructively together to do that.

But Labour members have used this debate to say that the capital gains tax that they propose, which is exempting first homes, will be the solution for New Zealand’s housing problems. It will not. It does not work in Australia in that way. It is another tax grab from the Labour Party. It is not going to change those policies. So for anybody listening, having a capital gains tax on property will not change house prices. If you did have an exclusive capital gains tax, that is seen as more prudent by international bodies that look at financial management, but it does not achieve the purpose that Labour is saying. This is a good bill and we commend it to the House.

As others from Labour have said, we are supporting this bill, the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. The bill seeks to make amendments to several Acts, including the Income Tax Act 2007, the Tax Administration Act 1994, the Goods and Services Tax Act 1985, and the Income Tax Act 2004.

Debate interrupted.

The House adjourned at 10 p.m.