Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill

on behalf of the Minister of Revenue: I move, That the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill be now read a second time. Ours is a good tax system governed by good tax rules. It is good because it strives always to ensure fairness. The system also aims to ensure that taxpayers understand their obligations and that those obligations are simple and not unduly onerous, as that ensures a greater rate of compliance. The bill before us aims to make the rules for taxing foreign superannuation simpler and fairer for New Zealanders returning after working overseas and for migrants who have contributed to overseas superannuation schemes before coming to New Zealand.

The current rules for taxing New Zealand residents on their foreign superannuation are complex and can be difficult to understand. Under the proposed changes, from 1 April 2014 lump sums from foreign superannuation schemes will be taxed only when they are withdrawn or transferred to a New Zealand or Australian scheme. The tax would depend on the gains made while the person has been a New Zealand resident, using one of two calculation options. Not being taxed on accrual under the foreign investment fund rules is a major simplification. The taxation of periodic pensions will stay the same.

Transitional and practical matters arising from the proposed new rules are dealt with in the bill so that taxpayers will not be disadvantaged. These include making it easier to meet tax obligations by allowing those transferring their foreign superannuation scheme interests into KiwiSaver to make a withdrawal from the KiwiSaver scheme to pay their tax bill, and by allowing people who complied with their tax obligations using the foreign investment fund rules before 20 May 2013 to continue using these rules in relation to that interest after 1 April 2014, when the new rules are proposed to come into effect.

Those who made a lump sum withdrawal or a transfer to another superannuation scheme between 1 January 2000 and 31 March 2014 but failed to meet their tax obligations at the time will have the option to pay tax on 15 percent of the lump sum amount. Alternatively, the individual could apply the rules that applied to their interest at the time of transfer, and pay any associated back-tax. The 15 percent option would not impose any new tax liability beyond the existing law. I must stress that this is an option.

These measures are designed to help people comply. The Government is simply keen to help people who may have been unsure of their tax obligations to get back on track. The Finance and Expenditure Committee has supported these proposals and made several recommendations. In particular, the Finance and Expenditure Committee recommended that the rules be limited to taxpayers who acquired their foreign superannuation while they were not New Zealand residents. This will make the new rules more robust and is more consistent with the original policy intention.

Other changes will make the rules easier for taxpayers to use. I said before that the tax system aims to ensure fairness. I would like to draw members’ attention to another notable feature of this bill, which is the proposal to rationalise the rules as they apply to the taxation of miners of specified minerals such as gold and silver, and also iron sands. Such miners currently enjoy a highly concessionary tax treatment. Mining is an important component of our economy, but that does not mean that any one industry should be advantaged over others in tax. At the same time, we acknowledge that the industry does have its unique aspects, which must be taken into account.

The bill therefore proposes a range of measures, including that immediate tax deductions for prospecting and exploration expenditure will continue. However, on the establishment of an operational mine, exploration expenditure on items used for the extraction of minerals will be clawed back and be deductible over the life of the mine. Tax deductions for development expenditure will be deferred and allowed over the life of the mine. Expenditure incurred in the extraction of minerals will be subject to ordinary capital/revenue tax rules. So-called revenue account treatment will apply to land acquired for specified mineral mining—that is, sale proceeds will be taxable and the cost of acquiring and disposing of the land will be deductible. General tax depreciation rules will apply to expenditure on assets with a useful life independent of the life of the mine.

The bill also contains a number of amendments to ensure that the income tax rules cater for the rebuilding activity now taking place in Canterbury. I would like to thank the members of the Finance and Expenditure Committee for their valuable recommendations on this bill, which have helped to improve and clarify the rules. It is therefore with pleasure that I commend the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill to the House.

Labour will be supporting this bill, the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, with some reservations, and I want to echo Minister Goodhew’s sentiment in thanking the Finance and Expenditure Committee for the constructive work it did. It was certainly my observation that around the table there was a spirit of wanting to make this legislation as fair as it could be. The Minister raised the issue of fairness many times and talked about how our tax system was good because it had fair obligations, and then she helpfully linked this to compliance. All of these are issues that I would like to cover in my contribution.

It certainly has been the case historically that we have had good voluntary compliance in New Zealand, but what the Minister did not point to was the fact that that compliance is dropping. That voluntary compliance that we rely on in our tax system is dropping. That is inevitable, in part because businesses are struggling under this Government. We know that there are 2,500 fewer small businesses being created every year under this Government. It is in part because people are struggling, and we know that inequalities are at the highest that they have ever been in New Zealand in recorded history under this Government. We also know that people who cannot afford to put food on the table are going to struggle to meet their child support obligations and the other tax burdens that are upon them.

This Government is doing very little to help those people. Those record figures for inequality are something that should be regarded as a national shame. We have a history of being, and a pride in being, a country of fairness and equity, and that reputation is going down the tubes. So the contribution made on behalf of the Minister of Revenue by Minister Goodhew begged a question about whether these changes and the future changes that the Government wants to make will contribute towards that understanding of our tax system as being fair and equitable, and will contribute towards the voluntary compliance that we actually rely on in order to have a functioning and efficient tax system that collects revenue to fund our schools and hospitals, which I am sure most members across the House would want to see continue.

We heard yesterday in the financial review hearings about the fact that the Inland Revenue Department is not meeting its new target—its new, revised target—of answering three out of four phone calls, which I found shocking, frankly. That three out of four phone calls is the target, in the first place, is pretty shocking, and that the department is not meeting that target is, I think, unacceptable. That points again to the kinds of frustrations that people are experiencing with the tax department, which is under-resourced and is struggling with an outdated computer system.

We on this side of the House worry that these proposed changes might come back to the House for revision when the Government tries to implement them. That has certainly happened before with legislation in my time here. It has been passed through this House and has come back for revision because the department has found that it is not able to implement it.

💬 Hon Anne Tolley: You don’t think in 9 years that Labour knew that system needed upgrading? You did nothing about it.

The Minister opposite raises the 9 years that we were in Government. That is an interesting point because when this Government came in 5 long years ago, it was stated in the briefing to the incoming Minister that this problem of the computer system urgently needed addressing. In fact, her Prime Minister acknowledged, 2 years ago now, that changes to our tax system were being held back because the system had not been repaired. I am very glad that the Minister is bringing this up, because that problem is growing. It is a shocking problem that needs to be addressed, and taxpayer money has been spent on it with very, very, very little progress. We heard yesterday in the select committee, Ms Tolley, that $50 million has been spent so far on the computer system, and what do we have out of it so far? We have out of it, unfortunately, an agreement from Ministers that it should proceed in theory. We have an in principle agreement to make some change—$50 million.

💬 Moana Mackey: $50 million?

Yes, $50 million. Now we have an in principle agreement to make the change that the Inland Revenue Department recommended to this Government 5 years ago and that the Prime Minister acknowledged 2 years ago was urgent—$50 million has been spent and now we have an in principle agreement to do something about it.

That is why on this side of the House we are worried about whether this legislation can actually be implemented by this Government. It has been making excuses. It is getting nowhere with fixing the tax system, and New Zealand is suffering, because every Western democracy needs an effective and efficient tax system to collect the taxes so that we can have schools and hospitals. It will not do to just flog off every asset that the Government owns. Eventually we will run out of assets to flog off to fund those kinds of projects, and we have seen that the Government is no good at doing that, anyway. It has failed to meet its target.

We do need a reliable tax system that collects the revenue fairly, as the Minister indicated at the start, and we need voluntary compliance, which involves having the people out there getting a satisfying experience with the tax system as they hand over their dues voluntarily. It is not one that faces having three out of four phone calls unanswered, and it is not a tax system that releases information willy-nilly, as well. We had the privacy breaches with the Inland Revenue Department tax system that were widely reported last year. Last year it was reported that over 6,000 people’s details—their most private details—were released by the Inland Revenue Department because that tax system is burdened and is squeaking at the seams. And you would expect that, because it is 21 years old, for goodness’ sake! Not many people rely on 21-year-old computer systems in their everyday work—10 years before Facebook, for goodness’ sake! That is an outrage. It needs to be updated.

The $50 million spent so far to get an in principle agreement to proceed ought to lead us somewhere. In fact, we also learnt at the select committee yesterday that the tenders for the development of the first stage of the business case, which is the next stage, are out at the moment, and that they will be reporting back in June next year with an updated business case. June next year—there is some hope. They will get there eventually. They will have an in principle agreement, then they will have an in principle business case—

💬 Hon David Parker: Peter Dunne will probably be Minister of Revenue again.

Mr Dunne may well be back as Minister of Revenue by then. I am sure that he has got nothing to fear and nothing to hide, or that is what he will be claiming—goodness knows. This Government does not seem focused on that task. It is not resourcing it, and so that is why we have got these worries about whether these actual measures will be able to be implemented.

There is one equity issue that remains important with this legislation, and that is the foreign superannuation changes. If we take, for example, two young New Zealanders who go on their overseas exchange, and one of them heads off to England and one of them heads off to Australia, they will find, if they are saving there in a foreign superannuation scheme, that when they return to New Zealand one of them will have a whopping, great tax bill and the other one will not. At some level that does not feel very comfortable at all, and the problem, quite simply, would not arise if we had a proper capital gains tax in this country. A proper capital gains tax is something that, again, this Government has been avoiding because it is very interested in protecting the interests of those who have money, and it protects their interests above fairness.

That is why the voluntary compliance level is dropping, in my view. People no longer regard the system as being as fair as it was once upon a time, and nor is it easy to interact with. With the privacy breach concerns on top of that, we have a department that is struggling and that the Government is clearly not focused on, and clearly is not interested in, and we have growing non-compliance.

Part of that non-compliance, as I mentioned, is due to tax avoidance, which others see as unfair, and then they feel that they should not themselves be paying their tax burden. We know that this is a growing problem worldwide. A recent edition of The Economist reported that now very close to 200,000 individuals have assets of $30 million or more. That is a 6 percent increase on last year. There is a growing inequality of wealth around the world. The problem in New Zealand is growing faster than elsewhere, and that level of inequality is driving the non-compliance, as I explained at the beginning of my address.

Unfortunately, this department is not even able to be focussed very much on pulling that in. We heard in the Finance and Expenditure Committee yesterday that there is no estimate of the size of tax avoidance in New Zealand. The department finds that it is too hard, and it does not have the resources available to it, to actually estimate it properly.

So here we have another bill going through that we will be supporting because it makes some steps in the right direction, certainly with the tax on mining. We agree that some of those things that have been clarified in the select committee needed clarification. They are sensible changes and the committee was well chaired and worked through the issues thoroughly. I congratulate Mr Goldsmith on his work in that regard. We have made some good changes here. The equity issues between those coming from Australia as opposed to those coming from the rest of the world still stand out as unusual and difficult, and I am sure that we will hear of many people out there listening who have concerns about that—

The ASSISTANT SPEAKER (Lindsay Tisch): Sorry to interrupt the honourable member. His time has expired.

I would like to thank the previous speaker, David Clark, for his kind and generous remarks about the work of the Finance and Expenditure Committee, which was conducted in a collegial manner as we worked our way through this piece of legislation, the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill.

There is no doubt that the tax system in New Zealand is in pretty good shape. I am just looking at the financial statement that the Finance and Expenditure Committee examined this week, which showed that the Inland Revenue Department has collected about $58.6 billion in core Crown taxes. This is $3.2 billion more than last year, and that represents about 27.8 percent of GDP. So there is no question that the Government is a very skilful and indefatigable collector. However, this Government has reduced the overall burden while still being on track to return to surplus. This is a singular achievement, of which the Minister of Finance, Mr English, must be very proud. It is worth recalling that tax as a percentage of GDP peaked at about 31 percent in 2006, under that most rapacious tax-gatherer, Michael Cullen. We have managed to get it back to a more reasonable level.

Of course, the driver of tax is Government spending, and this Government has made good progress after the blowout during the global financial crisis and after the Canterbury earthquake, when core Crown spending peaked at about 35 percent. We are now down to 33 percent, and on track to be at about 30 percent in a few years’ time. There is no question that, in terms of collecting tax, we are very good at it.

This Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill is the latest piece of tax legislation aimed at making the tax system fairer and simpler, and strengthening our economy. The Government aims to raise the revenue that it needs not through hiking tax rates but by ensuring that the existing tax bases are applied fairly, are defended stoutly, and are updated every year in order to deal with changes to the economy and the way that taxpayers react. An important aspect of fairness in the tax system is that taxpayers must be able to understand and comply with the rules. It is necessary for the tax rules to be cohesive, fair, and applied consistently.

I suppose the biggest area that we dealt with in this piece of legislation is related to foreign superannuation. There is no question that the current settings have been very untidy. We had heard that about three-quarters of people who were liable for foreign superannuation tax were not complying with that liability, so any situation like that did require reviewing. The committee went through this in quite some detail. We made several recommendations to improve and clarify the rules—in particular, recommending that the rules be limited to taxpayers who acquired their foreign superannuation while they were not New Zealand residents. That makes the new rules more robust and more consistent with the original policy intention.

Other changes were introduced to make the rules easier for taxpayers to use. I think the key thing that the committee came up with in the process was how important a good education scheme or set of arrangements, particularly with tax advisers, is in this area. There is no question that it is a complex area of law. If you are going from one jurisdiction to another, the tax complications relating to superannuation are always going to be detailed, not just in New Zealand but in any country around the world. I think what we have come up with in this piece of legislation—although it is not perfect and there are certain situations where people are dealt with differently—gives options for taxpayers to deal with being non-compliant in a straightforward way, and offers a reasonable mix.

The other area is in specified mineral mining. Again, the Finance and Expenditure Committee made several recommendations to improve and clarify the rules there—for example, a new definition of “operational expenditure” has been included to ensure that such expenditure remains deductible and is distinguished from development expenditure. The committee heard a lot of submissions on that. I think we have fallen in a space that is reasonable to the mining companies that have situations where they are dealing with about 30 or 40 years and trying to project a long way out and wanting to ensure that they are not left with an inability to get expenditure deducted. I think we have fallen in a reasonable space there. On that basis, I am very happy to commend this bill to the House. Thank you.

One of the notable matters in respect of this legislation, the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, which was not unduly delayed at the Finance and Expenditure Committee—indeed, it was reported back within a reasonable time by the select committee and has been put on the Order Paper by the Government reasonably promptly thereafter. Yet between the time of its first reading and now, a lot of political events have happened. It was introduced by the Hon Peter Dunne, whose dishonour was later highlighted by the Prime Minister, who removed him—

💬 John Hayes: Don’t be uncharitable—it’s Christmas-time.

“Don’t be uncharitable at Christmas-time” I have heard from Mr Hayes. Well, charity should go only so far, and the National Government is always talking about how there should be limits to the beneficence of the Government. To see it being contemplated that Peter Dunne, having been forced to resign for having leaked the Kitteridge report—according to the Prime Minister, there is now the possibility that to keep his shaky coalition going and to maintain some sort of prospect, however slim, of winning the next election, he will shoehorn Peter Dunne back into Ōhariu. The Prime Minister is now saying that Peter Dunne is a person whom he might reinstate, perhaps back into revenue, which I would think would be a diabolically low standard.

In respect of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, I note that we are voting for this legislation, because it does have some good remedial provisions. But I would also note that that should not be taken as acceptance by us that the annual rates of income tax for the 2013-14 year, which are, effectively, set by clause 3 of this bill and include the tax cuts of the National Government in the last term, were fair. Forty percent of them went to the top 10 percent of income tax earners, and this bill entrenches the effect of that by continuing that circumstance into the future.

Of course, that is one of the reasons why New Zealand has the highest rate of inequality that we have had since good records began. It is one of the reasons why that inequality continues to grow. And if people were already worried about the effects of inequality, they would have been doubly concerned when the report came out with the international measurement of educational performance this year, which showed a dire decrease in the educational performance of 15-year-olds. That is not all the fault of this Government, but some of it is the fault of this Government, given that 5 years into this Government those results are poorer than they were the last time they were reviewed, most significantly in maths and science. Of course, according to the report, that is in part driven by increasing inequality. That is not the only reason for it, but an important part of the reason for declining educational performance in New Zealand schools, according to that report, is increasing inequality. Of course, the tax rates that are referred to in clause 3 of this bill are one of the causes of that rising inequality.

My colleague David Clark referred to the remedial matters that are addressed in this bill and then started to list some of the remedial matters that ought to be in the bill and are not, and that threaten our tax base and undermine the strength of our economy. I want to mention a couple more. We have now known for more than 5 years—admittedly, it would have started before the end of the last Government, but it has become far more prevalent a problem—that revenue is being taken out by overseas companies from the New Zealand economy without their paying tax on the effective profits they make in the New Zealand jurisdiction.

In the last 5 years, since this Government has been in power, we have seen the explosion of the internet as a source of commerce, and we have seen increasing advertising revenues being garnered from the New Zealand economy by Google and by Facebook, to name but two. Virtually no tax is paid by those entities on the revenues that they take out of the New Zealand economy. That is wrong, both in a tax fairness sense, in terms of the loss of revenue to the Crown, but also, perhaps more important, in its effect on New Zealand - based businesses that employ people in New Zealand and that do face a tax burden. Whether it is the Fairfax Group or the APN group, which employ journalists—including the journalists whom we rely upon in the press gallery here to keep democracy honest and to present to the New Zealand public the differing policies that different parties stand for—or other groups, they are being severely, and I do mean severely, disadvantaged relative to groups that do not pay taxation in New Zealand but compete with those newspapers, radio stations, and television for advertising revenue and do not pay tax on it.

I think it is very, very lax of the Government to have done nothing effective to control that tax avoidance. This bill does not do that. This is a complaint I hear from New Zealand businesses in Auckland, including big businesses, successful business people, and men and women who complain that it is not fair that there is so much multinational tax avoidance. Transfer payments are being made to overseas jurisdictions in order to limit New Zealand profits and therefore taxes.

💬 John Hayes: Table the evidence of what you’re saying.

Mr Hayes might not understand this, but he should pay attention, because it is happening not just with Facebook and Google; there are transfer payments that are being made in respect of intellectual property transactions, for example. Trademarks and things are being used to take revenue out of New Zealand, to overstate New Zealand expenses so as to decrease notional profits and taxable profits in New Zealand, and therefore to decrease taxation in New Zealand. Again, that is not fair to other taxpayers, because those other taxpayers have to effectively pay the taxes that the Government needs in order to fund pensions, education, and health services. That burden falls on other taxpayers; it does not disappear. Neither is it fair to the New Zealand - owned companies that do not play the same tricks and do pay a higher effective rate of taxation.

The hollowing-out of New Zealand’s corporate tax base in this way is something that I am not surprised that National does not pay much attention to. We know that National makes lots of unprincipled decisions in this space, whether it is for Rio Tinto, paying a $40 million subsidy in order to get the Meridian Energy sale off the books—John Hayes shakes his head, but he seems to have missed that one as well. That happened—

💬 John Hayes: Christmas Grinch, aren’t you?

What is that?

💬 John Hayes: Christmas Grinch.

I am the Christmas Grinch, according to John Hayes. Actually, no. You know, if that $40 million sat in the Government’s accounts, the Government would be able to do $40 million worth of good things for New Zealanders—quite the opposite of being the Christmas Grinch. Another example where we have had poor practice, which, in effect, wastes taxes, is in the corporate welfare that we are seeing and have seen in respect of other corporates from the big end of town whose interests are preferred by National.

I want to say some positive things in respect of the bill because we are voting for it. There are two notable things for me. I do think that the prior rules that related to the taxation of foreign superannuation funds were wrong. They were discouraging people from transferring money in. They were so complex that most people could not understand them and a lot of people, accordingly, ignored them. There was, therefore, a difficult policy decision to be made. Because the rules were so arcane, at one level we had a bit of sympathy for people who were not meeting those rules. On the other hand we ought not to be rewarding people for not voluntarily complying with their tax obligations. This bill tries to strike the right balance, collect some tax, get people into the tax system but not unduly penalise them, and not make them too well off compared with the people who did, despite complexity, meet their tax obligations. I think we have got to the right position there.

The other point that I would support is some of the other changes made to ensure that if someone says that they have got a right of mining expenditure at the exploratory phase because the mine was not going to proceed, but then miraculously finds that they can develop the mine, then the tax deductions that they have had at the exploratory phase ought to be written back. They ought to have to amortise them over the period of the mine rather than just keep the money that they have had the benefit of from the earlier tax deduction.

I rise on behalf of the Green Party to speak to the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill. The Green Party will be supporting this bill because it does make some significant and important changes, even though there are parts of the bill that we do not agree with. It is the bill, of course, that sets the annual rates, and in a sense that is the bit that we disagree with the most. That is because this Government has introduced tax changes that are, essentially, very large tax cuts to upper income earners and increasing GST on everyone else. The cost of this Government’s tax changes to income tax rates are about $1 billion a year to pay for the tax reductions for the top 10 percent of income earners. So the top 10 percent of income earners in New Zealand were given a tax cut by this Government that is costing everybody else about a billion dollars a year. There is a $1 billion a year hole in the Budget as a result of the tax cuts that were introduced by this Government.

If you think about it, what that means is that the entire proceeds of the asset sales so far, $4 billion, is eaten up by 4 years of tax cuts for upper income earners, so those cuts put a big hole in the Budget as a result of the rates that are set in this bill. That meant that it had to come from somewhere else, and, of course, has had a significant effect on the amount of money that the Government has had to borrow, and has also had a significant impact on what becomes of the money from the asset sales. Basically, it is as if we did not sell the assets, because we have chewed through that $4 billion. By the time of the next election we will have chewed through the lot. So the Government is actually selling assets in order to pay for tax cuts for the top 10 percent of earners in New Zealand. You only have to think about that for a second to realise the inequity of the scheme that it has introduced.

Beyond that, I think some of the missing elements of this bill are remarkable as well. If you think about whether the bill is truly to rationalise the tax system, as the Government has said in its speeches—and there are elements of that that are undoubtedly true—what about a capital gains tax? New Zealand has at the moment a very complicated system for taxing capital gains. A lot of the complication comes from intent, when you trade houses, shares, or other capital items was it your intent when you were engaged in that buying and selling to make a profit out of it or not? The tax system, the Inland Revenue Department, is required to interpret the intent of the buyers and sellers of capital items to determine whether they are traders or not. If they are traders, then they are liable for the tax. If they are not traders, then they are not. This creates a very complex and subjective taxation system.

When the OECD did a review of New Zealand’s tax system, aside from saying that it is ridiculous, of course, or it is extraordinary that New Zealand does not have an overarching tax on capital gains, the other part that I think people do not realise is that it means that we have a very complicated system of taxing capital gains, which is based on subjective decisions about the intent of the people who make the capital gains. So if the tax official decides, based on some kind of measure of behaviour, that in the case of the person who made the capital gains by buying or selling their house, or buying or selling their shares, the intent was that they were a trader who was making money out of this, then they will go and say that you have got to pay tax. But if you are not a trader, then you do not have to pay the tax. It is, of course, very difficult and subjective for the Inland Revenue Department to establish this. Why do we not have a consistent rule for taxing capital gains like pretty much every other OECD country? That would be a much simpler tax system for dealing with capital gains than the very complicated system that we operate at the moment.

But complexity seems important to the Government, so it has developed this very complicated system of taxing capital gains, the effect of which is to protect the income of upper income earners. We know when we look at the taxation from other jurisdictions how much income comes from capital gains, and what you find is that the top 1 percent of income earners make a big proportion of their income from capital gains. They are able to avoid paying taxes on most of their income, because most of their income comes from capital gains, which is untaxed, whereas in most other jurisdictions that income is taxed. So not only does the Government maintain a very complicated system of taxing capital gains in order to protect the tax-free income of the top 1 percent, which is the effect of the current capital gains tax rules, but on the other hand it also introduced tax cuts that meant that upper income earners got given a billion dollars a year by having big tax cuts, and, of course, that has got to come from somewhere. Where that comes from is other taxpayers through increased GST, which we know disproportionately affects those on low incomes, and where it comes from is by selling assets. So, effectively, the Government has sold the assets of the people in order to fund the tax cuts for the top 10 percent of income earners for 4 years. What will happen after those 4 years? Well, obviously, they will run out of things to sell and they will turn to other things to sell.

The other part that I think is interesting about the New Zealand tax system is the treatment of foreign trusts. New Zealand has a very unusual foreign trust system, which basically means that foreigners can place assets in New Zealand in foreign trusts, and, as long as none of the income from within those foreign trusts comes from New Zealand, there is no requirement to pay tax on the income earned by those foreign trusts. So they are tremendously effective tax avoidance mechanisms for foreigners offshore. New Zealand now has quite a significant industry of offshore people who are trying to avoid paying tax offshore putting their money into foreign trusts in New Zealand, which are then not visible to their home Governments. This is part of the international problem of tax avoidance. If we take the example of a Mexican drug lord who has illegally and illicitly earned many hundreds of millions of dollars, they can place that money in New Zealand, and the Mexican Government will never know that that asset is in a foreign trust in New Zealand and it would effectively get no tax. There is no way for the Mexican Government to ever know the identity of the person who is the beneficiary of this foreign trust, because under New Zealand foreign trust rules there is no requirement to identify the beneficiary of that trust to the external world. You need somebody in New Zealand who is the front for the trust, but you do not have to identify who the beneficiary of that trust is. That is why New Zealand is now being tagged as one of the places in the world where it is safe to hide money and avoid paying tax. We have become part of the international network of tax avoidance by people who are trying to avoid paying tax internationally.

This bill was a great opportunity—it is a remedial matters bill—to fix up a big hole in the New Zealand tax system around the treatment of foreign trusts. The change that could have been made is actually not that hard; it could have simply been transparency. No one is saying that we should apply New Zealand tax to this income that was earned offshore, though you could have a debate about that. But even if you just had transparency about who the beneficiaries of these foreign trusts are, then immediately those who are trying to use the New Zealand foreign trust regime to avoid paying tax internationally would become visible. It would then become immediately available to the Mexican Government, or any other Government, to see who is hiding money using the foreign trust rules in New Zealand, which is one of the big holes in the current New Zealand system.

The other part that I think it is useful to talk about a little bit is around the IT system. I think David Clark talked about this earlier, because we had the Inland Revenue Department in front of the Finance and Expenditure Committee just a couple of days ago. What is interesting here is the scale of the expenditure on this new IT system. We are talking about ballpark figures of at least $1 billion on an IT system. What the New Zealand IT industry is saying is “Will IRD as part of its programme of building this system make sure that the New Zealand IT sector can bid for parts of this contract?”, and, essentially, it is finding that the Inland Revenue Department is not being particularly facilitative towards the development of the New Zealand IT industry as it goes about building this giant new system. If anything, the department seems to have given the inside running to Capgemini, which is a big offshore IT company that is renowned for avoiding paying its tax. It is a renowned tax avoider in the United Kingdom, and it has been given some of the inside running to get these big contracts on the IT system. It seems to me that this is not a really good way to go about it. Obviously, the Inland Revenue Department wants a system that works really well, which is fair enough, but in the process we also need to keep an eye on economic development opportunities for New Zealand when we have these giant New Zealand Government procurement projects—and this is a giant project.

None the less, there are some good elements in this bill, such as tightening some of the concessionary regimes around mining. Even though they are minor improvements, we certainly support those improvements around mining. The tax system is very concessionary towards mining, so tightening it ever so slightly is progress, but New Zealand still has one of the lowest royalty regimes in the Western World when it comes to mining. Basically, we say to foreign mining companies “Come in, help yourselves, we are not going to tax you much, and if there is any mess we will pay to clean it up.”, which is a bit sad. This bill tightens up some of those concessions around mining, which is a good thing. There are a few other good things in there, so we will be supporting this bill. Thank you.

I rise to speak on the second reading of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, sponsored by our Minister of Revenue, Todd McClay. We have known about the elements of this bill since the Budget; it was foreshadowed then. This is a bill that really protects the tax base and aims to make our tax system fairer and, of course, the economy stronger. Of course, an important part of fairness in the tax system is that taxpayers understand it: that it is clear, simple, and transparent. They must be able to understand what the rules are if they are to comply with those rules. So it is necessary for the tax rules to be cohesive, fair, and applied consistently. This is a bill that does just that.

There are a couple of elements that I would like to draw to the attention of the House in this call. They include the changes to the taxation on foreign superannuation. It is a very complex and traditionally very troubled area. People coming from different countries to New Zealand and New Zealanders returning home do not really understand what the implications are for their superannuation and the taxation around that. This is a bill that actually makes that much clearer.

It also brings the tax treatment of mining of specified minerals—gold, silver, and ironsand in particular—into line with general business tax principles. There is—as you have gathered from listening to this debate this afternoon—widespread support for this bill. Even the Greens, who typically never support very much that is going to make this a competitive and stronger economy, have supported the bill. This is a bill that I certainly support, and I commend it to the House. Thank you.

I take a call on behalf of New Zealand First on the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill. New Zealand First will also be supporting this legislation through the House. It is basically an administrative bill in terms of tax, in order to amend the Income Tax Act 2007, the Tax Administration Act 1994, and the KiwiSaver Act 2006. In so doing, it replaces some existing tax rules for New Zealand residents with interests in foreign superannuation schemes. It also changes the tax rules relating to the mining of specified minerals, clarifies the rules for Working for Families tax credits, addresses a mismatch in the tax rules relating to imputation credits and Australian dividends, refines the rules for the deductions available to holders of bad debt, and also includes the granting of donee status to three charitable organisations. We are all in agreement with these being correct legislative changes to be passed.

The bill proposes a much simpler regime for taxing New Zealand residents who receive foreign superannuation interests in their previous country of residence. The bill proposes a simple way for people to remedy their previous positions and start afresh under the new regime, and a concessionary approach encourages them to do so.

We also note that in terms of KiwiSaver there are proposed changes to the KiwiSaver Act 2006 to allow taxpayers who transfer from a foreign scheme to a KiwiSaver scheme to withdraw sufficient funds from the KiwiSaver scheme to pay the tax that arises on that transfer. Again, that is a sensible thing to encourage those KiwiSaver funds back into the country. Also, in terms of student loan obligations, it allows a taxpayer to withdraw funds from KiwiSaver to cover their student loan repayment obligations arising from such a transfer, as well as the tax obligation.

Those are just a sampling of some of the things in this bill. There are a great many other facets to it, but it is basically a good piece of legislation in terms of tidying up some of the tax aspects, in particular to do with foreign superannuation and aligning us with many of our overseas partner countries. New Zealand First commends this bill to the House.

I rise to take a very short call on the second reading of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill. Much has already been said about this bill and what is in it. I do not really need to repeat that. We have heard about the four main proposals. They relate to foreign superannuation, to mining, to amendments to ensure that the tax rules cater for the rebuilding activity now taking place in my home province of Canterbury, and to the framework for company financial reports. This is a good bill and I commend it to the House.

Tēnā tātou katoa. It falls to me to take each of the 10 minutes to its full. Sorry, I just want to test this—is there an actual Minister in the House? Oh, there is Mr Foss, perilously close to the departure door, but there is a Minister in the House. We will support the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill. We will support this bill. The particular part that we look forward to supporting is mineral mining. We will be supporting that portion that provides for a new regime in respect of the taxation of mineral mining, which is an important sector in the economy, providing that there is a robust environmental framework. In the event that that remains the case, investors should not worry one iota about being able to bring their capital to our country. But they must know, as this bill contributes towards, that there has to be social licence for such sectors to thrive and prosper in New Zealand. They may very well find a place in the north. I refer here to Tai Tokerau. In the event that they do, this bill will provide for a more lucid—I would not say “favourable”—set of processes in terms of how they treat their investments over a period of time, and whether or not they continue to gain access to an opportunity to spread the costs in such a way as is appropriate, and also take account of any obligations in the event that they have to tidy up.

I want to come back to what is probably the major reason—for the time I sat on the Finance and Expenditure Committee—that interests us in this bill. It actually makes some changes to foreign superannuation, but, more important, it reminds us that it is this side of the House, as we support this bill, that is the superannuation party. It is this side of the House that is prepared to grasp the nettle and ensure there is a viable long-term scheme in terms of a State-based pension scheme. In doing that, from time to time it will be necessary—because both parties should support taxation legislation like this. Naturally, the regime is coming to an end and we will be sitting over there at this time next year. So we will look to them to support a variation of this type of legislation, because, irrespective of who sits over there or here, the broad, main parties know that the revenue-gathering capacity of the State must be allowed to continue unhindered.

Of course, things will improve at the end of the next year, because that side over there will be much thinned-out—much thinned-out—and a host of people whom I actually find to be quite good company will be doing other things with their lives. They will not be politicians. Neither will they be Ministers. We will have our friends sitting down that side of the House, sitting over there on the Government side, enabling us to bring to pass a KiwiSaver scheme, which is a key contributor to superannuation, that actually provides an additional platform for New Zealanders to save. In addition to that, it builds a reservoir of capital. If we can actually improve the prospect of foreign superannuation schemes contributing to the livelihood of people beyond the age of 65 as well, there is nothing wrong with that.

There have been a host of difficulties with foreign superannuation changes. In some respects, if you are in the enviable position of having a handsome foreign-based superannuation scheme, it does seem a tad unfair that you will be doubly penalised. So, in that sense, the bill does actually make a set of changes that the great hoi polloi probably do not know about. But this side of the House knows that superannuation and saving are going to be key features going forward, not only in the election campaign but at this time next year when we are running the country.

A key problem that the bill does touch on is the absence of a domestic reservoir of savings. Why is that? Well, firstly, the current Minister of Finance, in a Dickensian-like way, sort of swiped aside any obligation to continue to contribute towards the Cullen fund, and stood up only several months ago boasting how well it had done. Secondly, he has really turned the thumbscrews on KiwiSavers. He has lessened the contribution that the State makes in an incentivising way. He has not put the pressure—as it deserves to be—on employers. But, more important, he is yet to strip KiwiSaver of its unnecessary red tape.

Of course, I should make reference to the originator of this bill, Peter Dunne, who is someone who will also not be back here by the end of next year.

💬 Su’a William Sio: He’s done—done like a dinner.

Yes, well, he will be done. Whether he was done before—I do not know that. I do not want to intrude into those matters. All I know is that he is a leaker. And all I know—

💬 Su’a William Sio: He’s a “Dunne-r”.

My Samoan tuakana here is advising me to stray into territory that could be a bit treacherous for the Dalmatian Māori from Kaitāia to actually venture an opinion on. But he has shepherded the legislation—

💬 Simon O’Connor: Oh, come on. That’s never stopped you, Shane.

Oh! I have to acknowledge the member for Tāmaki. He actually reminded me yesterday that the words “turgid” and “turd” both apply to that particular parliamentarian. He had the dreadful manners to challenge this side of the House that we would not know what the word meant, because we were not possessed of a fine education. The people of Tāmaki do not want that kind of superciliousness. They want a very earthy member. They want someone who will stand and acknowledge talent and acknowledge skills across the House. I can actually suggest that some sitting beside the member Simon O’Connor may resemble turnips, and are not turgid, but that would bring an element of disorder to this debate.

I want to come back to Mr Dunne. Mr Dunne has served as the Minister of Revenue and brought this bill forward, etc., and his days are over. Just as he goes, Rodney Hide wants to come back. And as if things could not get any worse in the space of those people who might sit on that august body known as the Finance and Expenditure Committee, the prospect of Rodney Hide coming back and joining that committee diminishes the status of Parliament, even as I speak. So the less said about that, the better.

The Inland Revenue Department, if I could just digress but in the broad context of the bill, gives a very good service to the Finance and Expenditure Committee. Indeed, the Commissioner of Inland Revenue, its leader, was at our committee meeting yesterday. We made the point that although a great deal of high-quality work happens to do with obscure elements of policy, there is an area where the department could serve the public better, if only it were able to increase its visibility and give it more profile, and that is the treatment of the tax affairs, the tax restructuring, of foreign-owned companies. I was heartened to hear from the man in charge of policy saying that with some additional resourcing they will be able to do that, because if we are going to meet the full costs of Christchurch and meet the full costs of superannuation, we need at all times to broaden the base from where the State finds its revenue. There is far too much opaqueness and there is far too much clever tax planning being driven to leach the revenue base, not to enhance it.

I actually want to give a bouquet to the commissioner and to the head of policy, who saw the immediate wisdom in what the Labour members were saying, and identified that, without a doubt, if they could find an egregious case, they would be tempted to follow that great tradition of British military pedigree, which the member for Tāmaki professes to know a thing or three about: one field execution can motivate 100,000 troops. So where there is an egregious case of a foreign entity not meeting its full tax obligations, without a doubt the Inland Revenue Department should restore a greater level of confidence to the community that everyone is paying their fair share. Of course, from time to time, businesses strike difficulties and those difficulties can be managed through. But it is not acceptable, as we further internationalise the ownership of our economy, for those entities to not meet their fair share. We support the bill.

Before I speak in support of this bill, the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, I would like to offer my colleague across the House, Shane Jones, the loan of a bow tie to go with his dinner jacket that he is wearing here this afternoon. It is a slightly unusual time of the day to be wearing it, but never mind.

The other point I would like to make this afternoon is in respect of the comments from our Green colleague Russel Norman around capital gains tax. I want to say to the people of New Zealand that this is really good tax legislation, and one thing it does not do is impose a capital gains tax on productive businesses and farms. That will not happen from the National Party.

The third point I would like to make is that having a big gap between the company tax rate and the top personal income tax rate would only encourage tax avoidance. This bill sets up a structure that taxes everybody fairly and encourages people to pay their tax. I think that as a result of that it is a particularly good piece of legislation. Thank you. I support this bill.

In taking a call on the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, I want to say that on this side of the House we are well aware of, and alert to, the Government’s tricks. Earlier we saw at No. 2 on the provisional Order Paper the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill, and we were expecting robust debate on the terrible provisions in that bill. But when the final Order Paper was published, the bill we are now debating the second reading of, the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, was the replacement for Government order of the day No. 2. They are two bills with very similar names but different content, and they are at different stages in their progress through the House. So I say to those members opposite that they will have to do much better than that if they think that can confuse the Opposition. It was like a magic card trick, a typical “now you see it, now you don’t, and now you see it again.”

But, anyway, what I would like to say is that when I came to this House it was with the intention of being able to do good things for New Zealand. This remains my position and I look at the legislation that is proposed, Government bills and members’ bills, on that basis. I talk to parties, members, and, yes, I talk to Ministers as well.

The Minister in charge of this bill, the Hon Todd McClay, is a good one. I have talked to him about legal highs—the drugs being reined in by his good Psychoactive Substances Act. I have talked to him about the plight of workers in the now closed Tachikawa sawmill in Rotorua, and we were able to get some good work done there and a number of problems sorted for those Tachikawa workers. But I have not needed to talk to the Minister too much about this bill, because the report of the Finance and Expenditure Committee is written very well and very clearly, and it is obvious that this bill is going to do good things for New Zealand in the areas of taxation treatment, foreign superannuation withdrawals, ensuring Working for Families tax credits function as intended, and Canterbury earthquake damage.

But, as we have seen on Campbell Live, not all is well in Christchurch, where the Government’s Southern Response company is failing homeowners. I was contacted recently by a woman who has a quantity surveyor’s assessment that her home will cost $785,000 to repair, yet Southern Response is offering just $471,000. That is leaving this constituent over $300,000 out of pocket, and the Government must address what Southern Response is failing to do. However, overall I can support this bill.

I will be paying attention in the Committee stage of this bill because I want to hear what the Minister has to say about the provisions on foreign superannuation schemes and overseas social security schemes. I want to hear what he has to say about New Zealanders working in South Korea. I would say happy birthday to that member over there, who, in South Korea, by that country’s law, must pay into the South Korean national pension scheme. New Zealanders are losing a lot of money there because although Australia, Canada, and the USA have reciprocal agreements with South Korea, we do not. So I would be interested to hear about that in the Committee stage.

I would just like to foreshadow the problems with the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill, which I expect we will be debating next week. In that terrible bill the Government is adding insult to injury by allowing offshore drilling at extreme depths and with little safety equipment. I wonder whether the Noble Bob Douglas can cope with anything bigger than one 200-litre barrel of oil being dropped on its deck, with our Government rapid oil response unit consisting of only three 8-metre dinghies. Rubbing salt into the wound, National is planning on making this deepwater drill ship exempt from New Zealand taxation until 31 December 2019. That is an outrage, and my vote on that bill will be entirely different from the vote on this one. I support this bill. Thank you.

Julie Anne Genter—5 minutes.

I rise to speak on the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill. The Green Party is supporting this bill, and I must speak up because one of the previous speakers from the Government benches stated something that I think is quite erroneous, which is that the Green Party is opposed to everything. That is not true at all.

The Green Party is for creating a sustainable economy that is going to look after all New Zealanders in the long term. We take a long-term view and that is where we differ from this current Government. The truth is that we do not support many of the things this Government is doing, because this Government strategy is very short term: dig it, drill it, mine it, sell it. That is not going to create a long-term future for our children and grandchildren. But the Green Party does support the minor changes contained in this bill, because they do make some very tiny tweaks. They improve the rules around foreign superannuation schemes and the taxation of those.

We particularly support the very tiny moves to remove some of the unnecessary concessions to the mineral mining industry. This is really, really important because we see a pattern of the National Government trying to give special tax breaks to the oil, gas, and mineral industries, and that is not fair. That is not going to result in a truly economic investment in a sustainable New Zealand. If you give companies tax breaks, that encourages them and gives them a leg-up on other industries. Why would we want to give a leg-up to an industry that results in pollution or the exploitation of non-renewable resources when, in fact, it should be competing fairly with other businesses that are more sustainable? That is all we are asking for: fair and equal tax treatment that leads to a fair, more equal New Zealand, and one that is more sustainable in the long term.

Everybody knows that we can dig up minerals, if they exist, and we can sell them and we get a one-off cash hit, perhaps—at least, the foreign-owned companies do. It is completely unclear whether New Zealand benefits from that, because we do have one of the lowest royalty regimes in the entire world. But, OK, someone is going to make some money off that in the short term. But in the medium and long term our “clean, green” brand is damaged, we have got nothing left once any royalties we do get from that have been spent, and what is our long-term strategy there? There is no long-term strategy.

The Green Party is for a long-term approach and we are absolutely for simplifying unnecessary complexity in the taxation system. But this bill, although it is not objectionable, really does not go very far. It does not go very far towards creating a tax system that is going to ensure that ecological damage is valued appropriately by companies when they are pursuing different business investment opportunities. It does not make changes that would ensure that those who are at the very top end of this scale do not have a permanent advantage that then leads to growing inequality in New Zealand.

We just saw, with the census figures that were released earlier this week, that inequality is growing in New Zealand, and that is not good for anyone. It is very, very clear that an increase in inequality leads to all sorts of problems in terms of increased crime and increased public health costs, but, above all, it is just not fair. It means that not everyone in New Zealand has a fair go. Those who are on the top income scheme do not necessarily pay back their fair share and ensure that everybody, especially those children who are living in poverty, have all the advantages that every other New Zealander has and should have.

The Green Party stands for a simple and fair tax system that leads to a more equal New Zealand and a New Zealand that is going to have long-term opportunities for all of us in the future. Thank you.

I want to take just a short call on this bill, the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, but first I just want to say that the Green Party is nothing about fairness and equality. That is a load of rubbish. The Green Party is all about its own economic agenda, which it got from a textbook it has read recently and which it believes is the way to go. The Green Party just wants to make everybody poor and ruin this country. That is the Green agenda. It has not worked in any communist country it has been tried in, it will not work here, and the public know that.

This is a good bill. It is something that we need to do around annual rates, foreign superannuation, and remedial matters in the taxation area, and we support the bill going through the House.