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

I am first to express my disappointment that the Minister in the chair, the Minister of Revenue, did not rise to apologise to the families in New Zealand and the 210,000 children affected by the delays in Part 3 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill. He is a member who often will acknowledge when he has made a mistake, but on this occasion he seems unwilling to do that. He seems unwilling to outline a plan for when we will have a computer system in place that will be able to effect in a timely manner, without wasting parliamentary time and without wasting the time of ordinary New Zealanders, changes that make our tax system fairer and more efficient and effective for growing our economy.

I come to the title and commencement clauses. I think that this bill has a very innocuous-sounding name. It is the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill. In my view, it ought to have a livelier name because I think that would draw ordinary New Zealanders’ attention to just what we are doing here. It is actually quite a significant bill that we are passing through this House. I am looking forward to some contributions in this final debate in the Committee stage from the members opposite—the current chair of the Finance and Expenditure Committee, Mr Goldsmith, one of his perhaps more erudite contributions would be welcome; and also Mr Ross opposite, who often opines on such matters; as well as contributions from my colleague Mr Little and others; and Mr Mallard, who I am sure will have something to say about the innocuous-sounding name of this bill and the effect that it will have across New Zealand.

In the annual rates section of this bill, we are reaffirming the income tax rates that were set down in 2010 in the so-called tax swindle—named politically neutrally as a tax switch—that this Government put into place, where 44 percent of the value of the tax cuts went to the wealthiest 10 percent of New Zealanders, and the bottom 20 percent got just 2 percent of the value.

💬 Paul Goldsmith: Distributionally neutral.

Mr Goldsmith says that it was distributionally neutral. I do not think that even Mr Goldsmith believes that, judging by the smirk on his face, because even though he may represent Epsom, I am certain that he knows of people who are struggling and who were impacted on by the GST change that happened at the same time—the GST change that the Prime Minister said he would not make and then made—which harmed New Zealanders at the bottom, who spend most of their income on consumption. He knows that those 2010 tax changes have disproportionately affected middle New Zealand, and middle New Zealand is struggling. It sees a Government that is out of touch and that is not listening to its concerns any more, a Government that was once aspirational for New Zealanders but now seems to have let go in favour of simply transferring money to the most wealthy.

We are being asked in this bill to reaffirm the income tax rates. Of course we must do that as a Parliament, but we on this side of the Chamber do that part of it very begrudgingly because we do not see any offsetting plan for growth in our economy, and we do not see any fairer tax system coming in in terms of the kind of pro-growth tax reform that we on this side of the Chamber would like to see in the shape of a capital gains tax, which would shift money from the speculative sector into the productive sector, creating more jobs for New Zealanders and creating a wealthier economy that is able to distribute that wealth fairly, rather than just sending it all to the top. We know that we have the biggest gap between rich and poor in New Zealand that we have ever had.

So I would like to see “Annual Rates,” in the title renamed. “Taxation (Annual Rates,”, which is the first part of it—I am going to come to each part in my contribution—I think should say “Taxation (Affirming the Imbalanced Tax Changes of 2010 Without Any Compensatory Measure”, and then I will come to my comma and talk about the next part, which is “Foreign Superannuation,”. I am quite happy for that part of the title to stand, because I think the bill does address foreign superannuation. That part of the title is fair. But when we come to “Remedial Matters)”, this touches on Part 3 of the bill, which we have just debated, where we see—

💬 Hon Trevor Mallard: We hardly debated it.

But only just, because the Government did not respond to questions placed on that part of the bill as to why—well, I expect an apology, actually, from Mr McClay for the changes affecting 210,000 New Zealand children that were announced just before Christmas. But I would like to see “Embarrassing Back-down)” replace “and Remedial Matters)” because the embarrassing back-down that is represented in the final part of the bill is not only embarrassing for the Government but has a widespread impact on New Zealanders. So, as I said at the beginning of my contribution, I am wanting to see a livelier title, one that is actually more descriptive of the kinds of changes we see in the bill.

The embarrassing back-down, of course, is particularly embarrassing because it goes against what the Prime Minister signalled. I will take those members of the House who have just arrived and are back in their seats, who have been having, perhaps, some useful conversations in the foyer, and those people who are watching at home and who have just switched on the television, back to Mr Key’s words 2 years ago, on Valentine’s Day. The Prime Minister said that tax policy was being held back because of computer systems and “cannot actually support radical changes from Government”. He also said: “You don’t want to be in a position where Parliament is held hostage to a lack of technology.”, and that is the embarrassing situation we are in today. We are being asked to back out of legislation affecting 210,000 New Zealand kids and their wider families, who are already being put in the situation where they are having to share money around in a way that they may not all be entirely comfortable with, they are having to share time with their children, and they are having to reach arrangements in an uncomfortable situation, and Mr McClay is telling them that now they are settled in to making these changes, they have got to change them again and go back to where they were before. They will probably seek new financial advice because in the meantime they may have arranged their affairs anticipating these changes, and then later on they will have to change them once again when the law actually comes into effect—impacting on them, in some cases, in 2016.

I am sure that this is an embarrassment to Mr McClay. I do hope he has the decency to make an apology in this part of the debate. More important, though, I would also like to see him outline a credible plan for fixing the Inland Revenue Department’s computer system; $50 million spent on an in principle agreement that the tax system needs fixing is really not music to New Zealanders’ ears. The Minister of Revenue in the incoming National Government was told 5 years ago that the 1992 computer software might need updating. It was not rocket science, but it was a pretty clear message in the briefing to the incoming Minister: the computer system needs updating. This Government has sat on its hands because tax reform in the interests of growing the New Zealand economy and creating a fairer tax system just has not been a priority. The Government has been more interested in entrenching wealth that is already there by giving tax breaks to the wealthiest. It is happy, it seems, to let small business in New Zealand suffer, and happy, it seems, to let middle New Zealand—those who work hard every day and pay income tax on every dollar they earn—suffer.

The Government has not been interested in implementing a capital gains tax. We know this because it would have needed to repair, update, and complete a change in the computer system in order to implement a capital gains tax, which would generate that growth in our economy and would be able to cope with the kinds of changes that would not only enable growth but create a fairer tax system for all of us—the kind of tax system that sees money go from the speculative sector into the productive sector, creating jobs for New Zealanders—

💬 Paul Goldsmith: What’s this got to do with it?

—and creating a future that we would like to sign up to. Mr Goldsmith asks what this has got to do with it. That really is an indictment on his contribution to the debate today, which has been very limited. These are the kinds of points that illustrate the need for a more informative title for the bill, Mr Goldsmith, because these are the effects on ordinary New Zealanders of the legislation that we are passing today. It reaffirms the annual rates; the changes—the tax swindle—where the GST took away any gains for most New Zealanders and only the very top were better off; the foreign superannuation changes; and the embarrassing back-down. These are the changes that we are debating here in this bill, and the title of the bill, if it were more accurate, might alert more New Zealanders to the kind of Government that we have.

It is the kind of Government that has created the biggest gap between rich and poor in New Zealand’s recorded history—the gap that sees middle New Zealand struggling to get ahead. It sees those New Zealanders who go out and work, day after day, and who try to save, but without decent savings policies, without pro-growth tax reform, and without the kinds of research and development tax credits that would support our business sector and so on, struggling to get ahead. These people want to see some vision from the Government. They do not just want to see $50 million thrown at international consultants to tell them what they already know. That is an outrage. Mr Key really needs to talk to his Minister and ask him to set out a credible plan, because Mr Key is swimming here. Two years on, his concerns have not been addressed.

Thank you, Mr Chairperson, for giving me a call in this debate on the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill. These clauses—clauses 1 and 2—are particularly important because what we are doing here is effectively confirming the continuation of our taxation system as well as making what is a series of both minor and major adjustments to it.

I would like to differentiate myself somewhat from the comments made by my colleague Dr Clark. I am not going to say that the honourable Minister of Revenue, Todd McClay should apologise on his own behalf for the cock-ups that occurred in the 5 years that Peter Dunne was running the revenue portfolio and failed to do his job in the development of an appropriate computer system. If one is absolutely fair, then it might be that during the last year or two of the Labour Government, when Peter Dunne was failing to do his job properly then, there might have been some criticism that could have occurred. But what we do know is that from the briefings to the incoming Government in 2008 and in 2011, the briefing that the Minister received in the middle of 2013, and the update that occurred at the end of last year, the National-led Government—the John Key - Government—has known that it has not had a fit for purpose information technology system in the Inland Revenue Department.

It is not often that I am generous to National Party members, but I think we all know that there is, within the National Party, one person who can get his head around these issues. Going right back to the INCIS project, the Hon Maurice Williamson was repeatedly on the record—repeatedly on the record—for warning the Bolger Government, when he was a Minister in that Government, that the approach the police were taking in that particular case would not work. It is probably not fashionable these days, with open source and all of the new things that I do not really understand—but which Clare Curran I am sure will explain to me afterwards—but in those days what he said was that if Microsoft could not do it, then it was pretty unlikely that the New Zealand Police would be able to develop the system. And that was the case here. The problem—

The CHAIRPERSON (Lindsay Tisch): Come back to the bill.

The point that I am getting to is that in this legislation, Mr Chairman, we are deferring the implementation of a child support system that can only be fairer than the current one. My challenge is this. Is there a single member of Parliament, at least one who has a constituency—and I think that most members who are currently in the Parliament, other than Mr Goldsmith, do have people coming to see them to discuss taxation. Most members, other than Mr Goldsmith, who deliberately loses—he is a deliberate loser, Mr Goldsmith, when it comes to constituency matters—do in fact have people coming to see them who want to discuss taxation issues, and most of us, at least every month, get someone who comes and tells us about the anomalies and the unfairness in the child support system.

In fact, I see no one in the Parliament who is prepared to defend as fair the current child support system. And so, for a number of years, at least 5 and probably 7, it was Peter Dunne’s job to work on developing a computer system that, inter alia, would handle those changes. What has he done? He has spent $50 million. He has spent $50 million, mainly on overseas consultants—something that I find particularly suspicious. I find it particularly suspicious that such a large amount of money has been spent on overseas consultants. It is money that has gone offshore, and money that ignores the New Zealand information technology industry. Did Government members even go and talk to Jade Software Corporation? No, they did not. There are people in New Zealand—[Interruption] Not if you are going to spend, what is it, $700 million on the change. So $700 million is the current amount, and rising.

💬 Dr David Clark: Up to $1.5 billion

Up to what?

💬 Dr David Clark: Up to $1.5 billion.

So it is between $700 million and $1.5 billion on upgrading the Inland Revenue Department’s system, and what all of us know is that the appropriate way of doing that is to do a bit of a base system and to do the rest of it in chunks—break it down and invite New Zealand firms to bid for it. Keep the money in New Zealand.

Is anyone surprised, when you spend $50 million on overseas consultants, that they recommend an overseas solution? Well, I am relatively certain that most of these consultants get matching finance, do they not? They get matching finance from the people whose systems they are effectively paid to supply. That is an outrage, but unlike Dr Clark I am not ungenerous. I think the Minister who is currently in the chair, and who is the Minister responsible, the Minister of Revenue, should apologise on behalf of the Key Government. But I am not yet assigning him personal responsibility for 7 years of failure on the part of Peter Dunne to do a good job and to convince people. I will blame John Key, because John Key could have put Maurice Williamson in charge of the project. He could have got some expertise. John Key could have got someone—we are not in question time, so I am allowed to refer to Maurice Williamson’s professional background—who has a professional background in the information technology area and understands how these things work—but not now.

The next point that I would like to make is that I do not think I have ever seen a commencement clause that is as ugly as clause 2 of this bill. This commencement clause refers to, first of all—and it is outrageous—section 114 coming into force on 24 October. It is not 24 October 2014, but 24 October 2001—2001. It is retrospective taxation of the worst possible form. Is that alone? No, section 116B, the responsibility of Paul Goldsmith, as the chair of the Finance and Expenditure Committee, comes in on April Fool’s Day of 2005.

I thought taxation was meant to be prospective. I thought we were meant to have clarity going forward. Are we now taxing people for income, or not allowing deductions, from the periods starting 2001 and 2005? If it is true, it is absolutely outrageous. There are a few further, minor sins. Sections 14; 16; 29(1), (2), (3), (5) and (9); 31; 57B; 59(1A) and (3); 65; 99; 99B; 102(2); 103(4); (13); (39); (52); 112; 112C; and 117B(a) all come into force on April Fool’s Day 2008.

💬 Hon Member: Which clauses?

I cannot tell you again from memory, but what I can tell the Committee is that this bill is entitled the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill 2013. So this is legislation that, at its very worst, was meant to come into effect last year. What we have got is legislation that is even further outdated.

I move, That the question be now put.

The next point that I would like to make, and I am going to refrain from reading them because I think people would go cross-eyed, is that there are 10 full lines of numbers, starting at section 6 and finishing at section 117 and 117B(b), that come into force on 1 April 2014. What we do have is quite a large section where it is prospective, but again I want to—[Interruption] Poor old Paul Goldsmith. He is not allowed to talk in the debate, but he is sitting there, shaking his head like a little boy in the primers. He is shaking his head like a little boy, saying: “No, no, no.” If I am wrong, and if those sections do not come into force then, he should take a call and tell me when I am wrong.

I am one of the relatively simple members of Parliament who reads the bill and takes Ministers at their word. I know it is an old-fashioned approach, but when a bill says that it is a Government bill, when it is in the name of a Minister—in this case the Hon Todd McClay—and it says that a few sections come into effect on 1 April 2014, I believe him. If Paul Goldsmith doubts Todd McClay’s word—well, we have all heard Paul Goldsmith say that he should have had the job and not Todd McClay, so there is no secret about Paul Goldsmith’s opinion of their relative abilities. I am on Todd McClay’s side. Minister, I am on your side. I am on your side, not Paul Goldsmith’s side. In fact, if we got it right, Paul Goldsmith would be in the ACT Party and John Banks would be in the National Party, because that better fits the economic views of the relative individuals, and would probably make things better around corruption and other issues, which of course I will not refer to with regard to the Hon John Banks at the moment.

The bit that my colleague David Clark has focused on the most, as to the timing, is in clauses 37BA, 52D, and 55B. I understand that those are the matters that have to do with child support. Those are the proposed sections that come into play on 1 April 2016. The question I would like to ask the Minister is whether any consideration is being given to families who have looked at the changes, watched what the Government promised, watched what went into the Finance and Expenditure Committee, made submissions, took the select committee at its word, and made financial arrangements on the basis of the undertakings given by Peter Dunne, John Key, and Bill English.

I am sure all of us will have constituents or people who have approached us in our offices, and I do not know anyone who will be totally satisfied with this legislation, because no one is ever totally happy with the very matter of child support. It is either too much or not enough, depending on whether you are paying or getting it. There is perceived unfairness around whose income counts and which family’s income counts. There are always questions about the timing of the income. But what happens when Government promises change is that people rely on its word. People enter into financial arrangements, they buy businesses, they buy houses, they take out mortgages, they make arrangements for their kids, they sometimes do schooling arrangements, they enter into debt, and they do it on the basis of an undertaking from the Government. My question to the Minister, and I am looking forward to the Minister taking a call in this debate, is whether he is prepared—

I move, That the question be now put.