Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill

Thank you for the opportunity to speak on Part 1 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill, which, as you have rightly pointed out, confirms the annual rates. It is important to note upfront that these tax rates that will be confirmed correspond in greater part with the changes brought in by the National Government in 2010, in its tax package where 40 percent of the value of its so-called tax cuts back then went to the top 10 percent of earners. If we think back, we will remember also that the bottom 20 percent of earners got just 2 percent of the value of those tax cuts. That is the time as well, as those following the debate at home will remember, when GST went up from 12.5 percent to 15 percent.

If people can cast their minds still further back, they will remember Mr Key saying that he would not change GST at all. He made a promise.

💬 Iain Lees-Galloway: I remember it well.

My colleague Mr Lees-Galloway remembers it well. Then Mr Key came in and changed things. He said that it was a dynamic environment and he was going to make the change. What we saw there was that the Government was very keen—very keen—to lighten the tax responsibility of the wealthiest New Zealanders, those who earn the most. We know that 75 percent of those with a net worth of over $100 million in New Zealand do not pay the top tax rate. We know that in New Zealand inequalities are growing and are at their highest levels ever in recorded history. So we know that we are living in an unjust situation and that we can trace that back to those tax changes that were brought in by the National Government opposite on those benches in 2010.

That is why we are here today being asked to confirm a set of tax levels that see the wealthiest 10 percent growing ever richer while the rest of New Zealand struggles to keep up. We know that median wages have dropped over time in real terms, that the cost of living keeps going up, and that ordinary everyday middle New Zealand is struggling. We also know that those who are at the bottom end are struggling even more than before, and that that is restricting the opportunities they have to participate. Kids going to school hungry do not learn as well as kids with a full stomach. We know that. It is not rocket science. But today, in Part 1 of this bill, we are being asked to confirm the tax rates that see that ever-widening gap, with those at the very top having that greater concentrated wealth that we know is getting greater and greater and greater by the day. There have been studies that have come out in the last 2 days confirming that that wealth that those at the very top hold is increasing, that the 1 percent right at the top hold an increasing level of wealth in our society. And then there are the rest of us: the other 90 percent, who are really struggling to get by, to make ends meet. We know we have the lowest rate of homeownership now in New Zealand in 40 years, slipping below 50 percent.

We know that that is another signal of this growing gap between rich and poor. The current tax rates that we are being asked to confirm are 10.5c on income up to $14,000, 17.5c on income from $14,000 to $48,000, 30c on income from $48,000 to $70,000, and 33c for income of $70,000 and over.

The other thing that we are not being asked to do here, interestingly, is to introduce pro-growth tax reform. So this bill has as much in it as it does not have in it. We learn as much about this bill from what is excluded from the confirmation as from what is included. Once again, that is about protecting the interests of the very wealthiest. We know that in fact almost every Western country has a capital gains tax. New Zealand is in a minority in not having a capital gains tax. The joke used to go that it just us, Switzerland, and Turkey, and we know Switzerland is a tax haven, and does New Zealand really want to be another Turkey? Why on earth do we not have a capital gains tax? We know it is fair. We know that the OECD, Treasury, the IMF—those big international agencies—and all respectable economists think that it is important to have a broad tax base, as broad as possible to neutralise investment decisions and signals in the economy so that people make rational choices about where they invest their income. Instead, in New Zealand, where we do not have that capital gains tax, we have the situation where people are choosing to invest heavily in the speculative sector.

As they invest in the speculative property sector, they are making houses less and less and less accessible to New Zealanders who are struggling each day to make ends meet. The flip side of that, of course, is that our businesses are also struggling because that capital is not available to them. I use the example of a plumber. Let us imagine a plumber who has worked hard, scrimped and saved, and has two rental properties. He has actually done quite well over the course of a lifetime. We will not go into the plumbers and drainlayers debate today, but if we imagine this plumber, who has worked hard, who has scrimped and saved, and who has two rental properties, right now it is a no-brainer for that plumber to buy a third, because there is a tax advantage, potentially, in buying that third house.

What ought to be the case is that that plumber ought to be thinking about whether they should invest in their friend’s innovative business down the road that needs a new die cast for a new plumbing device that could be exported. It is a high-risk opportunity and it has a tax almost certainly attached to it, and therefore it is a different proposition from buying another rental house. As I have said, it is obvious right now that that plumber should go for the tax advantage that is presented in the additional rental property, in terms of the economically rational thing for them to do. It should not be that way. It should be the case that that person has got a real decision on their hands. They may still choose to invest in the rental property, but they should have a real decision about whether they support our export industries and whether they are supporting the future prosperity of New Zealand with it.

Unfortunately, the Government does not seem willing to go near pro-growth tax reform. It does not seem to want to have the research and development tax credits that we know would give us a lift in our economy. It does not want to adopt the capital gains tax that we know would make the investment signals neutral across the economy and would make it a fairer tax system. It instead is wedded to these tax changes it made in 2010, which see the wealthiest few get ever wealthier at the expense of the rest of New Zealand.

So we on this side of the House are disappointed with Part 1 of this bill, no doubt, because it is a missed opportunity. We know that if we grew the economy and made the most of the opportunities here, we could actually have more of the pie to share. We could afford to fund our schools and hospitals better. We know that this Government has an atrocious economic growth record—the worst economic growth record of any Government in the last 50 years. That record of this Government is its shame because its trading partners have enjoyed some very mild conditions through the global financial crisis. Australia never really went into recession. China was just off the double digits.

💬 Simon O’Connor: How do you believe this?

Right the way through—right the way through. The member opposite might like to consult the facts, which might give him a new world view. If he looks back to the global financial crisis, he will see very healthy economies that we were trading with, and New Zealand not making the most of that opportunity, and, in fact, really struggling under the guidance of a Government that will not go near pro-growth tax reform and a Government that seems wedded to protecting the interests of the wealthiest few at the expense of the rest of New Zealand.

So that is why the Labour Party, on this side of the House, has trouble with Part 1. We want a more positive New Zealand. We want a New Zealand where everyone has the chance to get ahead. We on this side of the House want to work for change that takes us forward over the generations, that makes opportunity for every New Zealander, that means that every New Zealander can aspire to owning their own home and aspire to a decent income and decent work, and that means that they can look after their families and brighten their prospects, under a Government that puts people first and looks positively to the future—the opportunities that we know are there and ought to be there for every single New Zealander.

Instead, opposite, it is just business as usual and politics as usual. The Government keeps just reconfirming these same tax rates year after year and watching that gap between rich and poor get wider and wider and wider as the very wealthy get wealthier and wealthier and the other 90 percent struggle to get by. That is what we have when we are stuck with this Government. That is what we have stuck with in Part 1 of this bill. It is a real shame—a missed opportunity. It could be so much more positive.

A Labour-led Government will lead positive change for New Zealand. We will make a difference. We will work together with New Zealanders to ensure that everyone has decent work, that their families can get ahead, and that they can really aspire to own those homes that are getting further and further out of reach with the property speculation and the absence of support for small business. This Labour Government will make these changes, and we look forward to the upcoming election when voters will have their chance to say that they do not want this business as usual. They do not want this politics as usual. They do not want Part 1 of this bill, which just confirms the status quo and just confirms that the gaps get bigger and bigger. They want positive change. They need a Labour Government.

It is a great pleasure to speak at this very important stage on the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill. I want to say how utterly disappointed I feel—betrayed, I think—on behalf of the hundreds of thousands of New Zealanders who once upon a time looked to this Government to do constructive things, not only for the business sector but for the people who make up our great population and who are the citizens of this great country.

They looked to this Government to exercise responsible, sensible, constructive management of the economy. Every citizen in New Zealand—every voting citizen, every working citizen, every citizen who wants to work but cannot because of conditions running against them—wants to know that we have in place a Government that acts sensibly and properly when it comes to the revenue that the Government needs to create the wonderful country that we all aspire to. They look to this Government to make sure that the taxes that the citizens of this great country responsibly pay every time they work, every time they line up at the shops or buy things that enables the Government to gather GST, every time they do something that adds to the Crown’s coffers—they want to know that the rates that are struck are right and proper for the age in which we live, because the demands of the citizenry have changed. The demands of the citizenry have changed.

People now want a country with a State that exercises and plays a proper role, one that does a number of things. They want a State that encourages investment in the regions, that supports people into housing, and that tides them over through those difficult times when they are out of work, when they need income support, when the mother or father of a child finds themselves on their own with those child responsibilities and needs to be supported, and when they put their children through school—through primary school, high school, early childhood education, and even on to university. They want a Government that sees its responsibility to ensure that it has enough revenue to meet those costs so that we have a country that can properly and proudly boast it is fair and equal for all.

But the rates that we are confirming in Part 1 of this legislation do not allow us to say that. When we come to pass this bill—or certainly this part of it—and when we have struck the tax rates for this particular year, we will not be able to say that this Government has struck tax rates that ensure that it will have the correct revenue to create a country that is fair and equitable and to fix the dream of every young citizen in this country to have the opportunity to excel, to reach their potential, and to do the best for themselves, their family, and their country. This was an opportunity for this Government to do something different—not to do business as usual, not to do more of the same, not to say “Nothing to see here, citizens. Move on.”, but to do something different, to give hope and courage to people who are looking for something new and for something different.

This Government is not there. This Government wants to rest on whatever laurels it might once have had. It no longer has a vision for a fair and equitable New Zealand. This Government is quite happy to stand by and see inequality grow and inequity continue, and do nothing about it. The Government says that the rates that we are striking in this part of the legislation are enough to generate a surplus and that somehow this is a positive thing for the country. We, of course, all know that the surplus in this year’s Budget is not a real surplus at all. It is achieved through manipulating things like leaving ACC levies unnecessarily high, and it has a range of other tricks up its sleeves as well.

💬 Darien Fenton: Loans to Auckland.

And, of course, it is describing what funding is for Auckland roads as a loan to Auckland so that it is on the balance sheet but it does not come out of the profit and loss or the income and expenditure. What a silly Government. What a silly Minister of Finance, who dreams up that sort of thing and pretends he can say to the people of New Zealand, the good citizens of New Zealand, that we have a surplus. What the Government is too afraid to do is to confront the challenges we have got, to face reality square on, and to say we have to do something different and we need tax rates that allow us to do something different—tax rates that mean that as a Government we can do things that will rebuild this country and its sense of fairness, opportunity, and equality.

The rates that we are being asked to agree to and to strike in Part 1 of this legislation will not allow that. Every member of the Government opposite knows that, which is why they are looking down with a sense of deep shame and embarrassment. They know that they have let down the people of New Zealand. They know that they have let down the people of New Zealand. The tireless, hard-working Government backbenchers opposite know that. They will tell us—and they may well even be believable—that they have tried to put pressure on their Cabinet colleagues in their caucus to do something different. But, oh no—nothing has changed. Nothing has changed. The Government sails on into the death months—the last 3 months—of this Government on the ropes, without a vision, and no longer willing to offer hope to the great citizens of this country. That is where we are now. What an unhappy state we are in.

It does not need to be this way. The people of New Zealand know that come 20 September, when there is a change of Government, they will elect a Government that is prepared to deliver a fresh vision—a vision at all—and a sense of hope, with new tax rates that will mean that we can have a Government that can do good and positive things for Kiwis and that we can have good schools, more teachers, higher-quality schooling, good hospitals, and people who can get actually getting their operations when they need them. Elderly people who are hanging out for their hip operations and young people who are hanging out for their operations to enable them to have a life ahead of them will actually get those operations, and there will be a health system that works for people.

We will actually have roads—not just in Auckland and Christchurch but around the country. We will have a roading network that we can boast about and be proud of. We will have roads in Taranaki that actually have a shoulder, so that if you need to veer away from somebody on the other side of the road, you have got somewhere to go. We will have roads that are actually smooth and do not cause trucks to go out of control; roads that do not crumble and fall on vehicles, as they have now done twice in the last 6 weeks on State Highway 3 in Taranaki.

People will want to see a Government that is responsible enough to levy fair taxes—reasonable taxes—on people, so that it can do the job of a proper and responsible Government. Well, that change is coming, as we all know. That change is coming and it is only a few months away. The people of New Zealand have to hold on for only a little bit longer. This legislation will no doubt pass. These tax rates will pass, but people will be able to see that there will be an alternative way and an alternative approach. That approach will ensure that the people of New Zealand will have a Government collecting the right resources and devoting those resources fairly across all of New Zealand and all New Zealanders, not just favouring those in the metropolitan areas in Auckland and in Christchurch—which desperately need it, of course—but in all areas as well, particularly in regional New Zealand, which has been starved.

You have only got to listen to the voice of regional New Zealand, as in a Taranaki newspaper on the weekend. The civic leaders of Taranaki were calling out to say that we need a different approach. Every issue that they identified is an issue that members on this side of the Chamber have been talking about, because we are in touch with the people and we know what is needed, but they were not issues the Government opposite has talked about or even thought of, because its members are out of touch and out of time. These rates will not help New Zealand. These rates will be more of the same, business as usual, but change is afoot, and change is a-coming, and well may that day come.

I am happy to take a call on Part 1 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill. My initial interest in this bill was in the issues around employee and employment rights, but I am also keen to take a call on Part 1, which basically sets the annual rates of income tax for the 2014-15 year. I agree with my colleagues. I think this is a missed opportunity. I think that Part 1 does not describe what we should really be doing in this bill.

The first thing that comes to my attention is the fact that we are not, in this bill, and in Part 1, dealing with the 107 out of 161 high-wealth individuals who own or control more than $50 million worth of assets, and declared that their personal income in the last financial year was less than $70,000—the starting point for the top tax bracket of 33c in the dollar. What we are not dealing with in Part 1 and in the rest of this bill is the fact that these multimillionaires used a variety of 6,800 tax planning devices, such as companies, trusts, and overseas bank accounts, to avoid paying tax. I can see the Minister in the chair, Todd McClay, pulling faces, and he may not agree with me. Maybe he wants to take a call after me and give us the facts, if they are not correct. Apparently, according to our statistics, one individual had a network of 197 entities. So I am a little bit confused about setting the tax rates for 2014-15 in a bill that deals with employee allowances and accommodation and a range of other things but does not deal with the fundamental problem that we seem to have in New Zealand, which is around tax avoidance by the top 1 percent—or is it the top 10 percent—of people who are not paying the tax that needs to be paid and that should be paid to allow the rest of us in New Zealand to have a decent life, to allow young families to enter into homeownership, and to allow young families, young workers, and middle-income workers to save for their retirement. We are ripping off New Zealand at the moment.

The problem that we have also got in Part 1 of this bill is the fact that we are not addressing the issue that we have had from this Government, almost 6 years later, where—I know you are agreeing with me, Mr Chairman; you are totally agreeing with me, I know—a huge number of people actually received the highest tax deductions under this Government. So a huge amount of money was taken out of the tax take by this Government, giving tax breaks to the very well off.

Let us not forget GST, of course. This Government, as I remember, promised that there would be no increase in GST, but what happened?

💬 Dr David Clark: John Key?

John Key promised that there would be no increase in GST, but the tax rates for 2014-15 include GST, which has gone up to 15 percent. That has an impact on ordinary families. What is really interesting, when we look at the record of this Government, is that we have actually had the biggest reduction in taxes in the OECD. Some people might think that is something to be proud of. Sure, we do not want ordinary working people to be paying more tax than they should, but the record of this Government is that it taxes ordinary people and it gives its rich mates a break. That has resulted in the biggest reduction in the OECD of Government programmes since 1986.

Let us talk about what those Government programmes are. We are talking about health care, we are talking about education, we are talking about people being able to buy their homes, and we are talking about child poverty. What a disgrace that is. What a disgrace it is that we are now in a situation where we have a quarter of a million of our children living in poverty. How disgraceful is that, and how did we get to that? I believe that we got to that by reducing the tax take and the distribution of that tax take under this Government and under previous Governments in the 1990s so that they could look after their friends—their friends at the big end of town—and make sure that they earn bigger profits, and ordinary people pay the price.

We have had a bit of a debate and discussion in Parliament today about the outcome of that, and we have seen the Glenn report. It is a shameful record for a country like ours—a relatively wealthy country—where we are now in a situation where domestic violence is pervading our families. It affects everybody. It is not just those at the bottom. It is not a poor people’s issue; it is a middle-income issue as well. That has an ongoing influence and creates a problem for future generations. If our children today are being beaten up by their families, and if they are living in poverty, who is going to be paying the price for that? When they grow up they will pay the price for it, and the next generation, and the next generation after that. I was surprised to learn that one of the results of the reduction in our tax take is that we have the sixth-highest level of infant mortality in the OECD. How can that be? How can that be, in a country like New Zealand, which has a proud record of a great health service? How can we have got into that situation? It has not really made any difference when it comes to things like the current account deficit. We have the third worst current account deficit, after Iceland and Turkey. What a proud record for this Government—what a proud record this tax bill is entrenching!

There are many, many things that this tax bill, in Part 1, entrenches. It entrenches the policies of a failed approach to taxation over the last 6 years, a failed understanding that taxation is actually about redistribution, or it should be, so that we look after the people in most need in our society and so that we make sure that we continue the tradition of good health and education so that people can earn a decent income and earn a decent living.

Those things are not contained in this bill. Instead, we are dealing in this bill with employee entitlements—which I am, of course, very interested in—and accommodation entitlements, but we are fiddling around the edges. We are fiddling. As my colleagues have said—and as I am sure my colleague David Parker will spell out soon—Labour has a much different approach to taxation and redistribution. It is a much more progressive approach so that we get away from this record that we have now of having high infant mortality, high child poverty, the highest tax reduction in the OECD since 1986, and the biggest reduction in collective bargaining and unionisation, which of course has had a huge impact on the redistribution—[Interruption] Of course, the member over there laughs because you are not allowed to mention the “u” word in this Parliament without the National members showing their cynicism. Unions are about redistribution, as well, I say to the Hon Jo Goodhew.

💬 Hon Jo Goodhew: I’m sorry, I wasn’t actually in control of peoples’ minds.

Well, you did. You sniggered. I saw you snigger. Of course, we have come to expect that from the members opposite.

You know, you cannot mention anything about redistribution, about poverty, or about the really serious issues that are facing our country. You cannot mention them without this kind of high-handed sniggering that we get from the members opposite. We know that their whole agenda is about looking after their mates. It is about looking after the 10 percent who are doing really well. They still believe in trickle-down, that failed policy from the 1980s. They are still living in the last century. They are still trying to push the neo-liberal agenda of the 1980s, which has failed right across the world. Yet when it comes to taxes, they expect ordinary people to pay more than their fair share and expect their mates not to pay their fair share as well.

As Andrew Little said, change is coming. We have a progressive agenda around monetary reform, around tax reform, around collective bargaining and workers getting their fair share, around child poverty, and around doing something about the really, really difficult problems that we have in this country. If members opposite think that they can just turn their backs on these problems and pretend they are not happening, I think they are going to be facing some very, very serious issues in the future, when their children cannot afford to pay their pension and when their children have children in poverty as well. Thank you.

I rise to take a call on Part 1 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill, which sets the annual rates of income tax payable by New Zealanders for the forthcoming year. Before we finalise our consideration of this part, I would like the Minister of Revenue to take a call to explain what proportion of property transactions attract income tax under these provisions.

The reason why I am interested in this is that at the Finance and Expenditure Committee on the financial review just a couple of weeks ago, the Minister said that we have a capital gains tax in New Zealand. Well, we actually do not, but we do have some classes of property transaction that are taxed as income on the gain. So if you are a trader in property or if you buy with the disclosed intention to resell at a profit, then that is on your income account, and you pay income tax at the annual rates of tax that we are setting in this clause 3 in this Part 1 of this bill. At the select committee I challenged the Minister to tell me what proportion of property transactions are taxed in that way and, having pontificated, as he and his fellow members do, that we already have some notional capital gains tax—according to them—he said that he did not know. So I then asked the Minister “Well, do you know whether it is closer to zero percent of those property transactions than it is to 100 percent?”, and he could not answer that either. We on this side know that it is closer to zero percent than it is to 100 percent, but the Minister, to give him credit, said to the select committee at the financial review that he would answer what percentage of the investment properties that are bought and sold in New Zealand are taxed for their capital gain.

I have not read that answer to the Finance and Expenditure Committee yet, but I expect that this very assiduous Minister would want to know, having recognised the failing of his knowledge at the select committee when he came to talk about tax policy and about why the Government should vote him money to run the Inland Revenue Department, and given that we have got this rampant house price inflation and no capital gains tax. The capital gains tax has been a source of some controversy across the House, with the National Government opposing it and the Opposition saying that we are in favour of it—a source of some controversy added to by the OECD saying that we need it, and a source of controversy added to by the IMF, another of the international advisers, saying that we need it in New Zealand. So I would have thought that the Minister would at least want to know what percentage of existing property sales are actually caught by our income tax provisions already and, therefore, would not be caught by a capital gains tax. It would bolster his argument as to why we have not had it.

I suspect that we are not going to get the Minister rising in this Chamber to take advantage of this heaven-sent opportunity to clarify for the country what percentage of investment properties are purchased and then onsold—people get tax deductibility for all the interest payments. They often offset their taxable losses against their other income. In fact, in a recent year, that investment class got a tax refund from other taxpayers because overall they ran at a loss, but they still got taxed on their capital gains. So I am looking forward to the Minister leaping to his feet and telling us what percentage of sales of investment properties are taxed for their capital gains, because I know that the percentage is far closer to zero than it is to 100, even if the Minister does not.

I may have beaten the Minister of Revenue to his feet, and I apologise if that is the case. I want to build on what my colleague David Parker has said because it is also interesting that the National Business Review was recently asking the very same set of questions. We know that members on that side of the Chamber are fond of the argument that a capital gains tax already exists in a certain form, and that capital gains are being collected and that there is no real need to change the law, even though the Minister is not able to say whether that percentage is closer to 100 or closer to zero.

But what was also interesting was that when the National Business Review put in an Official Information Act request to the Inland Revenue Department, it found that the department was not able to say the extent to which it follows up on these transactions, the extent to which it looks for stagging, the extent to which it investigates, nor the extent to which, in dollar amounts, it collects revenue from following up on these stringent rules that the Minister is so fond of and is so fond of putting forward as an example of why a capital gains tax should not be introduced.

It is curious that we have a Minister who trumpets the benefits of a broad-based tax system but is not yet convinced of the merits of a capital gains tax, despite the world’s leading economists recommending it and despite the IMF, the OECD, Treasury, and every other tax advice expert recommending broadening the base. The Minister, in a speech that he delivered recently to a learned audience, trumpeted the benefit of the broad base, but, seemingly, he was not able to make the connection to broadening that base further to ensure that we have a level playing field for everybody who is interested in investment.

So when the Minister steps to his feet, I would like it if he could add to the bit of information that David Parker asked for, but I would be grateful if he could also address the questions around prosecutions by the Inland Revenue Department for tax avoidance on that capital gains legislation, or default legislation, to which he referred in the Finance and Expenditure Committee. And I am sure that many of those following the debate at home would be delighted to learn that the wealthiest property investors were also being asked to pay their fair share of tax, because the statistics that we have that are recent show that indeed a very, very low proportion of those with high net worth in New Zealand pay tax—that is, they do not declare wealth that sees them on the top tax rate. They do not declare income that sees them on the top tax rate, despite having a significant amount of wealth. Above $75 million, the majority do not declare themselves to be on the top tax rate.

So when the Minister steps to his feet, we will all appreciate his explanation on that front. The tension is building. I shall not talk too much longer because we are all waiting to hear what the Minister has to say. He has been remarkably quiet in Part 1 of the debate, despite belonging to a Government that trumpeted the tax rates that we are now confirming. Once upon a time it trumpeted those tax changes that are now widening the gap between rich and poor. Suddenly, Government members have gone quiet. They seem content to see the wealthiest few get ever richer while the other 90 percent struggle to achieve the Kiwi dream of owning a home, struggle to achieve a decent paying job—we know that median wage rates are going down—and struggle to get ahead for their families.

While all of that is going on, we have a Minister who seems to be sitting silent, not arguing for the changes that need to happen to make the New Zealand economy grow, that get the settings right, and that develop the big change that is needed for New Zealand to prosper so that everyone can get ahead and everyone can have a positive start in life. I will sit down now and await what the Minister has to say on this, and I think that will be very telling for us all, and I expect we will all learn a lot about what the Government really believes in.

Part 1 agreed to.

Part 2 Amendments to Income Tax Act 2007