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

Part 3 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill includes the changes that relate to the United States Foreign Account Tax Compliance Act measures. These changes that we are agreeing to here today facilitate the collection of data from New Zealand citizens at their own expense in order to pass on a portion of that information to the United States Government via the Inland Revenue Department. What we are being asked to do here today in this Parliament is to enable banks to collect information on every single person who is in New Zealand, at their expense, in order to weed out what information is deemed to be interesting enough to pass on to the Inland Revenue Department, which will then pass that on to the Inland Revenue Service in the United States.

We had many impassioned people come and speak to us at the Finance and Expenditure Committee about the potential privacy breaches that this meant. People would be caught up in this who were otherwise law-abiding citizens but who would now face potential prosecution from the United States—for example, people who may have been born in the United States but never lived there as a conscious being. They left in early childhood and then found themselves in New Zealand, and they are now deemed to be a New Zealand citizen from whom information might be collected for the United States Government.

It will also perhaps affect people who have worked in the US briefly and who have then, for one reason or another, not completed a little bit of tax paperwork down through the years and may have incurred astronomical penalties as a result. Those kinds of people who are otherwise law-abiding citizens and who are now New Zealand citizens may face prosecution from the United States as a result of the agreement we are putting forward today. That collects information from every New Zealand citizen—every single New Zealand citizen—in order to pass on that information to the United States.

Of course, the banks need to comply, and we on this side of the Chamber accept that the 30 percent wholesale surcharge that the US is threatening would be quite an unreasonable imposition on our banks if they were non-compliant. We feel that the Government could have moved much earlier to push for a more reciprocal agreement, an agreement that sought to make sure that all information on New Zealand citizens avoiding tax in the US was passed back to the New Zealand Government and that the US tax database, obviously much broader than ours, was something that it would be willing to share fully with us to our advantage as a country.

But what we have found throughout this process is that the Government has taken a very casual attitude. When I questioned the Minister of Revenue at the select committee about the legislation we were passing and why the principles of reciprocity could not be built into the legislation if that was what the Government believed ought to happen, there was some evasive conversation. When we asked about whether the Minister had actually seen the intergovernmental agreement that was due to be implemented in 1 month’s time from then, the Minister said he had every confidence that it was a good agreement but that he had not seen it. Goodness me—we wonder why the Minister is there collecting his ministerial salary if it is not to look out for New Zealand’s interests, to look at these international agreements. He looks to the sky. He is not interested. He says: “That’s not my job. I’m here to collect this salary, to lean back in my chair, and to not make speeches in Parliament.” That seems to be the Minister’s attitude as he watches this bit of legislation go through.

But in terms of looking out for the interests of New Zealand, looking out for New Zealand companies, which are facing an unlevel playing field, we know there is a great deal of tax avoidance overseas, and New Zealand companies tend to be good corporate citizens that pay their taxes here. We know there is an unlevel playing field out there. The Minister does not seem to want to tackle tax avoidance on any scale, be it by the large corporates or be it by ordinary citizens, other than at the bidding of the US Government. That seems to be the only time he leaps to his feet, clicks his heels, and says: “Yes, yes, I am available for service.” But when it comes to speaking in the Committee, to laying out a vision for the tax system, he is strangely quiet. When it comes to pointing out that reciprocity might be put into the agreement or even looking at the material in the legislation we are passing, he is too busy for that—only to say yes to the US, only to pass the legislation as promptly as he can.

We on this side of the Chamber think that this process could have been handled a lot better. We think that the officials, when they first came before the committee, had not had impressed upon them by the Government the importance of negotiating this, of making sure that tax agreements were beneficial to New Zealand and that really forceful negotiations were carried out. This we know because the tax officials whom we dealt with in the committee have been all, I think without exception, very, very good, but they are dictated to by the priorities of the Government of the day. And when the Government says “This is low priority. There’ll be a standard agreement. We’ll just sign up to it.”, that message is passed on to the officials. They seem reluctant to engage with it as well they might because they are in a department that is under pressure, a department with falling compliance levels. Voluntary compliance for business tax is falling. It is a department where phone calls go unanswered and a department that has billions of dollars’ worth of uncollected tax—$7 billion at last count. This is a department that is struggling because of the outdated technology that it uses to administer the tax system.

But it needs leadership from the Minister. It needs a Minister who is committed to ensuring that everybody pays their fair share, and that the tax system is not tilted towards the large end of town, towards multinationals having a tax advantage that New Zealand companies cannot have also. The statistics tell us that that is the picture. In the last 4 years there have been fewer small businesses created in New Zealand than have been destroyed, and that is a worrying trend. We see small businesses in New Zealand not flourishing as they should. We hear talk of a rock star economy, of a big upturn, but it seems that the big corporates and the wealthiest individuals are securing a larger share, and, indeed, those who will be working with the US, the banks, are being looked after here. We need secure financial institutions, but we do not need all of that at the expense of ordinary New Zealanders getting a similar deal, of ordinary New Zealanders and ordinary New Zealand firms having the same level playing field so that there is fair competition out there and so that people can work hard and get ahead.

We on this side of the Chamber want to see a fair tax system. We want to see reciprocity in the kinds of agreements that we are passing the enabling legislation for today. We would really like to have had the agreement in the legislation right the way through. If it had been negotiated in a timely fashion, we might have debated it more fully in Parliament. It is only just now that we have access to it. It is very, very late in the piece and shows a tardy Government that is really not up with the play and that is really quite happy to pass into law bits of legislation and conditions placed on New Zealanders, collecting information at New Zealanders’ expense, without even seeing the paperwork. It is not a pretty picture. I guess it is a Government that has lost touch with what matters to ordinary New Zealanders. Ordinary New Zealanders, people like me and others represented in this House, want to see a Government that is in touch, that is looking out for their interests, and that is looking to make sure that the playing field is level, that things are fair, and that everyone can have the opportunity to get ahead, not just a privileged few.

So when we come to pass this piece of legislation, it is important that we reflect upon the way it could have been better. As I have stated in my speeches about the other parts, it was rushed legislation. It was put through with a very short consultation deadline, and then we have had the Minister’s amendments coming through. I am pretty certain there will be more and we will see more. This is not a piece of legislation that has had the full scrutiny of Parliament that it might have had if there had been a more diligent Minister who was willing to roll up his sleeves and do his job in the manner that is expected.

I want to thank the last speaker, Mr David Clark, for his fulsome support of Part 3 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill. I know that this is one of the most important parts of the legislation for him. All the way through he has been extremely supportive—understanding, of course, man of the world that he is, when it comes to international negotiation, some of the stages. But there are a couple of points I just want to help with and clarify here because, in his enthusiasm, I am not sure that he meant to say some of the things that he did.

The first was that he said that the Government has lost touch with ordinary New Zealanders like him. Well, I have got to say that I do not think he is an ordinary New Zealander—special, maybe, but ordinary, I am not sure. What I would say is that in as far as this legislation is concerned, what this does is allow banks to collect and provide information to the Inland Revenue Department to pass on to meet its obligations to US authorities. Mr Clark is correct: where people do not do that, they face a significant tax of up to 30 percent on their business in the US. All financial institutions in the world, except for those where an exception is given, are covered by this legislation—every single country of the world. There will be some countries that do not meet that obligation, and their citizens who are involved with those financial institutions will be affected by a significant tax. It is interesting to see that Australia and the UK and France have already entered into an agreement with the US, similar to that that the New Zealand Government has entered into, to make it easier for the financial institutions, to provide them with some certainty, and to provide some controls around this.

Mr Clark said information will be collected on every single person in New Zealand. That is factually not correct. These financial institutions already have information on all of the people who bank with them. They will be under a duty to provide information on clearly defined US citizens and to provide that to the Inland Revenue Department to pass on. There will be no information provided to the department or passed on to the US authorities on New Zealand citizens, only on those who are US taxpayers under US law. This creates no new tax obligation. The US taxes its citizens based on their citizenship, not their place of residence, and not their place of domicile. So anybody who is a tax resident in America, a citizen, the US legislation has an interest in at all times. So we are not creating new tax obligations; we are merely providing information on behalf of financial institutions to US authorities.

Very importantly, this is reciprocal. It is reciprocal. The US authorities will provide information to the Inland Revenue Department on New Zealand taxpayers so that we can make sure that everybody who has a duty to pay tax in New Zealand is doing so fairly. The intergovernmental agreement was signed last week here in this Parliament and will enter into force before this legislation is adopted and itself enters into force. That is the right balance and the right way that this should be done. The reason it may have taken a little bit longer than Mr Clark might have wanted is that we were looking specifically at a number of institutions in New Zealand that might not need to be included in the breadth of this US law. There are exceptions that have been agreed for some New Zealand institutions to do with the Crown, for superannuation schemes, and for anybody who has an account who may be a US taxpayer but who has less than NZ$50,000 in it—for them, information will not need to be provided.

It is important that we do this. If financial institutions in New Zealand did not meet their obligations, they would be significantly affected. The Government is merely providing certainty and assisting them. It will reduce red tape, compliance, and costs upon the financial institutions and, therefore, others who may be involved with them or bank with them. It is not going to change the obligation of any US taxpayer based in New Zealand to the US tax authorities; it will merely provide information to them, and it is reciprocal to us.

So this is a very important part of the legislation. I think the Government has been responsible, as many other Governments around the world have been. Almost every OECD country is in a current situation of either having agreed or negotiating the same arrangements as New Zealand. The very good news for New Zealand financial institutions is that we have agreed through negotiation a number of exemptions with US authorities, and this will give greater certainty and make sure that there is not unnecessary cost to these financial institutions and, therefore, New Zealand taxpayers.

The question was put that the amendments set out on Supplementary Order Paper 455 in the name of the Hon Todd McClay to Part 3 be agreed to.

Amendments agreed to.

Part 3 as amended agreed to.

Schedule agreed to.

Clause 1 agreed to.

Clause 2 Commencement

The question was put that the amendments set out on Supplementary Order Paper 455 in the name of the Hon Todd McClay and the following amendment in his name to clause 2 be agreed to:

in clause 2(10), replace “74(1)” with “74(1A)”

Amendments agreed to.

Clause 2 as amended agreed to.

Bill to be reported with amendment presently.