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

I move, That the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill be now read a third time. The purpose of this wide-ranging tax bill is to bring greater clarity to the tax rules to ensure that they remain fit for purpose, that they support business and innovation, and that everyone pays their fair share of tax.

The bill therefore proposes a number of practical measures to clarify the tax treatment of employer-provided accommodation, accommodation allowances, and other payments provided by employers to employees to reimburse them for expenditure incurred. There is clarification for the treatment of accommodation provided to ministers of religion based upon a historical agreement with the Inland Revenue Department, as well as clarification for the Defence Force. Equally, there are measures to assist employees who receive a clothing allowance as well as a uniform. This will be welcomed by the New Zealand Police force and other employees in New Zealand. In particular, the measures proposed in this bill will help employers and their employees to determine where to draw the line between what is taxable and what is not when payments are linked to business travel, secondments, and projects.

A second group of measures in the bill is designed to support business growth and innovation by clarifying certain rules and removing distortions created by the way some existing rules apply, such as those arising from the current black hole tax treatment of certain types of expenditure. Under the changes proposed, the deductibility of certain company running costs will be clarified, and the expenditure on abandoned applications for patents, resource consents, and plant variety rights will be immediately deductible. A range of technical or remedial changes is also proposed to the GST rules to make them easier to understand and to apply.

The acquisition date of land and agreements for the sale and purchase of property or services in foreign currency have also been clarified to give greater certainty to taxpayers, as have the tax rules for charities that have been removed from the register of charitable entities. Other proposals such as changes to tighten thin capitalisation rules and the rules relating to the tax treatment of land-related lease payments are intended to remove distortions and protect New Zealand’s tax base. Finally, the bill contains revisions to allow our financial institutions to more easily comply with the intergovernmental agreement signed between New Zealand and the United States last week.

In reaching the third reading, I would like to thank all those who have contributed to the passage of this bill: the policy officials for their work on the detailed content of the bill, the drafters who have put the policy intent into the required legal framework, the many people in the organisations who made submissions on the proposed legislation, and the Finance and Expenditure Committee for its consideration of the bill and its recommendations for further fine-tuning. Finally, I thank members of this House for their consideration. I commend this worthy Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill to the House.

💬 Hon David Parker: I rise to take a call on behalf of the Labour Party—

The member is calling, is he?

I am. I now thank you, Mr Assistant Speaker, for allowing me to take a call on the third reading of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill, which the Labour Party is supporting. I wondered what I was going to add to the earlier contributions that I had made in this debate until the Minister of Revenue spoke. The Minister—and I wrote his comment down—said: “The purpose of this legislation is to make sure that everyone pays their fair share of tax.” Well, would that not be great if that was the effect of this bill? Would that not be great if that was the effect of this bill, because this is the Minister who in the chair last night, when asked the question that he would not answer at the select committee about how many people pay tax on their capital gains for investment property—

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

Well, actually, Mr Goldsmith—you are from Epsom. I am surprised that you do not know that most of your members do not want to pay capital gains, because they disproportionality earn their income as capital gains. The Minister said that this bill, about annual rates of income tax, therefore affects tax on what is taxable income. The question that is quite properly raised is what sort of economic income is caught by the regime and what is not.

💬 Dr David Clark: I hope Mr Goldsmith’s not speaking.

Mr Goldsmith was at the Finance and Expenditure Committee a couple of weeks ago when the assertion was made initially by the Minister of Revenue, Todd McClay, that we already have a capital gains tax in New Zealand on investment property. It is true that if you buy with the purpose of resale or you are a trader, then your house becomes your stock in trade, just as it would be if you were buying and selling shoes. It is treated in the same way as stock in trade and you account for income tax on your profits over and above your cost of sales, and therefore you do pay income tax in respect of that—not capital gains tax. It forms part of your income tax because it is a trading activity.

If it is an investment activity as opposed to a trading activity, then of course you do not pay tax on your gains for investment property. I know that. Everyone in New Zealand knows that. The National members pretend that that is not the case, because it is another of those instances where they close their eyes to reality because it does not suit the interests that put them in Parliament and keep them here. The plain truth is that the vast majority of people who buy an investment property often make deductions for their taxable losses suffered during the period of ownership because their interests and rates costs exceed their rental income. They offset those losses against their other income, but then when it comes to the sale of the property, they do not pay any tax on the economic gains they make.

Mr McClay, having made the assertion that we had a capital gains tax, was asked, I thought, the reasonable question by the Opposition: what proportion of sales of investment property attracts tax in New Zealand? He said he could not tell us; he would check. I asked him, and the Government members said it was a stunt. I actually thought it was at least a general question he might be able to answer. I said: was it closer to 100 percent than it was to 0 percent? And he said that he did not know the answer to that either. We all know it is closer to 0 percent than it is to 100 percent. So he went away. We put that question down officially to him and he was going to come back. The answer that came back to the select committee this week was they do not know. So there is no substance behind his assertion earlier that people are routinely paying tax on the profits that they make on the sale of investment properties.

Roll forward to today—this week at the Finance and Expenditure Committee we actually deliberated on the report about that sad episode, and the day after we had a Committee stage in this House on this very bill, when we asked the Minister whether he had been able to find out since the select committee, and he did not take a call. So we thought: well, we are voting money to the Minister of Finance in respect of Treasury and he was up for an estimates hearing today. It was in a public session so I am not breaching privilege or anything. We asked him whether he had had any advice from Treasury as to the percentage of investment properties that are sold for an economic gain that pay tax. He said no, he did not have that either. So here we have the Government overseeing an economy where we have got increasing inequality, we have got the lowest—

💬 Hon Steven Joyce: Oh, rubbish! Makes it all up.

So here we go—here we go again. Well, actually, repetition is necessary for some of the people opposite. We have got the lowest rates of homeownership in 50 years. We have got the highest rates of child poverty, certainly in my lifetime, and we have got growing gaps between wealthy suburbs and less wealthy suburbs in Auckland, as proven by the latest census data, which is the best data that we have and which showed a very large increase in the gap in the relative well-being of peoples in Auckland. And then we have had the chief economist of the New Zealand Institute of Economic Research, Shamubeel Eaqub, in the last day saying that these gaps are widening between ethnic groups, between geographic regions, and effectively—

💬 Simon O'Connor: Be careful using his analysis. It might come back to bite you.

Hon DAVID PARKER:—between the wealthy and less wealthy. Well, I suspect it is not going to come back to bite me during any term under this Government, because this is classic conservative party politics around the world: cut taxes for the wealthy. It is what it has done disproportionately in its earlier—

💬 Hon Steven Joyce: Rubbish again.

Rubbish again, says Mr Joyce.

💬 Hon Steven Joyce: How many lies can you fit into one thing?

I raise a point of order, Mr Speaker. Mr Joyce just called me a liar. I would ask that he be forced to withdraw and apologise.

The ASSISTANT SPEAKER (H V Ross Robertson): If the member has used that word, it is not acceptable in the House. It can lead to disorder. If the member has used it, I would ask him to stand, withdraw, and apologise.

💬 Hon Steven Joyce: I raise a point of order, Mr Speaker. I want to point out that I did not call the member a liar. I did say there were some lies. I appreciate that is still unparliamentary and I will withdraw and apologise.

The ASSISTANT SPEAKER (H V Ross Robertson): That is drawing a long bow. I would ask the member to stand and withdraw.

💬 Hon Steven Joyce: Do you want me to do it again? I withdraw and apologise

The ASSISTANT SPEAKER (H V Ross Robertson): I ask the member to stand and withdraw. The member will do it properly. The member will say: “I stand and withdraw.”

💬 Hon Steven Joyce: I stand and withdraw.

The ASSISTANT SPEAKER (H V Ross Robertson): Thank you.

It is true that the income tax cuts of the National Government disproportionately favoured the well-off.

💬 Hon Steven Joyce: That’s incorrect.

What is that?

💬 Hon Steven Joyce: That’s incorrect.

That is correct—thank you.

💬 Hon Steven Joyce: That’s incorrect, I said.

“That’s incorrect.” he says. Forty percent of the tax cuts went to the top 10 percent of income earners. The offsets that the Government claims in respect of removing depreciation allowances on property were not paid by the same people, and the incidence of the increase in GST in proportion to income disproportionately falls on the lower-income people, relative to the higher-income people, who pay a lower proportion of their income in GST than lower income people do, because people who save their money do not pay GST on their savings. Higher-income people save more, relative to their income, compared with lower-income people. The arithmetic of this is so clear, and yet the National Party denies it. We have a country where we have got decreasing rates of homeownership and increasing rates of child poverty.

The Government misrepresents our inequality statistics every day. It says that the Perry report shows that annual income inequality has not changed much in recent years, which is correct. The only time it has gone down substantially in the last couple of decades was actually pursuant to Working for Families, which the National Party, including John Key, called communism by stealth at the time. Other than that period, income inequality on an annual basis has not changed much in recent years, although it has changed a lot in the last two decades, from being in the best 30 percent of the world to the worst 40 percent of the world. The unfortunate reality for New Zealand is once you get to being in the worst 40 percent of the world, and when you realise that those figures do not include capital gains—which are more concentrated in New Zealand than in other countries that tax capital gains, because we encourage them by way of our tax system—you realise that inequality in New Zealand is, of course, getting worse every year because the consequences stack up, year after year after year. They do stack up, year after year after year, and you see it in homeownership rates that decline, year after year after year, and in child poverty rates that increase, year after year after year.

Despite that, we have the Minister of Revenue saying that this bill meets its purpose of making sure that everyone pays their fair share, which is just patently not true. In fact, the greatest tax burden in New Zealand falls on the middle classes. The middle classes do not have that concentration of tax avoidance through non-taxable economic income in the form of capital gains. They do bear most of the burden of paying tax in New Zealand, and of course they pay a higher proportion of their income in GST than wealthier New Zealanders. So in effect, middle-class New Zealanders pay higher rates of tax than the most wealthy people in New Zealand, and that is patently unfair. Indeed, you just need to see the massive increases in the wealth of the rich listers and the small amount of tax that is paid by them as a proportion of their income, and then you look at some of the other high asset-owning classes of taxpayers, like farmers, and you see they do not pay their fair share either.

It is very kind of you to give me this call on the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill, Mr Assistant Speaker. I must begin by saying you do have to hand it to David Parker—I would never have believed how many social ills, financial ills, and general problems in the community could be solved by a capital gains tax. But he is relentless. At every single opportunity he never misses the opportunity to talk about all the problems in the world that will be solved by the introduction of a capital gains tax, notwithstanding the fact that half the capital gains are inflation anyway, and it is a bit unfair to be taxing that, and the fact that we have had endless numbers of detailed royal commissions and detailed studies on taxation in this country.

The last one under the Labour Party, the McLeod Tax Review, drew the clear conclusion that a capital gains tax in New Zealand is not warranted, particularly if it exempted the family home, as is being suggested here. It would add all sorts of tax compliance and difficulties in the taxation system more broadly.

This Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill does not introduce a capital gains tax. What it does cover is employee allowances, thin capitalisation rules, black hole expenditure deductions, and foreign account information-sharing agreements, as well as a number of other things to tidy up our taxation laws. We did a lot of detailed work in the Finance and Expenditure Committee, and I do want to pay tribute to the work of the members of the select committee on all sides of the House, including Mr Peters, who was very diligent in some of these matters—less so in others.

The review of the employee allowances, in particular, was given—[Interruption]—well, yes, indeed—a fair amount of attention. The Government listened to a number of the concerns about some of the details in this area, and a significant number of changes were made, particularly around when an employee is expected to work away from their normal workplace for up to 2 years. Employee-provided accommodation will be tax-exempt—that was one area. Another area was further clarification when accommodation is provided with regard to shift work involving periodic sleepovers and fly-in, fly-out workers in remote areas. So there was a lot of detail that the committee went through, and I think that the overall result is much better as a result of that consultation.

The other area that we heard a lot of submissions on was the Foreign Account Tax Compliance Act, which is the result of obligations contained in the intergovernmental agreement with the United States. A lot of submitters were very concerned to discover their tax obligations as US citizens, or people who had been born in the US—who had never lived there but happened to be born there; they had been in New Zealand all their lives. They were worried that they were suddenly going to be drawn into the United States tax ambit. I suppose the important thing to say in relation to this is that this legislation does not change anybody’s tax obligations if they are a US citizen or a US tax person—they have always been there and they remain there. What this bill does is allow for New Zealand banks to pass information on certain people who are US citizens on to the United States. So it is an information-gathering exercise, and there are thresholds over which people have to stand before that information is passed on.

Again, the select committee looked at that very closely. The Opposition was most concerned about reciprocity in this, and the intergovernmental agreement that has just been signed with the United States is reciprocal. That is important because we would expect to uphold the US tax system in New Zealand and, likewise, we would expect to have the same level of assistance from the United States in the way that we collect our taxes.

So, all in all, this bill is one small piece in the great work of building a more competitive and productive economy in New Zealand, which is one of the overall goals of this Government. At the end of it all, increasing New Zealand’s international competiveness is what sustains our living standards in New Zealand and what provides us with the opportunity to have the growth, the jobs, the health care, and the education system that we need. We do not get any of that if we do not have an internationally competitive economy. The Business Growth Agenda, which is at the heart of this Government’s response to lifting New Zealand’s competiveness, includes having an efficient tax system. This bill goes some way in clarifying some areas and ensures that taxpayers are treated as fairly as possible in the intricate details around employee allowances. On that basis, I commend this bill to the House. Thank you very much.

This is a very important night because that was probably the last speech that member, Paul Goldsmith, is going to make until 20 September 2014. He is the phantom MP who will not put up hoardings, does not know whether he wants to stand for Epsom or not, and appears to be an absolute doormat for his party’s scheming and plotting. If he thinks that is diligent, that is his view, but it is not the view of others in this Parliament who are prepared to stand on their own feet and fight their own causes without seeking a ladder from someone else all of the time.

So when I hear those free marketeers talking about the value of endeavour and free enterprise, I think to myself “How shallow is that?” when in their own behaviour they evince the very opposite. No, they will not take a risk. They will not say “I’ll put it all on my belief in myself and my colleagues and my party.” Oh no, no—they have got so many fingers outside they are like a six-armed octopus trying to survive against the storm in the sea, and they will not win doing that.

Let me say this. We in New Zealand First believe in an up-to-date, fair, and efficient tax system. We think it is fundamental to a great democracy. We have always supported a robust tax system, and, funnily enough, Mr Goldsmith got up and started talking about a capital gains tax. Has he not heard Mr English and Mr Key say that we have already got one under National? So the question is a matter of degree, is it not, and let us not have these stupid arguments in this campaign that are so shallow but obviously so beloved of innocent new members who are cannon fodder in the National Party.

There are aspects of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill that we can support, but the FACTA, the US Foreign Account Tax Compliance Act, is what we are concerned about. It raises aspects that are very serious in respect of this country’s national sovereignty—issues that have never been sufficiently and fully addressed. Worse still, this bill came before Parliament and then the Finance and Expenditure Committee when they had not even completed the agreement with the United States.

What sort of public policy is it when you pass legislation dependent upon a later agreement that you have not actually resolved? That is not the way we do Government, surely, in this country, but under National if the United States says something, National says “How high?”. If the United States says “We want to be able to go down to the home or the business of any former US citizens who may have been here 35 years under a sovereign nation called New Zealand, which has had an unbroken line of democracy and which has been holding elections for the last 150 years.”, National says that sovereignty can be invaded by another country—namely, the United States.

💬 Simon O'Connor: Go back and do Constitution 101.

Go back and do what?

💬 Simon O'Connor: Go and read your Constitution 101.

Oh, Constitution 101? What are your qualifications in the constitution?

💬 Simon O'Connor: More than yours.

Yes, I want to know, because I will tell you this. One thing about our constitution is that it says the New Zealand Parliament is paramount. That is the No. 1 principle. It is sovereign that this country is answerable to nobody else. That is what our constitution says. But here comes the former abbot trainee, who did not even graduate, and he comes and tells me that he is a constitutional expert. Well, what great news—the National Party members over there have got themselves this shining bushel of light that we hitherto did not know about! So I am delighted that at last they have found a font of all knowledge about constitutional matters, because hitherto they had shown so much ignorance on these matters.

You know, the interests of the United States are not always synonymous with our interests. Allowing the US to open the door into our tax and banking system is not something that can be done lightly. I already now know of KiwiSaver providers who are saying “If you are from the US, we can’t take you on. We are not opening our books to the United States and so we won’t take any US former citizen on in New Zealand.” I think that is appalling. I think that is abysmal.

I know of a time when the National Party would have been shocked to hear those sorts of things—and these were men, like those in Labour, who had come back from the war and had spent 4½ years fighting for freedom, and they understood what freedom meant. Over there you have got a party that is posing under false pretences. It is no longer the National Party; it is the “International Party”. The United States asks for something and it says “What did you say, Uncle Sam? What is that again? Uh, huh; we’ve got it. We’ll do exactly what you want.” And while they do that, the people they promised protection to when they emigrated to New Zealand lose all right to have privacy, the kind of privacy that we as New Zealanders used to enjoy. I think that is—

💬 Hon Member: Rubbish.

I know it is rubbish—I will get around to that member’s specialty later, but I am talking about some serious matters here. It is a significant piece of legislation, passed by Congress in March 2010.

Debate interrupted.

The House adjourned at 10 p.m.