Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill

I am pleased to take the first call of what I am sure will be many on the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill. As the title of the bill, as exciting and interesting as it sounds, indicates, the bill covers a wide range of topics. Part 1, which you, Mr Chair, have called us on, deals with the matter of child support payments.

It is important when we look into this part that we know what the context of this is, and it is very well covered, I might say, in the regulatory impact statement for this particular piece of legislation. I want to cover, in my first contribution on this part, the background as to why these amendments have been put up, and then I want to look at three particular areas that the Minister and the Finance and Expenditure Committee have both looked at and recommended some amendments to. They are around the question of relief from payment, the question of the timing of the implementation of various parts of this part, and the changes around sole parent students.

Before I do that, though, I do think it is important to understand the context of these changes. There will not be many members of Parliament, either in their role as MPs or as individuals, who have not had issues raised with them about child support payments. It is a regular topic. I can see Mr Barclay nodding; in his various constituency offices across the lower half of the South Island he will have had people come into his offices with concerns about aspects of child support payments. Certainly, nobody on this side of the Committee, I am sure, will be saying that the child support payment regime is perfect. It does need change, and the review that was undertaken that built up to this legislation was needed and timely.

Generally speaking, I would characterise the issues and complaints that have come to MPs or that have been raised in public as being in the category of those who are the paying parents feeling that they are unfairly contributing and that they are contributing above and beyond what they should be, relative to the amount of time they spend caring for children, and those on the receiving end being concerned about the level of payment that they are receiving and the times and occasions when people do not make the payments that they should make.

It is worth noting that there is around $3 billion worth of child support debt at the moment in New Zealand; 75 percent of that debt is actually in penalties, and a big chunk of those penalties are of more than a year’s owing. So that represents, clearly, a system that has not been working properly, if you just look at it in terms of the amount of money that has been paid over and the number of people who are failing to meet their obligations. So, as I say, there was absolutely no doubt in my mind that the review around these issues was timely.

Where concerns were raised with me, and where, I think, the Minister in the chair may care to take a call to help explain whether or not this legislation will deal with these problems, was in the process of change. So what we have got is that everything is out of kilter in terms of dates because of the complete disorganisation of the Leader of the House, failing to get legislation flowing through this House in order to meet time lines—

💬 Hon Clayton Cosgrove: Really?

I know you will be surprised by that, Mr Cosgrove—failing to meet time lines that have been set. Most of the reform package has actually been in operation since 1 April this year, and we are now, today, in the Committee, passing the legislation to try to make that work.

There are other elements of the legislation that come into force on 1 April 2016, and that is a timely intervention, but a big chunk of the reforms have already been implemented. I will give the example of a case that came to me in my electorate office where the change in criteria, the change in process for child support payments, led to a situation where there was a rebalancing of who was paying in a relationship, and I believe, on balance, that was a fairer rebalancing. We had a person who had traditionally been the total payer to somebody, becoming only a part payer, and the person who had previously been receiving taking more responsibility. It was a complicated situation. Each of the parents had new partners, and that then led to other considerations that came into play there.

But that particular person who came to see me in my office came because, as part of this new process—she had a protection order against her former partner—her former partner was now in possession of all of her income details, because that was part of the new process. And she said to me: “How can one part of the State want to protect me from my partner but the other part hand over my income details to that person?”. That is a system that still needs work. And there have been others who have come in with very strange calculations based on the new criteria.

So I think it would be useful to the Committee for a member of the Government to get up and talk about what lies behind these changes and whether they are satisfied that we now have a fairer system, because I am not yet certain of that. What I can say, and what the Finance and Expenditure Committee considered, were some changes that I think are useful, and here I would like to refer to new clauses 44A to 44D proposed to be inserted into the Child Support Act. This means that the regime around penalty payments now includes the ability for the Commissioner of Inland Revenue to consider a wider set of measures as to whether or not there should be write-offs. This is a good thing, because up to now it has effectively been a question of the efficient use of resources, as opposed to the position that a parent finds themselves in or, more important, what that means for the child in this case.

So clause 44A now includes the idea of whether the recovery of incremental penalties would place the liable person in serious hardship. That is actually an important factor to be able to put into play. It will, I hope—if it is implemented properly—actually mean a more realistic assessment of the penalties. As I mentioned before, 75 percent of the $3 billion child support debt in New Zealand is made up of penalties, and, hopefully, this will actually create a more reasonable place. So I think, under new clauses 44A to 44D, we can say that that is a useful thing.

But I want to, in the remaining part of this call, just come back to the wider context of these child support changes. We are talking about—and the Committee has been told that we are now talking about—approaching $200 million to implement these changes. The original costing was $30 million. Remarkably, the Inland Revenue Department did not consider that there might be a capital cost with these changes. The department thought it would all be operational, and then it realised it was actually fundamentally changing the system and it actually needed to budget for capital, and it blew out. It actually blew out to $200 million. It has done some phasing, a little bit of jiggery-pokery, and it is back to $163 million, but that is still a massive, massive blowout. And let us bear in mind that Treasury and the State Services Commission said to the Government: “You should align these child support changes with the overall business transformation programme at the Inland Revenue Department.”—a nearly $2 billion programme, I suspect, by the time that actually comes into place.

💬 Hon Clayton Cosgrove: And counting.

And it will continue to rise—that is right, Mr Cosgrove. What we have not seen from the Government is a realistic assessment of whether or not these child support changes should have been put through at this time, or whether they should have been aligned with the overall business transformation programme, and I think it is incumbent on the Government to get up in this Chamber and tell New Zealanders why it has overseen a massive blowout of over $100 million in the cost of these child support changes that are being implemented in Part 1 of this bill. That is actually poor government, it is inefficient, and it is a waste of money, at the same time that the system itself is still creaking along. Make the changes—by all means, let us improve this part of the system; everybody in New Zealand can see that it is not working properly—but do not do that in a rushed way to look good, and then have a massive expenditure blowout.

It is hugely disappointing when the Government has its advisers from Treasury and the State Services Commission, who are supposed to provide it with the advice about good government and about efficient government, and what it actually ends up doing is to say: “No, we’re going to ignore that for political reasons. The blowout has happened under our watch. We want to make sure it doesn’t look as bad as that. We’ll phase the expenditure with a bit of creative accounting.” But, actually, in reality the child support system is struggling, and the taxpayer is going to find themselves severely out of pocket as a result.

So I would like some Government members to get on their feet and address those two issues: have we now got child support right—

Mr Chair, I ask for your forbearance. I will rise many times to speak to this piece of legislation, but I just wanted to lay out some generalities.

When I last spoke on this piece of legislation I said to the Minister of Revenue that consultation for this type of legislation is essential, and not just consultation at this phase. The experts came to the Minister and said “Actually, what you need to do for these large, omnibus pieces of legislation and these remedial matters pieces of legislation, and what would be wise, is to come to us early with a draft form of what it is you are trying to achieve, so that our industry experts can come in and make fair and reasonable submissions on that draft.”—so that we are not in the position that we are in right now, for example.

The Minister’s Supplementary Order Paper for the day is about 20 pages of minutiae—changes to clauses and information within the bill. It is a tidy-up. I acknowledge it is fixing up a lot of the changes that have been made subsequently, but we continue down a road of necessitating fix up after fix up, and we have spoken about unintended consequences on numerous occasions.

Speaking specifically to Part 1—I will go straight there—I just want to acknowledge the contribution from the previous speaker, Grant Robertson. And actually, to be fair, I would like to acknowledge the National Government, specifically the Minister, who is genuinely trying to fix up this large, large issue when it comes to the child support payments issue. I acknowledge that he is genuinely trying to fix up this situation.

It is a big concern for all New Zealanders, and the numbers have already been put to us—70 percent of that debt is kind of backdated penalty fines—

💬 Hon Clayton Cosgrove: 75 percent.

—70 to 75 percent are backdated penalty fines. So when you look at that, you understand that there is a problem—there is a problem and it needs to be addressed. But it is a balancing act.

I wrote down a few notes, and I want to just bring to the Committee’s attention a few issues that would be good to have some clarification on, and perhaps the Minister can get up and address it. I noted down clause 57(1). It empowers the commissioner to make what seems to be very arbitrary decisions on the chasing of debt.

The problem with this clause is that it allows the commissioner to pursue debt or not based on his call of whether or not the cost of the chase is too great, or, more specifically, relating to the legislation, if the pursuit would be an inefficient use of resources.

Although that sounds good on paper, and when you look at it, what is the objective measure? That is New Zealand First’s concern. It makes sense and it looks sensible on paper, but what is the objective measure?

There was the same concern with the ability for the commissioner to write off debt if he decides it is fair and reasonable to do so. Will the level of what is fair and reasonable change from commissioner to commissioner and, dare I say it, from case to case? There are some issues there about objective measures, and I have spoken previously on that specific issue about exemplars and definitions and the argument of objectivity.

I just want to touch on the issue around costs with this specific issue, because it is incredibly important to acknowledge that this current Minister has picked up a huge, huge issue from the Inland Revenue Department.

💬 Hon Clayton Cosgrove: A big bag of steamy stuff.

I will not go so far as to use that language, but it is a big bag of something. The irony of it is that our financial experts did not really factor in that capital cost of implementation, and so now we are in that catch-up mode. We are writing—I am not going to say writing off, that is the wrong phrase—but we are moving from quarter to quarter kind of adjusting the budgets on the run. So we in New Zealand First acknowledge that there is—

I have got to say I do not share the total enthusiasm that my New Zealand First colleague Fletcher Tabuteau has for commending the Government on this one. I want to deal with the child support matters, and place on record that the Opposition will support the bill. There is an issue in Part 4, which we will come to, but in terms of the child support issue, I think what the New Zealand First colleague neglected to mention, of course, is that it is true that Mr McClay, who is the Inland Revenue Department Minister, and presumably will be vociferously answering all the questions that we put to him today, did pick up a steamy political issue, shall we say—if I can put it delicately, Mr Chairman, for your sensibilities—from his previous Minister, Peter Dunne. To put it bluntly, he inherited a major cost blowout.

As my colleague Grant Robertson has said, this was costed originally at $30 million—that was in 2011—then in 2014 the estimate blew out to $210 million. Then, to give credit to Mr McClay, I think he must have hauled in the officials and got down on bended knee and begged them to do something creative to phase it, to do something to smooth the books so that the mountain of budget blowout would go down to around $163 million. But, of course, the balance is in suspended animation—it is yet to come, as it is phased in. The point being that if we are asking liable parents to be accountable for the expenditures and to be accountable and ensure that they pay their way for their family members, and to be accountable for us to chase them up, then I would have thought it would be, on principle, pretty realistic to expect the Government, in the form of the Minister in the chair—who is not the portfolio Minister, with respect, but the Inland Revenue Department Minister, either former or present—to provide us with some sort of explanation as to why, particularly, Mr Dunne was asleep at the wheel.

When a department comes to you and it has not factored in capital expenditure, then anybody, I would have thought, with half a brain awake behind the ministerial desk would say: “Now hang on, are we sure there is not a capital expenditure component in this?”. Well, Mr Dunne just sort of floated along, and when he relinquished—I think he is the longest-serving revenue Minister in any parliament within the Commonwealth; that is some sort of record, dubious though it may be. But you would have thought with that wealth of experience—[Interruption] Well, I stand to be corrected. But I would have thought that Mr Dunne, when presented with a project like this, on the back of, of course, the Business Transformation project, where the money is just flowing like the Nile River, just flowing out the door—you know, raking in the sheaves, as it were, to use the biblical expression—would say: “Now hang on, have we got the figures right?”. Because we know with these sorts of processes that there are always movements and costs, but to sit there blindly and not even ask the question in respect of capital expenditure, and then the department has got to paper over the cracks, is astounding.

Mr McClay, of course, then inherits it and tries to sort of fix it up, but for those liable parents and others sitting at home who are expected to—and they should—pay their bills, pay their way, and look after their family, I would have thought that those parents would be sitting back, saying: “Well if it is good enough for us, it is good enough for the Government that expends this money on our behalf to be at least half awake, and to ensure that these blowouts do not occur.” But to date we have had zero explanation—zero explanation—in any stage through this bill. I see the Minister in the chair has changed again, not to—with respect—the portfolio Minister. We have had no explanation, and no accountability. The previous Minister just wrung his hands and said “Well, I’m not there now. Game over.” and passed the baton to Mr McClay, and he has been relatively silent, if not totally silent, on the matter.

But I am interested, as Grant Robertson said, in clause 44, where the commissioner is given discretion to look at other appropriate mechanisms and payment methods in respect of liable parent contributions. It harks back to a previous tax bill that Michael Cullen, I recall, introduced. It had a similar principle where, if a small business had a difficulty—there was a mistake in GST, or income tax, or whatever—in the old days the penalties in interest would flow, as I say, like the Nile. A mountain of debt and a mountain of penalties would be put upon those small-business people. OK, some may have cooked the books; most—90 percent, I would argue—were cases where an innocent mistake had been made. We changed the law to allow that, once an intervention was called for, everything froze. Then you could examine it in a logical way, and deal with it.

So I do support this measure, because—as Grant Robertson has said, and all of us who have dealt with folks on both sides of the equation in respect of child support—it is an extremely difficult position. To be fair, the Inland Revenue Department is only the referee, and it intervenes, in theory, only when there is a dislocation or where agreement cannot be reached. It has to deal with this in a formulaic way, and that, in itself, is inflexible. But there are no better ways. That itself is inflexible and does not allow for a whole lot of the subtleties and nuances that we see within the liable caring parent relationship. I think this clause, to be fair, goes some way to looking at those issues.

Where you have got—is it $3 billion worth of outstanding payments—and, as Mr Robertson said, 75 percent being penalties, the system, obviously, is not working. Obviously, what the State wants is for the parents to ensure that those children are looked after. They are, irrespective of the relationship breakdown, the responsibility of the biological parents. They should be catered for. In good grace, I would argue that most Kiwi parents would do that regardless of whether we had an Inland Revenue Department mechanism such as this, but there are difficulties in relationships, as we know. There are disagreements. There is all sorts of leverage, occasionally, that certain partners try to put upon others. It is called life. There is a whole representative set of issues, and at that point the State, in its own inimitable way, has to intervene.

If one can build in some flexibility like this clause, where mechanisms—you could look at other methods to ensure that that money gets to where it is supposed to be going, and ensure that those liable parents are accountable without burying them, as we have, under a mountain of debt, but ensuring that they meet their responsibilities. That has to be the No. 1 priority—but, basically, ensuring the system works. I think this is something that common sense would say one should support.

But I do go back to the costs around this. It appears, and it worries me, that since the retirement of some very, very venerable Inland Revenue Department officials—I went to the awards of the trust that has been launched in Rob Oliver’s name last week. He was a very venerable official. He is not the only one of the very experienced officials in the Inland Revenue Department who have now retired. It does worry me that we are getting these sorts of mistakes flowing through. Go back a year or two, and we had the computer issue, the car parks issue—again, Mr Dunne was in charge of that.

There are two things that concern me. One is that a Minister should be on top of their game, especially if they are in the Guinness Book of Records for being the longest-serving revenue Minister in our history. But, secondly, Ministers have to be on top of their game and read the papers. When stuff comes through and up on a Minister’s desk that does not add up, they need the presence of mind to shoot it down. Secondly, it does concern me that some of that long-term policy advice and experience that we have had for many, many years is no longer there now. It worries me that the quality and high level of advice may be depleted. There are things that one would have expected would not make a Minister’s desk, ideas that would not make a Minister’s desk, because, as we have shown in the past, they have not added up.

Finally, the concern about the cost blowout flows across the Business Transformation project. Again—and I did say this to the Inland Revenue Department commissioner at a function the other night—we want the Inland Revenue Department to work. We want the system to be the best in the world, but we also, because we have been through INCIS and other IT blowouts throughout our history, want to know that those collecting the money, especially, are also accountable for its expenditure and are treating the expenditures of public moneys as if they were their own, and being as accurate and detailed and focused on ensuring that those expenditures are executed correctly—because it seems to me that we have not had the explanations to justify this blowout. That would suggest that we are not likely to get the explanations to reassure us that the expenditure around the Business Transformation programme is warranted. That leads to questioning the whole set-up.

We want to have confidence in this. A good tax system must be simple. It must be clear for people, and people must be confident in it. It is the confidence in it and the confidence, especially, in terms of those who are collecting money being accountable for its expenditure within their own department, and Ministers being on top of that regime, that we will be focusing on and monitoring very closely, even outside the parameters of this bill as it proceeds. So we support the bill.

This bill is quite a wide-ranging bill. The thing around child support did not actually receive much attention in the Finance and Expenditure Committee, but I actually think it is a very important part of the legislation and will take a few calls on this. Part of the reason for this is to put things into perspective. As of 31 March 2014, there are actually over 203,000 New Zealand children receiving child support. There are 134,000 receiving care, and 36,000 liable parents. But as has been mentioned, we have got to a stage, at the moment, where child support debt exceeds $3 billion. It is excessive, and it gets to the point where it is just not payable.

I remember one of the first cases I ever had when I became a list MP in Napier in 2008. There was a gentlemen who came in who wanted to pay child support for his son, but what had happened was that his penalties had got to such an extent that he could not see a way through. What he asked me to do was advocate and say that he was prepared to pay what the Inland Revenue Department was asking him to pay in support, if he could get away from paying the penalties. We tried, but the Inland Revenue Department would not budge on this. In the end, this gentleman went to Australia because he said he could not get a job—whenever he put his IRD number in then a good chunk of his salary was whacked out by the Inland Revenue Department in support payments. That is not the sort of system that is fair. It does not help parents, it does not help children, and it certainly does not help the system in any way, shape, or form. But the thing about this—and I will get on to the bill in a quick second—

The CHAIRPERSON (Hon Chester Borrows): I hope so.

—yes—is that Minister Dunne, as the last speaker, Clayton Cosgrove, alluded to, started a review of this system in around 2008. I remember—I was the revenue spokesperson for Labour at the time—the Minister said it would be over in 12 months. It has taken a long, long time to do this. Part of the reason is it is fraught with difficulty because it affects so many people and the law is quite complex, even though it says in the regulatory impact statement that it is not. It is quite complex. But it took so long to the point where, 6 years later, we are still going through this whole process.

The Act that set this up was the 1991 Act. The world has moved on since 1991 but the legislation has not reflected that until now. Let me talk about a couple of points. There is a new section 13A. I would say that part of child support—a good chunk of child support—is about perception. It has got to be perceived to be fair by caring parents and also by liable parents. There was a case, actually, of a high-ranking National Minister at this point in time—and I remember talking to this Minister, and she told me about her father, who actually managed to put a whole lot of his income through a trust and therefore avoided paying child support. He was living the life of Riley and this Minister and her family were living close to poverty because this man, her father, was managing to avoid his responsibilities, let alone his liabilities. And this is the sort of stuff we have got to change.

There are some things that were perceived to be unfair that have been changed. For example, there is a new section 13A, which introduces the rule that the Commissioner of Inland Revenue must refuse to make a formula assessment if the applicant is a non-parent carer of the child and the commissioner determines that the applicant is the non-receiving carer. Let me give you an example of where this was happening before. Again, I dealt with a couple of these. There was a case where, for example, a gentleman married a lady and that lady had a couple of kids from a previous marriage. He was perceived—in his mind and also in the law—to be the non-receiving carer. However, because his income was of a substantial amount he was forced to pay child support for his wife’s children as well as for his own children. That was perceived in his mind, and also in mine, to be unfair. But let us get a definition of this. A non-parent carer of a child is the receiving carer—so with the non-parent carer we are talking about the stepfather or stepmother usually—for the purposes of a formula assessment in respect of a child if he or she provides at least 35 percent of ongoing daily care for the child. These definitions are actually quite important because what they do is clarify the increasing role of step-parents in managing the financial relationships between their new wife or husband.

Sections 13, 14, 17, and 22 of the new Act basically relate to the calculation of a parent’s income for the child support year. There are a number of changes here that again just make it a little bit fairer. If we have a look at clause 14 in Part 1, a person’s adjusted taxable income is the person’s income from the year immediately preceding the start of the child support year if that is the most recent tax year. I am dealing with a case at the moment where the Inland Revenue Department has assessed a gentleman’s income for about 4 years previous. This guy has brought in all his tax slips—actually, I should talk to the Inland Revenue Department about this—saying that it is assessing him on an income of $120,000, but for the last 3 years he has earned $50,000. He is not hiding it in trusts in any way, shape, or form. He loves his kids dearly, but he says he just cannot pay this. He said that at the end of the day he takes good care of his kids, but he simply cannot pay it.

So what this bill is doing is saying the tax year immediately preceding the year child support is calculated will be the one upon which his or her payments are assessed, but if it does not apply, the person’s taxable income—we are going to amended section 35(1)(b) here—is from the year immediately preceding the most recent, inflated by inflation percentage for this child support year. It just clarifies a lot of this stuff.

Another thing that I am very happy that we put in here is that the commissioner may take overseas income into account. Again, what was happening in my experience is that men—and, let us be honest, it was usually men, but I suppose there were cases where women were avoiding responsibilities—were hiding income through trusts or not counting overseas income, etc., etc., and were therefore not living up to their responsibilities.

The one thing also that has been mentioned by Grant Robertson, which I think is actually fantastic and something that we mooted going into the 2011 election, is almost having an amnesty. I remember when I asked the officials in the Finance and Expenditure Committee whether this in fact amounted to an amnesty—i.e., if a liable parent starts coming in and paying their dues, will they be able to wipe penalties off? They said in essence that this is what it is. Because what we want is for liable parents to start paying their penalties.

I remember, and I do not think the statistics will have changed, that in 2011 there were about 97 percent of parents who were operating under the scheme administered by the Inland Revenue Department—as opposed to a private scheme negotiated between parents—who had suffered some form of penalty at some point in time. In the end, it is actually not in the best interests of the child if a liable parent is paying, let us say, $100 a week and they are paying $75 of that to child support and also paying 25 percent of that or whatever the fee is to pay off penalties on support. I think we all acknowledge that the ideal situation is that all the money that a liable parent is paying goes to the support of the child. If there is a scheme that can be put in place where penalties can in fact be written off if a parent comes in and comes to an arrangement and starts paying their fair share, then everyone wins, including the Inland Revenue Department.

The bottom line is that it is $3 billion we are talking about, and that actually is unworkable. I remember having a look at the fees, and even in Hawke’s Bay itself there was around about $49 million in penalties and interest that was owing due to child support. As mentioned, no one wins in that case. That is all I have got to say on this at this point, but I am going to take a couple of calls soon, after a couple of my colleagues have decided to have their say. Thank you.

I want to carry on in respect of one of the aspects of Part 1 relating to child support payments. It is the issue that my colleague Stuart Nash has just been talking about, which is the influence of penalties on the total liability that is owed to the Crown, which is made up of the individual liabilities of thousands of New Zealanders who have fallen behind in their child support payments.

I do not think that anyone on either side of this House thinks it appropriate that parents avoid their primary responsibility of paying for the care of the children by not making payments when they should, or that they, as the parents of the child, do not have the first and foremost responsibility to pay for the care of that child even when that child is not in their custody. Therefore, they should meet their obligations of child support. But as Stuart Nash has said, the total amount of arrears in respect of child support is now about $3 billion—an enormous amount of money. We know that for some people, whether it is with child support payments or when they get behind in their student loan repayments, the amount of penalties starts to compound at a rate that is just intolerable for them. They give up, and not only does the amount that is shown as a liability to the Crown actually becomes a fiction because it can never be repaid, but it becomes an impediment to them paying anything because the arrears seem to be so intolerably large.

In that regard, I want to know why the interest rate that is charged on these debts remains so high in this low interest rate environment. I think it is a bit of a one-way street when it comes to the Inland Revenue Department as to when it adjusts the rates. Interest rates have dropped to the lowest that they have been around the world for, well, really, in everyone’s lifetime and the lifetime of people before them. Interest rates are historically low around the world. In fact, I think we heard the Governor of the Reserve Bank saying that English interest rates are the lowest they have ever been in 400 years. New Zealand interest rates are no different; they are very low by historical standards. They are still higher than they are in some other countries, which sort of jacks up the New Zealand exchange rate to the detriment of the economy, but they are still lower than they have been historically. I want to hear from the Minister in the chair, the Hon Jo Goodhew, one, what the current rate of interest is, and, two, how it is justified.

My understanding is that this $3 billion that is owed in arrears—if interest on that is at 5 percent, that is another $150 million that those liable parents collectively owe by the end of the year. If it is at 10 percent, that is $300 million. If it is 3 percent, it is only—it is a lesser amount. I think that the Government kids itself when it adds these amounts to the penalties and does not properly provide for the fact that a lot of these amounts are not ever going to be paid because the penalties have become so high. I know that some provision is made by the Government in the books as to—in fact, I would like to hear from the Minister as to what amount, if anything, is provided for in the Government’s books to show that these amounts are not going to be repaid. I would like to hear why it is that in this tax and remedial matters bill, which has a whole section on amendments to child support matters, we do not fix this issue of interest rates, and why we continue to charge penalties at such a high rate in this low-interest environment.

I want to speak in support of this bill, but I also want to bring some words of caution. It is, of course, a bill that addresses many things, and we will be supporting it precisely because it makes sure that our tax system is robust, and we need a robust tax system in order to ensure that as a country we have income that pays for those assets that we need in common—things like roads and hospitals and schools. Across this Parliament, of course, we will find people who agree that we need those things. We might debate to what extent some of these things should be publicly or privately provided. We, certainly on this side of the House, think we need more investment focus in the area of things like schools and hospitals so that these things can be available and accessible to all citizens at affordable rates. Court houses are another example, and roads certainly need to be maintained to a level where anybody can drive on them without requiring some kind of Hummer or four-wheel drive vehicle.

These are the basics of a Western democracy, and around the world people agree that common infrastructure is needed to fund those things that we individually could not purchase for ourselves. I certainly cannot afford to retain the world’s best oncologist at my beck and call. We all need to be able to access those people in our times of need, and so the system provides for that. A robust tax system ensures that we have that income to afford those very things that we all need. So we support the maintenance of the tax system, and this bill, at its most basic, is actually about ensuring that the tax system remains robust for another year. There are always loopholes in every tax system. There are changing patterns of investment. There are new laws that are brought into place that introduce the possibility of different workarounds or incentivise different behaviours in response to the tax system of the day.

We, however, will have some challenges supporting parts of the bill, because, for example, we know that the child support initiatives that we find in the bill will be very difficult to implement. We know that the department implementing them has been forced to come back to this House to amend legislation that has been put through before in respect of child support legislation because it was unable to implement it, and that is because the Inland Revenue Department’s computer system is so out of date. It has not been repaired as recommended to the current Government. It has been neglected, and we know now that a $1.5 billion price tag is expected to be attached to the department’s computer rebuild, and that that has been on the go-slow for quite some time.

So we are apprehensive about the Government’s ability to actually implement some of these changes, and we are concerned that we spend time in a Parliament pushing through changes that cannot be backed up and that are going to require subsequent legislation in Parliament to correct them. That is unfortunate, and speaks to a Government that has got its priorities wrong. The intention or the good words may be there, but often the action is lacking. And that carries a cost to the taxpayer, which I guess is the point that I am making, and that is a lost investment if we make things that look good on the surface and then have to revisit them. It costs money to put bills through Parliament. All of the people sitting in Parliament today are paid and they have support staff who are also paid. That is proper and right, but we should not duplicate our efforts when we could do something right once and get it right, and that is the most efficient way of doing it.

One of the other issues that we have with the bill is the acknowledgment that the existing tax rates will stay in place. I want to take us back to when they were implemented in 2010. This bill confirms the existing tax rates. When these tax rates were brought in in 2010, they gave a huge wealth shift to the wealthiest 1 percent of New Zealanders. There was a big tax break—40 percent of the value of the tax cuts brought in in 2010 went to the top 10 percent of earners. The bottom 20 percent of earners got just 2 percent of the cuts, and they were swallowed up immediately in a GST increase that John Key had not signalled in advance. In fact, many have called that a broken promise. That GST increase swallowed up any tax benefit that those lower-income earners got in those tax changes.

It is since that time that we have seen a dramatic increase in inequalities in New Zealand. We have seen housing become the least affordable it has been in 60 years—in 60 years. We have seen people who work hard every day unable to afford to buy a house in Auckland and, in fact, now unable to aspire to own a house in Auckland. And this is as Kiwis and as New Zealanders. This is not the vision for New Zealand that we have, where housing is so unaffordable that working people cannot even aspire to own a house. In these tax changes that were brought in, a wedge was driven in that has grown that inequality, and to afford these tax changes the Government has been borrowing year after year after year. It has now borrowed $100 billion, this Government, to afford to give the very wealthiest New Zealanders this big tax break.

💬 Tim Macindoe: Oh, nonsense. You know that’s nonsense.

I hear a member opposite say that is nonsense. I mean, if they are not borrowing, what are they doing? Why is that big liability sitting on the Government’s balance sheet? This Government has borrowed more money than Sir Robert Muldoon’s Government. It is the biggest-borrowing Government in New Zealand history, and that means that every New Zealander born today carries a liability of thousands and thousands of dollars, or the Government carries it on their behalf. They are mired in debt. Future generations will be paying back the debt borrowed by this Government to afford these tax changes that we are affirming in this bill today.

We cannot not support the bill, because we need a robust tax system, but it is a bitter pill to swallow that we are supporting, effectively, the Government’s borrowing to afford tax cuts for the very wealthiest New Zealanders as a part of this package. Of course, that is a cunning political presentation. It presents it all as one package because the Government does not want to be challenged on its prejudice for supporting the wealthiest 1 percent of New Zealanders at the expense of those in the middle. And let us not forget that it is those in the middle who are suffering the most. Those, of course, who are most hard-pressed, those on the modest incomes, often receive some child support from that wonderful tax package that the previous Labour Government put through—the Working for Families package, which ensures that the hard-up are supported by the State. Those in the middle, those ordinary kind of Kiwis who have some skills and are the tradespeople, who work hard all their lives, used to think that they could get ahead, and today the prospects are far, far, far worse for them as a result of this wedge that has been driven between the wealthiest 1 percent and the rest of New Zealand, who are supporting that wealthiest 1 percent in getting these tax cuts.

As I have said, just to sum up, we will support the bill because we support a robust tax system and we support the changes necessary to achieve that. As a Labour Party, we always believe in providing for that common infrastructure, the decent and affordable schools, access to good health care, even though this Government has underfunded it. We support the robust tax system needed to provide at least some level of affordable health care, and we support, of course, the infrastructure, the courts, the roads, the rail—the necessary infrastructure to ensure that we have a functioning democracy that is safe and that provides for all of its citizens. But we are uncomfortable, of course, affirming those tax changes that mean that the very wealthiest 1 percent are supported whilst the rest of us and future generations are mired in millions and millions and billions of dollars of debt. Thank you.

I move, That the question be now put.

This is the first opportunity that I have had to make a contribution to the Committee stage of the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill, and, in particular, to Part 1, which deals with child support. This is a very important part of the bill because it goes to real life for real Kiwis, which is not always what people expect it to be.

The law, as they say, is an ass. The law is never able to fit itself to each individual’s personal particulars. So today we are here, in the Committee stage, to try to tweak, mould, and update this very complex piece of legislation about child support to ensure that it is fit for purpose and that it meets the needs of New Zealand families, which come in all shapes and sizes.

I propose to structure my remarks for the Committee as follows: a couple of general comments about the tax context of this bill, as set out more broadly with the confirmation of annual rates—a very passing comment there; a recap on the objectives of child support policy, diving briefly into some of the core implementation issues; and then there are some specific clauses in Part 1 that I wish to draw the attention of the Committee to and seek the Minister’s clarification on. Her officials are busy and ready to brief her, and we will be looking for some comment from the Minister.

Firstly, I will just briefly reprise the context. This is the annual rates tax bill. For people out there in New Zealand, this is the annual instrument that is brought to the House to confirm the tax rate. This one, of course, comes after what the Government called the tax switch, and it was, essentially, a switch of the burden from the top to the middle. So middle-income New Zealand has been squeezed, as 40 percent of the tax remission in the Government’s first term went to the top 10 percent of earners. That has laid the foundation for a period of relative hardship for middle New Zealand families, some of which, of course, are not in their original nuclear structure. People are having to make do even though they have separated, or they are divorced, or they are in blended families, or they are having to take care of child support. But it is against that background of the widening gap between rich and poor, which this Government has overseen, because of the annual rates reconfirmation.

It is a longstanding objective of child support policy that children come first. The law is written around the primacy of the interests of the child and tries to get an equitable formula for the contribution to the upkeep of the children from both parents. Whether one is the primary custodial parent and another one is not principally living with the child, or whether they are both sharing parenting, the formula has to be flexible enough to cope with a wide, wide range of situations, and it is never easy when you are writing legislation to take account of the multiplicity of people’s personal situations.

It is well known, I think, in this House and it is part of the context of Part 1 of this bill that there have been major issues with child support over the years. When the current Government took office the debt mountain of unpaid child support and penalties was, from memory, in the order of something like $500 million or $600 million. It is now around $2 billion.

💬 Hon David Parker: $3 billion.

It is $3 billion. Well, is not that a calamitous rise in debt. Part of that debt is payments that should have gone to the children in their new family situations, and part of it is, of course, the penalty regime.

A quick word on child support penalties. It has been well known that they have been too onerous, and that has, unfortunately, locked a lot of non-custodial parents, usually dads, out of a situation where they are having ongoing contact, because they are so far behind in their debt, relative to their earning ability, that sometimes they are forced offshore or, essentially, into hiding. That is bad for the children and it is bad for them, and it is an ongoing human tragedy that is going to cost New Zealand for generations to come. So it is really essential when we look at Part 1 of this bill that we have this as a lens on it: are we doing enough to ensure that all parents, whether they are the primary custodial parent or the more remote parent, are able to contribute and that when they do get behind they can catch up again without a penalty regime that are so onerous that it locks them out of the system? Just imagine the guilt and the grief that that leads to.

I wish to turn, if I could, to several of the clauses that are embedded in Part 1 that I think it would be very helpful to get some clarification from the Minister on. Firstly, in clauses 4, 5, 6 and 8, the bill is updating the definitional language in the Child Support Act. It redefines the benefit types—in terms of the reference to job seeker support—in subsection (1A) in clause 4(4). It is updating language around transitional applications, etc., in clause 5. It is reaffirming, in clause 7, that any parent or carer of a qualifying child can apply to the commissioner for a formula assessment. The restating of that in clause 7, which replaces the old section 8(1), I think is very, very important. Circumstances change and, oftentimes, separating parents will be able to enter into an agreement not necessarily foreseeing all future changes, and, of course, the law provides the ability for either parent to return to the court, return to the law, and to request a formula assessment.

The nature of that assessment therefore becomes as important as the process by which it is conducted. So the bill goes on and in clause 9 it inserts new section 13A, which states that the commissioner must refuse to make a formula assessment in respect of a qualifying child old enough to demand in their own right an assessment if subsection (2) or (4) applies. That means if they are already covered, I think, by a receiving carer. But the Minister might wish to comment on the application of subsections (2) and (4), because it is a very confusing reverse link and we would like clarification of how that impacts and the precise grounds, in summary, on which the commissioner must refuse an application from a qualifying child. The qualifying child definition, in itself, is a complex one.

New section 13A goes on to say, in subsection (3), that subsection (2) does not apply if the applicant is a parent and the child has “a parent with whom the applicant is not living in a marriage, civil union, or de facto relationship; or (ii) a non-parent carer with whom the applicant is not living in a marriage, civil union, or de facto relationship.” So if the application is made by a parent, and the child has a parent or a non-parent caregiver who is not living with them, then the subsection applies.

It is a complex piece of law because you have got several tiebacks, if you like, to earlier sections, and I would really appreciate it if the Minister would take a call and just clarify, in summary, what the criteria are for the very strong language in section 13A(1)—“The Commissioner must refuse to make a formula assessment”—because prima facie it seems to lean against the principle that either parent or a qualifying child can request one. So it is rather important to be clear about when and why the commissioner must refuse—because it is a “must”.

Clause 10 of the bill amends the original section 25, and notes when liability to pay child support ceases. That is important, again because it is impossible to foresee every particular circumstance, but we need to have general rules. It is possible, under new section 27, in clause 11, for the receiving carer to elect to end a formula assessment. The law is, I guess, attempting to provide for a basis where a child support agreement can be updated by either party, both to bring in a formula assessment, or if circumstances change, to end it.

So, for example, a custodial parent—often the mother—may re-partner or may enter into a relationship where there is sufficient material support for all of the children of that blended family, and the previous formula assessment no longer applies because it either does not fairly reflect the balance of income of the two originally separated parents or it is not needed at all because, frankly, the new blended family is materially well enough resourced and the non-custodial parent’s contribution becomes unnecessary. These are difficult and complex matters, and it is well known that there have been multiple iterations of tax law.

I move, That the question be now put.

There are just a couple of things that I would like to talk about, concerning a couple of clauses. One is clause 57, and this relates to an amendment to the Child Support Amendment Act 2013. This is quite important, because what it says is—obviously 2013 legislation is rather new, so to be amending it now is not ideal—that we replace a new section with this, and this allows the commissioner to determine when he or she would write off penalties. And the replaced new section 135GA(1)(b) says: “the Commissioner is satisfied”—this is the ability to write off; they will not collect penalties—“that recovery of those penalties would do either or both of the following: (i) place the liable person in serious hardship …: (ii) involve an inefficient use of the Commissioner’s resources.”

First of all, let us have a look at the definition of “serious hardship”, because it is defined in section 226C(5) of the Child Support Act 1991. And this is quite important—as MPs, we will have dealt with constituents who are paying Child Support who believe that it is too high because of serious hardship. That is actually defined by the Act as the liable person’s “inability to meet minimum living expenses according to normal community standards”. And I wonder whether “minimum living expenses according to normal community standards” have actually changed between 1991, when this piece of legislation came forth, and 2015, when we are dealing with it today.

Another part is the cost of medical treatment for an illness or injury of the liable person or the liable person’s dependant. What we are saying here is that the commissioner may write off penalties if, in fact, the liable person has an illness, or their wife or husband or partner has an illness that is incurring significant expense, which I think is very fair. Or the other one is a serious illness suffered by the liable person or liable person’s dependant. And this is an interesting one, because this debate has been in the news recently—so this is defined as “serious hardship” under the Child Support Act 1991, which is still relevant to the legislation we are talking about today: the cost of education for the liable person’s dependant. So if someone is having difficulty meeting the cost of their dependant, then they are judged as being under serious hardship. And I wonder, because we have heard about this recently—the case of New Plymouth Boys’ High School going very hard trying to collect donations from parents—whether, in fact, the inability to meet the cost of a donation to a school, and I use “donation” in a very wide brief, is actually classed as serious hardship.

The other thing is, of course, that what is not included in “serious hardship” is the person’s ability to pay tax or financial support; or if they become bankrupt, for example, or if the liable person or liable person’s dependant’s social activities or entertainment may be limited, which sounds pretty fair. There is no way that a taxpayer or a liable person should be able to claim hardship because they have not got enough money to go to the pub 3 nights a week. But the other one—and this is where I would not mind the Minister just perhaps providing a comment—is that, as mentioned, the commissioner is satisfied that the recovery of penalties would be harmful; that would “involve an inefficient use of the Commissioner’s resources”.

We have heard that 97 percent of parents under the Inland Revenue Department scheme end up, at some point in time, coming under the penalty regime because they have missed a payment here, or whatever. Now, I just wonder what that limit is. Is it $200? Is it $2,000? How much money does the Inland Revenue Department spend in collecting penalties? For every dollar it collects, how much money does it spend? Where is that point? If it is after $100,000, does it say it is going to go hard? Whereas, if it is $20 or $200, does it decide to pull back? But the corollary of that, and I have talked about this case earlier, is that if a liable parent owes $100,000—and this is not uncommon; it is a lot more common than we would think—would the Inland Revenue Department say that there is no point in going after this person because the only outcome is to send this person into bankruptcy? So I wonder what the definition of “inefficient use of the Commissioner’s resources” is?

The other clause I would like to talk about is clause 23 of this bill. It repeals section 45 of the Child Support Act 1991. What section 45 did is it related to—and I actually thought it was not a bad idea—

I move, That the question be now put.

I am tempted but this is an important part in an important bill.

Thank you, Mr Chair, and I take on board your words that Part 1 is indeed an important part of an important bill. In my earlier contribution I set what, I guess, was the context of Part 1, which is the review of the child support system. I raised a number of questions. I have been in the Chamber as members of the Labour Party and other parties have raised questions, and I do want to just note at the start of my contribution my disappointment at the lack of any substantive replies. These have been genuine questions about a very complex area of law.

As I said in my first contribution, everybody in this Chamber understands that there is a need to review child support arrangements, that there are inequities, and that there is unfairness. What we are asking of the Government is whether or not the proposals here in Part 1 actually deal with those inequities and that unfairness or do they, in fact, create potentially new inequities. It is very, very disappointing that we will inevitably reach the end of Part 1 without a substantive contribution from a Government member on these questions, which have been genuine questions.

But I will forge on and ask two or three questions about elements contained mostly in the Minister’s Supplementary Order Paper 77 on this bill. Actually, the first one will not be on that—I will come to those in a moment. The first question is one that has not been raised so far and that is in clause 4(3) and (4) around the amendment of the definition of “social security benefit” in the Child Support Act. The goal here is to exclude full-time students who are receiving job seeker support on the grounds of student hardship between academic years. The effect of that for sole parent students who are on a form of student hardship benefit during the summer break would be to be treated as being off benefit for child support purposes.

I can understand the logic of that particular situation and I do know for people who intend to continue being full-time students who are parents that the period of time outside of when they are eligible for student allowances can cause them financial issues and difficulty, because you go from a relatively generous student allowance as a parent—because it takes into account the number of children you have—to transitioning to other types of benefits. Most recently a payment has been available for those parents over the summer break where they had the intention of returning to study the next year, which is called the student hardship support, effectively.

What I think these clauses are doing is allowing a person to be said to be earning sufficient income to be still meeting their responsibilities for child support payments, but I am actually not sure about that, in all honesty, looking at the definition. It is a change that we did not dwell on in the select committee. It would be fair to say that most of the select committee’s time was spent on other parts of this bill, so I would like some clarification that the effect of this change will not be to penalise those parents. That is the main point that we need to make sure we are being clear about here.

Administratively, I can see that it would make sense but we do need some assurance that parents who are in that situation, who are potentially having slightly shifting levels of income, are actually now going to be treated more fairly, more sensitively as a result of this change. I just do not know, reading it the way that it is written here. It is partly because it is a definitional question within that part of the bill rather than a substantive one but it was not something we covered, but it does get a mention in the Minister’s Supplementary Order Paper.

The other matter in that Supplementary Order Paper that I am looking for some further answers on—and other members have raised this point; I acknowledge that, but we have not had an answer—is the question of the change from it being the commissioner defining whether or not there should be relief on the grounds of efficiency of use of resources versus the commissioner now having a wider set of criteria to judge whether there should be relief from payments; in particular, the question of serious hardship. I have several questions on this front. “Serious hardship” sounds like a term beyond “hardship”. I do not think there is anyone in this Chamber who would want to see children in hardship as a result of a decision that we were to make in this Committee. So putting the word “serious” in front of the word “hardship” in these changes is pushing out where the commissioner could intervene and say “Actually, no, I want some relief from penalties for this family because the children of this family will suffer if that parent is in hardship.”

I move, That the question be now put.

I am not going to take it now; I am going to make it clear why. I have been listening to this debate from outside the Chamber and I have been listening to it now. The purpose of the Committee stage debate is for the principles accepted in the second reading to be checked against some technical details of the bill. An important part of that, from my perspective, is the ability for members to have an interchange with the Minister in charge of the bill and to ask questions. Clearly, if the Government declines to take part in that, it will not go on for ever, but I want to reiterate the message that I have previously given to the Committee and that is that closure motions are more likely to be accepted in a shorter time period if Ministers have engaged in a positive manner to non-political technical questions.

This is a genuine question and it has been asked not just by me but by other members. I will just finish the point I was making before the end of that last call, which is that there is a significant change here in the way in which the Commissioner of Inland Revenue can decide whether there should be some kind of relief from penalties. That, in principle, sounds fine to those on this side of the Chamber. What we are now trying to endeavour to understand is what the meaning of that is and what the extent of that is.

Firstly, we have got the change from the question of efficient or inefficient use of resources through to the question of serious hardship. And there is a second part, which also requires some clarification: “or that it would be fair and reasonable to grant relief.” That is actually quite a different matter from the question of serious hardship—and this was the concern raised by one of my colleagues—and is that we now have, effectively, quite a subjective test around what is fair and reasonable and also what is serious hardship. So I would like a member of the Government to be able to get up and describe to this Committee why, for instance, the word “serious” appears in there rather than just the word “hardship”, because, as I say, I do not think any member on either side of this House would be wanting to pass legislation that, effectively, forced hardship upon children.

The second point I want to make around this change is the focus on the role of the commissioner in doing this and what resources and what information the commissioner uses to make these decisions. Bear in mind that we have moved from something that is within the commissioner’s purview—the question of the efficient use of resources—to something that is much more now about the family. It is about the circumstances of that family. I do not think that the Government should necessarily have to put this in the law, but what I am not clear on from the lack of response from the Government is what information the commissioner will be using, what access to information the commissioner will have, and whether they will be enabled to effectively investigate and work with those families.

That has actually been one of the criticisms of child support up to now: that just applying very mechanistic criteria has meant that you miss out on a lot of the things. My colleague David Cunliffe was mentioning before what happens when you have got a blended family, and that we have not in the past taken into account the change in circumstances. Good—that is good—but what we do not know, with such a significant change in the criteria for this, is exactly what information will be used and how the commissioner will go about their jobs. I think it is important for this Committee to be able to understand that.

We appreciate the idea here that this will help reduce the amount of debt owed from penalties. Of the $3 billion debt, 75 percent is penalties. We can all see the penalty regime is not working, because people are not actually paying it back. Let us get a fairer system in place. Let us give the Commissioner of Inland Revenue some more tools in order to be able to do that. But I am not clear today, as a responsible member of this Parliament, about exactly how the Commissioner of Inland Revenue will go about implementing this, what information she will have, or what tools will be at her disposal, and then I am not confident about the definitions that are being put in place.

I do not want to stand up in my constituency after this, when there are already enough concerns about the child support regime, and be so unclear. We are not, I predict, in a Nostradamus-like way, going to get a detailed response to this matter from members opposite, and the National Government needs to ask itself: if it is going to bring legislation to this House that makes major changes to the way child support works that its members are not prepared to back, what does that mean? Does that mean those members are really committed to these changes? Does that mean they actually want to see a fairer system? Or is it once again another one of those bills papering over the cracks? I offer the opportunity now to National members to stand up and defend this legislation, define what these terms mean, and reassure New Zealanders that this will still be a fair system.

I want to take up where Mr Robertson left off, because one of the points that I made in a prior contribution, one of the difficulties that we have had with child support in the past—and it is not levelled as a criticism of the Inland Revenue Department—is its inflexibility. Where you have relationship breakdown, where parties to the relationship, the parents, cannot agree on the best way in a monetary sense to ensure the kids are looked after, then the State has a role to intervene. That role is pretty inflexible, because until somebody invents a technology that determines the definition of a good parent, as it were, a formulaic response is our next best option.

Clause 44, as Mr Robertson said, has introduced—and I think it is a good thing—an element of flexibility, but in doing that, and because we have had no clarification from the portfolio Minister, Mr McClay, or non-portfolio Ministers in the chair, such flexibility, although on the one hand being very positive, also creates uncertainty on the other. So as Mr Robertson and others have asked, what is the definition of inappropriate? Clause 44(b) states: “(ii) if the Commissioner considers automatic deduction inappropriate in the person’s case,” they may consider “another payment method acceptable to the Commissioner.” That is great. As I have said in a previous contribution, the last Labour Government did a similar thing in respect of small businesses. When the Inland Revenue Department was advised there was a difficulty everything froze, and a repayment deal, if you like, was worked through so that the business could hopefully survive and meet its obligations. The Crown would get its money and the taxpayer would be recompensed, and the deal was done, if you like. On the surface it may well be that this provides a similar benefit, ensuring the liable parent meets their obligation, which is paramount, but ensuring that it can be done in such a way that they are not buried in penalties.

This is a good thing, but, as Mr Robertson said, it would be helpful if we could get some clarification around definitions. What does appropriate mean? Is it a “finger in the air”? Is it the amount of income that somebody receives? It could be a multitude of things, because it puts the commissioner—although you do not want to overly define it, because that is actually defeating the purpose of the nature of flexibility. I would have thought that there would need to be at least on the record of the House, which is often quoted in courts in New Zealand, some sort of clarification as to the parameters of what would be considered appropriate or not. Otherwise it just simply becomes arbitrary.

I see, if you go to the regulatory impact statement around this particular issue on page 8, “Objectives”, the objectives of this section, of course, are to “a) reduce child support debt”, “b) reduce the implementation costs of the reforms;”—well, I have to say that has come a gutser completely, given the blowout that has occurred, but we will write that one off for the moment—“c) improve the fairness of the child support scheme so that it reflects social and legal changes which have occurred since its introduction in 1992;”, and “d) promote”, indeed, “the welfare of the children, in particular by recognising that children are disadvantaged when child support is not paid, or not paid on time.”

The question is, the payment of child support on time—because often payments are made but there is substantial delay, often for genuine reasons, often for reasons of unfair leverage from one partner on the other, and a whole range of other things—is that going to be considered in terms of the factors that the commissioner would consider in respect of altering automatic payments?

I think these are really important issues that will end up, I suspect, challenged in court. And, as I say, Hansard is used as evidence in court from time to time, and it would, I think, help—and presumably the Inland Revenue Department will put out guidelines, which do not have the weight of legislation, around this, or maybe it will not. We do not know, but if you are sitting there, just looking at this bill now, we commend the Government for clause 44 but we have no idea, actually, what the parameters of those decisions will be and how they will be made. Will it be a set of criteria drawn up by officials and put to the commissioner? Will the Minister have any role in that? I presume not, because the commissioner is independent.

But I think, as others have pointed out, these are not actually political issues. They are really serious issues if we want to get this thing right, and child support has been and continues to be extremely complicated.

There are just a couple of clauses that I would like to talk on, and one is clause 14, “Section 35 amended (Adjusted taxable income)”, which talks about adjusted taxable income, and the other one is clause 16, which amends section 39A, and that talks about the fact that the commissioner may take overseas income into account.

The reason why I have a couple of questions on these clauses is that it seems that the language in the bill is a little bit arbitrary, and whenever I see the word “may” or “might” as opposed to “must”, I wonder under what circumstances the commissioner is actually going to exercise his or her judgment. As a number of colleagues have alluded to, we need a system that is robust, and we have to ensure that liable parents are actually meeting all of their responsibilities with regard to the children they have got. So this is why I wonder why the heading of this clause is “Commissioner may take overseas income into account”. Under what circumstances would the commissioner not take overseas income into account?

What I actually would have liked to see here is “Commissioner must take overseas income into account”, because if it is only a “may”—if it is only an arbitrary decision about whether the commissioner will or will not—there are two implications here. The first one is that it can be challenged in court, and what could possibly happen is that a wealthy taxpayer, a liable parent, may start transferring income overseas or come up with some fancy scheme where it is deemed to be overseas income, and then he or she may actually take a case against the commissioner to court, because there is no obligation to count that overseas income as income, as calculated for his or her liability under child support. So under what circumstances would the commissioner look at overseas income, or take overseas income into account, and under what circumstances would the commissioner not take overseas income into account? I just think it would have been a lot clearer if there had been an obligation on the commissioner to take overseas income into account.

The second clause I would like to look at is clause 14, and this talks about a person’s adjusted taxable income. The term “adjusted taxable income” was actually amended in 2013 to bring it in line with Subpart MB of the Income Tax Act, and this relates to family scheme income, for example—and it says here that income from certain trusts is included. Again, what brings a trust into the scheme and what keeps a trust out of the scheme? I think we are all well aware—or if we are not, then I certainly can make people aware, because I have come across this a number of times—that people hide income in trusts. In the past, I remember in 2008, the Inland Revenue Department did some work and it had determined that about 10,000 New Zealand families were getting Working for Families because they were not declaring income that was derived from their role as a beneficiary in a trust, and therefore they were entitled to it. We changed the law because of that, and as a consequence it made it a lot fairer, and it made it harder for people to hide income in trusts and therefore avoid their tax responsibilities.

But why have we included here only certain trusts? I would have thought that if you are drawing income as a beneficiary from a trust, it is pretty clear. It does not matter whether that trust is income you have received from a business venture or whether it is money you have received because you have been lucky enough to inherit it, or whatever—it is still income. I would have thought that if we wanted to make this scheme fair and if we wanted to ensure that it is, in fact, the children who are benefiting out of this, we would eliminate any scheme or trust income that is allowed to be hidden or not taken into consideration when determining someone’s liability. I am unsure—the Minister in the chair, Jo Goodhew, may have some thoughts about this. I am sure she has some private thoughts about this, because I am sure, like most MPs, that she would be disappointed, if not disgusted, to learn that there are actually still legislative means to hide income for the purposes of assessment for child support.

So they are just a couple of quick questions. They are quite relevant because in this day and age there are a number of Kiwis who are earning overseas income. It is easy to structure your affairs. There are a number of Kiwis—and we know this—who are deriving income from trusts.

I want to respond to a couple of the questions that have been posed by Opposition members during this debate, insomuch as I have sought some advice on answers to them.

In terms of serious hardship, which is a question that has been raised, it is already defined in the Act and it has been in place for a number of years. With reference to Supplementary Order Paper 77, this ensures that the serious hardship provision can be used in a wider range of situations, alongside the “fair and reasonable” test, in order to write off penalties. So that is some clarification that I have been advised on with regard to that question.

The question “Does the change to the student hardship benefit definition penalise the student?” has also been raised. In answer to that question, the answer is no. The change in the definition will mean that sole parents who are students and who go on a benefit for student hardship are not forced to apply for child support; they can continue with any private arrangement. So I thank the members opposite for their questions, and I hope that adds some clarity to the discussion.

I move, That the question be now put.