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

This is just debate on Part 4, and this is clauses 221 to 267.

Yes, it is, Mr Chair. You are dead right there. This is one of those bills where I think it is worth spending just a couple of minutes going over the crux of this because—

💬 Hon Ruth Dyson: A couple of minutes just saying the name of the bill.

Exactly. It is one of those bills, Ruth Dyson, where it is very, very technical in some parts but very, very important in other parts. By and large, Labour had agreed with the majority of the bill. We spoke in favour of a lot of the bill. We had a number of concerns, but there was one part of the bill that we did not agree with—I would just like to go over this, if you will indulge me—and that was the setting of the annual rates.

What this bill does is it actually sets the tax rates for the following fiscal year. It is actually retrospective, of course, because the Budget has been passed, but we believed that those rates were inequitable, and that is the reason why we had great difficulty supporting this bill in its entirety. If I remember rightly, David Clark—

The CHAIRPERSON (Lindsay Tisch): We are actually on Part 4. What you are mentioning is in Part 2. We have already handled Part 2. We are on Part 4.

💬 Hon Ruth Dyson: Gosh, it was a long time ago.

Miss Ruth Dyson is dead right. It was a long time ago. I just wanted to bring those who are watching this on television up to speed. This is the first week back and a lot of people have been looking forward to the resumption of the debate on this tax bill. They are probably sitting there with bated breath. Like myself, they have picked up the bill for the first time in nearly 2 months and they have said: “Now, goodness me. Now what was that bill about again?”. That is exactly what I did.

I remember when we left this House, when the debate ended, we were in full flight. We were going hell for leather. Part 4 was—we were like a horse galloping and then we were stopped in mid-stride. We have had to get back on that metaphorical horse and just really get things going.

So here we are. We are looking at Part 4. This is amendments to other enactments, and this effects, by and large, the amendments to the Tax Administration Act 1994—a very important piece of tax legislation that basically sets the scene for a number of pieces of tax legislation, as I was saying.

But there is one thing I would like to talk about, and this is clause 230. This is statements in relation to research and development loss tax credits, and it says something that I think we should be slightly concerned about. The reason I say that is we were debating this in the Finance and Expenditure Committee just today. What it says in proposed new section 70C(1) is that “A person must file by electronic means, in the form and electronic format prescribed by the Commissioner, a statement in relation to—”.

What that does is it sets out a number of statements that, obviously, you have to file this in relation to, but the interesting thing about this is that it is very prescriptive. It says that “A person must file by electronic means,”. The reason why I think that this is quite important, and we need to tease this out a little bit, is that at the Finance and Expenditure Committee today, actually, when discussing another tax bill and looking at the ramifications of not the coming digital age but the digital age that we are in at this point in time, the Inland Revenue Department (IRD) made a very good point when it said that it is not going to require people, under this tax legislation, to just submit by electronic means.

What the IRD said is that it understands that not everyone is on email and not everyone has access to electronic means, so we are still going to allow the option of submitting in writing. So if a taxpayer wants to, they can go to an IRD office—there actually are not many of those left, because you closed them all down. But what they can do, I suspect, is they can probably go to a citizens advice bureau or somewhere, where someone will download the IRD forms, they will print them out, and they will give them to this taxpayer. He or she can then go back to wherever they came from and fill out the form, put it in the thing called an envelope, put this thing called a stamp on it, and post it to the IRD.

The IRD was quite clear that this was an important process. A number of members in the Government will remember this debate. We all agreed that at this point in time we could not be so prescriptive as to discount the ability of taxpayers to submit a written form, whereas this provision says that it must be done in an electronic format. I am sort of wondering why this legislation is a little bit out of step.

I am sure my colleague Stuart Nash will take another call on Part 4 of this bill, but I was so anxious to get to my feet to work my way painstakingly through each clause in Part 4 of the bill. Actually, I am not going to do that. What I am going to do is pick out a couple of clauses that I think will be of interest to members and those watching at home and actually seek some assistance from the Minister in the chair.

The first matter is one that I think he may be able to help us with in light of some of his recent policy forays, and that is clause 224. What clause 224 does is repeal section 24O of the Tax Administration Act. Section 24O of the Tax Administration Act, as I am sure most members of the House know, obligates employers in the agricultural, horticultural, or viticultural industries to provide the Inland Revenue Department with information about employees who are covered by an exemption certificate or a special rate certificate. These requirements, according to the officials when they came to advise us in the Finance and Expenditure Committee on this, would have imposed unreasonable costs on employers and the Inland Revenue Department while not being effective at identifying non-compliant employees, and, accordingly, the provision is to be struck out.

What makes this clause interesting is that this clause was actually brought in in an amendment bill in 2008-09 and was never actually implemented. So the clause was actually brought in in order, presumably, to right a wrong of some description. Presumably, there was a concern that in the agricultural, horticultural, or viticultural industries there were employees who were not complying with their tax obligations.

What this clause does—it is actually retrospective and commences in 2008-09, even though the clause was never actually implemented. It is a strange one. I do wonder whether the Minister in the chair, Michael Woodhouse, with his vast knowledge and experience of the dangers inherent in various forms of farming, agricultural, and horticultural work, working with animals and dangerous critters like worms, may be able to give us some advice on the question of why that clause came in in the first place and how it was that it came not to be implemented.

Although we on this side of the Chamber have no desire to maintain within the law provisions that are irrelevant or are not being used or do not serve any particular purpose, I can see in these industries that there is the potential for certain types of employees to be on contracts that are less than normal and to not perhaps be paying tax in the right way. Any members of the House who follows closely some of the activity online around the appalling conditions that are being offered to workers in the agricultural industry will know of jobs being put on websites that are calling for somebody to be working 55-hour and 60-hour weeks, with very poor pay rates and very poor support and conditions. It would not surprise me at all to find out that the kinds of employees who were to be covered by section 24O of the Tax Administration Act, which is being repealed by clause 224 of this bill, are actually exactly those kinds of workers. They are not being employed in a proper way and are not, in fact, paying tax in a proper way.

The original intent of the clause that is being repealed here might well have had a great deal of validity. I do not think, from my memory of our discussion of this bill in the select committee, that we had a great deal of focus on this. But now that I look at this clause in the bill, I see that we are repealing a very, very specific section. This is not all employees who work under an exemption certificate or a special tax rate certificate; it is just employees in the agricultural, horticultural, and viticulture industries. This has been done with intent and we are now removing it, but I do not think with sufficient explanation from the Government as to why that is.

This is a serious matter—the idea that people will not be meeting their obligations to the Inland Revenue Department because they are working under a special tax rate or an exemption certificate—and yet today we take away, under this bill, the ability of the Inland Revenue Department to obligate employers in those industries to provide information about that. So I would ask the Minister in the chair perhaps to give a little bit of advice about how it is that this clause came to find its way into the Tax Administration Act and then magically, a few years later, to be taken out. Bear in mind that this is a clause—and we will come back to this in the title and commencement debate—that has, in fact, been implemented retrospectively from as far back, in this case, as 2008-09.

I just want to refer to a couple of other clauses, and perhaps give one example to contrast with the one that I have just made, and that is in clause 237 of the bill, which repeals section 92AAA of the Tax Administration Act. It requires the commissioner to issue a determination on the cost of timber incurred. This provision, I am sure you will be aware, was introduced when the cost of timber was recorded in a separate account and carried forward to be offset against future forestry income. The cost of timber now is deductible in the year it is incurred, without the need for the commissioner to make such a determination.

That is a good example of a clause that is clearly redundant. There is now another way of achieving the same aim of section 92AAA of the Tax Administration Act. It is now possible to deduct the cost of that timber in the year that it was incurred, so we can see there why the section is being repealed under clause 237. I cannot say with the same confidence why it is that those specified industries of horticulture, agriculture, and viticulture, where there was clearly some doubt about the compliance of employees in that area—why that section is being repealed. However, clause 237 does certainly make sense to me in that regard.

In the remaining time that I have in this call, I want to focus on clauses 234, 235, 236, and 241, all of which relate to the dispute resolution process. I want to say at the outset of talking about these that the Labour Party supports the changes in these clauses. What they are designed to do is to make the most efficient possible dispute resolution process, managed by the Inland Revenue Department. The two issues that are being dealt with here both fall to the question of when a dispute resolution process is seen to have been initiated.

In clauses 234 and 235, in particular, what they do is clarify that the Commissioner of Inland Revenue’s response period when a taxpayer is late in issuing a disputes document starts from the time when it is decided that exceptional circumstances exist and the taxpayer’s late dispute document is to be allowed. This is to deal with an issue that has arisen around particular people who are involved in dispute resolution processes believing that the process itself has not begun until the Commissioner of Inland Revenue has made contact with them. These clauses clarify that. They clarify that the commissioner does have discretion around the exceptional circumstances clause, and they do clarify for those people involved in dispute resolution as to when the process begins.

Clauses 236 and 241 ensure that truncation is allowed in a taxpayer-initiated dispute after the taxpayer has issued a statement of position without requiring the commissioner to first issue a statement of position. This is very important for the average taxpayer. They have got a dispute. They are the one initiating it. It is not the Inland Revenue Department. They are the people who can state the position and then the disputes process can be initiated. Under the current law, there has been an understanding that there would need to be a statement of position issued by the Commissioner of Inland Revenue. That is not required now.

This is actually an exceptionally good move for those people who find themselves in error. There are constituent MPs in the House who will know of constituents who have found themselves locked in disputes with the Inland Revenue Department. This will mean, at least at the very beginning of the process, that if a taxpayer has initiated that disputes procedure, they can get on with it right away.

There are good elements to Part 4, where we are tidying up other Acts that are affected by the changes in here, but I really just want to return to my very first point, which is that there was a very, very specific change made in 2008-09 around those people who were working under special tax certificates or exemptions in those three industries. We have not seen a reason from the Government as to why that has been changed. I think it is probably timely for the Minister, with his extensive knowledge of these industries, to get up on his hind legs and tell us why that has happened.

There are a couple of points that I just want to reiterate, but not in any great way, shape, or form. As mentioned, clause 230, which inserts new section 70C, requires someone who is filing for a research and development tax loss to do so by electronic means. I suppose the point I was just about to make is that I suspect you can make an assumption that those who are applying for research and development tax losses are involved in the sort of industry or have the means of communication that allows them to do it electronically. I suppose the point I just want to make is that we do run a very slight risk of diminishing the integrity of the tax system a little bit if we are so prescriptive that we say it must be done by electronic means and do not allow a taxpayer to do it by paper means, if required. For example, in clause 232, which inserts new section 80KV—this is a replacement in the Tax Administration Act; it is about calculating family support—there is no requirement there, either way, to do it electronically or by paper. Therefore, the assumption is that it can be done in any way, shape, or form. So, like I said, we had to be careful about making it too prescriptive.

I would also like to talk about clause 232B, which is making an insertion after section 81(4)(u) of the Tax Administration Act. We debated this quite a bit at the Finance and Expenditure Committee because what this is talking about is how research and development proprietary information is communicated in such a way that the Inland Revenue Department (IRD) is certain that it is available for a tax credit. The thing that we raised and we discussed quite a lot here—the Government members will remember this, and they may have their own views. The concern that we raised—and I do remember the member Mr Bayly, in particular, was quite vocal about this—is that what we are dealing with in this country is sometimes very innovative and proprietary technology. We want to get the research and development tax credit. But the thing that really concerned the committee was—the “lack of trust” is the wrong term, but we were concerned that what would happen is that innovative companies would not apply for this research and development tax credit because they were unsure that the integrity of the process was total.

For instance, if you were telling someone at Callaghan Innovation and—let me quote this from new section 81(4)(v)—“communicating to an officer, employee, or agent of Callaghan Innovation, information for the purpose of administrating [this Act]”, and Callaghan Innovation was the organisation put forward by the IRD that would determine whether the organisation was able to draw down a research and development tax credit, we were concerned that there is the possibility that the integrity of the process might be compromised. So I just wanted to note that. In the end we obviously left it in the bill—there was a consensus in the end—but we just need to be a little bit careful.

The other thing also is that new section 81(4)(w) says: “communicating to an officer, employee, or agent of the department that is, with the authority of the Prime Minister, for the time being responsible for the administration of the Research, Science, and Technology Act …”. It is a little bit clumsy—I mean, all it says is that we are going to do this for a little bit and then we are going to change it. It is not an ideal way to do tax legislation, considering that one of the fundamental tenets of tax legislation is that it is easy to administer, it is easy to understand, and there are no fish-hooks. That just signifies that even though we are encoding this in new legislation, in fact it is probably not going to be there for a long time if it says “in the time being”.

There are a couple of other sections that I would like to talk about. One is amendments to the Income Tax Act 2004. If you look at clause 260 there is going to be an insertion of new section CC 5, “Person deriving pension from foreign superannuation scheme and returning as income before 1 April 2014”. I am assuming that the vast majority of electorate MPs, and probably a number of list MPs, have received delegations of constituents from countries that have superannuation schemes that are, in fact, a lot more generous than ours. The New Zealand Government grabs them as part of the process and the constituents—often they are Dutch, actually. Dutch and Irish—that is what I have found. Anyway, they seem to be disadvantaged because the Government gets a hell of a lot of money from their superannuation scheme and then gives them the amount of money from our pension scheme, and the Government seems to be winning.

It is a point of contention. I remember speaking to the Hon Michael Cullen about this—

💬 Grant Robertson: Name-dropper.

Sorry—well, he lived in Napier. Not many people know that when Michael Cullen was the Deputy Prime Minister and the Minister of Finance, he lived in Napier the whole time. It is why Napier has absolutely flourished and come back to Labour. But anyway, I asked Michael: “Is this”—

I am sorry to cut my colleague short, because I do realise that the contributions of the Hon Michael Cullen are incredibly important in the tax debate. A few people would actually dispute that, but I hazard to guess that even on that side of the Chamber there would be plenty of members who would honour the contributions made by the Hon Michael Cullen.

💬 Hon Simon Bridges: He did a good job on the books until Helen and Grant got hold of him.

Well, I did not quite catch what that member said, but I do not credit it as something worth responding at length to, in any case. But Dr Cullen, of course, would have put through a tax bill—I imagine—that had different kinds of tax changes suggested that would have really made New Zealand a fairer place to live in. Here in this bill, of course, and with the subsequent amendments that we are looking at in Part 4 of the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill, we know that what we are affirming is a set of tax changes that were made in 2010—the tax regime we have currently—and the changes made around research and development, and other remedial matters that confirm the status quo and that, essentially, continue us along the road we are going along now.

As I noted in my earlier contribution in the House today, that is a path we are going down where we are not achieving the kind of export growth and so on that the Government so often accords to the changes that it wants to make in tax packages. So when we are debating the kinds of changes—the research and development expenditures, and so on, and their flow through to other legislation—this Government claims that it is making a step change in its rhetoric for the New Zealand economy, but the evidence that we have seen tells us otherwise: the fact that the export target of 40 percent has not been achieved for exports as a proportion of GDP. It has come nowhere close under this Government. In fact, the figure has now dropped below 30 percent, and every year it is getting worse. So we find here in this bill, and in the changes that are being made—the proposed amendments that will begin in the 2016-17 tax year—that we are really no further ahead.

We on this side of the House will be supporting the bill, as has been noted earlier, and that is off the strength of the fact that remedial changes to tax legislation are imperative to ensure that we maintain our low-rate, broad-based tax system, which we know is so important in terms of supplying the revenue necessary for the health and education systems that we all depend upon for our children and for the future prosperity of the country, and, of course, the health system in our retirement and throughout our working lives. So we do support the bill and we are glad to do that for those reasons, but we are uncomfortable, of course, with the fact that it is not the kind of bill that the Hon Michael Cullen would have put through, which would have had a fairer deal across the whole landscape.

It would also have ensured that every New Zealander had their fair share of rewards out of the tax system, and ensured that our future prosperity would have been greater because we know that the growing inequalities that are being driven by these kinds of changes—by the rates that we are affirming, and so on—are actually holding New Zealand back. In a report from the OECD, which I think I have got it here in front of me somewhere, about a year ago it gave its view that the New Zealand economy is going 15 percent slower—that is, it is 15 percent smaller than it otherwise would be—because of growing inequalities in New Zealand in recent decades. So we on this side of the House would prefer to have seen more progressive changes throughout the legislation and have these flowing right through into Part 4, because we believe that that would have made the society that we have fairer and more prosperous.

I move, That the question be now put.

Yes. We have a number of calls here—18 calls, over an hour and a quarter.