Taxation (Transformation: First Phase Simplification and Other Measures) Bill

It is a pleasure to take a call on Part 2 of this bill. I want to focus my initial contribution on the section of the bill that deals with the communications framework, and in particular clause 74. It may come as a surprise to those who follow tax legislation intimately and closely that this particular clause tended to be more like an English grammar class. Chris Bishop came into his own during this period as somebody who was educated in the 2000s, when grammar was taught. I struggled because I went to school in the 1980s, when they had stopped teaching grammar at all, and so some of this was confusing to me, but—

💬 Chris Bishop: It was a terrible Labour Government then.

That is right. Well, that particular Labour Government—yes, Mr Bishop. But this was quite an interesting, and actually quite important, part of the bill. Essentially, what this was about doing was trying to simplify and make clear different forms of the ways in which the Inland Revenue Department (IRD) interacts with taxpayers and trying to bring that into the modern age at the same time as defining various terms. Essentially, what the bill did was to set up three tiers of interactions between the IRD and taxpayers, and it then sought to define those. The Finance and Expenditure Committee did actually come to the conclusion that we needed to amend aspects of this to make absolutely clear to taxpayers the meaning of these different terms.

So the three tiers that were proposed were a tier that included the terms “asking, requesting, or informing”, and any one of the following was a means by which you can do that: “by telephone”, “orally in person”, “by electronic means”, “in print”, or “in another manner permitted by the Commissioner.”

💬 Kris Faafoi: What does that mean?

Well, that is right. You may well ask, Mr Faafoi, what it means. So we could take the example, perhaps, of whether or not John Key asked, requested, or informed Bill English that he was going to put tax cuts back on the table 3 days after Mr English had taken them off. He certainly did not notify him—which is something we will come to shortly—nor formally notify him, so he possibly did ask or inform him by phone, orally in person, by electronic means, and perhaps he texted him.

💬 Hon Clayton Cosgrove: Semaphore?

He may have done that. So the lowest level of form of communication is asking, requesting, or informing. Then we include—

💬 David Bennett: Tell us about your tax increases.

Mr Bennett was all over the detail of this when we went through it, I can tell you.

Then we came to “applying or notifying”, by which any one of the following is an acceptable means to apply or notify: “by electronic means,” “in print”, or “in another manner permitted by the Commissioner.” So we have stepped up here, and you cannot do it by phone and you cannot just drop into the IRD and let it know. You actually have to do it by electronic means, in print, or in a manner that is acceptable to the commissioner. Then the highest tier of communications is that of “formally notifying”, which is to be “in print, delivered personally or by registered post,” but not by way of “email, the internet, or other electronic means.”

I guess in many ways that starts to show us the limits of what we were trying to do here in the Committee. So it is a recognition that most people are not going to fax through their communications. Mr Cosgrove might still fax people, as he does from time to time, but, actually, most people have moved on from that and, frankly, most people have moved on from using the post to communicate with the IRD. So these clauses do have a serious element, which is that it is time to bring the IRD into the 21st century and have email as an acceptable form of communication.

What we learnt in the committee was that from a tax accountant’s point of view, for those people who have regular interaction with the tax system, these terms need to have specific meaning within specific Acts. So the Tax Administration Act is one of those, but the Income Tax Act is one as well. And we had submitters come to the committee and tell us that unless those terms are notified this could provide some difficulty. They felt that the three tiers were not sufficiently defined within each of those Acts. So in a sort of belt and braces approach we now, by the amendment of the committee, have decided that we will define each of those terms in each place that it appears in taxation legislation. As I say, you might think that this is not an important thing, but if people fail to comply with what the IRD wants from them, there are serious penalties. If they do not know, for example, that notifying cannot take place by telephone, then they may find themselves in breach of various things. So it is actually an important thing to make clear to taxpayers that the way that they communicate with the Inland Revenue Department is confined—[Bell rung] Mr Chair?

The CHAIRPERSON (Lindsay Tisch): Grant Robertson.

I tell you, there is more to come on this. So this, I think, is actually an important part of it. The—

💬 Kris Faafoi: This is the soundtrack.

That is right. This is only tier one notification, I can tell you. We have got more coming here.

Interestingly, the IRD itself was very keen to tell us that it was trying to put emails on the same footing as paper letters delivered by post, and I think, as I say, for most people that that is important. However, its highest level—the formal notification—is still done by post and not electronically. One day, perhaps, that will change.

There was an element of futureproofing, so there is some ability for the commissioner to be able to say that as new technologies arise and as new forms of communication occur they can be adopted into the practices of the IRD without necessarily needing to change the legislation every single time that occurs.

So that is an advance. There was a bit of confusion, I have to say, between the officials, our expert adviser, the submitters, and ourselves about the exact meaning of various terms. But under clause 74 and related clauses, I do believe that we have now found our way to a position where people will be able to understand what is required of them, and certainly it is now possible to use electronic means for at least the first two tiers of communication between the IRD and others.

💬 Hon Clayton Cosgrove: Brilliant.

Yes, and it is an advance. It is, to quote from the title of the bill, transformational, because that is the standard this Government has for transformation—the meaning of the word “notify”. We will come back, in a later debate, to the title of this bill, and I think this is the point at which we must acknowledge the radical transformation of the definitions of the words “notify”, “inform”, “ask”, and “request”. So well done, I say to the Government—radical agenda there! That will turbocharge the economy for you, right there!

The other point I wanted to make was related to this, and that concerns the use of electronic signatures, which have previously not been allowed but are now allowed under this legislation. There was some concern about the veracity of them, and about how they could be stored and so on, but actually, again, this is the modern world. An electronic signature is your own signature. In a whole lot of walks of life people use electronic signatures where they have obligations under the law, and there is no reason why the Inland Revenue Department cannot also be in a position to deal with that also.

The other matter—which I may not get to finish in this call, but I will certainly happily take up another call—

💬 Hon Clayton Cosgrove: Have another one.

My colleague Clayton Cosgrove will want to talk about this because it was a matter that he was seized of when the committee considered it. It is the question of co-location of offices.

💬 Chris Bishop: Oh, this is a cracker.

I know Mr Bishop enjoyed these discussions, as well. So the IRD—as are now a number of Government departments—is co-located with other Government agencies. In Christchurch, for instance, the Ministry of Social Development is looking at being in with the IRD, because they are the people who are going to be in the Christchurch central business district because Gerry Brownlee has forced all the Government agencies in there. So they are going to be working together, and there is an issue about the secrecy requirements on IRD staff versus the secrecy requirements on other Government agencies. We had a very long and in-depth discussion in the committee about how to manage this. And in the end what the committee came down on the side of was to say that IRD employees are not considered to have breached secrecy conditions “if they did not intend the breach and took the care reasonable for place and conditions to prevent it.” That notion of reasonable care was what the committee inserted into the bill.

There was considerable debate about this. Obviously, if you have knowingly contravened the Act and if you have deliberately gone out and broken secrecy rules, then there are punishments that should follow that. But where you are sitting in a co-located environment and you are having a conversation with one of your IRD colleagues about a taxpayer or a tax matter—which you are able to do—and you are both aware of your obligations, if there is a staff member of another Government agency within earshot, to what extent is it the responsibility of the IRD staff member to not have those kinds of conversations? You know, the nature of modern work spaces now with open-plan offices means that the risk of this increases, and, in fact, all of the co-located ministries and so on are starting to work in those environments.

On the committee we were concerned because the secrecy of taxpayer information is something we should all take seriously, and it is actually, more often than not, a higher obligation than that of other Government agencies. So we were concerned to make sure that we had adequate protections in place around both the understanding that taxpayers would have of how their information would be treated—

I want to pick up where Mr Robertson left off in his eloquent address and analysis of this bill—but in all seriousness, the point that he made should be made again, for the record of the Committee. The Finance and Expenditure Committee did take quite a bit of time to work through a scenario that, essentially, some of us felt at the time was providing less of an incentive, if you like, to comply with the law—that is, the penalty was less than it ordinarily should have been.

Those of us who were around in Parliament back a wee way can remember inheriting in 1999 an Inland Revenue Department (IRD) that had significant difficulties. John Perham, I think—if I recall his name correctly—was charged, as the Commissioner of Inland Revenue at the time, with trying to rectify many of those difficulties where there had been, in the 1990s, significant breaches of information. I do not think the IRD at that time had electronic fingerprinting, if you like—or footprinting, as it was—in terms of traceability of personnel who were accessing information. I know that the then member Rodney Hide, along with some of his cohort, was quite vigorous in illustrating some of the problems that had occurred, and, as I recall, some prosecutions came out of that.

It did test the select committee, and we tested officials, in terms of whether there were enough safeguards around these issues to protect taxpayer information. Regarding tax systems, as I have said in other debates, there are a number of principles: transparency, simplicity, and community confidence in them—but also that information is incredibly secure. One of the things that, I think—I am reflecting on Mr Robertson’s analysis of the various terms in clause 74 and the huge, precise definitions around those terms. Some of us struggle with the fact that the IRD and its Minister have taken great care over those terms—which is fair enough—but, it seems, there was a lesser duty of care around those other arrangements in respect of co-location. However, we have given the analysis and the recommendations the benefit of the doubt.

I think it is incumbent upon the IRD—to put on the record of this Committee—to take extra care. If you are going to be co-located and there is even the slightest chance of taxpayer information being inadvertently shared—and I make the point that I believe that, since the IRD has cleaned its act up from the 1990s, the IRD staff are pretty well exemplary in their conduct. They take a great deal of care, in terms of the security of taxpayer information. However, if you do move into a co-location scenario, things can happen. I, like Mr Robertson—and I am sure the Minister would share the view—do not believe that these things are intentional, but there is a tenet of law that says that the greater the penalty, the more care people are likely to take, because the circumstances they may find themselves in if they are prosecuted are far more heavy-duty than they may ordinarily be. That is a basic principle. So I think that, as we go through this, we would be grateful for some assurances from the Minister around taxpayer security, given the co-location issues, and I think it would be important to get that on the record of the House.

I think the bill is—I would not call it transformational, but certainly it updates many of the IRD systems. It is linked to the so-called Business Transformation programme, and I would be remiss if I did not ask the Minister, while we have got his attention, whether he could perhaps give us a quick brief on the expenditures in—to be fair to him—the mess that he inherited with the Business Transformation programme, which I think we are going from, what was it, $1.6 billion—

💬 Grant Robertson: $1.9 billion.

—$1.9 billion, and then it went down again, and then it went up again. I am mindful of Novopay—without getting into that—and I am mindful of the difficulties the Police are having, as espoused today, with the PricewaterhouseCoopers issues and their payroll systems. We do have a track record in this Parliament, I have to say, on the National side, not on the Labour side, if you go right back to INCIS, of IT programmes just going right off the rails.

I would be grateful if the Minister could give us a continued assurance that we are not going to have money spent like water, because there is a large amount of discretion provided to the department—it is the expert, it hires the contractors, and it signs the contracts, not the Minister. With that discretion comes a huge amount of responsibility, and we would like to ensure that the dollars are accounted for.

I do not know whether I can enlarge on the eloquence of Mr Robertson, especially in respect of clause 74, but at this point I, like others—subject to those assurances from the Minister—support the bill.

I would also like to elaborate on a couple of things that Mr Robertson has spoken about. As mentioned, electronic signatures—we have talked at length in Part 1 of this bill on how there is a move from requiring a written notice to the acceptability of an email or other electronic form of transaction. The reason for this is that it does bring it into the 21st century, and that is important. But there is a very important rider on that, and this is where electronic signatures come into play, because if an electronic signature was not acceptable, what it would in fact do is it would negate everything else in the bill in terms of an acceptability of the commissioner receiving the document on behalf of the taxpayer. So it is an important thing; it is an important measure.

I would say, though, that it does say in new section 13B(3), inserted by clause 73, that “When the Commissioner receives a document bearing the electronic signature of a person, unless there are reasonable grounds to suppose otherwise,—(a) the document is treated as signed by the person;”. I am not too sure what “reasonable grounds to suppose otherwise” might be. It may be, for example, that it is so out of character or that it is a piece of communication that is not part of the correspondence that is going on at that point in time. I think it would be quite good to clarify that, because “reasonable grounds”—it is the sort of “reasonable man” test in law. But what does define reasonable grounds for accepting or not? I suppose the one question I would have is that what I would not want to see is a taxpayer and the commissioner in court because the commissioner has said “Well, I had reasonable grounds for not accepting this signature”, and the taxpayer has said: “Well, it actually was me.” That is just my one concern—the definition around those reasonable grounds.

The other thing is, under clauses 71, 83, and 87—from 2001-02—this is part of the tax administration area to make it easier for taxpayers to actually get what they need. This is amendments being made to the Tax Administration Act to allow the Commissioner of Inland Revenue to provide a special tax code directly to the Ministry of Social Development to help people receiving New Zealand superannuation or the veterans pension to meet their income tax obligations. What it does is it reduces compliance costs, it makes it a lot easier, and it requires a whole lot less obligation on behalf of the superannuitant or the veteran.

I would also like to talk very briefly about something that Mr Cosgrove mentioned and something Mr Robertson alluded to, and this is about disclosure of information. Crucial to this is the intention test. I think it is the only test we can have, and if it is proved that someone has intentionally disclosed private information then that person, under several different Acts and, I think, also under their employment contract, can have their employment terminated immediately. But the intention test is very hard to prove, and a classic case of this is actually under the Income Tax Act, where whether or not the sale of a property is subject to income tax is based around the intention of the owner of that property when they bought it—whether the intent was to make a capital gain or to buy it for rental yield. The interesting thing is that the Inland Revenue Department (IRD) has only ever successfully prosecuted one person for not complying with the Income Tax Act due to a misallocation of profits on there. We have to just be sure that the intention test is applied correctly.

What I would hope, and what I am assuming is going to happen, is that the IRD will actually issue a briefing note, if not hold briefings with all its staff, around what this action means. I trust the IRD, I think it does a fantastic job, and I would never question the integrity of its staff in any way, shape, or form, but what I would like to see, and what I would like to know, is that the IRD is taking this as seriously as the select committee took it, and, as a consequence of that, it does make very, very clear to its staff the rules and regulations around this. I have a suspicion that they know this anyway, but we do need to ensure that there is clarity, because the last thing we would want to do is have someone divulge information unintentionally but break the law, and then have to be dragged through some sort of employment court or employment dispute because the definition of intention is incorrect.

But, on that note, we do understand that what is happening with Government departments is very important—they are working closer together, and we do believe this needs to happen. Whether this is out of necessity—i.e. in Christchurch when different departments had to come together and co-locate, or whether it is just out of greater efficiency—

Sorry to interrupt the honourable member, but the time has come for me to leave the Chair for the dinner break. This debate is interrupted, and I shall resume the Chair at 7.30 p.m.

Sitting suspended from 6 p.m. to 7.30 p.m.

Thank you for the opportunity, Mr Chairman. I just want to touch on a few of the contributions that have been made this evening, and acknowledge the kinds of issues around the electronic signature problem that the Inland Revenue Department (IRD) has been working through over the years. And the reality is, in modern practice—and we look to most of our banks at the moment—we see there is very much a safe and appropriate mechanism for the electronic signature, and it is taking a while but we have got there. I think it is absolutely appropriate, which is part of the reason why New Zealand First is supporting the legislation.

But what I did want to touch on, in particular, because it is an issue—and it is still, perhaps, for me and for New Zealand First—that needs further exploration and some commitment from the Minister, one would hope, is the co-location and secrecy issue that was raised in terms of discussions within the Finance and Expenditure Committee.

So, firstly, let me put it into points. The conversation started with the fact that the IRD was going to have to share locations in terms of physical office space with different Government departments, and that would raise some privacy and secrecy issues. I just wanted to note, though, that the IRD considers that no amount of training, best-practice guidelines, or adopted behaviour is likely to adequately address the substantial risk of the IRD employees inadvertently disclosing taxpayer information to other Government employees in a co-location environment. So what we have here is the ministry itself acknowledging that this is quite a huge problem and there does not seem to be, even with the best of intent, the ability to mitigate—well, maybe mitigate is a possibility, but to eliminate these privacy issues is a real concern for the ministry itself and the staff involved.

So in the select committee we had very in-depth conversations about what that would involve. I note Mr Cosgrove made a contribution about that earlier in the evening. I would like to support his words because it was a contentious issue. What we have done within this legislation is we have said: “Well, actually, let’s acknowledge that this is a possibility. Let’s acknowledge that despite the best efforts of ministry staff, best practice, implementation, and procedures we will have issue.” So that is not a debate. I think that is perhaps the primary concern for New Zealand First. There will be an issue. There is no debate on that. It is how we get around the problem for individual staff.

So with great reluctance, as part of that committee, my contribution was to support and say that, yes, let us come up with some additional safeguards for employees if it was proven that they were not deliberately trying to disclose private information—that that was unfair and unreasonable to take them to court proceedings if that was established in the first instance. But as that conversation was fleshed out, actually, we decided that is what a court is there for. So the court is there to establish the intent and the degree of the intent, and if there was intent then the court would come down hard and appropriately on those individuals. Conversely, if there was no intent then the court would establish that and the argument would be that, well, clearly there was no intent, and it was a true mistake on behalf of the employee—“Why has it come to us? Let us dismiss it for the accident it was.” And yet, we have more legislation around this. I think it is quite an issue that needs further exploration and consideration from the Minister.

I think, in terms of cost saving, we may have gone a bridge too far; for the expediency around a few dollars we are compromising the privacy of New Zealand taxpayers. It is an important issue that needs, I think, more consideration from the Minister and the Government. But, in the main, when we consider that this legislation is about updating the technology and the practices available to the ministry, I think we can support it.

You were spoilt for choice. Thank you, Mr Chair. I actually do want to pick up the very point that Fletcher Tabuteau was discussing, and that is the question of co-location, and perhaps go back to the beginning because I think there is some confusion here around the question of a deliberate breach of secrecy by a staff member, and an inadvertent breach. Currently, the Act applies only where someone knowingly acts in contravention of section 81 of the Tax Administration Act, which is about disclosing information that they should not. Should a breach occur, there is a legal process to determine, as Mr Tabuteau said, whether the breach was unintended or made knowingly, and then appropriate sanctions apply.

When we were discussing this in the select committee, the position we reached was that an employee could be judged to have knowingly contravened section 81 where the breach was inadvertent but it occurred where there was a real risk inherent in the co-located environment. As it says in our report: “For example, an IRD employee might be aware of the risk that a co-located employee could overhear information, but not be able to avoid that possibility.” So we acknowledge that but, obviously, we have an obligation to ensure that that information is held in appropriate secrecy. So that was the discussion we were having: do we need a threat of a sanction to emphasise the point that this is a really important area of confidentiality, and there is an increased risk with co-located departments?

At one point we almost discussed whether we needed the clause at all because, actually, at the moment the obligations on Inland Revenue Department (IRD) staff are quite clear; they know what they are, and they sign an enhanced secrecy agreement above and beyond what almost any other public servant would do. But the co-location issue means that there is now a set of increased risks around those employees. We did, on balance, decide to include the concept of taking reasonable care in that co-located environment. Quite clearly, for the IRD employees who have already signed their secrecy agreements, they are going to be taking care, but this is a clause that at least acknowledges in some form or other that reasonable care would be required. Again, to quote the most excellent report of the committee: “Being compelled to take reasonable care would motivate employees to proactively manage the risk associated with a co-located environment. It would also provide an additional safeguard against reckless and negligent behaviour.”

I do not want people to gain the impression that we think that the IRD staff are going around engaging in reckless and negligent behaviour, but that the risk of inadvertently giving information out needs to be considered. I do think it would be useful for the Minister, whom I believe may take a call, to just address the way in which the IRD is going to go about taking this into account. This applies to the wider Public Service in my view, as well—that although we are all looking for efficiencies that come from public sector agencies being co-located, we know in the regions of New Zealand there used to be large Public Service agencies in—I do not know, a city like Wanganui, until the Government tore them out and took them back to Palmerston North—places like Wanganui, where Public Service agencies come together as a matter of efficiency and ease for the public to use them, where there is a lot of information flowing around. We have been encouraging through legislation—including in this legislation, in fact—public sector departments to share information where relevant.

So we have got, on one hand, a level of encouragement, but on the other the risk that the information, particularly around tax, could inadvertently be shared. I know that those who are listening in on this might be saying: “Well, why is this such a controversial issue?”. It is because it is about sensitive taxpayer information. We know that every time there is a privacy breach—every time someone leaves a briefcase on Lambton Quay—this causes upset. Well, here we are with people day in, day out needing to talk about taxpayer information, but working now in an environment where people who do not have the same secrecy provisions in their contracts will be.

So we are really just looking for an assurance from the Minister that it is understood what has happened here. The select committee grappled with it and we came up with what we thought was a decent solution, which was to include a higher duty of care but not try to, effectively, criminalise people just going about their daily jobs. So I hope the Minister understands what the committee has tried to do here. We certainly support the co-location of departments, but when it is the IRD we do absolutely want to make sure that New Zealand taxpayers’ privacy is protected. Given that you have not rung the bell, Mr Chair, although you are just about to do that—

I just want to address the three or four very important issues that have been raised either side of the dinner break. But before I do, can I thank the members of the Finance and Expenditure Committee for their consideration of this bill. Tax bills tend to be reasonably dry things, but I think the select committee has applied itself diligently to some issues that have been raised both in the select committee and in the Committee of the whole House.

I will start with the point that Mr Robertson has addressed in respect of co-location. I want to thank the committee specifically for its diligent consideration of this issue, because I think we all understood what was intended. Firstly, co-location is not only about efficiency; actually, what we will be seeing—and indeed the Inland Revenue Department (IRD) has the responsibility for the administration of things like the student loans scheme, Working for Families, and child support—is a significant overlap with the Ministry of Social Development and its roles and functions. So co-location might have efficiency in at least one office that it occurs in now, but it also has the potential to improve the quality of the service that we can provide to the New Zealand taxpayer. But I think that the committee was right to look carefully at clause 117 in order to ensure that we have the right balance between ensuring that due diligence takes place, because there is a higher standard of care that is required to maintain the secrecy of people’s tax records, and that inadvertent breaches do not give rise to an unnecessary punishment. I think the committee landed that clause in exactly the right place, but the proof of the pudding will be in the eating.

The effectiveness of the amendment that the committee has made will be in the manner in which the commissioner gives effect to it. I am confident that she understands and will use her best endeavours to protect the integrity of the tax system, bearing in mind that the exception applies only to unintentional breaches—no intentional breach will be given the protection of this clause. I think that was understood by the committee, but I think that the question was more about the margins and what, effectively, constitutes “reckless” or “careless” and not really about understanding or applying oneself to that requirement as an IRD employee. I am confident, having spoken to many, many IRD staff around the country, that they take their secrecy obligations very, very seriously. I have yet to find anybody who is flippant about that. In fact, if anything, Ministers have found section 81 a very, very strong black box, and rightly so. However, I do note that later in the year, as part of the tax programme, we will be reviewing the Tax Administration Act, and so this is a nice sort of segue into a broader review, and the questions of the privacy of information are going to be foremost in that.

Can I turn now to the issue of electronic signatures because—

💬 Chris Bishop: Oh, please do.

OK, I will. Mr Nash made a very good point before dinner, and it has been followed up by Messrs Tabuteau and Robertson. I think he asked the question about what would constitute “reasonable grounds” for the receipt of an electronic signature, but he then went on to quote clause 74. That was inadvertent, I am sure, but clause 74 actually works on out-bound communications, so I want to touch on both of those things.

At the moment, we currently have an arrangement whereby a document might be deemed to be sent if it is sent to the last-known physical address, even if that person has moved on. We certainly need to update that, because the whole essence of this is to give effect to a much more modern tax administration system. I think it would be enough simply to say that if somebody has communicated with the IRD by email, then there are reasonable grounds to presume that the commissioner can then communicate back. In fact, registering with myIR requires an email address to be put on there. Once the identity of the registered person is verified, then I think it would be reasonable grounds to assume that the commissioner can communicate with the taxpayer via that email address. Even if the email address changes, the same thing would apply with the last-known physical address: that it would be deemed to have been sent.

It is clause 73 that deals with the issue that Mr Nash was raising in respect of what would constitute reasonable grounds for the use of electronic signatures in the receipt of communications from it. I think the same principle would apply, but the question then becomes one of identity—verification that the communication is from the source that it claims to be—because it is not difficult, actually, to purport to be someone else in an electronic world. There is, I think, an allowance for the IRD to place a reasonable reliance on the use of electronic signatures, because there is discretion, obviously, for a signature not to be accepted if the IRD has reasonable grounds to suppose otherwise; that might be inconsistency of information, such as having a separate communication from someone who was also purporting to be that taxpayer, from a different electronic source. But in the absence of a “reasonable grounds” test, the IRD would be prevented from actually acting on not accepting the signature, even though it had good grounds to suspect that it was from a fraudulent source—perhaps changing a bank account, for example, and then asking for a refund to be paid into a different bank account. The IRD has got to be very diligent in ensuring that it is on top of that. I think “reasonable grounds” is a well understood nomenclature in legal jurisprudence, so I am confident that the tests that will be applied will be effective ones.

I want to just finish by giving the Committee a brief commentary on an issue that Clayton Cosgrove raised before dinner, and that was on the issue of the update on Business Transformation. The essence of taxpayer security, the reliance on electronic signatures, and the things that this bill will give effect to are all predicated on a business transformation project the like of which I think the Government has not seen at all. The number was $1.5 billion; it is now down thanks to, well, excellent efforts by the Minister, of course, backed up by the IRD. But, actually, the fact that we are not building a bespoke system has, I think, a significant value-add, and I am satisfied that although this is a project that is not actually just about technology, this is about fundamentally changing the way the IRD engages with the many millions of taxpayers around the country—that real lightbulb moment where we are building our tax system around the needs of the taxpayer, not the other way around. I think that is a significant opportunity to materially improve the experience of interacting with the IRD. But it is a big project. It is risky. Mention was made by Mr Cosgrove of going all the way back to the 1990s and INCIS, and Novopay, more recently, but there are successes in Government IT projects—the ones you never hear about. Certainly, the department of immigration’s online system, version 2015, has gone extremely well. It is under budget, and it was just on time.

💬 Clare Curran: Why don’t we hear about them then?

We do not hear about them, Ms Curran, because they are good news—they are good news—and, of course, good news does not make the front page of the Dominion Post, I have to say; bad news definitely will, and Novopay is a good example of that. But it is also true to say that Novopay was a good learning experience, I think, in making sure that we do not sign agreements before we know that the vendor is ready to roll.

The CHAIRPERSON (Hon Chester Borrows): Hipkins would agree.

Mr Hipkins would certainly agree with that, I am sure. But I am satisfied, actually, that I have seen the whites of the eyes of the IT managers at the IRD—their blood pressure is normal; I test it every fortnight—and although we are still some months away from phase 1, the GST roll-out, I am confident that the Business Transformation project and the IT platform that will underpin these changes are well on track for a successful implementation.

Rev. Dr David Clark.

Thank you, Mr Chair. It is very kind of you to use my extended title. The Minister of Revenue has raised the issue of the rebuild, as many members before him have, and some of my questions that I would like some reassurance from the Minister on relate precisely to that same project. I wish to discuss—and I do not think anyone in the debate has yet raised these—clauses 59 and 116, which specifically point to changes in thresholds. Clause 59 amends the repayment threshold for overpayment on income statements. They relate to the personal tax summary.

The CHAIRPERSON (Hon Chester Borrows): Are they related to Part 2?

Yes, absolutely, Mr Chair—clause 116 is absolutely in Part 2. The other clause is in Part 1, but it is the same general principle that is in both parts of the bill and relates to the thresholds. The basic issue, for those who are at home or new to the debate, is that if your personal tax summary shows that you are owed a refund, it can be automatically returned to you as a taxpayer. There is a threshold, which is currently $200. So if the refund is less than $200 and you do not confirm it through a personal tax summary interaction with the department, it is automatically returned to you after 300 days. If it is over $200, then you have to go through the process.

The proposal in those two clauses together amounts to changing that threshold to $600 and making the wait just 15 days. So if you are entitled to a refund you get it within 15 days, which seems to me, broadly, a sensible step. It is about reducing bureaucracy. It is about saying if it is below a certain threshold we should not have lots of bureaucrats batting backwards and forwards. It would be very odd, given the competence, historically, of the Inland Revenue Department (IRD), for that number to be wrong. “We should just get on and do it” is the basic premise, I take it, behind this change.

My one concern is whether the IRD can deliver on this, given the significant changes that are going on with the business transformation package that is before us, which the Minister has just spoken to, because we have had situations in this House in the past couple of years when the Minister—and the previous Minister is the one who has had to do this—has brought back child support legislation that simply has not been able to be implemented when thresholds have changed or when a formula has changed. We have passed a law through the Parliament, which is one thing, to say: “We’re going to change this to what we think is more sensible as a Parliament.” It is then voted upon, a change is made that looks sensible on paper, and then the Government has been in the distinctly embarrassing situation of having to come back and reverse out those changes because the IRD had not been able to implement them through the computer system. It has happened more than once.

What I would like to know—and I believe it was not discussed at the Finance and Expenditure Committee—is whether the Minister has sought assurances that this change can be simply made and whether it can be delivered in the time frame, which, in the proposed amendment in the original commentary was 1 April this year. Clearly, that is no longer the schedule, and I would be interested in the Minister letting us know whether this is, in fact, still the schedule for delivery—whether it is a retrospective piece of legislation. I mean, it is a detail, but this is what we are here to discuss in respect of the committee changes. This is the kind of thing that could trip the Government up and see the whole legislation coming back to the House. If the Minister has not got that assurance, I am prepared to move an amendment that would either remove that or push out the date for implementation to a time when the Minister thinks he could safely ensure that change as a part of the rebuild without the embarrassment of having to bring it back to the House again, as has befallen the Government previously. The Minister, I see, has had some advice so I will look forward to his contribution.

I do not wish to prolong my contribution much further, only to say that if that is not deliverable, as I have mentioned already to the Minister, I would be happy to move an amendment that either changes the date so it can be safely implemented, or, if that is not necessary, I am sure the Minister will explain to us shortly. Thank you.

Mr Chairperson, you are catching the eye of the Minister of Revenue there to see whether he wanted to respond to those questions—I am sure he will in time. I just have a couple of smaller, minor matters in Part 2 of the Taxation (Transformation: First Phase Simplification and Other Measures) Bill to raise that have not been raised yet because the Government members of the Committee are assiduously promoting this piece of legislation that has come before the House, which they are obviously so proud to get up and talk about.

I want to talk about one matter that is actually a very positive and necessary development for a reasonably small group of people, but one for whom this particular clause matters, and that is around the question of special tax codes. This did occupy a little bit of time for the Finance and Expenditure Committee when we were working on it. Essentially, amendments are being made to the Tax Administration Act to allow the Commissioner of Inland Revenue to provide special tax code certificates directly to the Ministry of Social Development (MSD) to help people receiving New Zealand superannuation or veterans pensions to meet their income tax obligations. These amendments are basically about reducing compliance costs imposed on superannuitants or veterans pensions recipients in providing the certificate to the MSD and removing any delay in the application of the correct tax reduction rate.

It is quite a specific change, but one that affects a group of people for whom the amount of income they are getting outside of their pension source, particularly, is often quite small, and there have been unnecessary delays in the relationship between the Inland Revenue Department (IRD) and MSD in terms of providing the information that is required. So the amendments are going to enable the commissioner to provide a special tax code certificate directly to MSD when the superannuitant or veterans pension recipient has applied for that certificate and advised MSD they want the certificate to apply to their superannuation income or veterans pension income. Many electorate MPs in the House will have had the experience of someone coming to their office to talk about the issues that arise between making choices about these issues and how quickly you are able to access the money. So I think this will be a welcome change for those people.

There was one issue where it appeared, in the original drafting, we were limiting this to being in respect of having only one employer. If someone had more than one employer, that may have been ruled out, so a change has been made within new clause 84 of the bill to make sure the reference could be to income from one or more employers. That small oversight was one that would have led to more people coming back to Mr Woodhouse asking him to make it easier for them to be able to work between MSD and IRD. So I do want to, actually, congratulate the Government on that. It is a matter that has been of concern to those who receive veterans pensions, particularly, that there was unnecessary bureaucratic delay and unnecessary double-handling, essentially, of the issues of the income they receive. I thank the Minister and the officials for bringing that before the Committee.

The only other matter I wanted to raise in Part 2 relates to biometric information, and I do think this is one of those clauses we will come back to in time—we all know the use of biometric information is increasing all over the world. Every time we got to an airport, every time we enter all kinds of different buildings now, biometric information is used. The issue here was around the disclosure of biometric information and, potentially, the illegal disclosure of biometric information under the now famous section 81 of the Tax Administration Act. What the previous clause 117(5) of this bill did was authorise the disclosure of taxpayer voice biometric information to an officer or employee of a public sector agency. What the amendment the committee proposed did was specify that that data could be released only with the taxpayer’s consent and only for the purpose of verifying the identity of the client.

I know, as a lot of taxpayers are doing more of their interactions with the IRD online and more of their interactions over the phone, that there is an increasing concern about what happens to that data and what happens to that information, particularly in the days of identity theft and all those sorts of things—biometric voice data is now very significant in the interactions that you have. The committee again, not wanting to get in the way of progress but wanting to continually assure ourselves that we are putting the right rules around the use of this new information, felt that this was an additional safeguard that we could put in. The Minister of Revenue will be delighted to know that he will now be notified when biometric information is shared. [Bell rung] Mr Chair?

The CHAIRPERSON (Hon Chester Borrows): Grant Robertson.

Just briefly, the Minister will be notified now when the information is shared—

I am sorry to interrupt the member. I should not have given him the call, because he has had four calls on this part and his time has expired.

I move, That the question be now put.

I do want to press on the previous point that I was making, because I have also perused a bit further and I have got further concerns about whether this will be able to be implemented. I am going to cover a bit that has broadly been covered so far in the debate but from a different angle. It is in Part 2—quite rightly—and it is clause 71. We are talking here about software packages that are accepted and able to be used. I go back again to the ability of the Inland Revenue Department to work with these packages, and whether this will indeed be able to be implemented.

The point I did not make perhaps strongly enough in my previous contribution is about this particular change that is going on at the Inland Revenue Department, which the Minister spoke so eloquently about—in fact, about his own involvement in bringing the figures down from $1.5 billion to $1 billion. I would be interested to hear how he did that—whether he licked his finger and held it into a stronger breeze, or quite how he got to the $1 billion figure, because it is a fairly round number. That aside—no, perhaps the Minister would like to address that. Part of that change is actually about bringing that computer system into the 21st century.

The current system was designed and implemented in about 1993. That is 10 years, at least, before Facebook came on the scene. It is about the time that Excel spreadsheets were being invented and used. Certainly, things like Twitter and all kinds of other things that we use as MPs in our daily correspondence with constituents were not even dreamt of. The existing system we have known has been a legacy system that has not been able to deliver the modern tax system we need.

The Prime Minister said—I think it was in 2012; it was certainly on Valentine’s Day because I described it as a Valentine’s Day promise at the time, when I was the tax spokesperson for the Labour Party—that he would be horrified to think that policy was being held back because we had a computer system to deliver our taxes that was out of date. We now know, as I said in my previous contribution, that in fact some proposed tax changes have had to come back to this House, because they could not be delivered by the existing tax system. Again, here we have some more complex interaction involving software packages. I seek assurances from the Minister that he is confident these can be delivered.

In my previous contribution I talked about the changes in thresholds and the date of delivery being 1 April. Some at home may find it ironic that that is the date that is being aimed for by the tax department to deliver changes it has previously struggled to deliver. I ask the Minister whether he has sought assurances that these changes can be put in place without this legislation having to come back to the Parliament, to be reversed out again—and, of course, we know that has an associated cost.

The cost of running this Parliament is well over $1 million, I think, for every bill that goes through. I hope I am right in that. It is a figure I looked up a long time ago. I was certainly surprised at all of the departmental costs that go into it—the staff, the MPs’ salaries; the whole works of Parliament. Democracy is an expensive thing. What we do not want is duplication. We do not want to duplicate those costs as they go through. The Minister looks like he is ready to address the question.

💬 Hon Michael Woodhouse: I will at a later stage.

He will at a later stage, he says. Well, I think the Minister ought to jump to his feet soon because the people who are following this debate will want an assurance that the Minister is concerned about whether this can be delivered and is not being frivolous with taxpayers’ money to simply ram a political point through, and that the system should be more accountable, should be quicker, and should be less bureaucratic. That political point has been made in this House before, and we have all carried the cost as the legislation has come back and we have had to reverse it out. Taxpayers at home have had to bear the cost of that. I think the Minister owes those taxpayers an assurance that the same thing is not going to happen again with this bill.

The question was put that the amendment set out on Supplementary Order Paper 171 in the name of the Hon Michael Woodhouse to Part 2 be agreed to.

Amendment agreed to.

Part 2 as amended agreed to.

Part 3 Amendments to other enactments