Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill

When I was rudely interrupted last night we were discussing what had been the best thing to come out of Hamilton and never go back, and the people of Hamilton had voted strongly—

💬 Tim Macindoe: I was listening avidly.

No, it was not Mr Macindoe. That is true. Mr Bennett was the export that Hamilton did not want back, and, unfortunately, I cannot go on any more about that for reasons I am not allowed to refer to.

What I am here today to discuss is the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill, and, again, we have in front of us a taxation bill that is ad hoc at best. I long for the day that a taxation bill will come to this House that gives us an idea of the overall goals the Government has for the tax system—what it is trying to achieve; the balance that it wants between taxing wealth and taxing income; where it sees the future of taxation going; and a plan for that. But no—every single time it is a bill that is ad hoc, and the danger in that is we come back time and time again to correct the ad hoc mistakes or to add a little bit more in, and it becomes a system that is very difficult to understand.

When we had the last bill in the Finance and Expenditure Committee, our expert adviser made this very point: the piecemeal changes the Government keeps making are confusing for the sector that uses them and for the tax accountants who use them, let alone the individual taxpayers, the people whom the Inland Revenue Department (IRD) actually mainly works with and for. They are confused because there is no coherent framework.

So we stand here, once again, with a bill that is, as it is described sometimes by the IRD, about making sure the original intent of tax legislation can be clarified. That is a problem. If we are spending all our time doing that, let us go back and work out what should be in this legislation. But again, it is not. We have a set of ad hoc, remedial, piecemeal measures that are, frankly, mostly useful as far as we can tell but do not constitute an overall picture of where taxation should be going in New Zealand.

One thing we do know for sure is that this bill will set the annual rates for taxation for 2016-17. Again, here would have been an opportunity for the Government to say: “It’s time for some fairness. It’s time to have another look and make sure that we’ve got the rates set in a way that’s fair, instead of just automatically rolling them over.” Prior to the Budget, we heard a lot from the Government about their concerns about what is known as bracket creep, fiscal drag, or whatever you want to call it—the idea that some people are being “captured” by the fact that their incomes have risen but the tax brackets have not changed.

When this bill came out, I thought: “There you go, the Government will be true to its word. They will have addressed that issue. They’re the ones who raised it in the run up to the Budget.” Nothing—not a word. Not a single word. So it is crocodile tears when it comes to the people who might, over time, have seen the fact that their incomes had increased but the tax rates had not changed. Not a word in here—the annual rates have been set for 2016-17, and they go on regardless.

The public of New Zealand might want to reflect on the real commitment of the National Government in addressing that. It is all very well to wave around the idea of tax cuts saying they are going to come in the never-never and that they rely on outrageous forecasts in the Budget, but then Bill English stands up says: “No, there’s no room for tax cuts.” He puts on his best dour Dipton face and he says: “There’s no room for tax cuts.” and then John Key comes along “floating from cloud to cloud”, as Minister English once said, and says: “Oh, no, we can do them—$3.5 billion, I reckon.” That was the phrase. That will go down in history. When he was asked how much would be required for tax cuts: “About $3 billion, I reckon.” That is how they are making tax policy nowadays in the National Government—on John Key’s reckonings. We can do a whole lot better than that. This would have been the opportunity for the Government to do that, when it set the annual rates for 2016-17, and it completely failed to address any of those issues.

The other thing the bill does is a range of measures. The one that I want to focus a bit of time on today is the changes that are being made around look-through companies. The whole issue of the place and role of look-through companies in our tax legislation has been in the spotlight in recent times. They popped up during the Panama Papers in one of the more unfortunate references to New Zealand, which was the desire of Mossack Fonseca to sell what it was calling combo packs to interested investors. So here we were as the McDonald’s of tax havens, with Mossack Fonseca deciding you could get a decent combo pack. It was not fries that came with your foreign trust; it was a look-through company. That was exactly what was being put on the table: that, for particular types of investment, you could find yourself the look-through company vehicle.

The example that was given in the Panama Papers was of a French investor who had previously had his money in a Swiss arrangement, but changed that to a New Zealand look-through company arrangement on the basis that that could be zero-rated for tax purposes. If all of the income was foreign income, the New Zealand look-through company could be zero-rated for tax purposes, and then when the person repatriated their income back into France, they were able to say that they had paid tax. They had paid tax at a rate of zero, so they had not, but they actually were able to tell the French authorities that they had paid tax at that rate. That is what our look-through companies are being used for today. That is what is in the Panama Papers.

So when we come to discuss the changes on look-through companies that are proposed in this legislation, members on this side of the House will be looking very closely to see what is being done. I think, in my first reading speech, I will give this to the IRD officials. They are tightening up a little around how look-through companies are being used.

💬 Chris Bishop: Oh, how generous of you.

Well, I trust them, Mr. Bishop, to do that. I am not so sure about the Government members, but I think the officials who brought this bill to the House are actually looking to try to tighten up around how look-through companies are run.

My colleague Stuart Nash, when he was speaking in the House last night, was running through the ways in which there was, effectively, a free untaxed capital gain that was being realised by New Zealand owners of look-through companies. That is certainly an issue to look at. We also want to look at the treatment and use of look-through companies by foreign investors and those who hold foreign trusts, because, clearly, from our point of view that misuse of a look-through company is significantly damaging for New Zealand.

It needs to be noted, again, in the context of my earlier remarks about the piecemeal nature of these kinds of tax bills, that it was a 2010 piece of legislation put through by this Government that actually enabled the arrangements for look-through companies as we see them today, and the exploitation of them by those with foreign trusts, seeking to shelter income from offshore. It was Chapman Tripp that, in writing about the changes that were made, noted that New Zealand funds were now an attractive alternative to funds resident in Luxembourg, Ireland, or the Caymans. So that is the league that the 2010 changes put us into, and they, quite clearly, have now been used, and we have seen the enormous explosion of foreign trusts as part of the aforementioned combo packs that are being sold around the world.

It is on those issues—the look-through company issues—that we will be focusing most of our attention. The remaining remedial matters, including issues to do with non-resident withholding tax, appear to us to be sensible and are, in part, a response to the Government’s work in relation to the base-erosion and profit-shifting work being done at the OECD. It is, again, a failure to come to this House with a comprehensive package to deal with that. We heard today from the Minister of Revenue at the select committee that his point of view is that New Zealand cannot really do much. We are just going to have to wait and see what the OECD comes up with. He does not think we need a diverted profits tax in New Zealand, like his comrades in Australia and the UK have put in place. He is just prepared to do a few little tiny piecemeal acts in this area. We should be a lot more ambitious than that.

The Labour Party will support this bill, but it is an ad hoc, piecemeal response to a series of issues that require a strategic and coherent plan, which is sadly lacking from this Government.

Well, that was not a bad effort from Mr Robertson. Mr Robertson’s speeches on tax bills—and I have heard a few of them in the House now since I have been a member of Parliament—generally follow a fairly strict formula. There is the generic abuse of David Bennett in the first 2 minutes of the speech, and actually, to be fair to Mr Robertson, that can be reasonably amusing because David Bennett is a unique character in the Parliament. He is a superb chair of the Finance and Expenditure Committee, which I have the privilege to be on, shows real leadership, and, actually, the defamation that he has to suffer from Mr Robertson is uncalled for. So there are 2 minutes of generic abuse—

💬 Hon Clayton Cosgrove: I raise a point of order, Mr Speaker.

The ASSISTANT SPEAKER (Hon Trevor Mallard): A point of order, Clayton Cosgrove; I hope it is one.

💬 Hon Clayton Cosgrove: It is. I just wonder whether it would be worth reminding the member speaking about misleading the House.

The ASSISTANT SPEAKER (Hon Trevor Mallard): Mr Cosgrove, I think you are aware of the fact that that is not an appropriate point of order, and, therefore, you will stand, withdraw, and apologise for making it.

💬 Hon Clayton Cosgrove: I withdraw and apologise.

So we start with the 2 minutes from Mr Robertson about Mr Bennett, and then we get on to the generic complaints about Government tax policy. The reason that Mr Robertson does this is that the Labour Party does not have a tax policy. So he will spend about 3 minutes of a 10-minute speech with complaints about how there is no plan. It is like 2009 redux all over again when Labour used to say “The Government has no plan.” “Where’s the plan?”, says Mr Robertson. “There’s no comprehensive statement of principle. We don’t know where they are going with tax policy. We need more fairness in things like that.” So there are about 3 minutes of very repetitious behaviour about that. And then we get from Mr Robertson, in the last quarter of his speech, the cursory references to what is actually in the bill. To be fair to him, that was not a bad effort, because he spent about half the speech talking about look-through companies and various other things that the bill does.

Actually, the Government does have a comprehensive tax programme that it is implementing. This is part of it; this is the May tax bill. There are two tax bills per year. This is what is known as the May tax bill, and if Mr Robertson bothered to do his reading he would know that the Inland Revenue Department (IRD) runs a very comprehensive process called the generic tax policy process, which is extremely transparent and extremely consultative. It publishes tax policy discussion documents, it publishes material online, and it consults with the various stakeholders, with the companies, with the various interest groups in the area that are affected by tax law. It is extremely transparent. Actually, the bill that we are debating in the House, which is going to go to the Finance and Expenditure Committee for further consideration, is actually a fair way along a very consultative process to make sure that our tax law is fit for purpose and make sure that it is refined every year, as we need to do.

We have, in New Zealand, a very large body of tax legislation, the bulk of which is contained in the Income Tax Act 2007, of course. But we are far better off than many other countries that have extremely bulky pieces of tax legislation—tax codes. I think if you put the Income Tax Act and the various other pieces of legislation—if you printed them off and stacked them up—they get up to about my height or perhaps to the height of one of my colleagues who is a bit shorter than me. If you did that for the United States, I suspect you would be hitting the top of the New Zealand Parliament here with its high stud ceilings—and perhaps going a bit further. We have a very, very good tax system in New Zealand, and the aim of it is to have a comprehensive system that is broad based and has low rates. That is exactly what this bill does.

I want to make only another couple of points. The first is to just highlight for the House that this bill adds 14 organisations to schedule 32 of the Income Tax Act 2007, which makes these organisations exempt from income tax because they are charities. That is fair enough. It adds things like the Cambodia Trust (Aotearoa-New Zealand), First Steps Himalaya, the Hornsby Pacific Education Trust, and the Siphala Foundation. Fair enough. But you do have to wonder why it is that we have to pass a piece of legislation through Parliament and send it to a select committee in order to add organisations to a schedule to make them exempt from income tax under the Act. Surely this must happen a lot. I seem to recall about a year ago debating a similar piece of legislation—debating the May tax bill a year ago, basically probably around about the same time, soon after the Budget—in which we did various things to the schedule as well. I have got to wonder—surely there is a better way? Surely there is some regulatory process that would take this mechanism outside the legislature and put it in the hands of Ministers acting on behalf of advice or organisations. I think that would be a better process. So we will wait and see. I, for one, am looking forward to exploring why that is the case with officials in the select committee.

There is one organisation that ceased operations, which is Bicycles for Humanity, which, I know, Mr Assistant Speaker, that you will be interested in as a charity. I am also interested in it as well. It ceased operations, sadly. I do not know the organisation, but why is it that we have to turn up in Parliament and pass a piece of legislation to remove them from the schedule, to remove them from the charitable status exemption? It just seems a little bit strange. So I am looking forward to examining that at the select committee.

The second remark that I want to make about the substantive policy of the bill is that this bill does do some of the things that Mr Robertson said it was not doing. It does actually make some useful contributions to the law around trusts and around multinational tax behaviour. This bill brings into place rules designed to stop multinational corporations sidestepping withholding taxes and levies that are imposed on interest paid on borrowings by New Zealand operations. If Mr Robertson had bothered to read the KPMG commentary on the bill, he would have found that out. I expect that KPMG, along with the other organisations in this space, will be submitting to the select committee, and I am looking forward to hearing what they have to say. I am looking forward to hearing further from the IRD about what exactly we are doing in this piece of legislation and how that fits into the Government’s overall tax policy process.

This is a good bill. I think it is going to receive unanimous support in the select committee. I look forward to serving on that redoubtable Finance and Expenditure Committee with my colleagues Mr Cosgrove, Mr Bennett, and others, and examining it in more detail.

The Green Party will also be supporting this bill’s referral to a select committee, but, as with the Labour Party, we have got a number of reservations, more about what the bill does not contain than what it does contain. The previous speaker, Mr Bishop, referred to some of the things that the bill does do—in particular, in relation to starting the moves towards tightening up around multinational tax avoidance—and, of course, we know from the last 8 weeks or so that multinational tax avoidance is one of two very big, public events in relation to the tax sphere. The other one, of course, is around foreign trusts. This bill is the bill that would have addressed the laxity around New Zealand’s foreign trust regulatory regime and our transparency regime had the Government not, 2 years ago, killed off the Inland Revenue Department’s proposed review into how we regulate foreign trusts in New Zealand.

I just want to take a moment to talk about some of the context that has led up to this bill being introduced into the House and some of the things that we would like to see in the bill as a result of that time line. Back on 15 August 2013—oh dear, he has got his green book out—the department warned the Government about the high risks from New Zealand trusts. Mr Assistant Speaker, I am just going to quote here. It said in that report that our foreign trust rules were being perceived as a tax haven and were damaging to our international reputation. It said that foreign trusts were being used by people to avoid paying tax, not just in New Zealand but, in fact, anywhere in the world. It said that New Zealand’s current regulation was not good enough and that the regulation made it difficult to enforce compliance with the rules, and the department questioned the adequacy of our disclosure and record-keeping requirements and its ability to realistically reform the industry and to make it comply. So there were a number of concerns there.

On 2 December 2014, of that same year, Ken Whitney of the Antipodes Trust Group wrote to Minister McClay on behalf of the foreign trust industry, concerned about the Inland Revenue Department’s view of the industry—

💬 Dr David Clark: Who was that?

That was Ken Whitney of the Antipodes Trust Group, on 2 December 2014. In that email he claimed that he had spoken to the Prime Minister, and that the Prime Minister had assured him that there were no plans to change the status quo but that he should speak to the then Minister of Revenue, Todd McClay. The very next day Minister McClay expressed concern to Inland Revenue Department officials that their report might include removal of the foreign trust regime, and an official from the department responded, saying that they will “bear this in mind in how we write the report.” Then, on 12 December of that same year, the Inland Revenue Department produced another report on foreign trust rules, and it was sticking to its guns, Mr Assistant Speaker. It said that New Zealand’s foreign trust rules—you are looking at me a bit funny, Mr Assistant Speaker.

The ASSISTANT SPEAKER (Hon Trevor Mallard): No, you said “Mr Assistant Speaker”, so I was just making sure that you had my very undivided, as opposed to divided, attention.

Feel free to divide your attention, Mr Assistant Speaker.

It said that New Zealand’s foreign trust rules were damaging to New Zealand’s international reputation, so the department had a second report saying that, in fact, its recommendations for reform were even stronger than they had been in the previous August. A few days after that, Todd McClay met with representatives of the foreign trusts industry, unaccompanied by Inland Revenue Department officials, in Auckland at the offices of the Antipodes Trust Group company. That group sought from Minister McClay “a commitment from the Government as soon as possible that it will not conduct a public review of the foreign trust tax laws …”, but that it could keep on with its base erosion and profit shifting work, which has actually made it into this bill. So, in other words, it specifically said “Please don’t proceed with the review of the foreign trust industry, but feel free to continue with your base erosion work.”, which is exactly what the Government has done as a result of that meeting. So in this tax bill it has included some measures around multinational tax avoidance and has started to tighten up that regime and has not included anything around the foreign trust review that it was planning. That group said that its view was it would “severely damage” the industry if that work was to proceed.

Then, on 22 January 2015, there was another letter sent to the Minister proposing another meeting and expressing how pleased the group was that the foreign trust industry was, yet again, meeting with the Minister, who then promptly met with OliverShaw, one of the other companies involved in this. In May 2015 the Minister of Revenue wrote to the foreign trust lobby group that he had been meeting and conversing with, reinforcing the earlier promise that the Government had no plans to review the foreign trust tax rules, and I just want to point out again that that is in stark contrast to both of those reports from the Inland Revenue Department expressing real concern about foreign trust regulation and about how, actually, it ought to be included in the review, and thus some of those reviews would have made it into the tax bill that we are debating tonight. Mr McClay concluded: “I trust that this provides you and your industry with the certainty needed to continue to do business in New Zealand.” Then, on 19 May 2015, the same Inland Revenue Department official informed her staff that there would be no review of foreign trust regulation in New Zealand.

The Panama Papers, which Mr Robertson referred to, have changed all of that, of course. They have started to shine a light into a dark place.

The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! I am now going to interrupt the member after the member, I think, worked out that I have been thinking about it for some time. In a first reading members can make passing reference—it is quite a broad debate, but members can make passing reference—to what is not in the bill. I have let the member run for some time because members previously, including the member immediately before him, spent quite a lot of time on what was not in Mr Robertson’s speech rather than focusing on the bill. But I am now going to ask the member to move from making passing reference to the bill to making only passing reference to what is not in the bill.

Certainly, Mr Assistant Speaker. Well, the conclusion of my passing reference to what is not in the bill is that we are 2 years behind on foreign trust law reform, and that ought to be in this bill.

In 2013 the Green Party introduced a piece of non-controversial legislation that would have imposed a more rigorous registration and disclosure regime, and we are hoping that we will be able to introduce that into this bill in later stages of the bill’s passage through the House. Those measures would help to restore international confidence in New Zealand’s international reputation as a well-regulated and transparent place to invest and trade.

So I will explain, given all of the absence of proper reform around foreign trusts, why we are supporting the bill through the House, and certainly to its next stage. It is because it does go some way, as I said earlier, to closing down some of the look-through company abuses that have been occurring and some of the profit sharing from multinationals, which has been recommended by the Inland Revenue Department. It is compromised, of course, because the National Government is not prepared to go as far as the department wanted, nor as fast, but it does move us in the right direction. The Government has, of course, known about multinational tax avoidance for many years but has been dragging its feet, so it is good to see in this bill some progress around that.

Budgets in 2016 in the UK, Canada, the United States, and Australia all saw new measures to close some of the biggest loopholes in multinational tax avoidance around the world, but Budget 2016 in New Zealand saw no new measures at all to deal with that trend in New Zealand, and, in fact, there is a wall of funding—a cliff top—that we are about to go over in a year unless the Government addresses this in terms of the Inland Revenue Department’s ability to investigate and enforce. The Australian Government expects nearly A$4 billion in taxes from multinationals. We could be doing the same thing if this bill was tighter than it is, and we will be looking for ways to tighten it up even further.

The bill is highly complex and it will require thorough scrutiny by the select committee, but it is promoting some changes that we believe will have a positive impact on tax avoidance by multinational companies and tax abuse through look-through companies, as well. So it is a step in the right direction. It does not go as far or as wide as we would like to make a meaningful difference to the billion dollars, or more, of lost tax revenue through multinational tax avoidance in New Zealand, but it is a step in the right direction, and for those reasons the Green Party will be supporting this bill through the House. Thank you.

I rise on behalf of New Zealand First in support—only at this stage—of this large omnibus bill entitled Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill.

💬 Hon Clayton Cosgrove: What a title.

I know—it is a beautiful title, but it does speak to the frustration some of us have on this side of the House when we—

💬 Tim Macindoe: We can understand your frustration.

—keep having these remedial bills put in front of us. I say to Mr Macindoe and the New Zealand public that these remedial pieces of legislation should cause the New Zealand public some great concern—some great concern—especially under that National Government. Here the Government will be making, as far as I have had the chance to count—I have had some amazing frustration at the pace this bill has been presented to the Opposition parties and then suddenly it is in the House, frustrating my genuine endeavours to make a thorough and full analysis of the material before us. From what I have been able to count, the Government will be making over 50 changes to amendments across seven pieces of legislation, ranging from the Income Tax Act 2007 to the Stamp and Cheque Duties Act 1971.

I want to add to the words of my colleague from the Labour Party, who spoke quite eloquently about the ad hoc nature of this piece of legislation, and, in fact, I suppose, echo the words of the co-leader of the Green Party James Shaw when we ask where the direction is. Where is the understanding that the New Zealand public is supposed to take from pieces of legislation like this, especially with regard to hugely important issues that are defining the world around us, and certainly defining the nature of the National Government and its lack of action thus far around tax issues and avoidance?

This has come on to the Order Paper, and I just noted that it took just a couple of weeks to get into the House, which is unusual. It sat at the very end. But I do want to acknowledge—although I may not have had the time to do my normal consultation with friends in the accounting field and lawyers—some of the words of Mr Bishop, who gave one of his better contributions of late—

💬 Hon Ruth Dyson: Not a very high bar, though.

—no, it is not a high mark—on the generic tax policy process used.

In reading the impact statements, you do get an understanding of the consultation that the officials have undertaken in coming to the House with the legislation as it sits thus far. There was comprehensive consultation. I say that with reservations, because, for example, there is tax legislation in here that relates to councils, but only the Auckland Council was consulted. So you have to wonder how robust the feedback was in terms of what the nature of those changes will mean for council-run State-held entities. It is complicated. I think everyone in the House has acknowledged that.

I do acknowledge that the consultation with the community thus far has been, to a degree, comprehensive. That is why New Zealand First is offering its provisional support—at this stage of the debate, anyway. From here we are able to go to the select committee and have not only officials but also our public and our experts out there come to the select committee and give us feedback. I know, without any doubt whatsoever, there will be a large, large array of issues that will need tidying up. The last piece of tax legislation that came before the House included components of the brightline legislation. New Zealand First opposed that right from the start, because we knew that it was a waste of time marketing spin, but this one, at least in our readings, does move us in the right direction.

So I agree with the Minister of Revenue’s contribution. I do agree with Mr Bishop, which is unusual, that the tax system does need to be defined and made such that it is broadly fair and that the New Zealand public can have a good and transparent understanding of their tax obligations. The Inland Revenue Department (IRD) and the Minister themselves talk about the issues around compliance becoming fewer if members of the public understand what their obligations are, and we fully concur. Unlike the last piece of legislation, which did the exact opposite, we believe at this stage that we are moving in the right direction.

I do not think any amount of fast talking from the Minister on the ICT spend, which in my understanding is from $1.2 billion to $1.6 billion on the IRD upgrade, can justify those numbers just yet. That is an abhorrent number. That is frightening. I do not know why the New Zealand public has not rallied against $1.6 billion—or $1.5 billion, if you concede the Government numbers—on an ICT upgrade. But, you know, we do want a transparent tax system. The Minister will have a lot to answer for, and he will have to answer to the Opposition constantly for that spend, so we will move from there.

You will note the theme from the contributors this afternoon. We managed to dig into some depth on at least one of the over 50 changes. I looked into the double tax agreements and the anti-avoidance rules, which I think Mr Shaw talked to. I think I, unlike Mr Shaw, will acknowledge that the Government is actually looking at the trust structures here and the companies in terms of their avoidance procedures. I think what the Government is acknowledging with this legislation, as I read it thus far, is that the DTAs—the double tax agreements—“do not prevent … anti-avoidance” at this stage. That is a quote from the regulatory impact statement analysis itself.

What I will say is it has taken way too long to get to this point, to have this conversation about legislation around tax avoidance for these large multinational corporates. It has taken way too long for the Government to get here. To be fair, I am not even satisfied at this point that the legislation as it stands will actually solve the problem. At this stage it is a matter of degrees. The double taxation agreement will take precedence. There has been no case law to examine the issues around this at the moment, but I think we may still have some issues as we move forward unless the legislation there has changed.

New Zealand First has said that the tax settings need to be changed, and we look to Canada and Australia, for example, as early adopters or those who act quickly in acknowledging the issues with tax non-compliance with large multinationals. I can see that there is work being done by the OECD, and New Zealand does need to work in parallel with those efforts, but we have examples from around the world of Governments acting unilaterally and not compromising those efforts, holding these big multinationals to account with regard to their tax compliance. That is what is fair and what is reasonable in undertaking business in our jurisdictions.

I do look forward to a comprehensive select committee process. I look forward to the Committee of the whole House. We here in New Zealand First have no doubt there will be much to debate. I just want to say again for the record, so it is clear, that it is only at this stage that we support this piece of legislation, so that we can get it through to the select committee so that we can have meaningful, broad, and robust debate on tax legislation that must—must—go through that process. Thank you.

I do not intend to talk for as long as Mr Tabuteau did on this bill. I congratulate him on that very well-drawn-out effort on this bill. This bill contains a range of very well-meaning changes to tax law—none that are overly earth-shattering, though. As a number of speakers have pointed out already, it does contain a range of matters that improve the tax legislation in this country, particularly with regard to ensuring that we continue to level the playing field between New Zealand companies and overseas companies.

This bill also contains that wonderful clause—that wonderful “yes” clause—the “Annual rates of income tax for 2016–17 tax year”. Of course, this bill continues with the Government’s approach to taxation, which is to ensure that we maintain important public services and fund those through taxation but not tax people through the teeth like we see other parties in this House have been proposing. I am sure that if we were discussing this bill and Grant Robertson had written this bill—long may that not be the case—we would probably be discussing annual rates that would be far higher than those we are discussing today, with all of the huge, multibillion-dollar promises that Labour has been making so far, and without counting, of course, the Green Party promises that they will have to include once their marriage goes a bit further. The annual rates that we would be looking at in a bill like this would be much scarier.

As members have commented quite collegially already today it is going to be a good opportunity at the select committee to look at the many measures in this bill and hear from tax experts about how we can refine those further. I always find that tax bills like this that go through the Finance and Expenditure Committee attract very high-quality and very technical submissions, which aid the committee well, and the committee always does work very well together in trying to find changes to the bill that improve it and ensure that we are passing good-quality tax legislation. It is a long bill with well-meaning changes, and I am happy to look forward to the select committee process later on.

I am pleased to take a short call for the Green Party on the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill. As has been well covered by previous speakers, this is a very detailed piece of legislation covering a lot of ground. The unifying thread of the legislation is tax, and beyond that it is a little bit hard to make out what the unifying concept is, as so much is covered in this piece of legislation.

I will list the pieces of legislation that are covered by this. It may be slightly painful, but I think that if anybody is listening or reading the transcripts it may be an easy way to work out whether this covers an area that you are concerned with. It will look at the annual rates of income tax for 2016, making changes relating to closely held companies, look-through companies, and qualifying companies; also non-resident withholding tax for “Related party and branch lending”, the Goods and Services Tax, “Related parties debt remission”, “Loss grouping and imputation, “Remission income, insolvency, and bankruptcy”, “Aircraft overhaul reserves”, New Zealand double tax agreements, “Schedule 32 donee status” for charities, “Land tainting and council controlled organisations”, “Loss offsets by mineral miners”, “Working for Families Tax Credits”, information sharing, the application of the time bar to ancillary taxes, and other remedial amendments. For all of those with a very keen interest in our taxation system, I hope that was helpful.

For me, what characterises this legislation, in what I can see in it at this stage, is a sense of lost opportunity, really, more than anything in the detail, as I have not, truth be known, had the chance to go into it in its full depth yet. But we are aware, as my colleague James has spoken to quite significantly already, of the disappointment around the fact that it does not cover or provide any protections for us around foreign trusts, to make sure that New Zealand’s reputation is secured internationally and that we are keeping up with the movements in the world to protect the tax bases of each country to make it as difficult as possible for those with resources to be able to hide their wealth in other countries and avoid supporting the countries that have supported them so well. So this is a lost opportunity on that basis.

I would also suggest that this bill is a lost opportunity in terms of addressing child poverty because, although it is making minor changes to the Working for Families tax credit, whenever we look at the Working for Families tax credit we have the opportunity to make an absolute difference to reduction in child poverty in this country. We know that we have over 305,000 children living in relative poverty in this country and massive material hardship, which means kids who do not have their own bed, who have never had a birthday in their life because their families do not have the money to be able to buy presents or put on a special dinner, and kids who are getting sick and being hospitalised because their families cannot afford to heat their houses. This bill could make those changes to Working for Families of bringing the in-work tax credit in line with the family tax credit, giving those poorest families who are not able to be in the workforce the $72.50 that other families who are able to work that 20 hours get. It would reduce inequality in our country and protect our most vulnerable children.

It would also be an opportunity to reset the abatement rate for Working for Families, which the Government has very sneakily been increasing, clawing back money from not particularly well-off people in this country—people who are still struggling and needing the support of Working for Families; to be able to give it to some of the poorest New Zealanders, rather than taking it from the wealthiest. I hope that we use this bill as an opportunity to promote transparency, to be a good international citizen, and to tackle child poverty. To me, that would make this bill interesting.

Tēnā koe, Mr Assistant Speaker. Thank you for this opportunity. I rise to make a short contribution on the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill.

I guess when your normal New Zealander is out there and they look into this House and they look at the pieces of legislation that we are currently debating, they want to see several things. They want to see several things, particularly with regard to taxation and taxes. They want to see that (1) it is transparent—all of the processes are transparent. They want to see that (2) it is robust, (3) that it is fair, and, finally, (4) they want to see it is user-friendly. I can tell you that as I have read through much of the material here I have thought: robust? Yes. Transparent? Hmm, questionable. Fair? I think it is pretty fairly well weighted in favour of the businesses and in favour of the taxpayer. Is it user-friendly? That is a big question I will leave on the floor this evening.

Members across the House have already spoken about how you fall into dangerous territory when you start making a series of rules around taxation without any clear policy framework, a clear policy framework that provides for all of the attributes we look at when we consider taxation law. We find, then, that when you start making these ad hoc rules along the way it often becomes problematic. I have already mentioned how when you have got a clear framework around taxation, when you set the annual rates—as this particular bill will be doing for 2016-17—there is a clear direction with your taxation. There is a clear policy direction that allows for the public out there to have a look at this particular bill and say: “OK, if we’re going to pay these taxes that are set by this particular bill, we expect these types of things to come from them. We expect infrastructure spend, and we expect spend on the essential services to our communities.” I get back to my point about how, if you are making ad hoc changes to taxation law, you fall into a trap of that lack of policy framework and that lack of policy direction.

This particular bill, in setting the annual rates for 2016-17, is supported on this side of the House to make sure that it does get to the Finance and Expenditure Committee. There are far smarter people out there who are able to provide fantastic advice, which I am sure the select committee will look forward to hearing. We support it at this particular point in time. At the select committee you can expect continual challenges from this side of the House to make sure that when large omnibus bills such as this one are passed in this House, the detail is not simply swept under the carpet, and that the transparency for our public can be found in the debate and in the processes this bill will go through from here on out.

I do not want to go on too much further but to say that we will be supporting the bill at this point in time. We send it off to the select committee and we look forward to hearing from the submitters: the experts like the Inland Revenue Department, business owners, tax specialists, and accountants from across the country who will have an opportunity to have their say on this particular bill moving forward. On this side of the House, we will be supporting it. Thank you.

It is pleasure to be talking on the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill. In the Finance and Expenditure Committee—and some of its members are in the House tonight, which is good to see—we have considered a number of different tax matters during the course of the year, all seeking to continue to improve our tax system, to make it simpler, and to maintain its integrity. It is a continual evolution of what we are trying to do with our tax system.

I would have to say that most people around the world look at our tax system and regard us with a sense of envy because we have a very simple, clear tax structure. At a personal tax level, we only have four different tax levels. Company tax is very simple to understand, and partnerships and all those types of arrangements are very, very simple. That has been an ongoing process of this Government to make sure that what we have in place is something that people can understand easily, engage with, and so can pay their due taxes. I would hasten to note that the Inland Revenue Department is undertaking one of its big transformation projects at the moment—a billion-dollar project—and the first roll-out of that will be changes to the GST regime next year, which is going to make it a lot easier for companies, and smaller companies in particular, to meet their commitments around GST. Ultimately, we also want to see smaller businesses paying their taxes as they go. This pay-as-you-go system is moving away from a provisional tax system, and I think it is a very good measure that was introduced in the recent Budget.

This particular bill deals with a few changes. First of all, it mends the Income Tax Act 2007, the Tax Administration Act, the Goods and Services Tax Act, the Stamp and Cheque Duties Act, the Student Loans Scheme Act, the Income Tax Act 2004, and also the Goods and Services Tax (Grants and Subsidies) Order 1992. There are particular things that I just want to focus on. At a high level, the bill is first of all about constraining, reducing, or correcting issues relating to land tainting. Second, it is about ensuring that the Working for Families tax package is maintained; we know how important that is to most New Zealand families and we want to make sure that the package continues to operate in the way that it should, to support our lower-income families. Third, it introduces, allows, or permits 14 new charities. As you are probably aware, charities are reviewed every year. I think, from memory, there are about 2,500 that are reviewed to make sure that they are of a charitable status and meeting their commitments. As a result of that, there are 14 new charities being introduced this year. The bill also seeks to set the income tax levels for the 2016-17 financial year, which, of course, is essential for the Government if it is to continue to remain in business and do all the good things that it is trying to do.

I just want to focus on a couple of little issues. One is that we are changing the rules relating to look-through companies. As many of you are probably aware, they are similar to partnership arrangements. We are making some specific changes around them to make sure that people are taxed at their personal level and the complexity around those look-through companies is reduced. The second thing is that we are specifically targeting where non-residents have provided debt to a New Zealand entity—it might be a branch or some structure here in New Zealand—to make sure that appropriate interest is being paid on that. I am sure that the Opposition will be very pleased to hear about that measure. We want to make sure that non-resident withholding tax is paid for related party debt where it involves non-residents. We are also making changes around deducting GST on capital raising costs. Most companies going out capital raising would normally get professional advice for this. They need to be able to get that advice, and normally it comes at a cost with GST. We are making sure that that is standard and that companies actually have the ability to deduct that GST, because at the moment they cannot deduct the GST portion. We are making some changes and technical amendments around aircraft maintenance. Those are the key aspects of this bill. I look forward to working with the committee and the House as we work through this process.

As other colleagues on this side of the House have said, we will be supporting the bill, at least to the select committee. I acknowledge a number of the points that have been made in respect of it. Yes, this bill does make some positive changes to address abuses in the tax system. It is true that it makes changes relating, as the member Andrew Bayly said, to closely held companies, non-resident withholding tax, related parties, branch lending, goods and services tax—and the list goes on and on. But I do make the point that, although there are a number of positive changes in this bill, this is yet another opportunity where the Government could have made a big hit or a big statement in respect of overall tax planning and tax policy. What you do have in this—which as the name reads is like a sort of motion picture—is a mishmash of issues dealt with by yet another sort of clean-up bill where a whole series of issues are thrown into a piece of legislation. We are here, and it will then go to a select committee, and we will, you know, spend a lot of time cleaning it up.

But if you look at some of the big issues—

💬 Alastair Scott: Ha, ha!

The member laughs, but I have to say that if you look at the cleaning up, that committee has done a lot of wet work in terms of cleaning up National Party tax bills. If you go right back—I am glad he had a bit of a giggle about it—to the brightline test and to the 2-year hold issue, they were an absolute mess when they got to the select committee. I am not talking about the Chair—not you—but the committee; they had to be cleaned up by the Finance and Expenditure Committee, and the member knows it. If you go back a couple of steps, members will recall the tax on car-parks and the tax on computers—an utter mess that went to the Finance and Expenditure Committee. It was trumpeted by the then Minister, Peter Dunne, and it ended up on the cutting room floor. So I do not have a lot of faith in terms of the quality that will come out of this piece of legislation. I do know with a high degree of certainty—having sat on that committee for many years and chaired it once—that this piece of legislation will need a lot of work.

No disrespect, but I do have concerns about how it is when you lose people out of the department like Robin Oliver, who was the former deputy commissioner of the Inland Revenue Department (IRD), and the fact that many of those examples I have given today—particularly the computer and car-park tax debacle—would have never hit the Minister’s desk, would never have been given 5 minutes’ notice, and if they had got that far, they would have been cauterised at that point, and the deficiencies in that legislation that were identified would not have made it into this House. It does worry me—no disrespect to officials—that that degree of knowledge and that degree of lineage within the department are not there, and that we are dealing with these sorts of mishmash bills.

I will pick up on one thing that Mr Bishop said that I think is worth consideration—but, again, I lament the fact that I suspect that the Government will not do anything about it. I think it is quite strange and bizarre, and a waste of time, energy, and money that every time that we want to alter the charitable list—those who are entering the charitable list; there are 14 contained within this bill—we have to convene the Parliament, we have to write up a piece of legislation, and we have to go right through the whole palaver every time this is done. I would have thought the great minds at the IRD, the Minister of Revenue and others, and the great minds on the Government’s side of the select committee could turn their intellectual capacity to coming up with some sort of formula that would allow us to circumvent that process. After all, what you are attempting to do in respect of charities is to ascertain, in effect, whether they are the full quid. Are they genuine, do their aims and objectives in raising money in the variety of ways they do, and the utilisation, and the distribution of that money meet “charitable purpose”, and does it fit within the legislation and the law?

I would have thought you would not need to convene the Parliament, and have a 2-hour debate to deal with that particular issue, if you will. I would have thought that when we talk about tax simplification and we talk about the great benefits to business that the Government trumpets—what about doing something for the charitable sector, and making it more efficient, if we want to promote philanthropic behaviour, charitable giving, charitable purpose, so that it does not have to jump through a whole series of hoops, a whole series, you know, a legislative framework, and the convening of this Parliament to actually get on with what it does best. But that might be a test, or a barrier, or a height bar that is just a wee bit too high for some of the Government members to address.

I also want to address something that Mr Robertson said in his speech. It relates, again, to what could have been put in this bill, apart from a whole lot of tinkering measures, positive though they may be, in terms of dealing with the big issues. It was very instructive this morning at the select committee when Mr Robertson asked the Minister “Is any work being done by the IRD on a land tax?”, and the Minister—to be fair to him he is a new Minister in the role—looked sort of “possum in the headlights”, and asked Mr Robertson to define what he meant by land tax. Well, I am not an accountant, but I would say it is a tax on land. I would have thought so. That is a reasonable definition of what a land tax—

💬 Phil Twyford: A bit of a leap of faith.

Bit of a leap of faith—a tax on land. Mr Robertson then tried a third go, which was to ask why did he not define it in the same way the Prime Minister defined it—whether that would help the Minister. The Minister’s reply, and I summarise it, was basically “Well, you know, I don’t quite know what the Prime Minister’s definition of it is.” Then we got to the guts of it: the IRD commissioner looked at the Minister, and the Minister looked at the IRD commissioner; both looked rather nervous. We got a sort of answer that he had not had any advice, and the work plan of the IRD had not yet been produced. That was the answer.

I think if you translate all that sort of gobbledegook out, I would say, if I was a betting man, that you could probably put the house on some sort of land tax being worked on or appearing, probably with a different name—bit of camouflage, bit of shellac—in the IRD work programme, whence it comes. But there is an issue, of course: a land tax and international foreign trusts. Those are two big issues of moment, of huge concern to the communities, which have massive economic and fiscal implications for this country, that could have been addressed in this bill.

So, although I say that the Opposition supports the bill, the Opposition is girding its loins for the Finance and Expenditure Committee process under the chairmanship of Mr Bennett, because we know that we will have to take the scrubber to this piece of legislation. There will be some massive holes in it, as there always are when this sort of mishmash is presented to the House. We lament the fact that we are not sitting down trying to grapple with a piece of legislation that deals with the big issues that affect this country.

There are the big issues around New Zealand’s perception as a possible tax haven, the big issues around housing and in respect of tax options around that, and the big issues of moment to those people who tonight will again sleep in cars, under bridges, and under bushes and trees and other places, because they cannot afford the rent for a home, let alone the prospect of ever buying a home. I know that the member Alastair Scott is waving his arms and legs around. You need flags to do semaphore, actually, I am told, not just your hands, but thanks for waving—I do not know whether that was with two fingers or five. Those are the big issues that could have been dealt with in this piece of legislation, not just the shopping list, valid though it is: goods and services tax, related party debt remission, loss grouping and imputation.

The member Mr Bayly said in his speech that people would be hanging on every word; they will understand every aspect of this bill. Well, the man who has become the “Bear Grylls” of the Parliament with his very worthy, I should say, exploits and expeditions should know that, I suspect, most people will not be concentrating on the aspects and minutiae of this bill, or even the headline issues. What they may well be looking for in a tax bill are the big issues—land issues, housing issues—and how they are dealt with. Perhaps they might be looking at how the Government might propose to deal with foreign trusts. They are the sorts of headline issues that they are reading about in the paper and watching on the news every night, and they are the things that the communities are talking about. So I just say to Mr Bayly that he may want to re-engage with his community, have the odd clinic on a Friday or a Monday morning, and maybe ask a few people what their priorities are in terms of tax framework, tax planning, and tax legislation. That being said, we await with bated breath the officials’ report at the select committee.

I would like to focus on the bill for a minute, specifically to discuss some of the ideas that Stuart Nash was talking about earlier, when he was trying to suggest that this tainted capital gains portion of the bill somehow enabled capital gains that would otherwise be taxable, to be distributed. In fact, the opposite is true. That piece of the bill enables gains of a capital nature to be distributed as capital sums, rather than, as is the case today, as taxable distributions. I just thought I would clear that up for Mr Nash at the outset.

Other members have quite correctly said there is a lot going on in this bill. Jan Logie listed the whole gambit of affected legislation, and I am not planning to do that, but what I will do is help Mr Robertson out when he was confused about what were “The overall goals of the Government regarding taxation”—I think that is what his words were. One of the overall goals is to make sure that taxpayers have more of the money that they earn remain in their pocket. That comes, in relation to this bill, in the rates that are set by way of this legislation. That is important—I have not heard anyone in the Opposition talk about the taxpayer. They are the people who we are taking money from, and spending on their behalf to help those who are most in need.

The philosophy of this side is, as I say, to either keep rates the same or reduce them, and that is only going to happen if we have good public accounts—accounts that are managed prudently and effectively—and by making sure that we hit surpluses. As the House knows, projected surpluses in the foreseeable future are positive, rising to between $6 billion and $7 billion in the next few years. That enables us to think about options, whether it is to pay down debt, or, coming back to the bill, reduce income tax rates. The alternative course, from the Opposition, is to talk about universal basic income (UBI) as being a core policy of the Opposition.

I just thought I would note that there is an article, actually, in the Wall Street Journal of 4 and 5 June this year, which specifically discusses a guaranteed income for all. For the House’s interest, it is written by Charles Murray, who first talked about a UBI in 2006. If you read the article, a UBI is a scary thought, because everyone gets paid a certain amount, no matter what their circumstances are. There is no consideration for those who need it most—

The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! I am going to ask the member to come back to the bill.

What I am saying is the Opposition’s policies in general—

The ASSISTANT SPEAKER (Hon Trevor Mallard): No, no—the member will come back to the bill.

OK, the tax rates that are in this bill would not be the same if it were an Opposition made up of Greens and Labour, because we know that their policies are only about spending taxpayers’ money inefficiently and ineffectively.

The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! I probably should have got to my feet earlier to warn the member. He actually started his speech quite well. He stayed on the bill for about a minute and a half, but since that time he has diverted a long way from it. He has gone through what is not in it, from the Government perspective, and now he is going through what is not in it, from the Opposition’s perspective. Neither of those parts are relevant, as I have made clear to members earlier.

Thank you, Mr Assistant Speaker. This bill does a number of things. It is going to be an interesting select committee process. There is going to be a lot of discussion. It is a collegial select committee, and I look forward to that debate.

Bill read a first time.

Bill referred to the Finance and Expenditure Committee.