Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill

I move, That the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill be now read a third time. For the benefit of members, I will briefly recap the three main items contained in this bill. This is a bill that aims to ensure that people pay their fair share of tax. Ours is a good tax system and most people do the right thing and pay their tax as they should. The Government wishes to encourage more people to do so by making it easy to get tax right and difficult to get it wrong.

The principal proposal in this bill, therefore, helps to support businesses to pay their taxes by making the processes as easy as possible and, in doing so, reducing compliance costs for those businesses. To that end, the bill addresses a key concern for many businesses: the processes for calculating and paying provisional tax. This bill introduces a new option for calculating provisional tax: the accounting income method, which aims to more closely match income earning with tax payments and thus reduce compliance costs for small businesses. The bill also seeks to reduce or remove the application of use of money interest for the vast majority of business taxpayers. In addition, the bill proposes to reform the late payment penalty by no longer imposing the monthly incremental penalty from new GST, income tax, and overpaid Working for Families credits, assisting businesses that could trade their way out of debt.

I said before that most people comply with their tax obligations. Unfortunately, there is a small group of people who seek to evade their tax obligations by hiding their taxable assets offshore. The OECD-led initiative, the Standard for Automatic Exchange of Financial Account Information, aims to prevent and detect such tax evasion through greater sharing of information between jurisdictions. The second major component of the bill, therefore, proposes legislation to enable New Zealand’s participation in this global effort. Under this initiative, applicable New Zealand financial institutions will report information to the Inland Revenue Department on accounts held or, in certain circumstances, controlled by non-residents. The Inland Revenue Department will then share relevant information with other tax jurisdictions in specific countries. The Government is keen to ensure that New Zealand plays its role and meets its international obligations, but at the same time the Government is conscious of the compliance costs for financial institutions. The bill therefore contains specific measures to help to minimise compliance costs.

The third, and final, main feature of this bill is also concerned with international tax matters and proposes amendments to our foreign trust rules to ensure our disclosure rules are fit for purpose. These amendments are recommendations adopted from the recent Shewan inquiry into New Zealand foreign trust disclosure rules. The proposed amendments to the foreign trust disclosure rules will strengthen our rules and help make sure that we maintain our reputation in the context of best practice of international exchange of information.

These are the main features of this tax bill. The bill also contains a number of remedial changes intended to ensure that the tax rules continue to be applied consistently and clearly. In bringing this bill to its third reading, I thank the policy officials and the drafters who worked on the detail of the bill, the organisations and individuals who made submissions on the proposed legislation, and the Finance and Expenditure Committee for its consideration and recommendations. It gives me great pleasure to commend the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill to the House.

Labour will support this bill but with reservations. Let me first make a couple of comments. It is sad to see the Minister speaking on this bill, because I thought she was a particularly good police Minister who understood what was going on in the regions and then put forward a package to Cabinet that I think was really going to make a difference and was going to trump us right across it. Unfortunately, for some reason unbeknownst to any of us over here, she lost the portfolio and was replaced by someone—

💬 Grant Robertson: No, I do think I know the reason!

—who really has absolutely no idea. We do know the reason, do we not, Mr Robertson? But she was a good Minister who understood the issues and has been replaced by someone who really does not. As a consequence, we have the Minister who has taken over this bill. We cannot blame the Minister for this bill, because she was not the Minister when this was introduced.

The Finance and Expenditure Committee has heard—what, Mr Robertson? Eight, nine bills this term?

💬 Grant Robertson: Yep.

At least eight or nine bills. It has got to the stage where submitters, who spend an incredible amount of time and money and energy on writing submissions, have said officially that this is not the way to craft tax legislation; it is not the way to do it; there was too much before the committee; and it is not good policy. Even the experts who used to work for the IRD are sort of saying that this is not the way it should be done.

I will give you an example of this. The reason I say this is that tax legislation, by its very nature, has to be robust. It has to have a wide level of consultation so that when it goes out and is signed off by the Governor-General and becomes law it is difficult to avoid. There are always people with huge brains who spend an inordinate amount of time trying to find loopholes, and that is the nature of it, but within this piece of legislation, as an example, we are amending a tax bill that passed before this House not 6 months ago. That is not good law. Just to really show what a farce this is, we had members of the public submitting on a bill that, in fact, we were not hearing. They got confused with what bill it was and came in and submitted on the wrong bill. That just shows how poorly this Government is treating tax legislation.

Let me anticipate what Mr Scott and Mr Bishop are going to do. They are going to stand up and say: “We are the business of Government and this AIM method, the accounting income methodology, is great for business because it is going to simplify the tax system for the small to medium size business owner.” Well, it will simplify the system—of that there is no doubt. It is quite similar to, even though not quite as good as, the one that Labour released in Opposition about 12 months ago, but the thing is it has taken National 8 years. The party of business—it has taken it 8 years to introduce a piece of legislation that makes it easier for business. That is not what the party of business does. In fact, the vast majority of my friends—and I have told this story before, but I just smile every time I hear it—say “Do you know what? Philosophically, I suppose I should be National, but my business always does better under Labour. Labour always passes the sort of legislation that helps my business.”, and that is the case.

Eight years—and I know Mr Scott and Mr Bishop, and a whole lot of National MPs, will have been lobbied by different businessmen and businesswomen who have told them: “Provisional tax is a real bummer. It’s hard on cash flows. It’s hard to make ends meet. When we have a great year, it’s fantastic, but the next year when we have to pay our provisional tax, it’s really difficult. Can’t you do something about that?”. The reason I know these gentlemen will have been lobbied on it is that we have been lobbied on it numerous times. It is probably the main bugbear of small to medium sized business owners. The tax is hard to comply with and it is hard to pay—it buggers up cash flows. So National has come up with a solution, but it has taken it only 400 weeks. What does that say about the so-called party that stands up for business? Those members have been asleep at the wheel.

I suspect this bill will get the Royal assent before the election, but only just, so it is going to be 9 years that their constituents—who, in fact, are probably our constituents, from what we are hearing more and more—have had to deal with provisional tax. We could not clarify this at all or quantify it, but I wonder how many businesses actually ended up going under because they ended up with a massive tax bill. I mean, I know what it is like. I am one of these people who, when I was running my own business—just a small one—thought that I was dedicated to this. I would put aside a certain amount of money for my GST and my tax, and then something would happen with the car. I would think “Oh no, no. I have got to pay for it out of this account, but I will put it back.”, and then I would get a GST bill for provisional tax and I was like: “Oh my God! That’s right, I had to put the money back in.” Provisional tax was difficult.

It made it difficult, and we cannot expect our small to medium sized business owners to be financial gurus. What we can expect them to do—and, in fact, what we want them to do—is be really good at running the business that they have core competencies in. That is why the tax package that Labour introduced for small to medium sized businesses was so good, because it took a lot of this worry, a lot of this planning, and a lot of this cash flow management out of the hands of the small-business owner, if they wanted to do that, and it allowed them to concentrate on the issues that were important to their business.

This bill does that to a certain extent—not to the same level, but to a certain extent. That is why we are supporting this, because, quite frankly, anything that makes it easy for businesses to operate of course we are going to support. It just could have been done better. I wonder aloud—I wonder whether, in fact, those members saw our proposal and said: “Shivers! This is pretty good.” But, of course, politics being politics, they said “We can’t adopt this. We’d better come up with one of our own.”, so they came up with one that was not too bad. It was not very good; it just was not too bad, and it will make a bit of a difference. It does not come in for a while—in fact, it does not come in until after the election. But it just could have been so much better, and it should have been so much earlier—and it could have been so much earlier. You know, that is the thing about this.

The other thing I want to talk about briefly—and I am assuming that Mr Robertson is probably going to talk about this at length—is the foreign trusts rule. I had to smile to myself when I heard Minister Woodhouse talking about a certain candidate doing a flip-flop. The reason that made me smile was that I distinctly remember the Minister of Revenue saying on the television and on the radio—and I know this because I followed him in an interview—“We do not have a problem. There is no problem with the foreign trusts regime in New Zealand. Move on, nothing to see here.” Well, about—was it a week later, or was it a couple of days later?

💬 Grant Robertson: As long as it took for a focus group.

That is right, yes. So a couple of days later, he came back and said “Well, we might have a problem.”, and then, of course, it got escalated to the Prime Minister, John Key, who knew there was a problem. He had just sort of hoped that his Minister would cope with it a little bit more competently than he had. And the Minister came out and said: “Well, they’re not really doing anything illegal, but it might be immoral.”

Well, in my book, we have got a problem. When the Prime Minister says that the tax laws do not work, we have got a problem. And the interesting thing is that when we have a look at the regulatory impact statement for this bill, the IRD itself said that there was a problem with this regime. It said: “Whether it is real or perceived, it doesn’t matter. There is a problem.” So we have got to fix this problem—there is no doubt about that.

What happened was the IRD considered three different options. The first option was the status quo, the second option is what we are going with at the moment, and the third option was to actually remove any ability to have these foreign trusts. The interesting thing is it acknowledged that “Option 1 … Main objective … The status quo does not meet the objective of reducing the potential for perceived misuse of foreign trusts in New Zealand …”. So the IRD knew there was a problem—in fact, I understood that they knew there was a problem 2 years ago but did not do anything about it.

But the interesting thing is that option 2, which we are going for—which is what is in this bill that we are debating at the moment—actually says: “More disclosure in relation to foreign trusts and access to the information by relevant agencies would make it difficult for these vehicles to be used to avoid foreign tax.”—“would make it difficult for these vehicles to avoid foreign tax.” That is not what we are trying to do here. What I thought we were trying to do was maintain New Zealand’s reputation for integrity.

One thing we know for certain is that there are some very intelligent tax lawyers whose role is to find the loopholes, and when there is something that is difficult to do, all that does is just create a greater challenge. They love this sort of stuff. Option 3 would have removed any ability whatsoever to do this, and the regulatory impact statement admitted that. But we have gone for something that—you know, is it the right thing to do? In my gut, I do not think it is, actually.

If we are serious about “Brand New Zealand”, about maintaining our global integrity, I think what we should have done was say: “Hey, let’s leave this right behind. If you want to do a foreign trust or if you want to hide money, even if it is difficult, go to the Bahamas. Go somewhere else, but don’t do it here.” I think that would have been the right thing to do. So we do support this bill, but with serious reservations. Thank you very much.

It is a pleasure to take a brief call on this very important bill—in the third reading of this great bill. I want to start my remarks to the House—which are actually my first substantive comments in the House on a bill this year; I spoke previously in the debate on the Prime Minister’s statement last week, but this is the first bill that I have had the chance to speak on in this year of Parliament—by just briefly rebutting some of what Mr Nash said.

Mr Nash started his remarks by talking about the fact that the Finance and Expenditure Committee has considered eight or nine tax bills this term, and that is true. We have had a heavy workload, and one that, I have to say, Government members on the Finance and Expenditure Committee relish, Mr Nash. We relish the chance to consider these important bills, and I think it would be fair to say there is a bit of hyperbole from Mr Nash. Look, he is not a man traditionally given to hyperbole. He is usually a very sober and sage individual who makes good remarks, but that was hyperbole, because some of the bills that we have been considering on the Finance and Expenditure Committee are to do with Business Transformation.

Actually, everyone in the Parliament, I think, recognises that modernising the inland revenue systems—the computer systems and the IT systems that underpin our tax system—is really important. We have a debate around the cost and we scrutinise those things at the Finance and Expenditure Committee all the time, but, actually, everyone recognises that that is important and that it requires legislative change. So it is a little bit rich, I think, to complain about the number of tax bills when some of them have been to do with Business Transformation.

The second thing—and this is particularly apposite when it comes to this bill—is that we have been implementing the responses to the Shewan inquiry into foreign trusts and disclosure rules. It was the Labour Party and members opposite who spent a lot of 2016 talking about how we needed an inquiry, and when there has been an inquiry and we are now implementing the legislation in response to that inquiry, Mr Nash then gets up and complains about that. So I think it is a little rich to complain about the number of bills.

Then he said that the tax process in New Zealand is a farce. But, actually, we have a good process in New Zealand. We have a generic tax policy process where things are consulted on and advanced, and where the practitioners and the tax lawyers and those people out there, including some friends of mine—poor them—are able to participate in that process. And then we get the legislation, and then we get it coming before the select committee. So we have a very good process in New Zealand. I acknowledge what Mr Nash was saying about the volume of legislation. Probably it is a little bit higher in this term of Parliament than in the past, but that is a function, as I said, of a few things that I have already made mention of.

I want to briefly mention one thing in my speech, and that is the debate that we had at the Finance and Expenditure Committee around Supplementary Order Paper (SOP) 190. There was a lot of concern raised at the select committee, and also within the public comment around this bill, around the scope of what is known as the “Henry VIII” powers that are being given to the Government by this bill.

💬 Fletcher Tabuteau: You were staunch on that, mate.

Fair to say—Fletcher Tabuteau says, you know: “You were strong on that point.” I do have to say that we put the officials at the select committee under some scrutiny, because it is a big thing for Parliament to delegate, essentially, the power to change the law by fiat. It is a big thing for the Parliament to do that—to delegate that authority to the executive. Some of the excuses, or some of the reasons, given for that—and I think I can speak for the entirety of the Finance and Expenditure Committee on this—we did not find justifiable: that Parliament should delegate to the executive the power to change the law during the period of time that the IRD was moving from one type of computer system to another type of computer system. So we put some of those changes under some pretty heavy scrutiny, and we made some changes as a result of that.

So we limited the regulation power to administration issues arising from the transition between the old and the new systems. We made sure that those transitional regulations could not increase taxpayer liability. We excluded certain provisions of the Tax Administration Act. The original drafting of that SOP was extremely broad, giving the executive enormous powers through the Tax Administration Act—or power to change the Tax Administration Act—and we made sure that those regulations could not remove or diminish the rights of a taxpayer. That fettering of the very large discretion given to the executive, I think, has made the bill a better bill.

Just finally, this bill does implement the tax package announced by the Government through Budget 2016—the small to medium sized enterprise (SME) tax package. Mr Nash was going on about the provisional tax being the bane of his life when he was operating that small business in the bay. It is true to say that all members of the House, probably, over the years, have had gripes from the SME sector in particular about the payment of provisional tax. I think we should all welcome the fact that, as a result of Business Transformation and the advancement in technology, and also as a result of the legislative changes given effect to by this bill, life will be considerably easier. That is something to be applauded and welcomed, and is implemented by this legislation. Thank you.

Well, this is a long and winding road that we come to with this particular bill, and other speakers have outlined elements of it that the Labour Party does support. We always support taxation bills that come to this House that make it easier for taxpayers and that add to the robustness of our taxation system. I want to echo my colleague Stuart Nash’s view that, after 8 years and a bit of grinding work in the gears of Government, it finally said: “Yep, we’ll adopt Labour’s policy around flexible tax for business and small businesses.” You know, all power to the Government for seeing the light in that regard.

I do want to focus my contribution, however, around the matter of foreign trusts, because this is the piece of legislation that does, finally, add a little transparency to the question of the operation of foreign trusts in New Zealand. But that is about as good as it gets because, actually, what today marks is yet another marker post in the tawdry display that we have seen from this Government when it comes to New Zealand’s reputation around the world for transparency and for doing the right thing.

I just want to read to you a couple of paragraphs from a report that came out in January this year, called “Trust us—New Zealand can hide your money!”, in the Sarawak Report. It says this: “Time and again, investigators like Sarawak Report find themselves tracing large businesses linked to, for example, Malaysian politicians like Taib Mahmud, only to find the money disappearing behind New Zealand trusts. This was thrown into glaring perspective by the Panama Papers, which revealed how shadowy businessmen the world over were all choosing distant New Zealand to park their money … and one assumes such people are neither attracted by the weather nor the convenience of New Zealand’s location.” That is what people are writing about New Zealand today.

These trusts, which we are now seeing being exposed on a weekly basis since the Panama Papers came out, are about the super-wealthy hiding their money, not meeting their tax obligations in their countries of origin, and choosing New Zealand to hide their money. We have just seen the case—which is still going through the New Zealand courts, in fact—around 1Malaysia Development Berhad, or 1MDB, which is the Malaysian development fund case, where the Low family are attempting, through the court process, to make certain arrangements for their trusts. We know on the public record that when that family went looking for somewhere to hide their money, of all the places in the world they could choose, they chose the Cayman Islands and New Zealand. They went looking for a place that had a lax regime where there was no transparency, and they came to New Zealand. We should all reflect on what that means.

We should all reflect on the fact that when this was raised, when the Panama Papers came out, the then Prime Minister’s very first, reflexive decision was to say: “Oh, there’s $24 million worth of money coming in to lawyers and accountants here.” It was not “What is New Zealand’s reputation going to look like?”, or “Heaven forbid! What’s the right thing to do? What is the right thing, morally, to do?”. No, he passed it off.

And, in fact, he said on 4 April last year, when this came out: “New Zealand has full disclosure of information when it comes to foreign trusts.” That is demonstrably not true, because today we are changing the law to create more disclosure on the issue of foreign trusts. But the Prime Minister’s reflexive thing was to back Ken Whitney and all those tax accountants and New Zealand trust lawyers who have made their money out of hiding the money of other people, and that is just not right. It decreases the confidence of hard-working New Zealand taxpayers in the system, let alone our reputation internationally.

But this goes further back—and I do want to acknowledge the officials of the IRD who helped the Finance and Expenditure Committee with this bill and who have worked hard on this issue of foreign trusts for some years. But if we go back nearly 3 years, we find the Inland Revenue Department saying to its Minister: “We have a problem with foreign trusts. We have a problem with the perception of New Zealand. They are being misused. We need to tighten the rules.” And by November that year, the IRD officials had gone further and added to their work programme legislation being drafted to tighten the regime. In fact, as my colleague Stuart Nash said, they were looking at the option of dispensing with the whole regime, let alone just tightening it.

The IRD was doing that in 2014, in November. By early December, Ken Whitney was writing in to Todd McClay, who was the new Minister of Revenue, saying: “We are very concerned that you’re going to be shutting down the foreign trust industry. The Prime Minister has told me to write to you and has told me that’s not going to happen.” Todd McClay, as a good new Minister, said “The Prime Minister wants me to jump. I am just going to find out how high.”, and they ditched that work programme. And here we are, in February 2017, finally starting to clean up the mess—finally starting to do something about it. New Zealand’s reputation, as in the kinds of documents I have just been reading out before, has been trashed in the meantime because John Key preferred to protect his mates rather than the reputation of New Zealand, and I think that is shameful.

Foreign trusts are being misused every day, and if you just want to read about it, Mr Mossack and Mr Fonseca have finally found themselves being caught up with by authorities. There is a whole heap of New Zealand lawyers and accountants looking very closely at that, because they have very close links with those organisations. We should have done better, earlier. This bill gets us some of the way, so now we will actually be able to see who the trustees are, who the settlors are, who the beneficiaries are, and where they are coming from. At least that information will be available to the police and to the Department of Internal Affairs. But, on this side of the House, we stand by what we said in the select committee and at other readings, which is that we believe we should aim for the highest possible levels of transparency. That means having a searchable public register. We do it for charitable trusts, we do it for companies, and there is absolutely no reason why we should not shine the light on what is going on here, and do that when it comes to foreign trusts.

The other thing that is missing from this legislation as we pass it today, with regard to the foreign trust issue, is that this was the moment for the Government to bring in phase two of the anti - money-laundering rules. This was the occasion to say that we were going to clean it up completely. Lawyers, accountants, and real estate agents—the people who do the most handling of these issues—are not included under our anti - money-laundering rules. Casinos are and banks are, but not the very people involved at this end. The Government knew it could have done it—in fact, some Ministers wanted to do it—and Steven Joyce and John Key said: “Oh, it’s off the front page. Don’t worry about it.” Morality is for sale one more time on this issue.

Today we should be fulfilling our obligations under the anti - money-laundering rules, but we are not, and that is a huge gap in New Zealand’s law. The Government undertook in this House for us to see draft legislation to bring in stage two of the anti - money-laundering rules late last year. It said that we would see it this year. It is the middle of February—still nothing. It is going to be pushed out, it will not be implemented before the election, and that is very helpful for those who have been lobbying against it to make sure it does not come into force.

This Government is being dragged once again, kicking and screaming, to finally do something, and it is not good enough. New Zealand can do so much better than have a Government that grudgingly has to do something—grudgingly has to do the right thing.

I am proud to be part of a party that put its hand up straight away when we saw what was happening with the Panama Papers and said: “Let’s do something about this now. Let’s protect New Zealand’s reputation.” But, on the other side, those members had to be dragged, kicking and screaming, once the focus group had told them just how bad it was getting for them. That is not good enough.

New Zealand is a better country than one that allows people to hide their money and avoid their obligations overseas. We now have some changes here. That is a good thing. That will help. It will shed more light, but we should be doing more. We should be playing our part on the world stage to stamp out this kind of corruption, not stand beside it and say that having $24 million worth of money going to lawyers and accountants justifies New Zealand being caught up in global corruption.

People are writing about New Zealand as a place where the mega-wealthy can hide their money and avoid their obligations. That is not the New Zealand I want to be proud of. I want to see us have a regime that is fully transparent, and one where we do the right thing on the world stage. You will get that with legislation from a Labour Government. Sadly, we have not got it from National.

It seems that the two major parties are not too far away from each other in agreeing with much of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill, which is always quite interesting. A lot of people do not understand that there is often agreement across the House on a lot of legislation. It might just be to the degree. Mr Robertson has pointed this out, particularly around the anti - money-laundering and counterfeiting financing reforms, which he says are not coming soon enough. Then, of course, we had Mr Nash, who was complaining about the workload of the Finance and Expenditure Committee and wanted to do less. I think we have probably got a pretty good balance. As Mr Robertson said, we will see that anti - money-laundering legislation come through later in the year.

Turning to this particular bill, at its third reading, as we have seen across the House already, there are three major parts to it. Once again, I am going to focus on the small business part and the “AIM”, the accounting income method, of calculating provisional tax. It is good to see that there is some experience among the Opposition in calculating and experiencing the payment of provisional tax. It is a difficult tax to calculate and estimate. It is not so much that people lobby us; it is just that we on this side have our own experience of doing it. We do not necessarily need to be told by our constituents what should or should not happen; a lot of people over here actually run, and continue to run, small businesses.

Again, we agree that the pay-as-you-go option that is available to taxpayers—small-business people—is a good thing because small businesses need to continue to be supported. We talk about employment and we talk about supporting workers. We can only support workers if we support the employers. The employers are the ones who employ the employees. If we are not going to look after the employers, we are going to have problems in supporting employees in the workforce.

This is a very good, sensible piece of legislation around the accounting income method. There are two other points that relate to this bill. The first is compliance with an international agreement—the G20 Standard for Automatic Exchange of Financial Account Information, which has been mentioned. We also have the recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes, with the registration of foreign trusts by local trustees. The local trustees must disclose information about foreign trusts that they are aware of. If they do not, those trusts will not be exempt from the current tax-free status that they enjoy, being foreign trusts. It is a fine piece of legislation. I commend it to the House.

I rise on behalf of New Zealand First to speak to the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill. I intend to take a short call because I note, despite the variation of the theme, that all of us in this House actually support the legislation. My first observation is that when the Minister of Revenue came into the House to speak to the third reading, she genuinely looked quite sad. She looked sad. She spoke in a very sad way. One can only assume that she chose this portfolio. It was quite disheartening. For example, Mr Bishop and Mr Bayly are quite exuberant when they speak about tax legislation on behalf of the National Government. For once, the National Government has a lot to be proud of with regard to new legislation.

I do want to touch on what is wrong, what has been missed out, and the opportunity that was not taken. I speak specifically—and I use the very important example—of the Chinese Premier who came to New Zealand several years ago. He spoke specifically to the ruling party here, the National Government, and said: “We need your help.” What he was referring to, in reference to that assistance, was specifically around—in his case—Chinese criminals who had stolen funds and appropriated assets illegally. Those criminals were bringing those assets to New Zealand because New Zealand was—and, I posit, is still—a place to hide assets.

According to China’s own numbers, at the time New Zealand—this was only a few years ago—harboured 11 percent of China’s top most wanted criminals in this space. That is 11 percent in New Zealand, all by itself. The assistance was about closing up these loopholes. Too many people from overseas were coming to New Zealand and using the foreign trust laws—the trust laws around accountants, lawyers, and real estate agents—literally to hide money. At the time, they were using other methods as well. New Zealand First agreed completely. We posited and put it to the National Government that it needed to act quickly and promptly to close these loopholes. It knew what to do. We gave it our suggestions. It took nothing on board.

I do have to say, actually, with some genuine surprise, that three-quarters of the Shewan report was taken up by the Government in this legislation. I have to say that I was genuinely surprised at the vigorous nature with which it was written into the bill. I say that because the Prime Minister at that time stood in front of the country and not only said “There is no problem here; look away.” but also suggested and insinuated that an attack on international companies using New Zealand as a way to hide illicit funds was an unpatriotic act because we were compromising a $24 million legal industry. It was appalling. It was absolutely appalling, and hence my genuine surprise when, in my participation in the Finance and Expenditure Committee, I saw genuine efforts being made to take on the recommendations from the Shewan report.

It is with that particular reference in mind that I do congratulate the Government on being vigorous and thorough in doing so, but it has not gone far enough. It has been spoken about several times tonight. There is still a gaping hole, literally, in our legislation that allows the same individuals, the same international corporates, and the same criminals to use New Zealand as a way to hide money—to launder money, even. So we still have that problem and New Zealand First will do something about it if we are in a position to do so later in the year.

I did claim I would give a short contribution, so I move to what has been positive in this legislation. It has been mentioned by the speakers from the National side of the House, and it has to do with the accounting income method (AIM) component of the legislation. It is kind of like “Who said it first?”, but we have quite a strong history of watching Labour take verbatim our policy, and this is no exception. Then we have a strong history of watching National members claim to not take anything of ours and then kind of corrupt it and degrade its potential impact in the process of hiding the fact that they took it from our policy books. I speak, of course, with reference to something that we have been trying to lobby this Government for a long time, and that has been around the new AIM legislation, ensuring that that pay-as-you-go, as it were, component of this legislation was there so that small business can carry on in a much more pragmatic and straightforward way.

There will be a few issues on uptake, but, again, in the legislation we do have some good aspects around some of the big accounting houses with the cloud software being able to act as intermediaries and support agencies in that process. I genuinely believe small business will be better for it. I genuinely believe that, because it was a New Zealand First policy. I chide the Government for taking so long in bringing it to the House, but here we are now, nearly 9 years later. I am sure small business is applauding this decision.

In conclusion, in the main, this is a good piece of legislation with full support from the House. We have got a few more steps to go, but here we are, and I congratulate the Government on this legislation.

It is a pleasure to rise and offer the Green Party’s support for the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill. I would like to start by paying tribute to my predecessor, Dr Russel Norman, because, in many ways, this bill is a vindication of much of his work since 2012, when he first started calling attention to the issue of the foreign trust disclosure regime in New Zealand. That was brought to his attention, initially, by concerns that were made public under the Official Information Act from the Inland Revenue Department, which had, in 2012, started alerting the Government that our foreign trust disclosure regime was inadequate and that it posed, at the very least, a reputational risk to New Zealand.

The fact is that it has taken some 4 years for that issue to work its way through the system, from, at first, quiet warnings from the Government’s own agency, up through what was a reasonably spectacular media event last year—huge amounts of public concern—eventually to an inquiry followed by legislation introduced to the House by the Government.

There has been some history to this, and I think it is a tribute to his work, to the work of the Inland Revenue Department, which has persisted in spite of resistance from the Government, and to the media. Journalists like Matt Nippert from the New Zealand Herald and others have done a huge amount of fantastic investigative journalism, raising what is a very complex issue in the public mind to the point that public pressure built and the Government had to respond and try to politically kill this off by bringing in John Shewan—the Shewan report—which has led to this legislation. So thank you to all of those people who, through all of those years, have done all of that work that has led to this piece of legislation that we see passing through tonight.

As a number of other speakers have said, this is not a perfect piece of legislation. It does not actually accept all of the recommendations of the Shewan report; it goes only part of the way. So we would hope to have the opportunity to amend it so that all of the recommendations of the Shewan report are actually brought into legislation as soon as possible.

The other thing, of course, is that it is an extremely complex piece of work. Having sat through part of the select committee stage on it, working through with the officials how it was going to work, having heard some of the submissions and some of the concerns of submitters, it does worry me, like any very complex piece of legislation, that it may not have the effect that is intended. Of course, obviously, the officials who have drawn it up have worked very hard to make sure that it will, but I would like to get some assurance from the Minister of Revenue that there will be some very close monitoring over the course of the next 12 to 24 months to make sure that the bill does actually have the effect that it is intended to address, because of the complexity of it and many of the unknowns around this. So I think I would like to hear yet from the Minister some assurance around that.

I also just wanted to reflect on the risk that leaving it unaddressed does pose, or has posed, to New Zealand’s reputation. I do find it quite ironic that only 5 days ago Bloomberg—that fairly well-known multinational news corporation—did carry a story, the headline of which was “New Zealand, a destination for ultra-rich to park their wealth, has a murky trust issue”. That is only 5 days ago, despite the assurances that the Government and the Prime Minister at the time kept saying: that there was no problem in New Zealand, that we have got full disclosure, and that there is no reputational risk whatsoever. We actually see in the international business media now that some of the issues that we were concerned about last year and the year before that and the year before that are actually starting to come up to the surface. So it is timely that we are introducing this piece of legislation now, and, like I said, I do hope that it has the effect that is intended.

I would like to also call attention to the tax simplification for small and medium enterprises, because, again, this does represent a significant win, and it is great to see parties all claiming credit for having introduced that notion into the House. I fought for this when I was the candidate for Wellington Central in 2011 and again in 2014. I have been a small business person myself, and the way that we manage tax for small businesses does make it very difficult to manage cash flow. If you’re in a situation like I was in, where cash flow is extremely lumpy, it is never certain what is going to happen in the future, and yet you are required to set aside amounts based on previous years’ revenue that may have very little bearing on this year’s revenue. It does make it very difficult for small businesses to operate and to manage their cash flow. Because of that, that is an incentive for small businesses to do things to manage their cash flow that actually run up against the law, and we do not want that. We do not want to make it so hard for people that they are, essentially, forced into breaking the law or operating in violation of regulations.

I am really pleased that the House has coalesced around this idea over a number of years from a number of different sources, and I think that it is great that we are able to do that. I also just wanted to acknowledge the point that Chris Bishop made in his speech, where he was talking about the requirement for, essentially, an inland revenue computer system that is up to the task and the huge amount of work that is required in order for some of these changes to actually be able to take effect in reality; that we have actually got to have an inland revenue computer system that does the job. And so I recognise that part of the reason for the delay, particularly around the accounting income method and some of the other measures contained in this bill, is that they have, essentially, been held up by the fact that New Zealand’s systems have not yet been adequate to be able to do it.

So it is great to see some progress on that. But I think that that is, in the small business world, one of those things that I think really does stick in the craw of a lot of people. I think it is one of those things that is a pretty dry subject—not a lot of people will notice it at first—but I do think that that is one of those things that we can, with some pleasure, say: that we are doing a lot of people a lot of good through this piece of legislation.

I also would like to say that it is important that we continue to monitor the effect of the legislation around some of those issues as well—for example, this bill does include some changes around fringe benefit tax. I have a concern based on some of the submissions that I heard, that some of those changes produce some quite odd incentives for behaviour and, therefore, that means we need to make sure that we are not distorting the market in any way—or in any way that is kind of daft—as a result of some of those changes. So, again, I think that I would like to hear from the Minister about how it is that we intend to monitor the effect of this bill as it goes through.

In conclusion, we will be supporting this bill again, in its third reading. It is a pleasure to see that it passed through the House. It is great to see finally, after many years of campaigning by many people, some progress at least on the issue of changes to the disclosure regime around foreign trusts. It is disappointing that the Government’s own review did not actually make it fully into the legislation, and we will be looking for ways to improve on it in the future. But, for the most part, we are greatly relieved that this bill is here, that it is making its way through the House, and we wish it all the best. Thank you.

It is a pleasure to be talking on this Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill in its third reading. It is also great to hear that all parties in Parliament are supporting this excellent bill. As we have all heard, it has four key aspects.

First of all, it makes paying tax easier for businesses, which for business owners is absolutely essential. So just to recap on that: for existing payment methods, which involves provisional tax and terminal tax, what we have done in this bill is actually increase the use of money interest and increase the safe harbour provisions from $50,000 to $60,000, but we have also removed, in this bill, the penalties around use of money for the first two provisional payments. So that is for taxpayers who choose to use the existing payment system for their tax. But the major change is really the new accounting income method, which actually allows people to pay their tax, such as they do with GST, as they go, which, personally, I think is a very good proposal and a fantastic initiative for those 500,000 small businesses in New Zealand.

The second aspect of the bill—the main aspect—is about the automatic exchange of financial accounting information on tax matters. We have picked up some of the issues and recommendations. We are moving to implement them as fast as possible. But the two key changes in this part of the bill are about requiring foreign trusts to be registered with the Inland Revenue Department when they are established and allowing the Inland Revenue Department to actually check with other agencies regarding their status.

Secondly, this bill requires foreign trustees of a foreign trust to file an annual return. There are a whole lot of specific recommendations and requirements—I certainly covered this in the second reading debate—but they are very, very specific and entail a lot of detail that needs to be updated regularly on an annual basis. So I think that striking the balance around that has been really important.

The third part is around the deployment of stage one of the Inland Revenue project. Most people do not know the scale of it. It was originally going to be about a $1.8 billion project. It is now projected to cost under $1 billion. There are four stages to it. This bill deals with the first stage, and it just makes that able to happen and enables that from a statutory perspective. At the moment there is a rollout of GST coming on the first stage of the IRD platform, which is great to see. Of course, when this whole programme comes to pass and is completed and implemented, it will provide a much better connectivity between the IRD and taxpayers.

Of course, the last one is around the foreign trust disclosure rules. Obviously, there has been a lot of debate about this in Parliament. Personally, I think we have struck a good balance between what we think is absolutely required and the issue of perception. I think where we have ended up will hold New Zealand in good stead internationally, in terms of being seen as a very good place for business. Of course, we are number one in terms of being the least corrupt country in the world, and that just reinforces that position. I think this bill does that and supports and underpins it, and on that basis I commend this bill to the House.

This Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill has had a fairly robust airing over many, many months since it was first proposed by the Government and put to the Finance and Expenditure Committee. In the brief call that I have available I am going to touch on three points that other members have touched on because they are important, and, secondly, because there has been no explanation given from the Government as to why it acted in such a way.

Other members have mentioned that the bill fails completely to implement phase two of the anti - money-laundering provisions in respect of lawyers, real estate agents, and accountants. They have waxed eloquent for many, many hours in this place in respect of how good this legislation is and what a great job it will do, but those particular three sectors of our economy are exposed in terms of their transactions and should have been catered for in this legislation.

I was the Associate Minister of Justice when the then Government implemented the anti -money-laundering provisions, the Financial Action Task Force on Money Laundering provisions, in respect of banking and others. We did it because of international obligations. It was appropriate to do. We called those interest groups in and we explained what we were going to do. We worked with them to minimise cost, and we implemented them.

No one from the new Minister, the previous Minister, or the Minister before that has explained to us why those provisions are not catered for in here. If there was a reason—there may be a logical reason—it would be helpful to know. No one in Government has managed to tell us when phase two of the anti - money-laundering rules and regulations will be implemented in any way, shape, or form, as far as we know. So, given that it is an international obligation, it would be appropriate for somebody in the Government to provide some sort of direction on that.

The Government has made much of the so-called register. But, again, there is no explanation from the Minister, or the previous Minister, who initiated this legislation, as to why that register is not public. It is limited to IRD, the Department of Internal Affairs, and the Police. It is in no way public and no one has been able to—I have asked the question I think three times, as have other colleagues, as to where the mischief lies in having an open public register for the trustees, for the beneficiaries, or for anybody else in that space.

We have had Government speaker after Government speaker say, as I have said, that it is such a wonderful thing. Well, could they answer that simple question? Because this register does not meet the test of an open and transparent public register. If you are a foreign Government and you are concerned about the nefarious activity in this space, you will not be able, as a Government or as an international authority, to get access to this register. You will not be able to look at it. You will have to go through other Government agencies, but you will not be able to penetrate it in a transparent way and gain that information. The question I have for this Government is: if it is so concerned about transparency, if it believes that this is world-class, best-in-class legislation, why did it not make that public?

There may not be an explanation. I suspect there is, but they do not want to talk about it. I challenge the next National Government speaker to take up the challenge on those two points. Mr Ross—he might, given that he is on the Financial and Expenditure Committee—be able to answer those two questions: why no public register?

💬 Jami-Lee Ross: I’m not as smart as you, Clayton.

Well, no, no. The member says he is not as smart as me. I am smart enough to ask the question; he is not smart enough to provide an answer to the question. That is the difficulty we have. If you are such a smart guy—

Order! I regret to say it is time for us to have some kai. Someone will resume the Chair at 7.30 p.m.

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

Tēnā koutou e ngā mema Pāremata. I rise to speak about the tax bill.

💬 Mr DEPUTY SPEAKER: A 5-minute call.

The Green Party supports this bill. We do so with considerable reservations, and I wanted to introduce why we have concerns. A large part of this tax bill is in response to the issue of foreign trusts. Foreign trusts, from our perspective, are a part of our business dealings that should never have happened. New Zealand’s reputation, as has been previously pointed out by colleagues like Russell Norman over a period of years and by the IRD, has been sullied by foreign trusts. We have been widely regarded as a country that has provided a haven for hot money that is evading tax. We have been regarded as a place where organised crime and drug money could be laundered. I think this is the kind of business that New Zealand should not have been encouraging.

To the extent that this bill is remedying some basic rules around foreign trusts, we support it. However, we do not think it goes far enough. For example, one of the issues is the degree of transparency that is provided for in this bill. Transparency is the antidote to this kind of hot money and the evasion from tax and other forms of international regulation. Unfortunately, the device—the mechanism—that is included in this bill for foreign trusts is a register that is limited in its transparency. By comparison, if we look at the register of companies or the register of trusts in New Zealand, for example, what we see is that you can search these registers as a member of the public. However, this piece of legislation, as currently drafted, does not include that transparency. There is an insufficient basis for being able to understand what these foreign trusts are doing in New Zealand. I think that is a huge missed opportunity with regard to this bill. We need to crack down on tax havens.

As pointed out in the Shewan report, we also need to crack down on money laundering. We have been waiting for phase two of the anti - money-laundering provisions, which have not been included in this legislation. We have known for a long time about multinational companies that are able to evade New Zealand taxes while wage and salary earners bear the brunt of paying taxes in our country. Multinationals get away with being able to use transfer pricing to transfer their profits to countries where they pay little or no taxes, and then they compete unfairly with New Zealand companies. They put the burden of tax on most New Zealanders. That is wrong. This bill should have included a far more comprehensive closure of tax loopholes.

There are, however, some elements of this bill that we support. There is a simplification of tax that helps small and medium sized enterprises. There is a pay-as-you-go provision for tax, which is good for cash flow for small and medium sized enterprises, and that is good for New Zealand business. Small companies need that—cash flow is king—and they need these changes in this legislation. It is why we have decided to support this bill. We think that it is a step in the right direction. The Government needs to be accountable for taking the next steps and doing it urgently so that New Zealand can become a place to do business that we are proud of, not where we hang our heads in shame. Thank you.

It is a pleasure to take a call to speak on the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill, although I must concede some disappointment that the Minister of Revenue has not stuck around after the dinner break. I have very fond memories of one of my first political—

💬 Mr DEPUTY SPEAKER: We do not refer to members’ presence or not in the House.

Thank you, Mr Deputy Speaker. None the less I have very fond memories of earlier debates with the Minister—my first political debate, in fact, when we engaged over the question of the Iraq war. I have admired the Minister’s tenacity and consistency since then, even sometimes in the face of overwhelming facts.

I want to begin on a positive note by drawing attention to the aspects of this bill that Labour supports. Of course we are supporting this bill with some reservations, which I will come to later. Those positive aspects have been noted by colleagues earlier, and they relate to Part 2 and Part 3 of the bill. Across the House there is very strong support for measures to simplify and streamline taxation matters for businesses, particularly small businesses, in respect of provisional tax. I think that is something that we can all applaud across this House.

As we have heard during the speeches this evening, various parties—and certainly my own party, the Labour Party—have for a long time advocated for these kinds of measures. Every single one of our constituencies across the country has small businesses, often operating with real constraints, people putting themselves on the line, doing what they can to contribute to our community and employ people, and the question of provisional tax is a difficult one for them. Cash flow can be lumpy and unpredictable at the very best of times. What we know about most of the small businesses—and there are about 110,000 that fall in this category—is that most of them want to do the right thing. Most of them want to contribute to our community. Most of them want to pay the tax that they know they owe to keep our society and our community going, but we have got to find ways of making it easier and more manageable for them. So the measures in this bill that lessen penalties, that streamline the system, and, most importantly, that deal with those tricky things around provisional tax are to be commended, and the Labour Party fulsomely supports them.

But moving on to the reservations, to me the question here is about doing a job and doing it properly the first time; not identifying a problem and doing half a job of fixing it up. In respect of foreign trusts, that is what we are seeing in this bill. What we have at the moment is no transparency about foreign trusts in our country. This bill gives us some transparency, but it is most certainly not enough transparency. It is my view that an important starting point is to define the problem, and to actually concede that there is a problem here. That might be the issue at hand, because of course the Government was very, very reluctant to concede—and very, very tardy in conceding—that there was a problem to begin with.

We have to remember that it was back in 2013 that officials from the IRD came to the Government and said: “We have a serious issue with foreign trusts. It’s not just some matter of technical interest. This is something that is putting New Zealand’s international reputation on the line.” The IRD officials came to the Government, came to the Minister, with that view, which they had formed—and they had formed it on the basis of good evidence. They had been watching, they had been observing, and they had seen that foreign trusts had increased, from 6,000 to around 12,000 between 2006 and 2012, and they took that to the Minister. And what happened? Well, we know what happened. We know that there were discussions between the Minister and the Prime Minister, and we know that the work that IRD commenced in this area got cut off at the knees.

And then we went through that farcical period where we had the news of Mossack Fonseca raining down through our media. We had our leading business journalists, people like Matt Nippert and Fran O’Sullivan, pointing to the fact that there was a significant problem in this area—

💬 Chris Bishop: Matt will be happy. “Leading journo”—Matt will be happy.

Foreign trusts were making a mockery of New Zealand’s reputation, which is something that Mr Bishop is appalled by. I can see that right now.

But the Government continued to resist. The former Prime Minister, Mr Key—what did he say? He said that we had transparency. He said that it was economic sabotage to be considering bringing in greater transparency to the foreign trusts regime in New Zealand. But the heat simply got to be too much for this Government. Eventually, after huge pressure, we got the Shewan report. What he said was very clear. He said that our existing rules were not fit for purpose—they were not fit for purpose. There is one very important thing that he added on to that. He said that they were not fit for purpose in respect of our cooperation with other jurisdictions. I want to return to why that is important, a little later.

I want to turn back now to what the bill actually does deliver, because it does deliver some transparency. It means that we will have a record of the names of trusts, the settlement details, and trustee and settlor contacts. That is a good start. It means that the police and the IRD, where they have reason to believe that there is something criminal or improper going on, have the ability to pull up that information.

But there is an obvious “Rumsfeldian” problem, and that is the problem of unknown unknowns. What we do not have is a truly open and a truly transparent register, which is the obvious thing to do. It is the obvious thing to do. What we are relying upon is investigating authorities from other regimes, from other jurisdictions, knowing that there is a problem and sort of having enough detail to mount a bit of a fishing expedition. I have not heard, in any of the speeches that have been provided by the Government in this debate, any good reason whatsoever put forward for that lack of transparency. Labour is asking that question, and when Labour has the ability to make a change here, we will ensure that foreign trusts are fully searchable through a register.

That is where I want to come back to the question of being not fit for purpose—not fit for purpose—according to Mr Shewan, in respect of our cooperation with other jurisdictions. How are we enhancing that cooperation with our friends and allies if they sort of have to sniff around and ask the right questions to try to uncover details of potentially criminal dealings and tax evasion from their citizens taking advantage of New Zealand’s foreign tax trust law status?

The question has to be why, when New Zealand companies and New Zealand charities are on a fully searchable register, we would provide this level of protection to foreign trusts. Mr Bayly, speaking earlier, spoke of foreign trusts as though they were businesses. Well, they are not—they are not. Foreign trusts do not contribute anything to our country. They are not paying taxes to support our system here in New Zealand. These are wealthy individuals from overseas jurisdictions, who are often hiding wealth in highly unethical ways, and there is plenty of literature on that. Why would we give them a greater cloak of secrecy than we give Kiwi charities and companies in New Zealand? That is something that this Government has singularly failed to answer, and that needs to be resolved.

As has been outlined by my colleagues, the bill also stops short of implementing phase two of the anti - money-laundering provisions. Again, there has been no explanation offered on that in the debate in this House. What we always hear from the Government benches whenever regulations are introduced, whenever there is a suggestion that a regulation should be introduced, is this argument that you have got to be very careful about that because smart lawyers will always find a way round it. That is often given as a reason for not introducing public-good regulations.

What we are doing in this case is we are leaving gaping big holes that we can identify. We are not bringing real estate in, we are not bringing the lawyers in, and we are not bringing the accountants in, when there is plenty of evidence that if you close off one avenue, that is where the hot money from overseas will go to be laundered.

Is it still a big issue? Absolutely, yes it is. My colleague Mr Robertson referred to the 1Malaysia Development Berhad case, which has made major international news, again affecting New Zealand’s reputation. It has impacted on our courts system. You have to ask why a foreign trust that owns a Bombardier plane, has penthouses in New York, has hundreds of millions of dollars of these assets in overseas jurisdictions—what is the point of that trust being registered here in New Zealand? It does absolutely no good for our country, and it can only raise the suspicion of our friends and allies on the international stage that our institutions are being used to rip them off.

So, in that respect, this bill does not meet that test of Mr Shewan’s, of enhancing our reputation and ensuring that we are cooperating with other jurisdictions that we would want to be cooperating with. I might note the comments from Mr Michael Littlewood from the University of Auckland, who noted that around the world we have tens, if not hundreds, of billions of dollars sloshing around internationally in these trusts. I say that we should have absolute transparency over what is happening there.

I just want to finish by saying that the Prime Minister began the year by saying that the Government had reached its limits, and it is kind of like that with foreign trusts as well. They knew there was political pressure, they had to do something, but they have reached the limits and they are not delivering the transparency that we need. Thank you.

Bill read a third time.