Taxation (Budget Measures: Family Incomes Package) Bill

Part 2 deals with the Tax Administration Act in large part, and, in particular, I want to focus on the repeals within Part 2 for the Tax Administration Act of—and this is going to really excite people who are out there listening—section 24B(3)(ab). I am sure all members of the Committee will be intimately familiar with section 24B(3)(ab)—

💬 Chris Bishop: Not as closely as you.

—of the Tax Administration Act. Chris Bishop, the chair of the Finance and Expenditure Committee, actually goes to bed at night and reads the Tax Administration Act, such is his dedication to this task. But for the benefit of the Committee, what section 24B(3)(ab) of the Tax Administration Act does is—and you are going to love this as well, Mr Chair—it sets in motion section LC 13 of the Income Tax Act.

The reason I mention that at the start is to indicate what the subject matter is of what appears to be a very dry thing. What that is, is the tax credit for independent earners, which has been the subject of significant debate in Part 1. Here in Part 2, what is happening is that that is being operationalised. So, effectively, Part 1 has made a policy decision to get rid of the independent earner tax credit and Part 2 is operationalising that. It is worth reading what is being amended via repealing section 24B(3)(ab) because it actually describes the kind of person who was getting the independent earner tax credit—the kind of person to whom the National members today are saying: “You don’t deserve that any more. You no longer deserve that support for the costs associated with going to work.”

So let us just talk about who that person is under this section of the Income Tax Act. That person, in a tax year, is not receiving an income-tested benefit, is not receiving a veterans pension, is not receiving New Zealand superannuation, and is not entitled to a Working for Families tax credit—essentially, a single person. And that is made absolutely clear by paragraphs (e) and (f) of section LC 13(1), because you cannot be a spouse, civil union partner, or de facto partner of a person who is entitled to a Working for Families tax credit and you cannot be receiving an amount of money outside of New Zealand, and various other rules there.

So we just want to be absolutely clear. What is happening here in Part 2 is we are saying to a group of people—single New Zealanders largely, who are not in receipt of benefits, who are not getting Working for Families—that this is a benefit that you got because there are costs associated with going to work that have increased for a single person. I know from talking to people around New Zealand that this was a real bugbear for them. They felt that in respect of all those Working for Families changes, while they recognised that having children is expensive—which it obviously is—not all of those costs disappear when you do not have children; for example, the costs associated with transport to and from work. It is one of the really interesting things in our society that there are huge costs associated with just getting yourself to your working day, and for people who are affected by the changes that we are seeing here, they are losing out significantly as a result of this change.

The second part of section LC 13 affected by the paragraph that is now being repealed under Part 2 here deals with the amount of money. This is something that has come up previously in Part 1, and actually helps explain in many ways the concern on this side of the Chamber about the removal of this. The “Person’s credit”, as defined in section LC 13(4) of the Income Tax Act, is “if the person’s net income for the tax year is equal to or more than $24,000”. So that is the point at which it kicks in, and it is $520 a year.

One of the reasons the Government has given for repealing this is because not a lot of people take it up on a week-by-week basis, and that means they do not really need it. I mean, that is essentially what the Government has been saying here—that there is quite a low uptake of people taking it up on a week-by-week basis, and most of them take it up only as an annual amount. Well, that is not surprising. The amount of $520 in one lot—good, useful; having to go through the process of applying for it on a week-by-week basis at $10 a week is not something that is going to excite people. But at $520, as specified in section LC 13(4), referenced by section 24B(3)(ab) as is being repealed in Part 2, actually it does account for a lot.

There is, in section LC 13(5) of the Income Tax Act, full-year abatement, and that is, essentially, at the point at which someone’s income reaches $44,000 for the tax year, 13 cents for each complete dollar of the excess gets abated. Then in section LC 13(6) is the credit period months, and that is the number of whole months in the credit period. In other words, it is an annual payment. I do think there is a fair bit of disingenuous writing that has gone on in the regulatory impact statement around this independent earner tax credit, because actually justifying withdrawing a tax credit on the grounds that people take it up on an annual basis rather than week by week is pretty weak justification. That does not mean that people do not want it. It does not mean that people do not need it, in terms of how they get by on a regular basis. It just means that the tax system and interacting with IRD via the Tax Administration Act, which is being amended here, is actually quite complex and quite difficult. Nobody really wants to be on the phone with the IRD any more often than they have to be, and this process that is here actually allows people to take it up on an annualised basis.

So, I think, unfortunately, from the Labour Party’s point of view, we are not going to be able to support these amendments in Part 2 either, because they actually operationalise the very things that have concerned us in Part 1—in particular, in this case, the removal of the independent earner tax credit, which leaves those people, as a result of the other changes covered in this part, $1 a week better off. That cannot be the benefit for those people of the massive surpluses that this Government has.

In the time remaining to me in this call, I just want to refer to the other amendments, under clause 20 in Part 2, and they are the ones that make these threshold changes. So they make the threshold change for the bottom tax threshold to go from $14,000 to $22,000 and then they make the other one, the second threshold, go from $48,000 to $52,000. They are the two main changes under clause 20(3) and (4) of Part 2. Let us be absolutely clear: the net effect of passing these changes to the Tax Administration Act is that if you earn less than $14,000 a year, you get nothing from this tax package. The Minister in the chair, Paul Goldsmith, frowns and makes some kind of movement with his face. He can stand up and tell me if I am wrong about that, that under the tax changes—the very thing that we are debating here; this is the Tax Administration Act—if you get $14,000 a year, or you earn less than that, you are no better off, no better off. Do you know, there are 800,000 New Zealanders in that group—800,000 New Zealanders are getting absolutely no benefit—

💬 Hon Jo Goodhew: What’s their average age, I wonder?

Well, I wonder too, and perhaps Jo Goodhew would like to take a call and get up and tell us why it is that no one under $14,000 gets anything, because this is a Government that has told us: “This is all about low-income New Zealanders. We want to give low-income New Zealanders a fair go.” Nonsense. This is a $1.9 billion package that gives nothing to someone who earns under $14,000 and gives all of us 20 bucks a week—all of us 20 bucks a week. How is that fair? That is not fair. So these threshold changes that are being made now under Part 2 here are actually creating an unfair tax system, and that is why the Labour Party cannot support these.

If this was really a package about supporting working families, then we would be targeting the best way we know to do that, which is through the Working for Families system. So the amendments here in Part 2—clause 20 and clause 21, which move the thresholds around—operationalise an unfair, irresponsible set of tax cuts. This Government has squandered a great opportunity that it had. It has squandered the opportunity of actually delivering to New Zealanders strong social services and an income boost for working families.

Part 2 of this bill, unfortunately, is just as bad as Part 1 because Part 2 is the part of this legislation that sets in stone a tax system that is now going to be less fair than it was yesterday. There are other improvements we would be making if we were putting forward legislation around this today, changing the balance within the tax system, but right now, today, we have a piece of legislation in front of us that actually makes for a more unfair tax system and an irresponsible tax cut when there is so much more that needs to be done to improve the social services of New Zealand. The Labour Party will not be supporting Part 2 of this bill.

I wanted to respond briefly to the comments of the previous speaker, Grant Robertson, who seemed to be trying to imply that anybody earning less than $14,000 will get nothing out of this Budget.

💬 Grant Robertson: No, the tax package.

The tax package. Well, what we are talking about here is the Budget—

💬 Grant Robertson: No, it’s not. It’s Part 2. It’s about the tax package.

—yes—and Part 2 of this bill. But the context of that is that everybody—what we are focusing on is lower-earning families with higher housing costs, so people who are struggling with—

💬 Grant Robertson: This bill is about tax changes, and they get nothing.

Yes. If they are struggling with housing costs, they are going to achieve much greater support through the housing accommodation supplements, as well. So, yes, if you are earning below the tax threshold, you will not be getting any changes from the tax system, but there is a broader contribution that is being made through this Budget. I would just like to say that this is possible only because of the strong economy and the good—

The CHAIRPERSON (Lindsay Tisch): Come back to the bill.

—guidance of this Government, generally. So I wanted to make that point just to correct a sort of misinterpretation or the mis-impression that could be gained if anybody was listening to this debate and thought that just because an income earner was below $14,000, there was nothing for them in this broader package.

I would like to talk to clause 24 in Part 2 of the Taxation (Budget Measures: Family Incomes Package) Bill. This is the amendment to the Customs and Excise (Tobacco Products—Budget Measures) Amendment Act 2016, which has obviously just been brought in.

What it does is it repeals section 8 of this very small Act, but the thing that surprises me is that I am not too sure why it is relevant to this specific taxation bill, and that is what I am struggling with. I mean, I am not a particularly smart man. I am from the regions, of course, and so I know that Minister Paul Goldsmith, being from Epsom, is a lot smarter than all of us, and so he will probably be able to stand up and let me know.

What the Customs and Excise (Tobacco Products—Budget Measures) Amendment Act does is it actually sets the rates around which tobacco will increase by on various dates. Basically, what it does is it increases the rates by 10 percent on 1 January 2017, 2018, 2019, and 2020, and if we have a look at section 8—the bit that is being repealed—it actually does get quite complicated. What it does is it talks about applications of Orders in Council with regard to the Income Tax Act, as well as some other Acts. If we reference the Income Tax Act—this is section MF 7—it is about Orders in Council and what can be achieved by Orders in Council around moving the level of excise duty on tobacco.

But the interesting thing—and this is why I am a little bit bemuddled here, a bit confused here—is that the definition in section MF 7, “Orders in Council”, of the Income Tax Act, which this bill is repealing, talks about movements in the Consumers Price Index, which is fine. We get that, and that is quite important when you are indexing certain products, because the Consumers Price Index is, in fact, the index that is used to determine what is happening to prices right across the region. In fact, a lot of benefits—including peaches, I think—are actually indexed to the Consumers Price Index. But the interesting thing here is, in fact, that when we talk about the Consumers Price Index in the bill we are currently debating, it specifically excludes cigarettes and tobacco products. But when we look at the definition of the Consumers Price Index in the Income Tax Act, all it talks about is “correspond to the movement in the New Zealand Consumer Price Index that has not yet been taken into account by an increase:”.

The reason why that is of interest—it is technical; I am the first to admit that—is that in the Income Tax Act itself, which is, I think, one of the largest pieces of legislation currently on the books, there are absolutely no exceptions when it talks about the Consumers Price Index. Yet in this piece of legislation there is an exception. I am not too sure why we have done that, and I have argued that perhaps there are a number of exceptions if you really want to go—not you, Mr Chair; if Parliament or the Government really wants to get finicky or to make social change or to determine behaviour, because we all admit in this House that we will do anything to ensure that people do not take up smoking or that they can give up smoking. Perhaps that is the reason why it has been included in the definition of the Consumers Price Index as per this bill, but I do not know why we are deleting section 8 of the Customs and Excise (Tobacco Products—Budget Measures) Amendment Act.

I am wondering whether it is one of those things the Government has just decided to sneak in that has no actual relevance to the bill that we are debating, which often happens. It does not mean this is the right place to do this and it does not mean it should be passed under urgency—of that, there is no doubt—but I just cannot understand the logic around excluding tobacco from one measure of the Consumers Price Index in one piece of legislation, but then not having any reference to that at all in other pieces of legislation that, I would argue, in fact carry greater precedence in terms of the amount of time they were consulted.

As someone who has sat on the Finance and Expenditure Committee for 5 years, I think we all agree that there is nothing worse than legislation on our books that uses different definitions for the same term. In fact, in the Law and Order Committee, which the Chair and I are on at the moment, we are debating a different definition used in a bill we are considering versus an Act that went through Parliament, I think, earlier on this year. So to have a definition of the Consumers Price Index that is different from a definition in the Income Tax Act—I am not too sure why.

The question was put that the following amendment in the name of Jacinda Ardern to clauses 19 to 23 be agreed to:

delete clauses 19 to 23.

I raise a point of order, Mr Chairperson. Sorry, Mr Chair, can you please repeat—I just got a phone call at that point. Sorry, it is 58 votes opposed. Sorry, I just wanted to hear the—yes, that is OK.

It is important when we come to votes that we actually get our positions very clear, and I was having difficulty actually hearing what you were saying other than—I know you were voting against, and that is why we are going forward with this process. But we actually need to make sure—we are in a voting process—that we actually get the votes correct. So it is 58 opposed from the Government, is it?

💬 Barbara Kuriger: Yes.

The CHAIRPERSON (Lindsay Tisch): All right.

The question was put that the following amendments in the name of Richard Prosser to clauses 20, 21, and 22 be agreed to:

in clause 20, after subclause (6) insert:

(7) The rates in this section must correspond to the movement in the New Zealand Consumers Price Index where—

(a) the total percentage increase in the movement in the New Zealand Consumers Price Index measured from that applying on 1 April 2018 is 5% or more; and

(b) the total percentage increase in the movement in the New Zealand Consumers Price Index measured from that applying on the date and all subsequent dates when the requirement to make the immediately preceding adjustment is 5% or more;

in clause 21, after subclause (11), insert:

(12) The rates in this section must correspond to the movement in the New Zealand Consumers Price Index where—

(a) the total percentage increase in the movement in the New Zealand Consumers Price Index measure from that applying on 1 April 2018 is 5% or more; and

(b) the total percentage increase in the movement in the New Zealand Consumers Price Index measured from that applying on the date and all subsequent dates when the requirement to make the immediately preceding adjustment arose is 5% or more; and

in clause 22, after subclause (2), insert:

(3) The rates in this section must correspond to the movement in the New Zealand Consumers Price Index where—

(a) the total percentage increase in the movement in the New Zealand Consumers Price Index measured from that applying on 1 April 2018 is 5% or more; and

(b) the total percentage increase in the movement in the New Zealand Consumers Price Index measured from that applying on the date and all subsequent dates when the requirement to make the immediately preceding adjustment arose is 5% or more.