Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill

We now come to the debate on Part 2, the debate on clauses 4 to 103, “

Thank you, Mr Chair. I just want to start talking about pre-population of accounts, which is a crucial aspect of making sure that this legislation actually comes into account and can actually operate. The thing about this—I don’t know if everyone understands the importance of it, but we have a situation in New Zealand where we have a million taxpayers who’ve previously had a relationship with the IRD. We’ve got roughly a million that have had a relationship with an intermediary—and they’re called personal tax summary intermediaries, or PTSI. There are about 30 of them in New Zealand, who have been managing the accounts for New Zealanders with regard to their interactions with the IRD. Then we’ve got a million people in New Zealand who’ve had no dealings with the tax department. We’re now going and implementing a system, which the Minister’s overseeing, whereby we are going to see some fundamental changes in terms of the relationship that taxpayers have with the IRD. But more worrying in some ways: whilst we expect about 1.6 million taxpayers to get a refund, 263,000—this is the estimate—will be getting a tax bill, and of that 263,000, about 115,000 will never have received a tax bill from the IRD before.

Now, the issue with that million that I said have had no relationship with or have had anything to do with tax is: how do you get them to pre-populate their accounts with the IRD, and how does the IRD have a relationship with them if they’ve never had a relationship? Now, one of the things we know is that the budget for IRD that they’ve allocated for trying to get these people on board is about $4 million, but the ability for this legislation actually to work depends on the relationship of the IRD with the taxpayer. Unfortunately, and I haven’t seen it to date, the marketing of it and just the general awareness of the requirements for taxpayers to actually go in and have a relationship on their MyIR account—and it will only be activated if someone logs in, and at that point the IRD can actually start to form a relationship. Because there’s been so little advertising around that, the issue about these people not knowing about it—because not everyone reads the paper, not everyone listens to National Radio and Morning Report—is that those people are likely to be at risk of not fulfilling their tax obligations and also, probably in some cases, not being able to get the tax refund that they’re actually entitled to.

I think there’s an element—and one of the things I’d like the Minister to answer is about how the department is getting on in terms of obtaining those contacts and whether it’s going to rely on section 17. It is good that Mr Willie Jackson’s in the chair, because I think whether there is a compulsory element to the obligation to require or provide that information to IRD is crucially important.

The other thing I’d like him to speak to—and he may not be able to, and at some point I’d like to press the Minister for a response—is, actually, how many contact details the IRD has got at the moment—or, more importantly, how many they haven’t got. I think the issue about this—just given the timing perspective—is that this bill comes into force on 1 April. That’s not long away. Normally, refunds for the 2017-18 year, or for any year, to that effect, will be paid out by June of the following year. So if we’re finishing our March year at the end of this month, the IRD would normally be paying out our refunds by June. Whether or not there are, in fact, any key performance indicators (KPIs)—and I don’t think we’ve seen anything about the KPIs—the obligation to refund taxpayers the money that they are due from the tax system is crucially important, and people will be wanting it, and they are entitled to it. So that’s one issue around the refunds.

The other side of the coin is the need to be able to make your payment if you’ve got a tax bill. Of course, if you’re not aware of your tax bill, you don’t know that you have to make that obligation. But the cut-off time for making your final tax payment is actually February next year for the year that finishes 31 March this year, and so it is absolutely vitally important that the IRD has the contact details to be able to go and do that, to make the refunds, but also to tell people about their tax obligations.

As I said, 115,000 people will be receiving a tax bill for the first time. Now, with regard to this, we understand that the IRD have taken on 300 more people in the call centre. That is an increase, obviously, but there are many hundreds of thousands of calls that were not taken during the 2017-18 year—the current year. All that’s going to escalate—all that’s going to be even worse as we move to this new system, which, whilst we are very supportive of the idea, in the way it’s been managed and the way the Minister’s looking after it, it needs to be seriously questioned. I think, whilst you might have call centres, if people don’t actually understand how they’re going to—or that they have a requirement to—call the call centre, it actually raises some significant issues.

I think the other aspect to this is the reliance on, as I said before, the personal tax summary intermediaries, the PTSIs, which are the intermediaries—the 30 companies that have been acting for a million taxpayers. At the moment, I understand that many of them supplied the information, but what is the requirement for them to provide all that information—and whether in fact they have. So I’d like the Minister to talk about that aspect.

I think the issue around the portal—just returning to the original idea around the pre-populated account. So in the pre-populated account, there are two crucial aspects. One is your contact details—obviously, name, email address, and mobile, but probably most importantly their email address, because that’s the mechanism that in many cases will be the primary mechanism for communication. But there’s also the physical address, because in many cases the IRD send physical letters to taxpayers. I think the issue is getting the pre-population around this for people: older people in rest homes, older people generally—and my mother’s 92, and she doesn’t have a computer and is unlikely to at her age—and just generally non - computer users. The system, and the ability to be able to interact with the IRD, which is primarily being now driven towards a digital platform, makes it increasingly difficult.

I think this is a big issue, because if you’re a taxpayer and you are not aware of your tax obligations or you’ve just assumed that you haven’t had to do anything for years—which is a reasonable assumption—and you have a debt that the tax department has assessed, then, of course, the use-of-money interest rates are significant, and the rates of penalties build up very, very quickly, and the financial cost of that is quite significant. The bill actually covers, if you do pay off some of your penalties, the order in which it gets paid off, and the last bit that gets paid off is actually the original tax obligation. So you’ll have to go through all the use-of-money penalties, all those sorts of things. So that debt balloons very, very quickly. I think those aspects to it—how the IRD is actually going about doing its job, getting all those contacts, those million contacts, and how it’s going to do that in the time frame, its KPI’s of delivering that—are all questions that I’m just hoping that the Minister will answer, because, without these, this piece of legislation’s not going to work. You can look at the various aspects to it, but it’s a crucial part of the success of this whole bill. Thank you, Mr Chair.

Thank you, Mr Chair. I just wanted to take a call on this, Part 2 of this bill. Actually, I want to follow on from the member for Hunua, because he raised some issues—I won’t be quite as eloquent or academic as he was—that I think are of significant challenge.

First of all, I must say that I think most of the pieces in Part 2 are perfectly logical changes to a piece of legislation. Of course, they arise as a result of the Inland Revenue Department’s transformation project, which I think is a pretty exciting project that’s massively ambitious. Of course, as you go along with these ambitious projects, there are always casualties, and that’s what I want to touch on here.

The previous speaker did touch briefly on them, but I think the challenge that I have with this part of the legislation, quite aside from the fact that there are probably almost millions of people who have never had direct contact with the Inland Revenue Department, is the fact that the methods of communication with these people are going to be very challenging—well, with many of them, they’re going to be very challenging—for two reasons. One is that we are far from perfect with our coverage, or technology coverage, in New Zealand, and internet contact with these people is going to be very difficult. So a lot of people are either not going to have the ability to communicate with the IRD in this manner or are not going to want to communicate with them in this manner.

That’s the first challenge I think we’ve got, and that will be, I imagine, the generational change. So that will change in time, but it’s a challenge that all Government departments, and any entities for that matter—particularly banks, actually—wanting to deal with their customers through this mode are facing at the moment, and that’s what happens at a time like this.

The other issue I want to touch on is the mail system. When you do what we do in life, you spend a lot of time walking around streets. I reckon you could easily find streets in New Zealand where 20 percent of the mailboxes are never looked into. In fact, you’ll find the stuff down the street—you find it everywhere. So there’re a large number of people who never bother to go to their mailbox and never bother to take the letters out of it—I suspect because they’re mostly bills, and I also suspect that they get them—

💬 Greg O’Connor: Sounds like National Party brochures to me.

Well, I have to say, I have had to try and stuff mine on top of a couple of red ones in my time, but I’ll forgive them for that.

I think that the challenge of this is quite significant, because most of these people—as, again, Andrew Bayly said—have never received communication from the Inland Revenue Department, and when they do get one, they’ll be terrified by it, I would have thought. So that’s quite a large challenge, and I think it will take time to work its way in, and they’re going to have to have a significant amount of tolerance in dealing with this issue as it slowly is implemented. There are one or two good parts to that, in that some of the smaller tax refunds and tax demands will disappear, because if it’s under $50 they’re not going to persevere with that. That will make a difference and will lessen the communication that is required, hopefully. So that’s a bit of a challenge.

There are some other parts to this bill that I also think are challenging, but then all this stuff—almost everything we do in this House, actually—has unintended consequences, and certainly consequences that we can’t foresee at the time. I think that simple things that we might have envisaged when they came through this House would not cause significant problems—like anti - money-laundering, for example—have created significant costs for small business in New Zealand, and some of the changes proposed in Part 2 of this bill will inevitably lead to those same significant increases in costs to small business. That’s one of the things that’s hugely frustrating for business in New Zealand, and it’s hugely frustrating—well, I think it’s probably frustrating—for most politicians, because it’s not something that we intend as a Parliament to impose on business, but it happens almost every time we try to change compliance schemes and rules relating to tax and other things that the Parliament deals with.

Certainly, taxation is a very complex issue for most people, and it is an issue that most people—well, a large percentage of New Zealanders—never deal with personally. They are now going to have to deal with that personally, and I think that will be a challenge for them. There are also changes that are happening in the course of that legislation that are going to put more compliance on businesses, and so they are going to have to have much more frequent contact with the Inland Revenue, which also is going to be a significant challenge for them. There are plenty of other issues I will take up in the course of this bill.

Thank you, Mr Chair. I rise to take a stand in this committee stage on the Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill. It probably is the first time I have actually spoken on a tax bill in this House, over a period of nearly eight years. I do so, though, because in Part 2 of this bill, it raises a number of questions that I would like to pose to the Minister of Revenue, especially in regards to Part 2, clause 77, “New section 120VD inserted (Interest on tax credits for charitable or other public benefit gifts)”, inserted after section 120VC. It’s inserted as new section 120VD, “Interest on tax credits for charitable or other public benefit gifts”. It says “No interest shall be payable by the Commissioner under section 120D(3) on an amount of tax credit calculated under section LD 1 of the Income Tax Act 2007.”

I specifically note that, and I would like to pose a question to the Minister in regards to this, because as I read it and as I understand it, if a refund is due to a charity, then the IRD won’t have to pay interest on the refund. If that’s the case, then why is it that when we are wanting to support charities—and we enforce the law to ensure that they pay on time, but if there is a refund that is due, then the fact is that the Inland Revenue Department won’t pay interest if they had to hold that payment over a period of time. That’s my understanding. I would like to clarify that with the Minister, if that’s the case. Why is it, then, that these trusts—and I’ve also run an NGO myself for nearly 20 years, the Tamaki Community Development Trust out in Panmure and Glen Innes, so I know what it takes to ensure that when we process our tax through with our accountants, if we are late and due in our payments, then we get penalised. In that case, over a period of time, there’s interest that’s compounding. So in this case, I would like to pose a question to the Minister: surely, if we’re making this amendment, could we not then see the need to be more lenient to those in those charitable organisations?

We have 27,900 registered charitable trusts. We have 114,132 not-for-profit organisations in New Zealand. The charities are the backbone of our country. They service something like 44,000 hours a day up and down this country. So my question to the Minister: surely, it wouldn’t be too hard to show a little bit of lenience in this case. Could there be a way in which they could understand, if they’ve had that over a period of time—it could be four, maybe six months. In regard to clause 77, the introduction of 120VD, could they show some discretion, over that period of time, where they could actually pay some interest if they’ve had to hold that amount? If those trusts, in their accounting, have actually paid the amounts that were due, and there is seen to be a discrepancy in that amount—in other words, they paid more than what they were due—and now that we’ve got the Minister in the chair, I hope that he’s heard the question that I put through, which is: could there be some discretion? Sorry, Mr Chair—to the Minister. Part 2, clause 77 is the question that I’m posing to the Minister.

The feedback that I get from a number of our charities at times is that, at the moment, it is always difficult and a struggle to be able to make ends meet. Often, you’re looking at philanthropic funding. You’ve got contracts that you have there, there are charitable organisations, and there are donations that are given over that period of time. So they’re very frugal in the amounts that they have to deal with and administer throughout their operations, and in this clause 77, it’s quite particular. So the question, again, to the Minister, who is now here, for this bill: if a refund is due to a charity, then IRD won’t have to pay the interest on the refund—if that’s correct, I wonder if he could confirm that to me. If that’s the case, then my question to the Minister: could he show some discretion to that?

Now, inside of that, in this bill—I know that part of the bill will also talk further on in Part 3, but it does mention other charities which deal with this. And then, will this also relate to the 32 new charities that also, too, have an overseas donee status? That’s covered in clause 32—I know that’s in Part 3, but the question is related to Part 2. That’s in regards to the schedule for 32 overseas donee status trusts—the Books for Cambodia trust, the Children of the Light, Effective Altruism New Zealand Charitable Trust. There are a number of them that are there, so I’m wondering whether that could do—[Time expired]

Thank you very much, Mr Chair, for the opportunity to address the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill. I join others in discussing Part 2 of the bill. In particular, I would actually like to focus on new subpart 3A, inserted by clause 15, headed “Collection, use, and disclosure of revenue information”. I would like to start by looking at the purposes of the subpart, because that will inform some discussion that I would like to have and, ultimately, a couple of questions to pose to the Minister of Revenue about the way that the powers are exercised in this piece of legislation.

I might start, if I may, in a reasonably general way, if you’ll indulge me for a moment, by noting that revenue information is the centrepiece of this part of the Act, and information is, of course, knowledge, and knowledge is power, as Francis Bacon wisely observed many years ago. It’s the exercise of power by the State in collecting that information that affects the lives of individuals and other legal persons that is really very important for us to consider as we just check, ourselves—and no doubt with the officials, if you do wish to confer with them—that the powers given are appropriate.

So looking at new section 16, the purpose would be to provide the commissioner—of course, the commissioner of Inland Revenue—with powers to enable the collection of all taxes or duties imposed by Inland Revenue Acts. I won’t go through all of those; they’re defined elsewhere. That would be overly taxing. Instead, I’ll simply note that the functions that are referred to in there are those “lawfully conferred” on the commissioner. So I suppose we have a test there, a threshold in which the behaviour of the commissioner, whoever she or he may be at the relevant time, is judged to be legitimate or not—namely, that the powers and the functions that that person already has under existing legislation must be duly followed and complied with and not exceeded in the exercise of the power that’s set out in this new legislation.

So moving then to what the actual power will entail, but remaining on the purpose section, we see that the commissioner can collect revenue information by gaining access to property or documents, removing documents to make copies, and removing or retaining them, also, for the purpose of review. We see, as well, that the idea of the particular provisions will be partly to allow access to that information to the commissioner, at the time that documents are removed or, indeed, retained, notwithstanding that copies might be provided back to the person from whom they are removed. Nevertheless, there is, at least temporarily, a denial of that information to a person, so just to ensure that the power isn’t exercised in a way that’s inappropriate, my first question—and it’s a reasonably general one, I do appreciate—to the Minister in the chair, Stuart Nash, nevertheless, is just to query whether he is satisfied that there are appropriate safeguards around the procedures that are put in place for the State, effectively, to deprive a person of information under this Act.

Now, looking at the particular ways in which that can take place and the limits placed on those powers, I would turn the attention of the committee to new section 17I in clause 15, headed “Commissioner may conduct inquiries”. Just as a heads-up, I note that this is whereby the commissioner himself or herself can conduct inquiries, as opposed to a practice of applying to a District Court judge to conduct inquiries, which is in the following clause. New subsection (1), then, just to set it out clearly, is: “in relation to a tax liability of a person under an Inland Revenue Act”, noting that it must be “for the purposes of administration or enforcement” of such a piece of legislation, and also, again, to carry out “a function lawfully conferred on the Commissioner”. It probably goes without saying that things that are within those Acts shouldn’t be anything other than what the commissioner is lawfully conferred to be able to carry out, but, nevertheless, for the sake of clarity, I think it’s a good piece of drafting that the legislation reflects that.

Under the heading of “Inquiry by Commissioner”, there is an instance of a couple of words that I’m a bit uncertain of, so I’ll just raise it for the attention of the Minister—and it might be quite deliberate, but, in any case, I ask the question—the phrase “attend and” provides me with a bit of difficulty. The sentence that I’d like to draw to the attention of the Minister is as follows, in 17I(2): “The commissioner may notify a person that they are required to attend and provide information to the Commissioner or to produce documents”, etc. I wonder if the words “attend and” have a particular meaning. Reading the sentence from start to finish, it looks rather as though the person might be required to attend to the commissioner, perhaps. I don’t know if that means to attend in person at a meeting with the commissioner or if, perhaps, that’s the result of drafting that previously indicated such a meeting might be needed, and then that was removed. I don’t raise it as a major issue, but, nevertheless, for the sake of clarity if nothing else, if a change by way of Supplementary Order Paper is not practical or, indeed, needed, then to at least, maybe, have some clarity for the sake of future interpretation might, I suggest, be helpful.

Turning then to the second of the two sections that I’ve highlighted that I’d like to talk about, this one, at 17J, is where the “Commissioner may apply for District Court Judge to conduct inquiries”. This is going somewhat beyond the previous section whereby we heard about the ability of the commissioner to conduct inquiries himself or herself. Here, instead, what we have now is for a District Court judge to have the ability to obtain information at the petition, I suppose—just to use that term reasonably broadly—of the commissioner. So it is appropriate that with a quasi-judicial function, certain limits are prescribed on those powers. The first thing to note—and I’ll just do so very quickly, because it’s, essentially, a duplication from the previous section—is that for the purpose of obtaining information, it has to be in relation to a person’s tax liability under an Inland Revenue Act and for the purposes of administration and enforcement thereof, and to carry out a function lawfully conferred elsewhere.

I note that when a judge is called upon to exercise these powers and chooses to do so—and, in passing, I would note that it would be a choice of the judge, because the legislation expresses that a judge “may” do these things, as distinct from a judge “must” do these things—a couple of things can be carried out by the judge at that time. The first is to summon a person whom the commissioner or another interested person requires to be examined. I suppose that the phrase “other interested person” would be read in the context of the legislation. I must be honest and say that I don’t know whether that’s the case, that elsewhere in the legislation there is such a definition, or if that would just be a matter of statutory interpretation. I don’t suppose that’s unreasonable, but I note it in any case.

So having summoned such a person, then the judge may—again, I emphasise “may”—examine the person on oath in chambers regarding any matter relevant to the subject matter of the inquiry. So that’s pretty broad, to be able to examine a person regarding any matter relevant to the subject matter of the inquiry. It could be a matter that’s indirectly relevant, I suppose, but it would be the discretion of the judge, or rather the judgment of the judge—if you’ll excuse the tautology—that would be exercised in such a case. The person being on oath obviously is a significant safeguard, I suppose, in the administration of justice—obviously, determined and designed to obtain the truth of the matter as readily as possible.

One slightly interesting point—well, a very interesting point, actually, to me—on which I’d seek the Minister’s guidance before closing this contribution relates to subsection (4), which talks about the judge’s jurisdiction and the way that such an examination would take place. I note that it would be the rules that would be relevant to a witness in a civil action that would apply, as distinct from criminal procedure. I suppose I’m right in saying—although, no doubt, I’ll be corrected by others in the House who are more knowledgeable in taxation matters, of whom there are at least a couple—that it might be that the answers a person gives in such a context might, ultimately, give rise to criminal liability, I suppose, depending on what they were acknowledging or disclosing. So I wonder if the rules of criminal procedure, as opposed to civil procedure, might not be more appropriate in the way that a witness is called upon to respond in examination. On that, I leave my contribution for now.

Thank you very much. Just answering a couple of questions that have come up in the, sort of, five or 10 minutes I’ve been here. Mr Alfred Ngaro: no, I won’t be using my discretion at all to charities, but what I would say is there is a review of charities law at the moment. If you are interested in submitting, then I recommend you do. It is a fulsome review and it may well address some of the concerns you have and that you’ve brought up with regard to this piece of legislation. So have a go there.

With regard to the last speaker: yes, I am very, very comfortable with the commissioner’s role. The commissioner will not be breaking the law in any way, shape, or form. I am very comfortable with the safeguards in place and, certainly, now knowing how Inland Revenue operate, of course they will operate well within the bounds of the law. You did point out yourself, sir, that the word “may” is here, which does not compel the commissioner in any way, shape, or form to undertake any course of action. The commissioner may apply to a District Court judge—well, I suppose that is if the commissioner feels that that would add value to an investigation or they need someone more independent than the commissioner herself or himself, or whoever is the commissioner at that point in time.

That the judge has the jurisdiction of a civil court action—at this point in time, I would suggest that it is civil; it’s not criminal. You may find that out of any investigation or out of any inquiry there comes a criminal investigation, but my understanding in reading this is that it is an inquiry at this point in time; it is not a trial, and no one has been determined to have done anything wrong, hence the reason for civil. That would be my reading of it.

You are right. We have given the judge certain powers. But, again, I would suggest that the judge will use his or her powers with discretion in determining the best course of action to undertake and complete an inquiry. Again, there’s no compulsion here, and hence—and you yourself mentioned this—we are not compelling the judges by saying that they must do this. It is really saying that if the judge feels that in the course of the inquiry they need to bring interested parties in or they need to take this course of action, then they have the ability to do that, as opposed to a compulsion saying they must do this. But back to the commissioner’s powers: the commissioner does have wide-ranging powers in terms of investigation, as should be the case. But I am very comfortable—having sat on the Finance and Expenditure Committee for a number of years and had a look at this legislation—with the powers that we have conferred upon the commissioner to undertake investigations, and, in fact, I’m very comfortable with the powers we conferred upon the commissioner to undertake her job, full stop. Thank you.

Thank you, Mr Chairman. It’s a pleasure to take a call on Part 2 of this Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill. We’re dealing with over 100 clauses in this part, and there are two that I want to particularly focus on. I come to this bill from the values perspective that we want New Zealanders paying less tax. We want them to keep more of what they can earn. I also think it’s really important in tax legislation that we focus on a less complex tax system. There are a number of provisions in this part that actually add to the complexity and add to the compliance costs of our tax system. I particularly want to focus on new section 91EK in clause 61 that deals with the questions of rulings by the Inland Revenue commissioner. Now, I think the mechanism of a taxpayer being able to apply to the commissioner—and saying “Hey, look, under these circumstances” and getting a binding ruling about the impact on their tax affairs—is a good thing. I also think it’s a good thing that that is time-constrained. In subclauses (1), (2), and (3) of section 91EK there is quite a big out clause; that is where the Inland Revenue commissioner can decline to give a ruling under a number of grounds, and I have some concerns that those grounds are so wide.

Now, the reason I’m so interested in these provisions is that we’ve seen some quite big changes by this Government to the broader tax code. So, for instance, we’ve had the Government introduce their so-called research and development tax reclaim system. The billion dollar question is whether a whole lot of activity out there that’s been going on anyway that’s got little to do with research and development is going to be redesigned by accountants into being a refundable activity. Members on this side of the House are highly doubtful that those measures are in fact going to result in New Zealand improving its investment in research and development. It was fascinating last week to see that over National’s term in Government, there was a big increase in the matter of both public and private sector research and development, and I fear that these provisions are simply going to result in creative accounting and a more complex tax system. So my question for Willie Jackson, the Minister in the chair, is: are the provisions around the rulings provided in section 91EK now required because of that R & D tax deductibility?

I also note that in this bill we’ve got these ridiculous provisions where if you’ve got a good-looking racehorse, then you’re now going to be able to get a tax reduction. We’re highly doubtful of the merits of that. We know that members of New Zealand First have been very well endowed by those in the racing industry. We know that some of them broke the electoral laws in their contributions to the New Zealand First Party. So my question to the Minister in the chair is: are these new processes all designed around defining and getting rulings on what a good-looking racehorse is so that those benefactors of New Zealand First might get their tax refund? If you look at the substance of the law that is providing for this tax break for a very, very small group of New Zealanders, it seems to me that the law is incredibly vague, and, in fact, this rulings process that’s provided for.

Of course, what will be on the minds of hundreds of thousands of New Zealanders as they work through the complexity of the proposals around a capital gains tax are, really, these provisions around providing a commissioner ruling. Is this the new mechanism that’s going to be required around the huge complexity that’s going to be added to literally over a million taxpayers with the proposals for a capital gains tax? I’d love for the Minister in the chair to answer those questions around the relationship of this new rulings process around the proposed capital gains tax with respect to the new, good-looking racehorse tax deductibility and with respect to the R & D tax liability.

The second set of issues that I want to ask the Minister about are those that are provided in respect of new section 16, carrying through to new section 17, in clause 15. This is with respect to the quite extensive provisions that are proposed in the sharing of information. Every member of this Parliament will know that there is a huge sensitivity around the confidentiality of information that is provided to our Inland Revenue Department, and what we have in these provisions is the capacity for the far greater sharing of information with a whole range of different agencies. So there’s going to be more extensive sharing of information with ACC, with the New Zealand Superannuation Act, and with other Government agencies, including the National Provident Fund board. I really want the Minister in the chair to answer the question as to whether all of these provisions are indeed required—indeed, do these provisions comply with the new Privacy Act that Parliament is currently considering—and whether they are consistent with the commitments that were made by the Government in respect of the extent to which information is shared between different Government agencies.

The third point I’d like to make is in respect of the fixing up of a number of mistakes that were made by the Government in last year’s tax changes. So what we have here is the Government making tax changes only last year and then rolling into the Parliament this year and saying “Oops! We messed up this bit.” or “We messed up that bit, and we have to patch it up.” So the question I’ve got for the Minister in the chair, given that this part contains over 100 clauses, is: will he take responsibility for any errors in this law? I remember when Parliament was sitting just two weeks ago, we had a Minister blame officials, blame the Parliamentary Counsel Office, and all sorts of other people for the error, and, actually, we were challenged for even daring to question the sorts of provisions that I just have in three particular parts of this bill—only to have the Government come back the next week and say, “Oops! We stuffed up. Actually, the Opposition were correct.” Actually, National was right; the Government was wrong and they embarrassingly had to come back to the House and patch up their mess.

So the reassurance that I am seeking from the Minister in the chair is whether he will accept responsibility for these 100-plus changes. Again, I emphasise that whether it’s been in terms of extending the tax base to overseas entities, whether it’s been some of the other tax changes that were made last year, even things like the winter energy payment—the Government screwed up. They made serious mistakes in the law. They’ve had to come down to the Parliament and patch them up. Will the Minister that’s sitting in the chair accept responsibility for the detail of these 100-plus provisions that are contained in Part 2 of this bill and that are extensively detailed?

I’m particularly looking forward to an answer from the Minister of Revenue around those questions of the interaction of this law around the R & D changes I’ve mentioned, in respect of the good-looking racehorses tax provisions, and in respect of the other tax increases that this Government has imposed, and what their relationship is with those new rulings that are going to be provided by commissioners. I’d like the Minister in the chair to deal with the information-sharing questions that I’ve raised that are covered on pages 22, 23, and 24 of the bill. Is the Minister absolutely satisfied that those information-sharing provisions are absolutely required, and can assure us on those?

Again, I draw attention, and I’m looking for that reassurance from the Minister that he will accept responsibility for these 100-plus clauses in Part 2, given the Government’s got a pretty poor record of getting the detail—[Time expired]

Thank you, Madam Chair. I was speaking a bit before about the pre-population of accounts and how that drives this bill and whether it can actually be implemented, and I think one of the most important aspects of it is actually the computer system itself. Obviously, it’s part of a very large roll-out of a new computer system that’s going to revolutionise tax in New Zealand and the way it’s accounted for and how people interact with the IRD. The issue around the system, though, is that it was intended to be functional from 23 April, and bear in mind that this bill comes into force on 1 April—effective 1 April—which is in a few days’ time. So it’s already been delayed to later in April, when this migration is going to take place from the traditional or existing software system called FIRST to a new software system called START.

One of the issues I’m very concerned about, and I’m hoping the Minister of Revenue will talk about and come and address us about it, is the issue around, first of all, why this delay—and this is after the start date of this bill—but, secondly, the level of testing that’s gone on in terms of making sure that it is running operationally and it’s got rid of all of its bugs from a computer perspective. I know there’s been some batch processing of it and, in fact, the IRD are reasonably confident. They’ve done a significant amount of testing, but they haven’t completed the testing, as I understand it. So what I’d like to hear from the Minister is, in fact, what is the state of the IT system, because without having an operational system, those refunds I was talking about before that are required and are normally paid back by June—or even just letting people know about the obligations—are a crucial aspect.

That brings me on to the issue of, if you’re going to pre-populate the accounts with your contact details and all that sort of stuff, the next thing is to make sure that the IRD is getting the right information. The issue that drives this bill is an issue called reportable income. That is part of the system trying to make it easier for interaction between the IRD and taxpayers, and, to some extent, it is trying to reduce the levels of involvement required. If a taxpayer only receives reportable income, then the requirement to do tax returns and all that sort of stuff, basically, falls away. The obligation falls away. But that assumption—that premise—means that you’ve got to have proper provision of information around the elements of reportable income.

Madam Chair, I’m referring specifically now to new section 22D in clause 21, as I know that you’re keenly following the debate. But “reportable income” is defined as, first of all, PAYE income—so the wages and salaries that most people earn—or the payment of resident passive income, and that would be dividends from New Zealand shares and interest from banks. Then there’s an element of a payment of non-resident passive income—so, again, this could be income from a US company claiming a dividend to New Zealand, or it could be a foreign bond that someone’s invested in and is getting a return on that bond. It may be an element of capital or it may be an element of interest, which is interesting from a tax perspective. Or, fourthly, it could be a benefit under an employee share scheme, described in Schedule 4.

So if someone has just reportable income within that context, then that makes it much easier for that individual to be able to account for their tax and meet their obligations. But the issue is: how does the IRD get this information? I’m sure, as you will know, there are about 330,000 businesses in New Zealand—sorry, 530,000 businesses in New Zealand.

💬 Hon Scott Simpson: All going to be capital gains - taxed.

Yes, I know there’s going to be an element, but, of course, I’m confining myself to this topic. But the issue is that of those, there are about 200,000 that have employees. These are the mums and dads that we talk about in this House, and that that group across the other side of the aisle seem to forget about, but those 200,000 employers, made up of mums and dads who put their money on the line—[Bell rung] Madam Chair.

CHAIRPERSON (Poto Williams): Andrew Bayly—this is your fourth call in this debate.

Oh, OK. So of those, as at 8 February—not that long ago—only 21,000 had actually logged on and started to provide the IRD with the information they need on the salaries and the wages they are paying to their employees. So the issue we’ve got—actually, I’m sure the number’s increased since then, and I hope the IRD’s made headway—is that we know there are 70,000 businesses out of that 200,000 who use paper-based systems. They don’t use Xero because they are just used to doing PAYE on a paper-based system. It works well for them. They mightn’t have many employees, and that is the issue about how the IRD is going to get this information. It’s going to be provided on a paper-based system.

But the issue in this bill that is driving it forward is that, previously, they only had to provide their paper-based system information to the IRD monthly, but now they will have to provide it every pay day. That means that the level of resourcing within the IRD to be able to handle that level of returns could be up to four times the existing level of information coming into the IRD, and I think that is quite something. That’s quite something, and I’d like to hear the Minister talk about the staffing of the IRD and how it’s going to meet those requirements.

The other part of the reportable income that I’ve talked about was interest and dividends. Of course, this also requires the goodwill of banks and also share registrars. At the moment, banks have been providing information on interest that income earners receive annually, and now there is a requirement to provide much more reporting regularly to the IRD. The issue I want to understand is to what extent are those banks required to do that and to what extent are they actually complying with the requests to do that, because if the IRD does not get that information, it runs a serious risk of not being able to determine the income of people, and the intent of the Act is for the IRD to have a better measure, a better assessment, of people’s income and the appropriate tax so that we’re not getting into the situation where we have refunds or, even worse, taxpayers having to make tax payments at the end of the year. So that is quite something, and I think how the share registrar is going to do it—the basis for doing it is really important.

But, of course, what this issue doesn’t deal with—which is the third part of that reportable income—is the income that people receive from overseas jurisdictions. So if you own shares in the US or the UK, how’s that going to be captured as part of your affordable income? That is quite a crucial aspect, again, because if you are inside that reportable income group, then—as I keep saying—the idea is that there should be much fewer interactions with the IRD. To the extent that that’s happening and what provision is taking place at an implementation level—which, effectively, needs to come into place in the next 23 days, from 1 April—is a crucial part for this issue.

Now, the other thing I just want to turn to is the one around debt forgiveness. The issue around the debt forgiveness—and this is covered in new section 22IB, just for your interest. The idea is for the IRD to be able to deal with the substantial issues of tax, and for those people who are entitled to refunds to get them seamlessly, and for those who don’t pay a lot of tax to not have to file tax returns. At the moment, there’s a rule that if a taxpayer earns less than $200, then there’s an exclusion around that, which helps to some extent. But the debt forgiveness has been set at $50, provided the taxpayer’s been on the right tax code, which comes back to my earlier point that if the information’s not been provided to the IRD, how do you know what tax code you’re going to do, and whether the IRD’s properly assessing it? If the IRD wants to reduce the tax code, then it’s up to the company and the people in these companies and businesses that we talk about—they will have to go back and change the tax code for that individual. Without that, it never takes places. It’s a very important aspect. It’s all about compliance.

Thank you, Madam Chair, for the chance to follow such a comprehensive dissertation on the subject of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill. I’ll continue in Part 2, of course, but, actually, I’d like to draw the attention of the committee instead to flow chart 1, which—for those following along at home—is on page 62 of the bill, for what that’s worth. What we’ve got there is a flow chart which sets out the scheme of Subpart 3B. That seems to me a very helpful bit of drafting, because it sets out with great clarity and simplicity the way that a person—and I’ll qualify that word “person” in a moment—can regard their obligations in terms of whether they qualify and in relation to their pre-populated accounts, and so forth. Others have mentioned some of the detail around the pre-populated accounts, so I won’t trouble the committee further with any of that now.

The way that this is set out does, I think, allow individuals to know how the law might apply to them, and for that reason it seems to go to the rule of law’s emphasis on accessibility of the law. It’s axiomatic, I suppose, that those who have the ability to understand the law have some sort of chance of complying with it, and certainly, if we’re to say that ignorance of the law is no excuse, then we owe it, as a legislature, to provide information that’s reasonably understandable to them.

So it is that what we have in the first instance is a question mark next to the word “individual”, and we have an opportunity to say that, yes, a person’s an individual, or, no, they’re not. For a bit more guidance than is able to be provided in a single cell within a flow chart, we’ve got the meaning of “individual” just across the page—as it happens, conveniently enough, under the new section 22D heading of “Key terms”, which, of course, provides definitions, as you would expect, including for “individual”. That one itself is actually quite interesting, so I’ll just pause briefly to note that it means a natural person, as opposed to a legal person who’s not a natural person, noting that every natural person is a legal person but not every legal person is a natural person. “Natural person” here includes the “natural person who is non-resident”, meaning, of course, in relation to tax residency, but it excludes a deceased natural person.

💬 Hon Shane Jones: How many of them in National are natural?

I’m sure it’s occurred to everyone in this committee that a deceased natural person isn’t in fact a natural person. I’m hearing from some unnatural persons at the moment, but I’ll avoid being derailed by them, because, of course, the deceased—

CHAIRPERSON (Poto Williams): Don’t rise to the bait, Mr Penk.

Good advice, Madam Chair. I’ll be sure to take it. So a deceased natural person is, of course, not a natural person at all. But, in any case, for the sake of clarity, the bill sets that out—again, clarity and simplicity being a good thing in the law. I think we can safely move on from there.

The flow chart that I’ve been referring to, with some degree of approval, includes a number of different options where we’ve got yeses and noes to answer certain questions, if we’ve determined that an individual is indeed an individual, and that they are a qualifying individual. Again, that definition is given, and I won’t trouble the committee with any belabouring of that point. We then talk about the amount of income they might have and the implications for whether a person has a pre-populated account that is correct or not.

There are more layers to this than an onion, and I draw on the great economic philosopher Shrek, who noted that onions have many layers and that also, in accordance with his sidekick Donkey’s advice, they make one’s eye water. I think that the structure of this flow chart should have both qualities as well. Hopefully, this speech is not having the same effect, although I fear that it may.

Looking then at various other elements of the flow chart, one that I did want to highlight for the committee’s attention, and in particular in the hope that Minister Faafoi might be able to turn his mind to it, perhaps with the assistance of officials, is the phrase “default assessment”. It’s somewhat in the middle of the flow chart—or the onion, if you will—in the middle of those layers there. The word “default” I think in this context means the presumptive assessment—the assessment that would apply unless there is some sort—[Bell rung]

I move, That the question be now put.

Thank you, Madam Chair. Now, this will not be quite as eloquent as the previous speaker, or the one before him, because I don’t have quite the same tone to my comments. But other than commenting on the Minister in the chair’s cricketing ability, I wanted to comment on what happens when you get into trouble with the Inland Revenue Department—and that’s no place to be, I can assure you. There’s quite a piece in the bill about the court procedures and what happens when you don’t do what you’re supposed to do in accordance with tax laws. Of course, there are so many tax laws that to follow it logically would be quite difficult, but clause 15 in the bill details how you apply for court orders and how the commissioner goes about effectively getting the court involved in the process of, I suppose, at the end of the day, collecting tax.

It also details how the commissioner conducts inquiries. Of course, one of the great concerns of this Parliament—in fact, of New Zealand—is that we need to have people paying their tax. It’s essential that they do pay their tax and it’s essential that they pay their tax in the manner prescribed. I guess one of the great challenges for many taxpayers is actually understanding the manner prescribed. I talked about that in an earlier contribution I made to this bill, because many people do have difficulty understanding that, and I think it’s important that through the use of tax agents and people like that, you have the opportunity to get a much better understanding of what your responsibilities are and how they apply.

Clause 15 in Part 2 goes on to detail how inquiries are operated. It’s quite detailed in what it talks about, interestingly. It details how those inquiries are held and what happens when you appear before the District Court judge. It goes as far as even detailing what you might claim expenses for. In other words, if you’re summoned to appear at an inquiry, you can claim your travelling expenses. I would’ve thought that would be the last thing on your mind if you were summoned to appear in an inquiry before the Inland Revenue Department. But none the less, that’s what happens. So, it just shows, though, the detail that the Finance and Expenditure Committee get taken to, I guess, by advisers and certainly by the tax experts that advise the committee on how this stuff works, because it is very complicated. For us who are elected to Parliament—other than Andrew Bayly; he, clearly, has a penchant for tax—we don’t come here to discuss tax bills, and so it is a very complicated issue for us to get our heads around.

So I think the detail that is put into these bills is amazing and, certainly, when you consider the transformation project that the Inland Revenue Department has under way at the moment, legally, the amount of detail that’s required to enable that transformation to take place and to be put into place is pretty significant. So I think that this part of the bill is important. No one would wish to appear in any of these kinds of circumstances, but none the less—

💬 Hon Shane Jones: Hear, hear!

Exactly, Minister. But none the less, the bill details—in quite pedantic detail—what happens in the course of this, and it’s pretty well legislated for. So I think we can have a fair bit of confidence in Part 2 of this bill. As the Inland Revenue’s transformation project continues, I think we’ll get to see much more change made to these Acts, because it will be required as that transformation’s implemented.

So I think that Part 2, on the whole, is a pretty good piece of legislation, and we certainly support most of the changes made in there. We, obviously, can’t support this bill, because there’s one or two—Part 1, particularly around the tax changes, and there’s another part in Part 3 that we don’t really support. So that’s my contribution to Part 2. Thank you.

Madam Chair, I wish to thank you for the call, and I wish to speak to clause 17 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill, which is around the commissioner’s ability to obtain information by accessing properties and documents. This is a pretty amazing clause because, as my learned friend Mr McKelvie has just said, you do not actually want to get into trouble with the Inland Revenue, and the last thing you want is them coming on to your property to access information or data or documents.

If you go to clause 17(2), where it says “The Commissioner must not enter a private dwelling to access any property or documents except with the consent of an occupier or under a warrant issued under section 17D.”, you understand that there are two courses of action here: one where agents of the Inland Revenue can turn up, have a conversation, and ask to access various documents. I do notice that under clause 17(5) in this clause—and under clause 16, 16B, and 17D—“property or documents includes—(a) all lands, buildings, places, or other premises:” and “(b) a document, whether in the custody or under the control of a public officer, or a body corporate, or any other person”. A private dwelling goes on to be defined as “a building or part of a building occupied as residential accommodation and includes—(a) a garage, shed, and other buildings used in connection with a private dwelling; and (b) any business premises that are, or are within, a private dwelling.”

The reason I spelt that out is that that is a pretty significant ability for officers of Inland Revenue to go into somebody’s private property or business interests. I think we need to be really clear that in many of the cases that we’re going after here—and I think our side of the Chamber supports the Government’s wish for this transformation project and the things we want under this section to make sure the taxation collection system is fair and reasonable. If we go there, then we have two options. First, the person is going to agree. Inland Revenue turns up; they have a warrant. They’re going to agree: come, have a look, and take whichever documents or copies of the documents you wish. Or what is more likely is, on legal or other advice, they are going to say, “Where’s your warrant? What right have you got to be here?”

That is where we get into clause 17D(1)(a): “an application [needs to be] made for a search warrant under Part 4, subpart 3 of the Search and Surveillance Act … for [the] warrant to enter a private dwelling [and] to remove and retain a document from this place”. I’ll remind this committee of the conversations we had late last year in terms of some of the biosecurity changes in New Zealand brought about by M. bovis. While I’m generally supportive of these provisions, I think we need to make sure that whatever those warrants are issued for and the process that’s being followed is fair and reasonable. I remind members of this House that in many cases, people will not be compliant. They won’t want this to happen.

So I’m seeking some clarification from the Minister as to how easy it’s going to be for these warrants to be obtained, because I read under 17D(1)(b) that “an issuing officer [needs to be] satisfied that the issue of the warrant is required for the exercise of a function lawfully conferred on the Commissioner.” So what is the requirement and what does satisfaction mean? I think that is a very high threshold. I’ll ask the Minister, if he would—and Minister Faafoi is generally very obliging in these cases—to answer the question: what do they mean that “an issuing officer is satisfied”, and what is the test for that? Because, in my view, entering someone’s home, shed, property, farm, whatever, is a high threshold. If a warrant’s to be issued, I need to understand what needs to be satisfied before that occurs.

Thank you, Madam Chair, and I also rise to take a call on the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill. I’d like to take a quick call, talking in regards to clause 18F of Part 2, which is the “Regulations for information-sharing for public services purposes”. I noted in clause 18E(4) that the definition for public service “means a public function or duty that is conferred or imposed on an agency described in subsection (5)—(a) by or under law; or (b) by a policy of the Government.” So that context does say that a public service has quite a broad meaning.

So when we come to clause 18F, we note here that this allows the Minister of Revenue the ability to make regulations in order to be able to require public services to share information in order to be able to enforce the law, to make sure that the information that they have is correct, and a range of other purposes. I understand that the purposes which are put down here are good. They are in order to ensure that the Minister of Revenue or the Inland Revenue Department is able to enforce the law to be able to gather the revenue which is required. I guess my questions relate to how the Government is going to ensure that people’s information—which may have been given to one Government department or one public service—is going to be kept private.

I note, in making these regulations, that under 18F(2)(b) the Minister of Revenue must prescribe “(i) the classes or types of revenue information that may be shared: (ii) how the information is to be provided or accessed: (iii) how the information is to be used: (iv) how the information must be stored, kept secure, or disposed of;”. Then new subclause (bb) is being added, which says “providing … the information-sharing arrangements under the regulations are monitored by the Privacy Commissioner;”. I’d like the Minister to take a call and just discuss in further detail what this monitoring by the Privacy Commissioner might mean.

I note in the previous clause, 18E, “The Commissioner may enter into an agreement to share certain information”—this is under 18E(3)—“(a) [this] agreement—(i) is made for public services purposes; … (ii) relates to the disclosure of sensitive revenue information”, and this is to do with disclosures of information. It says there that the commissioner has consulted. So he may enter one of these agreements if he’s consulted the Privacy Commissioner on the terms of the agreement and the Commissioner agrees that the disclosure is appropriate.

I guess what I’m trying to point out between these two clauses is that in one there is a requirement for the commissioner to consult the Privacy Commissioner on the terms of this disclosure agreement, and the Privacy Commissioner has an obligation to agree that the disclosure agreement is appropriate. Then in the next clause, where the Minister of Revenue, through the Governor-General, has the power to make regulations, they must only ensure “that the information-sharing agreements under the regulations are monitored by the Privacy Commissioner”. There doesn’t seem to be any requirement here to consult with the Privacy Commissioner in setting up these regulations, or an order for the Privacy Commissioner to have to agree to—or give some sort of approval to—the regulations which are being set up to allow for the sharing of information between public services.

I guess the concern that I have here is around the privacy of people’s information. People go to different public service departments or organisations to share information for different purposes, and then the tax authority—the Inland Revenue Department—is being given powers here to be able to use this information to match it and then to ensure that they can enforce the law and ensure that people are paying their fair share, a purpose which we agree with. But what I’m wanting to ensure is that there are appropriate safeguards, and I understand that, of course, that is part of the regulation-setting powers that the Minister must take into account: appropriate safeguards, etc. But where is the check and balance by the Privacy Commissioner in regards to the information sharing for public purposes and the regulation-making power compared to the disclosures in the previous clause? I’d like the Minister, if he can, to take a call on that matter. Thank you.

I move, That the question be now put.