Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill

I move, That the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill.

Madam Speaker, let me start by saying congratulations on your elevation to Assistant Speaker. I know you’ll do a fantastic job and it’s great to see you sitting up there.

💬 Kieran McAnulty: Greaser.

Thank you, Mr McAnulty. This taxation bill aims to improve the tax system by making it simpler and fairer. It also includes support for business. Broadly, the policy proposals in this bill have three main objectives. Firstly, to continue the Government’s simplifying and modernisation of the tax system. Secondly, to further improve the application of our broad-base, low-rate framework. And, thirdly, to further encourage research and development expenditure.

Members familiar with the ongoing tax simplification programme will be aware of the various tax types that are being transitioned to a new technology system in an orderly manner. As each of the tax types moves across, the Government has taken the opportunity to fix a range of issues that have been around for some time, resulting in better customer service for taxpayers. We have previously been unable to implement improvements because inland revenue were hobbled by old technology. Today, this bill asks us to consider a range of measures which would improve the system for KiwiSaver members and student loan borrowers. There are a host of proposed improvements, so we’ll touch on just some of the headline ones.

KiwiSaver—one of the proposals in this bill addresses an issue that has been in the public eye of late: savers being on the wrong prescribed investor rate or PIR. The ongoing modernisation of the tax system means that inland revenue is starting to receive more frequent employment and investment income information. One of the benefits of this more timely collection of income information is that inland revenue is now better able to identify when someone appears to be using an incorrect tax rate. But even armed with that information inland revenue is not currently able to correct the issue, so the investor is overtaxed. The bill, therefore, would allow inland revenue to notify the KiwiSaver scheme or other managed fund providers using an incorrect rate for an investor and alert them to the need for change. Being on the correct prescribed investor rate will help ensure the correct amount of tax is deducted in the future. The issue does, however, require further work. Under the current law—in place since 2007—people on too low a rate are required to pay a shortfall, while those on too high a rate are not entitled to a refund. Clearly, this should be reviewed and I’ve asked my officials to investigate options.

Another issue that has been irksome for savers has been that employers can sometimes be late paying KiwiSaver employer contribution amounts to the employee’s scheme provider. As you can appreciate, this means that the employee is not getting their full entitlement and is missing out on investment returns. We are proposing that inland revenue should be allowed to pay KiwiSaver employer contribution amounts to scheme providers before the contribution amount has actually been received by inland revenue.

Another longstanding issue is addressed by this bill—when KiwiSaver was introduced, inland revenue’s systems could not calculate interest on KiwiSaver contributions from the employee’s pay day, without imposing compliance costs on employers. But the recent introduction of pay-day filing overcomes this obstacle. The bill, therefore, contains proposals to ensure that interest on employer and employee contributions begins to accrue from the employee’s pay day until the contributions are forwarded to the KiwiSaver scheme provider.

Student loans—along with a focus on improvements to the administration of KiwiSaver, the bill also focuses on student loan borrowers. We are aware of borrowers who are based overseas and whose health problems make them unable to meet their repayment obligations. We don’t want to add further to their stress by having a loan hanging over their heads, accruing interest. So we’re proposing that those overseas-based borrowers with serious illnesses or disabilities be treated as New Zealand - based borrowers and, therefore, not be subject to loan interest.

There is also a proposal in the bill, addressing the situation where too much is deducted by a borrower’s employer for their final repayment. This is a systems issue and previously could not be addressed, leaving borrowers out of pocket until it could be repaid. The bill proposes that inland revenue notify employers when their employee’s loan balance is close to zero so they can deduct the correct amount for the final deduction and avoid an over-deduction.

The bill also simplifies the student loan scheme by reducing the number of cases where inland revenue will go back and reassess a borrower’s loan balance prior to 1 April 2013. The only cases where they would go back would be where the borrower has gone overseas and inland revenue didn’t know about it, where the borrower committed fraud, or where the borrower did not file a tax return. The bill also contains the protection for borrowers to ensure that they are not unduly disadvantaged by these proposals.

I said before that this bill will help support businesses. Members will recall that an important part of the Government’s support for encouraging greater business investment in research and development is the R & D tax credit, which passed into law in May. When the tax credit was developed, there was an acknowledgment at the time that the next phase of that scheme would be required. This bill, therefore, introduces the next phase of support and a further incentive for businesses. In most cases a firm will bear the cost of its R & D work before it can reap financial reward from that R & D. This means that very often these firms will be in loss. Under the current rule many businesses in loss will not be able to access their credits until they become profitable further down the line. We want to support more business expenditure on R & D whether these businesses are in profit or loss. So this bill will extend the availability of refundable R & D tax credits to a much greater segment of loss-making businesses.

The refundable tax credits would generally be available up to the amount of payroll tax paid by the business in the same year, but there will be no payroll cap if the business uses an approved research provider like, for example, a university. For example, a pre-profit start-up investing $2 million in eligible R & D would be entitled to get back $300,000 of its investment in cash, provided it met the broader conditions. We have set the ambitious target of raising New Zealand’s R & D expenditure to 2 percent of GDP over 10 years. To meet this goal we need to get behind all of our businesses, including pre-profit firms.

There are other matters related to R & D included in this bill, including a clarification. The R & D tax credit is aimed at providing businesses with additional support and minimising the risk of undertaking R & D, but that credit is not aimed at tax-exempt entities who are outside the tax system and already receiving concessions. The bill therefore clarifies that most tax-exempt entities will not be eligible for the credit.

This bill represents the next wave of the Government’s ongoing simplification and modernisation of the tax system. Already, businesses and individuals are benefiting from simpler, smoother GST processes and automatic refunds, to name just two examples. The proposals in this bill will extend the benefits of a simpler tax system to KiwiSavers and student loan borrowers, and along the way it tackles some longstanding problems and issues. This bill introduces the next phase of support for businesses undertaking R & D. I’m very proud to commit this bill to the House.

Thank you, Madam Speaker. First of all, I’d like to congratulate you, Madam Speaker, on your elevation and promotion, and it’s nice to see you in the Chair.

The other thing is I’d just like to acknowledge the six Ministers in the House tonight. It is lovely to see them all here. You know, after our three-week recess, I’m sure there’s not much to be done up in the Beehive tonight, because obviously they all want to come down and learn a little bit about tax, and I think that should be welcomed—welcomed—because some of these people need to learn how to spend money more wisely, and in some cases how to make it, first of all. It’s easy to spend it unwisely, isn’t it, Mr Nash.

Now, this is a comprehensive taxation bill and I think the Minister covered it adequately, but in my mind it’s got five key aspects. First of all, it changes the KiwiSaver provisions, largely to be ahead of the game when the KiwiSaver—which is the next roll-out of the business transformation programme, which when it will occur next year is looking forward and planning for that. It also makes some changes to the student loan and employees’ share schemes, R & D tax credits, as we heard rather torridly just before, and then a raft of other changes.

I just want to say that the main thing in general is we support most of what’s in this bill, and we will be supporting this bill. But the point I want to make, and I heard the Minister just before, is I think it is outrageous that here is another bill—here is another tax bill—and this is another opportunity where the Government could have dealt with the issue where people who have paid too much tax on their portfolio investment entity income, their investment income, have not been and will not be paid their money back by the IRD. They could have addressed that in this bill—

💬 Dan Bidois: Shameful!

—and I think it is shameful. This is a huge bill and it would have been very easy for a Supplementary Order Paper (SOP) on that. Because the Minister doesn’t seem to know how we’re going to go about it, I think we’re going to have to write the SOP and put an addendum to this bill when it comes back into the House, because we need to address this issue where people have paid too much money to the IRD. The IRD should pay it back and the Minister who has just spoken should make sure that happens, because it’s not right.

Madam Speaker—[Interruption] Sorry, Madam Speaker, just a little bit of confusion there. I do want to start my contribution by congratulating you on your new position. While I will miss you as our whip, I hope that I enjoy you as our Assistant Speaker. I’m sure you will be equally scary sometimes in that role. I am just a little bit intimidated standing here for the first time in front of you to take this call tonight.

Now, if I can start, there are three lots of people that I want to talk about who are particularly affected by the proposed changes in this bill. The first group of people are our KiwiSavers, the second group of people are our student loan borrowers, and the third group of people are Māori authorities. So I want to just take some time to talk about the proposed changes in terms of those three groups of people and to explain them, because they are significant changes which are really aimed at improving the administration of the KiwiSaver scheme, facilitating the faster transfer of funds, approving the administrative efficiency, and to enhance members’ experience with the KiwiSaver scheme.

I think the KiwiSaver scheme is a brilliant scheme, but I have looked at these proposed changes in this bill and I think that all of them would enhance the scheme that is already a good scheme. It would enhance and improve the scheme and people’s experiences with it.

One particular proposed change is to calculate interest on contributions from the employee’s pay day. So as far as they’re concerned, they’re docked on pay day. However, historically it hasn’t been the case that they have actually earned interest from that point in time. The reason for that was because the inland revenue systems at the time could not calculate interest from the employee’s pay day without imposing costs on employers. However, the introduction of pay-day filing is now going to overcome that particular obstacle. So I believe, rightly so, that employees are going to be able to earn interest from the moment it is actually taken from their pay.

Secondly, there is a proposal to reduce the KiwiSaver provisional period and holding period from three months to two months. This is important because historically and previously IRD has not been able to transfer those contributions to scheme providers until the end of the provisional period—and I think that’s a bit unfair on the KiwiSaver. So that reduction from three months to two months is a good one. Also, reducing the time frame for the transfer of members’ information and funds between providers; so currently the time frame between default providers is only 10 days, but for non-default providers it’s 35 days. The bill proposes that it will be consistent whether they are default providers or non-default providers, and it will be 10 days for all providers. I particularly like this proposal, and it is giving employees more ways to be able to change their contributions. Previously, they have only been able to do that by contacting their employers, but now they will be able to do that with these scheme providers and with the inland revenue Department. I think we want to encourage people to use KiwiSaver; we want to make it as easy as possible—I think that, in terms of being able to change the rates of contribution easily, either the employer, IRD, or the scheme provider, just makes sense to me.

Now, the second group of people that are affected by this bill that I want to talk about are those student loan borrowers. The first thing may not be such good news for the student loan borrowers, but language is important. The first proposal is to rename what they call a “repayment holiday” to a “temporary repayment suspension.” I think “holiday” does, in fact, send the wrong message to borrowers. The point of this proposal is to clarify and to better signal to borrowers that this isn’t a holiday but it is, in fact, a suspension and that their repayment obligations will remain at the end of their repayment suspension. So that really is about using better language to better signal what the intent of that provision is: not a holiday, but a suspension.

There are a couple of proposed changes in there in terms of the ability of IRD to write off student loans taken out before the year 2000, in cases of fraud. Currently within the legislation they are unable to do that. So, again, this is a very practical proposal that will give them the ability to write off these loans which are fraudulent, they can’t identify who the correct borrower is, and so it just sits there incorrectly in the system.

Allowing employers to be notified of an employee’s loan balance when their student loan is close to being fully repaid—I think that this is really in favour of the student loan borrower. Because what this proposal will actually do is it will ensure that there isn’t an over-deduction, and for anybody who has had this happen to them, it takes quite a bit of time to get the repayment back to you. So this will allow employers to see that the student loans are close to being paid off and therefore can make the adjustment from their final pay, and it will all be settled there. So I think that’s another good suggestion.

The final proposal that I wanted to talk about, in terms of student loans, is the treating of overseas-based borrowers who have serious illnesses or disabilities as if they were physically based in New Zealand. I think that this is the right thing for us to do. Just to explain that, the reason is that currently if they have a serious illness or a disability and they are based overseas, they are still being charged contributions and they are being charged interest. But what this change would, in fact, do is treat them as a New Zealand-based citizen, and, therefore, their repayments would be determined on their income—and in this case, it would be seriously reduced or none—and also it wouldn’t be subject to interest on their student loans. So I think that this is the right thing to do and I think it makes it a lot fairer for those who are suffering from serious illness or disabilities who are living overseas, who are currently having to pay based on their incomes and are being charged interest.

The final proposal that I wanted to talk about was Māori authority tax credits. I had to read this one a couple of times. I believe that I have got a better understanding of it now, but I do want to read the key point because it is quite technical. There’s been an unintended consequence of legislative change in the rewrite of the rules relating to Māori authority tax credits, which has meant that the current law allows these credits to be attached retrospectively to any distribution from a Māori authority, when, in fact, the policy intent was that these credits can only be attached retrospectively to non-cash distributions occurring under the transfer pricing rules—so “any” versus “non-cash” distributions occurring under the transfer pricing rules. So the bill proposes an amendment to maintain what its treatment was. Just a key point there is that the IRD is not aware of any taxpayer who has retrospectively attached those credits.

Those are the sections of the bill that I wanted to focus on this evening. Thank you very much.

Thank you, Madam Speaker. What a delight—what a delight. It’s so wonderful to see so much interest and excitement about this bill in the House tonight. The National Party will support this bill to select committee, at which we will no doubt want to suggest some very good amendments to make it better. It’s hard to go past the fabulous contribution of our colleague Andrew Bayly, who just gave such a fantastic speech.

💬 Hon Member: Energised.

Very energised and actually full of information; he didn’t need everyone else’s notes to do it either—so it was a great contribution.

One of the things that I think it’s good to remember is that when we were in Government—and several of us are here tonight—we actually funded the IRD to be able to bring in the computer systems to be able to bring this new simplified version in for collection of tax. I’d like to put a big shout-out—in the few moments that I will still want to talk about this excellent bill at this stage—to all the employers who every pay day collect tax for Parliament, who collect child support, who collect student loan payments, and who even sort out all sorts of court orders around payments that are due to the courts. Employers do this for free, and we never thank them enough. The inland revenue Department, in my opinion, has never thanked them—and they should do, because for lots of countries, people don’t have employers that do that, there’s not a PAYE system, and people have to go and organise their own tax payments. I think it’s really important that we thank employers for that job that they do for free for Parliament, because it’s Parliament’s money that has to, then, be appropriated.

I think it’s really important to understand that we have technology changes happening within IRD and also in businesses. It’s important that we look forward to making better use of those so that we can increase productivity in business—and I think that’s crucial.

Thank you, Madam Speaker. I think, in the select committee, we’ll have a great time on this bill, looking for all sorts of ways that we can improve it.

The Hon Fletcher Tabuteau.

That’s very kind of you, Madam Speaker—very kind of you. I’d just like to acknowledge the shorter than usual contribution from the member opposite, Judith Collins, and acknowledge the positive way that the Opposition is approaching this.

💬 Kieran McAnulty: She’s changed her tune.

Yes, she’s changed, mate. Actually, please don’t have me up for this but she would be a much better finance spokesperson for the Opposition. But anyway, that’s just my observation. I promise I will now get to the bill.

This is a matter of some importance—a great deal of importance for not only this coalition Government but New Zealand First. We’ve been working on this—I have been working on these issues—for years and to see them come through in legislation now because of the good work of Ministers Nash and Robertson is a compliment to the coalition Government and the way that we can work together.

There are three main objectives being achieved through this legislation—and you’ll forgive me if I read but it’s important we get this accurate. The first one is around what any good Government is trying to do. And credit to the Opposition. When we were dealing with tax and National was in Government, most of the time—I think 95 percent of the time—New Zealand First would vote in support of what it was they were trying to achieve, because on both sides of the House it is about our efforts to modernise our tax system and not only the mechanisms we use to take the revenue but the methods we use to engage with taxpayers. And it is about the simplification of tax and the transparency of it. So this legislation definitely takes a big step forward in achieving those fundamental goals that a good Government would seek to achieve when they put remedial tax legislation and KiwiSaver legislation in front of the House, and it is absolutely being achieved in this legislation.

What we’re also doing is just contributing to the continuation of what is the broad tax take at a low rate. New Zealand’s tax system is simple. As much as we could debate some of the tax rates in the country right now, we do—comparatively around the world—pay low taxes and we will continue to do so and this seeks to make sure that we can continue to do that.

Another thing that New Zealanders are proud to stand up and support is what has been termed “remedial matters”, but actually it’s quite significant. That is around the research and development tax credit programme. So a fantastic policy; it puts New Zealand businesses on a level playing field. Well, it’s getting us there—New Zealand businesses on a level playing field with the rest of the world and their competitors around the world who have access to these tax breaks. We’re bringing that in again. We’ve learnt lessons from the past around these tax credits, but what this legislation does—and it’s described as remedial but I would suggest it’s quite significant because of what we’re doing here—is just taking an additional step forward.

The R & D tax credit legislation came through the House not so long ago, but we’ve already recognised that there is an opportunity for small business here to take advantage of those tax credits, and how do you do that if you don’t have a positive cash flow or your net revenue’s not in a position where you can actually claim a credit back from that on a tax position.

💬 Hon Member: What do you do?

What do you do? Thank you. Good question. Well, what we’re doing now is giving those smaller businesses who aren’t revenue positive access to the same tax credit system mainly through the payroll system—I think up to around $255,000. So this is good fundamental legislation that does the right thing and ticks the right boxes in so many ways.

I spoke about the three main areas. But, you know, New Zealand First has long advocated for this. In fact, I put a member’s bill in the House not so long ago—it might have been last year, but great conversations with Minister Faafoi and Minister Robertson. They acknowledged what the member’s bill was trying to achieve at the time and said, “We can do that through Government legislation and this is a long way towards what it is we’re trying to achieve.”

One of the greatest frustrations for me as a dad at the moment is my oldest daughter has been in the workplace for a few years now, and despite my vehement protestations that she go to her KiwiSaver provider and say “You’ve put me on the wrong tax rate.”—I don’t think she’s done it yet, because there’s no onus on the KiwiSaver provider to come back and have that conversation, have that important fundamental conversation as a good provider should and ask those questions: what’s your income? Is this the right tax rate for you? So she’s still on 28 percent, I think, and believe me—Dad knows—she’s not in the higher-income tax bracket, that’s for sure.

So fundamental questions like that, and engagement time periods—and perhaps I should speak more specifically to that—faster transfers of funds, improve the administration efficiency, and enhance members’ experiences with the scheme. So that is what we’re trying to do: calculating interest on contributions from employers’ pay day, reducing KiwiSaver provisional period and holding periods, reducing the time frame for the transfer of members’ information and funds between providers.

I won’t go in too much detail about some of the frustrations of some of these big KiwiSaver providers and the way that they are making a great deal of money out of New Zealanders’ KiwiSaver funds. But this and these changes are a fundamental step in the right direction in terms of information timeliness and an onus of engagement with those who would seek to maximise their return for their retirement through KiwiSaver programmes. Fundamentally, if we get this right this basically means people have more money for their retirement to look after themselves at that stage in life, and that is fundamental to a good Government and the questions we ask ourselves about why we are here.

Well, this is what we’re doing here and these legislative changes are a part of that—I’m going to wax lyrical and call it a tapestry of life in legislation. You’ll forgive me.

💬 Kieran McAnulty: A mini Jonesy.

Yeah—no, it’s not Jonesy.

So the other thing, the other area we are dealing with, is the student loan charges. So the bill proposes five student loan policy changes. These changes seek to improve the administration of the student loan scheme.

I’m sure the Opposition think I have spoken for far too long. This is good. This is great legislation, which I’m very proud to stand up on, on behalf of not only New Zealand First but this coalition Government with support from the Green Party over there. This will make a fundamental difference to people’s lives. It really will do that and therefore I wholly endorse and support this legislation to the House. Thank you very much.

Thank you, Madam Speaker. I must say I haven’t agreed more with the member who’s just resumed his seat than when he said he had spoken for far too long on the bill, although it is quite a rare feat to get to see such alliteration coming out of what is a revenue bill, a tax bill—talking about tapestries and so forth—so I do commend the member for that.

I will take a short amount of time in support of this bill but I do caveat that by saying there are some concerns that I am confident the Finance and Expenditure Committee will dive deeply into. The last thing one needs is a former revenue Minister to critique the next revenue bill that comes off the factory floor and I would sound like the grumpy uncle at Christmas dinner. But there are a couple of things that I think can be improved and I’m looking forward to the select committee scrutinising them.

Now, the Inland Revenue Department used to have a strap-line. Those of my age or thereabouts will remember they used to say, “It’s our job to be fair.” Now, there was one area in this bill that I don’t think is remedied that is not fair and that is the interest of the overpayment of portfolio investment entity (PIE) tax. And we have heard the Minister of Revenue say that if somebody underpays PIE tax or undersets their PIE rate of tax, they will be required to repay that, pay use of money interest and penalties, and so on. But if by chance that is overpaid, then the same treatment is not regarded to be appropriate. I don’t think that’s fair, and I will encourage members—on this side at least, if not the whole select committee—to actually assess whether or not that is appropriate.

Now, that, I think, distracts from the fact that most of the things here are very, very good improvements made possible because of the significant Business Transformation project that has been going on for quite some period of time. It started with my predecessor, Todd McClay, and was continued by me and then Judith Collins and the Hon Stuart Nash. That has enabled a lot of the sensible things that are going on in this bill to take place.

I would make one comment though. When I was Minister, I thought it ridiculous that it was necessary to change primary legislation in order to give charities from overseas donee status, and I note that that is still necessary—where there are four charities that are, through primary legislation, having to bother this House with what is something that I believe should be appropriately delegated by Order in Council. I would be interested in the committee actually having a look at that. Rather than approving these four, I’m sure, quite noble organisations, actually, what we should be doing is changing the legislation to enable the Minister by Order in Council, with an appropriate consultation process, to do that without troubling the House. That said, I’m very pleased to support the bill.

Thank you, Madam Speaker. Can I just start by saying what a pleasure it is to rise and be able to have the opportunity to refer to you as Madam Speaker. I think it is a well-deserved role, and I’m looking very much forward to working with you in the Chair over the coming 18 months.

I also just wanted to rise in support of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill. I’m glad that this bill has bipartisan support of the House, and I note that whilst the Opposition has some concerns, it does look like we’re going to be able to move this one through. As I understand from the previous speaker, the Hon Michael Woodhouse, there are actually fairly minor changes that would need to be made to satisfy his concerns about it. They don’t sound all that substantive.

But for the sake of the select committee, and for submitters on the bill, I think it’s worthwhile just kind of getting out of some of the detail for a moment and referring to what the aim of the overall bill is, because, obviously, one of the jobs of the select committee will be to ensure that the detail of the bill meets the purposes of the bill. So I do want to take a moment just to refer to that and get that on the record.

The first purpose, really, is to ensure that we are simplifying and modernising the tax system. Now, obviously, this is an ongoing programme of work. We’ve had recent tax bills, and some that came in the last few years, all of which were moving towards that. But I think that it’s worthwhile for us, as we pass this bill through the House and through its stages through the House, to keep that in mind, because my own sense, especially when I was on the Finance and Expenditure Committee, is that you can get so lost in the detail that, actually, you end up creating more detail and pulling away from the purpose, which is to simplify and modify the tax system. So I want to make sure that that is part of what we’re doing, because I think that serves New Zealanders best, when we maintain that.

The second purpose, of course, is we are very proud in this country of our broad based - low rate framework, and this bill is, again, designed to reinforce that and to improve on the application of that.

The third purpose—or the third aim of the bill—is to further encourage research and development expenditure. That is actually an area where there has been a lot of debate in the last few years about what the best form and structure, essentially, is to use the public purse and the tax system or grants to try and encourage New Zealand businesses to invest more in R & D, because we are lower down the OECD league table of investment in R & D, and that is really important. I’m very supportive of the measures that are outlined in this bill, but, again, just for the sake of the select committee, I want to make sure that we are keeping an eye on that, to say: actually, are we making sure that at every stage of this we are ensuring that R & D expenditure is increasing? Because we do have a goal of getting it up to about 2 percent of GDP, and we’re kind of starting from a reasonably low base there. Having said that, that’s what we’re trying to do, and I know that the new select committee chair will keep her eye very firmly on that.

I want to refer to some of the specific items. One of the first ones is around KiwiSaver. This has been referred to by members on all sides, around people who are investing in portfolio investment entities—or PIEs. This is one of those areas where the design of the system as it is at the moment tends to work against people who are less sophisticated users. So if you’re kind of starting from a bit further behind, the current set-up tends to leave you a bit further behind. That is because people need to notify providers of their appropriate tax rate and people who are generally less sophisticated users of KiwiSaver are not getting around to that. So what that is ending up in is that there are many, many people—perhaps as many as one in five New Zealanders, which is a staggering amount—who actually end up paying more tax than they would otherwise have to if they had notified inland revenue of their appropriate rate.

Like I said, what that means is that people who are more sophisticated users are more aware of what it is that their obligations are for informing their provider of their appropriate rate—not inland revenue but their provider. That means that they’re doing better out of it than people who are kind of starting from a lower base. So the current system actually tends to add to inequality rather than help to close that gap. The proposed law—the changes that we’re going to debate tonight and over the course of the next few months, as this bill passes through the House—allow inland revenue to actually notify the provider themselves. They can say, “Actually, we know what this person’s appropriate tax rate should be. So here it is.” That means that people should be only paying what they are supposed to be paying.

That is one of those ways, if we’re to return to the purpose of making the system simpler and easier to use, where, actually, we can, I guess, use the resource that we’ve got at our disposal to make life easier for ordinary New Zealanders—you know, people who generally don’t engage so much with the detail but who can then get left behind by not engaging with it. So I’m really supportive of that. I think it makes the tax system fairer—and just by changing the way that we administer the bill.

The second area is around student loans. On this one, I have to say—as someone who lived overseas for most of my adult life and the early stages of my career—when I went over with a student loan, which, at that time, attracted a commercial rate of interest on it, all the people who I knew from New Zealand who were over there as well, all of whom had student loans, often found it quite difficult to interact with inland revenue, despite the fact that we actually have a really good system. Actually, people’s personal circumstances would often get in the way of them being able to pay their loans back—or they might miss payments, and so on and so forth. Of course, then you end up in a great deal of trouble, and that would attract penalties, which would also attract interest, and then people would kind of opt out of paying into the system at all and try and hide away, and then the real trouble started.

So one of the things that I particularly like about this bill is that for student loan borrowers who are based overseas and whose health problems make them unable to make repayments, the amendments in this bill will treat those people the same as if they were based here in New Zealand, and they won’t be subject to interest on their loan for that period of time. I think that is a very small change that could make a significant material difference to a significant number of people, because, when you’re travelling, you are at risk and you can find yourself in a position of being unable to pay. We don’t want to penalise those people because they just happen to run into those circumstances.

The third area, of course, has been covered a fair amount today, and that’s about research and development. This is also an area that’s quite close to my heart because for a long time I was involved with a number of small businesses and it does take a while to get to a point of profitability, to get up and running. That has meant that it has been, effectively, impossible for the very businesses that we want to encourage the most, the start-ups, the entrepreneurs, and the innovators, to actually get the support. So the whole scheme for encouraging R & D has tended to be skewed towards larger pre-existing businesses who could actually afford the investment more in the first place.

So the change here in order to make it possible for smaller start-ups who are not yet at that profitable stage to start being able to recoup some of their investment in R & D, I think, is actually focusing the R & D tax credit system on exactly the part of the economy that you most need to pay attention to, because that is the part of the economy where you are going to see the most innovation and the most growth and development in terms of new businesses and research and development. So I think that that is a fantastic innovation. I commend the Ministers involved for having developed that, and I think that will make a huge difference.

The mild concerns of the Opposition aside, I think that this is a fantastic bill. It advantages a number of groups in New Zealand society, and I commend it to the House.

I’m fascinated to hear the full 10-minute speech by the Minister there, James Shaw. This is a Government that has a very short Order Paper and is filibustering on a bill that most New Zealanders will understand is primarily a detailed tax bill with a number of specific provisions is supported on both sides of the House, and we want to get on with the task at hand.

The primary point I would like to make about this bill, of course, it being a tax bill: its main deficiency is that it is not dealing with the matter of inflation eating into the tax bills of all New Zealanders every year by not adjusting for the inflation rate. So the absence of that somewhat drains away from my enthusiasm for this bill, but, nevertheless, there are some other things that we are looking forward to considering at the select committee—can’t say we agree with everything, but we’re happy to have it discussed and submitted upon.

One of the interesting ones is renaming the student loan repayment holiday. That’s a symbolic thing just to not give the impression somehow that stopping contributions to KiwiSaver should be regarded as a holiday which goes on for a long period of time but merely as an opportunity to refer to a student loan temporary repayment suspension, so as not to encourage people to take too long out of their working lives from contributing to KiwiSaver and building up a nest egg to help them in their retirement.

It’s interesting, however, that the Government appreciates the importance of getting the naming right with these sorts of things, but they haven’t quite grasped the fact that the jobseeker benefit, which we had renamed for people who were seeking jobs, is now becoming a little bit out of sync with the way that they’ve gone about that piece of important benefits, because they are no longer requiring people to be seeking the jobs. So I suppose, if they follow the logic that is outlined in this bill to other areas of Parliament, they might be thinking about how they go about naming things.

But, all in all, we’re very much looking forward to looking at the details of this bill in the select committee over the next coming months. Thank you very much.

Madam Speaker, let me join the veritable chorus of those congratulating you on your elevation to the position—I think one of only a few positions you haven’t held in the time you’ve been here in the House. So I look forward to speaking before you tonight on this and many other bills.

The contribution by the previous speaker, Paul Goldsmith, really comes to the core of the issue. I’m not sure whether over on that side of the House they decide half of them will speak about the fact that we’re not spending enough money and the other half will whinge and whine about the fact we’re taking too much tax. I think that’s what they call balanced politics. We call it having a chip on both shoulders, but either way it just shows the total lack of logic that is being applied. There’s a chorus of rubbish being yelled across the House—presumably, half of them will be saying “Pay less tax.”; the other half will be saying “Spend more money, Government.”

I think the best example of that was probably around the teachers, when they were demanding that we free up more money, that it was terrible that we weren’t freeing up the millions and billions necessary that were being demanded by the teachers. So I think I’ll look forward to deciphering, perhaps through Hansard, the latest range of screaming across the House.

One of the essences of this bill is that—and I think previous speaker, the Hon James Shaw, hit on it—less sophisticated users of our tax system are often the ones that are disadvantaged, and I think underlying that is a basic faith. Although people do complain about the IRD—I think poor old IRD staff are the ones who are least likely to identify themselves at parties or any social gathering, because people will climb into their ears, but, ultimately, there’s an ultimate, I think, faith in the system, that they will get it right. But, actually, that’s not right—hasn’t been—in that if you didn’t pay attention to what you were paying, particularly around areas like KiwiSaver, student loans, the reality of it is you may be paying too much tax or not be paying the right tax. So I think what this bill does is it draws attention to the fact that people now and with the new capabilities of the IRD—it gives the IRD the opportunity to be more proactive to ensure that they can actually give people the confidence that they can go about their work, particularly those less sophisticated users of the tax system, those less sophisticated taxpayers, that, actually, the system is right, and this goes some way towards that.

If I can just focus on the student loan part of this particularly, I know from personal experience with my own children—we all know when people get student loans, they build these student loans often a little higher and faster than parents would like them to. We try and keep an eye on it; they seem to get out of control, but, of course, the first time they want to go overseas for any length of time is often when they realise some of the consequences of these student loans—which will be, of course, interest-free latterly to date—heading off and suddenly realising that they are six months gone from the country; all of a sudden, not only do they start paying interest but they actually pay back-interest, and there’s quite a considerable bill that they that they start to accrue. So that actually is probably the first time they really understand the consequences of it.

Of course, part of this is that—and that is referred to as a loan repayment holiday, but those health problems that can arise—now, many of our young people head off overseas on sporting endeavours, heading over there maybe to pay the loans. In fact, just having been on a sporting endeavour myself, looking at Mr McKelvie over there—he was on it himself. Not sure if Mr McKelvie needed a break from his student loan on his great endeavours on the cricket pitch—also Mr Patterson, who was here before, was on a recent parliamentary trip. Some of the balls were whistling around our ears over there at about 135 kilometres. That could’ve actually brought about the injuries that may have required some time for a break and the inability to earn money and the necessity for a loan holiday. That’s one of the factors in here that will actually be a very important one and it will, given the number of New Zealanders that like to get over there to actually make some money to pay their student loan for when they come home—that will be a very important factor.

I will be on the select committee considering this. I think it’s a very good bill. I look forward to working it through, and I’m sure when it comes back here it will something on which the bonhomie and agreement we’ve seen will continue. I commend this bill.

Thank you, Madam Speaker, and congratulations to you on your new role—the only role, I guess, you haven’t fulfilled in your time in the Parliament. It gives me a great deal of pleasure to follow the previous speaker, the outstanding spin bowler from Ōhāriu. He surprises me somewhat that he’s back here—I thought he would’ve got a contract in England.

This bill is one of many, many tax bills that fulfil the insatiable appetite of this Government to spend more money, but, none the less, it’s a very complex area, taxation, and the number of tax bills that we have going through the select committee never ceases to amaze me.

All that I need to say on this has been said, and I’m a great believer in the fact that if one doesn’t have anything useful to say, then say nothing, so I will commend the bill to the House and wish it all the best as it goes through the select committee process.

Madam Speaker, it’s with great pleasure that I rise and join with others that have spoken in congratulating you on your recent ascension to the role of Assistant Speaker, a role I’m sure you’ll discharge with a high level of confidence and aplomb. Having done the requisite greeting, I shall get on to explaining why the ACT Party opposes this bill.

It’s tempting for people to say, “Oh, well, it’s just fixing up a broken system. There’s nothing particularly malign in the bill, so why not support it?” The reason not to support it is that by supporting even useful changes to a malign system of tax policy, you’re endorsing that system of bad policy. We heard from the National Party spokesperson for finance that the bill would be better if only it included a provision to adjust the thresholds at which different tax rates kick in. Well, there’s a theme emanating from that comment, which is that a significant part of the tax changes here are necessary only because we insist in this country on having five different tax rates: four income tax rates and trust and company rate. Much of the business that’s gone through the Finance and Expenditure Committee, and through this Parliament with regard to tax over the years that I’ve been in this Parliament, has been necessary only because the inland revenue is constantly engaged in a game of cat and mouse with the taxpayer, trying to ensure that the correct tax has been levied at the correct tax rate.

This is symptomatic of a wider problem that New Zealand has. Some members, I’m sure, will be familiar with the professor of economics—whose name’s going to escape me, I know him so well—Tim. Who, for a long time, at Auckland—[Interruption] On a first name basis: Tim Hazledine, in fact. Tim Hazledine’s a lefty, but everyone has their uses. I think one of his most useful contributions is to point out that New Zealand’s productivity has been addled by spending far too much time on what he calls “transactional activity” and not enough time on what he calls “transformational activity”—far too much time arranging to do work, organising other people to do it, getting permission to work, and checking that work has been done, and not enough time actually doing work. This tax legislation and so much like it is symptomatic of that exact problem.

Some people might say that it’s defensible because there is so much more revenue raised by having a system with multiple tax rates. Members might be surprised if they asked themselves—and many of them won’t have—how much revenue really is gained from having a system of multiple rates? Well, this Government raises, from a combination of income tax on persons and companies, around about $50 billion a year. Less than 20 percent of that, or $10 billion, is raised from the fact that we have multiple tax rates.

We could dramatically simplify our lives in this Parliament—and on the Finance and Expenditure Committee, I might add—but much more importantly, the lives of so many New Zealanders, if we levied income and company taxes at one rate. If we were to do that, we’d also find that we might not need to have an R & D tax credit scheme, which simply introduces more bureaucracy and more transactional activity for people trying to work out when exactly they should be paying how much tax.

So I oppose this bill. ACT opposes legislation that makes life more complicated for minimal gain. The ACT Party believes we could have the fairest, simplest, and most aspirational tax policy, of one rate, in the world, if only this House rejected bills like this and chose to do so. Thank you, Madam Speaker.

Madam Speaker, thank you very much, and may I congratulate you on your ascension to Assistant Speaker. I hope that goes well. I had to clean my ears out because it’s not that often you hear David Seymour quoting a left-wing economist, and particularly one such as Tim Hazledine.

We’re here today to support the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill. A lot has been said on this side of the House, so I’ll keep this call very brief. It is an omnibus bill that is basically trying to simplify the system and also make sure we maintain the overall principle of our system, which is a broad-based - low rate system, and that we encourage and further encourage R & D expenditure in New Zealand, which, I might add, is still very low, both from a public lens but also from a private sector lens as well.

So we support these changes. This bill makes a whole bunch of recommended changes to KiwiSaver, to the student loan scheme, and a whole raft of other changes as well. I do hope that by sending this to the Finance and Expenditure Committee we’re able to iron out some of those details, but also keep in mind some of our foundation principles of our taxation system here in New Zealand. The first is around making sure that people pay their fair share of tax—no more, no less. The second is that we maintain our broad-based and low-rate system. The third is a taxation system that’s easy to administer. The fourth and final principle that I want the select committee to look at and uphold is about borrowing funds. That is, if you borrow funds from the State, that you in fact repay those funds in full.

I know that we’re going to be discussing in select committee a whole bunch of changes to the student loan scheme for those that are overseas, and I was one of those, and duly repaid my loan—must’ve been a couple of years, now. But I think that that’s really important; that if you do take a student loan out, you repay that in full. So it’s a pleasure to support this bill in the House, and I look forward to watching it progress through to select committee.

Madam Speaker, congratulations on your elevation to the Speaker’s Chair. It’s a pleasure to see you there, and it is a pleasure to take this last call on this excellent tax bill, the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill. We’ve had a number of interesting comments made by speakers in the House this evening, and I wish to pick up a number of these comments in turn, and reflect on them in the context of this bill.

The first comment I wish to reflect on is the one from my colleague Mr James Shaw, who asks: “Does the detail of the bill meet the purposes of the bill?” A very good question to ask about a tax bill. But a reminder to Mr Shaw that perhaps he might not have all the detail quite covered. There is, in fact, no chair of the Finance and Expenditure Committee right at this moment. There will, hopefully, be one after tomorrow’s meeting. In any case, I am sure that the members of that committee will examine this bill with great care.

Moving on from there, our colleague Mr David Seymour spent a considerable portion of time worrying about the rates of tax which are paid, and arguing that if only we had a flat tax rate, we wouldn’t need much of the detail of this bill. He is wrong, straightforwardly. There is every year, of course, on the first grounds, an annual rates bill, which is an open invitation to discuss the rates of taxation. But something else that goes on with tax is not only the need to set a rate, or rates of taxation, but to think very carefully about the rules by which income is measured, the rules by which we assess income, and, therefore, income tax, and the rules we have for paying and repaying tax. This is what this bill is about. It is about the machinery of taxation. It is about the architecture of the Income Tax Act. It is about the rules of taxation, not about the rates of tax. I invite Mr Seymour to consider that the next time an annual rates bill rolls around, as they do every single year.

The third issue I wish to speak on is something that was raised by the Hon Michael Woodhouse. A particular detail of this bill, and that is to do with our charities law, and the fact that each time we wish to give an entity the status of being a charitable entity, so that then, in that case, tax rebates may be claimed for donations to that entity—that appears in primary legislation, as it does, indeed, in this particular bill. We list a number of entities who are going to be given charitable status. Mr Woodhouse said, “Well, do we really need to do this in primary legislation? Perhaps it could be done in subsidiary legislation.” I think Mr Woodhouse has a point. It would be something that would be worth discussing. But, just to counter that point, it is worth remembering that we are offering a concession to these organisations; that we are offering them something which comes from the pockets of New Zealand taxpayers. So it possibly is worth considering every single one of these entities in turn in primary legislation, and by this House. So I’m not sure which of those arguments would carry more weight, but I do think there are definitely two sides to that particular point.

But the issue I wish to reflect on most of all, and it is an issue that concerns me with this bill, was something that, oddly enough, was raised—somewhat in passing, I suspect, but nevertheless raised—by the Hon Judith Collins, who, in her speech to us, said—she was thanking “employers who collect tax of Parliament”. That actually points to a particular issue in this bill that I am very concerned about, and it arises with respect to the refundability of research and development tax credits. We intend and want—we are working towards encouraging more research and development in this country. To that end, we have put in place a research and development tax credit. But, of course, one of the problems with tax credits is that, in order to claim the tax credit, an entity has to pay tax in the first place. When it comes to firms that are engaged in research and development, often they’re start-up firms.

By the very nature of start-ups, often they don’t make profits for quite some time. So they pay no tax, and, therefore, they can’t claim the credit. In the initial legislation around the research and development tax credit, we put in place a measure by which firms who were not yet in profit could, nevertheless, collect some of that tax credit as a refundable tax credit. It’s a way of encouraging start-up firms. This particular bill contains a further measure to ensure that firms that are in a loss position for tax purposes, and, therefore, paying no tax, can nevertheless at least claim some refundable tax credits. Looking at the regulatory impact statement and some of the information there, we are told that we think that of the firms who are performing research and development, there might be around about between 750 and 1,200 who are in a tax loss position. But under the current rules, only 350 to 650 of those might be able to claim the refundable tax credit.

So half of those firms who are performing R & D, and are eligible for the credit, except for the fact that they don’t actually pay tax, can’t actually get that refundable tax credit. So this bill extends that refundable tax credit. But one of the worries when there is a refundable tax credit is that some firms can exploit it. So there is always a need for a cap on it. The cap on this one is set at the amount of payroll tax that a firm pays, and this is my issue. I think it sits in clause 111, where a new term is introduced into our Income Tax Act, and it’s the idea of a payroll tax-based cap. Now, my understanding is that a payroll tax is normally an amount that is extra, on top of the amount of salary that an employer pays. For example, if an employer has a payroll cost of say, I don’t know, $500,000 and there is a payroll tax of, I don’t know, say 1 percent, well, then that employer would pay $5,000 of payroll tax. It’s extra and over above the basic payroll cost. Some people might characterise our ACC levy as a payroll tax.

But the problem with this payroll tax is the amount is actually the amount of PAYE—that’s pay-as-you-earn—employer superannuation contribution tax (ESCT), and fringe benefit tax that the employer pays. They are not payroll taxes. A firm pays salary and wages and then, as the Hon Judith Collins correctly pointed out, the firm collects a portion of those and pays it over to IRD. The firm will pay its employees in the form of perks, of cars or whatever, or fringe benefits, and then on top of that it has to calculate the proportion of that. It is equivalent to the PAYE. The same thing applies with ESCT, and the point is that those are not the firm’s taxes; they are the employee’s taxes. All the firm is doing is collecting the tax on behalf of the employee and paying it over to IRD. So it is the employee’s tax, not the employer’s tax.

I think that the term “payroll tax” implies that it’s the employer’s tax, and this is quite a conceptual issue, and I think it’s one that I hope that the select committee ought to grapple with, whether that particular term catches the essence of what is being paid. I think it’s the employee’s tax. In fact, we always think of it as based on the employee’s own income, not on the employer’s. I think it’s important to make that distinction, and it’s something I think we need to look at when we get to the select committee process. It’s perhaps a small point, but it is a conceptual point. It’s one I will be talking to officials and to other members of the select committee about, and I hope we can do something to resolve it, because it is a new term in our tax system. I think we need to be careful about it—careful with all the detail of the tax bill, as Mr James Shaw urged us to be. This is an excellent bill and I commend it to the House.