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

That brings us to Part 3, which is debate on clauses 58 to 148 and Schedule 2.

Thank you, Madam Chair. I’d like to talk to my Supplementary Order Paper (SOP) 477 because it, essentially, relates to clause 59B. This is an issue that we on the Finance and Expenditure Committee have talked about significantly. In my view, this is one of those instances of something that is taking place that is terribly inequitable, pernicious, and wrong. What I’m referring to is the situation where we have many hundreds of thousands of New Zealanders who have ended up paying too much tax on their PIE investment income. This is an ever-growing problem.

So, in the last financial year, approximately 950,000 people who had a portfolio investment entity—commonly referred to as a PIE, and that, in layman’s terms, would mean having an investment such as a KiwiSaver account or other fund management type of investment vehicle—these people in many cases inadvertently have paid too much tax or their PIR—or prescribed investor rate—was wrong. This situation is something that has increased over time and, as at the end of the 2018/19 year, there is about $42 million in tax owing to these people who’ve paid too much tax. On the other side, we’ve got people who have paid too little tax on their PIE investment income; the IRD, under the orders of the Government, have been seeking these people out and making sure that they are paying their just amount of tax on their PIE investment income, and that’s correct.

We have a principle in New Zealand which is that you pay your necessary amount of tax but you pay no more. This issue, which has arisen over time, but, essentially, in the 2018/19 year, has become very, very substantial—and that’s why my SOP deliberately talks about that being the financial year—from that date forward, in that one year, as I said before, there’s $42 million, there will be another amount accruing in this financial year, and, of course, this carries on. Now, the bill talks about addressing this problem of paying back money owed to these New Zealanders in the year 2021/22, and that is wrong because these amounts, this $50 million—maybe $60 million or $70 million by the time we get to that point—should be paid to New Zealanders earning the lowest amount of income in New Zealand. In essence, most of them are amounts owing to people earning less than $48,000, and individually the amount’s not a lot, but it is a heck of a lot of money that New Zealanders are owed by the Government. There is absolutely no reason why that shouldn’t be repaid.

When I questioned the Minister Stuart Nash in the House, he said that it’s an issue of technology. So then I did speak to the commissioner about it, and she did confirm that it wasn’t an issue of technology. So then it was an issue of needing to do a legislative requirement. So I helpfully drafted an SOP for the Minister and presented it to the Minister and presented it to the select committee, and that would have allowed for this to take place effective from the 2018/19 year. What this Minister has chosen to do is to nick that money from those low-paid New Zealanders and retain that money, balance probably up to $70 million, and keep it in the Government’s accounts—and that I think is absolutely wrong. There are many, many hundreds of thousands of New Zealanders affected by this, and I just think that the Minister seriously needs to reconsider this. I’d say to this Minister, “Pay the cash back, Nash, because it needs to go back to the rightful owners.” It is inequitable.

I would like to speak in relation to Andrew Bayly‘s Supplementary Order Paper 477. I am a former Minister of Revenue for, unfortunately, only about nine months, otherwise we would have been in Government when the technological changes were made for IRD, which we funded and all that, and it’s been an ongoing process. It was once a technological issue for Inland Revenue, and that’s why the law was put in place: to say that they did not have to refund the money, because they couldn’t physically do it—that was one of their issues. But now that the technology has been invested in over many years, around about $1 billion, and I think that my colleague the Hon Michael Woodhouse was the Minister at the time when we first started the process to actually—[Interruption]—oh, actually, yes even earlier than that—bring the Inland Review computer system and technological system up to date and to that terrible word “futureproof”—whatever that means—it. We can do this now but we can’t do it while the law is as it is. That’s why Andrew Bayly’s Supplementary Order Paper is a very sensible and reasoned way of dealing with it.

I would say to the Minister in the chair, Stuart Nash, that I was disappointed in the second reading speech that he gave, where he made some comments about what we could have done; well, we were doing what we could do but now he has the ability and we are there to help when it comes to the law change. It is not fair for the Government to hold money that it doesn’t—and, actually, not hold it; keep it and spend it—deserve to have and shouldn’t have. As has been stated from Andrew Bayly, these are, in most cases, people who have the smallest amounts, often, in investment and they are not often able to switch and change and do all sorts of other things with their investments. It is simply wrong for the Government to retain and to use money that it is not entitled to. Whether it’s $60 million or $100 million or $30 million—whatever—it’s still not right; it’s not right for anyone else to do it and it’s not right for the Government. The only reason that it was allowed before was because of the technological difficulty of sorting it.

So our system of tax collection is very effective because it relies on people doing the right thing, PAYE, and also people’s withholding taxes and everything else coming out, without Inland Revenue having to do much for it. It is done by employers, it’s done by the people who are the investment advisers; it’s done by other people, a lot of that work. So, surely, Inland Revenue could, now that it has the technology—and as Andrew Bayly said, the commissioner has confirmed that they do have the technology now to do it—this would be a really good thing to do, and it would help to also increase the confidence in the tax system, which is important for the well-functioning working of a system that relies, in a great deal, on the goodwill and the work of others—unpaid work of employers and those who have to collect taxes, child support, and all the other things.

So I just don’t understand why the Government wouldn’t want to take this opportunity. I would say to the Minister in the chair: it’s not often that we get, in Parliament, very genuine opportunities to make this sort of change, which is hardly likely to be an election issue—it is hardly likely to be something that, you know, the 6 o’clock news covers tonight—but it is something that will make a difference and it will right a wrong.

💬 Hon Shane Jones: Headline hunting.

I think that when the Hon Shane Jones calls out “Headline hunting”, there is that old saying of the pot calling the kettle black, actually. I would say to Mr Jones that even he would have difficulty making a headline out of a portfolio investment entity (PIE) interest rate, but I think that he wouldn’t know what the pie was. But having said that—

💬 Hon Stuart Nash: He knows what pies are.

CHAIRPERSON (Hon Anne Tolley): Mince and cheese.

Ha! Let’s just stick to the issue, which is that this is actually a very good Supplementary Order Paper. That’s why I’m speaking to it, and I think it is something—I know it is something—that if we’d had the ability when I was the Minister of Revenue we would have done it, and that’s why we should do it now.

Thank you so much, Madam Chair. One thing I would like to say to Mr Bayly is “Nash has paid back the cash.” What I would say to the member is, in Opposition, he may well remember that I used to query the Inland Revenue every single year as to why they held $750 million in account that was actually owed to Kiwis. This was money that Kiwis hadn’t claimed in overpaid tax. And now, due to the changes made in Business Transformation, we are actually paying that cash back to Kiwis without them having to proactively contact the IRD or an intermediary themselves. So that money—$750 million—the vast majority of that is being paid back to Kiwis.

So I think if you look at a lot of mischief in Inland Revenue—and you know, I will talk about the former Minister’s contribution in a second—we have actually got on top of this. Let’s put this into perspective—and one thing I will say is I do have a little bit of sympathy for where the member is coming from, but let’s put this into perspective—it’s my understanding that people who have overpaid have overpaid about a dollar a week. Now it’s still a dollar a week they have overpaid, but it’s about a dollar a week. It’s not as if they have overpaid tax that’s in the hundreds or the thousands of dollars. It’s a dollar a week.

The other thing I would say, and I remember when the member mentioned this Supplementary Order Paper (SOP)—I thought about this and I went back and I had a look at my KiwiSaver statement that had been sent to me by my provider. I would say that I think, actually, a lot of KiwiSaver providers who, by and large, use portfolio investment entities (PIEs) to invest their clients’ moneys could have taken a little bit more responsibility for this. Why we have ended up in this situation is because there is a default rate that tax is paid if a taxpayer does not provide their correct tax rate. It was impossible for Inland Revenue to determine if the default rate was in fact the default or if in fact that tax rate had been provided by the taxpayer themselves. So they could not separate the default rate from a taxpayer who’d actually been proactive.

But I actually believe that KiwiSaver providers, who are by and large—not all, but by and large—making fees out of their clients, could have been a lot more proactive in saying to their clients, “Make sure you are on the right tax rate, because if you are not, you are overpaying tax and you cannot claim this back.” Keeping in mind, this is not something that has just come into being. This has always been the case ever since PIEs have been set up. The rules have been that if you overpay your tax, you will not be able to get this back. This is not something new. It has always been in place.

The other thing I will say is the SOP put up by Mr Bayly would require taxpayers to contact IRD proactively, because IRD does not have the data themselves to proactively do this and contact taxpayers themselves. This would have to be done proactively.

The other thing I would say—and the former member of Revenue does know this—

💬 Hon Judith Collins: Minister.

—sorry; the former Minister of Revenue does know this—is that every now and again, the commissioner has to make a captain’s call about the best use of resource for her men and women. I know that the commissioner has appeared before the Finance and Expenditure Committee and explained in quite, quite graphic detail around why she made the call that this was going to be the way forward. Part of that was that this would take significant resource and a whole lot of time and effort because they don’t hold the data. They would have to go back significantly. So what we have done is we have fixed the problem. We have fixed the problem. People will pay the right amount of tax going forward, but looking back, it is just far too much work to be done. That is a call made by the Commissioner of Inland Revenue, and I trust that she has a much better oversight of resource allocation and cost benefit analysis than we do, and I trust the commissioner has made the right call here. I back her 100 percent. I hope that has answered all the members’ questions. Thank you very much.

Now, that just shows a Minister totally out of touch on this issue, because the first thing—and if the Minister disagrees with this, he needs to stand—is that New Zealanders should pay their fair share of tax and no more. That is the hallmark of our tax system. What I just heard from the Minister was, “We’ve got $750 million and we’ve paid most of it back.” That is not right. This is an issue—this is money that the Government should not be holding. It does not own this money. It’s owed to those people who have paid it. The issue I’ve got with your logic, Minister, is that you’re saying, “If a KiwiSaver person has not told their provider, then it’s their fault and therefore we’re going to keep the money.” That logic does not stand up. That logic is not right, because that’s contrary to the principle of fair tax in New Zealand.

The second thing is about the resourcing—and I’ve never heard that argument before, because I’ve had two arguments: one is “We don’t have the system.” I did speak to the commissioner personally and also at the Finance and Expenditure Committee. She confirmed that she can pay it back. The second issue—and you said that it takes a legislative change and all that sort of difficulty; we have the legislative framework to make it effective from 2018-19. We do not need to wait till 2021 or 2022.

The third thing about this—the resourcing aspect—actually, the commissioner has decided that she wishes to commit resources to collect the tax from those people who’ve underpaid on the same KiwiSaver portfolio investment entity (PIE) arrangements, but not put the money into going and paying it back—and, actually, it’s not a big cost to pay it back. It can be paid back.

The last bit I just want to take the Minister up on is the supposition that it’s the KiwiSaver person who is at fault here. I’ll give you the experience of a lady called Georgina Burgess. She is actually an economist. She was working and living in Sweden. She immigrated to New Zealand as one of those highly desirable immigrants that we need in New Zealand. She came here; she is an incredibly hard worker. She is saving for a house. That is why she was so keen to put her money into a KiwiSaver account. She had three attempts to try to find out what her prescribed investor rate (PIR) was. She had multiple attempts to try to find out from her provider.

That was the issue—and this is an economist who is well-informed, absolutely engaged, and wanted to make sure she is on the right rate. She tried and tried and tried and could not get an adequate response from a provider. So do you know what this lady decided to do? She decided to change her provider because she knew if she changed provider, she would actually work out what her PIR was. And it was only at the point when she changed her provider—which is not easy to do; she went to the effort and time to do that; but at that point she worked out that she had been overpaying her tax because the provider had been deducting it at the wrong rate. That’s when she reduced her PIR. She was in that situation, she’d overpaid, and you are now saying the resourcing issue is we can’t pay back Georgina.

Her partner, who is also another immigrant, from South America, who is in a professional job, actually got a promotion in his work in New Zealand. He came with her to New Zealand, got a promotion, and ended up inadvertently underpaying his PIR because someone didn’t tell the IRD that, actually, he was earning more. So guess what? He got a call from the IRD saying, “Pay more tax on your PIE income.”

So here were two hard-working Kiwis saving for a house—and that’s why they’d invested in KiwiSaver. On one side of the ledger, someone who’d got a promotion, got ahead, working well in New Zealand, got a demand for more tax; the other person inadvertently had paid too much tax, and you say: “We cannot use the resources of Government to pay back nearly $60 million or $70 million to hard-working Kiwis.” That is fundamentally wrong, Minister. You should pay back their cash. Waiting until 2021 or 2022 is not right. You have the provision to do it now.

There’s two things I’ll say with regard to this. First and foremost, the story about the woman who tried to get her right portfolio investment entity (PIE) rate off her provider just backs up my argument. I would say to you, Mr Bayly, that that provider was absolutely remiss in the service that it provided to its client.

💬 Hon Michael Woodhouse: That’s not the point.

No, it is the point, and that is my point. The providers of the—[Interruption] Listen to me for one second. The provider is taking money and making money out of the clients, and for it not to provide a level of information that gives the clients a level of transparency I think is very remiss. I would have recommended anyone who can’t get that information from their provider, with one phone call, to change. I certainly would.

The second thing I would say is that this comes in the 2020-21 year, not the 2021-22 year. So it’s the 2020-21 year.

The third thing I would say is that this is the issue that we were facing about, you know, this chap who got a promotion. So the default PIE rate was 28. If you’re on the top marginal tax rate, you pay 28. But we had no idea whether someone had contacted IR and said, “My rate is 28.”, or if that was the default rate that had been set. So we had no idea how to check this. If it was a lower rate, then we did have the ability to check that, because, obviously, someone had been in touch with the Inland Revenue and put that rate in place, because everyone started on the default rate—everyone started on that default rate. So, obviously, that gentleman had contacted IR and said, “This is what my rate should be.” He got a promotion; went to 28. IR said, “Well, is that a default rate or is that where he should be?”

The fourth thing I would say—and this is actually the most important point, and I know the member does know this. I know we have two former Ministers of Revenue sitting in the House at the moment, and both of them will actually know this as well. The fundamental principle behind our tax system is that it is actually the obligation of the taxpayer to provide the right information to Inland Revenue. That is the fundamental principle—the fundamental principle—behind our tax system, and that is that the taxpayer provides the right information to Inland Revenue.

Now, this is the last thing I’m going to say on this, because I think I’ve answered all the questions put forward and I would hate to have to relitigate yet again points that have already been made twice by two members, by three members. So let’s move on from this, because I think I’ve answered all your questions and I’m not prepared to relitigate again.

That response really does behove a further examination of the Minister’s completely dismissive response to Andrew Bayly’s Supplementary Order Paper (SOP). It was the classic “the dog ate my lunch” excuse, and then it got worse. It got worse because he basically blamed the taxpayer for paying too much tax and is saying that’s a reason not to pay it back. Well, frankly, if we take that analogy to a further degree and we talk about other types of tax—for example, income tax or student loans—and a taxpayer finds out that their employer, because they had put the employee on the wrong rate of tax, had overpaid tax, the Minister is basically saying that’s the employer’s fault, therefore the IRD does not have to do anything about it.

Well, I know IRD don’t take that approach, actually. They do say—because you can file a return and get the income tax back at the end of the year, and IRD don’t blame the employer and they certainly don’t blame the taxpayer. It is a proper and lawful—in fact, legal—requirement, as Mr Bayly says, for the taxpayer to have a right not to pay any more tax than he or she is required to by law. To turn around and say “That’s the KiwiSaver provider’s problem. Bad luck. IRD has nothing to do with that” is the most dismissive, victim-blaming, “dog ate my lunch” excuse that I have ever heard for not giving people their money back.

In a previous call, the Minister talked about captain’s calls and resources as if the Commissioner of Inland Revenue had made a captain’s call not to pay the money back because that would take too much resource. What he has also said is that the Commissioner of Inland Revenue has made a captain’s call to invest just as much resource in collecting the nickel and dime money that might have been underpaid by a taxpayer. What we hear from Inland Revenue—their strapline for years was “It’s our job to be fair”. Well, I say this: that is not fair. It is lazy, it is selfish, and it is wrong. Mr Bayly’s SOP is the right thing to do, and I implore the Minister and the Government—he might say, “Well, the overwhelming amount of the money that’s over-collected by IRD or overpaid by the taxpayer is paid back where the taxpayer can be identified and located.” That’s fine. Then do it in this case. Be consistent. Be the thing that is on IRD’s strapline: fair.

I want to challenge the Minister, when he finishes this debate in the House, to meet with the commissioner, because the commissioner came before the Finance and Expenditure Committee, and by my recollection of a question put by a member of the Opposition to the commissioner, “Was it a resourcing issue as to whether IRD were in a position to pay back this overpaid $40-odd million?”, her response to us was that it was not a resourcing issue. In fact, I think the next question posed by the National member at that committee was: “Was it the Government’s call not to pay back the $40-odd million?” And the answer from the commissioner was that it was the Government’s call.

Now, if that is the case, then the explanation given by the Minister five or 10 minutes ago to this committee of the whole House is absolutely incorrect. I accept the Minister’s earlier point that this is not a new issue, but prior to the millions of dollars spent on the Business Transformation Programme, IRD did not have the capability of identifying those who had overpaid their tax and the ability to pay back that overpaid tax, but because of Business Transformation, they have. They have the same technology that the Government and IR are going to now use to chase the 950,000 people who have underpaid their portfolio investment entity because of an incorrect prescribed investor rate. So the Government and IR are in a position to chase those that have underpaid, but they equally have the ability to track those who have overpaid and pay it back.

This is nothing but a capricious tax grab by the Government, and while the Minister says it’s only a dollar a week to most of them—that is an outrageous statement by the Minister. I am also a former Associate Minister of Revenue, and one of the things I say with pride is the way IRD has improved its communication, its reputation, with taxpayers right throughout New Zealand. It has been a remarkable transformation whilst I’ve been in this House, and it’s something like this that stands to damage the very image that IR has created. It’s not because of the commissioner’s call; it’s because the Government’s made the call that they won’t give back $50-odd million that’s been overpaid.

I just think the Minister has a chance to fix it. Not often do you get a tax bill before this House where there is such an easy opportunity to fix what we know is wrong, and all it takes is a bit of courage and gumption from a Government to use a Supplementary Order Paper that’s been advanced by an Opposition member, and this problem can be fixed.

💬 Andrew Bayly: Or just change the date in the bill.

Change the date in the bill—there are solutions here in the committee of the whole House stage for the Government to do what’s right. It’ll chase the money that it’s owed by those who have underpaid; why won’t it give back the money to those that have overpaid their tax? Mr Nash started his contribution by saying “Nash has given back the tax”. He pointed out, I think, it was $750 million that he’s proudly—

💬 Andrew Bayly: No, no, only some of that.

Well, some of it has been given back and Mr Nash was trying to claim credit for that, then recognised we’re not dealing with a lot of money—$40-45 million—but it’s growing all the time, Mr Nash. But I say to the Minister: do the right thing. It’s not a new issue—we all accept that. There wasn’t the ability to identify and set up a system within IR to do it before Business Transformation—that’s been ticked off. All it requires now is a simple legislative change, and that opportunity, Mr Nash, is before this committee as we speak. All it will require is a Minister and a Government wanting to do the right thing and burying its pride and accepting a Supplementary Order Paper that’s been submitted by an Opposition National member. I challenge the Minister to do it.

Thank you, Madam Chair. I had no intention of taking a call on this section, because I thought Mr Bayly argued his point very well, but he clearly needs a bit of support. I rise to support Supplementary Order Paper (SOP) 477, but not so much to support the SOP but the principle behind it. In our tax system—and I accept the Business Transformation that the IR are undertaking is going to create some huge advantages, both for the New Zealand taxpayer and for the revenue in due course. But I think that the principle of paying tax in New Zealand is a principle that it’s fair, and I think when you pay too much tax, you should equally be refunded, as you are the opposite when you don’t pay enough tax. I think that’s the principle of this.

When you drive down the Ngauranga Gorge, as I do quite frequently, on the left you see a little old shed with LV Martin’s name on it, and, of course, that sums up this exactly. His famous statement was “It’s putting it right that counts”, and I think that this Parliament has a duty, in my view, to put things right.

But I think the real principle of this SOP and the issue that it raises is a much broader one than just the issue around the unpaid $50 million in tax, and that is that if people are going to have confidence in the Inland Revenue as they move forward, they need to have confidence that what they do is fair and equitable and that they will treat our taxpayers as taxpayers treat them. I’m all in favour of those people who don’t pay enough tax being chased up by the IR—I think it’s important that they are—but equally, if you do pay too much tax, you need to get it back as quickly as possible. It’s going to be very interesting to watch the tax take drop in the next few months—very unfortunate for New Zealand, but that’s just where the world economy seems to be at at the moment—and that’s going to create a whole lot more challenges for the Inland Revenue as people recalculate their tax liability, and that will result in a whole lot more tax refunds.

I just want to comment on a couple of other things on the Business Transformation, because it relates directly to this SOP and the issues that it raises. I think that it’s very difficult in a country like ours—or as we see technology advancing so rapidly around the world, it’s very difficult to get the pitch right. It’s all very well to sit on Lambton Quay or sit in Wellington and make decisions about how New Zealanders are going to be treated and how they’re going to operate in the future, but not everyone in our country is equal; not everyone has access to equal services. I think it’s really important that we take our time with a lot of these things and that we manage it in a manner that we take people with us. Certainly, I think not paying back taxes that could be owing is one of those things that defeats that purpose and certainly leads people to have a little less confidence in an entity that it’s hugely important that we do have confidence in.

So I don’t want to go on any longer. That was just a contribution I felt I didn’t need to make, but, in fact, I think I do, because I think that Mr Bayly’s SOP is well worth supporting, and I think it raises an issue that no doubt will be raised again in the future. Of course, when you think we have at least three or four tax bills a year coming through this House, the IR are pretty keen on getting changes implemented quickly and they move ahead of the market, but we need to make sure that the market has confidence in their ability to do so. Thank you.

I do want to talk about something else, but I want to just have one more talk on this specific issue, and, hopefully, the Minister will be able to respond or will take the opportunity to respond. But the thing about this money is it is owed to those people earning the least amount of money in New Zealand. It doesn’t apply to people like us on the top tax bracket, because the default rate is lower. So the issue about this is that this applies to the people on the lowest rates of tax, and, by implication, that means the people earning the least amount in New Zealand. The bit I find disquieting is, I look over the other side there and I see a Labour Party and I see the Minister who has been in the chair, with his very bright, red tie, proudly supporting the Labour Party and its ideals about looking after people in New Zealand who are less fortunate than others. And I haven’t had one call from any member of that House other than the Minister. This is wrong from that perspective. I look over here to the Greens, who have a strong socialist ideal that goes through their party, and, again, there is just a deafening silence.

This is not about National protecting its rich mates, as it’s sometimes characterised by members of the Government. But this is actually a bill about protecting the rights of the people who are the least informed, the least empowered to make a change, who are the least sophisticated in terms of understanding these types of arrangements—after all, who knows what a prescribed investor rate, a portfolio investment entity, is; when we step out of this debating chamber in a half an hour’s time or whatever, no one knows it other than a few geeks like us.

Yet the reality, if you strip away all the terminology in this bill, is what this bill is about is working and helping those people who most need it in New Zealand. And that’s why I just can’t understand it. I find it reprehensible that the members of the Labour and the Greens particularly—I don’t think New Zealand First would have much interest in an issue like this—but you, you’re two proud parties who say you represent the people who are the most dispossessed in New Zealand. On an issue like this, and we’re not talking about an inconsequential amount of money, by the time we get to when this gets paid or balanced, it is probably in the order of $70 million that is owed to these people. Stand up for their rights, you people over the other side in the Government. Stand up for their people that need you at a time when they do not have the capability. That’s what MPs are about. This is what this bill is about. It’s not about technology and resourcing and all that sort of stuff. It can be done; the commissioner has said she can do it. There is a legislative framework to do it.

If you don’t want to accept my Supplementary Order Paper (SOP), simply change the date in the bill and make it effective from 2018-19. It’s that easy. But the Government should not be holding this money. It is not our income, it is not our money. It is owed to those New Zealanders. Pay it back, Minister. [Bell rung] OK, I’ll carry on, Madam Chair. Can I take a call?

CHAIRPERSON (Hon Ruth Dyson): Sure, Andrew Bayly.

Thank you. Right, I was hoping for the Minister to, and I pleaded for him, so I’ll take another call. But I’m hoping the Minister will respond on that substantive issue.

I now want to turn to this issue round employment share schemes—

Tim van de Molen: Are the Greens going to back your SOP?

And, also, yes, that’s a very good point from my colleague. I’m hoping we’re going to get a call from the Greens about the SOP. It would be very helpful if the Greens stepped up and at least put forward their view as to whether, in fact, the SOP is something that they might support, or otherwise.

But I just want to turn now to the issue of employee shares schemes, and this is a very relevant part, because in New Zealand we are trying to create an environment for the business community to thrive, and to grow, and to be innovative. And this clause, regarding employment share schemes—it’s covered broadly under sort of clause 69 inserting new section CE 7CB to the Income Tax Act, Madam Chair, just for your reference. But basically, this is the component of our business sector which is the most innovative and creative. Those are the fledging businesses where normally young people go out and basically forgo a good salary with the view of creating large businesses over time.

So part of that is that those businesses often don’t have the cash available to pay full salaries. And the trade-off, the quid pro quo for that, is that in many cases, in order to attract that young talent—that dynamic young talent that we need in New Zealand and we need them to flourish—what happens is they are offered employment share schemes. Now, they might be in the form of options, they might be in form of different types of shares, and I don’t really want to go into that. But this enables them to get those people who take up these options or shares to participate in the future increase in the value of that company. And that comes about through their hard endeavours as they make that company successful over time. So they’re trading off the income now—and, therefore, the tax on that—for the gain on the capital value of that company, if it’s sold or transferred or a new investor comes into play.

So one of the issues with this, with this dynamic creative sector—and we do have a flourishing creative sector in New Zealand, covering a whole suite of different businesses—is that these businesses, as they morph, transfer, and mature over time, increasingly look for new investors to come in. And that is the issue with this, because under the tax rules, there was a requirement that you must hold the shares and there cannot be a substantial change in the shareholding of that company. That, of course, is all about restricting the ability to bring in new, fresh capital to continue to fund the growth of that company over time. And so this clause looked at how these instruments are valued, and there’s three methodologies that are proposed which are a slightly wider sort of definition of those and more flexible. I think that’s a very good part of this, and I think for many people who are involved in this sector, and future people that are going to be involved, this is a very, very important part.

The other bit is in the event of a takeover or corporate reorganisation—and often what happens with these companies is they might go down one track and then they work out that there’s no market for that. They’ll change tack. They may park up a subsidiary and move into a new area. And under those arrangements, this bill provides much more flexibility around it and also in terms of the level of shareholding, and it builds more flexibility around that as well. So I think these takeovers, these capital injections, are an important facet of companies growing from early stage through to much more mature companies. And I think the aspects in this should be highlighted. We need to tell the investment community in New Zealand. We need to make sure our young people who are thinking about getting into creating businesses are aware of this because this is a very good piece of legislation to ensure that we have a flourishing new source of companies coming into the market in New Zealand.

I move, That the question be now put.

Motion agreed to.

The question was put that the amendments set out on Supplementary Order Paper 453 in the name of the Hon Stuart Nash to Part 3 be agreed to.

Amendments agreed to.

The question was put that the amendment set out on Supplementary Order Paper 477 in the name of Andrew Bayly to Part 3 be agreed to.