Taxation (Income Tax Rate and Other Amendments) Bill

Thank you, Madam Speaker. This is the first time I’ve spoken since you’ve been in the Chair, so I congratulate you on your new office. I move, That the Taxation (Income Tax Rate and Other Amendments) Bill be now read a second time.

This is a good bill. It contains measures that will support working families through adjusting the minimum family tax credit—I’m going to come back to that. It helps our tax system raise revenue to fund important public services, and, though this is derided by the Opposition, debt will be lower in New Zealand as a consequence of this bill than it would be without it—Government debt. It also enables Inland Revenue to collect information to help monitor tax compliance to ensure that everyone’s paying a fair share of tax.

I’m going to provide a brief overview of the measures in the bill, starting with the minimum family tax credit. This is a measure that helps support lower-income families, and the role of the tax credit is to sort our ambition to encourage people into work. For that to happen, employment must be a better financial option than being on a benefit, so the minimum family tax credit is financial support to ensure that families are better off in the workforce than they would be on a benefit. As the benefit system adjusts, so too must schemes such as the minimum family tax credit, to make sure that the financial incentive it provides continues to meet its objectives.

As part of the Government’s response to the COVID crisis in March, the main benefit payments were increased by $25 per week. This bill proposes to retrospectively adjust the minimum family tax credit threshold as a result of those changes. The adjustment results in a $32 per week increase during the 2020-2021 tax year for recipients of the minimum family tax credit. We expect that approximately 3,600 families will benefit from this, by an average of $1,626. The effect of this can be received weekly by people from December, but at the end of the year they, effectively, get it backdated in their wash-up payments at the end of the year back to 1 April, which is when the benefit increase occurred. Making this change now allows Inland Revenue to begin paying that higher tax credit, as I’ve said, from later this month.

The tax rate change, which has had the most conversation in this Parliament, is the introduction of a new personal tax rate of 39c for personal incomes of over $180,000. To put that in perspective, if someone is earning $200,000, they pay an extra 6c in the dollar on the last $20,000 of income, so they would pay $1,200 extra a year in tax, which is just some cents over $23 per week. This does go some way to ensuring that programmes like the minimum family tax credit continue to be funded.

A fair tax system is a progressive one. Not every tax has to be progressive, but, overall, the tax system should be progressive. That means that people with higher incomes should pay a bit more as a percentage of their incomes in tax and they shouldn’t pay less. I’ve heard people complain that this is unfair to people earning higher incomes; in fact, the reverse is currently true. Middle-income people currently pay a higher overall rate of tax than higher-income people when GST is taken into account.

It is very easy to understand the arithmetic of this. If someone is earning, say, $120,000 per annum and they have a family to pay, other than either their rent or their interest payments, everything they spend will be incurring GST at the rate of 15 percent, which is, effectively, a tax on their income. For people who are on higher incomes, they save more of their earnings and they don’t pay GST on their savings, and no one’s suggesting they should. But the effect of that is that the effective tax paid by higher-income people, when you take into account both income tax and GST, is generally lower than is already being paid by middle-income people.

💬 Hon Michael Woodhouse: As a proportion of income.

As a proportion of their income. Our top tax rate for personal income tax in New Zealand is currently 33 percent.

I’m going to make some international comparisons, because the countries that we traditionally compare ourselves with have higher personal income tax rates. Australia’s top personal income tax rate, for example, is 45 percent on incomes over A$180,000, while in the UK, the top personal tax rate of 45 percent is paid on incomes over £150,000. So the top personal tax rate of 39 percent proposed in this bill is not high compared with some other OECD countries that we generally compare ourselves with.

What the bill proposes is that the people who can most afford it pay a little more, which I think, overall, is a fairer proportion of tax, given that, overall, their taxes, including GST, are a lower proportion of their income than is paid by middle-income people who earn less than they do.

On information gathering, we know that most people will do the right thing and pay the tax that is due, but we also know that some people will be tempted to minimise their exposure to tax by using trusts taxed at 33c on the dollar of income. For the benefit of members who are concerned about the integrity of the tax system, I’ll briefly run through the measures in the bill aimed at monitoring tax compliance of trusts.

One problem that currently exists is incomplete information collected and held by the Inland Revenue Department on trusts. The bill therefore proposes that trusts will disclose additional information. I heard members complaining that this will result in a loss of privacy. I think most people in New Zealand know that the privacy provisions that apply to the Commissioner of Inland Revenue are rigorously policed by the Inland Revenue, and they guard their privacy obligations assiduously. So there are no privacy risks to people as a consequence of this information being made available to the Commissioner of Inland Revenue.

This information also provides information on beneficiaries and, of course, because New Zealand has a settlor-based trust taxation regime, information on settlements on the trusts. There will be some trusts to whom this requirement doesn’t apply: inactive trusts, trusts that don’t have high rates of income for beneficiaries, charitable trusts, Māori land trusts, and resident trustees of foreign trusts, which already have reporting requirements.

A further integrity measure allows Inland Revenue to gather information going back to the 2013-14 income year if requested. We’re reluctant to impose compliance costs, so, rather than requiring this for all trusts, Inland Revenue should be able to determine which trusts’ prior-year information is likely to be required from.

The other information-gathering powers are covered in the New Zealand Bill of Rights Act vet that, with my Attorney-General hat, I have provided to the House. I agree that the information-gathering power ought not to be used for prosecutorial purposes. There are other provisions to allow information to be gathered for those purposes, and there’s an amendment in my name already in the House to make that clear.

There is a lot at stake here. Our tax system relies on voluntary compliance, and people only comply so long as they feel the system is fair. If they can see other people who are clearly gaming the system—for example, through the use of trusts—then that threatens voluntary compliance.

The Taxation (Income Tax Rate and Other Amendments) Bill will make the tax system fairer and protects the tax base by helping to promote compliance.

The final point I would make is as to the need to pass this now under urgency. It has to be passed under urgency so that the computer software systems of the people who deduct tax can be amended and updated in accordance with these new tax rules in time for them to take effect on 1 April next year, which is what we said to the electorate we would do. It gives me great pleasure to commend this bill to the House.

Yes, it’s good to be talking on the second reading of the Taxation (Income Tax Rate and Other Amendments) Bill. Thank you to the Minister for addressing the bill. I’ve just got to say that I find it quite absurd the argument that the Minister is putting forward as to why we should be increasing the tax rate. He compared the top tax rate in New Zealand with a number of other jurisdictions and said, “Look, we are lower than them. They’re much higher than us, and therefore that gives us the basis for why we might increase it.” I’d have to say to the Minister that that is a very strange approach.

One of the things we have, and one of our competitive advantages, is that we have a very simple tax system that works well. We have only four levels of personal tax rates. We have GST and we have a company tax rate. And so the simplicity around our system is a hallmark and something that is the envy of the world. But to reason that because other countries have a higher tax rate, it’s fine for us to increase ours—I just think, one of the things, the lower the tax rate the better, and as the Minister no doubt is aware, virtually every country in the world is trying to do two things: first of all, lower their overall tax rate so that they become more attractive as a place for investment, and particularly to attract overseas people to come and live and work here in New Zealand, particularly highly skilled people, because they will look at their personal tax rate and will go, “Is this a country I want to go and live in—particularly if I’m highly taxed?” So the more you push up that tax, the less attractive we become to attract new people, and also far less attractive in terms of companies wanting to come here, and their staff. So I just think, rather than use our tax system to a competitive advantage, what the Minister was almost suggesting was that it’s better and OK to increase it because some other countries have a higher tax rate. I do not get that, and the other primary thing about this, the simple reason about why we principally oppose this, is the impact it will have on the integrity of the tax system. And I’ll talk more about that shortly.

But, as a number of my colleagues have noted, New Zealand is in an economic crisis. We’ve seen our debt go from $60 billion to just under $100 billion, and it’s going to double again to $200 billion over the next three or four years. This bill, I see, that will raise, on average, about $440 million a year will not significantly contribute to even paying down an ounce of debt, and is not even going to pay off most of the interest payment that we’re going to have to pay this year. As I said earlier today, our current interest bill on our debt is about $3.5 billion, which is the same cost as running the New Zealand Police Force, and if you’re raising only $440 million on average over the next five years—that’s on a per annum basis—you’re not even going anywhere near paying the interest, let alone paying off any debt. And I think the main reason about this is that you cannot tax, and the Government cannot tax, its way out of this economic crisis. We have to look at an economic recovery, which means getting our businesses and our people working much better. And, by doing this, by putting more tax on them, it doesn’t actually incentivise them to do that, Mr Nash. The Minister says we flagged this well in advance. Well, if that was flagged well in advance, why is it that the bill turned up on this desk here at about 12 o’clock today and we had our first reading 45 minutes later? Why is it that there were such poor procedures that it could turn up at the last minute so that the Opposition doesn’t even have the time to properly consider it? I think, as a process, that is not a good process, and I’m looking at the Minister.

The other thing is the lack of consultation around this bill, and, as the Minister knows, because he’s sat on the Finance and Expenditure Committee and has been a former finance spokesperson, getting tax bills right the first time is vitally, vitally important. And the rushed nature of this bill—and the officials are worried and have stated their clear concern about the implementation of this bill and the impact on the integrity, and I think this should have had the time to have a proper process through the Finance and Expenditure Committee. We could have asked for submissions over the Christmas break. We could have done it much more quickly. But I can almost guarantee that we in this Finance and Expenditure Committee will be looking at this bill again and doing fix-ups to it, and I note that the Minister, only a matter of—what?—two or three hours after tabling the bill this afternoon, has come up with his own Supplementary Order Paper, his own amendment already to the bill. It’s only just a matter of hours and he’s already putting up new amendments to the bill.

But I just want to talk about this integrity issue. I just think it is such a fundamental issue that the officials have noted in their report. So this is not being political; this is looking at what the IRD actually wrote about it. The first thing they said was that the estimate of the money that they’re going to achieve from this—the $2.2 billion over the five years—is “highly uncertain”. And they also go on to say, “There is significant uncertainty in the assumptions, and changing them results in substantial change in revenue.” So, first of all, we’ve got a question around whether, in fact, we’re even going to get the money that’s been talked about, but the second thing, in terms of the integrity, they state—and again I just want to quote—“This has non-monetary impacts as well, such as eroding public confidence in the tax system and voluntary compliance. This would have a negative impact on tax integrity.”

This is one of the big issues about this bill, and I noted this earlier in my speech today: this bill affects so many different aspects. We talked about its going to have an impact on the PAYE rules, the fringe benefit tax, resident withholding tax, employer superannuation contribution tax, residential land withholding tax, retirement scheme contribution tax, and tax for Māori authority distributions. It is a big bill. It has got far-reaching consequences, and I think the biggest issue is this disparity now that we have between the top tax rate, the company tax rate of 28 percent, and the trust tax rate today. So what we’ve learnt today from the Minister of Finance is that, yes, even though he said only a matter of two months ago that he wouldn’t introduce any more changes to the tax system other than this bill we’re debating tonight, he has made it clear that increasing the trust tax rate is on the table. And that is contrary to what he said two months prior and has been reconfirmed as policy after the election. So here we are: we’ve got the Minister turning back, changing his mind around it, and, in my view, breaking a promise to the electorate that he made back then. So one is the integrity, and I think this disparity between the top tax rate, the trust, and also PIE rates are something very, very substantial.

I’ll just go on. The other issue that the officials have noted is the issue of the efficiency costs with this, and they’re saying it’s going to have a number of impacts. They note, for instance, a higher tax rate would likely matter more in sectors where the ability of New Zealand firms to access foreign capital is limited, particularly smaller businesses, unlisted businesses, and rental property investment, and, further, it will reduce the number of highly skilled workers in New Zealand and reduce the efficiency of the allocation of labour. These are the facts and these are the issues that this bill will lead to.

I also just want to pick up on this Attorney-General thing. I think it’s quite significant. It’s very unusual for the Attorney-General to write to the committee and actually say the issue around the disclosure requirements—it looks like the Minister wants to send the IRD on a fishing trip to go and get information around trusts. That is a very, very significant part of this bill, which we will be debating very closely as we move through the next stages of this bill. But that privacy issue is something very, very significant, and I think, whilst you’ve put some limits around that, Minister, I think the fishing trip that this is going to entail is something that many people are going to be particularly worried about.

Thank you. I just want to address some of the issues, very briefly, which the previous speaker has raised. He raised a worry about people finding New Zealand less attractive because of the change in the income tax rate and raised that issue. That’s normally a worry that’s associated with the company tax rate rather than the individual income tax rates, and I just note that there is no change to the company tax rate.

He raised a concern that this tax rate would, in fact, be applied to a whole lot of different “taxes”, he called them, in the Income Tax Act. In fact, fringe benefit tax and employer superannuation contribution tax and resident withholding tax and the like, they are all mechanisms for collecting income tax in various forms. In order to keep the integrity of the 39 percent rate, it simply needs to be spread across the different mechanisms for collecting tax, and that is all that is going on in that space. So it just keeps that 39 percent rate consistent across all the collection methods for tax. There is no worry with that.

Inland Revenue and legislative drafters are quite used to putting through tax rate changes—it’s been done many, many times before—so the number of schedules in here is nothing complicated. That is well rehearsed and well achieved previously, and it’s something that does not really add to any complexity. It’s just a simple method for getting the 39 percent rate into the legislation.

I wanted to note just two further points. During the election campaign, when we campaigned on a 39 percent rate and New Zealand voted for a 39 percent rate, that’s what it means when you have an outright majority in the House. It was clearly endorsed by us. We also made it clear at that time that we would keep an eye on what was going on with other entities and, if necessary, revisit the issue of doing something in respect of those. So that’s a matter where we have a watching brief, and that is exactly what we are doing with the provisions in this bill. This is an excellent bill and I commend it to the House.

Well, what we heard there from Dr Deborah Russell was the kind way of saying “We won. You lost. Eat that.”, because that’s exactly what we heard. People voted for a tax increase; we got the super strong mandate—sit down, be quiet. She said something else, actually, that was quite revealing, and I doubt that she’ll be getting a muffin bought by David Parker for her at the next morning tea. Because what David Parker has been saying in his first intervention in this debate was that the reason we’re here in urgency is because it’s so hard and it takes so long to adjust the computer systems of payroll providers and the IRD, but Dr Russell just said, “Hang on. That’s pretty straightforward. It’s maths. They know maths; it’s all computers. You just update the schedules, upload them into the payroll system, and that’s it.”

And she’s right—she’s absolutely right. So why are we actually pushing this through with a regulatory impact statement and a risk impact assessment that talks about the level of consultation—but it’s pretty brief? Here’s what it said, and I talked about this in my first reading speech. The IRD had a very proud, actually, reputation for the degree of consultation that it would make over tax and tax policy changes—the generic tax policy process, the small business Tax Working Group, the corporate Tax Working Group, Chartered Accountants Australia and New Zealand. Where is all of that?

Well, the departmental disclosure statement provides some quite revealing insight into it. No external or general public consultation has been conducted regarding the new tax rate proposal. No external consultation has been undertaken on the information collection measures—none. Wouldn’t it have been OK to actually kick this to select committee? Get them over the Christmas break doing that consultation, coming back in February, passing it pretty quickly with a full couple of months to get what Dr Russell has just told us is a pretty straightforward process of upgrading the tax rate tables in payroll software—job done. But, oh no, what we have is a ham-fisted and rushed process. And when rushed processes are put in, we know in this House that mistakes are made and they’ll need to be fixed in the future.

In fact, it’s not even in the future. At the same time that the bill landed on the table, so did the Minister’s first amendment. It was an amendment that was necessary, because he got a very good telling off. Who did he get a good telling off from? The Attorney-General. Who’s the Attorney-General? Mr Parker. It must have been a slightly odd conversation, I have to say, in either the Attorney-General’s or the Minister of Revenue’s office.

But I’ve got to say, and I’m going to be raising these questions in the committee of the whole House, I think there are some really important questions and some amendments to debate around the part of this bill that failed the New Zealand Bill of Rights Act (BORA) vet. It’s clause 33, if memory serves me correctly. Mr Brownlee stole my bill so I’ll just steal it back.

Mr Parker’s own discussion about this is very interesting. So, firstly, Mr Parker, the Attorney-General, says that this is a breach of a couple of things. What are they, Mr Attorney-General? Freedoms and the right to something else—I’ll find them in a minute. So he says, in his own description of what the bill does, that what this amendment does is merely clarify the existing powers of the Commissioner of Inland Revenue, which begs a very important question: if this clause fails the BORA vet, but it’s only designed to clarify the powers the commissioner already has, are those original already-in-law powers also a breach of the New Zealand Bill of Rights Act 1990? I will be asking officials about that. If it’s bad once, it won’t matter. If it’s bad twice, it is a very, very poor way to pass what are quite strong measures of power of the commissioner to collect and require information to be provided.

The amendment that the Attorney-General has probably asked the Minister of Revenue to table basically says, “Well, don’t worry. The commissioner won’t be able to use that information when she gets it for policy or research purposes for any punitive purpose.” But I ask this: what stops officials from the Inland Revenue Department, who now know that incriminating information exists, to ask it again, through another vehicle, through another part of the Tax Administration Act, to say, “Well, actually, guess what? This time we’re going to ask it because we’re not sure you’ve complied with the law.” And, therefore, a prosecution is a secondary impact of the primary purpose of being compelled to provide that information, and when we come to the committee of the whole House, I’ll be asking the Minister to check with his officials about whether or not there is any prohibition on any further use of that information, because it’s a form of double jeopardy. I’m not a lawyer, and there’s probably a better term for it.

But one can’t say, “Oh no, it’s OK, because we only wanted it for research. And, by the way, we’re going to knock on your door on another day as part of another part of the Act and say we’ll want that information again, and this time you have the right to an attorney.” That’s what it looks like to me it’s doing. So I have tabled an amendment to clause 33 to delete it because I don’t believe we know enough about the impact of this, and that is exactly the sort of thing that the consultation process was designed and set up to do, and I think we have time to actually change that, because that’s not needed for 1 April 2021; it just isn’t.

The other thing that I want to talk about, and Mr Brownlee has already alluded to it, is the issue of retrospectivity. What the Commissioner of Inland Revenue is able to do is go back through records, and, in fact, taxpayers are required to keep records for at least seven, and in some situations I think up to 10, years. We’re being asked to consider a bill that will increase quite materially, on the face of it, the requirements of trusts to furnish information on an annual basis, with effect from 2021/22. But, actually, the commissioner has the power for some trusts, certain trusts, and I’m not sure which, because it’s very hard for me to see within the bill. What Mr Parker, the Minister, has put in his explanation is actually a list of the criteria. We can see when it’s not required—foreign trusts and so on—but I can’t see where the “certain trusts” is further defined. I think that will need clarification.

But, most importantly, we’re asking trusts potentially to retrospectively go back seven years and furnish a greater level of information than they were required to under the law when it existed in 2014. That’s retrospective legislation, and it may be physically impossible to comply with the law because they won’t have collected the information in the manner in which it would be required now because it wasn’t necessary then.

It’s really bad law, but it’s actually a terrible, terrible imposition which highlights, again, in the departmental disclosure statement, the question of costs and benefits for trusts, because there wasn’t an analysis done. IRD have simply said, apart from the 39 percent tax rate risk impact assessment, as indicated in another section, there is little or no publicly available analysis on the size of potential costs and benefits of this new trust reporting requirement. But the IRD proposes—or the risk impact assessment notes that Inland Revenue will conduct a post-implementation review of the proposed information requirements for trusts that will include a consultation with affected trustees to determine the compliance costs associated with the new requirements. So what we’re being asked to do is consider and pass a bill that will have a cost on trusts. They haven’t gone out to find out what that cost could be, and their only answer is to say, “Well, we’re going to do a post-implementation review and ask people how much it cost them to comply with the Act.” That is shabby in the extreme, and, frankly, for that reason, I’m inclined to think that clause 35 should also be deleted, but I’m open to the Minister’s and the officials’ comments about why that shouldn’t occur.

Thank you, Madam Speaker. Well, what a shambles they are on the other side, floundering around, fishing for things to point out. This is a perfectly valid, well-drafted bill; a simple piece of tax legislation. Andrew Bayly there was trying to pretend that these tweaks were new taxes. We know that if you change the income tax rate, you’ve got to change fringe benefit tax and resident withholding tax. It goes as night follows day.

Andrew Bayly was talking about interest rates. Allegedly, he was once an international financier. He couldn’t even tell us what our own Reserve Bank could borrow money at. He does really need to do a little bit more research before he stands up. This is a bill we went to the electorate on. It’s a bill we have a mandate to pass. We would be dishonest and in breach of our election commitments if we didn’t do exactly this. This is a bill that makes New Zealand fairer, and I’m very proud to support it in this House.

💬 Hon Julie Anne Genter: Madam Speaker?

ASSISTANT SPEAKER (Hon Jacqui Dean): Point of order, the Hon Julie Anne Genter.

💬 Hon Julie Anne Genter: It’s not a point of order; I’m rising to take a call.

ASSISTANT SPEAKER (Hon Jacqui Dean): Oh, I see—the Hon Julie Anne Genter.

Thank you very much, Madam Speaker. Congratulations on your appointment, and Mr Speaker, who is taking the Chair, congratulations on your appointment.

Look, I absolutely agree with the goals of this legislation, and I think we all would agree that we want New Zealand to be a fairer place. It’s absolutely fair to have progressive income taxation and to put up the top tax rate. The Green Party campaigned on two new top thresholds. Of course, that revenue buys us stuff that benefits us all. If it weren’t for tax, we wouldn’t have the amazing services that we have delivered by ACC if we have some sort of accident and have to go to the hospital—if we didn’t have the health services that have been able to keep us safe during a global pandemic. Tax pays for our teachers, our doctors—many of our doctors and nurses. It pays for infrastructure that we all share collectively that we couldn’t buy on our own, whether that is roads, footpaths, cycleways, or railways. There’s all manner of infrastructure and services that we buy collectively with our tax dollars, and it’s fair for those who have the most to give a little bit more.

The Green Party is abstaining on this bill because we cannot in good conscience vote for this bill without it taking the steps that are needed and have been recommended by experts for decades now to fix some of the holes in our tax system that lead to imbalances that mean that there is a perverse incentive for the highest income earners and the wealthiest to put more and more of their money into property, particularly at this moment in time, when we’ve seen house prices increase by nearly 20 percent in one year, and at a time when the country is entering a recession and facing increasing unemployment—that is almost unprecedented. We have good reason to believe that putting up the top tax rate, increasing the gap between that top tax rate and the rate of tax on assets and property—which is, you know, zero at the moment—will have the perverse outcome of increasing inequality. We cannot in good conscience vote for that. It’s really important, I think, that we raise this in this debate.

I have to speak now to some of the ridiculous arguments raised by the National Party spokesperson, Andrew Bayly, earlier in this debate about people being motivated by trying to minimise their tax—that people would literally move to other countries to pay less tax. If that is true, good luck to them in this global pandemic. Try moving to a country where the Government doesn’t have the resources it needs to respond to the global pandemic. I would say that people want to come to a country like New Zealand, which is well run, and particularly the billionaires—some of whom do their part and try to campaign for progressive tax change in the United States. But the billionaires who have benefited personally from an extremely unequal and unfair tax system in the United States are trying to flee that country because it is a disaster, because it is a mess, because there is a lack of public infrastructure, and there’s actually a breakdown in the social fabric.

Frankly, the slogans repeated by the National Party tonight and all the time on the campaign trail remind me so much of that country where I was born and grew up, because it went down an even more extreme route of creating inequality through cutting personal taxes, demonising the idea of tax, and that results in—

💬 David Seymour: What’s the top federal and state rate if you live in California?

Well, actually, California’s doing quite well, but at a federal level, inequality is quite bad. What you find even in the United States, since we’re talking about this, is that people don’t move to the countries that have the lowest personal tax rate—at least, the majority of them don’t. You know why? Because most people aren’t selfish. Most people are generous. And in New Zealand in particular, we have a cultural value of manaakitanga. That is sharing. That is giving. When we are in a position to give, we are happy to give and we are proud to make a contribution to our community and to our country.

The idea that our competitive advantage is lowering tax is absurd, because the small countries that have high productivity and high standards of living that we would aspire to be like have more progressive taxation, they have a higher share of GDP as Government spending, and they benefit from that—everyone in those societies benefits from a more productive and inclusive economy.

I know that New Zealanders are generous and do want that, but I do have to mention that I think the role the National Party has played in this political debate to stop the types of tax reform that are desperately needed in New Zealand is irresponsible. Continually getting up and talking about rising house prices and how house prices are rising faster in New Zealand than in most other—all other—OECD countries this year—that is true, and there is no doubt our lack of any sort of capital gains tax or deemed income from capital and wealth is part of the reason why house prices have consistently risen faster here than any other country in the OECD.

So no one is saying that it’s a silver bullet or it’s going to solve the housing crisis to have a capital gains tax, but there is no doubt that it would take the edge off and remove the perverse incentive to constantly put more money into property, and, importantly, it is a fair thing to do. In the past three years, the owners of property and other assets made over $250 billion of tax-free capital gains—just in the last three years. Applying a pretty reasonable low tax rate to that would have easily covered the Government’s $50 billion COVID recovery fund, and it would have been fair. The wealthiest people, many of them know this and are begging Governments to tax them, because they know they can’t, on their own, with their personal wealth—they might be able to buy another personal jet or a few more houses or whatnot. One, that doesn’t buy you happiness, and, two, that doesn’t buy you a country where you can look around and see that your fellow country people have the same opportunities that you and your children do. Most people who value fairness and equality want to see that and want to contribute to that, and they know they can’t do it by themselves. It’s a systemic fix. It needs to happen, and we need our political debate in New Zealand to confront that.

And it won’t, as long as this tiny minority of people on the right go out there and demonise and scaremonger about tax so that it stops us from having a reasonable debate—like the capital gains tax that was recommended by the Tax Working Group. Eighty percent of New Zealanders would have been better off as a result of the tax changes that were recommended by that group. That’s the vast majority. The 20 percent who would pay a little bit more are the 20 percent who can most afford it. Fundamentally, I think we all want to live in a country where the child of poor parents has every opportunity, the same opportunity, as the child of rich parents. That is no longer the case in New Zealand, and it will get worse if we don’t confront these issues with rapidly rising house prices.

Some of the issue is supply, and, of course, the Government is doing what it can on that, but the Government does need more revenue in order to provide the infrastructure, in order to provide the services, and in order to play a proactive role in actually building houses and supporting community housing providers to have affordable rent.

So there are many opportunities, and I think there are many shared values within this House right now—obviously, just ignoring the extremists to my right, but—they’re just confused about—[Interruption] I know that 1980s economic ideology was so appealing to them that they’ve never had to confront the reality that the empirical evidence doesn’t support their ideological positions.

But the Green Party will be here to work constructively with and also challenge the Labour Government. I know we have many shared values, and I think that we have a really important role to play in raising the importance and urgency of addressing both the demand side and the supply side issues that are causing our current ramp-up in house prices. We don’t want this concentration of wealth to get even more extreme. Ultimately, if we believe in democracy, if we believe in fairness, then our tax system and our Government has to even up the playing field by taxing those untaxed capital gains, just like income, and using the revenue to pay for the public services and infrastructure that benefit us all.

I call Damien Smith—hope I’ve got the right name.

Thank you very much—yes, that is. Congratulations on your role. It’s amazing to be here a couple of weeks and listen to all the schools of economics that have been purported tonight. I’ll introduce a new one, which is the Lenin school of economics, and that’s pretty last century as well, OK? You know, this is a bit of an overreach in several areas, and I think it should be recommended to the Finance and Expenditure Committee. I think, also, the issue about the IRD having to have it all ready—we know it can be switched on pretty quickly, but we’ve got a couple of points that we wanted to make from the ACT Party, which is that we’ve been up and down the country as well, talking to these people who are actually getting this tax applied to them, and they don’t want it. So I know you’re saying you’ve got a mandate, but you’ve got a mandate by a popular vote of people who wanted to drive this into a minority group, and it is a minority because it’s a small amount of people. We think that that isn’t going to play well with the productive side of the economy.

We’ve been listening to the people out there, and we’re now 20th in the global setup for GDP. We’re now introducing a sort of low-in-innovation R & D approach and now a high-tax economy, and that’s not right. So what is the marginal incentive to this, because we know that this is five days of income for the Government’s books—what happens for the rest of the 360-so-odd days? So we want to actually incentivise people. We think this is a side goal. We don’t think it’s got legitimacy. It’s not fair, and it’s an imposition to taxpayers.

I caught Grant Robertson saying that it will improve the wellbeing and living standards of all New Zealanders to produce a sustainable and productive and inclusive economy as we deliver jobs with high wages and deliver an exciting and expanding economy. From ACT’s point of view, we see this is quite a different approach that you’re taking to this versus the approach that you took to Pharmac today, as an example. So we don’t support this. The Government’s moves to increase taxes, we believe, is—[Interruption] When you’ve got productivity higher and growth higher, we believe that you can talk about fairness, but there’s also another word: it’s called vindictiveness, right? So we want to balance out this whole fairness thing with actually giving people a fair go, and that includes people that are the most productive people in the economy as well. Why shouldn’t they get that?

So in terms of this tax reform, we think, at a time that we’re trying to grow the economy, this Government’s got its priorities all wrong. People are productive assets, too. The people that we’re talking about—and I’m relating back to the bill—who are getting punished for this are productive people, and we want to see them getting a fair go with a fair standard. They already pay most of the tax—you seem to forget that.

So what we’d like to do is ask the Government to consider taking this back through the proper processes, really addressing the issues on privacy. You know, the Finance and Expenditure Committee’s actually meeting in the morning, so we can get it on the agenda and do some work. Thank you.

Again, a lot of the arguments we’re hearing from the other side of the House are not against this legislation; they’re against tax full stop. I look at the timing of this bill, and it couldn’t really be better. I think while the previous speaker, Damien Smith, spoke of combing the country and finding no one who was going to be affected by this tax being in favour of it, he’s not speaking to the same people that I am, because, actually, many of the people—in fact, most of the people—I’ve spoken to who are going to be affected by this tax actually agree with it, because what they’ve seen is how New Zealand has succeeded through a very collective approach through COVID. The countries that haven’t succeeded—and we don’t have to look very far across the Pacific to see one where what the very individualistic approach—low tax, devil take the hindmost approach—has seen is, I think, the death score up to about 250,000 and climbing. Because it’s only through this sort of co-operative society where those who actually—we understand that we all benefit. Again, in my first reading speech, I mentioned the quality of the speakers we’d heard during their maiden speeches tonight who invariably spoke of their journey from immigrants to being able to be highly productive members of New Zealand society through the investment that was made in their families through the tax system.

I have absolutely no hesitation in commending this bill to the House.

The more I analyse this bill the more concerned I am and the more I fear that the lack of a select committee process is going to land the Minister of Revenue with court cases and with a very unhappy set of stakeholders, who have not even had the chance to consider some of the significant implications of this bill from a compliance and tax-filing perspective. I want to use this contribution to take you through some of measures that the Minister of Revenue has snuck into the back of this bill, which have nothing to do with increasing the top tax rate, have nothing to do with the mandate that Dr Deborah Russell spoke of earlier, granted, on the campaign trail, but are entirely new measures designed to equip him with the tools he needs to go on a fishing expedition for more information about the way trusts run in New Zealand. The trust implications of this bill are enormous. It is remarkably complicated, and it will definitely raise costs for people.

The Minister should listen up because the texts have started to come in. We may not have had a select committee process in which tax experts and those impacted by this bill and those with trusts are able to discuss what it will mean for them, but there are tax experts out there, they’ve got a copy of the bill, they’re reading it, and they’ve started texting me because they are very concerned. So I’d say to the IRD officials sitting over there, you might have a very busy day tomorrow if this bill is to pass, because there is a lot of concern in our community. This is precisely the sort of bill that should go to a select committee. I hear from tax experts that their suspicion is that the Minister is, basically, on a fishing expedition to find out how much wealth is in trusts and to see if he can cook up new ways to tax it. He wants all the information. It is a backdoor route to monitor the tax compliance of trusts.

Now, the first thing we need to understand is that when he talks about, “Oh, we need to compare what behaviour happens now that we’ve put up the top rate with what happened before”, of course, the reality is there is nothing to compare it with, because this information has never been asked for before. So there’s a significant rationale flaw in the Minister’s argument. The second thing we have to appreciate is that he is changing the law to get information about trusts, but it is highly unlikely to be helpful, actually, from a tax point of view. Instead, if we look particularly at new section 59BA in clause 35—and members opposite should look it up, because this is actually a very detailed section—the new law of section 59BA, which sets out numerous requirements that everyone involved in a trust is now going to have to file annually, the commissioner doesn’t just get these by discretion; the commissioner is “obliged” to get this brand new set of information. So this isn’t a set of discretionary powers to allow the commissioner to have a look if there could be an issue; this is a new obligation to collect a huge host of new information about trusts. And the Minister I don’t think has been entirely upfront in explaining why that is and for what purpose that is, and I am concerned and I am not the only one. There are many in the tax and broader commercial community who have cottoned on to what is happening here and who will be sending that Minister emails and messages tomorrow.

Let’s go through how this bill actually strengthens the powers of the commissioner. It introduces an amendment to ensure “the Commissioner of Inland Revenue can collect information solely for tax policy development purposes”, and I think that’s a pretty broad mandate, isn’t it? “For tax policy development purposes”—for any new tax policy development, for any new tax idea, the Inland Revenue Department now have a new power in this bill to go off and collect information. That is a very broad net, a very wide power. Then there is a further information-gathering measure to collect more information from trustees in order not just to see if the top personal rate of 39 percent is working but also—and this is set out very explicitly—“to provide better information to understand and monitor the use of structures and entities by trustees”.

So here we have, in what’s meant to be a bill about raising the top rate, a little exploration, a little bit of a fishing expedition by the Minister of Revenue, who wants to know a bit more about trusts. And we know the back story here, Minister—we all heard you back in Opposition, when you put trusts out there as the big bogeyman—but I’d invite you to reflect on the Tax Working Group, which your own Government put together, which said there weren’t major issues here. But what you’re prepared to do—what the Minister is prepared to do—is to create a massive compliance burden for every trust in the country, a huge new revenue boost for every tax lawyer in the country, just so that he can have a little bit of a nosy—not just a little bit of a nosy, a massive nosy. And I’d be interested to hear later on in this debate whether Inland Revenue Department have quite cottoned on to what the compliance requirements of this will be for them, and how many new people they’ll be having to hire to make sure that every trust in the country files this incredibly detailed list of new information.

Let me turn now to clause 33, because this, in its entirety, is the clause which inserts new section 17GB, “Commissioner may require information or production of documents for tax policy development”. So we’re not just saying information that you might already have in your office; we’re saying we can now have a commissioner asking you to produce particular documents because the Minister of Revenue is a bit excited about a new idea. They must produce any information that the commissioner deems relevant—any information that the commissioner deems relevant; this is a very wide scope to this power—“relating to the development of policy for the improvement … of the tax system.”

Returning to new section 59BA, this imposes a new obligation for a trustee to make a return of information for a trust—so a new form of compliance—and, as my colleague Michael Woodhouse pointed out earlier very significantly, and I will invite the Minister to address this later on, this includes a retrospective power, because new section 59BAB in clause 35 gives a power to the commissioner to, as of the passing of the bill, require trustees to provide information for income years as far back as 2013. So what he’s doing is he’s saying that the IRD is now going to have a power that never used to exist that means they can go back seven years, to anyone with a trust in New Zealand, and say, “I demand this information”, even though, at the time that those activities were happening, this power didn’t exist. So this section 59BAB creates a retrospective power.

Then I just want to spend a little bit of time on new section 59BA, around compliance, because the return for a trustee in each tax year now, under this bill, must be in the form prescribed by the commissioner. So, when we go through what sorts of things the Minister is interested in here, we can see that he is digging into information about the distributions being made to a whole host of taxpayers. So this isn’t just about people who manage trusts or are trustees; it’s about anyone who has ever had a distribution from a trust. That is a large number of New Zealanders, and I would like the officials to start thinking about this because, in the committee stage, we will be asking, from this side of the House, exactly how many thousands of New Zealanders you think could be caught up in these new section 59BA powers. Because here’s the information that people who have had a distribution from a trust will now be required by the Commissioner of Inland Revenue to provide: name, date of birth, jurisdiction of tax residence, tax file number, taxpayer identification number of the beneficiary who receives the distribution; the name, date of birth, jurisdiction of tax residence, tax file number, taxpayer identification number of each person having a power under the trust to appoint or dismiss a trustee, to add or remove a beneficiary, or to amend the trust deed; or any other information required by the commissioner.

The purpose of my contribution today has been to highlight that when we say this bill is adding a bit more compliance, we’re not just indulging in rhetoric; this is a very specific set of new powers, and I don’t think the Minister has done a good enough job of justifying these powers. And what I would invite him to consider is: if this bill is really what he says it is, which is that it has a purpose of raising revenue and doing more for your distribution, then why not just say, “Well, yes, all of these other new powers aren’t necessary today. They should go to a select committee so that we can get advice on what they’ll actually mean in practice.” Why don’t you, Minister, remove clause 35 altogether as a good faith initiative to show that you will invite experts and those affected to consider the compliance implications of this bill. These sections cast a very wide net; they imply that the Minister wants to dig into a huge host of tax measures. They will be corrosive to trust in the commission and corrosive to trust in the Government’s tax intentions, and we will continue to oppose this bill.

I declare the House in committee for consideration of the Taxation (Income Tax Rate and Other Amendments) Bill.

In Committee

Part 1 Income tax rate amendments