Taxation (Income Tax Rate and Other Amendments) Bill

I move, That the Taxation (Income Tax Rate and Other Amendments) Bill be now read a third time.

For the benefit of members, I will provide a brief recap of the measures in the bill. The bill introduces a new personal tax rate of 39c on incomes over $180,000. The new rate applies for the 2021-22 and later income years. In introducing this new rate, other rates will also need to be adjusted to maintain coherence. The bill, therefore, also amends the PAYE rules to introduce new codes for secondary earnings and for extra pay. There are similar amendments to the fringe benefit tax rate, the resident withholding tax on interest rate, employers’ superannuation contribution tax, retirement savings contribution tax, taxable Māori authority distributions non-declaration rate, and resident land withholding tax.

In considering such a change to tax rates, it is also important to consider the ability of who would choose to escape higher tax levels by sheltering their income in trusts. The bill therefore contains measures to allow Inland Revenue to obtain information about tax compliance amongst trusts. Some information is already able to be collected. In relation to other information requests, I want to put a particular point deliberately on the third reading speech record. Section 17B of the existing Tax Administration Act is not intended to be undermined or read down as a consequence of the new section 17GB.

Clause 33 of the bill inserts new section 17GB, giving the commissioner the power to collect information for tax policy purposes. As I addressed in earlier stages of this debate, it is contested by some taxpayers as to whether the section 17B powers already cover that. The enactment of this clause 33 of the bill is not intended to undermine the commissioner’s arguments in that regard.

We have also passed an amendment to the clause at the committee of the whole House stage to make it clear that the commissioner cannot use information collected pursuant to the new section 17GB as evidence in court against the person who provided it. However, this restriction will not apply to information obtained by the commissioner under any other provision in the Tax Administration Act 1994, such as her main information-gathering power in section 17B, whether that information is sought or collected before or after a section 17GB information collection occurs.

This section recognises that the primary purpose of section 17B is in obtaining information for tax policy purposes while ensuring that the commissioner’s other information-gathering powers are maintained. The new information-gathering powers to collect information from trustees in order to gain insight into whether the top personal tax rate of 39c is working effectively will provide better information to understand and monitor the use of structures and entities by trustees.

In respect of the minimum family tax credit, the threshold is reviewed regularly to ensure it remains effective in its policy objective of encouraging people off benefits and into paid income. This bill adjusts the minimum family tax credit for 2020-21 to reflect increases to the main benefits, which were made in March this year.

In bringing this important bill to its third reading, I must thank the House for giving its urgent attention to the bill. Can I thank the Opposition for their involvement in the committee of the whole House stage. Can I also thank officials from across the Public Service who worked on the detail of the bill, and the drafters. I commend the bill to the House.

Thank you, Madam Speaker, and, yes, we are talking on the third reading of this tax bill that has been pushed through under urgency. I think it sort of started with the Government making an election promise that they were going to increase the top marginal income tax rate, and that’s the prerogative of the Government. Where we have ended up, though, is something quite significantly different.

We have ended up with a bill that does include that, but much more significantly—I think for all the tax advisers or the accountants and all those who have a trust—and as my colleague quotes, 240,000 of them are all set up—they are a legitimate corporate structure, so there shouldn’t be any aspersion that they’re not there for proper legal means. But where we’ve ended up with this bill is some of the most Draconian information powers that have been assigned to the Commissioner of Inland Revenue, on the pretext that the Minister is concerned that there may be tax avoidance through some trusts, and giving rise to these amazing rights. Of course, the Minister of Revenue also has the dual role as Attorney-General, and these are so Draconian that, in fact, the Attorney-General had to write to himself actually subsequently outlining the Draconian nature of the information disclosure requirements. So the Minister of Revenue, the same David Parker, then had to go and make an amendment through an amendment on the Table after the bill was put on the Table just a couple of hours later. So this bill is much different from what was on the election campaign. There is no doubt that it is clear that this Government will be increasing the trust tax rate over time, and they’ve gone on a search and destroy mission to try and find that information.

So what sort of happened and what’s the result? The bill was presented to the House basically midday yesterday. Less than 24 hours later, what the primary object of this so-called bill was, was to raise money, as laid out in the departmental report, over the next five years, or raise about $440 million per annum, but in the first year it will raise about $90 million—$90 million of additional tax. What most of New Zealand doesn’t realise: we are already in the grips of an economic crisis. So in the time that we pass this bill to make $90 million of additional revenue to the country, this Government has borrowed about $110 million in a single day. In the last 24 hours that we have spent debating this bill, all the money that’s going to be gained through additional tax revenue this year has been used but hasn’t even paid for the additional debt that we’ve created in the last 24 hours.

I think the intent of this bill, to raise some additional money—I can understand why the Government wants to do it, but in the context of where New Zealand sits in its economic cycle, where it sits with a level of debt we have at the moment, this is not going to do something significantly to change the perilous financial state that we’re finding ourselves in. In fact, what we should have been debating today is about how we’re going to grow the economy and not about penalising the more successful members of our community.

The rationale behind it—it’s interesting. The Minister yesterday said, “Look, there are other countries around the world that have a higher tax rate than us”, and he quoted Australia and the UK. It was almost like a badge of honour, that because they’re higher it’s not a bad thing if we go higher.

💬 Hon Member: Yeah, they’re better, apparently.

Yeah. I could say to the Minister every country around the world is trying to decrease its tax. As my colleague the Hon David Bennett highlighted, the changes around reducing company tax rates is an example around the world—everyone is seeking to try and reduce those rates because they know they have to remain competitive. And here we’ve got a Government for some reason thinking, “Hey, it’s not a bad thing to increase them.” It’s interesting, and I’ve heard some of the speakers from across the House talk about it, but in the IRD report, they actually talk about it. So this is not a political statement; the advisers are talking about “If you do this, there will be difficulty in attracting foreign investment into New Zealand”. New Zealand needs foreign investment. It needs the right type of investment, but it needs foreign investment desperately to help for infrastructure, growing our businesses—all those sorts of things.

The other thing is we need to attract highly talented people. A lot of those people will come to New Zealand and help us to grow this economy. Of course they will look at the situation in New Zealand. I heard some absurd comments from members of the Government yesterday saying, “Well, you know, they’ll come here if they want to, and if not, they can go somewhere else.” Actually, New Zealand is part of a competitive situation, just like we are trying to attract new companies to New Zealand, and immigrants will look at our tax structure. We actually want to be attracting those types of people that can earn that type of money, because they’re the people who will also contribute as much as the other types of immigrants we have coming to New Zealand, to make sure that New Zealand can grow its way out of this financial hole that we now find ourselves in by a much quicker route and faster route.

So there’s some big parts in this bill, and I’m not going to cover them all here because there are other speakers. But I think the biggest issue around the first bit, which is raising the minimum tax rate to 39 percent, is that it strikes at the integrity of the tax bill. I listened, and we have got two PhDs in the House, both so-called tax experts, and both of them yesterday—I’m looking at Dr Deborah Russell and Dr Duncan Webb—who dismissed and said, “Hey, this is not a complicated bill. All you have to do is pass this bill, even though it affects seven or eight other pieces of legislation. Hey, it’s easy. We just do it and it’s no problem.” Well, actually, that’s not how tax systems work. Having been on the Finance and Expenditure Committee for the last six years, every year, as has been noted, we passed a number of tax bills trying to make sure that we maintain the integrity of the tax bill. We’ve got a fantastic system in New Zealand. It’s the envy of the world. But we continuously try and make sure that we capture as much income and there’s no leakage out of that system.

This bill strikes at the integrity—and, again, you don’t have to listen to me; it’s written by the officials in the report highlighting this as a major, major issue. The reason why it’s becoming even more paramount is we have now got the highest differential—if this bill is going to go through, and I presume it will—between the top tax rate of 39 percent and a company tax rate of 28 percent. That’s 11 percent differential. What that means: that is the highest level of differential between those two rates for the last 20 years. That is the potential, unfortunately—and every country has the same issue; it’s not New Zealand. But that is the potential for the erosion of our tax system. That is what the officials have opined about and spoken about in the report. I think it’s a massive issue and no doubt we will be back at the Finance and Expenditure Committee in a certain time fixing this bill up.

It’s already sort of catered for in the bill, because in the bill there is a requirement that, actually, there’s going to be further consultation on integrity issues during the course of 2021, where further measures—and it just uses the words “further measures”—around improving the tax integrity will be implemented and will be effective in the year of 1 April 2022. That just tells you everything about this bill, and it’s had so little consultation the tax community is going to be in an outrage. There’s so many people going to be affected by it who have legitimately had their own structures, and I just think we are rushing through something that could have been done at much less haste. If the Government wanted to achieve it that’s fine, but we’re going to end up with some significant problems.

Thank you, Madam Speaker. One of the critical things about this excellent bill—this excellent bill—is that it quite straightforwardly fulfils a campaign promise, a campaign promise that we made and that New Zealanders voted for: to increase the top income tax rate to 39 percent. So that’s the basic concern of this bill, and that’s what it does, and, as appropriately done, it propagates that rate through the various mechanisms we have for collecting income tax, such as through the fringe benefit tax mechanism, the resident withholding tax mechanism, the employer superannuation contribution tax mechanism, and so on. So this is what this bill achieves.

It’s been done with reasonable haste because in order to have sufficient time for systems, IRD systems, business systems, and the like, to be up and running by 1 April, the rate needs to be confirmed now, and this is why this bill has gone through with urgency—in order to get that rate into law, which gives certainty to business, certainly to the revenue department. So there are two straightforward things going on with that.

When the new rate is in place, it will affect 2 percent of income earners, and it will only affect them if they earn more than $180,000, a threshold that is higher than the incomes of many people in this House. It’s a very small percentage of income earners. What it means is that if you earn over $180,000—an income that’s very high in comparison to the great majority of incomes in New Zealand. A person who earns that much will pay another $600 in tax for every $10,000 they earn over $180,000. It is a small extra contribution from our highest income earners, and it goes to issues of fairness and equity in the tax system, a tax system where over and over again New Zealanders have expressed the view that a fair income tax structure is a progressive income tax structure. This bill embodies that.

There is one final further important measure in this bill, and that is an increase to the minimum family tax credit, which is required most years to ensure that people who are in work do get some reward for that and that, in fact, their income just exceeds similar families who are on benefit. So that is straightforwardly a fairness measure as well.

This is an excellent bill and I commend it to the House.

Two minutes and 47 seconds—the former chair of the Finance and Expenditure Committee. Having left the Minister of Revenue to do all of the work last night and all of the work this morning, with no sign of the chair of the finance committee and no sign of the deputy chair of the finance committee, all that the Labour backbench can come up with is a two-minute, 47-second speech on a very, very important piece of legislation being rushed through under urgency, that the Attorney-General has said is an outrage—and all Dr Russell could come up with was two minutes and 47 seconds.

But that’s not the only thing that grinds my gears. The real thing that grinds my gears—and it’s particularly evident in this bill debate—is the straw man arguments that are thrown up by Labour members about what the National Party believes, and then they criticise it. After my first reading speech, Stuart Nash—I’d talked about pump-priming and the importance of actually adding a tax cut, not tax increases, to the strategy of the bolus of Government spending, and Mr Nash gets on his feet and claims that I want to give the top earners a tax cut. It’s rubbish, it’s wrong, and it’s very annoying—I was about to say something else then.

Look, tax cuts can come in a number of forms, and, actually, the campaign pledge that National made benefited low-income taxpayers. The threshold changes—one could have a tax-free threshold, and I think Mr Seymour needs to do a bit of a primer on what broad based and low rate was when he criticised Mr Bayly for his amendment under thresholds. Broad base isn’t about the level of tax rates; it’s about the breadth of what we tax. So he needs to go and perhaps grab a textbook.

Then we had Greg O’Connor saying that “They’re all against any sort of tax whatsoever.”, as if the National Party wants to get rid of the tax system. Well, if he’d listened to my first reading speech, he would have heard me say I am very happy to pay tax. I’ve been a higher-income earner for most of my working life. That’s fair, and I said that it was fair that the top 9 percent of income earners should carry the burden of 42 percent of the net income tax collected by the Crown—that’s fair. Mr O’Connor interprets that as me wanting to get rid of the tax system altogether.

Then, we heard from Mr Parker this morning that he thought that I had an unhealthy defence of tax avoidance structures of the wealthy. Well, guess what? I don’t. But what I do have is a healthy defence of the rule of law and the liberties that are provided through it, and the Attorney-General has said that the Commissioner of Inland Revenue’s new powers when this bill is passed are an affront to the right to freedom of expression and the right to be secure against unreasonable search and seizure.

Now, the New Zealand Bill of Rights Act isn’t some soft puppy thing, because while it talks about these things, it actually gives the power of the Crown to say, “Well, that may be reasonable in the circumstances.” But the Attorney-General has said, “That is not reasonable.”, and, actually, Mr Parker, in his third reading speech, when talking about section 17GB and its relationship with section 17G, makes me think that I was at cross-purposes with him in the committee of the whole House.

It wasn’t a controlling provision on the Commissioner of Inland Revenue; this is a strengthening provision. This enables her to go further, and that makes sense, because for all of his—he took his Attorney-General hat off and then put his revenue-gathering Minister’s hat on. The question was answered when he said that “Actually, this isn’t administrative. This isn’t information-gathering for policy purposes. The IRD was concerned about avoidance risks in trusts for some time.” Then, he said, “Wealthy individuals that use complex vehicles raise the risk of tax avoidance.”

Well, I’ve got a pretty good working knowledge of the Tax Administration Act and the Income Tax Act, and I’ve got to say the commissioner has the powers to look through those structures. It may take some time and it may be complex, but this is the lazy way out, and I don’t even believe this is the commissioner asking for it. I will be seeking all of the papers under the Official Information Act of the exchanges between the IRD and the Minister about why this was necessary, and I have every expectation that I won’t be seeing the tax policy team going “Minister, we need this because there’s a loophole.” I think we’ll be seeing “Minister has asked for this and we are responding to it.”, and he’s probably only asked for it in the last six weeks.

The question that I asked in the committee of the whole House, which was kind of fudgy-answered, was whether or not the Attorney-General would have been happy with the amendment that’s been made to clause 33. Well, it’s been emphatically answered: the Attorney-General will not be happy with that at all because it clarified the strengthened powers, not the constraining powers.

After COVID, we heard from the Government about a new normal—things will have to change, new approaches, new innovations—and I think that was quite good. That’s quite exciting. I think maybe we can actually break the mould a bit and think differently about creating new technologies, reducing the amount of travel we do, working from home strategies, innovations, encouraging high - net-worth individuals to use their creative talents for the betterment of the whole country, and do you know what the first new normal is? A futile gesture of an envy tax on the 2 percent of New Zealanders that create the most wealth. Remember, they already pay 20 percent of the tax base—the net income tax base, that is—so this is going to be an ineffective envy tax, and far from being innovative, far from being a new normal, this is absolutely the old normal from the left.

Not only is it ineffective; it’s not even going to pay for that other habit of the left, which is a bloated increase in bureaucracy. The public sector went up in cost between 2017 and 2019 by $700 million a year. I’m not talking about teachers and nurses and police officers. That’s just Wellington bureaucracy, which has gone up by 40 percent more than this tax will raise.

My suggestion to the Government is that if they are really concerned about the future generations and the burden of debt to be repaid, rather than imposing an envy tax, how about they actually get spending under control, because we have got, necessarily, significant extra increases and a now projected debt of $214 billion over the next four years—and that was another straw man argument? When the previous National finance spokesperson, Paul Goldsmith, suggested that we could actually get debt to GDP down faster than this Government, there was righteous indignation from the Minister of Finance, who thought that what we were saying was that we’ve got to cut spending. Rubbish! We do that by growing the economy faster, but this Government doesn’t even know how to do that.

So they go back to type. The new normal is the old normal: an envy tax on the people who create the wealth. That is wrong, it is ineffective, and it won’t improve fairness.

Now, I just want to finish on the retrospectivity issue. I just don’t accept the Minister’s explanation about why retrospective legislation is required for an information requirement that is being changed seven years after it was initially put in place. That’s exactly the sort of thing that citizens, taxpayers, should be protected from.

What would we do if we had a new criminal offence that was legal seven years ago and illegal today? Would we go back seven years and say, “Well, it doesn’t matter that you didn’t commit a crime seven years ago. Now, we’re going to say that you did.”? Well, that would be an outrage, but that’s exactly, in an administrative sense, what this is doing. It’s wrong.

It should never have been rushed through under urgency. The tax rates are futile, the trust inquiries are punitive, and the retrospective elements of this are quite wrong.

Debate interrupted.

Voting Correction—Tabled Amendment to Clause 33