Taxation (Income Tax Rate and Other Amendments) Bill

Thank you, Mr Speaker. Look, I’m not going to take too long. It’s going to be very brief call because we’ve spent quite some time discussing this. To me, this is very simple, that in New Zealand we have a principle that for many, many decades we have had in place, that we have a progressive tax system. The more you earn, the more you are taxed, and on the whole we accept that and we understand the reasons why. For me, it’s very clear cut. I don’t believe that teachers and police officers should pay the same rate of tax as those earning $180,000 or more. I support this move, I think it’s fair, and given that it was in our manifesto and that the Labour Party received over 50 percent of the vote, I’d say the majority of New Zealanders think it’s fair also. I commend this bill to the House.

Tēnā koe, Mr Speaker. As already made clear in the House through our speeches, the Green Party cannot in good conscience support this bill, even though we very much support a progressive tax system and we support a more equal society. Unfortunately, just lifting the top tax rate alone, without addressing the lack of a tax on capital gains and on wealth, will actually result in a less equal situation and exacerbate the current house price crisis that we have, where in the past year house prices have increased by nearly 20 percent.

This is unprecedented in a time of recession and increasing unemployment. Most, if not all, of the experts have recommended addressing the issues around taxation to address some of the demand side issues that are leading to a huge number of investors borrowing more money and bidding up house prices. The consequences of that are that it’s not just more difficult for first-time homebuyers—which it is, and that is a problem no matter how hard you work. If you’re paying rent, it is extremely difficult to save enough now to get a deposit if you didn’t already own property or if you’re not inheriting or receiving a gift from your parents who already own property.

I note, I have a family member in this situation. His in-laws sold their property five or six years ago and have been renting for five or six years in Wellington. Now he’s starting a family and they’re all looking to buy a home together, and it’s just completely out of reach. There are people who work hard and who save their money, but the reality is that the house price to income ratio has increased right across the country from 6.2 to 6.8 in one year, when it used to be 3. In some parts of the country, like Wellington and Auckland, I’ve no doubt median house price to median income ratio is much, much worse than that.

So this is a structural issue that requires taking on tax reform that addresses capital gains and/or deemed income from wealth from property. Of course, I hear the National Party and the ACT Party opposing this for completely different reasons, because they want to allow the rich and the wealthy to keep getting richer and wealthier and lock out even more people. They might not know that. They might say that they believe in equal opportunity. But the reality is the system we have is not fair, and it’s not fair and it’s not right that people who do some of the most important work for us in our society—the people who were on the front line when we were in the midst of a COVID outbreak—some of them are some of the lowest paid people and the hardest working people in our society.

Then we have people who were in the right place at the right time. Maybe they worked for a bank, maybe they are a real-estate agent. Look, I’m not saying they don’t work hard—they work hard too. But they’re making many times more money than our front-line workers, and that’s not right. So it’s fair that the people who earn the most—however they earn it—contribute back more to the shared pool of money that we use to pay for public services and infrastructure that we all benefit from. If people in this House say they believe in equal opportunity, then they have to believe in redistribution, because there’s no way that the child of poor parents is going to have the same opportunities as the child of parents who are well off, either because they worked hard or because they just happened to be at the right place at the right time and buy a house back when the median house price was only three times the median income.

So the Green Party absolutely believes that in this country we have to have a debate. This is a moment where we need leadership, and we can no longer put our head in the sand and ignore the fact that we are not taking all of the steps that are needed to address runaway house prices. Because of all of the quantitative easing putting all of that liquidity out there into the market, what it’s doing is it is driving up house prices and asset wealth for those who already have a lot. And it’s fair for those people to pay tax on that income, the same way a cleaner pays taxes on their wages, the same way our nurses pay taxes, our teachers pay taxes—that is fair. If that were included in this bill, we would wholeheartedly support that change.

This problem is not going away. Every person in this House has to confront this issue. The National Party has to confront the role that they played in scaremongering against totally sensible tax changes that were recommended by the Tax Working Group and causing the political climate to be such that now we have a majority Government who isn’t going to take the action that’s needed to achieve their aims because of the pollution of the political debate by the National Party, who used their money and their voice to mislead and spread absolute disinformation on social media to scare people and make them feel afraid.

This is a time in our country where we need everyone to continue coming together. We’ve confronted the crisis of COVID-19—we’ve done it really well. We put aside selfishness and fear that comes from the right. When New Zealanders come together, they are generous, and they are willing to work together to address the issue of inequality in this country. The Green Party will not stop talking about this issue. If we’re going to address inequality, we need to confront the imbalances in our tax system. We need a tax on capital gains and/or wealth.

Thank you, Mr Speaker. I rise on behalf of the ACT Party in opposition to this Taxation (Income Tax Rate and Other Amendments) Bill. There are many issues with this legislation. This bill should never have been put forward under urgency. There are many good reasons for using urgency, and this is just not one of them. What could be so urgent about putting forward a new tax law before Christmas that we give up the normal checks and balances that we expect under our democracy, such as the public having their say through public submissions on a proposed law? There isn’t a good reason. The use of urgency can only have been political, to give as little time for the ACT Party to scrutinise the proposed law before it was debated in the House. Unfortunately for this Government, the ACT Party didn’t need much time, and it wasn’t hard to notice the glaring issues with this bill.

The reason why we oppose this bill is unintended consequences. It is not clear that there is any clear objective or outcome that this bill is hoping to achieve. It’s unlikely to raise much revenue; so that can’t be the Government’s objective. The regulatory impact statement and the departmental disclosure statement say it will raise about half a billion dollars. That’s not much when you compare that to the $140 billion that this Government has just borrowed. Even if it did make a noticeable impact, I’d argue that this Government doesn’t have a good history of spending taxpayer money; so it’s clearly not for the revenue. It can’t be putting forward the bill for outcomes, because, of course, once people find out that they’re liable to be paying more tax, it’s in people’s interests to structure their affairs accordingly to avoid it. So will the fringe benefit tax rate have to be changed as a consequence? Will the trust rates have to be changed too? Unintended consequences.

This is not a simple law that can be passed under urgency and without the due scrutiny that we expect under our democracy. The reason this Government has put forward this bill can only be ideology. This is the only reason that they have, and this is why we oppose the bill. It is the message that it sends to New Zealanders. It says, “We don’t want people to take risks. We don’t want people to invest. And we don’t want people to become highly skilled.” The values of the ACT Party are in stark contrast. They are of aspiration and valuing success. They are that, when you earn a little bit of money, you put a little bit aside, you save it, and you invest carefully. Those are the values that we should seek to uphold in New Zealand. Labour says that, if you do well, we’ll tax you even more, we’ll take it off you.

Lastly, there are New Zealand Bill of Rights Act issues that should once again be scrutinised fully in a select committee that doesn’t exist under this urgency. I could go on, but I think I’ve made my point. The ACT Party is opposed to this bill. Thank you, Mr Speaker.

Mr Speaker, thank you for giving me the call. It’s great to hear the new member for the ACT Party has been to the David Seymour school of shouty. But, look, I just want to address one point, which is really the alleged New Zealand Bill of Rights Act issue, and just note that the Minister has put a Supplementary Order Paper (SOP) there to really make clear that the gathering of information is for a very limited purpose—for the purpose of developing policy and understanding the way the tax system works, and not for any administrative or enforcement purposes. It’s very clear that if the commissioner wants to inquire into a person’s affairs for enforcement or administration purposes, they’ll need to use powers that currently exist elsewhere in the legislation. So it’s very clear, very fair, and the New Zealand Bill of Rights Act issue really has been quite effectively dealt with by that SOP. So thank you, Mr Speaker. This is a great improvement to our legislation, one which means that those who can will help New Zealand a little bit more, and New Zealand will be better for it.

This is a split call. I call the Hon Gerry Brownlee—five minutes.

What an interesting contribution that was from Dr Webb, the constitutional lawyer who I think is probably changing his positions from what he might have lectured students on in the past, at a rapid rate. Let’s be very, very clear: this is, in some terms, if I may use the term, a complete muddle—an absolute muddle.

You have section 17B, which the Minister of Revenue came into the House today and said must not be read down because of section 17GB, in clause 33. Of course, this all sounds like terribly technical sort of stuff. You ask yourself: what does it mean? Well, we have a bill here in the House today that, primarily, raises the tax rate for those earning over $180,000 to 39c. If that was all it was, that would be simple, but it’s those other things that go with it that are the problem.

Firstly, you come to this ability for the IRD to now collect information from trust income to assess how the 39c tax rate is going. Is it working? Is it bringing in the money it should? Is it bringing in the whole $2.2 billion that it’s predicted to bring in over the four years? Is it on the track to do that? Or should there be a change to the rate that includes taxable income in taxes that would potentially raise that revenue figure to about $3.7 billion? So the hard thing to understand is: why has the Government, in this bill, decided to forgo the $1.5 billion in difference—income that they could have got if they just put a tax rate across trusts as well as income? Why have they done that? Secondly, are we being softened up for that to come in the future?

I asked the question today of the Minister: what will be the threshold where he goes to Cabinet and says, “Look, the money is not coming in at the rate it should. There’s something wrong with this. We’re not getting it out of trusts. Too many people are avoiding it.”—not recognising, of course, that he’s already given up $1.5 billion that won’t be covered and allowing the IRD to collect that information.

Dr Webb says that’s OK—it’s quite discrete, it’s quite different, and it doesn’t affect any other tools that the IRD have to bring cases against those who are dodging their tax responsibilities. The problem here is that the amendment says that if information is collected under section 17GB, it can’t be used for a prosecution. Well, that’s like telling the police that they can go out and look for criminals, and, if they find them under a particular clause of the law, they can’t prosecute them. That seems utterly ridiculous. Of course they’re going to use that information. That information is going to lead to the use of section 17GB that they’d be collecting the information under. They will use it under 17B to form an opinion about whether or not a prosecution should be brought. It’s ridiculous for anyone to stand in this House and say anything otherwise; although I did notice that Dr Webb gave it a fair go, and I did also notice that it equally sounded ridiculous. I wish we were still in committee of the whole House, because it would be a good question for the Minister to answer. Unfortunately, the committee was curtailed by the desire of the Government to move very quickly on this bill.

I accept that they did campaign on it—that they did say that they would raise the tax rate to 39c on income over $180,000. That’s fair enough. They come in here and they do it. That doesn’t mean we have to agree to it, and it doesn’t mean, as the Greens suggest, that we’re trying to push fear out there as a reason for not supporting it. If anyone’s creating fear in this country, it’s the people who supported that ridiculous motion yesterday on the climate change emergency. That’s what fear is about.

Anyway, where we come to on this is that too many Labour candidates went out in the last election saying this will be an answer to paying back the debt that New Zealand has had to incur as a result of COVID-19. It won’t. It is, at best, 2 percent per annum of the total debt that’s being accumulated by the current Government. No one’s arguing about that debt, but don’t mislead people that somehow taxing the top 2 percent of the country to gather 2 percent of the revenue that’s being borrowed is going to save us. That is completely ridiculous.

This is not a good bill. It should have been more discrete with its two issues. We will not be supporting it.

This is a progressive tax that was traversed with the public and got its mandate. This is a straightforward, targeted tax contribution from the people who can afford it the most. The same bill makes sure that people at the bottom, who can least afford it, have an adjusted minimum family tax credit. It is mindful of possible avoidance in trusts, and, by adding transparency, it may well put on notice people who attempt to do so and avoid such behaviour. I am proud to commend a bill that targets the top 2 percent of income earners in this country and lets them pay their fair share of tax. Thank you.

New Zealanders are going to wake up tomorrow to find out that under urgency, with less than 24 hours of this bill being in the House, the Government has created a new law that doesn’t just increase the top tax rate; it gives the Inland Revenue commissioner the power to seek the financial information of every single New Zealander, and the Privacy Commissioner hasn’t even had a chance to look at it. That is what New Zealanders are going to wake up to tomorrow because of this bill. They need to know that Big Brother is coming, and he just got more teeth.

So let us go through what this bill actually does, because it has three key things that it does. First, it increases the top rate of taxation, and National has put on the record our objection to that: first, we don’t think that you can tax your way out of a recession. This is exactly the wrong time to be asking New Zealanders to give up more cash. Second, in terms of the purpose, which is stated as increasing revenue and increasing equity, the bill’s own advisers say that there really won’t be much progress on either of those things. And third, this creates massive issues with the integrity of the tax system. I’ll return to these arguments.

The second thing that this bill does is that it creates these extensive new information-gathering powers, and the third thing that this bill does is it creates a massive new compliance burden for anyone involved in a trust in this country, including significant retrospective powers for the Inland Revenue commissioner to ask trusts to provide pretty much any information that the commissioner wants, back to 2013.

So let’s first have a look at these extensive new information-gathering powers, because the bill in new section 17GB, inserted by clause 33, gives the commissioner for Inland Revenue the power to require any New Zealander to provide information that the commissioner considers relevant to tax policy. This is a broad and sweeping power. Are the members opposite even aware of what their Government is seeking to do, because this power means that if the IRD thinks it’d be quite helpful to know how you manage your financial affairs for the purpose of them designing tax in the future, all they need to do is invoke 17GB and off they go. This is a huge invasion into the personal financial affairs of New Zealanders. It is such an invasion—it’s not just me saying that—into people’s privacy that the Attorney-General has issued a section 7 report under the New Zealand Bill of Rights Act to say that it amounts to a breach of our rights as New Zealanders to be free from unreasonable search and seizure, it amounts to a breach of our right to be able to freely express ourselves and not to be compelled to say certain things or to provide certain information just because the State thinks it would be useful for the creation of new tax policy. Do not be misled, because the Attorney-General, who also happens to be the Minister of Revenue, has tried to be too cute by half here. He said, “Oh, look, my advice to the Minister is you can just fix it up by saying, ‘Don’t worry, we won’t use the information to prosecute you.’ ” That’s all his little amendment does. But that does not mean that he can’t use the power for any range of other things to look into your personal affairs in order to create tax policy in the future.

So I have some questions. My first question is: what would the Privacy Commissioner think, because we don’t know that because there hasn’t been any select committee process whatsoever, so we haven’t actually had the opportunity to publicly engage with the Privacy Commissioner on this. It says in the regulatory impact statement that the Privacy Commissioner had insufficient information about how these powers might be used so was unable to assess it fully but would engage with officials later. Well, I think that that is shocking, because what we have here is a potentially massive breach of privacy, and the Privacy Commissioner hasn’t even had the ability to assess it. The New Zealand public is none the wiser. What a disgrace.

But the second thing that we need to consider here is that this power is not going to be used by the Inland commissioner just because they think you might’ve done something wrong—because you know what? Here on this side of the House, we think that’s fair enough. If you’re trying to avoid your tax liabilities, then, yeah, the IRD should have some powers to look into that. But this can be used for any range of purposes, so I want to know what the IRD thinks they’re going to get up to. What chats have they had with the Minister already about where his particular interests in tax affairs may lie? I mean, we know that the Green Party has some pretty wacky ideas on tax, as does David Parker, probably. So how is this going to be used? I want to know that. We don’t know that. We weren’t able to take this through a full parliamentary process.

Then we have the question of: how many people will end up being captured by this new information-gathering net? How many New Zealanders are going to have their personal financial information asked for underneath this power? Again, we do not know—no select committee process, no ability to get answers to these questions on the record.

Finally, what I want to know is: how burdensome will these information demands be, because there is no caveat in this bill, in 17GB, as to what the Inland Revenue commissioner could ask. So IRD could come after you for pretty much every bank statement, every financial transaction, everything you’ve ever been involved in, and there seems to be no limit to that. So, ladies and gentlemen opposite, you need to be aware that you have, in supporting this bill, empowered Big Brother at IRD to go after every Kiwi, and select committee hasn’t even looked at it.

Returning now to the other aspects of this bill that have been more widely telegraphed, relating to new sections 59BA and 59BAB, these are extensive new requirements for compliance and paperwork from trusts, because the Minister has realised, as we warned and as we continue to warn, that when you create a differential between the top tax rate and the trust rate, it is going to be logical that some people will then try and funnel income through trusts. So the response to this is to create massive new compliance requirements for annual returns relating to assets, liabilities, and distributions.

But it actually goes further. It’s not just about that differential. It is clear that it’s also about understanding and monitoring the structures and entities used by trusts so this information may be used for other purposes in the future. This power is retrospective, so this power allows the IRD to go back as far as 2013 to ask people for this additional information or, actually, to issue a notice at any time requiring trustees to provide any sort of information that IRD may decide in future that they want. So what we can see here is that the Minister has given himself and his department extensive new powers to trawl through the trust affairs of New Zealanders, and, mark my words, new taxes will be coming. This will be creating massive compliance for the 245,000 trustees who currently issue tax returns and the many more New Zealanders who will end up being caught in this net.

Finally, I said I would return to the issue of the increase to the top tax rate. Members in this House have heard National speak about this, and I acknowledge that there has been extensive public debate, but it is important that we look at some of the high-level claims that have been made by the Minister for this bill, because they don’t stack up. The purpose of this bill is stated as being a revenue-gathering measure, and yet what we know from the official advice that has been tabled is that this tax will get about $550 million in additional revenue a year. Now, that’s a big number, and eyes can glaze over, but you need to consider that in the context of the overall public debt that New Zealand is currently taking on. By 2024, we will have taken on $140 billion worth of debt—

💬 Hon Michael Woodhouse: How much?

A hundred and forty billion dollars. Just for those who may not be doing the maths in their head, what we’re talking here is multiples more than the revenue that will be gained. So this is not going to go in any substantive way to actually resolving the debt, and when you compare it on a comparative scale with what could be achieved by more efficiencies across the wider Public Service, by the Government bringing in its own belt and cutting its own cloth, by the Government, for example, not having to hire lots more people at IRD to run after your tax information, you do need to consider that the revenue claims made for this bill are limited.

Second, it doesn’t actually do much on the distributional equity front. The analysis says the Gini coefficient will only be 0.2 points lower. And, finally, it does raise massive issues with the integrity of the tax system. I say this: merry Christmas, New Zealand. The taxman is coming, and he just got more teeth. Thanks, Labour.

Tēnā koe e te Māngai o te Whare. Thank you, Mr Speaker. It’s great to be the last speaker because you can be succinct and it’s all been said in the previous debate. We made a campaign promise to increase the top rate to 39 percent, and that’s exactly what this bill achieves. It only affects a small portion of our income earners—those earning over $180,000. It’s consistent with a progressive tax system. It basically gives a very clear message: those who earn more pay a little bit more to help make Aotearoa New Zealand a better place. It seems fair, and I commend it to the House. Thank you, Mr Speaker.

Members, that concludes urgency. The House stands adjourned until 2 p.m.

The House adjourned at 11.37 a.m. (Thursday)