Taxation (Budget 2021 and Remedial Measures) Bill

Members, we come now to the debate on Part 2, which is clauses 7 to 9 and relates to remedial measures. The question is that Part 2—

💬 Hon Members: Madam Chair.

CHAIRPERSON (Hon Jacqui Dean): Just let me get it out. The question is that Part 2 stand part.

Thank you very much, Madam Chair. We find ourselves again in the Chamber trying to fix up past mistakes. All of this should have been easier if the IRD had better computer systems. But, actually, this is in large part not the case due to Peter Dunne. Peter Dunne, with his silver bouffant and trade mark bow ties, easily underestimated by the untrained eye, was a weapon, and he often harboured agendas that were not easily detected by the less keen observers. He, actually, heroically ran down the IRD’s computer systems over a series of years, staying in Parliament for a total of 30 years to complete the task.

One of the effects of that was that it was actually much more difficult for medalling socialist Governments to introduce more complex policies that would surgically take money from hard-working taxpayers and give it to the lazy and indolent, and that’s why Peter Dunne is our hero of the day and someone who was always there to protect New Zealanders from the kind of medalling bureaucracy and socialism so common in New Zealand politics today. I just wanted to put the record straight in defence of my friend and hero Peter Dunne.

Thank you, Madam Chair. I need to gather myself, just for a moment. Excuse me. Ha, ha! I’d like to just ask the Minister in charge of the bill, who is no longer the Hon Peter Dunne—

💬 David Seymour: If only—if only.

Ha, ha! In all seriousness, I want to ask about the legislative statement and how it actually relates to what’s been drafted in Part 2 for the remedial measures. The legislative statement quite clearly refers to the fact that there was a drafting error with the application of the time frame being 1 April 2021, with the intention of it being 1 April 2022. I have a number of calls I’d like to take, but I’d like to start with the very basic, simple one of could Minister Parker please explain why the legislative statement doesn’t line up with the drafting of the bill.

Thank you, Madam Chair. I do agree with the Hon Louise Upston that this part actually does require something of an explanation. The introduction to this talks about a small drafting error, and I wonder if it’s as small as the bill actually suggests.

When I was the Minister of Revenue, the thing that struck me the most about the punitive nature and cumulative nature of penalties and use of money interest for late payments was that, in respect of child support payments that were in arrears, it was often initially a very small amount of money that the person who owed the money had not paid, often due to no fault of their own. It was usually discovered on a recalculation sometime after the payments were due, and, as a consequence of that, I saw small debts grow to very large debts—sometimes $1,000, $2,000, which might not sound much to some, but to those who were having to pay child support and for whom income was low, that was a devastating impact on them and they often couldn’t get out of it.

So I have two questions for the Minister. The first is at section 134(2) of the Child Support Act as amended by clause 8 of the bill. If my reading of the Child Support Act is correct, section 134(2), other than the heading, is replaced, basically, by this new section 134(2). Only I’ve read it several times and I can’t find a single word in this bill that’s different from what’s in the Child Support Act. So that’s one question.

The second question is in respect of section 134(3). What it’s doing is replacing the words “27th” with “seventh”, and effectively what we’re saying is that certain penalties, as I understand it, accrue 27 days after the arrears commence. So my question is: is the intention to remedy an error where this was due to line up with other late payment penalties that came owed on the seventh day after the arrears were accrued, and, if that’s the case, did the Minister actually give thought to leaving the error unchanged? Because I think having a larger window between the accrual of the arrears and the accrual of the penalties is actually not a bad idea for these people.

Now, hopefully, there’s been a substantial reduction in the number of people who find themselves in arrears, because one of the key benefits of the Business Transformation that the Minister refers to is to actually prevent this kind of underpayment happening in the first place. So a third leg of this might actually be: could the Minister give us an update about whether, in fact, now that the transformation is nearly complete—whether child support payment arrears have actually dropped as was predicted?

So those are the three things: is there actually a change to section 134(2)? Did he give consideration to leaving what was apparently an error in section 134(3) alone? And, thirdly, have we seen a reduction in the amount of child support arears accruing?

I’ll try and answer the first question first, and if I haven’t properly answered the member, I’ll take further advice from officials in respect of the other issues. But, essentially, the wrong date for section 134(2) to come into effect was included in the most recent version of this legislation.

In order to make sense of clause 8 of the bill, members have to read the commencement clause, clause 2. Clause 2(2) says that “section 8(1) and (3)”, but subsection (1) is the one, if the member’s looking at the same version that I am—there’s grey scale about the new clause that’s at clause 8(2). By virtue of clause 2(2), that comes into effect on 1 April 2021. Then, that is effectively superseded on 1 April 2022 by the provisions that are at clause 8(2) in grey scale. It’s a little bit confusing because of the reliance on the grey scale to make sense of it, as I described it here. It’s easier when you see it on the page. In clause 2(4), it says that “Sections 8(2) and 8(4), and 9(2)” come into effect on 1 April 2022, if not brought into effect earlier by Order in Council.

Thank you, Madam Chair, and I appreciate the Minister’s attempt to answer the question, but, I think, with that answer, it’s created more confusion than more clarity. So I do think, when legislation is being jammed through the House in urgency, it is going to be really important with Part 2 that everybody has a clear understanding exactly of what we’re doing.

So my first question, in terms of the Minister’s contribution, was the reference to the Child Support Amendment Act 2021, when I understood that Part 2 was amending the Child Support Act 1991, which is how I’m reading it, and the first grey scale is exactly what is in the 1991 Act, and it’s not clear to the members opposite whether that’s remaining as it is, or the second grey scale, which is also 8(2), is being included.

💬 Simeon Brown: It’s black and white!

It is black and white! It’s definitely not black and white. So it is really important that these are fixed, because, at the end of the day, with the Child Support Amendment Bill, the select committee that I serve on actually spent a lot of time working through amendments to the Child Support Act 1991, and some of it is incredibly complicated. The intent behind it was to support more parents to fulfil their obligations and to make sure that they actually didn’t get into debt, and the recognition that debt to Inland Revenue can be incredibly distressing and, when it is related to child support, can also be intensely damaging for a family.

So, hopefully, I’ve filled in a bit of time. I do, in all seriousness, want the answer to both things, because it’s not clear from the legislative statement. The legislative statement of anything that we now provide in the House, should be the simplest way for the House to understand what is occurring. So I do want clarification on that, and I hate to point, but when we’re looking at this version of the bill, are we replacing it with the top grey scale, which is exactly as is drafted in the ’91 Act, or is it the intention that this one, the second one on the page, is what it really should be? And, therefore, what is the status of this, because it appears to be inaccurate?

I don’t think it is inaccurate, but I’ll attempt to explain it, and I thank the member for her question. I accept that she understands these issues well, because she was involved in them. The intent of the changes to the underlying policy is the removal of the $5 rule, which was an additional $5 penalty, which, as the member has noted, is distressing and unnecessary. The other change that was also for the benefit of people making their child support payments was to give 27 days’ grace instead of seven days’ grace in respect of the first breach. That policy intention remains. The mistake that was made in the drafting of the legislation that was passed was to give effect to that from 1 April 2021 rather than from 1 April 2022, by which time the Business Transformation project can do it. Until then, and it might be a wee bit earlier than that—that’s why we’ve given ourselves the Order in Council right to bring it forward a bit earlier than that if we can do it earlier—until that time we have to restore the $5 rule from 1 April until the date the computer system in the Business Transformation project can handle it; and, similarly, for the change from the 27-day rule to the seven-day rule. So the policy intention remains the same. It was always intended to be done around 1 April 2022; it’s just that, in the statute as it was passed, it was done from 1 April 2021. So what this does is reinstate the old rule until the computer systems are able to implement the new.

Thank you, Madam Chair. I thank the Minister for making those points, because it definitely makes it clearer. I would just put on notice for the committee that, when there is legislation that is before the Parliament that is going to be rushed through all stages under urgency, legislative statements are clearer than this one is, because where the difficulty is is clearly that those two dates aren’t included in the legislation. And so I want to be crystal clear with the Minister that the changes that were made in the Child Support Amendment Act 2021 are now being reversed. So the changes that were made in the Child Support Amendment Act 2021 are being reversed so that the existing manual system can cope with what was the previous rule, because the Business Transformation system can’t cope with it? And, if that is so, which of these 134(2)’s will be in the legislation, or is there intention that we have to change this law again?

The date is actually in this amendment bill, and those dates are found in clause 2 of the bill, as I’ve previously read out; so they have to be read together in order to make sense. What’s, essentially, happening here is the law is being restored to where it was and then is changed again for the future from that 1 April 2022 date or such earlier date as is brought into effect by Order in Council. The only alternative to that would have put at risk the Business Transformation changes, because they would have been rushed, or the alternative would have been complex changes to the old legacy systems that we don’t really want to have to change, because they’re old and out of date, and we weren’t trying to do it through the legacy system; we were trying to do it through the new system. So, once this passes, we do as was, as I understand it, consulted upon and intended. We just fixed the drafting error.

Thank you, Madam Chair. I hope I can just clarify that I’ve understood this correctly with reference to clause 8, which is to say, at subclause (1) we’ve got section 134(2), and at subclause (2) we’ve got section 134(2) too; whereas we should have section 134(2) under either subclause (1) or (2)—we’ve got two (2)s under (1) and (2). And clause 2 has two dates, whereas, if it only had one date, it would be much clearer. So if the Minister can confirm that, that would be really helpful, I think, to everyone’s mental health.

💬 Hon Member: Can you repeat that question?

No, I’m not going to repeat it. It was bad enough the first time.

But I do have another question, which is in relation to the grace period—as I think it could reasonably be called—which is the replacement of the number, or the ordinal, “seventh” with “27th”. Or perhaps it’s the other way around; I’m genuinely unsure. But I’m just asking the Minister to explain the logic behind that. So we’re now talking—just to be clear—about the amendment to section 134 of the Child Support Act 1991, I think as un-amended by the 2021 amendment legislation. But, in any case, just to express some curiosity at the policy reason behind that difference in the grace period—the 27th day or the seventh day being the point at which the calculation is made about a late payment and a penalty calculated at that point. I’d be grateful if the Minister could explain that.

Also, while I’ve got a bit more time to ask a further question: the basis for the amounts of $5 or 2 percent of the outstanding amount, whichever is the greater. There are relatively small amounts involved, and I don’t mean to trivialise that for families for whom that’s difficult. But, nevertheless, it would be good to place on the record—of course, without the benefit of a select committee process for the explanation thereof—in particular considering that that explanation doesn’t appear to occur within the legislative statement. So if the Minister could help me out on all those points, that would be much appreciated.

Thank you, Madam Chair. The policy rationale that lies behind extending the late payment period for the first payment due by a liable parent from seven to 27 days is to enable the Inland Revenue Department to have more time to make contact with the liable parent before they fall into penalties. The experience both overseas and in New Zealand is, if you get these things on track at the start, when people become liable parents and penalties don’t start accruing too early, they’re more likely to meet their liable parent contributions not just for the first payment but also going forward. So in respect of the first liable parent contribution due, there is more latitude for lateness that is not extended in respect of subsequent liable parent contributions because people are expected by that time to have their affairs in order.

This is really confusing and I think we’ve got to the bottom of the first bit. One of the problems is that on the legislation website that many MPs use, the Child Support Amendment Act 2021 has disappeared, and you’ve got to go fishing to go back to the commencement clauses that the Minister was referring to. And I found them, so I understand now that the changes that we’re amending in clause 8 of this bill were actually in section 42 of the 2021 Act—and I’m getting nods from the officials, so that’s great. That said that the commencement of that section was 1 April 2021, and it should have been 1 April 2022. Clause 8(2) now is putting that back. I get that.

I’m still uncertain about how we then revert to the new language, which is the bit that I said hadn’t changed in wording. What is the link back to the amendment that makes that effective on 1 April 2022 or sooner by Order in Council, if the computer system enables it? So I’ve got the first bit—we’re there—but I just want to know whether we’ve actually got to come back and change the law again, or how do we link this new clause to a commencement date given that it’s hard to link back to the previous Act, if I’m making myself clear? I’m not sure if I am.

The member is making himself clear and it’s a clearly made point. So what happens is that on 1 April, clause 8(1) comes into effect, and it says, “Replace section 134(2), other than the heading, with:” those words that are under clause 8(1) in grey scale, after “(2)”. And that’s all that then happens in respect of that particular provision until 1 April 2022, or an earlier date by Order in Council, brings into effect clause 8(2), which says, “Replace section 134(2)”, which by that time will be the one above, and that then has effect going forward.

💬 Hon Michael Woodhouse: Does that have effect in the commencement clause of this bill?

No. No, it has effect from 1 April 2022 because of clause 2(4) of this bill.

We got there. I would just like to clarify what’s actually happening now. There’s two things. The Minister says—and technically correctly—that it would be expedient to wait until the computer system is up and running, but as I mentioned, this was a quite heavy burden for those people who fell into arrears and who didn’t really have great means to pay. Am I correct that, actually, the Commissioner of Inland Revenue does have a power to remit in circumstances and that, perhaps, a slightly long bow could be drawn in order to exercise her powers? And secondly, it was part of one of my first questions, which was: what’s actually happening with the degree to which child support arrears are being incurred? Because it would be quite nice to think that we’re seeing a reduction even before the new computer system takes full effect.

Thank you, Madam Chair. I fear that my pearls may be cast if not before swine, then on non-fertile soil, but to be fair it’s probably just as well if the Minister can’t hear what will pass for questions in this contribution. Honestly, continue, Minister, please, whatever discussion you may be having while I gather my own thoughts.

I did just want to try to understand the way in which the amounts have been calculated. I did acknowledge in a previous contribution that they are relatively small. Again, I emphasise not to trivialise the fact that for some families in the situation it may be difficult to pay any amount. And, in fact, given that we’re in the realm of penalties, that’s almost certainly the case. But I wonder if there was a particular rationale for the calculation of $5 or, if greater, 2 percent of the outstanding amount at that time. I just pause to note the irony that we are passing in urgency a remedial measure whereby, of course, we are in danger of compounding the error by making further errors as a Parliament, and perhaps I should say, more accurately, as the Government, for it is they who introduced it in urgency as part of their Budget package. I do also want to acknowledge that point about the valiant efforts of the Hon Peter Dunne to bring down the system from the inside, libertarian hero that he was!

I don’t know what the history of the $5 minimum was, and maybe its history goes back to when these things were a lot more manual and there was a lot more work to it. I don’t know, but I do know that there’s a policy agreement that is that it’s an unnecessary impediment to people maintaining compliance with their obligations, and the policy rationale is that it’s an unnecessary penalty that actually puts a lot more people in a material way in breach, and 2 percent without a $5 minimum is a better remedy, and so that’s where we end up.

I move, That the question be now put.

💬 Simon Watts: Madam Chair.

💬 Hon Member: Stand up.

Madam Chair—sorry, I was just resting. Look, just wanting to raise a new point in regards to Part 2, and I guess I’m drawing a distinction between the legislative statement—and I refer to the last sentence, where it says, “If not corrected, the drafting error would have sizeable system ramifications for Inland Revenue.” And then I refer to another document which we’ve been provided, which is the departmental disclosure statement, and I refer to page 7. Within that, I refer to section 4.3. The last statement of 4.3 reads, “Not correcting this drafting error would introduce increased risk to Inland Revenue’s Business Transformation programme.” Maybe it’s just me, or maybe I’m misreading, but the legislative statement indicates that this would cause “sizeable system ramifications”—i.e., it is an issue; it will result in that outcome—yet the advice from officials indicates very clearly that this only introduces an increased risk.

I don’t think I need to necessarily define the difference between an issue and a risk, but I think for the people out there that’ll be watching this—and no doubt at 12 minutes past 9 on an evening they’ll be looking at this going, “Well, you know what? That guy makes a good point.” There is a clear distinction, and I’m just wondering—we’re here now trying to amend an error in legislation—an error in legislation which was probably rushed through, that no one actually did the checking on—and the piece of information that’s trying to correct this has actually got another discrepancy, quite a significant one, I guess, if you had the eyes of someone who understands that aspect.

I’m now getting reasonably confused around whether we are dealing with an issue, Minister Parker, or dealing with a risk. I’d really appreciate if you could provide some clarity and, actually, some context, so that you can give me—and I’m sure a number of other members on this side—a bit of comfort around substantiating, you know, what are we actually dealing with here. I don’t think the Waikato District Health Board is dealing with a “risk” of cyber-security. They are dealing with a significant issue, and don’t get me wrong, but there are a heck of a lot of our Government departments out there that are dealing with a lot of risks right now, and that is very, very different to dealing with an imminent issue. I think that is very important for the Minister to clarify. It might be just a simple typo by the officials—I doubt that—but I’d really appreciate a bit more context on that. Thank you.

Thank you, Madam Chair. The new system doesn’t take over child support until November. Therefore, for this issue to be fixed from 1 April 2021, it would have to be done through the legacy system, and the legacy system, as members on all sides of the Chamber know, is very, very clunky and very difficult to change, and is not being changed because we’re sooner moving on to the new system. Therefore, it would create risks to the old system to try to change it quickly, and it would also be a waste of money. That’s why it’s better to do what was originally intended and make this have effect from 1 April next year at the latest, or such earlier date as we do it by way of Order in Council.

Thank you, Madam Chair. My question relates to clause 9, which is Schedule 1 amended, application, transitional, and savings provisions. The question relates to the—and I understand this is probably another timing matter where “The amendments to section 134 made by sections 8(2) and (4) of the Taxation (Budget 2021 and Remedial Measures) Act 2021 apply to a financial support debt if the expiry of the seventh day after the due date falls on or after commencement of section 8(2) and (4) … but do not apply to a financial support debt if the expiry of the seventh day after the due date falls before …”. I just want to ask the Minister whether that’s another of these timing issues which relate to when the different provisions start, having the commencement of 8(2) and 8(4) come into force on 1 April, and I guess that relates to the fact that it goes back from a 27th date with a seventh. So if they had not been due until—if they’d been eight or nine days, then essentially that clock doesn’t start ticking, because at that point they’re only having to be due on the 27th, but then after that time on 1 April 2022, then they have to be within seven days. So just wanting the Minister to clarify that and whether that is a correct interpretation of that particular clause due to the nature of these quite clunky commencement dates and the fact that there hasn’t really been an explanation about that in the explanatory note or in the departmental disclosure statement, and just understanding how all this fits together would be very helpful. Thank you, Madam Chair.

I move, That the question be now put.

The question is that the question be now put.

Motion agreed to.

The question is, That Part 2 be agreed to.

Part 2 agreed to.

Clauses 1 and 2