Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill

Members, the House is in committee on the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill. When we were last debating this bill, we were debating Part 1, the debate on clause 3, “Annual rates of income tax”. This is where the debate on tax rates should take place, but the vote on any proposed amendments to the tax rates will take place in Part 2, which amends the Income Tax Act 2007. Standing Order 352 requires that the annual taxing provision be considered separately. The question is that Part 1 stand part.

We started this debate the other day—Thursday, 21 March—where we had only a very short time discussing some of the matters relating to Part 1 of the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill. That part is, of course, the annual rates debate, which, after a bit of discussion, I went back and looked at the previous Hansards, and it is supposed to be a pretty free-flowing debate on tax rates and on taxation in general. Obviously not every single little detail of taxation, but taxation in general.

I did look at what the Minister himself said on Thursday, 21 March, which he said that he was “Looking forward to the opportunity to have a good, free-flowing dialogue and debate in regards to the tax bill.” So I’m pleased to hear that from the Minister. It’s always—

💬 Hon Barbara Edmonds: Taking up that challenge.

Yes, happy to take that on board, Minister, and go with the flow on this one, and perhaps add to it a little bit.

Also, because there had been a wee bit of a discussion as to how long this debate should go on for, I did check what happened back in 2022-23 with this debate, and I noted that there is quite a number of calls from Opposition members—an extended amount of calls from Opposition members—on what looks like a very small clause but, actually, has quite a deal to do with our annual tax rates. In particular, I saw someone raised a point of order about whether something was relevant. In fact, that someone was me and the speaker in the Chair at the time said it was a very broad-ranging part of the legislation and she did feel some anxiety as we were going over questions again and again, but then she said about how, “I have given members some leeway considering it is a very broad part of the legislation.” And just for clarity, that particular ruling came from Poto Williams, who was in the Chair at the time.

So, having sort of laid out all that groundwork, there is material that I do think we still need to think about in terms of the annual rates. Oh, again, just one last point. I sort of had a look at some of the topics that had been raised. Andrew Bayly had quite a good outing in that previous debate.

💬 Hon Barbara Edmonds: He’s always got a lot to say, Andrew Bayly.

He has. He talked about tax thresholds, trust rates, how tax is used to raise money for roads and education etc., the changes to specific thresholds, the best approach for the economy in terms of cutting services or shifting tax thresholds, tax as a proportion of the economy, the issue is “how do we grow the economy”—so I thought that opened it up quite nicely—and, actually, the hidden economy. Anyway, let’s see where we get to in actually debating this today. I realise I’ve taken three minutes now and I will get to something that’s right on point. Ha, ha!

CHAIRPERSON (Barbara Kuriger): That’s OK. The member’s largely in line with the comments made. We have to be careful about the expenditure of the tax. It is about the tax and the tax rates and the tax types, rather than the expenditure of the tax.

Thank you. I’m pretty happy to take that on board, Madam Chair. I did see the look that you were giving me, so I am—Ha, ha!

CHAIRPERSON (Barbara Kuriger): No, I was listening to you.

It was a very speaking look.

CHAIRPERSON (Barbara Kuriger): I was intent to be listening.

Ha, ha! So I do just want to traverse a particular point, and it comes from the IMF report on the New Zealand economy. The Minister and I spoke about this a little the other day, but I do want to just touch on it a bit again. The report said that New Zealand would benefit from a more efficient, equitable, and sustainable tax system. So I want to direct the Minister’s direction to the tax thresholds in particular, and to get his opinion on whether or not he thinks that they are equitable.

Now, of course, equitable is an interesting word in tax. It’s interpreted in terms of both horizontal equity and in terms of vertical equity. So I’d like to hear what the Minister says about whether or not our current tax thresholds do actually exemplify some form of equity, and particularly in terms of both vertical equity and horizontal equity. Especially given that the IMF has directed us to have a look at that.

Thank you, Madam Chair. Great to be able to continue the call that I took last week, when, I do note, there was quite a lot of interruption from the Government members, who were clearly very keen to debate taxation. I’d like to also pick up where my colleague the Hon Dr Deborah Russell has asked a question about equity, because my question for the Minister, the Hon Simon Watts, is about fairness. It’s a word that we use a lot in relation to taxation. I think all New Zealanders, and certainly all members from across the House, would agree that having a fair tax system is what we’re all after. And certainly knowing that the taxation rates are fair and proportionate to how much people are earning, what their circumstances are, how many dependants they have, and so on, would be really helpful.

Mr Chair, you’d be aware that there was a way that we could have perhaps more transparently looked at the question of fairness, with the Taxation Principles Reporting Act that was introduced by the last Government. Not only did it have the elements of equity, as alluded to by my colleague, but it really broke fairness down into six elements. Again, I’m directing these comments to the Minister because I would like to know if any of these elements have been on his mind when he’s been looking at the rates. Those are things like the efficiency of the collection of tax, compliance, and administration—clearly, when the Government is collecting taxation, it needs to be able to do so in a way that minimises the compliance burden for business. We’ve heard a lot about that. I certainly knew about that when I had my own small business. There needs to be integrity of the tax system, and certainty and predictability. And that’s a really fundamental principle—of course, universally accepted—that it would be most unfair for people to embark on business ventures and enterprise without understanding with some certainty the level of compliance they need, but also the level of taxation that they would be likely to expect to contribute.

So there’s an element of predictability, but also to be flexible, because there are often, as we know, unusual circumstances, perhaps natural disasters in countries like ours or things that happen offshore to currencies and so on, that require quick and nimble changes to the taxation system. So there does have to be a degree of flexibility, and also to understand the nuances of different groups of people within different tax bands—so taking into account that not everybody earning the same amount of money is in the same context, so therefore there needs to be some flexibility around that, and, of course, adaptability, so that the tax system can move with the times. Clearly, we’ve seen even, for example, last year with GST collection, there was a streamlining of the way businesses were able to produce their invoices, which meant that they were more able to be done easily by the digital invoicing systems that were available.

So, when I look at these six tax principles, they seem like a really good, fair way of shining a light on what the Government’s priorities are when it is setting its taxation rates. Certainly, if that statute had stayed in, there would have been a requirement for the Commissioner of Inland Revenue to aggregate the data and to report on it, so that all New Zealanders would be able to understand what is meant by tax fairness—that fundamental question—because we know that, when people know the tax system is fair, they are much more likely to comply with it, and they’re much less likely to try and evade or avoid tax. But, sadly, that Act was repealed. So now we really just have these notions of equity that Dr Deborah Russell referred to, and now my questions around efficiency, compliance and administration, integrity, certainty and predictability, horizontal and vertical equity.

Which of these different principles has the Minister turned his mind to? And how has he been able to make those assessments in the absence of having some kind of written data on them? It would seem, to me, that would have been a really helpful thing to have. I’m sure that the Minister is concerned with fairness, and so, as we look at these tax rates, I’d like to know, in the absence of that, how he was able to address those questions. And a broader question, really, to enlighten us: what does he think of when he thinks about tax fairness in the system? It is a really relevant question at the moment. There’s been a lot of commentary on it in the media. There’s been a lot of political discourse.

Certainly, as we move into questions like interest deductibility and brightline tests, I think having a baseline understanding of what the Minister calls to mind and the criteria that he thinks of when he is looking at fairness in the taxation system—what is it that he bases that on, and what advice has he had from officials and from other groups as to how to make determinations around fairness? Has he taken advice on any one of these particular six universally accepted criteria?

Also, has he considered the report that came out prior to that legislation that was eventually repealed, which was the high-wealth individuals research project, because that revealed a startling disparity between the effective tax rates by the super-wealthy compared with other New Zealanders. And so, if I recall, there is a discrepancy of most New Zealanders paying an average tax rate of something like around 22 percent versus around 8 percent for those who are super-rich.

So my third question to the Minister is: has he actually read that report? It would be really good to know if he has read the high-wealth individuals research project, which did lead in part to the legislation and to bringing those six principles of fairness into our legislative system. If he did read that report, what are his views about that report, and did that have any influence on the attitude and approach that he has now to the taxation rates? Did it cause him to stop and think perhaps maybe there should be adjustments? And does he see any merit in being able to get more concrete data? Because we know that taxation information, in the absence of having real data, is done through a series of assumptions about up taxation. What assumptions does he rely on in order to be able to make these value judgments about what’s fair?

So I’ll leave my questions there for the Minister. I’m very keen to get an answer on each one of them.

Thank you, Mr Chair. What we’re dealing with in this part of the debate, just for those following along at home, is Part 1 of the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill. We’re dealing particularly with clause 3, which pertains to income tax rates. This is really important to lay out, because the substantive part of the debate and discussion will come in at Part 2, where we are dealing with the interest deductibility changes for landlords that have been in the headlines recently.

With that context, as laid out, I have a few questions which I’d love to get the Minister of Revenue’s response on, particularly because what we’re seeing with the Amendment Papers in the Minister’s name are amendments primarily to Part 2 of this legislation with regard to the commitments that were made throughout the election process and that we’ll obviously see reflected in the upcoming Budget in May. But my question to the Minister is: why is it that an Amendment Paper was used to manifest those commitments from the election as a precursor to the Budget with regard to tax deductibility, but not those changes that relate to income tax changes? This is a really salient and important point, because, obviously, an Amendment Paper, particularly one that proposes quite substantive changes, has not been before a select committee process, and this bill largely operates retrospectively because, of course, for those, again, following along at home, it was introduced by the last Government subsequent to the last Budget.

So what we’re dealing with here is a vehicle, a piece of legislation which was supposed to operationalise the changes in Budget 2023, but what we’re seeing is that the Minister now, at committee of the whole House stage, is making amendments through a Supplementary Order Paper—now titled an Amendment Paper per Standing Orders changes—which are primarily related to those interest deductibility changes, I note, but why is it the case that the Minister is picking and choosing where he’d like to see those changes made, as Minister of Revenue?

So that direct question to the Minister is: why is it that the Government chose to use the vehicle of this Amendment Paper and this committee stage on this bill to make those changes to interest deductibility per Part 2, but are not going through the committed to income tax changes in Part 1, which we are, again, likely to see reflected in the Budget, which again we’ll also see be the case with the $2.9 billion-odd that this tax deductibility for landlords change will bring about?

Thank you very much for those questions. I’ll work my way backwards in order.

The first one from Chlöe Swarbrick in regards to the Supplementary Order Papers. I mean, the reality is that we have a very busy programme within the coalition Government, in the large number of actions that we are working our way through, and the decision around the way in which we wanted to proceed those through the House is a decision that we have made. The personal income tax changes that we have signalled very clearly that we are going to make are subject to the Budget process, and hence will be coming through that process. The other aspects from our assessment were appropriate to go through this bill, and we’re comfortable with that.

The first question from the Hon Dr Deborah Russell in regards to the IMF report: we last had a discussion in the committee of the whole House around this report quite extensively, and there’s not much more I want to say in regards to that report, other than the report did indicate that there needs to be a significant focus around Government expenditure, and ensuring that the Government expenditure is appropriate and that’s the something that the coalition Government are working through.

A question from the member Ingrid Leary in regards to fairness, compliance tax principles, and also the high-wealth individuals research project—have I reviewed that report? Well, the member will be aware that in the prior Government, when that report came out, there was a lot of questions about that. In my capacity as a MP, I requested the Government of the day to actually get the IRD in to explain that report, and the methodology and ideology that was used to prepare it, and that was voted down and declined by the Labour Government. So, I think, for me to—sort of—have more questions around that report, that maybe gives you a sense of where the prior Government thought the quality of the report was.

In regards to fairness and other aspects around tax principles: again, if you look at my Hansard from the Taxation Principles Reporting Bill, which is in the context of the conversation we are having today; again, my Hansard in regards to views around tax principles are well documented. In regards to the compliance aspects, one of the clear priorities that Inland Revenue are working on under this coalition Government is a focus on ensuring that the reduction of taxpayer compliance costs, and the burden of compliance that faces tax payers and reducing that burden is a key area of focus for this coalition Government; I’m looking forward to seeing that coming through.

Just before I take the next call, I’ll just optimistically remind members of the change in the way we do business. Certainly, while I’m in the Chair, I’m very happy to accommodate short, sharp questions to the Minister, aware that it takes two to tango—if we can try it, and see how it works. Otherwise, the members are free to do their own calls. The Hon Barbara Edmonds.

Mr Chair, I will try and heed to that by providing the question first, and then going through the analysis as to why I need that clarification, if I can indulge the committee.

So, for members of the committee, we are speaking in relation to clause 3, Part 1 of this particular bill. My question that I want to clarify is that clause 3 provides a cross-reference to Schedule 1. So, if you look at Schedule 1, as part of this bill, it doesn’t actually set out the income tax rates, because it provides a reference to another part of the Income Tax Act. But I just want to clarify that it was a purposeful intention by the Minister of Revenue and instructions to his drafters that it was not to include the different tables in Schedule 1 of this amendment bill. The reason why I need to ask that—and while the Minister is seeking advice on that—is that it is actually illegal for the Crown to levy money on its subjects without Parliament’s authority. It must be done either by primary legislation or regulation, which is how we’ve gotten to this point here in the House.

As many of the members of this House know, revenue is the income earned by the Government, basically, as a reporting entity, as defined in the Public Finance Act. Revenue can be derived from a number of sources. For taxation purposes, that includes income tax, goods and services, excise duties, ACC levies, other levies, and miscellaneous payments, like child support payments. That’s unless the Income Tax Act actually excludes that within the definition of “income tax” for the purposes of the legislation.

I just want to point the committee to the Regulations Review Committee, which had actually endorsed the Australian courts’ definition of a “tax” as any levy that is compulsory for public purposes and is legally enforceable. That’s why I ask: why was the Schedule not repeated in this particular amendment bill?

If we go back to the history of when income tax was actually introduced, it was introduced in New Zealand around 1 April 1892. The technology of the time was refrigeration. Basically, we had just got the technology of being able to export goods through refrigeration. So it is quite a longstanding provision, since the late-1890s, that the Parliament needs to be able to approve that particular schedule.

Many members will know an income tax year runs from 1 April to 31 March. So, therefore, that’s why we are going to be sitting in extended hours to try and pass this bill, because it has to be done before 1 April, and that’s in order for the Government to, basically, receive its revenue for the past income tax year of 23-24.

So that’s why I wanted to just set out a little bit of the history, just to clarify that, for drafting purposes, it is intentional by this Government—and, I’m sure, probably other Governments have done it; I just want to make sure that they have excluded the Schedule 1, they’ve excluded the table of what the actual tax rates are from this particular bill, because I can’t find it in the revised track version that’s been reported back from the committee.

Apologies to the Minister if it is actually in the Minister’s Amendment Paper; I haven’t had a good chance to be able to have a look. I’ll quickly have a look now, clause—nope, nope; still not in the Schedule in there. So I just want to ask the Minister if he can just clarify that it is usual or it is a normal drafting approach to not include the Schedule in the annual rates bill, and, rather, that it is more of a cross-reference to where it actually is in the greater Act, given that there is no particular change to it. So if the Minister can provide a clarifying answer for that, I would be very grateful.

Mr Chair, thank you. It’s great to be able to take another call on this, because there is a lot to discuss in this rather small part of the bill. Look, I’m just going to endorse what my colleague the Hon Barbara Edmonds has said, and I just want to pick up on something the Minister was saying, which was that the Government has had a very busy legislative programme, which was why this particular bill has been left pretty much to the last moment.

But it does worry me, because we do need to have this debate on the tax rates—it’s an important constitutional part of our process—but it has been left to the last moment. Now, the Minister of Revenue has said that it’s because of the busy legislative schedule, but I’m curious as to why, given that this is a constitutional necessity that we have this debate on Part 1, on the annual tax rates, the Minister didn’t consider splitting that out into a separate bill. It could have been done. It could have been done as a separate debate entirely on its own, as a bill that was just the annual rates bill for 2023-24. Instead—and this has been a pretty usual practice—that particular clause has been included in another tax bill.

So if there was a real urgent need, and there is now an urgent need, to get those annual rates through—and it’s on that Government if it doesn’t happen. If it does—you know, perhaps we’re all going to be here through until Thursday night, between us.

💬 Hon Member: We can’t sit on a Friday.

We can’t sit on Friday. So I want to know why the Minister hasn’t considered taking the very sensible and reasonable precaution of splitting out the annual rates clause—just one clause—putting it in a separate bill, and at least being sure that that particular bill would get through. Of course, that would have enabled us to have added quite a bit more time to look at some of the changes in the other parts of this bill. So, Minister, if you could clarify why you didn’t just take that rather sensible course of action?

Thank you, Mr Chair. My questions for the Minister of Revenue are about clause 3, in Part 1. There are 10 of them, and I will ask him the first two now. What proportion of all taxes will be levied from the taxes imposed by section BB 1, “Imposition of income tax”, of the tax Act 2007? And the second question is: what proportion of all taxes will be levied from personal income tax, corporate tax, and goods and services tax for the 12 months to June 2024 period? My reason for asking those two questions to the Minister now is that I need the answers to those before I can ask the next five questions.

Thank you, Mr Chair. It’s probably a much briefer question, this particular question. It’s around actually how much tax the Minister is forecasting to collect for the 2023-24 year. Again, the reason why we’re here for this bill was to be able to confirm those tax rates. I note from—I think it’s from—the Inland Revenue annual report that—I think it was the 2022-23 year—we were looking at around $56 billion through individuals, $18 billion through companies, $3 billion through resident withholding tax, $28 billion through GST, and $7 billion through other. So just to make the point that individuals have paid $56 billion worth of tax, which has been confirmed by previous annual tax rate bills. So my question is a really brief question to the Minister: can he please provide a breakdown for what the forecast amounts of tax that will be collected for the 2023-24 year, which this bill seeks to confirm?

Thank you very much. Following on from that question from Barbara Edmonds, because it fits neatly within my line of questioning to the Minister of Revenue, I would seek to ask the Minister another question before I ask the next five questions, which is: how much, as a proportion of what the Government is forecast to spend in that period which my colleague Barbara Edmonds spoke to, will go to health, education, social security, and welfare payments, of which the largest cost is the New Zealand Superannuation Fund? I ask that because I’m seeking to understand, of a proportion of the taxes levied under those three major taxes, how much will go to core Crown spending.

Thank you very much, Mr Chair. I’ll work my way through the questions that have been asked. In regards to the question, firstly, by Arena Williams, in regards to how much tax was collected, if you just bear with me, I’ll give you the overview—and this is for the year ended 30 June 2023. Core tax revenue was $112 billion, or 28.4 percent of GDP, made up of individual tax of $58 billion, which is 52 percent; GST of $28 billion; corporate tax of $20 billion; and customs and excise of $7 billion.

In regards to the question from the Hon Barbara Edmonds in regards to clause 3, in terms of the whether Schedule 1 is normal, and the point of clarification. I can reassure the member that this is a normal process. Clause 3 is correct in setting out the rates for 2023-24, in line with those currently in Schedule 1. As the member will no doubt remember—those very heavy income-tax legislation books that one used to carry around when in practice—the annual rates are set out in Schedule 1 of the Income Tax Act 2007. So we can have a look at that if we wish.

In regards to the question from the Hon Dr Deborah Russell, in regards to the idea around maybe doing a separate bill, we have to disappoint the member to say that we won’t be doing a separate bill for that portion. As said, we’ve taken a decision around including interest deductibility as part of this bill. It was something that was well signalled and well campaigned on. It’s actually just simply a reversal of the decision made by the prior Government. I won’t get into the rationale, or that around that, it’s simply that this coalition Government campaigned on reversing that, and we have delivered that—that is, in effect, simplistically, going through this piece of legislation. There will, obviously, be a further piece of legislation as part of the Budget process, which will deal with the other components that I discussed with the other questions that I noted around the personal income tax rates.

Thank you, Mr Chair. A brief question to the Minister of Revenue, given his answer, about confirming that for the 12-month period to June 2024, it is forecast to raise $112 billion: why is that different to the forecast to raise $122 billion, and what is the difference between the forecast and the number he has just given the committee, and why is it different?

I appreciate the ability to, potentially, pick back up the line of questioning that I previously had with the Minister of Revenue here.

So we’ve just heard that the Minister was saying that the reason as to which we have the Supplementary Order Paper—or, rather the Amendment Paper, as it’s now titled—in his name, with regard to tax deductibility is that these promises were well campaigned on and well signalled early on. Yet we’re still left with a situation whereby we know that the promises as were made at the campaign have blown out, in reality, to the tune of a better part of a billion dollars. So I think that the question remains outstanding to the Minister: why is it the case that these changes to tax deductibility are not due public scrutiny, meanwhile the well-signalled and well-campaigned-on signalled changes to income tax rates are not also included with an Amendment Paper?

I’m just here trying to tease out the lack of logical consistency from the Minister, because we’re hearing, on one account, that the changes to tax deductibility were campaigned upon and, therefore, they deserved to be in this Amendment Paper and bypass the opportunity for a select committee process and public participation in legislative processes, but changes to income tax rates, which the National Party, the ACT Party, and New Zealand First also campaigned on, somehow are not due the same level of bypassing that legislative process and, therefore, the public scrutiny as due.

So, I guess, I just have a few things to unpick there. The first is that question to the Minister: what’s up with the lack of logical consistency? The second question to the Minister is that he just said that—and he’s aware—the tax changes per clause 3 in this bill as we’re currently debating under Part 1 are subject to Budget processes. But why is it the case that the tax deductibility changes for landlords are not subject to those Budget processes? Again, a secondary point to this one of logical consistency. Why is it the case that these interest deductibility changes are considered to be able to bypass the select committee process, while it’s the fact that income tax changes are going to be subjected to the next iteration of this legislation, following the May Budget?

The second sphere of questions that I’d like to probe is a very specific one about whether the Minister received any advice whatsoever from officials that progressing in the way that he has chosen to with this Amendment Paper has meant that he has received advice from officials that there is a degraded quality of legislative standard.

Thank you, Mr Chair. I just want to look at Part 1, clause 3, and talk about some of the basic assumptions in it, because this, as I understand it, is the clause that will mean that New Zealand taxpayers are compelled to pay taxes at the rate set out in the Schedule. I wanted to know from the Minister whether he considered the implications of the work that was done when we were looking at the high-wealth individuals and the amount that people were being taxed at, about the way that money churns in high-wealth individuals’ accounts.

My understanding was that the findings of that inquiry were that people who had a lot of money weren’t actually drawing an income at these higher levels and paying tax at these higher levels, because it didn’t actually crystallise as income at any time. So they were taking the money that they were gaining—when they were buying a property, for example—and buying a business. And they were simply pushing that back into a situation where there was no income, so they were consistently reporting low profits. And so they actually don’t show up as an income.

So we’ve got people here—say they’re on $180,000, and so they’re earning really good money, but they’re paying every dollar in tax that is in this section, and they are doing their bit in terms of their contribution to the economy. But you’ve got a whole lot of other people who are way, way wealthier, and they are actually earning money. In the same time period, the money’s going up exponentially more, and yet they’re not paying any money on it, because they’re sinking that money straight into businesses or property, where, in fact, it’s recognised as a loss, not a profit. Meanwhile, their piece of the pie grows and grows and grows, and taxpayers are not produced by that process, so the rest of us end up forking out for all the services that taxes pay for, and that group actually ends up with an effective tax rate that is so much lower than anybody else’s, because they simply never crystallise an income out of it.

So I’m really interested to know—and I know somebody else asked the Minister whether the Minister had read the report, but I’d like to know what the Minister thinks about this and whether we should be settling a schedule that doesn’t recognise the real income, because, for ordinary New Zealanders, they would actually see that as income. They would see that growth—that constant growth—of the amount of wealth earned as income. If it happens in a financial year that your wealth goes from $1 million to $2 million or your wealth goes from $5 billion to $6 billion, you’d expect to pay the same rates that are in here, and yet there’s nothing being paid at all. So what’s the logic for doing that, and what are the Minister’s thoughts about that issue in that particular report? Because I fully expect that the Minister will have read that report. So I’d really like to know what the thinking is here. Is that something that is going to be done later? Is it something that the Minister doesn’t think is fair?

Actually, am I not seeing something here that there’s some sort of gain our society gets that is of a different kind? What’s going on here in terms of the logic behind setting rates for New Zealanders? Because some of those New Zealanders will be on those lower amounts and it will particularly matter to them, because they’re paying amounts of 30 percent, for example, if they’re at $70,000 and, yet these individuals are paying—my understanding is—under 10 percent, 8.9 etc. Again, the Minister’s comments are welcome on what the effective tax rate is for those people and what the learnings are from that study and whether the Minister agrees with that study and can see this, within this context, as something that’s a work in progress or what’s going on. Thank you. I’d value the comments.

I have a number of questions now, based on things that the Minister in the chair, Chris Penk, has said, but in the spirit of keeping things a little bit short and sweet and getting an answer from the Minister, I do want to go back to this idea of splitting out the annual rates, because it strikes me that there’s a real risk here. There is a substantial bill here that we need to discuss at the committee stage—a really substantial, original bill sitting here. There’s a lot in here that we will want to talk about. But, on top of that, there is a really substantial Amendment Paper—it’s 39 pages of Amendment Paper—so there’s a lot for us to talk about. Of course, the Amendment Paper is stuff that hasn’t gone through a select committee, so there is a lot that we will be wanting to talk about, as the Opposition, and getting clarification on, and that does put the annual rates bill at risk.

Now, there is a limited amount of sitting time in this House until the long weekend. You know, Monday is 1 April. Now, for this bill to go through this House, it needs to get through the committee stage, needs to get through the third reading, and it needs to get the Royal assent, all before 1 April. We’ve got Tuesday, Wednesday, and Thursday in this House. Now, there’s a lot of work for us to get through. I know I’ve got about three pages’ worth of questions that I want to ask during the committee stage—I’m happy to share those out with my colleagues. But, you know, I am very serious about this. We are at constitutional risk; that Government is at constitutional risk. It needs to think really hard and really quickly—now—about whether or not it ought to split out the annual rates component of this bill. If it’s not prepared to do that, what is its contingency plan? The responsibility is the Government’s. I’d like to hear how the Government is going to take that responsibility up.

Thank you, Mr Chair. I’d like to ask the Minister in the chair some questions about the average tax rate. We have heard about that in relation to high - net-worth individuals paying 8.9 percent versus an average annual tax rate of around 22 percent.

When I look at the thresholds, they seem to follow a logical sequence. So we know, for example, people earning between $0 and $14,000 pay 10.5 percent. At the top end, those on $180,000 and above, they pay 39c in the dollar. And there are kind of incremental jumps in the band, so it goes 10.5 percent, 17.5 percent, 30 percent, 33 percent, 39 percent. That will be very familiar to a lot of people, I’m sure.

We know, for example, that, sometimes, people will try to stay within a tax band, because if they earn too much money, they might want to reduce their hours, because otherwise they’re going to jump up into the next tax bracket, and, actually, it sort of shoots them in the foot. So that has been one of the arguments that has been levelled against increasing wages, although it doesn’t generally play out, because usually those who are needing higher wages are not anywhere near the top of their bracket.

But to the Minister, when we look at the average tax rate in those bands, it follows a different pattern. So if we look at those who are earning $50,000, who pay an average tax rate of 16 percent, there’s a 5 percent gap between them and those earning $75,000, then a 3 percent gap between those earning $75,000 and $100,000, a 1 percent gap between $150,000 and $180,000, and then a 3 percent gap between anyone up to $250,000.

Now, my question is: why are there incremental jumps on average tax rates of around 3 percent, 5 percent, but between $150,000, where the average tax rate is 27 percent, we jump to $180,000 and it only goes up to 28 percent? So how does that seem fair or equitable? Is there something in the way that this jumps incrementally that I’m missing, or is the average tax rate just a pure consequence of the application of the thresholds?

What I’m trying to fathom is whether average tax rates have actually been considered by the Minister and by officials. Have they looked at the thresholds, looked at the increments, done the maths, and extrapolated it out and realised that there is this tiny 1 percent gap in quite a significant salary gap between $150,000 and $180,000. It may be historical, it may be something that the Minister has inherited, yet if the Minister was diligent in looking at the average tax rates and looking at the thresholds and answering questions around fairness and equity, which have come up, because at the moment we don’t have a common way of understanding what is fair and equitable, then I would like to know what is the algorithm that has produced this? Or, if the Minister is really honest, is it just that the average tax rates kind of end up like that and no further thought has been given, because that’s how they’ve always been done? Keen to get an answer to that.

Thank you, Mr Chair. I do want to ask a question to the Minister in relation to an answer that he provided as part of my questions around the forecasted tax collected for individuals, because, if I heard correctly, when I said I think it was $56 billion for the previous income tax year, the Minister responded that the forecast was going to be $50 billion. If that is correct, I want to ask the Minister how much of those individuals—because almost half of the total tax collected is actually just via the collection of individual taxes; so wages and salaries. How much is the Minister expecting tax transfers such as Working for Families—how much is he expecting Inland Revenue to be paying out to those individuals in the sum of a Working for Families entitlement, such as an in-work tax credit, the family tax credit? The reason why I am trying to just distil from the Minister is that it’s quite clear that individuals do pay the bulk amount of tax in our country—individuals, through wages and salaries. I just want to understand how much of that do they actually get back through a tax transfer such as Working for Families, and then I probably will have another question to the Minister as a response to his response.

Thank you, Mr Chair. I didn’t get a response to my previous line of questioning and noting that the Minister has now manifested in another form, I will try once again but perhaps articulate these as coherently as I possibly can, to lay it out for the Minister in the chair. So there’s three key questions that I would really like an answer to here.

The first is the one of logical consistency. Just to foreshadow this argument, we have an Amendment Paper on the table which addresses changes to tax deductibility for landlords. We do not see the same promises that we were signalled throughout the election campaign put in here, with regard to the income tax changes.

So we’ve heard from the Minister, previously, that this is because these changes around tax deductibility were signalled at the election, yet the same could be said of those promises when it comes to income tax rate changes so, again, that logical inconsistency is abundantly apparent. I’d like the Minister to address it.

The second point is that the Minister said that tax or income tax changes are subject to Budget processes. But, of course, that remains the case—if the argument is to be consistent—for these tax deductibility changes, where the Government has to find $2.9 billion to pay for their tax deductibility changes for landlords.

So the first one is on logical consistency: why is it the case that we have an Amendment Paper that allows the bypassing of the select committee process and of democratic engagement on tax deductibility for landlords but they’re deciding not to go down that route when it comes to income tax changes. I’d make the side note that the Greens think that neither of them should bypass that opportunity for public input.

The second question is: are we to take this as a signal that the Government can say, whenever it wants, that it campaigned on something and, therefore, it is able to bypass the select committee process—the democratic processes of this institution?

The third question, which I believe bears reiterating, is whether the Minister received any advice, with regard to this Amendment Paper and making amendments to this bill at this stage, when we’ve been through the select committee and where these are substantive changes about legislative quality? Did the Minister receive any advice whatsoever that making changes at this late stage, through an Amendment Paper, will impact legislative quality?

So just to reiterate, and hoping for responses from the Minister here—logical consistency: is this a signal about the Government choosing to not engage where it believes that it’s won the mandate at the election? Thirdly, has there been any advice on legislative quality through using this Amendment Paper vehicle?

Thank you very much, Mr Chair. Can I acknowledge those who have been contributing to this debate very diligently. I have had the benefit of hearing a bit of the discussion around the place. There seems to be very good and serious questions that are worth addressing.

The first and last of those, in the time that I’ve been in the Chamber—thank you, Ms Swarbrick—taking within your contribution that those three in the order that you’ve provided them. As to logical consistency, I understand the point that you’re making, and I also take your point that from the Green Party perspective, you would have us do neither of those things, and you ask why the National Party does not do both of them. But I think, nevertheless, the fact that we can do a thing, and that we consider that there is a democratic mandate for doing both of them, but, nevertheless, we can only do a certain amount at one time.

I’ll stay on your various points—just to acknowledge the point that the Hon Dr Deborah Russell had made about the danger of us going all the way though to Easter weekend, and, more to the point, up to or beyond 1 April. I think if we were still going on this Friday, it wouldn’t be Good Friday, it would be “Great Friday” from the point of view of people who like debating tax. But I’ve certainly got better plans, and I hope you do too.

💬 Hon Members: Ha, ha! Go on, go on.

I’m on my own. There are a lot of tax experts in the Chamber, and I’m not one of them. So, as to logical consistency, the fact that we could, on the basis of our argument, do both those things, but, nevertheless, we’ll do one but not both, just reflects a little bit of the constraints of time. The philosophy is really that we’re going to maximise the gains for New Zealanders. We consider these to be in the best interests of New Zealand overall, and of course, we’ll do what we can as quickly as we can. Noting, of course, that in the case of changes that we campaigned on as a matter of public record, and therefore democratic legitimacy, by reason as a result of the election; that’s why we’re going ahead with what we are.

As to the Budget processes, again, I take your point, but also, it’s the case that where decisions are able to be brought forward before the end of May, again, recognising the significance of 1 April, the tax or the calendar year, and the significance for people who need to, you know, make arrangements accordingly on 1 April—that’s why we’re doing some things and not others by that date.

As for advice regarding the Amendment Paper: I think it generally would be acknowledged as true that legislative quality is derived from a number of different factors. Yes, time spent in the committee of the whole House stage is one of those factors. At the same time, where matters are reasonably clearly able to be articulated have been thrashed out—I’m noting that the original version of this bill dates back some time, ahead of the election, and, therefore, we can have a bit more comfort in that sense about the certainty of what is in front of us. That will enable us to focus more energy and effort on the matters within the Amendment Paper, which, of course, are narrow, as have been a part of the whole.

In terms of the comments made by Helen White, I think she is articulating the difference, of course, between wealth and income. She’s asked if any work is being done on that, and if different options or discussions have been presented. Of course, in the case of her own political party, that’s a process that they have signalled that they’re going to do, and I wish them well with that. I look forward, greatly, to hear the outcome of those deliberations. For my Labour friends, they might want to talk to my Green friends, and see if they can’t come to something—

💬 Arena Williams: You are sitting in the chair as a Minister of the Crown.

—in the same space. But for now, sitting in the chair, representing the Crown, I would say that that’s not a distinction we’re keen to break down at the moment. We don’t think it makes logical sense. There is a good, rational basis for regarding as different income versus net income. Obviously, in the usual way that is understood deducting expenses. I’d suggest that that high-level philosophical discussion is one that the member herself may wish to engage in, but it is not something that the Government has appetite for, and certainly not within the ambit of this bill.

As of the comments of the Hon Dr Deborah Russell, I’ve noted, of course, that as she rightly highlights, we’re under some time constraints, but that’s why the House has taken the measure that it has; by allowing additional time tomorrow morning, if need be. I’m personally confident, based on, you know, the history of these things, in terms of how long it takes to thrash out these arguments as fully as I think we’re doing now, that we will be done in time. But, if not, I’ll be eating not only Easter eggs but also humble pie come the weekend.

Finally, in terms of the comments by Ingrid Leary regarding tax rates, and, obviously, describing the progressive nature of the tax system, you know, she’s articulated actually, I think, quite a good argument, if one were inclined to make it, for a flatter tax system, noting, quite rightly, that going from one bracket to another by earning more income arguably has that disincentive. I mean, there is a historical element in terms of where the rates have arrived at, but also, it is obviously true that we need to put the line in the sand somewhere. This is where the Government considers the line best be drawn. That’s why these particular figures, these particular thresholds, are in the bill in front of us.

I just will remind members that we did stray into Part 2 there, and it is important that we context—if we’re going to go there, make sure we context in relationship to what we’re talking about now.

Thank you, Mr Chair. I have an amendment in my hand to save the Minister in the chair from eating humble pie. It is an amendment which seeks to split out the bill and ensure that this part which we are discussing now would be treated as its own separate issue. It is largely agreed, though, that this side of the House has questions, and once we have used this committee of the whole House stage to thrash those out, it would be entirely appropriate to conclude the debate if it were split out. So I will photocopy off some copies shortly and deliver them to members on the other side. That is the process part of my speech.

I’d like to use the rest of my time to ask further questions that I have for the Minister. I did my sums as he was giving out the numbers on the amount of personal income, corporate tax, and goods and services tax as levied, and, according to my calculations, over 90 percent of the total tax take would be generated by those three areas. I needed those numbers because my questions relate to whether that represents an efficient way for the Crown to levy its core revenue. My colleague Helen White has made some points around this, but there are some specific questions that I have for the Minister about the agreed sort of tax principles that, in New Zealand, tax practitioners use to talk about how efficient our tax system is, because we generally, around this House, all want our tax system to be efficient and to support broader economic outcomes, and all taxes, to some extent, influence behaviour. So we want to make sure that the compliance costs are low on those who interact with the tax system and that the compliance costs, in themselves, are not influencing behaviour in a way that we would not predict, and then the tax levies that have been set in section BB 1 of the Income Tax Act, clause 3 of the bill that we are debating now, do not create the wrong kinds of incentives for people.

So I want to ask the Minister: given that 90 percent of the tax take is generated by those three taxes, and that represents—what I presented to the Minister was $122 billion in Crown revenue, but he counted $112 billion, and we will ask some follow-up questions about that. But given those numbers, has the Minister considered whether over 50 percent of the tax take being from personal income, and 90 percent of the tax take being from those three taxes—the implications for horizontal equity within the system? What advice has the Minister considered about whether the level of horizontal equity in New Zealand’s tax system is appropriate, given the IMF’s recent findings on that and the comparison to other OECD countries where New Zealand stands out as having a reliance on taxation on personal income?

The second question within that is around the efficiency of the overall tax system. Whatever one thinks about equity within the tax system, we all agree that it should be as efficient as possible, and given that you probably could not describe that as the broadest base in New Zealand possible, is it appropriate and is it the most efficient way of levying tax? Has the Minister considered that, and what advice can he bring to the committee that he has had on that principle?

The next question I have is about the vertical equity. Has the Minister considered whether the rates proposed represent the most vertically equitable way that the taxes proposed in clause 3, Part 1 are appropriately balanced against the principle of vertical equity?

The next question is about whether the Minister has sought advice on the revenue integrity. This is about whether those costs of compliance that I spoke about earlier are appropriate, given these new rates that are being levied.

My next question is about specifically those compliance and administrative costs—whether anything will change, given these new rates.

My next question is about certainty and predictability. Does the way that this law is being introduced represent certainty and predictability for people who are being levied?

And my last question is around the principle of flexibility and adaptability, also given that the way this law is being made—has the Minister sought advice on whether it is appropriately flexible and adaptable to create the kind of tax system which works for people who are income earners and who pay GST through the goods and services that they buy within our economy? Thank you.

Mr Chair, thank you. I want to thank the Minister for his good-hearted response around the contingency planning. He will be eating humble pie—he will be. So I do suggest that he takes up my colleague Arena Williams’ very—you know, it’s really good of her to do that work to provide the contingency that that side of the House is not prepared to. So thank you to my colleague Arena Williams for doing that.

I just want to go back to some of the issues around the income tax scale and the sources of income tax. My colleague Helen White raised some very good points about how the Income Tax Act does not tax all income. In fact, a whole lot of income is simply left out of the Income Tax Act, and I guess that points us to some name changes we might suggest for the Income Tax Act in the final stages of this debate when we get to it on, you know, Friday night. However, aside from that—

💬 Hon Barbara Edmonds: There’s a Standing Order about that; we can’t sit—

Oh, we can’t sit—well, it’ll be Saturday morning then, won’t it? We’ll all be back here debating tax on Saturday morning. Look, I want to go back just to reference that IMF report again, because it does point to both what Helen White talked about and just one of the issues around the Income Tax Act. It talks in the IMF report about mobilising additional revenue in response to long-term fiscal challenges. Now, the Schedule 1, as it sits at the moment, changes nothing. It changes nothing. Now, of course, the Amendment Paper does introduce some changes into Schedule 1, which we’ll debate in Part 2 of this debate, but it changes nothing. Now, that leaves a consistent worry about one of the other objectives of the tax system, because one of the objectives of the tax system is to raise sufficient revenue for what the Government wants to do. It’s a longstanding objective of a standard way of judging tax systems: do they do what they need to do, which is to raise sufficient revenue for Government?

So we’ve got sitting here in Part 1 confirming the tax rates that are sitting there, and there is no change to them. In fact, coming up in the next part is a substantial change to who pays tax in this country, but none of it is addressing those long-term fiscal challenges of where we raise revenue from. So I want to know what work the Minister has been doing with respect to ensuring the long-term sustainability of our income tax system. It’s the kind of question we don’t get to talk about very often, but this is the place to do it. So I would like to hear from the Minister just what advice he might’ve received, what queries he might’ve put in place, what discussions he might’ve been having with officials around the long-term sustainability of our tax system, as signalled in the IMF report, as signalled in the Treasury briefing to the incoming Minister this year. There is a challenge there; this Schedule doesn’t address it. Where is it going to be addressed?

Thank you very much, Mr Chair. Can I just acknowledge the work of Arena Williams but also the Hon Dr Deborah Russell for preparing an amendment that would split the bill. On behalf of the Government, I guess, we could do a deal, which is to say that if we need to do that and we’re not finished in time for the Easter weekend, then we’ll contemplate that. I’m sure that that will be given just as much consideration as Opposition Amendment Papers always have had in the committee of the whole House stage. I would just say, Easter is a time for miracles. So all the best.

As for Ms Williams’ points around compliance costs, we do think that the degree of breadth is appropriate. We think that there is, you know, horizontal equity, to use her very elegant phrase, for that discussion. Of course, there are different philosophical or policy approaches in relation to tax—it’s famously an area in which world views may dictate an approach, albeit that certain fundamentals, I think, are broadly agreed in this country, and we should be pleased about that. But to her point around the question of what might change and how we weigh up the sometimes competing values of certainty and predictability, on the one hand, versus flexibility and adapt—adaptability on the other. I’m just trying to adapt my tongue to that phrase. I think that the bill that’s before us represents a willingness to be flexible, a willingness to adapt—specifically, to respond to the mood of the electorate, as expressed through the general election, but also to provide maximum certainty that, obviously, we need, in time for the tax year that is upcoming: a known set of circumstances, a known set of tax rates, a known set of mechanisms, such as this bill does achieve.

In relation to the other point that the Hon Dr Deborah Russell made about whether anything will change, I can do no better than to highlight the advice of noted tax specialist David Brent that everything will stay the same if nothing changes, quite literally. I think that, therefore, we can say things need to change further than what’s within the bill—obviously, such changes would be outside the scope of the bill, by definition. But the objective of the tax system, as she described, is to raise sufficient revenue for Government. We believe that that is the case and are preparing a Budget accordingly, even as we speak. So fuller details will be out there and available for public consumption and consideration and scrutiny by this House in late May, in the form of the Budget.

Thank you, Madam Chair. It’s quite a treat. Look, this has just intrigued me, because we’ve been talking about Part 1 of the bill, and Part 1 of the bill is the bit that reinstates Schedule 1 of the Income Tax Act 19 or 20—I’ve lost track now; the Income Tax Act 2007. So this Schedule 1 is sort of existing there somewhere. It’s not in any of the pieces of legislation that are right in front of us. It’s not in the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill, the bill that’s sitting there, and it’s not in the Amendment Paper. So, from the point of view of people who are listening at home, we keep on referring to the income tax rates and the income tax threshold and what’s in Schedule 1, but there is nowhere that it can be found in the material that’s actually in front of the House. It just raises the interesting point: does the Minister know what the tax rates and tax thresholds are, and could he perhaps tell everyone in the House so that people here and people at home know what we’re talking about?

Thank you, Madam Chair. I do want to acknowledge the Minister the Hon Chris Penk’s back and forth, in providing answers to a number of our questions. But there was one question which I had asked the Minister, around Working for Families and tax transfers, in relation to a figure that the Minister had provided—that around $50 billion is forecasted to be collected, for individuals, which is, obviously, part of the schedule which is part of Subpart BB, which is part of the Income Tax Act, which this bill is trying to amend. So, to the Minister, if I need to kind of clarify, I just want to know how much Working for Families is forecasted to be given back out, or tax transfers given back out, to individuals. I just want to see how much individuals are being taxed through salary and wages, which, based on the figures given by the Minister, is around $50 billion, and how much of that they get back through a tax transfer—so in-work tax credit, minimum family tax credit—which the Minister can provide.

I did actually have another question, however—to give officials a bit more time to have a look at, it. It’s a particular question around some of the Minister’s statements to the member Chlöe Swarbrick, around the timing of this Amendment Paper. If I can quickly summarise, the member for the Green Party, the co-leader, had asked the Minister why this particular Amendment Paper, which contains aspects both from Part 1 and Part 2 around the interest deductibility rules and the brightline changes—why it was necessary for the Minister to include it as part of this tax bill. But there were aspects as part of the Budget, which is the income tax threshold changes which they had campaigned on—they had made a decision to do it later as part of the Budget. The Minister’s response to that is that if it could be brought forward before May, it would.

So my question to the Minister is: who actually made that decision to bring forward this Amendment Paper? Obviously, it’s in the Minister’s name, but I just want to clarify: was it the Minister of Revenue or a Minister of Finance, or a joint Ministers’ paper that went to Cabinet to approve this Amendment Paper coming through? Or, actually, it could be the Associate Minister of Finance, because David Seymour has taken claim for that particular interest deductibility rule change, which is in this Amendment Paper. So who specifically was that Cabinet paper in the name of?

Then my next question is: under what criteria did they believe that that Amendment Paper should be brought forward before the Budget? I’m really hoping that the Minister can provide some criteria that his Government, his executive, have, basically, set out as to what meets a particular threshold as to why it should be put through in this particular tax bill. Because, as other members of the committee have quite concernedly said, there are obviously time pressures for this bill. It needs to be passed this week, on Thursday; if not, if we go into Saturday, then Parliament is not allowed to collect any tax on Friday, because it’s Good Friday and we can’t sit because it’s Good Friday. And, as a result, there are some concerns on this side that this Amendment Paper, which has, basically, bulked the bill up, which has not been subject to select committee scrutiny, and yet it could actually be subject to select committee scrutiny as part of that Budget process later—just wanting to understand what the criteria were that the Minister used, or the Ministers responsible for the Cabinet paper used, that took this to Cabinet to approve it so that this Amendment Paper could be introduced, in order to make that decision that this should be brought forward before May. And those were the words used by the Minister: “brought forward before May”.

On this side of the House, we believe there are actually some other pressing types of policies that could have been brought forward before May, which we will probably discuss quite in depth as part of Part 2. But I just want to ask that specific question to the Minister as part of Part 1.

I move, That debate on this question now close.

Thank you, Madam Chair. Look, I’ll just ask a really quick question, because I think that if I’m kind of hearing this debate correctly, there are just a couple of things that I thought were interesting contributions that were made earlier on. I’m not sure that we’ve necessarily addressed it per se, and I know that my colleague the Hon Dr Deborah Russell has another suite of questions that she wants to get to. So before we do that, if I could just kind of circle back a little bit and ask this.

I heard Arena Williams mention to the Minister in the chair, Chris Penk, not that long ago the difference between the forecast revenue of $122 billion versus $112 billion. I’m not sure that the Minister necessarily addressed that, but it made me think about this concept of tax revenue forecasts and the fact that New Zealand, obviously, is in a technical recession and we need to think about encouraging growth. Certainly, from my perspective, I would have thought, therefore, that we have to be really mindful of not engaging in austerity measures as a means by which to deal with the potential of those drops in tax revenue, given that we’ve got this $10 billion discrepancy sitting there.

So I just wondered if the Minister could circle back round to provide a little bit more clarity about that, or whether there was some sort of thought, advice, be it—not necessarily economic theory, tax theory, or anything along those lines, but some sort of means by which to show that there’s been some contemplation of how, when revenue drops, do we make sure that we’re still looking after our economic growth and not looking at austerity measures.

Thank you very much, Madam Chair. Taking the last question first, I’m grateful to Tracey McLellan for posing that question as to whether the Government’s contemplated how things might play out in terms of revenue if that were to fall. Obviously, you know, these are shifting sands always in terms of Government revenue and there will be factors that will be positive and factors that will be negative. Overall, however, I think we can agree—or certainly the colleagues on my right-hand side would agree, no doubt—that by growing a strong economy and increasing the opportunity for revenue, for the Government as well as well as for those businesses, community organisations, and individual households, is the way to guard against those external fluctuations as best we can.

In terms of the invitation that the Hon Dr Deborah Russell has given me to set out from memory the tax rates, I think I’m going to decline that. She’s concerned that New Zealanders might not know off the tops of their heads what the tax rates are. I’m more concerned that I might not know them, and, if we think about certainty being an important principle of the tax system, the last thing we need is me making educated guesses, or even uneducated guesses, at that. So for anyone who wants to know those, I invite them to look them up. I could look them up myself—and the member herself could look them up too, for what that’s worth.

The questions, actually, that the Hon Barbara Edmonds has asked—and I was remiss, by the way, in not having previously responded to that question, particularly as I’ve got the benefit of some really helpful advice in this space. So, please, allow me to articulate that as clearly as I can. In relation to Working for Families, in the March year 2022, some 265,000 families received a Working for Families tax credit. This amounted to an average payment of $7,432 per family. Again, that year ending March 2022, in terms of the tax credit, cumulatively being $1,966 million—or close as anything to $2 billion from that Working for Families tax credit, in-work tax credit, $502 million, or so, roughly speaking, half a billion dollars adding up to obviously $2.5 billion, again roughly speaking. And in the spirit of helpfulness, as best that I can understand it—this may be helpful too—in the 2023 fiscal year, core Crown tax revenue was $112 billion or 28.4 percent of GDP and comprising various proportions on a consolidated basis, of which 52 percent was from individuals. I genuinely hope that’s helpful. If I’ve missed the mark there in terms of any of the specific questions, I’m happy to go back to those, with the indulgence of the Chair, obviously. I’d hate for her to cut off this great conversation.

But in terms of who decided the timing, well, clearly that’s a Cabinet decision, and collective Cabinet decisions are entitled to remain as such. So I can’t be more specific than that.

In terms of the criteria, quite simply again, from the Government’s point of view in terms of what it was both willing and able to bring forward ahead of what would otherwise be a normal Budget process, it was that which was possible and desirable within the available time frame.

Look, in the spirit of helping out the Minister in the chair, the Hon Chris Penk, and helping out members in the House, seeing as we are debating tax rates, and for the benefit of people at home—I’m sure there are many of them listening; it’ll be “Hi, Dad.”, from my point of view. But, look, the point is that the tax rates we are debating so enthusiastically, on the income tax scale, the first $0 to $14,000, the tax rate is 10.5 percent; from $14,001 to $48,000, the tax rate is 17.5 percent; from $48,000 to $70,000, the tax rate is 30 percent; from $70,000 to $180,000, the tax rate is 33 percent; and for income over $180,000, the tax rate is 39 percent. In addition to that, the numbers that are sitting in the schedule—that we’re obviously debating—the trustee tax rate is 33 percent, and the company tax rate is 28 percent. Now, some people might be wondering why I’m not including the GST rate in this, and that’s because GST is not part of income tax. So I’ve just given the Minister, for his benefit—and perhaps a quiz later, Minister, on those numbers. So I hope the Minister finds that helpful.

I do just want to go back to one further issue which we haven’t quite addressed yet, and that’s to do with the efficiency of the tax system and the efficiency of how we collect tax at those particular rates. “Efficiency” is usually taken to mean from the point of view of the tax-collecting authority, all right—how much money they spend collecting the tax. Ideally, obviously, we’d hope to have a highly efficient tax system, that we spend as little as possible in collecting the tax—that money doesn’t go in that direction; instead, the money that is collected is available for all the other things that Government wants to do. Now, of course, having that variety of tax rates—the more tax rates, probably the less efficient the system. So that does invite the Government to think about whether or not that particular tax scale that I’ve just quoted is actually appropriate in terms of efficiency.

The other thing that sits in that efficiency space, and we have talked about a little bit, is, of course, compliance costs. The more tax rates, the more complicated for individuals. But we have discussed that a little already, so I do want to think about it, in terms of the Government’s point of view, as to whether the different tax rates provide for an efficient system. I just invite the Minister to make some comments on that.

I move, That debate on this question now close.

Thank you very much, Madam Chair. I wanted to take the opportunity to ask the Minister about the rationale for debating this Amendment Paper now, given, as many have pointed out and asked relevant questions around that—although I’m not sure the rationale is that clear to the committee and to those watching, given the changes that are made here. Is it to avoid the scrutiny that comes with such a debate around the Budget time?

Now, the Minister may think that’s a facetious question but it’s not; it’s a serious one because when we consider the measures that are taken up during a Budget period—all expenditure, all revenue coming in—that would seem the appropriate time. But the Government has chosen to do this now and do it alongside the other aspects of this bill.

There’s some pretty crucial elements in this paper, and I won’t go into them in detail because that’s Part 2 and we are committed on this side of the House to remain relevant to the debate in question. But it is fair, I think, to get an understanding as to why now, under this rushed process. We’re not actually criticising the rushed process—we get it; it’s got to be passed—and we’re not going to delay things more than they need to be. But this didn’t have to happen now. In fact, if it wasn’t here, then we could have had more opportunities to debate the substantive parts of this bill; the parts of the bill that do need to be passed by a certain date.

This side of the House has worked constructively with the Government and Business Committee. We’ve agreed to things to ensure that public servants are not unnecessarily burdened with work over the Easter break, and that is why the House is debating things in the manner in which it is, outside normal processes. So it’s not like we’re opposing the processes just for the sake of it, but I think we deserve an answer to that, at least.

Thank you very much, Madam Chair. I think that deserved an answer and I’m happy to give it, but, as efficiently as the Hon Dr Deborah Russell would want me to do in relation to tax matters, I don’t think, with all due respect, it’s fair to describe the Government’s motivations in debating this now as a mechanism to avoid scrutiny, as compared with having a debate following the Budget. Following the Budget, famously, debates are rushed through under urgency. It would be usual, in that process, for debates to take place with one stage after another, where this is a relatively sedated, pedestrian process, so, with all due respect, I don’t think I can allow that accusation to stand without at least some refuting thereof.

As to whether this is, then, the appropriate time for discussion, well, it is, because the changes are contemplated to take effect—for reasons that we’ve been discussing at some length—on 1 April, and that date not having yet come about, we have the opportunity to make those changes in time.

Thank you, Madam Chair. I do have a new question and it’s relating to the drafting of the revised track version of the bill, and it was because of a comment that the Hon Dr Deborah Russell had said around the tax trust rate as 33 percent. Now, as members will know, this particular bill is looking to increase that to 39 percent, which, remarkably, the Government is now supporting.

So my question is: given that clause 3, basically, confirms the Schedule in Subpart BB of the Income Tax Act—so that’s what clause 3 does in this particular bill. When I look at the report back from the committee, it says that “We confirm that the trust tax rate is currently 33, the bill increases it to 39 percent.” Obviously we talked through the submission process. And then it talks about “We recommend amending clauses 39 and 62 of the bill to insert proposed section HC 40 and update the schedule of basic tax rates in the Income Tax Act.” So these amendments would mean that for the 2024-25 and later income years, they come into force. And it has a de minimis which the committee has agreed to.

So my question is to the Minister. Given that there is a change to a tax rate, which we’ve covered in Part 2, which is the way that it’s been drafted within the bill, should that not be as part of Part 1, given we are confirming the annual tax rates, and, if not, can the Minister explain why it’s not in Part 1? Does that leave a potential grey area? We’re confirming in Part 1 the current tax rates, which are in Subpart BB of the Act, but then in Part 2 of this bill, we’re saying that this is what the rates should be. It’s just a clarifying question for the Minister, if he can please answer in response.

Thank you, Madam Chair. I’m really grateful to be able to continue the very shortened call that I took the first time we sat in committee. If you cast your mind back, Madam Chair, I believe you were in the Chair with a different Minister. So, for the benefit of this Minister in the chair, I would like to quote from the Minister of Revenue, because I want to ask a question about something that he very directly brought into this debate. If I recall correctly—and you may, Madam Chair—there was quite a reaction to this part of the debate; there was a lot of noise from both sides of the Chamber. It was clearly something that there was some contention around.

What I would like to quote is from the Hansard at that time, when the Minister said, “On this side of the House, this Government, and this coalition Government, are absolutely committed to reducing wasteful spending, cutting expenditure, and not taxing New Zealanders more.” He went on—and I’m not going to use the committee’s time to read the full quote, but just to come to the end of it and say, “the ideological point … how we get ahead as a country is not through taxing more, it is through growing our economy and reducing wasteful spending.” He brought the notion of wasteful spending into the debate, and I’m really interested to know, given that taxation and expenditure are kind of like two sides of a balance sheet—so we’ve got money coming in, in taxation, we’ve got money going out as expenditure, there needs to be some relationship between them. Yet the Minister has brought in this notion of wasteful spending without giving us any indication about what his definition is of that. I’d like to know that because that has a direct bearing on the relationship between the expenditure and the money gathered in and what is an appropriate amount in these taxation rates.

There are questions that I have in my mind—for example, we’ve seen policies around school lunches potentially being cut, we’ve seen the Public Service’s cuts to the MPI, staff to cut from the Ministry of Health. Just today, I’ve been dealing in my own electorate with the real prospect of two staff from the Ministry for Ethnic Communities being cut. This is relevant, Madam Chair, because, if I am reading this correctly, this is an indication from Government members that they believe that kind of expenditure is wasteful. Certainly, the Minister was talking about the relationship with wasteful spending. I cannot, for the life of me, understand why Government members would think that spending money on school lunches, for example, would be wasteful. I know we’ve heard an allegation that some of the food does not get eaten, but we’ve also seen evidence that that food often goes out into the community and goes home and that, actually, only around 6 percent of the food doesn’t get used. So I don’t see any wastage around that.

When I think about ethnic communities, I know that the staff in Dunedin have been supporting our ethnic communities to be able to overcome unconscious bias, to be able to get into employment in the private sector. The ethnic communities have played a very important bridging role between Government agencies and ethnic communities—that goes to productivity. If I look at the Minister’s quote again, he talks about growing our economy. So, for me, having a bridging function from the Government, which helps to support growing our economy, which means getting more people from ethnic communities able to be employed in the private sector or in the public sector, overcoming unconscious bias, being able to support them to be able to have job interviews and get placements, and so on, that doesn’t seem like wasteful spending.

So I’m really keen to understand what this Minister in the chair, if he can speak on behalf of the Minister of Revenue, means by wasteful spending. What is the appropriate amount of waste, or is it a zero tolerance of waste, that he would see as informing that balance sheet between money in and money out, taxation, and expenditure? And can he comment on the things that I’ve raised, because if they are not wasteful, as I believe they’re not, then how can he justify them? Or what was the Minister who was in the chair referring to when he talking about wasteful spending, because he definitely brought it into the debate? I cannot see wasteful spending in the things I’ve raised, so perhaps the Minister could enlighten me as to some examples of wasteful spending, and also what that would mean for the relationship between taxation in, expenditure out, and how you sort of work out that algorithm. I’d be very keen to hear that.

Thank you very much, Madam Chair. Just briefly, in relation to the question posed by the Hon Barbara Edmonds, the trustee tax rate being increased to 39 percent for the year 2024-25 exists in subsequent parts to this bill because Part 1 deals with the annual rates for the year 2023-24.

With all due respect, I don’t accept the argument of the member Ingrid Leary that a passing reference to the phrase “wasteful spending” opens us up, on this bill, to every matter of Government expenditure. We’ve talked about the impending public holiday, which doesn’t, likewise, invite a discussion about the existence of the Easter Bunny. I think, with all due respect, it’s a relatively narrow debate in terms of the tax rates as set, certainly in relation to Part 1 for the current year. I’m grateful to have had this opportunity to discuss this.

Thank you, Madam Chair. This is an absolute genuine attempt to have a discussion about something that I raised and the Minister partially answered. I have been mulling over the answer I got because it doesn’t satisfy me, and I’d ask for him to take it just that one step further.

So I was talking in my contribution about the fact that we had, in this section, amounts that we were compelling New Zealanders who were on incomes to pay across the board, when there were others we knew, because of the research, who were paying very little, and we have a lot of information now about those high-wealth individuals deliberately churning money into businesses so that they never made a profit, and so they were actually increasing their wealth pie every year by exponentially more than the people who were paying these taxes. And what I understood the Minister did when he answered my question was talk about it as a kind of highfalutin philosophical approach. I wanted to challenge that and ask him to turn his mind to the fact that what we’re talking about here is people’s actual money in their pockets. This is real for people. This isn’t philosophy; this is economics.

So what we have here is base rates that we’re setting to compel New Zealanders who are on limited incomes, and we are setting them today without, what it seems to be, thought or even a plan about what we’re going to do to make that system fair, when we know—we can’t unpack this genie; it’s come out of the bottle. We now know that there’s a whole lot of people who have money to burn in comparison, who are not facing the cost of living crisis, and they are actually paying rates which are so much—dramatically—lower, and they’re doing that in a way. And I’ll explain a little bit about how I understand that happens.

I’ve had the benefit of dealing with some of these groups of high-paid individuals. They’re high-wealth individuals often because of inheritance. They’ve come in through—and by the looks of people, people are subjective, but I would think that the research actually proves that. Often it’s because they made money at times when the Government, and us rolling the settings, they set the parameters of the way we worked, which meant that people had things like a monopoly interest in jam, and they made a lot of money, or oil. And they made that money, and then they run these things called family offices.

CHAIRPERSON (Maureen Pugh): Can you bring it back to the bill, please?

Thank you, Madam Chair. So if they are running these entities, they have got, obviously, every right to look at it logically and minimise the amount of tax they have. But I would wonder whether the Minister could answer whether that is a just system and whether there is a plan around this? We’re putting into place these rates where we’re actually compelling people, and I would like to know from the Minister, does he really think it’s a philosophical highfalutin point that I’m making or does he accept that that’s a pragmatic issue? Because we’ve got people on much lower amounts of money trying to make ends meet. And people on relatively high incomes, but every penny is being paid for under this particular clause—this is where they pay it. This is where the rubber hits the road. Does he consider that highfalutin philosophy or does he consider that the base economic structure that we as a Government have absolutely a need in this situation to deal with? We need to actually address that.

So I would genuinely love the Minister to take me there in terms of what the logic is here. What is the logic where we’re doing that without thinking that or are we going to do it? What is the plan? So what’s the logic? What’s the plan? Is this philosophy or is this basic economics? How are we flying in the face of that information? How are we still going in this particular way? Thank you.

Can I just remind members, before I take the next call, we are talking about Part 1 and the tax rates.

Thank you, Madam Chair. My question is actually in relation to the response given by the Minister around why the increase to the trustee tax rate is covered under Part 2 of this particular bill and not Part 1. And the reason that the Minister gave is because it’s for a different income tax year.

So I want to take the committee back to my earlier speech where I talked about the history of why we have the taxation provisions the way that the House debates it. So the House debates that particular clause 3 as a separate point. When I look at Parliamentary Practice in New Zealand, it says, “When a committee of the whole House considers a bill that includes an annual taxing provision, the committee must consider this provision as a separately debatable question. The Standing Orders Committee has held that the annual taxing provision is so important that the committee of the whole House should not have the power to avoid its separate consideration. The separate debate could be dispensed with only by way of an instruction from the House to the committee.”

So I do question, again—I can understand why you can put the consequential amendments to the rest of what happens in the Income Tax Act for the trustee tax rate in Part 2. But given that we are actually changing a rate of tax, regardless of whether it’s the same or different income tax year, given our Standing Orders Committee and the way that review was done in 2011, given that particular outcome that had come from that Standing Orders Committee review, why then isn’t just that part—the increase from 33 percent to 39 percent—not in Part 1 of the particular bill?

Again, I can appreciate there is a whole lot of consequential amendments and changes to other parts of the Income Tax Act as a result of that increased change. But given that Parliament has a very well-known history for ensuring that we debate those changes to tax rates or the confirmation of tax rates as a separate part, why is that small part—which is, it’s going from 33 percent to 39 percent—not included in Part 1 but has been included in Part 2? Again, I accept there may be different consequential amendments as a result of it, but I just want to understand from the Minister the instructions that he gave to his drafters as to why it should be in Part 1. Given that it is a rate change, it is part of that taxation provision that we need to confirm the actual rate, and why it’s not in the Part 1 where we are confirming and trying to debate the confirmation of those rates.

Thank you very much, Madam Chair. In regards to the member’s questions in regards to this, so this is a standard process from a drafting perspective. Part 1 sets out the annual rates of the current year, 2023-24. And Part 2 introduces a 39 percent trustee tax rate, which would apply from 2024-25. Obviously, this can be debated as part of Part 2 of the bill, which, no doubt, will follow Part 1.

In regards to Helen White’s questions, I think—and I apologise, I just heard the last part of that, but there’s not much more I want to comment on that.

I move, That debate on this question now close.

Arena Williams’ tabled amendment to Part 1 is out of order as not being in the proper form of legislation.