Taxation Principles Reporting Bill

I present a legislative statement on the Taxation Principles Reporting Bill

ASSISTANT SPEAKER (Hon Jacqui Dean): That legislative statement is published under the authority of the House and can be found on the Parliament website.

Hon DAVID PARKER: I move, That the Taxation Principles Reporting Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. At the appropriate time, I intend to move that the bill be reported to the House by 27 July 2023 and that the committee have the authority to meet at any time while the House is sitting (except during oral questions), during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House and outside the Wellington area, despite Standing Orders 193, 195, and 196.

One thing I as revenue Minister have in common with my predecessors is a desire to ensure the tax system delivers the revenue that Government needs in a sustainable and fair way. We all benefit from a system that is as fair and efficient as possible. Successive New Zealand Governments have made changes in the name of fairness—in the way in which they see that. A fair system, in my view, collects as little tax as possible but as much as is necessary. How the tax system does that, who pays what, and what economic efficiencies are created or avoided are all important. A tax system needs to be sustainable over time. It needs to factor in the impact it has on decisions that people make. Determining whether a tax system is efficient, sustainable, and fair is a constant challenge. Circumstances change.

Over the years. Governments of all stripes have set up working groups and review committees to pursue the Holy Grail of an efficient, fair tax system. The most recent was the 2019 Tax Working Group, chaired by the late Sir Michael Cullen. Before that, there was the 2010 Victoria University of Wellington Tax Working Group. In 2001, we had the McLeod Tax Review. Before that, there was the Valabh committee, and before that, the Richardson committee. These inquiries in New Zealand, and others overseas, have all described the main principles of a good tax system.

Yet here we are, after all those reviews, still striving for fairness. In the absence of facts about actual outcomes, half-truths can be too easily manipulated to suit political objectives and vested interests. That’s why we commissioned the Inland Revenue to research the effective tax rates of high-wealth individuals. We wanted evidence based on real dirt—data—not surveys alone, which are inaccurate at the top, in order to assess the fairness of our current tax system. Now we have that evidence. Inland Revenue’s internationally ground-breaking study shows beyond doubt that New Zealand’s wealthiest citizens pay tax on their economic income at a rate that is less than half of what other New Zealanders pay on theirs. Now, it was not surprising that some gap existed, for the obvious reason that very wealthy people earn a higher proportion of their income from sources like gains on investment that are not taxed. Most New Zealanders make do with their regular pay packets, which are all subject to income tax.

But what was surprising is the extent of the gap, and it turns out that an average of 93 percent of the income of the high-wealth group comes from returns on investments. It’s now been well-reported that a person whose income is an $80,000 salary or wage pays an effective rate of 30 percent when you include their income tax and GST. By contrast, the high-wealth people in the Inland Revenue study pay an effective tax rate of just 9.4 percent including the GST they spend on their GST-inclusive purchases. Their average assets were $276 million. Rather than trickle down, it’s been gushing up for this group, and the Inland Revenue study shines a light on how extreme the wealth disparity has become in New Zealand and how lower effective tax rates have contributed to that.

The study has given us a solid stake in the ground in terms of assessing the fairness of our system. This bill continues the good work of shining a light on the fairness of our tax system. Tax policy development should not be like a reed in the wind of political change; it’s much too important. Our tax system is a national asset, raising vital revenue and impacting on the decisions of people and businesses as they invest every day. Taxes pay for services that make society more prosperous, fairer, and more peaceful: education, health, roads, the police, the justice system that protects the property rights and contracts of those with investments. All of these are essential to our economy and society. Taxes have a direct effect on the prosperity of us all. Tax policy settings affect investment returns. Bad laws can distort investment into speculative asset classes, rather than encouraging investment in the productive sectors that create jobs and earn exports.

Yet, despite the importance of the tax system, the fundamental facts are often treated as a matter of opinion. The tax debate in New Zealand has become mired in unnecessary controversy, and ordinary citizens can quite properly become confused about what constitutes good tax policy. So, today, we’re cutting that away. This bill introduces a series of sound tax principles that enable a reporting framework to help people understand how the tax system is measuring up against those principles. They are settled, they’re well established, and they’re generally accepted amongst tax academics, professionals, and the OECD as the hallmarks of a good tax system.

I’ll briefly describe them. The first is horizontal equity. In other words, people with the same levels of income should pay similar amounts of tax. Along with that is vertical equity. That is that the overall system should require people with higher levels of economic income to pay a higher proportion of that income in tax. Now, not all taxes need to be progressive. For example, GST is regressive—more regressive in New Zealand than virtually any other OECD country. But the overall system should be progressive, and that requires an analysis of transfer payments also, although those phase out at middle-income levels and don’t really confuse the picture at higher levels. Together, horizontal and vertical equity are often described as the key measures of fairness of a tax system. The other important principles are efficiency, minimising administration and compliance costs, revenue integrity, certainty, predictability, and, finally, flexibility, and adaptability.

Enshrining these principles in legislation will mean that the fundamentals of a good tax system will clearly be set out for all to refer to. It will provide direction to officials on what information about the tax system should be reported on. This bill proposes that officials periodically report on the operation of the tax system, using the principles set out in the legislation as the basis for their reporting. It’s not a straitjacket. Different Governments will want to focus on different aspects of the system at different times to deal with the challenges of the day. Political parties can quite properly have different views on how progressive the tax system should be, but it should be a fact-based discussion. The reports will build up a time series showing how the tax system is changing in relation to these core principles. And by providing information to the public, like that presented in the high-wealth individuals report, we can have an informed debate on tax, using solid evidence.

All New Zealanders should be able to trust the fundamentals and know the facts about our tax system. So officials will report actual outcomes of the tax system in relation to these principles. This will improve transparency. For instance, people will be able to see levels of taxation across society and who is, effectively, exempt from tax and who isn’t. Debates about any changes to the tax system can then be fact based.

I’ve written to all of the political parties inviting them to support this bill and inviting them to talk about what those principles should say in the legislation. We’re open for discussion about that, but we believe that an evidence-based principles approach to assessing our tax system should be easy for all parties to support. It doesn’t in any way prescribe what tax policies they might want to adopt; it simply gives an objective basis for determining fairness of the current system. It’s not intended to be political, and we are happy to talk about the guard rails that are here. Ultimately, this is about what is good for the health of the tax system and the economy. To protect our way of life, to improve our standard of living, we need a fair and efficient tax system, a tax system that works for all citizens and encourages productive use of both labour and capital. That is the object of this bill. So, with pleasure, I commend it to the House.

The question is that the motion be agreed to.

Thank you, Madam Speaker. Well, here we are, the day after the Budget, and we’re talking tax. I can see Dr Deborah Russell at the back there just slathering away to tell us about this Taxation Principles Reporting Bill. So it is with pleasure that I talk on this bill. I’m not quite sure why we might be rushing this through under urgency on a Friday when the House normally doesn’t sit, but I suspect it might have something to do with what’s going to happen in October—and it’s called an election.

This is about, I think, Mr Parker pursuing his long-held dream of being able to tax people even more. And, of course, he made the statement—and I quote, and I hope it’s right. I wrote it down, Mr Parker: “You believe we should collect as little tax as possible.” Well, we’ve just finished, 10 minutes ago, putting through a new piece of legislation, driven, of course, by the Hon David Parker, to tax New Zealanders more if they have a trust. And, of course, that was his own making—he shoved up the top tax rate even though Labour said they wouldn’t be doing that, they wouldn’t be increasing taxes, but, hey presto, they did, and they did it yesterday.

Rachel Boyack: The top tax rate increase was in our manifesto.

ANDREW BAYLY: Yeah, but not pushing up the trust rate, was it; not pushing up the trust rate. The trust is a new tax. That’s what the bill was about—about five minutes ago, if you’d been listening, right? That is a new tax. Anyone owning or a beneficiary of a trust will pay 39c. Even someone with disabilities, as Penny Simmonds talked about, is now going to pay 39 percent. So in terms of this issue, we do not need a tax principles bill.

We do support a good tax system that is fair, simple, transparent, administratively easy, and adequate to service a country’s revenue needs. In fact, my personal view is that what Adam Smith wrote back in 1776 wasn’t a bad piece of advice about tax.

Hon Michael Woodhouse: Was he a nice bloke? Did you know him well?

ANDREW BAYLY: No, I didn’t know him well! But in the wealthy nations that most economists love to talk about, he said there were four principles: equity and fairness: similarly situated taxpayers should be taxed similarly; certainty: the tax rules should clearly specify how the amount of tax is determined, when payment of tax should occur, and how payment is made. And, of course, one thing about certainty that he didn’t talk about is when you have rapidly changing Government policy where you change tax rates all the time, pushing them up—inevitable if you have a Labour Government. The third thing is convenience of payment—facilitating the required tax payment at a time and in a manner that is most likely to be convenient for the taxpayer is important. Good stuff—an effective tax administration, effectively saying that the cost to collect the tax should be kept to a minimum.

Those are good principles. I know the Hon David Parker loves Thomas Piketty, and so I was just having a look at his fine book, published in 2013. Capital in the Twenty-First Century is the grand title of it.

Hon David Parker: Fantastic book.

ANDREW BAYLY: There he is—Mr Parker—saying it’s a fantastic book. Anyway, the big proposition that Mr Piketty was saying is that the return on capital, RC, is greater than economic growth, and that leads to inequity. That’s the principal part of his economic theory that was published in his report. So I thought I’d just see what people thought about it, and I came across this. The Washington Post said at the time the book was published—they did a review of it—that Piketty’s work was a landmark in economic literature that significantly improved and expanded upon Karl Marx’s ground-breaking scholarship in Das Kapital. If I remember rightly, Karl Marx had a bit to do with Russia, didn’t he?

Hon Michael Woodhouse: Yes, he did. Well, kind of.

ANDREW BAYLY: Sort of—sort of.

Hon Michael Woodhouse: He wrote the manuscript for communism.

ANDREW BAYLY: That’s right. My good colleague the Hon Michael Woodhouse says he wrote the manuscript for the new Russian State.

Hon Michael Woodhouse: That cost about 60 million lives.

ANDREW BAYLY: Well, don’t talk about the lives that were lost. Didn’t it also go on to say that his prose was rather dense and rather repetitive? Sounds like the Hon Dr Parker.

But I think the big issue about these tax principles is that what we’ve seen is the Labour Government prepared to use the IRD to undertake an investigation into certain families’ wealth under a very special clause that was inserted by the Labour Government. So the first point about that is whether in fact that is proper. The clause is a very invasive clause. There’s a general principle about doing investigations about the protection of privacy, and there are significant concerns that the Labour Government has used the IRD to provide some evidence about how they would then implement their own policies.

The second thing is that this bill is Mr Parker’s attempt to use Parliament to pursue Labour’s own tax concepts, and I think that is not right. I’m also concerned about the short report back, by 27 July. Why the dickens does a bill like this, which only runs to four pages, have to be reported back by 27 July? The issue is that we have an election coming up on 14 October, and, of course, this is what’s driving this. This is wrong, and we will be opposing this bill. The reality is that we do believe in a fair tax system, but this is going to require a bureaucratic rambling on of reports from time to time, but I think the real essence of this is what it will say in the first time. We accept the principles, as we set out before, that a good tax system should be fair, simple, transparent, administratively easy, and adequate to service a country’s revenue needs.

New Zealand has a tax system that in the main is the envy of the world. And we have now got a Labour Government and a Minister that is continuously tweaking it. And I’ll tell you what—on his issue about making it consistent and not complicating it, the mere fact that Mr Parker raised the top tax rate to 39 percent has created in its own right the issue that we have to address in the bill that’s just been before this House, which, again, will be rammed though. That’s what’s going to happen. But luckily they pulled back on the KiwiSaver tax—of course, that’s going to get rammed through if they win the next election. We had the app tax. We’ve had all these other taxes come through, all the stuff around property and all that sort of stuff.

Look, tax policy is the domain of Governments. Everyone understands the issue around having good, simple tax policy. We simply have a divergence on the way it should be implemented. Labour have chosen to go down the route of choosing to tax people more. If that’s their thing, that’s obviously what happens at an election. National believes that people should retain as much as they can of the income they earn so that they can pay for their lives, look after their children—

Hon Phil Twyford: How about fairly distributing the burden?

ANDREW BAYLY: The question was: what about fairly distributing the burden? Well, the issue is that if you don’t have a wasteful Government that blows money in ways that are unbelievable—even in this Budget announced yesterday, there’s a $7.1 billion increase, just because the Government cannot balance its books, even though its tax revenue went up by something like $11 billion, projected—

Hon Phil Twyford: What about distributing the burden?

ANDREW BAYLY: The issue is that if you stop wasting money and spend it on the right people, if you fix up the holiday pay for the nurses and the teachers, if you paid them more and you looked after people, then you wouldn’t have to waste money, like what’s happening right now under this Government, and shove up the taxes. All David Packer wants to do is he wants to push up the tax for New Zealanders.

I want to speak about this Taxation Principles Reporting Bill, and I want to refer to the speech of the previous member, Andrew Bayly, because it was misleading and obfuscating, and that is precisely what this bill is setting out to fix.

ASSISTANT SPEAKER (Hon Jacqui Dean): No, no, no. The member—

Hon Dr DEBORAH RUSSELL: I withdraw and apologise, Madam Speaker.

ASSISTANT SPEAKER (Hon Jacqui Dean): Good call.

Hon Dr DEBORAH RUSSELL: I wish to refer to the previous member’s speech, in which he left out an important aspect of Adam Smith’s principles of taxation. It shows exactly why this bill is needed; we actually need a full and transparent discussion about how we go about taxation in this country and which principles it should be based on. We need that clear and transparent discussion, and this is what this bill will facilitate. So it is gobsmacking that other parties in this House would oppose it.

I wish to go back to Adam Smith’s principles of taxation, which the previous speaker said their party thought were important. I got “a tax system should be fair, simple, transparent, easy to administer, adequate” and a couple of other words—in fact, all concepts that are imbedded in the taxation principles in Schedule 1 of this bill. This bill does set out to ensure that those principles, enumerated by that speaker, will be discussed and reported on in a transparent way so that this country can engage in a well-informed debate about how much taxation there should be and where it should be levied.

However, the speaker left out one very important principle from Adam Smith, and it is a principle that is nevertheless sitting in this bill. Adam Smith’s four canons of taxation in his great 1776 work The Wealth of Nations set out four principles of taxation. The first one is fairness. Now, the previous speaker said that related to people in the same position paying the same amount of tax—agreed, horizontal equity. What he left out was vertical equity, and this is something that Adam Smith, in that book, advocated for. He said that those who are in a position to pay more tax should do so. That’s vertical equity. That is what we do not understand in New Zealand’s taxation system at the moment. Until very recently, we did not have good data on whether that principle, dating back to Adam Smith in 1776, was being embodied by our tax system.

So I invite the National Party to reconsider its position. These principles are exactly what Mr Bayly said the National Party wanted in a tax system. But he left out that one thought from Adam Smith, that vertical equity must too be considered in our tax system, and that is embodied in these principles too.

If the National Party genuinely wants to have a fair, simple, transparent, easy-to-administer, and adequate tax system, then I suggest that they support this bill forthwith.

Earlier this week, in a speech I did on an ACC bill, I talked about the number of pieces of legislation that were coming through this House that were a well-meaning waste of time—that there were a lot of things that were in those bills that did not need primary legislation to enable them to occur. Well, I’m going to add this bill to that list, with one exception: there’s nothing well meaning about this. This is a “Petty Picketty Parker” jealousy bill that reveals the envy that he lives with every single day. If he had his way and he got his way with his Cabinet, we would be discussing today a wealth tax, a capital gains tax (CGT), an “anything to tax the rich” tax, because that’s the modus operandi (MO) of Mr Parker. And I thought it was really interesting, his Freudian slip when he said he intended to say that he wanted to gather real data, but actually he revealed his bias by saying he wanted to gather real dirt, and, actually, he got it right the first time—it is dirt digging, and it’s unfortunate.

The other thing I would say about this bill is the word “Principles” is in the bill, is in the title. Well, this bill is anything but principled; it is mean and nasty and it takes a lens not only into data on the wealthy, but it actually interferes with the statutory independence of the Commissioner of Inland Revenue. This part of this Government’s MO since they came to office—we can think about the Reserve Bank of New Zealand; we can think about Treasury; we can think about the Police, where the Misuse of Drugs Act was changed, directing the way police and when police should take prosecutions, compromising that very important constitutional separation between the executive and the New Zealand Police. So to that list we can add the Inland Revenue Department, who under the Tax Administration Act 1994 has very clear responsibilities for both independence and privacy, and they are being undermined by this bill.

So let’s have a look at these so-called principles—let’s have a look at these so-called principles. They include principles for gathering information to establish income distribution and income tax paid. We already know that—we already know that. What Mr Parker doesn’t say and is not up front about, when he says he wants a tax system that’s fair and that he doesn’t think our tax system is progressive enough, is that he conveniently left out the fact that 20 percent of Kiwis are paying two-thirds of the income tax burden in this country.

Chlöe Swarbrick: Maybe that speaks to distribution.

Hon MICHAEL WOODHOUSE: Yes, exactly. That’s right. And I think that is fair, and it’s also fair that the bottom 48 percent of Kiwis are paying just 8 percent of income tax in this country. I think that’s fair too. What’s not fair is to release the nonsense reports that he got IRD to do—

Andrew Bayly: On unrealised gains.

Hon MICHAEL WOODHOUSE: —which takes unrealised gains and says we should tax them. When he was challenged on that on the radio about how an unrealised gain could be taxed and the cash-flow implications of that, he glibly replied that when people are worth an average of $276 million, they must have some cash sloshing around somewhere that they can pay his unrealised wealth tax that is coming to a campaign near this country.

That’s what Mr Parker needs to do: he needs to front up and firstly be honest about who is actually carrying the lion’s share of the income tax burden in this country—and it is the top 20 percent of income earners, and that’s appropriate—but to avoid actually reminding New Zealanders of that is, I think, disingenuous. Then he needs to be upfront about what his intentions and his Government’s intentions are for CGT and for a wealth tax, because for a Government that insists that that’s not on their agenda, they seem to spend a heck of a long time talking about it. Although, I do wonder quite how much support the Minister of Revenue has from the Prime Minister who actually wants to keep his job. Well, I would encourage him to go out and talk about that as much as he likes.

Chlöe Swarbrick: Fifty-two percent of New Zealanders want it.

Hon MICHAEL WOODHOUSE: Well, then 52 percent of New Zealanders should have all of the information about what this Government’s intentions are in order that they can make this decision.

Chlöe Swarbrick: That’s the point of the bill—that’s the point of the bill. That’s the point of the legislation.

Hon MICHAEL WOODHOUSE: No, that’s not what this bill does. This is another little incremental creep into the lives of the people Mr Parker spends his life being jealous of.

Chlöe Swarbrick: It’s about data. Come on, Michael—it’s about data. Don’t be so disingenuous.

Hon MICHAEL WOODHOUSE: We have the data, Ms Swarbrick. Here’s the other little hit on the wealthy: the fourth principle in this bill is about compliance with the law by taxpayers, as if taxpayers are somehow not complying with the law. Now, we know that happens sometimes, but when it happens, IRD investigate. They’ve got a very big compliance unit. They go out and they have a look at—for example, when I was Minister, I think we doubled the size of the unit that went out and had a look at residential property development, particularly in the Queenstown Lakes area, to make sure that people were paying income tax on the profits that they were making from property development and they couldn’t mask their intention on purchase, which were the rules in those days, and they do a very good job of that.

I think we have a very high level of compliance with our tax law. And he was actually at pains to point out, when his “famous” report was released, that he didn’t believe people were evading tax; he just didn’t like the tax system that we had. So the Minister of Revenue says, “I don’t like the tax system—oh, but I’m not going to change it. I’m just going to get more reports about it and write more pejorative comments about our wealthy.” Well, that’s a bit like what Norway did, Mr Parker, and the very, very wealthy in Norway—and 10 years ago, in France—they voted with their feet and with their chequebooks and billions of dollars of wealth was lost from those countries because of the Parker-like approach that those countries used.

Now, it is true there are problems, and one of the biggest problems is the profit-shifting by multinational countries into tax havens. It’s known as BEPS—base erosion and profit shifting—the sort of transfer pricing that is quite endemic, actually, amongst multinationals, particularly those with weightless goods or tech goods, and that is a problem to be solved. It was a problem when I was the Minister, it’s still a problem now, and the fact that we haven’t been able to make more progress is an indication, I think, of quite how notoriously difficult it is to create a framework that addresses those issues. Because countries are competitive, they do have different company tax rates, and companies will naturally gravitate their permanent establishments to those countries. It needs to be dealt with by the OECD as a collective, not by individual countries trying to pick those companies off. But it’s not going to be solved by this sort of silly legislation, which, if the Commissioner of Inland Revenue had a mind to do, already has the power to report on income distribution, to report on distribution of exemptions from tax, to report on perceptions of the integrity of the tax system—and we certainly know what the perception of the Minister is on the tax system, and it’s not a good one—and they certainly ensure that all taxpayers comply with the law. I think we have a very high level of compliance in this country. But simply asking this question in law suggests that the Minister doesn’t think that’s the case and he wants to lift the bonnet and find out what those nasty tax evaders are actually doing.

Chlöe Swarbrick: What are you so scared of?

Hon MICHAEL WOODHOUSE: I’m not scared of anything, Ms Swarbrick. I just think this is a really, really nasty waste of time, and here we are in Budget urgency with one of Mr Parker’s pet projects.

By the way, when we come to this in the debate actually on the report-back date, I will be asking the Minister to explain why, if the select committee is not reporting back until 27 July, the bill actually says it comes into force on 1 July this year—seems complete ridiculous, but one of the many ridiculous features of this nasty piece of legislation.

On this side of the House, we stand for transparency, facts, data, and an informed national conversation about tax. On that side of the House, they stand for obfuscation. They want to confuse the public. In fact, it was very, very telling, in that last contribution from Michael Woodhouse, when he said that everybody knows that the top 20 percent pay the most in tax. Yeah; everybody does know that. But the real question is: how progressive, how fair, how logical is our progressive tax system?

What David Parker’s trying to do here is actually bring some structure to this debate and shed some light on it. I want to thank David Parker for his work on this. He’s demonstrated, not only with this bill but also with the work that he had the Inland Revenue do recently, looking at how much tax, drawing on real data—a world-leading study that generated facts and real information for this debate. The Minister demonstrated an actual commitment to transparency, but on that side of the House, they talk about transparency, except when it comes to their rich mates. When it comes to that, they don’t want to shine a light on tax. They don’t want facts. They don’t want the public to know what’s really going on. I commend this bill to the House.

That is highly amusing coming from the least transparent Government in recent history. I have a problem because this bill has left me speechless at these so-called tax principles—that it’s absolutely appalling. This is legislation for the taxation of all economic income. So with nine minutes and 30 seconds left, it’s hard to remain speechless, but that’s how I feel.

This Taxation Principles Reporting Bill was dreamt up in the hot, steamy bathroom of the Minister of Revenue, with a mulled whisky, and he said, “Oh, let’s just write my opus now. Let’s redefine the tax principles.” And they are off to, really, what I would call an unprincipled start. So let’s call this bill the “Tax Unprincipled Act”, which, if you want to look for a progressive solution, all you have to do is reach to the ACT alternative budget, which is available to the public for their decision making.

It’s no secret that Inland Revenue has been working on the development of the Taxation Principles Reporting Bill. The item has been on the tax policy work programme and has been referenced by the Minister during his 2020 and 2022 speech on tax fairness. And we don’t believe that tax unfairness should be defined by one man. We’d rather have a flat rate tax system which was understood by every single person in the country and by everybody who has to modify these tax changes in law.

In 2022, the Minister advised an important stage of the project will be wide public consultation on the proposed principles and reporting framework, and we’d be going around that in the middle of the year, we’d share your views. I would like to see these principles enacted in a bill before the end of the current parliamentary term. Well, mid-2022 came and went and there was no consultation. So it was with some surprise—but not really, given recent history—that the Government made the decision to once again bypass seeking public feedback on a proposed tax law, and it’s instead gone straight into legislation in the form of the “Tax Principles (Unprincipled) Reporting Bill”. This bill will be tabled as we speak today and is expected to swiftly proceed through its parliamentary processes in a time frame that will leave the Finance and Expenditure Committee breathless, no doubt. At one stage, I thought this was not even going to go to a select committee process.

Those who are the keen followers of the tax system would probably say their number one tax principle would be that we follow the generic tax policy process, the GTPP. The GTPP has been in place since 1994 and is designed to ensure that tax laws are well thought through and stakeholders have the opportunity to contribute to the design of laws. The decision to bypass consultation on the bill goes counter to the GTPP and rewrites history, and is another example from this Government of reducing trust, disclosure rules, and extensive information-gathering powers after the 2020 election. The irony of the lack of GTPP on tax principles will not be lost on the tax community.

So what are the tax principles that should be followed? Well, just having seen the legislation, we can only speculate that they’re based on what the Minister’s preview listed as his principles: horizontal equity, vertical equity, administrative efficiency, and the minimisation of tax-induced distortions. You would expect, in many cases, tax proposals will not satisfy all of these principles. For example, the denial of interest rate deductibility on residential property would probably fail all principles.

The next outcome could be tax policy developments that get tied up in knots, and given the possibility that this legislation will be based around investments in the economy—aside from having principles to comply with, the bill is expected to include information collection and monitoring requirements. How is the new tax law expected to satisfy the principles; has it actually achieved its purpose, etc.? And now, it’s being pushed through under urgency. It sets the scene for an election period where all the political parties’ policies will be debated against these principles. And given the lack of consultation on what the tax principles are, it hardly seems a principle and perhaps gives a glimpse of what may be coming from the Labour Party tax policy: a simple tax change which increases horizontal and vertical equity. As with most things tax related, the devil will be in the detail, and we’ll be preparing a further summary once that has been proposed.

But as I can see—going on to the bill—you can look at the bill itself and ask yourself: did the Minister bottle it at the end? If you look at clauses 6, 7, and 8, and what’s related to the commissioner, he’s backed out at the end. So this isn’t a full-on commitment or full-scale commitment to principles. If you look at the treatment of Māori rights, you could actually get a smart, young Māori lawyer to drive a truck through the tax system, based just on that statement alone, and hold the tax system to ransom. And everybody, whether it’s a Māori trust or an independent trust, should have the same principles and rights and understandings.

The disclosure statements were less than adequate. We’ve talked about consultation. The regulatory impact statement—based on limited feedback, the Government said there’s a high level of support for core tax principles for improving transparency. Really? Well, that has to be discussed.

The Minister is guilty of using incorrect information and misunderstanding of information, which can lead to mistrust and cherry-picking data from the high-wealth report, and that’s not correct.

The article of the principles in Schedule 1 of this bill is criticised by officials and is worth mentioning. The explanation of tax principles include stated assertions commonly associated with the expression of these principles and Inland Revenue’s views. The inclusion of these statements could present a risk to the integrity, independence, and assurance of the reporting framework. An explanation of horizontal equity would usually not include reference to the time value of money, and, similarly, an explanation of vertical equity would typically refer to people in different positions rather than wealthy people. An explanation of this principle of flexibility and adaptability would usually not include explicit references to changes in equality. The inclusion of contested statements—that GST is regressive—concerns the distributional impact of a tax on consumption and remains an area of ongoing inquiry.

For presuming decisions about trade-offs, this is not the justification for a substantial unfairness, and within the explanation of the principles, a ranking of principles amongst themselves leaves a lot to be desired. The bill commentary itself and report timing on the full report is aggressive, and the annual report should only include information that’s been based on the most recent tax year.

So we, overall, are not really clear that this is actually required, as the Minister himself is already manipulating data and setting an agenda that is against the spirit of tax manufacturing in this country and is suited for political arguments, which is unacceptable, and we should scrutinise it when this bill comes to the committee. Thank you, Madam Speaker.

E te Māngai, tēnā koe. Tēnā koutou e te Whare. I’ve got to say, yeah, very disillusioned—unusually—by this debate this morning. I can’t seem to really follow the threads of argument as raised, particularly, by the Opposition. So I guess, just to kind of outline it as I’ve been listening to the points that have been raised and to try and bring it back to what it is that we’re actually debating and discussing, there are two things here and they’ve been the core threads of many of the contributions so far. The first is what this bill actually seeks to do, which is to collect data to inform an informed, public, evidence-based debate on what kind of tax system we should have; whether we do—as the National Party is so terrified of—conceptualise income to include economic income. And the second part of the question, which is more the ideological and values-based one, is what fairness looks like; what kind of system, what kind of economy, what kind of society, and what kind of communities we want to create legislation and policy to inform. And the kind of conflation between those two things has perhaps been the most frustrating element of this debate, because all this bill does is create a framework for reporting on an annual basis—and a more detailed form of reporting every three years—on income in this country. It also outlines, as members of the Opposition put forward, a range of tax principles, which I heard they in general, kind of, seemed to agree with.

So my question is: what are they so afraid of? The very points that they’ve been raising in debate about how they don’t think that economic income or accumulation of capital wealth is the equivalent of income in the way that we tax it with PAYE, well, that’s outlined. It’s in the IRD and Treasury reports. It’s not hidden. They make their methodology and their assumptions crystal clear. And that’s the point; we should be having a data-driven, evidence-based discussion about where income and capital accumulation exists in this country, because then, God forbid, we can have an informed and robust debate that New Zealanders deserve. So to that effect, I do need to applaud the Minister of Revenue for the work that he’s been doing, pushing all of it up a hill against real nonsense that’s been coming out of the Opposition, so terrified of the premise that Jeanette Fitzsimons put so well, that sunlight is the best disinfectant.

So the Greens will be supporting this legislation, because it’s common sense. We should have information about what it is that we are doing—the impacts of our policy and our tax settings in this country—to help inform how we do that better, how we improve as a country. And I don’t know why that’s so terrifying. Because that then brings us to the second point, which is, as I said, being conflated with this first one. It is the notion of fairness. It is the reality that all of us in this place are inherently ideological, because we have ideologies. Those are things that we believe in and will go out to the electorate and campaign on in October. The point, again, of an election: to go out and put forward our policies and have the New Zealand public decide what they want to see implemented. All of us are ideological, all of us have ideologies, and we should be upfront about those. The Greens are incredibly explicit; in 2020 we ran our poverty action plan policy and it was incredibly popular. It proposed a wealth tax, the very wealth tax that the National Party continues to accuse the Labour Party of wanting to do. But, guys, you’re looking at our manifesto, not theirs. So if New Zealanders, the 52 percent of them who, polled this week, said they want to see that happen, well, guys, you can put your vote here and see us continuing to work for it.

But what we also saw, as reflected, again, in that research out of the IRD and Treasury, is that not only do we have a system that—we are incredibly clear—we believe is deeply unfair, and it seems the majority of New Zealanders agree, because the wealthiest people in this country are paying an effective tax rate at less than half of the average New Zealander; less than half of our front-line emergency workers, our nurses, our doctors, our supermarket checkout operators. And that is because of the way that we have set up the system. The same allegations that the National Party and the ACT Party are making about how this is some big interrogation and some big inquest to get access to information—again, God forbid, so that we can create an evidence-based tax base and economy—are the same arguments that were raised when this House was debating the introduction of PAYE and income taxes.

We need to have data in order to have a robust system of tax and to create, as we would hope, informed policy about the kinds of incentives and outcomes that we want from our economy. Because, so frequently, we hear the economy used as a refrain for why we can’t or shouldn’t do certain things, not least in the tax debate. And to that effect, I think it’s really important that we’re all just really clear about what we’re talking about when we’re talking about the economy, because what we’re talking about in the Greens is all of us, all human beings and the stuff that we create and the planet that we live on and the resources that we use and the rules that we put in place to try and incentivise or disincentivise certain ways of behaving inside of that economy.

Simeon Brown: And the best incentive is capitalism.

CHLÖE SWARBRICK: We do not live in a game of Monopoly, which, by the way, was invented by a woman called Lizzie Magie in the early 1900s to demonstrate precisely the problems with an economy that is premised on land speculation and the accumulation of capital in the hands of fewer and fewer people—to teach kids those things, Simeon Brown.

And to that effect, we can change the rules when they do not work for the majority of us. That is the point of this House. We saw it in the 1930s and 1940s when we had the introduction of the welfare state, the ostensible 40-hour work week, massively eroded by this point in time, with weekends, with public holidays. Then, in the 1980s and 1990s with the shredding of that social contract. And 40-odd years on, in 2023, confronted with the climate change - charged weather events that are ravaging particularly the North Island at the moment, we are presented with exactly those same choices, those political choices, as a House. What kind of society do we want to build? Because—to connect all of this to everyday people out there, and I’m sure that this is a sentiment that many of us have seen when out in our electorates and talking to the average New Zealander, the average Kiwi that we all like to bang on about, despite being so far removed from their realities—the average New Zealander, at least in terms of my interactions, is exhausted. They are exhausted from fighting against the system, of existing inside of a system that feels deeply inequitable.

That might be why we saw that reflected in that Newshub poll, that 52 percent of New Zealanders want a wealth tax to pay for the things that all of us rely on—by the way, not least the wealthy, who rely on public infrastructure, perhaps, for example, our court system to uphold the contracts which enable them to do business in the first place. This is about how do we create an evidence base, a data-driven conversation about the kind of tax system that we want in the first place. Unfortunately for the Nats, there’s not a wealth tax or a capital gains tax hidden in here. It’s just about the data. It’s just about the evidence.

And to that point about the exhaustion that I think is out there and felt by many New Zealanders who have been confronted with so many issues, whether it is the weather, whether it is COVID-19, whether it is these inflationary pressures, I think it’s important to reflect, actually, on something that hits all of us quite hard and personally, which is mental health in this country. The Government commissioned, released, and tabled the mental health and addiction inquiry, He Ara Oranga, just last term, and it told us, in essence, what all of the contemporary research on mental health and addiction tells us, which is that all of us are born with genetics that we’ve inherited from our parents and our grandparents. But, effectively, it is our environments, the social and environmental variables, which can turn the potential propensity for the manifestation of mental ill health and addiction up or down a notch.

Those kinds of variables are very similar to public health determinants. They are a sense of security, whether that be in one’s income, one’s ability to plan for the future, one’s housing situation. And, again, you only need to look at the bald facts that we have the lowest rates of homeownership since the 1960s, we have the highest rates of wealth inequality that we’ve ever had on record in this country, to see precisely why we have these rates of mental ill health. People are being bombarded with these challenges. Because resilience, particularly in the mental health space, is not a commodity that you can buy off of the shelf. It is a social contract that says that all of us are going to look after each other, and that is the role that we in this House have—to ensure that we have a framework which is reflective of how to best achieve that.

That’s why I just can’t understand that anybody would oppose us getting evidence so that we, for once, can have an evidence-based discussion about taxation and where fairness sits in this economy. Because we can do a lot better, and I think the majority of New Zealanders know that. The Greens support this bill.

Every year we come to this House to set or adjust the tax rates for this country, and we come here with some information, but not the ideal information, that we would want to have when we’re having these debates in the House about how best to reflect the interests of our whole country.

The Taxation Principles Reporting Bill is there setting out a range of principles that we want to have in our tax system. They’re internationally well-recognised. Horizontal equity—people with similar incomes should pay similar amounts of tax. Vertical equity—the system should be progressive; people on higher incomes pay a higher proportion of their income in tax. And then principles around collection of revenue efficiently; principles around minimising compliance and administration costs; and making sure that the revenue that we’re getting to buy the things that we need for public services is predictable each year so that we can have a system set up to support New Zealanders; and, of course, the system has to be flexible and adaptable—those principles are well understood internationally. They are not particularly new; though, bringing them into this kind of bill would be new for New Zealand—bringing them into a reporting regime, which is precisely what this legislation does.

It is a fantastic piece of legislation that will collect data to make informed decisions in this House every year when we change the tax rates. Every year in this House when we debate what our tax rates in this country should be, we want to be informed by the best information. Here is a bill that seeks to do that, to actually gather the data to make informed choices on behalf of New Zealanders. I think we’ll continue to see through this debate National arguing against transparency. They simply do not want a light shone on what is going on in the tax system, because they’re afraid it will show where people are being advantaged and where people are being disadvantaged. We, on this side of the House, think the tax system needs to be fair and principles-based and so we will defend this legislation, and I really want to commend this bill to the House.

Members, the time has come for me to leave the Chair for the lunch break, and the House will resume at 2 p.m. this afternoon.

Sitting suspended from 1 p.m. to 2 p.m.

Members, before we broke for lunch, we were debating the Taxation Principles Reporting Bill. The next call is a split call.

Thank you, Madam Speaker. Well, as we rejoin after lunch, it’s great to be able to stand and rise and speak against the Taxation Principles Reporting Bill. We heard some novel suggestions from one of the previous Labour speakers—that they are so committed to transparency—and I would laugh at that and say that this is one of the least open and least transparent Governments that New Zealand has ever had. Now, there is a bit of nobility around wanting to increase the information, and we all want transparency and we want a tax system that is open and transparent and, importantly, easy to administer. I’m not sure that we’re going to get that with this, because if we look at the other tax increases that this Government has brought in around interest deductibility, around the brightline test, that has significantly increased the administrative burden and cost on the New Zealand tax system.

We saw an investigation that the Minister set off recently into 311 wealthy New Zealanders, and it was about increasing transparency, supposedly—I would challenge that and say that it was about laying the groundwork for a wealth tax. We know that this Government has said that they will not have a wealth tax, but the reality is if Labour wins the next election they will be in coalition with the Green Party, with Te Paati Māori, who have both over the past 24 hours said that they are ardently committed to a wealth tax. So the reality for New Zealanders is if there is a Labour Government next term, it will have a wealth tax component as part of any coalition agreements.

I will go back to that study, and I raised it earlier today, that it wasn’t an accurate study and it didn’t give New Zealanders a fair reflection, because it looked at the wealthy New Zealanders and it took into account unrealised capital gains, but when it looked at the average New Zealander, it only included PAYE income, which is completely misleading and didn’t account for their unrealised capital gains.

I will also point out something that I read. This Government likes to say about how they’re for the working class and how they’re for the average people; they show themselves, you know, to be committed to every average New Zealander. This Government has presided over the greatest wealth transfer from the lower and middle classes to the wealthy in New Zealand’s history. That report showed that, in 2017, those 311 individuals took an income of $1 billion. You fast-forward to March 2021, and, under this Government, that had skyrocketed to $14.7 billion. So that is what these champagne socialists do. They preside over inequities, they preside over incredible wealth transfers, and they claim to be open and transparent about it.

Now, we don’t need a taxation principles bill to show us what our principles should be around taxation. We want it to be open, fair, and easy to administer. The National Party’s principles on tax are simple: we want Kiwis to keep more of their hard-earned dollars, because on this side of the House, we fundamentally believe that New Zealanders deserve to keep more of their money and they know how to spend it a lot better than the Government does.

Now, the socialists on the other side of the House will disagree with me on that and they will think that the Government knows better. We heard that there were piles of wealthy people ringing in to hand out more money, wanting to give more. You would think—and the ACT Party put it quite well yesterday—there was a line of people lining up outside the Beehive to hand over more money to this Government in the belief that this Government does such a good job with it. That’s the sort of happy fairy tale that you read to young socialists at night, but on this side of the House we fundamentally believe that hard-working New Zealand taxpayers deserve to keep more of their money. We don’t believe this bill will enhance that. We don’t believe it is a bill with a purpose. We don’t believe there are any substantive ideas in the framework of it, and the bill is also very light on the details around what reporting would be required. So I quite clearly stand to oppose this bill.

I call on Rachel Boyack for five minutes.

Thank you, Madam Speaker. It’s a pleasure to take a short call on the Taxation Principles Reporting Bill. Just in response to Sam Uffindell, the former speaker, about the bill’s purpose: the bill’s purpose is very clear. It actually states in the general policy statement that “The reporting framework is intended to increase the availability of information about the operation of the tax system and contribute to an improved understanding of tax policy among the general public.” That is the purpose of the bill. It is about providing information to the public about how New Zealand’s tax system operates in line with New Zealand’s tax principles.

It’s a very straightforward, non-political bill. It’s quite bizarre that the other side thinks there’s some kind of conspiracy theory going on about this bill—because that’s exactly what it is. It is literally a conspiracy theory from a party that thinks its answer to supporting working people is to give working people $2 a week in a tax cut.

On this side of the House, we have a bill that is about ensuring we have a good line of sight over our tax system and how it is operating, and I commend the Minister of Revenue for his work on this bill. I look forward to hearing on it as it reports back from the select committee, and I commend it to the House.

Tēnā koe, Madam Speaker. Thank you. It’s a pleasure to rise in what will be a brief call on the Taxation Principles Reporting Bill, and the reason for that is I want to commend the Minister, Minister Parker, for bringing this bill to the House. His comments earlier were around “In the absence of facts about actual outcomes, those half-truths can be … easily manipulated to suit political objectives and vested interests.” And haven’t we heard a wee bit about that from members opposite, today?

This is a bill that is based on evidence, and what is fundamental is this issue of fairness. Kiwis all around Aotearoa New Zealand, in communities up and down this country, expect fairness when it comes to the principles of taxation. And that is why I commend this bill to the House.

Well, thank you very much, Madam Speaker. It’s an absolute pleasure to rise to speak on the Taxation Principles Reporting Bill, first reading. Hasn’t it been interesting this morning and this afternoon to hear some of the commentary from the other side? Comments such as that from the Hon Minister Twyford about how transparent this Government has been in regards to taxation and their principles; how the Minister in their speech said very genuinely, “I’ve written to all political parties and we are open for discussion.”—if I quote the Minister in regards to his comments on this bill only a few hours ago.

Well, on 9 May, in the Finance and Expenditure Committee (FEC), in regards to this exact topic around the IRD departmental report, I tabled a motion to move that the committee call for relevant officials from IRD for a one-hour briefing on the high-wealth individuals research project, published in April 2023—a simple request, a simple motion, in order that the Finance and Expenditure Committee, of which a number of members are in this House right here, could actually get officials to come in and outline more background on the underlying principles of which this bill is based upon. And, as has been outlined, in terms of the Minister’s letter, I am open for discussion. When that motion went to the committee, it was supported by, of course, National, ACT, and even the Greens supported that motion. But Labour members voted that motion down. They voted down the principle of transparency of getting the Inland Revenue in to explain some background around the tax principles in the research report that underpins this bill. They voted that down. So all this narrative from the Minister and the members on the other side holds absolutely no water. They have no credibility. They are simply words. The evidence and the substantiation around driving more transparency, being willing to discuss this in open forum, was shot down in flames.

That personifies a Government that is all talk and no action. How could you hide behind the fact that you do not want to talk about the integrity of this report? Sure, many will see pros and cons around this, but I think it has placed in particular our Inland Revenue Department, which was, for the record, the first organisation that I was employed in at university—right? I was a summer intern for the Inland Revenue Department, working in Manners Mall in personal customer services—that was a department back in those days—and it was an absolutely exceptional organisation. I worked with, and learnt from, some of the best people. But I believe that they will be very disappointed by this bill because this bill, and the underpinning report that they were commissioned to do by the Minister, has become politicised, and that is a great shame in terms of the integrity of our tax system.

Schedule 1 of this bill talks about tax principles. It outlines a number of aspects in regards to concepts of horizontal equity, vertical equity efficiency, and likewise. A number of speakers on the other side have articulated that these are all well-established principles. Well, they are not. They are not well-established principles. There is significant commentary and also criticism from officials in regards to the explanation of some of these principles, some of the assertions and unfamiliar nature of the statements—in particular, the unfamiliar statements around horizontal equity, which is one of the principles here on the sheet—absolutely acknowledging that there are different positions on these aspects. Inconclusive and contested statements—the comments from officials—around GST is regressive. We heard the Minister speak exactly that statement in his speech today in regards to that.

But there is ideological overlay in regards to that, and the way in which this has been blended into this bill means that this is simply not credible. The Minister is using incorrect information, or, potentially, the Minister is misunderstanding the information, which, as a result of that, can lead to mistrust. What I mean by that is the Minister is cherry-picking particular aspects from that IRD high-wealth report. I’ll give you an example of what I mean by that. He consistently refers to the mean wealth of $276 million, when the median wealth is actually $106 million, a far more appropriate measure. But the element that the Minister is deliberately using in regards to referring to mean wealth indicates a completely different quantum of differential. That use of incorrect information—or potentially he misunderstands the information, or misunderstands the difference between “mean” and “median”, which, I don’t know, maybe he does. Something’s going on, but the use of that incorrect information is causing mistrust and that is well known and that is established in terms of what the Minister has articulated.

The other aspects that the Minister has referred to in regards to some of those principles—he said in his speeches earlier today that the bill includes sound principles; another quote: “generally accepted principles”. Well, I’m sorry, that is a perspective from a Minister that is trying to drive through ideological tax reform and they are not based on getting a wide perception of feedback from tax experts and specialists across this country.

This leads me on to the process, if any, in terms of the substance of the consultation that has been undertaken leading up to the provision of this bill. Because, for what we know, the consultation on this bill has been lacklustre. It has been limited. And while there was some consultation, it is very clear, from some of the official reports, that the people who were consulted around this bill do not fully endorse this bill, and that is the reality of what we are seeing. That’s a shame, because if you only consult a very narrow group, you’re only going to get a very narrow aspect of feedback. But then if that narrow group doesn’t necessarily endorse this bill, then one would expect that maybe you should go a little bit wider before tabling a bill under urgency in this House, with a shortened report back, in regards to pushing this through under pace. I mean, there are probably only a couple of reasons why you would want to do that for a bill. Or there could be a couple of reasons why you’d want to do that: one, you’re sitting on your policy tax agenda for the election and you need some of this stuff in the play to allow that to be endorsed or substantiated. The other reason is—well, who knows?

The other factor around this bill is in regards to the costs of actually funding and administering this bill. There’s nothing in the clarity in terms of what it is going to cost. What are the resources? Is IRD going to be receiving any additional information in regards to being able to administer this Act, and what will that look like? So there is a cost of doing this and there is no clarity around what that would be. Well, there actually is, in terms of some of the cost benefits and the number of fulltime-equivalents, but there’s no clarity in terms of how that will be funded.

So we’ve talked about funding. We’ve talked about consultation. We’re talking about the things that people who were consulted have not endorsed. We’ve talked about the principles which are not generally accepted. We’ve talked about the fact that when they say transparency, they act completely differently. And we’ve evidence that substantiated that, with an example in real life in FEC where that was in exactly this area on exactly the same topic. We’ve talked about the use of incorrect information by the Minister.

Lastly, I’ll finish off with the powers within this bill to be able to request data from the public. It is without doubt that this bill opens up the ability for Inland Revenue to collect data from New Zealand citizens in an unfettered manner. That should be raising significant flags in terms of the scope of what that information will be used for. New Zealanders don’t need more big government in their lives. This bill is a bad bill and, for that reason, we will be opposing it.

As I listen to speakers on the other side, I keep wondering: why are they afraid of this bill? Why are they afraid of putting sunlight on to data, unless it is because they are scared that it will change the status quo?

What is the status quo? Well, until recently, there was a sense of growing inequality, an understanding of massive inequality in this country. And then recently, now, we have the high-wealth report, which has evidence, and that is a masterful project that I think will be the signature project of our Minister Parker for actually getting data into the tax system, to say let’s get some principles that we can all agree on so that we can have a fair playing field.

I am shocked that the previous member would question tax principles that are almost universally accepted around horizontal equity; vertical equity; revenue integrity; certainty; predictability; the ability for a system to be flexible, for it to be adaptable, for it to be efficient. These are well-established principles that are in every tax regime worth its salt around the world. What is being proposed is that these are accepted and they benchmark so that we can have data that is fair, that is open, and I certainly think that it is very fair, as a taxpayer, to know whether other taxpayers are paying their fair share or not.

So the only conclusion I can draw is that the resistance from the Opposition is because they are fearful of this legislation, they do not want to see the status quo change, they like to see the inequality in this society, and they are afraid of the sunlight that this bill will put on to our tax system. It’s an excellent piece of work, I commend the Minister, and I commend this bill to the House.

The question is, That the Taxation Principles Reporting Bill be considered by the Finance and Expenditure Committee.

Motion agreed to.

Bill referred to the Finance and Expenditure Committee.

Instruction to Finance and Expenditure Committee