Taxation (Budget Measures) Bill

Members, the House is in committee on the Taxation (Budget Measures) Bill. Members, we start with the debate on Part 1, the debate on clauses 3 to 7, “Income Tax Act 2007 amendments commencing 1 April 2024”. The question is that Part 1 stand part.

Point of order. I seek leave for all provisions to be taken as one question.

Leave is sought. Is there any objection? There is.

Mr Chair, thank you. There’s a fair amount to absorb in this bill and we’ve only had it in our hands for a few hours. I do appreciate the efforts to which the Government went to ensure that the bill was actually available to us from 2 p.m. So that was a generous gesture, and I think it has made—well, it’s still a lot to absorb in a few hours. We’ve had a lot of conversation, in the last two readings of the bill, about the generalities of this bill, and it is trying to get into some of the specifics, which I very much want to do now.

Part 1 amends the Income Tax Act 2007. I’m just trying to find my way to clause 3 because I know I had something I wanted to ask about that clause 3. We’re amending—I know it was—oh, it must be clause 4. So there’s a whole lot of stuff there in clause 4 where we’re inserting new sections LC 14 and LC 15. Now, those sections of the Income Tax Act 2007 are to do with the various tax credits that are available.

So LC 14 is the amount of the tax credit for independent earners for 1 April 2024 to 30 July 2024, and then new section LC 15 is the amount of the tax credit for independent earners for 31 July 2024 to 31 March 2025. These are really unusual dates. They are really unusual dates to appear in a tax bill. The dates are normally, like, you know, the first of a month or maybe the last day of a month, and the dates that we normally expect to see in an income tax bill are dates like, you know, 1 April, which is the first day of the tax year, or 31 March, the last day of the tax year. We might see dates like, maybe, you know, 1 October, because that’s halfway through. So we’d normally expect to see the beginning, the end, the quarters, but in this one—so this is the tax credit that’s available to independent earners.

Now, that’s a tax credit that’s designed for people who are working. They’re in what’s called full-time—you know, deemed to be full-time work. They’re not on an especially high income; though, I note that now the independent earners tax rate will go up to—it only fully abates at, I think, $70,000. I’ll have to check that with the Minister at some stage.

Hon Simon Watts: $70,000.

Hon Dr DEBORAH RUSSELL: Oh, it abates up to $70,000. So what it’s done is it’s for people who get no other form of tax credit. They’re not on benefit, they’re not getting superannuation, they’re not getting any of the other tax credits, and it just gives a little bit of extra to people who are, you know, earning their own income and it just gets them a little bit further along.

But the bit that’s really curious is that date. It’s a really, really unusual date. I’d like the Minister to explain why that particular date has been chosen—in new section LC 14, 1 April 2024 to 30 July 2024, and in LC 15, 31 July 2024 to 31 March 2025. So there’s obviously all that sort of stuff going on in there. But, of course, those are dates that are related to a tax year. I guess the difficult or interesting thing was it will be in relation—not just the particularly curious dates, but how it’s going to work for someone who has an income year that is different from the standard tax year. So what dates are going to apply in that case? So that will make a bit of a difference as well. I sort of just want to see what the impact of the income year versus the tax year is there. So I’d like the Minister to explain that. Is there somewhere else? We’ve got some curious dates aligned to these curious dates—which, you know, just to see why it’s all set up that way.

So if the Minister could explain, I would be very grateful to know exactly why, in this very first set of things we’re debating, having a little bit of a look at, we’ve got those very, very unusual dates.

Thank you, Mr Chair. I appreciate the opportunity to take a call on Part 1 of the Taxation (Budget Measures) Bill. Mr Chair, I know this is in urgency and we haven’t had a select committee, so you’ll forgive me for asking questions that also would have been of the nature that we would have had answers to in a select committee process.

First of all, I was interested in, in Part 1, whether a distributional impact analysis had been done around the changes to independent earners. This is something that I’ll seek answers to in other parts of the bill, but if there’s anything to the provisions in Part 1, that would be quite useful. The reason why I’m asking is because this bill, altogether, has been touted as a cost of living relief bill, and I think it’s important to get a sense of what level of analysis the Minister received when it came to the distributional impacts. I know that in Part 1, we’re mostly talking about independent earners and the changes around that, but, at the end of the day, that is still a section of the population that is worth considering.

Also, around the changes to the abatement rate, I did want to get a sense of whether any exploration had been done around other parts of the system and how those interact—say, for example, if somebody’s receiving an accommodation supplement.

Then the other thing on Part 1 that I want to test is whether there had been anything in relation to a child impact assessment. We have received, in the overall Budget, information regarding child poverty levels, but, obviously, as part of any legislation process there is the ability to seek advice on how a piece of legislation may impact children very specifically. I’m curious to know whether a child impact assessment—which is a tool that could be used, for example, at a select committee stage—was used, and, if so, I’m keen to get the Minister’s analysis around exactly how he thinks Part 1 would impact children specifically. I know that we can use this tool for any type of legislation, but obviously legislation that has to do with income and tax has quite a direct impact on children’s livelihoods.

Then the other thing I’d like to ask is in relation to distributional analysis. I’m keen to get a sense around whether he received advice around how many people in the country are within that range of that $0 to $14,000.

I did want to check whether, for example, he received any advice from Whaikaha around disabled people with carers or people who may not even be eligible to income support who are disabled—for example, people who are in a relationship with someone who has an income yet will not be eligible to any income support, and therefore won’t necessarily receive an income. I wanted to check whether he sought any advice from Whaikaha around how disabled people would feature alongside these changes.

Thank you, Mr Chair. I’m seeking to engage with the Minister of Revenue in a back-and-forth line of questions about this Part 1, particularly clause 4 and the dates in that clause. May I, first, ask the Minister: will people receive this benefit on 31 July?

Thank you, Mr Speaker. I’ve got two quite specific questions for the Minister in the chair, Simon Watts, that and it would be useful for us to get an answer reasonably early on so we can get on to further lines of questioning. The first that I want to ask the Minister—and apologies if it is in some of the regulatory impact statement work and we haven’t had a chance to uncover it yet, but, of course, any tax changes that have the impact of, effectively, raising people’s incomes will have flow-on Government savings, in terms of the eligibility for other benefits, for example. So, across Government spending, what other incomes that are assessed after tax income will there be savings on, and has it been calculated what the net cost to Government will be with those savings factored in?

The other question I have for the Minister relates to clause 7(1) of the bill, with Table 1, which has some very unusual tax rates through there—nothing that meshes with what our effective tax rates are in New Zealand, or, indeed, our marginal tax rates. We’re seeing some tax rates of things like 12c—that is not a tax rate in New Zealand, so I would like to know from the Minister why it is that these have been calculated in this way, and why they’re appearing in this table with these very unusual rates that don’t correlate to the New Zealand tax system. Is it something to do with the date of introduction? Is it an averaging out because this is coming in? As my colleagues have pointed out, there’s some unusual dates that we’re not used to seeing in tax legislation in this bill. So is there something to do with the fact that it’s needing to smooth out what isn’t correlating to what we’d see as the normal run of a tax year? Very interested to find out the answer to that and also what the effective savings to Government are.

Thank you very much, members, for those questions. I’ll come first to Arena Williams’ question. The answer is yes to your point around 31 July.

The Hon Dr Deborah Russell and the Hon Dr Megan Woods both had questions in regard to dates. The key objective of this coalition Government is to effect and implement the changes in the income tax rules as soon as practicable, but one of the practical considerations around that is the time that it would take for payroll providers and other large entities that play a role in regards to that because of, obviously, the Budget sensitivity considerations—to ensure that they were set up to be able to effect those changes. The practical time period which we felt was appropriate, in conjunction with feedback from them, was the period of three months, and hence why it is the date of 31 July. So it’s simply a reflection of the practicality of allowing the broader system to be prepared to implement the change while acknowledging that the key objective of providing tax relief to hard-working New Zealanders is to deal with and provide them with that relief as soon as possible to alleviate the issues that they’re facing under the cost of living crisis, and so the balancing of those two aspects was pretty central.

In regards to questions from Ricardo Menéndez March around the child poverty reduction impacts, the modelling—

Ricardo Menéndez March: Child impact assessment.

Hon SIMON WATTS: Yep, yep—

Ricardo Menéndez March: It’s its own thing.

Hon SIMON WATTS: Oh, child impact—OK, right. Well, I’ll come back to the member in regards to that. The Treasury’s model cannot forecast the material hardship considerations, but there was a broader assessment, which the Minister of Finance noted today.

I think another question was in regards to distributional impacts as well, and Treasury have made some broader comments around that.

There were also some questions in regards to some of the abatement rates, I think. I wasn’t necessarily sure exactly what the member was referring to, but in regards to the practical considerations around how the abatement thresholds would operate, they are consistent conceptually with the prior way in which abatement thresholds operate—i.e., they abate the closer one gets to the maximum threshold. That is consistent; we’ve simply just moved the threshold numbers around. So the overall methodology of an abatement has not changed; it is just the base numbers which we have utilised.

That’s pretty much the questions that I’ve got. I think there was one more from the Hon Dr Megan Woods, and I’ll come back to you, now that I’ve just thought of it.

I’d just remind all parties that the preferred, but not mandated, way of doing this is to do a question and answer, as indicated by Arena Williams. However, I am aware that it takes all parties to indulge in that.

Mr Chair, thank you. Given the Minister’s answer to my question—yes, people will receive this benefit from 31 July—and he also elaborated a little in his answer on his preparations with payment providers. My second question is: given that he said it’s three months, that doesn’t seem to allow three months for the passage of this bill should he not accept my amendment which would extend this for another month.

Then my next question for him is: if people do not receive the benefits on 31 July, will they be eligible for back payments? So I guess my fourth question for the Minister is: has he done any thinking around how people will receive back payments and whether it will be necessary to prepare his officials to engage with something like that being needed, given that his dates are incredibly tight in the legislation he’s introduced to the House today?

Thank you very much, Mr Chair. Look, I hear the member, but, as I’ve articulated, the coalition Government’s priority is to actually deliver tax relief to hard-working New Zealanders as fast as practical. An amendment which is going to look to extend that time in order to provide that tax relief doesn’t seem to correlate with the intent of getting those payments out there as fast as practical.

What I’ve outlined there clearly is we have undertaken assessment of the time it would take to practically make those payments. We’ve got an assessment around that time. That date is as of 31 July; that is practical. We’ve got confidence that we can deliver upon that and we will deliver upon that. So I’m not going to be accepting an amendment that looks to extend that further out into time. That just simply wouldn’t make any sense.

CHAIRPERSON (Greg O’Connor): The Hon Megan Woods. Sorry, she didn’t stand up. The Hon Deborah Russell.

Oh, thank you, Mr Chair. I mean, I do really admire my colleague the Hon Dr Megan Woods, but we are different people. I want to continue to focus on this commencement date of 31 July. Now, the Minister has given, as the reason for commencing this towards the end of July, early August, whenever—it was to do with payroll providers and whether or not they could get their systems into place and up and running in time to be able to deliver the changes to the income tax thresholds and the changes to the independent earner tax credit and the changes to all the things that get changed when you change tax rates around. But 31 July is still a really odd date.

Hon Kieran McAnulty: Isn’t it?

Hon Dr DEBORAH RUSSELL: It’s a very odd date. It’s very odd because, as I said before, when tax threshold changes go through, they normally go through from the first of a month, right? That would be sort of the usual and regular thing to do. Not only that, they normally go through from the start of a quarter, at least—or I can recall changes that have gone through on 1 October, or changes that have gone through on 1 April, and so on. But 31 July is a very unusual date. So I thought, well, maybe it’s to do with the day of the week or something like that, but 31 July is a Wednesday.

Hon Kieran McAnulty: Is it the Minister’s birthday?

Hon Dr DEBORAH RUSSELL: I can’t work it out. Again, you might think it might go from a standard work week or something like that—though, there is really no such thing. But it seems like an odd date.

Now, I get the explanation that was given that was to do with finding a date that payroll providers could work to, but why not 1 August? I’m serious about this. Or why not a date that corresponded with the start of a week or something like that? He has not yet explained why this very, very odd date. It is unusual.

So I get the lead time. I get that. That’s an issue. So there is this date around this—very unusual date. I would like to hear an explanation for why 31 July as opposed to 28 July or 3 August or whatever—you know, something around there. There must be a reason for it other than that someone stuffed their finger in their ear and thought that would be a good date.

I want to know a little bit more about the payroll providers too, because, again, I get that third-party payroll providers do take time and effort to get those changes through. There is a lead time associated with making tax threshold changes. There are complex systems that need to be worked through in order to get those changes in place. I know that Inland Revenue has extensive experience in working around tax threshold changes. There’s a lot of knowledge around about how to do it. We kind of know what the lead times more or less are. But in terms of third-party payroll providers, there’s the third-party payroll providers, which the Minister referred to, himself, but I was also wondering, it’s not just the third-party payroll providers; it’s some of the really, really big employers we have within Government, all right? So if we think about some of our Government entities, there’s employers like the ministry of social welfare, there’s the Ministry of Social Development, there are employers like IRD itself, there is Kāinga Ora—who else has got a huge payroll? Defence.

Hon Dr Megan Woods: Well, not many now, because they’ve all been cut.

Hon Dr DEBORAH RUSSELL: Well, of course, payrolls—but some of these entities actually have very, very large payrolls themselves. So, obviously, the Minister consulted, or his officials, with third-party payroll providers, but I wonder if the Minister could tell us about what consultation was undertaken with some of these very, very large employers who do their payroll themselves, because that’s what they do, you know, within the Government themselves, and what consultation was there.

I just want to remind people, of course, for the obvious reason, that we haven’t had a select committee stage on this, that this is our chance to examine some of these sorts of issues. So I really would like us to have an answer to these and a bit of reassurance, actually, that they have spoken to them. I get that the Minister will be confident that the payroll providers have said they can do it by this date. What I want to know is that other large employers can also get these payments, these new tax thresholds into place by that time.

Thank you, Mr Chair. I’ve got a question that has been perplexing me, and I’d really like to know if the Minister has turned his mind to it. It is to do with new section LC 14, “Amount of tax credit for independent earners for 1 April 2024 to 30 July 2024”, which is inserted by clause 4. Subsection (2) talks about the formula being a “(person’s credit − full year abatement) × credit period days ÷ 365.” There is also a reference in subsection (5) to the tax year; in subsection (6) to the tax year, the tax credit tax year; and then in subsection (6), “ Credit period days is the number of whole days in the credit period.”, and then it says, “Defined in this Act:” and it talks about the tax year.

Now, this is very specific to a period of time before we get to the beginning of the financial year and my colleague the Hon Dr Deborah Russell has referred to payroll systems and the mechanisation of some of these formulas. We have seen, in Health New Zealand’s payroll system, and also in education, years and years of problems with not being able to determine payroll-type situations because of mechanisation and because the systems have not been able to allow for shift work and so on. So when I ask this question, it’s very genuine. We’re talking about a very specific period of time. This is a leap year. There are 366 days. This credit period here says “365”. Now, I know that it’s not the whole year, but if we are talking about a defined period of time in the Act, then it would seem out of fairness and accuracy we should have actually had 366 days. So I’m curious to know why the Minister has opted for 365.

Did anybody actually turn their mind to this, and is it something that you would normally turn your mind to, and, if not, why not? The reality is that we’re in a leap year and this is a real calculation that people will be doing on their earnings. We know that the Inland Revenue Department tries to be as fair as possible. I know, for example, that sometimes people have got tax returns sent back to them. In the old days, people would get a cheque for 39c in the mail to say, “This is your fair entitlement.” That is how fair the Inland Revenue likes to be, because this is about numbers—numbers are accurate—and I do not understand why, in a leap year for a specific period of time under new section LC 14, there would be a reference to 365 days to do a calculation that is somehow going to be wrong.

Is that fair? Did the Minister turn his mind to it? Did he seek advice on it, and will the systems that are used to calculate this be able to do so in a fair way given the realities of the fact that we have an extra day this year?

Thank you, Mr Chair. I am conscious that I am repeating myself, but I will for the final time in regards to this date, because the date seems to be quite complexing for members of the Opposition. The date that was chosen will facilitate the fastest period of time in which this coalition Government can deliver tax relief to hard-working Kiwis. The consultation that we undertook, including with the Ministry of Social Development, including with ACC, including with the Ministry of Health, and all of those large Government departments indicated to us that that date period would provide them with adequate time in order to ensure that they could make those changes. So we did undertake consultation with large Government departments, which was a question from the Hon Dr Deborah Russell.

The other aspect in regards to payroll providers—yes, we did consult with them. Their feedback to us was that 31 July was a sensible period of time for them to effect the changes. So on that basis, that’s why we put in place this date. We have not had changes in tax thresholds since 1 October 2010. So the criticality of getting these tax changes in play, into the back pockets of hard-working Kiwis as fast as is practical, is what’s driving this Government. I don’t think that’s unreasonable. Actually, I think that’s quite practical. That’s why, on this side of the House, we are a practical Government. We’re trying to get in place these tax changes as fast as possible, and that’s all we’re doing. That’s all we’ve done. I’m not sure where the Opposition is coming from in terms of asking why we don’t take longer.

Thank you, Mr Chair. I do want to remind the Minister the Hon Simon Watts that he hasn’t as yet answered my colleague Megan Woods’ question about clause 7. The standard income tax rates—10.5 percent, 17.5 percent, 30 percent, 33 percent, and 39 percent—are the tax rates that sit in the income tax scale as it is at present, and the income tax scale as is going to be proposed by this bill. Those are the numbers you’d expect to see in the legislation, but if we go to Schedule 1, the income tax rates we see there are 10.5 percent—well, it’s expressed as 0.1050. Putting this in percentages, it’s 12.82 percent. That’s neither 10.5 nor 17.5, or anything like that. Then it’s 17.5. Then the next tax rate there is 21.64 percent. It’s like the unusual date; these are unusual numbers.

Anyone looking at this bill would be looking to see the standard tax rates, and they’d look at this and they’d go, “Why are these numbers sitting in there?” The next one is 30  percent. That’s a standard tax rate; we’ve had that in place for a long time. But then the next one is 30.99. So you sort of think, “Where has that number come from?” I’m going to hazard a guess as to why it’s there. It’s because they’ve got this unusual start date, and so there is something going on there. But I would like to know where the Minister gets those numbers. Again, I just want to know where those unusual numbers do actually come from. Now, this is a question that my colleague Megan Woods asked, and it hasn’t been answered as yet.

Sitting in the same sort of space—and this one has really got me curious, because actually I couldn’t work this one out—

Hon Dr Megan Woods: You’re a curious person.

Hon Dr DEBORAH RUSSELL: I am a curious person. We’re told that these new tax rates are coming in from 31 July, but if we go to clause 6—now, we haven’t discussed clause 6 yet, so I would like to have a look at clause 6—clause 6 concerns fringe benefit tax (FBT). Actually, the numbers around fringe benefit tax are quite confusing in themselves, and we haven’t discussed this yet.

The way FBT is calculated is rather complex, but the bit that really gets me, and that I find really curious, is that sitting in the commentary on clause 6—now, this is sitting in the bill commentary—it says that it’s going to start in place from 1 April 2024. Now, the commencement date itself is interesting, but there must be a mathematical reason for that, or some reason why the FBT rates are going to start from that particular date. It must be to do with their relationship to the income tax rates, and the timing of the year, and things like that. So I would like to have a little bit of a discussion from the Minister as to that relationship of the FBT rates to the income tax rates, and in particular, again, that date—why 1 April 2024 when the rest of it is 30 July?

Again, there’s a disparity there. I would like the Minister to explain why it’s there and, if he could, I think, especially those questions that my colleague the Hon Dr Megan Woods raised. They have not been answered yet.

Thank you very much to the member for those questions. Going back to the original questions by the Hon Megan Wood—

Hon Dr Deborah Russell: Woods.

Hon SIMON WATTS: —Woods; sorry, the Hon Megan Woods—about why the rates are a little bit different, well, the member the Hon Dr Deborah Russell actually answered the question. It’s because there are, in effect, two sets of rates in one year, and as you’d expect, we need to do a composite set of rates to take into account to get the full-year effect. So what you’re seeing in that table is the composite set of those two rates. The Inland Revenue Department has calculated those, and that is the method behind that table. So I hope that covers off that question.

On the question in regards to fringe benefit tax (FBT)—if I recall rightly—there have been changes to the FBT thresholds, which will flow through from 1 April 2025. There is a technical change in regards to the attribution calculation in the area of the way in which FBT is calculated, and some of those changes will apply from 1 April 2024. This change simply refers to the fact that the employers are paying the correct amount of FBT given the changes that apply to personal income tax rates for FBT. So they apply from different dates. That’s the reason why you’re seeing the implication in regards to those aspects in the FBT aspect of the calculation.

A couple of questions following on there. I just want the Minister to clarify, because I’m assuming it was a slip of the tongue, because he said those fringe benefit tax rates—if we check the Hansard you’ll see that this is what he said—was that applied from 1 April 2025. But I would like to clarify that that was just a slip of the tongue because the bill commentary that I was discussing in relation to clause 6 does say 1 April 2024. So I’m hoping that was just a slip of the tongue. So that was a very simple question. So just that very simple question there, please.

RICARDO MENÉNDEZ MARCH (Green): Thank you, Mr Chair. I know that the Minister in the chair, Simon Watts, has been taking advice back and forth, so this is not with the aim of sounding repetitive, but I am interested, in Part 1, whether a child impact assessment had been done, and I also wanted to understand whether any conversations had been held with Whaikaha. Again, I know the advisers are kind of moving back and forth, so I just want to make sure some of those things don’t get lost.

On the independent earner tax credit, I did want to ask whether he had seen any evidence about whether the effective marginal tax rate generated by an abatement rate of 13c in the dollar for the independent tax credit as a result of also changing the abatement rate of the Working for Families credit and, potentially, the accommodation supplement—I think what I’m going at here is around—

CHAIRPERSON (Teanau Tuiono): Can I ask the member to get closer to the microphone. We’re having trouble hearing you.

RICARDO MENÉNDEZ MARCH: Of course I can, sure.

CHAIRPERSON (Teanau Tuiono): And maybe just slow down a bit.

RICARDO MENÉNDEZ MARCH: Sure. Look, I’m trying to use the time, and, you know, as a member who, I think, tries to not repeat points, I’m trying to fit in as many questions as I can, but thank you, Mr Chair. So I wanted to get a sense of the interactions between the abatement rate and the independent earner tax credit in relationship to other parts of the system.

The other question I had was—and I know the dates have been traversed, but around the distributional analysis, and, again, that hasn’t really been touched on. I know there’s been a lot of commentary in the media around, for example, superannuants not being particularly better off as a result of this bill, but going back to the personal income tax threshold changes, I did want to get a sense around, you know, whether he has confidence that this bill in isolation isn’t actually leaving those lower-income earners behind.

I go back to my point. We’ve seen the Budget analysis on child poverty rates, but there are child poverty implications with, particularly, the tax threshold changes and including, potentially, the independent earner tax credit. This is why I want to expand on why I’m focusing on the impact of children in this legislation, because we haven’t really received a super thorough analysis around the impact on children in this legislation alone. I know we’ve been encouraged to think on the impact on children in the whole Budget, but the Minister has yet to address my point.

I want to go back: this is not around child poverty in and of itself; this is also very specifically to whether the Minister requested a child impact assessment.

Hon SIMON WATTS (Minister of Revenue): So the answer to the member’s question is, no, we didn’t look at the child impact assessment implications in regards to this bill.

In regards to the question from the Hon Dr Deborah Russell, what I was referring to is that, normally, the next time the fringe benefit tax charges would take effect is from 1 April 2025, but the changes in regards to the attribution model changes, because of the changes we’ve made to the personal income tax, will be from 1 April 2024, and so that was the context in which I was outlining.

I move, That debate on this question now close.

There is quite a lot of material that still needs to be covered, so I will not be taking a closure motion at this time.

Thank you, Mr Chairman. One of the things that I’m interested in—again, apologies to the Minister if it is in some of the associated materials; we haven’t got to it yet but maybe the Minister, either himself or through his officials, can point us to where that analysis is in the accompanying documents.

What we heard today, where the Government announced the tax measures that are covered out in Part 1, which lays out the rates of these taxes with a number of scenarios—and in some cases, the number of families and individuals that would benefit from different scenarios within the tax package that is in this bill. So what we heard was that average income households would receive tax relief of up to $102 a fortnight and eligible families would receive a FamilyBoost childcare payment of up to $150—accepting that the child boost is in the next part of the bill, and I’m not asking questions about that.

What I would like to know: was there modelling done on the number of families within a variety of different scenarios? So, for example, how many families will be receiving the maximum? Are there families that will be receiving the $250 a fortnight that was talked about on the election campaign? How many families will be receiving what the Minister indicated in her speech in the House today that these tax cuts would deliver of the $60 a fortnight? What are the brackets of numbers of families and individuals throughout the country, and has any analysis been done?

I guess in many ways it flows on from some of the questions that my colleague Ricardo Menéndez March has been asking in terms of what this does in terms of the number of families in work and not in work, given there is a change to that in-work tax credit. Does that open up differentiation further between poverty levels between those families that are in work and not in work?

So we would expect in select committee, this is just the kind of analysis that we’d go through to look at what the distributional impacts would be across the number of households; whether there has been any geographic breakdown in terms of where it is that we will see the clusters of families that will be receiving either above average or below average tax relief—well, it’s not relief—the tax cuts that are delivered through this package.

So these are the kinds of things that I think that as a committee who is scrutinising this legislation in the absence of a select committee process; that in this committee of the whole House, these are just the kind of understandings that we as legislators need to know. Who is going to benefit? How many people are going to benefit?

James Meager: Everyone.

Hon Dr MEGAN WOODS: Where are they? We have members opposite who are saying “Everybody.” Well, let’s see the modelling. Can the Minister please point to the modelling that shows us where “everybody” and how many—are we talking households? Individuals? People? There are a lot of pieces of information that we need, and I would think that members opposite might be interested in knowing whether their constituents indeed are going to benefit or they are going to be worse off.

So they’re things on this side of the Chamber that we do need to understand, and we know that some of this must exist because the Minister used it in both media materials—not this Minister, but the Minister of Finance today used it in both media presentations and press releases and speeches in the House when she talked about various scenarios. For some she gave numbers but not others, so we would be very interested in understanding what that looks like.

Just in response to the questions by the member: yes, a wide range of distributional impact analysis was undertaken in regards to the preparation of the scenarios and the different scenarios that you would expect to see across this Budget. A number of those specific scenarios was and is included within the fact sheet that has been provided out as part of the supporting material for this Budget, and there are circa nine examples there.

Obviously you can’t publish every single scenario because there’s a wide range of those, but the member will know, no doubt, that that work has been undertaken and we’ve published a number of those ones which provide a wide spectrum of range of how the impacts could be felt by different participants and different members of our community.

Point of order, Mr Chair. Thank you, and I thank the Minister for that answer. While I appreciate every piece of paper of analysis can’t be tabled, but the Minister has confirmed to us that distributional analysis that does give some of that numerical breakdown exists. I’d ask the Minister if he would table that so the committee could see it—not the summaries that are in the fact sheets but the more detailed breakdown of the number of households. I think the committee would benefit from seeing that distributional breakdown.

Just speaking to the point of order, it appears the Minister does not have that document with him at the moment, but he might be able to table it at a future date.

I want to follow on from my colleague the Hon Dr Megan Woods’ contribution just now, and actually it is drawing a little bit on the contribution that was made in the second reading of the Taxation (Budget Measures) Bill by my colleague the Hon Willie Jackson, when Mr Jackson raised a really valid concern around the impact of this Budget on Māori and to what extent this Budget had a Māori focus to it—a Māori budget. In previous years, we’ve had a Māori budget. We’ve had analysis that shows the impact on Māori, and we don’t seem to have had this time. There is clearly going to be an impact on Māori from these changes to the incomes tax thresholds and from the change to the independent earner tax credit, and from the changes to the family tax credit.

What I’m interested in knowing is, along with those distributional analyses of households and how households have been affected—and the Minister has just told us that this work does exist, and so we will be seeking that work. If the Minister is able to table it at some stage—obviously not now, but in the next day or two—that would be fantastic; otherwise, at some stage soon. What I want to know from the Minister is: if there was an analysis done of that distributional impact to show whether there is a differential impact for Māori households, as opposed to other households, I think that’s quite important for us to know. We know that there is a long history of Māori being treated unequally in this country, ranging back to the Depression, when Māori weren’t eligible for a lot of the relief that was on offer then and were told to go back to their marae. So it remains an important question for us to understand whether these changes will equally benefit Māori. In addition to that, I think it would be useful to know whether there was an analysis of Pasifika families.

Now, one of the difficult things around this is, of course, I’m not sure that Inland Revenue (IR) collects ethnicity data, but there will be nevertheless analyses drawing on the data we have from Statistics New Zealand and the data we have within IR that should be able to give us some sort of understanding of the differential impact, if any, of the changes to the tax thresholds and the changes to the independent earner tax credit and the changes to the family tax credit on Māori and Pasifika households, as opposed to other households in our economy. I think it is quite important for us to understand that. At this stage, I guess, the Minister certainly won’t have that in the Chamber, but if he could let me know whether or not that kind of distributional analysis exists—and if not, why not? I would be curious to know about this. So that’s one for the Minister.

Thank you, Mr Chair. I wanted to follow up with some questions on the distributional analysis of options that was presented in the regulatory impact statement. I take his point that not all of the advice has been published, but, in the interest of transparency and the commitment—in the coalition agreement that he’s got with the other parties—on using best available data and evidence—

Hon Dr Deborah Russell: I raise a point of order, Mr Chairperson. I just wanted to remind the member if he could turn to the mike, because it’s a bit hard to hear—

RICARDO MENÉNDEZ MARCH: I need to speak more closely to it. In the interests of transparency and best data and evidence, I did want to elicit some answers in relation to the advice on the distributional impact analysis options.

Grant McCallum: It was better when we couldn’t hear you.

James Meager: Too close now.

RICARDO MENÉNDEZ MARCH: It’s interesting that the members to my left—the Government members—have taken, basically, pretty shallow contributions throughout this debate and yet find time to mock their own bill.

Francisco Hernandez: Twelve-second speeches.

RICARDO MENÉNDEZ MARCH: Yeah—12-second speeches. Anyway—going back to distributional analysis of options: the analysis that’s been presented in the regulatory impact statement contains very little analysis in relationship to gender and ethnicity. There’s one paragraph that talks about “relatively fewer Māori, Pacific Peoples and women benefit from the package.” But, if he wouldn’t mind expanding, I did want to get a sense—when the advice says that “Compared to the overall population, relatively fewer Māori, Pacific Peoples and women benefit from the package.”, can he explain to us whether he actually had any concerns when that evidence was presented to him. Again, those are the questions that we would have expanded on in the select committee stage.

The advice on distributional analysis does show that people receiving main benefits, who have relatively low incomes, do not gain from the package as benefit rates are set in after-tax terms. So I did want to get a sense of whether the Minister had—because he’s just told us that there wasn’t a child impact assessment being done. I am interested—from, again, a child poverty reduction element, which is different from a child impact assessment, and the fact that on this bill, and this part of the bill around the income tax threshold changes, it’s been identified that Māori, women, and Pasifika people benefit less and that beneficiaries will benefit disproportionately less—in why he did not seek a child impact assessment, or why he hasn’t presented to us the impact that this will have on children, particularly those in poverty. I think it’s not good enough. We’re a party that has been criticised—actually, not just us; the Opposition has been criticised—for just being shallow in our slogans. I think the contributions so far have been full of slogans and very little substantiation to actually what the intent here is around lifting those in the most severe poverty.

The second question I had around the distributional analysis of options was around whether he thinks that there will be any impact on employment levels as a result of this. I think that was very briefly mentioned, but, again, if the Government’s intent is to get people off the benefit and into work, and we know that the toxic stress of survival plays a huge part in people being able to get into work, I am curious as to whether he sought any advice from the Ministry of Social Development, for example, or anyone else—those stakeholders—around impacts on employment levels as a result of beneficiaries not being as lifted through these tax relief measures. This does seem to then contradict the broader intent and the strategic goals of this Government.

To recap, I’m interested in whether he received advice on the number of Māori, Pacific people, and women who would benefit less—the specific number—and then I’m also interested in understanding the impacts of unemployment figures as the result of this bill and whether he received any advice in relation to this.

I guess one of the outcomes of providing tax relief to low and middle income New Zealanders is that, surprisingly, when you reduce their taxes, they have more money in their back pocket. So the simple calculation in regards to the provision of tax relief to low and middle income New Zealanders, as has been delivered through this Budget and through this bill, goes right to the heart of what the member’s points and questions are. They are going to end up with more money in their back pocket than what they have under the status quo. So while the distributional impact on child poverty hasn’t specifically been undertaken, it doesn’t take one too much to do a correlation to say that if we’re putting more money into the back pockets of those two groups—which, no doubt, have a higher degree of exposure and impact in regards to the areas and challenges that the member has articulated—then they’re going to see benefit.

The other aspect that is asked is whether the Government has considered any difference in the way in which we apply tax rates based on gender or one’s ethnic background. Well, surprisingly, no. The tax cuts that we are providing are for all New Zealanders who are on low and medium income bands within the tax scheme. We’re not differentiating based on anything other than what their income is. What we’re doing, through this, is providing tax benefit and reducing the tax that those individuals pay so they have a little bit more in their back pocket to spend on the things that they need in their life. It’s quite simple.

Thank you, Mr Chair. Well, we’re into the guts of it now, discussing clause 7, which amends Schedule 1 of the Income Tax Act. This is where the bulk of the heavy lifting in the Government’s taxation bill is, and it’s really useful for members around the Chamber to be able to ask questions about how the redistributive decisions that the Government has made are reflected in this clause 7.

So I need to ask the Minister of Revenue some of the questions about the values that have gone into this bill, and I want to contrast his bill with the Taxation (Budget Measures: Family Incomes Package) Bill from 2017. That was a comparable bill to this one because it was attempting to do similar things, but it was from a previous National Government that was at pains to talk about the values and the trade-offs in policy that were being made in similar legislation in that bill.

If you turn, say, to the description in that bill’s explanatory note of a similar section, it says, “The tax and transfer system is redistributive and is designed to provide assistance to those in financial hardship.”, and that speaks to the values of the legislators who were making those decisions in 2017. Not one time in this bill are those kinds of values outlined, and so my first question to the Minister is, given the rates that he has set out in Schedule 1, which is amended by clause 7, does he still believe that the tax and transfer system should be redistributive and designed to provide assistance to those in financial hardship, and are the rates that he has set designed to provide assistance to those in financial hardship? A further question is: why, then, if that was a principle that the 2017 National Government signed up to, did this Government repeal the Tax Principles Reporting Act?

Point of order, Mr Chairperson. Look, I’ve only been in the Chamber a short time, I know, but I’m speaking on behalf of my colleague the Hon David Parker because I know he’s down there. He’s at a slight disadvantage because he is disabled at the moment with a leg injury. I know he’s a little slow to get up, and I’m just concerned that he may miss his call because he’s too slow to get up. So that’s just a point for you to note, Mr Chairman.

Thank you, the Hon Damien O’Connor. I will keep an eye on him.

Thank you, Mr Chair. And, yes, very good point of order. It’s important to note that it’s important we all get to have a say in this debate, because we don’t have a select committee process for this, and so some of the things that we might have been able to kind of tease out through select committee, we are having to raise with the Minister through the stage of the committee of the whole House.

So my contribution is not going to be a long contribution. I have a few technical questions for the Minister in relation to the definitions in Part 1. So the first question I have for the Minister is in Part 1 is on the definition of children, which is relevant to the calculation of the relevant tax credit that people are entitled to and starts in clause 5 of the bill but inserts new section MF 4J as an amendment to the existing legislation. It defines children in the new section MF 4J(3)(c)(ii) “the number of children for whom the person is allowed the in-work tax credit:”.

Now, I myself was not a tax lawyer. I understand that sometimes unusual language is used in tax bills. But I think, for the elucidation of the committee of the whole House, it would be helpful to know from the Minister whether he considered a change in relation to the definition of this formula, because children is written there twice. So it’s a definition of children, and then the explanation for the definition also includes the word “children”, which is quite unusual. That’s not the only place that that’s mentioned within this part. That is also separately defined in another part of the bill when that definition is included again in new section MF 4K(3)(c)(ii). So I just wanted to ask the Minister, in fact, if he could explain in plain English the effect of that definition, and if, in fact, it is possible to use clearer language to look at the effect of that particular definition. Because as a lawyer but not a tax lawyer, I admit, it might be easy for tax lawyers to understand, but it’s relatively confusing for me.

So that was my first question. The second question I have is another definitional related question.

Grant McCallum: I thought you were being short.

CAMILLA BELICH: Well, I’ve still got half my call to go. The more questions you ask me, the longer I’ll take. So happy to have contributions from my colleagues on the other side of the Chamber. Any other questions—happy to answer.

The next question I did have for the Minister was in relation to new section MF 4J(3)(d)(ii), which is the first instance that I could see in Part 1 when the term “spouse, civil union partner, or de facto partner” was used. Now, there isn’t a definition section in this bill. It would have been in Part 1 if there was a definition section, I understand—that’s the usual way of legal drafting. But that is also used in that part as well—new section MF 4J(5)(b)(ii). It’s also used in MF 4K(3)(c)(ii). It’s also used in that same section in (d)(i) and (d)(ii) and, in fact, in that same section but in new subsection (5)(ii) and (5)(iii). So it’s not defined in the Act.

I wanted to know from the Minister: is it the definition that applies to “spouse, civil union partner, or de facto partner” in the primary Act—the Income Tax Act—or is it the definition used in the Property (Relationships) Act, or in fact is there another definition which is applicable to this piece of legislation? The Minister may think that that’s a minor thing, but obviously when it comes to tax, exact entitlements for the people who will get the particular tax cuts are key. Having that fine detail is essential.

Thank you, Mr Chair. I’m very happy to provide some context for the definition of child. Children in this context—and it is not a separate definition. It is a definition that’s already included within the overarching legislation. But just for the member’s interest and general detail, it includes those that are 15 years of age or younger; or someone who’s 16 or 17 years of age and financially dependent on the caregiver; or 18 years of age, financially dependent on the caregiver, and still at secondary school or at a tertiary education. They can’t be married, in a civil union, or a de facto relationship. There are also some different sub-definitions around foster care and other considerations. So we’re not talking about anything new in regards to children. It is a consistent definition.

Can I thank my colleague Damien O’Connor for the assistance to get this call. I didn’t need it.

Hon Dr Megan Woods: He’s always kind.

Hon DAVID PARKER: He’s always—that’s right. He’s always got my best intentions at heart.

I would like to ask the Minister whether he’s comfortable with the effect of this on Government debt. These provisions are one of the biggest contributions to the deficit, as a consequence of the Budget, and my understanding—and the Minister can tell me if I’ve got this wrong, but in order to drill down on what the effects are on gross and net debt and the operating balance before gains and losses (OBEGAL) deficit, we have to turn to the Budget documents. I just want to check that my understanding of the effect on this on debt over time is significant and that the effect of this on the OBEGAL deficit is also significant.

I want to draw the Minister’s attention to page 156 of the Budget Economic and Fiscal Update 2024, which shows that Government debt, or gross debt, in 2019, which was just before, of course, the COVID epidemic hit us, was $84 billion. It rose steeply through that period so that now it has increased to $174 billion. That has been of considerable concern to the National Party, according to the statements I heard both at the election and since then, and, yet, if I’m reading the Budget forecasts correctly, from now on, gross debt increases from $174,593,000 forecast for the end of this Budget year 2024, increasing to $243 billion in 2028. So am I correct that according to his own Budget documents, including the effect of these tax cuts, gross Government debt increases from $174 billion to $243 billion in 2026? That is my first question.

Tēnā koe, Mr Chair. Thank you very much. I’ve been waiting for a while to try and ask my questions. But I wanted to dig into, again, the regulatory impact statement on the distributional analysis of the options. It’s just because we haven’t had a select committee process for this bill and we only received these documents a short time ago. So I’ve just been trying to understand.

It seems to me that in the analysis of the options—and there were six options analysed—that option two is the option implemented by the bill. But, I guess, I’d like to ask the Minister that. Like, is option two the one that is implemented by the bill, or is it different to option two? There’s more information given about the distributional impacts of option two and a very helpful figure one, which I think is really useful because it shows what the impact is on household incomes by equivalised income quintile. What it does show is that—if it is option two, and there isn’t a comparable figure for the other options—the lower-income households get less money from these tax changes per week than the highest-income households, and significantly less.

So, when the Minister and the Government say that these tax changes are aimed at low and middle income earners, I just wonder how that squares with this distributional impact analysis, if indeed option two is the one being implemented. I would note—and I know my colleague brought this up as well but I think, because the Minister spoke to it, I would just go a bit further—it does say, “Compared to the overall population, relatively fewer Māori, Pacific peoples, and women benefit from the package.” I think that analysis is really important. While the Minister and the Government want to say, “Our tax settings just have to do with income, nothing to do with your demographic background.”, the whole point of this analysis is to point out that the current society and structure that we live in right now isn’t fair and it’s disadvantaging certain people.

The point of the distributional analysis and the analysis on how it’s going to impact Māori, Pasifika people, and women is relevant because what it’s saying is, “Well, they’re going to benefit less than other people.” That’s kind of important; if we want a fairer society, how are we going to address that when we continue making changes that entrench the existing inequality that exists because of centuries of racism and patriarchy and colonisation? Like, let’s just own that history and say that the point is, if you want a level playing field and an equal society, you have to make some changes to how things are done, otherwise you just entrench the existing inequality. I’m very interested in the Minister’s answers about the distributional impact analysis of options and which option actually is the one implemented in Part 1 of the bill, clause 7(1).

Thank you, Mr Chairman. I note that the Minister hasn’t responded to my questions on debt. I would reinforce the point by noting that gross Government debt, which he criticises from the last Government, increased over a six-year period from $88 billion to $174 billion, including the enormous cost of COVID, which was the major contributor to that. Yet from here forward, we go up from $174 billion to $243 billion, an increase of—what’s that? That’s about $70 billion extra in debt.

It seems to me that that is reinforced lower down on the same table on fiscal indicators when that is expressed as a percentage of GDP, and, indeed, gross Government debt, which is currently at 42 percent of GDP, continues going up for the next years to peak at 49.9 percent of GDP. How can that be prudent, given the criticisms that that Minister and other members of the Government have made of the prior Government in respect of that debt track? I would like to hear from the Minister on that point.

Thank you, Mr Chair. I’m actually really concerned about something now. I want to track back to the concerns around payroll providers, and the Minister gave us a fairly firm assurance that officials had consulted with payroll providers and they were pretty confident about this 31 July start date. I want to draw the Minister’s attention and the committee’s attention to paragraphs 38, 39, and 40 of the regulatory impact statement.

So 38 goes through the fact that Inland Revenue (IR) is going to be responsible for the ongoing operation and enforcement of the tax system—pretty standard stuff—when Inland Revenue can get changes made in their system so that the whole new changes to tax thresholds can get into place. But then in 39, it was talking about the process; it was saying that Inland Revenue would need to contact significant groups such as payroll providers, software providers as soon as possible after the changes are announced to help ensure there are no delays.

Now, that’s interesting because I understood that Inland Revenue had consulted with payroll providers, but now paragraph 39 is saying that Inland Revenue will need to contact significant groups such as payroll providers as soon as possible after the changes are announced. So that’s kind of a little bit of an anomaly there.

Now, there’s probably a perfectly good explanation, but I would like to have it as to why on the one hand, this committee was certainly given the impression that payroll providers had been consulted, but now, in paragraph 39 of the regulatory impact statement, we have this this line saying that IR will need to contact significant groups “as soon as possible after the changes are announced”. Those changes were only announced today. So a little bit of—just to clarify that would be really helpful.

It goes on to say that IR needs to have a communications plan in place. So now, having worked with the excellent officials at IR, I know that that will all be happening. But here’s the bit that’s actually really a bit worrying, OK? It’s paragraph 40 and I’m going to read it out because I think this needs to be in the Hansard after the assurances that have been given to us by the Minister.

In paragraph 40, it says: “If the changes come into effect on 31 July 2024 and are only announced on 30 May 2024 it is likely that some employers will not be able to make the changes in time and will incorrectly calculate the income tax to be deducted from their employees pay.” Just a note for the IR officials: there’s an apostrophe missing there. Sorry—but carrying on. Now, I just want to repeat that. It says, “it is likely that some employers will not be able to make the changes in time”. But we were given assurances that they would, so that really is a bit worrying.

Now, IR officials go on to say—and this is quite correct; it says in the later part of this paragraph that “This can be corrected in later pay runs by the employer or can be corrected as part of the end of year tax assessment process that Inland Revenue runs.” So it can all be squared up.

The point is that ordinary New Zealanders—the people who are worried about a cost of living crisis, the people who want to make sure they’ve got more money—have been told that these tax threshold changes are going to take place in effect from 31 July. They will be expecting that their pay packets will change in the first pay period coming in after 31 July. That’s the reason we’re here today.

It’s the expectation that has been given to them by the Minister of Finance, by the Minister of Revenue, by the Prime Minister, by the entire approach to this Budget that they will get the effect of those tax threshold changes—will throw flow through to their pay packets from 31 July. So they’re expecting they’re going to get paid; their first payroll rolls through, say, on about 7 August. They would expect to see some change in their pay packet. But here, in the regulatory impact statement, despite the assurances that have been given to us, we now find out that it is likely that some employers will not be able to make the change in time. This just doesn’t stack up with what was being said earlier.

Hon Member: Well, they’ll back pay it.

Hon Dr DEBORAH RUSSELL: I know—I know it could all be corrected later on. It can be squared up in the end-of-year tax return or it can be squared up in later pay periods. But even if that doesn’t flow through correctly, what else is not going to be done correctly? What’s going to be the impact on the independent earner tax credit? What’s the impact on the family tax credit? What’s the impact on all the other stuff that has been promised in this Budget? I think the Minister needs to clear this up.

Thank you, Mr Chair—sorry, Dr Lawrence, but I thought I’d better answer this question, because the member was raising it at such a significant potential opportunity or issue. I just draw the member’s attention to the date in the regulatory impact statement, which was finalised, which is 24 April 2024. Today is 30 May. In that six-week period, subsequent work was undertaken in regards to consultation with payroll providers, which provided the degree of confidence that I’ve articulated today.

So, while it was noted there that that was the effective date, and six weeks is quite a long period of time, we appreciate the reality of how Budgets work, and that’s why there is point of difference. So there is nothing sinister as the member is trying to imply. It is simply a timing difference in regards to that, and, hopefully, that clarifies that point in particular.

In regards to the questions from the Hon David Parker around the gross debt considerations, those are probably best suited to the Minister of Finance. However, I do acknowledge that we are under urgency, and we’re just going to have a little bit more time before I provide a comprehensive response to that member’s question.

Thank you, Mr Chair. In terms of what we have heard so far, I think one of the areas that needs further clarification from the Minister—thank you for turning the mike on—is around the support for seniors and the support for those who are on superannuation, and also for our retirees.

The first thing I would like to address is what people have previously mentioned in terms of the impact statement and particularly around the distribution analysis of options. When we are looking at overall relatively fewer people benefiting—these are people who benefit from it; like, these are people who don’t even get anything out of this, let alone people who only get a very low amount from here. I agree with and appreciate what the Minister has said in terms of that the whole point of this is so that low and middle income New Zealanders have more money in their back pocket. But let’s look at the numbers here in this case.

According to what is both in the impact statement and distribution impact analysis of options, as well as what is laid out in clause 7(1) of the bill, for someone who is on New Zealand superannuation, you get $800 a week together as a couple. That is $41,600. Now, although this says—the distribution option, it says “By contrast, almost all seniors benefit from the change due to the near-universal receipt of New Zealand super, but by a small amount $13 per week.” However, going by the official calculator—this is the official Budget calculator—for a couple who are retirees with no additional income, they get $4.30 a week. That’s $2.15 per person, not what is stated here in terms of by a small amount in the statement of $13 a week.

So, if you extrapolate that into how much people are getting—if you are looking at elders who are currently renting, who do not have their own home—and, again, this comes down to what’s the modelling the Minister has done and the people have done in terms of this bill and looking at this. I appreciate what you are trying to do here, but if you look at the average rent cost of $624 a week—this is the average rent cost for Tāmaki-makau-rau Auckland, minus everything else we’re getting—we’re looking at a couple getting only $88 left per person per week, with a tax break that you are saving here of $2.15.

In terms of this, I would like to know from the Minister, in the modelling you have done in readjusting the tax bracket, what modelling has been done on these people, on people who are elderly who are renting, who do not have additional sources of income other than their superannuation, and what tax relief they will be receiving.

Just in regards to the member’s question, I’ll reference the fact sheet that is provided alongside the Budget material. There is a worked example there in regards to a retired couple, and there’s a footnote that sits below that calculation that actually provides exactly the rationale and the background in terms of how those numbers that the member has just articulated is calculated. It is reflective of the different rates per year, based on those impacts.

There was another question earlier on in regards to the options within the distributional impact. The clarification is that option two is the scenario that is included within the bill, just for that member.

Thank you, Mr Chair. Acknowledging that there are a number of questions that are still outstanding for my colleague the Hon Dr Deborah Russell—and I am interested in those, but in the nature of what is, you know, a brief committee stage, I will introduce a new line of questioning about the considerations that went alongside the adjustments that are being made to Schedule 1 in clause 7. So, if you follow along with me, the rationale that the Government is using in all of the accompanying material to these changing thresholds is that despite growing incomes, the tax thresholds have not changed and so that’s what’s required, but also alongside those growing incomes, some families are still seeing rising costs placing pressure on their living standards, and particularly housing. In today’s Budget documents released by Treasury, we saw that there’s a marked increase in housing costs for most families, and rents in particular are forecast to continue to rise in this forecast period.

So my question is: last time the Government considered these changes in its 2017 bill, the changes were done alongside an increase to the accommodation supplement. The rationale for that was that rising housing costs have increased the proportion of income spent on housing. So when you make the kind of threshold adjustments that are being made in this bill tonight by the Minister, there’s still this unfair burden on low-income families who are paying more of their income on housing. So the Government in 2017 said that as a result of that, low-income families had been seeing a decline in their residual and after-housing-costs income, and so they implemented changes to the accommodation supplement to deal with that example.

I want to just explain this; it’ll just take me a minute. Recipients of the accommodation supplement who receive a main benefit have seen their residual incomes fall in real terms, and so the recipients of the accommodation supplement who don’t receive a main benefit or New Zealand superannuation have also seen residual incomes fall—their after-housing costs. That’s not necessarily helped by the changes that are in Schedule 1, proposed by clause 7. So my question to the Minister in the chair, Simon Watts, is: has he considered, alongside the changes that he’s proposing in Schedule 1, an increase to the accommodation supplement that would acknowledge those changes?

I’d like to come back to this, because I’m sure the Minister can explain for us the trade-offs that he’s made in not providing for an accommodation supplement increase, but I’d be really interested to tease out with him what other measures are appropriate given that he made that trade-off, and what the Government will be doing in the face of Treasury’s findings today that were published that rents will be continuing to rise markedly in the forecast period.

Just in response to the member’s question in regards to the accommodation supplement, I think—well, the member’s actually answered it in part, in the way in which she acknowledged that there are a number of trade-offs that are made in regards to these decisions. We haven’t made any adjustment in regards to the accommodation supplement. We’ve targeted our tax relief in the areas that we’ve outlined in this bill, and that is an area that we haven’t looked to adjust at this point. The reality is that there is a wide range of considerations around that, but in regards to what we’ve delivered, it’s consistent with our coalition Government’s priorities and those included within our coalition agreements.

Thank you, Mr Chair. In the nature of engaging in questions with the Minister—and I thank him for his answer—was the trade-off to provide a tax cut of $2.9 billion for landlords the trade-off that he’s talking about when he didn’t consider an accommodation supplement for some of the most vulnerable New Zealanders who cannot access housing because of those decisions?

Thank you, Mr Chair, and I thank the Minister for his answer earlier. So I’ll just restate the other question which he has not yet addressed, which is—

James Meager: Oh, repetition.

Hon JULIE ANNE GENTER: Well, the Minister hasn’t yet addressed the question, so I think it’s fine to restate it, since he hasn’t addressed it. How can the Minister continue to claim that these tax changes are geared towards low and middle income New Zealanders or the squeezed middle, when the distributional analysis in the regulatory impact statement makes it very clear that the largest gains go to the highest income households, and it’s substantially more than the lowest income, but even the second to lowest quintile.

So, for the benefit of the members opposite, who I know sometimes find me very intimidating, I’ll be very careful here in how I present my information: there’s a document that members opposite can get from the Table there. I know they’re new. It’s called regulatory impact statement, personal income tax relief. On page 21 of the regulatory impact statement, which is annexed to distributional analysis of options, this means looking at the different options that they’ve considered and saying how they impact different people in society.

When the Government makes claims about these tax changes benefiting the squeezed middle, that is a claim about a certain group in society. If you break down households by their household income into quintiles, which means divided by five, then there’s the lowest fifth, the next lowest fifth, the middle fifth, and the top two-fifths. It says very clearly—and I’ll just read this for the members, because they can’t read it when I hold it up—that the largest weekly gain goes to the fifth quintile. That’s the highest fifth of income earners, reflecting the fact that the maximum gain from the personal income tax threshold adjustments occurs at a relatively high individual income level. So what this means is higher income households benefit more, relative to median income households.

So my question for the Minister is: how can he keep saying this, when clearly the impact of the tax changes in clause 7(1) is to give more cash back to those on the highest incomes, who really probably need it the least? Of course, these are just the personal income tax changes. I don’t believe this analysis—and maybe the Minister could answer this question: does this analysis include the changes to interest deductibility and basically the benefits to landlords?

Thanks to the member for the questions. I’ll reiterate that the reductions in personal income tax rates are on the three lowest income bands—the three lowest. So by virtue of targeting that aspect of low-income New Zealanders, those are the individuals that will get that benefit.

The member is referencing some of the distributional impact analysis around that. In addition to those changes in the bottom three income brackets, we’re also making some changes in regards to Working for Families and the eligibility banding within that as well. That, specifically, again, will target low to middle income New Zealanders. So I think the member can have a degree of assurance that what we are doing is targeting that area, and the nature in which we’re achieving that is both through the personal income tax threshold changes—again, targeted at the lowest and middle income New Zealanders—and broadening the eligibility criteria and thresholds from the other aspects of the taxation initiatives that do benefit those groups as well. In combination with that, we are doing significantly more for that population group than the status quo. By voting against this, you’re, in effect, supporting the status quo.

Thank you very much, Mr Chair. I’m going to take a brave approach to this and take a generous approach to this piece of legislation, because it says here the bill also intends to reduce the cost of living. The Government’s adherence to tax—and, of course, their claim that, you know, high taxes, the lack of changes to the thresholds, have been the biggest impact on the cost of living for New Zealanders. Then the question for the Minister is: did he or the Government consider different changes to the thresholds and the impact that that might have had on the cost of living—not the tax going back, but the cost of living? Because the reality was for people in those different thresholds, the cost of living is made up of different things. Tax is one part of that.

In fact, if you go to the top end over $180,000, in fact the cost of living is made up of food and rent—often not rent because they probably have their own homes. In fact, it’s discretionary income that will be given back to those higher-income earners. As the previous speaker said, at the top quintile, where most of the money will be going, the impact on cost of living is minimal. It will be an impact on discretionary spending, but not cost of living. So if we could go back in a generous way—and I know that I’ll be criticised by my colleagues—and say, actually, the Government may be genuinely interested in reducing the cost of living instead of what some people have been saying, which is “Actually, they’re just interested in handing benefits to landlords.” I’ll be generous. I’ll say they are genuinely interested in reducing the cost of living and so the changes to the thresholds in clause 7 here have been made by the Government.

My question to the Minister is: did he or his colleagues think about other adjustments that may have, at the bottom end, say, $14,000 to $15,000, $15,000 to $48,000, whether you’d extended that out to $60,000, and whether, actually, more benefits to those people whose cost of living is really significant—they spend, virtually, every bit of their income surviving.

Grant McCallum: That’s why we need tax relief.

Hon DAMIEN O’CONNOR: Oh, well, that’s one of the things, yes. I accept that the money going back to them will help, but if the aim is to genuinely reduce the cost of living, there are many other charges that are going to come at New Zealanders through this Budget, believe me—many that haven’t been identified yet. So the question is: will this deliver to those in the $15,601 to $48,000 bracket, who’ll be paying 17.5c per dollar? Will the relief they get from the changes to the threshold have any real impact on the cost of living for those families? Has the Minister considered it, and whether there were other ways of reducing the cost of living, better ways, than the changes that have been made here?

Because I can tell you that from $180,000 upwards, for most of the people here—all the people in this House earning over $180,000—this won’t make much of a difference to our cost of living. It won’t make much difference to our cost of living because it will be discretionary spending. So the question to the Minister: were there considerations given to other changes in the thresholds or other groupings that may have genuinely reduced the cost of living for those people who really need to have their cost of living reduced? If it’s the aim of the Act, or the aim of the bill, as we’re told, then I want to know from the Minister that these decisions are going to deliver the best outcomes as claimed by the Government.

I thank the member for the question. I also acknowledge his agility on the rugby field in the Parliamentary Rugby Team, as well.

Look, we’re talking about a tax bill here, and some of the questions that were being noted there are broader in regards to the economic implications. The reality of reducing income tax on individuals is going to mean that they’re going to have more of their own money to be able to spend or save in the way in which they determine, and on this side of the House, we are supportive of people taking personal responsibility about how they spend or save that money. No doubt, some of that money that they will not be paying in tax to the Government will be used to pay for goods and services that they may not have been able to afford previously if they had not had that money, and, therefore, their ability to deal with the implications of the cost of living will be softened as a result of that.

The broader conversations around scenarios and optionality are included within the documentation in relation to this bill. There was consideration, as you’d expect, in terms of the coalition Government in regards to policies, but we have landed where we have landed, and we deem that that is the most appropriate mechanism in order to deliver that tax relief to low and middle income New Zealanders.

In regards to the questions from the member in regards to the debt track, the view is that the general questions of that nature are more appropriately directed to the Minister of Finance, and from my assessment of them, they’re outside of the scope of this bill.

I move, That debate on this question now close.

Thank you very much, Mr Chair. I wanted, subsequent to questions followed from the good interrogation from my colleague Julie Anne Genter, to pick up on the first quintile in the average change in income analysis in figure 1 in the regulatory impact statement. So the first quintile, what is shows is, picking up on where my colleague had left around how—despite the comments from members opposite to me that everyone will benefit, the first quintile actually shows that not actually everyone will benefit. I just wanted to test whether the Minister could clarify whether it is factually correct to say whether everyone will benefit when the analysis in that first quintile actually shows that there’s about 8,000 households who will not be better off. It may seem like a small proportion of people, but as we have traversed in other discussions around benefit increases, actually, average numbers don’t paint a full picture.

The first quintile did show that the group of people who would be not better off are people who would have been on the benefit during some period. What I think that shows, and I want the Minister to help us elaborate, is that this bill does not equally lift all boats; that, in fact, the people most benefiting from this bill are those that are well off. So following the specific questions I had was (a) whether he thought it’s factually correct to claim that this bill benefits every single person in this country, and, if so, why?

The second question I had around that first income quintile—also known as those who have the lowest incomes; for example, people on the benefit will be disproportionately represented in here—was whether he sought or he received a breakdown, particularly for this first quintile on age. I’m asking because a lot of young people are on lower incomes and ultimately we haven’t really discussed the impact of the distribution and how this bill will be distributed amongst and will impact young people. So I do want to get a sense of whether he sought or had a breakdown by age around those quintiles—how young people are represented in that first quintile in that analysis.

I did want to go back to a question that wasn’t quite addressed earlier in the night around whether there was any engagement with Whaikaha in relationship to the impact on how those tax breaks would be distributed amongst disabled people. I asked this because multiple research has showed that disabled people are overrepresented in those lower incomes. When we just get a breakdown of the number of households but we don’t really get a picture painted around how many of those households that are not proportionately benefiting from this bill—how many of them are young people, how many of them are disabled—I think then the Minister isn’t actually painting a clear enough picture to the House and to the public around, for example, where will disabled people be and how they will benefit in relationship to this bill. Because we’ve talked about plenty of the people in work, but there are many disabled people who are out of work, many of them who receive a benefit. The distributional analysis talks about how beneficiaries will not be as benefited because of this, but he hasn’t addressed how disabled people will feature in here. Disabled people make up a quite substantive proportion of the population.

We already heard from the Minister that there was no child impact assessment being done, and I’m starting to get concerned that there was not robust enough work going into the impact on different population groups as a result of these tax cuts, which are one of the key features in this Budget. So I do hope the Minister can give us precise answers in relationship to whether it’s factually correct to say that everyone will benefit, (b) the analysis around disabled people, and (c) the analysis on the breakdown of young people. Well, that’s not everyone, and the member earlier was talking about how everyone would benefit, right? That is actually quite important to actually claim. It’s important for the Minister to be clear that some people will be worse off as a result of these changes: a small group, but none the less some people will be. Who are these households? They’re people on the benefit—the ones doing it the toughest. We haven’t been able to be upfront with this committee about the fact that those who will benefit the least from these tax cuts are the people who are already struggling to make ends meet.

Members, the time has come for me to leave the Chair. The committee will resume at 9 a.m. tomorrow.

Debate interrupted.

Sitting suspended from 10.03 p.m. to 9 a.m. (Friday)