Taxation (Budget Measures) Bill

Good morning, members. Members, when the committee rose last evening, we were considering the Taxation (Budget Measures) Bill, and we were debating Part 1. Part 1 is the debate on clauses 3 to 7, “Income Tax Act 2007 amendments commencing 1 April 2024”. The question is, again, that Part 1 stand part.

Just before I give the call, I have a list and I’ve had a discussion with the presiding officer who was in here last night of the things that have been discussed. So, on Part 1, we’re looking for new information or any Amendment Papers that have not yet had an opportunity to be discussed—so new things, please. At that, I’ll say the question is, again, that Part 1 stand part.

Thank you, Madam Chair, and good morning to you, Madam Chair, and good morning to the Minister of Revenue. I thank him for his lively engagement last night in what has been an interesting and useful debate, given that we haven’t had a chance for the select committee stage on this bill.

I have a number of questions about the redistributive effect of clause 7, that’s Schedule 1, that is still on the Table for us to canvass a bit more today. Before the House adjourned, we were discussing some of my questions, which were still outstanding, about the redistributive effect of those numbers outlined in Schedule 1, given that there are fixed costs which are still rising for some families in the lower three brackets on that table, particularly around accommodation, because we saw yesterday that Treasury has predicted rising rents.

So my question to the Minister was about the trade-offs that he spoke about when he answered my questions, when he considered the accommodation supplement going up alongside this redistribution that he’s set out in Schedule 1. The reason I’m asking him this is because we want to make sure that the tax and transfer system is redistributive and is designed to provide assistance to those in financial hardship. That was something that’s not only been canvassed in similar bills introduced in this House by Labour Governments but was also introduced in the 2017 bill which set out to do exactly the same kind of change that the Minister has proposed in Schedule 1.

So what I want to hear from the Minister on is those questions which I asked him last night, which he did not address, about the values which he has used to determine the redistributive effect of those bottom three brackets alongside rising costs for people on the lowest incomes. What I really want to get to here with the Minister is whether he’s considered the tax benefits that he says will accrue for those lower three brackets, whether those will be eroded, particularly by housing costs. Because, Madam Chair, if you’ll let me explain this point, rising housing costs have increased the proportion of income spent on housing, particularly for low-income families. As a result, some low-income families have seen debt, declines in residual—that’s after-housing costs, in their real incomes and in their spending.

So the impact that I want to discuss with the Minister is what he said last night when he said that we have considered increasing the accommodation supplement alongside these changes but we decided not to do that because of the trade-offs involved. I’d like him to talk us through what those trade-offs were, particularly in the area of housing costs, because recipients of the accommodation supplement who receive a main benefit have seen their residual incomes fall in real terms on average across the period that we’re talking about here, but the Minister’s choices in those three brackets in Schedule 1 don’t address that aspect of it. Also, people who receive superannuation and don’t receive a main benefit have seen their residual incomes fall in real terms on average. So that’s the point I want to get to here with understanding that.

My second question for the Minister in the time remaining that I have is about whether these changes represented in Schedule 1 represent a move that is simple in our tax system, which is, it’s a tax and transfer model that he is using which is often complex, and the rules determining eligibility and claiming entitlements can be difficult to navigate in other parts of the section. But I want him to explain why this measure is preferred that he’s outlined in Schedule 1 when other mechanisms that he is using to, essentially, give rebates in the rest of the tax bill don’t meet with those objectives of simplifying the system to clearly link what he, I think, would see as linking hard work with reward. While we don’t agree with that, it is a principle of the tax system that is important and is internationally recognised, and I’d like him to give us some sense of whether this is a simple and effective way to redistribute wealth.

Thank you, Madam Chair. One of the things that I’m just wondering whether the Minister in the chair, the Hon Simon Watts, has had a chance overnight to get some advice from officials on was a question I asked last evening that hasn’t been answered, around what the net cost of the tax cuts will be, given that there are a number of Government payments that are based on after-tax income, and given that there will be a rise across various brackets, as laid out in clause 7 of the bill, that this will affect eligibility and there will be a netting out of some of the cost.

But my other question for the Minister—and we have spoken a little bit about the distributional impacts, and I think, given we’re not having a select committee stage of this bill, those distributional aspects are something that is our job in this part of the bill, where we are discussing what the thresholds are, to explore how this is impacting various groups in our communities. One of the specific questions I have for the Minister is drawing his attention to the regulatory impact statement where it talks about the 8,000 households who will be worse off under this package, that they will actually receive less income per week. They’re all in the lowest quartile, so they are all our most vulnerable households, that will indeed be worse off under this package. The reason that is given in the regulatory impact statement for this is these are typically families that move in and out of benefit eligibility throughout the year.

Now, any of us who do constituency work know that that moving out of benefit eligibility not only will have an impact on tax thresholds but also can mean a great deal of financial complexity for families around things like income-related rent subsidies and what is owing there. So this is actually putting this impact on some of the families who are struggling the most in the areas I represent, and I would be remiss for the people of Wigram if I didn’t get some full answers from the Minister at this committee stage around what that means for these 8,000.

In particular, I’d like to know from the Minister what alternative policies were considered—if alternative policies were considered—so that we didn’t leave these 8,000 people who are going to be worse off under this tax package, and if the Minister didn’t consider alternative policies so that we didn’t leave these families worse off, why that was not considered, why that would not be a priority for some of our most vulnerable families in our communities, that we would make them, in fact, worse off.

What we’re already seeing, and the regulatory impact statement pertaining to that schedule laid out in clause 7 already lays bare—something that I think we’ll always know when we seek to use the tax system to do redistribution—is that it is those in the lowest quartiles who will receive the least amount of benefit, that we’re seeing those on the lowest income, and the regulatory impact statement does a good job of spelling this out, receiving, on average, $13 a week in benefit. I think we can see that that is not going to deliver the relief that I think many people were hoping for, particularly when they went through an election campaign when they were told they were going to receive $250 a fortnight in tax relief. That $13 will be somewhat of a shock, but more of a shock will be for those families that find that they are worse off under this package. Now, as constituent MPs, we’re all going to have to go back to our electorates and explain to those people why it is they have less income as a result of the threshold changes that are being passed in this House today.

So just to recap for the Minister: what alternative policies were considered to ensure that people were not worse off as a result of these threshold changes, and, if alternative policies were not considered, why his Government did not see that that was a priority to ensure that some of our most struggling families in our communities would not end up worse off as a result? It is not insignificant. According to the regulatory impact statement, there are 8,000 families who are going to be in this situation, and I think that each and every one of us, at some point, will be called on to explain to those families.

Thank you, Madam Chair. First of all, I would like to echo what our colleagues have just said, that a lot of these would have been teased out during the select committee stage, but, alas, here we are, trying to tease out some of the details around the regulatory impact statement. I have two questions for the Minister of Revenue on this. The first question was a question from our colleague Ricardo Menéndez March, which was left hanging at the end of last night, around the 8,000 households—this is part of the distributional analysis of options. In there, it was stated that there are 8,000 household who, according to this, would literally be in the red as part of this assessment. What the Minister didn’t have the opportunity to respond to last night before the committee rose was a breakdown of who these 8,000 households are and what support has been given for these who—

CHAIRPERSON (Barbara Kuriger): Can I just ask the member—because we’ve just had a fairly extensive question around that, and we’re trying to stick to new material, if possible. Thank you.

Dr LAWRENCE XU-NAN: Sure; of course. Thank you, Madam Chair. So my second question follows on, again, from the question yesterday around seniors, but this time I would like to kind of draw the attention around clause 7(1) when it comes to the amendment, this time around students, and particularly for students who are on student allowance.

Now, we know that, for students who are on student allowance, they’re also not getting anything out of this. So I would like to know from the Minister what sort of modelling and impact assessment has been done for students, particularly those who are on student allowance. This is in relation to those who are currently—and, particularly for us—constituents of Auckland Central and also of Wellington Central, from Tamatha Paul’s and also Chlöe Swarbrick’s electorates. I think, in this case, it will be really vital for the Minister to provide some clarification around the support that students will be seeing as a result of this tax balance.

On top of that, it would be good to know what other approaches the Minister will consider, or the Cabinet has considered, around the support for those on the lowest salary level, and particularly in instable and infrequent salary—for example, like what I just mentioned, those who are not getting consistent salary and consistent wages throughout the year. So it would be really good to get some clarification from the Minister on this.

Thank you very much, Madam Chair. I appreciate the opportunity. Just in response to the questions around distributional impact from the Hon Megan Woods and also from the member Dr Lawrence Xu-Nan in regards to the number of households that have been impacted potentially that will not benefit, the regulatory impact statement does include a number around 8,000. Subsequent to that, our analysis indicates that number is probably less than 5,000. The average impact on those households primarily is those that are part-year beneficiaries. So to be clear: no one on the benefit will receive less of their benefit as a result of what’s happened. There’s going to be no change in that. Where the implication occurs is where people are on part-year benefits and part-year working. There are 5,000 in that group; about 0.3 percent of taxpayers. As I say, $1 is the average impact, going up to a maximum of $2. So, you know, while that is not zero, it is small in regards to the consequences there.

The other questions in regards to more broader distributional impact, I have answered already last night.

The implications around the tax cuts and the focusing on Arena Williams’ question in regards to targeting—we are deliberately targeting the lower three thresholds to make sure that the impact hits low and middle income households; those are the households that are being significantly impacted by the impacts of inflation.

In terms of the redistribution impacts, quite clearly we are deliberately targeting that group because those are the ones who will be impacted.

Thank you, Madam Chair. Yesterday, in the evening—or today, in terms of our urgency clock—I asked the Minister of Revenue about what part these tax reductions in this bill play in the increase in Government debt from $174 billion to $243 billion in the forecast period. The Minister said that was a question that should be put to the Minister of Finance, under the Budget, rather than be answered by him in respect of his contributions on this bill. I don’t think that is a sufficient answer, with respect, because it is this bill that has the major tax reductions, outside of the tax breaks for landlords, that do cost a significant amount in fiscal terms. I’m going to put the question to the Minister in a slightly different way, and I think it is incumbent upon him to give us an answer as to the substance, so that we can get to the bottom of this.

In the prior Government, there were years, prior to COVID, where we ran surpluses of 1.9, 1.5, 2.4 percent. Then COVID hit, and the subsequent deficits as a percentage of GDP were 1.3 percent; 2.7 percent; 2.4 percent; and this year, if we include that as a Government year, 2.7 percent. Every one of those was criticised by the then National Opposition as being fiscally irresponsible. Yet the forecast for this coming year is a deficit that is larger than any deficit, except for the COVID year, of 3.1 percent—a deficit of 3.1 percent of GDP—which is one of the reasons why this Government has the increasing Government debt that I have referred to.

Now, by my calculation, Minister, these tax cuts here of about $2.5 billion per annum that are covered by this bill are the equivalent, given that GDP is about $400 billion, of 0.5 percent of GDP. So I want the Minister to either deny or accept that the fiscal effect of these tax cuts is to increase the deficit from 2.6 percent—which it would have been otherwise, excluding the tax breaks for landlords, which would have been in the vicinity of the 2.7 percent that the prior Opposition always criticised—and instead push it up to 3.1 percent, according to page 156 of (B.3), the Budget Economic and Fiscal Update. So, of that 3.1 percent deficit, which is an enormous deficit against the background of the deficits that we had to run post-COVID, in the context of the increased expenditure that flowed from both COVID and the inflationary pressures that followed all around the world and in New Zealand—how can it be responsible to bring forward tax cuts that, in that context, are going to increase Government debt?

Isn’t the real game here what we just heard from the speakers at the Child Poverty Action Group post-Budget breakfast—that I’ve just returned from—to increase the deficit to justify the austerity that you are going to visit upon this country in future Budgets as you drive the economy into dust, driving up unemployment, cutting public services, and increasing Government debt?

I move, That debate on this question now close.

I’m going to call the Hon Dr Deborah Russell. I’m looking for new content now, because I’m aware that we’ve been on this part for probably almost two hours, and we’ve got several more parts to come, which will also be relevant. But I’m going to take one more call and I’m listening for very new.

OK. Thank you, Madam Chair. You know, this is the examination we have of this extremely important bill in lieu of having had a select committee stage. There is a series of questions here that we could have dug into at select committee and we still need to have a think about them here.

I want to refer to something the Minister of Revenue said last night and some more information about that, which I haven’t covered yet, coming out of the regulatory impact statement. Now, last night, I questioned the Minister about the lead times that payroll providers needed in order to get these tax threshold changes in place in time for people to actually get the money in their pay packets. I pointed out that Inland Revenue itself said, in the regulatory impact statement, that payroll providers really needed to have a three-month lead time. Now, from 30 May to 31 July, when these changes come in, is two months.

So I checked with the Minister. I said, “That doesn’t seem like a very long time and they actually need three months.” He pointed out that the regulatory impact statement was dated on 24 April, and in that time, between when the regulatory impact statement came out and the Budget itself, there had been some ongoing consultation with payroll providers to ensure that they’d be able to get the changes in place. So they were pretty sure that they could meet that two-month lead time.

CHAIRPERSON (Barbara Kuriger): Is there a new question in this?

Hon Dr DEBORAH RUSSELL: Yep, there is a question coming right now. The Minister was sure about this. So I want to ask the Minister: can he guarantee that every employee will get the tax threshold changes in their pay packet in their first pay after 31 July? He said that they had consulted payroll, so I want to know: can he guarantee that? So that’s the first question.

I want to carry on because there’s some more information in the regulatory impact statement that we haven’t covered yet. I want to draw the Minister’s attention to paragraphs 49, 50, and 51 of the regulatory impact statement, which have not been discussed yet. Now, we discussed some of the large Government organisations in terms of their payrolls for their employees. But paragraphs 49, 50, and 51 point out that some large Government organisations have a whole set of other people to whom they are directing payments that are subject to income tax, and, in particular, payments made by the Ministry of Social Development (MSD) to beneficiaries, payments made by ACC under the compensation system, and payments made by the Ministry of Health. Now, we’re talking lead times for payroll providers, and in paragraph 51, there are very specific numbers about how long each of those organisations think they need. So to make the necessary IT changes to ensure that people get that money in their back pocket, in their first pay, after 31 July—and that’s what the Minister has told us he can do—ACC—

Tim Costley: You don’t want them to get the money.

Hon Dr DEBORAH RUSSELL: —take a call—says that it needs eight to 13 weeks. So, OK, ACC is going to fit within that lead time or maybe the earlier lead time. MSD says that they need about three months from the Cabinet decision. Now, I’m taking it that the Cabinet decision would have been made on 1 May, that’s the first Cabinet after the regulatory impact statement. But here’s the cracker: Health New Zealand says it needs four months—it needs four months from the date of the Cabinet decision. Big workforce there, and that’s what Health New Zealand said.

So the Minister has put in place some changes to tax thresholds and he said that he’s confident based on the consultation with payroll providers that it can be done for employees, but then, sitting in the regulatory impact statement for Health New Zealand, one of the largest employers in this country, is the very clear information that they need approximately four months from the date of the Cabinet decision, and that’s only if they get told about it in advance of the Budget. It happens, because we’ve got to get that sort of thing sorted. Now, the date of the Cabinet decision was 1 May, at the earliest—so 1 June, 1 July, 1 August, 1 September. When are those people employed by Health New Zealand going to see the impact of these tax threshold changes in their pay packets?

Now, the Minister has been absolutely confident that it can be delivered. I would like that guarantee that every employee will see the impact of the tax threshold changes after 31 July—in their first pay packet after 31 July. He was confident last night—[Time expired]

I move, That debate on this question now close.

The question is that Arena Williams’ tabled amendments to clause 4 in Part 1 to replace dates with “31 July 2024” and “31 December 2024” be agreed to.

The question is that Ricardo Menéndez March’s tabled amendments to insert new clauses 4A and 4B be agreed to.

The question is that Arena Williams’ tabled amendments to clause 4 in Part 1 to replace dates with “1 July 2024” and “end of September 2024” be agreed to.