Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill

Members, we now turn to the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill. We come first to Part 1. Part 1 is the debate on clause 3, “Annual rates of income tax”. This is where the debate on the tax rates should take place, but the vote on any proposed amendments to the tax rates will take place in Part 2, which amends the Income Tax Act 2007. Standing Order 352 requires that the annual taxing provision be considered separately. The question is that Part 1 stand part.

Happy to take a call on Part 1, which is, of course, the part that sets out the annual rates in this legislation. This is an important pace of legislation that comes to this House every year, because, really, it’s in this setting out of the annual rates that you really do see the priorities of a Government and what a Government is making sure that it is supporting. But, importantly, it’s what is not being supported as well.

While we support some of the various technical tax measures that are carried out later in the bill—and I’m sure my colleague the Hon Deborah Russell, who can speak about tax like nobody else in this House, will talk to the technical nature of those later provisions—we do oppose this bill because of the tax rates that are set out here in Part 1 of the bill. We oppose it for a very simple reason: because of the failure to address the annual rates in a meaningful way to ensure that the tax system generates sufficient revenue to support all of the activities of the Government.

If we think back to discussions that we’ve had in this House today, we can see the failure of Part 1 of this bill. We can see the failure of the Government to generate sufficient revenue to adequately fund a school lunch programme. We’ve heard from the Prime Minister in question time in this House today ludicrous suggestions that somehow it’s the fault of the previous Government because we hadn’t gone through and funded for what this Government should have funded in this very Part 1 of this bill. It is a choice that that Government has made.

My question for the Minister in the chair, Simon Watts, is: given we’re seeing on a daily basis the fact that there is not adequate revenue to fund all the activities of Government that New Zealanders expect and New Zealanders deserve, are they considering any alternative revenue measures? We’ve heard some suggestions from the Minister of Finance at the Finance and Expenditure Committee that there could be some under consideration, so I ask the Minister in the chair to elucidate to the committee what some of those alternative tax measures might be.

Thank you, Madam Chair. I do have questions for the Minister on Part 1, clause 3 of this bill, which specifically talks about the basic rates specified in Schedule 1 of the Income Tax Act. I guess my question is seeking the Minister’s clarification, because what we’re seeing as part of the regulatory impact statement for this is that, with the changes to the income tax bracket as set out in Schedule 1, we are seeing the fact that 130,000 New Zealanders will get no tax break, 8,000 New Zealanders would be worse off with the tax break, and the top 40 percent will, in effect, get 55 percent of the tax break, equating to $1.6 billion. That is in the regulatory impact statement.

I guess the question for the Minister is: if that is a known quantity, was there any consideration on whether to adjust some of that so that the lowest-earning New Zealand households and people will actually get more? Was there consideration around a tax-free bracket, for example, which we have seen working in Australia, where people on the lowest income will get more money as a result of that? All these, in terms of the tax bracket, are laid out in Schedule 1 of the bill but, again, the evidence and information that we are getting from the officials and what is considered best practice for other countries doesn’t really reflect the practice we are seeing here. If the Minister wouldn’t mind clarifying the rationale, that would be great.

It’s always good fun, this part of the debate every year on the annual tax rates bill. For the edification of the still somewhat new members across the other side of the Chamber, it’s the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill. By tradition, as we debate Part 1, this is the time when we have the rather free-ranging debate about tax rates in this country, about fiscal strategy, about how the Government is choosing to collect its revenue, about whether or not it has chosen to make changes to tax rates.

We don’t have that debate at any other time; the Part 1 debate of the annual tax bill is the time we do have this debate, so I would invite the members on the other side of the Chamber to consider participating in it. It is the one time you have in the House this year—speaking to the members on the other side of the House, of course; not you, Madam Chair—the one time that is available for people to stand up and say what they think about the current tax rates. I’m inviting especially the chair of the Finance and Expenditure Committee, Mr Cameron Brewer, to have a few opinions about it, too. There has to be some fun in being a Government backbencher—this is it, and I’m sure the Minister would agree with me about that. It’s time to talk about tax rates, and I would certainly invite all members of the committee to participate in this. I know that my colleagues from the ACT Party will have some particular views about tax rates as well, and I’m hoping, gentlemen, that you might consider standing up and participating in this debate, too.

The annual tax rates bill is required by law. Every year, the House actually has to set the tax rates for the year. It does this via the annual rates bill, and if you look at the clause that’s sitting in the bill itself, it doesn’t look particularly exciting.

Hon Dr Megan Woods: Oh, come on, Deb, it’s tax law!

Hon Dr DEBORAH RUSSELL: It’s not that exciting—I promise you, Megan, it’s not that exciting. All it says is that “Income tax imposed by section BB1 [which is the] (Imposition of income tax) of the Income Tax Act, 2007 must, for the 2024-25 tax year, be paid at the basic rates specified in schedule 1 of that Act.” Now, that’s quite interesting in itself. It’s for the 2024-25 tax year, and, of course, that tax year ends on 31 March 2025, so it ends in just a few weeks, and here we are, only at the end of the year, setting the tax rates for the year.

I guess most people won’t know this: all this year, as people have been receiving their pay packets, if they’ve been getting paid each week, their employer has been deducting—or perhaps, if they’re self-employed, they’ve been putting away—money each week at a specified amount; it’s just taken out of the pay packet by the PAYE system. The hope is that employers will have taken out the correct amount so that, come the end of the year, when this House finally gets around to setting the income tax rates for the year, the amount that has been deducted from salary and wages during the year will be enough to cover a person’s tax liability.

Of course, that tax liability is measured at 31 March, and that’s why we’ve got to set the tax rates by then and it’s incumbent on the Government to do that. All this year, as each of us has received our own pay every fortnight for the job we do in this House, some money has been deducted, and we better hope that the Parliamentary Service has gotten that right; otherwise, we’ll have a tax bill to pay. It does beg a little bit of a question about the tax system: why are we setting these rates so far after people have already made the deductions? I suppose there’s a chance that the Government could change the tax rates, but it doesn’t do that. That’s one of the curious things about it.

Aside from that, it’s really important to note that Governments make choices about tax rates. They make choices about how much tax revenue to collect. Even when there is no change to Schedule 1 of the Income Tax Act, when, in effect, the Government is just confirming those tax rates from year to year, that is still a choice. Choosing the status quo is a choice, and it is a choice that has impacts on ordinary New Zealanders. Of course, the obvious impact is how much tax each of us pays and contributes to the wealth of this nation, but there is another choice that the Government is making there.

Now, the Government chooses how much tax to collect, and part of the role of the Minister of Revenue is to ensure that the revenue system generates sufficient revenue to meet the Government’s needs. If the revenue system does not generate enough revenue to meet the Government’s needs, then services get cut—services get cut. Actually, we’re seeing that in place at the moment. We are seeing the health system under strain. We are seeing that no provision has been made for increases to the education Vote. We are seeing the absolute tawdry mess of the lunches that are being served to our children in schools. We are seeing the increasing fees elsewhere in the system, the little chisellings away of grabbing more money out of people’s pockets quietly, quietly, quietly, without doing it explicitly through the Income Tax Act. Despite the former Minister of Transport’s protestations, we are still seeing potholes on the roads. We are seeing a looming bill for the ferries that we need to get from one island to the other.

We are living in an increasingly uncertain world: a world where the European Union has just made a major commitment to increase their defence funding, a world where our Minister of Defence has said that we need to increase our defence funding up to about 2 percent of our Budget—it’s only about 1 percent of it at the moment. That’s a lot of money and it’s got to come from somewhere, and where it comes from is from the revenue system. Yet this Government has chosen to make no changes to the revenue that we collect. What they are choosing is the cuts, and that Minister of Revenue has not notified any new measures that he is going to take in order to increase revenue.

Now, there are some interesting ones out there. There’s a discussion paper out there at the moment on the taxation of charities. Of course, many of us think that perhaps charities should be taxed to the extent to which they are running businesses, those businesses are competing with other businesses, those businesses are maybe making profits that are not then being deployed into charity work. That’s a good thing for us to look at.

It’s the other sneaky little tax grab in that discussion paper that’s interesting, and that’s around the taxation of not-for-profit entities, the small clubs and associations which now look like they might be hit with a tax bill because the way the law has been interpreted is going to change, according to that discussion paper. I find that’s a very sad way to get revenue, because these are the small guys. The big guys will be able to get some advice, pay for it, but it’s going to be the small neighbourhood associations who are suddenly going to have tax bills.

CHAIRPERSON (Barbara Kuriger): I’m just going to interrupt the member. I understand it’s your portfolio and you’re very passionate about this, but we’re on our second speech of the committee stage and I haven’t yet heard a question. The purpose is for the member to ask the Minister some questions on the views that he has.

Hon Dr DEBORAH RUSSELL: Here is the question for the Minister, the question in this usually free-ranging tax debate at the start of the annual rates committee stage—

Hon Dr Megan Woods: It’s all context.

Hon Dr DEBORAH RUSSELL: —it’s all context—what is that Minister going to do to ensure that the revenue system, for which he is responsible, is going to generate sufficient revenue for the Government to do the things that New Zealanders want to do—the things, like more healthcare; the things, like better education; the things, like feeding children in schools? What is that Minister going to do?

Thank you, Madam Chair. It’s always a privilege to be able to stand and take a call and to ask the Minister of Revenue questions in relation to taxation bills, in particular this committee of the whole House stage of the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill.

As the previous speaker, the Hon Dr Deborah Russell, just talked about, the particular context in relation to this bill is that there is a number of—actually, probably what’s more missing is revenue measures to help the Government balance their books, and I do understand the Government is taking a sort of cut across the board in order to bring in that type of revenue—or “savings”, as they would say—very similar to the fiscal savings programme that our Government ran of 1 to 2 percent just before the election.

The question that I have for the Minister, and for him to have some consideration, is that there have been some media statements which have been made by the Minister of Finance in relation to corporate tax cuts. Now, I do note that Part 1 of this particular bill does not make those changes to the schedules within the tax Act but, in particular, just whether the Minister has any comment in relation to the current Minister of Finance’s comments around a corporate tax cut and, in particular, whether there is any evidence of economic rents which, in layman’s terms, is similar to what we’re doing with the banking inquiry—trying to figure out whether there are excess profits within different particular sectors which would therefore mean that, actually, if you give a corporate tax cut that means you’re giving more corporate tax cuts to, say, banks, power companies.

Has the Minister received any advice from officials in relation to that? Do we expect to see any corporate tax cuts come through the latest stages of this particular bill or anything further through the committee of the whole House stage? I just wanted to ask him that question quickly before I continue. I will continue, then.

Again, I’ll go back to what Part 1 is about for this particular bill: it’s about setting the annual rates for the 2024-25 year. Changes to tax rates or confirmation of tax rates must come through Parliament every year. That is constitutional. Even though we don’t have a written constitution, it goes back to the 1600s: if Parliaments, if Governments, want to tax people, if they want to raise revenue, there needs to be legislation which underpins that. Obviously, this legislation which the Minister has brought to the House, which we did have a good ability to be able to scrutinise at the Finance and Expenditure Committee—and I do want to thank the Minister for that; not every Minister has given select committees the privilege and the time to be able to assess particular bills.

In this particular bill around the tax rates, very much picking up on some of the comments that the previous member talked about, there are measures in here which don’t point to the digital services tax, which is currently on Parliament’s Order Paper but obviously is still counted within the books by the Government. My question to the Minister is: will he be bringing forward that digital services tax cut as part of this bill, or are there no changes to the Digital Services Tax Bill, particularly in light of what’s happening in the US and particularly in light of the executive orders which the new President has been signing off regularly?

That has an impact on New Zealand, because the digital services tax, which was a bill that I introduced—and this Government has every discretion to be able to withdraw it—points to US domiciled companies who trade in New Zealand and, basically, being able to tax them a certain percentage of those profits that they raise here in New Zealand. Has the Minister come any further in relation to the digital services tax; if so, why are we not seeing it in this particular bill?

Thank you very much, Madam Chair. Good evening, everyone. It’s great to be here to be able to talk about what is a very exciting and thorough piece of legislation, the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill—and what a good bill it is.

I want to acknowledge the Finance and Expenditure Committee members across the House for their very studious work in regards to this piece of legislation. I was pleased and I was a bit hopeful—maybe a bit too hopeful—when I saw it was unanimously supported by all sides of the House at first reading. I thought maybe this might be the first tax bill that goes through this House with that. Sadly, that wasn’t the case last night, even though the bill’s been improved through the select committee process from what went in there.

It’s an important bill because it does have a number of aspects and a number of changes that I think are important to New Zealanders. Obviously, the emergency response aspects within the legislation are very important, and we know that that is important following the impacts of Cyclone Gabrielle and the other aspects. There’s plenty of portions within the bill dealing with remedial changes, which many submitters made as part of the broader process—and I do acknowledge all of those submitters who did do that through the select committee process: thank you.

I’m just going back to a number of the questions that have been asked by members so far. Firstly, the question by the Hon Dr Deborah Russell in regards to what the Minister is going to do to ensure that the tax system is delivering, or something along those lines. Well, the thing that the Minister of Revenue is doing, and what all Ministers in this Government are doing, is focusing on increasing economic growth. Quite simply, there’s a good correlation between increasing economic growth and more tax receipts coming into Government, and that’s what we are focused on—not increasing taxes, which, obviously, is not going to increase the broader size of the economy and help us pay for those services.

There are some questions here in terms of some comments made around company tax and corporate tax. I think I would refer all members to the Tax and Social Policy Work Programme that the Minister of Finance and I released late last year. It provides a very clear signal of the areas of priority by this Government in this area.

As you will be aware, we are consulting on a large amount of policy in the tax space, and we’ll be consulting on more areas of that as we go through. It is fair to say that the corporate tax contribution in terms of the broader economy is significant, but as a Government we are, obviously, continually looking to identify areas of opportunity where we can ensure that we can grow our economy. Any changes across the board will be coming through, no doubt, in the Budget process. I can’t say anything more in terms of detail, but we are looking at a wide range of options in that space to increase economic growth.

We had another question, I think by the Hon Barbara Edmonds, just in regards to the digital services tax. I think it is an absolutely fair question. We’ve got a degree of focus across the world at the moment. We do have that bill sitting on the Order Paper. It’s under active consideration by the Government in terms of what we do in that respect, and you will be hearing more from us on that in due course, in terms of clarity around what will be happening in that space.

Those are the three questions we’ve had so far. I’m very much looking forward to engaging dialogue on what is a very important bill. With that, I look forward to members’ questions.

Thank you, Madam Chair. I just have a question for the Minister of Revenue in terms of how it was that the distribution of the tax cuts that are set out in Schedule 1 have fallen, because, of course, it’s only once we get into the tax share that we can really see the true numbers of people. Of course, Inland Revenue does its estimates of the number of people that will benefit.

Of course, at the election, we had National coming out and talking about the number of people that would be eligible for $250 a fortnight in the tax cuts that were laid out in their plan. How is that translated into the legislation, and how many New Zealanders or New Zealand families have received $252 or more from the tax measures laid out in this piece of legislation?

I want to pursue something that the Minister of Revenue spoke about just a few moments ago when he took a call to answer some of the questions. I’d raised the question in my opening speech about looking after the revenue system and ensuring that it did raise the revenue needed for the Government. I’m paraphrasing here, Minister, but I’m sure you’ll be happy with this. More or less, they said that the strategy was to go for economic growth and that would grow the revenue base. I trust you’re happy with that gloss on that.

I have to say that, in terms of going for economic growth, that Government isn’t doing very well so far, is it? It’s kind of in a bit of a hole over there. I think the economy has been in recession, negative growth—we politely call it “negative growth”—for two quarters in a row now. That’s a recession. And the indicators—people talk about “green shoots”; they look pretty damn shrivelled to me, so we’ll see what happens with that.

It does raise the question—because the Minister said that the strategy is to go for economic growth; there’s a good question around that, Minister—and that is: which measures in this bill are going to generate the economic growth that you say will look after the revenue system? Now, there’s not any in particular that I can see that actually go towards economic growth, per se. I’m sure we’ll discuss them all as we go through Part 2 of this bill, but in discussing Part 1 and asking the questions, what are we going to do to ensure that the revenue base is protected and that the revenue base grows to meet the needs of New Zealanders? The answer from the Minister was “Economic growth”, so the question is: what measures in this bill look to economic growth? More importantly on that one, given that economic growth isn’t delivering so far, what else is he going to do to generate the revenue that New Zealanders need?

Now, traditionally in Keynesian economics, the usual strategy is that, in times of economic recession, in actual fact, that’s the time when the Government needs to support the economy, needs to do things that make the economy grow. We’re not seeing a lot of that. It hasn’t taken any effect yet. Minister, it is a very serious question and it was an answer you gave, so I do want the answer to it: what measures in this bill are actually going to ensure that we get some economic growth?

Thank you, Madam Chair. Because I know that there was a change in the Minister in the chair, just to remind the Minister that I did ask a question earlier on, around clause 3, which is with regard to the fact that we have seen in the report that the way that the tax adjustment has worked in Schedule 1 of this Act meant that 130,000 households are going to get no tax relief, and 8,000 households are going to be worse off as part of this. With that being a known quantifier, what is the rationale with going through and pushing through this particular tax bracket that is in the Schedule 1, and whether the Minister considered alternative options such as having a tax-free bracket. That’s kind of my question that I would actually like the Minister to respond to.

The second part of that is that, as we have seen in the latest Child Poverty Report, one in eight children in Aotearoa is living in material hardship: one in five for Māori and one in four in Pasifika. All of these would undoubtedly—you know, this is not a new issue. We’ve known some of these—and the latest report confirms—that our child poverty data is not actually getting better. I wanted to check with the Minister whether, as part of this tax reset, a child impact statement was also produced alongside everything else, the regulatory impact statement, to say that the changes in the tax system is indeed going to lift these children out of material hardship and out of poverty. I’m hoping that the Minister is able to answer those two questions.

Thanks very much, Madam Chair. Thanks to the member for just letting me pop in. Just letting you know, members, just in terms of some of those specific questions around the number of taxpayers impacted, we’re just getting some of those numbers. There are some complexities in terms of the quarterly reporting process, but I have asked officials to get us the latest information that we’ve got in that regard.

This question earlier on around one of the policies in here that does support economic growth—we’ve got the approved issuer levy as one example of legislation. The member’s going, “Come on.”

Hon Dr Deborah Russell: The retrospective legend. Oh, come on. Let’s go.

Hon SIMON WATTS: Well, no, no. Well, you asked for one example and so I’m giving you one example. There will be a lot more examples, no doubt, coming through in the future, but we are working through that at the moment, not too far away from the Budget.

The point raised by the member down the back, Lawrence Xu-Nan, in regard to consideration around the tax-free rate or in terms of the process—so, look, the wide range of assessment in terms of when setting those personal income tax rates and how do we derive the appropriate benefit, our policy position was that the counterfactual on those type of tax-free bands has unintended consequences on certain taxpayer groups. The broad based - low rate model that we have in terms of the bandings is an area in which, as a Government, we felt was the most appropriate manner. We’ve obviously increased the thresholds in regards to that, which provided a broader range of benefit, but we didn’t proceed or we weren’t considering what the member is referring to.

Thank you, Madam Chair. Thank you, Minister, for your response. I just want to have a very quick follow-up question regarding this having unintended consequences. I want to just check again with the Minister of Revenue that, when we are looking at those personal tax rates, the Minister has received any advice around the fact that, in Australia, they do have a A$15,000 tax-free bracket, and whether that has been taken into consideration on the rate of emigration out of Aotearoa New Zealand as a result of the fact we have unfavourable tax conditions for people who are at the start of their career or earning lower salaries. We are seeing over the last few months greater emigration than we have seen in previous years. I just want to check with the Minister—because this is something Australia’s doing—if the emigration potential of us not being competitive has been taken into consideration.

Just to the member Lawrence Xu-Nan’s question in regards to the comparatives between Australia and New Zealand, I think it’s a fair question. What we do know is that, when you compare a like-for-like example in terms of salary between New Zealand and Australia, while there are some points of differential in the thresholds as you proceed through different income levels, actually in the main, there is a degree of where the New Zealand taxpayer actually starts to move ahead of the Australian taxpayer, particularly at the upper ends of the income threshold. We have had a broader look at that model.

The point to the question is around the benefit of having a tax-free rate at the lower end of the income frame. I think, when you think about a counterfactual on that, you could think around a number of areas where that has unintended consequences. What I mean by that is that there are some individuals, because of that, that may not be contributing into the tax base. Also, New Zealand’s broader tax and social policy work programme is different to the Australian model. We have a number of abatements and also social policy programmes, such as the Working for Families tax credit, etc., which means that a true comparison, like-for-like is different between the jurisdictions.

Thank you, Madam Chair. I just have a question for the Minister in the chair. Of course, the taxation rates that are laid out in Schedule 1 are the result of decisions made, and, of course, Governments receive multiple strands of advice about what different revenue measures are open to it in terms of setting taxation. I just wonder if the Minister could tell us whether or not the Government—he as Minister; or the Government more broadly—received advice on raising tax revenue from sources other than taxing income and salaries, what other measures was the Government given advice on in terms of that, particularly advice from Treasury, and whether or not the Government has given any active consideration to that.

The time has come for me to leave the Chamber for the dinner break. The House will resume at 7.30 p.m.

Sitting suspended from 5.55 p.m. to 7.30 p.m.

Members, the committee is resumed. We are on Part 1 of the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill.

Thank you. I’m delighted to have a call just to remind the committee that what we’re doing is debating Part 1 of the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill, and it’s the clause in the bill that sets the annual tax rates for the year. By tradition, this is the debate in which we have a pretty free and frank exchange across the Chamber on tax rates, on the amount of revenue that’s collected—it is the debate for the year on tax, tax policy, how we raise revenue, and, of course, the flow-on consequences from all of that.

It’s actually quite an important debate, and it’s an important debate constitutionally as well. This is when Parliament debates taxes, and I’d just like to note that so far it has been the Opposition that has mostly been debating this issue. We’ve had some good responses from the Minister, but we’ve yet to see any of the Government parties actually take part in this very, very important constitutional debate. I do invite the members across the other side of the Chamber to participate in this debate as well. It is something we need to take seriously. The nature of taxation is that people in this country, in virtue of living in this country and earning income here, are required to pay taxes here. Of course, they do that because that’s the way the law works, but we need to justify that to people—

David MacLeod: And the question is?

Hon Dr DEBORAH RUSSELL: —and this debate is part of that justification for people. I do invite you, Mr MacLeod, if you’d like to do that, please stand up and take a call. If you don’t want to, that’s one of those things.

We are concerned about the tax system. We are concerned about the extent to which it is not generating sufficient revenue to pay for everything that Government needs to do. We’re seeing the effect of that in the health system and the education system. We’re seeing it in the lunches in schools. We’re seeing it everywhere where services are being cut, where New Zealanders can no longer get the services that, actually, we kind of all agree on. There’s broad-based agreement in New Zealand that we have a decent health system. There’s broad-based agreement we have free public education. There is broad-based agreement that we have a welfare system. There is broad-based agreement that we need to provide housing, that we need to provide roads, that we need a police force, that we need a defence force. There are all these things that we kind of, by and large, agree on as New Zealanders, and we need to ensure we fund them. This Government’s revenue system is not doing that. That’s the sort of issue we want to discuss in this debate.

There is a particular thing I would like to direct to the Minister. I may need to ask for a second call on this, but, hopefully, not too much of it. In his last call just before the dinner break, maybe the second to last call—the Minister’s talk just before the dinner break—he described our taxation system as being “broad based - low rate”. Those were the exact words he used. He said that we have a broad based - low rate system and he wants to maintain that kind of system. But, colleagues, we do not have a broad based - low rate system. It is simply not the case that our system can be fairly described as broad based and low rate. Now, the rates are low enough, as it turns out; our top tax rate is well below the top tax rate charged in other countries. As the Minister said, “It kind of levels out, off and on, they kind of add up”, but it’s what those rates are charged on that makes all the difference. And that’s that broad base. Now, we charge income tax on all sorts of income. We charge on every dollar.

CHAIRPERSON (Teanau Tuiono): I was wondering if we could move it to a question.

Hon Dr DEBORAH RUSSELL: Yeah, I’m getting there. I promise you, I’m getting there. We charge on every dollar that a cleaner earns, that a security guard earns, that a teacher earns, that a nurse earns, but we do not have what the Minister described as a “broad based - low rate system”—his words just before the dinner break. I think the Minister needs to defend that, because we do not tax all the income that is earned from buying and selling houses in this country. We do not tax capital gains in this country. In fact, we have very few taxes on capital income at all. To describe us as having a “broad based - low rate system” is just not correct.

Now, if we did have a broad-based system, if we did have a genuine broad-based system, then we might have the revenue to support the expenditure we want to make. But we do not have that broad-based system. I want the Minister to justify why he called it a “broad based - low rate” system.

Thank you, Mr Chair—I’m sorry to head off my colleague Glen Bennett, who is dead keen to take a call. I’m actually interested in the Minister of Revenue’s comments around the revenue cliff we have ahead of us. I understand that tax rates are set annually, and I’ve heard in this House a lot about fiscal cliffs—where there’s been Budget often set on a three-yearly cycle—and the suggestion that in some way that leaves us in abeyance. It just strikes me that this tax system where we set our tax rates on an annual basis is going to leave us in a parlous situation. How can it be that we’ll have no tax next year? Or is it in fact the case that there are no such thing as revenue and fiscal cliffs, just Budget cycles, and the revenue cycle happens to be a 12-monthly one?

I’m also interested in the Minister’s thoughts about whether the revenue stream generated is enough for the costs which the Government is facing, because it’s pretty clear the Government has made some decisions which have reduced revenue over time, including brightline and interest deductibility—that obviously has shrunk the revenue pool. I’m wondering what revenue measures, and if there’s any measures in this bill, which will make that up, because clearly there’s some spending needed in health and for his lunches—or David Seymour’s lunches, in any event.

There’s some big questions in there, but I am particularly interested in him explaining to us the revenue cycle. I get it that Parliament has to authorise taxation, and any taking of wealth from citizens—appropriating it for the use of the greater good—should absolutely be authorised by Parliament, but I’m just curious about this idea that it’s an annual cycle, and whether he’s going to be as alarmed at this revenue cliff as his colleagues are with the suggestion that Budget cycles don’t provide for spending into the infinite future. There’s a few questions for you just to start us.

Thank you very much, members, for those questions. I guess one context that has been raised is: have we got a tax system that is able to deliver upon the revenue required in order to fund our public services? The reality is, for those who are watching at home, there’s a correlation between the size of the economy and the tax on that economy and how much tax we collect. Surprisingly, when the economy is in recession and is smaller, the tax take is smaller, and I appreciate that that might be enlightening for many, but, actually, that’s the reality.

What we’ve recognised on this side of the House is that instead of sort of taxing more of that bucket, you’d probably be better to increase the bucket—make the pie a little bit larger and increase that through economic growth.

Hon Matt Doocey: Oh, what a revolution!

Hon SIMON WATTS: Again, this may be a bit enlightening for some of those around the Chamber! If you’re thinking about trying to get ourselves away from the situation we’re in, while simply taxing harder is, in one ideological position, admirable, it’s not going to lead to the outcome that we need as a country.

Look, we are focused on ensuring and maintaining New Zealand’s broad based - low rate tax system. It was good to see, actually, that the members of the Opposition supported the first reading of this bill, in which, I understand, table 1 of the tax rates are unchanged following the select committee process—but now they oppose it.

We have a broad range. We have taxation that applies from 1c, through the continuum. We don’t have a tax-free threshold in that context, and so it is broad-based. In the context of overarching rates, when you look at the around about $120 billion of revenue that’s brought in through the tax system, it’s about the equivalent of 28-and-a-bit percent or so of GDP, and within the broadness of that 50 percent or so from individuals, about 25 percent, give or take, is around GST, and then it is in the context of around 17 percent from companies and 6 percent from other indirect taxes.

There is a broad range of that, really, and what this side of the House is focused on is actually, like for many households in New Zealand, surprisingly—you know, you sort of cut your cloth to meet the revenue that comes in, and that’s what we’re doing. We don’t apologise for that; I think that’s pretty prudent fiscal management. But, at the same time, it’s making sure that we’re spending within our means—which, again, may be enlightening for some in this Chamber—and that we are focused on growing the economy, and I think that that’s the most sustainable place that we can take our country, going forward.

Meitaki maata, Mr Chair. I want to actually pick up a couple of responses to questions, and, again, I thank the Minister of Revenue for responding to three of the questions we had before the dinner break. It was, in particular, a reference to his response around my questions around whether they are actively considering lowering corporate tax rates, to which the Minister responded that, yes, they accept that if you did, hypothetically, lower the corporate tax rate, that there would be a revenue loss, however, the Government’s focus on growth means that they would be looking to, as the Minister just said, grow the pie.

My question is around growing that particular pie. The Minister did reference the approved issuer levy as a potential growth policy which was in this bill. I’m a little bit perplexed as to why the approved issuer levy (AIL) would be a growth policy for this bill. If the Minister would like to just perhaps expand on why AIL is a growth measure, given that it’s something that’s currently there and it’s the difference between that and paying non-resident withholding tax.

In particular, based on Inland Revenue’s annual report—and I just want to thank Inland Revenue for their annual report, and just to assure them that people, particularly in Parliament, particularly on this side of the House, do actually read the annual reports when they come through. The last annual report for the last financial year said that Inland Revenue collected $18.7 billion worth of corporate tax.

Now, there has been some commentary around how, if you were to halve the corporate tax rate, currently at 28 percent, to, say, 14 percent or 15 percent to match, in particular, Ireland, which this Government has talked a lot about, about the growth in Ireland—never mind the fact that Ireland actually still has a capital gains tax, still has an inheritance tax, also gets eurozone subsidies, and also, because of geographics, they’re actually quite close to other countries, so hence that would, in some respects, pad some of their growth figures. Say, hypothetically, it was a $9 billion revenue loss if the Government decided to go down the pathway of Ireland with a 15 percent corporate tax rate, putting aside the economic rents argument and our concerns on this side of the House that, actually, you’d be giving tax breaks to banks, to power companies, to large sectors—good luck to the Government trying to get that particular motion through.

The question I have in particular, to the Minister, is because he said it’s about growth for the Government. As part of the Finance and Expenditure Committee, as part of the Budget Policy Statement and the Half Year Economic and Fiscal Update, we asked Treasury officials around their forecasts for growth, the forecasts which are in the Government accounts looking forward, and how much they’re expecting for annual growth, based on, basically, the Government’s forecasts.

I just want to quote it for the committee, particularly given the Minister’s comments earlier in the Chamber tonight. They said that they take into account that there has been a change between what they had estimated in the Budget Economic and Fiscal Update last year and then what was released in the half-yearly update was actually revised down, the growth figures. They said that it resulted in roughly 0.7 percent downward revision in the level of nominal GDP over four years. They said the reason why that is is because they’re taking into account not just things like lower interest rates but the lower exchange rate, recovering commodity prices, and the economy sort of returning to a stable operating level with lower inflation. That’s from the chief economist at the Treasury.

Basically, despite the Government’s narrative around going for growth, the actual accounts and the forecast looking forward actually shows that, yes, there is a small bump in recovery. Roughly, it goes up to about 3 percent in the next financial year, but then it drops back down to around 2 to 2.5 percent. When I asked the chief economist in particular, “Well, given the Government’s mandate and what they’re trying to do about going for growth, wouldn’t you have expected those forecasted growth figures to take into account fiscal decisions?”, basically, if I can quote, the chief economist said, “Yeah, we take a very wide range of evidence into account and a very wide range of literature and overseas evidence into account when we come to what our growth number is. So, yeah, the historical evidence and global trends around the world were the reason that we have slightly downgraded our longer term growth.”

Actually, what’s on the Government books is showing no matter what this Government’s mandate is around growth, the actual accounts for growth are affected more by what’s happening overseas, and it hasn’t really been taken into account in the fiscal policy by this Government. Therefore, my questions to the Minister are, working backwards from what we heard from the chief economist of Treasury, what we’ve heard from the Minister’s response tonight around that corporate tax, and how there may be a revenue loss if there was to be a cut in corporate tax: (1) where else in this particular bill do we see growth policies that will help to plug in that revenue loss; and (2) if their accounts are showing, actually, there’s not much growth to be predicted in the future, what is the Government doing in order to grow the economy in the way that we’ll have to plug potentially a $9 billion revenue loss? Again, I go back to my earlier question: is the Minister concerned around economic rents?

Thank you very much, Mr Chair, and thank you to the member the Hon Barbara Edmonds for the question. I want to come back, in terms of the question, in regards to the approved issuer levy, because it is important. While in the detail in terms of the tax legislation, the change that we’re making is, in effect, allowing people to undertake retrospective registration in areas where they’ve made a mistake. The result of that is that the approved issuer levy, in effect, is designed to lower the cost of capital for New Zealand borrowers who have got arrangements in terms of foreign lenders. The approved issuer levy (AIL) scheme allows them to use a rate in the region of 2 percent versus the non-resident withholding tax rate of 10 to 15 percent. Quite simply, two is less than 10 to 15. There is an economic benefit in allowing them to do that—it does flow through in terms of that broader benefit—and that’s included within this bill.

Thank you, and I guess as I listen to the Minister of Revenue—his previous call, one before that—I feel like he’s really opened up the debate this evening in terms of the conversation and the debate around the annual rates of income tax and what it looks like. He’s been talking a lot about this Government and their obsession with economic growth—growth, growth!—and my question is around that because I don’t feel like he’s actually addressed the question.

The question I have is because, if I look at where things are at in terms of revenue—and we fully understand, on this side of the House, as he said, the size of the economy determines the size of the revenue. Then he talks this big growth game—but I’m unsure. I need a more tangible answer from the Minister around what that looks like, because I’ve travelled the country in the last year; I’ve met with every economic development agency in the country; I’ve been from the Far North, down to the deep South; I’ve been on the West Coast and the East Coast; I’ve been to the central North Island, the central South Island. I’ve been everywhere, man, and it’s been really interesting to meet with economic development agencies and to get an understanding of what the Government that you are a member of is actually doing around growth. There’s been questions around that, and I feel like—well, I know we need answers in the Chamber tonight, and because you’ve opened it up for us to discuss it, I think it’s really important.

I really want to focus on some of the activities that have been stopped, which were around economic development, which were around growing our workforce, which were around growing our regions, which were around growing our economy. The industry transformation plans were an initiative that the previous Government had in place, working with industry, working with business, working with iwi, working with unions, working all around, in terms of developing a plan forward. A plan for what?

Hon Barbara Edmonds: Growth?

GLEN BENNETT: A plan for growth; a plan for economic development. What has happened? It’s been crushed, it’s been squashed, and it’s absolutely terrible. If you look at the industry transformation plan for the digital economy, I mean, there’s open letters they’ve written to the previous Minister for Economic Development, Melissa Lee, saying this is absolutely absurd.

Ryan Hamilton: What’s the question?

GLEN BENNETT: You’ve heard my question already, and so I’m going to continue, because we need context on this—we really need context.

The second part is around the regional skills leadership groups and, again, what were they about? They were about building capacity in our regions. They were about looking at the different sectors and what does the future look like? It’s around economic development and the future, but they’ve been crushed, they’ve been wiped, and they’ve been ignored. Look at things like the Productivity Commission, which is around our investment in terms of how we actually do things properly. The Minister has said that this Government is committed to economic growth. In fact, he said “Growth, growth, growth, growth.” at one stage—and that’s verbatim—but we still have not heard what that actually looks like.

We understand that the size of the economy is what obviously dictates our tax take—that’s hard to say—and I think, as I look and listen to the Minister, I just feel that we need answers, which he opened us up to talk about around the space, because I listen and we hear about things like coal mining, we hear about things like gold mining, we hear about the reintroduction of oil and gas, and it feels, to me, like that’s all short-term sugar hits. If you want to do economic growth, then that’s actually long-term investment into the future of Aotearoa New Zealand. I’m not seeing it with a quick bit of coal here and a quick bit of gold there. That might do for today, but tomorrow is what we must be looking at.

I know this piece of legislation is the annual rates, and we need to consider that, but I really want to ask the Minister to be really clear with us when he says we’re committed to economic growth, which will grow the tax take, which will ensure that we can invest in Kāinga Ora housing in New Plymouth, that we can invest in that, which has actually gone backwards under the Government that he is a member of. I want to understand how we can see that this Government actually is serious about economic growth, because what I’m hearing is there’s nothing in this that is actually serious about growth. It’s actually just about platitudes; it’s about putting words out there. It’s just like the key speaking notes of the National Party, and we need answers, and I ask the Minister to give them to us this evening.

Before I take the next call, I just wanted to note that I have been going through the notes and we have talked about economic growth quite a bit and just to note that maybe the Minister did nudge the doors a bit but they’re not that wide open. If people can actually contain them to this particular Part, I would appreciate that.

Thank you, Mr Chair. Under the departmental disclosure statement—I’ve been having a look at this, and my question, and I’ll start with it, is whether the Minister had sought a child impact assessment when it came to this piece of legislation. I think part of it is because, if I pick up on previous contributions from the Minister in the debate, in particular the comments around growing the economy and the tax base, one of the questions that remains unanswered from the Government side is in relationship to how this bill will actually materially impact children, because, actually, I don’t think we should be looking at economic growth in a vacuum.

One of the questions that hasn’t been answered is: who’s benefiting from this growth? When we have statistics from other parts of Government telling us that material hardship for children is actually set to increase and that we continue having a lot of people going without a home, I guess I’m concerned about the potential notion that a child impact assessment may have not been done for this bill. I’m interested to hear from the Minister about what analysis was done in relationship to, for example, settings in regards to our income tax system—would have affected other areas and programmes of Government.

Why this matters is because, if we look at history, we have had periods of Governments trying to once again go for changes to the tax base that end up benefiting high-income earners disproportionately. We have gone through periods where we have seen GDP growth and, yet again, the material realities for children doing it the toughest actually do not improve. I go back to my initial question, which is whether a child impact assessment was done. I couldn’t find that in the papers in front of me, and so I’m curious to know: if that wasn’t the case, why?

Thank you, Mr Chair. This part of the bill confirms income tax rates at the same rate as last year on the same narrow definition of income. I want to ask the Minister of Revenue: what is the most up-to-date information that he has as to the distribution of income at the top end, and how much of the income of high-income and wealth holders in New Zealand is taxed?

One of the first acts of this Government was to repeal the Tax Principles Reporting Act, which would have enabled—indeed, almost required—the Inland Revenue Department to, in future, carry out repeat iterations of some work that was done by the last Labour Government interrogating the effective tax rates of the super-wealthy. My understanding is that since that legislation was passed, the best information that the Minister will have as to the rate of tax effectively paid by the super-wealthy is the studies that were done by Inland Revenue and the Treasury in the 2022-23 period. For the benefit of the Minister, why this is important is that those studies, in the way which I will, I hope, have time to describe to the committee, showed that the rate of tax paid by the very wealthy in New Zealand is about a third of what the middle class pay.

The first of those studies was by Inland Revenue. It had a cohort of between 300 and 350—I think the actual number that eventually completed the surveys was 311—who had an average net wealth of $258 million each. In respect of the income in their lives, 93 percent of their income was in the form of returns on investments rather than salaries and wages. That study showed that the effective tax rate, through a full economic cycle of six years, for those taxpayers—and I’ll come to GST next, because this is one of the things that we need to take into account—their effective income tax rate was under 9 percent—under 9 percent for people who had fortunes of an average of $258 million each.

Now, the proportion of total taxes paid by New Zealanders coming from GST is amongst the highest in the OECD because our GST is broad-based, and just about everything that people consume, excluding rent and mortgages, includes GST. The effective rate of GST for most people is they spend roughly two-thirds of their income every year on GST—GST’s 15 percent, so roughly two-thirds of that. People pay out of their income the equivalent of about 10 percent of their income on GST every year, in addition to the income tax they pay. In fact, that’s mildly regressive. Decile 1 pays about 11 percent of their income out on GST. Get to decile 9 and you’re down to about 7 or 8 percent of income being spent on GST. For this cohort, the people right at the top who’ve got such an enormous investment surplus that they are reinvesting most of their massive incomes—they are not spending on them—their effective GST rate was 0.5 percent.

The income tax system somewhere should be adjusting for that so that the wealthiest people in society, across their GST and their income tax, are at least paying the same rate as the middle class already do. The total rate of tax, including GST and income tax, as I understand it—and the Minister can tell me if he has any later information than the information in that IRD study that I’m quoting—was under 9 percent, plus 0.5 percent. The total including GST and income tax was still under 10 percent.

Now, in addition to that study, in a companion piece of work, the Treasury did an analysis of what everyone else pays—and there’s good data on that, accurate data, and surveys for the rest of the population. Surveys don’t work amongst the 1 percent, but they do provide accurate information for the rest of the population. The Treasury did an enormous piece of work showing what were the effective tax rates of people in so many different circumstances: people who had only salaries; people who had some capital gains on their own house, which, in my opinion, should never be taxed; people who had some capital gains on share investments or residential property; some people who had only ACC income; some people who had superannuation or other transfer payments.

All of these different circumstances were divided by ventile, 20ths. Every 5 percent of the population, for each of these scenarios, was calculated looking at them both on the basis of their income and their wealth. Those examples showed that the middle-class person in New Zealand whose income comes from salaries is paying an average—not a marginal tax rate, but an average—tax rate of probably around 25 percent plus that 7 or 8 percent GST, so they’re paying a total of 30 percent or so, including across income tax and GST. I’m asking the Minister to confirm that that is the latest information that Inland Revenue had—that, as I quote, the effective tax rate of the super-wealthy in those surveys, as I’ve said, is about a third.

Now, the other question I’d like the Minister to acknowledge is: does he acknowledge that, once wealth inequality is that large in New Zealand, those inequalities grow every year because the rate of growth of those investment portfolios of the very wealthy grow faster than the average rate of growth in the economy after tax and inflation? It’s an arithmetic truth that that 1 percent—that 1 percent who, according to those Treasury studies, already have 26 percent of all of the assets in New Zealand, and in some asset classes, like direct investments and shares, the top 1 percent own an incredible 65 percent of all direct investments by New Zealanders in public and private New Zealand companies. My question is: does the Minister accept that those vast inequalities that I’ve already mentioned are growing and capitalising year on year on year?

My final question for the Minister to answer is: is it correct that there is no other country in the OECD that does not have either—normally more than one of these, but there’s no other country in the OECD that doesn’t have a capital gains tax or a wealth tax or a tax on deemed income or stamp duties or inheritance taxes or death duties, and that we are a country that is, effectively, a tax haven for the super-wealthy?

Oh, it’s going to be a long night if we’re going to be talking about the desires of the Labour Party for a capital gains tax in New Zealand. There’s a reason why they’re on that side of the House and we’re on this side of the House, and that’s because of the election.

The high-wealth work that the member the Hon David Parker is referring to was a piece of work undertaken by the last Government in 2023. This has not been further investigated since that point, and the reason, for a little bit more history on why—you’ll recall that the calls by the Finance and Expenditure Committee of the time to call in IRD to be able to discuss the integrity and the substantiation in that report were blocked by the Government members of that time. That report was politicised, and that is why that data and that analysis has no place in the tax system going forward.

The point which the member raises in the context of broader integrity is a major focus for this Government. We saw significant funding investment, increased investment under the last Budget, to increase integrity and compliance activities by IRD in order to ensure that the system is fair and that we are collecting taxes that are owed across the economy. That includes a broad range of individuals, from organised crime to high-net-worth individuals, to people who have structural entities that they use to potentially avoid tax, to those across the broader spectrum. That activity is undergoing. When we came into Government, we inherited $8 billion of outstanding tax debt—

Hon Member: Wow.

Hon SIMON WATTS: Yeah, $8 billion, and that includes the social debt in regards to child support and other aspects. That was up 40 percent in the last three-year period. The efforts by this Government to actually collect the tax that is owed by individuals to this Government have been fast and furious, and are a major focus for us.

We take a position that everyone needs to play by the same rules, and we need to make sure that the Government departments are playing their part to ensure that collects, but doing targeted work that is politicised, that isn’t willing to be open to any scrutiny and any robust conversation, is not the way we do business, and nor would we.

I move, That debate on this question now close.

Thank you, Mr Chairman. The Minister of Revenue has acknowledged that the last information that he has available to him from the Treasury and from Inland Revenue in respect of these issues as to effective tax rates paid by the very wealthy, is the information to which I have just referred. Minister, can I catalogue to you the efforts that were made to make sure that that study was robust and not at all politicised—and it is, with respect, doing a disservice to his own department to suggest otherwise.

That information was gathered pursuant to a law that this Parliament passed that said that that information had to be held confidential to that project, could not be used for tax enforcement or administration purposes, and had to be destroyed at the end of the study. In addition to that, there was a private sector reference group, including tax experts from the big firms and tax academics, in addition to OECD input, to provide guidance to Inland Revenue to guarantee that they were using proper methodologies in their calculations. The idea that that was a politicised report is farcical and an insult to the ministry—the Inland Revenue Department—because it wasn’t a report that the Labour Party prepared or that any politician prepared; it was a report that Inland Revenue prepared.

It is the same in respect of the Treasury analysis. Those reports still sit there. They have never ever been critiqued in a way that is negative, until I’ve heard that suggestion there, that they were politicised. I ask the Minister to tell the committee what evidence he has from his own department or the Treasury that those were political reports rather than pure data-analysis.

Thank you, Mr Chair. It’s a pleasure to have an opportunity to take a call on Part 1 of this bill, which specifically looks at annual rates of income tax. I want to take a slightly different line of questioning to the Minister and ask him about the relationship between the annual rates of income tax and the predictors and drivers of that in terms of how much tax is collected and then the impact of some of the changes that were made under the previous Government in some big areas of spending, particularly related to multi-year funding.

The Minister has mentioned already in the committee in answer to questions that this bill specifically looks at annual rates of tax, but one of the challenges that that does present is that through the Budget process—and I’ll take health as a really good example—in 2022 multi-year funding was introduced to allow for cost pressures in health, so you could look out over the next two years in terms of expenditure. Then, in 2024, that was extended out to be three years’ worth of multi-year funding. Through the Budget process, there have been commitments made to budgetary pressures and to ensure that we have enough put into the appropriation side, but my question is: how can we ensure, if we’re looking at this on an annual basis, that we’ve actually got enough money coming through the tax system on an annual basis to allow for that?

I just add to that some further context, specifically around the health expenditure, which has some extra elements around health. How can we be sure that the annual setting of tax is sufficient to provide for the multi-year funding? Alongside those cost pressures in multi-year funding that have been appropriated for, there are other cost pressures that are going to emerge in areas like health. I’ll name some. I’m sure the Minister will be mindful of this in his role as the Minister of Revenue, but Labour would argue that the current provisions don’t adequately provide for some of those cost pressures in the system. Some of the drivers of those cost pressures are involved in an increasing population, so to ensure that health is actually having an appropriate amount of expenditure added to allow for an increasing population and an ageing population.

I come back to Part 1, which has the limitation of only looking at one year’s worth of revenue gathering and whether, actually, a bill like this may be better to look out in future years, but also to be broader around the type of provision for tax collection in the bill. I also note there are other pressures that we will see in health—for example, things like staffing costs—increased expenditure and holiday pay, the need to hire more nurses and doctors, the need for pay increases, not to mention the need for more capital infrastructure in areas like ensuring we can rebuild Nelson Hospital, Dunedin Hospital, Whangārei Hospital—all of these cost pressures.

I come back to Part 1. The Minister has talked specifically about these being annual rates of income tax, but the challenge is that the Government, through its appropriation, is moving to multi-year funding through that Budget process. How can these interrelate together in a better way so that we can ensure we’ve got the right amount of revenue coming through the door? And it’s not just around what might come through economic growth; it’s actually around how are we planning forward for cost pressures that we can see out. In areas like health, it’s a really good example to ask that quite specific question about that relationship. I’d be really keen to hear from the Minister on that.

Before I take the next call, I just want to remind people that this isn’t a broader Budget debate, so I’d ask members to narrow up their questions. This shouldn’t be about whether there should be rates or not. I get that is an important question for some of us, but this part is about what those rates are.

Thank you, Mr Chair. I want to go back to this issue of economic growth that the Minister of Revenue raised. In particular, I want to talk about the economic growth measures that he asserted were in this bill. Well, actually, I asked him if there were economic growth measures, and he came back—

CHAIRPERSON (Teanau Tuiono): Probably the issue was that it’s not actually in this part.

Hon Dr DEBORAH RUSSELL: Yeah, he came back with one. He said we’re going to get an adequate tax base not by changing around the tax rates but by ensuring there was going to be economic growth. I asked the logical question, “What are the economic growth measures in this bill?”

I’m going to foreshadow a question that I will be asking the Minister again later, so it will maybe give him—

Hon Member: No need to foreshadow; just ask it.

Hon Dr DEBORAH RUSSELL: It’s relevant to this; it’ll give him some time to get his officials on to it, because there are two questions I want to ask. One is that he said that the change to the approved issuer levy (AIL) was an economic growth measure. Now, that’s quite an extraordinary thing to assert, because it’s actually a very small change that just fixes an administrative problem for some people, and it doesn’t particularly change the amount of tax they pay. It’s quite an extraordinary thing to assert, so I will be coming back to him and asking exactly the impact on economic growth there was of the change to the AIL.

In the meantime, given that the Minister had said that the way we grow our tax base is by growing the economy, I want to know what other growth measures are there in this tax bill? What are the measures that actually ensure that we get the economic growth that the Minister has assured us will fix the woes of the tax base, the tax base that we know is heading towards a real problem this year. The Minister himself said it just a couple of calls ago. He said, as though we couldn’t work it out, that because the economy is smaller—and on whose watch has that happened?—the tax take is smaller as well. Now, that’s pretty plainly obvious. He said that the economy is smaller, the tax take is lower—the implication is what is he going to do—

CHAIRPERSON (Teanau Tuiono): I’m wondering if these questions are better parked for a later part of the bill.

Hon Dr DEBORAH RUSSELL: —to get that growing to get those tax rates up? That’s what we need to do to ensure that we can actually have a decent tax base. He has that responsibility as the Minister of Revenue; I would like to see him addressing it.

Thank you, Mr Chairman. The Minister made the proper point that the Government wants to have a tax system that promotes growth, and I think we all want that. My question of the Minister is: what advice has he received as to whether the current tax settings promote investment that is in new plant and investment and jobs, compared with investments that are in speculative asset classes, the income from which is not taxed?

It seems to me that before the Minister could, or should, bring a bill to the House which just rolls over the existing tax rates, he should have up-to-date advice on this issue, given that reports from the OECD and the IMF and the Treasury all say that New Zealand’s tax system has imperfections that mean that renters subsidise their landlord’s taxes and that the economy over-invests in residential rentals as an asset class at the cost of investments in the productive economy—factories, new goods and services that could be sold to the rest of the world, which face a capital shortage relative to the situation were it such that those speculative asset classes paid a fair amount of tax. And, as a consequence of that capital shortage, the cost of funds for those sorts of enterprises is also higher than it would otherwise be.

Has the Minister received any recent advice from Inland Revenue prior to setting these rates that would justify him ignoring the advice of the OECD, the IMF, and the Treasury?

Thank you, Mr Chair. I mean, it would be fair to say that I receive a wide range of advice in regards to the broader tax settings. In the context of the priority for this Government, around economic growth, we are very much looking at what opportunities in terms of tax settings changes would enable us to fuel that economic growth that is required within our economy. That is work that has continued and is now ongoing, and we’ll be having more to say around that in due course.

I agree with the member in the context of the ability to how do we increase the amount of investment and assets which are going to derive value and revenue and income for New Zealanders. Obviously, that’s a key component in terms of our broader system, and we are continually looking at settings for that. This bill in itself is dealing with a number of components—as we know, as members have been part of that select committee—but very much it is part of the focus that we will be continuing on as we are now focused on economic growth this year.

I move, That debate on this question now close.

Thank you, Mr Chair. I want to pick up a point that the Minister of Revenue discussed in relation to debt. He spoke about the Government’s compliance focus and around an $8 billion debt—basically to try and attack that $8 billion debt. I want to ask the Minister if he can provide a breakdown of what that $8 billion debt is—like, the different tax types there are. Is it student loans? Is it corporate tax? Is it Working for Families tax debt?

The reason why I want to know what the breakdown is is because it was quite an interesting discussion that we had very recently with the Commissioner of Inland Revenue at the annual review for Inland Revenue by the Finance and Expenditure Committee (FEC). We had asked the commissioner specifically around this compliance question because they had received additional money during Budget last year, so we wanted to make sure where that money was being spent. The interesting thing that the Commissioner of Inland Revenue spoke about—and I appreciate not everybody in the House has time to watch Finance and Expenditure Committee public hearings—

Hon Dr Deborah Russell: They’re missing out—they are missing out.

Hon BARBARA EDMONDS: Really missing out—that’s a really good point; they’re really missing out. When we had asked the Commissioner of Inland Revenue around this debt compliance, he actually brought up a really interesting issue. He said that during the COVID period—and I quote—“we pulled resources away from some of our compliance activity into supporting both the delivery of some of the COVID-support products and supporting companies and individuals through that period.”—really interesting that he raised that, because that is the bar by which they are going to measure the return on their investment in relation to that debt collection.

The Minister did say there’s $8 billion worth of debt that’s just sort of—I don’t want to put words in his mouth, but there’s $8 billion of debt that needs to be collected. The Commissioner of Inland Revenue actually said that, during that COVID period, we had Inland Revenue staff working towards the Small Business Cashflow (Loan) Scheme. If members can recall that time, the Small Business Cashflow (Loan) Scheme provided a loan to small businesses. That had to be done through Inland Revenue, and no other Government department had the business transformation or the computer system to be able to do it, so Inland Revenue supported during that time. They also did the COVID Resurgence Support Scheme. That was another measure which Inland Revenue had to do at the time.

David MacLeod: Three, four years ago.

Hon BARBARA EDMONDS: The other thing that Inland Revenue—and the member over there interjects and says that was, like, four years ago, but it’s important to understand that that’s the basis of the return on investment, and it goes directly to the Minister’s comments about $8 billion of debt being left around. It was because, during that period, resources with Inland Revenue were pulled away, as the commissioner said, into supporting activities, compliance activities, to help businesses and to help individuals get through COVID. We can totally understand why the Commissioner of Inland Revenue did that, because if the members would like to see under the Tax Administration Act—it’s the Tax Administration Act, I’m sure it is?

Hon Dr Deborah Russell: Yeah.

Hon BARBARA EDMONDS: In the Tax Administration Act, there is a section around maximising revenue. At the time, the Commissioner of Inland Revenue used their discretion under care and management to focus their attention on investigations and auditing around supporting taxpayers through a one-in-100-year pandemic.

Then the Commissioner of Inland Revenue continued to say, “From about halfway through 2022-23, we started to move back into a stronger focus on compliance. Now, it does take time. When I go and talk to staff, there are two things that I observed, and one is that from an individual confidence level, it takes staff a little bit of time to get back to the levels of confidence they had in doing some of those investigations and audits. Secondly, it is a pipeline, so it takes time before things sort of get towards the end of that pipeline and we start to see, perhaps, some of the outcomes.” I think that’s important context for this committee to understand the $8 billion of debt.

First of all, still I would like the Minister to break that down so we can scrutinise that response a bit more. It’s an important context to understand—that, yes, the Government has put additional funding around compliance and audit activity; however, we were coming from a very different period in time because of the pandemic.

The Commissioner of Inland Revenue confirmed to the select committee that resources were pulled away from the normal day-to-day investigations, audit activity, into other parts of the tax system to deliver tax relief to taxpayers and to help with the Small Business Cashflow (Loan) Scheme and to help with the resurgence payments. These are all important factors and contexts that the committee and that the New Zealand public need to know, because not everybody gets a chance to watch the FEC. If the Minister can provide a breakdown, I’d be really appreciative of that.

Thanks to the member the Hon Barbara Edmonds for the question. The breakdown in terms of the $8 billion—this is as at 30 June 2024—and these are rounded numbers just for the context of the discussion, but $2 billion of that relates to individuals; $1 billion of that relates to companies; $3 billion relates to GST; $1.5 billion to employers, so PAYE; and then half a billion of others, such as Working for Families. That $8 billion excludes student loan debt and excludes child support debt; if you add those in the context, it’s probably around the quantum of an estimated $3 billion in addition to that, so $11 billion in totality.

I mean, no one’s arguing with the member in the context of the challenges that New Zealand went through at that time; I’m simply recognising the fact that, as a Government, that’s the situation in which we’ve inherited, and for every dollar that we don’t collect in tax debt, that’s a dollar that needs to be borrowed. I don’t think it’s unreasonable, at a Government level, that we want to ensure that we resource the department appropriately moving forward to increase their compliance activity to collect the tax that is owed to the Government and ensure that that’s being done as well.

The IRD also plays an important role in our economy, because without the IRD enforcing compliance for businesses that are in financial stress, then the consequence of that is that other parts of our economy—employees—if that business goes under and gets liquidated, then other creditors and employees will lose out. IRD does play an important role in that compliance activity, and I think it’s just recognising that as a Government we’ve recognised that, we’ve invested in that, and we’re supporting the department, and they’re doing a very, very good job of collecting the tax that’s owed to the New Zealand Government.

I move, That debate on this question now close.

I’ve got a question about the income tax rate for companies. There’s been a bit of discussion in the media and from the Minister in the chair, I think, as well as contributions from other members, with some people speculating that it might be a good idea for New Zealand to drop the company tax rate, and I’m not expressing an opinion for or against that. I’m wanting to understand what advice he’s had as to what would be the effects of that, and whether he would be contemplating or has had advice about whether the dividend imputation credit scheme would be ditched and company tax would become a final tax at a lower rate.

I think that most members will understand that these niceties are almost an irrelevance to small businesses, because small businesses owned by one or two people working in them can, effectively, strip out all of the income from the company in the form of payment of salaries to themselves, which means that they can bring, if they want, the company profit to zero and there is no company tax. This issue really applies to larger companies that have multiple shareholders, and I’m interested in what advice the Minister had before confirming rates this year with the dividend imputation credit regime as to what would be the effect on the revenue base of moving to a lower-rate final tax without dividend imputation credits.

My question to the Minister is about whether he had any advice on that before setting these rates, because it seems to me that it’s both important to the question as to the revenue base that the Minister needs to collect for his colleagues for their expenditure requirements in Government, but also, I’m somewhat interested in the distributional effect. I think we’d need to be very careful in this space. I trained at a time when corporate tax rates were 45 percent and marginal tax rates were 66 percent, and so the effective tax rate on company profits other than those that could be stripped out via salaries was well over 60 percent in the total, because the 45 percent company tax was a final tax, and then dividends were taxed at marginal tax rates of up to 66 percent. That was excessive.

I’m not saying that there isn’t room for improvements, but I am interested in whether the Minister can tell me whether he’s had any analysis done by the ministry as to what would be the distributional effects and the fiscal effects of moving from a dividend imputation credit regime such as that which is carried forward in this bill, compared with having a lower-rate final tax rate.

Thanks to the member the Hon David Parker for the question. There are no elements within the current bill that we’re discussing that relate to any changes of the corporate tax rate. In that context, there’s nothing further to add.

Thank you, Mr Chair. I just want to follow up a little on the figures that the Minister of Revenue gave to us for debt before: $2 billion for individuals, a billion for companies, $3 billion on GST, $1.5 billion on PAYE—presumably that’s owed by the employers rather than the individuals—and $0.5 billion on Working for Families. The Minister said, earlier in this debate, that they had made a deliberate choice that they weren’t going to move the tax rates around, and said their choice was to pursue collecting the debt that was owed.

Fine, it’s a choice, but the interesting thing is: just when is the Government revenue from that debt booked? Is it booked at the point at which the return is made, so that the debt is created because a person does a tax return; or is it booked when it’s collected, on a cash-flow basis? It’s an interesting question because, of course, the Minister made the point that collecting a dollar of money owed was perhaps one less dollar that needed to be borrowed. I’m not quite sure it’s quite such a simplistic relationship but, I take the point. But it won’t have any impact on Government revenue, because that has presumably already been booked in previous years. It won’t affect the operating balance—the net operating balance—that the Minister of Finance is working with for her Budget this year.

I would just like to understand exactly how that $8 billion of outstanding debt in various forms is accounted for, and also the extent to which some of it might get written off over time. Of course, if it’s already been counted as revenue, then that gets counted as an expense, as any good accountant knows. I know the Minister would know that himself. I’d just like a little bit of information about that, please, Minister.

Hon Members: Mr Chair! Mr Chair!

Hon Dr DEBORAH RUSSELL: Mr Chair, I was hoping to get an answer to that question.

I move, That debate on this question now close.

Thank you, Mr Chair. I too was standing to ask the Minister whether he could provide a breakdown as to when that return on investment will be booked. As the Commissioner of Inland Revenue said, he had provided a whole bunch of figures at the annual review report, and I can find his quote again if the Minister would like me to go through it. Effectively, what the previous member who did actually have a question—the question that the Hon Dr Deborah Russell had asked is: when exactly will that debt, when it’s been recovered, actually be accounted for within the Government’s books? Is it on an accrued basis? Is it on a realisation basis?

Yes, it’s very much an accounting figure. However, it’s important for the context of this debate, in order for us to understand that return on investment, when the Government wants to book it in, because it goes back to the earlier point which members on this side of the committee have discussed quite broadly, and also in response to the Minister’s opening of some parts of the debate. It goes back to: if you do not have sufficient revenue to cover the really key things in this country which a Government should be paying for—and we have seen cuts right across the board—for example, school lunches. Again, I don’t want to rehash the school lunches, the ferries, or the landlord tax breaks. I don’t want to have to go through that, because I know I’m going to be pushing it in relation to this speech.

It really is a question about the investment and that actual return on the debt and when it comes in: at what point is the Government putting that into the books?

I move, That debate on this question now close.