Parker DavidTAXATION PRINCIPLES REPORTING BILLFirst ReadingHon DAVID PARKER (Minister of Revenue): I present a legislative statement on the Taxation Principles Reporting Bill ASSISTANT SPEAKER (Hon Jacqui Dean): That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon DAVID PARKER: I move That the Taxation Principles Reporting Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by 27 July 2023 and that the committee have the authority to meet at any time while the House is sitting (except during oral questions) during any evening on a day on which there has been a sitting of the House and on a Friday in a week in which there has been a sitting of the House and outside the Wellington area despite Standing Orders 193 195 and 196.One thing I as revenue Minister have in common with my predecessors is a desire to ensure the tax system delivers the revenue that Government needs in a sustainable and fair way. We all benefit from a system that is as fair and efficient as possible. Successive New Zealand Governments have made changes in the name of fairness—in the way in which they see that. A fair system in my view collects as little tax as possible but as much as is necessary. How the tax system does that who pays what and what economic efficiencies are created or avoided are all important. A tax system needs to be sustainable over time. It needs to factor in the impact it has on decisions that people make. Determining whether a tax system is efficient sustainable and fair is a constant challenge. Circumstances change. Over the years. Governments of all stripes have set up working groups and review committees to pursue the Holy Grail of an efficient fair tax system. The most recent was the 2019 Tax Working Group chaired by the late Sir Michael Cullen. Before that there was the 2010 Victoria University of Wellington Tax Working Group. In 2001 we had the McLeod Tax Review. Before that there was the Valabh committee and before that the Richardson committee. These inquiries in New Zealand and others overseas have all described the main principles of a good tax system. Yet here we are after all those reviews still striving for fairness. In the absence of facts about actual outcomes half-truths can be too easily manipulated to suit political objectives and vested interests. That's why we commissioned the Inland Revenue to research the effective tax rates of high-wealth individuals. We wanted evidence based on real dirt—data—not surveys alone which are inaccurate at the top in order to assess the fairness of our current tax system. Now we have that evidence. Inland Revenue's internationally ground-breaking study shows beyond doubt that New Zealand's wealthiest citizens pay tax on their economic income at a rate that is less than half of what other New Zealanders pay on theirs. Now it was not surprising that some gap existed for the obvious reason that very wealthy people earn a higher proportion of their income from sources like gains on investment that are not taxed. Most New Zealanders make do with their regular pay packets which are all subject to income tax. But what was surprising is the extent of the gap and it turns out that an average of 93 percent of the income of the high-wealth group comes from returns on investments. It's now been well-reported that a person whose income is an $80000 salary or wage pays an effective rate of 30 percent when you include their income tax and GST. By contrast the high-wealth people in the Inland Revenue study pay an effective tax rate of just 9.4 percent including the GST they spend on their GST-inclusive purchases. Their average assets were $276 million. Rather than trickle down it's been gushing up for this group and the Inland Revenue study shines a light on how extreme the wealth disparity has become in New Zealand and how lower effective tax rates have contributed to that. The study has given us a solid stake in the ground in terms of assessing the fairness of our system. This bill continues the good work of shining a light on the fairness of our tax system. Tax policy development should not be like a reed in the wind of political change; it's much too important. Our tax system is a national asset raising vital revenue and impacting on the decisions of people and businesses as they invest every day. Taxes pay for services that make society more prosperous fairer and more peaceful: education health roads the police the justice system that protects the property rights and contracts of those with investments. All of these are essential to our economy and society. Taxes have a direct effect on the prosperity of us all. Tax policy settings affect investment returns. Bad laws can distort investment into speculative asset classes rather than encouraging investment in the productive sectors that create jobs and earn exports. Yet despite the importance of the tax system the fundamental facts are often treated as a matter of opinion. The tax debate in New Zealand has become mired in unnecessary controversy and ordinary citizens can quite properly become confused about what constitutes good tax policy. So today we're cutting that away. This bill introduces a series of sound tax principles that enable a reporting framework to help people understand how the tax system is measuring up against those principles. They are settled they're well established and they're generally accepted amongst tax academics professionals and the OECD as the hallmarks of a good tax system.I'll briefly describe them. The first is horizontal equity. In other words people with the same levels of income should pay similar amounts of tax. Along with that is vertical equity. That is that the overall system should require people with higher levels of economic income to pay a higher proportion of that income in tax. Now not all taxes need to be progressive. For example GST is regressive—more regressive in New Zealand than virtually any other OECD country. But the overall system should be progressive and that requires an analysis of transfer payments also although those phase out at middle-income levels and don't really confuse the picture at higher levels. Together horizontal and vertical equity are often described as the key measures of fairness of a tax system. The other important principles are efficiency minimising administration and compliance costs revenue integrity certainty predictability and finally flexibility and adaptability.Enshrining these principles in legislation will mean that the fundamentals of a good tax system will clearly be set out for all to refer to. It will provide direction to officials on what information about the tax system should be reported on. This bill proposes that officials periodically report on the operation of the tax system using the principles set out in the legislation as the basis for their reporting. It's not a straitjacket. Different Governments will want to focus on different aspects of the system at different times to deal with the challenges of the day. Political parties can quite properly have different views on how progressive the tax system should be but it should be a fact-based discussion. The reports will build up a time series showing how the tax system is changing in relation to these core principles. And by providing information to the public like that presented in the high-wealth individuals report we can have an informed debate on tax using solid evidence. All New Zealanders should be able to trust the fundamentals and know the facts about our tax system. So officials will report actual outcomes of the tax system in relation to these principles. This will improve transparency. For instance people will be able to see levels of taxation across society and who is effectively exempt from tax and who isn't. Debates about any changes to the tax system can then be fact based.I've written to all of the political parties inviting them to support this bill and inviting them to talk about what those principles should say in the legislation. We're open for discussion about that but we believe that an evidence-based principles approach to assessing our tax system should be easy for all parties to support. It doesn't in any way prescribe what tax policies they might want to adopt; it simply gives an objective basis for determining fairness of the current system. It's not intended to be political and we are happy to talk about the guard rails that are here. Ultimately this is about what is good for the health of the tax system and the economy. To protect our way of life to improve our standard of living we need a fair and efficient tax system a tax system that works for all citizens and encourages productive use of both labour and capital. That is the object of this bill. So with pleasure I commend it to the House.ASSISTANT SPEAKER (Hon Jacqui Dean): The question is that the motion be agreed to.