Cunliffe David: Taxation (GST and Remedial Matters) Bill — Second Reading 
Cunliffe David: Taxation (GST and Remedial Matters) Bill — Second Reading 
[Volume:669;Page:15771] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I rise on behalf of the Labour Opposition to take a call in support of the Taxation (GST and Remedial Matters) Bill and to commend the work of the Finance and Expenditure Committee and to note a number of associated matters. Firstly on the substance of the bill the Labour Opposition will support this bill through all three readings. Labour has participated fully in the scrutiny of the bill at the select committee. As the Minister of Revenue said the select committee has made a number of amendments following its usual policy of examination of tax matters and employing an independent tax adviser to assist it in its discussion with the Inland Revenue Department on technical aspects of the bill. 
We should say for the clarification of those listening or viewing that this is not a major policy piece of legislation. This is a set of technical amendments to improve the operation of GST and other tax matters to close down several potential loopholes most notably in respect of phoenix schemes and other issues surrounding land transaction and thereby protect the tax base. I will therefore take my remarks in two sections—firstly in regard to technical matters and secondly in regard to some policy issues that arise out of them. 
In respect of technical matters I note that the bill does zero-rate certain land transactions. This is in an effort to prevent phoenix-type fraud schemes where GST is refunded to a registered purchaser with no corresponding GST payment made by the vendor. Zero-rating GST prevents that shadow transaction from taking place and thereby although it may not sound like it actually prevents an avoidance opportunity from materialising. So although it is a zero rating it is actually zero-rating the loophole in the process. 
The Finance and Expenditure Committee has recommended a number of technical amendments to aspects of the bill in respect of the zero rating of land transactions and it was the area of the bill that the select committee spent most of its time and focus on. I am sure that the chairman of the committee Craig Foss MP will shortly detail that consideration further. There have been amendments to the definitions of dwellings and commercial buildings which have gone into some detail to consider definitions around rest homes student accommodation and the like. The bill also deals with apportionment rules seeking to replace existing change-in-use adjustments to deal with goods and services partly used for taxable purposes and partly used for exempt purposes with a new approach that would apportion the related input tax deductions. That is important because they will it is hoped be easier to use and understand and they will avoid certain unintended consequences in usage such as in respect of joint bank accounts where one person could draw on the account without the signature of the other. 
These matters are of a technical nature. They go on to include matters in relation to the technical definition of fringe benefit tax certain matters around the emissions trading scheme definitions and technical matters in respect of portfolio investment entities. I think all members of the select committee would feel that it has been a good and proper process. The committee has done its job and has made a number of recommendations based on the work of our independent tax adviser and the scrutiny of members under the chairmanship of Craig Foss MP. 
However in relation to the second half of my remarks it would be remiss of me not to take the opportunity to say how important it is that bills such as this do protect the tax base. I think we live in interesting times. I certainly echo the words of the Minister—having just received news in recent hours of the second explosion at the Pike River mine—that we would want to join with other members of the House in expressing our sadness at the potential developments there. But these are interesting times for other reasons too. This has been the most unusual year in respect of tax policy and tax flows that I can remember. It is only in the last few weeks that we have had the extraordinary news that even in relation to forecasts made earlier this year corporate tax flows are running over 22 percent nearly a quarter below 2010 forecasts and that GST flows are running at over 15 percent nearly 16 percent below 2010 forecasts. 
The immediate impact of that has been that the Government is $1.1 billion short of its expected revenue in this year alone. Of course that cascades on top of the billion-dollar tax hole that resulted from Budget 2010. No doubt that $2 billion of revenue loss is one of the factors that has resulted in Standard and Poor’s downgrading its outlook for New Zealand’s sovereign credit rating from neutral to negative earlier this week. It cited three factors the first of which was a loss of fiscal flexibility. Essentially in plain English that means that the Government has been irresponsible. It has given tax cuts that it could not afford principally to people who did not need them and in a way that has not created significant economic stimulus. The Government has done that at the same time that this halting recovery has meant that the underlying tax flows have disappeared off the edge of a cliff. 
We are 22 percent down on corporate tax flows from this year’s own forecasts. That is extraordinary. I can remember no other time like it. It just proves the folly of an ideological approach to tax cuts that is reminiscent of Ronald Reagan’s America where if only the tax rates had been cut far enough then tax flows would have gone up. Professor Laffer was wrong President Reagan was wrong and John Key’s National Government is wrong. Tax flows have collapsed. They have collapsed to the point where Standard and Poor’s has reacted and said that New Zealand’s sovereign credit rating needs to go on negative watch. 
Of course there are several other reasons cited by Standard and Poor’s. One is that our export profile is under-diversified. We are overly reliant on bulk agricultural commodities principally dairy. Because of that we stand to be more vulnerable on the price cycles of those commodities. The link between the two points is obvious: if the Government’s capacity to lead change in the economy is undermined because its fiscal flexibility has collapsed then it is harder for New Zealand to get out of the cul-de-sac that it is in. So Standard and Poor’s quite rightly has said that the Government has compounded the problem of a reduced tax base by reducing its ability to make structural change in the economy. 
There are certain exemptions in the bill in respect of GST and it is timely to remind the House and the public that although Labour has long subscribed to the view that a broad-based tax base is efficient and that when GST rates were relatively low it was prudent that there be no exemptions Labour has changed its mind since the Government has increased the GST rate to 15 percent. We have committed to a GST zero-rated exemption for fresh fruit and vegetables that will deliver a benefit of about $6 a week to the average household of four and encourage healthy eating. The fiscal impact of that is less than one-quarter of the drop-off in tax revenues this year so it is prudent for us to recall that in relation to the GST aspects of this bill. 
The other issue that one cannot gloss over is that this bill makes amendments to the KiwiSaver scheme’s operation but they pale into insignificance when compared with the amendments previously made by this Government. It has sliced in half the incentives for the public to participate thereby slowing down the rate of increase in savings in the scheme. That has fed into the third leg of the treble that Standard and Poor’s drew attention to this week which is that New Zealand’s savings gap is getting wider not closing up. How bad is it? Our total international indebtedness—that is the result of us not saving enough is that we have to borrow from foreigners—has climbed to around 88 percent of GDP and it is heading for 90 percent. That is a critical problem that the Government and the Opposition must work on together to solve. I come back to the substance of this bill. It is a technical bill.