Dunne Peter: Taxation (Budget Measures) Bill — First Reading Second Reading In Committee 
Text is incorporated into the Bound Volume 
Dunne Peter: Taxation (Budget Measures) Bill — First Reading Second Reading In Committee 
[Sitting date: 24 May 2012. Volume:680;Page:2424. Text is incorporated into the Bound Volume.] 
Hon PETER DUNNE (Minister of Revenue) 
on behalf of the Minister of Finance: I move  
That the Taxation (Budget Measures) Bill be now read a first time. 
 The year 2012 is going to hold challenges with economic uncertainty ahead and the Budget announced this afternoon is one therefore aimed at returning the New Zealand economy to surplus. A key to that is getting the Government’s finances in order getting debt under control and reducing our overreliance on foreign debt. To continue to provide effective public services and functions it is important that Government spending continues to be financed through efficient taxes that are as fair and efficient as possible. It is also important that the Government makes prudent choices about where and how it spends taxpayers’ funds. The measures contained in this bill therefore continue the Government’s focus on improving fairness in the tax system by ensuring that the tax burden is shared fairly and on removing unjustifiable spending. This bill will repeal the tax credits for income under $9880 and the tax credit for childcare and housekeeper expenditure. It will replace the tax credit for the active income of children with a limited tax exemption. It will legislate a change made in March this year to the livestock valuation election rules and will repeal the student loan voluntary repayment bonus.  
In Budget 2011 the Government announced its intention to review the rules for livestock valuation elections and the tax treatment of assets that are used for both business and private use. With regard to livestock valuations the previous rules were too loose and allowed some farmers switching between the two main livestock valuation methods to receive an unfair tax advantage over those farmers who applied the rules as they were intended. In March the Government moved to disallow elections to exit from the herd scheme except in narrow circumstances effective to elections made from 18 August 2011. This bill will put that change into law with the supporting detail to be included in legislation later this year.  
This bill will also abolish three outdated tax credits that are expensive and frankly unjustifiable. These are the credit for income under $9880 the tax credit for childcare and housekeeper expenditure and the tax credit for the active income of children. The tax credit for the active income of children is being replaced with a limited tax exemption. That credit will ensure that children will not need to file a tax return if they have small amounts of income that are not taxed at source—for example from mowing their neighbour’s lawn. Transitional rules have been developed for people who are claiming one of these tax credits in the current year through the PAYE system. The transitional rules will provide employers with time to update their payroll systems.  
I described the tax credits as outdated; let me illustrate what I mean. When the tax credit for income under $9880 was introduced it was aimed at people on a full-time salary of less than $10000 per annum. Times and salaries have moved on significantly from that time and the tax credit no longer applies to the group it was originally established to support. Similarly the child tax credit was a transitional measure introduced by Sir Robert Muldoon in 1978 in an era when most employers did not deduct tax at source. Now they do so that credit has similarly become outdated.  
I mention also in this context the housekeeper tax credit which dates from 1933 in a time of completely different social practices to those that prevail today. I also mentioned earlier the need to focus on prudent spending and the Budget this afternoon contained measures that are designed to improve the quality of the Government’s investment in the student loan scheme. This bill will repeal the voluntary repayment bonus. The Government continues to focus on encouraging student loan borrowers to pay their loans back. However the repayment bonus does not seem to be improving the value of the scheme and it has failed to achieve the policy objective of encouraging repayment from borrowers who were slow to repay in the first instance. Instead it appears that what has been happening has been that the people claiming the bonus are borrowers already repaying their loans anyway. More alarmingly there is evidence that the bonus was actually encouraging some students to borrow when they did not need to. In 2011 alone some 2611 borrowers repaid their loans in the same year that they borrowed them receiving $1.8 million in bonuses from approximately $13 million of annual bonus payments. This has resulted in a cost to the Government one which is clearly unnecessary. The $44.6 million being released by repealing the bonus will be able to be better used on other priorities.  
Like the tax credits I have mentioned the bonus scheme has also been overtaken by events and the Government has since introduced a number of initiatives to increase student loan repayments. Overall the measures that I have outlined so far will make the tax system fairer; they will also raise additional revenue. These measures and this bill are a measured and judicious response to the difficult challenges facing the country today. It is a prudent set of responses enabling us to move forward and I commend the bill to the House.