Taxation (Transformation: First Phase Simplification and Other Measures) Bill — In CommitteeText is incorporated into the Bound VolumeTaxation (Transformation: First Phase Simplification and Other Measures) Bill — In Committee[Sitting date: 24 May 2016. Volume:714;Page:11143. Text is incorporated into the Bound Volume.]Taxation (Transformation: First Phase Simplification and Other Measures) BillIn CommitteeDebate resumed from 10 May.The CHAIRPERSON (Lindsay Tisch): Members we now turn to further consideration of the Taxation (Transformation: First Phase Simplification and Other Measures) Bill. When we were debating this bill we were debating the question that Part 1 stand part. Before I call the speaker who will be Stuart Nash if he wishes to finish his 2 minutes 40 seconds I have a statement in terms of a ruling that I made when we were last debating this bill. You may recall that we had a Supplementary Order Paper in the name of Julie Anne Genter and I ruled it out of order being out of scope out of scope of what the bill is. There was some discussion—quite lengthy discussion in fact—and I said that I would come back and report to the Committee as to the rationale behind my decision.To clarify the ruling that I made: the Clerk’s Office will draft amendments for members and circulate them even if they are not in order. It will advise the member that amendments in its view are not in order. The fact that it publishes and circulates a Supplementary Order Paper does not indicate that it is in order. Ultimately it is up to the Chairperson in the Committee of the whole House to rule on the admissibility of any amendment. To be in order an amendment must be within the scope of the bill as introduced—and this is Speaker’s ruling 131/4.The Chair rules on scope by considering the amendment in light of the bill as introduced and the report-back from the select committee. An amendment that is outside the scope of the bill does not widen the scope of the debate on the bill—and that is Speaker’s ruling 132/1—nor does the debate determine the scope of the bill or the admissibility of amendments.For a Supplementary Order Paper that is outside the scope of the bill to be considered by the Committee of the whole House it can be done only by way of an instruction—and that is Standing Order 176—to the Committee by the House at the second reading.Part 1 Amendments to Income Tax Act 2007 (continued)STUART NASH (Labour—Napier): I must admit that it is difficult to stand in the middle of a Committee stage that I think we were talking about 2 weeks ago and hit it because I was really hitting my straps I remember when we pulled up stumps. If you give me about 2 minutes I will talk about what this bill is about once again.This is the Taxation (Transformation: First Phase Simplification and Other Measures) Bill. The title is probably longer than a lot of matter in the bill. Basically it looks at bringing the tax system into the 21st century. This is about simplifying the communication process electronic signatures and sending and accepting emails instead of written notices. In the tax Acts before this if you wanted to officially communicate with the commissioner or vice versa it needed to be in writing. It was required to be in writing. Now we are talking about emails.As in all tax bills that have come through this House recently we do think this is a missed opportunity because there are some huge huge issues in our tax system at the moment that we know about: avoidance aggressive tax planning to the tune of between $1 billion to $7 billion worth of lost revenue to our economy. And here we are talking about whether we should be saying “notify” or using other small terms. What I was talking about when I was interrupted by the bell is something that I think is quite important. This is clause 59 and this amends section RM 5. It is an amendment of the overpayment on income statements [Interruption]—it is Mr O’Connor; this may affect you—in the Income Tax Act 2007. What it did say—Grant Robertson: Very interesting.STUART NASH: You are dead right Mr Robertson. It is very interesting. It is a huge piece of legislation but also a very important piece of legislation. What it used to say was: “This section applies when an income statement has been provided to a person and the result is that an amount of tax must be refunded to the person. For the purposes of this section the amount of tax must be more than $200.” As we know $200 these days hardly pays for a good night out on Ponsonby Road. What they have actually done is they have brought it into the 21st century.Let me provide a little bit of background. When a wage or salary earner—not a company but a wage or salary earner—needs an end of year assessment they are issued with or they can request what is called a personal tax summary. If the result of this personal tax summary is a refund and they can confirm the personal tax summary that refund will be issued automatically. [Bell rung] Mr Chair?The CHAIRPERSON (Lindsay Tisch): Stuart Nash.STUART NASH: Ha ha! Thank you for that vote of confidence!The CHAIRPERSON (Lindsay Tisch): Your big moment!STUART NASH: In the past or before this bill—well at this point in time if the refund is less than $200 and they do not confirm their personal tax summary then that money will be automatically released to the taxpayer—i.e. it will be put into their bank account or they will be sent a cheque after 30 days. What this bill does and I think this is most important—it is sort of tucked away but it will affect a lot of people—is it proposes to reduce the time delay and increase the threshold so credits that would be released in 15 days after a personal tax summary would be issued if the refund is less than $600. So instead of waiting for 30 days and not having to do anything if the refund is under $200 it will now be done in 15 days—15 working days so it is 3 weeks; still a bit of time—but it is $600.The reason I think this is important is that the Inland Revenue Department (IRD) actually owes New Zealanders $750 million. Not many people know that—that the IRD owes New Zealanders $750 million. A good chunk of this money is owed to people who have paid secondary tax or other withholding taxes and do not actually realise that the IRD does owe them this money. There are not many engaged—well there are a number and I must admit that awareness of the personal tax summary or the fact that there actually exists a personal tax summary is increasing. There is no doubt about that and what I will say to anyone who pays secondary tax is that I would absolutely encourage them to go to the IRD and request a personal tax summary. Even if it means that they do not do anything about it they will come up on the radar of the IRD and I would almost guarantee that if someone pays secondary tax they will be owed money by the IRD. If they do not do anything else except apply for a personal tax summary and they are owed $600 or less then the IRD will automatically either (a) send them a cheque or (b) put the money in the bank account if the IRD holds that bank account.The reason I say this is important is that what it does I think is it enables more people to become engaged and to get the money back that they require. I must say that the interesting thing about this $750 million is if a taxpayer owes the IRD money the IRD will go after them to the ends of the earth. If the IRD owes the taxpayer money then this falls off the cliff after 4 years. So if the IRD owes you money and it is 5 years since that obligation was incurred then the IRD does not have to pay that money back. In fact it does not pay that money back. I think this is wrong.We have talked to the IRD about this and asked it what it is going to do in respect of actually going as hard to give taxpayers their money back as it does chasing the money owed. It believes that this new business transformation system should make it a lot more streamlined and people should not be owed money or if they are owed money they probably will not even have to request a personal tax summary. In fact for me the ultimate is to not even have to pay secondary tax. Secondary tax at the moment is a withholding tax that people must pay because what happened in the past was if they were working two or more jobs they were underpaying their tax and at the end of the tax year they were hit with a massive bill by the IRD—something they just could not pay. It was a withholding tax. So secondary tax meant that they did not end up with a bill but what a lot of them actually have ended up with is a credit but most of them do not know.I have an incident of someone who was working for a relative of mine. These relatives were saying to this person: “Give the IRD a call. Go on.” She was very reluctant to. In the end she did and she found out that she was actually owed $800. That is not an unusual story. So to everyone watching—and I know a lot are—who pays secondary tax just go to the IRD. In fact you can go to the IRD—public service announcement here—website. As long as you have got your IRD number put it in and it takes about 5 minutes—David Bennett: How long?STUART NASH: —about 5 minutes—after you have put in your IRD number to find out whether you have got a credit or not. Until the IRD becomes a lot more proactive in giving this money back we have got to do it ourselves. I would encourage you all to do it. Or as mentioned what I would do is I would go to the IRD and I would ask for a personal tax summary. The taxpayer will then come up on the radar and if they are owed less than $600—David Bennett: Is this the best he can do?STUART NASH: —they will get it back automatically. It is very important. Mr Bennett here on this side of the Chamber is going “Oh $600 isn’t important to good hard-working Kiwis.” I believe it is and most people do.The CHAIRPERSON (Lindsay Tisch): I call Jo Hayes—stand up if you want to take a call.Joanne Hayes: I do.The CHAIRPERSON (Lindsay Tisch): You must stand up. If a member wants to take a call they must stand up and call out. I cannot second-guess whether someone wants to take a call.JOANNE HAYES (Third Whip—National): I move That the question be now put.A party vote was called for on the question That the question be now put.Ayes 63New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 58New Zealand Labour 32; Green Party 14; New Zealand First 12.Motion agreed to.The question was put that the amendments set out on Supplementary Order Paper 171 in the name of the Hon Michael Woodhouse to Part 1 be agreed to.Amendments agreed to.The CHAIRPERSON (Lindsay Tisch): We now move to Julie Anne Genter’s amendment inserting new clause 45A as set out on Supplementary Order Paper 173. This amendment is out of order as it is outside the scope of the bill and I ruled on that earlier.Part 1 as amended agreed to.Part 2 Amendments to Tax Administration Act 1994GRANT ROBERTSON (Labour—Wellington Central): It is a pleasure to take a call on Part 2 of this bill.I want to focus my initial contribution on the section of the bill that deals with the communications framework and in particular clause 74. It may come as a surprise to those who follow tax legislation intimately and closely that this particular clause tended to be more like an English grammar class. Chris Bishop came into his own during this period as somebody who was educated in the 2000s when grammar was taught. I struggled because I went to school in the 1980s when they had stopped teaching grammar at all and so some of this was confusing to me but—Chris Bishop: It was a terrible Labour Government then.GRANT ROBERTSON: That is right. Well that particular Labour Government—yes Mr Bishop. But this was quite an interesting and actually quite important part of the bill. Essentially what this was about doing was trying to simplify and make clear different forms of the ways in which the Inland Revenue Department (IRD) interacts with taxpayers and trying to bring that into the modern age at the same time as defining various terms. Essentially what the bill did was to set up three tiers of interactions between the IRD and taxpayers and it then sought to define those. The Finance and Expenditure Committee did actually come to the conclusion that we needed to amend aspects of this to make absolutely clear to taxpayers the meaning of these different terms.So the three tiers that were proposed were a tier that included the terms “asking requesting or informing” and any one of the following was a means by which you can do that: “by telephone” “orally in person” “by electronic means” “in print” or “in another manner permitted by the Commissioner.”Kris Faafoi: What does that mean?GRANT ROBERTSON: Well that is right. You may well ask Mr Faafoi what it means. So we could take the example perhaps of whether or not John Key asked requested or informed Bill English that he was going to put tax cuts back on the table 3 days after Mr English had taken them off. He certainly did not notify him—which is something we will come to shortly—nor formally notify him so he possibly did ask or inform him by phone orally in person by electronic means and perhaps he texted him.Hon Clayton Cosgrove: Semaphore?GRANT ROBERTSON: He may have done that. So the lowest level of form of communication is asking requesting or informing. Then we include—David Bennett: Tell us about your tax increases.GRANT ROBERTSON: Mr Bennett was all over the detail of this when we went through it I can tell you.Then we came to “applying or notifying” by which any one of the following is an acceptable means to apply or notify: “by electronic means” “in print” or “in another manner permitted by the Commissioner.” So we have stepped up here and you cannot do it by phone and you cannot just drop into the IRD and let it know. You actually have to do it by electronic means in print or in a manner that is acceptable to the commissioner. Then the highest tier of communications is that of “formally notifying” which is to be “in print delivered personally or by registered post” but not by way of “email the internet or other electronic means.”I guess in many ways that starts to show us the limits of what we were trying to do here in the Committee. So it is a recognition that most people are not going to fax through their communications. Mr Cosgrove might still fax people as he does from time to time but actually most people have moved on from that and frankly most people have moved on from using the post to communicate with the IRD. So these clauses do have a serious element which is that it is time to bring the IRD into the 21st century and have email as an acceptable form of communication.What we learnt in the committee was that from a tax accountant’s point of view for those people who have regular interaction with the tax system these terms need to have specific meaning within specific Acts. So the Tax Administration Act is one of those but the Income Tax Act is one as well. And we had submitters come to the committee and tell us that unless those terms are notified this could provide some difficulty. They felt that the three tiers were not sufficiently defined within each of those Acts. So in a sort of belt and braces approach we now by the amendment of the committee have decided that we will define each of those terms in each place that it appears in taxation legislation. As I say you might think that this is not an important thing but if people fail to comply with what the IRD wants from them there are serious penalties. If they do not know for example that notifying cannot take place by telephone then they may find themselves in breach of various things. So it is actually an important thing to make clear to taxpayers that the way that they communicate with the Inland Revenue Department is confined—[Bell rung] Mr Chair?The CHAIRPERSON (Lindsay Tisch): Grant Robertson.GRANT ROBERTSON: I tell you there is more to come on this. So this I think is actually an important part of it. The—Kris Faafoi: This is the soundtrack.GRANT ROBERTSON: That is right. This is only tier one notification I can tell you. We have got more coming here.Interestingly the IRD itself was very keen to tell us that it was trying to put emails on the same footing as paper letters delivered by post and I think as I say for most people that that is important. However its highest level—the formal notification—is still done by post and not electronically. One day perhaps that will change.There was an element of futureproofing so there is some ability for the commissioner to be able to say that as new technologies arise and as new forms of communication occur they can be adopted into the practices of the IRD without necessarily needing to change the legislation every single time that occurs.So that is an advance. There was a bit of confusion I have to say between the officials our expert adviser the submitters and ourselves about the exact meaning of various terms. But under clause 74 and related clauses I do believe that we have now found our way to a position where people will be able to understand what is required of them and certainly it is now possible to use electronic means for at least the first two tiers of communication between the IRD and others.Hon Clayton Cosgrove: Brilliant.GRANT ROBERTSON: Yes and it is an advance. It is to quote from the title of the bill transformational because that is the standard this Government has for transformation—the meaning of the word “notify”. We will come back in a later debate to the title of this bill and I think this is the point at which we must acknowledge the radical transformation of the definitions of the words “notify” “inform” “ask” and “request”. So well done I say to the Government—radical agenda there! That will turbocharge the economy for you right there!The other point I wanted to make was related to this and that concerns the use of electronic signatures which have previously not been allowed but are now allowed under this legislation. There was some concern about the veracity of them and about how they could be stored and so on but actually again this is the modern world. An electronic signature is your own signature. In a whole lot of walks of life people use electronic signatures where they have obligations under the law and there is no reason why the Inland Revenue Department cannot also be in a position to deal with that also.The other matter—which I may not get to finish in this call but I will certainly happily take up another call—Hon Clayton Cosgrove: Have another one.GRANT ROBERTSON: My colleague Clayton Cosgrove will want to talk about this because it was a matter that he was seized of when the committee considered it. It is the question of co-location of offices.Chris Bishop: Oh this is a cracker.GRANT ROBERTSON: I know Mr Bishop enjoyed these discussions as well. So the IRD—as are now a number of Government departments—is co-located with other Government agencies. In Christchurch for instance the Ministry of Social Development is looking at being in with the IRD because they are the people who are going to be in the Christchurch central business district because Gerry Brownlee has forced all the Government agencies in there. So they are going to be working together and there is an issue about the secrecy requirements on IRD staff versus the secrecy requirements on other Government agencies. We had a very long and in-depth discussion in the committee about how to manage this. And in the end what the committee came down on the side of was to say that IRD employees are not considered to have breached secrecy conditions “if they did not intend the breach and took the care reasonable for place and conditions to prevent it.” That notion of reasonable care was what the committee inserted into the bill.There was considerable debate about this. Obviously if you have knowingly contravened the Act and if you have deliberately gone out and broken secrecy rules then there are punishments that should follow that. But where you are sitting in a co-located environment and you are having a conversation with one of your IRD colleagues about a taxpayer or a tax matter—which you are able to do—and you are both aware of your obligations if there is a staff member of another Government agency within earshot to what extent is it the responsibility of the IRD staff member to not have those kinds of conversations? You know the nature of modern work spaces now with open-plan offices means that the risk of this increases and in fact all of the co-located ministries and so on are starting to work in those environments.On the committee we were concerned because the secrecy of taxpayer information is something we should all take seriously and it is actually more often than not a higher obligation than that of other Government agencies. So we were concerned to make sure that we had adequate protections in place around both the understanding that taxpayers would have of how their information would be treated—Hon CLAYTON COSGROVE (Labour):I want to pick up where Mr Robertson left off in his eloquent address and analysis of this bill—but in all seriousness the point that he made should be made again for the record of the Committee.The Finance and Expenditure Committee did take quite a bit of time to work through a scenario that essentially some of us felt at the time was providing less of an incentive if you like to comply with the law—that is the penalty was less than it ordinarily should have been.Those of us who were around in Parliament back a wee way can remember inheriting in 1999 an Inland Revenue Department (IRD) that had significant difficulties.John Perham I think—if I recall his name correctly—was charged as the Commissioner of Inland Revenue at the time with trying to rectify many of those difficulties where there had been in the 1990s significant breaches of information. I do not think the IRD at that time had electronic fingerprinting if you like—or footprinting as it was—in terms of traceability of personnel who were accessing information. I know that the then member Rodney Hide along with some of his cohort was quite vigorous in illustrating some of the problems that had occurred and as I recall some prosecutions came out of that.It did test the select committee and we tested officials in terms of whether there were enough safeguards around these issues to protect taxpayer information.Regarding tax systems as I have said in other debates there are a number of principles: transparency simplicity and community confidence in them—but also that information is incredibly secure.One of the things that I think—I am reflecting on Mr Robertson’s analysis of the various terms in clause 74 and the huge precise definitions around those terms. Some of us struggle with the fact that the IRD and its Minister have taken great care over those terms—which is fair enough—but it seems there was a lesser duty of care around those other arrangements in respect of co-location. However we have given the analysis and the recommendations the benefit of the doubt.I think it is incumbent upon the IRD—to put on the record of this Committee—to take extra care.If you are going to be co-located and there is even the slightest chance of taxpayer information being inadvertently shared—and I make the point that I believe that since the IRD has cleaned its act up from the 1990s the IRD staff are pretty well exemplary in their conduct. They take a great deal of care in terms of the security of taxpayer information. However if you do move into a co-location scenario things can happen. I like Mr Robertson—and I am sure the Minister would share the view—do not believe that these things are intentional but there is a tenet of law that says that the greater the penalty the more carepeople are likely to take because the circumstances they may find themselves in if they are prosecuted are far more heavy-duty than they may ordinarily be. That is a basic principle. So I think that as we go through this we would be grateful for some assurances from the Minister around taxpayer security given the co-location issues and I think it would be important to get that on the record of the House.I think the bill is—I would not call it transformational but certainly it updates many of the IRD systems. It is linked to the so-called Business Transformation programme and I would be remiss if I did not ask the Minister while we have got his attention whether he could perhaps give us a quick brief on the expenditures in—to be fair to him—the mess that he inherited with the Business Transformation programme which I think we are going from what was it $1.6 billion—Grant Robertson: $1.9 billion.Hon CLAYTON COSGROVE: —$1.9 billion and then it went down again and then it went up again. I am mindful of Novopay—without getting into that—and I am mindful of the difficulties the Police are having as espoused today with the PricewaterhouseCoopers issues and their payroll systems. We do have a track record in this Parliament I have to say on the National side not on the Labour side if you go right back to INCIS of IT programmes just going right off the rails.I would be grateful if the Minister could give us a continued assurance that we are not going to have money spent like water because there is a large amount of discretion provided to the department—it is the expert it hires the contractors and it signs the contracts not the Minister. With that discretion comes a huge amount of responsibility and we would like to ensure that the dollars are accounted for.I do not know whether I can enlarge on the eloquence of Mr Robertson especially in respect of clause 74 but at this point I like others—subject to those assurances from the Minister—support the bill.STUART NASH (Labour—Napier): I would also like to elaborate on a couple of things that Mr Robertson has spoken about. As mentioned electronic signatures—we have talked at length in Part 1 of this bill on how there is a move from requiring a written notice to the acceptability of an email or other electronic form of transaction. The reason for this is that it does bring it into the 21st century and that is important. But there is a very important rider on that and this is where electronic signatures come into play because if an electronic signature was not acceptable what it would in fact do is it would negate everything else in the bill in terms of an acceptability of the commissioner receiving the document on behalf of the taxpayer. So it is an important thing; it is an important measure.I would say though that it does say in new section 13B(3) inserted by clause 73 that “When the Commissioner receives a document bearing the electronic signature of a person unless there are reasonable grounds to suppose otherwise—(a) the document is treated as signed by the person;”. I am not too sure what “reasonable grounds to suppose otherwise” might be. It may be for example that it is so out of character or that it is a piece of communication that is not part of the correspondence that is going on at that point in time. I think it would be quite good to clarify that because “reasonable grounds”—it is the sort of “reasonable man” test in law. But what does define reasonable grounds for accepting or not? I suppose the one question I would have is that what I would not want to see is a taxpayer and the commissioner in court because the commissioner has said “Well I had reasonable grounds for not accepting this signature” and the taxpayer has said: “Well it actually was me.” That is just my one concern—the definition around those reasonable grounds.The other thing is under clauses 71 83 and 87—from 2001-02—this is part of the tax administration area to make it easier for taxpayers to actually get what they need. This is amendments being made to the Tax Administration Act to allow the Commissioner of Inland Revenue to provide a special tax code directly to the Ministry of Social Development to help people receiving New Zealand superannuation or the veterans pension to meet their income tax obligations. What it does is it reduces compliance costs it makes it a lot easier and it requires a whole lot less obligation on behalf of the superannuitant or the veteran.I would also like to talk very briefly about something that Mr Cosgrove mentioned and something Mr Robertson alluded to and this is about disclosure of information. Crucial to this is the intention test. I think it is the only test we can have and if it is proved that someone has intentionally disclosed private information then that person under several different Acts and I think also under their employment contract can have their employment terminated immediately. But the intention test is very hard to prove and a classic case of this is actually under the Income Tax Act where whether or not the sale of a property is subject to income tax is based around the intention of the owner of that property when they bought it—whether the intent was to make a capital gain or to buy it for rental yield. The interesting thing is that the Inland Revenue Department (IRD) has only ever successfully prosecuted one person for not complying with the Income Tax Act due to a misallocation of profits on there. We have to just be sure that the intention test is applied correctly.What I would hope and what I am assuming is going to happen is that the IRD will actually issue a briefing note if not hold briefings with all its staff around what this action means. I trust the IRD I think it does a fantastic job and I would never question the integrity of its staff in any way shape or form but what I would like to see and what I would like to know is that the IRD is taking this as seriously as the select committee took it and as a consequence of that it does make very very clear to its staff the rules and regulations around this. I have a suspicion that they know this anyway but we do need to ensure that there is clarity because the last thing we would want to do is have someone divulge information unintentionally but break the law and then have to be dragged through some sort of employment court or employment dispute because the definition of intention is incorrect.But on that note we do understand that what is happening with Government departments is very important—they are working closer together and we do believe this needs to happen. Whether this is out of necessity—i.e. in Christchurch when different departments had to come together and co-locate or whether it is just out of greater efficiency—The CHAIRPERSON (Lindsay Tisch): Sorry to interrupt the honourable member but the time has come for me to leave the Chair for the dinner break. This debate is interrupted and I shall resume the Chair at 7.30 p.m.Sitting suspended from 6 p.m. to 7.30 p.m.FLETCHER TABUTEAU (NZ First): Thank you for the opportunity Mr Chairman. I just want to touch on a few of the contributions that have been made this evening and acknowledge the kinds of issues around the electronic signature problem that the Inland Revenue Department (IRD) has been working through over the years. And the reality is in modern practice—and we look to most of our banks at the moment—we see there is very much a safe and appropriate mechanism for the electronic signature and it is taking a while but we have got there. I think it is absolutely appropriate which is part of the reason why New Zealand First is supporting the legislation.But what I did want to touch on in particular because it is an issue—and it is still perhaps for me and for New Zealand First—that needs further exploration and some commitment from the Minister one would hope is the co-location and secrecy issue that was raised in terms of discussions within the Finance and Expenditure Committee.So firstly let me put it into points. The conversation started with the fact that the IRD was going to have to share locations in terms of physical office space with different Government departments and that would raise some privacy and secrecy issues. I just wanted to note though that the IRD considers that no amount of training best-practice guidelines or adopted behaviour is likely to adequately address the substantial risk of the IRD employees inadvertently disclosing taxpayer information to other Government employees in a co-location environment. So what we have here is the ministry itself acknowledging that this is quite a huge problem and there does not seem to be even with the best of intent the ability to mitigate—well maybe mitigate is a possibility but to eliminate these privacy issues is a real concern for the ministry itself and the staff involved.So in the select committee we had very in-depth conversations about what that would involve. I note Mr Cosgrove made a contribution about that earlier in the evening. I would like to support his words because it was a contentious issue. What we have done within this legislation is we have said: “Well actually let’s acknowledge that this is a possibility. Let’s acknowledge that despite the best efforts of ministry staff best practice implementation and procedures we will have issue.” So that is not a debate. I think that is perhaps the primary concern for New Zealand First. There will be an issue. There is no debate on that. It is how we get around the problem for individual staff.So with great reluctance as part of that committee my contribution was to support and say that yes let us come up with some additional safeguards for employees if it was proven that they were not deliberately trying to disclose private information—that that was unfair and unreasonable to take them to court proceedings if that was established in the first instance. But as that conversation was fleshed out actually we decided that is what a court is there for. So the court is there to establish the intent and the degree of the intent and if there was intent then the court would come down hard and appropriately on those individuals. Conversely if there was no intent then the court would establish that and the argument would be that well clearly there was no intent and it was a true mistake on behalf of the employee—“Why has it come to us? Let us dismiss it for the accident it was.” And yet we have more legislation around this. I think it is quite an issue that needs further exploration and consideration from the Minister.I think in terms of cost saving we may have gone a bridge too far; for the expediency around a few dollars we are compromising the privacy of New Zealand taxpayers. It is an important issue that needs I think more consideration from the Minister and the Government. But in the main when we consider that this legislation is about updating the technology and the practices available to the ministry I think we can support it.GRANT ROBERTSON (Labour—Wellington Central): You were spoilt for choice. Thank you Mr Chair. I actually do want to pick up the very point that Fletcher Tabuteau was discussing and that is the question of co-location and perhaps go back to the beginning because I think there is some confusion here around the question of a deliberate breach of secrecy by a staff member and an inadvertent breach. Currently the Act applies only where someone knowingly acts in contravention of section 81 of the Tax Administration Act which is about disclosing information that they should not. Should a breach occur there is a legal process to determine as Mr Tabuteau said whether the breach was unintended or made knowingly and then appropriate sanctions apply.When we were discussing this in the select committee the position we reached was that an employee could be judged to have knowingly contravened section 81 where the breach was inadvertent but it occurred where there was a real risk inherent in the co-located environment. As it says in our report: “For example an IRD employee might be aware of the risk that a co-located employee could overhear information but not be able to avoid that possibility.” So we acknowledge that but obviously we have an obligation to ensure that that information is held in appropriate secrecy. So that was the discussion we were having: do we need a threat of a sanction to emphasise the point that this is a really important area of confidentiality and there is an increased risk with co-located departments?At one point we almost discussed whether we needed the clause at all because actually at the moment the obligations on Inland Revenue Department (IRD) staff are quite clear; they know what they are and they sign an enhanced secrecy agreement above and beyond what almost any other public servant would do. But the co-location issue means that there is now a set of increased risks around those employees. We did on balance decide to include the concept of taking reasonable care in that co-located environment. Quite clearly for the IRD employees who have already signed their secrecy agreements they are going to be taking care but this is a clause that at least acknowledges in some form or other that reasonable care would be required. Again to quote the most excellent report of the committee: “Being compelled to take reasonable care would motivate employees to proactively manage the risk associated with a co-located environment. It would also provide an additional safeguard against reckless and negligent behaviour.”I do not want people to gain the impression that we think that the IRD staff are going around engaging in reckless and negligent behaviour but that the risk of inadvertently giving information out needs to be considered. I do think it would be useful for the Minister whom I believe may take a call to just address the way in which the IRD is going to go about taking this into account. This applies to the wider Public Service in my view as well—that although we are all looking for efficiencies that come from public sector agencies being co-located we know in the regions of New Zealand there used to be large Public Service agencies in—I do not know a city like Wanganui until the Government tore them out and took them back to Palmerston North—places like Wanganui where Public Service agencies come together as a matter of efficiency and ease for the public to use them where there is a lot of information flowing around. We have been encouraging through legislation—including in this legislation in fact—public sector departments to share information where relevant.So we have got on one hand a level of encouragement but on the other the risk that the information particularly around tax could inadvertently be shared. I know that those who are listening in on this might be saying: “Well why is this such a controversial issue?”. It is because it is about sensitive taxpayer information. We know that every time there is a privacy breach—every time someone leaves a briefcase on Lambton Quay—this causes upset. Well here we are with people day in day out needing to talk about taxpayer information but working now in an environment where people who do not have the same secrecy provisions in their contracts will be.So we are really just looking for an assurance from the Minister that it is understood what has happened here. The select committee grappled with it and we came up with what we thought was a decent solution which was to include a higher duty of care but not try to effectively criminalise people just going about their daily jobs. So I hope the Minister understands what the committee has tried to do here. We certainly support the co-location of departments but when it is the IRD we do absolutely want to make sure that New Zealand taxpayers’ privacy is protected. Given that you have not rung the bell Mr Chair although you are just about to do that—Hon MICHAEL WOODHOUSE (Minister of Revenue): I just want to address the three or four very important issues that have been raised either side of the dinner break. But before I do can I thank the members of the Finance and Expenditure Committee for their consideration of this bill. Tax bills tend to be reasonably dry things but I think the select committee has applied itself diligently to some issues that have been raised both in the select committee and in the Committee of the whole House.I will start with the point that Mr Robertson has addressed in respect of co-location. I want to thank the committee specifically for its diligent consideration of this issue because I think we all understood what was intended. Firstly co-location is not only about efficiency; actually what we will be seeing—and indeed the Inland Revenue Department (IRD) has the responsibility for the administration of things like the student loans scheme Working for Families and child support—is a significant overlap with the Ministry of Social Development and its roles and functions. So co-location might have efficiency in at least one office that it occurs in now but it also has the potential to improve the quality of the service that we can provide to the New Zealand taxpayer. But I think that the committee was right to look carefully at clause 117 in order to ensure that we have the right balance between ensuring that due diligence takes place because there is a higher standard of care that is required to maintain the secrecy of people’s tax records and that inadvertent breaches do not give rise to an unnecessary punishment. I think the committee landed that clause in exactly the right place but the proof of the pudding will be in the eating.The effectiveness of the amendment that the committee has made will be in the manner in which the commissioner gives effect to it. I am confident that she understands and will use her best endeavours to protect the integrity of the tax system bearing in mind that the exception applies only to unintentional breaches—no intentional breach will be given the protection of this clause. I think that was understood by the committee but I think that the question was more about the margins and what effectively constitutes “reckless” or “careless” and not really about understanding or applying oneself to that requirement as an IRD employee. I am confident having spoken to many many IRD staff around the country that they take their secrecy obligations very very seriously. I have yet to find anybody who is flippant about that. In fact if anything Ministers have found section 81 a very very strong black box and rightly so. However I do note that later in the year as part of the tax programme we will be reviewing the Tax Administration Act and so this is a nice sort of segue into a broader review and the questions of the privacy of information are going to be foremost in that.Can I turn now to the issue of electronic signatures because—Chris Bishop: Oh please do.Hon MICHAEL WOODHOUSE: OK I will. Mr Nash made a very good point before dinner and it has been followed up by Messrs Tabuteau and Robertson. I think he asked the question about what would constitute “reasonable grounds” for the receipt of an electronic signature but he then went on to quote clause 74. That was inadvertent I am sure but clause 74 actually works on out-bound communications so I want to touch on both of those things.At the moment we currently have an arrangement whereby a document might be deemed to be sent if it is sent to the last-known physical address even if that person has moved on. We certainly need to update that because the whole essence of this is to give effect to a much more modern tax administration system. I think it would be enough simply to say that if somebody has communicated with the IRD by email then there are reasonable grounds to presume that the commissioner can then communicate back. In fact registering with myIR requires an email address to be put on there. Once the identity of the registered person is verified then I think it would be reasonable grounds to assume that the commissioner can communicate with the taxpayer via that email address. Even if the email address changes the same thing would apply with the last-known physical address: that it would be deemed to have been sent.It is clause 73 that deals with the issue that Mr Nash was raising in respect of what would constitute reasonable grounds for the use of electronic signatures in the receipt of communications from it. I think the same principle would apply but the question then becomes one of identity—verification that the communication is from the source that it claims to be—because it is not difficult actually to purport to be someone else in an electronic world. There is I think an allowance for the IRD to place a reasonable reliance on the use of electronic signatures because there is discretion obviously for a signature not to be accepted if the IRD has reasonable grounds to suppose otherwise; that might be inconsistency of information such as having a separate communication from someone who was also purporting to be that taxpayer from a different electronic source. But in the absence of a “reasonable grounds” test the IRD would be prevented from actually acting on not accepting the signature even though it had good grounds to suspect that it was from a fraudulent source—perhaps changing a bank account for example and then asking for a refund to be paid into a different bank account. The IRD has got to be very diligent in ensuring that it is on top of that. I think “reasonable grounds” is a well understood nomenclature in legal jurisprudence so I am confident that the tests that will be applied will be effective ones.I want to just finish by giving the Committee a brief commentary on an issue that Clayton Cosgrove raised before dinner and that was on the issue of the update on Business Transformation. The essence of taxpayer security the reliance on electronic signatures and the things that this bill will give effect to are all predicated on a business transformation project the like of which I think the Government has not seen at all. The number was $1.5 billion; it is now down thanks to well excellent efforts by the Minister of course backed up by the IRD. But actually the fact that we are not building a bespoke system has I think a significant value-add and I am satisfied that although this is a project that is not actually just about technology this is about fundamentally changing the way the IRD engages with the many millions of taxpayers around the country—that real lightbulb moment where we are building our tax system around the needs of the taxpayer not the other way around. I think that is a significant opportunity to materially improve the experience of interacting with the IRD. But it is a big project. It is risky. Mention was made by Mr Cosgrove of going all the way back to the 1990s and INCIS and Novopay more recently but there are successes in Government IT projects—the ones you never hear about. Certainly the department of immigration’s online system version 2015 has gone extremely well. It is under budget and it was just on time.Clare Curran: Why don’t we hear about them then?Hon MICHAEL WOODHOUSE: We do not hear about them Ms Curran because they are good news—they are good news—and of course good news does not make the front page of the Dominion Post I have to say; bad news definitely will and Novopay is a good example of that. But it is also true to say that Novopay was a good learning experience I think in making sure that we do not sign agreements before we know that the vendor is ready to roll.The CHAIRPERSON (Hon Chester Borrows): Hipkins would agree.Hon MICHAEL WOODHOUSE: Mr Hipkins would certainly agree with that I am sure. But I am satisfied actually that I have seen the whites of the eyes of the IT managers at the IRD—their blood pressure is normal; I test it every fortnight—and although we are still some months away from phase 1 the GST roll-out I am confident that the Business Transformation project and the IT platform that will underpin these changes are well on track for a successful implementation.The CHAIRPERSON (Hon Chester Borrows): Rev. Dr David Clark.Dr DAVID CLARK (Labour—Dunedin North): Thank you Mr Chair. It is very kind of you to use my extended title. The Minister of Revenue has raised the issue of the rebuild as many members before him have and some of my questions that I would like some reassurance from the Minister on relate precisely to that same project. I wish to discuss—and I do not think anyone in the debate has yet raised these—clauses 59 and 116 which specifically point to changes in thresholds. Clause 59 amends the repayment threshold for overpayment on income statements. They relate to the personal tax summary.The CHAIRPERSON (Hon Chester Borrows): Are they related to Part 2?Dr DAVID CLARK: Yes absolutely Mr Chair—clause 116 is absolutely in Part 2. The other clause is in Part 1 but it is the same general principle that is in both parts of the bill and relates to the thresholds. The basic issue for those who are at home or new to the debate is that if your personal tax summary shows that you are owed a refund it can be automatically returned to you as a taxpayer. There is a threshold which is currently $200. So if the refund is less than $200 and you do not confirm it through a personal tax summary interaction with the department it is automatically returned to you after 300 days. If it is over $200 then you have to go through the process.The proposal in those two clauses together amounts to changing that threshold to $600 and making the wait just 15 days. So if you are entitled to a refund you get it within 15 days which seems to me broadly a sensible step. It is about reducing bureaucracy. It is about saying if it is below a certain threshold we should not have lots of bureaucrats batting backwards and forwards. It would be very odd given the competence historically of the Inland Revenue Department (IRD) for that number to be wrong. “We should just get on and do it” is the basic premise I take it behind this change.My one concern is whether the IRD can deliver on this given the significant changes that are going on with the business transformation package that is before us which the Minister has just spoken to because we have had situations in this House in the past couple of years when the Minister—and the previous Minister is the one who has had to do this—has brought back child support legislation that simply has not been able to be implemented when thresholds have changed or when a formula has changed. We have passed a law through the Parliament which is one thing to say: “We’re going to change this to what we think is more sensible as a Parliament.” It is then voted upon a change is made that looks sensible on paper and then the Government has been in the distinctly embarrassing situation of having to come back and reverse out those changes because the IRD had not been able to implement them through the computer system. It has happened more than once.What I would like to know—and I believe it was not discussed at the Finance and Expenditure Committee—is whether the Minister has sought assurances that this change can be simply made and whether it can be delivered in the time frame which in the proposed amendment in the original commentary was 1 April this year. Clearly that is no longer the schedule and I would be interested in the Minister letting us know whether this is in fact still the schedule for delivery—whether it is a retrospective piece of legislation. I mean it is a detail but this is what we are here to discuss in respect of the committee changes. This is the kind of thing that could trip the Government up and see the whole legislation coming back to the House. If the Minister has not got that assurance I am prepared to move an amendment that would either remove that or push out the date for implementation to a time when the Minister thinks he could safely ensure that change as a part of the rebuild without the embarrassment of having to bring it back to the House again as has befallen the Government previously. The Minister I see has had some advice so I will look forward to his contribution.I do not wish to prolong my contribution much further only to say that if that is not deliverable as I have mentioned already to the Minister I would be happy to move an amendment that either changes the date so it can be safely implemented or if that is not necessary I am sure the Minister will explain to us shortly. Thank you.GRANT ROBERTSON (Labour—Wellington Central): Mr Chairperson you are catching the eye of the Minister of Revenue there to see whether he wanted to respond to those questions—I am sure he will in time. I just have a couple of smaller minor matters in Part 2 of the Taxation (Transformation: First Phase Simplification and Other Measures) Bill to raise that have not been raised yet because the Government members of the Committee are assiduously promoting this piece of legislation that has come before the House which they are obviously so proud to get up and talk about.I want to talk about one matter that is actually a very positive and necessary development for a reasonably small group of people but one for whom this particular clause matters and that is around the question of special tax codes. This did occupy a little bit of time for the Finance and Expenditure Committee when we were working on it. Essentially amendments are being made to the Tax Administration Act to allow the Commissioner of Inland Revenue to provide special tax code certificates directly to the Ministry of Social Development (MSD) to help people receiving New Zealand superannuation or veterans pensions to meet their income tax obligations. These amendments are basically about reducing compliance costs imposed on superannuitants or veterans pensions recipients in providing the certificate to the MSD and removing any delay in the application of the correct tax reduction rate.It is quite a specific change but one that affects a group of people for whom the amount of income they are getting outside of their pension source particularly is often quite small and there have been unnecessary delays in the relationship between the Inland Revenue Department (IRD) and MSD in terms of providing the information that is required. So the amendments are going to enable the commissioner to provide a special tax code certificate directly to MSD when the superannuitant or veterans pension recipient has applied for that certificate and advised MSD they want the certificate to apply to their superannuation income or veterans pension income. Many electorate MPs in the House will have had the experience of someone coming to their office to talk about the issues that arise between making choices about these issues and how quickly you are able to access the money. So I think this will be a welcome change for those people.There was one issue where it appeared in the original drafting we were limiting this to being in respect of having only one employer. If someone had more than one employer that may have been ruled out so a change has been made within new clause 84 of the bill to make sure the reference could be to income from one or more employers. That small oversight was one that would have led to more people coming back to Mr Woodhouse asking him to make it easier for them to be able to work between MSD and IRD. So I do want to actually congratulate the Government on that. It is a matter that has been of concern to those who receive veterans pensions particularly that there was unnecessary bureaucratic delay and unnecessary double-handling essentially of the issues of the income they receive. I thank the Minister and the officials for bringing that before the Committee.The only other matter I wanted to raise in Part 2 relates to biometric information and I do think this is one of those clauses we will come back to in time—we all know the use of biometric information is increasing all over the world. Every time we got to an airport every time we enter all kinds of different buildings now biometric information is used. The issue here was around the disclosure of biometric information and potentially the illegal disclosure of biometric information under the now famous section 81 of the Tax Administration Act. What the previous clause 117(5) of this bill did was authorise the disclosure of taxpayer voice biometric information to an officer or employee of a public sector agency. What the amendment the committee proposed did was specify that that data could be released only with the taxpayer’s consent and only for the purpose of verifying the identity of the client.I know as a lot of taxpayers are doing more of their interactions with the IRD online and more of their interactions over the phone that there is an increasing concern about what happens to that data and what happens to that information particularly in the days of identity theft and all those sorts of things—biometric voice data is now very significant in the interactions that you have. The committee again not wanting to get in the way of progress but wanting to continually assure ourselves that we are putting the right rules around the use of this new information felt that this was an additional safeguard that we could put in. The Minister of Revenue will be delighted to know that he will now be notified when biometric information is shared. [Bell rung] Mr Chair?The CHAIRPERSON (Hon Chester Borrows): Grant Robertson.GRANT ROBERTSON: Just briefly the Minister will be notified now when the information is shared—The CHAIRPERSON (Hon Chester Borrows): I am sorry to interrupt the member. I should not have given him the call because he has had four calls on this part and his time has expired.JAMI-LEE ROSS (Junior Whip—National): I move That the question be now put.Dr DAVID CLARK (Labour—Dunedin North): I do want to press on the previous point that I was making because I have also perused a bit further and I have got further concerns about whether this will be able to be implemented. I am going to cover a bit that has broadly been covered so far in the debate but from a different angle. It is in Part 2—quite rightly—and it is clause 71. We are talking here about software packages that are accepted and able to be used. I go back again to the ability of the Inland Revenue Department to work with these packages and whether this will indeed be able to be implemented.The point I did not make perhaps strongly enough in my previous contribution is about this particular change that is going on at the Inland Revenue Department which the Minister spoke so eloquently about—in fact about his own involvement in bringing the figures down from $1.5 billion to $1 billion. I would be interested to hear how he did that—whether he licked his finger and held it into a stronger breeze or quite how he got to the $1 billion figure because it is a fairly round number. That aside—no perhaps the Minister would like to address that. Part of that change is actually about bringing that computer system into the 21st century.The current system was designed and implemented in about 1993. That is 10 years at least before Facebook came on the scene. It is about the time that Excel spreadsheets were being invented and used. Certainly things like Twitter and all kinds of other things that we use as MPs in our daily correspondence with constituents were not even dreamt of. The existing system we have known has been a legacy system that has not been able to deliver the modern tax system we need.The Prime Minister said—I think it was in 2012; it was certainly on Valentine’s Day because I described it as a Valentine’s Day promise at the time when I was the tax spokesperson for the Labour Party—that he would be horrified to think that policy was being held back because we had a computer system to deliver our taxes that was out of date. We now know as I said in my previous contribution that in fact some proposed tax changes have had to come back to this House because they could not be delivered by the existing tax system. Again here we have some more complex interaction involving software packages. I seek assurances from the Minister that he is confident these can be delivered.In my previous contribution I talked about the changes in thresholds and the date of delivery being 1 April. Some at home may find it ironic that that is the date that is being aimed for by the tax department to deliver changes it has previously struggled to deliver. I ask the Minister whether he has sought assurances that these changes can be put in place without this legislation having to come back to the Parliament to be reversed out again—and of course we know that has an associated cost.The cost of running this Parliament is well over $1 million I think for every bill that goes through. I hope I am right in that. It is a figure I looked up a long time ago. I was certainly surprised at all of the departmental costs that go into it—the staff the MPs’ salaries; the whole works of Parliament. Democracy is an expensive thing. What we do not want is duplication. We do not want to duplicate those costs as they go through. The Minister looks like he is ready to address the question.Hon Michael Woodhouse: I will at a later stage.Dr DAVID CLARK: He will at a later stage he says. Well I think the Minister ought to jump to his feet soon because the people who are following this debate will want an assurance that the Minister is concerned about whether this can be delivered and is not being frivolous with taxpayers’ money to simply ram a political point through and that the system should be more accountable should be quicker and should be less bureaucratic. That political point has been made in this House before and we have all carried the cost as the legislation has come back and we have had to reverse it out. Taxpayers at home have had to bear the cost of that. I think the Minister owes those taxpayers an assurance that the same thing is not going to happen again with this bill.The question was put that the amendment set out on Supplementary Order Paper 171 in the name of the Hon Michael Woodhouse to Part 2 be agreed to.Amendment agreed to.Part 2 as amended agreed to.Part 3 Amendments to other enactmentsGRANT ROBERTSON (Labour—Wellington Central): This is the first go on this part so we will make sure we keep counting this time. I do not actually have many things to raise in Part 3 of the bill but I do want to discuss the clauses relating to KiwiSaver and in particular clauses 205 to 211 which relate to minors—that is younger people as opposed to those down coalmines—opting out of the KiwiSaver scheme. The bill proposes a new provision that would allow minors who have been incorrectly enrolled into KiwiSaver to opt out before their 19th birthday. This would as the officials told us provide some protection to minors who may not know they have been enrolled and want to exit the scheme. Members who opt out of KiwiSaver under this new provision will have the contributions they have made returned to them their Government contributions will be returned to the Crown and their compulsory employer contributions will be returned to their employer.Members of the committee asked officials how widespread this problem was because we did find it a little curious that we were coming to Parliament to debate perhaps this rush of young people being enrolled in KiwiSaver by parents over-eager to get them in when they genuinely did not want to be or felt it had happened in an incorrect manner. Officials assured us this was not an enormously widespread problem but there was a need to provide a provision for KiwiSaver members to do that. So new section 59CB inserted by clause 210 will allow members who have been incorrectly enrolled in KiwiSaver when they were minors to opt out up until their 19th birthday. They have to meet these criteria: they are aged under 16 and they have the consent of one of their guardians or they are acting under their own authority between 17 and 19 years of age.I really do want to make a couple of points here. The first is that I do not think it is desirable to be promoting in any way the withdrawal from KiwiSaver of people who have been enrolled under the age of 18. The Government has withdrawn the kick-start payment which was a very attractive reason for a lot of people to be enrolled before they reached the age of 18. I think that is a pity and a shame and I think it undermines some of the improvements to the savings culture that have been developed as KiwiSaver has gone on. But we do accept that there may be situations where people feel the need to do this. I think it is important to make that point.I am still a little bewildered about the extent of this and why it has come to the Committee in this way. Minors are only able to join KiwiSaver by directly contracting with a KiwiSaver provider obviously as they will not necessarily have an employer and the providers have the ability to receive and review parental consent. That all should actually be happening. This is to try to cover a situation where for some reason a provider has decided that it is just going to accept someone coming in as a minor and signing up for KiwiSaver. The officials eventually said to us—and they say it in the commentary on the bill—“To date Inland Revenue has not received any complaints from minors who have been incorrectly enrolled into KiwiSaver through their employers.” That would be none enrolled through their employers.So I think the extent of this problem is very limited but I guess it is a good thing to ensure that people under the age of 18 particularly are not exploited. The reason the clause goes up to 19 years of age which we did discuss is to give time for KiwiSaver members once they have reached 18 years of age and are in a position to be advocating on their own behalf to be able to get out of the scheme should they wish to.As I say it is not a clause that I think we would like to see used very often but it is conceivable people will find their way through either a rogue KiwiSaver scheme a rogue parent or a rogue employer—although there are not any who have done that. It would seem an odd clause but I thought it was worth noting that it is now possible under this section of the bill.When the bill came before the Finance and Expenditure Committee we did consider that the wording of the bill appeared to treat an automatic enrolment as a mistake and only if there was a failure to meet all of those criteria that I mentioned before rather than one of them and so the committee altered the bill under clause 207 to ensure that if any of those criteria were failed then the person who had been incorrectly enrolled had the ability to withdraw from the scheme. Unless the Minister of Revenue wants to clarify the extent of the thousands of young people writing to him with deep concern about their automatic enrolment in KiwiSaver we are happy to support the clause.Dr DAVID CLARK (Labour—Dunedin North): I wish to disagree with the previous speaker a little. I think he may be understating the potential of this problem. The Inland Revenue Department may in fact be trying to cut off at the pass a serious concern about minors wanting to withdraw from the scheme. I was not on the Finance and Expenditure Committee so I will defer to those who have wider knowledge but my concern arises from the fact that in the last Budget the Government cut the KiwiSaver kick-start.The terms of the KiwiSaver scheme have changed. In Dunedin my home town I know that as a result of those changes 14000—14000—young New Zealanders probably first-time savers the majority of them will have missed out on that kick-start payment. If someone signed them up and they thought they were going to get that they may well have felt aggrieved and may wish to remove themselves from the scheme.Rt Hon Winston Peters: How many thousand?Dr DAVID CLARK: 14000.Rt Hon Winston Peters: That’s unbelievable.Dr DAVID CLARK: It is unbelievable.Rt Hon Winston Peters: Doesn’t he come from Dunedin?Dr DAVID CLARK: It is shocking—and the Minister comes from Dunedin. There are 14000 people missing out on that $1000 KiwiSaver kick-start as a result of the last Budget. It is indeed an outrage.So I think it is entirely possible that young people who have been signed up to a scheme where they thought they were going to get a savings boost from the Government will find out later that the Government has taken it from them in the previous Budget as is its wont at the moment. And goodness knows what we will find out later this week as it plays to the mega-wealthy. I mean we have seen what the Government is doing with the Panama Papers and so on. We will see what it does with the Budget this week but I am betting that middle New Zealand will be cut out of the picture once more by this Government which is increasingly arrogant Mr Bishop and out of touch. Mr Bishop knows it: he laughs he laughs and he laughs. He takes this lightly but I genuinely think that New Zealanders will be disappointed—those people in the middle who are struggling to get by—and I think some of those young people who might have discovered that they have been enrolled in this scheme would quite rightly be aggrieved and may wish to withdraw.I politely put it to my colleague that this might be an issue and that in fact it might be in the interests of Minister Woodhouse to play it down because it is his Government that has robbed middle New Zealand and is making it tougher and tougher for them so that it can look after its mates who are the ultra-wealthy. It is this Government that is screwing the scrum in favour of those who have privilege already.It is my concern that this clause may in fact be there for the right reasons. I would seek the Minister’s assurance that that is the case when he delivers his short address on why the existing system will be able to deliver all the changes in this bill because he promised me that when he interjected before. I am looking forward to that speech. I hope it is not the Minister just pushing this out into the never-never as though his Government is above explaining itself because that is becoming a pattern that New Zealanders are becoming increasingly concerned about: a Government that makes changes and says: “Well to hell with the rest of you. We’re going to make the changes we want because we do not want to engage with the public any more. We’re just going to make the changes that we want to do.”I come back to the point that is around clause 213 in the bill where those deductions can be looked at and people can withdraw from the scheme.GRANT ROBERTSON (Labour—Wellington Central): I thought it would be useful to carry on this discussion with Dr Clark because I do not think we are disagreeing at all here in fact. He does raise a very good point about the impact of the removal of the KiwiSaver kick-start on the very people whom clause 207 alleges to help. The Prime Minister stood up in this House and said that removing the kick-start would “not make a blind bit of difference” to the number of people who were joining the KiwiSaver scheme.Rt Hon Winston Peters: Who said that?GRANT ROBERTSON: John Key said that—he said that. It is interesting Mr Peters because he said that and then we got under the Official Information Act the advice of his officials who said that this would significantly reduce the number of people who enrol in the scheme. But Mr Key took his own advice—an unwise course of action—and said: “No this is not going to make a blind bit of difference.”Well what occurred within a year was a reduction—and my colleague Trevor Mallard always says that you cannot have a reduction like this—of 182 percent in the number of 0 to 17-year-olds joining the scheme. In other words—[Interruption] I know and Alastair Scott is making the point that there was a reduction of 1188 people on the average new enrolments of 0 to 17-year-olds over the previous 12 months. It fell away. It has collapsed and it has collapsed for a very good reason and that is that the kick-start was an incentive to young New Zealanders to get themselves into the KiwiSaver scheme. So I accept the point that Dr Clark is making which is that it is possible that some of those people who were enrolled will now feel aggrieved about the fact that they were enrolled because they do not get that kick-start any more. I think that is a legitimate point.Rt Hon Winston Peters: That’s been a kick in the guts.GRANT ROBERTSON: It is indeed a kick in the guts. It is a kick in the guts for the savings culture that KiwiSaver has developed—the very thing that we have been so poor at in New Zealand for so long: saving. I know the member has a history of promoting savings in New Zealand and the importance of it but KiwiSaver has made a real difference and to see that kick-start go in the Budget last year was a huge disappointment to a lot of New Zealanders. As my colleague Dr Clark says who knows what they will do? So I do just want to put on the record the fact that I share the concerns of Dr Clark.What this clause did was create the process by which people could withdraw from the scheme up to the age of 19. I still do not want New Zealanders to do that. I still want young New Zealanders to be in KiwiSaver because long term it is important to New Zealand that they are. It is just a pity that this Government has consistently undermined KiwiSaver over the last 8 years.Dr DAVID CLARK (Labour—Dunedin North): I think we are reaching a point of harmony in the Committee. It may just be a difference in emphasis. I ask Mr Robertson to consider that it will be in my estimation more than 30000 first-time savers in the Greater Wellington region who have missed out on this $1000 KiwiSaver kick-start as a result of the changes the Government had made since the last election where it increasingly is skewing the playing field in favour of the ultra-wealthy and is letting people in the middle miss out. I think Mr Robertson and I are indeed in agreement that this will create some concern for people and that there may well be people who wish to withdraw.I agree also with Mr Robertson that we should not be encouraging people to do that—that instead we should be encouraging people into savings and that the movement that was started by the last Labour Government to really push a savings culture is one that is worth taking into the future. I guess we would encourage this Government to take up that cause. For starters it could look at restoring the kick-start fund that it took out because that is the harm that has been done. It has changed behaviour and the Government has had the advice that that has changed behaviour. So that is where I suspect the concern from officials came—from the Government’s own advice. I mean the Government’s best economic advice is that the damage the Government did to that kick-start scheme which withdrew that entitlement for a lot of first-time savers will have a lasting impact and that we will see it play out in different ways. So I suspect that is what is reflected in this.Mr Robertson and I agree. Harmony is breaking out in the Committee and actually Labour is supporting this bill. I think that is something we should also note along the way. We believe in a broad-based tax system that is fair. Of course there are aspects that we will disagree with the Government on. We do not think that it has the tax system right but we do want to work towards simplification and that is what a good deal of this bill is about. I am still looking forward to the Minister giving us some assurances that he can actually implement this legislation. I hope that he does not consider himself above giving members of this House and the wider public that assurance. It is a mistake his Government is slipping into where increasingly it is seen as arrogant and out of touch. I hope the Minister himself will rise to the occasion and give that assurance. Thank you.The CHAIRPERSON (Hon Chester Borrows): We are all glad that you are getting on.Part 3 agreed to.Schedule agreed to.Clauses 1 and 2Hon MICHAEL WOODHOUSE (Minister of Revenue): I am pleased to take a very very short call to address the issues raised by the Rev. Dr David Clark in Part 2 of the bill and specifically clauses 59 and 116—his challenge to me to verify—The CHAIRPERSON (Hon Chester Borrows): Clauses 1 and 2.Hon MICHAEL WOODHOUSE: Yes we are working on the commencement clause which is why I raise it in this context. The member will note that clauses 59 and 116 among others have a commencement date of 1 April 2016. The date 1 April has passed. The system changes that will give effect to this have already been made; now we need to give legal effect to it. These are system changes being made to the legacy system not to the new system. They have already been made we are ready to go and the only thing holding it up is the passage of the legislation. I encourage—nay I implore—Messrs Clark and Robertson not to delay it any further and to get out of the Committee stage.Dr DAVID CLARK (Labour—Dunedin North): I thank the Minister for that explanation. We will see whether in practice this is true. I suspect the Inland Revenue Department (IRD) had given assurances around the child support legislation previously which were amendments to the legacy system. Simply because they are amendments to the legacy system does not always make them straightforward—that is part of the problem with the legacy system. It is something that needs to be addressed and updated because it is hard work to push changes through the system—at least that is my understanding from talking to those technical experts at the IRD who make those changes. That is part of what needs to be rectified.We need a 21st century responsive tax system and this Government has of course delayed. It has been in Government for 8 years and the whole time it has been here it has had brought to its attention that the system is out of date. The Government has been very slow off the mark and these changes along the way which it has not been able to make have hindered tax policy in New Zealand and they have harmed the reputation of the IRD which is no longer as strong as it once was. Its reputation as a place of fair dealing and of being easy to deal with has slipped under this Government and I do not think that the Minister can duck that responsibility so easily. I do thank him for his assurance; he has at least sought some assurance that this will be possible to implement but of course the proof will be in the pudding.GRANT ROBERTSON (Labour—Wellington Central): In clause 1 I do want to refer to the title of the bill. It is the first and second words of the title of the bill that I want to reference: taxation transformation. Well I think we have heard in the course of the debate tonight that it is the view of the current Government that the transformation of our taxation system relies on the definition of verbs—that is going to transform our taxation system. It relies upon electronic signatures being allowed to be used—that is transformation for this Government. It is about the ability of young people to opt out of KiwiSaver—even though none of them have actually asked to—that apparently is transformative as well.Transformation of our taxation system will occur when the Government gets off its chuff and starts actually making people pay their fair share. Fundamentally tax is the price of a decent society the price of a fair society and the price of making sure that every single New Zealander gets the opportunities that they are entitled to by being here. It is about making sure that everyone gets a fair go—David Bennett: No it’s not.GRANT ROBERTSON: —and David Bennett does not care about New Zealanders getting a fair go. David Bennett is so out of touch that he does not think that transformation of the tax system in New Zealand actually requires people to pay their tax.I will tell you what else would transform the tax system in New Zealand: when the Prime Minister gets up—he is talking about multinational tax avoidance—and says “Well you see the problem here is that the ethical thing to do might not be the legal thing to do.” How can those two things be different in a proper functioning tax system: the ethical thing to do and the legal thing to do—they are not quite the same? If we were transforming the tax system—which is what this bill says in its title that it wants to do—then we would not have the Prime Minister standing up and saying that. We would have a Prime Minister who actually understands the difference between right and wrong and who actually understands that everybody paying their fair share is the core of our tax system.With all due respect to colleagues who use phrases like “aggressive tax planning” “aggressive tax planning” is people getting away with not paying their fair share. That is why members on this side of the Chamber have been so annoyed and upset with the blasé attitude of the Government to New Zealand’s increasing reputation as a tax haven. I know that the Minister and others will say “But we’re not a tax haven”—The CHAIRPERSON (Hon Chester Borrows): Order! I just want to bring the member’s attention to the fact that a Supplementary Order Paper addressing the issue that the member is straying into has been found out of order. He was allowed the opportunity to make an aside. If he wants to continue to make this a bigger chunk of this speech then I am afraid that he will have to sit down.GRANT ROBERTSON: I am referring to the title of the bill which claims to be transforming our tax system—The CHAIRPERSON (Hon Chester Borrows): Well make that argument then.GRANT ROBERTSON: —and the transformation of the tax system we are looking for on this side of the Chamber is one where we can hold our heads high internationally. That would be a transformed tax system. A transformed tax system would collect the billions of dollars from multinationals that decide that they do not want to pay tax in New Zealand. Transformation would be about saying we stand for every New Zealander paying their fair share. Would it not be a great day when rather than aggressive tax planning we actually had companies and individuals in New Zealand who said: “I am paying my tax because it’s the right thing to do. I’m paying my fair share because it’s my contribution to society. It’s my way of saying I am part of society.” That would transform our tax system not tinkering about the edges not looking into whether or not different parts of the IT system work or not but actually saying that our tax system is the fundamentals of a decent society the fundamentals—Andrew Bayly: Why don’t you just say it—you want to put up tax rates?GRANT ROBERTSON: —of what allows New Zealanders to do that.Andrew Bayly is talking to us here about the right and wrong thing to do. Andrew Bayly and his Government need to make sure that they are on the side of ordinary New Zealanders—David Bennett: Oh what a load of rubbish.GRANT ROBERTSON: David Bennett reacts—the people who pay their PAYE every day of the week those New Zealanders who do the right thing who meet their tax obligations—and David Bennett would prefer to be on the side of the fortunate few who can hire an accountant and hide their tax. Well shame on you Mr Bennett. Shame on you. If you want to transform the tax system Mr Bennett get alongside parties who want New Zealanders to do the right thing. [Bell rung] Mr Chair? There ain’t no one else.JAMI-LEE ROSS (Junior Whip—National): I move That the question be now put.Dr DAVID CLARK (Labour—Dunedin North): I want to pick up where my colleague Grant Robertson left off because he raised the critical point: this bill is called a transformation bill. I had a look in a dictionary for what “transformation” means. It is a very simple term. It means to make a “Marked change in the form nature or appearance of:”—“Make a marked change in the form nature or appearance of:”. It is not about a little patch-up here and there which this bill is about. We approve of the patch-ups but what we would like to see is genuine transformation where people are actually encouraged to pay their fair share where tax avoidance is not something to be sniffed at and laughed at and where Mr Bennett does not chuckle away at the very suggestion that everyone should pay their fair share.We want genuine transformation on this side of this House. We believe in having a fair society where everybody has the opportunity to get ahead not just the wealthiest people whom National is alongside. We want a New Zealand where middle New Zealand has the same kinds of opportunities that the wealthy few whom those members on that side are supporting have. That is the kind of transformation we want and it is not in this bill and that is why I contend that this bill is not named in an accurate fashion. We might be better to say “Incremental Change:”—the “Taxation (Incremental Change: First Phase Simplification and Other Measures) Bill”.What we see in this bill is not genuine transformation. It is not changing those tax structures that enable tax planning aggressively to avoid paying a fair share. It is not addressing the issue of the way in which our society is becoming increasingly divided in which we have got these growing inequalities where we have the lowest homeownership rate—David Bennett: No rubbish—rubbish.Dr DAVID CLARK: —since 1951 Mr Bennett. It is not addressing those issues this bill. It is an incremental bill and so I contend it would be better named the “Taxation (Incremental Change: First Phase Simplification and Other Measures) Bill”. I look forward to the Minister’s consideration of this suggestion and to his thoughtful response.Rt Hon WINSTON PETERS (Leader—NZ First): I have got to confess that some of us are down here tonight for this debate on false pretences because we were told that National was going to introduce and pass through certain stages the Taxation (Transformation: First Phase Simplification and Other Measures) Bill. That is why we are here only to find out that we have been grievously misled.You will recall there was a family down in Louisiana in the United States called the Long family and Huey Long’s famous comment about taxation was—very much epitomised by the National Party attitude when on the hustings until it gets in here—that taxation reform is very much like “Don’t tax you don’t tax me tax that man behind the tree.” That is exactly where we are now tonight because when we talk about transformation it is quite possible that people out there who do think that the Parliament in this country has got some sort of credibility and is actually serious about the word “transformation” in the title. There is nothing very transformative in this legislation at all. In fact all it epitomises is that in the 8th year of its term in Government National is still flitting around the edges and does not quite know what it is doing and it will probably be back in 6 months to change this as well.And then on the issue of simplification let me say that we have more tax law than the United States.Hon Member: No we don’t.Rt Hon WINSTON PETERS: We do so. It is more voluminous and more complicated than the United States but of course over there if they catch someone cheating they put them behind bars for 10 20 or more years. Here we give them a knighthood or we cover it up. We do our utmost not to disclose it. Any transformation or simplification would certainly be attacking for example those trusts that are a big issue politically in this country but which no one can mention tonight. With all that evidence glaringly out there in the public domain with voluminous amounts yet to come soon to home in on all sorts of personalities in this country and headlining the latest National Business Review on the front page it does not make it into this legislation which tells you that we may be wasting the taxpayers’ time and indeed the time of this Parliament.Clause 1 agreed to.The question was put that the amendment set out on Supplementary Order Paper 171 in the name of the Hon Michael Woodhouse to clause 2 be agreed to.Amendment agreed to.Clause 2 as amended agreed to.Bill to be reported with amendment presently.