Cullen Michael: Taxation (Annual Rates Maori Organisations Taxpayer Compliance and Miscellaneous Provisions) Bill — Second Reading 
Cullen Michael: Taxation (Annual Rates Maori Organisations Taxpayer Compliance and Miscellaneous Provisions) Bill — Second Reading 
[Volume:606;Page:3891] 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 I move  
That the Taxation (Annual Rates Maori Organisations Taxpayer Compliance and Miscellaneous Provisions) Bill be now read a second time 
. The Finance and Expenditure Committee has carefully considered the bill and reported it back in December. 
The single most important feature of the bill is the introduction of legislation that modernises the taxation of organisations that manage Maori assets held in communal ownership. These organisations which are known in tax law as Maori authorities range in size and functions. They may be trusts that manage a single asset such as a small block of land that involves only a few owners. At the other end of the spectrum they may be large organisations with diversified holdings that involve hundreds or even thousands of individual owners or they may be organisations that receive treaty settlements assets. 
Organisations that manage communally owned assets face problems not encountered by ordinary companies and trusts. Communally owned assets cannot be easily sold and severe restrictions are often placed on their use by specific legislation or Government process. We have always had specific tax rules designed to deal with the administration of Maori freehold land and other tribal assets and they will continue to be necessary just as specific rules for other groups of taxpayers are necessary. 
The present rules governing Maori authorities were last revised in the 1950s and are now badly out of date. They have become unwieldy do not mesh well with other tax laws such as dividend imputation and now must apply to a much wider range of activities than envisaged half a century ago. They impose unnecessary complexity on contemporary Maori authorities create high compliance costs and in some cases double tax income. The new rules introduced in this bill provide greater flexibility and choice for Maori authorities. If they wish to do so they will be able to apply the general tax rules instead which may be more efficient for some of them. The proposed changes will enable them to structure their affairs more efficiently whichever tax laws they use. 
The bill tightens the definition of Maori authorities for tax purposes. They will include only those organisations that manage communally owned assets and whose ownership and administration are subject to certain statutory restrictions or Government processes. Not all organisations that qualify as Maori authorities under the present definition will do so under the new definition. The committee has recommended clarifying that the definition includes entities that are subject to the legislative restrictions of the Maori Land Act and bodies that receive and manage Treaty of Waitangi settlement assets including fisheries assets. The Government agrees with these changes. 
The measure that has generated most heat in some quarters is the proposal to introduce a tax rate of 19.5 percent on the income of Maori authorities. Some have claimed that this would introduce favourable tax treatment based on race. This is simply untrue. This measure does not apply to Maori as a group it does not apply to all businesses run by Maori and it does not apply to all organisations that manage communally owned Maori assets. To reiterate a point of fundamental importance the 19.5 percent rate will apply only to organisations that manage communally owned Maori assets that have heavy restrictions on their use and management imposed upon them by legislation or Government process. There is a simple rationale for that rate. It is the rate at which all New Zealanders pay tax on the first $38000 of their income. Since 90 percent of the owners of tribally owned assets are estimated to earn less than $38000 a year 19.5 percent is the statutory rate for that vast majority. Tax from Maori authority income will be paid at the authority level at the rate that is most sensible for the vast majority of members. 
From an administration perspective—which costs taxpayers money—it is much simpler to withhold tax at the statutory rate for most members than to withhold it at a higher rate and require most members to seek tax refunds at the end of the year particularly because in this case many of the individual owners have very small amounts of assets involved so the level of tax rebate involved in many many cases will be very small. We are talking in terms of a figure of between 19.5c and 33c of a rebate of $10 $20 $30 or $40 in many cases. It is administrative nonsense to impose that kind of burden not on the Maori authorities but on the Inland Revenue Department and the taxpayers who fund the Inland Revenue Department. To accuse that of being racism is simply to get one’s hat on completely upside down and wonder why it is getting full of water. 
Let me cite an example of the difficulties a higher tax rate creates in this case. The Maori Trustee which administers over 2000 properties makes distributions to over 50000 individuals a year. The average size of these distributions is estimated to be about $135; if it were taxed at 33c the average refund due would be less than $20 for those 50000 people. That does create real compliance costs. 
The estimated 10 percent of owners who are on a higher statutory tax rate will pay the remaining tax on the income at that rate when the income is distributed by the Maori authority. Individual Maori will not benefit from the 19.5 percent rate if they are higher-income earners because they will still have to pay tax at 33 or 39 percent when the income is distributed and they put in their annual tax return. 
The committee considered the many viewpoints expressed in submissions on the bill. The main change is to remove wholly owned companies from the 19.5 percent rate because it can be argued that that would give them a competitive advantage against similar companies operating in similar areas of activity. But let me say that is a fine judgment and there is still a theoretical argument in favour of imposing a 19.5 percent rate. It is a compromise but a fair compromise. 
There are many other important changes in this bill and particularly very many taxpayer-beneficial changes—for example taking into account taxpayers’ good behaviour when imposing two of the five categories of tax shortfall penalties. The committee also recommended amendments that recognise that taxes paid more frequently such as GST offer more room for taxpayer error so need a more concessionary approach. The Government agrees with those recommended changes. The bill also of course provides for the annual approval of the statutory rates of income tax.  
An amendment added to the bill after its introduction exempts people visiting New Zealand as crew members of superyachts from paying income tax in New Zealand. It is clear that the present law if enforced would simply lead to those people exiting every 6 months to go somewhere else and we would probably lose some of the maintenance work that we do on those superyachts within New Zealand. 
So this is a very important bill. It incorporates an important change. We will hear much huffing and puffing about so-called race-based taxation. It is totally meaningless for that to be said but that will not stop a number of gums beating together at great length over the coming period of time.