Fitzsimons Jeanette: Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill — Second Reading In Committee 
Fitzsimons Jeanette: Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill — Second Reading In Committee 
[Volume:636;Page:7100] 
JEANETTE FITZSIMONS (Green) 
: 
 There are certain principles that a good tax system ought to try to observe. They would include having a broad-based system with a wide range of tax sources so that none of them needed to be taxed at too high a rate. They would include having a system that was fair in two senses: first that people in the same situation were treated the same and second that people were taxed according to ability to pay. A good tax system should be easy for the taxpayer to understand and comply with and it should be easy for the Government to administer. 
The present tax system does not meet those tests and neither does the tax system set out by the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill. The bill does address some anomalies but in doing so it creates others. Overall it replaces a dog’s breakfast with a different kind of dog’s breakfast. The Greens would like to vote for the annual rates and for the pass-through rules for managed funds which we strongly support. But we would like to vote against the overseas investment rules which are overall no more fair or simple than the present system. We will therefore abstain at this reading and at the third reading. 
The current system of tax has some major faults. We currently tax all those activities we want most to encourage: work and enterprise. We currently leave untaxed those activities we most wish to discourage: waste pollution use of scarce resources and speculation. However this bill does not address those issues at all—they are not on the Government’s radar despite our efforts. So I will turn to those matters that are addressed by the bill. 
The current situation does not treat taxpayers who are in like situations in a like manner so the system already breaches that principle. Overseas investors are treated differently depending on whether they are in countries on the “grey list” or in some other overseas country. Investors on a low tax rate pay more if they invest in managed funds than if they invest directly. Investors who are on a 39c tax rate pay less tax if they invest through a managed fund than if they invest directly. Investment in property is treated quite differently from investments in the sharemarket and I believe strongly biases investment towards property which has a lot of other side effects. Some investments pay no tax at all because they pay no dividend and all of the gains are paid out as capital gains which are untaxed. So looking at that particular dog’s breakfast we can see that the bill solves a few of those problems. 
The look-through rule for the portfolio investment entities is a very good move and we support it but if people’s tax rate is 19c in the dollar then that is all they should be paying regardless of whether they invest directly or through a managed fund. However the bill does not address the fact that people on a 39c tax rate are still advantaged if they invest through a managed fund. 
The bill tries to deal with those UK entities that pay no or little dividend and that provide all the benefit through a capital gain but it does not deal with them very well. In the process of trying to solve those problems the bill creates more anomalies. As the bill was introduced it removed capital gains tax on New Zealand and Australian investments and put it on investments in countries on the “grey list”—those eight countries that have previously been exempt. That created far more howls of protest and outrage than the revenue effect actually justified. The bill provided an exemption after negotiation for one company that had particularly skilled lobbyists. It also provided exemptions for people with investments of less than $50000—but many KiwiSavers will find that as their savings accumulate they will shoot through that ceiling of $50000 and become liable for tax on those investments. 
There were a huge number of submissions. The Finance and Expenditure Committee sat for weeks and weeks to hear them and they were very similar. As a result of those submissions we suddenly got a Supplementary Order Paper. After all those weeks of getting our heads around the incredible complications of the capital gains tax regime we then found overnight that the capital gains tax regime had gone— 
Dr the Hon Lockwood Smith 
: Sort of gone. 
JEANETTE FITZSIMONS 
: Sort of gone. We still have an exemption for one company which still has its very skilled lobbyists and we still have the exemption for investments up to $50000. The system still treats Australia and New Zealand differently from the rest of the world and one of the anomalies we have now is that that creates real boundary problems. What is a New Zealand company or an Australian company? Can it be defined? Submitters suggested to us that it would be very difficult to determine whether a company was a New Zealand company or Australian—what about its parentage its subsidiaries and so on? The system still treats investment in property and investment in shares on quite a different basis. So the bill has made a good attempt to address some anomalies but it has created others in the process. 
After hearing submitter after submitter say that the bill was unfair because it did not treat like investors in the same way that it was hugely complex and people would need an accountant and a tax lawyer to comply with it that taxpayers would find it hard to follow and that finance companies and managed funds would find it hard to comply with I eventually started asking questions of those submitters. I asked quite a number of questions. I asked whether it would be fairer and simpler if instead of all this dog’s breakfast we had a straightforward capital gains tax on all income from capital gains across the board with no exemptions. All the submitters to whom I put that question said that that would undoubtedly be simpler but that politicians would never go there. I wrote down the answer that John Shewan gave me. He said we would not be sitting here today if we had a comprehensive capital gains tax across all types of investment. So I am disappointed that the Government has chosen yet again not to look at that possibility. It would not be very hard to sell it to the public if it was made clear that additional tax would not be taken and that a broad-based capital gains tax would enable tax rates of other sorts to be lowered particularly income tax rates. The Greens’ preference would be to use the tax to provide a tax-free band at the bottom of the income tax scale which would mean every taxpayer got the same rebate. However the Government has not gone there. 
The absence of a capital gains tax is distortionary in other ways. It certainly is a big contributor to the overheated property market and to inflation and that has been identified by the Governor of the Reserve Bank. The absence of a capital gains tax makes things very difficult because it distorts investment behaviour into property. People’s second homes and investment properties push prices up. Young families cannot get housing and cannot get their own homes. It would be entirely possible to exempt the primary family home for every family from capital gains tax but to charge it on all other kinds of property investments. That would stabilise property prices stabilise the housing market enable young families to get into housing help with the inflation rate and help with New Zealanders’ level of indebtedness whereby they are borrowing against these ridiculously inflated house prices in the assumption that prices will go on rising whereas we know that a day will come when they will not.