Cullen Michael: Taxation (Annual Rates and Urgent Measures) Bill — First Reading Instruction to Finance and Expenditure Committee 
Cullen Michael: Taxation (Annual Rates and Urgent Measures) Bill — First Reading Instruction to Finance and Expenditure Committee 
[Volume:628;Page:203] 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I move  
That the Taxation (Annual Rates and Urgent Measures) Bill be now read a first time. 
 At the conclusion of the first reading I shall move that the bill be referred to the Finance and Expenditure Committee for consideration and that it be an instruction to the committee to report back the bill to the House by 5 December. I will also seek leave for an instruction to the committee through Supplementary Order Paper 1 to consider amendments to the bill to enable the Inland Revenue Department to assist in the administration of the Australian wine producer rebates. I thank all other parties for their expression of support for that measure being included and I understand that that does not necessarily mean they will support other parts of this bill. The bill will be fast tracked through all its stages before the House rises in mid-December. That will enable the changes it introduces to take effect from 1 April next year which of course is consistent with the pledges made by the Labour Party before the election. 
The bill delivers on three key election pledges to the real benefit of hundreds of thousands of ordinary New Zealanders. It reflects the Government’s commitment to an inclusive society that is based on fairness security and opportunity for all its people including its young people. The bill extends the Government’s landmark Working for Families package. It builds upon changes that were already scheduled to come into effect on 1 April next year as part of the phased implementation of that package. As a result of the changes in the bill about 100000 working families who were to receive increased assistance next April will receive even more and an extra 60000 families will become eligible for family assistance under the Working for Families programme. 
The size of the extra relief introduced in the bill will depend on family circumstances including the number of children and the family income but will average around $50 a week. For example a family that was already on track to receive an extra $55 a week from 1 April next year will now receive an extra $48 a week on top of that—a total of $103 a week. That is achieved by raising the threshold at which family income assistance begins to abate from $27500—actually at the moment it is still $20000—to $35000 and by reducing the rate at which assistance abates for income that is over the new threshold from 30 percent to 20 percent which for very large numbers of working families also decreases the effective marginal tax rate by some 10c in the dollar. 
The bill further honours the Government’s election pledge to make student loans interest-free for most borrowers. The changes are designed to reduce the cost to students of tertiary study and to encourage tertiary-educated New Zealanders to invest their skills in New Zealand. From 1 April next year borrowers who are studying part-time or full-time will continue to have the interest on their student loans written off. Borrowers who are no longer studying regardless of whether they have gained a qualification will pay no interest on their student loans provided they are living in New Zealand. Interest will be charged on student loans if borrowers are away from New Zealand for more than 183 consecutive days which is of course the same criterion that applies to tax residency within the taxation legislation. Short visits of 31 days or fewer to New Zealand will not count as living in New Zealand. The Inland Revenue Department will have the discretion to exempt from this rule borrowers and their partners who are overseas for a variety of reasons including postgraduate study or being unexpectedly delayed overseas. 
There has been a considerable degree of interest in the cost of this policy and we have heard some very large claims being made about that. Before the election the Labour Party costed the impact on the operating provisions of this policy as rising to some $300 million or so a year by 2008-09. This was attacked as being ludicrously low. Let me announce today that Treasury has refined its costings of the policy and I have to admit that the Labour Party was significantly in error. The actual costing will be $202 million a year by 2008-09 in terms of the impact on the operating provisions. Those are the actual Treasury costings—not done on the back of an envelope like its first effort but done somewhat more carefully taking account of all factors. [ 
Interruption 
] I am so sorry to disappoint the members opposite about that fact and I must congratulate myself on my self-discipline in holding back those numbers until the first reading of this particular bill because I have been sitting on them for some time up to this stage. 
The third key election pledge delivered in the bill is for an amnesty on student loan penalties for borrowers in arrears who are living overseas at 1 April next year if they give an undertaking to meet all their obligations under the Student Loan Scheme Act for a 2-year period. That will apply to those borrowers who give the necessary undertaking between 1 April next year and 31 March 2007. The removal of the very very large penalty payments that some people overseas have accumulated offshore will enable them if they want to to come back to this country. A significant proportion of the level of outstanding debt on the student loan scheme is accounted for by a relatively small number of borrowers nearly all of whom are actually offshore and whose penalty payments have now mounted to the point where it becomes impossible for them to return to New Zealand. That is not in our interest as a nation. 
The changes in the bill will save many thousands of dollars a year for many young people in terms of the costs of their tertiary study and will knock years off repayment times. Indeed the new member for Tauranga has already had an effect on Government policy. This was one of the three elements in his speech—apart from one might say the somewhat uncharitable remarks about his predecessor. He might have learnt that one is usually nice about one’s predecessors in this House when taking over a new seat. Mr David Carter managed to bring himself to be so when he was once an electorate MP. 
The bill also fixes the rates of income tax for the 2005-06 tax year which is an annual requirement. That is contained in the main tax bill but there is a risk—I hope not a serious risk—that that bill may not be passed by the end of March. I am hopeful that the Finance and Expenditure Committee will be able to get that bill through by the end of March so that measures such as depreciation and other changes can come into force on 1 April. But there has been some pressure I might say from the Institute of Chartered Accountants of New Zealand amongst others to delay the provisional tax and GST measures for a short period to give some more time for publicity and other matters. 
In closing I am extremely pleased that the Government has been able to deliver so quickly on the promised reforms introduced in the bill which will have long-term benefits for New Zealand and its people. I commend the bill to the House. We anticipate it passing in the last sitting week before Christmas—13 to 15 December.