Woodhouse Michael: Annual Review Debate — In CommitteeText is incorporated into the Bound VolumeWoodhouse Michael: Annual Review Debate — In Committee[Sitting date: 14 April 2016. Volume:713;Page:10640. Text is incorporated into the Bound Volume.]Hon MICHAEL WOODHOUSE (Minister of Revenue): I think there is a lot that this Government can be proud of. I am certainly proud of the fact that there are tens of thousands more elective surgeries every year that not a single cancer patient has had to fly to Australia for treatment and that immunisation rates are at record high levels—particularly amongst the most vulnerable and those that traditionally have not had high rates Māori and Pasifika. I am very proud of the fact that our National Certificate of Educational Achievement (NCEA) level 2 rates are now tracking towards the optimal rates because NCEA level 2 is the baseline for getting on in life. I am very proud of the fact that we require our job seekers to seek jobsactually. And I am proud of the fact that this is the first Government in more than 40 years to increase social welfare support for the most vulnerable. So there is plenty to be proud of but there is more work to do.I stand to speak specifically in respect of the annual reviews to the annual review of the Inland Revenue Department. Some might think that that is being a bit masochistic given the 12 days or so of breathless revelations that we have had around matters to do with tax. In fact I have to firstly acknowledge my predecessor the Hon Todd McClay the former Minister of Revenue who said to me in December around the issue of revenue: “You will really enjoy it” he said “being a chartered accountant. It’s quite policy focused—a bit pointy-headed—but it doesn’t get much publicity. One oral question from the Opposition in 2 years and 4 months and it’s really quiet on the media front.” Well it has not been that quiet lately. It has been rather busy on the media front when it comes to matters in relation to tax but I want to acknowledge that department for the excellent work it does.In order to pay for the sorts of social services and supports that Ms Dyson talked about which I am very proud of we need two things. We need a very strong tax policy framework and we need a very strong tax administration framework. In the tax administration space of course the Inland Revenue Department carries out that very important function. In reviewing its performance it takes on two dimensions. It is obviously a very large organisation. It has over $700 million appropriated to it and it employs over 5800 staff. But of course it is also responsible for collecting over $60 billion from the taxpayer and it needs to be able to do that efficiently and effectively. So it is against that backdrop that it is embarking on what can only be described as perhaps the single largest transformation of the way in which a Crown entity does business in this country’s recent history. It is a $1.5 billion commitment of expenditure—at least on the face of it—to an IT system. But of course those who are in the middle of that transformation know that this is much much more than just a computer system. This is about the way in which we engage with the taxpayers particularly the business taxpayers; the way we encourage compliance with our tax rules; and the way we ensure the efficient collection of the funds that we require to provide the health education social services law and order transport and so on in this country.I must say having had the experience of going through the Immigration New Zealand transformation—a much much smaller project—it was a fairly daunting prospect to have a $1.5 billion transformation project under way. I have to say that I am very greatly reassured at the manner in which the Inland Revenue Department and its stakeholder partners and software providers are embarking on this because there are so many risks in this. I think there are things that can certainly go wrong but I have confidence that we have got the right people the right resources and the right programme to be able to deliver that.And it is pretty important now because yesterday we made some very very big announcements about simplifying the process of paying tax for our small-business community and what we know is that more than 97 percent of businesses in New Zealand are small or medium. They employ 50 staff or fewer. That is the backbone of this economy.Paul Foster-Bell: What percentage?Hon MICHAEL WOODHOUSE: Ninety-seven percent—and 90 percent of them employ fewer than 20 staff. So we really do have a large archipelago of small businesses in New Zealand that are the backbone of this economy. They are the farming community the plumbers the carpenters the people who are helping us rebuild Canterbury and so on. So it is important to be able to have a tax framework that fits their needs and not the other way round. For far too long the tax system in this country required the business community and the individual taxpayers to comply with rigid structures that the Inland Revenue Department set for them.The best example of that is in provisional tax. Anybody who has spoken with the small-business community will know that this has been a significant bugbear of its for years. This is because payment three times a year does not fit with a normal business cycle it does not fit the seasonal businesses—many of which are in our primary industries—and it certainly has been difficult to comply with easy to get wrong and quite costly to get wrong. So to announce yesterday that—thanks to this transformation—from 1 April 2018 the business community will be able to pay its income tax as it earns it has been very very well received. And it is a quite simple concept of using its accounting software to fit in with the Inland Revenue Department’s and not the other way around. Having calculated its accounting income a small business will then be able to pay the income tax due on that or claim a refund on it of course if—because of seasonal fluctuations—it produces an accounting loss in that 2-month period. It is already going along with the GST changes that we have announced.As a consequence of that there will be a much reduced burden of use-of-money interest. We have increased the number of small businesses that if they still choose to pay in the traditional provisional tax way will be able to be covered by the “safe harbour” provisions of the uplift. We are removing the punitive monthly penalties for late payment or non-payment which will also be very gratefully received. This is a very smart package but it does require the business transformation to proceed in a timely manner so that we can get to the start line on 1 April 2018 and enable businesses to benefit from it.I want to finish by commending the Inland Revenue Department and all its staff because they have been caught in the crossfire of a political narrative that has been most unhelpful I think and—frankly—untrue. We can be very proud of our tax policies in this country and our tax disclosures. They are policies that were established by Governments including the fourth Labour Government and were endorsed by the fifth Labour Government—particularly by Dr Michael Cullen when he was Minister of Revenue in 2006 and said: “We need a disclosure regime around foreign trusts and will put one in.” And it was fit for purpose.Grant Robertson: It’s a few years on now.Hon MICHAEL WOODHOUSE: Ah I see. So Mr Robertson says it is a few years on now—but it is not time that is the difference; it is who is in Government. Let us be very clear about why this is such a political opportunity for Labour. It is a pity that those members do not understand tax and the fact that foreign citizens earning income in foreign countries have no tax liability here in New Zealand. That seems to be completely lost on them. In fact a lot is lost on them. They are being either very tin-eared or a bit obtuse about what the tax rules actually are.I want to say to the Inland Revenue Department staff and particularly to those working in international tax and multinational base erosion strategies in combination with the OECD that I have confidence in them that I hold them in high regard and that you will not hear me coming to this House and criticising public officials who are doing an excellent job. I think there are members of this Committee who need to reflect as they go through this annual review on the very highly regarded and very good public sector officials that we have—both in the Inland Revenue Department and right across Government—and the excellent work that they do. When we compare ourselves with other jurisdictions I think that is something that we can be very proud of.