Smith Lockwood: Income Tax Bill — First Reading 
Smith Lockwood: Income Tax Bill — First Reading 
[Volume:606;Page:3547] 
Dr the Hon LOCKWOOD SMITH (NZ National—Rodney) 
: 
 Members of the public who are listening to this debate may be interested to know that the member who has just resumed his seat is the chairperson of the Finance and Expenditure Committee—the committee that will be examining this legislation. I would have expected a little better from him. He said the public needed to have confidence in our tax legislation. I agree with that. He said there needed to be simplicity and transparency in it. He cannot even have attempted to read the 2000 pages of this legislation if he thinks this is simple legislation—and if he thinks it is transparent then he does not know what the word means. “Transparent” means something that can be seen through. There is no way in the world that one can see through 2000 pages of complex legislation.  
The chair of the Finance and Expenditure Committee was wrong when he said that the current tax Act goes back to 1891. It does not. I acknowledge that that was when the first taxation Act was written but the structure of the current tax Act was established in 1916 and it had 143 pages. The simplified version in front of this Parliament today is over 2000 pages. We politicians should ask ourselves why. It is important because the 2000 pages of law in this bill take off middle-income New Zealanders a third or thereabouts of their hard-earned income. This complex bill determines how we take that income off them.  
Let us go back a few years in the history of this Parliament to a well-known Government under a well-known Prime Minister—in fact a Labour Prime Minister—Michael Joseph Savage. He is probably best known historically in New Zealand for the establishment of the welfare State. After his Labour Government had established the welfare State to look after those in need in this country the Government tax take represented about 16 percent of gross domestic product (GDP). The equivalent amount that we politicians take off the people of New Zealand today—and I think we all have a bit to answer for here—is 35 percent of everything they produce. Total Government expenditure including local government is up at exactly 40 percent of everything spent in this country; but to compare apples with apples central government’s tax take after Michael Joseph Savage developed the welfare State was 16 percent of GDP. Today the equivalent figure is 35 percent of GDP which is more than twice as big a hunk of the economy. That has a lot to do with why since 1916 the Income Tax Act has gone from 143 pages up to more than 2000 pages because the more tax one tries to take off people the more complex the rules have to be.  
I could not endorse more wholeheartedly the contribution by National’s spokesperson on finance Dr Don Brash—the previous Governor of the Reserve Bank—when he said that there was a desperate need not to talk about making our income tax more transparent and simple. That is really just rhetoric. If we want to achieve that we have to simplify the tax structures—the tax system—very significantly. It should not be beyond our wits because part of the complexity of our current tax system is that its whole nature was developed before the calculator was created. It was developed back in the days when abacuses were used for doing arithmetic. 
Hon Trevor Mallard 
: What word? Abaci. 
Dr the Hon LOCKWOOD SMITH 
: The Minister of Education corrects me—abaci. I will take his word for it. Let me just use the singular and say “before the abacus was even developed”. 
Let me just share with the House some of the stupidities of the current Income Tax Act. The Minister of Education pays 15c in the dollar tax on the first $9500 of income he earns. Why? And he pays 39c in the dollar tax on the last $15000 of income he earns. Where on earth is the rationale in that? The tax law is so much more complex because of it. If this Government is serious about simplifying income tax it needs to engage its brain a helluva lot more than it has done so far. All it has done so far is to pick up the reform work started by the last National Government when in 1994 it rewrote the Income Tax Act—simply I guess to try to get the thing into some kind of shape. It was not a major reform in 1994. Then in 1996 the last National Government rewrote the core provisions with the Taxation (Core Provisions) Act. In 1997 the last National Government issued a discussion document on that major rewrite of the Income Tax Act. In 1998 the last National Government put out an issues paper on how it might be done. All of this then was essentially the work of the last National-led Government but it is not enough. It was way back in 1997 and 1998 that we did this work.  
It is fair to say that this Labour Government has tried to do some slippery things. For example it is not just satisfied with rewriting the legislation sensibly; instead it has tried to do devious little things like changing the meaning of “dividend”. It tried to include in the definition of “dividend” the services that a company might provide to any shareholders. Not done! Fortunately some people who were watching what the Government was up to pointed out that it is unacceptable to slip that kind of deviousness through the system.  
It has taken the Government too long to do this part; what is needed is a major rethink of how we structure the taxation system in this country. A lot of members of this House will not realise how stupid it has got. Let me share this fact with the Parliament: there are employers in this country who are employing 270000—that is over a quarter of a million—working taxpaying families. Under the 2000 pages of tax law employers take PAYE off them and pay that to the Inland Revenue Department. The amount of PAYE paid by those 270000 families is just under a billion dollars which is promptly taken off them by this tax law. The Inland Revenue Department then turns round and pays every cent of it back to those same families. It may not pay back exactly the same amount but every cent of that amount—which is just under a billion dollars—that employers take off employees under the income tax law we are debating for the first time tonight is paid to the Inland Revenue Department. The Inland Revenue Department then turns round and pays exactly the same amount back to those people. Whatever way one looks at it that is damned stupid. Surely even Trevor Mallard would have to ask where on earth is the logic in that? How does Clayton Cosgrove the chairperson of the Finance and Expenditure Committee explain the logic of this complex law? He probably does not know because he does not employ anyone. I do and I have done it. Every month I deduct PAYE from the wages of farm workers on the average income with three kids and the Inland Revenue Department pays the exact same amount back to them! That is what I mean about an intelligent approach to improving our tax laws in this country.  
Dr Don Brash mentioned that we should be bringing the top personal tax rate and the corporate tax rate back together. The whole system should be flattened. We would not need all this complexity—trying to define income which the bill does under Part C; trying to define deductabilities under Part D and then under part E the timings of when deductabilities can take place—if we simplified the entire tax structure; that is flattened it and got rid of the complexities in the system. It should not be beyond our wit. The tax system grew like topsy from the early days and no Government—I do not just blame Labour for that—has really applied intelligence to asking why for example we tax the Minister of Education 15c in the dollar on his first $9500 and 39c in the dollar on his last $9500. It makes no sense. We will support this bill to a select committee but it is only a start on what should happen in terms of tax reform in this country. 
Bill read a first time and referred to the Finance and Expenditure Committee. referred to the Finance and Expenditure Committee