Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
[Volume:644;Page:13692] 
Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill 
In Committee 
Part 1 Annual rates of income tax amendments to Income Tax Act 2004 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 This bill will be debated in four parts: the three parts of the bill plus the title. Part 1 which we debate now contains a number of key issues that National wishes to draw to the attention of the Committee of the whole House. The first issue relates to the setting of the annual tax rates. Some of my colleagues will focus on that issue because there is in fact a golden opportunity tonight for the Government to prove that it cares about the income tax rates. There is the opportunity tonight if the Government believes in reducing the tax rates to do so right now with this legislation because it sets the rates for this year. So if the Government is serious about reducing personal income tax rates it has the chance to do that right now. 
But I want to draw to the attention of members of the Committee the other issues that we will focus on in respect of Part 1 which contains a number of serious issues. The Government is about to introduce Supplementary Order Paper 167 in the name of the Hon Peter Dunne which will introduce new arrangements for the taxation of redundancy payments. Now that is a new proposal and it has not been to the Finance and Expenditure Committee. If it had been to the select committee there would have been submissions around such matters as why redundancy payments had been chosen and why lump-sum payments for accident compensation had not been included even though a person may receive a lump-sum payment for loss of income that covers more than 1 tax year just as is the case with redundancy payments. There is an even stronger argument for accident compensation lump-sum payments that cover more than 1 tax year to have tax relief in the same nature as that being given to redundancy payments. But no a Supplementary Order Paper was marched in at the last minute. We saw it only today. It has not been anywhere near a select committee. All of the issues that should have been covered before a Supplementary Order Paper comes to this Committee will not have been covered. Again colleagues of mine will discuss that issue. 
Supplementary Order Paper 167 also covers the vexed issue of finance leases. The Government sneaked into the select committee a while back Supplementary Order Paper 119 in the name of the Hon Peter Dunne. Government members did not even tell us it was retrospective and to do with finance leases versus operating leases; they tried to be all quiet about that. The Supplementary Order Paper caused a hell of an uproar because it would have put a whole lot of existing finance leases out of business and caused major problems for certain businesses in New Zealand. After the select committee heard submissions on Supplementary Order Paper 119 the Government withdrew it. What happened then? Government members marched into the Chamber today bringing Supplementary Order Paper 167 in amongst all the other papers. 
Supplementary Order Paper 167 sets out a new attempt to handle those leases. When I talked to the businesses involved I was advised that there are still major problems. There has not been adequate consultation. The provisions in Supplementary Order Paper 167 are a compromise I know but there is no need for that compromise. The Government could close the loophole going forward and not put existing deals out of business. But there is no doubt that if the proposals in Supplementary Order Paper 167 to do with finance leases go through tonight there will be business deals that are put out as a consequence of that. It is bad lawmaking when through retrospective legislation we interfere with deals that have been done in good faith under existing law. That is another issue we intend to debate in relation to Part 1. 
Then we get on to all sorts of other issues in Part 1. The issue of the research and development tax credits is covered in Part 1 and we will be making some comment about that. There is the issue of raising the threshold limit for charitable donations. We support that proposal; it was National Party policy. We will be covering that. There are also the issues about the change of name for Working for Families tax credits and of course the new KiwiSaver provisions for setting up the tax credit provisions for employers. 
We wish to cover in some detail all of those specific issues in Part 1 tonight. In fact we will be moving amendments on some of them tonight because they are so outrageous. The provision to change the taxation treatment of redundancy payments in isolation and in an ad hoc fashion has had no consideration by the select committee. It is just absurd to bring in a provision like that. The industry out there today is gobsmacked that there has been no chance to make submissions on that. Other issues could have been covered much more sensibly with a generic provision such as that. As I mentioned a moment ago my advice on new clause 78BB and the provisions on finance leases on Supplementary Order Paper 167 is that they will actually kill existing deals. There will be litigation. The Government should not be doing this. When the select committee looked at that issue in relation to Supplementary Order Paper 119 the Government withdrew that Supplementary Order Paper because it saw that it was a poorly thought through provision with far greater implications than the Government had assumed. As a consequence the Government withdrew that Supplementary Order Paper. 
It is not good enough to now march Supplementary Order Paper 167 into this Committee without scrutiny. The provisions on that Supplementary Order Paper will cause existing deals to be destroyed and for that to happen without the chance for scrutiny by the select committee is not good enough. That is what the provisions on Supplementary Order Paper 167 will do. I want to draw the attention of the Committee in particular to the new clause 78BB which is the bit that handles the finance leases; to new clause 85B which is the bit that handles the redundancy payments; and to new clause 155B which includes the tax administration amendments in respect of those redundancy payment provisions. None of those measures have been to the select committee and no submissions have been heard on them. They will have a major impact on New Zealanders businesses and ordinary taxpayers alike. There has been no chance for people to make submissions on that Supplementary Order Paper. 
This is no way to implement tax law. It actually undermines the good work I acknowledge that the Minister has done. The Hon Peter Dunne has put out a discussion document and gone through a reasonable process then undermined it at the last minute with Supplementary Order Papers containing provisions that were not adequately consulted on and that no submissions have been heard on. I appeal to the Minister. We will be proposing a number of amendments tonight one of which will be in relation to the redundancy payment provisions on Supplementary Order Paper 167. I would like the Minister to seriously reflect on the fact that there has been no chance for submissions to be heard on them. Thorough consideration should be given to them tonight. 
CHARLES CHAUVEL (Labour) 
: 
 I would like to speak briefly on new clause 85B which Dr Smith has just mentioned. New clause 85B appears in the Minister’s Supplementary Order Paper 167. It is the provision that will give tax relief for redundancy payments. I am sad to hear that the National Party will vote against another tax cut that this Government is bringing before the House. But there it is. 
Let us just have a look at the scheme of this tax relief measure which will be introduced for employees who are in a difficult situation and who deserve some sort of relief. The legislation that is set out in Supplementary Order Paper 167 will make the taxation of redundancy payments fairer to low and middle income New Zealanders. Clearly redundancy payments are employment income so it is fair that they are taxed. Some members who have practised in the employment field will remember that in the 1980s and prior redundancy payments were subject to a specialist and favourable tax regime whereby they were taxed at a very low rate. Under the current law which has remained—as far as I can recall—since the early 1990s low and middle income people can be pushed into a higher tax bracket if they receive redundancy pay. If that happened it would come at a very difficult time for most people. Clearly it would be a terrible thing for someone to have to contemplate on top of losing his or her job. 
The Supplementary Order Paper will introduce a simple tax rebate to apply to redundancy payments received on or after 1 December 2006. This rebate will allow low and middle income New Zealanders to retain more of their redundancy pay and will keep complexity and compliance costs to a minimum. The rebate will be based on the flat rate of 6c per dollar up to $60000 per redundancy. Let us think of an example. It means that somebody who receives a redundancy payment of say $20000 will be able to claim a tax rebate of $1200. Someone who receives a $60000 redundancy payout will be able to claim a rebate of $3600. There is a maximum redundancy payout provided for in the Supplementary Order Paper. The maximum payout that qualifies for a rebate is $60000 so the rebate itself would be capped at $3600. 
I am sad to hear members opposite announce the intention to vote against this tax relief measure for low and middle income New Zealanders. These changes will make the taxation of redundancy payments fairer and give certainty and more security to an issue that has been of concern to workers and unions for some time. I am very pleased to support the measure. 
CHRIS TREMAIN (National—Napier) 
: 
 I rise tonight to speak on various parts of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill but for starters I will focus on Part 1. As my colleague Lockwood Smith said we will be canvassing various clauses of the bill clause by clause and taking it issue by issue as it comes along. In particular I will focus tonight on three areas. Firstly I will deal with clause 3 and the rates of income tax for 2007-08. Later on tonight I will have a look at the changes to the charities legislation in clauses 27 and 85. Clause 85 deals in particular with rebate in respect of gifts of money. Later on I will look at the new sections KJ 6 through KJ 12 which introduce changes to the KiwiSaver employer tax credits. So there is a fair bit to cover. I know that other colleagues will deal with the various issues tonight. 
In rebuttal of the chairman of the committee in regard to Supplementary Order Paper 167 the issue here is a matter of process. This particular issue did not come before the committee but has ended up in a Supplementary Order Paper before us in the Chamber tonight without a wider consideration of other matters such as accident compensation payments which my colleague pointed out could have been brought into consideration along the way. Once again a Supplementary Order Paper has been thrown on the Table without due consideration and without coming before the select committee and in our opinion that is not good enough. 
I focus on clause 3 “Rates of income tax for 2007-08 tax year”. Taxation rates in this country have been far too high for far too long. Under this Labour Government we have seen tax rates climb not fall. Since 2000 the number of people in the 39c tax rate has increased and as a result of that we have seen taxation collected in this country like never before. For the year ended 30 June 2007 $56.5 billion in tax was collected from this country. If we take a step back to the year 2000 $34.4 billion was collected in taxation. That is a total increase of $22.1 billion over 7 short years—$22.1 billion. That is a whopping 5525 additional tax dollars per every man woman and child. It is a 64 percent increase in direct taxation on the basis that this Government knows best how to spend taxpayers’ money—not its own money but the taxpayers’ money. 
How have we ended up in this position? There has been absolutely no movement in tax rates over the course of this Government except in this latest bill that we see before us. I call it the “Too Little Too Late Bill”. There are some tax deductions now but we have not seen that over the course of this Government until this stage. What have we seen? Taxes are up the thresholds have been unchanged and we saw the “chewing gum tax cut” threshold proposed and then taken out by this Government. We have seen tax bracket creep as people have moved into higher tax brackets. When we started out there was the proposal by the Government that no more that 5 percent of the country would be above a 39 percent tax bracket. Now we see nurses policemen tradesmen and wharfies all creeping up into that 39 percent tax bracket through bracket creep. They are paying more and more tax. We now see 12 to15 percent of taxpayers in that higher tax bracket. 
One has to ask whether we are going to see personal tax cuts over the next year? We have seen Dr Cullen out there proposing it having his arm twisted by the Prime Minister. I come back to a Cabinet paper signed by Michael Cullen in 19 April 2007. There will be Ministers on the other side of the House for example Mr Shane Jones who were not present when this paper was signed off. What it shows is the determination of this Government to keep tax rates high. Clause 23 states the commitment from Dr Cullen: “To maintain our commitment to the long term fiscal objectives”—that is Cullen-speak for building the kitty—“I may need to make some adjustments to future Budgets. These are likely to be that we do not adjust tax thresholds in the medium term thereby retaining fiscal drag and potentially allowing tax to GDP ratios to rise slightly. Accordingly this paper seeks Cabinet agreement to rescind our previous decision to adjust income tax thresholds.” 
There we go. It is a paper no doubt signed off by the Minister sitting in the chair tonight Peter Dunne. It is a paper that is going to rescind on any future tax increases. It goes on to say: “Within the projection period i.e from 2011-2012 we will adjust tax thresholds for inflation.” 
TIM GROSER (National) 
: 
 I address clause 3 in Part 1 and I will read it out in a slightly reconstructed way. What it says is that the income tax imposed by section BB 1 of the Income Tax Act 2004 will once again apply in the 2007-08 tax year. If we actually sit down and interpret what that means in more technical language used by economists we see it means that once more we are doing absolutely nothing about bracket creep—absolutely nothing. This is the meat and potatoes of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. We have here a huge bill of great complexity—it is 409 pages not counting the other Supplementary Order Papers—and there are various parts of it that move the game forward in the right direction. For example if we look at business taxation we see that the cut in the corporate tax rate is something that makes some sense. But on the other hand what we see even in that area is the lack of a coherent overall strategy to drive business taxation down to where New Zealand actually needs it. In New Zealand there were 44000 partnerships as at February 2006. There are 74388—let us round that up to 75000—individual proprietorships. None of these will benefit from that cut even though the cut itself makes a contribution in that general area. 
This is the heart of the matter. We have been looking for 7 or 8 years to this Government to come forward with a coherent strategy. This was its opportunity and what do we see? We see that it just wants to deal with it by repeating the rates set out in the schedule of the Income Tax Act 2004. This is against the background of some central statistics that are absolutely crucial to the political debate between the two major parties. These will form the basis of a vigorous contest between the two parties and will explain why in the minority report of this vast bill the minority view of the National Party simply stated: “The National Party recognises that the company tax rates will be dropping to 30 percent but we believe that personal income tax rates should also be lowered.” We cannot have a clearer statement of intent on a central issue than that. 
As recently as 2 years ago we looked at the statistics and we saw that $20 billion more in tax had been accumulated by Dr Cullen since he took over as the Minister of Finance in 2000. That figure will be well in excess of $20 billion today. The OECD revenue statistics recently quoted a very interesting comparative study of Australian and New Zealand economic performance. The total percentage of revenue collected at all levels in Australia namely provincial state and federal levels was 30.9 percent in 2005—say 31 percent. In New Zealand it is six points higher than that. That is one of the margins that explain why New Zealand has fallen so rapidly in the last 7 years behind the comparative economic performance of Australia. The punitive rate of 39 cents in the dollar when it was introduced for reasons that made no sense at all—we all understood what it was about when it was introduced; it was the politics of envy—was explained away at the time as attracting only 5 percent of taxpayers. But because of the bracket-creep phenomenon and because there has been no systematic attempt to address the issue of comprehensive income tax reform we now find 14 percent of New Zealand taxpayers are paying that rate. This includes basic professions. It includes schoolteachers nurses and junior accountants. No wonder we are seeing the exit of 75000 New Zealanders across the Tasman or to other parts of the world—80 percent of whom are under the age of 40. We are losing our best youngest most innovative New Zealanders and part of the reason but not the whole reason is this almost unbelievable unwillingness to use the massive accumulative surpluses to actually deal with the problem. 
GORDON COPELAND (Independent) 
: 
 I am delighted to take a call on Part 1 of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill because 17 December 2007 just 6 days away is the 20th anniversary of the start of my long campaign to advocate for a far fairer and more generous tax rebate scheme in respect of gifts made to charities and churches in this country. Over those 20 years I have been involved in advocating this to every single successive Minister of Finance. Oddly enough the only one I missed out was the Hon Peter Dunne who is the Minister in the chair tonight. 
I think this is a day not only for me to celebrate this achievement but also more important for churches and charities to come to grips with the reality that the rebate that until now has been only $630 per annum following a gift of the massive sum of $1890 maximum will now be entirely uncapped for both individuals and companies. Now even a $1 million gift made by an individual will receive a full 33.33 percent rebate or in that case $333333.33. Companies will go from just 5 percent of net income to potentially 100 percent of net income and that is something that as I say is to be celebrated. 
I am also delighted that the business tax reduction from 33c to 30c which is reflected in Part 1 only because of the consequential amendments that follow from it is occurring. I remember taking part in the debate in the 2005 election—when of course I was a member of the United Future party—among all the financial spokespersons of all the parties. There were only two spokespersons in that debate who were advocating for a reduction in the business tax rate: myself and Rodney Hide. No one else was. No other party in this House had that as its policy and I say that because the commentary always refers to this legislation as a confidence and supply win for both United Future and New Zealand First. Well if New Zealand First was in favour of business tax cuts at that stage it certainly kept it a very well-kept secret from the rest of us. 
I also applaud the KiwiSaver changes that are made in Part 1. I have long been an advocate for tax credits which this bill now provides for both employees and employers to encourage savings. It always seemed to me to be an anachronism that whereas such incentives to encourage savings apply in virtually every other Western jurisdiction that I know of in the late 1980s and the early 1990s we became purer than pure in attempting to have a system that was supposed to encourage savings by having absolutely no tax breaks whatsoever. I think that was a ridiculous step and I am very glad to see it is now being changed. 
So far I have been praising Part 1 but I want to say as the Southern Man said it is a hard job to find the perfect income tax bill. There is a great failure in this particular bill and that is that of the Hon Michael Cullen who contrary to the undertaking he gave in Budget 2005 did not adjust personal income tax rates for fiscal drag. Even the very small movement which Michael Cullen promised in Budget 2005 and reneged on in Budget 2007 was in itself in any event totally inadequate. If we adjust for inflation from the year 2000 the 33c tax bracket should now move from $38000—which is now well below the average full-time wage income of about $44000—to $46000 which indeed would be above the average income figure. That means a great deal for hundreds of thousands of middle-income New Zealanders. Likewise the 33c bracket should have moved in this bill from $60000 to $73000. 
I say tonight that in respect of my new party Future New Zealand we are committed to regularly adjusting personal income tax rates in this country to reflect inflation. It is unconscionable to do otherwise. For many many years not just Michael Cullen but other Ministers of Finance have allowed fiscal drag deliberately to work in favour of the Crown and against the taxpayers of New Zealand and that is unacceptable. The taxpayers of New Zealand should come first. 
PANSY WONG (National) 
: 
 It is actually quite coincidental that my call is following that of Gordon Copeland who is one of the three members including myself and Katrina Shanks who are members of the Institute of Chartered Accountants. I am sure that the three of us are delighted to see the media release put out by the very sensible members of the institute which said the Government’s latest move to introduce this special provision for tax relief on redundancy payments does nothing to fix the more fundamental problem of New Zealand’s progressive tax rate structure. This Labour Government complicated the tax structure even more by introducing the 39c rate so I am quite sure that at the last minute there was a backroom deal somewhere whereby the Government brought in a flat rate of tax rebate for redundancy payments. I heard the compassionate speeches made by the Labour member who said how wonderful it was and how considerate it was that that move was made for the lower and middle income workers of New Zealand. 
I thought that while we are in a compassionate mood I would put forward a Supplementary Order Paper and invite the Minister in the chair the Hon Peter Dunne to comment on whether he sees fit to support it. Personally like members on this side I cannot see why on the one hand we gave special consideration to redundancy payments but on the other hand we exclude people who receive lump sum compensation payments for permanent impairment. So if the Minister sees fit to give relief to workers who face the unfortunate situation of redundancy and to give a rebate on their lump sum payment I really think that the Minister needs to take a stand as to why individuals who are unfortunate—usually in circumstances not of their own making—suffer permanent impairment and receive lump sum compensation should not be entitled to have the same relief as is offered in the late Supplementary Order Paper put forward by the Labour Government. I say to the Minister that many individuals who are injured whether they incur injury at work or outside the workplace would be of working age and that permanent impairment would lead to hardship that I would say in comparison with the situation with redundancy payments is of a more extensive and permanent nature. Why should those individuals be punished on top of their physical injury? The fact is that they suffer from permanent impairment so why financially can they not get the same relief? I am sure that the Hon Peter Dunne will be looking very hard at this very sensible amendment I have put forward. 
My colleague the very hard-working Dr Wayne Mapp is less positive. He has cast doubt on the compassionate nature of the Minister of Revenue the Hon Peter Dunne but at this stage I have not decided to concede that. I hope that the Minister will in the next while start to look at my amendment. I think he will owe the public an explanation if he turns down this very sensible amendment. 
The other provision I will comment on—and it is one I actually support because it is basically National Party policy—is in terms of the tax rebate and removing the cap for deduction for contribution donations made to charity. I just want to say that it takes the National Party to really get Labour and United Future into the modern day after all where donors should be rewarded and charitable organisations should be recognised for the good work they do. I think this is a great initiative. 
Hon PAUL SWAIN (Labour—Rimutaka) 
: 
 I am totally bemused by what I am hearing from the National Party. You see the National Party has said for example that as far as the totality of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill is concerned it supports cuts to the business tax rate. It supports for example the new research and development provisions. National has always said that. Then I heard Pansy Wong say that she has long campaigned for and supported the provisions that allow tax incentives for people and companies to make charitable donations. She said all that. If one listened to such speeches one would not believe that National is going to vote against the bill. 
Hon Mark Burton 
: What are they voting against? 
Hon PAUL SWAIN 
: I am not sure. What I think would be a useful thing for National members to do— 
Hon Mark Burton 
: They always just vote against it. 
Hon PAUL SWAIN 
: Well they do; they just oppose oppose oppose. 
What National members could do is say: “We don’t like Labour’s tax policy generally. We don’t like the differentials in the tax rate even though the Government has indicated there might be some changes coming in but we think this is generally a good move and we should vote for it.” That would be a sensible thing for National to do and it could campaign on the bits that it does not like. But no National is going to vote against the bill. It is completely and utterly bemusing and I simply do not understand it. Pansy Wong said she strongly supports tax incentives for people and companies to make charitable donations and Gordon Copeland said he has campaigned on this issue for a long time. Everybody thinks it is a good idea so why does the National Party not vote for it? It is a very very simple matter. 
I want to talk about the redundancy provision. Once again this is taxpayer-friendly— 
Craig Foss 
: Declare your interest! 
Hon PAUL SWAIN 
: Well no this does not apply to the fact that redundancy provisions are not in our particular contract—more is the pity I say. The truth is that this will have a positive impact on low and middle income earners. 
Pansy Wong 
: What about accident compensation sufferers? 
Hon PAUL SWAIN 
: I am interested to know from Pansy Wong whether this is taxpayer-friendly. 
Pansy Wong 
: What about accident compensation lump-sum payments? 
Hon PAUL SWAIN 
: Yes but is this particular issue taxpayer-friendly? One has to say that it is. Therefore I ask why the National Party is voting against it. What has National got against helping out people who through no fault of their own get redundancy payments and getting better tax treatment for them? 
I want to speak now on behalf of the workers of South Pacific Tyres. Fortunately this legislation is effective from 1 December 2006 so it will be able to take into account redundancy payments that were made to those workers. What happens now is that people will be entitled to a rebate which will be based on a flat rate of 6c per dollar up to $60000 in redundancy. That means for example that if a worker gets a $60000 redundancy payout—and some people who have worked for 17 or 18 years in a particular place might be entitled to something like that—that worker is entitled to a tax rebate of $3600 which he or she applies for. If for example a worker is entitled to a $20000 redundancy payout then he or she is entitled to a flat-rate rebate of 6c which comes out at a $1200 rebate. This is money going back into the hands of those workers. I say to the National Party that this is a good thing. 
In the old days up until 1992 the tax rate on redundancy was 5 percent. Then the National Party changed that and introduced a system whereby people got taxed on their normal rate. The problem now is that workers can be earning during the year then get laid off and receive their redundancy payment and that takes them into the highest bracket because the total income is assessed for tax purposes in that tax year. What we are trying to do is say that in fact the redundancy payment is different from so many other things. It is compensation for loss of earnings and it will enable workers to try to put a bit away when they are out of a job until they get a new one. In this situation we should tax people more fairly and I say that is a good thing. People should be able to get some tax relief when they have lost their jobs through no fault of their own. 
I come back to my fundamental question. If the basic argument is to help these people out a bit because it is no fault of their own why is the National Party opposing this? It just does not seem— 
Pansy Wong 
: What about accident compensation? 
Hon PAUL SWAIN 
: Members are saying: “What about this? What about that?”. Why do they not support this legislation? 
CRAIG FOSS (National—Tukituki) 
: 
 I think it is polite first of all before we enter the Committee stage to thank those who have been involved in the formulation of this bill those who sat around the Finance and Expenditure Committee table and the officials who helped us wade through it. I have a problem though in that since the bill first arrived at the select committee there has been a change in the chair of the committee; also the bill has changed radically from the one the select committee first considered. We had submissions on it and changes from officials etc. but the bill that has arrived here today has parts to it that are substantially different from the bill that the select committee spent probably over 6 months on in consideration deliberation and taking submissions. That is totally unacceptable. 
I could talk about clause 3 of Part 1 which is the bit that deals with income tax rates and addresses the $20 billion extra per annum in personal tax that has been taken by the Government every year since 1999—$55 billion - odd. Over $1 billion a week now is taken in personal tax. I could compare the tax rates in New Zealand with the Australian tax rates and their thresholds that have been changed to the benefit of the taxpayer every year for last 5 years. I could talk about the 14 percent of taxpayers who are now in the 39c tax rate bracket rather than the 33c tax rate bracket—the 5 percent that Labour said would be on the high rate in 1999. I could talk about all those who have been dragged up through fiscal drag—the pumping of inflation from this current Government to drag them into higher tax brackets. I could talk about all those things but I will not; I will leave that to colleagues. 
What I would like to do is particularly look at the amendments to Part 1 on Supplementary Order Paper 167 which deal with amendments to the Income Tax Act 2004. Supplementary Order Paper 167 in the name of the Minister the Hon Peter Dunne is interesting in that we have 22 pages of last-minute amendments that arrived at lunchtime today. That replaces three pages of amendments on Supplementary Order Paper 119 dated earlier this year dealing with finance leases. Supplementary Order Paper 119 had a kick-off date of 20 June 2007. We note here that the dates affecting finance leases on the new Supplementary Order Paper are backdated to and include 20 June 2007. That is actually significant. Many submitters—many learned professionals—submitted on Supplementary Order Paper 119. The Finance and Expenditure Committee had many discussions and was very concerned about the retrospective nature the catch-all drift nature of the original Supplementary Order Paper to the point where the Minister agreed and pulled the Supplementary Order Paper. 
I point out that in the commentary on the bill one entire page is given to the select committee’s reasons on why the finance lease rules in the original Supplementary Order Paper were pulled. Then just a few hours ago this new Supplementary Order Paper 167 was launched on members of the House. That is absolutely outrageous. There has been no consultation no discussion and no discussion paper. All and sundry believed there was further work to be done around finance leases. I just do not understand quite why this Government is trying to bulldoze through legislation such as this which confronts Sir Ivor Richardson’s taxation accord process of 1992 where there was open consultation and open discussion and where we get buy-in from those who participate in and need to enforce taxation law. 
My colleague Dr the Hon Lockwood Smith referred to new section 78BB. In my second reading speech I also raised issues about this part in relation to Supplementary Order Paper 119. It is a drift-net because it seems to be law written for discovery. Many questions were asked of officials and advisers. We asked what the problem was who the problem was what the quantum was and what the risk was. Basically those questions were met with blank stares. We constantly asked for further quantifiable information but very little was forthcoming. Thus the original Supplementary Order Paper was pulled in order to discover more information. I do appreciate that discussions were made outside of the select committee between various officials from the Inland Revenue Department Treasury and so on but the Finance and Expenditure Committee was totally blind to the changes that were made. 
Some of the original problems with Supplementary Order Paper 119 and Supplementary Order Paper 167 were their retrospective nature. The public relations from the Minister responsible for Treasury and the Minister of Revenue today started to push away that this measure is still retrospective in its nature. It will still be subject to litigation. At the end of the day the parties caught in the crossfire as I read this will actually be New Zealand entities—New Zealand financial institutions—which will be sued at both ends from an offshore party and an onshore party because the terms of the original leases have changed. 
I have a few questions to ask of the Minister in the chair the Hon Peter Dunne that I will go through over the night but one question I would like to ask him is what the fiscal risk is here. It was explained to us that the future value of all lease payments is unchanged. It is only the present value that is at risk here. It is the time value of money. I recall that someone mentioned that about $200 million was at risk but we were not told whether it was per annum over 5 years or over 10 years. If it is over 5 years that is about a $3 billion notional problem. What is it? How can we be putting it into legislation of a retrospective nature like this when the quantums are not given? 
I would argue that Supplementary Order Paper 167 is actually punishing those New Zealand companies that are trying to minimise the impact to New Zealand of the high interest rates that are a result of this current Government. These are mostly capital-intensive large notional infrastructure projects I believe but again we were never told. I look forward to the Minister describing some of the leases if he could. Under the Fiscal Responsibility Act I presume—and I am open to be corrected—there should be some costings around the Supplementary Order Paper. What are the costs? What are the benefits? Under this new Supplementary Order Paper the parties involved have to pay back one-sixth or read another way 16.666 percent—call it 17 percent—of the depreciation claimed over the life of the asset. So why should these companies in New Zealand be singled out like that? There are some assets at 48c depreciation. Essentially the depreciation for them is now 31c in the dollar. I ask the Minister to clarify that point further. 
The Finance and Expenditure Committee spent much time and expressed much concern particularly about the retrospective nature of this legislation. I am sure that we have not heard the end of it. Quite frankly I am sick and tired of the fact that every time I get up to talk about a KiwiSaver bill or a bill in relation to these taxation issues we have yet another Supplementary Order Paper thrown at us at the last minute. I find that embarrassing for this House and I think a lot of explaining needs to be done. Thank you Madam Chairperson. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I want to respond to a number of the points that have been raised so far by members who have taken part in this debate. I will start by talking about the issue of finance leases. I note incidentally that the report of the Finance and Expenditure Committee stated: “The majority of us accept that a change was necessary because a small number of cross-border leases have been classified as operating leases for tax purposes even though they are financial transactions and treated as such in the financial accounts of the taxpayers.” And further on the committee stated: “We asked officials to consider further the application of the legislation to existing arrangements. We understand that officials have since been working on alternative transitional options for existing leases” etc. That is precisely what has been happening since the decision was taken to withdraw Supplementary Order Paper 119. The amendment on Supplementary Order Paper 167 in my name reflects the work that has been done and the solutions that have been reached. 
I ask members to let me go through precisely what Supplementary Order Paper 167 says then I will come to some of the questions that Mr Foss has raised. Under the proposal on Supplementary Order Paper 167 the leases to be affected by those rules are those that were entered into after 20 May 1999 and in which the lease asset is used mainly overseas and a person other than the lessor is earning income that is not subject to New Zealand income tax from the use of that asset and a person other than the lessor has substantially all the risks and rewards incidental to ownership of the asset. Leases that do not satisfy those requirements which in effect are most leases will be unaffected by the amendments that I have tabled as part of this bill. If the lease is affected the consequences depend upon the date that the lease was entered into. For leases that were entered into prior to 20 June 2007 the lessor will have to pay back one-sixth of the depreciation previously claimed and to reduce future depreciation deductions by one-sixth. That treatment is a pragmatic compromise that deters aggressive tax minimisation schemes and recovers some lost revenue while limiting the negative effects on existing commercial arrangements. For all other leases the taxpayer will be required to reclassify the lease as a finance lease and to recognise additional income or expenditure in the year when the lease becomes a finance lease. 
Mr Foss asked some questions relating to the likely cost of the proposal. The advice I have is that from known leases the likely cost is around $92 million and that the cost as a result of these amendments will reduce by $16 million. I need to advise the Committee that there is some sensitivity around this point. It is a net present value calculation. We are aware of only two leases at the moment that come within this broad contention. Therefore it is not appropriate for me to discuss taxpayer affairs further. But I can say to the Committee that in developing the solution set out on Supplementary Order Paper 167 there have been consultations with affected parties and others and the solution that has been arrived at is one that seeks to deal with the particular problem. It is a much narrower solution than was proposed on the original Supplementary Order Paper. 
If I can turn to some of the other issues that members have raised I think it was Mr Groser and one or two other speakers who made reference to clause 3 which relates to the personal income tax rates issue. I am someone who has been on record for a very long time as being a strong advocate for personal income tax reductions. I think I have that reputation. I note that this year— 
Dr Wayne Mapp 
: Prove it! 
Hon PETER DUNNE 
: The last time we had personal tax reductions in this country I was also in the position that I am in now. My record speaks for itself; it is not just words. The reality is that in this term we have done significant taxation reform. The business tax reform package was a United Future initiative as part of our confidence and supply agreement. It was the first business tax reduction in this country in 20 years. I am committed to seeing personal tax reductions. I know that the Minister of Finance is as well and I can assure the Committee that we are working on those reductions at this moment. Members will just have to wait and see what transpires from that. 
One of the previous speakers referred to the charitable donations regime. That again arose contrary to what Ms Wong said from the confidence and supply agreement with United Future that was signed in October 2005—long before the National Party released its policy. I welcome National’s support for the policy we set out to achieve from October 2005. I think it is a good policy and I am glad National agrees with it. 
I also want to say some words about Ms Wong’s proposed amendment with regard to the redundancy provision in so far as it affects accident compensation payments. There are some problems with the amendment she proposed and I need to advise the Committee of those. The amendment proposed by the member actually amends the 2004 Income Tax Act. The difficulty with that is that that Act has been repealed with effect from 1 April 2008 under the rewrite bill which brought in the new Income Tax Act 2007. So the member seeks to amend legislation that does not exist. But beyond that her amendment does not have any impact beyond 1 April 2008. It would apply to accident compensation payments for the period from December 2006—so presumably from the commencement of the 2007 calendar year—through that little window that ends in April 2008. So in that sense the amendment is unworkable. I understand the sentiment behind the amendment but I say it is unworkable. 
I think those are the major points that members have raised to date and I have sought to comment on them. If other matters are raised I will comment on them as the evening progresses. 
KATRINA SHANKS (National) 
: 
 It is my pleasure to take this call to speak to the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill tonight. The area I would like to speak on tonight is research and development tax credits. Research and development is fundamentally important to New Zealand if we want to progress our country increase our productivity and be at the cutting edge of what we do. New Zealand is a small country and is quite boutiquey in what it produces so it is important that we invest and encourage investment in our research and development so that we stay at the cutting edge so that we can produce things in the global market that other countries cannot produce and so that we can demand premium prices for those products. When we do that we will find that our productivity will increase and that we will become wealthier and because our companies are doing so much better our country as a whole will become wealthier. 
The question really is how to encourage companies to do research and development to take their products to the next level by investing in their technologies and to be at the cutting edge in their industries. How do we actually encourage our companies to do this? It is quite a commitment especially as companies are struggling as it is to get ahead to pay employees and to go out to global markets because it is a big step to go from a domestic market to a global market. So how do we encourage our companies to reinvest back into themselves through research and development? 
It is really important when we look at these tax credits to go very slowly and look very carefully because there can be a downside to producing research and development tax credits in our country. It has been shown overseas that there have been major pitfalls when research and development credits have been put in place. The vehicle by which this bill is looking to increase the productivity of our businesses and to encourage our companies to invest in themselves is this research and development tax credit. 
I was not on the Finance and Expenditure Committee that considered this bill. Shane Jones the previous chair of the committee was in the Chamber but has lost interest and wandered off but I see that Charles Chauvel is here tonight. He is the present chair of the committee. He is sitting across the Chamber and has taken one call tonight I do believe. 
How do we know this is actually the correct vehicle to use in research and development? Officials from the Inland Revenue Department I believe came and briefed the select committee. As this policy is based essentially on the Australian tax credit policy in relation to that country’s Inland Revenue Department Shane Jones the chair of the committee at the time asked our Inland Revenue Department officials who came in to brief the committee on this part of the legislation whether there was any evidence that the research and development credits in Australia were making a difference and actually working. The officials said that they did not know whether they were making a difference. I do believe reading through the minutes that Shane Jones asked that question of the officials more than once and each time they came back and could not say that these research and development credits were actually making a difference. Yet we have still gone down this path which is really interesting. 
We are all keen to get research and development moving along in New Zealand and we are all keen to invest in research and development but it is actually about finding the correct vehicle. It is about ensuring that we have enough submissions in that enough research has been done and that the officials have the answers to the questions we ask when putting this type of legislation together. This is what we need in order to put together the right type of legislation with the right vehicle in it for our companies and for New Zealand so that we do this very precious research and development. That is what this is actually about. We have to remember that in New Zealand research and development is currently 100 percent deductible for tax purposes so already companies are getting 100 percent back. This legislation basically gives a credit at 15 percent tax rebate on top of the 100 percent deductibility already.  
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I appreciate the Minister taking a call a moment ago and I would like to follow up with him on a couple of the issues he responded to. The first is the issue of the proposed new tax treatment for redundancy payments contained on Supplementary Order Paper 167. The Minister ruled out Pansy Wong’s amendment on technical grounds saying that it covered only a certain time period. I put to the Minister in the chair and to the Government that what they are trying to do here with redundancy payments has some logic to it because a redundancy payment is a lump sum paid in recognition of a number of years’ work. Therefore it covers more than 1 tax year. I can see that the Government’s argument is that it is unfair that it should be taxed at the additional marginal rate of the year in which the payment is made because it puts the person up into a higher tax bracket when if it was spread over all the years of employment involved it may not put the person into the higher tax bracket. But the issue of compensation for injury where a person gets a lump-sum payment because he or she has been injured at work and can no longer be involved in full-time work is a similar issue. 
The lump-sum payment can cover more than 1 year’s work. All we are asking the Government and the Minister in the chair to do is to be rational. If they are going to make this provision for redundancy payments there is an even more powerful argument to make it for compensation payments because the poor person receiving the compensation payment may never be able to work again. Such people have been injured at work they get a lump sum covering more than 1 year’s payment they are put into a higher tax bracket and exactly the same arguments apply. It should not be beyond the wit of the officials in the Chamber tonight to change the provision on Supplementary Order Paper 167 to also include accident compensation lump-sum payments that cover more than 1 income tax year. I would really appreciate the Minister’s advice as to why that obvious anomaly is being ignored. 
Secondly I would like to raise with the Minister the matter of finance leases also covered on Supplementary Order Paper 167. The Minister told the Committee that the cost of these operational leases which are really finance leases is roughly $92 million—I think that is what he is saying—and the provision on Supplementary Order Paper 167 reduces that cost to the Crown down to $16 million. 
Hon Peter Dunne 
: By $16 million. 
Dr the Hon LOCKWOOD SMITH 
: It reduces it by $16 million; I had misheard. The Minister says that the department is consulted. I have talked directly today to some of the key players involved in these transactions because of course they made submissions to the select committee. I wanted to check whether the Government had reached agreement with them on this new provision. In fact it turns out that it has not. What I want the Minister to respond to is this. The margins involved in these kinds of transactions are obviously not great. If the Government is taking away $16 million in only two deals—the Minister acknowledges that it is only two deals—that predate 20 June 2007 there is no issue about closing this loophole going forward. There is no issue about that at all; the issue relates to the deals already done under existing law pre - 20 June 2007. If the Minister is recovering $16 million from those two deals there is no question that those deals will be marginal if not put under. Is it right—[ 
Interruption 
] Dr Cullen shakes his head. He talked to the players involved. They will probably put the deals under. The language they shared with me today was that it will sink the issue. What was the language used? Here it is: I wrote down that this will “put this deal under water and as a consequence there will be litigation.” I ask the Minister on what basis was this—true depreciation loss is divided by six—arrived at because some of the players say it will put them under? 
My third question for the Minister relates not to Supplementary Order Paper 167 but to clause 64 in Part 1. There has been no discussion of this tonight. That is the amendment to the fair dividend rate in respect of offshore portfolio investment holdings. This is my question to the Minister. New clause 64 the new majority provision put in by the select committee has provisions for the commissioner to determine under subclause (3) the attributing interest for which the fair dividend rate may apply and under subclause (4) the attributing interest of a person for which the fair dividend rate may not be used. There is a lot of concern about this and controversy around the fair dividend rate. This is changing the provision somewhat so my question asks how taxpayers will know specifically what the commissioner declares will be allowed for as attributing interest for the fair dividend rate provisions and what will not be allowed for by the commissioner. 
If the commissioner does not allow certain attributing interests and the person is a provisional taxpayer I ask whether people will be caught under the penalty provisions—use of money interest provisions—through not getting provisional tax payments correct if they cannot foresee what the commissioner will declare is allowed for the 5 percent fair dividend rate or is not allowed for the 5 percent fair dividend rate. The provisions here as I understand them will allow a higher tax assessment than the 5 percent fair dividend rate. If people as provisional taxpayers have based their provisional tax payments on a 5 percent fair dividend rate and the commissioner says: “Oh no this attributing interest will not be allowed for under the 5 percent fair dividend rate; another method has to be used here under the new clause 64(4).” what happens if that is a higher tax assessment and people being significant taxpayers have paid their provisional tax incorrectly because they could not foresee what the commissioner was going to declare there? 
All I am asking is for the Minister to satisfy us that that is not possible and he could tell us I guess that the commissioner will make clear at least a year in advance what payments can be covered by the fair dividend rate and what he will not allow under that rate. As long as that determination is made sufficiently far in advance I can see that my concerns will not in fact come to bear. But I would appreciate the Minister advising on that because there is some concern around the industry in this general area. So with those three issues aired I will let other colleagues follow on. 
RODNEY HIDE (Leader—ACT) 
: 
 The ACT party rises to oppose the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill in its entirety. 
I will make some overview points and I ask first why we are confirming these annual rates. It is clear to everyone in New Zealand and to the majority of parties in this House that New Zealanders are overtaxed. It appears to the majority of New Zealanders that this Government has taxed New Zealanders poor and made itself rich. 
It is clear to the overwhelming majority of New Zealanders that they should keep some of their hard-earned tax money and that they should spend it themselves rather than allow the Government to accumulate it—particularly heading into an election year where the Government will spend money not for a good purpose and not for general welfare but to secure the extra votes it needs. And why are we confirming the 39c rate? Dr Cullen marched into office in 1999 saying “Oh well we will just tax the rich. We will just tax the 5 percent who are earning too much and we need the extra estimated $400 million to fund what the Labour Party has planned.” 
Hon Rick Barker 
: Superannuation cuts. 
RODNEY HIDE 
: Well I tell Mr Barker that the economy was growing so strongly and tax revenues were so good that that member cannot point to any one year when that extra $400 million was actually needed. He cannot and he has just admitted that he cannot. That tax was nothing but a “spite tax”. That is what it was. The money was not needed by the Government and of course now we find that 12 percent or 13 percent of taxpayers are paying this new “spite tax”—a tax that was never needed other than to penalise those who earned more than others those who worked harder than others and those who had been more successful. 
Although we might agree that it is reasonable for people who have earned twice as much as other people to pay twice as much tax it is hard to see it as reasonable that they should pay three times as much tax four times as much tax five times as much tax or six times as much tax as their neighbour as readily happens nowadays. More particularly those taxpayers are the ones who do not put out their hands for help from the State. They are taking out health insurance they are taking responsibility for their children; and they are working. But I tell the Minister in the chair Peter Dunne that they are the ones whom he represents who do all the work. 
We find with a bill like this—and this is something that has been consistent for years and years in New Zealand—that a great swathe of New Zealand has been overtaxed and overlooked. So I do not understand—at all—why we are confirming these tax rates. They are too high. New Zealanders do not want to hear the Hon Michael Cullen talk about tax cuts; they want to see him actually deliver them. Tonight is the night. Thank you Madam Chair. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I will respond to some of the points that have been made. I go first to the comments made by Katrina Shanks about research and development. 
I think it is worth rehearsing where the research and development changes arose. When the  
Business Tax Review 
 discussion paper was released in 2006 and put out for consultation a range of options were identified other than changing the tax rates in terms of providing assistance to business. Changes to the research and development regime or a more aggressively attractive research and development regime came in as the top priority from that consultation process and that was introduced in this year’s Budget. We have made the point that we are acting cautiously. We are deliberately following some of the lessons learnt from Australia. We are not going to have the pitfalls that they have in some areas but we are going to be guided by their experience. I take this opportunity of commending to Ms Shanks a speech made by her deputy leader during the second reading of this bill on the issue of research and development that I thought was a remarkably constructive contribution. 
As far as the issue of finance leases is concerned let me go back to what I said in response to the original questions. The exposure potentially at the moment is around $92 million. That will be reduced by some $16 million as a result of the measure contained on the Supplementary Order Paper. I indicated earlier that we get into difficult territory here because there are two individual cases we know of—I underline “that we know of” and I do not want to start being too taxpayer-specific because I cannot be. However it is fair to say that since the original Supplementary Order Paper was tabled officials have consulted all of the affected parties. Consultation does not mean an agreed solution necessarily but it does mean that the sentiments that are expressed on the Supplementary Order Paper are seen as a reasonable solution to the difficulty we face. Obviously others will make a judgment in reaction to those but it is our responsibility to secure the New Zealand tax base and also to ensure that we have a robust regime moving forward. I think the changes that are contained on the Supplementary Order Paper which I can assure Dr Smith have been the subject of wide discussion provide that pragmatic balance. 
I cannot remember whether it was that member or Pansy Wong—I think it may have been Dr Smith—who raised the issue of accident compensation in the context of the redundancy changes. We can make an argument that accident compensation payments deserve a similar form of treatment but we could make the same argument in respect of a number of other areas of social policy assistance. The redundancy changes arose as a result of a particular problem. The member’s analysis of the difficulties we face at the moment in terms of redundancy payments earned in a particular year even though they might be compensation for many years’ work is entirely accurate. What this bill seeks to do is correct that anomaly. I indicated before that the amendment that his colleague had moved had some technical difficulties; it amended legislation that actually no longer exists. At this stage we are focusing only on the redundancy change. I think that other issues will have to be considered at another time. 
Finally I will make a comment about the changes the member commented on in respect of the fair dividend regime. This is an area of huge technicality and I will not profess to be sufficiently expert to give him a comprehensive ruling on it. But I will make this point which I think goes to the heart of the point that he was raising. These changes are intended to be applied prospectively rather than retrospectively. So the issue he was expressing concern about—a square-up being applied by the Commissioner of Inland Revenue in an instance where the taxpayer may have made a wrong call—should not apply. This is a prospective consideration rather than a retrospective one. 
I also observe with regard to the fair dividend regime that only just over a year ago we had a very intense debate in this Chamber about the entire approach to the taxation of offshore investments. All sorts of dire predictions were made as to what would happen on 1 April. I can recall—and I am sure that my colleague the Minister of Finance can recall—the representations we received from a range of investors and investment institutions that the end of the world was nigh. It is interesting that a lot of the prospectuses and correspondence now laud the portfolio investment entity regime that we introduced as being very positive. We are seeing adaptations of those regimes being introduced all the time by various savings entities that are good and positive and that are benefited by some of the changes that were announced in this year’s Budget. 
R DOUG WOOLERTON (NZ First) 
: 
 I think it is good that I follow the Minister because regarding the fair dividend tax situation I was concerned that our tax adviser Robin would be really worried that some form of policy that he had put up had been very handsomely and widely embraced by the financial community. I was wondering whether Robin would want to revisit that matter with the idea of somehow bringing down a harsher regime because he had been too kind to those people all over the place. 
I will talk briefly in general terms about a statement that Rodney Hide made versus statements I have read. Whether it is  
Time 
 magazine the  
Bulletin 
 or whatever the financial literature is that one picks up it will tell one that around the Western World in the last 10 years the top 5 percent of wealth has never ever in the history of humankind grown at such a rate—never ever. The growth in wealth of the top 5 percent of people in the Western World is absolutely unprecedented. Yet we have National and ACT coming in here and saying that in fact we are taxing those people out of existence—that we are taking away all of the incentives that drive them on to greater productivity. 
That is nothing less than absolute bunkum. Those people have never done as well in the history of humankind as they are doing today. They have never done as well as they are now doing. 
Dr Wayne Mapp 
: In 1999 it was 5 percent; today it’s 20 percent. 
R DOUG WOOLERTON 
: I hope that the people who are listening to this debate can hear that member raving on. He never makes any sensible contributions. He is voting against tax cuts which National has done consistently since 1960 and he sits there bellyaching on about the difference between 5 percent and 20 percent. 
Dr Wayne Mapp 
: How about fiscal drag? 
R DOUG WOOLERTON 
: Oh the fiscal drag! That is a Muldoon term if ever there was one. Do members remember how Muldoon used to bellyache about fiscal drag? There was a man who did not understand economics if ever there was one. Contrary to what Rodney Hide was saying I say the top 5 percent of wealth creators in the Western World have never had it so good in the history of humankind. 
We in New Zealand First support the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill and we support the tax reductions encompassed within it. We support the KiwiSaver scheme obviously because we need to save more in this country—and New Zealand First has said that right the way through for many years. And we support what we see as a return—or a slight dipping of the toe in the water as Dr Cullen explained it as being—to incentivising the taxation system around research and development. Unlike Katrina Shanks whom I admire and whose expertise I respect we in New Zealand First believe that it does make a difference when one gives a tax incentive. It helps when we give a message in the only meaningful way that matters that we want people to enhance their businesses and to enhance our industry by adopting better machinery and providing more productive workplace opportunities. The only way to tell them show them and encourage them to do that is to give them a tax incentive. 
I turn to the minority view of the National Party which is essentially about a philosophical belief it has that personal tax cuts across the board will do something magical to our economy. Personal tax cuts did not do that in America and they have not done it anywhere else where they have been applied but all of a sudden National believes that they will do wondrous things for New Zealand. That of course will be what the debate at the next election is all about. It will be about personal tax cuts versus personal services delivered by the Government be it in health in education or in all the other sorts of things. 
John Hayes 
: So you’re a socialist at heart. 
R DOUG WOOLERTON 
: It is not a matter of being a socialist. This legislation is actually a very very mainstream measure and only a party that has moved to the extreme right like the National Party would suggest that these were left-leaning policies. 
We in New Zealand First have said unashamedly that we do not favour across-the-board tax cuts. We support tax cuts that incentivise businesses that export and encourage exports and we encourage tax cuts like the Working for Families package which gives money to those who need it and does not reward those who do not need it. That is why we support this bill. That is why we have supported the Labour Government and its support partners through this entire enterprise. We believe it is heading in the right direction and we are encouraged by that. 
CHRIS TREMAIN (National—Napier) 
: 
 That was Doug Woolerton from New Zealand First who brought to us his perception of wealth creation among the top 5 percent of wealthy people in the world. 
But I think we need to be clear about what the debate has been around I say to Mr Woolerton. It has been around the number of people in New Zealand who have moved into the top tax bracket and who now pay 39 percent. It is no longer just the 5 percent of New Zealanders who were originally there; we have got to the point where 12 to 15 percent of New Zealanders are in that top tax bracket. People in my own electorate and other members’ electorates—teachers and policemen—have moved into that top tax bracket. I ask Mr Woolerton whether they are rich and whether nurses are rich. 
R Doug Woolerton 
: No. 
CHRIS TREMAIN 
: They are not. Are policemen rich? I believe that they are in the wrong tax bracket. That is what the debate has been about tonight and that is one of the key reasons that members on this side of the Chamber are not supporting the legislation. 
The second point I want to make is to refer to the Minister in the chair Peter Dunne who put on record tonight his reputation around tax cuts. I ask that Minister whether he was in Cabinet on 19 April when Dr Cullen put up a paper. Clause 23 stated: “To maintain our commitment to the long term fiscal objectives I may need to make some adjustments to future budgets. These are likely to be that we do not adjust tax thresholds in the medium term”—meaning in 3 4 5 years—“thereby retaining fiscal drag and potentially allowing tax to GDP ratios to rise slightly… Accordingly this paper seeks Cabinet’s agreement to rescind our previous decision to adjust income tax thresholds. Within the projection period (ie from 2011/12 onwards)”—so we are looking out a fair way ladies and gentlemen—“we will adjust tax thresholds for inflation but some portion of fiscal drag might need to be retained to finance our decisions.” 
The Minister in the chair put on record his position on tax. I would suggest that he was part of Cabinet on the day that it signed that particular minute and I believe that that does not accord with his record on taxation. 
I will finish by making a comment on Dr Paul Swain— 
Hon Dr Michael Cullen 
: Dr Paul Swain? 
CHRIS TREMAIN 
: —well he is a learned member—and some of the comments that he has made tonight. The member wanted to know why National was not supporting the wider taxation provisions even though parts of the legislation may have some merit. Well we do not like Labour’s tax policy. We do not like it specifically or generally. We do not like where the economic direction of the country has gone under this Government and that is why we are not supporting the legislation. If National supported this legislation it would be the equivalent of our standing up here and supporting the general direction of the Labour Government. We do not buy into Labour’s vision and on that basis we do not support this legislation. That is the answer the member is looking for. 
We have learnt something tonight though with regard to Supplementary Order Paper 167 which Mr Swain is very keen on. It brings about some redundancy payment advantages. I have not looked at the fine print of that Supplementary Order Paper but I wonder whether there are any lower tax rates for silver platters given as redundancy payments. Mr Swain who is very learned and has had a long career in Parliament is moving on to better things. 
Hon Dr Michael Cullen 
: In that case you get 3 months’ severance pay when you lose. 
CHRIS TREMAIN 
: I thank the member; I will be looking forward to that. 
Christopher Finlayson 
: Is he standing against you in Napier? 
CHRIS TREMAIN 
: He is not standing against me in Napier. We put that challenge out there but Dr Cullen would not take it up. He was quoted in the newspaper as saying that Labour would be choosing an excellent candidate in the seat of Napier that that candidate would have his 100 percent support and that that candidate would win Napier in the next election. It will be interesting to see whether the candidate who was chosen was the candidate whom Dr Cullen was actually thinking about at the time. Never mind; that remains to be seen. But I am not being arrogant about it; it will be a hard campaign in Napier and I am looking forward to it. 
Hon MARK BURTON (Labour—Taupo) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 65 
New Zealand Labour 49; New Zealand First 7; Maori Party 4; United Future 2; Progressive 1; Independents: Copeland Field. 
Noes 50 
New Zealand National 48; ACT New Zealand 2. 
Motion agreed to. 
The CHAIRPERSON (Ann Hartley) 
: The amendment in the name of Pansy Wong to insert new clause 85C is out of order as it was lodged with fewer than 24 hours’ notice and may have an impact on the Government’s fiscal aggregates. 
The question was put that the amendments set out on Supplementary Order Papers 167 and 168 in the name of the Hon Peter Dunne to Part 1 be agreed to. 
A party vote was called for on the question  
That the amendments be agreed to. 
Ayes 65 
New Zealand Labour 49; New Zealand First 7; Maori Party 4; United Future 2; Progressive 1; Independents: Copeland Field. 
Noes 50 
New Zealand National 48; ACT New Zealand 2. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 1 as amended be agreed to. 
Ayes 65 
New Zealand Labour 49; New Zealand First 7; Maori Party 4; United Future 2; Progressive 1; Independents: Copeland Field. 
Noes 50 
New Zealand National 48; ACT New Zealand 2. 
Part 1 as amended agreed to. 
Part 2 Amendments to Tax Administration Act 1994 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 Part 2 of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill refers to amendments to the Tax Administration Act 1994. Before I get into the detail I have to say that I hope the Government has a serious look at the Tax Administration Act 1994. It is a shambles. It is an absolute shambles. 
Hon Dr Michael Cullen 
: It’s a National Party Act. 
Dr the Hon LOCKWOOD SMITH 
: It is not a shambles because of the provisions of 1994; the problem is that the Act has been amended so many times since that time that any practitioner would require a PhD to find his or her way around it. 
Hon Dr Michael Cullen 
: Well you’ve got a PhD—no problem. 
Dr the Hon LOCKWOOD SMITH 
: I tell the Minister he should try to find his way around that particular Act. It is just a shambles. 
What this bill does though is deal with some of the compliance and penalties provisions in that Tax Administration Act. There are three particular issues that the Opposition wants to focus on. One relates to the issues around unacceptable tax positions. They start with clause 184. Then there is an issue around voluntary disclosure provisions. They are particularly relevant to clause 188. Then there is an issue in relation to simple mistakes or errors made in the filing of tax returns. The clause that most closely relates to that is clause 191. 
I will start with the unacceptable tax position provisions. If we look at the commentary made by the Finance and Expenditure Committee we see that what the select committee has to say is quite revealing. The select committee heard a number of submissions on this issue. Before I go on to discuss what the select committee said let me make very clear what the provisions in this bill do in respect of unacceptable tax positions. The unacceptable tax position provisions have caused a real problem for taxpayers. Back in 2006 an attempt was made to remedy that problem to give the Commissioner of Inland Revenue discretion to not apply tax penalties when certain unacceptable tax positions were taken because it would simply be unfair to do so. But the problem was not fixed. The effort in 2006 to fix the problem did not fix it. 
What this bill is doing—and I move specifically to the provision—in clause 184 is clarifying the position in respect of unacceptable tax positions. It makes it clear that where the new international financial reporting standards lead to someone developing an unacceptable tax position that person will not be penalised for that which is quite proper. Most particularly clause 184(2) makes very clear that from now on unacceptable tax positions can apply only to income tax and the tax shortfall arising from the taxpayer’s position and it sets out the thresholds. What that subclause is doing is making it very clear that the unacceptable tax position provisions can no longer apply to GST or to withholding tax payments. What is interesting about this is that the Government has recognised that the attempts to fix up the unacceptable tax position provisions in 2006 did not work adequately. I believe that that is why the Government is now making it very clear that in fact GST filings and withholding tax filings are no longer covered by the unacceptable tax position provisions. 
If we go from there to the select committee’s report we see that the issue now becomes the date on which this new clarification applies. The select committee commentary states that the majority believe: “The amendments to the unacceptable tax position penalty in the bill have not been made retrospective because the discretion enacted in 2006 (and repealed in this bill) was backdated to 1 April 2003. The majority of us consider that this dealt with the cases where the imposition of that penalty may have been unfair.” What is inconsistent about that comment made by the majority of the select committee is that if the changes made in 2006 had fixed the problem we would not need the amendment now being made to clause 184. We would not need further clarification that GST and withholding tax payments are no longer covered by the unacceptable tax provision penalties. If in fact we need clause 184(2) to make clear that those unacceptable tax position provisions will not apply to GST and withholding tax why can we not in the interests of fairness backdate it? The majority of the select committee said that backdating should be unnecessary because the issue had been fixed in 2006 and there was discretion for the commissioner to deal with the issue back to 2003. If that were correct we would not need this subclause. The fact that we have got this subclause shows that the issue was not fixed in 2006 and therefore this subclause should be backdated to avoid any doubt that issues to do with GST and withholding tax payments are not covered. 
I have put an amendment before the Committee to amend clause 184(3). It backdates it to at least 2006. I accept that maybe the fiscal consequences of backdating it to 2003 could be significant but there should be some backdating to at least recognise that the 2006 effort to fix this issue failed. If it did not fail we would not be doing this provision now. That effort did not produce the outcome expected by this Parliament; therefore it should be reasonable to backdate this remedial legislation to at least the time that we tried to fix it and that was 2006. That is why I have laid an amendment on the Table to backdate this provision—to have it apply from 1 April 2006 instead of from 1 April 2008. It does not take it right back to 2003; it takes it back to when this Parliament tried to fix it up but failed to do so. That is why it is being fixed up now—because last time round the House did not achieve the outcomes. 
What the practitioners the professionals tell us is this: although the Inland Revenue Department policy people were supportive of the change although the policy people advised that the changes made in 2006 would pick it up Inland Revenue Department operations did not deliver what this Parliament had expected to be delivered by those 2006 amendments. That is why clause 184(2) is required and it should be backdated to 2006 to make sure that what this Parliament intended in 2006 is now delivered. 
That is the first issue in respect of Part 2 that the Opposition wants to cover. There will be other issues but that is the particular provision in respect of the unacceptable tax position. I want to make clear—and I am sure this speech will be called to an end very soon—that the other key issues relate to clause 188. That clause is in respect of voluntary disclosure of tax shortfalls. Again we previously tried to fix that up. Everyone in Parliament agrees that it is really important to encourage voluntary disclosure because in that way we collect more revenue. I want to come back to that clause because I think that with its current wording we are not going to get voluntary disclosure to the extent that we should. The Opposition wants to put forward further debate on that. 
The other part in Part 2 that I give notice we want to focus on is clause 191 which repeals section 141KB. Section 141KB deals with only section 141B of the principal Act. Section 141A deals with simple mistakes made by people filing tax returns. I want to come back to the issue which I think is very real that where people make simple mistakes they should not be penalised. There are issues around clause 191. There is a classic example which I should mention where a person filed a tax return used the wrong return to file it paid the right money and was penalised. 
Debate interrupted.