Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill — In CommitteeText is incorporated into the Bound VolumeTaxation (Annual Rates Employee Allowances and Remedial Matters) Bill — In Committee[Sitting date: 17 June 2014. Volume:699;Page:18573. Text is incorporated into the Bound Volume.]Taxation (Annual Rates Employee Allowances and Remedial Matters) BillIn CommitteePart 1 Annual rates of income taxDr DAVID CLARK (Labour—Dunedin North):Thank you for the opportunity to speak on Part 1 of the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill which as you have rightly pointed out confirms the annual rates. It is important to note upfront that these tax rates that will be confirmed correspond in greater part with the changes brought in by the National Government in 2010 in its tax package where 40 percent of the value of its so-called tax cuts back then went to the top 10 percent of earners. If we think back we will remember also that the bottom 20 percent of earners got just 2 percent of the value of those tax cuts. That is the time as well as those following the debate at home will remember when GST went up from 12.5 percent to 15 percent.If people can cast their minds still further back they will remember Mr Key saying that he would not change GST at all. He made a promise.Iain Lees-Galloway: I remember it well.Dr DAVID CLARK: My colleague Mr Lees-Galloway remembers it well. Then Mr Key came in and changed things. He said that it was a dynamic environment and he was going to make the change. What we saw there was that the Government was very keen—very keen—to lighten the tax responsibility of the wealthiest New Zealanders those who earn the most. We know that 75 percent of those with a net worth of over $100 million in New Zealand do not pay the top tax rate. We know that in New Zealand inequalities are growing and are at their highest levels ever in recorded history. So we know that we are living in an unjust situation and that we can trace that back to those tax changes that were brought in by the National Government opposite on those benches in 2010.That is why we are here today being asked to confirm a set of tax levels that see the wealthiest 10 percent growing ever richer while the rest of New Zealand struggles to keep up. We know that median wages have dropped over time in real terms that the cost of living keeps going up and that ordinary everyday middle New Zealand is struggling. We also know that those who are at the bottom end are struggling even more than before and that that is restricting the opportunities they have to participate. Kids going to school hungry do not learn as well as kids with a full stomach. We know that. It is not rocket science. But today in Part 1 of this bill we are being asked to confirm the tax rates that see that ever-widening gap with those at the very top having that greater concentrated wealth that we know is getting greater and greater and greater by the day. There have been studies that have come out in the last 2 days confirming that that wealth that those at the very top hold is increasing that the 1 percent right at the top hold an increasing level of wealth in our society. And then there are the rest of us: the other 90 percent who are really struggling to get by to make ends meet. We know we have the lowest rate of homeownership now in New Zealand in 40 years slipping below 50 percent.We know that that is another signal of this growing gap between rich and poor. The current tax rates that we are being asked to confirm are 10.5c on income up to $14000 17.5c on income from $14000 to $48000 30c on income from $48000 to $70000 and 33c for income of $70000 and over.The other thing that we are not being asked to do here interestingly is to introduce pro-growth tax reform. So this bill has as much in it as it does not have in it. We learn as much about this bill from what is excluded from the confirmation as from what is included. Once again that is about protecting the interests of the very wealthiest. We know that in fact almost every Western country has a capital gains tax. New Zealand is in a minority in not having a capital gains tax. The joke used to go that it just us Switzerland and Turkey and we know Switzerland is a tax haven and does New Zealand really want to be another Turkey? Why on earth do we not have a capital gains tax? We know it is fair. We know that the OECD Treasury the IMF—those big international agencies—and all respectable economists think that it is important to have a broad tax base as broad as possible to neutralise investment decisions and signals in the economy so that people make rational choices about where they invest their income. Instead in New Zealand where we do not have that capital gains tax we have the situation where people are choosing to invest heavily in the speculative sector.As they invest in the speculative property sector they are making houses less and less and less accessible to New Zealanders who are struggling each day to make ends meet. The flip side of that of course is that our businesses are also struggling because that capital is not available to them. I use the example of a plumber. Let us imagine a plumber who has worked hard scrimped and saved and has two rental properties. He has actually done quite well over the course of a lifetime. We will not go into the plumbers and drainlayers debate today but if we imagine this plumber who has worked hard who has scrimped and saved and who has two rental properties right now it is a no-brainer for that plumber to buy a third because there is a tax advantage potentially in buying that third house.What ought to be the case is that that plumber ought to be thinking about whether they should invest in their friend’s innovative business down the road that needs a new die cast for a new plumbing device that could be exported. It is a high-risk opportunity and it has a tax almost certainly attached to it and therefore it is a different proposition from buying another rental house. As I have said it is obvious right now that that plumber should go for the tax advantage that is presented in the additional rental property in terms of the economically rational thing for them to do. It should not be that way. It should be the case that that person has got a real decision on their hands. They may still choose to invest in the rental property but they should have a real decision about whether they support our export industries and whether they are supporting the future prosperity of New Zealand with it.Unfortunately the Government does not seem willing to go near pro-growth tax reform. It does not seem to want to have the research and development tax credits that we know would give us a lift in our economy. It does not want to adopt the capital gains tax that we know would make the investment signals neutral across the economy and would make it a fairer tax system. It instead is wedded to these tax changes it made in 2010 which see the wealthiest few get ever wealthier at the expense of the rest of New Zealand.So we on this side of the House are disappointed with Part 1 of this bill no doubt because it is a missed opportunity. We know that if we grew the economy and made the most of the opportunities here we could actually have more of the pie to share. We could afford to fund our schools and hospitals better. We know that this Government has an atrocious economic growth record—the worst economic growth record of any Government in the last 50 years. That record of this Government is its shame because its trading partners have enjoyed some very mild conditions through the global financial crisis. Australia never really went into recession. China was just off the double digits.Simon O’Connor: How do you believe this?Dr DAVID CLARK: Right the way through—right the way through. The member opposite might like to consult the facts which might give him a new world view. If he looks back to the global financial crisis he will see very healthy economies that we were trading with and New Zealand not making the most of that opportunity and in fact really struggling under the guidance of a Government that will not go near pro-growth tax reform and a Government that seems wedded to protecting the interests of the wealthiest few at the expense of the rest of New Zealand.So that is why the Labour Party on this side of the House has trouble with Part 1. We want a more positive New Zealand. We want a New Zealand where everyone has the chance to get ahead. We on this side of the House want to work for change that takes us forward over the generations that makes opportunity for every New Zealander that means that every New Zealander can aspire to owning their own home and aspire to a decent income and decent work and that means that they can look after their families and brighten their prospects under a Government that puts people first and looks positively to the future—the opportunities that we know are there and ought to be there for every single New Zealander.Instead opposite it is just business as usual and politics as usual. The Government keeps just reconfirming these same tax rates year after year and watching that gap between rich and poor get wider and wider and wider as the very wealthy get wealthier and wealthier and the other 90 percent struggle to get by. That is what we have when we are stuck with this Government. That is what we have stuck with in Part 1 of this bill. It is a real shame—a missed opportunity. It could be so much more positive.A Labour-led Government will lead positive change for New Zealand. We will make a difference. We will work together with New Zealanders to ensure that everyone has decent work that their families can get ahead and that they can really aspire to own those homes that are getting further and further out of reach with the property speculation and the absence of support for small business. This Labour Government will make these changes and we look forward to the upcoming election when voters will have their chance to say that they do not want this business as usual. They do not want this politics as usual. They do not want Part 1 of this bill which just confirms the status quo and just confirms that the gaps get bigger and bigger. They want positive change. They need a Labour Government.ANDREW LITTLE (Labour):It is a great pleasure to speak at this very important stage on the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill. I want to say how utterly disappointed I feel—betrayed I think—on behalf of the hundreds of thousands of New Zealanders who once upon a time looked to this Government to do constructive things not only for the business sector but for the people who make up our great population and who are the citizens of this great country.They looked to this Government to exercise responsible sensible constructive management of the economy. Every citizen in New Zealand—every voting citizen every working citizen every citizen who wants to work but cannot because of conditions running against them—wants to know that we have in place a Government that acts sensibly and properly when it comes to the revenue that the Government needs to create the wonderful country that we all aspire to. They look to this Government to make sure that the taxes that the citizens of this great country responsibly pay every time they work every time they line up at the shops or buy things that enables the Government to gather GST every time they do something that adds to the Crown’s coffers—they want to know that the rates that are struck are right and proper for the age in which we live because the demands of the citizenry have changed. The demands of the citizenry have changed.People now want a country with a State that exercises and plays a proper role one that does a number of things. They want a State that encourages investment in the regions that supports people into housing and that tides them over through those difficult times when they are out of work when they need income support when the mother or father of a child finds themselves on their own with those child responsibilities and needs to be supported and when they put their children through school—through primary school high school early childhood education and even on to university. They want a Government that sees its responsibility to ensure that it has enough revenue to meet those costs so that we have a country that can properly and proudly boast it is fair and equal for all.But the rates that we are confirming in Part 1 of this legislation do not allow us to say that. When we come to pass this bill—or certainly this part of it—and when we have struck the tax rates for this particular year we will not be able to say that this Government has struck tax rates that ensure that it will have the correct revenue to create a country that is fair and equitable and to fix the dream of every young citizen in this country to have the opportunity to excel to reach their potential and to do the best for themselves their family and their country. This was an opportunity for this Government to do something different—not to do business as usual not to do more of the same not to say “Nothing to see here citizens. Move on.” but to do something different to give hope and courage to people who are looking for something new and for something different.This Government is not there. This Government wants to rest on whatever laurels it might once have had. It no longer has a vision for a fair and equitable New Zealand. This Government is quite happy to stand by and see inequality grow and inequity continue and do nothing about it. The Government says that the rates that we are striking in this part of the legislation are enough to generate a surplus and that somehow this is a positive thing for the country. We of course all know that the surplus in this year’s Budget is not a real surplus at all. It is achieved through manipulating things like leaving ACC levies unnecessarily high and it has a range of other tricks up its sleeves as well.Darien Fenton: Loans to Auckland.ANDREW LITTLE: And of course it is describing what funding is for Auckland roads as a loan to Auckland so that it is on the balance sheet but it does not come out of the profit and loss or the income and expenditure. What a silly Government. What a silly Minister of Finance who dreams up that sort of thing and pretends he can say to the people of New Zealand the good citizens of New Zealand that we have a surplus. What the Government is too afraid to do is to confront the challenges we have got to face reality square on and to say we have to do something different and we need tax rates that allow us to do something different—tax rates that mean that as a Government we can do things that will rebuild this country and its sense of fairness opportunity and equality.The rates that we are being asked to agree to and to strike in Part 1 of this legislation will not allow that. Every member of the Government opposite knows that which is why they are looking down with a sense of deep shame and embarrassment. They know that they have let down the people of New Zealand. They know that they have let down the people of New Zealand. The tireless hard-working Government backbenchers opposite know that. They will tell us—and they may well even be believable—that they have tried to put pressure on their Cabinet colleagues in their caucus to do something different. But oh no—nothing has changed. Nothing has changed. The Government sails on into the death months—the last 3 months—of this Government on the ropes without a vision and no longer willing to offer hope to the great citizens of this country. That is where we are now. What an unhappy state we are in.It does not need to be this way. The people of New Zealand know that come 20 September when there is a change of Government they will elect a Government that is prepared to deliver a fresh vision—a vision at all—and a sense of hope with new tax rates that will mean that we can have a Government that can do good and positive things for Kiwis and that we can have good schools more teachers higher-quality schooling good hospitals and people who can get actually getting their operations when they need them. Elderly people who are hanging out for their hip operations and young people who are hanging out for their operations to enable them to have a life ahead of them will actually get those operations and there will be a health system that works for people.We will actually have roads—not just in Auckland and Christchurch but around the country. We will have a roading network that we can boast about and be proud of. We will have roads in Taranaki that actually have a shoulder so that if you need to veer away from somebody on the other side of the road you have got somewhere to go. We will have roads that are actually smooth and do not cause trucks to go out of control; roads that do not crumble and fall on vehicles as they have now done twice in the last 6 weeks on State Highway 3 in Taranaki.People will want to see a Government that is responsible enough to levy fair taxes—reasonable taxes—on people so that it can do the job of a proper and responsible Government. Well that change is coming as we all know. That change is coming and it is only a few months away. The people of New Zealand have to hold on for only a little bit longer. This legislation will no doubt pass. These tax rates will pass but people will be able to see that there will be an alternative way and an alternative approach. That approach will ensure that the people of New Zealand will have a Government collecting the right resources and devoting those resources fairly across all of New Zealand and all New Zealanders not just favouring those in the metropolitan areas in Auckland and in Christchurch—which desperately need it of course—but in all areas as well particularly in regional New Zealand which has been starved.You have only got to listen to the voice of regional New Zealand as in a Taranaki newspaper on the weekend. The civic leaders of Taranaki were calling out to say that we need a different approach. Every issue that they identified is an issue that members on this side of the Chamber have been talking about because we are in touch with the people and we know what is needed but they were not issues the Government opposite has talked about or even thought of because its members are out of touch and out of time. These rates will not help New Zealand. These rates will be more of the same business as usual but change is afoot and change is a-coming and well may that day come.DARIEN FENTON (Labour):I am happy to take a call on Part 1 of the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill. My initial interest in this bill was in the issues around employee and employment rights but I am also keen to take a call on Part 1 which basically sets the annual rates of income tax for the 2014-15 year. I agree with my colleagues. I think this is a missed opportunity. I think that Part 1 does not describe what we should really be doing in this bill.The first thing that comes to my attention is the fact that we are not in this bill and in Part 1 dealing with the 107 out of 161 high-wealth individuals who own or control more than $50 million worth of assets and declared that their personal income in the last financial year was less than $70000—the starting point for the top tax bracket of 33c in the dollar. What we are not dealing with in Part 1 and in the rest of this bill is the fact that these multimillionaires used a variety of 6800 tax planning devices such as companies trusts and overseas bank accounts to avoid paying tax. I can see the Minister in the chair Todd McClay pulling faces and he may not agree with me. Maybe he wants to take a call after me and give us the facts if they are not correct. Apparently according to our statistics one individual had a network of 197 entities. So I am a little bit confused about setting the tax rates for 2014-15 in a bill that deals with employee allowances and accommodation and a range of other things but does not deal with the fundamental problem that we seem to have in New Zealand which is around tax avoidance by the top 1 percent—or is it the top 10 percent—of people who are not paying the tax that needs to be paid and that should be paid to allow the rest of us in New Zealand to have a decent life to allow young families to enter into homeownership and to allow young families young workers and middle-income workers to save for their retirement. We are ripping off New Zealand at the moment.The problem that we have also got in Part 1 of this bill is the fact that we are not addressing the issue that we have had from this Government almost 6 years later where—I know you are agreeing with me Mr Chairman; you are totally agreeing with me I know—a huge number of people actually received the highest tax deductions under this Government. So a huge amount of money was taken out of the tax take by this Government giving tax breaks to the very well off.Let us not forget GST of course. This Government as I remember promised that there would be no increase in GST but what happened?Dr David Clark: John Key?DARIEN FENTON: John Key promised that there would be no increase in GST but the tax rates for 2014-15 include GST which has gone up to 15 percent. That has an impact on ordinary families. What is really interesting when we look at the record of this Government is that we have actually had the biggest reduction in taxes in the OECD. Some people might think that is something to be proud of. Sure we do not want ordinary working people to be paying more tax than they should but the record of this Government is that it taxes ordinary people and it gives its rich mates a break. That has resulted in the biggest reduction in the OECD of Government programmes since 1986.Let us talk about what those Government programmes are. We are talking about health care we are talking about education we are talking about people being able to buy their homes and we are talking about child poverty. What a disgrace that is. What a disgrace it is that we are now in a situation where we have a quarter of a million of our children living in poverty. How disgraceful is that and how did we get to that? I believe that we got to that by reducing the tax take and the distribution of that tax take under this Government and under previous Governments in the 1990s so that they could look after their friends—their friends at the big end of town—and make sure that they earn bigger profits and ordinary people pay the price.We have had a bit of a debate and discussion in Parliament today about the outcome of that and we have seen the Glenn report. It is a shameful record for a country like ours—a relatively wealthy country—where we are now in a situation where domestic violence is pervading our families. It affects everybody. It is not just those at the bottom. It is not a poor people’s issue; it is a middle-income issue as well. That has an ongoing influence and creates a problem for future generations. If our children today are being beaten up by their families and if they are living in poverty who is going to be paying the price for that? When they grow up they will pay the price for it and the next generation and the next generation after that. I was surprised to learn that one of the results of the reduction in our tax take is that we have the sixth-highest level of infant mortality in the OECD. How can that be? How can that be in a country like New Zealand which has a proud record of a great health service? How can we have got into that situation? It has not really made any difference when it comes to things like the current account deficit. We have the third worst current account deficit after Iceland and Turkey. What a proud record for this Government—what a proud record this tax bill is entrenching!There are many many things that this tax bill in Part 1 entrenches. It entrenches the policies of a failed approach to taxation over the last 6 years a failed understanding that taxation is actually about redistribution or it should be so that we look after the people in most need in our society and so that we make sure that we continue the tradition of good health and education so that people can earn a decent income and earn a decent living.Those things are not contained in this bill. Instead we are dealing in this bill with employee entitlements—which I am of course very interested in—and accommodation entitlements but we are fiddling around the edges. We are fiddling. As my colleagues have said—and as I am sure my colleague David Parker will spell out soon—Labour has a much different approach to taxation and redistribution. It is a much more progressive approach so that we get away from this record that we have now of having high infant mortality high child poverty the highest tax reduction in the OECD since 1986 and the biggest reduction in collective bargaining and unionisation which of course has had a huge impact on the redistribution—[Interruption] Of course the member over there laughs because you are not allowed to mention the “u” word in this Parliament without the National members showing their cynicism. Unions are about redistribution as well I say to the Hon Jo Goodhew.Hon Jo Goodhew: I’m sorry I wasn’t actually in control of peoples’ minds.DARIEN FENTON: Well you did. You sniggered. I saw you snigger. Of course we have come to expect that from the members opposite.You know you cannot mention anything about redistribution about poverty or about the really serious issues that are facing our country. You cannot mention them without this kind of high-handed sniggering that we get from the members opposite. We know that their whole agenda is about looking after their mates. It is about looking after the 10 percent who are doing really well. They still believe in trickle-down that failed policy from the 1980s. They are still living in the last century. They are still trying to push the neo-liberal agenda of the 1980s which has failed right across the world. Yet when it comes to taxes they expect ordinary people to pay more than their fair share and expect their mates not to pay their fair share as well.As Andrew Little said change is coming. We have a progressive agenda around monetary reform around tax reform around collective bargaining and workers getting their fair share around child poverty and around doing something about the really really difficult problems that we have in this country. If members opposite think that they can just turn their backs on these problems and pretend they are not happening I think they are going to be facing some very very serious issues in the future when their children cannot afford to pay their pension and when their children have children in poverty as well. Thank you.Hon DAVID PARKER (Deputy Leader—Labour):I rise to take a call on Part 1 of the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill which sets the annual rates of income tax payable by New Zealanders for the forthcoming year. Before we finalise our consideration of this part I would like the Minister of Revenue to take a call to explain what proportion of property transactions attract income tax under these provisions.The reason why I am interested in this is that at the Finance and Expenditure Committee on the financial review just a couple of weeks ago the Minister said that we have a capital gains tax in New Zealand. Well we actually do not but we do have some classes of property transaction that are taxed as income on the gain. So if you are a trader in property or if you buy with the disclosed intention to resell at a profit then that is on your income account and you pay income tax at the annual rates of tax that we are setting in this clause 3 in this Part 1 of this bill. At the select committee I challenged the Minister to tell me what proportion of property transactions are taxed in that way and having pontificated as he and his fellow members do that we already have some notional capital gains tax—according to them—he said that he did not know. So I then asked the Minister “Well do you know whether it is closer to zero percent of those property transactions than it is to 100 percent?” and he could not answer that either. We on this side know that it is closer to zero percent than it is to 100 percent but the Minister to give him credit said to the select committee at the financial review that he would answer what percentage of the investment properties that are bought and sold in New Zealand are taxed for their capital gain.I have not read that answer to the Finance and Expenditure Committee yet but I expect that this very assiduous Minister would want to know having recognised the failing of his knowledge at the select committee when he came to talk about tax policy and about why the Government should vote him money to run the Inland Revenue Department and given that we have got this rampant house price inflation and no capital gains tax. The capital gains tax has been a source of some controversy across the House with the National Government opposing it and the Opposition saying that we are in favour of it—a source of some controversy added to by the OECD saying that we need it and a source of controversy added to by the IMF another of the international advisers saying that we need it in New Zealand. So I would have thought that the Minister would at least want to know what percentage of existing property sales are actually caught by our income tax provisions already and therefore would not be caught by a capital gains tax. It would bolster his argument as to why we have not had it.I suspect that we are not going to get the Minister rising in this Chamber to take advantage of this heaven-sent opportunity to clarify for the country what percentage of investment properties are purchased and then onsold—people get tax deductibility for all the interest payments. They often offset their taxable losses against their other income. In fact in a recent year that investment class got a tax refund from other taxpayers because overall they ran at a loss but they still got taxed on their capital gains. So I am looking forward to the Minister leaping to his feet and telling us what percentage of sales of investment properties are taxed for their capital gains because I know that the percentage is far closer to zero than it is to 100 even if the Minister does not.Dr DAVID CLARK (Labour—Dunedin North):I may have beaten the Minister of Revenue to his feet and I apologise if that is the case. I want to build on what my colleague David Parker has said because it is also interesting that the National Business Review was recently asking the very same set of questions. We know that members on that side of the Chamber are fond of the argument that a capital gains tax already exists in a certain form and that capital gains are being collected and that there is no real need to change the law even though the Minister is not able to say whether that percentage is closer to 100 or closer to zero.But what was also interesting was that when the National Business Review put in an Official Information Act request to the Inland Revenue Department it found that the department was not able to say the extent to which it follows up on these transactions the extent to which it looks for stagging the extent to which it investigates nor the extent to which in dollar amounts it collects revenue from following up on these stringent rules that the Minister is so fond of and is so fond of putting forward as an example of why a capital gains tax should not be introduced.It is curious that we have a Minister who trumpets the benefits of a broad-based tax system but is not yet convinced of the merits of a capital gains tax despite the world’s leading economists recommending it and despite the IMF the OECD Treasury and every other tax advice expert recommending broadening the base. The Minister in a speech that he delivered recently to a learned audience trumpeted the benefit of the broad base but seemingly he was not able to make the connection to broadening that base further to ensure that we have a level playing field for everybody who is interested in investment.So when the Minister steps to his feet I would like it if he could add to the bit of information that David Parker asked for but I would be grateful if he could also address the questions around prosecutions by the Inland Revenue Department for tax avoidance on that capital gains legislation or default legislation to which he referred in the Finance and Expenditure Committee. And I am sure that many of those following the debate at home would be delighted to learn that the wealthiest property investors were also being asked to pay their fair share of tax because the statistics that we have that are recent show that indeed a very very low proportion of those with high net worth in New Zealand pay tax—that is they do not declare wealth that sees them on the top tax rate. They do not declare income that sees them on the top tax rate despite having a significant amount of wealth. Above $75 million the majority do not declare themselves to be on the top tax rate.So when the Minister steps to his feet we will all appreciate his explanation on that front. The tension is building. I shall not talk too much longer because we are all waiting to hear what the Minister has to say. He has been remarkably quiet in Part 1 of the debate despite belonging to a Government that trumpeted the tax rates that we are now confirming. Once upon a time it trumpeted those tax changes that are now widening the gap between rich and poor. Suddenly Government members have gone quiet. They seem content to see the wealthiest few get ever richer while the other 90 percent struggle to achieve the Kiwi dream of owning a home struggle to achieve a decent paying job—we know that median wage rates are going down—and struggle to get ahead for their families.While all of that is going on we have a Minister who seems to be sitting silent not arguing for the changes that need to happen to make the New Zealand economy grow that get the settings right and that develop the big change that is needed for New Zealand to prosper so that everyone can get ahead and everyone can have a positive start in life. I will sit down now and await what the Minister has to say on this and I think that will be very telling for us all and I expect we will all learn a lot about what the Government really believes in.Part 1 agreed to.Part 2 Amendments to Income Tax Act 2007The CHAIRPERSON (Eric Roy): This is a debate on clauses 4 to 126 and the schedule.Dr DAVID CLARK (Labour—Dunedin North):I am surprised the Minister of Revenue did not beat me to his feet again. The Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill which we have in front of us does introduce a number of changes. He was very keen to rush it through the select committee announcing it just before Christmas with a report-back date in early February that saw many of the larger tax agencies huffing and puffing because they were not happy that the changes made in this bill were being rushed through this House. This Minister is keen to see these changes go ahead. He is keen to see his tax legislation put through.It is a wonder that he did not have with him also a Supplementary Order Paper to introduce the changes that he announced by press release last Friday which would see double taxation on some bodies corporate in terms of their GST payments which will cost some of them millions of dollars and interestingly is very similar to the case that was taken against Muldoon when he cancelled the superannuation scheme in the 1970s. Muldoon announced of course by press release that he was going to roll back the scheme and that members did not need to contribute to it any more. And we know that that saving scheme would today be worth $200 billion to $300 billion had it been kept and that New Zealand’s retirement savings would be a lot sounder and a lot deeper and a lot more beneficial if that had happened.Simon O’Connor: Forty years ago.Dr DAVID CLARK: This Minister is doing the same things that Muldoon did and it is a shame that he cannot learn those mistakes of history from 40 years ago as my colleague opposite says. It is a shame that he is repeating those same mistakes of 40 years ago and making tax policy changes by press release. Certainly tax practitioners have spotted it. They are uncomfortable with it. It is not good practice to try to change the law without actually having the checks and balances.That is also reflected in this particular law that we are passing through the Committee now because we see already that the Minister is bringing some Supplementary Order Papers to correct mistakes that were in the bill already that the Finance and Expenditure Committee did not have time to process. We had through the select committee process various people—learned tax people—saying to us: “Look if we had a bit more time we might have ironed this out or we might have debated the principles a bit more. Why on earth are we introducing these strange rules around trusts around employee allowances and so on that do not seem to add up and have not had the full input that they should have in a tax bill that is properly consulted on?”. What happens then is that Parliament ends up spending a whole lot of time correcting mistakes.Another recent example of that of course is with the child support legislation that this Minister had to reverse out of. After the Government had put through a law that said that child support payments will be calculated on a different basis we had the Government taking more of Parliament’s time to reverse those changes out because it was decided that it was too hard to put them into effect. That of course cost millions of dollars of taxpayer money to do that to bring in a law and to take it out again. That is irresponsible frankly and it shows that the Government does not really have a vision for where the tax system could go and should go it does not have an oversight of the development and implementation of policy that it ought to have and we know a lot of that goes back of course to the Inland Revenue Department computer system.I am worried about some of the changes here in Part 2 and whether in fact they will be able to be implemented because we know that the technology that the Inland Revenue Department relies upon was put in place in 1993. The technology that the Inland Revenue Department relies upon is a lot older than Google. It is a lot older than Facebook. In fact the technology of the department’s computer system is a decade older than Facebook and very few companies businesses or Governments rely on computer technology that is over 20 years old to collect taxation. That means that it is very hard for customers to interact for ordinary taxpayers to interact with the tax department. And voluntary business compliance is dropping. It is interesting to note that on the Inland Revenue Department website the statistics for voluntary business compliance run out in 2012 when other statistics are carried through to 2013 and one wonders why that might be. It is a trend that is not happy. It does not reflect well upon the Government.I have recently heard more reports of people not getting through on the phone lines finding it incredibly frustrating to get through to the Inland Revenue Department and a lot of this hinges on a department that has not been well supported by this Government. The Minister knew that the Inland Revenue Department computer system needed upgrading when he came into office. And this computer system is what will be relied upon when this legislation is introduced. When it is put through the House it will be relied upon to make it happen for people in the world outside. But 5 years on nearly 6 years on under this Government we know that over $50 million has been spent on international consultants to try to work out what needs to be done there and they have reached the point that they are now saying at the Inland Revenue Department that what the National Government was told when it came into office 6 years ago is in fact what needs to happen now. It has got nowhere—nowhere effectively—in 6 years.Back in 2012 John Key said: “You don’t want to be held up by a lack of technology. You don’t want your tax system held to ransom by a lack of technology.” Mr Key promised that he would be getting on to it straight away. Well over 2 years have passed since he made that statement and still no progress. We have a new Minister who is getting up to speed with the system with the portfolio. We hope for good things although in Part 1 he is hiding his lamp under a bushel in presenting advice to this Parliament about why these changes are good. We will look forward to him in Part 2 perhaps explaining how they will be implemented with this dated technology in place and we look forward to what assurances he can give us that they can actually be implemented so that we are not back here in Parliament again removing the legislation because it embarrassingly cannot be implemented because the Minister has not given the Inland Revenue Department the support it needs to get on with the project of redeveloping that computer system that we know we all need.New Zealand of course is not the only country in the Western World that needs a tax system. We are not unique in that regard. Western countries replace their tax systems. This Government for some reasons has sat on its hands for 6 years knowing when it came into office that it was already dated technology and it has seemingly done nothing except hand over money to contractors from offshore to big multinationals to develop plans to rehash those plans and to really take us not very far at all. This Government needs to get on with that because it is a problem that future Governments will hold. If the tax system cannot do its duty we will not be able to afford the schools the hospitals the roads and the infrastructure that we all rely upon in this country to have a prosperous future. We have had those things in the past. We have had a functional tax system in the past. This Government has been neglecting it. I worry that the items listed in Part 2 of this bill will not be able to be implemented because of this Minister’s lack of attention to the Inland Revenue Department’s tax system.And he is not unique there. His predecessors must carry most of the blame. But I would like to hear from this Minister a credible time frame and some kind of indication about when our tax system is going to be working properly when tax simplification is going to happen and when a capital gains tax could be practically implemented. So far from this Minister there has been nothing except platitudes and a commitment to the status quo. Even his Prime Minister has said that change could not be made in the system. Even his Prime Minister has said that over 2 years ago. So I am looking forward to his contribution.Of course we also know that alongside that ancient computer system is an increasing record of privacy leaks. There was the big privacy leak issue in 2012 where 32 serious breaches happened at the Inland Revenue Department and we know that a year on there was a 500 percent increase. So that is also about this computer system which is the computer system that will be implementing this legislation which will have privacy implications. Mr Chair you are rightly bringing me back to the bill itself. These privacy implications in the bill because we are dealing with employment matters with wages and with other items that are significant tax rates the amounts of tax paid Inland Revenue Department numbers—all of those things are intimately entwined in the legislation we are passing and affect each and every New Zealander. The Inland Revenue Department holds our most sensitive information and so when it is enacting these parts of the bill we see that the department will be handing over its information. The department will be required to make disclosures—the department holds that information—about the nature of a charity for example about its records. Everything that is in this bill—housing trusts and their nature and so on—is all held by the Inland Revenue Department and can be released improperly if the computer system is not up to date.We also heard in the select committee a number of presentations where concerns were raised about the trust rates for housing—the discretionary ability of the Minister to choose which tax rates should apply to which trusts and which would be deemed to be worthy housing trusts with a social benefit which are charitable and which would be deemed not to be. This discretionary power is very very unusual in terms of the Minister’s responsibilities. I am interested to hear what the Minister will say about that what his view about it is and why that discretion should be allowed for a Minister. It seems pretty odd that the Minister should be having such arbitrary powers and certainly that was raised by tax experts along the way.This Minister as we know is new to the role so he will have some fresh thinking. We are looking forward to hearing what that is. We have already challenged him to tell us about the default capital gains tax that he has said stands in place of the capital gains tax that Labour would introduce. He has not engaged on that in Part 1 but by the way he is scrawling notes now I am hopeful that we will get a more fulsome response in Part 2 and some pearls of wisdom from a new Minister keen to make his mark keen to show that this Government will make a difference will upgrade the computer system and give some kind of clarity around time frames around the nature of the upgrade and around the costs involved. Even that has not been clarified yet—whether it is going to be $700 million as Bill English once said or a billion dollars as I think Mr Dunne said or up to $1.5 billion as somebody else maybe Mr Key once said. These are things that we need some certainty about as taxpayers to know that our tax system is being looked after that our private details will be secure that the tax system will be functional into the future flexible able to respond to a changing international tax environment where multinational tax avoidance is becoming a bigger and bigger issue and functionally able to do the very basics that it has historically done.When the Minister speaks about community housing entities I do wish to hear him explain why there should be such a wide range of discretionary powers to approve or disprove charitable exemptions. That really does give the Minister the effective right to confer lower taxes on some but not all taxpayers and that seems to be bad law. Frankly that is bad law. This is to be done under guidelines that are not even proposed in the legislation. Mixed housing areas look set to be excluded. This cuts across the efforts to attract teachers doctors and other professionals into areas with prohibitive housing prices. These changes made in the legislation will have social impacts and the Minister is responsible for making decisions about who pays what rate of tax. That is not defined in the legislation. It is very unusual—it is very unusual—and the tax experts said that with some more time these things could have been ironed out. But the Minister has been rushing this through the House. Perhaps there is a lack of back-planning and perhaps there is a bit of a shambles in the handover as his predecessor lost his ministerial role over an issue around privacy ironically when we also have these privacy breaches at the Inland Revenue Department.But the Minister will tell us I trust about how these anomalies are in there like a trust supplying housing to teachers in a remote housing area appearing to be granted an exemption while a school that houses teachers will not. If one set up a trust for tax accountants it may well have a tax-exempt status and yet it would be hard to argue that there was a social good or a charitable purpose although the tax accountants might argue that.Andrew Little: Make it a religion.Dr DAVID CLARK: A religion. Yes well tax is a religion for some so I guess there are possibilities there. But seriously I do look forward to the Minister explaining why he should have these discretionary powers why he should be able to confer lower tax rates upon some citizens and not others and where this will all end. This is a piece of legislation that could have been better. It is a piece of legislation that will no doubt come back to the House to be amended over time because of the rushed nature and because of the inability of the department at times to implement things because that computer system is out of date because of this Government’s lack of attention to detail.On this side of the Chamber we want a more positive future. We want every New Zealander to have the knowledge that this tax system is functional. We want it to be collecting the taxes fairly where they are due as they fall including from multinational companies. We want a New Zealand that has the resources to support good schools hospitals and all of those other basics that New Zealand needs.DARIEN FENTON (Labour):I am happy to take a call on Part 2 of the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill. As I indicated in my speech on Part 1 I am particularly interested in the issues around the changes to the tax treatment of accommodation and Canterbury migrants’ meals and rest breaks and clothing. I am particularly interested in those because although we support them and I think the Finance and Expenditure Committee had a good look at these issues it does bemuse me somewhat that we are able to do something in a tax bill that we are not able to do in other bills. For example in the accommodation area there are pages and pages describing what “accommodation” means. It seems to me to be fairly interesting that we are going to the extent of having to describe the accommodation the purpose of the accommodation what a workplace is and so on.But the particular thing that I am interested in and the Minister of Revenue might be able to help me is why accommodation is tax deductible under this bill for people who have temporary accommodation because of work but why it is not—I might be wrong; you might be able to correct me on this Minister—tax deductible for workers who come here and work under the Recognised Seasonal Employer scheme. In fact what happens with workers who come here and work under that scheme is that they are paid the minimum wage minus accommodation. That is something that this Government changed I think under Minister Coleman when he was the immigration Minister. Under Labour it used to be that it was the minimum wage plus accommodation so it could not be deducted in the way it is. I am interested in why the Minister thinks that is acceptable and why there should be a difference for those workers when you are talking in this legislation about people who work in agriculture in particular.I think the other things that are interesting about these provisions are around meals. I would be interested to know a little bit more from the Minister about why he thinks it is acceptable that we have meal provisions or tax deductions for meals for workers who are working outside of their normal hours. I am pleased to see that you did away with the requirement for them to work 7 hours—for that to be acceptable. But I am interested in why he thinks meals are tax deductible or should be tax deductible for these workers yet we have another bill on the Order Paper which luckily thanks to John Banks—I never thought I would utter those words—will not see the light of day before the end of this Parliament and that actually does away with meal breaks for the majority of workers throughout the country. It makes it very difficult for them.So on the one hand we have one set of treatment in terms of taxation for people who work away from home and are required to have meals and then we have a totally different approach to workers who work in their normal workplace. The Government will be campaigning and John Key said he is going to campaign on it actually on whether those workers are actually entitled to meal breaks and rest breaks at all. So I am quite interested in that. I would be interested in some responses about why there is a different treatment for one group of workers and not another. Do not get me wrong—overall we support these changes.The other thing is about clothing. There is some interesting stuff starting to occur with the legislation that the Government is proposing around health and safety changes and clarification about what health and safety clothing requirements are. I had someone contact me the other day who said that he works in a car cleaning service and a lot of the time he spends his time outside in the snow often in Queenstown and outside in the rain or during the day and his employer is arguing with him saying that he should not have any sort of clothing provided to him and he does not give him a clothing allowance. Arguably many of us would say that that is a breach of the Health and Safety in Employment Act. But again what I am saying here is that under this bill there is one set of rules for one set of workers and under another piece of legislation that seems to be completely inconsistent with this there is another set of rules. So I am interested in the Government’s approach to this.I am also interested in how it has described workplaces in Supplementary Order Paper 455 which is being proposed by the Minister and would exempt offshore crew. I would appreciate an explanation about that why that was necessary and why that was not included in the original legislation. I genuinely want to understand how this will work and how it will work for people who are required to work away from home on vessels perhaps on trains and aeroplanes flying around the country but also on how it would work if it has any impact on people who are just doing their ordinary day’s work trying to earn a living many on minimum wage and who get no tax exemptions for any of these things at all. As I say I genuinely want to understand why there seems to be an inconsistency in the approach of this Government between one set of workers and another. I would really appreciate the Minister’s explanation.Maybe it is because the workers you are talking about here tend to be people who are able to stay away. I am looking at section CW 16D which is about “Accommodation expenditure conferences and overnight stays”. Are you sure those things should be tax deductible? The fact of the matter is that there are not many people on the minimum wage who actually get to have any tax benefits when it comes to issues around overnight stays and conferences. In fact most of them will be working all sorts of hours having to get on the bus and go home after working 12-hour working days and they get no tax deductions.Or take another case of the home-care workers whom I have talked about before in this House who go from home to home looking after older people or people with disabilities and in between their jobs they hop in their cars and they drive from one place to another. They pay their own petrol. They do not get paid wages for that and they get no tax exemptions for that. So there is nothing for those workers. Yes the Minister is looking confused but it is actually true. It is actually true.Andrew Little: The Minister doesn’t understand workers.DARIEN FENTON: Well that is true—that is true. That horrifies me because these are the women whom we are relying on to look after people in their homes so that older people or people with disabilities can stay in their homes. They get paid for the hours they are actually in the home. It might be 1 or 2 hours. In fact those workers cannot even have a tea break. They are not allowed to have a meal break because it would be considered an abuse of their powers to sit down and have a cup of tea with the client so they do not get tea breaks at all. As I said there are some inconsistencies.Overall I always support things that move in the direction of making sure that workers are better off. I do think that Part 2 of this bill does that. But I am interested as I said as I keep saying in the inconsistencies. Another group of workers are farm workers. Mr Chair I am sure you are familiar with them. We have a lot of issues—[Interruption] You are not? OK. You are from Invercargill but you are not familiar with all those Filipino farm workers down in South Canterbury who had been imported to New Zealand to do their job. There is a real issue around farm workers as well and accommodation comes into that. Accommodation is often seen as part of the wages. There are some appalling stories starting to emerge from that and it does shock me that we are relying in primary production on migrant workers being paid low wages and actually being ripped off.So I think there is a lot for us to consider in Part 2 of this bill. As I said it is great that we are making some progress on it and Labour is supporting it even though we have questions about it but I do think the Government needs to think about a whole lot of other things.Hon TODD McCLAY (Minister of Revenue):It is a pleasure to take a call at this stage in the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill. I am certainly happy to provide some clarification and answer a few of the questions that Darien Fenton raised. Can I start though by saying that in particular Part 2 of the bill is where most of the change in the tax system held in this bill will take place. I am pleased to hear that the Opposition is supporting it because this is about fairness both to those taxpayers who will be provided greater clarity and in some cases will not need to pay tax where they are currently but also to other New Zealand taxpayers who now will be sure that everybody is paying their fair share of tax. I thank David Clark for his contribution. His heart did not seem quite in it though because I know he is very supportive of this part of the bill but I guess that when one is in the Opposition one needs to oppose more than one supports. At least the votes will be on the right side of the ledger when it comes time to vote on this bill.There are just a couple of points here for Darien Fenton and for others around accommodation. Largely the tax system says that when one earns income one must pay income tax on it. If you receive something in kind instead of a cash payment in lieu of the income you would have earned then that is also taxable. So somebody who earns a set amount every week but has an employer who says: “Well you can have accommodation and I’ll pay you a little bit less and you’ll be better off because you won’t be declaring the accommodation because I’m giving it to you rather than cash and charging you for it so you won’t pay tax on it.”—well that may be of benefit to that worker but not to all other workers who are not in that situation. They just receive their wages and have to pay tax on it. When they go home and pay their mortgage or rent they are paying from the position of using money that is already taxed. So what we do is say that when you look at all of the income you earn be it cash that is received weekly or fortnightly or other things that are given in kind instead of receiving that cash payment it is treated as if it was cash and must be taxed. As Ms Fenton has said that is fair to taxpayers who may not receive some of these benefits—although I am not sure they will always be benefits—that some other workers or taxpayers will.The challenge we have though is what happens if you are living in a house you are receiving a wage you are paying tax on it you are paying your rent from income that has been taxed and your employer says: “We need you to go away for 6 months and work away from your home.” Well you would have two places of work and therefore you would have to pay tax twice or your employer says: “I’m sending you away for 6 months; I will meet the cost there.” Well we do not want to double tax that person because they still have their home that they are paying for. They will often have their family there. So what we are doing with this bill is providing clarification that if they are away for up to 2 years if the employer is providing them with an accommodation benefit and it is to meet the actual cost of accommodation—no more than that—then that will not be taxed. We do not want to tax them twice; that would be unfair to them.The reason we have said 2 years is because that is a reasonable period of time. There is enough flexibility so that the employers and employees will not be overburdened with having to deal with the tax system. We also believe that after 2 years if you are still away working coming back on the odd weekend actually at that point your relationship with the place where you work has probably changed and therefore to be fair to other taxpayers there could or should be a tax implication there. But we have also recognised that there will be situations where maybe somebody does need to be away for more than 2 years and if it is a special project it can be up to 3 years. This will change during that period of time if you move your family and that becomes your new place of residence or if you actually say: “I am living here now not at the last place.” Then your situation will change and you would be taxed on that and that is an obligation the employer has.We have also recognised the great challenges in Canterbury. This is a unique and different situation—very difficult—and we have put in place rules that say that for up to 5 years workers who are involved in the rebuild in Canterbury can be tax exempt for their accommodation. It steps down over a period of time.Darien Fenton: Does that include migrants?Hon TODD McCLAY: That is anybody who will be in Canterbury for the rebuild purposes—not if you are there selling a car but if you are part of the rebuild; anybody employed there will be availed of this.Where it is slightly different though is the Recognised Seasonal Employer Scheme which was raised. Somebody who comes to New Zealand on a Recognised Seasonal Employer Scheme will have a place to reside and work from and that is their place of residence while they are in New Zealand. As with any other taxpayer in New Zealand if they are receiving accommodation instead of income it must be taxed. In this case if they then have to move down the road to work and there is overnight accommodation they are put in a motel they say they have to go for a conference—I know they would not but it is the same principle—we would not expect them to be taxed twice in that case if the employer is providing them with a benefit. They are not earning extra income; they are just having some of their costs met.When it comes to valuation it is very fair. We have said it is fair rental value. We do not want the Inland Revenue Department to overestimate or the taxpayer or their employer to underestimate; we want to strike a balance that is fair to all taxpayers and I believe that has been done. Two other changes particularly are specific valuation rules for ministers of religion. They have relied upon an accommodation or an agreement with the Inland Revenue Department for many years. We have decided to take any uncertainty away and to put that into law—to codify it for them—and we have also provided clarification for the New Zealand Defence Force.When it comes to meal payments if you are provided with meals or you are provided with an allowance for meals for up to 3 months because of work-related travel or something else that is different that is tax exempt but thereafter it would not be. The reason for this is that if you are at a conference and you have to have a meal we would not expect you to pop home and make your lunch. But after 3 months I think that is fairly reasonable. When it comes to clothing the Inland Revenue Department and the Income Tax Act are interested in the tax situation. So whether or not an allowance is provided is secondary. If it is we now have clearer rules that will decide where taxation is appropriate and where it is not. Primarily if you are provided with an allowance or a uniform for that allowance then actually that is part of the nature of your work and you are not taxed on that. It is a tax-free allowance.There are some exceptions to this though and certainly in the case where somebody is provided with an allowance for plain clothes where they might also have a uniform or they have the uniform they are tax exempt for that but they are provided with a plain clothing allowance. Previously there has been uncertainty about whether if you have a uniform and receive funds for other clothing it should be taxed but there will be situations including with the New Zealand Police where I think that is not appropriate so we are providing clarification there so that only those who should be paying tax will be.The final point I want to raise is around deregistration of charities. There has been a lot of confusion. This too is about providing certainty to charities so they know their obligations should they be deregistered choose to be deregistered or are deregistered because they are no longer of charitable purpose. This really goes to what those obligations are. Primarily the most important thing for other taxpayers is if there are a number of assets that have been acquired by that charity that had a tax-free status and is no longer a charity what happens to those assets? Well simply they either have to be passed to another charity or tax must be paid on them and so this just clarifies that.This is an important part of the bill. It is extremely taxpayer-friendly and in many cases reduces red tape in compliance but in providing certainty it also provides fairness to those who avail themselves of some of these tax concessions. Equally it will also be fair to taxpayers who do not so they can be sure that those who are receiving those allowances are only doing so specifically because it is different in their everyday life and where it is not we expect them to pay tax and they will be paying tax. Thank you.ANDREW LITTLE (Labour):I want to comment on just two aspects of Part 2 of the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill. One is relating to out-of-town accommodation for limited duration projects or for out-of-town secondment which the Minister of Revenue referred to. The other part I want to talk about is the confusion that will arise in relation to the tax-free status of some meals paid for by the employer and the conditions surrounding that.I will turn briefly to the first point I want to talk about which is the issue about out-of-town accommodation which an employer can provide for employees if they are on a project of limited duration or on a secondment. The Minister pointed out as the bill says that whereas provision of accommodation of this nature would be taxable as income to the employee providing it meets the conditions of a limited duration project out of town or a secondment out of town it would not be taxable according to this bill in one case for 2 years for the secondment or 3 years for the project of short duration that is out of town and there is an exemption or at least the possibility of an extension in exceptional circumstances.The problem with that is there is nothing in this bill that says that an employee in that situation cannot for example take their spouse with them on that secondment or for that period out of town. They can get their accommodation tax-free rent their own home that they own in the town of their origin and effectively enjoy the fruits and the benefits of all of that. So there is a loophole here that is apparent from a reading of the bill. I am surprised that the Minister with his vast army of officials did not pick that up when he talked longingly about greater fairness for all. There is an obvious loophole there that those whose spouses cannot relocate with them for 2 years or 3 years depending on the nature of the out-of-town employment must continue to maintain a home and they do not get the benefit of that additional income as well as the tax-free status for the additional accommodation. I simply point that point out.The next point I want to raise is in relation to the payments for work-related meals. The conditions for these to be exempt from income tax are that the employment duties of the employee require them to work away from the employer’s workplace and then there are some other aspects of the provision as described for food and drink. It includes “food and drink that the employee consumes at a conference or training course:”. Well there are many organisations of a region-wide nature or nationwide nature that organise training conferences in-house on their own premises and those training conferences are attended by some people who work in that office. I know that having worked for a national union. We would run training courses at our premises—it might be Auckland it might be Wellington it might be Christchurch—and at those training courses we would provide a meal a lunchtime meal and if they had to stay overnight a meal in the evening. But those training courses would be attended by people in Auckland Wellington or Christchurch respectively as well as those who are outside of those cities or regions.This part of the bill would require the union to provide some tax administration to those who are domiciled in the city in which the training course is being held but to provide a tax-exempt meal to those who are coming from out of town to the same training course. I think that that will cause confusion and I think that the Inland Revenue Department is going to have to develop some sort of policy of turning a blind eye. Unfortunately the last person of public office to be wilfully blind to an important piece of law was John Banks and look where that ended up. Look where that got him. Many employers will be looking around thinking “Gee well we don’t want to be accused of wilful blindness. We too will be found guilty. We may not have our convictions entered at the time but we will be found guilty of having transgressed our revenue laws.” That will be causing alarm amongst the halls of employers big and small.The question was put that the amendments set out on Supplementary Order Paper 455 in the name of the Hon Todd McClay and the following amendment in his name to Part 2 be agreed to:in clause 74(11) replace “Subsections (1)” with “Subsections (1A)”.Amendments agreed to.Part 2 as amended agreed to.Part 3 Amendments to other enactmentsDr DAVID CLARK (Labour—Dunedin North):Part 3 of the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill includes the changes that relate to the United States Foreign Account Tax Compliance Act measures. These changes that we are agreeing to here today facilitate the collection of data from New Zealand citizens at their own expense in order to pass on a portion of that information to the United States Government via the Inland Revenue Department. What we are being asked to do here today in this Parliament is to enable banks to collect information on every single person who is in New Zealand at their expense in order to weed out what information is deemed to be interesting enough to pass on to the Inland Revenue Department which will then pass that on to the Inland Revenue Service in the United States.We had many impassioned people come and speak to us at the Finance and Expenditure Committee about the potential privacy breaches that this meant. People would be caught up in this who were otherwise law-abiding citizens but who would now face potential prosecution from the United States—for example people who may have been born in the United States but never lived there as a conscious being. They left in early childhood and then found themselves in New Zealand and they are now deemed to be a New Zealand citizen from whom information might be collected for the United States Government.It will also perhaps affect people who have worked in the US briefly and who have then for one reason or another not completed a little bit of tax paperwork down through the years and may have incurred astronomical penalties as a result. Those kinds of people who are otherwise law-abiding citizens and who are now New Zealand citizens may face prosecution from the United States as a result of the agreement we are putting forward today. That collects information from every New Zealand citizen—every single New Zealand citizen—in order to pass on that information to the United States.Of course the banks need to comply and we on this side of the Chamber accept that the 30 percent wholesale surcharge that the US is threatening would be quite an unreasonable imposition on our banks if they were non-compliant. We feel that the Government could have moved much earlier to push for a more reciprocal agreement an agreement that sought to make sure that all information on New Zealand citizens avoiding tax in the US was passed back to the New Zealand Government and that the US tax database obviously much broader than ours was something that it would be willing to share fully with us to our advantage as a country.But what we have found throughout this process is that the Government has taken a very casual attitude. When I questioned the Minister of Revenue at the select committee about the legislation we were passing and why the principles of reciprocity could not be built into the legislation if that was what the Government believed ought to happen there was some evasive conversation. When we asked about whether the Minister had actually seen the intergovernmental agreement that was due to be implemented in 1 month’s time from then the Minister said he had every confidence that it was a good agreement but that he had not seen it. Goodness me—we wonder why the Minister is there collecting his ministerial salary if it is not to look out for New Zealand’s interests to look at these international agreements. He looks to the sky. He is not interested. He says: “That’s not my job. I’m here to collect this salary to lean back in my chair and to not make speeches in Parliament.” That seems to be the Minister’s attitude as he watches this bit of legislation go through.But in terms of looking out for the interests of New Zealand looking out for New Zealand companies which are facing an unlevel playing field we know there is a great deal of tax avoidance overseas and New Zealand companies tend to be good corporate citizens that pay their taxes here. We know there is an unlevel playing field out there. The Minister does not seem to want to tackle tax avoidance on any scale be it by the large corporates or be it by ordinary citizens other than at the bidding of the US Government. That seems to be the only time he leaps to his feet clicks his heels and says: “Yes yes I am available for service.” But when it comes to speaking in the Committee to laying out a vision for the tax system he is strangely quiet. When it comes to pointing out that reciprocity might be put into the agreement or even looking at the material in the legislation we are passing he is too busy for that—only to say yes to the US only to pass the legislation as promptly as he can.We on this side of the Chamber think that this process could have been handled a lot better. We think that the officials when they first came before the committee had not had impressed upon them by the Government the importance of negotiating this of making sure that tax agreements were beneficial to New Zealand and that really forceful negotiations were carried out. This we know because the tax officials whom we dealt with in the committee have been all I think without exception very very good but they are dictated to by the priorities of the Government of the day. And when the Government says “This is low priority. There’ll be a standard agreement. We’ll just sign up to it.” that message is passed on to the officials. They seem reluctant to engage with it as well they might because they are in a department that is under pressure a department with falling compliance levels. Voluntary compliance for business tax is falling. It is a department where phone calls go unanswered and a department that has billions of dollars’ worth of uncollected tax—$7 billion at last count. This is a department that is struggling because of the outdated technology that it uses to administer the tax system.But it needs leadership from the Minister. It needs a Minister who is committed to ensuring that everybody pays their fair share and that the tax system is not tilted towards the large end of town towards multinationals having a tax advantage that New Zealand companies cannot have also. The statistics tell us that that is the picture. In the last 4 years there have been fewer small businesses created in New Zealand than have been destroyed and that is a worrying trend. We see small businesses in New Zealand not flourishing as they should. We hear talk of a rock star economy of a big upturn but it seems that the big corporates and the wealthiest individuals are securing a larger share and indeed those who will be working with the US the banks are being looked after here. We need secure financial institutions but we do not need all of that at the expense of ordinary New Zealanders getting a similar deal of ordinary New Zealanders and ordinary New Zealand firms having the same level playing field so that there is fair competition out there and so that people can work hard and get ahead.We on this side of the Chamber want to see a fair tax system. We want to see reciprocity in the kinds of agreements that we are passing the enabling legislation for today. We would really like to have had the agreement in the legislation right the way through. If it had been negotiated in a timely fashion we might have debated it more fully in Parliament. It is only just now that we have access to it. It is very very late in the piece and shows a tardy Government that is really not up with the play and that is really quite happy to pass into law bits of legislation and conditions placed on New Zealanders collecting information at New Zealanders’ expense without even seeing the paperwork. It is not a pretty picture. I guess it is a Government that has lost touch with what matters to ordinary New Zealanders. Ordinary New Zealanders people like me and others represented in this House want to see a Government that is in touch that is looking out for their interests and that is looking to make sure that the playing field is level that things are fair and that everyone can have the opportunity to get ahead not just a privileged few.So when we come to pass this piece of legislation it is important that we reflect upon the way it could have been better. As I have stated in my speeches about the other parts it was rushed legislation. It was put through with a very short consultation deadline and then we have had the Minister’s amendments coming through. I am pretty certain there will be more and we will see more. This is not a piece of legislation that has had the full scrutiny of Parliament that it might have had if there had been a more diligent Minister who was willing to roll up his sleeves and do his job in the manner that is expected.Hon TODD McCLAY (Minister of Revenue):I want to thank the last speaker Mr David Clark for his fulsome support of Part 3 of the Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill. I know that this is one of the most important parts of the legislation for him. All the way through he has been extremely supportive—understanding of course man of the world that he is when it comes to international negotiation some of the stages. But there are a couple of points I just want to help with and clarify here because in his enthusiasm I am not sure that he meant to say some of the things that he did.The first was that he said that the Government has lost touch with ordinary New Zealanders like him. Well I have got to say that I do not think he is an ordinary New Zealander—special maybe but ordinary I am not sure. What I would say is that in as far as this legislation is concerned what this does is allow banks to collect and provide information to the Inland Revenue Department to pass on to meet its obligations to US authorities. Mr Clark is correct: where people do not do that they face a significant tax of up to 30 percent on their business in the US. All financial institutions in the world except for those where an exception is given are covered by this legislation—every single country of the world. There will be some countries that do not meet that obligation and their citizens who are involved with those financial institutions will be affected by a significant tax. It is interesting to see that Australia and the UK and France have already entered into an agreement with the US similar to that that the New Zealand Government has entered into to make it easier for the financial institutions to provide them with some certainty and to provide some controls around this.Mr Clark said information will be collected on every single person in New Zealand. That is factually not correct. These financial institutions already have information on all of the people who bank with them. They will be under a duty to provide information on clearly defined US citizens and to provide that to the Inland Revenue Department to pass on. There will be no information provided to the department or passed on to the US authorities on New Zealand citizens only on those who are US taxpayers under US law. This creates no new tax obligation. The US taxes its citizens based on their citizenship not their place of residence and not their place of domicile. So anybody who is a tax resident in America a citizen the US legislation has an interest in at all times. So we are not creating new tax obligations; we are merely providing information on behalf of financial institutions to US authorities.Very importantly this is reciprocal. It is reciprocal. The US authorities will provide information to the Inland Revenue Department on New Zealand taxpayers so that we can make sure that everybody who has a duty to pay tax in New Zealand is doing so fairly. The intergovernmental agreement was signed last week here in this Parliament and will enter into force before this legislation is adopted and itself enters into force. That is the right balance and the right way that this should be done. The reason it may have taken a little bit longer than Mr Clark might have wanted is that we were looking specifically at a number of institutions in New Zealand that might not need to be included in the breadth of this US law. There are exceptions that have been agreed for some New Zealand institutions to do with the Crown for superannuation schemes and for anybody who has an account who may be a US taxpayer but who has less than NZ$50000 in it—for them information will not need to be provided.It is important that we do this. If financial institutions in New Zealand did not meet their obligations they would be significantly affected. The Government is merely providing certainty and assisting them. It will reduce red tape compliance and costs upon the financial institutions and therefore others who may be involved with them or bank with them. It is not going to change the obligation of any US taxpayer based in New Zealand to the US tax authorities; it will merely provide information to them and it is reciprocal to us.So this is a very important part of the legislation. I think the Government has been responsible as many other Governments around the world have been. Almost every OECD country is in a current situation of either having agreed or negotiating the same arrangements as New Zealand. The very good news for New Zealand financial institutions is that we have agreed through negotiation a number of exemptions with US authorities and this will give greater certainty and make sure that there is not unnecessary cost to these financial institutions and therefore New Zealand taxpayers.The question was put that the amendments set out on Supplementary Order Paper 455 in the name of the Hon Todd McClay to Part 3 be agreed to.Amendments agreed to.Part 3 as amended agreed to.Schedule agreed to.Clause 1 agreed to.Clause 2 CommencementThe question was put that the amendments set out on Supplementary Order Paper 455 in the name of the Hon Todd McClay and the following amendment in his name to clause 2 be agreed to:in clause 2(10) replace “74(1)” with “74(1A)”Amendments agreed to.Clause 2 as amended agreed to.Bill to be reported with amendment presently.