Cullen Michael: Taxation (Annual Rates and Urgent Measures) Bill — Second Reading 
Cullen Michael: Taxation (Annual Rates and Urgent Measures) Bill — Second Reading 
[Volume:628;Page:700] 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I move  
That the Taxation (Annual Rates and Urgent Measures) Bill be now read a second time 
. The bill delivers on three key election pledges that will benefit hundreds of thousands of people. 
The first major focus of the bill is to boost income assistance for working families and to make the Working for Families package available to a greater number of working families from 1 April next year. Additional targeted tax assistance will be available to 160000 working families a figure that includes 60000 new families who will become eligible for such assistance. That is achieved by raising the income level at which the abatement of family assistance begins from $27500 per year to $35000 per year. At the same time the rate at which assistance abates for income counted as over the new threshold will be lowered from 30 percent to 20 percent. The average size of the extra assistance is expected to be about $50 per week. That adds to increases that are already scheduled to come into effect on 1 April next year and makes a significant difference to family income—in many cases by as much as an extra $100 per week. 
The second major focus of the bill is the removal of interest from student loans for most borrowers and the introduction of an amnesty on penalties for borrowers living overseas. The purpose of those changes is to make tertiary education more affordable for young people and to encourage them to remain in or return to New Zealand and invest their skills here. As such these are forward-looking changes designed to achieve a long-term gain for the economy. Students and ex-students have welcomed the changes proposed in the bill which in many cases will save them thousands of dollars and knock years off their repayment times. Over 440000 people have student loans so the impact of the changes is huge. 
Later in the Committee stage I will be releasing a Supplementary Order Paper that will amend the bill to prevent borrowers from using the interest-free changes in a way that was not intended by the proposed legislation. I am referring to borrowers who in the lead-up to the new interest-free system may try to claim a refund of previously paid money in order to invest it in interest-bearing accounts. The changes introduced in the Supplementary Order Paper remove any financial incentive to claim refunds of overpayments of student loans. Refunds relating to the 2004-05 and 2005-06 tax years will be subject to interest unless the claims were lodged before 30 November. It will not be possible to claim refunds for 2003-04 and prior years. Furthermore borrowers will not be able to apply for special deduction rates below the standard 10 percent rate for the balance of the current tax year. In cases of serious hardship the Inland Revenue Department will have the discretion to exempt refunds from interest. 
The Supplementary Order Paper will further ensure that there is no overlap in how time spent overseas is counted for loan purposes. It will also ensure that the objection provisions in the Student Loan Scheme Act apply to decisions made by the Inland Revenue Department in relation to the full interest write-off and amnesty. Those changes will fine-tune the proposed legislation to ensure that it works as intended. 
The Finance and Expenditure Committee recommended the inclusion of a further transitional provision. It would allow a full interest write-off in some circumstances for borrowers who spend time outside New Zealand during the first 6 months of the operation of the new loan scheme and I agree that such a transitional provision is desirable. 
Supplementary Order Paper 1 which I referred to the committee last month— 
John Key 
: Time’s up. 
Hon Dr MICHAEL CULLEN 
:—no I’m afraid it will not be up for some years yet—will give New Zealand wine producers who export to Australia access to that country’s wine equalisation tax rebate. I suspect it is one of the rare tax changes that will please everyone and I thank all parties of the House for their agreement to include that matter in this bill. Otherwise it would have been very difficult to deliver it to New Zealand wine producers on time. The change is part of a joint trans-Tasman effort that will involve both countries in the administration of the rebate in relation to New Zealand producers. Australia will assess pay and duly administer the rebate and we will assist in the registration and application processes. Australia is in the process of enacting the necessary legislation; the changes added to this bill represent our legislative contribution. They were originally to have been included in the taxation bill introduced in May but have been moved to this bill to ensure their faster enactment. 
Provisions fixing the rates of income tax for the 2005-06 tax year have also been moved from the main taxation bill to the present bill in order to ensure their timely enactment. However I assure the House that I hope the Finance and Expenditure Committee will make every effort to deal with the May bill so that we can pass that bill before the end of March which will enable a number of its provisions to come into force on 1 April next year. 
In closing I thank the committee for its timely consideration of this very important bill and I commend the committee’s report to the House.