Norman Russel William: Taxation (Annual Rates Returns Filing and Remedial Matters) Bill — First Reading 
Norman Russel William: Taxation (Annual Rates Returns Filing and Remedial Matters) Bill — First Reading 
[Volume:676;Page:21437] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on behalf of the Green Party on the Government’s Taxation (Annual Rates Returns Filing and Remedial Matters) Bill. This bill in a way is a bit of an overview of the Government’s fiscal and taxation strategy. It does not cover all aspects of the tax strategy by any means but it does give a very clear signal about where the Government is going. Of course part of what the Government is doing at a time when around the world we face tremendous pressure on sovereign debt is driving us further into debt by means of the very very expensive and significant cuts it has made in income tax rates. This is of course the annual rates setting bill and the cut in income tax that the Government has made has cost the country very large amounts of money. 
The Government at the time argued that its changes to the income tax rates were fiscally neutral. That was not true at the time; according to the Budget papers it was going to cost a billion dollars over 4 years. Of course since then the changes have cost more than that because the GST take is not at the level that the Government had expected. So the Government’s changes with regard to the taxation system have put the Government books in a worse fiscal position than they would be otherwise. At a time when there is enormous pressure on Governments around the world on government borrowing why did we make a series of changes to the taxation system that resulted in the Government going further into debt? It was not logical and it was not rational. At the time the Green Party warned the Government that driving the Government books further into the red was not a very wise fiscal strategy but the Government took no notice of course. It carried on regardless and went ahead with the tax cuts. The result has been that it has had to borrow billions of dollars from overseas. That seemed to be OK but now every day that passes the pressure on sovereign debt grows and grows. 
So developing a strategy that increased Government debt at a time when there is enormous pressure on sovereign debt seems to me to be an extremely dangerous strategy. I think the Government needs to reconsider its general direction with regard to its fiscal and taxation policy which is basically a “let’s borrow lots of money” taxation policy. 
The other measure that the Government has failed to introduce is a broadening of the taxation system. Every report we read about the New Zealand taxation system argues for a broadening of it—that is to move on to some other bases rather than relying so heavily on the existing forms of taxation. The most obvious one here is around property: a capital gains tax. The Government for entirely political and ideological reasons has not accepted the advice that has come from pretty much every international organisation as well as numerous New Zealand domestic ones that we should fill the hole in our taxation system with the missing tax—a capital gains tax—the absence of which distorts the system. This bill unfortunately once again fails to address that particular hole in the taxation system—the absence of a capital gains tax—and it misses taking the opportunity that is clearly available to broaden the tax base in New Zealand. 
One of the other measures that the OECD has been calling on New Zealand to introduce is a charge on irrigation water. The OECD has said consistently that if we wish to broaden the taxation base we need to look at levying charges on resource use and the most obvious one in New Zealand is on irrigation water. Once again the OECD has put forward a very strong case for broadening the taxation base by having a levy on irrigation water and once again the Government has said no. So one time after another we have seen the Government turn its back on taking opportunities to broaden the taxation base. This bill was yet another opportunity to do so but in the very large number of remedial changes that the Government makes in this bill at no point does it attempt to broaden the taxation base which is what all the international studies have been calling on New Zealand to do. 
Of course the Government is making changes around GST. The increase that the Government introduced in GST has a largely regressive nature because it tends to affect those on lower incomes more than others. By making sure that GST applies to late payments which tend to be from people who have trouble meeting their payments whether it is for their electricity bill or for their phone bill the Government is saying it will make sure that it gets to those who are on lower incomes—whatever happens it will make sure that they pay more. The increase in GST was one part of doing that and now extending the GST to late payments is the other part of it. 
The other element that is missing in the Government’s taxation system concerns greenhouse gas emissions. If we read the literature—and unfortunately I guess the Government does not—we see that there is a vast amount of economic literature about making sure that we do not subsidise greenhouse pollution. In fact Tim Groser made some very interesting comments recently about not subsidising pollution. He talked about fossil fuel subsidies; he made reference to them in a speech. He said it was terrible that there were all the subsidies around fossil fuels. Well here we have a tax bill that continues the system whereby we subsidise greenhouse gas emissions to the tune of about $1.2 billion this year and another $1.2 billion over the next few years. We are in a situation where the Government has made a conscious decision to subsidise greenhouse gas pollution in New Zealand rather than make polluters pay their way. The taxation system the Government is introducing not only is narrow and fails to broaden the tax base by making sure we actually have taxes in other areas but also continues through the emissions trading scheme the subsidies that go towards pollution. Here we have Minister Groser saying we should not subsidise fossil fuel and on the other hand we have a Government that subsidises greenhouse gas pollution. 
If the Government had removed those subsidies then it would mean that the amount of taxes we need to raise through bills like this one and others would be significantly reduced. We could have either cut the amount of taxes that people pay through other mechanisms or paid off debt faster. At a time when the international markets are looking at countries like New Zealand with growing levels of sovereign debt having the ability to pay down or reduce debt more quickly is actually a real benefit. So the fact we have these subsidies in place has added to the pressure on New Zealand in the international markets. 
The other aspect of this bill that is a bit strange concerns software development. One could well argue that there is a case for the special tax subsidies for unsuccessful software development. But we then have to ask why we do not have an across-the-board research and development taxation support rather than picking particular kinds of industries for which to provide tax subsidies. Why do we not spread research and development support if we do it through the taxation system by having across-the-board research and development tax credits rather than targeting our tax credits in this case at unsuccessful software developers which is essentially what this bill does? There is a strong case for doing that because of the positive externalities around research and development. It is very difficult for any particular firm to get the benefits to that particular firm from all of the research and development that it pays for. There are positive externalities with regard to research and development but it is quite difficult for any individual firm to capture them which is why Governments around the world subsidise research and development. 
We could argue that maybe that is what the Government is trying to do with this particular element of the bill. But then why would we not have an across-the-board consistent approach to supporting research and development through the taxation system rather than this ad hoc approach—if we were to be charitable—which is what the Government is doing with the changes around unsuccessful software development? That seems to me to be a much more consistent approach. New Zealand spends about 1.31 percent of GDP on research and development private and public which puts us at the very low end of the OECD and well below the OECD average which is over 2 percent. So the fact that the Government is taking what charitably could be called an ad hoc approach to supporting research and development seems to be very strange. Why does it not take a much more consistent approach? 
Finally one of the issues that has come up about how to deal with Government deficits is being widely discussed now in the international media. The most recent  
Economist 
 addresses exactly this question. The media say we actually need to make sure that the taxation system addresses inequalities. The 
 Economist 
 magazine talks about taxing the rich. Another way to look at it is to make sure that we address inequalities. And one of the things it talks about is making sure that property is taxed properly. What we find in New Zealand without a proper capital gains tax and without proper taxation of capital gain particularly in the property sector is that we do not have proper taxation of the property sector. Completely against the advice of a magazine like the 
 Economist 
 this Government continues to go down a path where it does not tax properties properly and it does not broaden the tax base through introducing elements like a capital gains tax and an irrigation levy. This bill demonstrates why the Government has got its fiscal and taxation strategy wrong.