Russell DeborahHon Dr DEBORAH RUSSELL (Labour): I'm just very grateful that the Minister himself raised the issue of a capital gains tax. So it gives us a wee bit of space to talk about that now too. I really appreciate it Mr Watts good on you. Well played.We are laughing but it's a serious matter. And it's a serious matter because many people in the tax community and working in tax have been inclined to say that we have a broad based - low rate tax system in this country. Looking at our income tax rates alone perhaps one might conclude that. In fact the top tax rate—and it only cuts in at a threshold of $180000—is 39 percent and other than that our tax scale is actually comparatively low. In fact our tax take overall sits below the OECD average.But there are some issues along this. You see there is quite a serious issue—and this is an issue that was raised in the Treasury briefing to the incoming Minister of Finance. I'm sure you will all have the slide pack right there in front of you. If you turn to page 9 of that slide pack there was quite a serious concern about the forecast gap between core Crown expenses and core Crown revenue—so a gap of 1 to 2 percent over the forecast period.Now clearly we disagree about how that should be met. That side is going to cut spending on critical front-line services amongst other things; this side would have a different proposal. But and here's the real problem it says the gap between Crown revenue and Crown expenses is predicted to go to about 5 percent of GDP by 2061 and that was based on current fiscal settings. Sitting in that Treasury briefing to the incoming Minister was a proposal that the Government needed to consider capital gains taxes. Now interestingly we do have a capital gains tax of sorts in New Zealand already. We've got various sittings in the—all sorts of reasons but introduced by that that Government of course in the brightline test. Now that is the starting of a capital gains tax. Of course there's other capital gains taxes sitting in the financial arrangements rules and so on. There are various times when capital gains are actually taxed—we don't have a comprehensive capital gains tax.Nevertheless Treasury has suggested that we need a capital gains tax in order to meet this ongoing gap between Crown revenue and Crown expenses. The IMF has suggested that we need a capital gains tax in order to balance what we're doing and in our tax system have a sustainable tax system. And the Minister here—CHAIRPERSON (Maureen Pugh): Can I remind the member that this debate is around tax rates not—Hon Dr DEBORAH RUSSELL: Indeed. Indeed. But I would remind also Madam Chair that this is the annual rates debate and by tradition it is supposed to be a free-ranging debate around tax because it's the one opportunity we have every year to have that free-ranging debate around tax—CHAIRPERSON (Maureen Pugh): In Part 2.Hon Dr DEBORAH RUSSELL: The free-ranging debate around tax.Camilla Belich: Point of order Madam Chair. Sorry to interrupt the member. I just wanted to clarify that from my understanding the member was referring to the capital gains tax as a result of comments made by the Minister which I understand is permitted by Standing Orders in a committee stage.CHAIRPERSON (Maureen Pugh): And I'm just reminding the members that this part is around tax rates.Hon Dr DEBORAH RUSSELL: Madam Chair I'm happy to—we'll see how we go on that one because it is as I said one of the constitutional requirements: to have an annual debate on the setting of the tax rates. This is the annual taxing Act. It can be done as a separate Act altogether. In this case it's done as one clause within one part within this bill.So getting back to it the second part of this bill does reverse out all the capital gains taxes. The first part of this bill sets the annual tax rates around the income tax scale and we have an ongoing worry that the income taxes we collect will not collect enough revenue over time to sustain the types of goods and services the infrastructure the health system the welfare system and so on that we expect in this country. In fact that was growing to a 5 percent gap in GDP by 2061.So I'm going to ask the Minister as to how he thinks he will respond to that challenge. How is he going to meet that challenge that we have that is now his responsibility? Part of what a good tax system needs to do is to deliver the tax revenue sufficient to meet the needs of the Government. And that by Treasury's prediction is—CHAIRPERSON (Maureen Pugh): The member's time has expired.