Smith Lockwood: Income Tax Bill — In Committee Third Reading 
Smith Lockwood: Income Tax Bill — In Committee Third Reading 
[Volume:641;Page:11283] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I would just like to pick up from the comments my good colleague Craig Foss made when he mentioned that this framework legislation now collects for New Zealand $52 billion a year in total tax which is a $20 billion increase under this Labour Government. I note today there was a publication by Dr Alex Robson of the Australian National University. It was a study quite a comprehensive study into the cost of collecting that tax—the dead weight cost. This independent—he is from the Australian National University so I guess he has nothing to do with New Zealand—economist’s paper today has suggested on his analysis that the deadweight losses from all taxes collected in 2005-06 here in New Zealand amounted to between $10 billion and $13 billion. So when I hear that new list member Charles Chauvel or whatever his name is talking about how wonderful the Government is spending money on this that and its other pet project I think he should never forget that the Government actually has to achieve extraordinary efficiency in spending taxpayers’ dollars to overcome that massive deadweight cost. If this economist from the Australian National University is correct the deadweight cost of collecting that $50 billion in 2005-06 was $10 billion to $13 billion. So these tax matters are serious matters. 
I would like the Minister in the chair the Hon Judith Tizard to explain a couple of things about Supplementary Order Paper 136 because I do not think the members of the Committee had seen it until this afternoon. There are a number of issues in it that the Finance and Expenditure Committee has had no chance to address. I would like the Minister in the chair to explain to us the reasons for the change from tax year to accounting year in a number of the clauses in the bill. I would like her to explain that because whereas much of the Supplementary Order Paper has to do with the rewriting of the foreign investment fund legislation the portfolio investment legislation the incorporation of the portfolio investment entity legislation from last year and the original KiwiSaver legislation some of the provisions in this Supplementary Order Paper do not appear—and I stress “appear”. 
The Minister may be able to tell me that yes they are part of those newly rewritten bits that were not part of the bill the select committee considered but I would appreciate her explaining for example why under clause CW 58(2) we are omitting “tax year” and substituting “income year in which the amount is derived”. I hope the Minister in the chair can help us with that because I think most members who are familiar with taxation matters will know there is a big difference between tax year and accounting year. We want assurance that that is not making any change to our current legislation. I ask members to remember that this rewrite is not meant to be changing anything. So I would appreciate the Minister in the chair the Hon Judith Tizard—I think she is the Minister with responsibility for Auckland Issues and Associate Minister for Arts Culture and Heritage—to explain to us why that change is being made. 
The other thing I would like her to explain is why if we go back to volume 1 of the bill and look at the commentary from the select committee we see that the select committee after it had examined these 3000 pages had this to say about Part M—Part M includes the Government’s flagship Working for Families policy—“However given the complexity of the policy underlying the Working for Families Tax Credits and the difficulty of rewriting Part M in the rewrite style we believe that any review of Part M to address these concerns should be undertaken separately.” I would like the Hon Judith Tizard to explain to us a whole lot of provisions on Supplementary Order Paper 136 relating to Part M. I think they start on page 99 of the Supplementary Order Paper for the Minister’s assistance. I ask the Minister to please explain to us the provisions on Supplementary Order Paper 136 relating to Part M which concern the Working for Families scheme. 
For example if we look at clause MA 1 we see that the part now has new wording there. It states: “This Part identifies the tax credits to which a person is entitled under—(a) the family scheme for a tax year:”—that is the Working for Families stuff but this next provision is new; this was not in the old bill—“(b) the superannuation savings scheme for a year beginning on 1 July and ending on 30 June.” But that is not in the bill in front of us so if that is not introducing change I would appreciate the Minister in the chair explaining to us exactly what it is doing. It is not clear. If we just read Supplementary Order Paper 136 on its own it is not clear whether this is a complete rewrite of Part M which the select committee had concluded was too complex to consider doing at this stage. That was the last word from the select committee back to the Committee—I quoted from the select committee’s report to the Committee. If anyone doubts me it is on page 7 of the commentary on the bill in volume 1. If that is what the select committee said the Minister in the chair should explain to us what these changes to Part M starting on page 99 of Supplementary Order Paper 136 are. There are a number of changes there. I would appreciate her advice on whether that represents the rewrite that the select committee was led to believe was too complex and could not be done. If it does not; what is it? 
What does that change to clause MA 1 mean? This Working for Families stuff is hugely important. I would like the Minister in the chair to explain to us whether she is comfortable with the fact that a family with say three dependent children earning between $40000 and $100000 a year which captures most of middle New Zealand—and I would like the Minister to listen to this—will on the next dollar that that family earns have their marginal tax rate range between 55 percent and 61 percent. That is the marginal tax rate over that entire income range. Under this Government’s wonderful Working for Families policy—covered by Part M in this bill—if families have an income range of $40000 through to $100000 a year the marginal tax rate on the next dollar that any family with three children in that income range earns will be between about 55 percent and 61 percent depending on the particular income within that range. 
If the Minister is not moved by that maybe she cares a little more about somebody trying to work his or her way off a domestic purposes benefit. If that person—who is often a woman—is earning $10000 and is still getting a lot of domestic purposes benefit but is trying to get off it then he or she has to earn about $25000 a year to do so. At $15 an hour that is an extra 20 hours of work a week. Is the Minister in the chair the Minister with responsibility for Auckland Issues comfortable that her Government takes in tax 90 percent of every dollar that person earns between the amount he or she earns working 10 hours a week at $15 an hour and the amount earned when he or she works an extra 20 hours a week to get from 10 hours work a week to 30 hours work a week? Is she comfortable that the Government takes 90 percent of all of that income and leaves that person with just 10 percent of it? That is the effect of a marginal tax rate. In other words if someone is earning $15 an hour and trying to work his or her way off the domestic purposes benefit he or she gets to take home about $1.60 of it. I would like the Minister in the chair to tell us that she thinks that is a great policy—a great policy to trap those people in poverty. 
You know one of the mothers that John Key met at McGeehan Close came up to me the other day and said: “Lockwood you are dead right on this. I am trying to work my way off the domestic purposes benefit and I am trapped. The more I try to earn my way off this benefit the more the Government takes and I get nothing.” Someone earning $15 an hour—[ 
Interruption 
]; those are the facts—gets to keep over that entire 20 hours’ extra work a week about $1.60 an hour of it and Labour thinks that that is helping low-income people! It is a disgrace. It is a poverty trap and I would like the Minister in the chair the Minister with responsibility for Auckland issues to tell us that she thinks that it is great. 
In particular I would like the Minister to explain those key issues with this Supplementary Order Paper. What does it mean to go from tax year to accounting year in so many clauses of this bill? Are the provisions relating to Part M—that is the family tax credit part on page 99 of the Supplementary Order Paper—a complete rewrite of Part M? If they are not what are they? Are they just incorporating the portfolio investment entity legislation whereby if someone invests their income in the KiwiSaver scheme through a portfolio investment entity it is not meant to affect their family tax credits because Labour would not want that person taxed at those marginal rates I spoke of. Imagine a family whose marginal tax rate is 60 percent on $50000 or $60000 a year which is the way that every family on Working for Families is. If through investing in the Government’s KiwiSaver scheme that family lost 60 cents in the dollar in tax on all of that savings income they would not be too happy. Maybe these rewrite provisions on page 99 relate to that but I think the Committee has a right to know from the Minister in the chair.