Wood MichaelTAXATION (INCOME TAX RATE AND OTHER AMENDMENTS) BILLFirst ReadingHon MICHAEL WOOD (Minister of Transport) on behalf of the Minister of Revenue: I present a legislative statement on the Taxation (Income Tax Rate and Other Amendments) Bill.Legislative statement published under the authority of the House.Hon MICHAEL WOOD: I move That the Taxation (Income Tax Rate and Other Amendments Bill) be read a first time.This bill which signalled to the New Zealand public before the election and which has been advanced as a Government priority and signalled through the Speech from the Throne is an important piece of legislation to ensure that New Zealand has a tax system which supports our recovery from COVID-19 and which makes sure that all New Zealanders are paying their fair share as a part of supporting our public services and supporting the recovery in the wake of COVID-19.The bill has a number of significant provisions. The first one is the introduction of a new top personal tax rate. The bill introduces a new personal top tax rate of 39 percent on incomes in excess of $180000. This will apply from the tax year in 2021/22 and for most taxpayers that means that the new rate kicks in from 1 April 2021. There are a number of consequential changes to ensure that the new rate applies consistently across the personal income tax system most of which will also apply from 1 April 2020.This change in the bill is probably the one that will attract the most debate in the House and in public debate and it's one that this Government stands firmly behind. As we rebuild and recover from COVID-19 this is a Government that is absolutely determined that as a part of that recovery and rebuild we will ensure that all New Zealanders have access to strong public services and that we manage the Government's books responsibly to ensure that we manage debt and pay it down as quickly as we can. I think all members in all parties—although they might vary in degrees around this—will understand that the Government response to the global pandemic of COVID-19 and the serious economic impacts is one that has required the Government to draw down on debt to ensure that we have a strong economic response. Key policies which were critical to New Zealand making it through this extremely challenging year of COVID-19 include measures such as the COVID relief scheme; include measures such as the wage subsidy scheme which by itself required around about $14 billion of investment. I think there would be few people around the Chamber who would not recognise that those investments have been extremely important in terms of supporting New Zealand through this difficult year and keeping many people in jobs and keeping them connected with their employers.The reality of that situation means that we need to now have a fiscal plan which enables us to manage that expenditure which enables us to manage the debt and move to a situation where we're paying it down as soon as we can. There have been Governments in the past who in response to difficult economic times and particularly external economic crises have used the opportunity to reduce public services; this Government will not do that. The imposition of a new top marginal tax rate of 39c in the dollar above $180 million is one of the core pieces of this legislation which will support our objectives in that space. It has the capacity to raise several hundred million dollars of additional revenue per year which will support both of those Government objectives continuing the public services that we need and paying down debt in the longer run.I just want to make sure that it's very clear and on the record because there has been some misunderstanding around this—that we are talking about a marginal tax rate here. So to be extremely explicit that means that the new marginal tax rate of 39c in the dollar applies to income that is earned above $180000 per year. There have been people including members in this Chamber who in their comments have incorrectly given the impression that this creates a tax impost that applies from the first dollar that is earned. It is extremely important to understand that this measure applies to income earned above $180000. The best estimates that we hold tell us that this will affect between 2 and 3 percent of people who pay income tax in New Zealand.So this helps us to create a marginal tax system in which we're asking those who earn a little bit more—the top 2 to 3 percent of income earners—to just contribute a little bit more to ensure the maintenance of those public services and the responsible management of our debt situation. It's my view that after a year in which so many New Zealanders have given so much so many New Zealanders have made sacrifices to help New Zealand get through that it is not unreasonable for New Zealanders on the very highest incomes—including I note members in this Chamber—to make a small additional contribution to ensure that we meet those objectives.The bill introduces a number of other changes to the taxation system. The first relates to secondary tax codes. The bill introduces a new tax code tax code SA for secondary employment earnings for an employee whose total income subject to PAYE is more than $180000—and that in effect is one of the measures which brings in the additional marginal tax rate. In terms of fringe benefit tax (FBT) to account for the introduction of a new top personal tax rate of 39 percent the bill introduces a new top FBT rate of 63.93 percent applying to all-inclusive pay exceeding $129680. There are further consequential changes consistent with the change of the top tax rate to resident withholding tax and to employer superannuation contribution tax. One of the other important parts of this bill is ensuring that we have appropriate measures in respect of information gathering from trustees. Trustee income is subject to a 33 percent final tax rate and the bill proposes increased disclosure on trusts to help ensure that trusts aren't being used to avoid paying income tax at the rate of 39 percent. This is an issue which is usually explored when there are changes to income tax rates to ensure that we don't create incentives for people to misrepresent sources of their income. Currently trusts are required to file a return of income if they have taxable income. The changes in the bill specify certain information disclosures required as part of the trust's annual return of income. The amendments in the bill require trusts to provide information on distributions and settlements made in the income year and financial information such as profit and loss statements and balance sheets. Those rules will apply for returns from the 2021/22 income year.The bill does also include the ability for the commissioner to request the information from trusts for prior income years back to 2013/2014. This will allow for comparable information to be gathered where appropriate.Non-active trusts which are trusts that don't have income or deductions are not currently required to file and this won't change under the rules introduced by this piece of legislation. Charitable trusts incorporated under the Charitable Trusts Act and Māori land trusts constituted under Te Ture Whenua Maori Act 1993 are also not affected by these changes. Foreign trusts are already subject to a robust registration and disclosure regime and are also not covered by these rules.The Commissioner of Inland Revenue has the power to request information from taxpayers when the information is required under Inland Revenue Acts or the information is required for any other function lawfully conferred on the commissioner. This bill contains a clarifying amendment to ensure that the commissioner can require information to be provided solely to assist with the development of tax policy. This is an important measure in the bill to help ensure the integrity of our tax system and to ensure that in the ongoing development of policy we do understand how income is being reported and the ways in which people and entities may respond to changes that are made through the passage of this bill.In conclusion I do commend this bill to the House. It is a piece of legislation that was well signalled by the Government as part of the Labour Party manifesto heading into the election. It is part of our commitment to ensure that we continue to support the public services that New Zealanders rely upon as we rebuild and recover from COVID-19. It is part of our long-term plan to responsibly manage debt and the way in which we are doing that is by asking those 2 to 3 percent of New Zealand income earners who earn the highest incomes in our country to make a small additional contribution to make sure that we have a tax system that is able to support those objectives. I look forward to the debate and I commend this bill to the House.