Income Tax Bill — Instruction to Committee In Committee Third Reading 
Income Tax Bill — Instruction to Committee In Committee Third Reading 
[Volume:616;Page:12072] 
Income Tax Bill 
Instruction to Committee 
Hon DAVID CUNLIFFE (Associate Minister of Revenue) 
: 
 I seek leave for the Committee stage of the Income Tax Bill to be a single debate on all the provisions of the bill and for the preliminary provisions parts and schedules to be put as one question at the conclusion of the 3-hour debate. 
The ASSISTANT SPEAKER (Hon Clem Simich) 
: Is there any objection to that course being followed? There appears to be none. 
In Committee 
Clauses A1 and A2 Parts A to Y and Schedules 1 to 23 
JOHN KEY (National—Helensville) 
: 
 I rise on behalf of the National Party to address the Income Tax Bill which National is supporting. National started the genesis of this work back when it was in Government in the 1990-99 period. I doubt I will be the only speaker to mention the sheer size of this legislation which is thousands— 
Hon Member 
: Over 2000. 
JOHN KEY 
: —over 2000 pages—the largest bill introduced to the House. It is an absolutely enormous bill and an enormous amount of work has gone into it. I want to pay tribute to the advisers who have been helping the Finance and Expenditure Committee and the officials who have worked very hard on it. The simple idea behind the bill of course is a rewrite of the Income Tax Act 1994 and to put into simple language—if there is such a thing—the tax code that operates in New Zealand and the basis under which New Zealand taxpayers will be required to adhere to tax law. 
There are some interesting elements of the bill to which I want to make reference but I want to make one very simple comment. The size of the bill and the huge number of clauses contained within it in some part are of the Labour Government’s own making. I say that because the top personal tax rate was increased when the Labour Government came into office in 1999 from 33c in the dollar—a fair reasonable level of taxation if I do say so myself—to a 39c rate. Why was the top personal rate of taxation increased? It was not because the Crown accounts required it. Last year alone the operating balance excluding revaluations and accounting changes was $5.6 billion; this is truly a Government awash with cash. It was simply because there was a degree of envy—the Labour Government felt it was inappropriate that the entrepreneurs of New Zealand should enjoy such a lower level of taxation so it increased the top personal tax rate. 
 Lo and behold once the Minister had scuttled off to Cabinet with that wonderful idea of increasing the top rate of personal taxation he was then besieged in his office with mountains of paper on how to address that change and we now see it reflected in the Income Tax Bill. There are literally hundreds of clauses that have to reflect all the complexities added to our system by an increase in the top personal tax rate. All sorts of areas will be addressed during the debate this evening no doubt by numerous speakers on the concept of what impact that increase will have—for instance on the split-rate fringe benefit tax and the like. 
I want to draw a reference for the Committee on one point which is that in the 1999 Labour credit card one of the claims made by the Labour Government was that by increasing the top rate of personal taxation only 5 percent of taxpayers would be affected. Well we know that that has proved to be incorrect. Figures now released by the Inland Revenue Department show quite clearly that one in five full-time taxpayers now pay the top rate of personal taxation and bracket creep—or fiscal drag as it is otherwise known; the situation where inflation drags people into a higher level of taxation—has caught out so many New Zealanders who maybe earlier on had not thought they would be affected by it. 
Clayton Cosgrove 
: Where is the member on this bill? 
JOHN KEY 
: I will come to that in a moment but this is a long and drawn-out debate so let us enjoy it while we are in the early stages. That is quite an amazing statistic—that one in five full-time taxpayers will now be caught by the increase in the top rate of personal taxation. 
This is a very wide-ranging debate and I want to spend some time in talking about tax rates in New Zealand. They are applicable because Part B of schedule 1 talks about the basic tax rate. Very interestingly on Friday that wonderful international accountancy firm KPMG listed its world tax survey. It made very interesting reading for those who like to look at that type of data. The first thing I noted from that survey was that at the time the National Government left office in 1999 the average company tax rate paid in the OECD—that is right by the top 30 rich nations of the world—was around 35 percent. Former treasurers in that National Government like Bill Birch and Bill English can look back and reflect on what a wonderful position they left New Zealand corporations in because the company tax rate at that time was 33c in the dollar. We can compare that with the average company tax rate in the OECD as shown in the KPMG survey of 35 percent. 
What was released on Friday in that report was very interesting. The average rate of company taxation in the OECD now is 29.96 percent—that is it is under 30 percent. What is the average rate of company tax in New Zealand? It is still 33 percent. So under a National-led Government business had a competitive advantage with other countries in the OECD; under a Labour-led Government business is at a disadvantage to other OECD countries. It is a pretty simple message and it is one of the reasons Don Brash boldly went out and told the business community a few weeks ago that we would lower the rate of company taxation when we regained the Treasury benches in 2005. That statement was greeted with such a warm response from companies because they know that company tax is a withholding tax they know that company tax pays a significant role in encouraging investment in New Zealand and they know that company tax is a cost on a business. 
Secondly when we look at that rate of company taxation we note a very interesting fact that 87 percent of all companies in New Zealand are small businesses. When those businesses are built the building cannot be done with easy equity issuing on the stock market. They rely on their own capital and their own hard work and on the reinvestment of profits that are earned in the business. So to allow New Zealanders to keep more of that income in their businesses and to grow their businesses we are allowing them to take an entrepreneurial spirit—to take a progressive approach to building a brighter and fresher New Zealand. I for one am quite happy to declare that I would like to see the company rate of taxation in New Zealand even lower than 30c in the dollar. 
Darren Hughes 
: What rate? Give us a number. 
JOHN KEY 
: The lower the better I tell the member. That is what I would like to see for the rate of company taxation in New Zealand; the lower the better. Let us look at Ireland which boldly took the step of reducing the rate of company tax to 12.5 percent and what have we seen? The Irish miracle—the Gaelic miracle! It has been unbelievable. I suggest that in one of Mr Hughes’ long recesses he wanders off to Dublin and has a look at the economic miracle that has taken place through that great and bold step. If New Zealand could look at doing that I suggest that the New Zealand business community would be so much better off so I want to make particular reference to it. 
I further want to make reference to the Minister of Finance’s comment when National declared that it would lower company taxes to 30c in the dollar: he was very scathing. I was quite surprised. Rather than welcome that as a wonderful and progressive idea for building a better New Zealand he told the people of New Zealand that it would simply deliver all the benefits off shore. Of course he was talking about foreign ownership of New Zealand companies. Quite surprisingly when I sent him a couple of parliamentary questions that asked why he thought all the $600 million that would be released into the economy by the reduction of the level of company taxation from 33c to 30c in the dollar would take place off shore he came back to me and told me that less than half would go off shore—and that it is not clear that even half would go off shore because so many foreign owners of businesses in New Zealand want to retain that income in their businesses and want to grow even stronger and better businesses in New Zealand. 
So I think that that is quite a spurious argument. It really just goes on to tell us that the general fundamental belief under a Labour-led administration is that higher taxes are better—they allow more redistribution—and there is no progressive agenda along the line. 
The next point I make is in relation to company taxation and why company taxation rates should be coming down. I know that Mr Hughes is a bit confused about the fact that taxes actually can go down— 
Darren Hughes 
: What number? Give us a number. 
JOHN KEY 
: When one grows up in an environment where taxes only go up of course one will think they can only go up. But we on this side of the Chamber have seen people who have taken the bold step of believing that any form of taxation can be lowered. I know that it has not actually happened on that side of the Chamber but it has certainly happened on this side. We believe in and have demonstrated a lowering of the tax rate. Sixty percent of all New Zealand businesses earn under $38000 and therefore are paying a higher level of taxation by paying the company rate than they would pay if they were taxed on a PAYE basis—and they themselves are over-taxed. That is another very good reason why the rate of company taxation should be lowered in New Zealand. 
When we look across the specifics of this bill and look at the general impact of taxation on New Zealand we see that a very interesting question is raised about whether New Zealanders are over-taxed. I do not think it takes a helluva long time to work out the answer to that when we look at the size of the surpluses the Government is running. Why is the Government running such significantly large surpluses? 
Hon David Carter 
: Greed. 
JOHN KEY 
: That is right. 
Hon RICHARD PREBBLE (Leader—ACT) 
: 
 The ACT party has voted against the Income Tax Bill we are now debating in its Committee stage and let me give members 2307 reasons why the ACT party is opposed to this tax bill. The first is the number of pages of tax law that we are about to implement—2307 pages of law are required for this Government to collect income tax. Why do we need so much law? The reason is quite simple: the Government is now taking 40 percent of everything produced in this country. The citizens of New Zealand would never voluntarily hand over 40 percent of everything earned so we need 2307 pages of what really are police State measures in order to be able— 
Clayton Cosgrove 
: Oh! 
Hon RICHARD PREBBLE 
: The member says “Oh!”. Under this bill the Inland Revenue Department can enter private property; it does not need any sort of permit from the courts. It can open up a person’s records. These most certainly are police State measures. The ACT party is opposed to the Government taking that amount of tax. 
But let me give reason No. 2308 and it can be found on page 2026 which states: “The basic rate of income tax for the taxable income of a Maori authority is 19.5 cents for every $1 of that taxable income.” The rate of tax for a non-Maori company is 33c so not only do we have two laws in New Zealand but we have two different tax rates depending on race. 
Hon Harry Duynhoven 
: The rate of tax and the average rate of tax. 
Hon RICHARD PREBBLE 
: I ask the member who is interjecting to run in New Plymouth on the basis that Maori ought to pay a lower tax rate than the general population and see what happens to his majority in the next election. 
Hon Harry Duynhoven 
: Mr Prebble you know that is a fallacy. 
The CHAIRPERSON (Ann Hartley) 
: If the member speaks across the cross benches it is very hard for the member to hear. 
Hon RICHARD PREBBLE 
: I say to Mr Duynhoven that he should read page 2026 and he will see that I have quoted the bill accurately to him. 
But if he would like to turn to page 2029 he would see the next reason that we should vote against that. It says—and I will read it to him given that he says this issue is a fallacy—that the rate of tax for every dollar of taxable income on so much of the taxable income as is more than $60000 a year is 39c. That is the so-called “envy tax” and is the way that this Government has increased income tax that it said would not be increased. Labour promised: “No rise in income tax for the 95 per cent of taxpayers earning under $60000 a year.” Twenty percent of all full-time workers are now paying the 39c tax rate. The “envy tax” was never needed. We have had a surplus every year yet the Government tells us that it is not its priority to cut income tax and unfortunately so does National. 
I say to this Committee that that rate of income tax should be cut and should be cut right now. One of the reasons for that is it is the investment rate; it is the rate paid by people who are actually investing and creating the jobs and the growth that the two major parties say they want. The jobs and growth come from people investing yet this Government hits those people with a 39c tax rate. 
The ACT party makes no apology for pointing out that people on $60000 a year are not rich; they are on a middle income. We also point out as Don Brash did before he was an MP that a couple on $100000 a year with children pay 100 times more in tax than a couple on $25000 a year who qualify for family support. Who thinks that is fair? Obviously the Labour Party does. 
CRAIG McNAIR (NZ First) 
:  
There were some submissions that the Finance and Expenditure Committee felt would enhance the Income Tax Bill. I will share with the Committee just one or two of the submissions that were very important to me and that I am very happy to see accepted and taken on board. 
I will share just one submission with the Committee this evening and that was the one from Business New Zealand PricewaterhouseCoopers the Institute of Chartered Accountants of New Zealand and the New Zealand Law Society. They submitted that a transitional provision should indicate that the provisions of the rewritten Act must be interpreted in the light of the corresponding provisions of the Income Tax Act 1994 and associated judicial interpretation other than intended policy changes. They submitted that the transitional provision should also make clear that the rewritten Act is not intended to change the meaning and effect of the Income Tax Act 1994. 
The officials agreed that the bill should contain transitional provisions and indicate that no change in the effect of the law is intended. Where the meaning of a provision in the rewritten Act is unclear or gives rise to absurdity the old law is to be used as an interpretive guide to ensure that no unintended changes in law occur. Transitional provisions should not apply to notified changes in law arising in the rewrite nor to subsequent amendments to provisions in the rewritten Act. The officials agreed with this approach as it ensures that the plain words of the rewritten legislation have full effect from the commencement of the new Act. In conjunction with the Government wanting to promote retrospective legislation to correct unintended changes these further transitional provisions will provide the level of protection sought by practitioners. I believe that was a critical provision in order to give certainty and that the old law should be an interpretive guide in some way shape or form. 
In speaking in the Committee stage of the Income Tax Bill I will take a moment to mention in relation to the last couple of speeches the amount of time we have sat in the Chamber listening to different parties—namely the National Party and the ACT party—say that income and company tax cuts are basically the answer to all of our problems in this country. I say to those members John Key and Richard Prebble that I believe that their way of thinking is just a little bit lazy. As a nation we have exports of roughly only US$3600 per person. Mr Key mentioned how much of a success story Ireland is but that country has an export strategy as well and that is something we do not have and we need. So we need to look at Ireland’s US$19000 per man woman and child and at Singapore’s US$34000 and I say that because we need to have tax incentives for exporters rather than always thinking that the answer to our problems is tax cuts for the rich. I firmly believe that. 
I have to ask myself after hearing John Key and Richard Prebble whether the National Party and the ACT party have a vision. 
Clayton Cosgrove 
: No. 
CRAIG McNAIR 
: Members of the Government say they do not have a vision. I believe that the only vision the National Party and the ACT party have—mainly the National Party because this is what its leader said once—is to have 10 million people living here in New Zealand and to sell the rest of our State-owned assets the last that we have. One asset that I am talking about is Kiwibank. New Zealand First has a bigger vision for New Zealand than that. The National Party needs to think about tax incentives for exporters rather than just chopping the highest tax rate from 39c to 33c—and it does not even really want to do that. We want to encourage this Parliament and this Government to think outside the box. Instead of just thinking about tax cuts for the rich let us give a 20 percent tax rate on new export net profit. 
With regard to National’s thoughts on tax cuts for the rich and not helping the Kiwi battler I will read a question that National’s associate spokesperson on finance asked the Minister of Finance. He said to Dr Cullen in respect of Kiwibank: “… why does he not just admit that the people most happy with New Zealand Kiwibank are the other banks in the New Zealand system which have managed to give that bank the poorest most unprofitable worst accounts?”. I agree with Dr Cullen when he said: “That was certainly a very revealing question. New Zealanders who do not have large wealth and large incomes—according to the National Party’s deputy finance spokesperson—are people not worth having in one’s business.” I say that New Zealand First members have a better vision for the New Zealand Kiwi battler—not the Kiwi battler with three Jaguars in the garage but the Kiwi battler who is earning $50000 a year—and we have a better vision for this country as far as our tax system and our tax laws are concerned. 
In closing I say that New Zealand First does support this bill. One would have to question whether with more than 2000 pages the bill is simplifying the legislation but it is; tax legislation obviously is so complicated. New Zealand First supports the bill. 
JOHN KEY (National—Helensville) 
: 
 I want to go back to the point that Richard Prebble first raised in his speech. It was the very interesting issue about the special rate of taxation applied to Maori trusts at 19.5 percent. We live in a world where the Government wants us to believe that there is one rule for everyone. Well I have been flicking through all 2307 pages of the bill looking for the rate of taxation for another sort of New Zealand business at 19.5 percent. I have looked at clause after clause and I cannot find it because the rate of taxation for a company in New Zealand is 33 percent. 
When someone sets up a company in New Zealand the Inland Revenue Department does not ask: “What do you think your average income will be?”. The department does not come to someone and ask: “Do you think you will be earning less than $38000 a year and therefore your income might be less?”. The department does not come to someone who sets up a personal trust and ask: “Excuse me Mr Key do you think you will be earning less than $38000 a year in your trust and therefore the rate will be a different rate from 33 percent?”. No the Inland Revenue Department taxes a company whether it is small or large a trust whether it is small or large and a partnership at 33 percent. Readers of the bill may be just a little bit shocked at why there is a special unique rate of taxation for Maori trusts at 19.5 percent and that is a very good question. I ask Mr Cosgrove why that is the case. 
Clayton Cosgrove 
: You’re telling a story. 
JOHN KEY 
: Yes I am telling a story and I will be turning the pages as well. I will tell members the reason. It is because it is deemed that the end-users of those trusts are unlikely to have income greater than $38000 a year. Therefore it is deemed that in the hands of the receipt holders it is pretty likely that their rate of taxation will be 19.5 percent. Rather than make them go through the hassle of having company tax withheld at 33 percent and therefore having to make a claim on the Inland Revenue Department at 19.5 percent and receive the benefit we may as well just get on with it and tax them at 19.5 percent in the first place. That sounds pretty logical to me. It is logical if it is a Maori trust. It is OK to assume that Maori trusts will earn less than $38000 a year and therefore be taxed at 19.5 percent. But if I wander down to the Inland Revenue Department in my home seat of Helensville and say: “Can I please be taxed at 19.5 percent?” they will laugh. They will show me the door. They will say: “Mr Key yours is not a Maori trust. You can’t have a special rate of taxation. We’re not in the process of dishing out special rates of taxation to anybody who wanders in the door. If you were a Maori trust then you could be taxed at 19.5 percent.” 
When the Coordinating Minister Race Relations the Hon Trevor Mallard does his review I wonder whether this special rate of taxation will be on his radar screen. I predict that when this is exposed for what it is as it truly will be—for the unusual position shall we put it that way compared to other trusts in the country including other community trusts—I suspect that a very sensitive Labour Government will change the position. That is my prediction. If we start setting rates of taxation on what we believe the final end-user to be—incorporations and trusts—that is fine. I do not necessarily disagree that that cuts down on the paper work the administration and the hassle but I say let us have it for everyone. Let us have that for the John Key family trust if he thinks that that rate of taxation will be lower than 19.5 percent. [ 
Interruption 
] I am happy to pay my fair share of taxation. But if my earnings will be less than $38000 then I welcome the opportunity to tax myself at 19.5 percent. 
Jill Pettis 
: One ornament on your mantelpiece would keep us in clover. 
JOHN KEY 
: I am sorry; I cannot hear all the screeching that is coming from the other side of the Chamber. There is a whole lot of noise going on. What did Mrs Pettis say? 
Jill Pettis 
: I have seen a picture of your mantelpiece in the paper. 
JOHN KEY 
: I am sorry but the Inland Revenue Department does not tax mantelpieces. That is not what it looks at when it is taxing things. 
CLAYTON COSGROVE (Labour—Waimakariri) 
: 
 That was an astounding speech from the member. I thought the member was better than that. I think that in National Party terms he is the moderate branch of the National Party. But we saw in that speech that his boss has pumped him up and punched him full of research notes and he has made a speech that he does not really agree with in his heart of hearts. They pumped him up punched him out there as the Opposition associate spokesperson on finance and told him to run the race line which he did. I am a bit disappointed because I think that bloke is not the worst National Party member in the Chamber. I think there are a helluva lot who are worse than him but he disappoints me. If he does not know why the Inland Revenue Department would not accept a tax return in which he claimed 19.5 percent on his income alone then he should not be Opposition associate spokesperson on finance. I think the Lexus the BMW and the mansion in Helensville or wherever it is would put paid to that. 
Let me dispel the usual National Party line. Its members tried to raise this argument in the debate on the Taxation (Maori Organisations Taxpayer Compliance and Miscellaneous Provisions) Act when they talked about why it is that Maori authorities are taxed at 19.5 percent. They ran an argument as did Mr Prebble that this was outrageous that it should be changed and that they would change it. Why has the National Party not changed it since this scheme of arrangement has been in place since the 1950s? How many National Governments have been in place since the 1950s? There is silence. Who was in power during most of that period? The National Party. There is silence again. 
I will tell members why that scheme of arrangement was put in place in the 1950s and endorsed by National Government after National Government. It is because the assets of a Maori authority unlike a private or public company are communally owned. Maori authorities are restricted in terms of their activities. They cannot sell those assets. They are restricted in what they can do with them. Also 90 percent of the recipients as Mr Key pointed out are on the lowest rate of tax. But the National Party would have the listeners in this country believe that any recipients of dividends from a Maori authority pay only 19.5 percent and if they earn extra income and go up into the top bracket they pay only 19.5 percent whereas the rest of us have to pay a different tax rate. That is not true. If they get a dividend from a Maori authority they pay 19.5 percent and if they earn extra income and move to a higher tax bracket then like any other Kiwi white yellow black or brown they pay the same rate of tax at the end-of-year wash-up—the same as everybody else. That is the truth for the benefit of Mr Prebble. That is the truth for the benefit of the National Party. I make this point again: it has been around since the 1950s because it acknowledges the special arrangement the communally owned and restricted arrangement that Maori authorities have over their assets. So that put paid to that little bit of spice from the National Party corner. 
 As chairman of the Finance and Expenditure Committee I want to pay tribute to committee members. I see that Dr Lockwood Smith is in the Chamber. He was on the committee throughout this tax bill which I believe is the biggest bill to come before this Parliament if not Parliaments in the Commonwealth. It seeks to do something that is relatively logical in taxpayer terms—that is to simplify. I acknowledge Mr Prebble’s point though. It is a bit ironic that we get 2000 or 3000 worth of pages of tax law that is designed to simplify but it is. It does not rewrite tax law in terms of new policy. It does not attempt to promote any new policy areas. It attempts to simplify and make things easier for taxpayers. 
I want to quote from that venerable tax commentator from PricewaterhouseCoopers tax partner John Shewan. He likens the process to repiling a 100-year-old house. He said: “Sooner or later the old framework has to be rebuilt as it just doesn’t cope with current circumstances. That is the position the old Income Tax Act had got to. While the new Act will be a shock to fully depreciated tax advisers it is a necessary exercise.” I think it is a necessary exercise. The process predates this Government. The process I believe to rewrite these tax laws to make them simpler and to give some certainty was started in 1994. The committee’s recommendation that the bill come into force on 1 April 2005 instead of 1 April 2004 was in order to give some transition and certainty. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 The Committee stage of this bill is very very important for New Zealand. I am not 100 percent sure people will have gathered that yet. This bill is a complete rewrite of our Income Tax Act; some 2000 pages of it. This particular bill deals principally with Parts C D and E of our Income Tax Act. Part C of the Income Tax Act sets out what income is Part D of the Income Tax Act spells out the deductions that are allowed from income prior to payment of tax and Part E of the Income Tax Act spells out the rules in respect of timing of income because obviously decisions have to be made as to whether income relates to this year next year last year or whatever. So this is hugely important. 
This is a huge fundamental rewrite of our Income Tax Act and there have been many changes. I guess that hundreds of thousands of words have been changed in our Income Tax Act. If any of those changed words produce a different outcome in a court of law our taxpayers may be caught out. This rewrite of the Income Tax Act started under the previous National Government but Parts C D and E which are fundamental parts dealing with income deductions and timing have been dealt with by this Labour-led Government. If the thousands upon thousands of changed words change the Act’s meaning then there are serious consequences for New Zealand taxpayers. 
The Finance and Expenditure Committee heard from major submitters including the Institute of Chartered Accountants and the Law Society. The committee heard that both those major organisations were deeply concerned about unintended changes to our law. They explained it this way. Let me try to make sure that the Committee understands what I am getting at. Let us say a taxpayer relies on this new bill when it becomes an Act. If that produces a different result from the previous Act that this replaces and the Government enacts retrospective legislation to change it back—because the Government has said that it does not intend to change any of the meaning—what happens to that taxpayer? Will the taxpayer face penalties? Will the taxpayer face use-of-money interest requirements? What will happen to the taxpayer if he or she relies on this new Act as passed by this Parliament with all the hundreds of thousands of word changes in it and in fact it produces a different outcome from that which the old Act would have produced? The Government I understand has made a commitment that it will act retrospectively to change it back. But there is a further complication. This Parliament cannot bind a future Parliament. So who can give the taxpayers of this country an ironclad assurance that there will be retrospective legislation? If after the next election we have a different Parliament here how can— 
Hon David Carter 
: And we will have. 
Dr the Hon LOCKWOOD SMITH 
: I am sure there will be a very different Parliament here. Half the members opposite those Labour Progressive Green United Future and New Zealand First members will be gone. That is pretty clear. 
Let me come back to the very serious issue. I see Minister Duynhoven is now the Minister in the chair and I would like him to comment on this. It was the specific concern of the Institute of Chartered Accountants and of the Law Society and it is this: if taxpayers rely on the new law that will pass through Parliament—not tonight but once it receives its third reading—to establish their tax liability and if in fact it is different from the old law the Government has said that it will retrospectively make an enactment to change things back to the old law. A prudent taxpayer may therefore say: “Well hang on I’d better not use this new Act because if this new Act according to my lawyers changes things the Government has promised to change it back to what it was. If I use the new law I may face use-of-money interest charges. I may face penalties it if takes a couple of years to sort out the issue.” So the prudent taxpayer says to his lawyers: “We had better use the old law.” That does not solve the problem either because this Parliament cannot bind a future Parliament. So no matter what this Government has said about retrospective legislation to take things back to the old Act in fact we cannot bind this Parliament. 
I would like the Minister in the chair—I see that Minister Cunliffe is now back in the chair—to explain how a taxpayer should handle that dilemma. I will repeat it for him. The taxpayer is faced with using this new law and his lawyers say that in their view it changes the requirements from the old law that this replaces but in fact the lawyers say: “Hang on the Government has said that if it does change the outcome it will retrospectively legislate to change it back to the old law.” But then the wise lawyer says: “But hang on I can’t advise you that because obviously this Parliament cannot bind a future Parliament. So maybe the law won’t be changed back.” What law does a prudent taxpayer use? This new law or the old law? I would like the Minister to explain how the Government plans to overcome that dilemma. 
Secondly I would like the Minister in the chair to address this particular issue. According to my notes on 14 May last year in front of the select committee the Inland Revenue Department agreed to a schedule of intended changes. There are a limited number of changes that are intended that this bill should make to the tax law. According to the notes I took that day at the select committee the Inland Revenue Department agreed that it would establish a schedule of the intended changes. I accept that it may have been done and I have not been able to find it. I have looked through Supplementary Order Paper 195 but it might be buried somewhere in the final version of the bill before the Committee. I would like to see exactly where it is so we can clarify for taxpayers the schedule of intended changes under this law. 
The third point is that the major submitters—the Institute of Chartered Accountants and the Law Society—believe it would make sense to establish a formal committee to assess whether the law was changed; to try to establish with experience a consensus as to whether this bill that we are debating in Committee tonight has changed the law—because there are big changes. There were also last minute changes. 
 If we look at the bill as it was introduced and the way it treats income compared with the bill finally before us tonight we see there are big changes. The bill as introduced talked about counted income. We were told that counted income was a hugely important way of simplifying it all. Counted income is now gone out of this final version we have before us tonight. Now there is just income under subpart BD 1. There is just income—nothing to do with counted income. And now we have a whole extra range of steps in sorting out what income of a taxpayer will actually be taxed. All those changes were made at the select committee. 
The argument of both the Institute of Chartered Accountants and the Law Society that a formal committee should be established to examine unintended consequences I thought made a lot of sense. I think that no members of this Parliament intend that this bill should change the law beyond those specific changes that are intended—the limited number of specific changes. The dilemma for taxpayers is that they need to know exactly what those intended changes are. I want to know where the schedule of those intended changes is in the bill. I want to know what has been done to establish this committee that would be able to form a consensus of the unintended consequences of the complete rewrite of the Act. 
But I come back to the first point I made a moment ago and that is I believe the dilemma a prudent taxpayer is in for two reasons. I want to make sure that Minister Cunliffe can explain what should happen. The taxpayer is caught with the dilemma: does he or she use this new Act or the old Act? We are told the new Act is not intended to change anything yet it might and a court of law must presumably use the new Act. It was suggested that there should be a transitional provision. It was suggested for example that a simple transitional provision would state that as a matter of statutory construction the words and meaning of the 1994 Act can be used as an aid to interpreting the provisions of the new Act. This point I believe is very serious for taxpayers. If there is no such transitional provision as was suggested—I think it was KPMG who suggested to the select committee that wording I used a moment ago; that as a matter of statutory construction the words and meaning of the 1994 Act can be used as an aid to interpreting the provisions of the new Act—how do legal advisers advise their taxpayers in using this new Act? 
I want to be clear that this is understood. The dilemma is this: they have to use the new Act because that is the Act the courts will use in determining whether ultimately they are complying with the law. If in fact the new Act does change something the Government has said it will introduce retrospective legislation to change it back. So legal advisers may say: “Hang on if this looks like it’s changed things use the old Act because the Government is going to change it back anyhow. So we should base it all on the old Act because if you use the new Act and don’t pay enough tax you’ll face penalties or use-of-money interest.” But the dilemma is the lawyer might say that the Government may not change it back because this Parliament cannot bind a future Parliament. 
How can the Minister in the chair assure taxpayers that they are protected when this Parliament cannot bind a future Parliament? When these matters come into being next year most of this Labour Government may well be gone and this Parliament cannot bind a future Parliament. So taxpayers really must use this Act and they face that jeopardy of use-of-money interest penalties and that kind of thing. I see no way around that. I think the Minister is prepared to answer those serious queries because they are serious for taxpayers. I am very happy to sit down if the Minister is prepared to answer those serious concerns. 
Hon DAVID CUNLIFFE (Associate Minister of Revenue) 
: 
 I am pleased to rise and take a brief call at this point. Firstly on behalf of the Government may I congratulate the Finance and Expenditure Committee on its extensive consideration of this bill and note that its recommendation to the House was indeed unanimous—all save the ACT party and we look forward to hearing some more from ACT members as to their reasons. But the object of the bill has certainly been agreed. 
There is no doubt that the original bill going back to the last century and early part of this century is vastly outdated. In its initial form it was only 200 pages long; it is now over 2000 pages long. It has been layered over like the seabed being laid down by the tides and its structure has become somewhat tortuous. So I think it has been accepted all around this Chamber that this exercise is not before time. It represents a very very major input of expertise by officials and tax professionals bringing us to the point we are at today. 
I will reply in two groups to some of the issues the Opposition has raised and I begin by addressing the points raised by my colleague Dr Lockwood Smith. The first question he raised was: what would happen if any word was different in this Act that would lead to a different outcome from the intent of the original Act? I note that the select committee has really done its work on this point because there are a number of protections for taxpayers here. The first one is that the transitional provisions that have been implemented by the Government guarantee that in an area of ambiguity the intent of the old Act will prevail and should be read in by the courts. Secondly that clarity in terms of any intended policy changes has been set out in the schedules and I refer the member with regard to his second question to schedule 22A. The third point is that this whole bill has been scrutinised by an independent group of experts and unanimously approved—and they are experts of some standing. They include the Institute of Chartered Accountants of New Zealand and the New Zealand Law Society—a panel chaired by no less than Sir Ivor Richardson. 
So the Government is comfortable with that assurance that no legal loose ends remain. However in case anything has slipped past this panel of independent and reputable experts we have made several additional guarantees on the basis of the recommendations of the select committee. The first is that no penalties shall apply to any taxpayer who is disadvantaged. The second is that we would retrospectively change any inadvertent difference in meaning so that the original intent prevails. This is a “tidy-up” bill; it is not designed to change policy. Finally we would ensure that there is an appropriate education programme so that the industry is fully conversant with the changes that have been made. 
Dr Smith of course raised that old chestnut that no Parliament can bind its successors and he is quite right. Under our constitutional conventions no Parliament can bind its successors and that is true of the Westminster system from which this House springs. But there has been nothing new in that across successive Parliaments. Those are the constitutional constraints under which the previous Government operated as well as this one. What is material here is that we have a near unanimous select committee report. We have support from all around the Committee save one increasingly minor soon-to-be extinct party. That gives a very good basis of assurance for members of the public looking forward—that our assurances repeated here today from the chair shall be upheld. 
There are a number of other issues that have been raised by Opposition members and this brief intervention allows me the opportunity to address some of the more egregious of them. Mr Key mentioned the fact that Labour’s pledge card in 1999 stated that only 5 percent of taxpayers would pay the top rate of 39c in the dollar. That was certainly true based on the data available at the time. I think it was 1997-98 data which was the most recent available to us. Then Mr Key went and dropped himself right in the proverbial by saying that one-fifth of full-time taxpayers now went over that threshold. Now that was not the Labour pledge was it—full-time taxpayers? That excludes beneficiaries and it excludes part-time workers. So I am afraid that it is no counterargument to take a completely different data set from that to which the pledge applies and then to assume that one has rebutted it. Mr Key will have to do a whole lot better than that as he continues his apprenticeship. 
Mr Key then went to the next argument that the Opposition has been trotting out; that this debate is really about tax rates not about the simplification of the Income Tax Act. Well the presumption is wrong. This bill is in fact a simplification of the Act. But let us take the rates argument for a moment just as those members have said. The latest OECD tax wedge data shows that for the average full-time worker we have the third or the fourth lowest combined tax wedge. That is a very interesting point because it rebuts the presumption that we were as Mr Key suggested at an advantage when National left office and are now at a disadvantage. Quite the contrary we are still at a considerable advantage. It is also interesting to note that in seeking to drop the company tax rate from 35 to 30 percent of tax we are advised that the net effect would be that about 75 percent of the tax rebate would go to offshore investors. Now why should New Zealanders who need that money for schools and hospitals end up providing a cross-subsidy to foreign investors? I cannot see the point in that. 
Of course the fiscal cost of $500 million would need to come from somewhere. I am intrigued to know from Opposition spokespeople as this debate goes on where indeed it will come from by the time they have paid for that strike aircraft wing scrapped the New Zealand Superannuation Fund and done everything else they have been talking about. I think it was Mr Sowry who wanted to build a motorway from Auckland to Wellington. Just exactly where will their numbers balance? It remains to be seen. Mr Key also said that 60 percent of all New Zealand businesses have a net profit of less than $38000 so the incentives are wrong. I am afraid that that is quite incorrect. The data shows that 60 percent of all New Zealand individuals earn less than $38000. He has his numbers wrong as usual and he will have to do a lot better than that. 
We moved on to an intervention from Mr Prebble. He argued that the tax burden was 40 percent of gross domestic product (GDP). I am informed that in fact the net tax burden is 32 percent of GDP excluding rates or 34 percent including rates. It is good that we are having this debate. However I would just urge the Opposition if it could use reason and evidence to support its arguments the public listening in would be able to get further with its arguments. There is no point in accusing the Government of imposing a 40 percent of GDP tax burden when in fact it is only 32 percent. As National said there is no point arguing that we have a higher-than-average tax burden when in fact ours is near the bottom of the OECD. Could we please stick to the facts if we are to indulge in the area of general tax policy debate? 
I conclude with the point about Maori trusts. My colleague Mr Cosgrove has pretty well answered that; that this issue has been around since the 1950s. I warrant it was brought in by a National Government. Certainly it was endorsed by successive National Governments and the last one did nothing about it. Now in these post-Orewa days National is having an attack of “holier than thou”. That is absolutely fascinating. National did nothing about it when it was in office because it is there for very good reason. Ninety percent of Maori taxpayers earn on the 19.5 percent rate. The compliance costs of dealing with them as if they were on the 33 or 39 percent rates would be prohibitive. However the 10 percent of beneficiaries not included will pay the full rate of tax just like anybody else when it comes to the end-of-year wash-up. There is no tax discount to Maori beneficiaries. There is no benefit to Maori taxpayers that any other taxpayer does not enjoy. Let us be specific: the Maori authority Dr Smith refers to has its purposes limited by the fact that it holds assets on trust. Therefore the distributions that the authorities make to beneficiaries are quite rightly treated as a special case and it is the net income of beneficiaries that counts for the end-of-year tax wrap. So we are agreed on the structure of the bill. We are agreed on the policy. 
RODNEY HIDE (ACT) 
: 
 The ACT party rises to oppose this huge Income Tax Bill. I have to say that the one bit I do like is on page 2026 schedule 1 which states that the basic rate of income tax for taxable income is 19.5c for every dollar. That is a good policy; let us have it. It would be good to tax everyone at 19.5c down from 39c and down from 33c. The bit that gets me is that when members read that they will suddenly realise that only Maori authorities get 19.5c. My question to Harry Duynhoven who is not prepared to take a call but has plenty to say is that if 19.5c is good for Maori why is it not good for the rest of us? Year in and year out Michael Cullen has said that tax cuts were not a good idea for the economy and were not good for business. 
Hon Harry Duynhoven 
: Are you suggesting raising the rate with a whole lot of associated compliance costs because that’s what you’re suggesting—unless you have that. The Minister just explained it. 
RODNEY HIDE 
: Poor old Harry Duynhoven all the way from New Plymouth— 
Hon Harry Duynhoven 
: No not poor old I’m not even old. 
RODNEY HIDE 
: He is old; look at him. 
The CHAIRPERSON (H V Ross Robertson) 
: Order! 
RODNEY HIDE 
: If he interjects on me and takes up my time I am allowed to have a wee whack at the old man from New Plymouth. Harry Duynhoven asked about the compliance costs. If we all went to 19.5c and had a flat rate of tax what do people think would happen to the compliance costs? This bill would go from 2500 pages back to 200 pages would it not? I ask Mr Duynhoven whether that would be fair. 
Hon Harry Duynhoven 
: If you believe in a flat tax system. 
RODNEY HIDE 
: He says it would. 
Hon Harry Duynhoven 
: If you believe in a flat tax system yes. 
RODNEY HIDE 
: It would be fair if one believed in a flat tax system. Now we have the Chair telling Harry Duynhoven to pipe down and not to speak. I tell the Committee that I agree with that clause; it is great. I would just like it expanded to every authority and to every person being taxed in New Zealand. I ask the Hon Harry Duynhoven and the Minister in the chair the Hon David Cunliffe what is wrong with taxing at 19.5c in the dollar. 
Hon Harry Duynhoven 
: You want a flat tax? 
RODNEY HIDE 
: I want a flat tax. 
Hon Harry Duynhoven 
: Well that’s your view; that’s fine. 
RODNEY HIDE 
: Harry Duynhoven said that it is fine to have a flat tax. Is it not fair that if a person earns twice as much money that person should pay twice as much tax not four or five times as much? In fact it is quite odd that if a person earns twice as much that person has to pay twice as much tax. That does not happen when a person buys his or her groceries. That person is not asked how much he or she made last week and is then charged double his or her grocery bill. But let us say that it would be fair that if a person earned twice as much he or she would pay twice as much tax. I would like the Minister in the chair to explain why a person who earns twice as much should pay three times as much income tax. Harry Duynhoven the Labour Government the National Party New Zealand First and United Future all say that we should have a progressive tax system; that as a person earns more not only does he or she pay more tax but he or she would pay proportionately more tax. The ACT party says phooey to that. I tell Harry Duynhoven that we agree with a flat tax or it could be called a proportional tax. 
Brian Connell 
: What about flat Earth? 
RODNEY HIDE 
: I do not know about taxing a flat Earth but if Helen Clark hears that there is a flat Earth I am sure she will tax it. They have taxed everything else including my little cow that was farting which was going to get a tax under this Government—flat or otherwise. Why not have a proportional tax that is the same no matter what income a person is paid? 
CRAIG McNAIR (NZ First) 
: 
 I want to share with the Committee a little bit of background on the 19.5 percent tax rate for Maori organisations. Last year during a debate on finance legislation New Zealand First put up a Supplementary Order Paper proposing that the 19.5 percent tax rate specific to Maori trusts should be available to all New Zealand organisations. We were the only party to do that. The National Party is the one that implemented this tax regime back in the 1950s. 
Rodney Hide 
: Ha ha! 
CRAIG McNAIR 
: As has been said earlier the National Party has supported it year in and year out—[ 
Interruption 
] 
The CHAIRPERSON (H V Ross Robertson) 
: I just remind members that as longstanding members here they know the convention about interjecting across the cross benches. It muffles the microphone and I am having difficulty hearing the honourable member. 
Rodney Hide 
: I raise a point of order Mr Chairperson. The member is talking about the National Party of the 1950s. His own mother was not even born then. 
Hon Harry Duynhoven 
: I think you are absolutely right Mr Chairperson and your ruling should be enforced. Mr Hide cannot have it both ways. He cannot mention me in the debate challenge me then raise a point of order when I answer him then interject complaining to you then interject on Mr McNair. He simply cannot have it both ways. 
The CHAIRPERSON (H V Ross Robertson) 
: Politics as we all know in this place is the art of the possible and the possible that we will explore this afternoon is good order. There are over 400 Standing Orders and Speakers’ rulings that we have to work with and I am craving the indulgence of members to understand that. 
Rodney Hide 
: I raise a point of order Mr Chairperson. You are quite right about the 400 rules—comparable to this Income Tax Bill—but I think we may assist matters in this way. If people want to call out and interject and all the rest of it there is an expectation that they should take a call rather than try to make a speech by way of interjection. Maybe you should point out that we are on a 3-hour slot and that Mr Duynhoven can stand up at any time take a call and explain his views on income tax. 
The CHAIRPERSON (H V Ross Robertson) 
: I thank the member. He is absolutely right and Speaker’s ruling 56/1(3) applies. If members wish to take a call they can do so. 
CRAIG McNAIR 
: I remind Mr Hide that though I was not born in the 1950s I can look at history and that is what history tells me. I point out that year in year out when National Governments have been in power they have supported this tax regime. National also started the treaty grievance industry of today. I remind the people of New Zealand that the National Party is a party that would sell the last of the State-owned assets— 
Lindsay Tisch 
: I raise a point of order Mr Chairperson. The member should concentrate on the issue under debate and not comment on National’s position because he is way out of line. He does not understand what has gone on of recent times. We are debating the Income Tax Bill and it is appropriate that you invite him to concentrate on the substance of the debate. That is what we are here for. 
CRAIG McNAIR 
: Speaking to the point of order Mr Chairperson I outline the fact that I was reminding this Parliament and the New Zealand public who are listening— 
Jill Pettis 
: You’re not allowed to refer to the listeners. 
CRAIG McNAIR 
: Thank you. I was reminding the Committee of what the National Party is really like; I am talking about something that a National Government implemented. 
The CHAIRPERSON (H V Ross Robertson) 
: The member was OK in the point he made initially but he started to stray when he brought the National Party into it. I ask the member to come back to the debate. 
CRAIG McNAIR 
: Basically I want to outline the fact that New Zealand First was the only party that last year put up a Supplementary Order Paper to make that specific 19.5 percent tax rate for Maori trusts available to all New Zealanders. 
Hon DAVID CARTER (National) 
: 
 I accept the challenge made by the junior Minister in the chair the Hon David Cunliffe that National should front up with examples showing that if the New Zealand company tax rate were lower than Australia’s it would affect the behaviour of international companies looking to come to New Zealand and the behaviour of current New Zealand companies looking to go to Australia to take advantage of its lower company tax rate. I can give no better example than Air New Zealand and I would be very grateful if the Minister would take this up with the Hon Dr Michael Cullen on the 7th floor at the 6 o’clock tea break. Air New Zealand is a very good example of the way that companies adjust their business and where they operate. The Minister of Finance is now an 85 percent shareholder in Air New Zealand. Mr Cunliffe should be aware that Air New Zealand is currently involved in a tax dispute—it has been signalled on the front pages of all business papers in New Zealand—with the Hong Kong authorities. 
Lindsay Tisch 
: He doesn’t read them. 
Hon DAVID CARTER 
: Well the member should read these papers because the majority of Air New Zealand is now owned by the taxpayers of New Zealand. Following some very poor decision-making by Dr Cullen in not accepting interest from Singapore Airlines the New Zealand taxpayer is now saddled with Air New Zealand. Air New Zealand restructured its affairs and based a company to lease aircraft in Hong Kong for one reason only—namely a tax advantage. 
Dr Wayne Mapp 
: 15 percent. 
Hon DAVID CARTER 
: There is a 15 percent tax rate for the company leasing aircraft in Hong Kong and that is why Air New Zealand structured its business affairs that way. I tell Mr Cunliffe that is just one example of a company adjusting its affairs to make sure it gets the most advantageous tax rate it can. For Mr Cunliffe to argue that that will not happen if our tax rate is set at or below the current corporate tax rate in Australia is ignorance in its extreme. 
I also want to pick up on the special tax rate for Maori authorities. I heard Mr Duynhoven interject across the Chamber saying it is a fallacy. I want the member to open the bill at page 2026where it talks about the tax rate for policyholder income being 33c in every dollar for trustee income being 33c in every dollar for companies being 33c in every dollar and for trustees of group investment schemes or funds being 33c in every dollar. Yet when we look at Maori authorities it reads as follows for the benefit of Mr Duynhoven: “The basic rate of income tax for the taxable income of a Maori authority is 19.5 cents for every $1 of that taxable income.” Nothing could be clearer for the benefit of Mr Duynhoven or Mr Cunliffe or every other member of the Labour Party that this legislation cements in place a tax rate that is advantageous to Maori authorities. Nobody can argue against that. 
But the question I have of the Minister in the chair as I look through the 2000-odd pages of the tax bill is that I do not find a definition— 
Hon Harry Duynhoven 
: Quote the next sentence I said if you are not that ignorant. 
Hon DAVID CARTER 
: Mr Duynhoven can take a call if he wants. What I have said is absolute fact and if he had bothered to study the bill he would know that. I know that the bill is big but he should look at page 2026. My question to the Minister is where in this tax legislation will I find a definition of “Maori authority”. I have looked for it and cannot find it but I did not have the opportunity of working on the Finance and Expenditure Committee and I accept that it may be in the bill. But it would be advantageous to have that answer. 
BRIAN CONNELL (National—Rakaia) 
: 
 I am exhausted just looking at this bill let alone reading it. I have to admit that I did not have the strength to carry it all down here—2307 pages of it—but I was compelled by Mr Hide’s argument so I looked at the page and Mr Carter has also brought it to our attention as well. Mr Hide said the rate of tax for Maori authorities was 19.5 percent which is a flat rate. I thought that was a pretty good idea. If Mr Hide said it I thought that was good enough. Then Mr Carter said it and I thought I had better look for myself. So I went to page 2026 and looked at Maori authorities in Part A “Income tax” of schedule 1 and I do not know what the debate is about. I do not know why Mr Duynhoven is calling out because clause 2 states—and I will read it for Mr Duynhoven and others; it is quite clear—“Maori authorities. The basic rate of income tax for the taxable income of a Maori authority is …” 
Rodney Hide 
: 19.5. 
BRIAN CONNELL 
: Thank you. Mr Duynhoven also confirms it so he knew about it all the time. So he concurs. The provision continues: “… 19.5c for every $1 of that taxable income.” 
This legislation really is an epic. I was looking through some of the background notes before I came here and I see that not only is it a huge undertaking but it started with a rewriting of the Income Tax Act of 1976 and the first component was finished in 1994. I assume that was under a National Government. 
Hon Harry Duynhoven 
: So was 1976. 
BRIAN CONNELL 
: I thank Mr Duynhoven because he has just called out what I was going to go on to say. The second stage was completed in 1996 but— 
Hon David Carter 
: Good days—they were good days. They’ll come again. 
BRIAN CONNELL 
: They were good days but in the intervening time it has not been done. Now we are getting to the third stage and hopefully we will try to bring it to a conclusion. 
I congratulate the Labour Government on introducing legislation that will have a flat tax of 19.5 percent provided it applies to everybody. The Minister might want to take a call and clarify that point. I am sure that is what he meant when he shook his head in acknowledgment saying it would be for everybody. 
Hon David Carter 
: The Minister’s agreeing with it. 
BRIAN CONNELL 
: He is agreeing with it. I think that would be an outstanding outcome. 
Hon David Carter 
: An amendment should be made. Move an amendment! 
BRIAN CONNELL 
: Oh no—the Minister can clarify that. I will not need to. 
I go on now to see that the key aim of the rewrite of the project is to produce tax legislation that is clear uses plain language and is structurally consistent. That sounds pretty good; I concur with that. I do not think there is much argument in the Committee about that: our tax legislation and the wording around tax is extremely confusing. It is so confusing that a huge number of people become non-compliant because they are either ignorant of our tax laws or they simply do not understand them. What this creates is an industry for lawyers and accountants to work a vortex system where a lot of activity is going on in a sub-economy which is not growing this economy for the folk of New Zealand. 
In framing this legislation I also see the Government saying that it has been involved in public consultation. If that were the actuality of this Government’s process then I say that that is sensible and timely but I have severe doubts about this Government’s commitment to consultation. It says it consults but the reality is that in most cases it is found wanting. I have found press release after press release from business community interests saying that this Government has not consulted them when it says it has. 
I see that the bill rewrites Parts C D and E and aspects of Parts A and B and I have a genuine question for the Minister as the commentary states it “re-enacts” but does not “rewrite” the remainder of the Act. I really do not understand what that means. Maybe the Minister in the chair could take a call and explain to us exactly what he means by that. I just find that a little confusing. 
I notice that the Act will come into force on 1 April 2004 and I hope that is not an April Fool’s Day joke. If the Minister says it will happen on 1 April I believe it will. The bill applies to income derived in the 2004-05 tax year and in later tax years or in the corresponding period. The explanatory note goes on to state: “Care has been taken in the development of the bill to ensure that it has the same outcomes as the current Act.” This is a very important issue. 
Hon DAVID CUNLIFFE (Associate Minister of Revenue) 
: 
 I do appreciate the support of members opposite including the National Party members. The only thing is that when they give support they sometimes have a funny way of showing it. I understand that they will be voting for this bill and I appreciate that because the content is worthwhile. But I guess that also means they will be voting for the provision on Maori trusts—and why would they not? They did not change it the last few times they were in power. It has been around since the 1950s. 
Hon David Carter 
: What is the definition of a Maori trust? 
Hon DAVID CUNLIFFE 
: I really wish Mr Carter would read the bill for himself but it is on page 1878 in clause OB 1. 
But let us get back to what is really being said here. I am afraid it is another example of “Brash disease” spreading throughout the Opposition caucus. It is really another attack on Maori and I must say I am getting rather sick to death of this. People are using very generic legislation and even legislation for purposes with which they agree and provisions for which they will be voting but it does not stop them attacking people because of their ethnicity. 
Now if we are talking about who is actually paying tax and who is not paying tax then I think we need to be talking about— 
Rodney Hide 
: I raise a point of order Mr Chairperson. I just ask you to caution the Minister. I think he has broken the Standing Orders already. He has talked about the “Brash disease”. I do not think you would allow us to talk about the “Clark disease” which is far more virulent and dangerous. I do not think you would allow us to attack members of Parliament for attacking people on the basis of their ethnicity. That has not happened here today but what Mr Cunliffe is doing is accusing us on this side of the Chamber of racism by using cute words to get around it and I ask you to caution the Minister in the chair against going down that chute. In fact my speech was that I loved the 19.5c; I just wanted it for everyone. 
The CHAIRPERSON (H V Ross Robertson) 
: I thank the honourable member for his contribution. I had been thinking along those lines so I am glad he drew it to my attention and it has been drawn to the attention of the Minister. 
Hon DAVID CUNLIFFE 
: This Government does believe that the same rates should apply to organisations in the same situation. There is no parallel for the situation of Maori trusts whose uses of the funds they hold in trust are limited. There is no parallel for the fact that 90 percent of beneficiaries have an income that is in the lowest tax rate. That is why they are being treated appropriately and at the end of the year people pay the full tax wash-up. 
If the ACT party wants to talk about who is and who is not paying full rates of tax then they might wish to think about some of their own supporters. They might want to think about things like trust funds or complex tax structures using series of shelf companies. I would be quite interested to hear Mr Prebble come back to the Committee and tell members about complex company structures that might not provide full information about people’s tax liabilities. 
I would be interested to hear someone talk about how much tax the major banks are paying for example. I would not want to say anything that was taxpayer-specific but I would be very surprised if any of them were paying 19.5c in the dollar and that is a matter that the Government—as Dr Cullen has said—has under investigation. 
Before members start talking about Maori—and members opposite have mentioned the foreshore—let us remind ourselves about the substantial holdings of coastal land that some very high-wealth Pakeha individuals have. 
Sitting suspended from 6 p.m. to 7.30 p.m. 
PANSY WONG (National) 
: 
 I am glad to see the Minister of Finance in the chair because I am sure that he will be very happy to enlighten us on a few questions. We are here to debate the 2000-odd pages of the rewritten Income Tax Bill. Not only is that the case but Supplementary Order Paper 195 has also been tabled. I would like the Minister of Finance to take a call to address some concerns that I did not originally have until during one question time the Minister said that the Inland Revenue Department was conducting a tax investigation into some New Zealand trading banks. We were assured that this bill which the Finance and Expenditure Committee members put a lot of work into deliberating on would not change taxation policy but obviously the implication of what the Minister of Finance said during question time a few weeks back is that some of the income tax provisions we are now currently debating may in effect not be watertight. If that is the case should the House hold back from passing the 2000-odd pages of this bill? 
Why waste a golden opportunity to make some changes to the legislation? After the Minister raised the issue of a tax investigation into the trading banks I think it cast doubt in the public’s mind as to how watertight our income tax legislation is and how law-abiding our trading banks are. I think that to be fair to both the public and the trading banks—and apparently our Inland Revenue Department has been carrying out the investigation for a year—the Minister should take a call to persuade the National Party as to why it should continue to support this bill. Dr Cullen promises that the bill will not change taxation policy but at the same time it seems to me that the Minister and the department have some doubts about the activities of the trading banks in terms of whether they have been paying their proper tax bill. I think that is quite a serious issue and that the Minister should take a call to tell us why the legislation is being rewritten and to reassure us that the bill is not intended to change taxation policy. Some doubts are being cast on whether the provisions of the legislation are adequate to ensure that New Zealand taxpayers are getting good value and on whether our trading banks are observing the tax legislation. 
The Minister may also like to take a call to address this legislation in the light of the cancellation of Project Aqua by Meridian Energy. We heard representatives of the petroleum industry say on the news that they are very happy to come in and help in this situation by taking up more exploration activity and will look to the Government for some encouragement to do so through a fiscal or tax provision. I wonder whether the Minister will take a call to say whether in light of the looming energy crisis that faces New Zealand the Government is to miss that golden opportunity to address some of those issues. 
I took this early call firstly to ask the Minister to address in particular my first question relating to the investigation into trading banks in New Zealand—when that investigation may be concluded and whether this legislation will be subject to very early amendment. Should we rush to pass 2000 pages of tax legislation or wait for further amendments to come? But I have another question that the Minister may want to address. One of the provisions in this legislation relates to film production. I guess it relates to the very famous producer Mr Peter Jackson and to  
The Lord of the Rings 
. There has been some debate in public between Mr Jackson and the Minister of Finance with regard to how generous a tax concession Mr Jackson’s company received. I have read the provision that relates to the film industry and to film production and I want to know what is deductible within it. I want the Minister to address that and say whether the current provision within this tax— 
Hon David Carter 
: You’ll get another call. 
PANSY WONG 
: Exactly. I will continue to take calls and ask these serious questions until the Minister stands up to address them. Mr Jackson reckons that the tax concession given to his film production company was not very generous. I want to know whether the Minister can assure us that the provisions relating to film production in this bill apply to everybody and can tell us how generous they are. 
The Labour Government always loves to claim credit— 
Hon David Carter 
: King Kong. 
PANSY WONG 
: Yes he is King Kong. I want to know whether this legislation will be an encouragement for Mr Peter Jackson who has started to work towards his next Oscar award with regard to  
King Kong 
. The Labour Government has claimed much credit for the success of New Zealand films so has the provision been generous or was the tax concession —as Mr Jackson has said it was as far as he was concerned—really chicken feed? 
I remind the Minister that I have asked two questions. I have a third one so it is really worthwhile for this Minister to take a call. My third question relates to Maori authorities. We know that last year the National Party voted against this yet— 
Dr Wayne Mapp 
: We voted against it. 
PANSY WONG 
:—none the less the Government with the help of United Future passed legislation to allow Maori authorities to claim a tax rate of 19.5 percent. The 19.5 percent was meant to apply only to Maori authorities because there were restrictions on what they could do with their assets and on the way they could distribute profit. But I have been told some people believe that wholly owned subsidiaries of Maori authorities which were not supposed to be entitled to claim the 19.5 percent tax rate were restructured to take advantage of it. I say to the Minister that that is a very serious issue because wholly owned commercial subsidiaries of Maori authorities are competing on a commercial basis with other private enterprise and if they are claiming that tax advantage then it is not a level playing field. I think the public deserves to hear from the Minister that the 19.5 percent tax rate is applied only to Maori authorities and he should categorically assure the public that wholly owned commercial subsidiaries of Maori authorities cannot take advantage of that rate. If they do then it is not fair to other private businesses that have to pay income tax at the 33 percent rate. 
My fourth question—this is why it would be worthwhile for the Minister to answer my questions—concerns the Minister’s championing of one economy between New Zealand and Australia. Maybe he would like to take a call to tell us why it is not desirable for New Zealand’s company tax rate to be the same as that of Australia. 
I am pleased to see the Minister of Finance diligently scribbling things on his writing pad. I am sure that the public will be delighted to know that he will indeed take a call to address the four questions that I have raised. After all we are debating a tax bill that is over 2000-odd pages long and I would like to think the Minister appreciates hard-working members asking appropriate questions in order to get his reassurance that this bill will not change any taxation policy. 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 I want to respond to one or two of the matters raised. I outline the fact as Mr Carter will be aware—and I am very grateful to him as one of my predecessors for the work that was started under the previous National Government in terms of this rewrite programme and to Mr Dunne who was also a part of it—that there has been a very clear rule applied by successive Ministers that the kinds of issues the member has raised are not dealt with in the rewrite programme. If we wait to try to deal with every taxation issue that somebody wants to have addressed by way of legislation before we do a rewrite we will never do the rewrite. Indeed a large part of Supplementary Order Paper 195 actually incorporates the last taxation bill passed into the rewritten Income Tax Bill. The purpose of that is to make life easier for taxation practitioners who will have access to one up-to-date full version of the legislation. 
I will just take up a couple of points that the member raised. On the last point as I have said many times to some leaders of business if they want New Zealand to have a lower company tax rate—much lower than Australia’s—they should give me the other parts of the Australian taxation system which they do not want to pay either. For example the Commonwealth of Australia has a 6 percent payroll tax. If we had a 6 percent payroll tax in New Zealand we could probably halve the company tax rate. If we also had the Australian state payroll taxes we could more than halve the company tax rate in New Zealand. That is without counting the capital gains tax the inheritance tax and the various other taxes that Australian businesses have to pay directly or indirectly. Of course New Zealand business wants to just cherry-pick one little bit here and leave all the other bits off. The offer is open; it is on the table for New Zealand businesses. They can come and talk to the Minister of Revenue and if they want to have a really low company tax rate they have to give me the other bits that are paid in Australia. I have to say that in terms of tax design they are not as good as our system is. The design of our taxation is better than Australia’s in that respect. But if that is what is really important to businesses—if that is the teddy bear they want to take to bed with them at night—then they have to give me the little eyes and the funny nose to put on it as well in order to make the thing up and make it look proper when they go to bed with it. 
I will also deal with the issue of films. I am not allowed to know the total tax deduction that the financers of the film not Mr Jackson received. The financiers actually got the tax deduction which is why Mr Jackson may well not know the total value of it—it was not his company that received it. All I know is that when National introduced legislation to remove that taxation loophole by grandparenting the existing provisions—it was then amended by the select committee of which I had the honour to be a member—the Inland Revenue Department advised that the cost of the grandparenting provisions was between $300 and $400 million. The largest part of that is almost certainly in relation to  
The Lord of the Rings 
. When I see the Oscars lined up I see about $30 million for each of them. Will  
King Kong 
 benefit? That film will not benefit from the taxation loophole because it was wiped out in 1999 by Mr Carter myself and various others. But  
King Kong 
 will benefit from the Large Budget Screen Production Grant Scheme which is much easier to control than the taxation loophole I must say in terms of its cost. Probably without the Large Budget Screen Production Grant Scheme we would have  
King Kong 
 without the ape so to speak and without everybody else appearing within the film. [ 
Interruption 
] The start will be the hard bit to do really. I suppose the BNZ building—“Darth Vader’s tower”—is the most appropriate place to do that in Wellington. 
In terms of the banks that matter is all under the existing law and remedial measures are not and should not be part of this bill. If we were to mix up remedial legislation base protection legislation and other changes with the income tax rewrite we would never get the income tax rewrite done. 
Hon PETER DUNNE (Leader—United Future) 
: 
 I was not going to take a call in this debate but I listened very carefully to the member who spoke immediately prior to the Minister. One of the things she said that aroused my attention was that she was concerned this bill was being rushed. I should tell the Committee that this bill’s genesis goes back to the time when Robin Oliver who is sitting to the right of the Minister in the chair Michael Cullen was a callow youth. Many of us have aged considerably during the genesis of this legislation. I was the Minister 8 years ago and it was on my work programme at that stage so it is hardly rushed legislation that we see in the Chamber this evening. In fact if one thinks back over the tax reforms that have been made over the last 20 years one realises this rewrite—which is effectively a rewrite of legislation first passed in 1913—is long overdue. [ 
Interruption 
] It goes back to the genesis of income tax in this country in 1913 and the legislation has been repeatedly amended. This is the first substantive plain-English rewrite in the history of that legislation. By my calculation it is some 80-odd years since income tax began so claims that this is rushed legislation are ever-so-slightly exaggerated. 
I want to speak briefly about the issue of film tax. The Minister made some comments about that and I recall the situation in 1999 particularly well because I was the chair of the Finance and Expenditure Committee at the time. I recall the claims made to that committee by a variety of people in the film industry that if we dared to tamper with the existing regime which provided for the most generous write-offs previously known to humanity then the film industry in New Zealand as we knew it would die. The select committee was to put it mildly somewhat sceptical about those claims. We called together the representatives of the film industry of the Inland Revenue Department and of Treasury. Mr Oliver and others—Dr Cullen certainly—will recall that we had a round-the-table morning when we actually sorted out with the Minister’s concurrence the regime that we have now. All the dire threats that that would be the end of investment in films in New Zealand look a little hollow today when we celebrate the success of Peter Jackson and  
The Lord of the Rings 
 because that was at the time that  
The Lord of the Rings 
 project was getting off the ground. The issue being raised was not just related to  
The Lord of the Rings 
 and the grandfathering provision but to the message that it would send thereafter. Since that time we have had  
The Last Samurai 
 and we are talking about  
King Kong 
. I see there is talk now of  
The Lion the Witch and the Wardrobe 
 which has been announced in the last couple of days as being another film likely to come to New Zealand.  
The point I am making is that the film regime we now have may not be perfect but it is a vast improvement on what we had previously and there is certainly no great evidence—contrary to the member’s claims—that it acts as a disincentive to investing in New Zealand. In fact the evidence is quite to the contrary of that. All the evidence we see and hear—at the Oscars in Los Angeles and from other producers—is that New Zealand is a very attractive destination in which to make movies. That has nothing much to do with the tax system and a lot to do with the scenery the cost of labour and the expertise of our film makers. So I think that that argument is a little spurious as well.  
Pansy Wong made some other points that I do not intend to go into. But I do find myself having to rise to defend the honour of a variety of past Ministers including my immediate predecessor the Rt Hon Wyatt Creech who—I am sure—would be horrified at the accusation that he was party to rushed legislation in the Chamber tonight given that he ceased to be the Minister in charge of the bill about 9 years ago. This is a long overdue rewrite. Our taxation laws were a mess because of the complexity of the changes that have been made over recent years. The fact that the law and the drafting of it have not kept up with changes in style and form and the fact that we could have arguments about form and substance in another context all demonstrate that the rewrite is long overdue.  
This bill has been through the Finance and Expenditure Committee; it has been considered ad nauseam. A Committee of the whole House process of this type is not unreasonable. The myriad number of taxation practitioners and those who follow these matters with interest will be desperately keen to see this project which has had a “mists of time” feel about it finally enacted. We are embarking on that process this evening and I am delighted at last to see work that I thought would never be completed coming to fruition. 
DEBORAH CODDINGTON (ACT) 
: 
 I will follow on from the Hon Peter Dunne because he brought up the subject of  
The Lord of the Rings 
. I ask the Minister to take a call and tell us whether at the time he actually supported that arrangement for  
The Lord of the Rings 
. We all know that the true story about the financing of that trilogy has yet to be written and I remember the Minister—I am sure it was the Minister at the time—saying something like: “Every New Zealander should get a free ticket to this movie because it was made on the backs of New Zealanders. We were very lucky it was a success because if it had not been a success we would have been taking a bath.” There are a number of questions to be answered and the Minister knows exactly what I am talking about. Was the film signed off in the correct time frame in order to be entitled to those tax breaks? There are a number of things— 
Darren Hughes 
: This is from the sleuth journalist. 
DEBORAH CODDINGTON 
: Those members over there on the Government benches might jeer but the Minister knows what I am talking about. He was not in favour of that. Of course we are all pleased about  
The Lord of the Rings. 
 Peter Dunne said that it is nothing to do with tax breaks that movies are made here. If that is the case why has Peter Jackson lobbied this Government so hard for more tax breaks for film makers? Why does he say he will take his films somewhere else if it has nothing to do with tax breaks? If that Minister is so informed on economic matters why does he think that incentives do not work? Of course incentives work. Everybody knows that. One needs only half a brain to know that incentives work. 
The ACT party is not supporting this bill because we cannot support legislation that has in it such an “envy” tax—such ideological tax rates as that of 39 percent for any income over $60000. There was no need to bring in that rate when this Government came into power. There was no need for that extra money in the coffers of the Government—as we have well seen with the operating surplus. It was just a way for this Government to say: “We will punish you because you are successful.” If people work hard the Government will punish them instead of rewarding them and celebrating them. If people run a company that is doing well the Government will not celebrate that either. Why does the Government not give everybody a tax cut right across the board? Why should there be a progressive tax rate at all if not just to punish the successful—those who work hard? 
There is however one clause I can support—that is clause 2 in Part A of schedule 1 “Maori authorities”. I applaud the Minister for that provision: 19.5c for every dollar of taxable income. That is a really good start a very good start. I urge him to take that rate and apply it everywhere else. The Minister when he took a call before based his argument on the status quo of spending but he has not taken into account the fact that this Government is spending far too much already. We have huge spending on “Nonsense Castle”. How many people are employed by the Ministry of Education? There are 360 Maori employees for a start and they are just 12 percent of the total number of employees in that ministry. Why on earth do we need to have as many people as that on the payroll at the Ministry of Education when we can give funding directly to students and pupils? We should let parents choose and let communities decide and take the bulk of funding which after all is taken from taxpayers to educate children. We should let the bureaucracy have what filters up through the system rather than the other way around as it is at the moment where the Government hands out all the money to the bureaucracy and what is left—what filters down through the system—reaches the schools and the children who need the education. 
Why should there be a Ministry of Women’s Affairs? If this Government supports that ministry so much why does it not have a “Ministry of Men’s Affairs”? Why not? If a Ministry of Women’s Affairs is so good why not have a “Ministry of Men’s Affairs”? It is of course just to keep people on the bureaucracy payroll. Women have gone so far now we do not need to be pandered to thank you very much with a Ministry of Women’s Affairs. 
Dr WAYNE MAPP (National—North Shore) 
: 
 Listeners tonight will be interested to know that National is supporting this bill. The reason we are doing so is that it is a consolidation and rewrite of the legislation. That is an important project. For instance a former colleague of mine currently teaching about tax has written a book of some 1200 pages—I have written a small portion of it—and he will be incorporating the outcome of this legislation which I presume will have its third reading next week. So the professional community—accountants lawyers tax specialists and tax agents—are looking forward to the passage of this bill. I am certainly conscious that it has been the work of many many years to bring it to fruition. 
Mr Dunne referred to the fact that it is the outcome or outgrowth of legislation from 1913. I must confess that I was under the impression that legislation went back to the 1890s for the first income tax Act. But the remarkable thing is that that early legislation had about 100 clauses and was about 30 pages long. Today we are faced with two massive volumes of well over 2000 pages yet every tax practitioner would be able to tell us that the core of the Act is still contained in just 20-odd clauses at the beginning of the legislation. 
However just because we are supporting the legislation that support should not be interpreted—as the Government is most unjustly doing—as supporting its unreasonable and irrational policies. I refer members to an example of that. I was frankly amazed to hear the Minister of Revenue trumpeting about why New Zealand’s corporate tax rate had remained at 33 percent. That is quite remarkable at a time we have a surplus approaching $6 billion. Some might indeed liken the Minister of Finance to Scrooge sitting on his piles of money unwilling to let any part of it go and wanting to amass and accrete more and more. Is he considering perhaps an $8 billion surplus next year but is unwilling to let any part of it go? 
I have news for the ideologues of the left—those people represented by the personage of Dr Cullen—it is not the Government’s money; it is the product of hard-working New Zealanders firms and businesses and the money the Government takes off those firms and businesses is money not available for investment. Now the Minister of Finance says that people can have their 30 percent tax rate provided they have every other part of the Australian tax system—capital gains and so forth. He has forgotten about the accelerated depreciation allowances which I can tell him many people would like to have. 
But the real point is that the Minister is completely unaware of the concept of comparative advantage. Why does the Government not give New Zealanders and New Zealand companies a head start? Does it not realise that in many respects we are disadvantaged in New Zealand? We have a smaller economy a smaller market and a location further away from our markets—all of those things add costs to New Zealand businesses. Why not give those businesses a head start? That is the way to growth. The Minister must surely know of the experience of Ireland which gave precisely that advantage to its businesses. Ireland is off the coast of Europe isolated and having to deal with the disadvantages of that so the answer was to give people a special advantage and if the 30 percent rate leads to an advantage for New Zealanders over Australians frankly I say: “Well and good.” That is actually what New Zealand business needs to sustain investment jobs and growth. I urge the Minister to take the message on board. 
Hon DAVID CARTER (National) 
: 
 I will take the opportunity while Dr Michael Cullen is the Minister in the chair to get some answers to questions that I asked earlier when his junior Minister David Cunliffe was in the chair before the dinner adjournment. My issue was around this argument that has just been developed very well by my colleague Dr Wayne Mapp: the advantages of a tax rate of 30 percent which is at least as good as Australia’s. David Cunliffe challenged us to give examples of why that would affect the behaviour of various companies. 
He argued it seemed to me that if there were a difference in the tax rate then companies would not be inclined to make decisions that mean they accept the generosity of Australia. Of course I do not think that is right and I quoted to Mr Cunliffe an example which I think the Hon Dr Michael Cullen might also like to comment on. 
My simple question is why his airline Air New Zealand established its leasing arrangements in Hong Kong if it was not simply to gain the advantage of a far better tax rate. Would Dr Cullen like to explain to the Chamber tonight why Air New Zealand took the opportunity to establish its leasing company in Hong Kong if it was for any other reason than that it saw it as tax advantageous? If he accepts that that is the reason and I cannot see how even our Minister of Finance could argue that it was for any other reason then it is surely logical that there are companies now in New Zealand that are considering Australia as a base for production because of advantageous company tax rates and equally that there are Australian companies that might be tempted to come to New Zealand if we had a similar tax regime. 
The second question I want answered relates to the definition of “Maori authority”. We had quite a debate before the dinner break on the advantageous tax rate that is available to Maori authorities with Harry Duynhoven initially interjecting that this Income Tax Bill did not give an advantageous tax rate to Maori authorities. That is clearly wrong and I think Harry Duynhoven has accepted that. I then asked the Minister to point me in the direction of where “Maori authority” is defined and I thank him for pointing us to page 1878. As I read it a Maori authority means a person who has made an effective election under clause HI 3 “Election to become a Maori authority”. I have to say not having had the opportunity to work through the select committee that I am none the wiser as to who has the ability to elect to be classified as a Maori authority and therefore enjoy a substantially advantageous tax rate. 
I refer to my own area and the performance of Ngai Tahu and I would be grateful to know whether its commercial entities could be classified in an advantageous way to be described as a Maori authority. I certainly think that if that is the case we need to have an understanding of where this definition extends. For instance—and I see the Minister taking an interest in this—Ngai Tahu has just been involved in a full takeover of a publicly listed company Shotover Jet. I would be horrified if that particular entity were now able to structure its affairs so that it was paying tax at 19.5 percent when a similar operation on the Kawarau River for example was facing a corporate tax rate of 33 percent. 
The final point on which I want clarification from the Minister is that I note in the report from the select committee—and I acknowledge that I was not at the select committee and I have not been through the 2300 pages in detail—that the work took place through 2003. At that time the Minister whether or not he wishes to recall it was part of a Government that was promoting the “flatulence tax” and I just want to make sure that nowhere in these 2307 pages is there hidden away the wonderful idea that Mr Hodgson came up with regarding the “flatulence tax”. 
Hon Dr Michael Cullen 
: Open it up and have a sniff. 
Hon DAVID CARTER 
: I hope it is never to be seen again and I look forward to the Minister’s comment and his confirmation of that. 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 On the member’s last point—yes I can assure him about that. On the other point he raises I will look into that and come back to him on the question of the subsidiary because I do not have that information to hand. I thank the member and indeed all colleagues for their cooperation on this bill. It would otherwise have been impossible to get this bill through and the huge amount of work that has been done by successive Ministers the department the Parliamentary Counsel Office and others would really have been for nothing. 
Dr MURIEL NEWMAN (ACT) 
: 
 I take a call with regard to the Income Tax Bill and in particular I will draw the Committee’s attention to clause CB 1 which deals with the amount of money that people derive from a business. In particular it states that the amount that a person derives from a business is regarded as income of that person. There is an exemption for amounts of a capital nature. The Minister in the chair Dr Michael Cullen can correct me if I am wrong but this is the clause where if section 2 which is the exclusion were removed it could be used to introduce a capital gains tax as I understand it. The exclusion is there so this clause does not include capital and therefore this bill does not introduce a capital gains tax. 
But I will use this opportunity to talk a little about the fact that when a rewrite bill like this Income Tax Bill is in front of Parliament it is an opportunity for people to put up ideas and suggestions. A little while ago under the Official Information Act we asked the Minister whether anybody had been recommending capital gains taxes or any other such mechanisms. We received a response indicating that Mr Copeland from United Future had written to the Minister of Finance to suggest that a capital gains tax on residential rental properties would be a good idea. 
At the time Mr Copeland was very concerned that people’s investment in rental properties was crowding out their investment in other business opportunities so he suggested that the Minister of Finance might like to consider the idea of introducing a capital gains tax on rental properties. That would of course be of enormous concern to hundreds of thousands of New Zealanders who invest in rental property these days often as part of their superannuation investments to help fund their retirement. 
I am pleased to say that when the Minister’s advisers at Treasury looked at this request from Mr Copeland and considered the pros and cons of introducing a capital gains tax they said it would be difficult because it would be quite hard to establish whether when somebody invested in a rental property he or she was investing in the long term—in other words with no intention to sell it—or in the short term with a desire to turn it over realise the capital gain and maybe reinvest that money; in effect to trade in property. So the officials advising Dr Cullen suggested to Mr Copeland of United Future that at this stage a capital gains tax was maybe not the right thing to do. 
 But then they did go on to say that the depreciation rate on properties might be a more fertile area for the Government to look at if the Government was going to consider trying to gain more income from the rental property investment market. So I understand that the Minister is looking at depreciation rates. He is now looking at halving depreciation rates on rental property investments—the amount they can claim back. I wonder whether the Minister wants to comment on whether this was partly stimulated by Mr Copeland’s suggestion but I am pleased to see as this very large Income Tax Bill goes through that the spectre of a capital gains tax has been put in the coffin. Mr Copeland might like to reflect on whether raising these issues is sensible given that it is discoverable under the Official Information Act. 
GORDON COPELAND (United Future) 
: 
 I was somewhat surprised suddenly to find Muriel Newman talking about correspondence with Michael Cullen and subsequent Treasury advice in the context of the Income Tax Bill. However I think I probably should take a right of reply just to cover some of the misinformation that is contained in the remarks she made. 
First of all let me say I think it would be a very sad day if people came to this Parliament with completely predetermined positions on tax issues. If we are endeavouring as I am to create a situation in New Zealand where we do not have investment distortions where we do not have tax-driven investment coming into the economy in the wrong places—into places that are not productive—versus places where according to market signals that money should be going then it is quite right and proper and responsible for a member of Parliament to raise those issues with the Minister of Finance. 
I might say to put the record straight that United Future has no policy in relation to bringing in a capital gains tax on residential rental properties. I do think though that capital gains tax on share schemes on share investments on various trust funds and on various insurance policies should be revisited if we are to get some kind of level playing field and to avoid investment distortions in terms of where people put their money. 
I would like to make something else clear. The claim has been made not only in this Chamber but also to the media and to property investors in this country that somehow my letter to the Minister of Finance resulted in the Inland Revenue Department deciding to undertake a review of depreciation rates. The release given under the Official Information Act to the ACT party made it very clear that that was already on the Inland Revenue Department’s work list prior to my correspondence coming in and I do not think the two are directly connected in any way. 
It is important to clear up that little matter and to say that the problem however still remains—that in my view we do have great investment distortion in this country. New Zealand’s economy and its companies could benefit if the existing anomalies around capital gains tax on investments on the stock exchange could be removed so that we could see a greater proportion of the nation’s savings going into that area. That is just a brief comment but I thought it would be good to clarify those issues. 
The question was put that the amendments set out on Supplementary Order Paper 195 in the name of the Hon Dr Michael Cullen be agreed to. 
Amendments agreed to. 
A party vote was called for on the question  
That clauses A1 and A2 Parts A to Y and Schedules 1 to 23 as amended be agreed to. 
Ayes 111 
New Zealand Labour 52; New Zealand National 27; New Zealand First 13; Green Party 9; United Future 8; Progressive 2. 
Noes 9 
ACT New Zealand 8; Independent: Awatere Huata. 
Clauses A1 and A2 Parts A to Y and Schedules 1 to 23 as amended agreed to. 
Bill reported withamendment. 
Third Reading 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 I move  
That the Income Tax Bill be now read a third time 
. 
Mr SPEAKER 
: The debate is interrupted and set down as an agreement from the Business Committee for resumption on Thursday 8 April 2004. 
Debate interrupted.