Parker DavidSecond ReadingHon DAVID PARKER (Minister of Revenue): Thank you Madam Speaker. This is the first time I've spoken since you've been in the Chair so I congratulate you on your new office. I move That the Taxation (Income Tax Rate and Other Amendments) Bill be now read a second time. This is a good bill. It contains measures that will support working families through adjusting the minimum family tax credit—I'm going to come back to that. It helps our tax system raise revenue to fund important public services and though this is derided by the Opposition debt will be lower in New Zealand as a consequence of this bill than it would be without it—Government debt. It also enables Inland Revenue to collect information to help monitor tax compliance to ensure that everyone's paying a fair share of tax. I'm going to provide a brief overview of the measures in the bill starting with the minimum family tax credit. This is a measure that helps support lower-income families and the role of the tax credit is to sort our ambition to encourage people into work. For that to happen employment must be a better financial option than being on a benefit so the minimum family tax credit is financial support to ensure that families are better off in the workforce than they would be on a benefit. As the benefit system adjusts so too must schemes such as the minimum family tax credit to make sure that the financial incentive it provides continues to meet its objectives. As part of the Government's response to the COVID crisis in March the main benefit payments were increased by $25 per week. This bill proposes to retrospectively adjust the minimum family tax credit threshold as a result of those changes. The adjustment results in a $32 per week increase during the 2020-2021 tax year for recipients of the minimum family tax credit. We expect that approximately 3600 families will benefit from this by an average of $1626. The effect of this can be received weekly by people from December but at the end of the year they effectively get it backdated in their wash-up payments at the end of the year back to 1 April which is when the benefit increase occurred. Making this change now allows Inland Revenue to begin paying that higher tax credit as I've said from later this month. The tax rate change which has had the most conversation in this Parliament is the introduction of a new personal tax rate of 39c for personal incomes of over $180000. To put that in perspective if someone is earning $200000 they pay an extra 6c in the dollar on the last $20000 of income so they would pay $1200 extra a year in tax which is just some cents over $23 per week. This does go some way to ensuring that programmes like the minimum family tax credit continue to be funded. A fair tax system is a progressive one. Not every tax has to be progressive but overall the tax system should be progressive. That means that people with higher incomes should pay a bit more as a percentage of their incomes in tax and they shouldn't pay less. I've heard people complain that this is unfair to people earning higher incomes; in fact the reverse is currently true. Middle-income people currently pay a higher overall rate of tax than higher-income people when GST is taken into account.It is very easy to understand the arithmetic of this. If someone is earning say $120000 per annum and they have a family to pay other than either their rent or their interest payments everything they spend will be incurring GST at the rate of 15 percent which is effectively a tax on their income. For people who are on higher incomes they save more of their earnings and they don't pay GST on their savings and no one's suggesting they should. But the effect of that is that the effective tax paid by higher-income people when you take into account both income tax and GST is generally lower than is already being paid by middle-income people.Hon Michael Woodhouse: As a proportion of income.Hon DAVID PARKER: As a proportion of their income. Our top tax rate for personal income tax in New Zealand is currently 33 percent.I'm going to make some international comparisons because the countries that we traditionally compare ourselves with have higher personal income tax rates. Australia's top personal income tax rate for example is 45 percent on incomes over A$180000 while in the UK the top personal tax rate of 45 percent is paid on incomes over £150000. So the top personal tax rate of 39 percent proposed in this bill is not high compared with some other OECD countries that we generally compare ourselves with.What the bill proposes is that the people who can most afford it pay a little more which I think overall is a fairer proportion of tax given that overall their taxes including GST are a lower proportion of their income than is paid by middle-income people who earn less than they do.On information gathering we know that most people will do the right thing and pay the tax that is due but we also know that some people will be tempted to minimise their exposure to tax by using trusts taxed at 33c on the dollar of income. For the benefit of members who are concerned about the integrity of the tax system I'll briefly run through the measures in the bill aimed at monitoring tax compliance of trusts.One problem that currently exists is incomplete information collected and held by the Inland Revenue Department on trusts. The bill therefore proposes that trusts will disclose additional information. I heard members complaining that this will result in a loss of privacy. I think most people in New Zealand know that the privacy provisions that apply to the Commissioner of Inland Revenue are rigorously policed by the Inland Revenue and they guard their privacy obligations assiduously. So there are no privacy risks to people as a consequence of this information being made available to the Commissioner of Inland Revenue.This information also provides information on beneficiaries and of course because New Zealand has a settlor-based trust taxation regime information on settlements on the trusts. There will be some trusts to whom this requirement doesn't apply: inactive trusts trusts that don't have high rates of income for beneficiaries charitable trusts Māori land trusts and resident trustees of foreign trusts which already have reporting requirements.A further integrity measure allows Inland Revenue to gather information going back to the 2013-14 income year if requested. We're reluctant to impose compliance costs so rather than requiring this for all trusts Inland Revenue should be able to determine which trusts' prior-year information is likely to be required from. The other information-gathering powers are covered in the New Zealand Bill of Rights Act vet that with my Attorney-General hat I have provided to the House. I agree that the information-gathering power ought not to be used for prosecutorial purposes. There are other provisions to allow information to be gathered for those purposes and there's an amendment in my name already in the House to make that clear. There is a lot at stake here. Our tax system relies on voluntary compliance and people only comply so long as they feel the system is fair. If they can see other people who are clearly gaming the system—for example through the use of trusts—then that threatens voluntary compliance. The Taxation (Income Tax Rate and Other Amendments) Bill will make the tax system fairer and protects the tax base by helping to promote compliance.The final point I would make is as to the need to pass this now under urgency. It has to be passed under urgency so that the computer software systems of the people who deduct tax can be amended and updated in accordance with these new tax rules in time for them to take effect on 1 April next year which is what we said to the electorate we would do. It gives me great pleasure to commend this bill to the House.