Income Tax Bill — First Reading 
Income Tax Bill — First Reading 
[Volume:606;Page:3539] 
Income Tax Bill 
First Reading 
Hon RICK BARKER (Minister of Customs) 
 on behalf of the 
 Minister of Revenue 
: I move  
That the Income Tax Bill be now read a first time. 
 Later I will be recommending to the House that the bill be referred to the Finance and Expenditure Committee for consideration. 
At more than 2000 pages in length this bill must be one of the largest if not the largest bill ever introduced into this House. It has been a long time in the making. It represents the third stage of a progressive rewrite of the Income Tax Act that began in the early nineties. The first stage was the reorganisation of the Act to make its structure logical and coherent. This was completed in 1994. The next stage was the rewrite of the Act’s core provisions enacted in 1996. The core provisions are the gateway provisions that give readers an overview of the scheme and purpose of the Act and a summary of its key features. They also summarise the main steps that taxpayers must follow to meet their tax obligations. The third stage of the rewrite of the Income Tax Act culminates in the bill before the House today. The bill‘s main purpose is to rewrite Parts C D and E of the Act. They contain the fundamental rules for calculating net income so they are the most frequently used parts of the Act. 
The remaining parts of the Act will be rewritten in future stages but for the present the bill re-enacts them for the benefit of users to minimise confusion over the numbering of sections. That re-enacting of legislation accounts for a good part of the sheer size of the bill before us today. 
The aim of rewriting the Income Tax Act is to produce tax law that is clear written in plain language and structurally consistent. This will make it easier for readers to locate all the material they need and to understand what they read ultimately saving time and costs. New Zealand is not alone in seeing the need to rewrite its income tax legislation; similar work has begun in the United Kingdom and Australia. 
Today’s Income Tax Act is based on legislation dating back to 1891. The original Act the Land and Income Assessment Act was just 24 pages long. To a certain extent the dramatic lengthening of the Act over the years especially over the last two decades reflects the changing nature of business and taxation. Over time a great many provisions in a variety of drafting styles were added to what had become a creaking structure by the 1990s. By then it was fairly widely acknowledged in tax circles that the Income Tax Act lacked cohesion was hard to read and needed help from both a structural and a presentational perspective. 
The first major recommendations for rewriting the Act came from the Consultative Committee on the Taxation of Income from Capital usually known as the Valabh committee in 1990. They were supported by recommendations from other groups in 1993 and 1994. Much of the structural work was done in the first two stages of the project which were completed by 1996. 
Work over the last few years—the subject of this bill—has concentrated on refining the structure and progressively redrafting Parts A to E using plain-language drafting techniques. The plain-language law-drafting movement is an international one within English-speaking countries. It seeks to present ideas clearly and directly and to avoid archaic terms repetition and verbosity. It also seeks to use everyday words as much as possible. Therefore this bill avoids the use of legalese such as “beforementioned” “hereinbefore” “hereinafter” and “hitherto”. Likewise a phrase such as “by virtue of the fact that” simply becomes “because” and the phrase “until such time as” simply becomes “until”. 
Another feature of plain-language drafting is the use of short sentences in preference to long sentences. This is to ensure that the core structure of a sentence is not obscured by multiple or complex modifiers. A graphic example of sentence length and complexity is found in section DJ 2 of the current Act which consists of a single 14-line sentence. I suspect that by the time most readers have got to the end of the sentence they have forgotten how it began. Sensibly the rewritten legislation breaks it up into three easily understood subsections. 
The draft legislation in this bill is the work of a small project team of law drafters from the public and private sectors and tax policy analysts. They have consulted interested parties throughout the exercise sought views and tested drafts of rewritten law on a number of people and organisations. Most recently the project team sent draft legislation to 15 private sector tax specialists and a plain-language specialist for their checking comments and views. That was followed by the publication in 2001 of an “exposure draft” of the rewritten legislation for wider comment. Submissions on that publication were considered in the preparation of the draft legislation contained in this bill. 
An advisory panel has been overseeing the rewrite of the Income Tax Act since 1995 providing valuable assistance. Chaired by Mr Colin Blair the advisory panel is made up of representatives from the Institute of Chartered Accountants the New Zealand Law Society the policy advice division of the Inland Revenue Department and Treasury. One of the roles of the advisory panel is to ensure that there is a procedure in place to identify any policy issues that might arise in the course of the rewrite. The other is to act as a steering committee for the rewrite. Both roles have been filled admirably. I take this opportunity to thank the advisory panel for its work and to thank the many people who have had a hand in the development of this bill—the private and public sector experts the professional organisations the people who wrote submissions on the “exposure draft” and the rewrite project team itself which undertook the massive exercise. 
Care has been taken in the development of the bill to ensure that the provisions of the rewritten legislation have the same outcomes as those in the current Income Tax Act. A few minor policy clarifications have been made but they were subject to consultation before they were included. If in the first few years of the new Act’s operation it is found to produce a different result from that intended under the present Act the Government will seek a remedial amendment to correct the position from the date of effect of the new legislation. 
The changes introduced in this bill are described in some detail in a separate commentary which has been distributed to members of the House. I recommend it to members. I commend the Income Tax Bill to the House on behalf of the good Minister of Revenue the Hon Dr Michael Cullen. 
Dr DON BRASH (NZ National) 
: 
 I am not quite sure who we should thank for this astonishing document which is 2011 pages long. Mr Barker referred to the first reading of this bill; I am not sure whether all of us will read it one or two let alone three times; indeed I am not sure whether even those of us who are here have read it a first time yet. But let me say that the National Party welcomes this bill. We have to be in favour of anything that will simplify what has been a very complex piece of legislation. I guess that my major regret about it is that the simplification is 2011 pages long. That is a major nightmare for people in income tax practice. 
Some reports suggest that for businesses employing a relatively small number of employees tax represents some 80 percent of the regulatory burden that they face. Between lost management time spent completing their tax returns and the fees they pay for external advice income tax GST fringe benefit tax and the other kinds of taxes that businesses are subjected to are a very major impost on the business sector in New Zealand. This Government has been increasing taxes over the last 3 and a bit years. It increased the top personal income tax rate from 33 percent to 39 percent because basically it is driven by ideology and envy. It increased the cigarette excise tax by 23 percent in 2001 and more recently it has increased the petrol tax as well. So taxes have been increased. 
In addition compliance costs in the tax system have gone up in part at least because of the uncoupling of company tax from the top personal tax rate. A previous Labour Government in 1988 had I would have to concede the good sense to unify those two rates—the company tax rate and the top personal tax rate—and for the next 12 years we had a common company and top personal tax rate. That was a useful contribution to reducing the compliance costs involved in the tax system. As soon as those two rates were split we had a whole raft of other consequential changes in fringe benefit tax and so on all of which add significantly to the compliance costs facing the private sector. I think that is a matter of great regret. 
I am bound to say that this Labour Government is very different indeed from the Labour Government of 1984-90 in this respect. I had the opportunity when that Government was in office of working with then Ministers of Finance to improve the tax system at that time. The commitment of that Government was such that tax experts from the private sector lawyers and accountants were willing to work with the Government to try to eliminate the rorts to eliminate the loopholes and to eliminate the scope for tax avoidance and evasion. That was a Government committed to reducing tax rates simplifying the tax system and reducing compliance costs. 
Let me illustrate by one example. In 1985 the then Government decided to introduce a goods and services tax. I had the privilege of chairing the committee that designed that tax. The simple instruction I received from the Minister of Finance was to design a value-added tax that minimised the compliance costs facing the business sector. The Government had heard as we all had of the horrendous compliance costs that British companies faced with the multiplicity of value-added tax rates in that country. It killed off many small companies and middle-sized companies. The compliance costs were horrendous. So that Government had the good sense to say: “Let’s have a tax system that minimises compliance costs.” and that was the instruction I had in designing the GST. I think it is fair to say that that Government had the courage to put in place a goods and services tax that is still the envy of other countries throughout the world. Sadly this Government is not like that Government. It has been increasing tax rates significantly complicating the tax system and increasing the compliance costs in it. 
Let me briefly also remind the House of the two occasions on which the Minister of Finance has indicated that he is inclined to reduce the company tax rate. On 22 September 1999 he was reported in the  
Evening Post 
 as saying that Labour “would look at lowering business tax if elected”. That of course was before the election in 1999. At that point he was only the Opposition spokesperson on finance. Then a year or so later in April 2000 he told the Asia Society in Hong Kong that: “… the Government wanted to reduce the 33 percent company tax rate when it could afford to.” That was in the  
Press  
of 13 April 2000. Well nearly 3 years have gone by since the second of those two statements and what has happened? There is no sign at all of any reduction in the company tax and indeed the Minister more recently has specifically ruled out the possibility of a cut in the company tax. 
This Government talks about wanting more growth. It talks about reaching the average living standards of other OECD countries. It was a significant point in the Speech from the Throne last year. It was reiterated by the Prime Minister in her speech last week. I do not doubt that Government members will keep on saying it. But how sincere is the Government in that objective when it has a tax system that is moving the country in the opposite direction? 
I mentioned the increased compliance costs and the movement of the top personal tax rate from 33c to 39c. Of course the other impact of that tax is on growth. All the studies done on taxation show that the higher the marginal tax rate the higher the deadweight costs of the tax system. All the studies that have been done show that. They vary depending on how different techniques are used to measure the deadweight costs but all of them suggest that the deadweight costs are significant and that they are higher if the marginal tax rate is higher. This Government did not worry about that. It simply decided to increase the marginal tax rate from 33c to 39c. That means that people earning more than NZ$60000—less than US$30000—are now paying almost half the additional income they earn above that modest figure in tax. So instead of cutting those taxes the Government has increased those taxes and has made increasing the growth rate in this country that much more difficult. 
We welcome this bill. It is long overdue. But it is a huge disappointment to those who hoped we might see some significant structural changes in the tax system. 
Let me say one more thing. This Government decided a year or two back that it should look carefully at the total tax system and it appointed the McLeod committee to look at the tax system. 
Rodney Hide 
: It was a good report. 
Dr DON BRASH 
: It paid a significant amount of money for that. Mr Hide is right; it is a good report. So far none of the significant recommendations in that report have been followed by this Government. It paid money for it. It got the best experts it could find to do the report and then it has consistently ignored it. That is a huge disappointment to all of those who care about the growth and prosperity of this country. 
GORDON COPELAND (United Future) 
: 
 I rise to advise that United Future will vote in support of the first reading of this bill and its referral to the Finance and Expenditure Committee. 
As Rick Barker has said this is probably the longest bill ever introduced to the Parliament of New Zealand. Some say that that is an indication of the behemoth that has been released by generations of rapacious tax-gathering Governments intent on intruding into every conceivable aspect of human activity whether moral or immoral public or private. Others claim that the complexity and length of the Income Tax Act have arisen from the ingenuity of human beings especially those from the legal or accounting professions with their ability to invent an endless array of tax-dodging devices to avoid paying taxes properly and legally due. The latter explanation casts not the tax gatherer but the tax payer as the villain and the ever-strapped Government is left with little option but to continue to pass ever more laws to close off the new loopholes that constantly appear. 
That there is truth in both points of view is evidenced by the fact that those who make their living through tax poaching often make strenuous efforts to recruit into their ranks the very best of the gamekeepers; more rarely that ultimate gamekeeping organisation that we call the Inland Revenue Department sometimes manages to lure across a well-qualified poacher. 
I think however that if we look at the bigger picture we will discover that the reason our Income Tax Act is so long is that New Zealand has traditionally adopted a highly prescriptive legal approach to tax gathering. We like to ensure that every “i” is dotted and every “t” is crossed. By comparison the United Kingdom with 60 million citizens gets by with a much shorter Act that endeavours to set out clear tax principles leaving scope for specific interpretations to emerge either through the courts or believe it or not through negotiation. I had first-hand experience of this when I worked for BP in London during the 1970s. I witnessed the company’s head taxman suitably qualified with a degree in systematic theology go off at regular intervals to negotiate the company’s tax bill with a fisc! 
Perhaps in hindsight we would have been better to adopt the British approach. However I am afraid that the genie is out of the bottle and we are stuck with this more-than-2000-page bill. I agree with Don Brash that for small businesses it is truly a disaster. They will have neither the time nor the expertise even to read this bill. So they will for all time—most of them—be locked into having to depend on employing professional advisers to get their tax bills right. That is not a satisfactory situation. 
I am not sure how to address it. Don Brash seemed to suggest that an adjustment in the company tax rate would make it simpler. I do not think it would. The only thing that I could suggest to simplify this matter for business would be perhaps to give start-up companies a complete tax holiday for a few years. That might be a more effective way of getting them off the ground as they would not immediately have to employ professionals in order to be able to pay their first or second tax bill. That really is a great impediment to business growth in this country. 
Rodney Hide 
: Is that the policy of the United Party? 
GORDON COPELAND 
: It is indeed. Take it as our policy. 
Rodney Hide 
: A tax holiday for 2 years! 
GORDON COPELAND 
: Perhaps more for small start-up businesses. It is a suggestion that I think this House should seriously consider. 
Given that reality there is much to be said for at least ensuring that the Income Tax Bill is written in plain and therefore understandable English. I certainly hope this will prove to be the case. However we need to recognise that for an entire generation of accounting and legal tax advisers this new bill plain English and all will represent a huge challenge which I am sure they could do without. The Inland Revenue Department too will have its fair share of challenges although in its case it has the advantage of having Robin Oliver the general manager of policy who told the Finance and Expenditure Committee recently that he has actually read through the entire bill. I was delighted to hear Don Brash say that he has not yet read the entire bill which implies that he intends to—[ 
Interruption 
]—and I would like to challenge Clayton Cosgrove and Rodney Hide also to read the entire Income Tax Bill. I am not sure I will rise to it myself.  
The courts too will face many challenges as they seek to come to grips with the new approach adopted and ensure they are consistent with the Government’s undertaking that although the wording may be different it is not intended that the Act should in and of itself change the underlying tax law. 
Also the members of the House may spare a thought—but I guess they will not—for the members of the Finance and Expenditure Committee who now have ahead of them the massive task of reading through the many submissions which will likely equal or exceed in volume the length of the bill itself. Given all those circumstances I personally find it important to discover a rationale for the task that lies ahead. The best I can say is that if it will deliver to New Zealand a clear Income Tax Act capable of serving our nation’s future for many years to come then the effort will have been worthwhile. On that assumption United Future supports the bill. 
CRAIG McNAIR (NZ First) 
: 
 Before I start my speech I will say that when I heard Gordon Copeland talk about giving people a tax holiday I have not previously seen Rodney Hide as excited as he was at that. I have never seen somebody’s eyes light up as much as his did. That was very amusing and it reminded me of my days as a kid when I was given a lollipop or something. [ 
Interruption 
] Well I guess that is a compliment these days; I should not take offence at that should I?  
But I do take pleasure in speaking very briefly to this bill on behalf of the New Zealand First Party and my New Zealand First colleagues. I am also very glad to represent that party on the Finance and Expenditure Committee with my leader the Rt Hon Winston Peters.  
I noticed that the Minister of Finance the Hon Dr Michael Cullen was quoted as saying this about the bill: “The purpose of rewriting the Income Tax Act is to make it clear plainly written and structurally consistent.” As one of the New Zealand First members on the Finance and Expenditure Committee I look forward to working cooperatively with the other parties to make sure that we can do something about making that legislation truly clear plainly written and structurally consistent.  
The Hon Dr Michael Cullen also said: “The rewriting has been done in a plain-language style that seeks to present ideas clearly and directly.” A description like that makes me think that this legislation will be a best seller at Whitcoulls or something like that—that it will be a big hit at the bookshops. However on looking at this bill one sees that it is hardly what one would call light reading. It is hardly what I would read to my nephew or niece at bedtime or anything like that. 
R Doug Woolerton 
: You’d have to be a nerd to read that. 
CRAIG McNAIR 
: I guess that makes the Finance and Expenditure Committee— 
R Doug Woolerton 
: Or both. 
CRAIG McNAIR 
: All 2011 pages— 
Rodney Hide 
: What else do you do when you go to bed? 
CRAIG McNAIR 
: The  
Sunday Star-Times  
would think I would be reading that at bedtime but anyway Doug Woolerton our president knows better than that. I was listening—[ 
Interruption 
] Not like that Mr Hide.  
I was thinking about what the National spokesperson on finance Dr Don Brash said when he talked about simplifying the system by reducing the income tax rates. That did not gain Rodney Hide’s attention like the idea of tax holidays did. I am still truly amazed at how happy Rodney Hide was when he heard that. I heard Don Brash talk about lowering the company tax rate and the income tax rate but I propose to the House that we think a little more creatively than that. I know that I will sound like a broken record to members like Dr the Hon Lockwood Smith Rodney Hide and other members of the Finance and Expenditure Committee such as the chairperson Clayton Cosgrove. However I ask that committee the House and the Government to think outside the square and to think creatively. Instead of just saying that tax cuts will solve everything—cutting the income tax rate and the company tax rate—we should think creatively and look outside the square by looking at tax incentives for exporters. Let us think of something like that. Let us have an open mind about this bill I tell Dr the Hon Lockwood Smith and make our economy work. Those members should not think in a close-minded way just about tax cuts. I tell this House and the Government to think more creatively on that aspect of taxation.  
I close tonight by saying that the New Zealand First Party does support this bill going to a select committee. 
R Doug Woolerton 
: Do we? 
CRAIG McNAIR 
: We sure do Mr President. My leader the Rt Hon Winston Peters and I look forward to working on the Finance and Expenditure Committee to make sure that this legislation is beneficial to all New Zealanders. 
JILL PETTIS (NZ Labour—Whanganui) 
: 
 The purpose of rewriting the income tax legislation is as Mr McNair has just finished saying to make it clear by having it plainly written and structurally consistent. We do need to have legislation written in a more simple and easily understood form. 
R Doug Woolerton 
: What does this mean on page 2104? 
JILL PETTIS 
: I have better things to read before I go to sleep than the tax bill. I am presently reading  
Stupid White Men 
. I recommend it to the member. The rewrite of the current legislation will make it easier for readers to locate all the material they need and to understand what they read ultimately saving time and cost which is good for business good for the consumer and good for New Zealand. I support the bill. 
RODNEY HIDE (ACT NZ) 
: 
 I enjoyed Jill Pettis’ contribution. In the time that I have been in the House that is the best contribution I have heard from her in 6 years. It was positive analytical—for Jill Pettis—and insightful which is more than I can say for every other contribution she has made.  
This legislation says it all: it is a simplified version of the income tax legislation. I tell people who are listening on the radio that when I wandered over to pick up the bill I picked up something—I ask Mr McNair how thick this bill would be. 
Craig McNair 
: Pretty thick. 
RODNEY HIDE 
: It is pretty thick like some Government members. It is probably an inch and a half thick in old Christian units. I thought that this bill was enormous but when I carried it back to my desk and started to peruse it I discovered I had only half of it. I had to get the second half which is another inch and a half thick. This is the simplified version of the income tax legislation! I want members of the House to consider that this legislation is what a dairy owner taxi driver or plumber has to comply with. This is the requirement that we put on small and medium business in New Zealand. As we know that is not the half of it. One has to have the Goods and Services Tax Act and all the other tax Acts—and this legislation is what this Government calls the simple version of our income tax legislation. [ 
Interruption 
] It is very interesting to hear from Clayton Cosgrove. I have been down in his electorate and they say he is a very interesting MP. They say that what he lacks in intelligence he makes up for with his own stupidity. That summarises Clayton Cosgrove’s contribution to these debates.  
I have a question for members of the Government: since they have come to office have they made the income tax legislation simpler or more complicated? Chris Carter says that is a hard one. I ask him what the answer on balance is. Mr Carter has a lot to say interjecting away by saying that members think they have been having a glass of wine or whatever. But I ask him this: since this Government came into office in 1999 does he believe that the income tax code has become simpler or more difficult? Chris Carter is sitting there silently. He knows nothing about income tax; he does not speak to business. Trevor Mallard has a lot to say. He is a senior Minister so I ask him whether the income tax code has become more complicated or simpler since this Government came into office. We can assume from their silence that those members do not know the answer to that.  
Every person whom I know in business has told me that it has become more complicated. Every accounting professional and every law professional who has come before the Finance and Expenditure Committee has said that the income tax legislation has become more complicated—and the senior Ministers and senior members in this Government do not even know that. Chris Carter and Trevor Mallard like to pretend that they are in touch with business and yet they cannot figure out whether in the last 4 years the income tax code has become more complicated or simpler.  
Let me remind members of the submissions and reports from professionals and from business people up and down this country when the top rate of tax was increased to 39 cents in the dollar in terms of what that meant to the tax code. I know Dr Lockwood Smith knows exactly what that meant because we sat there in the select committee and heard those submissions. Did Trevor Mallard Helen Clark or Michael Cullen care about what those submissions stated? No Craig McNair is quite right; those members could not care less about business. Business to them as Michael Cullen says is just another interest group with its hand out. That is how Michael Cullen views farmers dairy owners plumbers taxi drivers and the other working people who are saying that they are being killed by that stuff. Michael Cullen says that business is just another interest group like the Post Primary Teachers Association with its hand out.  
Let me come to the United Future party. I thought I had studied its policies but tonight I was very interested to hear a new one from no less than its deputy leader who says the United Future party’s tax policy— 
Paul Adams 
: Who are you looking at? 
RODNEY HIDE 
: What is Mr Copeland? He is the whip. Who is the deputy leader of United Future? [ 
Interruption 
] He is not in Parliament. United Future has a deputy leader who is too shy to be elected and too shy to turn up in this House. But United Future’s whip who is the next in charge says that the party’s policy is to have a 2-year tax holiday for start-up businesses. Mr Craig McNair thought that I was happy and excited at the prospect of that but I was stunned. I was shocked. When did it occur I ask Mr Adams that that became United Future’s policy? 
Paul Adams 
: It’s exciting. 
RODNEY HIDE 
: When did that become a policy of the United Future party? When was it announced and when did the caucus decide on it?  
Mr Adams has said that policy was decided on and announced tonight. We have here the United Future members saying that they would provide a 2-year tax holiday for every start-up business in New Zealand. For 2 years those businesses could just forget about the tax rules and paying tax because there would be no tax for 2 years. Here is my question: what efforts have the United Future members made to present that new exciting and innovative policy to the Government that they so happily support? Have the United Future members discussed that policy with the finance and revenue Minister Dr Michael Cullen? I ask those members whether the answer is yes or no. 
Paul Adams 
: I haven’t. 
RODNEY HIDE 
: They have not spoken to the Government about that yet. Is there a plan to take that new bold and innovative policy that was dreamt up tonight to the Government of the day? Will it be taken to the Government tonight? [ 
Interruption 
] I quite like this United Future party. It is having bold and innovative ideas tonight. We have learnt three things. We have learnt first that United Future’s deputy leader is not a member of Parliament. I had not heard of him before. Second we have learnt that tonight United Future has invented a new and exciting tax policy: a tax holiday for 2 years and third as Mr Adams has just announced we have learnt that I am United Future’s spokesperson on tax matters. I admire his judgment insight and intelligence. After hearing Mr Copeland’s suggestion I think the United Future party does need a new spokesperson on tax matters. I say to that party— 
Judy Turner 
: What’s your policy? 
RODNEY HIDE 
: I am pleased the member asked that. Our tax policy is that there should be a flat tax of 20 cents in the dollar across the board. [ 
Interruption 
] We are being told by the United Future party to talk to the Government. Our party probably has as much success in talking to the Government as the United Future party does but the difference between us is that we do not vote for the Government. That is the difference between United Future and ACT. The United Future party members now consider themselves to be so useless that they can float ideas without any thought that anyone in the Government might listen to them because each and every day in this House their votes are taken for granted. So those members have come down to the House and recommended as supporters of the Government a new policy which is to have an income tax and a GST holiday for 2 years for every new business. 
CLAYTON COSGROVE (NZ Labour—Waimakariri) 
: 
 I rise to support the Income Tax Bill and in doing so I want to acknowledge the constructive speeches I have heard especially from Mr McNair Dr Brash and Gordon Copeland. Each expressed in his own terms his view and philosophy with regard to tax whilst supporting the bill at least to the select committee stage. That is in contrast to the whining buffoonery we have just heard from the previous speaker Mr Hide who—and I give him some credit for it—has waged a campaign on tax reform has championed some taxpayers of dubious origin and has always talked of the need for simplicity in respect of tax systems. Tonight he offered us nothing but buffoonery. I know Mr Hide has a reputation for lecturing on tax from Fiji to Albania and I am told by Mr Carter and others—[ 
Interruption 
] on Waiheke Island recently—but I say to him in all seriousness that this bill will be a complex one before the select committee. We should consider the contributions of others as we go through the bill and work in a constructive way.  
The essence of a good tax system in my view is that it must have the confidence of the public of taxpayers and of the taxpaying community as a whole. To engender that confidence tax law must be transparent and it must be simple. Although it is very weighty I think this bill goes some way to meeting those objectives. Tax legislation as we heard from Mr Barker who introduced the bill goes back to 1891 and an advisory committee has been giving advice on it since 1995. I endorse the bill and finish by counselling Mr Hide to get away from the politics of buffoonery and take the example of Dr Brash and I suspect Dr Lockwood Smith and others— 
Hon Trevor Mallard 
: Or Deborah Coddington. 
CLAYTON COSGROVE 
: Or Deborah Coddington—who will be the future leader of ACT—and deal with this highly technical bill which I think will provide simplicity and transparency in a constructive way. All I will say in respect of Mr Hide’s comments about my electorate of Waimakariri is that I have always welcomed Mr Hide—who was born I think in Rangiora—back to my electorate because every time he arrives my majority goes up. I commend the bill to the House. 
Dr the Hon LOCKWOOD SMITH (NZ National—Rodney) 
: 
 Members of the public who are listening to this debate may be interested to know that the member who has just resumed his seat is the chairperson of the Finance and Expenditure Committee—the committee that will be examining this legislation. I would have expected a little better from him. He said the public needed to have confidence in our tax legislation. I agree with that. He said there needed to be simplicity and transparency in it. He cannot even have attempted to read the 2000 pages of this legislation if he thinks this is simple legislation—and if he thinks it is transparent then he does not know what the word means. “Transparent” means something that can be seen through. There is no way in the world that one can see through 2000 pages of complex legislation.  
The chair of the Finance and Expenditure Committee was wrong when he said that the current tax Act goes back to 1891. It does not. I acknowledge that that was when the first taxation Act was written but the structure of the current tax Act was established in 1916 and it had 143 pages. The simplified version in front of this Parliament today is over 2000 pages. We politicians should ask ourselves why. It is important because the 2000 pages of law in this bill take off middle-income New Zealanders a third or thereabouts of their hard-earned income. This complex bill determines how we take that income off them.  
Let us go back a few years in the history of this Parliament to a well-known Government under a well-known Prime Minister—in fact a Labour Prime Minister—Michael Joseph Savage. He is probably best known historically in New Zealand for the establishment of the welfare State. After his Labour Government had established the welfare State to look after those in need in this country the Government tax take represented about 16 percent of gross domestic product (GDP). The equivalent amount that we politicians take off the people of New Zealand today—and I think we all have a bit to answer for here—is 35 percent of everything they produce. Total Government expenditure including local government is up at exactly 40 percent of everything spent in this country; but to compare apples with apples central government’s tax take after Michael Joseph Savage developed the welfare State was 16 percent of GDP. Today the equivalent figure is 35 percent of GDP which is more than twice as big a hunk of the economy. That has a lot to do with why since 1916 the Income Tax Act has gone from 143 pages up to more than 2000 pages because the more tax one tries to take off people the more complex the rules have to be.  
I could not endorse more wholeheartedly the contribution by National’s spokesperson on finance Dr Don Brash—the previous Governor of the Reserve Bank—when he said that there was a desperate need not to talk about making our income tax more transparent and simple. That is really just rhetoric. If we want to achieve that we have to simplify the tax structures—the tax system—very significantly. It should not be beyond our wits because part of the complexity of our current tax system is that its whole nature was developed before the calculator was created. It was developed back in the days when abacuses were used for doing arithmetic. 
Hon Trevor Mallard 
: What word? Abaci. 
Dr the Hon LOCKWOOD SMITH 
: The Minister of Education corrects me—abaci. I will take his word for it. Let me just use the singular and say “before the abacus was even developed”. 
Let me just share with the House some of the stupidities of the current Income Tax Act. The Minister of Education pays 15c in the dollar tax on the first $9500 of income he earns. Why? And he pays 39c in the dollar tax on the last $15000 of income he earns. Where on earth is the rationale in that? The tax law is so much more complex because of it. If this Government is serious about simplifying income tax it needs to engage its brain a helluva lot more than it has done so far. All it has done so far is to pick up the reform work started by the last National Government when in 1994 it rewrote the Income Tax Act—simply I guess to try to get the thing into some kind of shape. It was not a major reform in 1994. Then in 1996 the last National Government rewrote the core provisions with the Taxation (Core Provisions) Act. In 1997 the last National Government issued a discussion document on that major rewrite of the Income Tax Act. In 1998 the last National Government put out an issues paper on how it might be done. All of this then was essentially the work of the last National-led Government but it is not enough. It was way back in 1997 and 1998 that we did this work.  
It is fair to say that this Labour Government has tried to do some slippery things. For example it is not just satisfied with rewriting the legislation sensibly; instead it has tried to do devious little things like changing the meaning of “dividend”. It tried to include in the definition of “dividend” the services that a company might provide to any shareholders. Not done! Fortunately some people who were watching what the Government was up to pointed out that it is unacceptable to slip that kind of deviousness through the system.  
It has taken the Government too long to do this part; what is needed is a major rethink of how we structure the taxation system in this country. A lot of members of this House will not realise how stupid it has got. Let me share this fact with the Parliament: there are employers in this country who are employing 270000—that is over a quarter of a million—working taxpaying families. Under the 2000 pages of tax law employers take PAYE off them and pay that to the Inland Revenue Department. The amount of PAYE paid by those 270000 families is just under a billion dollars which is promptly taken off them by this tax law. The Inland Revenue Department then turns round and pays every cent of it back to those same families. It may not pay back exactly the same amount but every cent of that amount—which is just under a billion dollars—that employers take off employees under the income tax law we are debating for the first time tonight is paid to the Inland Revenue Department. The Inland Revenue Department then turns round and pays exactly the same amount back to those people. Whatever way one looks at it that is damned stupid. Surely even Trevor Mallard would have to ask where on earth is the logic in that? How does Clayton Cosgrove the chairperson of the Finance and Expenditure Committee explain the logic of this complex law? He probably does not know because he does not employ anyone. I do and I have done it. Every month I deduct PAYE from the wages of farm workers on the average income with three kids and the Inland Revenue Department pays the exact same amount back to them! That is what I mean about an intelligent approach to improving our tax laws in this country.  
Dr Don Brash mentioned that we should be bringing the top personal tax rate and the corporate tax rate back together. The whole system should be flattened. We would not need all this complexity—trying to define income which the bill does under Part C; trying to define deductabilities under Part D and then under part E the timings of when deductabilities can take place—if we simplified the entire tax structure; that is flattened it and got rid of the complexities in the system. It should not be beyond our wit. The tax system grew like topsy from the early days and no Government—I do not just blame Labour for that—has really applied intelligence to asking why for example we tax the Minister of Education 15c in the dollar on his first $9500 and 39c in the dollar on his last $9500. It makes no sense. We will support this bill to a select committee but it is only a start on what should happen in terms of tax reform in this country. 
Bill read a first time and referred to the Finance and Expenditure Committee. referred to the Finance and Expenditure Committee