Webb DuncanTAXATION (ANNUAL RATES FOR 2017-18 EMPLOYMENT AND INVESTMENT INCOME AND REMEDIAL MATTERS) BILLThird ReadingDebate resumed.Dr DUNCAN WEBB (Labour—Christchurch Central): Well it was Albert Einstein who said that the hardest thing in the world to understand is income tax and coming from a genius of that stature we can only begin to think how complex it is. But this bill is a step towards—perhaps a baby step—making income tax easier to understand and easier to comply with and if I may say that's an important part of what tax should be. Tax of course is the foundation stone upon which this country is built and upon which the Public Service depends. It is of course essentially the price we pay for a robust welfare system and those robust systems that the public depend upon. It's simply not right to think of tax as an onerous obligation; it's simply a part of participation. So in a sense the other function of course that this plays—and that this party is looking at—is the rebalancing of wealth income and equality within our society. However tax poses special challenges and this bill is no exception to that. The complexity of tax law for a legislator is a huge challenge. Our Income Tax Act which I took a moment to look at today is 3351 pages long and that I must say is a challenge to anyone. In a sense complexity of that nature is a tax break for tax lawyers because only tax lawyers can understand it. So we really do have some issues here and this bill aims at simplifying that by using the tools which are at our disposal—and in particular online tools and tools of integrated reporting are part of that. So in terms of that financial complexity that legal complexity and also—what we're seeing more often—that cross-border complexity we need to use all of those tools at our disposal. So good tax law needs to be understandable accessible and predictable as well and that's one of the important parts of this fine-tuning—fine-tuning which I must acknowledge was put in place by the National Party and picked up by Minister Nash. But this is really part of our financial and Treasury infrastructure and we must keep it up to date. So this in a sense is housekeeping. We've got to stay one step ahead of those cunning tax accountants and make sure that where they look for a loophole we are right behind them and that's what's happened—particularly in respect of employee share schemes—here in this piece of legislation. Those timing questions the questions of when those shares are valued—the accountants have looked at that and seen essentially a mismatch in there. Like rust they never sleep. Like rust they will erode the very structure of what's going on there if we give them a chance so we do need to come right up behind them to tidy up those employee share schemes and get the valuation dates right so there's no mismatch there. You can't have people essentially gaming the system by choosing when the date upon which the shares that the employees are entitled to occurs. So you know we've got to follow up those issues but also make tax law predictable. It is essentially intuitive so that there's not any surprising twists and turns and so that a good-faith and honest approach to the tax system will result in the correct amount of tax being paid and of course that is a constant struggle. It's a struggle between an attempt at simplicity—and if I may say an attempt which we need to continue to work on; we do need to simplify our tax law—fairness and staying ahead of those gamers. So this is an ongoing struggle because accountants and lawyers will continually follow the money and look for ways to pay tax legally but minimally. There is no such thing as the spirit of the law when it comes to tax. There's just How much I have to pay and how much I don't." and so we've really got to get these rules right. So that's why we have over 3000 pages of an Income Tax Act and I must say that this bill sadly will add to that somewhat so there is work to be done. As we know this Government is continuing to do work around tax and will continue to be vigilant both in respect of this kind of administrative work—this maintenance work; getting rid of the rust—and also looking at the very structure. SPEAKER: I'm giving a hint to the member that just saying "We're considering the bill." is actually not good enough at the third reading stage. The member should be talking about it—not a general treatise on tax. Dr DUNCAN WEBB: Well thank you and what I was going to say Mr Speaker in terms of the tools that are being brought to bear the movement towards online—in fact I have mentioned that as well as the employees' share evaluation already. So I am familiar with the bill and I must say sitting on the Finance and Expenditure Committee was certainly an education. But the use of the online filing is an important part of this bill. The idea that we get nearly real-time filing of PAYE returns is an important part of this bill. Of course one of the things that we need to do—and which the select committee did—was to make sure that whilst those employers who can will file on a pay-day basis we don't leave behind those who aren't yet able to do that because there is a concerning minority of people who are unable to file online. The select committee process improved the bill in that way by ensuring that those people could still file manually and didn't have to do it in an unrealistic framework. So that's important particularly given the volume of tax returns that are out there. In fact over 12 million returns were filed last year. This is actually part of the Business Transformation project and for the IRD that kind of volume of tax returns isn't manageable in the absence of that kind of work. Of course the other thing that's in there is recognising withholding tax payments for interest. This bill—again in select committee—was adjusted to make sure that it was achievable and that there was no unexpected rule there in terms of having to declare withholding tax. Whilst withholding tax on interest is of course critical—it's income that needs to be taxed—the fact of the matter is that there are plenty of small arrangements out there. Again the tax advice received in select committee was extremely valuable in identifying those taxpayers who would be essentially ambushed by the requirements that were being placed on them—particularly those loans and transactions where the interest payments were less than $5000. So in that respect it was a very important improvement on that bill because unless we do that we're going to have people defaulting on their tax obligations in an entirely unreasonable manner. The other thing of course that's gone on here is the subsidy for payroll agents. Now the fact of the matter is that they do serve an important function but we must be vigilant about any subsidies out there. So it is quite right that those subsidies will be gone by 2020 but that date was again extended so that there was a little more transition time—particularly again in respect of the small and medium sized businesses because as we know those businesses don't have huge amounts of resources to adjust their taxes and they may well be doing their own accounts. To take away that subsidy would be to thrust the burden back on them and this is about compliance. So the real theme of this bill is to make compliance easier by a range of tools. But those tools have to be adjusted in themselves to make sure that they're not placing unduly onerous obligations on taxpayers but at the same time are making tax administration as efficient as possible so that the collection of tax is being done at as low a cost as possible and the opportunity for tax avoidance and evasion is reduced as far as possible. Of course the other important thing this bill does is that it affirms existing tax rates. There will be no new taxes in this bill. So look if you're paying more tax yippee! What that means is that you're making more money the world's a better place and that's a great thing for you and for us. Thank you Mr Speaker."