Dunne Peter: Taxation (Personal Tax Cuts Annual Rates and Remedial Matters) Bill — First Reading Second Reading In Committee 
Dunne Peter: Taxation (Personal Tax Cuts Annual Rates and Remedial Matters) Bill — First Reading Second Reading In Committee 
[Volume:647;Page:16262] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I want to speak as one would expect in support of this legislation. I want to put a few facts on the table that arise particularly in response to the last couple of speeches and I also want to make some comments about the charities changes that are contained in the bill. 
The total cost of the tax package in its third year that is set out in this bill is just under $3.9 billion. One can debate whether that is good bad or indifferent but that is a fact. I have heard suggestions from the two previous speakers that we should have some level of tax-free threshold. I want to tell the House that Dr Cullen and I looked at that very seriously in the early stages of the design of this package. To give a tax-free threshold for the first $10000 would effectively cost $3.9 billion not over 3 years but over 1 year. So when one starts to talk about relative priorities one now has the cost of this package split if one likes three ways if a tax-free threshold is to be delivered. My colleague to my right from New Zealand First says that they would go one step further and put GST down to 10 percent. On the figures contained in the Budget that 2.5 percent reduction is another $2 billion each year not over 3 years. 
What one has in effect is the contrast between a package that is about $3.9 billion in 3 years versus some alternative policies that would be that amount and more and in some cases almost double that in 1 year and certainly up to around an additional $12 billion over the 3-year period. So when we start to debate these things let us put those figures on the table and let us have some debate about how sustainable that is. Would New Zealanders tolerate a tax-free threshold and no other tax reform? Would New Zealanders tolerate a reduction in the GST rate and other very minimal tax reform? Because that is what it comes down to in that particular debate. It is not a question as some might suggest of having one’s cake and eating it as well because the cake simply is not big enough. It is the perennial story in that regard. 
I want to make some remarks about what is contained in Part 3 of the bill the matters that relate to charities. Dr Cullen in his introductory speech made some overall reference to the situation that is being resolved. I want to put on record in just a little bit more detail precisely what the issues are and why it is important that we act at this time. The bill brings in tax changes to resolve tax uncertainties in the law relating to the continuing tax-exempt status of certain organisations. These uncertainties have emerged over recent months in the lead-up to the 1 July deadline for charities to register with the Charities Commission. From that date charitable entities will have to be registered with the Charities Commission to be entitled to the charity-related income tax exemption and for gifts to those charities to be exempt from gift duty. There is no particular problem with that. But the uncertainties arise when entities such as universities and schools ask whether they must also register with the Charities Commission in order to remain tax-exempt and it is here that we find that some associated legislation in several differing pieces of legislation contains a number of grey areas. That is why the Minister of Finance and I announced a week or so ago that we would via the earliest available vehicle make changes to provide tax certainty for a range of those entities in these circumstances. That is why they have been included in the bill before the House at the moment. 
The Income Tax Act and the Estate and Gift Duties Act are being amended to confirm that tertiary education institutions as defined in the Education Act are exempt from income tax and gift duty. That means they will not have to register with the Charities Commission to retain their tax-exempt status although they may still chose to register if they want to if they want to have access to other benefits that they perceive to come from registration. Further changes will ensure that tertiary education institutions automatically have Inland Revenue Department - approved donee status. That means that people who donate money to them will continue to qualify for tax rebates for their donations. 
Further amendments to the same Acts will ensure that gifts to State and State-integrated schools are exempt from gift duty and that they have automatic Inland Revenue Department - approved donee status as well. State and State-integrated schools do not need to register with the Charities Commission to be exempt from income tax because they already have an explicit exemption in the Education Act. 
A further amendment in this group of changes relates to non-resident charities that cannot register with the Charities Commission because they are not established in New Zealand although they may have investments here and be registered as a charity in their own country. An example of this would be an international charity that invests New Zealand donations in a New Zealand bank account. This bill protects their current tax-exempt status subject to Inland Revenue Department approval for both income tax and gift duty. 
The bill also introduces transitional measures to provide greater tax certainty to organisations that encounter difficulty in completing their application for registration with the Charities Commission within the deadline owing to circumstances that may be beyond their control. Under the bill’s provisions the Commissioner of Inland Revenue is being given a limited discretion to protect their tax status in the meantime provided they can prove that they started the application process before 1 July and that they intend to complete it. I want to emphasise that these transitional measures are intended to be used on a limited basis. They are not intended for organisations that are merely late in applying for registration. We do not want to see a situation where organisations that have submitted their applications in good faith and that for reasons beyond their control find that the registration process has not been completed by 1 July then discover that their tax-exempt status is at risk. 
This legislative provision follows on from various announcements that the commissioner the Minister of Finance and I have made over recent months in the hope that the rate of registration would accelerate so that the backlog we were likely to face would be of a relatively small nature. Sadly that has not been the case and we now face the potential of significant problems unless a provision of this type is passed. I emphasise to the House that both the measures relating to educational institutions and those relating to charities that have their registrations within the system do not in any way change the status quo. What they effectively do is reassure those bodies that the status quo that they thought applied will continue to apply. It would be the ultimate of ironies surely to suddenly discover at a time when we were registering charities that our educational institutions which for a hundred and something years have been tax exempt were now to be taxable. Once we became aware that that possibility existed even before $1 of tax was assessed or sought we have sought as quickly as possible to eliminate that and to return via legislative fiat to the status quo that everyone understood they were under. 
So I wanted to put those points on the record because in the rarefied atmosphere of the debate about tax rates—it is perfectly understandable and of huge interest to people—it is also important to note that some other significant changes are being made in this legislation that will be beneficial to another significant group of New Zealanders. In fact when people benefit from the tax cuts they might find that they want to spend some of their money by donating to the charities that we are protecting by this legislation.