Cunliffe David: Income Tax Bill — Instruction to Committee In Committee Third Reading 
Cunliffe David: Income Tax Bill — Instruction to Committee In Committee Third Reading 
[Volume:616;Page:12082] 
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There is no doubt that the original bill going back to the last century and early part of this century is vastly outdated.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.