Smith Lockwood: Taxation (Personal Tax Cuts Annual Rates and Remedial Matters) Bill — In Committee Third Reading 
Smith Lockwood: Taxation (Personal Tax Cuts Annual Rates and Remedial Matters) Bill — In Committee Third Reading 
[Volume:647;Page:16316] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 Part 3 covers a very wide range of issues. I am sure members will be struggling to understand exactly what all the clauses in Part 3 do. I will leave it to some of my colleagues to address some of those wider tax issues that clause 61 will obviously enable because I am particularly interested in making sure I understand what is going on here. 
Naturally National supports the clarifications around charities. We support clause 20 and a number of the other clauses relating to charitable bequests and that sort of thing and the clarifications around tertiary institutions and schools with regard to their charitable status. But I would particularly like the Minister to clarify for me the issues dealt with in clause 24. Clause 24 deals with the LC 1 section of the principal Act and the LC sections involve tax credits for persons on low incomes. I understand why there will probably be a need for amendments to some of the LC sections because the Government proposes with this legislation to lower the bottom tax rate from a rebate system on the first $9500 to a statutory rate of 12.5 percent at varying stages—initially at $14000 and rising to $20000. So I can understand the need to address some of the tax credits for persons on low incomes. 
But so that we know exactly what is happening here I would particularly like the Minister to advise us on clause 26 “Child’s income” which amends section LC 3. Clause 26(1)(a) for example which amends section LC 3 reduces the threshold figure from $351 to $321.75 and that affects the amount of credit that a child may get. Clause 26(2) further modifies section LC 3 in that the percentage is adjusted naturally from 15 percent—the figure given in the formula in subsection (4) of section LC 3—to 13.75 percent and then to 12.5 percent. I would like the Minister to tell us what this actually does to the child’s tax outcome. It has been quite difficult in the short space of time in which we have had the legislation to calculate the combined impact of those changes to tax credits for children. On the one hand I can see that the amount of money allowed is reduced but on the other hand I can see that the percentage applied in the formula is also reduced. So it is possible that they will offset each other. Given that we do not have the opportunity to refer the bill to a select committee and question officials about exactly what the impact will be I would appreciate the Minister making clear for us—and it is important that the Government makes it very clear—what these changes will do to a child’s after-tax income. I accept they could be making no change at all. 
Hon Trevor Mallard 
: That is the effect. 
Dr the Hon LOCKWOOD SMITH 
: If that is the case I think that should be made very clear. It is very difficult to discern that from the series of changes that the legislation makes. But I take it from the Minister’s interjection that with regard to a child’s income the combined effect of clauses 26(1) and (2) is that— 
Hon Trevor Mallard 
: You can still earn up to $45 a week or $2340 per annum tax-free. That is effectively unchanged. 
Dr the Hon LOCKWOOD SMITH 
: So the situation for a child is that the reduction in the bottom tax rate does not actually reduce the amount of tax taken from a child at those income levels. 
Hon Trevor Mallard 
: It doesn’t reduce the amount of tax—kids end up not paying tax up to $45 a week anyway. 
Dr the Hon LOCKWOOD SMITH 
: The Minister has just said that the effect of that is to make sure that the child pays no tax on income up to that level. If that is all it is doing I am a little curious as to why clause 26(2) is involved. It changes a tax rate and not just a threshold. It seems to me that if it were a matter simply of making sure the child paid no income tax on a certain level of income it would be easy to make that clear on the face of the bill. But because the subclause changes a percentage amount it is hard to accept that that is all it is doing. That is why I am seeking further clarification. 
Hon Trevor Mallard 
: Currently the tax rate is 13.75 percent. It drops to 12.5 percent next year and this recognises that change in order to maintain the status quo as to the effective level of the rebate. 
Dr the Hon LOCKWOOD SMITH 
: So it maintains the status quo as the effective level of the rebate that would apply. 
Hon Trevor Mallard 
: Yes that’s right. 
Dr the Hon LOCKWOOD SMITH 
: OK I accept that and I thank the Minister for making that clarification to the issue around a child’s income. 
I ask him also whether there are any other changes because a number of provisions in the LC section are repealed. Section LC 1 “When net income under low income amount” is repealed by clause 24 and section LC 2 is repealed by clause 25. This is the kind of thing that we have to take the Minister’s word on because we do not have the chance to satisfy ourselves at a select committee. Section LC 2 covers the whole issue of the low income earner rebate—the $9500 limit and the 15 percent tax rate applying up to that level. We can only take the Minister’s word that the repealing of section LC 2 covers only that. Even though section LC 2(4) goes to some specific issues that appear to go just beyond the $9500 limit and the 15 percent rate I trust that the repealing of the entire section LC 2 will leave us with no gaps. The point I am making is that the changes being made here are the kinds of things that a select committee should be able to look at and the fact that this legislation is being forced through under urgency when there is no need for it means we have to ask some quite mundane questions to make sure that what is on the face of the legislation is in fact not producing any unexpected outcomes. 
If we go through some of the other significant changes in Part 3 we note that in clause 33 the fact that the Government has decided to bring forward the indexing of the family support payments into the middle of an income tax year now pushes pages of new legislation into our tax legislation. I put it to the Minister that clause 33 “New sections MF 4B and MF 4C” with all those pages of new legislation is required because the Government has panicked and brought forward the indexing of the family support payments. I take it that that is what clause 33 concerns and that all those pages are necessary in our legislation simply to allow the adjustments to family tax credits to happen in the middle of the year. I think the Minister is nodding that all those pages are required in order to do so. 
Hon Trevor Mallard 
: And to make sure that we don’t under-collect so that people have to pay back later. 
Dr the Hon LOCKWOOD SMITH 
: I accept that point too because with the Government’s Working for Families package this has become a real problem. Families are being over-collected from and are having to pay back. Even before these changes are made that is an inherent problem with the Working for Families tax credit system. 
I intend to give my colleagues a chance to raise further issues because as we go on through Part 3 we see that a number of amendments are made to the principal Act that relates to GST ratio methods for tax payments and provisional tax payments. There are a number of changes there. And again the dilemma is that these are quite technical changes—some of which I assume are fixing up problems in the old Act. I think the Minister owes it to the Committee to explain in more detail some of the large number of changes that Part 3 makes. We have had only a few hours to look at this legislation including time overnight and it is extraordinarily difficult to actually sort out exactly what these changes are making. I think the Minister should give us a greater explanation of some of them.