Cunliffe David: Taxation (Consequential Rate Alignment and Remedial Matters) Bill — In Committee Third Reading 
Text is incorporated into the Bound Volume 
Cunliffe David: Taxation (Consequential Rate Alignment and Remedial Matters) Bill — In Committee Third Reading 
[Sitting date: 24 November 2009. Volume:659;Page:8237. Text is incorporated into the Bound Volume.] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 It is a pleasure to take a brief call on this combined Committee stage of the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. I reiterate the comment that we made in earlier readings that Labour will be supporting this bill. It is a bipartisan bill that carries on the good work of the Inland Revenue Department in tidying up the tax laws and adjusting the resident withholding tax rates in particular to the new tax rate regime. It is all good and worthy stuff. 
But as we said in earlier contributions to this debate it raises an important issue of principle and it is upon that issue of principle that I wish to briefly concentrate this call. The Minister in the chair the Hon Peter Dunne through his officials brought to the Finance and Expenditure Committee the proposal that the default rate on resident withholding tax be changed to mirror the top tax rate. The rationale for that was clear: it would most strongly incentivise taxpayers to advise their bank if they did not belong to the top rate because otherwise they would be paying way too much tax. 
But as a matter of principle—and going back to those very ancient principles that there be no taxation without representation and that the people’s House be the sovereign body that gives the authority for taxation—members of the select committee asked how many New Zealanders would be required by this bill to pay tax that they were not actually liable to pay. It asked how many would be caught as it were with the collateral damage of taxation by being inadvertently put on an inappropriately high resident withholding tax rate. The answer was in the first draft hundreds of thousands. I cannot recall the exact number; members will forgive me. But hundreds of thousands of New Zealanders would have found themselves overnight put on a tax rate to which they did not belong and therefore they would have lost income at a time when many New Zealanders many hard-working families are feeling the pinch and every dollar counts. The committee was willing to work cooperatively to make sure that that unintended consequence did not happen and credit goes to the chair Craig Foss and to the members all around the table. 
The officials were happy to work with the New Zealand Bankers’ Association—it is not often that we see the Bankers’ Association in the position of being good Samaritans to taxpayers one might say but we are very grateful for its input—and they and the officials worked out an alternative plan which was to have the default rate set at the modal rate. That is the rate most people pay the middle of the bell curve which is the 21c rate. That is more fair and balanced. That means that a much much smaller number of New Zealanders would be paying either too much or too little. The unders would balance out the overs and the incentives would still remain for new accounts. 
Approval was given by the committee for the bill to come back to the House with that amendment on two clear provisos. The first was that the committee was very clear about the principle that New Zealanders should not be taxed inadvertently at rates higher than they were liable to pay and that no Government of any stripe should put taxpayers in that position. Secondly we would expect the officials to work closely with banks and other financial institutions going forward to ensure that taxpayers are fully informed and are given every opportunity and that the way is smooth for them to adjust the rates. It will require some compliance costs for members of the public and there was some merit in the argument that for that reason they could go down to the lowest default rate but in the end we settled on the modal rate. It was a good process of compromise and a much better design. 
I am left I have to say with one slightly troubling question and the Minister might like to take a call on this. How did it get as far as that? How did it get to the point where a select committee had to sort out the fact that hundreds of thousands of New Zealanders would be paying too much tax tax that Parliament had not assented for them to pay? 
Craig Foss 
: It was a test. We passed. 
Hon DAVID CUNLIFFE 
: It was a test to see whether we were noticing chairman Foss says. It was a test to see whether we were awake. Well this is a test to see whether the Government is awake. That is not a good thing to do. The Opposition passed that test. If it happens again it will look like the Government is playing fast and loose with the Magna Carta and playing fast and loose with ordinary New Zealanders. 
I think that is probably enough said but I would be interested to see whether the Minister will take a call and explain to the Committee what advice he received on that matter and whether it was knowing forethought or unknowing accident that meant that that egg was caught just before it hit the floor as it were of the legislative process. But it did not break. 
Finally—and I know that my colleague Stuart Nash is very very keen to make a contribution on this bill; he has been prepping for it for quite a while—with regard to the Permanent Forest Sink Initiative I think New Zealand feels like it has a collective hangover today because it is the day after that dreadful emissions trading scheme bill went through the House by the skin of Ngai Tahu’s nose. It just got through and it is a very sad day for New Zealand. I cannot let the opportunity pass to say that we remain absolutely convinced and convicted that generations of New Zealanders will look back on us this week and ask how and why we did that. The provisions of this bill around the Permanent Forest Sink Initiative make it very clear that the Income Tax Act will end up bearing part of the weight of that future obligation. It is real money it is real debt liability and it is real bad news for our children. Thank you.