Cullen Michael: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Instruction to CommitteeCWH In Committee 
Cullen Michael: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Instruction to CommitteeCWH In Committee 
[Volume:613;Page:10093] 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 I will take the first call on this part as I will have to go in a short period of time I am afraid to another meeting but my able colleague the Hon David Cunliffe will take over again. 
I want to comment briefly on the reasons why I have vetoed the amendment in the name of Mr Donald. The amendment has two problems—one relatively minor because it could perhaps be fixed with further conversation and one relatively major. The relatively minor one is that we cannot just create a $5000 tax-free zone and just shift the 19.5 percent boundary and keep it at $38000 and not address the structure of the tax system within that range. There is a whole set of issues around low-income earner rebates etc. In fact the veto certificate says between $1.7 billion and $2 billion cost because it is not quite clear what the amendment means in terms of some of the consequentials that would need to be moved to make the system actually work. On the face of it the amendment actually makes a nonsense of the current income tax rates. 
The second and more substantive—because we could try to work out the first one over some period of time—reason is that I feel it is fundamentally wrong to do as the member suggests. It is commonly suggested by people that if one makes a certain area free from income tax at the start somehow or other one is helping people on low incomes and people living in poor circumstances. There are a number of things wrong with that. The first might not appear on the face of it to be a sensible comment but it is true. Many people with low taxable incomes are not necessarily poor for a number of reasons. Some people are very good at reducing their actual income to a low taxable income. They tend to be called accountants and lawyers. 
Secondly many people who are on low incomes are second third fourth or fifth income earners within a family where the total structure of the family income is quite high so one is giving a tax break to perhaps the third income earner in a household with income of $200000 a year. That is particularly so because as we found when we had those kinds of exemptions at the front end it is remarkable how many children in better-off families manage to earn $5000 a year if $5000 a year is tax-free. The effort that goes into those young people at that point is quite remarkable. A cynic might suggest it has something to do with rearrangement of income within the family as opposed to actually representing a valid approach to the income tax system. 
So the proposal introduces a layer of unnecessary complexity in the tax system with very very little social benefit. For those on pensions and those on benefits in effect their levels are set in relation to net incomes in any case. New Zealand superannuation is related to the net average wage so if one changes the tax rates there is an automatic benefit to superannuitants. The gross simply changes to reflect the same net at the end of the day so all of that group of people who dominate people with low household incomes actually are not affected by this sort of change in any case. It is far better in fact as the Government proposes to deal with this issue through mechanisms such as family support which is targeted to people on low incomes with family responsibilities as opposed to perhaps a 17-year-old person with an income of $15000 or $20000 a year who is an awful lot better off than a household on $30000 a year and supporting three or four kids. 
So the amendment would not address social equity issues terribly well it would create tax compliance issues and avoidance opportunities and as cast it would actually create a nonsense of the current scales in any case.