Fitzsimons Jeanette: Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill — First Reading 
Fitzsimons Jeanette: Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill — First Reading 
[Volume:631;Page:3446] 
JEANETTE FITZSIMONS (Co-Leader—Green) 
: 
 There are some very positive measures in the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill that the Greens support. There is also a huge missed opportunity to make the tax system broader-based fairer and less of a layer upon layer of amendments to remedy anomalies—which has left us frankly with a bit of a dog’s breakfast of a tax system. 
The Greens strongly support the look-through rule for New Zealand - managed funds which will now be taxed at the personal rate of the investor. One could not think of a bigger disincentive for people to save than if those people earn less than $38000 and their savings are taxed at the same rate as those of people who earn a lot more than that. If KiwiSaver is to prosper that amendment is essential and for that reason alone the Greens will support this bill going to the Finance and Expenditure Committee. But we hope the select committee process might bite the bullet and look much more broadly at the opportunity the bill presents to fix the tax system further. 
We also support the removal of the anomaly whereby overseas investments have been taxed inconsistently depending on whether they are funds or investments by individuals. That inconsistency has been remedied. There is no reason why investments by individuals should be taxed differently from investments of those who put their money into a managed fund. 
We also support the move to remove the incentive for people to take a considerable amount of their salary as a superannuation contribution just to avoid tax. Tax law that creates incentives to make moves that one would otherwise not make just to avoid tax is bad law and getting rid of that anomaly is a good thing. We support the removal of discrimination against investing in New Zealand. It was certainly an anomaly that one would be taxed at a higher rate if one invested in New Zealand rather than overseas—so far so good. But in removing some anomalies the bill creates some others because it is yet another add-on to a tax system that actually needs a more thorough overhaul. 
Let us look for a moment at what a tax system should do; I believe there are three things. Firstly it needs to raise enough revenue to meet the Government’s needs for expenditure. That is a question of how much one taxes and there will always be political differences around that question. Secondly it needs to be fair and that is a question of who is taxed and at what rate and there will always be political differences around that question. But thirdly a tax system must not set perverse incentives to do the wrong thing in order to avoid paying tax. I would have thought there might be some measure of agreement around the House that we do not want a tax system that sets perverse incentives. 
The Greens have argued for a long time that we need to broaden the tax base so that we pay less income tax and raise revenue in other ways. We need to start taxing the “bads” in society instead of just the “goods” so we should tax income hard work and enterprise less and we should tax pollution and waste more. We propose a system of ecological tax reform that would take off tax on the first $5000 of everybody’s income which means every taxpayer would get the same rebate; and instead tax things such as carbon toxic materials and waste to landfill—the environmental “bads” that we are trying to have less of. 
As part of that broadening of the tax base we have always questioned why earned income pays tax and unearned income does not. That seems to us to be a serious anomaly that the bill fiddles with but does not really address. We have always proposed that there should be a proper investigation of whether unearned capital gains which are taken as income should be taxed in the same way that wages and salaries should be. Support for this position arrived in the weekend from a rather unexpected source. I want to quote from a column by Mary Holm who is the financial adviser in the money section of the  
Weekend Herald 
. She has written a very sensible article. Her column states: “The heart of the problem it seems to me is that the officials are proposing changes within an already flawed tax system. They will remove some flaws but inevitably create others.” The article goes on to state: “Why shouldn’t capital gains be taxed? Arguably the gains that people are lucky or skilful enough to make merely by holding an appreciating asset should in fact be hit harder than the wages people make by working. What we need is an inflation-adjusted tax on all capital gains much the same as income tax.” 
 The article later states: “Other taxes could be cut and many people would end up paying lower total taxes.” Mary Holm points to some other benefits: “And while accountants and lawyers would get less tax work”—because this would be a very simple system—“we would free up some bright people to help solve other problems.” Surely we need our bright people doing more in life than just finding tax loopholes for people with a lot of money. 
The Green Party position is not at this stage a final policy on capital gains tax because to finalise such a policy would involve a lot of work that the resources of six MPs cannot do. We need a Government department to do a proper investigation of what that would involve. We note we are almost the only OECD country that does not tax capital gains on a broad basis—Australia the United States and most of the OECD do so. Therefore to do so would not at first sight bring about the end of Western civilisation. 
The bill proposes a capital gains tax on gains from overseas shares but not a capital gains tax on New Zealand shares or property. That tends to fuel the rise in house prices from investment housing property which makes it very hard for Kiwis to buy their first homes. So a number of social implications come from this legislation as well. There are some very major issues to crunch here; for example should capital gains tax apply to the family home? We think it should not but it certainly should apply to the rest of the property market—that needs investigation. Should the tax be on the realised value or the unrealised value of capital gains? To what extent should that tax be inflation-adjusted and how exactly would that be done? This is the time that those issues could be crunched. 
I go back to Mary Holm’s column which quotes Brian Fallow’s article in the “Business Herald” the other day: “a capital gains tax ‘is a politically poisonous proposition. At the height of the mid-1990s boom then (Reserve Bank) Governor Don Brash’ ”—and I recommend that Dr Brash’s colleagues look at this article—“ ‘suggested a capital gains tax on investment property but the MPs on the finance and expenditure select committee shrank back from their seats as if he was offering them plutonium lollipops.’ ” We know this is a politically dangerous area that MPs will not go near but in fact we have gone near it. The tax exists now on some capital gains but not on others. That is an unfair anomaly. We are all paying more income tax because the gains we make from unearned capital gains are not taxed. 
This is the time when we could crunch those issues. Dr Cullen has a whole department of capable people to do that for him. We will continue to argue that that work should take place before this bill is finally passed.