English Bill: Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill — Second Reading In Committee 
English Bill: Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill — Second Reading In Committee 
[Volume:636;Page:7098] 
Hon BILL ENGLISH (National—Clutha-Southland) 
: 
 I think the previous speaker Doug Woolerton just showed how bereft the Government’s general approach to tax policy is becoming when he set forth for the benefit of the House the rather radical idea that this legislation is good because it is too complicated for people to get fair taxation so they will go for the simple version which means they will pay more than they should. Well that is a bad principle of tax policy. It should be the case that any taxpayer is able to understand their liability—that being a fairly calculated liability. Instead New Zealand First have decided—maybe it was intentional—to make the alternative so complicated that all direct investors will end up paying the higher rate when they could have got a lower one. This is actually a bad principle and it raises the issue of just what tax principles the Government now adheres to. 
We know this is a difficult area. I can recall giving speeches on tax measures related to exactly this problem almost 10 years ago—1986 or 1987 I think; maybe it was 1998—when the whole thing fell over partly because of the complexity that is now built into this law. In that case the member Doug Woolerton may be interested to know it was his party that pulled the plug for exactly the reason that he said that he supports this bill. Last time it pulled the plug because it was too complicated for an individual taxpayer to be taxed at the right rate. Today he said that he supports the legislation because it is too complicated for an individual taxpayer to be taxed at the right rate. Well I guess that is just politics and the passage of time. So I acknowledge that this is a difficult area and National does to. 
Actually a significant number of taxpayers will be better off. The Government has given up what looks like about $150 million of revenue by taxing people in the managed funds at the right rate—that being their own rate—and it will stop taxing capital gains. Those are good things. But the Government’s tax principles are getting harder and harder to divine. Certainly this process has been a mess just like the KiwiSaver process was. The only saving grace is that this result is better than what would have happened if Government members had not changed their minds and completely bypassed the generic tax policy process to get a result. 
Just when I thought maybe it was worth the effort today the Government announced a major change directly relevant to this regime saying it will extend exemption from the specified superannuation contributions withholding tax to superannuation funds that meet the criteria. The generic tax policy process stood the test of time and it is a real pity the Government has abandoned it—a real shame—because in the long run it will undermine the confidence of tax practitioners and taxpayers in the policy-making process. It might suit the Government in the short term—and we are seeing this fading Government take more and more short-term measures—but in the long term it will lead to greater complexity less compliance and less certainty about our tax system. Any Government needs consistent reminding by taxpayers about the impact of tax measures on them and those taxpayers need real and active opportunities to help shape the policy because that is what buys them into it. I would like to hear from the Government tonight as to whether it intends all its tax measures to now bypass the process. 
We are seeing an accumulation of multiplying complexity in our tax system. From the day the Government decided to put the top tax rate up to 39c we have seen a whole industry redevelop—one that I thought we had got rid of. It used to be the bad old days when people spent as much time working out their tax liability as they did creating wealth. Well particularly when it comes to anything to do with international taxes and anything to do with savings and superannuation people are now back into that business. There is more and more complexity for no obvious or well-specified benefit. 
I cannot help thinking Dr Cullen has fallen into the trap of his own cleverness. He has now moved away from the basic sound tax principles of broad bases low rates and no holes. He has now decided that he is the tax magician. He is sitting there in his office pulling a credit here an exemption there a deduction there a concession over there—and New Zealanders are the rats in the laboratory who are all meant to follow around according to the particular incentives and signals that Dr Cullen is trying to send. 
The abandonment of the generic tax policy process is a symptom of the fact that the Government is losing its rationale for how it is operating the tax system. It has become totally focused on ad hoc decisions driven by political forces and on trying to square up revenue when it knows it could actually afford to give it away. So that is the problem with the Government’s principles. 
To return to the Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill itself is it not fascinating to see how our perception of different policy measures can change. When the McLeod Tax Review first came up with the idea of taxing deemed returns it was regarded—by probably most people—as quite radical. It is quite a logical idea but at the time that report came out back in 2001 there was really no political interest in it. Yet here we are where the same kind of measure—not exactly the same but similar—has turned out to be the one way of rescuing one of the long-running tax problems that the Government has had to deal with. I give the Finance and Expenditure Committee some credit for coming up with a better solution because if they had not this of course would have been a disaster. 
It is also clear from the select committee process that the Government vastly underestimated how many Kiwis were behaving in a rational way and directly investing savings overseas. I do not think the Government actually believed anyone was doing it; or it believed that if they did it then they were rich fat cats and deserved to get slugged. But of course the select committee was overwhelmed with several thousand submissions. Is it not ironic that Dr Cullen lectured us endlessly about not investing in housing and about the need to diversify and to get into financial investments but remained completely unaware of the fact that thousands of Kiwis were already doing it? That is a serious question. How did the Government ever conceive that its original measures would be acceptable? It could only be because Government members were either ignorant or stupid: ignorant in that they did not know the scale of direct investment by New Zealanders or stupid in that they knew and thought people were going to wear the original proposals—and of course those people did not. 
I am particularly concerned about the Supplementary Order Paper that the Government has put down that extends the exemption to employers’ superannuation schemes. Dr Cullen is now put in a position where he looks like he never thought of it. He came up with this measure did not think about the implications of it then at the last minute realised that he was going to skew investment patterns if he did not have the same exemptions for employers’ superannuation schemes as he had for KiwiSaver. Now is that not sloppy policy? One would have thought that in any regime in which the Government was looking at changing the regime on taxes on savings the connections from one bit to another would have been thoroughly examined and understood and built into the original proposals. 
Some of this legislation does represent progress. But I would have to say that the environment in which it has been pushed forward gives me real concern—both because the Government has abandoned good principles of tax policy and also because it is clear from its very significant last-minute manoeuvre to extend the exemption to employers’ superannuation schemes that it had not thought through the policy. It just had not thought about the connections which are pretty obvious. There is a whole Inland Revenue Department full of officials over there and Treasury and apparently the smartest Minister of Finance the world has ever seen yet they had never thought of it until yesterday.