Smith Lockwood: Taxation (Annual Rates of Income Tax 2007-08) Bill Taxation (Business Taxation and Remedial Matters) Bill Taxation (KiwiSaver) Bill — Third Readings 
Smith Lockwood: Taxation (Annual Rates of Income Tax 2007-08) Bill Taxation (Business Taxation and Remedial Matters) Bill Taxation (KiwiSaver) Bill — Third Readings 
[Volume:644;Page:13769] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 This legislation that we read for a third time today reveals the full sham of this Labour Government’s new-found interest in personal income tax cuts. The Government members tell us now that Treasury has finally told them that the Government can afford personal income tax cuts. Well this was the first test. This Taxation (Annual Rates of Income Tax 2007-08) Bill was the test. Labour could have reduced personal income tax rates. It was the first test. And what does Labour do? It fails because it does not reduce the rates at all. We know why. The reason is that there is no election this year. There is no election this year and this Labour Party is so dumb it thinks the people of New Zealand can be fooled into believing that Labour supports tax cuts when the only time it talks about them and promises them is in election years and then it does not do it. 
So what have Government members done with this bill? What they have done is so extraordinary it would find a perfectly good place in a Monty Python show. They have suddenly decided: “Redundancy payments! We’ll reduce the tax on all redundancy payments by 6c!”. Has anyone had a chance to make any submissions on that policy? No. Has the policy been through the generic tax policy process which is an important part of trying to make sure our tax legislation in this country makes sense? [ 
Interruption 
] Paul Swain knows about it. The young Darren Hughes would not know anything about it but Mr Swain knows about the generic tax policy process. It is an important process. Did this 6c rebate in redundancy payments go through that process? No. 
Let me share just a couple of things that show what is so stupid about this provision. The Minister Peter Dunne has just said that the reason for it is that a redundancy payment can put a taxpayer into a higher tax bracket and therefore that taxpayer pays more tax than he or she should on that redundancy payment. I have no problem with that argument. But the Minister should think about it a bit. Let me give him an example. Let us say for argument’s sake that a salary earner on $40000 loses his or her job. This person has been in this job for a few years so he or she gets a $40000 redundancy payment. Under this legislation this person will get a 6c rebate on that $40000 redundancy payment. But I want the Minister to reflect on this. If this person genuinely was getting a reduction for the tax that the higher tax bracket would impose on him or her he or she would not get a 6c rebate on all of that $40000. 
Hon Paul Swain 
: Yes they do. 
Dr the Hon LOCKWOOD SMITH 
: No that person would not. That person would not if in fact he or she was being compensated for being taken into the higher tax bracket. You see at $40000 of salary this person’s marginal rate is 33c. It does not change to 39c until he or she hits $60000. So the first $20000 of the redundancy package would be taxed at only 33c and only the last $20000 would face the 6c higher marginal rate. But by giving the full 6c rebate on the entire $40000 on the bit from $40000 to $60000 this person is paying a 27c tax rate on that bit of income. Where is the logic in all of that? I see the Minister frowning. I can tell him that I am right. My figures are absolutely right. I am correct. Where is the logic in saying that the person getting this payment should pay only 27c on the bit between $40000 and $60000? Where is the logic in that? 
What makes it more stupid is that the person we are talking about is sadly now put out of work and gets a redundancy payment—and of course we should be concerned about excessive tax on that payment—but what about the same person on the same salary who is injured at work sadly so injured that the person will not be able to work again for the rest of his or her life? At least someone who gets redundancy has the chance to get another job. Someone who will not be able to work again for the rest of his or her life will get a lump-sum payment from the Accident Compensation Corporation say for argument’s sake for the same amount of $40000. But that poor person who perhaps can never work again gets the full tax—the full 39c—on their lump-sum compensation. 
Why does Labour hate injured workers? Why does Labour hate so much these poor people who get put out of work and cannot work again because of a tragic injury that may not even be their fault but have to pay the full tax rate and someone who is made redundant whose prospects are nowhere near as serious because he or she can at least work again and get another job gets this really special tax treatment whereby over a certain range of income the tax rate is below the tax rate that ordinary people earning that kind of money would pay? Had this policy been through the generic tax policy process all these silly anomalies would have been sorted out. 
What we see with this legislation we are debating in the third reading today is really a reversion back to the bad old days. When I came into this Parliament in 1984 we had ridiculous tax law. I think something like 70 pages of tax deductibilities were available to taxpayers in New Zealand. I give the Labour Government of those days some credit—the Labour Government post-1984—and Michael Cullen was part of that Government. It is a shame Michael Cullen has forgotten some of the good things he did back in those days. It is a shame he resiles from some of the good things Labour did in those days. Labour simplified the tax system. It accepted that the policy of a lower broader base actually brings in more tax revenue. But what we see with this legislation now is that today this modern Helen Clark - Cullen Labour Government is turning its back on that sound tax policy. What we get is a whole lot of adhockery such as the 6c rebate on redundancy payments and the tax credits for working families or for all kinds of New Zealand families. This bill also changes the names of the various family tax credits. 
What is so bizarre about this bill is that a family that Dr Cullen considers is so rich it should pay the top personal tax rate is on $60000. Dr Cullen considers that someone on $60000 is so well off he or she should pay the top personal tax rate. 
Hon Dr Michael Cullen 
: The top. 
Dr the Hon LOCKWOOD SMITH 
: Michael is right—the top. But if they have five children then the Government considers that they are so poor they should pay no income tax. So on the one hand the Government is saying those people are so wealthy they should pay the top rate yet on the other hand if they have five dependent children they are so poor they should pay no income tax at all. Those are the facts. If a family has an income of $60000 and five dependent children their net tax position is zero. So we can see this stupid adhockery. Why do we maintain these ridiculous high tax rates on ordinary working New Zealanders then say: “Hang on! After we have collected all this tax we have to give it all back to them.”? 
That is not the only adhockery in this legislation. It now brings in the tax credits for research and development. What we will see with those—and we are already seeing it—is accountants up and down this country working on how much of most businesses’ current expenditure can be brought in to qualify for the research and development tax credits. We know that Shane Jones the Labour member and chair of the Finance and Expenditure Committee asked officials whether there was any evidence at all from Australia that these tax credits work. The officials had to say that there is not. We have all these bits of adhockery that this legislation brings into our law. 
The final one I want to mention is this: in the final stages of major tax law we had five Supplementary Order Papers—three major ones and two minor ones—just dumped on this Committee yesterday. That is not very good tax legislation. One of them brought in a new provision for cross-border operational leases whereby one-sixth of the depreciation write-off available for these leases will now no longer be available. What is objectionable about that is that the Government tried to sneak in a Supplementary Order Paper on that a while back. The select committee examined it found that it would be unacceptably repressive on certain business deals done in New Zealand through its retrospectivity and threw it out. But the Government then brought in this Supplementary Order Paper and dumped it on the Table yesterday. 
The commercial interests involved now have to work through how they will actually live under this new provision. Time will tell whether serious litigation follows this measure. Again it is ad hoc. Again it has no rational basis behind it. That is the problem with this legislation. It ignores a rational reduction in tax rates for all New Zealanders and brings in a whole rash of ad hoc provisions. That is why National is opposed to the bill.