Clark David: Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill — In CommitteeText is incorporated into the Bound VolumeClark David: Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill — In Committee[Sitting date: 17 June 2014. Volume:699;Page:18582. Text is incorporated into the Bound Volume.]Dr DAVID CLARK (Labour—Dunedin North):I am surprised the Minister of Revenue did not beat me to his feet again. The Taxation (Annual Rates Employee Allowances and Remedial Matters) Bill which we have in front of us does introduce a number of changes. He was very keen to rush it through the select committee announcing it just before Christmas with a report-back date in early February that saw many of the larger tax agencies huffing and puffing because they were not happy that the changes made in this bill were being rushed through this House. This Minister is keen to see these changes go ahead. He is keen to see his tax legislation put through.It is a wonder that he did not have with him also a Supplementary Order Paper to introduce the changes that he announced by press release last Friday which would see double taxation on some bodies corporate in terms of their GST payments which will cost some of them millions of dollars and interestingly is very similar to the case that was taken against Muldoon when he cancelled the superannuation scheme in the 1970s. Muldoon announced of course by press release that he was going to roll back the scheme and that members did not need to contribute to it any more. And we know that that saving scheme would today be worth $200 billion to $300 billion had it been kept and that New Zealand’s retirement savings would be a lot sounder and a lot deeper and a lot more beneficial if that had happened.Simon O’Connor: Forty years ago.Dr DAVID CLARK: This Minister is doing the same things that Muldoon did and it is a shame that he cannot learn those mistakes of history from 40 years ago as my colleague opposite says. It is a shame that he is repeating those same mistakes of 40 years ago and making tax policy changes by press release. Certainly tax practitioners have spotted it. They are uncomfortable with it. It is not good practice to try to change the law without actually having the checks and balances.That is also reflected in this particular law that we are passing through the Committee now because we see already that the Minister is bringing some Supplementary Order Papers to correct mistakes that were in the bill already that the Finance and Expenditure Committee did not have time to process. We had through the select committee process various people—learned tax people—saying to us: “Look if we had a bit more time we might have ironed this out or we might have debated the principles a bit more. Why on earth are we introducing these strange rules around trusts around employee allowances and so on that do not seem to add up and have not had the full input that they should have in a tax bill that is properly consulted on?”. What happens then is that Parliament ends up spending a whole lot of time correcting mistakes.Another recent example of that of course is with the child support legislation that this Minister had to reverse out of. After the Government had put through a law that said that child support payments will be calculated on a different basis we had the Government taking more of Parliament’s time to reverse those changes out because it was decided that it was too hard to put them into effect. That of course cost millions of dollars of taxpayer money to do that to bring in a law and to take it out again. That is irresponsible frankly and it shows that the Government does not really have a vision for where the tax system could go and should go it does not have an oversight of the development and implementation of policy that it ought to have and we know a lot of that goes back of course to the Inland Revenue Department computer system.I am worried about some of the changes here in Part 2 and whether in fact they will be able to be implemented because we know that the technology that the Inland Revenue Department relies upon was put in place in 1993. The technology that the Inland Revenue Department relies upon is a lot older than Google. It is a lot older than Facebook. In fact the technology of the department’s computer system is a decade older than Facebook and very few companies businesses or Governments rely on computer technology that is over 20 years old to collect taxation. That means that it is very hard for customers to interact for ordinary taxpayers to interact with the tax department. And voluntary business compliance is dropping. It is interesting to note that on the Inland Revenue Department website the statistics for voluntary business compliance run out in 2012 when other statistics are carried through to 2013 and one wonders why that might be. It is a trend that is not happy. It does not reflect well upon the Government.I have recently heard more reports of people not getting through on the phone lines finding it incredibly frustrating to get through to the Inland Revenue Department and a lot of this hinges on a department that has not been well supported by this Government. The Minister knew that the Inland Revenue Department computer system needed upgrading when he came into office. And this computer system is what will be relied upon when this legislation is introduced. When it is put through the House it will be relied upon to make it happen for people in the world outside. But 5 years on nearly 6 years on under this Government we know that over $50 million has been spent on international consultants to try to work out what needs to be done there and they have reached the point that they are now saying at the Inland Revenue Department that what the National Government was told when it came into office 6 years ago is in fact what needs to happen now. It has got nowhere—nowhere effectively—in 6 years.Back in 2012 John Key said: “You don’t want to be held up by a lack of technology. You don’t want your tax system held to ransom by a lack of technology.” Mr Key promised that he would be getting on to it straight away. Well over 2 years have passed since he made that statement and still no progress. We have a new Minister who is getting up to speed with the system with the portfolio. We hope for good things although in Part 1 he is hiding his lamp under a bushel in presenting advice to this Parliament about why these changes are good. We will look forward to him in Part 2 perhaps explaining how they will be implemented with this dated technology in place and we look forward to what assurances he can give us that they can actually be implemented so that we are not back here in Parliament again removing the legislation because it embarrassingly cannot be implemented because the Minister has not given the Inland Revenue Department the support it needs to get on with the project of redeveloping that computer system that we know we all need.New Zealand of course is not the only country in the Western World that needs a tax system. We are not unique in that regard. Western countries replace their tax systems. This Government for some reasons has sat on its hands for 6 years knowing when it came into office that it was already dated technology and it has seemingly done nothing except hand over money to contractors from offshore to big multinationals to develop plans to rehash those plans and to really take us not very far at all. This Government needs to get on with that because it is a problem that future Governments will hold. If the tax system cannot do its duty we will not be able to afford the schools the hospitals the roads and the infrastructure that we all rely upon in this country to have a prosperous future. We have had those things in the past. We have had a functional tax system in the past. This Government has been neglecting it. I worry that the items listed in Part 2 of this bill will not be able to be implemented because of this Minister’s lack of attention to the Inland Revenue Department’s tax system.And he is not unique there. His predecessors must carry most of the blame. But I would like to hear from this Minister a credible time frame and some kind of indication about when our tax system is going to be working properly when tax simplification is going to happen and when a capital gains tax could be practically implemented. So far from this Minister there has been nothing except platitudes and a commitment to the status quo. Even his Prime Minister has said that change could not be made in the system. Even his Prime Minister has said that over 2 years ago. So I am looking forward to his contribution.Of course we also know that alongside that ancient computer system is an increasing record of privacy leaks. There was the big privacy leak issue in 2012 where 32 serious breaches happened at the Inland Revenue Department and we know that a year on there was a 500 percent increase. So that is also about this computer system which is the computer system that will be implementing this legislation which will have privacy implications. Mr Chair you are rightly bringing me back to the bill itself. These privacy implications in the bill because we are dealing with employment matters with wages and with other items that are significant tax rates the amounts of tax paid Inland Revenue Department numbers—all of those things are intimately entwined in the legislation we are passing and affect each and every New Zealander. The Inland Revenue Department holds our most sensitive information and so when it is enacting these parts of the bill we see that the department will be handing over its information. The department will be required to make disclosures—the department holds that information—about the nature of a charity for example about its records. Everything that is in this bill—housing trusts and their nature and so on—is all held by the Inland Revenue Department and can be released improperly if the computer system is not up to date.We also heard in the select committee a number of presentations where concerns were raised about the trust rates for housing—the discretionary ability of the Minister to choose which tax rates should apply to which trusts and which would be deemed to be worthy housing trusts with a social benefit which are charitable and which would be deemed not to be. This discretionary power is very very unusual in terms of the Minister’s responsibilities. I am interested to hear what the Minister will say about that what his view about it is and why that discretion should be allowed for a Minister. It seems pretty odd that the Minister should be having such arbitrary powers and certainly that was raised by tax experts along the way.This Minister as we know is new to the role so he will have some fresh thinking. We are looking forward to hearing what that is. We have already challenged him to tell us about the default capital gains tax that he has said stands in place of the capital gains tax that Labour would introduce. He has not engaged on that in Part 1 but by the way he is scrawling notes now I am hopeful that we will get a more fulsome response in Part 2 and some pearls of wisdom from a new Minister keen to make his mark keen to show that this Government will make a difference will upgrade the computer system and give some kind of clarity around time frames around the nature of the upgrade and around the costs involved. Even that has not been clarified yet—whether it is going to be $700 million as Bill English once said or a billion dollars as I think Mr Dunne said or up to $1.5 billion as somebody else maybe Mr Key once said. These are things that we need some certainty about as taxpayers to know that our tax system is being looked after that our private details will be secure that the tax system will be functional into the future flexible able to respond to a changing international tax environment where multinational tax avoidance is becoming a bigger and bigger issue and functionally able to do the very basics that it has historically done.When the Minister speaks about community housing entities I do wish to hear him explain why there should be such a wide range of discretionary powers to approve or disprove charitable exemptions. That really does give the Minister the effective right to confer lower taxes on some but not all taxpayers and that seems to be bad law. Frankly that is bad law. This is to be done under guidelines that are not even proposed in the legislation. Mixed housing areas look set to be excluded. This cuts across the efforts to attract teachers doctors and other professionals into areas with prohibitive housing prices. These changes made in the legislation will have social impacts and the Minister is responsible for making decisions about who pays what rate of tax. That is not defined in the legislation. It is very unusual—it is very unusual—and the tax experts said that with some more time these things could have been ironed out. But the Minister has been rushing this through the House. Perhaps there is a lack of back-planning and perhaps there is a bit of a shambles in the handover as his predecessor lost his ministerial role over an issue around privacy ironically when we also have these privacy breaches at the Inland Revenue Department.But the Minister will tell us I trust about how these anomalies are in there like a trust supplying housing to teachers in a remote housing area appearing to be granted an exemption while a school that houses teachers will not. If one set up a trust for tax accountants it may well have a tax-exempt status and yet it would be hard to argue that there was a social good or a charitable purpose although the tax accountants might argue that.Andrew Little: Make it a religion.Dr DAVID CLARK: A religion. Yes well tax is a religion for some so I guess there are possibilities there. But seriously I do look forward to the Minister explaining why he should have these discretionary powers why he should be able to confer lower tax rates upon some citizens and not others and where this will all end. This is a piece of legislation that could have been better. It is a piece of legislation that will no doubt come back to the House to be amended over time because of the rushed nature and because of the inability of the department at times to implement things because that computer system is out of date because of this Government’s lack of attention to detail.On this side of the Chamber we want a more positive future. We want every New Zealander to have the knowledge that this tax system is functional. We want it to be collecting the taxes fairly where they are due as they fall including from multinational companies. We want a New Zealand that has the resources to support good schools hospitals and all of those other basics that New Zealand needs.