Parker David: Taxation (Annual Rates Foreign Superannuation and Remedial Matters) Bill — First ReadingText is incorporated into the Bound VolumeParker David: Taxation (Annual Rates Foreign Superannuation and Remedial Matters) Bill — First Reading[Sitting date: 11 June 2013. Volume:691;Page:10989. Text is incorporated into the Bound Volume.]Hon DAVID PARKER (Labour):To the Hon Todd McClay congratulations on your appointment and I hope it goes well for you. The Labour Party is supporting this Taxation (Annual Rates Foreign Superannuation and Remedial Matters) Bill to go to the Finance and Expenditure Committee. There are some issues that we want to check on particularly around the retrospective nature of the changes to the taxation of foreign superannuation vehicles. The case against retrospectivity is normally very very high and we want to make sure that what is happening here is proper. Both the last speaker John Hayes and Todd McClay in his opening address said that the taxation system should be efficient and fair and then said that this bill achieved that.It is interesting to reflect upon what the OECD said in respect of New Zealand’s tax system in theOECD Economic Surveys: New Zealand 2013 in June just this month. It is the latest in the advice from a number of international agencies like the IMF and the OECD to critique New Zealand’s taxation system. I want to read out what it says because it says the opposite of what the Minister and the last speaker said. It says that tax changes should be considered “to make the tax system more conducive to both growth and equity:”. The changes that it proposes which are supported by the Labour Party are very very significant. It is interesting that the changes go to both improving equity in our country and increasing the wealth of our country through more growth. But before it sets out its prescription it notes that New Zealand now has one of the least redistributive tax systems in the OECD—one of the least. That is one of the reasons that it says that the rate of growth in inequality in New Zealand has been amongst the highest in the OECD in the last two decades. I say those two things slowly because I think it would shock most New Zealanders to realise that the rate of growth of inequality in New Zealand is worse than in most OECD developed countries and that we as a country as a consequence are becoming less equal.What it does not go down to is how this Government has made it worse because it is a prospective-looking document rather than criticising the Government’s recent policy platform. But of course inequality has gotten worse in New Zealand under this Government when 40 percent of its income tax cuts went to the top 10 percent. The Government says: “Oh but we increased GST.” Of course GST is effectively a tax on wages if you are a low or middle-income person and you spend all your income. You pay GST on everything except your interest and your rent. So you pay quite a high effective rate of GST in relation to your income. But if you are a wealthy person and you save a lot of your income you do not use up all of your income on GST-related services and your effective rate of GST is lower as a proportion of your income than it is for a low or middle-income person. So the effect of those tax cuts which gave 40 percent of the income tax cuts to the top 10 percent of income earners and then effectively replaced it with some GST which proportionately fell more on low and middle-income groups was to increase inequality markedly—and I say markedly.We see the effect of that in Auckland’s property prices. The Government as its centrepiece of this Budget says: “Oh we have now got to do something about unaffordable house prices.” But it is driving them both with the tax system—which is what I am going to come back to next—and with the increase in inequality as a consequence of more and more of New Zealand’s resources New Zealand’s wealth being captured by the top 5 percent or 10 percent of New Zealand. They of course are the people who are out there bidding for a third or fourth home while younger people are closed out of owning even one.So what does the OECD say in terms of reforms that could make this better—that could in its words: “make the tax system more conducive to both growth and equity:”? I will read it out. It says: “New Zealand belongs to a group of five OECD countries with particularly high pre-tax capital-income inequality … As much of this income especially at the top levels takes the form of capital gains the lack of a capital gains tax in New Zealand exacerbates inequality (by reducing the redistributive power of taxation). It also reinforces a bias toward speculative housing investments and undermines housing affordability as argued in the 2011Survey .” which is a wee flick at the Government saying: “Why do you ask us for these reviews and pay for them if you are going to ignore them like you did the 2011 one?”. So it is saying that we are one of only five OECD countries that have this capital income inequality because we tax a subset of economic income based on a statutory definition of income not an economic definition of income. We are one of five OECD countries that do that.Then it says that as much of this capital income takes the form of capital gains the lack of a capital gains tax in New Zealand exacerbates inequality. Well I thought the Minister of Revenue told us that that is what it is aiming for—a fair tax system rather than an unfair one. Then it says that it also reinforces a bias toward speculative housing which we know is probably one of the largest economic problems that we have in New Zealand. We over-invest in speculative land-based investments and we under-invest in the productive economy—the manufacturers and the like—that export products that pay for our imports and interests. Then the OECD says let us talk about this in respect of growth and the OECD says: “that recurrent taxes on immovable property are the tax category least harmful to long-term growth”. The OECD is saying that taxing capital—that is effectively what it is saying—has fewer negative effects on growth than other forms of taxation. So it is saying that the thing that New Zealand could do—and it stands out clearly; effectively its stand-out recommendation is how to improve both the economy and inequality—is to fix this glaring hole in our tax system where capital income is not taxed despite the fact that it is economic income.Really I should sit down now because that points to the most glaring hole in New Zealand’s economic settings. There is nothing more important that this Government could do economically than to get the investment signal right so that people invest on the basis of the productivity of their investment rather than on the basis of a tax bias because there is a tax bias there. No one disagrees now that there is a tax bias. The Prime Minister stands up and says that we have got a capital gains tax on people who are traders in property. No we have not. They are paying income tax on their trading activities. They are not paying taxes on their capital gains. They are paying income tax on the change in value of their trading stock because they are traders—just like someone who buys and sells shoes pays income tax on trading shoes or supermarkets on the goods they sell. If you are a trader in property it is your stock-in-trade and you pay taxes on your profits on your trading as income tax not as a capital gains tax.New Zealand’s tax system is fundamentally flawed. We face a higher cost of capital in New Zealand because of our prolonged current account deficit and our dissavings. And again what would the OECD and the IMF say is the right thing to get New Zealand people saving rather than over-investing in property and fooling themselves that they are wealthier because the price of the asset has gone up even though it is just the same asset and the country is no wealthier as a consequence? It is the same thing that existed at the start of the year; it is just that the number that is attached to it has changed. They would say that to fix that you need a capital gains tax. So you come back to this absolutely central thing that is important both from an economic growth perspective and from an equity system perspective and this bill does nothing about it.One more thing: this bill does nothing to remove the over-taxation that New Zealanders are facing through ACC. ACC is meant to be a levy that reflects costs. It is being used as a tax. It is being used by the Government to over-tax New Zealanders by $700 million over the next 2 years the effect of which allows it to squeak into surplus. It is good that we are getting back to surplus but the Government should not pretend that it is using ACC as anything other than taxation when it is meant to be a levy that reflects cost. It has already announced that in those out-years—around the time of the election somewhat coincidentally—it is going to drop those levies after it gets back to surplus. We are supporting this bill going to the select committee but it does not make the changes that the New Zealand economy needs.