Parker DavidTAXATION (ANNUAL RATES FOR 2023-24 MULTINATIONAL TAX AND REMEDIAL MATTERS) BILLFirst ReadingHon DAVID PARKER (Minister of Revenue): I present a legislative statement on the Taxation (Annual Rates for 2023-24 Multinational Tax and Remedial Matters) Bill.ASSISTANT SPEAKER (Hon Jenny Salesa): That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon DAVID PARKER: I move That the Taxation (Annual Rates for 2023-24 Multinational Tax and Remedial Matters) Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. Some of the main features of the bill focus on improving fairness in the tax system. We all use Government services and infrastructure that taxpayer dollars pay for so it's only right that all contribute fairly. One of the key features of this bill is to ensure that multinationals pay their fair share of tax. It achieves this by including measures developed by the OECD as part of their drive to reform international income tax—the framework for large multinational companies. The bill allows New Zealand to take part in this global minimum tax of 15 percent which is being introduced around the world for large multinational enterprises. The objective of this work is to stop the race to the bottom amongst Governments attempting to attract the mobile income of large multinationals by offering low effective tax rates. This initiative puts a floor on tax competition by creating a minimum rate. The OECD-led work which is endorsed by more than 130 countries will help both developed and developing countries raise revenue from multinational enterprises. It will reduce undesirable tax competition between countries without preventing the use of tax incentives by those countries to attract real investment. The OECD has estimated that it will increase global tax revenues from large multinationals by about US$220 billion a year or 9 percent of their current level. This tax is often referred to as the Global Anti-Base Erosion or GloBE tax. It is only payable where profits in a country are taxed at an effective rate of less than 15 percent. New Zealand already has a 28 percent corporate tax rate and a robust international tax regime so it's unlikely that the tax will raise much revenue directly in New Zealand. There are only about 20 or 25 New Zealand - based multinationals that are in scope of the GloBE rules. You have to have a high turnover to be caught up in this. But participation in the system will mean that those New Zealand multinationals can pay any GloBE tax they owe to New Zealand rather than paying that same amount of tax under those rules to an overseas jurisdiction which would of course not be benefiting the New Zealand tax system. In fact most of the locally based multinationals have told Inland Revenue that they prefer to deal with Inland Revenue in New Zealand alone rather than a range of other tax jurisdictions in respect of this issue. If this legislation was not passed then those multinationals once this rule comes into effect would in effect have to be dealing with those overseas tax jurisdictions in respect of the same issue which would be more complex for them. The change is estimated to raise about $25 million of top-up tax a year from 2026-27 onwards. It's a relatively small amount but it's about New Zealand doing its right thing by playing its part in this global effort. In its recently announced Budget Australia is introducing the same GloBE rules proposed in this bill for the same reasons. Another fairness-related measure in the bill deals with the tax treatment of backdated lump sum ACC and Ministry of Social Development payments. A person might receive a lump sum of money from those agencies when they should have received smaller regular payments over an extended period of prior years. The tax system currently treats the lump sum as all taxable in the year they receive it. This can mean that the person has more tax to pay on that lump sum than if they had been receiving smaller amounts over the preceding period when they were entitled to it. In some cases receiving the lump sum pushes the person into a higher tax rate so they receive less of the money that they should have received. From 1 April 2024 people receiving a lump sum ACC payment will pay tax on it at the average of their applicable tax rates over the previous four years and this then provides a fairer outcome. This has been a longstanding problem causing some people distress so I'm pleased that we're able to address it. As the finance Minister announced yesterday the bill will also align the top tax trustee tax rate with the top personal tax rate from 1 April 2024. Aligning the trustee and top personal tax rates at 39 percent will make the tax system fairer. It will also slightly improve its progressivity. The change is about preventing high-income earners from circumventing the top tax rate. About 78 percent of trustee income is earned by 5 percent of all trusts and that becomes even more concentrated at the very top end of those top 5 percent—these really are the big trusts the super-wealthy. I had a look at the stats yesterday. The bottom if you like 50 percent of trusts by my calculation on average will pay less than $20 a week extra in tax as a consequence of this measure. The tax shifting or the income shifting for tax reasons really is concentrated at the very top. Inland Revenue has evidence of big shift in income to trusts when it became widely known that the Government was going to increase the top personal tax rate. We said we'd monitor it and we're now addressing the issue. I want to be clear that this isn't targeting the smaller family trust that might own a rental property for example. These smaller trusts can continue to use existing rules to allocate their income to trust beneficiaries who are taxed at their personal tax rates. That doesn't change. The Government is also proposing targeted measures to help prevent the over-taxation of trusts in certain circumstances such as estates and trusts for disabled persons. That's already a problem in the current system—in some of those situations the effective trust taxation rate at 33c in the dollar is taxing those trusts following the death of someone at higher than the effective tax rate of the taxpayers that are involved in that estate. The Inland Revenue Department will continue to monitor the use of structures that undermine the 39c personal tax rate. The proposals apply for the 2024-25 and later income years. The Budget also implements another measure announced by the finance Minister in his Budget speech yesterday to assist predominantly women who typically retire with a smaller nest egg than their male counterparts in part because of their childcare responsibilities. On retirement women are typically less financially secure than men whose savings on average are higher than women's. The reason for this as I've said is that women often take time out of the workforce to provide childcare and their KiwiSaver contributions dry up. So the Government's proposing to pay a 3 percent KiwiSaver contribution to the KiwiSaver accounts of paid parental leave participants. The person would need to make their own 3 percent contribution of their KiwiSaver fund whilst on paid parental leave essentially out of their paid parental leave payment. The proposal recognises the unpaid nature of childcare the desirability of childcare but its obvious impact on earning and savings potential. The bill also implements a measure the Government announced to assist businesses hit by the North Island floods. Some of the businesses receive what is currently taxable income from insurance or compensation for their assets destroyed by floods. The last thing the businesses want to do is to have to pay a tax wedge on that insurance pay-out rather than reinvest it in the asset that needs replacing. So the bill proposes temporary tax relief allowing taxation essentially in effect to be deferred providing the assets are replaced. Finally the bill includes a measure extending the existing five-year income tax extension on the income of non-resident overseas oil rig and seismic vessel operators. This exemption removes the incentives for these rigs and vessels to churn in and out of New Zealand waters within 183 days to ensure the income of those people working on those vessels is not taxable. This would be inefficient and can have negative environmental impacts. I commend the bill to the House.ASSISTANT SPEAKER (Hon Jenny Salesa): The question is that the motion be agreed to.