Tuesday, 5 March 2019

TUESDAY, 5 MARCH 2019

TUESDAY, 5 MARCH 2019

The Speaker took the Chair at 2 p.m.

Prayers.

Visitors

Canada—Commonwealth Parliamentary Association

SPEAKER: I’m sure that members would wish to welcome the honourable members of the Canadian Branch of the Commonwealth Parliamentary Association, led by Yasmin Ratansi MP, who are present in the gallery.

Oral Questions

Questions to Ministers

Question No. 1—Prime Minister

1. Hon SIMON BRIDGES (Leader of the Opposition) to the Prime Minister: Does she stand by all her Government’s statements, policies, and actions?

Rt Hon JACINDA ARDERN (Prime Minister): Yes.

Hon Simon Bridges: Is it fair that Kiwis on the average wage will lose $64,000 from their KiwiSaver over their lifetime due to the proposed capital gains tax?

SPEAKER: Order! Order! No, the Prime Minister will resume her seat. The question must be related to the original question.

Hon Simon Bridges: When she said that capital gains tax will be fair, is it fair that the Kiwis on an average wage will lose $64,000 from their KiwiSaver over their lifetime due to the proposed capital gains tax?

Rt Hon JACINDA ARDERN: Look, this is an assertion that has been made by the Leader of the Opposition, and yet he is unwilling to release the calculations that he claims he is making, because I am told that the advice from IRD and Treasury is that someone earning $62,000 a year would be better off by $33,000 under the Tax Working Group’s package as it relates to KiwiSaver. So, by all means, I am happy to debate the member, but I want to debate him on the facts.

Hon Simon Bridges: Does that include all of Michael Cullen’s option one offsets, and can she commit to offsetting any capital gains tax with tax cuts for KiwiSavers?

Rt Hon JACINDA ARDERN: It includes the offsets within KiwiSaver because the Tax Working Group did not just make one single recommendation; it recommended a suite of changes to KiwiSaver.

Hon Simon Bridges: In light of Michael Cullen accepting $64,000 as accurate, how on earth can’t she?

Rt Hon JACINDA ARDERN: I absolutely disagree with the member’s assertion.

Hon Grant Robertson: Is the Prime Minister aware that this figure of $64,000 was shopped around the press gallery by National last week and no one would pick it up?

SPEAKER: Order! And a warning to this side: I’ve already cut out one question here. The Minister of Finance knew that question was out of order. He was therefore disorderly and will stand, withdraw, and apologise.

Hon Grant Robertson: I withdraw and apologise.

David Seymour: Is it possible that a proposed capital gains tax could be revenue-neutral?

Rt Hon JACINDA ARDERN: That is certainly the request that we made of the Tax Working Group. It was to consider options around making the package revenue-neutral.

David Seymour: Why would a Government request advice that would make a tax system more complicated to get the same amount of revenue?

Rt Hon JACINDA ARDERN: Two points: firstly, to make the tax system fairer—which seems like a pretty good reason to members on this side of the House—and, secondly, almost every member of the OECD manages to deal with what is being asserted to be complicated. Why can’t we?

Hon Simon Bridges: Will she commit to offsetting any capital gains tax with tax cuts for KiwiSavers?

Rt Hon JACINDA ARDERN: The member well knows that the Tax Working Group’s report is currently being considered by the Government.

Hon Simon Bridges: Does she agree with what she’s previously said in this House: “The difference is that we have prioritised things differently on this side of the Chamber. We have said, ‘Yes, we need more revenue. We’ll bring in a capital gains tax.’ ”?

Rt Hon JACINDA ARDERN: The reason we undertook this work was because we believed we needed more fairness in our system. That is why we undertook this work in the first place, and now we, as a Government, are considering the findings of the Tax Working Group.

Hon Simon Bridges: In light of the comments on fairness, is it fair to impose a capital gains tax on every KiwiSaver account in New Zealand?

Rt Hon JACINDA ARDERN: Again, if he has read the report, he will have seen the recommendations adopted by the Tax Working Group mean that people earning less than $70,000 a year end up being better off as a result of those changes. I again reiterate, though, that the Tax Working Group made their recommendations and we are considering them all.

Hon Gerry Brownlee: Put it on the Table.

Hon Dr Megan Woods: It is on the Table.

Hon Gerry Brownlee: It’s not on the Table.

Hon Simon Bridges: So is she explicitly committing to the offsets—

SPEAKER: Order! The member will resume his seat. Dr Woods and Mr Brownlee—

Hon Gerry Brownlee: Good friends.

SPEAKER: I’m sure that’s the case—and almost neighbours, I understand—but that means that you should probably carry on your conversations in some other place.

Hon Simon Bridges: Is she, in her answers, explicitly committing to the offsets of KiwiSaver that Sir Michael Cullen has set out in the first of his three fiscal-neutral proposals?

Rt Hon JACINDA ARDERN: No, I am simply correcting the member because he is factually incorrect.

Hon Simon Bridges: Is it fair that under the proposed capital gains tax, the small-business owner—for example, a hairdresser or a plumber—who works hard to build up their business—

SPEAKER: Order! The member will resume his seat. The member knows that questions and supplementary questions do not contain any superfluous wording. I was prepared to let the member have one set of superfluous wording—one phrase—but the member was on to a second. He will rephrase the question.

Hon Simon Bridges: I raise a point of order, Mr Speaker. I was seeking to put a particular scenario to the Prime Minister, to understand her position on that.

SPEAKER: And there was more than was necessary to build that scenario.

Hon Simon Bridges: In light of her comments on fairness, is it fair that under the proposed capital gains tax, the small-business owner will have to pay tax on a third of their business when they sell up for retirement?

Rt Hon JACINDA ARDERN: Again, alongside the recommendations around a comprehensive capital gains tax, we’ve acknowledged that for simplicity, that was what the Tax Working Group suggested. They also put alongside that increasing the threshold for provisional tax from $1,500 to $5,000, increasing the closing stock adjustment, an increase in the automatic deduction for legal fees, a reduction in the number of depreciation rates—so there was a suite of options in there. Again, Mr Speaker—as I know you know, but as I wish the Leader of the Opposition would hear—we have not settled on any of the final recommendations of the report. We are still considering them as a Government.

Hon Simon Bridges: Can she not say whether it’s fair that when a small-business owner takes all the risk to start their own business and when they sell up that business for retirement, the Government takes a third?

Rt Hon JACINDA ARDERN: The Tax Working Group considered all income in the same way, including the way that it is treated by tax. So that’s what they have put into the Tax Working Group—consistent treatment around all forms of income. We, of course, as a Government have to make a judgment over the consensus that we form over the Tax Working Group’s recommendations.

Hon Simon Bridges: Is the problem with answering my questions that she doesn’t understand small business very well?

Rt Hon JACINDA ARDERN: No.

Hon Simon Bridges: When she told Mike Hosking last week and this morning that she’d run a small NGO that helped her understand small business, what was that NGO?

Rt Hon JACINDA ARDERN: I did not tell him that this morning.

Hon Simon Bridges: When she said last week on Mike Hosking that her running a small NGO had helped her understand small business, what was that NGO?

Rt Hon JACINDA ARDERN: Actually, I spent more time talking about the fact that my first jobs were all in small businesses. The point that I was making at that time—and, actually, that I continue to make—is that as a Government, we are considering all of the issues that have been raised. That includes whether it be residential rentals, whether it be small business, whether it be KiwiSaver.

Hon Simon Bridges: Is the NGO she spoke of the International Union of Socialist Youth?

Rt Hon JACINDA ARDERN: The member knows how to use Wikipedia—well done.

Hon Simon Bridges: Has talking to international comrades helped her with her small-business policy development in New Zealand?

SPEAKER: Order! Order! No, the Prime Minister will sit down. We’re not going to have that sort of seal-like approach in this House. It’s a final warning, and I think Mr McClay will be the first out.

Rt Hon JACINDA ARDERN: I stand by the fact that I have worked in small businesses and that I have been in charge of hiring and firing, and I’d be interested in how many times he’s had to do that as a Crown prosecutor.

Rt Hon Winston Peters: Given all the—

Hon Gerry Brownlee: Ah, the businessman.

SPEAKER: Order! The member will resume his seat. Mr Brownlee will now stand, withdraw and apologise.

Hon Gerry Brownlee: I withdraw and apologise. What was the problem there? I called him a businessman; I apologise for that.

SPEAKER: The member knows well that he interjected while a member was asking a question. He will now leave the Chamber.

Hon Gerry Brownlee withdrew from the Chamber.

Rt Hon Winston Peters: Given all the speculation since 21 February, when the Tax Working Group’s report was put to the public, is it the Government’s position to consult with all sectors of New Zealand and by the end of April, or thereabouts, come to a decision as to what we will do with that report?

Hon Simon Bridges: End.

SPEAKER: Right. Who—no, who made that interjection?

Hon Simon Bridges: I withdraw and apologise.

Rt Hon JACINDA ARDERN: Yes. Then, of course, after a decision is made, if there is a need for any legislation, that too will go through a full consultation process. There will be no lack of input from the New Zealand public.

Hon Simon Bridges: Is it all getting too hard, and is that why the timetable’s now slipped until the end of April?

Rt Hon JACINDA ARDERN: No.

Question No. 2—Finance

2. Dr DEBORAH RUSSELL (Labour—New Lynn) to the Minister of Finance: What recent reports has he seen on the New Zealand economy?

Hon GRANT ROBERTSON (Minister of Finance): Last week, the New Zealand Institute of Economic Research (NZIER) released its quarterly predictions for the March 2019 quarter, showing a solid domestic outlook. The NZIER said global volatility in the form of the US-China trade dispute, slowing growth in the Chinese economy, and uncertainty over Brexit could weigh on export demand. The risks posed by the international situation continue to demonstrate the importance of our commitment to working on more diverse trade opportunities and agreements and to responsible fiscal management so that we are in a position to respond to any shocks.

Dr Deborah Russell: What did NZIER say about the domestic outlook?

Hon GRANT ROBERTSON: NZIER said that despite some of the global developments clouding the growth outlook, there remain many positive domestic factors underpinning growth in the New Zealand economy. Consumer spending is forecast to pick up on the back of rising wages as a result of a solid labour market, and there is steady consumer confidence. This is backed up by the ANZ-Roy Morgan Consumer Confidence survey for February, which showed confidence at 121—around its historical average. The proportion of consumers who feel more better off financially than a year ago lifted by 2 percentage points, and the proportion who think it’s a good time to buy a major household item was also up 3 percentage points. This confident domestic outlook shows that the economy has solid fundamentals as we continue to transition to a more productive, more sustainable, and more inclusive economy.

Dr Deborah Russell: What reports has he seen on other indicators of the strength of the economy?

Hon GRANT ROBERTSON: ANZ noted in its business outlook survey released last week that “regional economy is booming”. This is backed up today by the regional round-up from Westpac, in which it pointed out that a number of regions have built up quite a head of steam and are expected to roll through 2019 in fine form. We do acknowledge that some regions are not growing at such a pace, and that is why we have committed to growing jobs and business in regions through initiatives such as the Provincial Growth Fund.

Question No. 3—Finance

3. Hon AMY ADAMS (National—Selwyn) to the Minister of Finance: Does he stand by his statement in relation to the Government’s Tax Working Group report: “I’m sure there are things in there that we will be able to accept and adopt”?

Hon GRANT ROBERTSON (Minister of Finance): Yes, I stand by my full quotes in that article.

Hon Amy Adams: Having previously refused to commit to a tax-neutral package, is having a capital gains tax on KiwiSaver schemes that leaves the average income earner worse off than they otherwise would have been at retirement one of the things he plans to adopt?

Hon GRANT ROBERTSON: I reject the premise in that question.

Hon Amy Adams: Is imposing a capital gains tax on the family home if deductions are made for its use as a home office something he plans to adopt, despite having told New Zealanders their family home would be exempt?

Hon GRANT ROBERTSON: We haven’t made any final decisions on those matters. I would note that, currently, there are deduction rules around the use of parts of your family home as an office, so the member is probably going down a path she doesn’t want to in that area.

Hon Amy Adams: Is imposing a capital gains tax on 160,000 lifestyle blocks despite them being people’s family homes something he’s planning to adopt?

Hon GRANT ROBERTSON: We have not made any final decisions on those matters, but I would note that the rules around the question of what defines a family home and the land around it are actually currently in operation, and were in operation under the previous Government as well.

Hon Amy Adams: So, having said that he plans to adopt some of the recommendations in the Government’s Tax Working Group report, doesn’t he think that the 2.9 million New Zealanders with KiwiSaver accounts, the 500,000 small-business owners, the 160,000 lifestyle block owners, the 120,000 family bach owners, and the 50,000 farm owners who are right now staring down the barrel of a capital gains tax deserve to know exactly what it is that he plans to adopt?

Hon GRANT ROBERTSON: That’s precisely the process that the Government is going through to work through all of those recommendations, and I think New Zealanders respect and understand that this is a Government that doesn’t hide away from difficult issues and that faces up to the big challenges of our time. What I would say to the member specifically in respect of KiwiSaver is I also don’t believe that New Zealanders will have forgotten the $2.6 billion gutting of KiwiSaver balances caused by that Government when the member tax credit was cut by her Government and the employer contribution tax exemption was removed—$2.6 billion taken away from KiwiSaver. We’re proud of KiwiSaver on this side of the House.

Rt Hon Winston Peters: Just for the clarity of the Government and the public’s understanding, does he regard—

Hon Simon Bridges: I raise a point of order, Mr Speaker. That was entirely superfluous.

SPEAKER: Sorry?

Hon Simon Bridges: That was entirely superfluous from the Deputy Prime Minister.

SPEAKER: That might be your opinion. The Rt Hon Winston Peters will start his question again.

Rt Hon Winston Peters: Can I ask the Minister, for the purpose of public understanding, does he regard the brightline test introduced by the National Party as being a capital gains tax?

Hon GRANT ROBERTSON: Well, it’s not—

SPEAKER: Order! The member can answer the question with the deletion of the reference to the Opposition.

Hon GRANT ROBERTSON: I’m not the only person who believes that and, in fact, interestingly, there has been a lot of commentary recently about the place of the family home and whether or not a big family home should be exempted. The brightline test exempts the family home. It’s an interesting thing, isn’t it?

Question No. 4—Housing and Urban Development

4. GREG O’CONNOR (Labour—Ōhāriu) to the Minister of Housing and Urban Development: Will the healthy homes standards reduce hospitalisations for housing-related illnesses; if so, how?

Hon PHIL TWYFORD (Minister of Housing and Urban Development): Ministry of Health data shows that at least 6,000 children are admitted each year for what they call housing sensitive hospitalisations. Otago University recently found that homes that are damp or mouldy cause more than 35,000 nights in hospital, and report problems with damp or mould. The study found that the statistics are worse the lower the income of the household, and rental properties are the most problematic. The healthy homes standards will set minimum standards for insulation, heating, ventilation, moisture, and draughts so that rental homes are warm and dry. They’re part of the Government’s plan to improve the health and well-being of children.

Greg O’Connor: Why is the Government focusing on rental homes?

Hon PHIL TWYFORD: What we’re doing is lifting standards to stop the bottom end of the market undercutting decent landlords. A report from Otago University highlighted that 15 percent of owner-occupied homes were reported to be cold, compared to 35 percent of rental homes. Only 3 percent of owner-occupied homes were damp or mouldy, compared to 12 percent of rentals.

Greg O’Connor: Will the healthy homes standards reduce the health costs of tenants?

Hon PHIL TWYFORD: Well, the heating standard alone is predicted to reduce the costs incurred by tenants because of ill health by $129 million over the forecast 15-year period. That excludes non-quantifiable benefits such as increased school attendance, greater educational attainment, mental health well-being, and comfort. This is all additional to the predicted $476 million in energy savings.

Greg O’Connor: How do the healthy homes standards fit in with other policies aiming to reduce hospitalisations for housing-related illnesses?

Hon PHIL TWYFORD: The healthy homes standards are just one part of the Government’s plan to improve the well-being of New Zealanders, particularly children. Warmer Kiwi Homes provides grants covering two-thirds of the cost of installing ceiling and underfloor insulation, topped up wherever possible by third-party funding to make insulation as low cost as possible. The winter energy payment provides $450 for a single person and $700 for a couple over the five months of winter to make sure that beneficiaries and those on super can afford to turn the heater on.

Question No. 5—Economic Development

5. Hon PAUL GOLDSMITH (National) to the Minister for Economic Development: Does he think that increasing the tax burden on productive businesses would help or hinder New Zealand’s economic development?

Hon SHANE JONES (Acting Minister for Economic Development): The connection between tax burden and productive businesses is a complex matter. I would say, however, that in cases where a Government seeks fairness and identifies productive businesses that might be multinational, a better tax burden shared with them is probably a better societal outcome.

Hon Paul Goldsmith: When he told the House on 31 July 2008 “we’re changing the investment signals so that more capital goes to the productive export economy rather than unproductive speculation;”—

Rt Hon Winston Peters: I raise a point of order, Mr Speaker. Can I just make it very clear that while we take responsibility for a lot of things in politics, the year 2008 is surely not the responsibility—

Hon Member: 2018.

Rt Hon Winston Peters: That’s what he said—2008. Words matter. Thank you, Mr Speaker.

SPEAKER: He did. We would have got to it. Start again, please.

Hon Paul Goldsmith: When he told the House on 31 July 2018 “we’re changing the investment signals so that more capital goes to the productive export economy rather than unproductive speculation;”, how does he intend to engineer this change?

Hon SHANE JONES: Well, obviously, in terms of effecting the transfer of capital from speculative assets to productive assets, we have already supported the former Government in terms of the brightline test.

Hon Paul Goldsmith: Does he accept that the country’s economic development depends in large measure on private sector investment—someone somewhere deciding to put their money into starting a business and building it?

Hon SHANE JONES: Yes, indeed, people do take risks. Up and down the country, people are assessing opportunities. For those reasons, those are the very people that our Government is consulting with and discussing the proposals from Dr Cullen’s committee.

Hon Paul Goldsmith: Does he expect that increasing the tax burden on investment would lead to more investment?

Hon SHANE JONES: As I’ve said, there are a myriad of taxpayers in New Zealand, and if I can identify one segment who might be called part of the productive taxpaying base—multinationals—it may very well come to pass that they are not paying their way.

Hon Paul Goldsmith: What fault can he find with Peter Beck’s view that taxing the capital gains on intellectual property and stock “will decimate the already fragile New Zealand start-up industry.”?

Hon SHANE JONES: Obviously, that inventor, that entrepreneur, and his efforts should be celebrated, and he’s being supported by the public with the allocation of public funding. His warning is a sensible admonition, but he is not the exclusive authority on matters to do with tax.

Question No. 6—Agriculture

6. Hon NATHAN GUY (National—Ōtaki) to the Minister of Agriculture: Does he stand by all his statements?

Hon DAMIEN O’CONNOR (Minister of Agriculture): Yes.

Hon Nathan Guy: Does he stand by his statement last year to Rural News that when it comes to increasing costs on farmers, they should—and I’ll quote—“get used to it”?

Hon DAMIEN O’CONNOR: Our Government is clearly committed to increase water quality, to commit to climate change international obligations, and to put farmers in a more sustainable space for their production. I have been honest with them and said some of those things may cost farmers, but what we will do as a Government is assist them get more for everything that they produce and sell.

Hon Nathan Guy: Does he stand by his statement on Radio New Zealand on 22 February that “capital gains is the ultimate goal of a farmer”, and was that based on any official advice?

Hon DAMIEN O’CONNOR: What I did say—and I’d need to clarify what the member has said—is that for many farmers, it has been the ultimate goal that they have been prepared to work for a 2 percent return on their equity in the hope that at the end of the day, when they finish their 20- or 30- or 40-year farming career, when they sell up, they’ll have enough money to retire. In the 1980s, when one of the previous National Governments was highly subsidising the productive sector, the farmers, they were capitalising into the value of the land all of those subsidies, and farmers were advised at that point to stop farming for capital gains. A brave Labour Government took off subsidies. If that member is now proposing to put subsidies back on to farmers, he should front up with it.

Hon Nathan Guy: When he said on Radio New Zealand last night that “farming for capital gains is flawed and it’s something that needs to be looked at”, does he support implementing a capital gains tax?

Hon DAMIEN O’CONNOR: I won’t get into the detail of what is an independent report that Government is currently considering and will be consulting on across the sector. I stand by my statement that if farmers are farming for capital gains, it is a flawed approach. The biggest challenge in agriculture at the moment is succession, and that is the ability to pass farms on into the hands of young New Zealand farmers. That is getting increasingly difficult, and what might happen, were a capital gains to be brought in, is that it may mean that farms are more affordable for young New Zealanders, and that would be better for New Zealand.

Hon Nathan Guy: Thank you for that. How will the Tax Working Group recommendations of a capital gains tax, a water tax, a fertiliser tax, a nitrate tax, and an agricultural emissions tax have an impact on already low—

Hon Grant Robertson: I raise a point of order, Mr Speaker. That list of things in the member’s question is simply not—a number of them are things that are not in the Tax Working Group report.

SPEAKER: As long as I have the assurance of the Hon Nathan Guy that they are all recommendations in—[Interruption] No, I’m prepared to take the member’s assurance. It would be very serious if it was breached. He can rephrase his question if he wants to, but he will ask his question again, and I will accept him at his word.

Hon Nathan Guy: How will the Tax Working Group discussion points and recommendations of a capital gains tax, water tax, fertiliser tax, nitrate tax, and animal emissions coming into the emissions trading scheme impact on farmer confidence, that is already at an all-time low since 2009?

Hon DAMIEN O’CONNOR: The independent Tax Working Group has put out a report that we are considering comprehensively. Can I say that farmers will look with some concern at some of those recommendations. That’s why the Government will work through it carefully. If it’s anything to go by, the huge crowd of about 15 people who turned out to that member’s meeting yesterday indicates that there’s not a huge amount of concern out there. What I would like to do and request is that that member tables the calculations upon which he based his ridiculous assertions around the cost to individual farmers. What the Tax Working Group hasn’t specifically recommended is an increase in GST, a brightline on capital gains, taxing employer KiwiSaver contributions, a border tax, tobacco tax rises, digital purchase tax, and numerous increases in petrol taxes. They were all taxes imposed on the rural sector by the last National Government, and it didn’t ruin the rural sector.

Question No. 7—Agriculture

7. GARETH HUGHES (Green) to the Minister of Agriculture: Does the Minister have any plans to review the use of farrowing crates?

Hon DAMIEN O’CONNOR (Minister of Agriculture): Look, as that member is aware, the use of farrowing crates and mating stalls are subject to court proceedings, which would be inappropriate for me to comment on in detail. I do, however, acknowledge the petition before the Primary Production Committee and will consider and act on any recommendations if presented. That member will also be aware that the National Animal Welfare Advisory Committee’s last review of the use of farrowing crates in 2016 advised that crates currently provide the best balance between sow and piglet welfare and acknowledged issues with alternative systems.

Gareth Hughes: In reference to that 2016 report, does he agree with the view of the National Animal Welfare Advisory Committee from last year that “Current approaches where farrowing crates are used for up to four weeks post farrowing do not provide for every behavioural need of sows.” and that “Sows have their activity restricted for a longer period than is necessary.”?

Hon DAMIEN O’CONNOR: Look, given the report is currently, it may form a part of evidential basis on which the court—I’m reluctant to make any comment, given that I’m one of the defendants, I understand, in the court proceedings.

Gareth Hughes: Well, does the Minister have any welfare concerns about farrowing crates, given a 2018 report from Professor Andrew Knight that describes the practice as “confined within [spaces] barely larger than their own bodies” with “minimal amounts of straw (if any), sows are unable to forage, to root within natural substrate”—

SPEAKER: Order! Order! That quote is, again, longer than necessary for the question. Do the question bit.

Gareth Hughes: Does the Minister have any animal welfare concerns, given the expert advice of Professor Andrew Knight?

Hon DAMIEN O’CONNOR: Once again, I won’t comment on what might form evidence in a court case. I will say, though, that I’m prepared to listen to the petition that’s currently before the Primary Production Committee and look at it at that time and work with the National Animal Welfare Advisory Committee.

Gareth Hughes: Separate to that court case, does he agree with the concerns of numerous experts in New Zealand that the codes of welfare, including for farrowing crates, are acting as inferior minimum standards not actually consistent with our Animal Welfare Act?

Hon DAMIEN O’CONNOR: While I have been involved in pig farming in my early, early years on the home farm, I’m not an expert and I do rely on the advice of the National Animal Welfare Advisory Committee.

Gareth Hughes: What is the Minister’s message to the 15,000 people who signed a Labour Party petition in 2014 to “end cruel farming practices like farrowing crates”?

Hon DAMIEN O’CONNOR: Look, our agenda as a Government is already set out in four public-facing documents: the Speech from the Throne from my Prime Minister, the coalition agreement with New Zealand First, the confidence and supply agreement with the Greens, and our plan. Between them, these documents set out our key policy areas that we’ll be focusing on that the Government also will progress over this term.

Question No. 8—Education

8. Hon NIKKI KAYE (National—Auckland Central) to the Minister of Education: Does he have confidence in the current consultation process around the Tomorrow’s Schools Review?

Hon TRACEY MARTIN (Associate Minister of Education) on behalf of the Minister of Education: Yes. I support the work that the independent task force is doing over the four-month consultation period with the draft recommendations from the report and the consultation that they had with the stakeholder groups since April 2018 that led to the creation of the draft recommendations currently being discussed.

Hon Nikki Kaye: Does he believe that for the biggest education reform in 30 years, there should be only 3½ weeks between when the consultation closes on the current proposals and the report back to the Minister?

Hon TRACEY MARTIN: On behalf of the Minister, at this stage our understanding is that that time is adequate, considering the at least year-long process that the task force has already taken to form their draft recommendations and the number of groups that they have spoken to during that period of time. Of course, it is always an option for the task force to come back and ask the Minister for more time, should they need it, before they provide their final recommendations.

Hon Nikki Kaye: Has he received any estimate of the potential cost of the Tomorrow’s Schools reform and, if so, what is that estimate?

Hon TRACEY MARTIN: On behalf of the Minister, I’m not aware of any estimates of cost being provided to the Minister, because no final decisions have been made. That is the purpose of the consultation process on the draft recommendations that will lead to final recommendations that will then require the Government to consider those recommendations before making any final decisions.

Hon Nikki Kaye: Will he agree to give the task force additional time, given that the Cabinet paper requires a report back by 30 April, and will he ensure that there is an estimate of costs provided publicly prior to the consultation closing, given this is the largest education reform in 30 years?

Hon TRACEY MARTIN: On behalf of the Minister, in answer to the first part of the question, the Minister’s door is always open to the task force whenever they would like to walk through it and have a discussion with him about the time frames that have been put into place. With regard to the second part of the question, considering these are draft recommendations that will lead to final recommendations that will need to be considered by the Government before they make any decision, it would be inappropriate to put any money around them.

Question No. 9—Research, Science and Innovation

9. JO LUXTON (Labour) to the Minister of Research, Science and Innovation: What recent reports has she seen about the growth of R & D spending across New Zealand?

Hon Dr MEGAN WOODS (Minister of Research, Science and Innovation): I’ve seen the report of the 2018 R & D survey results released by Statistics New Zealand on 28 February 2019. It showed that total R & D spending grew by $758 million to $3.9 billion since the last survey, in 2016. This Government has set a goal of reaching 2 percent of GDP as R & D by 2027. The survey shows an increase from 1.23 percent to 1.37 percent. While this is certainly encouraging progress, there is still plenty to do.

Jo Luxton: What is the Government doing to build on the results outlined in this report?

Hon Dr MEGAN WOODS: Despite this progress, we’re still near the bottom of the OECD rankings when it comes to R & D spending, and that’s why this Government is introducing the R & D tax incentive on 1 April. This will mean even more companies will be able to access R & D support, which will help them lift their spend on science and innovation.

Jo Luxton: How does increasing R & D spend contribute to the Government’s overall economic goals?

Hon Dr MEGAN WOODS: High levels of R & D spend are linked to higher levels of productivity. New Zealand has struggled with how to increase our productivity for a long time. Introducing the tax incentive will help alleviate this issue by helping more businesses invest in R & D. This is part of our Government’s plan to transform the economy to be more productive, sustainable, and inclusive.

Question No. 10—Education

10. Dr SHANE RETI (National—Whangarei) to the Minister of Education: Does he stand by all his policies and actions around the review of vocational education and his work in the portfolio?

Hon TRACEY MARTIN (Associate Minister of Education) on behalf of the Minister of Education: Yes, in the context in which they occurred.

Sarah Dowie: Will he give the hundreds of Southlanders who met him last Friday in Invercargill what they want and not include the Southern Institute of Technology (SIT) in the polytech mega-merger?

Hon TRACEY MARTIN: On behalf of the Minister, it is interesting; I’m not quite sure that’s actually what SIT has asked for. I am aware that the Associate Minister of Education has met with Penny Simmonds and had a conversation, one on one, about the concerns that they have with regard to the vocational training discussion document, and they have not yet put their submission in writing. They have not yet made clear, and Ms Simmonds is working to do that so that the Government can consider all the challenges raised by SIT and by other polytechs throughout New Zealand while we have this discussion.

Dr Shane Reti: When he replied to a large Invercargill audience last Friday that, yes, he would resign if the reforms were not successful, what specific criteria will be used to assess a resignation?

Hon TRACEY MARTIN: On behalf of the Minister, first of all I would have to check the validity of the statement by the member, as I do not have a transcript of the actual statements made by the Minister at that meeting. With regard to the criteria, again, I would have to go and seek advice about what those criteria might look like, because success is different for different people at different times.

SPEAKER: Order! I let the Minister run, but I just want to make a brief comment about concerns that I have that happen both in questions and in answers, where assertions are made that members either answering or asking questions are not factually accurate. When a member is reading something like that out, we have to work on the assumption that they are factually accurate, and to do otherwise is to doubt their word. The problem that I have—it’s been the long tradition of Speakers not to refer people to the Privileges Committee for deliberate errors, or what are perceived as deliberate errors, made either in a response to a supplementary question by a Minister or in a supplementary question from a member. I must say that I’m getting quite tempted to move away from that practice because I have seen evidence, from both sides, of gross inaccuracy, bordering on incompetence—either incompetence or deliberate misleading of the House—as part of the supplementary question process, and, frankly, it’s not good enough. So it’s a warning to both sides: be accurate. Don’t make assertions unless you can back them up. Thank you.

Dr Shane Reti: How can the Minister present major reforms for industry training and polytechnics without doing any modelling on the cost of the reforms, as confirmed in written question No. 4689?

Hon TRACEY MARTIN: On behalf of the Minister, again, this is a discussion document. The actual final form of the reforms will not be known until we have taken on board the comments from exactly people like SIT and Otago. To do so before that would suggest that the Government has predetermined an outcome, which it has not.

Dr Shane Reti: By what specific measures does the six-week vocational education consultation period align with Treaty of Waitangi and Māori time frames for consultation?

Hon TRACEY MARTIN: On behalf of the Minister, I’m afraid I’m unable to answer that question. If the member would like to put it down in writing, I’ll make sure the iwi office responds.

Question No. 11—Prime Minister

11. Hon PAULA BENNETT (Deputy Leader—National) to the Prime Minister: Does she stand by all her Government’s statements, policies, and actions?

Rt Hon JACINDA ARDERN (Prime Minister): Yes.

Hon Paula Bennett: By what date can the public expect to know the question they are voting on to legalise recreational marijuana?

Rt Hon JACINDA ARDERN: I do not have a firm date, but it will be in good time.

Hon Paula Bennett: In light of her saying “it will be in good time” and, last week, saying “We will ensure that there’s enough time for the public to properly engage”, how much time is enough?

Rt Hon JACINDA ARDERN: Perhaps I would be well advised to go back and look at some of the time frames around the flag referendum, but we’ll make sure that people have enough time to engage in the question. We’re flagging well in advance, obviously, that this will be put in 2020, so people are already aware that the question will be asked.

Hon Paula Bennett: Will the cannabis referendum bill, set to be enacted by December 2019, simply enable the referendum, or will it also outline the regulated framework for recreational marijuana use?

Rt Hon JACINDA ARDERN: These are all things that we will announce once Cabinet has finalised its decisions.

Hon Paula Bennett: Will the Government have drafted any legislation that will regulate the market for recreational marijuana use which the public will see before deciding their vote at the referendum?

Rt Hon JACINDA ARDERN: These are all details we’ll announce once Cabinet has made decisions.

Question No. 12—Commerce and Consumer Affairs

12. TAMATI COFFEY (Labour—Waiariki) to the Minister of Commerce and Consumer Affairs: What measures is the Government considering to protect consumers from ticket scalpers?

Hon KRIS FAAFOI (Minister of Commerce and Consumer Affairs): The Government wants to stop the practice of ticket scalping in New Zealand, which is harming Kiwi consumers and the creative and cultural sector. The measures we have planned include a price cap on resale tickets, enforcing rules around the information that needs to be disclosed to better inform consumers, and banning ticket-buying bots. We are concerned to hear that a growing number of Kiwis are missing out on events or being ripped off because of ticket scalping. We will ensure this will stop.

Tamati Coffey: What advice has he seen on how bad the harm is in New Zealand?

Hon KRIS FAAFOI: Work undertaken by officials has shown that the profit margins on the resale of tickets are reaching 205 percent, although I have heard reports of mark-ups of up to 400 percent. Research undertaken by Consumer New Zealand showed that 54 percent of people who responded had paid more than the face value for tickets, 38 percent were charged hidden fees, 13 percent had paid for tickets that never arrived, and 6 percent paid for tickets that were fake. This extra money goes to scalpers instead of going to the event’s creators or remaining in the pockets of consumers.

Hon Shane Jones: Blues tickets—what about Blues tickets?

Tamati Coffey: What sort of ticket reselling activity does the Government want to target?

Hon KRIS FAAFOI: It is important to differentiate between ticket scalping and ticket onselling. When people can no longer attend the event they purchased the tickets for because of unexpected events, they should be allowed to resell their tickets and recover the money. Ticket scalpers, on the other hand, purchase tickets specifically to resell them and make an exorbitant profit, taking advantage of vulnerable consumers who may not know who the official ticket reseller is and exploiting their willingness to pay by overcharging them. The Government is committed to protecting consumers and ensuring that markets are working fairly and competitively.

SPEAKER: That concludes oral questions. I will say to the Hon Shane Jones that there’s no market for scalping Blues tickets at the moment.

Bills

Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill

In Committee

Debate resumed from 20 February.

Part 1 Annual rates of income tax (continued)

ALASTAIR SCOTT (National—Wairarapa): I’m not going to go through the title of the bill again. Mr Chair, you’ve eloquently outlined the title of the bill—long as it is. There’s a lot in the bill, and we are here at the committee stage during the first call. The last time I stood I was talking on the KiwiSaver enhancements: the lost opportunity that this bill has not taken up, by doing something that should have been done or could have been done in this amendment bill.

There have been a couple of things that are good. I particularly like the holiday period being reduced from five years to one year, and the renaming of it to talk about a saving suspension, and that’s all about getting people involved in KiwiSaver. KiwiSaver is a good platform and it encourages people to save for their superannuation, and their first home, in fact. But I think there has been a lot of opportunity that could have been taken up. As we know, not enough people are in KiwiSaver. In fact, the people that should be in KiwiSaver many, many, many of them are not in KiwiSaver, and that’s simply because there is an option for them not to participate. It’s almost too easy to opt out and thereby not save for their future retirement needs.

So there could have been more work done on the KiwiSaver enhancements. I’ll give you an example: let’s just talk about the five-year lock-in period. So a couple of things the KiwiSaver enhancement also does is remove the five-year lock-in period—that’s a good thing. It allows the over-65s to opt in to KiwiSaver—that’s also a very positive change—and then it allows larger contributions to be made to the KiwiSaver: the 6 percent and 10 percent contributions. But that’s only going to be used by those that can afford to put in the 6 percent or 10 percent contribution, and that’s all very well and good, but I’m more concerned about those people who are not even in the KiwiSaver scheme. I’m concerned about those people who despite a legislated minimum wage increase, for example, are still not putting funds into the KiwiSaver.

By not putting funds toward or participating in the KiwiSaver, they are leaving money on the table. They’re leaving money on the table for the employer to keep for themselves. The business is not obliged—if the KiwiSaver participant does not join in, then obviously the employer has got the anticipated contribution of that KiwiSaver participant ready to be put into the scheme. But if the individual is not participating, then of course there is no obligation for the employer to put that anywhere except in his bottom line.

So there’s a missed opportunity here for participation rates to be increased in KiwiSaver, and there’s a lot of work that could be done around that. I’m not suggesting a $1,000 rebate or a $1,000 incentive, which the previous Government took away, because that was, again, not targeting the people that are most in need—the people that should be in the KiwiSaver programme that are not in the KiwiSaver programme. So, you know, for example, hypothetically, if the KiwiSaver was compulsory, that would enable—

CHAIRPERSON (Adrian Rurawhe): Can I just ask the member to come back to Part 1 of—

ALASTAIR SCOTT: Well, I’m talking about the KiwiSaver opportunities—the KiwiSaver enhancements—that are available to this bill.

CHAIRPERSON (Adrian Rurawhe): We are debating the rates. I mean, that’s in Part 4, but if you can—

ALASTAIR SCOTT: All right, I’ll come—OK.

CHAIRPERSON (Adrian Rurawhe): —at least relate those comments to Part 1.

ALASTAIR SCOTT: All right. Well, I think I’ve made my point. There’s a missed opportunity here for the KiwiSaver to be enhanced further than this bill has done.

The next point, obviously, is the setting of the income tax rates. This bill sets the rates for the year, and, again, it’s a missed opportunity. There was an opportunity for the Government to back up, to reinforce, and to adopt the thresholds that we had initiated, but the Government did not. The Government did not. They maintained the old, old rates. That, essentially, has taken away $1,000 out of taxpayers’ pockets. So that’s another missed opportunity. So, again, this bill—though it does some good things—is a bill of missed opportunity.

Now, there’s an amendment, I believe, under the name of Amy Adams, which I won’t go to, but I’m sure other members will. But my second point here is around the rates that are actually being set. They are, effectively, higher than they would otherwise be. They are, effectively, higher than they need to be, because there are surpluses up the wazoo for this Government to go and spend, invest, or waste without having these rates that are in place and that are being set by this amendment bill today. There was an opportunity to give taxpayers money—their money; remembering that it’s their money—for themselves to spend as they wish. As I say, the Government of the day—the Labour Government—has not taken up the opportunity to change the thresholds that were in place prior to this bill.

The other parts of the bill that I’d like to just touch on very briefly relate to the Working for Families abatement rates and thresholds—again, another missed opportunity. Abatement rates, as we know, are a massive disincentive to work. They incentivise people to remain in the status quo—the situation that they find themselves in—because for every dollar that they earn, the abatement rate is so high that it sort of says to them, “Well, I’m not even going to bother getting out of bed.” In fact, you can paint a situation where an abatement rate is actually where you earn a dollar and you owe the Government more than the dollar. There are situations where abatement rates are so aggressive that it encourages people to stay in bed or on the couch, and that is exactly what we don’t want to do. We want to have abatement rates and—

Hon STUART NASH (Minister of Revenue): Mr Chair, thank you very much. It was interesting hearing Alastair Scott talk about KiwiSaver. I look forward to his contribution on Part 4, which I think deals with KiwiSaver, and in terms of abatement rates, that was quite interesting, as well. But that’s also another section of the bill.

My understanding is that we’re doing this part by part. If they wanted to do the bill as a whole, then I’m sure we can consider that. But this is just about the annual rates that Mr Scott said were outdated. Well, they have been there since 2010, so if the Government of which Mr Scott had been part of, the previous Government—if they had wanted to change it, you had a long time to do it, son. You didn’t do it. They haven’t been done. We think they’re pretty good at the moment, but what we have done is we have asked the Tax Working Group to take a look at this and take a look at the fairness, the balance, the integrity, and the structure of tax in general.

So, as it is—where it stands at the moment—is that these are the rates. It’s one clause. A simple clause—very easy. Let’s keep the debate on to that, or we’ll have to close this down. Thank you very much.

ANDREW BAYLY (National—Hunua): Thank you, Mr Chair. That’s very helpful of Minister Stuart Nash to tell us what to do. I’ve got to say, it’s a pleasure to be talking on the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill, in my first opportunity. Yes, we are talking about tax, and we’ve got a Government that loves taxing people.

Ian McKelvie: They’re loving it—love it.

ANDREW BAYLY: Loving it. So it’s great what the Minister just said, because he thinks the tax rates are OK. Well, I don’t think they are, actually. The tax rates enshrined in this bill are higher than what we would have done if National tax rates were absolutely implemented after the 2017 election promise. So it’s interesting. What is enshrined in this bill? So, the tax rates are set for 10.5 percent up to $14,000; $14,000 to $48,000, 17.5 percent; $48,000 to $70,000, 30 percent; and thereafter, 33 percent. So, if we’d gone back and done what National should have done, and which all New Zealanders would benefit from, we would have had much more leniency for people who are subject to increasing wages—that actually happened under a National Government.

The abatement rate, or the threshold at which the increased taxes would have occurred, is not $14,000; it would have been $22,000 for the first rate of 10.5 percent. That’s quite a significant increase. That’s actually an $8,000 increase. So for that first threshold—all those people in New Zealand who earned up to $22,000, rather than $14,000, would have been much better off. Then, the second rate, where you tipped up to the next rate of 17.5 percent, rather than it being $14,000, it would have been extended to $22,000 to $52,000. So for many people—and the Labour - New Zealand First Government loves talking about these lower-paid people, and we do need to look after them. That’s why we would have said that for the majority of those people, they would have had to pay only a marginal rate of 17.5 percent, versus the lower rate of $48,000, under these current proposals put in this bill. And, of course, it cascades right to the top.

So if you asked me about tax rates and about improving the lives of New Zealanders, Minister Nash, it is about these things. These are the things that would have been better for New Zealand: $1,000 for all those New Zealanders would have been much better. Then, of course, we talk about accommodation, Working for Families, and all those other things that are the real things that help people. But what we ended up with in this thing—enshrined in this legislation and this is why we oppose it—is actually a higher rate of tax for those people. That’s why we didn’t want it. Then, on top of that, we’ve had the Government—New Zealand First - Labour - Greens—impose $2.6 billion of new taxes since they’ve come into office. It’s taken only 15 months for them to do that, even though they campaigned on not introducing a new tax during their first term of Government.

Then we’ve heard today at question time about the other ranges of tax currently being thought about. You know, we talked about the agricultural taxes, the emission taxes, the fertiliser taxes—all those just go on. I think there are six of them. And then, of course, the capital gains tax. This is a Government that loves to tax—loves to tax. That is the problem with this situation and that is why Part 1 of this bill is so patently wrong, because it’s unfair for New Zealanders. It’s unfair for those vulnerable New Zealanders who are earning the lower amount of income in New Zealand. We actually wanted to do something concrete about it.

Then, also, if you look at the people like those students trying to earn their bit of money to go to university, those young families who haven’t yet got a family and who therefore can’t access Working for Families, and those superannuitants who don’t get any tax breaks, they are the people that are disadvantaged under these new tax arrangements being proposed in this bill, because they’re the people that don’t get any credit. They’re the people that miss out on these so-called tax breaks. We heard about the superannuitant winter tax payment of $800 that was promised under National. The Government tried to put in place new arrangements and $230 went through in the year just gone by. But the fact is, they’re already in—we’re going to see a bill coming into the House. It was noted earlier before question time: that, in fact, we’re already going to have another go at trying to get the winter payment legislation correct, because it was hurriedly put through. It’s inappropriate—

CHAIRPERSON (Adrian Rurawhe): No, we’re on the taxation bill, not that bill. You can’t anticipate what’s coming up. So carry on with the taxation bill. [Bell rung]

Hon PAUL GOLDSMITH (National): Thank you, Mr Chair, for an opportunity to speak on this bill. Normally, in the normal course of events, the Opposition would support these annual tax rates bills. We’ve usually got a large number of little technical tax matters that need to be dealt with across the House. But these are not normal times, sadly, because we won’t be supporting this bill, because the main thing it does is it sets the tax rates for this year and they are not the tax rates that New Zealand would have had if the National Government had been re-elected and the adjustments of the thresholds had been made. So, as we had legislated, the income tax thresholds would have changed so that the average New Zealander would have paid about $1,000 a year less tax. So, instead of only the first $14,000 of income attracting 10 percent tax rate, we would have extended it to $22,000. So for the entire first $22,000 that anybody earned they’d be paying a tax rate of only 10 percent. Then we extended the next rate up as far as $52,000, so for that next $30,000 you earned, from $22,000 to $52,000, you’re only paying 17.5 percent. That’s good low taxes, adjusting for inflation, and we haven’t seen that because of this bill.

The first thing that this Labour - New Zealand First - Greens coalition Government did—or the New Zealand First and Labour coalition Government with the support of the Greens—was cancel those tax cuts and stick with these meaner adjustments that they have put in at the moment. Why did they do that? Well, the first reason was they said that the last thing they wanted was for rich New Zealanders or wealthy New Zealand families to get a tax cut. Funnily enough, the second thing they did was give those very same wealthy New Zealand families $6,000 worth of free university education, which seemed to me to be somewhat contradictory in stance.

I suppose that is the key issue here: that we are not getting the tax cut because this Government has not got in control of its spending. It keeps spending—wants to spend more and more on very poor quality spending decisions. So we’ve got the free fees at the university, which has led to no more students going to university. So you’ve paid an extra $2.6 billion or whatever it is to buy something that you’re already getting—which are students going to university. In the meantime, all that money going into student support is not going into the quality of institutions, and our universities are falling down the international rankings accordingly. So we’ll all have free access to third-rate universities if we’re not careful. And so those sorts of poor decisions are what are driving this tax bill that we’re talking about here.

Of course, the other area of loose spending is presided over by my colleague on the other side of the Chamber, Shane Jones and the Provincial Growth Fund—the $3 billion that they are flinging around the countryside in a rush to get it all out the door before the next election. In terms of quality of spending, what we’ve seen is that it’s turned into the second sort of cut if you missed out on the Budget. What I’m focused on here is the quality of spending which is driving the desire for more tax, which has driven the fundamental decision of this bill, which is to deprive New Zealanders of the tax cut that they were going to be getting and to repeal those tax cuts and put in these—

CHAIRPERSON (Adrian Rurawhe): Order! If the member can concern himself with the tax rates—the annual rates—rather than what it’s being spent on. That will come up in later parts of the bill—unless you relate what you’re saying to the annual rates in Part 1.

Hon PAUL GOLDSMITH: Thank you, Mr Chair. The only point I’d make is that you only need to have these rates brought in because of decisions made by this Government. So I’m just explaining the existence of these rates that we are debating at the moment. These rates wouldn’t be as they were if it weren’t for the fact that this Government has got a very poor control of its spending and that has led to the decisions that we have confronted in this bill, which is why our hearts are broken that we can’t support this bill that in many other respects is doing worthy things, and the Minister can no doubt point at a number of little issues around the role of tax intermediaries and everything else in this bill which will make a slight difference to make the lives of taxpayers easier.

But we can’t support it because, at its core, it’s more proof of the rapacious nature of this Government in terms of collecting tax. So, on that basis, we do not support this bill, and we’re very much looking forward to hearing from the Minister as to how he justifies not adjusting for inflation in the tax rates that we are debating here today. Thank you.

IAN McKELVIE (National—Rangitīkei): Thank you, Mr Chair. I was going to say it gives me pleasure to take a call on this bill, but it doesn’t really. The Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill—it’s a fairly big title for a very small bill. I wanted to make a few comments on the tax rates, because I’m certainly a little disappointed that the Government has changed a policy that the previous Government had in place to give every New Zealander approximately $1,060 in tax relief. I was thinking to myself that there was a little irony in Minister Jones barracking my former colleague—my present colleague. I was going to say “my former colleague”, but he’s still here. Ha, ha! I haven’t got rid of him yet. But I thought there was some irony in him barracking my colleague about his comments on the tax rates because, actually, tax rates have a great incentive on people. I have noticed a lot of comment from this said Minister with respect to having difficulty getting people into work or to go out to work. Of course, if you disincentivise people from going out to work by taxing them too much, they certainly won’t go out to work.

I think that people have a much better feel for themselves when they go out to work and they know they’ve earned the money they’re going to get in their pocket and not been given it by the Government. The essence of the changes to the annual rates of taxation brought in by this Government were that they were, effectively, swapped for a different form of paying a person but using the Government purse to pay them as opposed to letting people earn their own money by operating on a much higher tax rate. I think tax rates are absolutely key to giving people the incentive to get out to work. And certainly, in those lower-income areas, a little tax break goes a long, long way.

I don’t accept the argument that the Government put up around the tax rates where they talked about people on very high incomes—in fact, they used MPs’ incomes most of the time—as the opportunity. The MPs, of course, only got the same tax break as a person on a much smaller tax rate because inevitably, with a scaled tax system like we have, you’re going to have that sort of effect that’s going to impact on every taxpayer, and you can’t do anything about that. That’s just how it works. Of course, that is the fairest type of tax system to operate under. So because we operate in what I think is a pretty good tax system, it does give people incentive to work. It does operate in a manner that—at the lower ends of income—gives everyone the same amount of tax back.

So I was a little disappointed when the Government changed those tax rates. I do think that there’s a lot of things in this bill that are certainly worth supporting. But, of course, in Part 1, we’re talking about those annual tax rates. I certainly can’t find my way clear to support it on that basis. There will be one or two other bits later in the bill that I will find difficulty in supporting too, but that’s for very different reasons.

So I’m very disappointed that we’ve seen the annual tax rates change. I’m also very nervous about some of the things the Government are looking at with a view to what they call “Making the tax system a fairer system.” I think the fairest system we can have, with respect to tax, is the less taxation we have the better. I’m sure that the ultimate aim of this side of the House is to make sure people take home as many dollars as they possibly can. And it’s important that they do, because it does incentivise them to get off the couch and go out to work. If we want to get our young people out to work, the better we can pay them, the more likely we are to get them out to work, and particularly when you get to—

Chlöe Swarbrick: That’s why we’re raising the minimum wage.

IAN McKELVIE: No problem with that—and particularly when you get to some of the more challenging, I suppose, work that we do in New Zealand, particularly our rugged, rural lifestyle because, whether we like it or not, our environment is pretty rugged. So every incentive we can give those young people to get out to work is most important.

So with those few words on the annual tax rates, I’ve probably made my contribution to Part 1 of this bill, and later in the discussion I look forward to making some further significant inputs to that discussion. So thank you, Mr Chair.

MICHAEL WOOD (Labour—Mt Roskill): Mr Chair, thank you for the opportunity to make a brief comment. I think the debate is moving along and we’re receiving a lot of similar material, but there are some points I want to make.

The first is I want to affirm the point made by the Hon Paul Goldsmith earlier on in the debate where he said it was important that we focus on low-quality, public expenditure, and I think the public who are viewing this debate might be asking that very same question after listening to the previous three Opposition speeches, because those speeches displayed absolutely no understanding of actually why this part of the bill is important.

Part 1 of the annual rates bill sets and validates the annual rates for the year up to 1 April, and as such they are a critical part of the Government’s revenue stream, and for any member to come to this House and make an argument against the annual rates that are set out in that bill, but to actually make no suggestion as to what they would do differently were that revenue to be changed, is not only a hollow argument it is an irresponsible argument. So members on the opposite side of the Chamber who have argued with some passion and ideological fervour that the rates should be lower would have been responsible members had they stood up and then said what they would cut when they cut that revenue.

That would be the responsible thing to do, because here’s something that members of the Opposition need to actually know: there isn’t literally a Scrooge McDuck - style vault that sits there underneath this House after the revenue has been collected and just builds up and builds up. Every single dollar of tax revenue that is collected through this annual rates bill gets used. It gets used in our justice system, our transport system. It gets used to build our schools, it gets used to build our hospitals, and it gets used to build houses. It also gets used for things like—

Hon Dr Nick Smith: And slush funds.

MICHAEL WOOD: Yes, that’s right, Mr Smith—developing our provincial economies that were run down for so many years, and I look forward to members on that side of the House in rural electorates campaigning against the projects funded by the Provincial Growth Fund in their districts in the election next year. I look forward to seeing that happen.

And the other thing that the revenue that is drawn down from the annual rates set in this tax bill goes to achieving is things like investing in the New Zealand Superannuation Fund and things like paying down New Zealand’s debt. For those members who argue against these annual rates, if they want to argue with any real conviction or any real consistency, they need to stand up in this Chamber and tell us what it is they would cut. Would they repay debt at a slower rate? Would they cut housing? Would they cut education? Would they cut health, because every single—

Matt King: Fees free.

MICHAEL WOOD: Fees free—what an excellent example from the member from Northland, because, despite all of their protestations, that party has not yet made any commitment to actually remove the policy should they have the choice were they in office. They are all care and no responsibility.

CHAIRPERSON (Adrian Rurawhe): Order! I’m on my feet. Thank you. I’ve given warning to the Opposition side. Now I’m going to give the same warning. You can argue about the annual rates. You can mention, in passing, about what the Government intends spending it on, but getting into detail from either point of view around the expenditure is not part of Part 1. We’re talking about the annual rates, so to both sides of the committee—if we can concern ourselves with the annual rates in Part 1. Thank you.

MICHAEL WOOD: Thank you, Mr Chair. So in respect of the annual rate, I think probably the points that I’ve made stand on their own merits and I think the argument from both sides of the committee may well have gotten to a point at which we’ve covered much of the material. I will conclude simply by saying that the annual rates set out in this document support extremely important areas of expenditure and investment from the Government. They are set at a responsible level to build an economy that can be conclusive. And I commend this part of the bill to the committee. Thank you, Mr Chair.

Hon Dr NICK SMITH (National—Nelson): I’m going to join with my National colleagues and question why this Parliament would want to impose the level of income tax that is proposed within Part 1 of this bill. I’d, firstly, remind the committee that this bill in this part proposes an income tax rate of 33c in the dollar for those earning over $70,000. Do members opposite really believe that $70,000 is a high income that warrants the highest rate of tax in New Zealand? We’ve got many nurses, doctors, policemen, very average hard-working New Zealanders—in fact, we are approaching the ridiculous position in New Zealand where people earning the average income are having imposed the highest tax rate, and members on this side of the committee say that is wrong. What is wrong with this part is that the Government is benefiting from fiscal drag—that is, that with inflation in our economy running at about 2 percent per year, even people when their standard of living is static are facing the prospect of more and more of their income being taken in taxes by this Government.

Now the member Michael Wood challenged National members in saying that the only way that you could agree to lower rates of tax would be lower levels of expenditure. That is incorrect. National left this Government with a legacy of huge surpluses. There is not a Government in the history of New Zealand that has been bequeathed a set of Government books as good as what National left for the incoming Government: surpluses looking out into the future of $8 billion a year; in this financial year over $3 billion. So for members opposite to argue that none other than these tax rates are appropriate for the workers of New Zealand is factually wrong and is around the Government building up a war chest to be able to buy votes rather than being genuinely concerned with our position on this side of the House—and that is that Government should in tax take no more money than what is absolutely needed to provide good quality public services for New Zealanders.

I look, for instance, at the rates that are being confirmed in Part 1—clause 3—of this bill, where a New Zealander who is earning just over $21,000 a year is being proposed to be hit with a tax rate of 30c in the dollar. I remind the Parliament that the very first thing that this Government did when it came to office was remove the tax relief that members on this side of the House had passed in Budget 2017, and I believe the onus is on the Minister in the chair and on members of the Government to justify why people earning those very modest incomes should be having to give up 30 cents in the dollar on their income when the Government has the fiscal room to be able to provide tax relief. We say let those hard-working, ordinary Kiwi families keep more of what they earn; that before we start doling out a whole lot of benefits—a whole lot of bribery to try and get voters suckered on to support the current Government—shouldn’t we just let Kiwi families and Kiwi workers keep more of what they earn?

I also draw attention to that lowest rate—the 10.5c rate—that, again, members on this side of the House supported changing and lifting that income threshold to take into account inflation, so that Government is not benefiting from fiscal drag. So my question for the Minister in the chair is: why not adjust these rates relative to inflation? We insist on benefits being adjusted for inflation, we insist on all sorts of Government funding being adjusted for inflation, why not give the average Kiwi battler, the hard-working Kiwi, a break on their tax and ensure that those thresholds that are provided for in this clause—that threshold at $14,000, that threshold at $48,000, that threshold at $70,000—why should that not be adjusted for inflation so that the average Kiwi worker is not being socked with more and more tax, as is the habit of this Government?

KIRITAPU ALLAN (Assistant Whip—Labour): I move, That the question be now put.

ANDREW BAYLY (National—Hunua): Thank you, Mr Chair. I listened to that speech by Mr Wood and I just thought it was a bit rich when he talked about the Opposition not being prepared to put up an alternative case, because I thought I had outlined what we did propose, and which was overturned by the Government when it came into power, with regard to changes to the personal tax rates.

Just talking about tax, the thing that most worries me is the lack of imagination shown by the Labour - New Zealand First Government, because we’ve heard ongoing comments about increasing taxes—and we already know that the Government have imposed $2.6 billion of new taxes since they came into office—and the second thing is that they haven’t been clear about the debt levels, other than saying that they want to keep them at 20 percent, even though they at one point dropped to 19.9 percent just last year. So the way that Governments get out of that sort of spending bind—and we’ve got a free-flowing Government spending a billion for the provincial fund and a billion dollars for Winston Peters’ foreign affairs portfolio to name just two—is either to increase taxes or to increase debt, and that is the travesty we’re talking about.

So, to the personal tax rate. We have been very clear. We have already come out as an Opposition—and our leader, Simon Bridges, has been exceptionally clear—around the thresholds, and that is a $600 million package. But we believe it’s right, by making sure that the thresholds at which increasing levels of tax are paid by individuals are indexed to the Consumers Price Index, and that is a very clear statement from us and one very unusual for an Opposition only 14 months into Opposition, but we believe it is that important at a personal level that people aren’t automatically being shifted into higher income tax brackets just through inflation and that that is patently unfair, and that is the imaginative thing that we’ve already talked about.

The thing about this tax package—and this is why we don’t support it—is that it is unimaginative; it’s very unimaginative. For instance, where is the conversation around tax on companies? There’s just been nothing about tax. All we’ve done is continue the same debate at 28 percent, and the issue about that is that companies are the driver of the economy of New Zealand. They are the employers and the future employers of young people and older people who want to work, who want to have a secure lifestyle, who want to be able to borrow money to buy a house, and who want to have all the benefits of being able to afford to pay for their families, and all those associated benefits that you get from having a secure job. And the thing that worries me most about the tax arguments that’ve been going on—not only the one we’re having today but also in the wider context of all the tax debate that’s been going on—is the inability of the Government to recognise what is the driver of economies, and that is businesses.

When you say the word “businesses”, what you are talking about are individuals who are prepared to take the risk of investing in businesses, whether start-ups or buying businesses, or even buying new pieces of equipment or taking on new staff, and that drive around that at a personal level also comes back to personal tax rates. So you can overlay all the business risks, and you can do all those sorts of things, which are naturally part of the assessment of whether you’re going to mortgage your house and take on debt to be able to buy businesses and employ people, but the core is that the tax issue is quite important not only at a company level but at a personal level, and that’s the thing that worries me most about this New Zealand First - Labour - Green Government—that they seem to be oblivious of the importance of these people who take on the risks. We’ve got 530,000 businesses in New Zealand. You’d think we might have had a conversation around company tax rates. That’s been absolutely silent and, unfortunately, we’ve got a Government made up of people with probably very few members who have actually worked and owned their own business, put their own money on the line, gone through the process of understanding what it is like to pay wages, deduct all the taxes that need to be paid to the IRD.

And this is all part of what’s in this bill, because another part of this bill, when we move on to it, is all about the complications of the new PAYE system that this bill is introducing. And I’m going to return to this as part of this tax conversation, because it’s vitally important and I think one that’s been very, very much missed in the conversation to date.

Hon AMY ADAMS (National—Selwyn): Thank you, Mr Chairman. Good to take a call on this Part 1 of this Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill. Often, these bills come to the House and they’re reasonably non-controversial affairs, picking up a number of bipartisan changes that need to be made to tax administration and reconfirming the rates, and quite often you will see Opposition support for them. But with this bill, we can’t do that because there are a number of quite serious changes, and my colleague Andrew Bayly has discussed some of those, and, as he says, there are others that we’ll discuss when we get through to the significant restructuring of the PAYE system and how that will work.

But the piece that I wanted to particularly raise in this first contribution comes back to what should be a reasonably formulaic part of the bill, which is confirming the annual tax rates. Now, in National we have a very strong and simple view that people should keep as much of what they earn as they can, and the Government shouldn’t be taking any more out of people’s pockets than it actually needs to effectively and efficiently provide the services to the public. Now, we can all debate exactly what that amount is, but one thing that I think this House should be able to agree on is that those tax rates, and the thresholds at which they apply, can’t be fixed in stone for all time. Like every figure in our economy or every figure in our society—whether it’s the price of a loaf of bread, your rent, your car insurance fee, your wages, the cost of a cup of coffee—everything moves, over time, with inflation. It’s well understood that for any cost to maintain its relativity, it has to move with inflation, and this House recognises that in almost everything it does. Almost every Government payment is linked to the Consumers Price Index and adjusted, whether that’s benefit rates or the superannuation rates or Working for Families—any number of payments, we make sure they’re updated for inflation.

Yet when it comes to tax rates and when it comes to tax brackets, the Government won’t move them for inflation. Now, why won’t it do that? Well, it’s pretty simple: because every year the effect of inflation means the Government takes a little bit more tax without anyone noticing. So rather than turning around and saying “Do you know what? We want to take more money out of your pocket, and we’re going to be honest about that and put up the taxes.”, they just say, “Why don’t we just let those figures stay frozen in time and then every year as the costs around us go up and the inflation pushes up wages and inflation pushes up costs, we’ll be taking a little bit more tax and a little bit more tax?”

I want to explain very briefly what I mean by that. When the existing tax thresholds were last adjusted, in 2010, there was about a $24,000 gap between the average wage and the top tax bracket. The top tax bracket at the moment is at $70,000; there was about a $24,000 gap, which meant that the average worker was well inside that. Now we’re down to a $7,500 gap, and, actually, in just a couple of years, the average wage earner will be on the top tax bracket because the Government has refused to move those tax brackets for inflation and refused to link them to inflation.

Now, National was the party that last adjusted the tax brackets. National actually legislated to adjust them again in 2017, but the first thing this Government did when it took office was cancel that. They said, “No, no, no, tax brackets shouldn’t keep up with inflation, because if we leave them frozen in time then we can take more money every year by stealth, without New Zealanders being aware that every year we’re taking more and more of their real spending power.” Now, that is just wrong.

In fact, the World Bank recently has come out in its report into Australia and said they should link their tax thresholds to inflation. I agree with them, National agrees with them, and we’ve announced, earlier this year, that our policy would be to do that. So when we are confirming the annual rates in this bill, this side of the House won’t agree to leave them frozen at 2010 rates and have the Government let inflation take more tax out of people’s pockets.

I’ve got an amendment in my name on the Table for this bill, looking to amend clause 3, which does the very smallest of adjustments and says, “Let’s adjust them for the last three years of inflation, let’s move those tax rates.” It’s only the beginning; fiscally, it’s not a huge amount, but when it becomes important is when that becomes the system under which we operate. Every three years, the tax thresholds should be adjusted to take account of inflation. If the Government is being honest with the people of New Zealand about what it is taking, the tax thresholds should automatically move with inflation, and then the Government can have an upfront discussion about what extra tax it wants to take.

So the amendment in my name would allow this Government to show good faith and say, “We should adjust those tax thresholds for inflation, we should move them up on a regular basis so that we’re not helping ourselves to more and more by stealth.” If the Government and the party on the Treasury benches want to give truth to their promise to be the most honest and transparent Government, well, here’s a great example of how they could do it. Be honest and transparent when you want to take more tax. Don’t freeze numbers at a 2010 level and let inflation do the work for you. We wouldn’t allow wages to be frozen at a 2010 level. We wouldn’t allow benefits to be frozen at a 2010 level. We wouldn’t allow the costs of anything we do to be frozen at that level, and yet this Government is happy to leave those tax thresholds frozen. If they don’t move, if they don’t accept my amendment to this legislation, then they are, effectively, saying to someone on the average wage that the Government thinks they should be paying the top tax rate in just a year or two’s time.

Now, I don’t think that’s right. I don’t think the average wage earner should be facing the top tax bracket. They wouldn’t have under National, they weren’t under National, and we’ve made it very clear that our policy would make sure that every single parliamentary term, tax thresholds are adjusted. Now, of course we can have a discussion, and we will, and we’re having them at the moment around what taxes should be, but they should be discussed and debated and put honestly in front of the people of New Zealand, not by freezing a rate because you don’t have—

Hon Shane Jones: No, we’re investing in the regions: billion trees, jobs.

Hon AMY ADAMS: —the openness to actually say to New Zealanders what the tax rates will be. Now, Mr Jones over there is barracking away, which I find somewhat amazing, because it’s his wasting of money which is one of the core reasons this Government wants to take more tax off New Zealanders; $3 billion of pork barrel from that man is one of the main reasons this Government is looking to take more tax. If they just spent the money they had well, and didn’t have Mr Jones mulching seedlings because he can’t organise himself to even plant a few trees, then we wouldn’t need to take more tax.

So my challenge to the Government is this: how about you rein in the loose spending? How about you rein in the pork-barrel politics of Mr Jones, the failed fees-free tertiary policy, the 250-odd working groups that have cost hundreds of thousands of dollars? How about you rein that in, get a bit of competence in your management, and then let New Zealanders keep the money that they work hard for. Don’t sit there and let inflation put up tax every year by stealth, because they don’t have the honesty to be upfront with New Zealanders and say, “We want a bit more tax to fund Shane Jones, so we’re going to take it from you.” Be honest; put indexation into the legislation. My amendment is a very small step towards that, but without some signal in this legislation that the tax rates need to change for indexation, this is a bill we can’t support.

I just want to finish by saying this in respect of tax rates: if National was the Government right now, and the legislation we passed in 2017 hadn’t been cancelled to fund Shane Jones’ questionable spending habits around the country and his handing out of secret loans to private companies, New Zealanders now would be paying a lot less tax. What are they facing under this Government? More tax, higher rents, higher petrol taxes, impending capital gains taxes, and inflation eating away the core value of what they earn. That is not right, and that’s why this side of the House cannot support the annual rates in this bill.

KIRITAPU ALLAN (Assistant Whip—Labour): I move, That the question be now put.

ANDREW BAYLY (National—Hunua): Thank you, Mr Chair. The Government seems intent on closing down this debate. Tax is something that’s vitally important to everyone, as we all know, and what’s interesting is we’ve covered a little bit about personal tax rates, we’ve just touched on corporate tax, but very little conversation about other aspects of our tax system. This is the thing I find so unimaginative about this Government, that when you start to look at the provisions in the Working for Families tax package, and also all the other aspects of tax and provision around that for those families, the thing that strikes you most, when you look at it, is how complicated it is.

Very few people, in my view, actually understand what those arrangements are. I think, again, here we’ve got a Government who hasn’t had the time to think about it, who has just simply rolled through with an existing sort of arrangement. The only thing that’s happened is that the current Minister of Finance has made the system even more complicated, and I think that was a bad move, actually. It was a very bad move because the arrangements now are complicated and complex. Most people don’t understand it and, in many cases, are not able to work out what their tax position is and what they’re entitled to do.

By way of example, the first one is the minimum tax credit. As some might know, this is to help families who don’t have an income or who have an income below $26,000. The thing about this particular one is that it’s not available to students and it’s not available to superannuitants. You’ll recall in one of my earliest contributions I’ve talked about the impact of the tax system at the moment and how it disadvantages students, it disadvantages young couples without a family, and it disadvantages the superannuitant, and here we are: we’ve got a family tax credit trying to work with those people earning less than $26,000 but one of the first exclusions are students and superannuitants, and I think that’s wrong. I’d think that if you’re talking about fairness and equity in the tax system—and we’ve got a Government great on rhetoric but low and slow on actual implementation around these issues—this is the first part of it. Those lower-income people in New Zealand, the most vulnerable people—this tax system should be designed to do more about it, and, of course, there’s been nothing stated about it and no one wants to talk about it at a Government level.

The second one is actually the family tax credit that applies where you’ve got children. Again, the rates—if you’ve got a child between just a baby and 16 years, you’re entitled—your first child’s about $4,800; it increases to $5,300 for the 16 to 18 years, at which point it cuts off, and, of course, it’s a slightly lower rate for your second child.

But it’s interesting, going back to what we were going to implement back in 2017, what we were trying to do is get rid of the complications round this, because there’s all these different thresholds at which the rate applies depending on how old your oldest child is, and all that sort of stuff. We were simply just going to take the highest rate and, basically, say that applied for the number of children and make it very easy so people could understand it, because not everyone’s an expert on tax. It meant that those families could actually go and be able to budget very clearly, and it’s something that’s just easy to implement. The complication around the implementation issue is massive.

But the one wonderful contribution that Mr Grant Robertson made in the Budget last year, of course, was to introduce the Best Start tax credit, which is just another layer. It deals with your first baby up to three years. It’s just another level of complication. What we need is actually a Government that’s going to be more imaginative about these aspects, and this whole issue is paramount, in my view. If you want to deal and help with families, this whole area needs to be de-cluttered, not made so complicated and people can therefore understand it and know what they’re entitled to. At the moment, we’ve just got a Government sleeping at the wheel. All they want to do is impose more taxes, and I think that’s wrong.

KIRITAPU ALLAN (Assistant Whip—Labour): I move, That the question be now put.

A party vote was called for on the question, That the question be now put.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 56

New Zealand National 55; Ross.

Motion agreed to.

The question was put that the following amendment in the name of the Hon Amy Adams to clause 3 be agreed to:

insert new clause 3(1):

(1) Amend table 1 of schedule 1 of the Income Tax Act 2007 to be:

Table 1

Row

Range of dollar in taxable income

Tax rate

1

$0 – $14,700

0.105

2

$14,701 – $50,400

0.175

3

$50,401 – $73,400

0.300

4

$73,401 upwards

0.330

A party vote was called for on the question, That the amendment be agreed to.

Ayes 56

New Zealand National 55; Ross.

Noes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Amendment not agreed to.

A party vote was called for on the question, That Part 1 be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Part 1 agreed to.

Part 2 Amendments to Tax Administration Act 1994

Amendments to Tax Administration Act 1994”, and Schedules 1, 3, 4, and 5.

ASSISTANT SPEAKER (Adrian Rurawhe): We now come to the debate on Part 2, the debate on clauses 4 to 103, “

ANDREW BAYLY (National—Hunua): Thank you, Mr Chair. I just want to start talking about pre-population of accounts, which is a crucial aspect of making sure that this legislation actually comes into account and can actually operate. The thing about this—I don’t know if everyone understands the importance of it, but we have a situation in New Zealand where we have a million taxpayers who’ve previously had a relationship with the IRD. We’ve got roughly a million that have had a relationship with an intermediary—and they’re called personal tax summary intermediaries, or PTSI. There are about 30 of them in New Zealand, who have been managing the accounts for New Zealanders with regard to their interactions with the IRD. Then we’ve got a million people in New Zealand who’ve had no dealings with the tax department. We’re now going and implementing a system, which the Minister’s overseeing, whereby we are going to see some fundamental changes in terms of the relationship that taxpayers have with the IRD. But more worrying in some ways: whilst we expect about 1.6 million taxpayers to get a refund, 263,000—this is the estimate—will be getting a tax bill, and of that 263,000, about 115,000 will never have received a tax bill from the IRD before.

Now, the issue with that million that I said have had no relationship with or have had anything to do with tax is: how do you get them to pre-populate their accounts with the IRD, and how does the IRD have a relationship with them if they’ve never had a relationship? Now, one of the things we know is that the budget for IRD that they’ve allocated for trying to get these people on board is about $4 million, but the ability for this legislation actually to work depends on the relationship of the IRD with the taxpayer. Unfortunately, and I haven’t seen it to date, the marketing of it and just the general awareness of the requirements for taxpayers to actually go in and have a relationship on their MyIR account—and it will only be activated if someone logs in, and at that point the IRD can actually start to form a relationship. Because there’s been so little advertising around that, the issue about these people not knowing about it—because not everyone reads the paper, not everyone listens to National Radio and Morning Report—is that those people are likely to be at risk of not fulfilling their tax obligations and also, probably in some cases, not being able to get the tax refund that they’re actually entitled to.

I think there’s an element—and one of the things I’d like the Minister to answer is about how the department is getting on in terms of obtaining those contacts and whether it’s going to rely on section 17. It is good that Mr Willie Jackson’s in the chair, because I think whether there is a compulsory element to the obligation to require or provide that information to IRD is crucially important.

The other thing I’d like him to speak to—and he may not be able to, and at some point I’d like to press the Minister for a response—is, actually, how many contact details the IRD has got at the moment—or, more importantly, how many they haven’t got. I think the issue about this—just given the timing perspective—is that this bill comes into force on 1 April. That’s not long away. Normally, refunds for the 2017-18 year, or for any year, to that effect, will be paid out by June of the following year. So if we’re finishing our March year at the end of this month, the IRD would normally be paying out our refunds by June. Whether or not there are, in fact, any key performance indicators (KPIs)—and I don’t think we’ve seen anything about the KPIs—the obligation to refund taxpayers the money that they are due from the tax system is crucially important, and people will be wanting it, and they are entitled to it. So that’s one issue around the refunds.

The other side of the coin is the need to be able to make your payment if you’ve got a tax bill. Of course, if you’re not aware of your tax bill, you don’t know that you have to make that obligation. But the cut-off time for making your final tax payment is actually February next year for the year that finishes 31 March this year, and so it is absolutely vitally important that the IRD has the contact details to be able to go and do that, to make the refunds, but also to tell people about their tax obligations.

As I said, 115,000 people will be receiving a tax bill for the first time. Now, with regard to this, we understand that the IRD have taken on 300 more people in the call centre. That is an increase, obviously, but there are many hundreds of thousands of calls that were not taken during the 2017-18 year—the current year. All that’s going to escalate—all that’s going to be even worse as we move to this new system, which, whilst we are very supportive of the idea, in the way it’s been managed and the way the Minister’s looking after it, it needs to be seriously questioned. I think, whilst you might have call centres, if people don’t actually understand how they’re going to—or that they have a requirement to—call the call centre, it actually raises some significant issues.

I think the other aspect to this is the reliance on, as I said before, the personal tax summary intermediaries, the PTSIs, which are the intermediaries—the 30 companies that have been acting for a million taxpayers. At the moment, I understand that many of them supplied the information, but what is the requirement for them to provide all that information—and whether in fact they have. So I’d like the Minister to talk about that aspect.

I think the issue around the portal—just returning to the original idea around the pre-populated account. So in the pre-populated account, there are two crucial aspects. One is your contact details—obviously, name, email address, and mobile, but probably most importantly their email address, because that’s the mechanism that in many cases will be the primary mechanism for communication. But there’s also the physical address, because in many cases the IRD send physical letters to taxpayers. I think the issue is getting the pre-population around this for people: older people in rest homes, older people generally—and my mother’s 92, and she doesn’t have a computer and is unlikely to at her age—and just generally non - computer users. The system, and the ability to be able to interact with the IRD, which is primarily being now driven towards a digital platform, makes it increasingly difficult.

I think this is a big issue, because if you’re a taxpayer and you are not aware of your tax obligations or you’ve just assumed that you haven’t had to do anything for years—which is a reasonable assumption—and you have a debt that the tax department has assessed, then, of course, the use-of-money interest rates are significant, and the rates of penalties build up very, very quickly, and the financial cost of that is quite significant. The bill actually covers, if you do pay off some of your penalties, the order in which it gets paid off, and the last bit that gets paid off is actually the original tax obligation. So you’ll have to go through all the use-of-money penalties, all those sorts of things. So that debt balloons very, very quickly. I think those aspects to it—how the IRD is actually going about doing its job, getting all those contacts, those million contacts, and how it’s going to do that in the time frame, its KPI’s of delivering that—are all questions that I’m just hoping that the Minister will answer, because, without these, this piece of legislation’s not going to work. You can look at the various aspects to it, but it’s a crucial part of the success of this whole bill. Thank you, Mr Chair.

IAN McKELVIE (National—Rangitīkei): Thank you, Mr Chair. I just wanted to take a call on this, Part 2 of this bill. Actually, I want to follow on from the member for Hunua, because he raised some issues—I won’t be quite as eloquent or academic as he was—that I think are of significant challenge.

First of all, I must say that I think most of the pieces in Part 2 are perfectly logical changes to a piece of legislation. Of course, they arise as a result of the Inland Revenue Department’s transformation project, which I think is a pretty exciting project that’s massively ambitious. Of course, as you go along with these ambitious projects, there are always casualties, and that’s what I want to touch on here.

The previous speaker did touch briefly on them, but I think the challenge that I have with this part of the legislation, quite aside from the fact that there are probably almost millions of people who have never had direct contact with the Inland Revenue Department, is the fact that the methods of communication with these people are going to be very challenging—well, with many of them, they’re going to be very challenging—for two reasons. One is that we are far from perfect with our coverage, or technology coverage, in New Zealand, and internet contact with these people is going to be very difficult. So a lot of people are either not going to have the ability to communicate with the IRD in this manner or are not going to want to communicate with them in this manner.

That’s the first challenge I think we’ve got, and that will be, I imagine, the generational change. So that will change in time, but it’s a challenge that all Government departments, and any entities for that matter—particularly banks, actually—wanting to deal with their customers through this mode are facing at the moment, and that’s what happens at a time like this.

The other issue I want to touch on is the mail system. When you do what we do in life, you spend a lot of time walking around streets. I reckon you could easily find streets in New Zealand where 20 percent of the mailboxes are never looked into. In fact, you’ll find the stuff down the street—you find it everywhere. So there’re a large number of people who never bother to go to their mailbox and never bother to take the letters out of it—I suspect because they’re mostly bills, and I also suspect that they get them—

Greg O’Connor: Sounds like National Party brochures to me.

IAN McKELVIE: Well, I have to say, I have had to try and stuff mine on top of a couple of red ones in my time, but I’ll forgive them for that.

I think that the challenge of this is quite significant, because most of these people—as, again, Andrew Bayly said—have never received communication from the Inland Revenue Department, and when they do get one, they’ll be terrified by it, I would have thought. So that’s quite a large challenge, and I think it will take time to work its way in, and they’re going to have to have a significant amount of tolerance in dealing with this issue as it slowly is implemented. There are one or two good parts to that, in that some of the smaller tax refunds and tax demands will disappear, because if it’s under $50 they’re not going to persevere with that. That will make a difference and will lessen the communication that is required, hopefully. So that’s a bit of a challenge.

There are some other parts to this bill that I also think are challenging, but then all this stuff—almost everything we do in this House, actually—has unintended consequences, and certainly consequences that we can’t foresee at the time. I think that simple things that we might have envisaged when they came through this House would not cause significant problems—like anti - money-laundering, for example—have created significant costs for small business in New Zealand, and some of the changes proposed in Part 2 of this bill will inevitably lead to those same significant increases in costs to small business. That’s one of the things that’s hugely frustrating for business in New Zealand, and it’s hugely frustrating—well, I think it’s probably frustrating—for most politicians, because it’s not something that we intend as a Parliament to impose on business, but it happens almost every time we try to change compliance schemes and rules relating to tax and other things that the Parliament deals with.

Certainly, taxation is a very complex issue for most people, and it is an issue that most people—well, a large percentage of New Zealanders—never deal with personally. They are now going to have to deal with that personally, and I think that will be a challenge for them. There are also changes that are happening in the course of that legislation that are going to put more compliance on businesses, and so they are going to have to have much more frequent contact with the Inland Revenue, which also is going to be a significant challenge for them. There are plenty of other issues I will take up in the course of this bill.

Hon ALFRED NGARO (National): Thank you, Mr Chair. I rise to take a stand in this committee stage on the Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill. It probably is the first time I have actually spoken on a tax bill in this House, over a period of nearly eight years. I do so, though, because in Part 2 of this bill, it raises a number of questions that I would like to pose to the Minister of Revenue, especially in regards to Part 2, clause 77, “New section 120VD inserted (Interest on tax credits for charitable or other public benefit gifts)”, inserted after section 120VC. It’s inserted as new section 120VD, “Interest on tax credits for charitable or other public benefit gifts”. It says “No interest shall be payable by the Commissioner under section 120D(3) on an amount of tax credit calculated under section LD 1 of the Income Tax Act 2007.”

I specifically note that, and I would like to pose a question to the Minister in regards to this, because as I read it and as I understand it, if a refund is due to a charity, then the IRD won’t have to pay interest on the refund. If that’s the case, then why is it that when we are wanting to support charities—and we enforce the law to ensure that they pay on time, but if there is a refund that is due, then the fact is that the Inland Revenue Department won’t pay interest if they had to hold that payment over a period of time. That’s my understanding. I would like to clarify that with the Minister, if that’s the case. Why is it, then, that these trusts—and I’ve also run an NGO myself for nearly 20 years, the Tamaki Community Development Trust out in Panmure and Glen Innes, so I know what it takes to ensure that when we process our tax through with our accountants, if we are late and due in our payments, then we get penalised. In that case, over a period of time, there’s interest that’s compounding. So in this case, I would like to pose a question to the Minister: surely, if we’re making this amendment, could we not then see the need to be more lenient to those in those charitable organisations?

We have 27,900 registered charitable trusts. We have 114,132 not-for-profit organisations in New Zealand. The charities are the backbone of our country. They service something like 44,000 hours a day up and down this country. So my question to the Minister: surely, it wouldn’t be too hard to show a little bit of lenience in this case. Could there be a way in which they could understand, if they’ve had that over a period of time—it could be four, maybe six months. In regard to clause 77, the introduction of 120VD, could they show some discretion, over that period of time, where they could actually pay some interest if they’ve had to hold that amount? If those trusts, in their accounting, have actually paid the amounts that were due, and there is seen to be a discrepancy in that amount—in other words, they paid more than what they were due—and now that we’ve got the Minister in the chair, I hope that he’s heard the question that I put through, which is: could there be some discretion? Sorry, Mr Chair—to the Minister. Part 2, clause 77 is the question that I’m posing to the Minister.

The feedback that I get from a number of our charities at times is that, at the moment, it is always difficult and a struggle to be able to make ends meet. Often, you’re looking at philanthropic funding. You’ve got contracts that you have there, there are charitable organisations, and there are donations that are given over that period of time. So they’re very frugal in the amounts that they have to deal with and administer throughout their operations, and in this clause 77, it’s quite particular. So the question, again, to the Minister, who is now here, for this bill: if a refund is due to a charity, then IRD won’t have to pay the interest on the refund—if that’s correct, I wonder if he could confirm that to me. If that’s the case, then my question to the Minister: could he show some discretion to that?

Now, inside of that, in this bill—I know that part of the bill will also talk further on in Part 3, but it does mention other charities which deal with this. And then, will this also relate to the 32 new charities that also, too, have an overseas donee status? That’s covered in clause 32—I know that’s in Part 3, but the question is related to Part 2. That’s in regards to the schedule for 32 overseas donee status trusts—the Books for Cambodia trust, the Children of the Light, Effective Altruism New Zealand Charitable Trust. There are a number of them that are there, so I’m wondering whether that could do—[Time expired]

CHRIS PENK (National—Helensville): Thank you very much, Mr Chair, for the opportunity to address the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill. I join others in discussing Part 2 of the bill. In particular, I would actually like to focus on new subpart 3A, inserted by clause 15, headed “Collection, use, and disclosure of revenue information”. I would like to start by looking at the purposes of the subpart, because that will inform some discussion that I would like to have and, ultimately, a couple of questions to pose to the Minister of Revenue about the way that the powers are exercised in this piece of legislation.

I might start, if I may, in a reasonably general way, if you’ll indulge me for a moment, by noting that revenue information is the centrepiece of this part of the Act, and information is, of course, knowledge, and knowledge is power, as Francis Bacon wisely observed many years ago. It’s the exercise of power by the State in collecting that information that affects the lives of individuals and other legal persons that is really very important for us to consider as we just check, ourselves—and no doubt with the officials, if you do wish to confer with them—that the powers given are appropriate.

So looking at new section 16, the purpose would be to provide the commissioner—of course, the commissioner of Inland Revenue—with powers to enable the collection of all taxes or duties imposed by Inland Revenue Acts. I won’t go through all of those; they’re defined elsewhere. That would be overly taxing. Instead, I’ll simply note that the functions that are referred to in there are those “lawfully conferred” on the commissioner. So I suppose we have a test there, a threshold in which the behaviour of the commissioner, whoever she or he may be at the relevant time, is judged to be legitimate or not—namely, that the powers and the functions that that person already has under existing legislation must be duly followed and complied with and not exceeded in the exercise of the power that’s set out in this new legislation.

So moving then to what the actual power will entail, but remaining on the purpose section, we see that the commissioner can collect revenue information by gaining access to property or documents, removing documents to make copies, and removing or retaining them, also, for the purpose of review. We see, as well, that the idea of the particular provisions will be partly to allow access to that information to the commissioner, at the time that documents are removed or, indeed, retained, notwithstanding that copies might be provided back to the person from whom they are removed. Nevertheless, there is, at least temporarily, a denial of that information to a person, so just to ensure that the power isn’t exercised in a way that’s inappropriate, my first question—and it’s a reasonably general one, I do appreciate—to the Minister in the chair, Stuart Nash, nevertheless, is just to query whether he is satisfied that there are appropriate safeguards around the procedures that are put in place for the State, effectively, to deprive a person of information under this Act.

Now, looking at the particular ways in which that can take place and the limits placed on those powers, I would turn the attention of the committee to new section 17I in clause 15, headed “Commissioner may conduct inquiries”. Just as a heads-up, I note that this is whereby the commissioner himself or herself can conduct inquiries, as opposed to a practice of applying to a District Court judge to conduct inquiries, which is in the following clause. New subsection (1), then, just to set it out clearly, is: “in relation to a tax liability of a person under an Inland Revenue Act”, noting that it must be “for the purposes of administration or enforcement” of such a piece of legislation, and also, again, to carry out “a function lawfully conferred on the Commissioner”. It probably goes without saying that things that are within those Acts shouldn’t be anything other than what the commissioner is lawfully conferred to be able to carry out, but, nevertheless, for the sake of clarity, I think it’s a good piece of drafting that the legislation reflects that.

Under the heading of “Inquiry by Commissioner”, there is an instance of a couple of words that I’m a bit uncertain of, so I’ll just raise it for the attention of the Minister—and it might be quite deliberate, but, in any case, I ask the question—the phrase “attend and” provides me with a bit of difficulty. The sentence that I’d like to draw to the attention of the Minister is as follows, in 17I(2): “The commissioner may notify a person that they are required to attend and provide information to the Commissioner or to produce documents”, etc. I wonder if the words “attend and” have a particular meaning. Reading the sentence from start to finish, it looks rather as though the person might be required to attend to the commissioner, perhaps. I don’t know if that means to attend in person at a meeting with the commissioner or if, perhaps, that’s the result of drafting that previously indicated such a meeting might be needed, and then that was removed. I don’t raise it as a major issue, but, nevertheless, for the sake of clarity if nothing else, if a change by way of Supplementary Order Paper is not practical or, indeed, needed, then to at least, maybe, have some clarity for the sake of future interpretation might, I suggest, be helpful.

Turning then to the second of the two sections that I’ve highlighted that I’d like to talk about, this one, at 17J, is where the “Commissioner may apply for District Court Judge to conduct inquiries”. This is going somewhat beyond the previous section whereby we heard about the ability of the commissioner to conduct inquiries himself or herself. Here, instead, what we have now is for a District Court judge to have the ability to obtain information at the petition, I suppose—just to use that term reasonably broadly—of the commissioner. So it is appropriate that with a quasi-judicial function, certain limits are prescribed on those powers. The first thing to note—and I’ll just do so very quickly, because it’s, essentially, a duplication from the previous section—is that for the purpose of obtaining information, it has to be in relation to a person’s tax liability under an Inland Revenue Act and for the purposes of administration and enforcement thereof, and to carry out a function lawfully conferred elsewhere.

I note that when a judge is called upon to exercise these powers and chooses to do so—and, in passing, I would note that it would be a choice of the judge, because the legislation expresses that a judge “may” do these things, as distinct from a judge “must” do these things—a couple of things can be carried out by the judge at that time. The first is to summon a person whom the commissioner or another interested person requires to be examined. I suppose that the phrase “other interested person” would be read in the context of the legislation. I must be honest and say that I don’t know whether that’s the case, that elsewhere in the legislation there is such a definition, or if that would just be a matter of statutory interpretation. I don’t suppose that’s unreasonable, but I note it in any case.

So having summoned such a person, then the judge may—again, I emphasise “may”—examine the person on oath in chambers regarding any matter relevant to the subject matter of the inquiry. So that’s pretty broad, to be able to examine a person regarding any matter relevant to the subject matter of the inquiry. It could be a matter that’s indirectly relevant, I suppose, but it would be the discretion of the judge, or rather the judgment of the judge—if you’ll excuse the tautology—that would be exercised in such a case. The person being on oath obviously is a significant safeguard, I suppose, in the administration of justice—obviously, determined and designed to obtain the truth of the matter as readily as possible.

One slightly interesting point—well, a very interesting point, actually, to me—on which I’d seek the Minister’s guidance before closing this contribution relates to subsection (4), which talks about the judge’s jurisdiction and the way that such an examination would take place. I note that it would be the rules that would be relevant to a witness in a civil action that would apply, as distinct from criminal procedure. I suppose I’m right in saying—although, no doubt, I’ll be corrected by others in the House who are more knowledgeable in taxation matters, of whom there are at least a couple—that it might be that the answers a person gives in such a context might, ultimately, give rise to criminal liability, I suppose, depending on what they were acknowledging or disclosing. So I wonder if the rules of criminal procedure, as opposed to civil procedure, might not be more appropriate in the way that a witness is called upon to respond in examination. On that, I leave my contribution for now.

Hon STUART NASH (Minister of Revenue): Thank you very much. Just answering a couple of questions that have come up in the, sort of, five or 10 minutes I’ve been here. Mr Alfred Ngaro: no, I won’t be using my discretion at all to charities, but what I would say is there is a review of charities law at the moment. If you are interested in submitting, then I recommend you do. It is a fulsome review and it may well address some of the concerns you have and that you’ve brought up with regard to this piece of legislation. So have a go there.

With regard to the last speaker: yes, I am very, very comfortable with the commissioner’s role. The commissioner will not be breaking the law in any way, shape, or form. I am very comfortable with the safeguards in place and, certainly, now knowing how Inland Revenue operate, of course they will operate well within the bounds of the law. You did point out yourself, sir, that the word “may” is here, which does not compel the commissioner in any way, shape, or form to undertake any course of action. The commissioner may apply to a District Court judge—well, I suppose that is if the commissioner feels that that would add value to an investigation or they need someone more independent than the commissioner herself or himself, or whoever is the commissioner at that point in time.

That the judge has the jurisdiction of a civil court action—at this point in time, I would suggest that it is civil; it’s not criminal. You may find that out of any investigation or out of any inquiry there comes a criminal investigation, but my understanding in reading this is that it is an inquiry at this point in time; it is not a trial, and no one has been determined to have done anything wrong, hence the reason for civil. That would be my reading of it.

You are right. We have given the judge certain powers. But, again, I would suggest that the judge will use his or her powers with discretion in determining the best course of action to undertake and complete an inquiry. Again, there’s no compulsion here, and hence—and you yourself mentioned this—we are not compelling the judges by saying that they must do this. It is really saying that if the judge feels that in the course of the inquiry they need to bring interested parties in or they need to take this course of action, then they have the ability to do that, as opposed to a compulsion saying they must do this. But back to the commissioner’s powers: the commissioner does have wide-ranging powers in terms of investigation, as should be the case. But I am very comfortable—having sat on the Finance and Expenditure Committee for a number of years and had a look at this legislation—with the powers that we have conferred upon the commissioner to undertake investigations, and, in fact, I’m very comfortable with the powers we conferred upon the commissioner to undertake her job, full stop. Thank you.

Hon Dr NICK SMITH (National—Nelson): Thank you, Mr Chairman. It’s a pleasure to take a call on Part 2 of this Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill. We’re dealing with over 100 clauses in this part, and there are two that I want to particularly focus on. I come to this bill from the values perspective that we want New Zealanders paying less tax. We want them to keep more of what they can earn. I also think it’s really important in tax legislation that we focus on a less complex tax system. There are a number of provisions in this part that actually add to the complexity and add to the compliance costs of our tax system. I particularly want to focus on new section 91EK in clause 61 that deals with the questions of rulings by the Inland Revenue commissioner. Now, I think the mechanism of a taxpayer being able to apply to the commissioner—and saying “Hey, look, under these circumstances” and getting a binding ruling about the impact on their tax affairs—is a good thing. I also think it’s a good thing that that is time-constrained. In subclauses (1), (2), and (3) of section 91EK there is quite a big out clause; that is where the Inland Revenue commissioner can decline to give a ruling under a number of grounds, and I have some concerns that those grounds are so wide.

Now, the reason I’m so interested in these provisions is that we’ve seen some quite big changes by this Government to the broader tax code. So, for instance, we’ve had the Government introduce their so-called research and development tax reclaim system. The billion dollar question is whether a whole lot of activity out there that’s been going on anyway that’s got little to do with research and development is going to be redesigned by accountants into being a refundable activity. Members on this side of the House are highly doubtful that those measures are in fact going to result in New Zealand improving its investment in research and development. It was fascinating last week to see that over National’s term in Government, there was a big increase in the matter of both public and private sector research and development, and I fear that these provisions are simply going to result in creative accounting and a more complex tax system. So my question for Willie Jackson, the Minister in the chair, is: are the provisions around the rulings provided in section 91EK now required because of that R & D tax deductibility?

I also note that in this bill we’ve got these ridiculous provisions where if you’ve got a good-looking racehorse, then you’re now going to be able to get a tax reduction. We’re highly doubtful of the merits of that. We know that members of New Zealand First have been very well endowed by those in the racing industry. We know that some of them broke the electoral laws in their contributions to the New Zealand First Party. So my question to the Minister in the chair is: are these new processes all designed around defining and getting rulings on what a good-looking racehorse is so that those benefactors of New Zealand First might get their tax refund? If you look at the substance of the law that is providing for this tax break for a very, very small group of New Zealanders, it seems to me that the law is incredibly vague, and, in fact, this rulings process that’s provided for.

Of course, what will be on the minds of hundreds of thousands of New Zealanders as they work through the complexity of the proposals around a capital gains tax are, really, these provisions around providing a commissioner ruling. Is this the new mechanism that’s going to be required around the huge complexity that’s going to be added to literally over a million taxpayers with the proposals for a capital gains tax? I’d love for the Minister in the chair to answer those questions around the relationship of this new rulings process around the proposed capital gains tax with respect to the new, good-looking racehorse tax deductibility and with respect to the R & D tax liability.

The second set of issues that I want to ask the Minister about are those that are provided in respect of new section 16, carrying through to new section 17, in clause 15. This is with respect to the quite extensive provisions that are proposed in the sharing of information. Every member of this Parliament will know that there is a huge sensitivity around the confidentiality of information that is provided to our Inland Revenue Department, and what we have in these provisions is the capacity for the far greater sharing of information with a whole range of different agencies. So there’s going to be more extensive sharing of information with ACC, with the New Zealand Superannuation Act, and with other Government agencies, including the National Provident Fund board. I really want the Minister in the chair to answer the question as to whether all of these provisions are indeed required—indeed, do these provisions comply with the new Privacy Act that Parliament is currently considering—and whether they are consistent with the commitments that were made by the Government in respect of the extent to which information is shared between different Government agencies.

The third point I’d like to make is in respect of the fixing up of a number of mistakes that were made by the Government in last year’s tax changes. So what we have here is the Government making tax changes only last year and then rolling into the Parliament this year and saying “Oops! We messed up this bit.” or “We messed up that bit, and we have to patch it up.” So the question I’ve got for the Minister in the chair, given that this part contains over 100 clauses, is: will he take responsibility for any errors in this law? I remember when Parliament was sitting just two weeks ago, we had a Minister blame officials, blame the Parliamentary Counsel Office, and all sorts of other people for the error, and, actually, we were challenged for even daring to question the sorts of provisions that I just have in three particular parts of this bill—only to have the Government come back the next week and say, “Oops! We stuffed up. Actually, the Opposition were correct.” Actually, National was right; the Government was wrong and they embarrassingly had to come back to the House and patch up their mess.

So the reassurance that I am seeking from the Minister in the chair is whether he will accept responsibility for these 100-plus changes. Again, I emphasise that whether it’s been in terms of extending the tax base to overseas entities, whether it’s been some of the other tax changes that were made last year, even things like the winter energy payment—the Government screwed up. They made serious mistakes in the law. They’ve had to come down to the Parliament and patch them up. Will the Minister that’s sitting in the chair accept responsibility for the detail of these 100-plus provisions that are contained in Part 2 of this bill and that are extensively detailed?

I’m particularly looking forward to an answer from the Minister of Revenue around those questions of the interaction of this law around the R & D changes I’ve mentioned, in respect of the good-looking racehorses tax provisions, and in respect of the other tax increases that this Government has imposed, and what their relationship is with those new rulings that are going to be provided by commissioners. I’d like the Minister in the chair to deal with the information-sharing questions that I’ve raised that are covered on pages 22, 23, and 24 of the bill. Is the Minister absolutely satisfied that those information-sharing provisions are absolutely required, and can assure us on those?

Again, I draw attention, and I’m looking for that reassurance from the Minister that he will accept responsibility for these 100-plus clauses in Part 2, given the Government’s got a pretty poor record of getting the detail—[Time expired]

ANDREW BAYLY (National—Hunua): Thank you, Madam Chair. I was speaking a bit before about the pre-population of accounts and how that drives this bill and whether it can actually be implemented, and I think one of the most important aspects of it is actually the computer system itself. Obviously, it’s part of a very large roll-out of a new computer system that’s going to revolutionise tax in New Zealand and the way it’s accounted for and how people interact with the IRD. The issue around the system, though, is that it was intended to be functional from 23 April, and bear in mind that this bill comes into force on 1 April—effective 1 April—which is in a few days’ time. So it’s already been delayed to later in April, when this migration is going to take place from the traditional or existing software system called FIRST to a new software system called START.

One of the issues I’m very concerned about, and I’m hoping the Minister of Revenue will talk about and come and address us about it, is the issue around, first of all, why this delay—and this is after the start date of this bill—but, secondly, the level of testing that’s gone on in terms of making sure that it is running operationally and it’s got rid of all of its bugs from a computer perspective. I know there’s been some batch processing of it and, in fact, the IRD are reasonably confident. They’ve done a significant amount of testing, but they haven’t completed the testing, as I understand it. So what I’d like to hear from the Minister is, in fact, what is the state of the IT system, because without having an operational system, those refunds I was talking about before that are required and are normally paid back by June—or even just letting people know about the obligations—are a crucial aspect.

That brings me on to the issue of, if you’re going to pre-populate the accounts with your contact details and all that sort of stuff, the next thing is to make sure that the IRD is getting the right information. The issue that drives this bill is an issue called reportable income. That is part of the system trying to make it easier for interaction between the IRD and taxpayers, and, to some extent, it is trying to reduce the levels of involvement required. If a taxpayer only receives reportable income, then the requirement to do tax returns and all that sort of stuff, basically, falls away. The obligation falls away. But that assumption—that premise—means that you’ve got to have proper provision of information around the elements of reportable income.

Madam Chair, I’m referring specifically now to new section 22D in clause 21, as I know that you’re keenly following the debate. But “reportable income” is defined as, first of all, PAYE income—so the wages and salaries that most people earn—or the payment of resident passive income, and that would be dividends from New Zealand shares and interest from banks. Then there’s an element of a payment of non-resident passive income—so, again, this could be income from a US company claiming a dividend to New Zealand, or it could be a foreign bond that someone’s invested in and is getting a return on that bond. It may be an element of capital or it may be an element of interest, which is interesting from a tax perspective. Or, fourthly, it could be a benefit under an employee share scheme, described in Schedule 4.

So if someone has just reportable income within that context, then that makes it much easier for that individual to be able to account for their tax and meet their obligations. But the issue is: how does the IRD get this information? I’m sure, as you will know, there are about 330,000 businesses in New Zealand—sorry, 530,000 businesses in New Zealand.

Hon Scott Simpson: All going to be capital gains - taxed.

ANDREW BAYLY: Yes, I know there’s going to be an element, but, of course, I’m confining myself to this topic. But the issue is that of those, there are about 200,000 that have employees. These are the mums and dads that we talk about in this House, and that that group across the other side of the aisle seem to forget about, but those 200,000 employers, made up of mums and dads who put their money on the line—[Bell rung] Madam Chair.

CHAIRPERSON (Poto Williams): Andrew Bayly—this is your fourth call in this debate.

ANDREW BAYLY: Oh, OK. So of those, as at 8 February—not that long ago—only 21,000 had actually logged on and started to provide the IRD with the information they need on the salaries and the wages they are paying to their employees. So the issue we’ve got—actually, I’m sure the number’s increased since then, and I hope the IRD’s made headway—is that we know there are 70,000 businesses out of that 200,000 who use paper-based systems. They don’t use Xero because they are just used to doing PAYE on a paper-based system. It works well for them. They mightn’t have many employees, and that is the issue about how the IRD is going to get this information. It’s going to be provided on a paper-based system.

But the issue in this bill that is driving it forward is that, previously, they only had to provide their paper-based system information to the IRD monthly, but now they will have to provide it every pay day. That means that the level of resourcing within the IRD to be able to handle that level of returns could be up to four times the existing level of information coming into the IRD, and I think that is quite something. That’s quite something, and I’d like to hear the Minister talk about the staffing of the IRD and how it’s going to meet those requirements.

The other part of the reportable income that I’ve talked about was interest and dividends. Of course, this also requires the goodwill of banks and also share registrars. At the moment, banks have been providing information on interest that income earners receive annually, and now there is a requirement to provide much more reporting regularly to the IRD. The issue I want to understand is to what extent are those banks required to do that and to what extent are they actually complying with the requests to do that, because if the IRD does not get that information, it runs a serious risk of not being able to determine the income of people, and the intent of the Act is for the IRD to have a better measure, a better assessment, of people’s income and the appropriate tax so that we’re not getting into the situation where we have refunds or, even worse, taxpayers having to make tax payments at the end of the year. So that is quite something, and I think how the share registrar is going to do it—the basis for doing it is really important.

But, of course, what this issue doesn’t deal with—which is the third part of that reportable income—is the income that people receive from overseas jurisdictions. So if you own shares in the US or the UK, how’s that going to be captured as part of your affordable income? That is quite a crucial aspect, again, because if you are inside that reportable income group, then—as I keep saying—the idea is that there should be much fewer interactions with the IRD. To the extent that that’s happening and what provision is taking place at an implementation level—which, effectively, needs to come into place in the next 23 days, from 1 April—is a crucial part for this issue.

Now, the other thing I just want to turn to is the one around debt forgiveness. The issue around the debt forgiveness—and this is covered in new section 22IB, just for your interest. The idea is for the IRD to be able to deal with the substantial issues of tax, and for those people who are entitled to refunds to get them seamlessly, and for those who don’t pay a lot of tax to not have to file tax returns. At the moment, there’s a rule that if a taxpayer earns less than $200, then there’s an exclusion around that, which helps to some extent. But the debt forgiveness has been set at $50, provided the taxpayer’s been on the right tax code, which comes back to my earlier point that if the information’s not been provided to the IRD, how do you know what tax code you’re going to do, and whether the IRD’s properly assessing it? If the IRD wants to reduce the tax code, then it’s up to the company and the people in these companies and businesses that we talk about—they will have to go back and change the tax code for that individual. Without that, it never takes places. It’s a very important aspect. It’s all about compliance.

CHRIS PENK (National—Helensville): Thank you, Madam Chair, for the chance to follow such a comprehensive dissertation on the subject of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill. I’ll continue in Part 2, of course, but, actually, I’d like to draw the attention of the committee instead to flow chart 1, which—for those following along at home—is on page 62 of the bill, for what that’s worth. What we’ve got there is a flow chart which sets out the scheme of Subpart 3B. That seems to me a very helpful bit of drafting, because it sets out with great clarity and simplicity the way that a person—and I’ll qualify that word “person” in a moment—can regard their obligations in terms of whether they qualify and in relation to their pre-populated accounts, and so forth. Others have mentioned some of the detail around the pre-populated accounts, so I won’t trouble the committee further with any of that now.

The way that this is set out does, I think, allow individuals to know how the law might apply to them, and for that reason it seems to go to the rule of law’s emphasis on accessibility of the law. It’s axiomatic, I suppose, that those who have the ability to understand the law have some sort of chance of complying with it, and certainly, if we’re to say that ignorance of the law is no excuse, then we owe it, as a legislature, to provide information that’s reasonably understandable to them.

So it is that what we have in the first instance is a question mark next to the word “individual”, and we have an opportunity to say that, yes, a person’s an individual, or, no, they’re not. For a bit more guidance than is able to be provided in a single cell within a flow chart, we’ve got the meaning of “individual” just across the page—as it happens, conveniently enough, under the new section 22D heading of “Key terms”, which, of course, provides definitions, as you would expect, including for “individual”. That one itself is actually quite interesting, so I’ll just pause briefly to note that it means a natural person, as opposed to a legal person who’s not a natural person, noting that every natural person is a legal person but not every legal person is a natural person. “Natural person” here includes the “natural person who is non-resident”, meaning, of course, in relation to tax residency, but it excludes a deceased natural person.

Hon Shane Jones: How many of them in National are natural?

CHRIS PENK: I’m sure it’s occurred to everyone in this committee that a deceased natural person isn’t in fact a natural person. I’m hearing from some unnatural persons at the moment, but I’ll avoid being derailed by them, because, of course, the deceased—

CHAIRPERSON (Poto Williams): Don’t rise to the bait, Mr Penk.

CHRIS PENK: Good advice, Madam Chair. I’ll be sure to take it. So a deceased natural person is, of course, not a natural person at all. But, in any case, for the sake of clarity, the bill sets that out—again, clarity and simplicity being a good thing in the law. I think we can safely move on from there.

The flow chart that I’ve been referring to, with some degree of approval, includes a number of different options where we’ve got yeses and noes to answer certain questions, if we’ve determined that an individual is indeed an individual, and that they are a qualifying individual. Again, that definition is given, and I won’t trouble the committee with any belabouring of that point. We then talk about the amount of income they might have and the implications for whether a person has a pre-populated account that is correct or not.

There are more layers to this than an onion, and I draw on the great economic philosopher Shrek, who noted that onions have many layers and that also, in accordance with his sidekick Donkey’s advice, they make one’s eye water. I think that the structure of this flow chart should have both qualities as well. Hopefully, this speech is not having the same effect, although I fear that it may.

Looking then at various other elements of the flow chart, one that I did want to highlight for the committee’s attention, and in particular in the hope that Minister Faafoi might be able to turn his mind to it, perhaps with the assistance of officials, is the phrase “default assessment”. It’s somewhat in the middle of the flow chart—or the onion, if you will—in the middle of those layers there. The word “default” I think in this context means the presumptive assessment—the assessment that would apply unless there is some sort—[Bell rung]

KIERAN McANULTY (Junior Whip—Labour): I move, That the question be now put.

IAN McKELVIE (National—Rangitīkei): Thank you, Madam Chair. Now, this will not be quite as eloquent as the previous speaker, or the one before him, because I don’t have quite the same tone to my comments. But other than commenting on the Minister in the chair’s cricketing ability, I wanted to comment on what happens when you get into trouble with the Inland Revenue Department—and that’s no place to be, I can assure you. There’s quite a piece in the bill about the court procedures and what happens when you don’t do what you’re supposed to do in accordance with tax laws. Of course, there are so many tax laws that to follow it logically would be quite difficult, but clause 15 in the bill details how you apply for court orders and how the commissioner goes about effectively getting the court involved in the process of, I suppose, at the end of the day, collecting tax.

It also details how the commissioner conducts inquiries. Of course, one of the great concerns of this Parliament—in fact, of New Zealand—is that we need to have people paying their tax. It’s essential that they do pay their tax and it’s essential that they pay their tax in the manner prescribed. I guess one of the great challenges for many taxpayers is actually understanding the manner prescribed. I talked about that in an earlier contribution I made to this bill, because many people do have difficulty understanding that, and I think it’s important that through the use of tax agents and people like that, you have the opportunity to get a much better understanding of what your responsibilities are and how they apply.

Clause 15 in Part 2 goes on to detail how inquiries are operated. It’s quite detailed in what it talks about, interestingly. It details how those inquiries are held and what happens when you appear before the District Court judge. It goes as far as even detailing what you might claim expenses for. In other words, if you’re summoned to appear at an inquiry, you can claim your travelling expenses. I would’ve thought that would be the last thing on your mind if you were summoned to appear in an inquiry before the Inland Revenue Department. But none the less, that’s what happens. So, it just shows, though, the detail that the Finance and Expenditure Committee get taken to, I guess, by advisers and certainly by the tax experts that advise the committee on how this stuff works, because it is very complicated. For us who are elected to Parliament—other than Andrew Bayly; he, clearly, has a penchant for tax—we don’t come here to discuss tax bills, and so it is a very complicated issue for us to get our heads around.

So I think the detail that is put into these bills is amazing and, certainly, when you consider the transformation project that the Inland Revenue Department has under way at the moment, legally, the amount of detail that’s required to enable that transformation to take place and to be put into place is pretty significant. So I think that this part of the bill is important. No one would wish to appear in any of these kinds of circumstances, but none the less—

Hon Shane Jones: Hear, hear!

IAN McKELVIE: Exactly, Minister. But none the less, the bill details—in quite pedantic detail—what happens in the course of this, and it’s pretty well legislated for. So I think we can have a fair bit of confidence in Part 2 of this bill. As the Inland Revenue’s transformation project continues, I think we’ll get to see much more change made to these Acts, because it will be required as that transformation’s implemented.

So I think that Part 2, on the whole, is a pretty good piece of legislation, and we certainly support most of the changes made in there. We, obviously, can’t support this bill, because there’s one or two—Part 1, particularly around the tax changes, and there’s another part in Part 3 that we don’t really support. So that’s my contribution to Part 2. Thank you.

LAWRENCE YULE (National—Tukituki): Madam Chair, I wish to thank you for the call, and I wish to speak to clause 17 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill, which is around the commissioner’s ability to obtain information by accessing properties and documents. This is a pretty amazing clause because, as my learned friend Mr McKelvie has just said, you do not actually want to get into trouble with the Inland Revenue, and the last thing you want is them coming on to your property to access information or data or documents.

If you go to clause 17(2), where it says “The Commissioner must not enter a private dwelling to access any property or documents except with the consent of an occupier or under a warrant issued under section 17D.”, you understand that there are two courses of action here: one where agents of the Inland Revenue can turn up, have a conversation, and ask to access various documents. I do notice that under clause 17(5) in this clause—and under clause 16, 16B, and 17D—“property or documents includes—(a) all lands, buildings, places, or other premises:” and “(b) a document, whether in the custody or under the control of a public officer, or a body corporate, or any other person”. A private dwelling goes on to be defined as “a building or part of a building occupied as residential accommodation and includes—(a) a garage, shed, and other buildings used in connection with a private dwelling; and (b) any business premises that are, or are within, a private dwelling.”

The reason I spelt that out is that that is a pretty significant ability for officers of Inland Revenue to go into somebody’s private property or business interests. I think we need to be really clear that in many of the cases that we’re going after here—and I think our side of the Chamber supports the Government’s wish for this transformation project and the things we want under this section to make sure the taxation collection system is fair and reasonable. If we go there, then we have two options. First, the person is going to agree. Inland Revenue turns up; they have a warrant. They’re going to agree: come, have a look, and take whichever documents or copies of the documents you wish. Or what is more likely is, on legal or other advice, they are going to say, “Where’s your warrant? What right have you got to be here?”

That is where we get into clause 17D(1)(a): “an application [needs to be] made for a search warrant under Part 4, subpart 3 of the Search and Surveillance Act … for [the] warrant to enter a private dwelling [and] to remove and retain a document from this place”. I’ll remind this committee of the conversations we had late last year in terms of some of the biosecurity changes in New Zealand brought about by M. bovis. While I’m generally supportive of these provisions, I think we need to make sure that whatever those warrants are issued for and the process that’s being followed is fair and reasonable. I remind members of this House that in many cases, people will not be compliant. They won’t want this to happen.

So I’m seeking some clarification from the Minister as to how easy it’s going to be for these warrants to be obtained, because I read under 17D(1)(b) that “an issuing officer [needs to be] satisfied that the issue of the warrant is required for the exercise of a function lawfully conferred on the Commissioner.” So what is the requirement and what does satisfaction mean? I think that is a very high threshold. I’ll ask the Minister, if he would—and Minister Faafoi is generally very obliging in these cases—to answer the question: what do they mean that “an issuing officer is satisfied”, and what is the test for that? Because, in my view, entering someone’s home, shed, property, farm, whatever, is a high threshold. If a warrant’s to be issued, I need to understand what needs to be satisfied before that occurs.

SIMEON BROWN (National—Pakuranga): Thank you, Madam Chair, and I also rise to take a call on the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Bill. I’d like to take a quick call, talking in regards to clause 18F of Part 2, which is the “Regulations for information-sharing for public services purposes”. I noted in clause 18E(4) that the definition for public service “means a public function or duty that is conferred or imposed on an agency described in subsection (5)—(a) by or under law; or (b) by a policy of the Government.” So that context does say that a public service has quite a broad meaning.

So when we come to clause 18F, we note here that this allows the Minister of Revenue the ability to make regulations in order to be able to require public services to share information in order to be able to enforce the law, to make sure that the information that they have is correct, and a range of other purposes. I understand that the purposes which are put down here are good. They are in order to ensure that the Minister of Revenue or the Inland Revenue Department is able to enforce the law to be able to gather the revenue which is required. I guess my questions relate to how the Government is going to ensure that people’s information—which may have been given to one Government department or one public service—is going to be kept private.

I note, in making these regulations, that under 18F(2)(b) the Minister of Revenue must prescribe “(i) the classes or types of revenue information that may be shared: (ii) how the information is to be provided or accessed: (iii) how the information is to be used: (iv) how the information must be stored, kept secure, or disposed of;”. Then new subclause (bb) is being added, which says “providing … the information-sharing arrangements under the regulations are monitored by the Privacy Commissioner;”. I’d like the Minister to take a call and just discuss in further detail what this monitoring by the Privacy Commissioner might mean.

I note in the previous clause, 18E, “The Commissioner may enter into an agreement to share certain information”—this is under 18E(3)—“(a) [this] agreement—(i) is made for public services purposes; … (ii) relates to the disclosure of sensitive revenue information”, and this is to do with disclosures of information. It says there that the commissioner has consulted. So he may enter one of these agreements if he’s consulted the Privacy Commissioner on the terms of the agreement and the Commissioner agrees that the disclosure is appropriate.

I guess what I’m trying to point out between these two clauses is that in one there is a requirement for the commissioner to consult the Privacy Commissioner on the terms of this disclosure agreement, and the Privacy Commissioner has an obligation to agree that the disclosure agreement is appropriate. Then in the next clause, where the Minister of Revenue, through the Governor-General, has the power to make regulations, they must only ensure “that the information-sharing agreements under the regulations are monitored by the Privacy Commissioner”. There doesn’t seem to be any requirement here to consult with the Privacy Commissioner in setting up these regulations, or an order for the Privacy Commissioner to have to agree to—or give some sort of approval to—the regulations which are being set up to allow for the sharing of information between public services.

I guess the concern that I have here is around the privacy of people’s information. People go to different public service departments or organisations to share information for different purposes, and then the tax authority—the Inland Revenue Department—is being given powers here to be able to use this information to match it and then to ensure that they can enforce the law and ensure that people are paying their fair share, a purpose which we agree with. But what I’m wanting to ensure is that there are appropriate safeguards, and I understand that, of course, that is part of the regulation-setting powers that the Minister must take into account: appropriate safeguards, etc. But where is the check and balance by the Privacy Commissioner in regards to the information sharing for public purposes and the regulation-making power compared to the disclosures in the previous clause? I’d like the Minister, if he can, to take a call on that matter. Thank you.

KIERAN McANULTY (Junior Whip—Labour): I move, That the question be now put.

A party vote was called for on the question, That the question be now put.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 56

New Zealand National 55; Ross.

Motion agreed to.

The question was put that the amendments set out on Supplementary Order Paper 188 in the name of the Hon Stuart Nash to Part 2 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Amendments agreed to.

A party vote was called for on the question, That Part 2 as amended be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Part 2 as amended agreed to.

Part 3 Amendments to Income Tax Act 2007

CHAIRPERSON (Poto Williams): Now we come to the debate on Part 3, which is clauses 104 to 222, “Amendments to Income Tax Act 2007”, and Schedules 1B, 2, and  3.

CHRIS PENK (National—Helensville): Thank you, Madam Chair. If you’ll allow me to start at the beginning of Part 3, “Amendments to Income Tax Act 2007”, clause 104B, amending section CB 6A, provides clarity about what is now meant by the phrase “bright-line test” and how that would be applied. We can—and, in fact, do—have debates and discussions across the House about the appropriate period of time for that test to apply, but I thought I might begin my contribution by just outlining for the sake of anyone who is unclear within or without the Chamber what it is exactly that the brightline test does.

It’s a popular misconception that the brightline test is some kind of tax. In fact, a tax applies on the sale of land in certain ways that we will soon see, and really the point of the brightline test is actually a way of understanding how that tax is to be applied in a situation where the intention of a person who has bought and then disposed of land cannot be gauged very easily. Of course intention is somewhat subjective and so it’s been difficult to determine historically and so it is that previous parliaments to this came up with the idea that within a certain period of time—two years originally and soon to be five, it seems—if a person were to buy and then onsell the land, then it would be deemed, effectively, that their intention all along had been to buy and sell for profit, and so the income that they would gain from that profit would be taxable. So it’s an exercise in certainty and it’s an exercise in providing clarity as well.

The phrase “residential land” is used in that, I presume, but I must confess I don’t know whether that’s previously already being clarified in the legislation. If it’s anything like the use of “residential land” in similar phrases within the Overseas Investment Act then it will be somewhat messy and difficult to determine in certain cases. But I take it that there isn’t any particular contention or debate about its meaning in relation to the legislation brought forward before the House today.

So looking then at the way that clause 104B would operate, in amending section CB 6A(4) the subsection heading would change. Well, that’s fine because that’s not a substantive change in itself; merely an aid to interpretation. But we do see that the phrase “a freehold estate” would be replaced by the phrase “an estate or interest”. “An estate or interest” is a broader conception of how one may relate to land because an interest in land might be something that is broader than simply owning and, certainly, having a freehold estate. So the intention there I presume is to have somewhat broader capture of those to whom the brightline test would apply. That’s a policy direction that the current Government has indicated that it is intending to make, and in that sense I suppose we can observe at least that the legislation will reflect that desire that they have.

In particular, I wanted to have a look at clause 108 as well, which talks about “Section CB 15 amended (Transactions between associated persons)”. The reason that this is significant is because it sets out the time frame within which a person can dispose of land and still be treated as under the 10-year time frame there, as opposed to five years, which we’ve seen previously. What’s going on here is that we’ve got a situation where two different persons are contemplated: a transferor and a transferee.

What we are saying, effectively, in this legislation, or the committee, in general, is saying—whether or not we on this side of the House agree with it; if we are in the minority, I suppose that’s all academic—collectively, is that the person who has acquired the land from someone who is associated with them has, effectively, acquired it at the time that the first person acquired it and so the second person won’t be penalised by something of the nature of an entity change that might be perfectly innocent, not designed to defeat the taxation legislation, not an evasion, and not an avoidance either for that matter. But it might be that a single trust remains continuously in ownership or holding an interest but the trustees may change, so the legal ownership might technically change albeit that the beneficial or equitable ownership doesn’t.

Another example might be that land is transferred by way of a matrimonial property change—or relationship property change, I suppose we should say—and so there are good reasons that it might be that land transfers from one person to another and that the second person who owns it might legitimately be considered not to have owned it as recently as that transfer, but, instead, going back to the original acquiring of the land.

The significance of that of course is that in this case what we’re actually talking about is a scenario where it’s to the benefit of those persons for tax reasons, because a period of five or 10 years, as the case may be, commences at an earlier point, and if one is selling or disposing of the land outside that period then one will be able to—I say “get around” the tax and I use the term very loosely and it’s not the right term. I’m trying not to use “avoid” or “evade”; I’m trying to avoid “avoid”, so to speak. So it might be that, for perfectly legitimate and innocent reasons, such a transfer takes place and the tax is not incurred at that point.

Before I finish my contribution, I’ll just step back in time briefly, sort of jumping a bit to clause 107, which amends section CB 11. That’s talking about a situation of building business, and that’s where disposal takes place within 10 years of improvement. So whereas previously we’ve seen a section that talks about the acquisition and the disposal of land, here what we’re actually concerned with is a time frame that’s triggered by improvements being made to the land. Reading the legislation at face value and without having had the benefit of attending the select committee in which it was discussed and examined, but having some experience in these matters from a previous professional life, the improvements that are completed trigger a time frame of 10 years, and it’s the time at which the improvements are completed, as distinct from having merely begun, that the clock starts ticking, so to speak.

We’re talking about the beginning of the improvements as well, but that’s actually in relation to the person carrying on a business of erecting buildings, or an associate of the person carrying on a business of erecting buildings. The significance of the business aspect, as I understand it but I’ll invite the Minister to correct me if I’m wrong, is that we’re talking about a business as opposed to being resident in the home in a way that we might regard as being consistent with having that as one’s family home. The subject of family home is coming up in debates and discussions in this House in other contexts and I won’t go there, so to speak, but I did just want to highlight that it seems there’s a consistent theme running through, more or less, that a family home is to be regarded as somehow separate or different from those who are in the business of conducting improvements for the purpose of building, and elsewhere we see, similarly, a subdivision business is to be treated in a particular way.

Finally, within my remaining time, I would just like to note that the legislation makes a deliberate effort to distinguish the situation that was previously the case, where the brightline test would apply in relation to an interest being acquired that is contingent. In other words, an interest that relied on another thing happening at new section CB 6A(4)(d), in clause 104B, and what we now have is a situation that contemplates an agreement being entered into under which the person acquires the estate or interest. So I suppose the obvious question there, which is on everyone’s lips, is whether this characterisation of the acquiring of the land is broad enough, and if the answer is yes, then I suppose it’s clear enough that the interest being acquired—that is, the purchase—more or less is captured by the provision, and I suppose that’s what’s intended by the Government in that.

If the Minister cares to correct me on any of these assumptions and presumptions that I’ve made, then I would welcome that, but if not, then I suppose I shall leave it as a record for this committee that that is my understanding of those particular sections and their import, and I look forward to hearing more debate and discussion and, indeed, contributing to it.

ANDREW BAYLY (National—Hunua): Thank you, and I’m sure the Minister in the chair, the Hon Kris Faafoi, being a very skilled business practitioner, is going to take the opportunity to address those questions that my good colleague Chris Penk has just raised, because they are a very important feature of this bill. I’m just looking forward to his contribution when he has a moment.

I just thought I might move on to something a little bit different. This is about portfolio investment entities, commonly referred to as PIEs. I know that—

Hon Scott Simpson: The Minister knows a bit about those too!

ANDREW BAYLY: Yeah, the Minister is very experienced with these. Of course, the reason I’m raising this is that these are very fundamental entities that help KiwiSaver accounts. They are the way that many people invest their KiwiSavers, and what a debate we’ve been having more generally outside this Chamber about another tax, which, of course—what’s this bill called? The Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill.

Simeon Brown: What’s the other tax, Andrew?

ANDREW BAYLY: Well, I daren’t mention it, because Madam Chair might give me a hard time, but the issue around PIEs is fundamental for people who want to invest in listed companies.

Just so we all understand what a PIE is, a listed PIE is an entity that, basically, invests in a whole lot of companies on a recognised exchange, particularly the New Zealand Stock Exchange, and provided it meets other requirements, it is in a situation where it has preferential tax treatment. So rather than paying 33 percent, it might be 28 percent, and there’s a lower threshold as well depending on the type of investment and the scale of it. And that’s why it is so vitally important to KiwiSaver investors, and we have a lot of KiwiSaver investors; we’ve got about $40 billion in the KiwiSaver accounts, ACC—through those types of accounts. It’s very important for the future of New Zealanders to be able to invest using these structures, and that’s why some of the other murmurings that we’ve heard in public that talk about what might happen to these PIEs has got to be treading on very fine ground, because we do not want to disincentivise people from investing in good quality New Zealand businesses listed on the New Zealand Stock Exchange, because we need capital coming into those businesses. We’ve got a stock market worth only $100 billion, we’ve got a housing market worth a trillion, and we need more people investing in them, perpetuating and sustaining our New Zealand businesses.

So to the rules here, and it relates to clause 167, one of the things that this bill does is make two changes to the arrangements. The first one relates to the wind-up provisions of listed PIEs, and what it does is give some transitional arrangements for an entity intending to become a listed PIE. It allows an entity that is not listed on a recognised exchange to become a listed PIE provided that it has a minimum of 100 shareholders or more; has resolved to become a company listed on a recognised exchange in New Zealand if it were to obtain the required consents; has applied to the Financial Markets Authority for an exemption from disclosing in a product disclosure document—this is a normal type of document that companies do when they have to list on any stock exchange—the full documentation around the nature of the company’s activities, its directors, all those aspects and financials of course; and, the fourth thing, that it satisfies the commissioner that the company would apply to become a listed company if it were to obtain the required consents.

What this does is give a provision for a listed PIE delisting as part of the process of winding up. And what we put in place as part of this are some transitional mechanisms to allow it to happen over a period of time, and it doesn’t cut to the core of the integrity of that PIE. And it has some aspects to it. For a PIE status for a listed PIE using this method, it must have two years or longer from the date the listed PIE is delisted, it must have a date specified in its election clause, and it must specify when the number of shareholders reduces below 100. So I’m highlighting this issue because New Zealanders saving for their future is a fundamental issue for New Zealand. We need people to do it. PIE status is an important element in achieving that, and we need to protect that.

SIMON O’CONNOR (National—Tāmaki): Thank you very much, Madam Chair. Seeing we’re heading towards the dinner break and the speaker who’s just taken his seat, Andrew Bayly, was talking about PIEs, I’m feeling mildly esurient now. However, I think he was discussing something far more complicated than mince and cheese.

I’m obviously going to confine my discussion to Part 3 of this Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill, in particular to address what are exclusions for Housing New Zealand. I do not presume to be any expert in tax, to the degree that the Minister of Revenue and his officials can be very relaxed about my contribution and any insight therein.

Fundamentally, tax rules have been designed, particularly around land tainting, as I understand it, to make sure that as people are looking to sell their properties, so mainly those who are working in development, can, in effect—well, have sought to prevent, if you will, arranging one’s financial arrangements in such a way that if you were to dispose or subdivide a piece of land, make improvements, there’s always been an attempt in the past to separate that out so that you could, in effect, avoid tax obligations. There have been changes to tighten that up to make sure that, actually, if someone is rearranging through trusts, through the erection of extra dwellings, or so forth, even if it’s done by association, a person or developer is still required to pay the rightful amount of tax. I’m more than happy for the Minister to correct me. In fact, it would be fantastic if the Minister takes a call and educates this member on the 101 of land tainting, if he so chooses.

What this particular bill is seeking to do, in this particular section, is to allow an exception for Housing New Zealand so that they are able to get on with the process of building. As we see particularly in clause 109—if I have it right here in front of me; yeah, in 109—as it says quite specifically in new section CB 15D, there’s an exclusion to “not apply to [the] Housing New Zealand Corporation”, and, importantly, as well “a company in the same wholly-owned group of companies”. So this is an exception from the rules for Housing New Zealand. As I understand things, it’s an opportunity, therefore, for Housing New Zealand to get on with its business, which is to build more houses. I know, on this side of the House, we do remain disappointed at the progress that is being made around housing. Obviously, there’s the question around KiwiBuild, but I think the intention of exclusion here is a prudent one. If this enables Housing New Zealand to be more effective, that’s a positive. Obviously, if it enables it to be more effective, prudent, and right when it comes to its tax to the Crown, that is an excellent thing. So I think, overall, it’s a good provision. I don’t think, from this side of the Chamber, there are any major concerns.

We would certainly encourage, after some committee stages we’ve had, that with the complexity of some of these clauses, they be triple-checked. We had a situation two weeks ago where a commencement clause had some, effectively, wrong numbers; certain cross-references were not correct. When I look at CB 15D(1), it’s referencing one, two, three—at least four, five other references. It’s a very minor point, Minister; you’ll have excellent officials, but to make sure that they run through and make that correct. We don’t need, as we did two weeks ago, to return to the House and reopen a committee stage to make sure one thing is inserted.

Fundamentally, where we sit here is that there’s a whole way that land developers are able to arrange, or have been able to arrange, their affairs to, obviously, maximise, I suppose, their profit and minimise, where they can, their tax payments. There has long been concerns about these; there have been a number of changes that have been brought to this House, and this particular one, as I say, and from the social housing perspective—what enables Housing New Zealand to get on with its job effectively, to look after New Zealanders, is a positive thing, as I say. I’m very keen to make sure that this does actually bring about some better progress than we have seen to date in the building of homes. But, Minister, to the extent that that little contribution in this rather large bill, again, helps those Kiwis most in need, we’re happy to support that aspect on this side of the Chamber.

IAN McKELVIE (National—Rangitīkei): Thank you, Madam Chair. I just wanted to take a call on Part 3 of this bill, particularly relating to Supplementary Order Paper (SOP) 135, the Government SOP concerning the bloodstock industry. I suppose, when this was mooted in the Budget, I thought, well, that’s quite exciting for the industry, and I thought, well, maybe we’re going to see some real positive progress here with respect to enabling people to break into an industry that’s not exactly cheap to get into. So when this came to the Finance and Expenditure Committee’s notice, you can imagine I was quite disappointed when I saw the numbers they’d put round it, because the figures they’d used to encourage people into the industry were—well, by anyone’s standards—astronomical. In other words, you had to have $404,000, I think it was, to buy a colt and about $460,000-odd to buy a filly, if it was a thoroughbred. Now, the standard breeds are a little cheaper and they’re more in the $100,000 and $150,000-odd range.

Obviously, from my perspective, it was never going to be a winner, because imagine someone starting a new business—and we’ve talked a lot about business in the House today—and needing half a million bucks to kick it off; it’s unlikely to happen, I think. And so it proved, because we’ve had the first of the sales at which this measure would have been implemented. I was quite keen to ask the Minister in the chair, Kris Faafoi—I’m sure he will have a pretty good grip on this given his sporting prowess; he was very good on the weekend—just how many thoroughbreds might have qualified for that tax relief at the recent Karaka sales. I suspect the answer will be about as many runs as I made on Sunday, which was zero. But I also wanted to just add to that that, interestingly, this was very strongly advocated for by the thoroughbred industry, and, ironically, the standardbred industry looks to be the potential beneficiary of it, because I think there were, by my reckoning, a number of horses that potentially could have qualified for this tax relief depending on where they go to in the end, because, of course, only horses bought by New Zealanders and initially raced in New Zealand and eventually settled in New Zealand qualify for this tax relief.

So it was disappointing, I think, to see the numbers that were put round this. There was an estimation that it would cost, I think, $4.8 million in the first year of its implementation. I think it’s going to be nearer $48,000 than $4.8 million, but that’s something—to be fair to the people who put this SOP together, it would be very hard to understand what the outcome might be unless you understood what the level of sale was going to be. Interestingly, in the thoroughbred case, the sales average was slightly back on where it’s been; in the standardbred case, it was 30 percent up. You could never have predicted that, I don’t think, were you trying to put a piece of legislation together like this, and you probably couldn’t have predicted where those horses might go and who might buy them either. So it was probably a very difficult prediction to make, but, none the less, it could’ve been, in my view, an exciting opportunity for the industry had it been set at a level that encouraged new people into the industry. It certainly didn’t enable that to happen, because, as I said earlier, it’s highly unlikely new people are going to come into an industry with half a million dollars to spend on a horse.

So whilst we initially, on this side of the House, looked to this SOP with some enthusiasm, when we saw what was going on was clearly not going to work—and I think we got to the point where we opposed it simply because it didn’t enable the engagement of people in the industry that probably had been foreseen by both the industry and maybe even by the Minister who introduced the SOP, Stuart Nash. So a bit of a disappointing piece of legislation I think, from everyone’s perspective, for an industry that I think needs every bit of encouragement it can get. I think Governments have got to be very careful when they get into encouraging industries, because we’ve seen too many times in the past where we’ve encouraged industries with bits of legislation that have turned out to have quite the opposite impact to that which was intended. We certainly have seen that, I think, with this little piece of Part 3 of this bill, which is disappointing because I think, as I just said, it would’ve been really good to have attracted a whole lot of new people into this industry by using this bill. It used to be the case, of course, and the reason it was done away with was probably the reason there was some suspicion around its implementation on this occasion.

ANDREW BAYLY (National—Hunua): Thank you, Madam Chair. I just thought I’d now talk about the accounting income method for businesses, and we’ve been talking about businesses a lot today, because they are the key driver of wealth in New Zealand and they are also the people who employ most people in New Zealand. So the importance to us in terms of creating the right framework in which they can flourish, in which they can grow, and in which they can continue to employ people but, more importantly, take on new people and also drive intellectual capital and create a more dynamic economy generally is just so vitally important.

The National Party was very good when it was in power, if I may say so, in terms of introducing the accounting income method for a way that businesses accounted for their tax. I’m not sure everyone understands the arrangements for tax for businesses, but they’re a lot different from personal tax. The requirement to pay provisional tax on a number of occasions and then to pay a terminal tax payment, which is a bit of a wash-up, has traditionally always created problems for businesses that do not have strong cash-flow. That might be for quite legitimate reasons. They may be quite sound and sustainable businesses, but they’re very seasonal, as an example, so they get all the money up front, and then for the last six months, there’s no money, as it goes through a period of—you know, maybe for climatic reasons; whatever, do not have the access to revenue. Accounting for your provisional tax as you go through the year and paying it out at a time when you’ve got no money coming in, or very little money coming in, traditionally has been quite a problem. As a result, many companies have actually ended up being late paying their provisional tax, and the fees for being late are 1 percent for the day that it takes place—if you were due to pay a payment and you don’t pay it by that due day, you get 1 percent, and thereafter you get charged 4 percent, so a 5 percent tax rate or penalty rate. Of course, what happens with penalties is they grow rapidly with time and, in many cases, they can blow out to be very large balances even though the original payment that was required actually was low.

The other thing about provisional terminal tax is it requires the entity to have a very good view on its profitability going forward. It’s based on last year’s, and often there’s a 10 percent rule where if your profit was $100,000 last year, you will aim to pay $110,000, and you will pay your provisional tax based on that and do the wash-up as terminal. But the issue with that is that many companies do not have that line of sight around either their revenue or their cost structures, and the ability to be able to manage that and then actually pay the provisional tax on the due date is actually really, really difficult and, in many cases, just an outright guess. I think the issue with this around the accounting method was a way of dealing with it. The traditional method was called the standard or the GST ratio method, which is those payments, but under the accounting process, what happens is that you will pay it on a monthly basis, if that’s the way you want to pay it, and you will pay it based on your actual profit—the tax that you will pay on that profit, on a month-by-month or whatever basis you choose, so that you can coincide your cash outlay with the money that you are receiving at the time. That means you don’t have to get into the forecasting ability that’s such a bane of many small businesses in New Zealand, and you don’t potentially get into a situation where you are late in paying your provisional tax. I think that’s a crucial aspect of trying to help and support our businesses.

Now, this bill has some remedial aspects around it, and I think one of the big things is when you could elect to join the AIM, or accounting income method. Under the previous rules, what it did is you had to make that decision, basically, for the next financial year, and under the rules that we brought in—and it’s something that the Finance and Expenditure Committee has worked very strong and hard on, and I think that we came with the right conclusion. It is to allow businesses to make that election during the course of the financial year, provided, of course, that they’ve paid their provisional tax, or, if they’ve used a pooling account, a third party who pays that tax on your behalf—which is quite a normal method; using an intermediary account—then they could convert to an AIM method, and, again, this is about making it good for New Zealand businesses.

LAWRENCE YULE (National—Tukituki): I wish to come to clause 111, in Part 3, which deals with, really, the exclusion for the dwelling, or the main house exclusion. I wish to ask the Minister in the chair, Kris Faafoi, in particular, under clause 111(1), where there is a replacement section CB 16(1)(b) where it says it’s replaced with “the dwellinghouse was occupied mainly as a residence by,—(i) the person: (ii) if members of the person’s family live with them, the person and members of the person’s family living with them:” and “(iii) if the person is a trustee, 1 or more beneficiaries of the trust.” Now, I struggle to understand what the third one means, really, because what that really says is if a person is a trustee, then somehow they can be excluded from the residential provisions, and then it goes on: “1 or more beneficiaries of the trust.” Now, bearing in mind this is a new section, or an amendment, and then it’s left to further parts in clauses 112 and 113, in which, really, the same wording is used, I’d like the Minister to explain exactly what they mean—“if the person is a trustee, 1 or more beneficiaries of the trust.”—and whether that actually makes sense.

I say that because as we go into these provisions and as we look at and the Government looks at what the tax working party has come up with in terms of capital gains, these types of provisions and the wording and understanding of them will form the basis on which a lot of New Zealanders make decisions on property investment and their taxation affairs. I’d like the Minister to explain how that clause 111(1)(b)(iii) actually reads and is meant, because as we go through this—and I’ve already been in contact with some lawyers and accountants who are relishing the opportunity of finding workarounds, particularly in the capital gains tax.

Hon Scott Simpson: Huge business opportunity.

LAWRENCE YULE: A huge business opportunity. We need to understand what this means, and I must confess I don’t, at this point. If you then go on to look at further provisions under the bill which deal with exclusions, then you’ll see that they’re mentioned in 112 and 113, as I’ve said, but the same clause is not mentioned in 111. If you then look at 110, which deals, really, with the brightline test within five years, and then you go further down to the 10-year test, which is mentioned in other parts of this bill, we need to be really careful that we get the definitions right. If I look at 110, it says that “In section CB 16A(2)(b), [we’re going to] replace ‘residential land’ with ‘residential land described in subsection (1)’.”

Then I go down to the next part, which says, “Subsection (1) applies to a person’s disposal of residential land if the date that person first acquires an estate or interest … is on or after 1 October 2015.” That is when the first brightline test was introduced by the previous Government, and then it was carried on and extended by two years under this Government. So what I’m really seeking assurance—and I know the Minister doesn’t really want to answer questions in this House because it’s not necessarily his area of expertise, but what I’m saying is this same legislation will be repeated in future taxation legislation should a capital gains tax come in, and I think it’s really important that under clause 111(1)(b)(iii), we understand what a trustee’s roles are in an exclusion process and what “1 or more beneficiaries” means. We need to get it right because it will make a fundamental difference to tax planning matters for New Zealanders. Thank you, Madam Chair.

JAMIE STRANGE (Labour): I move, That the question be now put.

CHRIS PENK (National—Helensville): Thank you, Madam Chair. Thank you very much indeed. I’m grateful to have the chance to speak on Part 3, particularly because there’s a really interesting provision concerned with the arrangements involving tax credits for charitable or other public benefit gifts. The reason that this is really interesting is that in the whole area of charities and institutions that provide what’s known as a public benefit, we’ve decided, specifically by designating them as such, that they provide a benefit to society that we don’t want to minimise, and we don’t want to limit their effectiveness by way of taxation. So there is some significance to society as a whole, and, of course, there is a significance to those organisations themselves in the way that they operate and in the way that they structure themselves. Accordingly, what we have here is a provision which, understandably, seeks to limit the ability of such organisations to structure their affairs in a way that would unreasonably get around the taxation laws.

So within Part 3, I draw your attention to section GB—that’s golf bravo—55 in clause 157, headed “Arrangements involving tax credits for charitable or other public benefit gifts”. So the first thing to note is that the section will apply when a person enters into an arrangement that has the purpose or effect of defeating the intent and application of section LD 1, which is to do with tax credits for charitable or other public benefit gifts. I’d like to draw the attention of the committee to the phrase “purpose or effect” because I wonder if this is exactly what the Minister and his Government is intending by adding this. What we have is a situation where, by saying that it would be the purpose or effect of defeating, essentially, the tax credit law, that would be captured. Now, if you have a purpose but without an effect, then what we have is a charitable entity that is trying to get around the law but unsuccessfully so. That makes a nonsense of the next provision, which sets out the consequence of such an attempt—or, indeed, a successful attempt—to defeat the tax laws. So we’ll jump ahead to that before we come back to the purpose or effect provision.

The effect, the outcome, and the consequence would be that the credit would be reduced. So the tax credit under section LD 1, elsewhere in the law, would be reduced to the amount that the commissioner considers would have arisen but for the arrangement described above. So we’ve potentially got a situation—that I would seek ministerial clarification on—whereby someone might intend to get around the law and might intend to gain for themselves a tax credit to which they’re not entitled and be unsuccessful with it, and yet the commissioner would then somehow attempt, I suppose, to reduce the credit to an amount that they would say would apply if the thing that hasn’t occurred had not occurred. And, of course, the reduction would be zero in that case. So I think that’s a slight logical absurdity. It may be a relatively small one, but seeing we are in the business of considering the tidying-up exercise that the committee of the whole House stage represents, I think it’s worth the Minister turning his mind to, if I may say so.

There’s another question regarding purpose, which is, of course: who gets to decide that such an arrangement has that purpose? Given that elsewhere within that same section it will be the commissioner who will be making a determination, I would guess—but, again, I welcome clarification and confirmation—that it would be the commissioner himself or herself that would make a decision that the purpose or effect of the charitable entity was as described.

I suppose for the sake of completeness we should consider that the fact that the defeating of the intent is described as either being in relation to purpose or effect might mean that someone, a charitable organisation, does something that has the effect of defeating the intent but didn’t have that purpose. Well, that seems to me pretty reasonable for the legislation to deal with such an organisation in that way because, really, what would be happening under the following provision is that, simply, the credit would be reduced to what it would be but for that accidental case.

With the reduction of a tax credit, I suppose it’s a double negative, whereby, of course, the tax would go up because the credit would go down. But what we’re saying, of course, is really that’s the default arrangement, which is that legal persons who are resident, and so forth, must pay tax unless they’ve got some particular reason not to do so.

One item I would like to bring to the attention of the Minister before I conclude my remarks—and I think I’ll be able to do that easily within the time that’s accorded to me; I say in case any colleagues should wish to accept the baton at that point—is that what we’ve got with the credit reduction that the commissioner is invited to undertake given such an arrangement is that we’re simply told that the commissioner considers such a situation in relation to what the taxation situation would have been had the arrangement not occurred. So what we don’t have is that the commissioner must in his or her reasonable discretion make such a determination, nor were we told that such a consideration would be based on generally accepted accounting principles, for example, or in accordance with Inland Revenue Department Acts, a phrase that’s defined elsewhere in the legislation.

So I wonder if the Minister could provide some advice about whether there could be a bit of clarity around that, given how significant the powers of the commissioner would be in that situation. If we are going to say to him or her that they have the ability to undo the damage that they’ve identified and turn back the tide, then I think it’s probably pretty fair that we ask him or her to do so in a way that is consistent with some sort of external or objective standard by which that can be calculated, measured, and, of course, if not reasonable in its application, then be challenged. I won’t belabour that point any further, and I simply observe that these matters are pretty important in a way that charitable and public benefit entities do have certain rights. But with those rights come responsibility, and the relationship between society and the State in that way is worth us considering clearly in this legislation, and, if we’re going to consider it, we might as well make it as clear as possible and as straightforward as possible.

Tim van de Molen: Does it impact on the surf lifesaving?

CHRIS PENK: I’m sorry, Madam Chair. I’ve been asked the relationship between this and some other matters that I’ve recently been speaking about in another forum, and I have to advise Mr van de Molen that, in fact, this has very little to do with those. So, moving on, and I’ll conclude my contribution at that point but with the hope and expectation that the Minister will address those points.

Hon IAIN LEES-GALLOWAY (Deputy Leader of the House): I move, That the question be now put.

A party vote was called for on the question, That the question be now put.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 56

New Zealand National 55; Ross.

Motion agreed to.

CHAIRPERSON (Poto Williams): The question is that the Hon Stuart Nash’s amendments to Part 3 set out on Supplementary Order Papers 188 and 189 be agreed to.

Gareth Hughes: Point of order.

CHAIRPERSON (Poto Williams): We’re in the middle of a vote.

Gareth Hughes: It regards the vote, Madam Chair.

CHAIRPERSON (Poto Williams): Can we just complete—

Gareth Hughes: I raise a point of order, Madam Chairperson. I was just under the understanding that Supplementary Order Papers 188 and 189 would be voted on separately.

CHAIRPERSON (Poto Williams): Just let me take some advice on that. OK. We will do that.

The question was put that the amendments set out on Supplementary Order Paper 188 in the name of the Hon Stuart Nash to Part 3 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Amendments agreed to.

The question was put that the amendment set out on Supplementary Order Paper 189 in the name of the Hon Stuart Nash to Part 3 be agreed to.

A party vote was called for on the question, That the amendment be agreed to.

Ayes 111

New Zealand National 55; New Zealand Labour 46; New Zealand First 9; Ross.

Noes 9

Green Party of Aotearoa New Zealand 8; ACT New Zealand 1.

Amendment agreed to.

A party vote was called for on the question, That Part 3 as amended be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Part 3 as amended agreed to.

Part 4 Amendments to other enactments

CHAIRPERSON (Poto Williams): We come to Part 4—the debate on clauses 221 to 276, “Amendments to other enactments”, and Schedules 3 and 6.

ANDREW BAYLY (National—Hunua): Thank you, Madam Chair. There’s a lot in Part 4, and there’s some quite important stuff. I think perhaps the most important bit is around the KiwiSaver enhancements. As we all know, KiwiSaver is a vital part of that picture towards New Zealanders saving for their retirement. So we have got the New Zealand Superannuation Fund—about $39 billion in its accounts, and obviously being managed incredibly well. The average return is, I think, about 10.3 percent since it was established, and it’s doing a great job in terms of helping the Government meet its requirements for paying out New Zealand super.

The other side of that, of course, is the KiwiSaver accounts that, hopefully, virtually everyone has. Of course, we had the incentive to incentivise people to join KiwiSaver accounts, that if people put in enough money, they would get $1,000 on the initial joining fee, and, of course, people are entitled to just over about $1,059, from memory, provided that they meet the minimum contribution every year. So that contribution that the Government provides to KiwiSavers in New Zealand is a very, very important tenet. Again, the KiwiSaver accounts—roughly a $40 billion account, and growing, and we need to get people to save.

The simple fact is that not enough New Zealanders are saving. In fact, there are from memory about 2 million people involved in KiwiSaver, of which about 500,000 are not contributing or, in broad terms, are on a contributions holiday, and that is simply not good enough. In the work that I’ve done, I think that the average balance sitting in KiwiSaver accounts is about $26,000. That, as an independent piece of wealth that people can access when they retire, is simply not enough, and we need to do more, and part of this bill is about dealing with that.

The Retirement Commissioner’s work on this issue was fundamental. She looked at a couple of scenarios under the current payment of what you’re entitled—roughly, about $23,000 for a single person, rising to $28,000 for a couple—and said, “Could you live on that, and what more would you need to live on to live in different scenarios?” One of the scenarios was a very modest living standard, obviously with no overseas trips—very modest living standards—and that showed that, basically, you needed about another $100 a week. That was a “no-frills budget”, I think she called it, and then there was another category, which was a more generous lifestyle, if I can use that term.

What it showed is that, for most people, they need between about a couple of hundred thousand and up to $700,000 of additional assets to be able to live comfortably in their retirement. That’s a substantial amount, and I think the average was closer to about $360,000. Of course, with New Zealand, with its trending population, we’ve got the baby boomers hitting that retirement age—or if they haven’t already, they’re certainly getting very close to it—and the demands that will have on the New Zealand Government to be able to meet future superannuation payments and also to make sure that those people going into retirement can actually pay and have a quality of life that we in New Zealand expect.

So with that KiwiSaver, as I said, the balance is very low, and it’s very important that we actually get people turning their minds toward this whole issue. Personally, I don’t think New Zealanders are focused enough on it. I think that with that sort of liability that’s coming towards us, overlaid with health costs that are very significant—and our current health budget is about $16 billion at the moment. As people move into retirement, the last two years of their lives are when, by far—and I forget what the percentage was; I think it was something like 80 percent of your total health spend occurs in the last two years of your life. So these changes around KiwiSaver enhancements are vital, and these are covered in clause 216 and clauses 231 to 237.

I think probably the most important thing—there were five actual elements that were incorporated in the changes that we want to do to KiwiSaver, and I’ll just go through them. I think the best thing is introducing to KiwiSaver alternative contribution rates. So I think most people will be aware that 3 percent is the current contribution rate. We have 3, 4, and 8—8 is the max—and so what this bill does is it introduces a category of 6 percent and 10 percent. So now you’ve got an entire suite that takes you from—and this is a choice for individuals—3 percent to 10 percent of your contribution from your salary.

We’ve filled in the gap because the gap between the lower band and the higher band was too big, and so, by far, most people invested at the lower rate of 3 percent, and by the time you get to 8 percent, there is a very, very small portion of people who are taking that from their earnings and putting it into their KiwiSaver. Of course, there’s a contribution required from employers, matching that contribution, which is very, very important. So that 6 to 10 percent is a fundamental change and, I think, a very good change.

The second thing is reducing the holiday—and I talked about this just a moment before, about the maximum contributions holiday. At the moment, the legislation has always assumed that you could opt out from contributing to your KiwiSaver for a maximum period of five years, and in most cases, many people have opted out for five years—and I talked about those 500,000 who are not currently contributing. What happens is they just get into a zone. They don’t think about KiwiSaver, and suddenly time has passed and they haven’t contributed. The thing about saving for your retirement is that the earlier you start doing it and the more consistent you are in terms of saving, the better the outcome through just the compounding impact of money through earning interest on interest, and that is the essential stuff.

I think one of the other categories that’s probably missing in the KiwiSaver debate is business people. In many cases, they are owner-employers. They own their own businesses and they’re their only employer—and employee, in that case. Many of them are not contributing to KiwiSaver, and it’s quite a hole in terms of the whole debate. But this contribution holiday is now going to be set at a year, so if you want to roll it over, you’ve got to make a conscious decision at the end of the 12 month period whether you want to take another year’s contribution.

I think the whole thing about a contribution holiday is wrong—it’s wrong. It’s not a holiday at all, because you’re actually saving for your own future, and so some of the nomenclature has been changed. We’re now talking about a “savings suspension”, which really means that you’re not saving for your future. It’s a small change, but it’s very, very important, and I think it’s one that sort of recognises that the real issue is that you need to save for your future. If you’re going to have a meaningful and worthwhile lifestyle that you want and anticipate when you’re in your retirement—

CHAIRPERSON (Poto Williams): I apologise to the member. The time has come for me to leave the chair for the dinner break.

Sitting suspended from 6 p.m. to 7.30 p.m.

ANDREW BAYLY: Thank you very much, Mr Chair. Just before the break I was, obviously, going through the changes to KiwiSaver, and they’re quite significant. I identified there are five substantial changes in the amendments or enhancements to the KiwiSaver arrangements. The first one was including a new contribution rate of six, and also 10, percent; reducing the maximum contribution holidays from five to one year so it forces people who want to stop contributing to their KiwiSaver to actually have to make that election to not do that every year, rather than every five years; and changing the name from “contribution holiday” to “savings suspension” because, effectively, people are stopping actually providing for their future retirement.

The other thing I just now wanted to touch on, in the last little bit of my speech, is the issue around the 65-year-olds opt-in clause of KiwiSaver. I think I’m going to have a colleague who’s going to follow me on this—but it’s vital; if you look at New Zealand, we need people who can invest in vehicles that can help them continue to grow their investments right through their retirement. And the issue around KiwiSaver; it is a cost-effective way to do that and the amendments facilitate that for over-65s. In my view, it’s a great thing, and, hopefully, my colleague’s going to pick up on this.

IAN McKELVIE (National—Rangitīkei): Thank you, Mr Chair. Well, I’ve been told what to talk about, so that’s easy. I wanted to add to the time that Andrew Bayly’s been talking about KiwiSaver, because it’s an interesting issue, and the issues raised in the changes are also interesting.

But just before we get on to that, I want to talk about a side issue, really, in that during the course of the submissions on this bill, we had a youngish man and his mother come and talk to us about, in essence, the disability community and the fact that they may not live for ever and the ability of that person to then withdraw funds early. I know it’s not part of this bill right now, but it very much applies to what was talked about here, and it is an issue that I think—it’s a difficult issue, but it’s an issue that we’ll have to address as a Parliament in due course. His submission was really around the fact that he’d put money into KiwiSaver, he wanted to do some things in his life, and he felt he may not live till he was 65 to withdraw it. That’s quite a challenge. Interestingly, through our electorate offices we get a lot of inquiries about KiwiSaver and the ability of people to be able to, I guess, take some funds and use them to keep themselves alive. My colleague Andrew Bayly talked about it briefly before, and I think it’s probably a rule that needs to be upheld very strongly, because things that happen to you short term change, and they change quickly, and I think it’s essential that people build up savings for later in their lives.

You see often in life people who have opted out of superannuation schemes, or, in this case, KiwiSaver, and then later on in life have no option but to live on whatever the Government provides them with, and I think that’s a little bit tragic. I’m very keen on allowing over-65s to opt in to KiwiSaver. It would’ve been quite good if this had been around right from the start, actually, because it would have made a difference—

Hon Stuart Nash: Bit of self-interest there.

IAN McKELVIE: Well, to be fair, I’m a little bit past that, but, none the less, I do have a KiwiSaver account, and I’m very pleased I do. So I think that’s a very good option as well, and, of course, we’ve got people over that age who work for years and years after that, and we’ve got employers who value the contributions that those people make to their businesses and certainly will continue to pay their share of that contribution. That was an issue that was also discussed in the select committee stage of this bill. It wasn’t made compulsory, as it turns out, but I think it’s an option for later on as well. So there are some issues with that that I think are very positive. I won’t talk about the contributions holiday, although I have talked about it briefly, because my colleague Andrew Bayly talked about that for quite a while during his comments on the bill.

I’m also very keen on the additional KiwiSaver employee contribution rates, because I think that’s an option, again, that people can use, and it’s a very valuable option to have. I think, interestingly, I’ve always been a bit of the view that I kind of like compulsory superannuation, or a sensible compulsory superannuation. I go back, and I would be one of the few left in the House who would remember the days of—well, it was almost a day actually. We had only a couple of days of compulsory superannuation, but we had the option to run private schemes or public schemes in those days. When that was cancelled, most people cashed up and went. Imagine what New Zealand would look like now had a different decision been made at that time, because it would have been very significant. I think the great value of KiwiSaver or whatever might be introduced in the future is that it encourages people to save and it makes quite a significant contribution to our economy from an investment fund point of view. Again, Andrew Bayly mentioned the amount of money that was involved in that, and it’s very significant.

I think the other thing that lots of KiwiSaver investors talk about and probably don’t really have a good understanding of is the risk of the drive to get more and more money invested in New Zealand through the KiwiSaver schemes. That actually is quite a high risk, because we do have to have a diverse investment portfolio to make sure that in times of difficulty—and they come about pretty frequently—that investment is protected, because I think it’s most important that we put as much protection around KiwiSaver schemes as we can without, I guess, being too arbitrary about them.

So I’m very keen on the KiwiSaver changes and that would be my contribution to that part of the bill.

BRETT HUDSON (National): Thank you, Mr Chair. I have a question for the Minister specifically on the KiwiSaver contributions. I refer back to the fundamental intention of even having a KiwiSaver in the first place. It’s that with people saving for their retirement, principally they are the beneficiaries of those retirement savings but society also gains some benefit from reducing pressure on potential top-ups and other supports that people might otherwise require in their retirement if they didn’t have enough of their own resources to spend. So I commend the Minister for adding the 10 percent contribution level in there, because if people are able to put aside that much of their pre-tax income every pay cheque, then I think it’s a very good thing, should they choose to want to do that, that the State makes it easy for them to do so, and ultimately they will benefit incredibly well, one would expect, from that and the State also gets some level of benefit out of that too.

Then I look at the 6 percent, which is clearly a newly added piece, and the natural interpretation one would make is it’s there for someone who can’t quite afford 8 percent but could afford more than 4 percent. Again, that seems extremely reasonable. The extra contribution they make will provide benefit principally to them but also, we can argue, to some extent to the State and other New Zealanders. But that leads then to a question, and the question is: if the whole principle of KiwiSaver is we want people saving for their own retirement because of the personal benefits but also societal benefits, wouldn’t it be better for us to be able to have a regime where as many people as possible have the confidence that they could participate and did so? So the simple question there would be: why, Minister, did you not introduce a 2 percent contribution level?

Hon Stuart Nash: There is already.

BRETT HUDSON: Well, not according to this legislation, Minister, there isn’t. So if people can’t afford a lower level but could perhaps stretch themselves to 2 percent, that could be the difference between a contributions holiday and making a small contribution into their KiwiSaver. We could all argue, therefore, that we would expect that more New Zealanders would be likely to actually take up the option and to continue to contribute because the legislation in clause 234 points out that “In section 64(2), replace ‘3%, 4%, or 8%’ with ‘3%, 4%, 6%, 8%, or 10%’.”—because, clearly, 2 percent is not currently an option. But I think it would be a good thing. I’d love to hear the Minister’s view on this, but I think it would be a good thing if we could find a way to accommodate those people for whom 3 percent or more seems a stretch to them, possibly due to other commitments they have, possibly due to some uncertainty about future mortgage rates, or some uncertainty about costs of living or costs of raising children—whatever their particular circumstances may be. If we have a situation where there are New Zealanders who are simply saying, “Well, 3 percent is a little bit of a stretch for me.”, wouldn’t it be a good thing for them and a good thing for New Zealand if we could find a way to bring them into the scheme as active participants, particularly people who might currently be on a long-term contributions holiday—or even if they were, with this law change to therefore have to revalidate that holiday each year, they could still do so.

So, Minister, I’d like to hear from you whether you would consider that change. It’s a pretty easy Supplementary Order Paper, I would think, to add even at this late stage. We could just add it in. A few more people on the scheme is a good thing. Obviously, I would suggest that the Minister would want to limit the employer’s contribution under the scheme. They wouldn’t be expected, I think, to contribute more than that; although he might have comment on that as well. He might actually feel that there is an argument that could be made that just because the employee is in circumstances that would permit themselves contributing only 2 percent of their pre-tax salary that perhaps their employer—because they won’t change their employment conditions; they won’t change their wage packet. If the employee can’t afford the extra amount, there is potentially an argument that the employer still could. So, Minister, I leave my contribution at this stage at that. I’d love to hear from you on that idea.

Hon Dr NICK SMITH (National—Nelson): It’s a pleasure to take a call on Part 4 of this Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill. The issues that I want to raise in some questions to the Minister of Revenue are in respect of the changes that are being made to certain Crown companies and identities with respect to tax application. It may interest the House that the Clerk of the House’s and the House of Representatives’ status in terms of tax is being changed alongside a series of entities in clauses 222 and 224 of the bill. Now, the really important principle that we need to be cautious of in respect of these tax changes is that we ensure that we are not giving public entities some advantage in tax. Now, I’m pleased to advise you that the Clerk’s Office in the House of Representatives doesn’t face too much competition from other activities, and that doesn’t particularly concern me. What does concern me, both in terms of State-owned enterprises, Crown-owned companies, and the changes as they relate to local government companies, is that we’re not providing any tax advantage for a company that is owned by a Crown or local authority in taxation terms as compared with a private company.

Can I give some practical examples: we’ve got councils that are extensively involved in providing water services and in providing rubbish services. We’ve got Crown companies providing services like postal services and courier services, many of which are also provided by the private sector. So if you take my particular community in Nelson, I’ve got a council rubbish service that’s available to ratepayers in my area, but there are also private companies that offer those services. We’d all be familiar that, in the electricity sector, you’ve got Crown-owned companies that provide electricity services, but you’ve also got a large number of companies that are privately owned, and that applies to a huge amount of economic activity that occurs in the community.

So what I’m interested in is in terms of the changes proposed in clause 222 of this bill but also in terms of clause 224, “(Meaning of term taxable activity)”, to ensure that this Parliament is not giving some advantage to its own companies over those in the private sector. What I want to be assured of by the Minister in the chair, Stuart Nash, is that if you’re a council entity or you’re a Government entity and you’re providing a service out in the public, the changes that are being made to both provisions—the likes of goods and services taxes and other sorts of taxes—are such that you’re not screwing the scrum in favour of the public entities. What I think this Parliament wants to do is ensure that, sure, you can have a council trading entity—for example, take a big company in my own area, Nelmac, which is a local government trading entity that provides all sorts of contracting services—but that is not being treated any differently for tax purposes, income tax, or GST for that matter, as compared with a private sector company, or an electricity company, or any of those sorts of entities.

So, in clause 222, we were dealing with the question of interpretation. It’s proposed that there be a new schedule of qualifying public-purpose, Crown-controlled companies. The really crisp question that the Minister needs to address in this Part 4 of the bill is to reassure the Parliament and to be absolutely clear that we are not providing any direct or opaque tax advantage for those businesses that happen to be either owned by Government or owned by council activities. When I look at the changes that are being made around the meaning of the term “supply” and around the issue of what is a “taxable activity”, what we want to make sure as a Parliament is that there is that equivalence, whether it be a water service—and, actually, you’d be surprised, Minister, by the number of communities in New Zealand that have a private water company providing water services as well as those that are obviously council and, indeed, some of those that are owned by the State. The issue of tax neutrality as it applies to those trading entities is very important, and with the intention to establish a new schedule in the bill, we would like those questions addressed by the Minister.

The second part of my questions in this very extensive Part 4 are around the points that have been raised by my colleagues in respect of the changes around KiwiSaver. A number of my colleagues have raised concerns, particularly in respect of clauses 230 through to 237, which make changes to the way in which KiwiSaver operates. National is quite supportive of the amendments that enable, for instance, a person to be able to continue to be a member of KiwiSaver after the age of 65. It’s fascinating in an electorate like mine, actually, the number of people that are continuing in employment in that area, but there are issues around the contribution rates, issues around the non-deduction notices, and issues also in respect of the rules of those KiwiSaver schemes that my colleagues have raised questions about, of which we would like answers.

Then the last bit that I would really like to focus on is in respect of the changes in Part 4 around the changed tax status of child support. Now, we’ve got over 200,000 New Zealanders who are making contributions around child support. We as a party are very strongly of the view that if you are a parent of a child, then you need to meet your obligations and ensure you provide support for that child up to the age of 19. What I’m interested in is to get some reassurance from the Minister around the sections covered from clause 238 through to clause 242 as to whether this means that the parent that’s receiving the child support payment from the other parent is going to have their tax liability increased. This is quite a complicated area, because you have the income earner paying income tax before they make their child support contributions to their partner. The other partner may well consider the income they receive from their colleague as income for taxable purposes, but, actually, it would work out as a double tax if we then have the receiving parent also having to pay income tax on those.

What I’d like to hear from the Minister is some reassurance that through these changes to the Child Support Act, we’re not having the Government taking a greater share of money that is intended for the benefit of the children, particularly with respect to the changes to section 35 of the Child Support Act and the definition of what is a taxable income. The simple question for the Minister: is there going to be any reduction in the amount of net child support that is being received by parents that are receiving funding from a liable parent? We would be disappointed if the taxman was getting in the middle and stopping the money that was intended for the benefit of the child—money on which the earner has already paid income tax—to then have any additional liability as a consequence of the adjusted taxable income that is being amended in that clause.

Then, my very last set of questions for the Minister is just in respect of the student loan scheme. It’s an incredibly important scheme that affects over 300,000 New Zealanders. Getting the codes correct in respect of the changes to the student loan scheme is something that needs to be done with care. Again, I would like some reassurance from the Minister that those provisions in this bill, from clause 243 to 249 and the application of the PAYE rules as they affect those students that have got a student loan and that are now earning—that those workers are not going to be disadvantaged. In effect, I’m wanting to know: does this mean that those workers who are having their student loan contributions deducted from their weekly earnings—are we going to see as a consequence of those changes a reduction in those people’s net income?

Hon TIM MACINDOE (National—Hamilton West): Thank you, Mr Chair, for this opportunity. I must admit that I was a little bit slow in rising to my feet then, not because I didn’t want to take the call, but because I was hoping that the Minister of Revenue would get to his feet and answer some of the questions. He’s just been asked a significant number of important questions on a wide range of topics by my colleague the Hon Dr Nick Smith, but he’s also had a number of questions put to him earlier by other members on our side of the Chamber on important aspects of Part 4. I’d like to make a couple of general comments to give some context and then focus in on another aspect of Part 4 that hasn’t yet been dealt with in relation to ACC.

I think for those who are listening, it would be a fair observation to say that while there have been some very intelligent and thoughtful contributions, you can hardly call this a debate, because a debate, by its very nature, suggests a level of engagement. I wasn’t able to be in the Chamber for long before dinner, but I was following what I could via the TV when I was in my office and I’ve been in here since the dinner adjournment, and I have yet to hear a single Government contribution on any aspect of this important matter.

Well, this is important. Tax is the issue du jour for New Zealanders right now. They are deeply concerned in all of our electorates and are talking about tax levels and tax implications, as this Tax Working Group’s proposals are, frankly, causing huge consternation the length and breadth of the country.

So I say to the members opposite that it is time that you took a few calls—particularly on this aspect of this bill—and gave us some of your thinking. We are struggling to get any clarity, and while there is a lack of clarity on the future of our tax system—and, in particular, the tax imposition on Kiwi households—that has a very detrimental impact on business confidence and on investment confidence, and, long term, that leads to a real problem in job security and other things that matter for the livelihoods of New Zealanders. So I really implore members opposite to realise how important this is and to get to their feet.

If I could just make one other comment on that line, I was hugely proud, as a National member of Parliament, when the Leader of the Opposition earlier this year announced a commitment from the National Party that a future Government will end this long-held grievance that New Zealanders have with bracket creep and that we will index taxation thresholds to the rate of inflation.

CHAIRPERSON (Adrian Rurawhe): We actually dealt with that in Part 1.

Hon TIM MACINDOE: Well, I realise that, sir. But, as I say, I’m trying to put some context around this debate because these are important matters. So, anyway, let me get on to Part 4, and—

Darroch Ball: Back to the subject.

Hon TIM MACINDOE: Well, I just say to the members who are interjecting that the approach of Government members at the moment reminds me of the innkeeper in Victor Hugo’s Les Misérables, who is constantly looking for new ways of trying to extract money out of hard-working Kiwi taxpayers and workers, and they, over that side, should be doing their level best to help them.

But let me get on to Part 4. One of the aspects is that it deals with—well, we’ve been hearing about KiwiSaver enhancements and child support measures, and the student loan scheme, which Dr Smith has just concentrated on, which is hugely important.

Clayton Mitchell: I’m glad you spent 3½ minutes talking about everything else.

Hon TIM MACINDOE: Well, it’s 3½ minutes so far, Mr Mitchell, that we have failed to hear from you, and I’m very happy to take a further call—very happy to take a further call—

Hon Dr Nick Smith: You could yield.

Hon TIM MACINDOE: I could yield. If Mr Mitchell would like me to, I’d be happy to yield. But I would like the Minister—because I know he’s been taking a few notes, and he is the Minister of Revenue, so we’ve got the right Minister in the chair right now—to discuss some matters of concern to Kiwi taxpayers, such as anomalies around the tax treatment of backdated payments from ACC for attendant care. Now, this is a huge issue out in the population. There are many wonderful people looking after long-term ACC clients who, in many cases, are absolutely dependent on care from other people. Therefore, it’s in everybody’s interests to ensure that the tax regime that surrounds the payment for those providing that attendant care is fair and appropriate.

Now, when we look at the bill, we see that there are some remedies to issues that have been identified, and let me just focus on them. There’s a new clause 123B, which would mean that reimbursement payments for attendant care are considered exempt income, including those covering an earlier income year. Possibly a little bit difficult for the average punter listening to understand, but maybe the Minister would like to explain exactly how that position has been—[Time expired]

Hon STUART NASH (Minister of Revenue): Thank you very much, Mr Chair. First of all, Mr Tim Macindoe, Part 1, clause 123B—clause 123B is actually in Part 3 and it’s been dealt with, and the reason that we haven’t got members on this side of the Chamber standing up and debating this is because we agree with it. There’s nothing to talk about. Of course, the members aren’t going to talk about what might be going forward, because what might be going forward isn’t part of this bill, and the debate around the bill at committee stage has to be on the part in question.

So, to answer a couple more questions, Brett Hudson talked about—he asked why we couldn’t go down to 2 percent. So we’ve got “3%, 4%, 6%, 8%, or 10%”. Well, there are about 2.8 million Kiwis in KiwiSaver at the moment, so I think there’s a vast majority of Kiwis who have actually made a conscious decision to invest in KiwiSaver. Keep in mind the employer contribution sits at 3 percent, and we think that the minimum amount that an employee should contribute is the same as the employer contribution—hence 3 percent. So we’re going to leave it at that. I think including the 6 percent and the 10 percent—you know, that’s a good move that was supported by the Finance and Expenditure Committee, and that’s the reason we’ve done that.

Dr Smith, clauses 222 and 224—this isn’t about providing any form of competitive advantage in any way, shape, or form to any particular entity over another. The policy intent here is about public entities, so there’s no competitive advantage in that space.

Child support—I can give you an unequivocal answer that this will not mean any reduction in child support payments in any way, shape, or form. In fact, under the Labour Party’s Families Package last year, there were about 375,000 families who were, on average, about $75 a week better off.

Hon Dr Nick Smith: Child support?

Hon STUART NASH: No, no—just generally. So we are not in the habit of taking money off those who are the most vulnerable. I would agree with you, Dr Smith, I think, when you said that often those receiving child support are the most vulnerable in our community. So, no, no—you can have my absolute assurance that this is not about taking money off those who would have received it anyway.

Then you also talked about student loans. All this is doing is it’s changing the definition of “special tax code” to “tailored tax code”. This is part of the Inland Revenue Department’s Business Transformation programme. What a tailored tax code is is that an individual, in fact, can call up and can outline the amount of income they’re getting—and this is certainly the case if you work in two or more jobs—and you will get a unique or a tailored tax code for your specific situation. So it’s bringing the tax system into the 21st century around business transformation. It won’t make any difference. In fact, it’ll go a long way to ensuring that those who have got a student loan, who are now working and have repayment obligations, are actually repaying the right amount. So it’s all good from that respect.

You had one other question. I can’t remember. Was that all the questions? I think that was all the questions.

Darroch Ball: Well answered. Very thorough.

Hon STUART NASH: Very thorough. But I must admit it was disappointing when we had a former Minister stand up for five minutes and not talk about the bill at all. Maybe they’ve run out of things to say—maybe they’ve run out of things to say. But anyway, that’s my contribution.

MAUREEN PUGH (National): Thank you for the call, Mr Chair. I take the opportunity to stand and speak to the Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill in its committee stage this evening. I think my contribution is probably going to be shorter than the title.

We all know that this bill is an omnibus bill, and it does impact on several Acts. There’s no argument on this side of the Chamber that we do need to modernise our taxation system and deal with the taxation rates for the year. As many of my colleagues have mentioned this afternoon, we actually do believe that there has been a lost opportunity in this bill to leave money in the pockets of Kiwis rather than adopting the tax and spend policies that this Government is so set on. But we are not supporting this bill from the Government, which does tax hard-working Kiwis as though they’re a bottomless piggy bank and then goes on to fund untargeted and ill-thought-through policies.

But I’m going to turn my attention, also, to Part 4, which relates to the Child Support Act 1991, and in particular to clause 239, section 35(6), where the proposed bill talks about the role of the commissioner. Now, the section 35 amendment replaces (6) with “If a person’s taxable income for a tax year has not been assessed, the Commissioner must determine the person’s taxable income on the basis of the income and any other particulars known to the Commissioner.” So my question to the Minister in the chair tonight is: what are those other particulars likely to be, and how will they come to the commissioner’s attention if they are not recorded as income that is available to the commissioner? The reason that this is important is because those assessments that are made can have quite dire impacts on a liable parent who is liable for child support payments. I think I can safely assume that there would be very few MPs in this Parliament that have not had a constituent case where child support payments have had a crippling impact on a parent and they are seeking some relief. So, with this in mind, it would be helpful if the Minister in the chair could comment on whether he believes there is an adequate process for an appeal around these determinations that can be made by the commissioner, and that they are made under this clause 239.

My other point I’d like to make regarding this proposed replacement to section 35(6) relates to the commissioner making determinations on a person’s taxable income. Is this an activity that is likely to be delegated, and if it is to be delegated, what are those delegations likely to look like? I imagine that they will have to be, because it’s unlikely that the commissioner himself will be able to manage this without the delegations being in place. But it’s important that we’re clear about who will be making those determinations and undertaking that role on behalf of the commissioner, because the flow-on effects of that are life changing for a liable parent. Now, I’m not suggesting for one minute that we soften up on the approach to child support payments but, in the Government’s own words, we do need to be fair. If it’s not deemed to be fair by the liable parent, then there does need to be a suitable process that can be followed to reach resolution, especially when that outcome is determined by the commissioner, and that determination has been made.

I think it’s also appropriate that I use the opportunity to mention the huge investment in technology that’s been made—billions of dollars, in fact—that has gone into the Business Transformation programme that has allowed the treatment of tax to be easier for users and to allow people less time for compliance and costs, and certainly less time in settling their tax bills. We, certainly on this side of the Chamber, support the introduction of the automatic tax refunds. Thank you, Mr Chair.

ANDREW BAYLY (National—Hunua): Thank you, Mr Chair. One of the important parts of Part 4 deals with securitisations. I know members of the committee were very vexed about this issue because it is an important funding instrument for businesses and also for people to be able to invest in those types of businesses to enable them to fund their operations. I know some people are not aware of securitisations—what they entail—so it might be worthwhile just recapping that. I’m hoping I’m going to get someone to actually stand up on the other side and talk more about this because we, on this side, are just poised to hear from the Government on these matters.

A securitisation is where you take an asset—and it might come with an income stream—and you put that asset into a separate vehicle, and then, basically, you can sell off the rights to that income stream. The way that the Act is currently written, it allows those types of arrangements for financial institutions—so banks are a classic. They might have a motor car loan book, as an example, that has an income stream from the interest it earns from those people who’ve bought cars, and those types of instruments can be set up, and that’s, effectively, what securitisation is. But where the Act is quite deficient is it doesn’t allow for non-financial institutions. I’ll give you the reference if you’d like, Minister. So this is clause 213—there’s a whole lot of subclauses in there—and it actually covers some other clauses as well.

Hon Stuart Nash: It’s Part 3.

ANDREW BAYLY: Thank you, I’m very glad to help you—

Hon Stuart Nash: That’s Part 3.

ANDREW BAYLY: No, it’s not. It carries on through.

So the securitisation issue—how this is dealt with is important because, without the ability to do this and allow companies to fund those types of operations, it becomes an impediment, and because non-financial institutions are currently precluded from doing it, this Act allows this to take place. The big impediment to it is making sure that these securitisation vehicles remain tax neutral, and at the moment they’re not. So part of the changes were, basically, to allow the deductibility of it to stay within the group. And, in terms of the tax position, if, on the sale of the assets, which is normally set up into a special purpose vehicle that will be separated from the income flow that is sold and from the parent company so that if there’s a bankruptcy or any other things like that, then you couldn’t have recourse—it was a non-recourse type of funding.

That type of structure is what is envisaged, but the Act was very much around making sure that the tax consequences of that were actually tax neutral. I think the key thing about this is—the most relevant situation is—around trade receivables, which often want to be used by corporates who are using this mechanism out and about to actually fund their operations. I’m talking about large corporates that often may be listed on the stock market. Therefore, by doing this, it provides a mechanism whereby our companies can access additional financial markets and also support their operations.

I think, overall, the issue around this—and, I think, the prime thing—is to make sure that we’re not creating a tax advantage for these types of instruments, which are, obviously, very complicated instruments. But, at the same time, we are ensuring that there’s flexibility around those structures. There was a whole stack of submissions on the issue from a whole range of professional firms. They all agreed with the changes. We probably landed in a good place, but I think, from the general public’s perspective—and I’d like assurance from the Minister that where we’ve landed in terms of coming up with a tax-neutral situation is actually of paramount importance, and we’ve actually arrived at that position.

The other stuff I want to just talk about is the issue around land tainting rules of Housing New Zealand. This is very important because this is part of the Government’s drive with KiwiSaver, and without these rules KiwiSaver is under significant threat, if it’s not already. Of course, we know KiwiSaver is well behind its own target of building 1,000 homes this year. I think it’s 54 at the moment. But that—[Time expired]

BRETT HUDSON (National): Mr Chair, thank you. This is going to be a very brief call. I thank the Minister for answering the question I put to him a little while earlier about KiwiSaver contributions and why not a lower threshold at 2 percent.

The Minister, in his answer, said—and I have to paraphrase a little as, of course, the Hansard isn’t out yet. But the Minister, in his answer, said that at the moment there are around 2.9 million people in KiwiSaver and, therefore, that appeared to evidence that the 3 percent threshold was fine. Well, I believe the rough number the Minister used of 2.9 million people is the number of people enrolled in KiwiSaver. And we well know that the number of people enrolled in KiwiSaver is not equal to the number of people making regular contributions to KiwiSaver. If the number of people not making regular contributions to KiwiSaver were significant, that would in itself—I would contend—be a very good sign that, perhaps, the current lowest threshold at 3 percent is not low enough.

So my question to the Minister is quite simple: if there are around 2.9 million people in KiwiSaver, how many of them are not making regular contributions at this point in time? Thank you, Mr Chair.

KIERAN McANULTY (Junior Whip—Labour): I move, That the question be now put.

A party vote was called for on the question, That the question be now put.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Motion agreed to.

The question was put that the amendments set out on Supplementary Order Paper 188 in the name of the Hon Stuart Nash to Part 4 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Amendments agreed to.

A party vote was called for on the question, That Part 4 as amended be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Part 4 as amended agreed to.

The question was put that the amendments set out on Supplementary Order Paper 188 in the name of the Hon Stuart Nash to Schedule 1 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Amendments agreed to.

A party vote was called for on the question, That Schedule 1 as amended be agreed  to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Schedule 1 as amended agreed to.

A party vote was called for on the question, That Schedule 1B be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Schedule 1B agreed to.

A party vote was called for on the question, That Schedule 2 be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Schedule 2 agreed to.

A party vote was called for on the question, That Schedule 3 be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Schedule 3 agreed to.

A party vote was called for on the question, That Schedule 4 be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Schedule 4 agreed to.

A party vote was called for on the question, That Schedule 5 be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Schedule 5 agreed to.

The question was put that the amendment set out on Supplementary Order Paper 188 in the name of the Hon Stuart Nash to Schedule 6 be agreed to.

A party vote was called for on the question, That the amendment be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Amendment agreed to.

A party vote was called for on the question, That Schedule 6 as amended be agreed  to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Schedule 6 as amended agreed to.

Clauses 1 and 2

ANDREW BAYLY (National—Hunua): Thank you very much, Mr Chair. While the title’s self-explanatory, albeit rather long, the Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill 2018—anyway, I’m not going to go on about the title; it is as it is. I think the much more significant issue is around the commencement date, and, obviously, clause 2 sets those out, and there’s a myriad of them, going over a couple of pages. But I think the context for the commencement date of this legislation is actually quite important, because while some of the matters covered in this bill, and it is an omnibus bill, cover aspects such as fixing up old pieces of legislation, etc., the key part of it is around what’s going to happen with the new tax arrangements with the IRD as the IRD is rolling out its new system.

As I’ve spoken about before, I think the key issue, in the context of this discussion around the commencement date, is that we’ve had one million taxpayers who have had a relationship with the IRD, and we have all their contact details and, principally, their emails, their addresses, and their phone numbers so that if the IRD wants to contact them, they’ve got the option of an email or they can actually send a letter or, in the last situation, that can actually call them, and that’s good—that’s fine and dandy.

The second thing is, though, we’ve got one million of these taxpayers who have up to now been principally serviced by 30 personal tax summary intermediaries (PTSIs), and they’ve always had the relationship with the intermediary not with the IRD system or the IRD department itself. And that information needs to be transferred across to the IRD, and no doubt that is taking place. Whether that will have occurred at all by this commencement date for this component, 1 April, is another question and something I’d like to hear from the Minister. But there are 30 of those PTSIs in place, and some are big and some are small.

But the most worrying component is the million taxpayers who’ve never had any dealings with the IRD—or actually, in fact, with anyone—because they’ve never really had to file a tax return, and that’s the issue that worries me about the commencement date in this piece of legislation, because the IRD, the department, has actually estimated that about 1.67 million people will get a refund. And that’s great. But if you can’t send the refund to the right people or the right address or whatever, that’s going to sit in abeyance, held by the IRD, and there’s an obligation to pay that to taxpayers.

But the more important side is on the debt, the issuing of the—well, the situation where about 263,000 taxpayers are going to get a bill for the first time, will get a bill for tax for the current year. But of those it’s estimated about 115,000 will be receiving a tax bill for the first time. And I think here is the issue about putting this in place. We’ve got a computer system that’s coming into play now. It was due to start the transfer from FIRST to the new system called START on 23 April. That’s already been delayed. There’s been some testing of that system, as I understand, but using a sort of a batch system, but the metal is going to hit the road from 1 April. And when you put that in the context of when these refunds should be paid back by the IRD to taxpayers—normally by about June; in just a few months’ time—the capability of the IRD to be able to do that is of concern.

And I think, just going forward in terms of that tax liability that’s going to be incumbent on taxpayers to meet, if they’re not aware of their obligations—and many don’t read papers, don’t read emails, and don’t have contact, and are simply out of the system—they will be building up penalties, and we know they become very significant: 1 percent after the first day and 4 percent rising thereafter. And those over time become very, very significant.

So I think the question around the capability to service this—we know that there’s a bigger call centre; over 300-odd people, but is it enough? And are there enough people in the IRD to be able to handle the incredible amount of additional information that’s going to come—not monthly from employers, but from now on out weekly, because most people pay salaries and wages weekly—a big concern.

IAN McKELVIE (National—Rangitīkei): Thank you, Mr Chair. I just want to take a brief call, not so much on the title, because it would be hardly likely to name the title of this with anything other than what it is, but I did want to take a call on what is a slightly unusual—well, in my experience, a little bit unusual, in that the commencement date is the commencement date, but interesting, there’s a retrospective piece in this bill, which deals with the prospective of purchase of bloodstock. It’s quite an unusual addendum to the legislation in that respect in that it allows, irrespective of the commencement date of the bill, that these are treated retrospectively back to, effectively, the date of purchase prior, provided it is after 1 January 2019. I thought it was worth mentioning in this brief call I’m going to take on this part of the bill because it is a bit unusual and, as I said—

Andrew Bayly: Call it a Winston Peters special.

IAN McKELVIE: Yes, you could do too. But as I said earlier in a contribution to an earlier part of the bill, it was a piece of legislation that was designed to achieve something which it clearly hasn’t achieved initially. It may well do in the future, but we’ll see. But I just thought I’d take a very brief call to just point out the fact that it is unusual and that that part of the legislation—in fact, clause 133B and from there on—would have become, I guess, effectively, treated as retrospective legislation, and anyone who purchased a yearling prior to the implementation of this bill could have worked to claim that tax exemption on it.

So Mr Chair, that was just the brief contribution I wish to make to that part of the bill. Thank you.

BRETT HUDSON (National): Thank you, Mr Chair. Unlike my esteemed colleague Mr McKelvie, I think this bill does merit a name change because the Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill 2018 may seem applicable to some, although as Mr McKelvie has just pointed out, with all the retrospective elements of the commencement date it doesn’t seem quite right—that 2018-19 doesn’t describe the effect of the bill. But, actually, I think there’s an opportunity here. We could rename this the “Taxation (Simplification of Taxation) Bill 2018”, because I am aware—I am aware—that there is a Standing Order that does prevent irony in question time in questions, but I’m not aware of a Standing Oder that prevents irony in the naming of bills, because if there’s one thing that this monstrosity—I mean, carefully crafted document—is not, it is not a simplification of our taxation system.

And, after all, if we want compliance both in personal income tax and business tax and all the vast and myriad ways that taxation touches on the lives of people, of businesses, of trusts, then surely simplification would be a goal that we should set ourselves to, and particularly we should set the Inland Revenue Department to? Certainly their Business Transformation programme was supposed to be all about that simplification. Perhaps we could send a message? I think the Rt Hon Winston Peters once used that term—“send a message”. We could rename this bill the “Taxation (Simplification of Taxation) Bill 2018”.

The other part that is very relevant, and Mr McKelvie did raise this, looking through this, there are just so many different commencement dates here. For a member of the public—and, let’s face it, they are the people who will actually be affected by this if it is enacted, and based on previous votes tonight it looks like that is a danger for them—when, and if, this is enacted, it is poor old New Zealanders who will have to deal with this, and the only ones who are going to win out of this particular commencement clause are accountants and lawyers.

My guess, as Mr McKelvie noted, and if it wasn’t for a case of certain retrospectivity—by the way, Mr Chair, having spent a short but very interesting four and a bit years in this Chamber, I can well recall when members of every other party would scream blue murder at the merest hint of retrospectivity in legislation that the Government brought before the House. Like sheep, mild; not a mutter, not a murmur, not a thing. I mean, this is an absolute myriad of strangeness to try and work through. I think, as Mr McKelvie pointed out, maybe some of it has got to do with making sure that good-looking horses that were good looking a little while ago are still going to give their owners some sort of tax credit.

I think there is still time. The bill is not through the committee stage; the Minister could support an amendment to change the name to the “Taxation (Simplification of Tax) Bill” and perhaps something—anything, quite frankly; it’s such a mess—to simplify these commencement clauses, because I’d argue that this is a difficult thing for New Zealanders to try to get their heads around, unless they are charging by the hour as tax consultants, accountants, or lawyers.

A party vote was called for on the question, That clause 1 be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Clause 1 agreed to.

The question was put that the amendments set out on Supplementary Order Paper 188 in the name of the Hon Stuart Nash to clause 2 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Amendments agreed to.

The question was put that the amendments set out on Supplementary Order Paper 189 in the name of the Hon Stuart Nash to clause 2 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 111

New Zealand National 55; New Zealand Labour 46; New Zealand First 9; Ross.

Noes 8

Green Party of Aotearoa New Zealand 8.

Amendments agreed to.

A party vote was called for on the question, That clause 2 as amended be agreed to.

Ayes 63

New Zealand Labour 46; New Zealand First 9; Green Party of Aotearoa New Zealand 8.

Noes 57

New Zealand National 55; ACT New Zealand 1; Ross.

Clause 2 as amended agreed to.

House resumed.

Bill reported with amendment.

Report adopted.

Bills

Crimes Amendment Bill

Third Reading

Debate resumed from 21 February.

ASSISTANT SPEAKER (Poto Williams): When we were last reading the Crimes Amendment Bill, Greg O’Connor had nine minutes and 16 seconds remaining to speak. It appears that the member will not take his call.

CHRIS BISHOP (National—Hutt South): Thank you very much, Madam Assistant Speaker.

Chlöe Swarbrick: Go, Bish!

CHRIS BISHOP: I hear the good member Chlöe Swarbrick saying, “Go, Bish!” I intend to go, and I intend to go quickly, because this is a sensible piece of legislation that the National Party has supported the whole way through. We’ve canvassed in the committee stages, both at the Justice Committee and also the committee the whole House, the changes around blasphemous libel, which, of course, is outdated and archaic. We support its repeal. Frankly, I think Parliament could have moved a bit quicker in the past to get rid of blasphemous libel from the statute book; although, having said that, the last prosecution, I think from memory, was in 1907—so one could say that after 112 years, it was not going to be used any more.

Hon Tim Macindoe: Was Mr McKelvie in the courtroom?

CHRIS BISHOP: Mr McKelvie was not in the courtroom. That’s a gross insult to Mr McKelvie, Mr Macindoe. You’re going to live to regret that remark. The manager of the parliamentary cricket team does a superb job.

So we support the blasphemous libel changes, and we also support the other changes around the year and a day rule. My colleague Nick Smith has, I believe, attempted unsuccessfully to move some changes around that at the committee of the whole House.

We support the sensible changes around spousal immunity from being an accessory to a crime after the fact. This is one of those, I was going to call it, “tidy-up” pieces of legislation; I think that’s a bit unfair. It is a piece of legislation that does a bit more than tidying up; it does make some relatively minor but chunky changes to the Crimes Act.

I think it’s good that our criminal law is passed with unanimity or at least some cross-party consensus. It’s the criminal code for New Zealand—or, at least, the partial code for the criminal law. The National Opposition supports the bill, and we commend it to the House.

DARROCH BALL (NZ First): Thank you, Madam Assistant Speaker. It’s a pleasure to rise on behalf of New Zealand First in support of the Crimes Amendment Bill in this third reading. The bill does three main things. It repeals three provisions, and those provisions are repealed because—and it has been canvassed widely over the past three readings and committee of the whole House—they are outdated, and one of the important things within a robust democracy is that the population and the country and the people of the country have trust in the justice system. One of those things, in order to have that, is that they understand and they trust that their justice system is modern, up to date, and applicable.

The three provisions that this bill will be repealing are no longer applicable within modern-day society. Those three things are removal of the provision of a spousal or civil union immunity from prosecution for accessory after the fact, blasphemous libel, and the year and a day after rule. I also want to add that there was an amendment Supplementary Order Paper added that creates two new offences to address livestock rustling, which was added in the committee of the whole House.

I’d just like to say, in this short speech, that, unfortunately, this was intended to be a non-controversial piece of legislation and moved through the House, but, unfortunately, there was an individual that decided to take a very serious matter, which was the one year and a day rule, and try and gain some political points and political manoeuvring out of it. It’s unfortunate that that occurred. I’d like to say, for people that have been following this bill through the House, that Minister Andrew Little actually not only handled that issue well but also gave a very impassioned speech directly to the families of the victims who died in the CTV Building. Exactly why that individual was taking a political stance and not a practical one nor a right one—because if one looked at what that individual was attempting to do, even in its basic form, it would not work. The emotive arguments that were used to try to push that one person’s agenda were, in my opinion—and I think it’s safe to say everyone on this side of the House’s opinion—an utter disgrace.

I would just like to finish on that note, but New Zealand First will be supporting this bill. It’s a common-sense bill. It really does a simple thing, which removes those provisions which are outdated. Thank you, Madam Assistant Speaker.

Hon Dr NICK SMITH (National—Nelson): The National Opposition supports this bill. It has four important Crimes Act amendments that address long-term issues that are important to improving our justice system. The first of those repeals blasphemy, and in this age when we put a high value on the issue of freedom of speech, we do need to be able to differentiate between what is inappropriate and might not be the social custom and that which is criminal. I strongly support the repeal of blasphemy as a criminal offence.

The second important change of this bill is repealing the exemption that applies for a partner or spouse in respect of accessory after the fact—that is, a crime has been committed; a partner or spouse tries to protect the offence that that person has committed. We are rightly removing that provision off our law books.

The third package of changes in this bill was, unusually, introduced as a Supplementary Order Paper (SOP), but with National support, and that is the serious issue on which I want to compliment my colleague Ian McKelvie and the work of the Primary Production Committee for dealing with the very serious issue of stock rustling, because in rural parts of New Zealand, taking that issue of the protection of livestock and its thievery is something that needs the sort of reform that’s provided in this bill.

I want to focus my contribution on this third reading around the repeal of the year and one day law. This is a very old law that goes back many hundreds of years, and its repeal is something that National strongly supports. What we do not support is the loophole of the one year, one day law in relation to killing—that loophole being able to be, under this bill, continued to be used for many decades to come.

Now, it is something of the ugly face of this Government that when members of the Opposition challenge the Government or question its approach, there is a ferocious dose of nastiness. There’s an attitude from members opposite that if we ask legitimate questions about the law, suddenly there is a whole range of personal attacks, of questioning people’s motive, and I invite the House this afternoon to actually focus on the justice and what is right in respect of the application of that one year and one day rule.

I don’t think there is a New Zealander or a member of Parliament who is satisfied that justice has been done in respect of the CTV Building and the 115 people that lost their lives when that building pancaked on 22 February 2011. Subsequent to that collapse, our National Government commissioned a royal commission of inquiry. That inquiry concluded that there were such basic design flaws in that CTV Building, that the engineering was wrong, and I don’t think there is a member of this House that believes it was just that the engineers responsible for the flaws in that design were not able to be prosecuted because of the presence of the one year and one day rule.

But here is the part that Parliament and the Government is getting it wrong on: what we are saying is that that loophole is going to continue to apply, and the part where we are doing a grave disservice to the 115 New Zealanders who lost their lives in the CTV Building—New Zealanders as well as overseas people—is that if exactly the same circumstance occurred into the future, then exactly the same injustice would be repeated. That is, if there is a major earthquake in 25 years’ time and one of those 4,000 buildings that have been constructed in Christchurch collapses, that it pancakes and kills a hundred people, this Parliament is saying that those engineers, again, will be able to walk free, and I do not believe that is a practical sense of justice. I do not believe that Parliament is taking a fair view on that. Members opposite have never answered that question.

Darroch Ball: Oh, nonsense—what nonsense.

Hon Dr NICK SMITH: Members opposite—well, I invite that member who’s interjecting: I’d love you to take a call. I’d love the member—

Darroch Ball: You got lectured on it—you got lectured on it.

ASSISTANT SPEAKER (Poto Williams): Order! [Interruption] Order! Carry on, Dr Smith.

Hon Dr NICK SMITH: —who’s interjecting to take a call and explain this to me: in 30 years’ time, a building pancakes because of flawed engineering fault. Why does that member think it’s just that those engineers, just as for the CTV Building—

Darroch Ball: Your SOP would not work.

Hon Dr NICK SMITH: —will be able to walk free? Now, the member says that my SOP would not address that. Absolutely it would—

Darroch Ball: It wouldn’t. It would not.

Hon Dr NICK SMITH: —it would—and the member has made no attempt to correct that injustice. What I say to members opposite is just what the CTV—this is not me saying it; this is the CTV families saying it, that this Minister and this Government has badly let down the CTV families—badly let down the CTV families. Now, listen to the interjections opposite. Somehow, raising questions of whether we’re going to allow a repeat of the legal scenario that occurred over the CTV Building—and we have members opposite shouting personal abuse but not prepared to answer the fundamental question as to whether they think that is just. It’s ironic that we’ve just passed a bill where members are applying, retrospectively, particular provisions. National has never proposed that this bill, as members opposite have suggested, would enable the prosecution of Dr Reay or others involved in the CTV Building.

But what we do say is this: for any death that occurs after the passage of this bill, those responsible should not be able to use this loophole to avoid prosecution. There is a fundamental issue here of public safety, and this is the question I would put to the House: wouldn’t it be better for us to send a very clear signal to the engineering profession that if you have been part of designing a building that’s got a flaw or a fault, you will not have the benefit of this loophole; you will be held responsible, and the incentive that goes with that, for us to ensure that there is never ever a repeat of the sort of tragedy that we saw with that CTV Building. The crunch really comes down to this: the crunch comes down to members opposite believing that in 30 years’ time, an engineer should be able to hide behind the one year, one day rule to avoid accountability, that somehow that is just, rather than the needs of families and victims, when we have any sort of repeat of that tragedy. What has happened to members opposite is that they have become slaves to the law and not to justice. They are not thinking about what the consequences of the detail of this provision is, and that is what has caused such deep anger, such disappointment, from those CTV families.

So, again, I say I am very proud that National is saying this is a loophole, it should be blocked, and it should be blocked now, and it will not be on our conscience that at some time in future years, if—and I hope, more than anybody, nobody ever has to witness a tragedy again like CTV, but at least members on this side of the House will know that we backed a law that would ensure accountability, that would ensure justice, whereas members of the Government were more interested in legal purity than actually blocking this loophole and ensuring that justice in future would be properly served.

GOLRIZ GHAHRAMAN (Green): Thank you, Madam Assistant Speaker. I rise in support of this bill, and I would say I probably will take a very short call, because it does take care of some overdue changes to our criminal code in just bringing it up to the 21st century.

The first change that I would address is the removal of blasphemous libel, and I’d like to acknowledge my friend and Labour Party MP Angie Warren-Clark for first introducing her member’s bill to do this, and the Government has made us all proud by picking it up in this Government bill. Of course, in any modern secular democracy, it would be bizarre and a little bit perverse to have the crime of blasphemous libel. It breaches our New Zealand Bill of Rights Act, it creates discrimination, and it sends the wrong message about the kinds of values that we’re upholding in our justice system. In fact, happily, it hasn’t been prosecuted since 1922, so this bill, this change, really just reflects modern practice in New Zealand and our proud culture of secularism in our democracy. I’m particularly happy to see this removed given I’ve lived under a theocracy in Iran and seen the very damaging effects of this kind of religious law leaking into especially the criminal justice system, where sanctions are so serious for individuals being prosecuted—shouldn’t really hang over anyone’s head.

The second change is about spousal immunity in terms of giving evidence, and that’s another one that’s really amusing, almost, in its outdatedness, and something that I remember used to come up in films where people would quickly get married—or join in civil union, as it might be now—where then you would be free from prosecution or free from being made to give evidence against your partner, and that, of course, impedes the work of police in taking away their ability to sanction someone for being an accessory after the fact, for example, to a crime. So it’s time to probably clean that up.

Lastly, the big other change is removing the year and a day rule, which prevents prosecution for death caused more than a year and a day after the charge would be brought—again, an incredibly outdated time frame, though, of course, we do need some acknowledgment in our law, and we do have it, that very lengthy delays in prosecution cause unfairness. That’s where this law comes from; it’s the idea that no one should have prosecution hanging over their heads for many years. Of course, we have undue delay as a defence now, where, for example, witnesses could’ve died or evidence destroyed when a very lengthy amount of time passes, but with the kind of evidence that’s available now to our courts with DNA evidence, other scientific types of evidence—and we’ve seen in very recent cases: the horrific case of Malcolm Rewa that just went through the courts now, and the exoneration of Teina Pora, who’d been wrongfully imprisoned for that murder for over two decades. We only have that now with evidence that’s been able to be preserved and analysed so many years later. So this law really is not only outdated but, again, would impede the proper administration of justice in New Zealand, and so we are removing it, again to reflect modern-day reality.

Of course, we also have had some impassioned talk of the effect this could’ve had or did have on the CTV tragedy prosecutions. It did stop them at the time, and it is a shame that this law wasn’t changed over the nine years of the National Government, as we might have seen other prosecutions go ahead. Of course, the suggestion that we pass law now to apply retrospectively would breach a fundamental constitutional norm which says that no one can be liable for a crime—especially a crime, but any type of legal liability—that didn’t exist at the time that they did the act for which we are holding them accountable. So that really is some perverse politicking from the Hon Nick Smith just now. We won’t do that because we do respect the rule of law, fundamental human rights, and our justice system. They didn’t change the law when they had the chance, and they want us now to change it in this very perverse way. What we’re doing is securing the rights of New Zealanders in securing prosecutions in future, in the way that lawmaking should work. So I commend this bill to the House.

Hon MARK MITCHELL (National—Rodney): Thank you, Madam Assistant Speaker. I’m very pleased to stand and take a call on this third reading of the Crimes Amendment Bill. We are supporting this bill. This was a bill that was started whilst we were in Government. It was good to see that it was picked up by the incoming Government. Can I acknowledge the chairman of the Justice Committee, Raymond Huo, and the committee themselves that worked on this bill.

There are just a couple of issues in the bill that I wanted to address. The first one was actually an amendment that was put in during the committee of the whole House by Ian McKelvie. Of course, those that know Ian McKelvie would know that he’s from a very strong rural, primary industries farming area of the country. He’s a farmer himself, and he’s very much in touch with and understands the challenges that our farmers and those in the primary industries face, and he wanted to deal with livestock rustling. It’s not something that we always see in the media or in the news much, but it’s something that does happen, and it actually has a massive negative impact on the farmers that fall victim to unscrupulous and dishonest cattle rustlers or stock rustlers. The fact of the matter is farmers are not flush with money. Cash is king for them. They run very, very tight budgets, and, often, they’re reinvesting and putting money back into the farm—whether it be fertiliser or fencing or upgrades on materials and equipment or whether it be replacing stock. So although we may think that the loss of even two or three cattle or a dozen sheep may not impact them, it actually does.

I had my own very direct experience of this when I was policing up on the East Coast of New Zealand, out of Gisborne. I remember clearly one night stopping a vehicle that there seemed to be very unusual movement inside the vehicle. It was a station wagon.

Hon Member: Well, you’d have seen a lot of that done!

Hon MARK MITCHELL: That’s right! No, no. It was a station wagon. There was a fair bit of movement inside it, and so I pulled it over and there were a couple of gang members inside it. But in the back seat—they’d laid the back seat down—there were half a dozen sheep. What they’d been doing—it was really the first indicator that we had that the Gisborne branch of the Mongrel Mob had decided that they would start to steal stock out of farmers’ roadside paddocks.

And, although it was only a dozen sheep, in actual fact there was an investigation initiated by the crime control unit, and they went back and they found out that there were large numbers of cattle and stock being taken, and, actually, it had almost sent one farmer to the bank—the amount of stock losses. It hadn’t been big stock losses; it had been over a long period of time. So it had been two or three cattle, half a dozen sheep—and, actually, it does have a real genuine impact on their business and on their livelihoods and on their families. So this is actually a very good Supplementary Order Paper (SOP) that was brought by Ian McKelvie.

I think the other thing that we have to think about at the moment, which has been a massive threat to our dairy industry, has been M. bovis. I want to acknowledge, again, the Government have picked up a programme that our Minister for Primary Industries, the Hon Nathan Guy, had already put a lot of work into along with the Ministry for Primary Industries and are rolling out a very, very big, expensive programme in terms of trying to eradicate M. bovis. Well, you can imagine the controls that are put in place to try and deal with that. And, if you’ve got people that are rustling or stealing stock and moving those stock around, especially livestock, then, of course, you risk breaching all the protocols that are being put in place to actually try and contain something that would have a massive, negative economic impact on New Zealand if there was a breach due to some livestock rustling.

The other issue that I just wanted to very quickly touch on in the bill, because the Hon Nick Smith has done a very, very good job and delivered an impatient plea speech tonight, is around his SOP on the year and one day rule. I completely support him. As he said, God forbid that we ever have to deal with another issue like the CTV building, but the reality of it is New Zealand is on a fault line—it’s on several fault lines—and it’s possible that we may have another earthquake or another incident like that in the next 10, 15, 20, or 30 years. Actually, I would say that the people involved or the families involved, if there is a loss of life or serious injury, want to feel that there is the ability to be able to go back and actually deliver some justice. So I support his speech and the work that he’s done on that.

The other issue that I really wanted to talk to was, quite simply, the removal of the spousal immunity for accessory to a crime after the fact. I’m just going to talk to this in somewhat of a broader context. I’d be surprised if all members in the House tonight didn’t agree with me when I say that one of the big challenges that we’ve had is offending against our children, against babies. We’ve seen many cases in this country where there’s been terrible offending. I remember a case clearly in Rotorua where a young child, 18 months old, was subjected for weeks to ongoing physical abuse—burnt with a cigarette, put into a clothes dryer, and having the clothes dryer turned on. And, finally, of course—it was inevitable—the child died from internal injuries that had been sustained over a long period of time. The issue with that is that the family and friends and whānau all decided to circle the wagons and not cooperate with a police investigation. And, actually, in a police investigation in New Zealand, we have a standard—it’s called beyond reasonable doubt—when they take a case to the criminal court. For the police to be able to put a case together that strong, that puts it beyond reasonable doubt so that you can deliver justice for a baby like that, means that they have to have—or, if it’s available, they can have—good strong witness testimony.

So we think that this is a very good move in repealing this part of the bill because we consider that there’s no justification that exists for protecting anyone who interferes with the execution of justice as an accessory after the fact. It wasn’t clear in terms of who was actually protected under this Act anyway—whether it was a de facto spouse. So we think that the repealing of this section under the Crimes Amendment Bill is actually a very, very good piece of the bill, and I’m very happy to commend the bill to the House. Thank you.

ASSISTANT SPEAKER (Poto Williams): I understand this is a split call. Dr Duncan Webb.

Dr DUNCAN WEBB (Labour—Christchurch Central): Thank you, Madam Assistant Speaker. There are two things I would like to touch on in my contribution on this bill. The first is the repeal of blasphemous libel that Angie Warren-Clark’s bill first dealt with, and it was taken up by the Minister in this amendment bill.

Obviously, the House thinks that this is an appropriate repeal. I just want to recognise and acknowledge that there were a small number of submitters who opposed it, and they did oppose it on grounds of their own personal faith. I just want to make an observation that we should, quite appropriately, defend people’s right to have religious views, and it’s something which this House sees on a number of occasions. But those views, whatever their religion may be, should not influence the content of the law itself. That’s a separate thing altogether. So whilst I utterly respect the right of those submitters to their religious views, there is no place in our law for the enforcement of religion through the arms of the State.

The other thing I want to do is touch on the year and a day rule. Obviously, the House is unanimous in agreeing that it should be repealed. But I want to address squarely the objection of Dr Smith—his view that it should be retrospective in application. I want to say right away that it was not accurate. He must have misheard, because there was no personal abuse hurled across the House, but there was considerable disappointment in his view. He asked: should it be the case that for a person who builds a building today or yesterday and it falls down in 30 years’ time, the engineer should be able to avail themselves of the year and a day defence. And I say quite clearly yes, because what we are not in the business of doing is making something a crime tomorrow in respect of which the act occurred yesterday. If you did the act yesterday, you are subject to the law that was in place at the time you committed the act. The crime and the defences at the time the act was committed are applicable. To do otherwise would be to take rights—vested rights—away from people retrospectively, and there is no place in the law for that. Madam Assistant Speaker, that is my contribution.

IAN McKELVIE (National—Rangitīkei): Thank you, Madam Assistant Speaker. It gives me pleasure to take a short call on the Crimes Amendment Bill and to support the bill and support the work of both the current Minister of Justice and those Ministers of the previous Government who put some work into this bill as well.

Interestingly, this bill was designed to repeal a whole lot of stuff, and it’s ended up adding a whole lot of more important stuff, which I’ll get on to in a minute. But it does repeal blasphemous libel, and, if you go on to what now is section 220A and 231A, I’ll bet there was a fair bit of blasphemous libel that took place around stock rustling in the early days—and it probably still does. None the less, it’s no longer prosecutable—well, it won’t be when this is finished. The other two are, of course, spousal immunity and the repeal of section 162, and much has been said about that tonight, and I don’t need to add to that discussion, because I think the merits of that discussion or otherwise have been well documented in the House and certainly were well covered by Mark Mitchell.

I want to now just briefly talk about, though, what was Supplementary Order Paper (SOP) 185 introduced in Minister Little’s name, which has now become new section 220A and 231A. I just wanted to compliment the Minister—or thank the Minister, I suppose—for picking that piece of work up, and also Kieran McAnulty, and the Primary Production Committee, actually, who got this piece of what was a member’s bill introduced into this bill as an SOP, and now it becomes those sections.

Interestingly, it introduces two new crimes, as I said: 220A, for theft of livestock, and 231A, which is entry on to agricultural land with intent to commit an imprisonable offence or a crime. The interesting thing about that is that that has never been a crime that you could very easily get a prosecution for before—in fact, you couldn’t, really, unless you trespassed or had a massively complicated system that would’ve been to trespass people as well—but it now enables both of those crimes to be prosecuted, and prosecuted at a level that is much more serious and severe than it was previously when it was included in the Sentencing Act. So it’s been introduced to the Crimes Act, and that’s made a big difference to it, and I think it will give the police many more tools in their pursuit of these people.

But it also gives us more protection, or our communities more protection, in the instance of livestock rustling or theft of livestock or even illegal activities on agricultural land with respect to the Biosecurity Act. That’s hugely important for New Zealand and I guess became much more pronounced with the outbreak of M. Bovis and the potential outbreak of any other infectious diseases that might attack livestock in New Zealand, because the theft of that livestock when it’s infected, and taking it down the road and putting it on someone else’s land, is certainly a big risk to New Zealand’s biosecurity system. So I think the addition of this piece of the bill is quite an exciting opportunity for rural New Zealand, for provincial New Zealand, and for our farmers of New Zealand, whether they farm bees, trees, or whatever.

It also, interestingly, brings to bear a new, I guess, thought around the treatment of animals and what animals might think about being stolen. I know that’s a slightly odd thing for someone like me to say, but if you think about it, and someone steals your pet dog or your cat, I guarantee they get much more upset than we believe they do. That becomes a crime, in a way. So it adds to the crime, I suppose.

So it is quite interesting, and I think a lot of discussion has taken place on this particular piece of this bill in the last 18 months in this House, and probably for a lot longer than that in our farming community—well, our agricultural community—and even in this Parliament. To get a result through the Minister inserting it into this bill is, I think, a great result for rural New Zealand, and it’s very exciting. I have a great deal of pleasure in commending this bill, and I look forward to its implementation. Thank you.

Hon PEENI HENARE (Minister for the Community and Voluntary Sector): Tēnā koe, Madam Assistant Speaker. Thank you for this opportunity. I too wish to rise and take a short call in support of this bill. I do want to acknowledge the member Ian McKelvie, who has been, I guess, honoured by many speakers in the House for his tenacious will to bring to the fore the agenda of cattle rustling. I recall that in my first term of Parliament, when I saw that bill, I sort of laughed, but as the issues have been highlighted and the Primary Production Committee has considered that particular piece of work, this Government has picked it up and, I think, made it into a strong piece of legislation. I want to commend Ian McKelvie for continuing that fight, and, of course, the Minister of Justice and the Primary Production Committee for picking up that piece of work.

The House has really touched on a lot of the key facets of this particular bill. As we know, in social democracies and modern civilisations, the norms change regularly, and what seemed OK 20 years ago now, with today’s generation, is simply laughable or a distant memory. So this particular bill will, obviously, bring archaic laws in line with our social norms and in line with the contemporary values of this country. I think it’s timely. The law around blasphemy—I’m sure my grandmother will be turning in her grave, but her great-grandkids certainly don’t see a need for it, and I think this is a move in the right direction.

The member the Hon Mark Mitchell also mentioned in his contribution the importance of making sure the repeal of spousal immunity. He highlighted a really good case there that I think really shows the importance of this particular piece of work, to make sure that in circumstances like the one he described, we don’t protect those who perpetrate crimes, and to make sure that, in fact, those who in the eyes of the court have a case to defend—I think they should be able to be brought in front of the court to defend that case. He highlighted a particular case of importance to the entire country, which I’m sure has left a scar on the memory of our country, and I want to commend him for using that example, and, of course, the Minister for making sure that that particular part of the Act no longer applies—is repealed.

Just in conclusion, I thank the Justice Committee for the work that they have done on this particular bill, the Minister, and the previous Minister for continuing the work that’s done in this space. As we look towards many of the more contemporary issues that confront us—and the biosecurity issue was mentioned—I think this is a move in the right direction that best reflects where our country is headed to and where we like to see ourselves. In actual fact, when we look across much of the law and legislation in this country, it isn’t in line with that. So without further ado, I commend this bill to the House.

CHRIS PENK (National—Helensville): Thank you, Madam Assistant Speaker, for the opportunity to contribute to the Crimes Amendment Bill. I acknowledge, but not by name, the various who have been involved in its passage from start to finish. I’ll highlight a couple of those individuals on the way through, but to briefly wrap up from this side of the House in this, the third and final reading, please allow me to touch on each of the four significant points within the bill that is shortly to be passed.

The first is blasphemous libel. On this side of the House, we support its repeal. I would like to propose, on my own account, a short three-stage test of considering such matters. The first stage is that there should be a presumption in favour of free speech. I note merely as a footnote that in our society today, we are becoming more precious in many regards regarding free speech, but I think the appropriate starting point is that we should be free in our speech and that we must be able to offend and to risk causing offence, as a starting point.

The second stage of the test that I propose would be that there could be a rebuttal. There could be a reason to rebut that initial presumption in favour of free speech, and so, for example, we have defamation to protect individual reputations, we don’t allow incitement to violence—the sticks and stones that may break bones, according to the old proverb—and so forth. Then a third stage might be that if we decide that speech is able to be limited in that way, then we would deal with that in some way that’s appropriate. Civil versus criminal sanctions might be available. In this case, we are saying collectively that it is not appropriate to have the crime of blasphemous libel on the book, and, therefore, it will be removed from our criminal statutes.

A brief note on retrospectivity, because it’s a theme to which I would like to return, if time allows, in another context: one of the problems with a crime such as blasphemous libel is that if you don’t have an exhaustive list of all the things that might be deemed to be blasphemous, then it’s impossible to be certain, at any point at which you utter such words, that you are committing a crime. So to find out retrospectively that you’ve committed a crime is an offence against the rule of law, in the way that Dr Duncan Webb and others have described in another context.

The second of the four main points is in relation to spousal immunity. Of course, this is to protect, historically, a person who’s giving refuge, essentially, from prosecution or even to evade capture to a person who has assisted in the commission of crime or, perhaps more likely, committed the crime themselves. I would sound a note of caution, however, which is to say this is analogous to some other situations in which we do protect particular relationships where a person has committed what would be a crime, if it were found to be such—for example, confessionals, maybe with a spiritual person or a guidance counsellor, or even legal privilege. It’s too easy simply to say that we don’t allow people to be assisted after having committed a possible crime and to be advised, because, of course, we do. And if we’re going to make such blunt statements as we’ve heard on that subject across the House today, then a principled approach on that, in my view, would compound the error, but at least should be considered from a principled basis.

Third: livestock rustling. As has been noted on both sides of the House—with a certain amount of graciousness, for which I am grateful—this has arisen from a Supplementary Order Paper in the name of “Lord Ian McKelvie” of Rangitīkei, and I join with others in expressing somewhat disbelief that it’s not already on the—

Brett Hudson: Chief of Rangitīkei.

CHRIS PENK: I’ve been having further possible suggestions for the elevation to the peerage, and beyond, of Ian McKelvie—

Hon Jacqui Dean: Why not.

CHRIS PENK: Why not, indeed, as Jacqui Dean says. It’s an idea whose time has come. It’s an idea whose time, in fact, had come many years ago. So it’s righting a wrong, I suppose, in legal or legislative terms, that we are catching up now and making that very clear indeed.

Finally, I wish to touch on the so-called year and a day rule. Much has been said about this in the context, first, of what is in the bill itself, but also in relation to a Supplementary Order Paper, proposed amendment, by my colleague the Hon Dr Nick Smith. I’ll just start off by noting that the nature of the rule, so-called, in the Crimes Act is actually in the nature of a limitation or might actually be viewed as a brightline test. In this House, we’ve been talking earlier today about a brightline test in connection with tax so that we say—while it’s difficult to gauge intention, it might be that we can say within the period of two or five years, as the case may be, that we deem that someone has bought property with the intention of on-selling. Well, there’s a brightline that can be drawn at the hundred-year mark—traditionally, a nice round century—that would say, well, if you’ve committed an act or, perhaps, an inaction such that a person loses their life, for example, outside that period of time, we’ll be drawing a bright line there and saying that you’re outside that now. So because it’s difficult to prove causation so long after the event, we are saying that that person should be found not guilty of what would, otherwise, be the crime. So that’s the intention.

As for the question of retrospectivity, I believe there’s a bit of a misunderstanding or at least the opportunity for education—and I say that with some humility—but across the House a number of speakers have indicated that they have a particular view of retrospectivity in the criminal law that I believe deserves challenge. In the committee stage of the debate, Minister Andrew Little made a statement not unlike that of Dr Duncan Webb’s tonight, which was along the lines that a person should not be found guilty of a crime, let us say, tomorrow in respect of an action that he or she committed today if it were not a crime at the time that it was committed. So far, so good. I believe we can all agree on that. So much is well established in our rule of law, and that’s to protect the idea that a person shouldn’t be found retrospectively guilty, for the reason that they must be able to rely on the law as being certain at that time. The criminal law is a code and people should not be found guilty retrospectively.

However, what that ignores is the clear wording of the relevant sections within the Crimes Act and also within the New Zealand Bill of Rights Act that talk about a thing being done or not done, the element of the crime, as it would be, being committed at a time that the act would not be regarded as a criminal action. So, in other words, the explicit words actually protect against the action and the actus reus, as we would say within the criminal language, as opposed to the availability of a defence. And if the defence is, essentially, a spurious one, and I say “spurious” because it’s been acknowledged across the House as being nothing more or less than that, then it seems to me a nonsense that we should have such a narrow and, dare I say it, legalistic view of what retrospectivity actually means.

So my challenge across the House before my time is up is that if that’s the genuine belief of those who have offered that opinion tonight, then I would encourage them to consider amending the words of the New Zealand Bill of Rights Act and, indeed, the relevant section of the Crimes Act to ensure that that actually says that every defence that is available, including the so-called year and a day rule, should be available and not merely the fact that something which is done which is already unlawful should not see a person being able to escape prosecution merely because they have the good fortune that someone dies a considerable period of time after. Put around another way, it seems absurd to me that if you do a thing that is so negligent or so unlawful that it causes death that much more quickly, effectively you should be rewarded. It seems to me illogical absurdity that the treatment of a person’s actions rely on the luck or bad luck, the misfortune or fortune, of the victim and the particular circumstances of something so capricious as an earthquake.

On that note, perhaps unfortunately, because overall our support for the Crimes Act amendment is complete—we support all those four different amendments, so I close my contribution on this side of the House by saying that we support it and we congratulate those involved in its passage throughout.

KIERAN McANULTY (Labour): Today’s a great day because we get to pass a law that should have been passed a long time ago, but we also get to demonstrate to the New Zealand public that at times this House can work together. Now, I am a very proud product of a farming family—on both sides, actually—and I’m very proud to come from the rural area of Wairarapa. I am no stranger to the issue of livestock rustling, so I do remember when I spoke in favour of this when the issue was first raised in front of the House, when Ian McKelvie brought forward his member’s bill to us all last year. We did vote in favour of it, because it is very clear that this is an issue that is facing rural communities.

Federated Farmers estimate that livestock rustling costs our rural communities $120 million a year, and it is also estimated that one in four farmers have suffered from livestock rustling at some stage in their life. Now, we all know farmers, probably many, and it is quite phenomenal to think that 25 percent of our farmers have suffered from livestock rustling. So good on Ian McKelvie, whom I’ve got to know quite well over the last few months, whom I consider to be a gentleman, not only because we play on the same parliamentary cricket team, and I’m standing there on the cricket pitch and I’m fielding the area in front of me and the area behind me—he’s such a gentleman that he lets me field the area behind him as well. The thing is that we work together on the cricket pitch and we work together in Parliament, and this bill contains the inclusion of two crimes: the theft of livestock or other animal, carrying a maximum penalty of seven years’ imprisonment, and, of course, the unlawful entry to land used for agricultural purposes where the offender intends to steal livestock or act unlawfully against specified things, such as buildings or machinery, on that land. That offence carries 10 years’ imprisonment.

This is actually an improvement of what was originally proposed. Unfortunately for Mr McKelvie, when he brought his member’s bill to the Primary Production Committee, the advice that we got at the committee was that this was not workable. I don’t blame Mr McKelvie for that; it was just the way that it was. The rules of Parliament said that we couldn’t make the changes to it that we wanted to. Submitter after submitter after submitter said that we just simply needed to include a crime of livestock theft into the Crimes Act and we would achieve what Mr McKelvie wanted to achieve, but unfortunately, because of the rules of the way that they were, we couldn’t continue—we couldn’t progress. The options that were in front of us were that we bring it to the House—because that was the advice—and it gets voted down, or that the bill be withdrawn and then it goes back to the luck of the draw into the ballot.

I had a bit of a thought, and I was only new and I wasn’t all that confident, but I thought why don’t we try and include this in a Supplementary Order Paper (SOP) into the Crimes Amendment Bill? I did it on the quiet, because I didn’t want to make a fool of myself at the select committee. I got really excited. I drew it up, and I went to the people that give us advice, and I said, “Can we do it?” And they said no, because the Crimes Amendment Bill is about withdrawing things; it’s not about including things. If there was a provision within it that included the inclusion of a new law, a new crime, then we could’ve, but it didn’t, so we couldn’t. However, if we got the approval from every party in the House, then we could do it.

I put this to Ian McKelvie. He thought it was a great idea, and both of us went to the Minister of Justice and put it to him. It was ultimately his call—it’s his bill. He didn’t have to approve it, but he did. So not only do I want to acknowledge Ian McKelvie; I want to acknowledge the justice Minister, Andrew Little, for seeing that this was an issue and seeing that, in a roundabout way, we could include this as a law into this bill, which in a few minutes time, hopefully, will likely pass.

And so what it says to rural communities and anybody out there that’s watching and listening at home is that with issues that are important to rural communities, the parties are working together. I know members opposite, like Barbara Kuriger, Ian McKelvie, Hamish Walker, Lawrence Yule, and all those over there that live and represent rural areas, will celebrate this fact as well, because back home, people see this House arguing and bickering and carrying on, and too little do we celebrate the times that we come together and actually work together to achieve something that’s important to this country. This is an example of that. I’m pleased to be a part of it. It was an honour to work alongside Ian McKelvie, and I’m very pleased that Andrew Little, the justice Minister, allowed us to do it. I very strongly commend this bill to the House.

Bill read a third time.

Bills

Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill

First Reading

Hon KRIS FAAFOI (Minister of Commerce and Consumer Affairs): I move, That the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. At the appropriate time I intend to move that the bill be reported back to the House by 22 July 2019. This will allow the bill to be passed in time to meet deadlines for the relevant international reforms that are driving the amendments in this bill.

This bill amends various pieces of financial markets legislation to bring New Zealand into line with international best practice. Importantly, the bill will also allow New Zealand entities to continue to access important international financial markets. In recent years, various reforms have been introduced internationally to address significant risks in global financial markets. These reforms are intended to reduce risk and improve the integrity of how certain financial contracts are traded and the processes by which they are set. They will help make aspects of the global financial system more resilient and more resistant to manipulation.

The amendments in the bill will bring New Zealand into line with these international reforms and improve the integrity of our financial systems. The amendments in the bill are also critical to ensure New Zealand entities can continue to access important international financial markets. Without these amendments, New Zealand entities would not be able to comply with the relevant requirements imposed by the new reforms, and this would mean that they may not be able to enter into critical financial contracts with international counterparts—for example, the big four banks in New Zealand, directly through their clients, are estimated to have a gross exposure of $1.1 trillion to parties of the European Union through particular types of financial contracts affected by one of the recent international reforms. If New Zealand’s regulatory regime is not brought into line with the new reforms and the banks were shut out of the key international financial markets, the disruption to businesses and the increase in funding costs would have a marked effect. This would not just affect the banks but also see interest rates increase for New Zealand consumers and businesses.

Over the past year, the Ministry of Business, Innovation and Employment (MBIE), the Reserve Bank, and the Financial Markets Authority have undertaken a comprehensive review of what is required to bring New Zealand into line with international reforms. The result is a robust piece of legislation—while technical, it also sets out to improve the integrity of our financial system and resolve what could potentially constitute a significant risk to the New Zealand economy.

The bill has two parts, each of which responds to different international developments. Part 1 of the bill responds to G20 requirements related to over-the-counter derivatives. These requirements were announced in 2011 following the global financial crisis, which identified risks in the market for over-the-counter derivatives, and the requirements are currently being phased in across G20 nations. The global market for over-the-counter derivatives is worth trillions of dollars, and the G20 identified that there were systemic risks in this market. Requirements were therefore introduced for parties to exchange collateral—also known as a margin—to prevent these risks being spread across financial institutions. The G20 rules required this margin to be available immediately in the event that a party defaults under a contract. Certain features of New Zealand’s insolvency law, however, prevented affected entities from complying with these requirements.

This bill will allow New Zealand entities to meet those requirements by making technical amendments to the Reserve Bank of New Zealand Act, the Corporations (Investigation and Management) Act, the Companies Act, and the Personal Property Securities Act. The effect of these amendments is to allow certain qualifying parties to exercise rights over the margin that they hold immediately and to have priority over other parties with an actual or potential claim on that margin. The amendments are tightly confined to limit any potential impact on current insolvency law and non-derivative creditors. Analysis by MBIE and the Reserve Bank has shown that it is very unlikely that these changes will ever disadvantage a party which would otherwise have a priority. They have engaged with New Zealand’s banks and with other interested parties, such as insolvency practitioners’ industry bodies, to ensure that the proposed changes are proportionate and fit for purpose.

Part 2 of the bill responds to a separate international development. The European Union recently introduced a new regulatory regime for financial benchmarks. These benchmarks are referenced in many financial contracts and they underpin important factors such as mortgage interest rates. The intent of the EU benchmarking regime is to avoid potential manipulation of benchmarks and other events which could destabilise national and international markets.

To trade with EU parties, New Zealand needs a financial benchmark regime which the EU formally recognises as equivalent, and one of the ways of achieving this is to require parties that administer financial benchmarks to be licensed and subject to supervision by a regulator. To meet those new EU requirements, Part 2 of this bill amends the Financial Markets Conduct Act to create a licensing regime for New Zealand benchmark administrators. This new regime allows the administrator of a financial benchmark to opt in to obtain their market services licence under the Financial Markets Conduct Act and to meet certain governance requirements. Supervision and enforcement of licence obligations will be carried out by the Financial Markets Authority and detailed licensing requirements will be set in regulations. These requirements will largely reflect what is required by the EU regulations in order for New Zealand’s regulatory regime to achieve formal equivalent status. MBIE has been consulting officials in the EU to ensure that the regime is designed in a way that will meet the requisite standards.

The new licensing regime for administrators of financial benchmarks will do three things. Firstly, it will provide additional assurance around the accuracy, integrity, reliability, and continuity of New Zealand’s benchmarks; secondly, it will ensure continued acceptance of New Zealand’s benchmarks within the EU markets; and, thirdly, it will avoid significant costs to the New Zealand economy that could arise if our benchmarks were not able to be used in the EU.

The licensing regime also provides new powers for the Financial Markets Authority to direct contributors to and administrators of benchmarks to continue to maintain a benchmark for a specific period of time. The purpose of these powers is to ensure the continued reliability and availability of financial benchmarks for a period of time in the case of a potential disruption to that benchmark. Such disruptions may occur when the licensed administrator intends to stop administering a benchmark that is important for trade with EU parties. This will promote market stability while a smooth transition of a benchmark to another administrator or an orderly cessation or generation of a benchmark is being arranged.

These changes are technical. However, this is a critical piece of legislation that will allow major New Zealand financial institutions to continue to transact with important overseas parties in order to manage financial risks, raise capital, and continue to effectively engage in international financial markets. This will bring us into line with international standards and will proactively avoid potentially substantial economic damage. I commend this bill to the House.

BRETT HUDSON (National): Thank you, Madam Assistant Speaker. I rise in support of the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill in this, its first reading, and I congratulate Minister Kris Faafoi for his stamina and endurance. He’s been in the House for quite some time this evening, waiting to deliver that eight-minute speech to the House.

We do support this bill. It relates to linkages between our financial markets and international financial markets, which are a critical source of funding for the lending that New Zealand banks do. We support reforming legislation to achieve the outcomes for this bill because, fundamentally, it’s the only way for us to keep some of these markets open to our banks. It’s important that we don’t have laws that are impeding the access to those international markets, particularly in this specific case of over-the-counter derivatives. They are, therefore, needed to ensure the ongoing soundness and efficiency of our banking systems. Our banks need access to capital, principally, because they need to be able to lend to New Zealanders—New Zealand consumers and businesses. Along with continuing to permit access into EU markets for derivatives, we also support the licensing regime, as well.

It is a simple fact that, in New Zealand, a great deal of our lending is sourced from overseas borrowing. It is a fact that New Zealanders either—well, it leads to the same outcome. Either, they don’t deliberately save sufficiently or they spend so much of their incomes that our banks cannot source the capital they need to permit borrowing from domestic markets alone, so banks will seek to borrow money from offshore. Now, that has a flow-on effect that moneys are often borrowed in multiple currencies, and our banks use derivatives to protect, or to hedge, against exchange rate risk from them borrowing in those foreign currencies.

So it’s a very important—well, the banks would consider it critical for them and, ultimately, it’s most important to New Zealand consumers and businesses, because it’s those dollars, those loans, that they need access to, whether it’s to build the home or buy the home they want to raise their family in, or, indeed, if they are looking to expand their business. Expansion will lead to more people being employed and to more incomes, and therefore, it is of benefit to all those involved. So it’s important to look at this. While talking about the legislation, the language is, principally, about financial markets and banks, but we shouldn’t lose sight of the ultimate beneficiaries of these changes—should they be enacted—and those are New Zealand consumers and New Zealand businesses.

These are being, in effect—shall we say—gently persuaded upon us. These have been forced upon us through changes in international markets. In the case of this first part—the derivatives piece—they are the changes to the G20 rules. So they now require that parties to what they call over-the-counter, uncleared bilateral derivatives provide security—also known as margin—under that contract to support it. If one party fails to honour its obligation under the contract, the other party can call on margin to shield it from any losses that might result, and it’s that certainty that allows the two parties to the contract to enter it with confidence that not only allows the contract to be undertaken in the first place but helps to keep the costs of the contract and then, ultimately, the costs of borrowing to New Zealand businesses and consumers down.

There were some reforms introduced by the G20 as a way of reducing systemic risk as a result of what they’ve learnt from the global financial crisis, particularly in these derivative markets. But there are certain features of our current domestic law—particularly around insolvency, statutory management, and personal property securities laws—that could impede the banks’ ability to comply with the margin requirements, or with these new rules from the G20.

So the option to us, obviously, is we continue to maintain our laws as they currently are, but the most likely consequence of that is either the exclusion to New Zealand banks for these sorts of contracts or, with the uncertainty that might be deemed to exist there, an increased cost of borrowing. The last thing we need to do to New Zealand businesses as we—well, certainly we on this side—seek to wish to continue to grow the economy, grow jobs and incomes in New Zealand, the last thing we want to do is to be abetting by not passing such legislation the increase in borrowing costs for those New Zealand businesses. Of course, also, when we see news, especially also from the Council of Trade Unions around Christmas time, evidence of rising costs of living to New Zealanders, the last thing we want to be doing is exacerbating that by refusing to take action which would ultimately see the borrowing costs for those New Zealanders, whether it’s borrowing costs—most likely mortgages but potentially also other borrowings—increase. So it is important, we argue, that we agree to these reforms, and that we make sure that those derivatives are still accessible or derivatives contracts are still cost-effectively accessible to our banks.

Now, there was some talk about what the value of these might amount to. The information I have is a little different, but it could’ve been using a different source or a different representation. If we look at the gross flow of cross-currency basis swaps transacted by the four big banks against international counterparts, we see the total of that annually is as high as $8.7 trillion. But the risk element, the part that would be where the margins could or this could come into play, is about $90 billion for those four big banks. And by anyone’s reckoning, in this country at least, that is a great deal of money. I don’t think it would take too difficult a leap for New Zealanders to see a risk of that size as very readily potentially leading to interest rate impacts on them if the banks weren’t able to continue to access these moneys in foreign markets. So we certainly support Part 1, we think it’s an extremely good idea even if, obviously, the idea was somewhat imposed upon us through the actions of a global community. But as a community we wish to participate, and we need to, and we support it.

The licensing regime for administrators of financial benchmarks is also something in this first reading we are supporting. Although we always like to question, and actually this question is, unfortunately, so much easier to answer, but we always like to question the need for such regimes: to what level do they add in terms of process and compliance? Well, in this case, quite frankly, it’s as simple as if we wish to still access EU financial markets for these derivatives contracts we really have no choice but to accede to the changes that are being made in the EU, and to ensure that we have a proper licensing regime for administrators of financial benchmarks. The financial benchmark for New Zealanders, there may be a few listening, is a reference index or indicator used to determine the price value or performance of financial instruments like derivatives—for example, interest rate swaps and cross-currency basis swaps. The EU was somewhat concerned about potential benchmark manipulation, and those countries made a decision to prescribe new standards around the process for setting the benchmarks which administrators must meet if the benchmarks they set will be accepted by the EU. Those new regulations will take full effect on 1 January 2020.

So intervention—or the Government’s intervention, it’s their bill; but Parliament’s intervention—is necessary to avoid loss of access to those EU financial markets. A non-regulatory response is simply not possible because of the certainty and the measures that the EU requires, which is through a European Commission - equivalence decision based on our legislation. So we can’t simply say we’ll do something; we’ve actually got to evidence it through our law. On that basis, as we’ve said for Part 1, although the language of the bill and much language around the debate, and possibly the submissions, will be about financial markets and it will be about banks, ultimately, the result of all of that, the true end points are New Zealand consumers and New Zealand businesses and their ability to access borrowing for home, family, or, indeed, more importantly, some would argue, for the ability to support economic growth through the continued expansion of New Zealand businesses employing more people and, therefore, raising incomes.

So we do support this bill in the first reading. We look forward to the debate—I guess, in the Finance and Expenditure Committee—in select committee.

MICHAEL WOOD (Labour—Mt Roskill): Can I, first, acknowledge the Minister Kris Faafoi for bringing this bill to the House—the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill. Can I thank the Minister for forwarding the bill on to the Finance and Expenditure Committee. All committee members are quite excited by this prospect and really keen to get our teeth into this bill in all of its detail. Can I acknowledge the previous speaker, Brett Hudson; that was a passionate and very focused speech. I think he’s really found his niche in terms of the legislative agenda today. So thank you, Mr Hudson.

The thing about this bill is that while it seems pretty technical, it is actually—as the previous member outlined—quite an important bill in terms of the functioning of our economy. It’s a bill that ensures that New Zealand firms can continue to be active in terms of securing credit and engaging in international financial markets. It’s a bill that ensures that we are complying with international standards in respect of those financial markets, particularly standards that have been set by organisations like the G20 and the EU. In a sense, really, it’s a case of New Zealand being a pretty small player, and these being the rules that big global players have set. The reality of the situation is that if we don’t ensure that we have a legislative environment that aligns with those rules, it will—as the previous two speakers outlined—make it very difficult for New Zealand firms to engage in those financial markets and access the credit that they require to function and that, ultimately, our economy requires to function as well.

I think the other thing that’s worth pointing out at the outset is that, really, these rules are in some respects the wash up of the financial scandals that were exposed at the time of the global financial crisis, and a little bit later in the London Inter-bank Offered Rate (LIBOR) scandal of 2012, which I will come to later on. So really what we see is a bit of a delayed regulatory process of international regulators looking back on those calamitous events in the world economy, and resetting the regulatory legislative environment to minimise the risks of those kinds of calamities happening again. Let’s remember that that global financial crisis stalled worldwide economic growth for several years and wiped hundreds of billions of dollars off global capital markets, caused huge unemployment, created instability in parts of the world, and to a large extent you can sheet home the trigger point for that global financial crisis to unregulated capital markets where the controls were too lax and where the big boys played hard and loose and engaged in greedy and unscrupulous behaviour because there was no one really looking. These rules are partly a response to that.

It does impact upon New Zealand in a significant way. It’s estimated that our major trading banks have over $1 trillion of exposure just in the EU to financial markets which will have to comply to these new rules. Major public entities like the ACC fund and the New Zealand Superannuation Fund also have significant exposure. Ultimately, if we don’t have a legislative environment that is compliant, the ability of those entities to engage in those markets will be cut off, and that would be a very serious problem. The Ministry of Business, Innovation and Employment, the Reserve Bank, and the Financial Markets Authority have been working on these issues for some time to ensure that we have rules that are fit for purpose, that minimise risk, and ensure our compliance to those markets.

There are two key areas in which the legislation enacts reform. The first I want to talk about is around the issue of benchmark rates. People might have a little bell ringing in their head when I talk about the LIBOR scandal of 2012. Now, the LIBOR is the London Inter-bank Offered Rate. It is, effectively, the average of the interest rates offered by the major trading banks in London, and it, effectively, became the default rate that interest was offered at. What emerged in 2012—through a scandal that erupted in Barclays Bank, but spread through many others—was that, effectively, unscrupulous traders had been fiddling with the rates, pumping them up or down at different times in order to create margins that they could make profit on. Sometimes they tried to pump up the creditworthiness of their particular institution. It was a massive abuse of the system that enriched a number of people within that system but created chaos throughout the rest of the system and disadvantaged ordinary people, ultimately. And so a series of reforms arising out of that LIBOR scandal centred in Europe ensure that there is far greater regulatory oversight of those who set what are called those benchmark rates.

Now in New Zealand, we have had a different system for determining benchmark rates, but what the new EU regulations say is that if you’re going to have your own local system for setting benchmark rates, then you have to have what’s called equivalence with the EU regulatory framework and so, ultimately, that is what this piece of legislation does. It ensures that we have equivalence so that we are able to ensure that we have benchmark rates that are considered to be valid and ensure that our entities can continue to engage in global financial markets. So that’s really, really important.

The second issue is around the issue of requiring margins and derivatives transactions. Now derivatives are financial instruments that sort of derive out of some kind of a real asset. So the financial instruments that are traded—they might be based on the value of certain commodities or they might be based on a real asset such as mortgage debt. These were commonly sort of sliced and diced and traded in that period leading up to the global financial crisis and what is being required under the new regulatory framework to mitigate some of the risks that arise out of derivatives trading, which is a huge financial industry—hundreds of trillions of dollars of money involved; so if something goes wrong there are huge effects across the economy. What the regulations from the G20 ensure—to avoid that sort of house of cards effect so that if one transaction goes wrong it flows on across all of the others—is that we have, effectively, some money on the table, what we call margin in those transactions. So if something goes wrong, there is actually some real money to fall back upon.

The issue we have is that within the New Zealand legislation certain bits of our legislation would not allow for that to happen, particularly our insolvency legislation, which for very good reasons has rules about who has first right of call on money if something goes wrong in certain situations. So this piece of legislation ensures that we can be compliant with the new regulations set by the G20 around margins so that our financial institutions can engage in the financial markets, particularly in respect of derivatives, and that ensures that they can access the credit and the capital that we need.

So those are the two key changes introduced by this bill: the changes around the regulation of margins and also around benchmark rates. These changes will ensure that we minimise some of the significant risks that are a reality in the modern financial markets and which caused so much damage in that period between about 2008 and 2012 as we reeled from the global financial crisis. And they will ensure that, going forward, New Zealand entities are able to engage with international financial markets, which we require to keep our economy moving forward. So it’s pleasing to see that these changes seem to be supported on both sides of the House. It’s a bit of a no-brainer really, and I certainly commend the bill to the House and look forward to considering it further on the Finance and Expenditure Committee. Thank you.

Hon PAUL GOLDSMITH (National): Well, I too rise to support the first reading of this bill, the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill. People who are tuning in to Parliament will be aware that quite often members on both side of the House support legislation and, in essence, it’s being covered—this bill is about ensuring that New Zealanders continue to have access to global capital through the EU by being up to speed with EU regulations and requirements around a particular element of the financial markets in the financial benchmarks. And so we need to get our law in shape by 1 January 2020 so as to enable continued access by New Zealand banks and major financial institutions to European funds.

I suppose the only point I’d make is that when we talk about access to global capital that is a highly topical issue at the moment. And this bill shows that the Government is prepared to do what needs to be done in order to maintain that access to global capital. But they seem to be totally blind at the same time to the effects of other Government policies which are actually reducing our access to global capital whether it’s our foreign investment rules or whether it’s the introduction of a major new tax on investment, the capital gains tax.

So we support this bill. This is logical, sensible stuff that needs to be done to ensure that we have access to global capital, but we do lament the fact that the Government is asleep at the wheel when it comes to the impact of the other pieces of legislation that they are considering.

Debate interrupted.

The House adjourned at 10 p.m.