Te Ururoa Flavell Speech: Taxation Bill
Taxation (Annual Rates, Savings Investment and Miscellaneous Provisions) Bill
Te Ururoa Flavell; Member for Waiariki, Maori Party
Tuesday 12 December 2006; 8pm
Tena tatou katoa.
Amidst all the fanfare that came with Census 2006 last week, there were a couple of facts that are of relevance to the debate today.
Fact 1: For Maori aged 15 years and over, the median income is $20, 900. For all New Zealanders, the median income is $24,400. That’s a tangible difference between Maori and everyone else of $3500.
Fact 2: 10.2% of Maori have an annual income of more than $50,000 compared to 18% of all New Zealanders.
Mr Speaker, some of you may be familiar with a gentleman by the name of Henry Ward Beecher, a Presbyterian Minister, who like his sister Harriet Beecher Stowe, advocated for the abolition of slavery, for the right to social justice.
One of his sayings is, and I quote, “In this world, it is not what we take up, but we give up, that makes us rich”.
Now looking at the situation described in these Census Statistics, mindful of the ever-increasing gaps between rich and poor in this land, the Maori Party comes to the Taxation (Annual Rates, Savings Investment and Miscellaneous Provisions) Bill wondering what will this government give up to make all New Zealanders rich.
Mr Speaker, the Maori Party taxation policy is driven by two key forces. Manaakitanga and rangatiratanga.
The application of Manaakitanga would be evident, in acknowledging the mana of others as having equal or greater importance than one’s own, through the expression of aroha, hospitality, generosity and mutual respect.
In practising rangatiratanga, there is an emphasis on following through on commitments made, integrity and honesty is demonstrated.
So it is, that manaakitanga and rangatiratanga lead us to address those 1.9 million taxpayers in this nation, who are on an income of less than $25,000.
These people are paying a massive $3.5b in tax; while at the same time the Government accumulates surpluses and in the last financial year, that totalled an amount of $11 billion.
So we look for these people in any initiative, ostensibly designed to enhance the economic position of New Zealanders.
The central feature of the Bill is meant to be a reform of the taxation of income from share investments; New Zealand based managed funds or direct investment – with the clear purpose of removing inconsistencies.
The Maori Party is certainly supportive of any initiatives which can act in a way to enhance fairness and consistency in savings policies.
We know that the current tax rules on share investment have needed an overhaul for quite some time. The treatment of individuals and companies has been at best, uneven. Direct investment by individuals appears to have been favoured over investment through managed funds. Some investors are overtaxed.
So what this bill was to do, was to place the tax treatment of different types of share investment on an equal footing. The Bill is branded as introducing greater fairness into the rules and reducing the distortions that are evident in current taxation policy.
Well, this is all well and good.
But is it?
To understand the reform, we need to take the widest possible view. To look at only part of the picture will inevitably short-change New Zealanders looking for greater fairness in the way their investment income is taxed.
Despite stated purpose to reduce tax distortions in investments – the Bill introduces an ad-hoc capital gains tax regime rather than one having consistency.
The Bill also attempts harmonisation between Australia and Aotearoa, allowing equity between investors operating in both countries.
What this means in effect is that New Zealanders can invest in Australia instead of New Zealand without tax penalty. The question we need to be asking, is – of what benefit will this change be to the nation, if people invest elsewhere?
Mr Speaker, the Bill suggests that from next year, people who invest in New Zealand-based managed funds will see greater fairness in the way their investment income is taxed. The new rules will remove several tax disadvantages for people who invest through managed funds, many of whom are described as ordinary, middle-income savers.
Into this mix, throw the humble New Zealand pie. But we’re not talking mince and cheese variety today. The pie introduced in this Bill is a portfolio investment entity (PIE) – which comprises any savings vehicles that elect into the regime.
The bill removes the current major tax disadvantages to NZ managed funds—that is the full tax on capital gains and over-taxation of low-rate investors. By treating them in a similar way to direct investment by individuals, the disadvantages are removed. Investors in actively managed funds who invest offshore would be significantly better off under the fair dividend rate than under the current rules.
Alongside this, the Finance and Expenditure Select Committee reported that investors in actively managed funds who invest offshore would be significantly better off under the fair dividend rate that they've recommended, than under current tax rules.
We note too, that for individual investors and family trusts, if the return on investment is less than five percent of the opening market value, individual investors and family trusts will not be taxed at the fair dividend rate (5%), but at a lower rate or pay no tax. So we are in the same situation again, of some people paying tax, and others not.
We're also concerned about the tax increase on superannuation contributions facing lower-income earners - made to offset the risk of 'salary sacrifice' by higher income earners.
And it is those people who form the ‘Not’ category that we speak of today.
While we support the removal of the different tax rates from those who invest directly and those who invest through managed funds; our primary concern is with those New Zealanders who are struggling to put kai on their tables, let alone contribute to a savings culture.
Every dollar of a poor person is taxed, including those on benefits. However, this Bill determines that those with high incomes have the means to benefit from asset value increases which are non-taxable. We have to ask ‘is this fair?’.
Our other key concern around this whole concept of a savings culture, is associated with our concerns around the concept of a Genuine Progress index.
This is the argument that we need to broaden the tax base so that taxation is also used as a valid means of demonstrating the real costs of pollution, environmental damage.
In the context of the capital gains tax for example, we know that, investors are getting tax concessions even though it is not known if there is any actual income made.
If income was calculated on a full-cost basis, the actual capital gain might be negative – but the investors have no idea of how much depletion or damage to the environment is occurring.
There is a good chance that the capital gains are over-stated, and a good possibility that there is no capital gain.
Thus, while a company may be able to claim a positive and growing wealth – it is a false claim, a false measure of wealth because it has failed to take account of the costs involved.
The notion of gain in wealth masks potential because it isn’t accounted for. The market response to this is that ‘the market knows’ and that it takes all of this into account.
The Genuine Progress Index reply to this is ‘how would you know’ because it isn’t being measured?
Finally, Mr Speaker, it is appropriate to refer to a recent study released last week by the World Institute for Development Economics Research.
The Helsinki-based institute has estimated that the richest 2% of adults own more than half of global wealth, while the bottom half own a mere one per cent.
Now, if two per cent of adults have more than half of the world's wealth, including property and financial assets in their hands, is that fair?
Is it just that in Aotearoa, the proportion of all children in severe and significant hardship has increased from 18% to 26% since 2000?
Is it socially desirable that the people who suffer the greatest poverty in New Zealand are our children with 38% in hardship categories?
I want to remind the house, “In this world, it is not what we take up, but we give up, that makes us rich”.
What are we prepared to give up, in order to enhance wealth creation for all citizens of Aotearoa?
To the Minister I can advise that the Maori Party is a little bit ambivalent at this point of time but our strong views around poverty cause us to oppose the Bill at this time, but we are prepared to consider other views down the track.