Taxation (Budget Measures) Bill (No 3)

Committee of the whole House Part 1 Amendments to Income Tax Act 2007 CHAIRPERSON (Maureen Pugh): Members, the House is in committee on the Taxation (Budget Measures) Bill No 3. We start with Part 1. Part 1 is the debate on clauses 3 to 23, “Amendments to Income Tax Act 2007”. The question is that Part 1 stand part. Dr LAWRENCE XU-NAN (Green) (19:47): Thank you, Madam Chair. I know that both myself and the Hon Dr Deborah Russell have a number of questions on this bill, and I’m just signalling to you, Madam Chair, that we do intend to take this bill clause by clause, even though there are some broader themes around this bill. I want to start with clause 4, because clause 4 is a specific one around non-residents providing the use of aircraft in New Zealand. Now, I want to check with the Minister of Revenue: my understanding is one of the incentives when it comes to this particular clause is around the fact that there’s a concern around the lessor of aircrafts or parts of the aircraft passing some of the taxation cost on to New Zealand businesses as lessee of this. This is particularly in light of some of the changes regarding the fact that in the airline industry, operating leases are becoming more common. But I want to check that. Not including this particular section, my first question to the Minister is: has the Minister actually considered any other alternatives around this particular part, rather than providing an exempt income for the lessor? Surely there will be other ways to achieve the same outcome without giving a tax exemption because of the fact that they are passing a cost on to New Zealand businesses. I think I’ll start with that question. I know that the Hon Dr Deborah Russell actually has other ones. I just mention that I do have an amendment on this particular clause. It will be a shock to the committee to know that I have an amendment. I would be interested in engaging with the Minister on my amendment, but I think that as a starting point I would ask the Minister if any other consideration has been taken when it comes to that non-resident contractor’s tax in relation to this particular clause. Hon Dr DEBORAH RUSSELL (Labour) (19:49): I too am interested in clause 4, and, as I’m sure the Minister has become used to, we do want to go clause by clause through this bill, especially given that it’s our only opportunity to discuss some of the measures in it. Clause 4 modifies section CW 56B so that it says, “An amount of income derived by a non-resident from providing the use of, or right to use, in New Zealand, an aircraft or parts of an aircraft under a dry lease is exempt income.” That term “dry lease” is now, I think a new definition that’s added somewhere in the bill. Let me just check. Yes, it’s certainly in clause 22, which has the section Y definitions. It just sort of begs the question: why is this income being made exempt altogether? We have an overseas entity that is deriving income from New Zealand. Ordinarily, in the tax law, income that is earned by a tax resident of New Zealand is subject to taxation, and income that is earned from New Zealand, by assets or investments or whatever that are in New Zealand, even if it’s earned by someone who lives overseas. Those are subject to taxation as well. That’s the ordinary way the tax law works, and giving some type of entity an exemption from that tax is actually quite a significant tax concession. They’re saying that there’s something so important about this type of activity that it should be exempt from income tax in New Zealand altogether. We’ve got to remember there is money going out of New Zealand—people in New Zealand hiring these aircraft, sending the money, the revenue, out of New Zealand—and the New Zealand Government, the tax take, doesn’t get any part of that whatsoever. That would be my question for the Minister. Why make this income totally tax exempt? It is a very significant concession, and there needs to be a very good policy justification for it. Hon SIMON WATTS (Minister of Revenue) (19:51): Thank you very much, Mr Chair. This is actually a very short bill, 13 pages—most tax bills are quite long—so we’ll cover them off. Clause 4—a question raised by two members. A range of options were considered. The Inland Revenue Department recommended an exemption over other options because it was simpler and quicker, and on that basis that’s why we’ve landed on that option. Hon Dr DEBORAH RUSSELL (Labour) (19:52): Mr Chair, thank you. With respect, Minister, that’s kind of not an answer. It says that the Inland Revenue Department said this would be simple and quick. Well, I agree it is going to be simple and quick to put an exemption in place, but there are lots of things that can be simple and quick. That still doesn’t give me the policy justification for why this type of income should be exempt from tax. I really want to focus in on that: why this type of income? Sure, it’s quick and short and easy, but why is this income being exempt from tax? Hon Dr MEGAN WOODS (Labour—Wigram) (19:52): Thank you, Mr Chair. While the Minister of Revenue gets advice on that, I do have some further questions around clause 4. I think this is probably something that, by taking a substantial call, the Minister can clear up the questions in relation to clause 4. Now, in the very good bill commentary that Inland Revenue has put together around this, it makes the case really clearly. The amendments are intended to reduce the costs of accessing aircraft and parts in New Zealand. It talks about how the non-resident contractors’ tax (NRCT) does not function as intended in relation to aircraft leases, and we’ve heard a lot about that in this House, but one of the things I’m interested in, in terms of the problem definition, in terms of forming this policy, is how this came about. Was it from a broader look at the operation of NRCT in New Zealand and it came up that aircraft were a particular subcategory of that? My reason for asking that is, really, to understand whether there are any other categories of assets that have been brought to the Minister’s attention, when they’ve been doing the policy work to bring this amendment, that potentially could qualify, using similar arguments. We know this is very much around the dry leases, so it’s not covering the fuel. It’s the operations, and there are questions still on the table—and, I think, very important questions—about any tax. But, really, is this something that has the potential to have creep into other asset areas, so that we can understand what that might look like? Understanding the policy process that the Minister followed would be useful for the committee. Hon SIMON WATTS (Minister of Revenue) (19:54): In regards to clause 4, it would be fair to say that, in regards to the policy problem, there is a range of compliance costs and complexities that come with the broader non-resident contractors’ tax scheme. In particular, for this item that has been put in this legislation, we did consider a number of options, including not making the income fully exempt. However, as I have noted, because of the compliance costs and the ability to fully remove those, that’s why we decided that the exemption was the most appropriate aspect. We also took into consideration different treatments that result from the application of double-tax agreements. Dr LAWRENCE XU-NAN (Green) (19:55): Thank you, Mr Chair. I do appreciate the Minister of Revenue’s response, because I think, like the previous speaker, the Hon Dr Megan Woods, said, while the commentary for this is helpful, unlike some of the other parts of this bill, there isn’t actually a regulatory impact statement, which means that the responses in terms of the options that the Inland Revenue Department has considered is really, really important in order for us to get a clear understanding of how this came about. Again, it seems a little bit odd for this particular part to be included as part of a Budget bill and as part of Budget urgency. I want to pick up on something that the Minister has said, just right at the end, in terms of some of the considerations when it comes to double-tax agreements. One of the things we do see, when we are looking at the airline industry, is that the operating leases are becoming more common but lessors of aircraft are often resident in countries ineligible for relief from non-resident contractors’ tax (NRCT) under a double-tax agreement. My understanding with this particular clause is that the exempted income is for everyone, as opposed to limiting it to those countries where the lessor is unable to get relief from NRCT under double-tax agreement. What about ones from countries that are able to get relief from NRCT under a double-tax agreement? Are they not exempted from tax, or does everyone get a blanket tax exemption, in which case what would it mean, then, for the lessors of countries who are eligible to get relief from NRCT under a double-tax agreement? Hon Dr DEBORAH RUSSELL (Labour) (19:57): I note my colleague Dr Lawrence Xu-Nan’s questions on clause 4. I only have one related question remaining on clause 4, and then I am going to move on to the next clause that I am concerned about. That is, was the Minister of Revenue lobbied by any airlines for this change, and were there hard copies of any of the documents that have been handed over by policy advisers to the Minister— Hon Dr Megan Woods: Or any other Minister. Hon Dr DEBORAH RUSSELL: To his or any other Minister’s office? That’s a question we’d be quite interested in in this House this week. Dr Lawrence Xu-Nan: Good question. Hon Dr DEBORAH RUSSELL: I think it’s an excellent question, Dr Lawrence Xu-Nan. I want to move on to clause 5. This is actually one of the more interesting sets of concerns in this, as the Minister knows, small tax bill, but there are some big issues in it. This is clause 5 and a very, very small part of clause 22, which is the definitions section, I’m not too concerned about—clause 22? Yep, that amends section Y, which is the definitions section of the Income Tax Act. Clause 5 is going to take a wee bit of working through. What this clause does is deal with what is a known problem in New Zealand, and that is the problem of small companies, in particular, making loans to directors, shareholders, and associated persons of directors and shareholders, and those loans never being collected. Sometimes, when the company is wound up, they are absolutely never collected, so it becomes a way of initially deferring tax and then, ultimately, forgoing tax. I’m not sure what the opposite of “forgoing” is, but forgoing tax altogether. I don’t want to use nasty words in this case, but it’s a pretty cunning use of the tax system. Ordinarily, what that represents is the loan is a transfer of value from the company to the shareholder, the director, or the associate of those people, and ordinarily that kind of transfer of value would be treated as a dividend, particularly if you’re shareholders, and subject to taxation in the hands of shareholders. If we’re going to try to crack down on this practice—I agree it is something that needs to be cracked down on—we do need to find some way of making those loans subject to taxation, because, effectively, they are income or a transfer of value going from the company to the shareholder, director, or whatever. In principle, we are good with this measure. We think it needs to be taken. I’ve gone through, at a broad level, the mischief that this clause is solving, but what I want to understand from the Minister is just the level, the amount, of money that is involved in this and the amount of revenue, of tax, the Government expects to collect by correcting this problem. That’s a very straightforward question to start off with as we examine this clause: just how much revenue does the Government expect that it will get in because of this measure? Dr LAWRENCE XU-NAN (Green) (20:00): Thank you, Mr Chair. Just in terms of waiting for a response from the Minister of Revenue with my previous question around clause 4, I have one final question on clause 4 and I’ll move on to clause 5 as well. I think the final part is that I mentioned to the Minister previously whether the Minister would consider my amendment, which, essentially, says that any amount of income that is payable derived from a non-resident from providing the use of or right to use a New Zealand aircraft or parts of an aircraft under a dry lease must not pass any tax on to businesses in New Zealand, which I think would address the main policy issue over here. The concern I have with this particular clause is that rather than addressing the policy issue of overseas airlines, etc., passing cost on to New Zealand businesses, we then simply pander to overseas airlines by saying, “Well, why don’t we just avoid you passing the costs on to New Zealand by just making you exempt from tax?”. It’s, I think, a similar argument that sometimes we see when it comes to GST, etc., where there’s always a way, for example, for the lessor—particularly when you’re looking at a market-driven industry, at this stage—to increase the cost and pass that cost on to New Zealand businesses regardless. I just don’t know if making the dry lease an exempted income will actually ensure that either the price is reduced or it’s not going to be increased. Again, it comes down to being market-driven, as what it says in the commentary. Now, moving on to clause 5, the first question I have—I know that the Hon Dr Deborah Russell has a lot of questions around corporate tax, and I always learn a lot through her in a lot of these tax debates as a result, as well as the Minister, who, really, in the past has been incredibly helpful and informative in terms of our questions. I want to just focus on some of the details later, but one of the first questions is on clause 5(3), which “applies in relation to a company removed from the register of companies on or after 4 December 2025.” Again, this is one part of the clause, unlike some other parts of the bill, that doesn’t have a regulatory impact statement, but the commentary doesn’t seem to address, as far as I can see, why that particular date is selected, so if the Minister wouldn’t mind enlightening the committee on why 4 December 2025. Hon SIMON WATTS (Minister of Revenue) (20:03): In regards to the question on clause 4 on double tax agreements, in effect, what we’re doing here is fixing an inconsistency between countries that have a double tax agreement with New Zealand and those countries that do not. As a result of this change, there will be no inconsistency between those two situations. There is a significant degree of compliance cost that results as a result of these types of transactions, and by exempting the income, it removes the compliance costs and the process. As you can imagine, an offshore lessee from any other part of the world having to engage and deal with the New Zealand tax system—in which they’re actually going to get that credit back in some way, but the process and the compliance cost just outweighs the benefit in that regard. The question from Dr Deborah Russell on clause 5 in regards to the money involved—$146 million over the forecast period. Those are the two questions. Hon RACHEL BROOKING (Labour—Dunedin) (20:04): Thank you. Covering both that answer to clause 4 and a brief question about clause 5—the Minister of Revenue has just said there in his response that the reason to not require these foreign companies that own aeroplanes to pay tax is because already some of those countries don’t pay the tax. He’s shaking his head. If he could explain what the difference is between the countries that he just referred to and if there’s been any analysis of how much tax will be lost because of this change, or if it is—I know he keeps talking about the complexities of it, but we just want to know what is at stake here, which I think is a reasonable question. Reminding him, of course, that Deborah Russell also asked who has asked for this change, and has it been proposed by those foreign companies or has it been requested by domestic users of aeroplanes in New Zealand? Those are my questions on clause 4. On clause 5, I just have a very simple, high-level question, and it is: is the policy intent here simply to have a date, have a trigger date, and that is all that’s happening to make this issue cleaner? If so, noting my Green colleague’s question about that date, 4 December 2025, I note that that’s when some discussion document was proposed—if there has been any analysis about how many people responded to that discussion document, if they expected the date to be 4 December 2025 because of that discussion document, and whether that timing makes any particular difference if it was retrospective to 2025 or if it was, say, April 2027, like most of the rest of the bill? Hon SIMON WATTS (Minister of Revenue) (20:07): I’m happy to answer that, and Lawrence Xu-Nan asked a similar question. The 4 December 2025 application date is the date on which the consultation paper was released, and, therefore, in effect, by applying that date, it mitigates any structuring opportunities or people looking to make changes to take advantage of the fact that as of that date, it was made public. That’s why that date has been selected. Dr LAWRENCE XU-NAN (Green) (20:07): Thank you, Mr Chair. Thank you, Minister. That’s very sensible. I think that’s a really sensible reason for a date, then. I know that my colleagues have a lot of questions on this clause as well. I just want to focus on one other question at this stage, and this is to do with clause 5(1). This is the new subsection (9B). I want to just focus on the six-month period. Again, in some ways, what is the rationale for having six months there? Were there any other periods? Although it mentions six months in the commentary on page 11—“The period of six months allows for reinstatement of a company that is inadvertently removed from the register.”—what it doesn’t tell us is: is that a common period of time that’s already in existence? Is that standard practice for IRD, to wait six months just in case something was removed inadvertently? Then, furthermore from that, what then happens—if the company was restored during that period, does that mean that this clause doesn’t apply anymore? Then what happens if a company is reinstated or—if the company is registered to have continued after that six-month period, is there a calculation where that whole year is then considered to be de-registered, or is it only going to be the period from the six-month cut-off date to when the company is reinstated? Those two questions, if the Minister of Revenue wouldn’t mind explaining. Hon Dr MEGAN WOODS (Labour—Wigram) (20:09): Thank you, Mr Chair. My question to the Minister of Revenue is also on clause 5. I think that we signalled in our first and second reading questions that we can see that this is something we have to make sure that we have robust law around. We had $29 billion worth of loans to 119,000 companies for the income year ended the 31 March 2024. So we are talking about a very substantial figure here, so making sure that this is a robust regime is critically important. My questions, going through the regulatory impact statement, are around the options that were considered. A number of options were considered—six, in fact—and they were measured against the criteria of efficiency, equity, minimising complexity and compliance costs, and integrity, as well as the overall assessment. As with any of these matrix that are put together in terms of measuring against various criteria, we can see that different options have different strengths. The option that the Government has decided to proceed with in this legislation is option five, which is tax shareholders on outstanding loans six months after the company is removed from the register. We can see that it did not score well for minimising complexity or compliance costs; on fact, it scored as being worse than the status quo in terms of that criteria. There were other options that scored better on that score. So there was the status quo, but then there was also option six, which was improving record-keeping, which was one option that was put through, which also scored well on equity, scored well on integrity, and scored well in terms of the overall assessment. I’d like to hear from the Minister, given we don’t have a chance to really get into this at a select committee, some of the thought processes that he and his officials went through on landing on that option out of six, and what it was that made that option the one that they went with. The other thing that I’m really interested in—and this would be something, again, that we would have asked through a select committee process—is whether or not this change brings the loan under financial arrangement rules, and whether that is the case. Does that mean then that loans under $200,000—which is the threshold financial arrangement—are not going to be affected? I genuinely can’t tell from the documentation that we’ve been given whether that is either the intent or the impact of the changes we’re seeing here in terms of bringing them under those broader tax definitions. Thank you, Mr Chair. Hon Dr DEBORAH RUSSELL (Labour) (20:12): A couple of questions following up on a couple of things that both Dr Lawrence Xu-Nan, I think, has said and—I’m not quite sure who said it, actually. We were just discussing the discussion documents that went out, and the Minister of Revenue explained that that 4 December start date 2025 was related to the fact that once the discussion document is out there, the possibility of tax structuring is out there. I thought that’s a polite way, isn’t it? Tax structuring. I must remember that term. But I just want to point to paragraph 20 in the regulatory impact statement. It says that in September 2025, targeted consultation was undertaken with 10 private sector advisory firms. Now, obviously I am not asking the Minister or his officials to disclose who those firms were. I have a pretty high regard for our tax community and the integrity with which they approach this sort of work and the consultation. Nevertheless, just as the possibility of tax structuring was opened up the moment that the discussion document went out, the possibility of tax structuring might also have been raised from that quite targeted consultation with private sector firms. Now, I know those people, the Inland Revenue Department does consult them in very strict confidence and that ordinarily we would expect that they would keep that confidence. Just some assurance from the Minister that they didn’t see any odd things going on between those dates. Hon SIMON WATTS (Minister of Revenue) (20:14): Thanks, Mr Chair. Just going through a number of the questions. There was a question before in regards to clause 5 around the revenue at stake as a result of the change of the non-resident contractors’ tax change: $17.85 million over the forecast period. That was considered in the context of the cost versus the benefits to the broader economy and the compliance aspect and the importance of this on the broader airline sector. So that was in that component. Within our tax and social policy work programme, which is publicly disclosed and announced, we have had on there the modernisation of this area. It’d be fair to say—and I’m sure the member will appreciate—that this area is an area that many within the broader tax community see as an area of high compliance and broader burden, taking into account the cost-benefit of that. As we work our way through that, this example that we’re legislating through this evening was one of the examples that we had sufficient information to be able to progress through legislation. At this point, that programme is going. We’re continuing to assess and get feedback that the stakeholders involved are all of those stakeholders that the member would expect—Chartered Accountants Australia and New Zealand, etc.—those types of respected and well-informed broader industry players. In regards to Lawrence Xu-Nan’s question around the six-month time period, again, in regards to clause 5: is six months a common period? Yes, six months is a common period. It allows for reinstatement to register. Also, this period is used because generally we’ve had feedback from submitters that that’s appropriate. The question around what happens if the company is reinstated after the six months: the loan becomes taxable income. Hon Dr DEBORAH RUSSELL (Labour) (20:16): I just want to follow up on something that my colleague the Hon Dr Megan Woods was talking about—that’s the threshold around financial arrangements. You’ll appreciate we only got this bill in our hands just a few hours ago, and I have spent my time reading it and thinking it through, but there’s stuff I don’t always remember first up. I just want the Minister to clarify this—just thinking back to the financial arrangement rules. I didn’t quite have time to go back to them. My understanding is that a loan is a financial arrangement and that the $200,000 threshold that my colleague Dr Woods referred to is to do with whether a financial arrangement is treated on a cash basis or treated on an accrual basis. So no matter what, once the loan is a financial arrangement, it is brought in under the—I saw somewhere around the base price or something like that—base price adjustment. What that, in effect, does if the base price adjustment happens, the loan gets treated on a cash basis, and that, in effect, means it’s brought into the tax net. So that would capture all the loans below $200,000 quite easily, but what about the loans that are over $200,000? I’m sorry to go back to this. It’s just taken me a while to remember this and to puzzle it through. As I’ve said to various rooms of tax people recently, I do know a fair amount about tax, but I don’t remember everything because it’s actually quite a long time since I dealt with it every day. I wonder if the Minister could just clarify that as to how that works around the threshold. Hon SIMON WATTS (Minister of Revenue) (20:18): Yeah, so the member is correct that loans under $200,000 are not affected by this new rule. Sorry, loans under $200,000 are—my apologies—affected by the new rule. In regards to Dr Megan Woods’ question around why the shareholder loans option was chosen. The options that were assessed are not mutually exclusive. The option that we are progressing was supported broadly by the stakeholders that we engaged with, because on the basis of fixing the gap that’s in the current law. In regards to the broader question around why this is under the financial arrangement rules—again going to the member’s question—it’s simpler than dividend rules. Again, preferred by stakeholders and, from a broader tax point of view, you’re going to get the same amount either way. Hon Dr DEBORAH RUSSELL (Labour) (20:18): Thank you. I just want to clarify, Minister, because I think you stumbled over your words slightly. Loans under $200,000 are captured? Hon Simon Watts: Are captured. Hon Dr DEBORAH RUSSELL: Yeah, good. Ha, ha! Pretty happy with that. Thank you, Minister, for clarifying that. Dr LAWRENCE XU-NAN (Green) (20:19): Thank you, Mr Chair. Apologies. Apparently, I picked up three of the regulatory impact statements pertaining to this bill, and I missed the fourth one, which is on this particular part. It’s very helpful, I think, getting a signal from the Hon Dr Deborah Russell when she was referring to the regulatory impact statement, so I can quickly grab a copy. I want to check, in terms of the regulatory impact statement, one of the things I was interested in—and please, Minister, correct me if I’m wrong, because, again, we’re kind of analysing this bill quite quickly—in paragraph 66 of the regulatory impact statement. This is on page—doesn’t seem to have a page number. In paragraph 64 and then 66, it refers to the preferred option being a combination of option five and option six. But what I’m actually seeing here in terms of what’s in the bill is only option five. Can I check with the Minister what happened to option six, which is improving record-keeping, which would help companies maintain the relevant information to support tax compliance with shareholder loans when the company ceases? How come option six wasn’t a part of this bill that I can see? If I got that wrong and option six is embedded somewhere in this bill, please let me know. My second question is around what we see in the table just after paragraph 69. Part of that is to do with the regulated groups and their tax advisers and accounting software providers. It talks about the fact that Inland Revenue’s data indicates about 4,500 companies with outstanding shareholder loans are removed from the Companies Register each year. Considering this significant number, I want to check how the Minister is planning on implementing this particular policy and being able to kind of get the message out there on what the new requirements are going to be, particularly when, I guess, some of the companies would have already been deregistered in the meantime. What is Inland Revenue’s general practice for getting in touch with the companies that are removed from the Companies Register as a part of this bill? Hon SIMON WATTS (Minister of Revenue) (20:21): Just in regards to clauses 64 and 65 of the regulatory impact statement around shareholder loans, yeah, the member is right. The option that we went with was the option five around taxing shareholder loans six months after the lending company is removed from the register. Option six was more record-keeping. Yes, it would help with better information that the Inland Revenue could consider for compliance, but keeping it really simple, for low compliance, you just simply make it taxable after six months. That’s the option we went with. Hon RACHEL BROOKING (Labour—Dunedin) (20:22): Thank you, Mr Chair. Staying on clause 5 and this to-ing and fro-ing with the Minister of Revenue, can he go up a level, noting I’m not a tax lawyer, unlike some other people here— Hon Dr Deborah Russell: I’m not a lawyer. Hon RACHEL BROOKING: —or a tax accountant—accountant, sorry. I’m not an accountant—sorry. I’m a mere ex-lawyer. Todd Stephenson: Do you pay tax? Hon RACHEL BROOKING: I do pay tax. You have said that this clause, this mechanism is to increase productivity, so what I’d like the Minister to explain is: am I right in summarising it as for these loans that are under $200,000—only those ones—you have this by inserting a removal date, six months being a normal number in these tax laws, then what happens is it falls away and you don’t have the burden of extra administration? Is that where the productivity is coming from or is it somewhere else? When he gives an answer—and I’ve got another question—if he can just go up a level in explanation about how this clause is productive, I think that would be helpful. My second question goes back to clause 4. In his earlier answer, the Minister talked about different countries having different treatments and so the question there is this: is he still expecting those owners of the aeroplanes to pay tax or is the expectation that they won’t, and, therefore, is the justification that some of those owners of the aeroplanes from countries A, B, and C already don’t pay this tax, whereas the owners of the aeroplanes from countries X, Y, and Z do pay, and so we’re trying to treat them the same? If he could explain that, that would be useful too. Thank you. Hon Dr DEBORAH RUSSELL (Labour) (20:24): I have one final question on clause 5, though I may need a follow-up, depending on how the Minister of Revenue replies. Before I want to start moving on to clause 6, I just want a little bit of clarification around the nature of these loans. We’ve just been talking about the principal of the loan, but often these loans from companies to shareholders, directors, associated parties are low- or no-interest loans, so I’m just trying to think through what happens in that circumstance. I guess if the shareholder gets a no-interest loan, that’s a considerable concession in itself, so how is that sort of interest discount treated? As the financial arrangement comes to an end, does the interest foregone by the company in the meantime get loaded on to the loan, which then gets taxed in the hands of the shareholder or something like that? I know that’s not particularly the focus of this particular clause, but if the Minister could just clarify the treatment of those loans just to be sure we’re actually capturing the right amount of income for tax purposes that has sort of been foregone to date because of the nature of the loan arrangement. That would be helpful to know. Then I do want to move on to clause 4 after that. Hon SIMON WATTS (Minister of Revenue) (20:25): What the member’s referring to there is not subject to this legislation. But going back to the member Rachel Brooking’s question around sort of stepping back and linkage to productivity, the major problem here is that when companies are providing loans to their directors, then that, in effect, is income going from the company to the director. If that loan is never repaid, then that income and the tax on that income is never crystallised. As a result, that is a loss to the broader system. As the Hon Megan Woods noted from the information available, the numbers are really big. That is an integrity issue and it is not fair, and therefore we’re dealing with it through this change. CHAIRPERSON (Greg O'Connor): Members, I’m aware that there hasn’t been a select committee and we’re getting some good short, pointed questions, but we still do need to be progressing. Hon Dr Deborah Russell: We are just about to, Mr Chair. CHAIRPERSON (Greg O'Connor): Well, I’m very pleased. Hon Dr DEBORAH RUSSELL (Labour) (20:27): I would like to move on to clause 6. That’s quite a new topic. It’s the change around tax credits for charitable or other public benefit gifts. It’s a really interesting change, because what this legislation does, it’s a really short clause, but it’s actually possibly got the biggest impact here of any of the—well, maybe not the biggest impact, but certainly the most public interest that people might have around this particular change. It’s changing the ceiling on donation tax credits. The way it does this is it amends section LD 1. Section LD 1 is part of getting a tax credit for charitable donations. At present, the limit on that for natural persons is the amount of their taxable income. You can’t give away more than you earn in the first place, so that makes sense. Now they’re going to insert “the lesser of $100,000 and” before “the amount of the person’s taxable income for that tax year.” Basically, we’re now capping the amount of charitable donations that may be made. Of course, $100,000 is quite a lot. Most people in this country don’t have that much taxable income. Plenty of people do, but a lot of people don’t, so it’s pretty interesting to do that. The first question, I guess, is—well, there’s a whole set of policy-related equations. The tax law itself is not complicated, but the policy here is, so I guess let’s start right at the top-ish level. One of the things we might consider with this is just the extent to which charitable giving might be somewhat discouraged because there is now this cap of $100,000 around the tax credit. It’s not discouraged just because people can no longer get the tax credit, but there will be a lot of noise around this. It’s one of the more easily understood tax changes from this Budget. I’m concerned that ordinary people will now feel that their own donation of $20 or $30 or $40 or $50 or whatever it is may not be eligible for a donation tax credit, so there might be a bit of a flow-on impact. It’s not because people haven’t read the tax law; it’s just because they’ve read the discussion around it. Was that given any consideration as the policy for this was being pulled together? Just the dampening effect on charitable donations. Hon Dr MEGAN WOODS (Labour—Wigram) (20:29): Thank you, Mr Chair. I, too, am moving through the bill and have questions to the Minister of Revenue on clause 6. As my colleague said, this is one where there is going to be a great deal of public interest. One of the things that the regulatory impact statement—which we’ve only had for a short period of time—does go and do is some quite careful of analysis between the relationship between tax claim numbers and tax credit paid, and what the relationship of having this ability to make the claim is and what that will do to the number of donors in the amount of donations that will be there. One of the things that I’m interested in discussing with the Minister and hearing more about the advice that his officials gave him is in para 46 on page 14 of the regulatory impact statement (RIS), and page 47. It seems that the Department of Internal Affairs (DIA) and the Ministry for Culture and Heritage were informed of the options considered by this RIS: “From DIA’s perspective, reducing entitlements puts the delivery of goods and services by the community and voluntary sector particularly in regions that are vulnerable and are not well serviced by either the Government or under for-profit conditions at risk.” So this is very clear advice from the Department of Internal Affairs that they see there could be a putting at risk of the donations in the regions for some of the at-risk communities. Also, we had the Ministry for Culture and Heritage—and while the officials don’t seem to think that there’s going to be a large impact on either education donations or religious organisations receiving donations, there could well be in the arts. So I’d like to hear more around what the Ministry for Culture and Heritage—there’s only a very oblique reference to it in the RIS; I’d like to hear far more about what the impact on the arts is going to be, because “Both agencies [said] that the current policy setting for the donation tax credit is an important platform for the Government to further initiatives that promote philanthropy and deliver social and community outcomes and facilities.” Now, these are very serious questions for our communities. It could well be that the changes being put through, particularly under this clause, are absolutely what we should be doing, but as Labour members signalled in their speeches in the first two readings of this bill, our decision whether or not we continue to support this bill hinges on answers we get around this clause about what it is going to do to donations. We are in a time when we have never needed our community and voluntary sector to be doing more heavy lifting than it is. Today, we saw that we have the highest level of homelessness in our history, and it is our community and voluntary sector that is doing the heavy lifting in the absence of the Government, who seems to have distanced itself and his taking a no, hands-off, it’s not our responsibility - type approach. So we take this clause extremely seriously. The RIS has made some quite strong statements in there and we would like to have a good discussion about this, because, as I said, our ability to continue to support this bill hinges on our ability to ask questions on this clause. Hon SIMON WATTS (Minister of Revenue) (20:33): Thank you very much to the members for the questions in regards to clause 6. The primary driver in regards to this does have implications in regards to text integrity—I refer the members to the regulatory impact statement—but we have undertaken quite a comprehensive degree of analysis on this issue. Inland Revenue did a regulatory stewardship review in February 2025. We had an officials paper as well, on the not-for-profit sector, and then also a targeted consult on donor-controlled charities. We’ve done a lot of testing with the sector in regards to that. It is our view that the integrity issues around misuse of the donation tax credit for aggressive tax planning is an area—and Inland Revenue has observed an increase in such behaviour, which is, in our view, facilitated by New Zealand’s comparative generous settings. This change will impact, we estimate, 350 donors in New Zealand. Virtually all individuals, with the exception of 350, will not be impacted by this. The cap of $100,000 of donations is, in all fairness, a significant number—or the maximum of your income, i.e., you earn $30,000 in a year and you donate $30,000. You know, realistically, again, this is highly unlikely for virtually most taxpayers. It doesn’t impact anyone giving $20 or $50 to whatever their favourite charity is—it has absolutely no impact; we’re talking at the other end of the scale. In regards to whether this will impact overall donations coming into the charitable sector, we did spend considerable challenge and effort around this to get feedback. Inland Revenue and Treasury’s assessment is that there is no empirical evidence that indicates that the change that we’re doing is going to have any significant material impact in regards to the overarching way in which individuals donate. In fairness, those that have the means to donate that type of scale of money are not doing it in the context of simply always just a tax reason. The feedback is that many of those large-scale donations will continue to occur irrespective of what the tax is because those individuals are driven by another purpose. Dr LAWRENCE XU-NAN (Green) (20:36): Thank you, Mr Chair. Thank you for that explanation because it does clarify. I guess my first question is looking at the diagnosis of the policy problem. I’m looking at paragraph 4, which says that the donation tax credit has a fiscal cost. I wondered if, based on what the Minister is saying, the idea is, by putting on that limit to the 350 donors who are going to be affected, what we are seeing would be, I’m guessing, less tax credit being given, therefore we’re generating more revenue. Is that part of the intention? [Minister nods] Cool. Thank you, Minister. The second question I have here is—it’s also good to hear from the Minister that people are going to be donating regardless, and that the $100,000 threshold is not a consideration or a factor. But I want to check one of the things that we talked about in the previous section to do with clause 5. It’s around the commencement or the fact that the companies removed applies if it’s 4 December because of the tax structuring or restructuring that could potentially happen. So, you put that date, whereas, for this particular part it only applies from 1 April 2027 onwards, presumably to try to line up with the financial year. But what does it mean for people during this period, knowing that that is something that’s going to happen? Is there any consideration of, “Well, in that case, we then might just donate a lot more this year because then we can get more returns this year, and starting from next year, we’re going to start reducing it so that way we’re just meeting that $100,000 cap.”? Is that a consideration? Has that been something that has been considered as a part of this? The other question I have is based on what we see just after paragraph 16 of the regular impact statement in terms of graph 1. This is graph 1 on page 9. We are seeing that the total number of individuals who are donating is kind of reducing, whereas the average tax credit per individual has increased over the last few years. I’m going to draw attention to what we see in paragraph 25 on page 11, where an Australian Productivity Commission study says that “household income is a much stronger predictor of how much a household gives” rather than tax benefits. I wondered if, as a part of this work the Minister’s doing and in terms of the revenue generation for Inland Revenue but also potentially looking at a reduction of some of the tax credit, whether it has also been considered that, with households potentially doing it tougher, we are now going to be seeing an overall reduction in the amount of tax credit anyway because there are going to be fewer and fewer people who would be donating—if we are to go by what we’re seeing in paragraph 25 of this regulatory impact statement. So those are my two questions for the time being, but just signalling to you, Mr Chair, that we do have further questions on this particular part. Hon SIMON WATTS (Minister of Revenue) (20:39): Just to finish off clause 6, the Government will spend approximately $19 million less per annum as a result of these changes. The 350 donors that I noted represent about 10 percent of donations submitted. For the main recipients—to the question before—about one-third of those donations are through to religious charities, and less than 5 percent go to schools. HELEN WHITE (Labour—Mt Albert) (20:40): Thank you. I hope that the Minister is not correct that these would be the final statements on this clause, because this is an incredibly important clause. I have the portfolio for community and voluntary, and I have concerns already being raised in my emails about this particular clause. They are damning of the clause. I hope the Minister takes it seriously because I have a job to do, putting these questions, and I would like answers to them. The first thing I want to ask is: when we look at the regulatory impact statement (RIS), there is talk under the heading “Tax integrity” about how the issue is “aggressive tax planning”. Now, I understand there may have been concerns about controlling entities etc.—those have been discussed—but this is not actually a clause that does this. This tax change applies to anyone who gifts $100,000. That people would give, to me, seems to be something that is in the interests of New Zealanders. If there are 350 of them gifting over that amount, that’s an important group to grow, so I’d like to know from the Minister why this was the chosen mechanism, because when I look below at “Fiscal sustainability”, it looks, here, like what the RIS is saying is that the donation tax credit operates as an open-ended subsidy, limiting the Government’s ability to manage costs. Is that really what’s going on? Is it that the Government doesn’t want to subsidise or to contribute that amount by this mechanism and that it wants to cap its liability for such donations? That to me seems a dangerous reasoning, given that we are getting so much benefit for that money, which is coming through our charities into our communities so much. Then I’d like to look at part of the RIS that talks about the impact on this being lumpy. It says that some charities that use these big donations will be much worse off than others. Has the Minister done work in that area? Is it going to be lumpy? If so, can he give us more specifics about who is going to be affected—what charities? I appreciate that he said, “some religious charities”, but what charities are going to be impacted? What I’m getting on my email is widespread concern from philanthropists that they are going to be cut off at the knees by this clause and that they will not be able to donate in that way but, further, that the charities won’t be able to attract those big donations that they rely on and with which they do good work. It’s not just religions—in fact, it’s probably not any of the religions that do that. The Minister raised the issue of doing testing in this area. Can he explain what that testing was? I am being told by my people—and I’ve got good relationships—that they knew nothing about this. What testing is he talking about? There doesn’t seem to have been any consultation with the sector itself. Then I would like to know from the Minister—given his disastrous announcements last year and the fact that they really were misguided, which the Government conceded by withdrawing them—why this is coming to us in urgency, this particular clause, given that it seems like there’s plenty of opportunity to consult with the sector and get it right? Why are we seeing this in this form? It just doesn’t strike me as a very sensible thing to do, because the major concern I’m hearing is that this is going to have very backfiring consequences and we’re going to see donations dive. Now, I also have seen from the RIS that there is a dive in a graph on page 9. There is a complete dive in individual donations. It’s dramatic—it’s absolutely dramatic. Could the Minister explain that dive and why this is helpful, given we are having a dive in individual philanthropic donations, and why he thinks that is happening at the present time? Thank you. Hon SIMON WATTS (Minister of Revenue) (20:45): Yeah, I’ll give you a simple answer for that. That’s when inflation goes really high and interest rates go really high under the last Government, surprisingly, people don’t have any money to donate, because they’re trying to keep themselves alive and pay for food and living costs. Take some accountability for your policies. Anyway, going back to the other points of the question, the regulatory impact statement document, again, if the member reads the regulatory impact statement, every question that she’s asked is included in there. It outlines clearly who was consulted as a result of that. I’ve already answered that in a prior question. It outlines the issues around tax integrity, and nothing that is being announced today is going impact those people that the member’s getting emails from, because they can donate whatever they like to charities. It’s just that the Government isn’t going to have an open cheque book and give them a subsidy over $100K. I’m sorry, but that is not unreasonable. Hon Dr DEBORAH RUSSELL (Labour) (20:45): Thank you, Mr Chair. Look, I just want to take the Minister up on that last statement. The Minister has opened something up there by saying that, in fact, the reason that the number of charitable donations has dropped is due to inflation, but if the Minister cares to read the chart—cares to read the chart—in actual fact, the biggest dive is under his Government. I think the Minister’s going to need to find a better explanation than that. I know it was enjoyable getting that political jab out there, Minister, but I think that the explanation simply does not stack up, not when one actually reads the graph properly. Just moving on from that, I do want to come back to a couple of issues here. This one has been canvassed slightly. The Minister has said that the reason for putting this part of this tax credit in place was, “Well, first of all, we shouldn’t have Government subsidising charities to the extent of over $100,000.” Those were the effects of his words. Then he said, “The impact was only $19 million a year.” Now, $19 million—you can do some stuff with that, but in the context of the Government’s accounts, that’s a fairly small amount. In actual fact, I don’t think the motivation can have been just that the Government revenue has been affected. Now, that leaves, then, tax integrity reasons as to why we might change around this particular tax credit, but that simply begs the question: why, then, were we not doing more work around the charities that are donor-controlled charities? That’s where the tax integrity problems are. It’s not with genuine philanthropists giving money; it’s around the donor-controlled charities. Now, I note that there’s a bit of a throw-away line in the regulatory impact statement, I think, or somewhere in one of the documents I read, that, perhaps, that was better controlled through the charities register and looking at whether something was a genuine charity or not. But in actual fact, the real mischief we know has been done through donor-controlled charities. That is exactly what happened with stuff that’s been particularly well canvassed and some really fantastic investigatory work by Matt Nippert around the Wright Family Foundation and so on. That was a donor-controlled charity and a complete rort, and eventually the tax law caught up with them. That was exactly what was going on, but it was the donor-controlled charity that was the problem, so why not address that problem instead of sticking a cap in there at $100,000? There are those particular issues I would like the Minister to address. I’m a politician. I enjoyed the Minister’s political gibe, but it didn’t actually answer the question. I finally want to carry on with this. [Interruption] CHAIRPERSON (Barbara Kuriger): Please don’t show it across the Chamber while a member is speaking. Hon Dr DEBORAH RUSSELL: I’m happy to be quiet while they do it, if you like. CHAIRPERSON (Barbara Kuriger): Well, they can get up and take a call. Hon Dr DEBORAH RUSSELL: Yeah, take a call. I was going to raise that one around the donor-controlled charities—oh, the second issue I’ll raise here. Look, this deals with individual donors with natural person donors. That’s who the particular tax credit is oriented to. But natural persons—you, me, other people—can get this tax credit. To be honest, I’m one of those New Zealanders who doesn’t bother claiming it. If I’m giving to charity, I’m giving to charity. That’s that. But there’s another set of entities who can, in effect, get a Government subsidy for making charitable donations, and that is companies, but companies get a tax donation for making charitable donations. I am sure that if we’re going to start controlling the amount that individuals can give as charitable donations, is there work being done around companies giving charitable donations as well? Now, in some ways I would hope not because I don’t want our charitable sector to be scrambling for funds—I think they value those funds that they receive from companies as they value the funds from philanthropists. But if the Minister could let me know: is there any work being done around the amount of donations that companies make in which they get a tax subsidy? CHAIRPERSON (Barbara Kuriger): The Hon Rachel Brooking, and I just want to remind the committee that this is a committee stage and so it’s a question-and-answer session. Please actually make sure the answers are coming through and not speeches. Hon RACHEL BROOKING (Labour—Dunedin) (20:50): Thank you, thank you. Mine is a clarification question for the Minister of Revenue and then a new question. We’ve had, with the back and forth—we understand that the policy problem is that it’s a revenue issue for the Government and the $100,000 has been set and it’s explained why in the regulatory impact statement (RIS). The issue at paragraph 90 of the RIS goes through—and I think the Minister referred to this before, saying that the donations of that $100,000 nature go to religious charities at 27 percent, other charities at 68 percent, and schools at 5 percent. That compares with all donations—that they are all totalled, so not just the $100,000 donations but all of them—having a much higher proportion of religious charity. That’s 63 percent, and other charities is 29 percent and schools is 8 percent, so not too much difference there. But the point is that these $100,000 big donations seem to be more likely to go to other charities. The question is if he’s done analysis or wants to comment on what the impact will be on those other charities that are not religious and they’re not schools; and if he agrees with my reading of the RIS there. Of course, then my separate question—not clarification question—is: we turn the page and it talks about Inland Revenue to monitor substitution behaviour. I raised in my second reading speech: is this the issue where Inland Revenue will be looking at families of donors to see if—like a husband and a wife, if they both donate $100,000, what happens there? Is that something that Inland Revenue is going to be looking at? Then my third, last question on this is: this proposed change is for 1 April 2027, so it’s not retrospective—that’s what it says in the RIS; I think it’s the same in the bill. But if the Minister could confirm that, and then if there’s been any analysis about the expectation talked about in the RIS at paragraph 91, that some very high-value donations might be brought forward, if that’s something that’s of concern or it’s just something that has to happen. Hon SIMON WATTS (Minister of Revenue) (20:53): Yeah, I thank the member for the question. The question around why aren’t we—just looking at clause 6—changing the donor-controlled charities rules? The short answer is that this would be too complex, and the reason why: when we look at that 350 donors and the proportionality in that, one of the areas that we are, and IRD is, very concerned about is there is a growing area within that area of grouping around, in effect, donations going through to donor-controlled charities, and then those loans are coming back from those charities to these individuals. I’m not saying those are the individuals that are emailing members here, but that’s what some people are doing around tax integrity. Obviously we don’t and can’t have that, and that’s why we’re tightening up. What we said is, “What’s a simple and practical way to deal with this entirely?” Simply, the cap of the $100,000 or total income means it’s just across the board. We don’t have to go straight into a donor control; we can cover the whole lot. The primary purpose is not one around revenue. There is a revenue benefit to the Government as a result of this change, yes. But as the regulatory impact statement (RIS) outlines clearly, the tax integrity matter, balanced off with the fact that we don’t have evidence that indicates that this is going to have a reduction in the overall donor responsiveness to making large donations. On that basis, we believe that we’ve got the balance right. The question around what about companies? In effect, across the whole board, about 90 percent of the donations are coming from individuals, 10 percent from companies. IRD’s monitoring of that area—and they do monitor it—is not signalling any material concerns, but the IRD will monitor that area. If they do have greater concerns, then that’s something that we may look at the future, but right now we’re not. Hon Dr MEGAN WOODS (Labour—Wigram) (20:55): Thank you, Madam Chair; and thank you to the Minister of Revenue for those answers. I had some questions that are related but go into paragraph 17 of the regulatory impact statement (RIS). I think one of the things this RIS gives us is a fascinating insight into kind of the broad category of donations of philanthropy in New Zealand. I think one of the interesting things it says for the last decade—and my colleague mentioned some of these categories—the proportionate value, not volume, gifted to schools and that was entities registered under the Education and Training Act, religious entities, and then of course there were the other categories there. There is some really good analysis that sits behind this RIS, and I wondered if the Minister had received any information or advice when coming to this around in which of these categories the most mischief in terms of the misuse of charitable status in our tax law was lying. Because I think one of the things that we are concerned about is that “other” category, which involves medical research, animal welfare, international aid, donations to the arts—that’s the 29 percent that make up the other entities that are identified in the RIS. We do have concerns about a decreasing level of support for these entities and whether we can see whether or not there was a predominance—we have 8 percent of it going to schools and 63 percent going to religious and 29 percent going to other—where the mischief most fell within those three categories. Dr LAWRENCE XU-NAN (Green) (20:57): Thank you, Madam Chair. I too wanted to just follow up with the Hon Dr Megan Woods’ question and just ask one more layer from that. I think the distribution question based on what we see in paragraph 17 is important. But I also want to check on whether there’s been any analysis on, you know, with the $19 million that the Minister of Revenue has mentioned, what would be the impact to—for example, if it’s majority from schools, then will there be an impact on children; or either schools or religious or other, if there’s any particular understanding around what the impact is to certain Māori organisations as well? I only have one other short question for this clause, Madam Chair, before I’m going to move on to clause 8, but others may have questions for clause 7. My final question around this is around—oh, I don’t know where my final question went. I will move on to clause 8 and maybe I will remember what it is on this particular part. Just moving on to clause 8—I know that I’m moving on to the next major topic, which is around the calculation of family scheme income— CHAIRPERSON (Barbara Kuriger): I just want to double check if there’s a question on clause 6, and I’ll give you another call if there is. Dr LAWRENCE XU-NAN: OK, that would be great. Thank you. CHAIRPERSON (Barbara Kuriger): OK. The Hon Dr Deborah Russell. I thought you had another question on that— Hon Dr DEBORAH RUSSELL (Labour) (20:58): Yeah, thank you. I did have one final on clause 6, which I wanted to— CHAIRPERSON (Barbara Kuriger): Yeah. OK. Hon Dr DEBORAH RUSSELL: Yeah. Thank you, Dr Xu-Nan, and thank you, Madam Chair. A remark first of all and then the question. The Minister of Revenue said the reason we didn’t go down the donor-controlled charities route was because it’s complex. Complexity in the tax law has never stopped anything, Minister, but be that as it may. In terms of this legislation, though, I note that this doesn’t come into effect until 1 April 2027. The question is why this had to be passed under urgency. The Government has to put through an annual rates bill by 31 March next year. There was another completely suitable vehicle for this legislation going through. Now, I’m trusting that, in fact, I will be the person seeing that annual rates bill through the House, though the Minister might beg to differ. But nevertheless, it does say: why did this need to go through under urgency? It’s not as though it’s controversial. We know there are some issues to be sorted out. We also know there was a tax integrity issue that needed to be dealt with around charities. I would just like the Minister to let us know exactly: why? Why has it gone into Budget urgency? Dr LAWRENCE XU-NAN (Green) (21:00): Thank you so much, Madam Chair. I’ve remembered my second question now. My second question is around the amount of entitlement ceiling in options 2, 3, and 4. I note that there is 4,500, 15,000, and then 100,000. It seems to be quite a broad gap between option 3 and option 4, and I just want to check if the Minister has tested with officials on any of the range between 15,000 and 100,000 in terms of additional balance that will both provide tax integrity and those of fiscal sustainability. Just to say that both myself and my colleague Francisco Hernandez have got two amendments in there for, I think, roughly around 70,000 and 80,000 if the Minister wouldn’t mind considering that. Just to check with you, Madam Chair—oh, you know, I think the Minister’s ready to answer—just to signal that I’m ready to move on to clause 8. CHAIRPERSON (Barbara Kuriger): OK, thank you. Hon SIMON WATTS (Minister of Revenue) (21:01): Just in regards to the question from the member around Māori organisations, Māori are not expected to be disproportionately impacted. The member will note that. I’m not wishing to repeat again, but it is noted in the regulatory impact statement document in front of the member. Dr Deborah Russell: why is it being passed under agency? Well, this Government places a high priority on certainty and it allows people to plan. Helen White: Madam Chair? CHAIRPERSON (Barbara Kuriger): I do think from the period of time I’ve been in the House, I do believe that we have done clause 6. We’re moving forward, and Dr Lawrence Xu-Nan’s indicated that he wants to take a call on clause 8. Is this clause 8 or beyond? Helen White: No, this is my last question on clause 6, but I could keep it extremely short. CHAIRPERSON (Barbara Kuriger): We’re moving on from charities. I’m going to go to Dr Lawrence Xu-Nan, and we’re up to clause 8 now. Thank you. Dr LAWRENCE XU-NAN (Green) (21:01): Thank you, Madam Chair, and thank you for that very clear signal. I want to check with the Minister around clause 8, and I think I want to start by just kind of unpacking in terms of the calculation. I have a simple question and I’m sure other people have additional questions. I just want to check, I’m trying to go through all of the regulatory impact statement for this bill, but the first one that jumped out at me is that the original consultation for this was back in 2016; why has the Minister waited? I guess, why has this come about now after 10 years? That’s my first question and I have broader questions later on. Hon Dr DEBORAH RUSSELL (Labour) (21:02): I’m quite interested in this particular set of changes. They’re very rough. Well, basically, it’s some changes to the family scheme income for Working for Families tax purposes. Now, for everyone listening along at home, the way that Working for Families tax credits are calculated, they’re calculated off the basis of looking at what a person’s family scheme income is. And as I recall—I didn’t have time to look up the exact legislation, but family scheme income is basically taxable income, plus or minus some stuff. Those pluses and minuses are what we are talking about at the moment. The higher a person’s family scheme income is, the lower their Working for Families tax credit is. And the lower the family scheme income, the higher the tax credit. So if we decrease family scheme income, we increase a person’s Working for Families tax credit and vice versa. That’s why this becomes important because we’re tidying up some stuff around the edges, but it does give people some tax advantages—it can give people extra tax credits or take them away from people. The calculation is complicated. There’s lots of pluses and minuses. For some of them it is a good idea to tidy it up. So we do support this in principle, in terms of the tidying up. But what we want to be sure about is some of the particular pluses and minuses that have gone on here. The first thing I want to ask is not the particular pluses and minuses—when we get on to clause 8. But again, all these adjustments apply from the 2027-2028 tax year, so that is starting on 1 April 2027. So, again, why did this need to go through tonight under Budget urgency? Now, the Minister has said that in actual fact we need to provide certainty for taxpayers. That’s a very good point, except that that doesn’t quite stack up with some of the other stuff that’s gone on. For example, in the Budget announcements, there has been, very, very clearly signalled, some changes to fringe benefit tax and the way that cars are valued for fringe benefit tax purposes. But that legislation hasn’t appeared tonight. Perhaps taxpayers would like certainty around that as well. So why is this particular set of legislation in here when the rules around fringe benefit taxes are not? There are some changes to the foreign investment fund (FIF) rules, now extending the revenue account method to all taxpayers, and I’m sure that some of those people would like some certainty as well. In fact, it has been a regular complaint. I think the first tax inquiry I got into my office back in 2017 was someone who was upset with the FIF rules, and I agree that it needed to be changed, but how is it that that set of taxpayers don’t get certainty, but this set of taxpayers do. So it does seem curious, the particular items that have gone into this tax bill and the particular items that have been excluded from it. I don’t think certainty is going to stack up as an answer, Minister. Maybe the more straightforward answer is that we’ve just gotten so good at working our way slowly through tax bills as no one wanted to risk it. Hon SIMON WATTS (Minister of Revenue) (21:06): Yeah, well the member would understand that the success for tax is that it is quite boring and we want to take things quite slowly, because when you rush, you make mistakes. I remember the good old days of a number of mistakes that I had to tidy—you know, we had to go over here. In regards to this, we need this in force by December of this year, which allows the Inland Revenue Department then the ability to put in place the processing systems to get this in place so that individuals can be aware in February of next year. If we put it into the August bill, it won’t be passed until March or April of next year. And so that’s the reason, it is literally because of the operational need to have this ready by the end of the year. CHAIRPERSON (Barbara Kuriger): The Hon Dr Deborah Russell—I hope the member’s recovered from— Hon Dr DEBORAH RUSSELL (Labour) (21:07): —people saying that tax is boring! I thank the Minister for that explanation, that’s a perfectly plausible and good answer, so I appreciate him giving it. I do want to move on to all these adjustments to clause 8, “Section MB 1 amended (Adjustments for calculation of family scheme income)”. The first set of adjustments, “an amount derived by the person in the income year is not treated as exempt income if it is an amount referred to in section CW 32 (Maintenance Payments).”—phew! What it’s actually saying is that some overseas pensions and some salaries and wages paid under international agreements are treated as exempt from tax so that they’re no longer included in family scheme income. Remember I said that family scheme income was based on taxable income, so if it’s exempt from taxation, it’s no longer included in taxable income. So that means it’s not counted as family scheme income either. There’s a couple of questions there. The first one is why treat those as exempt from tax? Are they fully exempt from tax? So they are no longer included in family scheme income, does that mean that that income is completely tax free or is it only excluded from the calculation of family scheme income for the purposes of family tax credits? Hon SIMON WATTS (Minister of Revenue) (21:08): Yeah, I’m just going to let the members know—I mean, there’s a huge pile of amendments that have come on to the Table here—I’m not going to be accepting any of those amendments. They’re not aligned with what we’ve talked about; this is reasonably narrow and straightforward. So we are going to be spending about half an hour going through amendments that we’re going to be declining. So just to give the member a bit of feedback. Dr LAWRENCE XU-NAN (Green) (21:09): I want to continue on, and I think that the Minister of Revenue wounds us by saying that this is not an exciting bill! I want to check. There were my earlier questions, and also, I’d like to just pick up where the Minister has left off. I understand the Minister is saying this needs to be passed by December so there is certainty for the IRD by March, but I wanted to check that, because this is going to be only for the tax year starting with the taxation year of 2027-28, it would mean that, for those families who we are looking at here, they are not going to be able to see the potential benefits starting from when they do their tax returns on 1 April 2028, which is quite a while in advance. Could I just check with the Minister that that is the correct interpretation and that families are not going to have that option until that far in advance? That’s my first question. I wanted to pick up on what the Hon Dr Deborah Russell has mentioned in terms of the changes in clause 8(1), which is replacing section MB 1(2), and I wanted to just draw on the original in the Income Tax Act. That is part of section MB 1(2)(a), which is now to be removed, and it is the part about overseas pensions. I think that’s a really important part because there are different types of overseas pensions. There are the types of overseas pensions that are kind of like our KiwiSaver, and you can accumulate that, but there are also other types of equity or private schemes overseas. I know, for example, from a seniors perspective—one of the things that I get asked a lot by seniors with pensions overseas is that, while income is not means-tested as part of super, the overseas pension is means-tested as a part of superannuation. I just wanted to check whether this is something that also differentiates the different types of overseas pensions that we are seeing. I do have questions for—I guess that I wanted to also check and see. Clauses 8 to 12 kind of cover this similar block, and so I’m just signalling to you, Madam Chair, that they’re all part of the same issue, and I will be kind of moving and weaving through some of that. CHAIRPERSON (Barbara Kuriger): In that case, I’d encourage you to—because you can ask quick questions—go through that block of questions for those clauses, and that won’t prohibit the others from asking questions on those clauses. Dr LAWRENCE XU-NAN: OK, and I’m just signalling to you, Madam Chair, that that was the last part—pensions—that I needed to kind of set up a potential scene around. I will be asking more succinct questions from now. Hon Dr DEBORAH RUSSELL (Labour) (21:12): I have just one follow-up question on this particular clause, around these overseas pensions and salary, which I hope the officials can give some advice on. I’m just wondering how much of that sort of income was being counted for family scheme income purposes and if they have any data on that, as to just how much money was involved in the first place, and whether or not this change has a big fiscal impact. My guess is that it doesn’t, otherwise we wouldn’t be treating it in this fashion, but it would be good to get some assurance around that. Following on that line, clause 8(2) repeals a number of sections, and ordinarily I don’t really worry too much about repeals of sections, but in this case it does do that while moving in and out of family scheme incomes, and so it does have an impact. Again, by repealing section MB 1(5B), it removes the retirement scheme contribution exclusion from family scheme incomes, and the same question applies there, which is: does that increase or decrease family scheme income? Why is it a good idea to remove this from a calculation? How much of these retirement scheme contributions were going into being counted for family scheme incomes? Is there a reason for getting this exclusion in there? I found this one quite hard to follow, in that we actually wanted to support retirement savings, and so there’s no point in then decreasing the amount of family tax credits that we can get, because that contribution is included in the family scheme income—which gets quite complicated without a whiteboard to draw it on. For those two questions for the Minister, there is just a little bit of an analysis of the amounts of money involved, and then I actually have some rather more serious questions about the income equalisation scheme adjustment. Hon SIMON WATTS (Minister of Revenue) (21:14): Just in regard to the questions in regard to clause 8—and this is also related to clause 12—the macro, or the bigger, picture here is that we did the discussion document around empowering families in 2025. We got a lot of feedback around the challenges and issues for families in regard to calculating the entitlements and the need to provide information around the income aspect. We did a costing around actually removing the entirety of looking at that other income. It had a fiscal cost of just under $14 million. We then said, “Well, we already have de minimis. Why don’t we increase the de minimis from $5,000 to $8,000?” We went for that option—that costs us $3,000, because, obviously, we’ve got very limited funds—but the feedback and the feedback from the consultation signal that that would take a significant amount of compliance and pain out of this calculation process. What we’re trying to do here is make it easier for families to be able to comply and get this option. We also recognise and acknowledge that there are going to be a range of income adjustments required, and with a de minimis that is higher than the status quo, that allows more flexibility. That’s what’s going on here. It’s actually quite straightforward and simple, and I’ll leave it there. Hon Dr DEBORAH RUSSELL (Labour) (21:15): I take the Minister’s point that this is in some ways rats and mice, there’s not a lot of money involved fiscally, and it does actually make life a lot easier for people who are trying to do their family scheme income calculation. I accept all that. I do, however, have some rather more serious questions around repealing section MB 1(5D) and (5E), and both those subsections in the Income Tax Act mean that deposits to income equalisation accounts aren’t included in family scheme income. Now, it takes a little bit of explaining. Businesses in the primary sector have access to income equalisation schemes. Very roughly, how that works is that in a high-income year, rather than copping those higher tax rates at higher margins, a primary sector operator can pay some of what they have earned into an income equalisation account, and in a subsequent year they can pull it out and it comes back into taxable income again. It has to be actual money paid over. It’s held on trust, and the policy justification for this—it looks like it’s an outrageous concession to the primary sector, because you can manipulate your taxable income doing this, but it’s not. Look, in the primary sector, as we know, people are subject to droughts. They’re subject to all sorts of— Hon Andrew Hoggard: Labour Governments. Hon Dr DEBORAH RUSSELL: Actually, farmers always do better under Labour. They’re subject to all sorts of— Hon Andrew Hoggard: Oh, withdraw and apologise—withdraw and apologise! Hon Dr DEBORAH RUSSELL: Take a call—take a call. They’re subject to all sorts of events that mean that their incomes can fluctuate for reasons beyond their control, and it does make sense. The difficulty is that there doesn’t have to be an external event triggering whether or not a person may use an income equalisation scheme, and anecdotally, I know of some of my own relatives, actually, who have used income equalisation accounts to ensure that their family income was down below a sufficient level so that their children could get the student allowance, and things like that. Anecdotally, it does give the capacity to change one’s income levels around in response to events that are not necessarily the ones for which the scheme was intended. I understand why the Minister might want to include these income equalisation accounts in this calculation, but, to me, the difficulty is that unlike those other factors which have been taken in and out of the calculation for family tax credits, and the deposits into income equalisation accounts or withdrawals from it, it does lend itself to a degree of—I wouldn’t call it “aggressive”, but a degree of tax structuring, shall we call it? I’d like to know what advice the Minister received around that, to what extent there is data around how much income equalisation accounts are then counted or not counted in terms of family scheme income already, and, obviously, what the fiscal impact is. I just feel as though this does open it up for a little bit of mischief around Working for Families tax credits, and I’d like to hear at least a little bit of the advice that the Minister received on that. Dr LAWRENCE XU-NAN (Green) (21:19): Thank you, Madam Chair. As per what I’ve said before, I have just a couple of quick questions. The first one to the Minister is this: in the regulatory impact statement, I can’t see anything at this stage on the overseas pensions bit, as well as the superannuation bit that we see in clause 10. Would the Minister just quickly point me to where in the regulatory impact statement I would find any information on that? Hon SIMON WATTS (Minister of Revenue) (21:19): Just in regard to the overseas pensions question that was raised before, the overseas pensions are excluded from the family scheme income, which affects the Working for Families tax credits. There is a fiscal implication for that, of around $3 million over the forecast period. The member was also referring to the different types of pensions and whether that changes the deal with the different types in that context. The answer is yes. It applies broadly to overseas pensions for family scheme income, but only in terms of Working for Families—I’m not really giving page numbers. Dr LAWRENCE XU-NAN (Green) (21:20): No, actually, thank you, Minister; that is already incredibly helpful. I want to check with the Minister again, very quickly, on clause 10, because it also relates to the superannuation scheme and pensioners. Does that mean that the superannuation scheme is exempt from calculations for the family scheme income as well—that’s the domestic superannuation scheme? I just wanted to check— CHAIRPERSON (Barbara Kuriger): Keep going—keep going. The Minister will get up and answer the question. I know you had a couple of extra questions— Dr LAWRENCE XU-NAN: Yeah, just a few; very quickly. Thank you for the response on overseas pensions. Can I just check with the Minister as to whether there has been any consideration if, then, the overseas pension is not considered to be the family income scheme, and, as a part of this bill, has the Minister also considered changes to the superannuation scheme where overseas pensions will also be excluded from the superannuation scheme, so that way, people’s superannuation here will not be means tested as a result of receiving the overseas pension? That’s just my final question. Hon Dr DEBORAH RUSSELL (Labour) (21:21): I have a question on this; it’s not quite so much on tax, but it’s clause 13. It talks about a family scheme income from employment benefits, and it’s around employees not controlling shareholders. In this particular clause, it’s the income year which can be specified by the Governor-General. It’s done by Order in Council. That seemed odd to me. Let me just check that I had copies of the source legislation—I’ve lost track of it. I couldn’t understand why this was having to be done by Order in Council. It seems an odd way to do tax law. I know we do it in various places, but it just seemed to me to lend itself to some kind of, I guess, manipulation. I wanted to know why this particular change could be put in place by Order in Council instead of it just going through the tax law, as you would expect it to be going through legislation. There are, after all, many tax bills every year—a couple of them—so it seems odd to have something that could be put in place by Order in Council. Dr LAWRENCE XU-NAN (Green) (21:23): Very similar to the Hon Dr Deborah Russell, I too want to move on to clause 13 and clause 15. Going a little bit further from what the Hon Dr Deborah Russell said, I want to know more about “by Order in Council” —number one, because we haven’t had a chance for this to be examined by the Regulations Review Committee. I’m also concerned in terms of some of the regulation-making power that we do see here, because what we are saying is the intention of this section is that, by Order in Council, the Governor-General is, on the recommendation of the Minister, able to make certain changes to some of the things we have just been discussing, in terms of the exemption or in terms of—what’s the term that the regulatory impact statement used?—the declaration or things that no longer need to be declared. I wanted to check with the Minister: has the Minister explored whether this a “Henry VIII” clause? It does seem that the regulation-making power goes beyond what is expected and makes changes directly to the primary legislation in terms of exemption. That’s for clauses 13 and 15. Hon SIMON WATTS (Minister of Revenue) (21:25): Thanks, members. Let’s hope we’re coming to the end of this, which is good. Income equalisation structuring—I did consider that, Deborah Russell, and it’s not considered a high risk; that’s because of the fiscal impact being $3 million. Dr Lawrence Xu-Nan—are super schemes exempt? Yes, they are exempt. You had another question around superannuation and pensions in relation to Working for Families. That’s not in the scope of this bill. Hon Dr DEBORAH RUSSELL (Labour) (21:25): I just want to—sorry, Dr Xu-Nan, have you discussed section MB 10? Dr Lawrence Xu-Nan: Very briefly. Hon Dr DEBORAH RUSSELL: Very briefly. Sorry, I just want to check— Hon Dr Megan Woods: She’s thorough! Hon Dr DEBORAH RUSSELL: I’m thorough. This section in the original legislation excludes some exempt income from being included in family scheme income, so the effect of the repeal is to decrease the amount of family scheme income and, therefore, to increase Working for Families tax credits, I think, as I worked it through. Hon Dr Megan Woods: That’s right. Hon Dr DEBORAH RUSSELL: There’s some reassuring nods there. But, you know, this is still money that is coming into a household, so I’m sort of wondering why we’re excluding it from the family scheme income. It’s quite interesting looking through this particular piece of legislation around the family scheme income and what’s counted and what’s not counted, and to me it’s a little bit reminiscent of the definition of a dividend. If you look at a definition of a dividend, you’ve got the basic definition, and then you’ve got all of these things added to it over time as people have found ways around the law. I’m wondering if this was a section that was there right from the start, or if it was brought in at a later stage because, at that stage, people were aggressively tax planning around their Working for Families tax credits. It’s just trying to track down, again, I guess, that broad overall question of: are we being fair here? Working for Families tax credits do get changed around because of the amount of income in a household. If we are excluding some income that a particular household is getting, is that fair to the household next door, and so on? It’s a fairness question sitting in there. Hon SIMON WATTS (Minister of Revenue) (21:27): Yes, I mean, I’m sure we are, by increasing the de minimis, providing more flexibility for families—acknowledging this is a complex and difficult area. More de minimis gives some more optionality and more flexibility in there and, at one level, more fairness in the context of complying. The member also asked around Orders in Council. Primarily, the mechanism there in this instance is the ability to actually move faster and in a more timely manner to deal with any integrity issues that are identified with the adjustments—again, the annual rates bill that we will be tabling, with a number of announcements that we’ve made today, will miss the December implementation date. Dr LAWRENCE XU-NAN (Green) (21:28): Just signalling, Madam Chair, I’ve got one final question on clause 16 of this bill, regarding the de minimis, and then I’m happy to move on to, I think, the final block of Part 1 of the bill, which is around the Working for Families residence requirement. The final question I have—thank you, Minister, for your explanation—I do see in paragraph 16 of the regulatory impact statement where it talks about increasing the de minimis from $5,000 to $8,000, due to inflation. Has the Minister considered increasing it even further than that—for example, to $10,000? Hon SIMON WATTS (Minister of Revenue) (21:28): Yes, and I answered that before. It was fiscally not within the bounds we had available. Hon Dr DEBORAH RUSSELL (Labour) (21:28): There is one final set of changes that we do need to discuss, at least a little bit, and they are the changes around the residence conditions for Working for Families. Ordinarily for tax purposes, we worry about not residence as it’s defined by visa requirements, and so on; we worry about tax residence, which is calculated in a different way. Given that these are tax credits, we’d expect, for people to be eligible for them, for it to be done around tax residency, but this particular legislation now changes that. It says, “No, we’re not going to worry about tax residency any more. We’re going to have a different set of residency rules for eligibility to claim Working for Families tax credits.” I wonder if the Minister could please explain the reasoning behind that, because it’s quite an interesting thing to do within a tax Act—to step away from the tax residents rules. Could he tell us why this is a more appropriate way to go when it comes to determining the eligibility for Working for Families tax credits? Hon SIMON WATTS (Minister of Revenue) (21:30): I’m happy to do so. The basic premise here is that the residence requirements that we’re putting in place ensure that Working for Families is only paid to families who are living in New Zealand. That is therefore to help them with the costs related to raising their children. These rules are difficult for some customers to understand and therefore for IRD to apply. The reality, and what IRD has observed, is that there are instances where individuals are leaving New Zealand. Hence, by leaving New Zealand it puts at risk the principle that I’ve just noted, and hence we’ve put a limit on the amount of time that you are able to be outside of New Zealand before the Government stops paying this. Again, I think that’s reasonable based on the premise I’ve just outlined. Hon Dr MEGAN WOODS (Labour—Wigram) (21:31): Thank you, Madam Chair, and thank you to the Minister for that answer around what has been put in this legislation. There are some quite detailed definitions and scenarios, actually, given in the commentary on the bill, and I think they’re very useful. They do go through a number of reasons why people could be away. In developing these certain 42 days and the 42-day requirements and an absence of more than that, I just wondered whether or not this was a period of time that the Minister chose to align with other requirements in other pieces of legislation around physical residency in terms of the ability to receive pensions or other transfers within the welfare system and whether that was something the Minister took into account when reaching these definitions. Hon SIMON WATTS (Minister of Revenue) (21:32): Yes, the Minister did take into account those factors. We also considered a wide range of reasons why individuals do need to leave New Zealand, such as seeking medical care and attention overseas, and other complexities in regard to serious illness and injury, etc. We did a wide range of assessment around that and we landed on this, also taking into account the precedent. CHAIRPERSON (Barbara Kuriger): I’m going to take a call from Dr Lawrence Xu-Nan, but I do want to remind the people to my right that this is urgency and this is the first opportunity that the Opposition have had to see this, and we are working our way through methodically, and I’m happy that it’s progressing. Dr LAWRENCE XU-NAN (Green) (21:32): Thank you, Madam Chair. Just on what the Minister was mentioning, I know that I’m jumping a little bit but since we are on that topic—this is clause 18, “New sections MC 5B and MC 5C inserted”. In section MC 5C(4), we are looking at “Absence for other events”. I understand it’s around the 42 days, but this is the part that drew my attention, because all of these refer to either the person or the child, or a family member, seeking medical treatment that is not available in New Zealand. I want to check in terms of paragraph (b) specifically: if we get a situation where we have a migrant family—for example, my generation—whose parents potentially are back in China or India or another place and they cannot be here, would the person or the child seeking medical treatment not available in New Zealand also encompass family members to the person or the child who actually cannot be in New Zealand for treatment because they have no eligibility to be having treatment in New Zealand? That’s quite important because if, let’s say, people from the migrant communities need to go back because they are the only child and their parents are, for example, in China—they have to go back and look after their parents when their parents are going though medical treatment—their parents technically can get medical treatment that’s available in New Zealand but they cannot be in New Zealand for medical treatment because they have no eligible visa status. Would that scenario be considered under subsection (4)(b)? Hon Dr DEBORAH RUSSELL (Labour) (21:34): I am likewise interested in this “crisis event”, as to what constitutes a crisis event. This is new section MC 5B(7), in clause 18, and it states, “(a) means an unexpected global or regional event; and (b) includes an act of war, terrorist activity, political or social unrest, pandemic, or industrial action;” but it’s not expected if “(i) while the person or child was present in New Zealand, the New Zealand Ministry of Foreign Affairs and Trade had published a warning not to travel to a country affected by the event; and (ii) the person or child travelled to that country regardless of the warning.” Those all make sense to me. I just want to check—it means “an unexpected global or regional event” and it includes those things. Is that an exhaustive list, or is it possible that there would be other events that would prevent travel? Here I’m thinking of things like significant weather events taking out airports and things like that, which is entirely possible. I just want to know whether that’s an exhaustive list or just a list of the types of things that could be considered a crisis event? I think we’d all accept that a hurricane is a crisis event, but I want to know whether it’s sufficient to count in terms of its being a crisis event in terms of Working for Families tax purposes. Hon SIMON WATTS (Minister of Revenue) (21:36): Just to round this out, I think it would be unreasonable to try and define fully every unexpected event. What has been done here, when you talk about natural disasters, floods, bushfires, earthquakes, regional or global crisis events, is giving a signal of the degree of materiality of that unexpected event, in addition to medical attention not available in New Zealand, overseas, or taking care of a family member with serious illness or injury. We’ve gone across what you would expect would be the normal instances of that scale, and I don’t think there’s too much more to be added. Dr LAWRENCE XU-NAN (Green) (21:36): Thank you, Madam Chair. I’m still waiting for the Minister’s response to my question, which is not related to the emergency events but more related to the eligibility criteria under section MC 5B. That is an important question, and I want to check on that, looking at the fact that there were limited consultations according to the regulatory impact statement. Has, for example, even the Ministry for Ethnic Communities been consulted as a part of this process? Frankly, that’s probably the one community that would be most affected by the change we’re seeing here. That would be my second question. My third question: when we’re looking at the fact that the seven weeks—I’m just checking to see if there is any rationale for the 42 days that’s been given. I think it just says, based on the commentary on the bill, that 42 days is seven weeks, but I can’t seem to locate where it actually specifies why that is. Hon Dr MEGAN WOODS (Labour—Wigram) (21:37): Thank you, Madam Chair. I’m interested in proposed new section MC 5C(4), in clause 18, and section MD 7C(4), in clause 20, which talks about a principal caregiver or dependent, if present in New Zealand, and if they are overseas for more than 40 days for “any of the following reasons”, and one of those reasons is the death or serious illness or serious injury of the principal caregiver, dependent child or family member, or if they are seeking medical treatment, and a range of other things. I’m just interested in the interplay with the earlier rule in MC 5B(7), which specifically excludes “an event would not be considered unexpected”. So, for example, if someone went because of the death or serious injury of a family member and it was to a country that had a “do not travel” or red flag from the Ministry of Foreign Affairs and Trade, and while in that country a crisis event occurred—a pandemic, an act of war, a terrorist activity, political and social unrest, or industrial action. I won’t ask whether industrial action as an airline strike includes whether or not you’re willing to cross the picket line—I won’t ask the Minister to answer that question. But I am interested in how those two areas intersect and whether, if you have gone to a country with a red flag for one of those reasons, you’re still excluded from those provisions. Dr LAWRENCE XU-NAN (Green) (21:39): Thank you, Madam Chair. I’m just seeking the Minister’s engagement on my previous questions. I do have another question which is around this definition around the person, the dependent child, but again what I’m not seeing is the clarity in this bill. Again, noting that we’re just kind of trying to quickly analyse the bill urgently just this evening. What happens when you have a couple where one person and one dependant child is overseas, but the other spouse and potentially another dependant child is here in New Zealand? What happens then? If one half of the family is away for over 42 days but the other half of the family is here consistently, are they going to get half of the Working for Families scheme family credits or are they just not eligible altogether? Hon Simon Watts: Madam Chair. CHAIRPERSON (Barbara Kuriger): The honourable Minister. Hon Members: Ha, ha! Hon SIMON WATTS (Minister of Revenue) (21:40): I was just stretching there, Madam Chair. Anyway—Dr Lawrence Xu-Nan, I’ll just come off, just to finish this off. I do appreciate the questions. This was around the migrant family question. So the example given is covered by the bill. So the family would not lose their entitlement to credits. The question around agencies engaged: yes, as part of the Budget process, the Ministry for Ethnic Communities and other agencies were engaged. You also had a question around the 42 days aligning to anything which links back into school holidays, for example, and also Working for Families supports households with children of school age in most cases. That’s why the 42 days is school holidays. So that’s the logic behind that. Thank you. MILES ANDERSON (National—Waitaki) (21:41): I move, That debate on this question now close. A party vote was called for on the question, That debate on this question now close. Ayes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Noes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Motion agreed to. CHAIRPERSON (Barbara Kuriger): Mariameno Kapa-Kingi’s tabled amendment inserting new clause 3A is out of order as not being in the correct form of legislation. The question is that Dr Lawrence Xu-Nan’s tabled amendment replacing clause 4 be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Dr Lawrence Xu-Nan’s tabled amendment to clause 5(1), new subsection (9B) of section EW 29 be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Dr Lawrence Xu-Nan’s tabled amendment to clause 5(3) replacing “4 December 2025” with “1 July 2025” be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Dr Lawrence Xu-Nan’s tabled amendment to clause 6(1) replacing “$100,000” with “$80,000” be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Francisco Hernandez’s tabled amendment to clause 6(1) be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Dr Lawrence Xu-Nan’s tabled amendment to clause 6(2) replacing “1 April 2027” with “1 April 2026” be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Mariameno Kapa-Kingi’s tabled amendment inserting new clause 6A be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Dr Lawrence Xu-Nan’s tabled amendment deleting clause 7 be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Mariameno Kapa-Kingi’s tabled amendment to clause 8 inserting new subclause (1A) be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The amendments lodged by Dr Lawrence Xu-Nan and Francisco Hernandez to clauses 8, 9, and 12 to 16, which relate to family scheme income, to change the application dates of the amendments from “2027-28” to “2026-27” are a single proposition. I will put a single question on these amendments. The question is that Dr Lawrence Xu-Nan’s tabled amendments to clause 8(4), 9(4), 12(4), 13(3), 14(2), and 15(3), and Francisco Hernandez’s tabled amendment to clause 16(2) replacing “2027-28” with “2026-27” be agreed to. A party vote was called for on the question, That the amendments be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendments not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Dr Lawrence Xu-Nan’s tabled amendment to clause 13 deleting subclauses (1)(a) and (2) be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Dr Lawrence Xu-Nan’s tabled amendment to clause 15 deleting subclauses (1)(a) and (2) be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Mariameno Kapa-Kingi’s tabled amendment replacing clause 16(1) be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Dr Lawrence Xu-Nan’s tabled amendment to clause 16(1) replacing “$8,000” with “$10,000” be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Francisco Hernandez’s tabled amendment to clause 16(1) replacing “$8,000” with “$11,999” be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Dr Lawrence Xu-Nan’s tabled amendment to clause 17, new section MC 5(1)(b) replacing “all” with “any” be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Mariameno Kapa-Kingi’s tabled amendment inserting new clause 18A be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. CHAIRPERSON (Barbara Kuriger): The question is that Mariameno Kapa-Kingi’s tabled amendment inserting new clause 22A be agreed to. A party vote was called for on the question, That the amendment be agreed to. Ayes 55 New Zealand Labour 34; Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi. Noes 67 New Zealand National 48; ACT New Zealand 11; New Zealand First 8. Amendment not agreed to. Part 1 agreed to. CHAIRPERSON (Barbara Kuriger): Members, the time has come for me to leave the Chair. The committee is suspended until 9 a.m. Debate interrupted. Sitting suspended from 10 p.m. to 9 a.m. (Friday) Urgency