The Finance and Expenditure Committee has examined the Taxation Principles Reporting Bill and recommends by majority that it be passed. We recommend all amendments by majority. References to “we” in the body of the report should be read as referring to the majority.

The Taxation Principles Reporting Bill would establish a statutory framework requiring the Commissioner of Inland Revenue to report annually about this country’s tax settings against a set of core principles such as equity, efficiency, and certainty. The purpose of the report would be to improve the public’s understanding of the tax system, and to encourage informed debate about its future.

As part of our consideration of the bill, we have examined its consistency with principles of legislative quality. A number of matters were raised in submissions relating to principles of legislative quality, which we have sought to address in our recommended amendments. We wish to bring the House’s attention to our proposed amendment to clause 8 in particular, which as introduced would place a significant limit on the bill’s justiciability. We also wish to draw to the House’s attention our recommended amendment to clause 14, which as introduced represented a significant “Henry VIII” clause. These amendments are discussed in more detail below.

This commentary covers the main amendments we recommend to the bill as introduced. We do not discuss minor or technical amendments.

Clause 2 as introduced provides for the bill to come into force on 1 July 2023. This would give the bill retrospective effect, since that date has now passed. Chapter 12 of the Legislation Design and Advisory Committee guidelines states that legislation should have prospective, not retrospective effect.

We intend that the first of the reports provided for in Part 2 of the bill should be presented in December 2023. The commencement should therefore be before this date. We recommend amending clause 2 to set the commencement date as the day after the date on which the bill receives the Royal assent. This would allow the House time to complete its consideration of the bill and avoid a retrospective commencement date.

Clause 4 as introduced defines the Commissioner’s report by referring to clause 3. Clause 3 sets out the purpose of the bill, which is to oblige the Commissioner to report on “New Zealand’s current taxation settings in relation to the taxation principles in this Act, as measured using the approved taxation principles measurements”.

We think the definition of Commissioner’s report in clause 4 should be amended to state clearly what the Commissioner’s report is expected to contain, namely the wording quoted above from clause 3. The “approved taxation principles measurements”, as defined, would be those set out in clause 13 as well as any additional measures approved by the Commissioner under clause 14.

To this effect, we recommend amending the definition of Commissioner’s report provided in clause 4, and deleting the part of clause 3 that would be transferred to clause 4.

Clause 6 as introduced would require the bill to be applied in a way that is consistent with the public service’s obligations in relation to Te Tiriti o Waitangi. We acknowledge the importance of this requirement, and note that the Public Service Act 2020 already outlines the role of the public service in supporting the Crown in its relationship with Māori under the Treaty. We think that a standalone clause reiterating this obligation is unnecessary.

Moreover, our proposed insertion of clause 11(4) (see below) would require the Commissioner to take into account the impact of the tax system on different communities of taxpayers within New Zealand, including Māori. We therefore recommend deleting clause 6.

Clause 7 provides that the Commissioner’s rights and obligations in respect of their duties under the Tax Administration Act 1994 and other revenue Acts would not apply to their duties under the bill, except to the extent to which they relate to taxpayers’ information. It also provides that the bill would not affect quantification of a taxpayer’s liability under a revenue Act, nor any other taxpayer right or obligation under a revenue Act, except to the extent to which they relate to taxpayers’ information.

The purpose of clause 7 is to ensure that the Commissioner’s duty to report information on the tax system in relation to a set of tax principles would be separate from their duty to determine the amount of tax individual taxpayers should pay, and to collect the highest amount of net revenue possible that is practicable within the law.

Some submitters suggested that clause 7 as introduced would narrow the application of revenue Acts by more than is necessary to achieve this purpose. For example, they stressed that the bill should not override the fundamental obligation of Inland Revenue under the Tax Administration Act to protect the integrity of the tax system and to act independently of Ministerial direction. We agree, and therefore recommend amending clause 7 to remove the blanket disapplication of revenue Acts for the purpose of the bill, and replace it with a narrower reference to the specific duty under revenue Acts that would not apply, namely the duty to collect the highest amount of net revenue possible that is practicable within the law. We also recommend inserting clause 7(2) to confirm that the bill would not affect quantification of a taxpayer’s liability under a revenue Act.

Clause 8 would preclude Commissioner’s reports and the bill generally, including the taxation principles, from being used as evidence as to any matter of law or fact. It would also preclude them from being used in the interpretation of any matter of law or fact. The intent of the clause is to prevent the courts from using the bill’s provisions as evidence to interpret the meaning of tax law in other revenue Acts, such as the application of a law to impose tax or allow a deduction.

We are concerned that clause 8 as introduced might prevent the Commissioner from being challenged through judicial review for failing to meet their obligations under the bill. Also, clause 8 as introduced would appear to regulate the use of the reports and taxation principles by academics, media, and the general public, which runs counter to one of the bill’s stated objectives. We therefore recommend amending clause 8 to allow for judicial review as to the Commissioner’s duties in the bill, and to narrow the restriction on the bill’s use in the interpretation of law or fact for use in legal proceedings.

Clause 11 would require the Commissioner to give the Minister an interim report annually, and a full report every three years. Clause 11(1) would require the interim report to be given to the Minister before the end of each calendar year, for the tax year that ends in the calendar year, using the best information for that tax year that the Commissioner has on hand at that time.

We note that some taxpayers are provided with an extension of time to complete filing, which can be up to a year after the end of the tax year. The best information for an interim report may only be available for the relevant tax year after the calendar year has ended. We therefore recommend deleting the words “for that tax year” from clause 11(1).

Similarly, information used in the triennial reports might need to draw on information from tax years before the three tax years ending in the calendar year in which it is completed. We recommend allowing for this by inserting the words “using the best information that the Commissioner has on hand at that time” into clause 11(2). We understand that it is not the intent of the bill to present an interim report in years in which a full report is presented. We recommend inserting clause 11(3) to make this explicit.

Finally, we think the Commissioner’s report should inform the public of how different communities of taxpayers in New Zealand, such as Māori, experience the tax system in relation to the principles set out in the bill. This would reflect the public service obligation under the Public Service Act 2020 to support the Crown–Māori relationship. We recommend inserting clause 11(4) to provide for this.

Clause 14 sets out an approval procedure for the inclusion and exclusion of taxation principles measurements beyond the minimum set described in clause 13. Clause 14(1)(c) would require the Commissioner to notify a proposed new measurement by publishing a description of it, in a publication of the Commissioner’s choosing, at least 2 months before using it in a report.

We think the same requirement should apply when excluding a measurement that the Commissioner has included under clause 14(1), but that is subsequently judged by the Commissioner to be inappropriate for the purpose of the legislation. We recommend providing for this in clause 14(2).

Clause 14(2) as introduced would allow the Commissioner to exclude not just new measurements, but any measurements that they decide are inappropriate for the purpose of the legislation, including those described in clause 13. We think this is inappropriate. It would run counter to the intent of the bill, because the measurements described in clause 13 are intended to serve as an enduring minimum set of measurements.

Moreover, clause 14(2) as introduced would allow primary legislation to be overridden by secondary legislation. It is a type of “Henry VIII” power that would authorise a body other than Parliament to amend, suspend, or override primary legislation. The Regulations Review Committee has expressed the view that a Henry VIII provision should be included in a bill only in exceptional circumstances.

We recommend inserting into clause 14(2) the words “has included under subsection (1) but subsequently”, to make clear that the Commissioner’s power to exclude measurements would apply only to new measurements, beyond those set out in clause 13.

As introduced, clause 15 makes clear that the approval procedure in clause 14 for the inclusion or exclusion of taxation principles measurements is not secondary legislation. We understand that a recent change in approach to secondary legislation makes clause 15 obsolete. Secondary legislation is now defined as an instrument that is made under an Act if the Act states that the instrument is secondary legislation. In the absence of a clause stating explicitly that the approval procedure was secondary legislation, it would correctly be assumed not to be. We therefore recommend deleting clause 15.

Schedule 1 sets out the seven principles against which the tax system would be measured in reports by the Commissioner. We think these principles should be considered not individually but as a package, because they overlap and conflict and so require trade-offs and blending. We think the key principles, which relate to how a tax system is designed, should be framed in relation to the overall purpose of a tax system, which is to raise revenue, and in some cases to correct behaviour or market failures. We recommend inserting an introduction to the list of principles in Schedule 1 to this effect.

We recommend several amendments to the descriptions of the taxation principles set out in Schedule 1. Our main changes are discussed below; others are stylistic and we do not discuss them.

National believes that this bill is unnecessary. Tax policies are the purview of the Government of the day and tax policies change as new Governments are elected. This bill is an attempt by the current Labour Government to enshrine its own views on future governments. Furthermore, as the Legislation Design and Advisory Committee pointed out in their submission, the intent of the bill could be achieved through non-legislative arrangements, such as a Cabinet Direction.

Other significant issues identified by submitters, including The Law Society, Chartered Accountants Australia & New Zealand, and tax specialist firms, include the concern that the development of the Bill did not follow the Generic Tax Policy Process; it extends the excessive and invasive power to the IRD to require information from taxpayers in order to report annually on the Tax Principles; it has a significant risk that the bill will create “unintended and unforeseen consequences that need to be addressed”; and it allows the IRD to make changes to the specific Principles without reference to Parliamentary oversight.

Finally, many submitters highlighted that the principles contained in the bill introduce new terms such as “economic income” in the legislation, whereas the IRD’s current nomenclature refers to “taxable income”. Many thought the adoption of such terms politicised the purposes of the bill and was unhelpful. The Minister of Revenue was even warned by Treasury that “the statutory reporting framework adopted in the Bill could present a risk to the integrity, independence, and endurance of the reporting framework”.

If this bill is enacted, National will repeal the Act when elected to Government.

ACT will not be supporting this Bill as proposed. It is viewed as not necessary by our Party and does not enhance the existing New Zealand tax principles practised by the industry. The bill should be suspended until a new Parliamentary cycle is confirmed.