National, ACT and the Greens say they have concerns about the Government's new top tax bracket law over a potential loophole and privacy issues.
Labour promised during the election campaign to introduce a new top tax rate of 39 percent on income earned above $180,000, and it also assured New Zealanders of no new taxes or any further increases to income tax.
The Government is passing the law change through Parliament under urgency and MPs from across the aisle spoke out about two implications with the new law, including how trusts are taxed at a lower rate and how it could be manipulated.
"I didn't intend to make a call during this part of the debate but the reason that I have is because of the type of debate that we're presently having around taxation and around tax loopholes, particularly with regard to trusts," Green Party revenue spokesperson Chloe Swarbrick said in Parliament.
She pointed to advice provided to Revenue Minister David Parker from officials recommending that the 39 percent personal tax rate be implemented alongside an increase in the 33 percent trustee tax rate to thwart tax avoidance.
"If you have a business or partnership, you can distribute some of it to your trust, which pays a lower tax rate and is not further taxed if distributed to trust beneficiaries," economist Shamubeel Eaqub explained to Newshub.
Rather than bring the trust tax rate in line with the new income tax rate, the new law grants expanded new powers to the Commissioner of Inland Revenue to gather information from taxpayers to ensure the law is being followed.
Heading into the House for question time on Tuesday, Parker told reporters the Government would be keeping an eye on whether people were using the 33 percent trust rate as a loophole.
"Well, we're going to monitor it - if that behaviour becomes apparent then we'll move to increase the trust rate to stop that being used as an avoidance loophole," he said.
Swarbrick couldn't understand why the Government didn't just bring the trust tax rate up to 39 percent as officials had recommended, avoiding the implication.
"Why he didn't go for the simplest option for what was already being recommended by officials? Was it simply a matter of what was simplest to progress politically?" Swarbrick asked.
"Because ultimately, there is a massive opportunity here as outlined in his own documents and as recommended by officials... It would not be unnecessary to engage in these transparency measures, though they are welcomed."
ACT leader David Seymour took issue with the Commissioner of Inland Revenue's expanded new powers to look into people's finances. He said the law change should have gone through a select committee process given the implications.
"At least one tax Bill goes through Parliament every year and this matter could be properly considered by the Finance and Expenditure Committee over the next six months and incorporated into one of those Bills in a fit and proper state," he said.
"Tax, privacy and human rights experts deserve the opportunity to ensure that granting of such invasive powers meets the tests we expect and demand in a constitutional environment like New Zealand."
National MP Nicola Willis took a similar view.
"What this piece of law does is creates a massive new power for the Commissioner of Inland Revenue to require information or documents for an incredibly broad purpose."
Parker said one of the reasons why the Government chose to allow the Inland Revenue Commissioner more powers rather than raise the trust tax rate is because it promised not to during the election campaign.
"We knew that if we were to not follow through on what we promised to the electorate we would be criticised for doing so and that some people would have felt that we had not honoured our promises to the electorate," he said in Parliament.
Parker said the other reason is that trusts have a legitimate purpose. He provided an example of how trusts are used to protect the future interests of children with disabilities by putting aside money for them in the future when they need it.
"That child, despite their terrible circumstance, is already effectively in respect of the earnings through that trust paying 33 cents on the dollar. If we were to have moved on that to move the trust rate to 39 cents on the dollar, we would have been making that problem worse," he said.
"These things are complex."
