OVER 2,000 hack attempts and I finally broke into Andrea’s blog. (1) I should have known straight away her password would be CGT4eva. So here I am. Another rare left-leaning socially progressive tax expert.
This may be why Michael Wood, chair of the Finance and Expenditure Select Committee – politely and somewhat bemusedly – said to me: “you realise you are the only submission against this aspect of the bill….this should be interesting”.
The bill is now an Act of Parliament, the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019.
I was not the only submitter on the bill.
There were 268 submitters who opposed the ring-fencing of rental losses. Of course there were – some people might have to pay more tax. But, only one submitter (me), was opposing a tiny amendment that was also a blatant disregard for democracy and the rule of law.
And that tiny amendment created the Commissioner’s new superpower.
While Spiderman has quite an extraordinary power to climb, and Magneto has the power to control magnetic fields, much more useful than all that, the Commissioner of Inland Revenue has acquired the power to exempt taxpayers from tax law.
This power can be used to make a wide-reaching exemption for all taxpayers affected by the law, or limited to specific circumstances. You know – just special people.
The Commissioner may use her power to correct ‘obvious errors’ in the law. Or to give effect to the law’s intended purpose – as determined by the Commissioner – to resolve an ambiguity in the law, to reconcile inconsistencies between two laws or between the law and an ‘administrative practice’.
The last one is my personal favourite.
The Commissioner may grant the exemption where a tax law is inconsistent with the IRD practice on the issue. Wonderful. So unelected bureaucrats trump Parliament? Although yeah I get that Parliament has given the Commissioner this power. And this quite extrordinary superpower has been granted with little public interest.
There are two reasons for this.
First tax is apparently boring and doesn’t attract great public interest unless one’s own wallet is impacted. The usual submitters (tax geeks) generally represent business interests. The other reason is that the power is likely to operate only in a taxpayer’s interest, not against.
The provisions state that a taxpayer is not required to follow the Commissioner’s edict to exempt a law. Aha not so powerful after all. Taxpayers can choose to follow the strict letter of the law. In other words, this exemption will only be applied for the benefit of the taxpayer, not to their detriment.
So what’s my problem? My concerns are two-fold.
First, I am not comfortable with administrative functions being granted superpowers to circumvent law made by the democratically elected representatives. Second, I am concerned with who will benefit from these provisions.
Segregation of the duties of our government is one of the foundations of New Zealand’s (unwritten) constitution. Law making power is granted to the elected body – parliament – made up of members chosen by the people and crossing all spectrums of society.
Administration of the law is taken up by unelected employees of government. Granting law making (or breaking) powers to an official appointed by the State Services Commissioner crosses the segregation boundaries and undermines the process of law making.
Granting the Commissioner the ability to exempt a law because it is inconsistent with an administrative practice moves into the sphere of law making.
The third branch of government, sitting alongside parliament and the executive, is the judiciary – those who interpret and enforce law.
Granting the Commissioner the power to exempt taxpayers from a law because it is inconsistent with parliament’s intention steps on the toes of the judiciary. It is the judiciary’s role to determine what the intention of parliament might be.
My second concern is somewhat more pragmatic. Who is this superpower designed to benefit?
Most New Zealanders receive all their income from salary and wages and pay their tax through the PAYE system. Most New Zealanders have no need for an accountant and do not even file tax returns.
But if you have more complex financial affairs, you may need an accountant. And if you have lots of money, you might have a very expensive accountant with a great deal of expertise in money matters – including tax. You might have a very expensive lawyer as well. This is good news and has kept me in gainful employment through my working years.
Now, I have spoken with a few of my friends (who have accountants but not the expensive sort), and they tell me they are not aware of the Commissioner’s new superpower. They tell me they are unlikely to be requesting the Commissioner to use her new power in their favour due to – well – ignorance. I have an inkling who may be inclined to use the new provisions, however.
Perhaps those with more complex tax affairs. Perhaps those who use expensive accountants and lawyers. Perhaps those with access to tax knowledge and expertise.
Now the Inland Revenue officials who have reviewed my submission have said, “don’t worry” Alison. The Commissioner’s new superpower is “intended to only be used for minor or administrative matter where there are no, or negligible fiscal implications”. Which would be fine except that’s not what the legislation says.
The superpower is not at all limited to ‘minor or administrative’ matters. It is far broader than that. And as for ‘no or negligible fiscal impact’… what would be the point of exempting a law if there was no or negligible fiscal implications?
And once again, this is not exactly what the law says. It says the Commissioner may only use her power if there are no or negligible fiscal implications for the Crown. Now the last financial year produced over $80bn of tax revenue for the Crown. So I ask, what is negligible in the context of $80bn? Is $20m negligible?
This is up to the Commissioner to determine.
Now I do not mean to suggest any corruption on the part of our tax administration or our current Commissioner. But the law must protect the people from the potential for corruption. And this law steps well over that line.
The use of this superpower will be one to watch. But who will be watching? That is a conversation for another day.
(1) I note though that Andrea prefers ‘unauthorised access’ to ‘hack’. But as she invited me in – albeit not through a search bar – she can get over herself.
I note IRD has recently published this.
Excellent column! Thanks.
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Thanks for this Alison. It is great. Maybe next time Ill get the delayed publication thing right!