Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill

R DOUG WOOLERTON (NZ First) Link to this

When I finished speaking for 2 minutes, about a week and a half ago now, I was saying that New Zealand First, unlike the National Party, supports tax cuts wherever they may occur. Again, New Zealand First, unlike the National Party, supports superannuation savings wherever they may occur, be they small or great, or of a design we completely agree with.

In this case, the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill in its content includes KiwiSaver, which, by and large, financial commentators around the country are starting to become enthusiastic about. In the first instances they rubbished it completely, and in some cases said there was no need for the Government to introduce such a scheme. New Zealand First is pleased to see that KiwiSaver is encompassed within this bill.

Along with that, we are pleased to see tax credits for research, but we understand that that is something that has pitfalls in it. It is an area that has been open to rorting in overseas countries. We are very, very pleased that our taxation people have spent a lot of time studying the Australian example, because in this country if we are to be competitive in the areas we wish to excel in—namely, biotech and high technology areas of all sorts—we no longer want to aim our workforce at unskilled jobs and be the source of cheap exports. We want excellence in this country, and to have that we simply must have research and development of the highest order. If the Government wants that to happen, it must say so, and it must say so in the only sensible manner that business understands—which is to give business a tax credit.

There have been some issues from our State-owned enterprises. They have had concerns that, where they have been in partnership with private entities, they are not eligible for tax breaks. New Zealand First says that they should be, because they are funded by the Government. In those cases their partners, in being private enterprises, will have tax breaks available to them, and we think that that is right.

We implore businesses to play the game; we implore them to do what is right in this area. It would be a pity if our renewed experiences in taxation credits and in research and development were ones where we had businesses trying to rort the system. I have enough faith in our businesses to think that that will not happen, but we will just have to trust and see.

This bill also addresses the area of research and development in software. Overseas—again, in Australia—there has been a little bit of a problem whereby banks in particular have developed new software and attempted to gain a tax advantage on that by saying that it was research and development expenditure, when in fact it was just the redevelopment, or even a new development, of internal software. That is not what this bill aims to have happen, so those things will be looked at very closely if anybody has ideas of getting involved in that.

I think everybody understands that along with this bill there has been a rewriting of our tax law. Attempts have been made to line us up with Australia, which, members may be surprised to know, New Zealand First is very much in favour of. Wherever we can assist our businesses to line up with other countries with which we compete, New Zealand First is right in there voting for that on their behalf.

We are also very happy to see that the area of charitable organisations is taken account of. We in political parties all know—at least, I hope we all know—the huge efforts of people who work for no recompense other than the satisfaction of helping their communities. We are pleased to see that people who give money to, and help, charitable organisations in this country are at long last recognised and can get a tax break.

I think that is about all I wish to say on this bill. New Zealand First is wholeheartedly in support of it. Unlike the National Party, we support those areas that attend to savings, and in the past we have supported those parts that go towards tax reduction and, indeed, tax credits for research.

HONE HARAWIRA (Māori Party—Te Tai Tokerau) Link to this

Kia ora, Madam Assistant Speaker. Kia ora tātou e te Whare. Whenever Governments propose legislation they must also consider the views of those they purport to represent, and polls are sometimes a good indicator of those views. So it was a very important revelation when, a couple of weeks ago, the results of the Marae DigiPoll were released. It was all bad news for Labour’s Māori MPs, with 55 percent of Māori choosing Māori Party candidates and only 33 percent opting for Labour’s Māori MPs, and with the Māori Party candidates winning hands-down in six of the Māori seats and deadlocking in a seventh, for which we did not even have a candidate.

It was also a very clear indicator of Māori opinion that when pollsters were asked who their preferred Prime Minister was they chose three Māori—two from the Māori Party, and nobody from Labour.

Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this

In speaking to the second reading of this Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill, I want to make it clear, and to remind the House, that National is opposing this bill. We are opposing this bill because it resets income tax rates to exactly where they are today and to where they have been all year. If Labour believed in lower taxes, and if Labour believed in reducing income taxes, it could do that right now. In the next 2 weeks Labour could introduce a Supplementary Order Paper to this bill to bring down the taxes that New Zealanders pay. We know that Labour believes in tax cuts only in election years, and this year is not an election year. So Labour says: “To hell with ordinary New Zealanders this year.” Labour says that people can continue to pay the taxes that have enabled it to collect $22 billion extra every year in tax revenue compared with when it came to office.

It is no wonder that New Zealanders are getting really sick of this, when an average full-time income earner is now paying the top tax rate that used to exist before Labour came to office, and when three-quarters of our secondary teachers are now paying the 39c top tax rate that Labour brought in when it came to office. It is little wonder that ordinary New Zealanders are saying they have had enough of all of this.

When families are considered so poor that they receive Working for Families payments, yet they are on the top tax rate, that really is a stupid policy. They are considered so poor that they have to get tax credits from the Government when they have dependent families, yet they are considered so rich that they should pay the top tax rate. That is a really dumb policy, and that is why National is opposing this bill. If Labour genuinely believed in reducing income taxes, it could do it next week during the Committee stage of this bill; it could introduce a Supplementary Order Paper to bring down people’s income tax rates.

There are some bits of this bill that we do support. We support the lower corporate tax rate of 30 percent. We support the reduction in taxation on donations to charities—National’s policy, which Labour pinched. We support the changes to the unacceptable tax position penalties in respect of GST and withholding tax. That makes good sense, but I should point out that when this issue was last addressed when section 141KB was introduced into our law, we thought we would be dealing with these issues—and we did not. I suspect that this change will not deal with the issue adequately, either. The relief from unacceptable tax position penalties should really cover voluntary disclosure where people make simple mistakes, but this bill does not do that. If someone pays the correct amount of tax but files the wrong tax returns to pay it, that kind of mistake will still, after this bill is passed, incur the big tax penalties. That is just dumb. Why do we not encourage voluntary disclosure? This bill seeks to do it but does not go far enough. That is an issue that I think should be looked at during the Committee stage. Labour has not listened adequately on that particular issue.

There are a couple of big issues covered in this bill that I want to make some further comments on today in this second reading debate. The first issue is that of research and development tax credits. On 25 July this year the Inland Revenue Department briefed the Finance and Expenditure Committee on the policy of these tax credits, and we were told that the policy was essentially based on Australian tax credit policy for research and development. I will tell members what the Hon Shane Jones said. He is now a Minister; I cannot remember which portfolio he holds, but I congratulate him on his elevation to Cabinet. I wrote down in my book what he said to the Inland Revenue Department officials when we were briefed on 25 July. He said: “Let’s cut to the chase.”—we know how Shane talks; he is pretty much a straight shooter—“Has there been any demonstrable benefit in Australia in terms of economic growth from research and development tax credits?”. Well, the officials just stared back at him blankly. One would have thought that he had farted loudly, because the officials just stared back at him blankly. They did not expect the Labour chair of the select committee to ask them that. This is Government policy! Here he was asking them whether there was any evidence that this policy worked.

Just a few minutes later Shane Jones—chair of the Finance and Expenditure Committee at the time—asked again whether there was any evidence of any benefit from those research and development tax credits in Australia. The officials had to say that they simply did not know.

In theory, research and development tax credits kind of make sense. We want to encourage investment in research and development, because we believe it is a good thing to be doing. But members should remember that research and development expenditure is already 100 percent deductible for tax purposes. The research and development tax credit here is essentially a 15 percent tax rebate, on top of that 100 percent deductibility. Across the country right now we are seeing accountancy firms putting huge effort into advising businesses on how they can get so much of their current expenditure to comply with these new tax credits in order to get the extra 15 percent tax rebate on top of the 100 percent tax deductibility. That is the problem with this kind of fiddling with the tax system. So many submitters to the select committee pointed this out. They said that it would be better to lower tax rates than to try to pick winners.

Let me give members one example where I have a deep concern about this. Our Crown research institutes and our universities, which do most of the research in this country, are excluded from those tax credits. We can understand why; they are essentially Government-funded institutions, and the Government is saying that they should not get these tax rebates on top of their Government funding. But some of the most valuable research that is done in this country is done by joint investment between the private sector and those major research organisations—between private business and the universities, and between private business and the Crown research institutes. Yet where partnerships are set up to invest in research together, and where we get real synergy out of that investment, this legislation bars those private investors from getting the tax credits.

In other words, this legislation is against that kind of joint investment in research that produces some of the greatest synergy to get great ideas out there into the private sector. In some circumstances the private sector will be able to get tax credits, where it still controls companies and where there is joint investment, but the legislation is not as clear as it could be in this area, and, certainly, for much joint investment the private sector will not get the tax credits. I think this is an issue that the Government should be looking at before this bill completes its Committee stage. It should be looked at again, because that joint investment is just so important for New Zealand’s future development.

Finally, I will make some comments about the KiwiSaver provisions. This legislation essentially sets up the framework for the employer contributions; the post-Budget legislation set up the framework for the employee contributions. The submissions were fascinating. Representatives from Business New Zealand came along to the Finance and Expenditure Committee. This is not the Business Roundtable; these are the ones who are supposed to be friendly with the Government. They came along and said, bluntly, that the Government had ambushed employers with this legislation. Those were their words—the Government had “ambushed employers”. That was what they actually said to the select committee. We can understand why, because this legislation will be “ongoing industrial sandpaper”, to use Business New Zealand’s own words again. That was what it said to the select committee—ongoing industrial sandpaper.

Do members know why that is so clear? The reason is that where one employee does not have, say, a dependent family, he or she can afford to make the 4 percent contribution that goes into this scheme, but another employee cannot afford to go into the scheme, because he or she might have a dependent family or home mortgage. As Hone Harawira said, many Māori families will not be able to go into this scheme. If the employer says that this person will go into the scheme and will get employer contributions on top of his or her wages or salary but this other person will not, then the remuneration package of the person who is not going into the scheme will be less. So what does the employer do? Does it say it will pay that person a bit more cash to make up for it? We can see the ongoing tensions between employees who go into the scheme and employees who do not.

There were issues that were not properly resolved. The Council of Trade Unions wanted flexible arrangements for lower-income workers who go into the scheme, where they could make a 2 percent contribution and work with employers on how to get the total contribution, and for 16 and 17-year-old workers to be able to join the scheme. Why does Labour hate young people so much? Why have those members banned 16 and 17-year-old workers from joining the scheme? Why do those members hate 16 and 17-year-old workers? Why do they hate older workers? If people are over 65 and are still working, then they cannot join the scheme. Why do Labour members hate people over 65? This is the stupidity that this kind of legislation throws up. If one is a working person in New Zealand, then one should be able to join this scheme, if the scheme is any damned good. Why has this Government locked out young people—16 and 17-year-olds—and why has it locked out old people?

There are real, ongoing issues with this bill. I must say that the one positive thing is that the Minister said these provisions would be reviewed after 3 years, although we must be clear that the excessive taxation, regulation, and compliance costs of this legislation will simply add to the problems of the collapse in our economic productivity growth in this country.

JUDY TURNER (Deputy Leader—United Future) Link to this

I do not normally take a call for my party on tax law, as it is not something I pretend to be an expert on, but this legislation represents for me personally our finest hour in my involvement with United Future with regard to the rebates on charitable donations. That is the sector I came out of prior to coming to this House, and this is something that has been dear to our hearts since 2002. To finally see this legislation before the House today is a very exciting thing.

What does this legislation do? First of all, let us clarify that on estimate, 1.3 million people in this country take part in voluntary activities. Donations to charities and to other non-profit organisations amount to about $356 million, and that is just from people who claim tax rebates for their donations. So for many, many New Zealanders this provision in this Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill represents something that they have been looking forward to for a long time. Certainly, in meetings the Hon Peter Dunne and I have had with people from the charitable and voluntary sector, they tell us they are absolutely thrilled.

I would challenge the National member who took a call previously and who tried to take some credit for this policy. I have National’s brochure sitting on my desk right now. It has a photo of Paula Bennett and John Key espousing and supporting the policies that this tax bill now delivers. Obviously this policy has been National’s policy only since John Key became the leader, but United Future negotiated and secured this deal straight after the 2005 election. Who was leader of the National Party then? It certainly was not John Key. For National members to start to claim that this is somehow their policy and that the Labour Government has stolen it from them is a very shallow claim. The evidence is made very clear by those members’ own brochure, with their new leader and new spokesperson for the charitable and voluntary sector.

CHARLES CHAUVEL (Labour) Link to this

As the newly elected chair of the Finance and Expenditure Committee—

CRAIG FOSS (National—Tukituki) Link to this

I rise to speak on the second reading of the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill. I am speaking on a day that is actually a sad and tragic day. This day is when the Prime Minister with her arrogance and her arrogant Government will soon be jumping on her bulldozer to try to push through the most Draconian, anti-democratic, and disgraceful bill that New Zealand has ever seen.

Hon PAUL SWAIN (Labour—Rimutaka) Link to this

We live in curious times when National, when presented with a bill that introduces a research and development tax credit, which for as long as I have been here National members have either been talking about in Government or promoting in Opposition, votes against it. The bill cuts the company tax rate from 33c to 30c, which National members talked about in Government but never did—I remember that in 1990-99—yet National is voting against it. National members always talk about the fact that company tax rates are too high, but when they had the chance in 1990-99 to change them they never did. Here National members are now, presented with legislation that allows that to happen, and they will vote against it.

This legislation increases the tax incentives for people in companies to make charitable donations, which is something that National members have also talked about. They get presented with the legislation and they vote against it. When legislation appears that liberalises tax penalties so as to encourage voluntary compliance with the tax regime—which is something that National has campaigned for alongside Rodney Hide from ACT over many, many years—they vote against it. It is unbelievable that National can vote against research and development tax credits—for which the business community has been calling for, for a very, very long time—and vote against a corporate business tax rate cut from 33 percent to 30 percent.

I think the business community needs to understand that on this kind of thing the National Party is all hat and no horse. Its members talk about tax reform, but when they get the opportunity to vote on it they oppose it. It is an absolute, unbelievable outrage that National can go around and parade itself as, somehow, the business-friendly party.

There are just a couple of quick comments I want to make. Firstly, I want to make one on the KiwiSaver regime because a number of people have talked about that. Then I want to talk a little bit about the research and development tax credit and address the issue that Lockwood Smith raised, which I thought was quite a fair point.

The first point is on the KiwiSaver scheme. Everyone recognises that compared with other countries overseas New Zealand’s savings rate is low and we have to do something about it. When we look at the countries that have sustained better economic growth than New Zealand—even though we have had pretty good economic growth over the last 5 or 6 years—we see that all those countries that do better than us have a much better savings regime.

This savings regime that we are promoting—“KiwiSaver I” introduced it and “KiwiSaver II” introduced the employer contribution—does a number of things; it allows a number of things to happen. First of all, it promotes security in retirement. I was amazed to hear the Māori Party oppose this legislation on the basis, somehow, that Māori should not be secure in retirement. I simply just cannot believe that the Māori Party, which is supposed to be talking about the future, is harking back to the past all the time. Its members are always whingeing, always grizzling, and always moaning. Here is an opportunity for Māori in particular to actually get decent security in retirement and the Māori Party members are thumbing their noses at it. I think it is ridiculous. Security in retirement is a critical thing.

The other critical thing KiwiSaver does is reduce consumption. It takes pressure off inflation, and therefore takes pressure off interest rates, which is a good thing for those people who are looking to try, for example, to own their own homes. So that is a good thing, as well. Of course, the final thing KiwiSaver does is that it starts to create and generate a pool of local investment capital that business can use instead of constantly going offshore and thereby picking up the problems of the exchange and interest-rate risks that are associated with that.

No one disagrees with the idea that we need better savings; I have not heard anyone say that. But everyone says: “You should not do it that way; you should do it some other way.” Well, here is the way that the majority of us on the Finance and Expenditure Committee thought was the best way and I think it has huge support across New Zealand—as the chair of our select committee went on to say during his speech. The Māori Party asks why we did not just phase something in and says that 4 percent is too high. Of course, the select committee did come up with some changes. We said that, in the end, the minimum contribution from the employee up until 1 April 2010 should be 2 percent and so should the employer minimum contribution. It is a phase-in period where the total contribution will be 4 percent. That is up to 2010. By the next year, it will be three plus three—3 percent from the employer and 3 percent from the employee—making the contribution 6 percent, and phasing in the total contribution after 2011 to four plus four, or 8 percent. So we did listen to a lot of the submissions and brought in some transition periods, and that is a good thing.

Just finally, I return once again to the tax credit for research and development. The Hon Dr Lockwood Smith says that this tax credit does not apply to Crown research institutes that enter into partnerships or joint ventures with private companies. That is not actually true; it appears that way on the surface. Dr Smith acknowledges that tax credits could not be applied automatically to Crown research institutes because they have already been Government-funded. People came to the committee and said we could not allow Crown research institutes to double-dip. We could not put a whole pile of tax money into them on the one hand and then give them round the back door a tax credit.

So the argument settled on what happens if a Crown research institute enters into a joint venture with a private company. That is a fair issue. The point is that most of those joint ventures are fifty-fifty arrangements. If they are fifty-fifty arrangements, then the tax credit does not apply to that joint venture. But if the joint venture is restructured so that the private sector has 51 percent ownership, then it can get the tax credit. So the Crown research institute has to work out that if it wants the tax credit, it has to lose some of the control—it is as simple as that. Crown research institutes can get the tax credit if they are prepared to restructure themselves in the interest of the joint venture. That was ultimately the point that was made at the select committee and I do not think it is right for Dr Smith to say that somehow this will kill off these joint venture arrangements. It will only kill them off if the joint venture or the partnership cannot restructure—which is what my recommendation to those joint ventures would be, if they want to take advantage of that tax credit.

In conclusion, this is thoroughly good legislation. It is classic, good Labour-led legislation that promotes savings, promotes investment in research and development, and also promotes business confidence by reducing the company tax rate.

I end where I began. Here is an opportunity for National to vote for tax reductions for business and it decides that it will vote against them. The National Party members will vote against a cut in the company tax rate from 33 percent to 30 percent. People may ask why National members would do that. I say to people in business that they need to be able to talk to their local National member of Parliament and ask him or her: “Here was the opportunity to vote for a cut in company tax, which you have been talking about for years, and you voted against it. Why was that?” I can tell members that I was on the select committee and I am still at a loss as to understanding that. It is one of the great National mysteries of all time, like the mysteries associated with such things as climate change and other matters that National seems to be flip-flopping on. The second issue is that National members are voting against the research and development tax credit, when they, and the private sector, have been talking about it for years.

The final thing I say is that when it comes to the election next year, voters need to look at National’s approach to KiwiSaver, because its members have been very, very vague on that. The book called The Hollow Men states: “Be vague going into the election”. I say to the New Zealand public, who have overwhelmingly endorsed KiwiSaver, that if they vote National, that KiwiSaver programme is in peril. It is in peril because National will fiddle with it and will ultimately get rid of it. It says in that book that National will say one thing during the election campaign and do something different afterwards.

I think this is great legislation and it is unbelievable that National is voting against it.

TIM GROSER (National) Link to this

The member who has just spoken, the Hon Mr Swain, is, of course, far too experienced a parliamentarian to believe a word of what he has just said. If that had come from certain other members of the Government, whom I will not mention, we might accuse them of naivety, but we will not accuse Mr Swain of that. Mr Swain has been around here long enough to know that what he said is completely and totally implausible. It would be hard to write up a bill of these dimensions that did not contain individual bits that every single party in this House would support—and this bill is no exception to that. But we are talking about the centrepiece of this Government’s economic strategy—the single most important aspect of being in Government, and the single most important responsibility of being on the Treasury benches. The National Party is looking for some policy coherence in the last three terms of this Government; this bill does not give that policy coherence. That is why the National Party opposes this bill. Mr Swain knows that perfectly well. Amidst the barrage of adjectives from him about being outraged, amazed, and whatever you will, he knows that that is the central reality.

When I got hold of this massive bill, the old saying “Brevity is the soul of wit.” came to my mind. Members who remember the Shakespearean origins of that saying, which is from Hamlet, will know that the word “wit” in Old English means wisdom. If it was translated into modern English, that well-known saying would be “Brevity is the essence of wisdom.” I will confine my comments to one small passage in this entire bill that I think personifies the very saying “Brevity is the soul of wit.”, and it is the minority view of the National Party. It is only 26 words long, and I will quote the minority view of the National Party: “The National Party recognises that the company tax rates will be dropping to 30 percent,”—exactly the point I made before, I say to Mr Swain—“but we believe that personal income tax rates should also be lowered.” I do not think, in the 2 years that I have been here, that I have ever seen a minority report that does these two things: first, express itself in the briefest possible form, and, second, nail the essence of the reason why the National Party is opposing a taxation bill.

We know perfectly well, as we have been told this by the Prime Minister, that next year, after the Government has built up the kitty, there will be some political manipulation of the very issue addressed by the National Party in its minority report. My best bet is that the Government will make some adjustment to the brackets in order to take some account of bracket creep, after having failed to recognise the essence of the problem for 7 or 8 years to this date. But that will not represent a road to Damascus conversion on the part of Dr Cullen. Dr Cullen, the great surplus denier, has had no conversion on this particular road. Dr Cullen has recognised the need to manipulate the taxation regime of this country, which is central to the functioning of a market economy, for political ends.

I imagine that few New Zealanders will be interested in listening to a parliamentary debate on this taxation bill, but I suspect many New Zealanders are probably now starting to turn up their dials in order to listen to the debate on the next bill that will follow this one, which is on a bill of vital constitutional importance to this country. To those New Zealanders who are starting to tune in, let me just make this point: in a sense, the two bills are linked. After 8 years of failed economic stewardship of this country, the next move by this Labour-led Government is to shift the goalposts politically, and to cover up the failure of its economic stewardship. We know that the chickens are finally coming home to roost.

There was so much wind in the sails of the New Zealand economy when this Government took over in the year 2000. In the previous calendar year the growth rate had been 4.3 percent. The growth rate in labour productivity in the 3 years prior to the Government coming into office averaged 3.5 percent—