Taxation (Business Tax Measures) Bill

Hon PETER DUNNE (Minister of Revenue) Link to this

I move, That the Taxation (Business Tax Measures) Bill be now read a first time. At the appropriate time I intend to move that the bill be considered by the Finance and Expenditure Committee, that the committee report finally to the House on or before 23 March 2009, and that the committee have authority to meet at any time while the House is sitting, except during oral questions, and during any evening on a day in which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c).

This bill gives effect to many of the tax assistance measures that were announced by the Government last week as part of its relief package for businesses, particularly for small and medium sized businesses, which make up the bulk of New Zealand enterprises. These tax changes are aimed at easing the burden of tax on the cash flow of smaller businesses and making it easier and less expensive for them to pay their taxes. For many businesses, cash flow is particularly tight at present, and even in the best of times it takes time and effort to meet normal tax obligations. Some of the proposed changes contained in this bill will allow businesses to hold on to tax moneys longer. Others will lower costs by reducing the number of forms businesses have to fill in, the number of calculations involved, and the number of payments businesses have to make.

Not every tax measure in the package announced last week is contained in this bill. Indeed, one of the more important changes was made by Order in Council last week. That gave effect to reduced use-of-money interest rates for underpayments of tax, from 14.24 percent to 9.73 percent, and for overpayments, from 6.6 percent to 4.23 percent. Those new rates will take effect from 1 March.

Another very important tax change that was announced last week is the removal of the 5 percent uplift ratio in the calculation and payment of provisional tax—a change that is included in this bill. Businesses pay provisional tax instalments throughout the year, and for many that is a heavy commitment, especially in the current economic climate. To estimate the amount of tax they have to pay in the coming year, those paying provisional tax use the previous year’s income and add 5 percent to the total. That extra 5 percent is known as the uplift factor or ratio. Underlying the extra 5 percent is the assumption that income will, in fact, grow over the new income year. However, given that we are clearly in a time of negative growth nationally, that is not a fair or helpful assumption to make in terms of those in our small and medium sized business sector, and the burden it would impose on them needs to be removed. For that reason the uplift is being cancelled for the current and next income years. That should help relieve some of the pressure on small businesses by allowing them to hold on to tax moneys a little longer. The longer the money stays in their pockets, the more robust their financial position will be in these tough times.

The bill also makes it possible for a greater number of individual taxpayers to use the standard uplift method of provisional tax rather than estimating their income, thus reducing their compliance costs and their exposure to use-of-money interest. This change was part of the omnibus taxation bill that was introduced in July last year, but has been included in this bill to ensure its more speedy enactment. It is particularly important that the Government moves with speed, clarity, and determination in times such as those we find ourselves in today.

The bill also proposes practical changes to a number of tax thresholds. Similar amendments are part of the July tax bill that I referred to a moment ago, but in many cases the threshold measures in the present bill have been enhanced. Again, the proposed threshold changes can lower costs for many businesses by reducing the number of returns they have to fill in, the number of calculations they have to do, or the number of tax payments they have to make.

Some of the measures will also allow businesses to hold on to money longer. The GST payments threshold will be raised from $1.3 million to $2 million. That will allow more businesses to enjoy the cash-flow advantages of accounting for GST when payment from invoices is received, rather than when invoices are issued, in which case there can often be a big time lag or, in some cases, non-payment. The income threshold over which GST registration is mandatory is being raised from $40,000 to $60,000. That means that businesses whose GST turnover is below $60,000 can opt out of the GST system if they wish to, thus removing the costs of accounting for GST. Still on the subject of GST, the bill raises the turnover threshold under which businesses may make their GST returns 6-monthly instead of 2-monthly from $250,000 to $500,000. Businesses with a highly seasonal income in particular may well find this change helpful.

The PAYE once-a-month filing threshold is being raised from $100,000 to $500,000, which will allow more employers to file PAYE returns and pay PAYE once a month, rather than twice a month as at present. Again, this is a small but important measure to ease cash flow. The threshold under which businesses may file fringe benefit tax returns annually is also being raised from $100,000 to $500,000. That will allow a greater number of employers to file their returns once a year instead of quarterly. That should certainly save time and money spent on interacting with the tax system. Still on the subject of fringe benefit tax, the bill increases the value of minor fringe benefits—small things such as flowers and chocolates—that can be provided to employees without attracting fringe benefit tax. That figure rises from $15,000 to $22,500 a year per employer, and from $200 to $300 per quarter per employee. The changes mean that fewer employers will have to account for fringe benefit tax in relation to minor, unclassified benefits that they may provide to their employees.

In a similar vein, the bill introduces a new $10,000 threshold for business-related legal expenditure. If a business in a given income year has a total bill for business-related legal fees of $10,000 or less, the entire amount will be tax deductible, without the business having to identify which amounts relate to non-deductible capital expenditure, and which relate to deductible revenue expenditure. That will obviously save businesses time and money.

These are the main changes proposed in the bill. The measures announced by the Government last week represent a $480 million package—a nearly eightfold increase on the cost of similar measures in the tax bill that I introduced in July. As I have said on a number of occasions, short of abolishing tax altogether, no single measure will reduce tax-related costs for all businesses. A change that reduces costs for one business may not affect a smaller or a larger business, or a business with a different income flow. But I believe that the changes proposed in this bill, taken as a group, will help relieve the pressure many businesses are facing at present with regard to cash flow. The bill will make it easier and less expensive for them to pay their taxes, and will help them, through this difficult time, to survive and to continue to be good employers. That is an important goal in the interests of business, but it is also in our national interest, and for that reason I commend the bill, with pleasure, to the House.

Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this

Labour will support the Taxation (Business Tax Measures) Bill as a small step in the right direction. In so doing, we point out that we have just witnessed one of the modern miracles of MMP. The member who has just resumed his seat—small but perfectly formed—which seems appropriate to this tax package, was indeed also the former Minister of Revenue, who worked on many of these items during the time of the previous Government, so he knows well that what we have here is essentially a continuation of previous thinking.

In my remarks today, I will take the House through some of those commonalities and illustrate where the thinking really does reflect what Labour was doing anyway. I ask who would dispute the idea that we need to cut some red tape, lower some compliance costs, and ease the burden on business, because we all need, particularly at this time, New Zealand businesses to be able to employ, improve their bottom lines, and cope with the cold winds that are coming in from overseas. The second part of my remarks will balance that with a recognition that this bill is in no way a sufficient response to the challenges that we see.

First, I refer to the content of the bill. As the previous speaker has illustrated, the bill contains several measures in the area of tax simplification and forms part of the recent package announced by the Prime Minister, which includes several elements already implemented through Order in Council. The first of those was the reduction in the use of money interest rate. Of course, that is the rate that the Inland Revenue Department charges a business if it underpays its provisional tax. The Government has generously reduced that from 14.24 percent to 9.73 percent. Labour’s policy was to make it reciprocal with the credit interest rate that a business would get if it overpaid, which has now been reduced to 4.23 percent. In other words, under the current Government, businesses will still pay twice the use-of-money interest rate that they would have paid if Labour had been re-elected and implemented the policy that we had already signed up to before the election. So that provision is as good as far as it goes, and it goes only half as far as Labour would have gone anyway.

The second one is implementation of a higher GST payments basis threshold. Labour had already commissioned advice on that matter, and we had already signalled that we would raise it. The GST registration threshold is similarly raised, and that was already a measure contained in Labour’s previous tax bill. Businesses with $10,000 or less of business-related legal expenditure can claim deductions for that—good news for lawyers! The PAYE once-a-month filing threshold is raised from $100,000 to $500,000. It was already Labour’s policy to increase it to $250,000, and I think it is fair to say that with the current events that would likely have been reviewed upwards.

It is the same with the changes to the fringe benefit tax annual filing threshold. It was already Labour’s policy to increase that from $100,000 to $250,000, so again in this bill we are seeing the implementation of policy that was already in the works anyway. That is no bad thing. I am pleased to see the Government doing it, and happy to support it on the way through, but I just want to be very clear about the fact that it was already in the pipeline.

Of course, there are some grab-bags here of tax simplification measures where the bill fast tracks certain things, like ensuring that fringe benefit tax liability on vehicles is simplified, “safe harbour” thresholds for provisional tax, use-of-money interest increases, lower stock trading thresholds, and GST 6-monthly filing return thresholds. The thing all these seeming details have in common is that they were already in Labour’s tax bill. They were already there. By giving it urgency, we welcome the fact that the Government is implementing Labour’s policy. Good on it, I am happy to support it, but that is where the nice stuff ends, because this is in no way a sufficient response to the crisis we face.

Now, members may have thought when they woke up this morning and read their Dominion Post that they had fallen on to a different planet, because there in Tracy Watkins’ excellent column was the chief economist of the International Monetary Fund telling us that Governments around the world must “commit … whatever it takes to avoid a depression.”; “Above all, adopt clear policies and act decisively … Do too much rather than too little.” In other words, no less than the chief economist of the International Monetary Fund is telling New Zealanders we need to do something more like the Rudd package. The difficulty this Government has is that the so-called rolling maul of initiatives is really drip-feeding. Businesses are telling us that they do not want to be drip-fed, and they certainly do not want to be drip-fed only a rehash of stuff they knew was in the pipeline anyway. It is like putting a new set of clothes on something that was already there.

Hon BILL ENGLISH (Minister of Finance) Link to this

I rise to support the Taxation (Business Tax Measures) Bill. This is part of the Government’s overall plan to deal with the particular challenges that the New Zealand economy faces.

The member who has just resumed his seat has overlooked the fact that under the previous Government, somehow, well before the rest of the world and long before the global crisis, New Zealand managed to get into its own recession. In fact, that has been one of the events, one aspect of history, that has to some extent hamstrung the choices of the incoming Government. The member also suffers from the delusion, which is widely shared among Labour members, that to announce something is to do it. Well, it is not. In Labour, to announce something is certainly not to get any money for it, let alone to make any decisions about how a measure might actually be implemented.

Hon DAVID PARKER (Labour) Link to this

The Labour Party will be supporting the Taxation (Business Tax Measures) Bill. I take issue, though, with some of the comments made by the Minister of Finance, who has just resumed his seat, which were trying to redraw history. He was trying to say to the electorate that the National Government inherited a very poor set of accounts, that it inherited problems with unemployment, and that the country was heading in the wrong direction—all of those are fictions.

Let us deal firstly with the question of unemployment. The Labour Party places a high value on employment growth and a high value on low unemployment. Keeping people employed is always at the centre of a Labour Party policy agenda. Employment is the best way to share income and wealth. Reliance on a benefit is very much a poor relation to having a regular income from a job, particularly in a country where the minimum wage was raised by Labour from around $7 an hour to $12 an hour under our watch. During the time of the previous Labour Government, unemployment dropped sharply. In fact, it dropped so sharply that for the last couple of years New Zealand regularly traded places with South Korea as to whether we had the lowest unemployment rate in the world or the second-lowest unemployment rate in the world. That is what this current Government inherited: a legacy of low unemployment built through sound economic management and prudent fiscal policy on the part of the Labour Government—not high unemployment.

This Opposition will hold the National Government responsible for unnecessary rises in unemployment. There is no doubt that unemployment is on the rise around the world. Although we in Labour do not hold the National Government responsible for all rises in employment, we will hold it responsible for the excessive rises of unemployment that it has already occasioned in some small industries in New Zealand.

For example, we saw hundreds of millions of dollars in direct inward foreign investment in the forest sector lost as a consequence of the National Government’s ill-considered talk of suspension of the emissions trading scheme. We have seen losses of jobs in the biofuel industry through the injustices that were caused to that industry via the legislation that Mr Brownlee forced through the House under urgency just prior to Christmas. Those are but two instances of already increasing unemployment that could have been easily avoided by the National-led Government. It inherited low unemployment; it did not inherit high unemployment.

I think one of the policy challenges of the next decade internationally will be how we deal with the unemployment that will be a consequence of the global recession. I say with some confidence that that will be more central to the policy agenda of any Labour Party than it will be to that of the National Party.

The second indicator of the state of affairs that the National Government inherited from the Labour Government, which again it says was a poor set of cards, is Government debt. Government debt was reduced from 38 percent of GDP when the Labour Government took office to under 20 percent of GDP when it left office. People who are regular listeners to Parliament on the radio or regular readers of the newspaper will remember that virtually every year when the Labour Government reduced debt through running Budget surpluses at a time of plenty, the National Party claimed that we were not returning money to taxpayers that should have been returned to taxpayers in the form of tax cuts. Year after year it said that tax cuts were the preferred way to deal with those surpluses, not retirement of Government debt.

KEVIN HAGUE (Green) Link to this

The Green Party’s policy on small businesses is to support those businesses by means of the relaxation and elimination of red tape and compliance costs. For that reason, I am happy to stand here today to support the Taxation (Business Tax Measures) Bill going to the select committee. Perhaps some people will be surprised by that, but I have to say that our support is cautious and extends no further than voting for the bill to be referred to the select committee. The reason for this is that this bill is being introduced under urgency. Of course, taxation bills will sometimes need to be introduced under urgency, but nothing in this bill requires that. Once again, we see a Government that is causing a further affront to democracy and an affront to healthy politics in the way it is using the processes of the House. We oppose that practice. Today is the first time we have seen this bill, and consequently I have not had the opportunity to read it thoroughly. My comments will be general ones.

I will talk about the bees for a second. Those of us who live in rural areas, and particularly in the bush, sometimes have a problem with bees. They come into our house, because they are looking for their nests. They come in a straight line, and they end up buzzing against the windows of the inside of our house. If we go away for a couple of weeks, we come back and there is a snowdrift of dead bees. The bees know no other way of getting to their nest, and no mater what we try, the only way we can fix that problem is to shift the nest.

Einstein said that solutions to problems would not be found by using the same kind of thinking that created the problem in the first place. Yet that is precisely the kind of thing that this Government, and many around the world, seem to be doing. The responses we have seen to this recession—or this depression, or whatever it may turn out to be—are ones that assume that any economic activity is as good as any other, and that the answers to those problems lie in continued consumption and continued credit. Those are ultimately doomed responses. They are like the responses of the bee that sees no other way. We desperately need to shift the goalposts.

I am a person who has come to this House after a background in owning and managing small businesses. I have to say that there are many aspects of this bill that, clearly, I would support, and it will actually make the running of a lot of small businesses easier. However, I am also frustrated by the lack of coherence in the Government’s response and in its measures to assist small businesses. As the Hon David Parker has just said in this House, on the one hand the Government is providing a helping hand to small businesses by relieving some of those compliance costs and by relieving some of that unnecessary tax burden. However, on other hand, it is pulling the rug out from under the feet of many small businesses—those very small businesses that display the innovation that our nation so desperately needs in order to see a way forward in this time of crisis.

There is no coherent reason for the Government’s withdrawal of the research and development tax credit, yet now it is offering small business another hand. I was very pleased to hear the Hon Bill English talk about his readiness to consider the recommendations of the Small Business Advisory Group. I want to focus on a couple of them, because that group has consistently provided a number of extremely useful, constructive, and positive suggestions for Governments to be able to assist small businesses. Many of those suggestions come in the form of extra tools that businesses could use—web-based business centres and online checklists, guides, and case studies. Those are a couple of things recently suggested by the group.

I want to focus on a couple of recommendations from the last report of the Small Business Advisory Group. It recommended that “publications be produced that give practical and implementable advice and support for small and medium enterprises to improve their environmental performance and to derive business benefit from the recognised, or certified, environmental sustainability of their products and processes.” It sounds like good sense to me. It sounds like the kind of thing that could be done for a lot less than $500 million. The group also recommends that “all foodstuffs sold in New Zealand be required to be labelled with the country of origin of the defining component or the most significant component of the foodstuff.” The Green Party would strongly support such a measure.

In 1933 Franklin Delano Roosevelt, in his inauguration address, spoke about the origins of the financial crisis that was gripping the world at that time. In particular, he spoke about the motivations of those who had speculated through greed, and now had no answers to offer. In outlining the principles upon which his New Deal lay, he said: “The measure of that restoration lies in the extent to which we apply social values more noble than mere monetary profit.” As Dr Russel Norman said earlier today in the House, talk around the world is now focusing on a “Green New Deal”—on the need to confront not only the financial crisis but also the crises in environment and energy. They should be confronted not as separate things—not as alternatives, as the Government has tended to suggest—but as a coherent whole. The idea of a “Green New Deal” is to tackle those financial problems in a way that also leads and adds to our ability to focus on the environmental crisis we face.

In January this year Dr Norman issued five challenges to the Government in relation to that green new deal. He challenged the Government to restore the Green Homes Fund, because it would keep Kiwis and their economy healthy. He challenged it to set standards for smart meters. It is a shame that Mr Brownlee has just left the Chamber, because at a time when it becomes increasingly clear that we also need to rebuild the infrastructure for our national grid, it is important that we also set a standard for a smart grid and not simply rebuild the previous old failing one. Smart meters would save New Zealanders money, and would save the country power. In the same way that compliance costs for business actually drag down our nation, paying for power that we do not need to pay for is another drag on business. This is a smart way forward. By owning the most fuel-efficient cars, taxpayers can be saved at least $30 million a year. We could cut our oil consumption by a quarter and save the country $2 billion a year. And for every dollar spent on roads, we could spend at least $1 on public transport.

The economy and the environment are not competitors, and they cannot be if we are to survive this. They must be dealt with coherently and as an integrated whole. As Ban Ki-moon said: “Today with the economic downturn and climate change, the stakes for companies have never been higher. But for businesses with vision, the rewards are equally high. The green economy is low-carbon and energy-efficient. It creates jobs, and it creates investment in sustainable technologies that will turn today’s crisis into tomorrow’s sustainable growth.”

The Green Party supports the bill going forward to a select committee, but we announce our frustration that it is actually such a small part of the solution. We look forward to tomorrow’s announcement from the Government, and we take heart from the Prime Minister’s assurance that we will be impressed by the things that it contains. Let us hope that he really will embrace a green new deal—a true, integrated way forward for this country.

JOHN BOSCAWEN (ACT) Link to this

I rise to speak on the first reading of the Taxation (Business Tax Measures) Bill. This is a bill that the ACT Party will be supporting. However, before commenting on the bill in particular, I will refer back to my maiden speech where I said that it was a real privilege to be a member of this House. One such privilege was representing the ACT Party at Waitangi over the weekend. It was a privilege and an honour to be welcomed by the Ngāpuhi people on to Te Tii Marae. The feeling of goodwill and harmony was overwhelming, and it was a credit to both the Ngāpuhi people and other iwi from throughout the country, and to both the Prime Minister and the Leader of the Opposition, who led their respective teams.

This bill introduces a raft of changes to the way our small and medium sized businesses are taxed. Small and medium sized businesses are the engine room of the New Zealand economy. Ninety-six percent of businesses are small and medium sized enterprises, employing fewer than 20 staff. Collectively, they employ around a third of our workforce. However, the question that has to be asked is why these measures are necessary. I was quite incredulous to hear the Hon David Cunliffe and the Hon David Parker talk about National attempting to rewrite history. The facts are that over the 9 years of the Labour Government, Government expenditure over and above inflation, and over and above population growth, increased by double the rate of inflation—it increased by 6.5 percent, and by the equivalent of $12,000 per household per year, which is $1,000 a month or $230 a week. So over the last 9 years we saw a massive increase in Government expenditure.

The Hon David Parker talked about the Hon Michael Cullen being frugal and paying off debt. He talked about the wisdom of paying off debt during times of buoyancy. But in the last 9 years Mr Cullen presided over the greatest spend-up our country has ever had. The reason this country is in recession—and, I fear, depression—is that opportunities have been lost in the last 9 years. We have had very, very high export prices for our commodities during most of that time, and the opportunity to put that money, through tax cuts, back into the hands of ordinary New Zealanders has been squandered and lost.

During the period of the 1980s and the early 1990s, labour productivity increased by over 2 percent per annum. We can compare that with the last 9 years when it was less than 1 percent—it was three-quarters of 1 percent. I heard the Hon Parekura Horomia talk earlier in the debate about the incomes of low-income people. Well, the people who have been affected most by the large spend-up have been those people. They have been denied tax cuts and the chance to spend their own money. One of the key issues this country has to address is how we increase productivity.

Mr Parker also spoke about rewriting history. Well, let us look at accident compensation. One of the first moves of the Labour Government was to renationalise accident compensation, and that was despite the overwhelming evidence that the system was far more efficient during the short period when it was available for private tender and private operation. People got back into work from their injuries far earlier than they do under the current State-nationalised accident compensation.

I also heard the Hon David Cunliffe say that the Labour Government was going to do that, anyway: “We were going to do this, anyway; we were going to introduce these changes.” Well, I have a very simple question for him; I ask him why he did not. This National - ACT - Māori Party Government, with United Future, has taken urgency in introducing this bill. It took urgency on a number of measures in the last 2 weeks of last year. One of the measures that passed into law last year was to make it easier for employers to employ people. We are already in a recession and an important point to note is that this recession started long before the last election day on 11 November. It started long before then. This country has been in recession for the last 12 months. We led the world into recession. Yes, the situation has got a lot worse since October; the whole world is now in recession—that is acknowledged—but our country was one of the first to lead the world into recession.

So when I hear the Hon David Cunliffe say that the National Government is trying to rewrite history, I tell members that this country is in this situation right now because of the decisions that his Government made. He also said that he would like to do so much more. Well, on that note, the ACT Party and the Labour Party are absolutely united, because we in ACT would also like to do so much more. One of the problems this Government has is that it has committed itself to a number of stakes in the ground. Let us look just at the area of health. Earlier I mentioned labour productivity. Over the last 9 years expenditure on health, since the Health Funding Authority was cancelled, has increased by 18 percent over and above inflation, and over and above per capita increases—by 18 percent—and the number of operations performed under the district health board structure has actually reduced. So we have had a drop in productivity in the health sector.

This country has a number of challenges. Labour’s mismanagement in the spending of more than $230 per week, per household, over and above population per capita and inflation, is just one of them. That Government robbed every family of the ability to spend its own money. As our country moves further into recession we will hear more about tax cuts, but ACT does not believe that National has gone far enough. I heard the Hon Peter Dunne say that short of cutting tax altogether, it is hard to imagine that one could do better than this bill. The reality is that we can do a lot better than this bill. We can introduce low flat tax taxes. We can provide an incentive for people to get off benefits. We can reward people who actually want to work and contribute to the productivity of this country. We do not want to create a psyche in this country, as we have, that the people who receive Working for Families have effective marginal tax rates of 50, 60, or 70 percent. Where is the incentive for someone to go to work if he or she will lose three-quarters of his or her income?

Yes, reference has been made to the changes to the Resource Management Act. We will be hearing a lot more about that, because of the changes that have been pushed through by the ACT Party. One of the concessions that was made to the ACT Party in its confidence and supply agreement was the appointment of a Minister in charge of fiscal responsibility. Over the next 3 years I look forward to challenging my National Party colleagues on the changes that are required to turn this country round. We need to do more than just tinker. These changes are required in order to make the significant changes in productivity necessary to get this country back on its feet. I note with interest that my colleague Sir Roger Douglas has taken the opportunity to address members of the Ōrewa Rotary Club on this very issue, as I speak.

I conclude by saying that the ACT Party will be supporting this bill, but like the Hon David Cunliffe we believe that so much more can be done and we look forward to convincing our National Party colleagues of that fact. Thank you very much.

RAHUI KATENE (Māori Party—Te Tai Tonga) Link to this

There is no question that the investments that Aotearoa makes in small and medium sized enterprises have been increasing over recent years. Since 2006 the number of small and medium sized enterprises has increased by 2 percent, while the number of people employed by those same enterprises has increased by a massive 18 percent since 2001. Indeed, the economic landscape of this country is dominated by the impact of small to medium sized enterprises. Within this, we know that as of 2007 the total value-added profit produced by Māori businesses grew to approximately 2 percent of New Zealand’s GDP, compared with 1.2 percent in 1996. Building resilient businesses, which have the internal fitness to stand up to the ongoing financial market instability and the heightened risk of economic vulnerability, is therefore of importance to us all.

Just how bleak the prospects look for some of our small to medium sized enterprises is seen in the recent quarterly survey of business opinion, sponsored by the New Zealand Institute of Economic Research. The survey was sufficient to shock the sector into action. Forty-four percent of companies reported a drop in activity throughout the December quarter—the worst result for close to 40 years. The effects are immediate. About a third of firms predict they will have to cut staff by the end of March 2009, compared with just 7 percent in the last quarter. The signs are all there for hard times ahead.

So it was in that context that my colleague Dr Pita Sharples, just 2 weeks ago, called Māori business experts, tribal entrepreneurs, and whānau leaders together to consider ways to insulate and protect the Māori economy from the impact of economic recession. That esteemed group had just 2 hours to come up with possible solutions. It was a challenge that, from all accounts, they rose to. Out of that session of the Māori economic summit came a raft of suggestions, including the removal of tax for small and medium sized businesses to keep cash flowing, and a call for Māori to concentrate on skills training where there are gaps in the labour market. So here we are today, considering a host of amendments to current and proposed tax laws to reduce business compliance costs for small and medium sized businesses. The package includes raising the reporting threshold on PAYE, fringe benefit tax, and GST, and introducing simplified rules for deducting legal expenditure. Importantly, the package being debated today will instigate changes to reduce the tax liability faced by small and medium sized businesses, thus assisting with cash flow.

This is a big day for the Māori Party. In our policy manifesto we made the commitment to incentivise small businesses to grow. We signalled that unnecessary compliance costs would be reduced. We noted that we would invest in strategic alliances across central and local government, industry, business, and Māori communities. The particular priority of the Māori Party’s business policy is to support the development and innovation of small businesses, including the minimisation of taxation and compliance costs. Today’s legislation sees many of these great ideas come into fruition. This bill is another illustration of the concept that what is good for Māori is good for the country as a whole. The assistance package brings into swing some 18 initiatives that will help small to middle sized enterprises weather whatever storm awaits. It is designed to take the pressure off the sector by protecting businesses from suffering when the cash flow is scarce, by building capability to withstand shrinking markets, and by focusing on tax, cash flow, and regulation. It is all about building confidence in the sector.

In this sense, the acclaim from Professor Massey, director of Massey University’s New Zealand Centre for SME Research, has gone down well. Professor Massey estimates that the sector will achieve efficiencies of up to $480 million, which will be effective immediately in easing a situation where cash flow is tight while also preparing for the long term. We welcome this package today as an innovative and comprehensive approach that ties together many separate strands of opportunities to act as a buffer against the worsening fiscal position.

A fortnight ago, at the Māori economic summit, the chief executive officer of the Stock Exchange, Mark Weldon, made the point that this is the time to look beyond conventional methods of economic stimulation. The 18 steps encompassing tax-related charges, trade finance, disputes tribunals, and faster payments do exactly that. There are business-related tax deductions, and compliance thresholds are raised, the export credit scheme is expanded, the scope of the disputes tribunal is expanded, and business advice services are extended. There is also the prompt payment requirement. Another initiative mooted at the Māori economic summit was that small firms be able to defer their provisional tax payments for 3 years as a specific measure to help those firms retain staff. The package does not go as far as that, but it does amend the provisional tax uplift rate, with the argument that the threshold could be reduced or eliminated, so reducing the magnitude of a taxpayer’s provisional tax payments.

Finally, I take this moment to acknowledge Ngā Kanohi Marae o Wairarapa that yesterday launched the marae-based trade training programme. The programme invites nominees from 11 marae on to a 3-year programme funded by the Ministry of Social Development, to provide young school-leavers with the skills to enter the trade industry. The programme is designed for rangatahi who may be at a loose end but who are committed towards making a constructive contribution to their communities. Alongside developing confidence in work readiness, the programme will also nurture the trainees in upholding the mana of their marae. I wanted to celebrate their success in talking to this bill, as I believe that initiatives such as trade training are another key component of what we can reasonably expect as a package to help our communities see out the recession. With the prospect of jobs dwindling, the probability that many Māori young people will be disproportionately represented amongst the unemployed is high. We need to look again at our schools and our tertiary training providers to ensure that if students are having longer time in study or in school, their experience is meaningful and will lead towards enhancing their employment prospects. We support this bill at its first reading, and will welcome any more innovative proposals that emerge at the select committee consideration. Kia ora.

CRAIG FOSS (National—Tukituki) Link to this

I rise in support of the Taxation (Business Tax Measures) Bill. I join every previous speaker from every party in the House who has now indicated support for this bill, which is urgently required, given the current economic situation around the globe and particularly the way in which that is affecting New Zealand businesses. I acknowledge the expediency with which all members are trying to get this bill through its first reading, and I look forward to working with members if and when this bill arrives at the Finance and Expenditure Committee. I hope we will continue that expediency, because it is urgently required that New Zealand businesses have some certainty and some clarity around the current situation and all things to do with taxation.

Many aspects of the international credit crunch cannot be avoided by whichever parties the New Zealand Government comprises, but the New Zealand Government can do many things to help knock off the sharp edges of the current economic credit crunch, recession, or whatever one likes to call it. It is pretty tough out there, and it is imperative that the Government is able to put these measures into place as soon as possible.

There is a cost to this package of about $480 million, but what has not been talked about is the benefit in time for small and medium sized enterprises in New Zealand. There is a benefit in time and gain in productivity for them, 98 percent of them, as they virtually halve the time they will need to spend on PAYE, GST, and fringe benefit tax, in some instances. Those are simple productivity gains.

I fully acknowledge that many measures in this bill originated with the Minister in the previous Government, and many measures in this bill relating to small and medium sized businesses came from the Taxation (International Taxation, Life Insurance and Remedial Matters) Bill. I acknowledge that across the House. Yes, we have talked about how things should be bigger, longer or wider, but we have all acknowledged, and earlier speakers have shown, that passing this legislation is urgent.

As my colleague the Minister of Finance, the Hon Bill English, noted earlier, there are many more measures to come; this is but one. I am very grateful to the House that this “but one” crucial measure seems to have cross-party support and total member support so far in this House. I look forward to working with this bill in the Finance and Expenditure Committee. It will be a tight report back, but the indications are that we will get there.

STUART NASH (Labour) Link to this

It is with pleasure that I stand to talk to this Taxation (Business Tax Measures) Bill. Like the rest of my colleagues, I support and welcome the bill, as I support and welcome anything that streamlines compliance costs and the time needed by small-business owners to meet their regulatory requirements and makes life easier for the 96 percent of New Zealand businesses that are classed as small to medium enterprises, as long as those terms do not compromise either the integrity of the investing community or the transparency of the process required in a fully functioning economy.

These businesses are the backbone of the New Zealand economy, and employ over 60 percent of our workforce. They need these measures, and this is a good entrée. But where is the meat and vege? As my colleagues have already alluded to, what is proposed here is hardly earth-shattering. It is a start, but it is hardly earth-shattering. As the Hon David Cunliffe said, a lot of these measures were already outlined in Labour’s pre-election tax bill on how to deal with the then-looming economic crisis. It was a given that Labour would have implemented similar sorts of measures almost immediately if its members had won the Treasury benches. But we did not, and the paradox is that businesses in New Zealand must be groaning at the response from the so-called “party of business”. They are groaning and saying “Oh, no!”. After 9 years and an average of 15 to 18 percent growth year on year for many of the past 9 years—hardly business-unfriendly—here is a National Government that has promised nothing, and it has delivered on that. In fact, it has exceeded its promise of nothing, and it has delivered next to nothing.

Do not get me wrong. As mentioned, I support this bill. It is just that it under-delivers on what the small and medium enterprise sector really needs to prime the economy and survive the largest recession since 1929. Let us not underestimate the seriousness of the current situation. This is dire and desperate, and it requires strong measures. If the Nats’ economic crisis package is a rolling maul, then I hope for the sake of New Zealand’s business community that we have not kicked off. If Mr Key is the referee, then Mr English is the ballboy running around and desperately looking for a pump and a valve to inflate the ball, which is now flat. All the players on the field are getting cold as they wait for the promised action and the spectators in the stand are growing grumpy as they tire of no action, and why? Because in other fields across the globe, strong captains have taken the ball and run. If this is a rolling maul, then I ask Mr Key to blow the whistle, as the maul has collapsed, there is now a ruck, and the players are hurting. Blow the whistle, take charge, and get this game under way. If the National Party is a rugby team and this is a rolling maul, how about freeing the ball, getting it out to the wing, and starting to score some points?

The sad thing is that this is not a game of rugby. While New Zealanders may understand a rugby analogy, they know the rules have changed this time—

CHRIS TREMAIN (National—Napier) Link to this

The speaker before me, Stuart Nash, tried to make out that there was no vision or plan for taking this nation forward. That is completely wrong. There is a clear plan to take this nation forward, and it began the day after this Government was elected to the House. Within a few short weeks we were in this Parliament introducing tax law—our tax breaks—and rolling those tax breaks through. Within a few more weeks we are back here introducing a range of other new initiatives. Tomorrow we will have a rollout of our infrastructure plan. Today we have introduced this bill relating to small to medium enterprises. It contains no fewer than 14 initiatives, which is a pretty clear number of initiatives.

I have risen in support of this Taxation (Business Tax Measures) Bill, but before I get into that I welcome Mr Nash to the House. I acknowledge that he is from Napier and I wish him well in his parliamentary career, which I am sure will be a good one. Mr Nash and I both went to a fine school—Napier Boys’ High School—and I want to start my speech tonight by referring to another old boy of Napier Boys’ High School, and that is a gentleman by the name of Rod Drury, who owns a company here in Wellington called Xero.

Xero is a medium-sized software development business, and Rod has summed up the feelings of many small-business owners I have spoken to in the last few days. He disagrees with what Mr Nash is saying. He believes there is a clear vision in the initiatives that are being rolled out as we speak. He said in a press release: “It’s fantastic to see the New Zealand Government putting words into action”—which means rolling out initiatives, rolling out a plan—“with a number of initiatives included in the Taxation Bill being introduced this month and coming into effect on 1 April.” That is pretty clear to me. Rod Drury goes on to say: “These initiatives will improve cash flow, as well as reduce compliance costs and effort for many small businesses.” That is exactly what we are hearing up and down the country.

Last night I spoke to the Ahuriri rotary club. The message I received from the many small-business owners present was that the package of small-business initiatives was definitely a step in the right direction. No doubt many of those men and women are facing tough times right now. As I have said previously tonight, they know that there is no silver bullet. There is not one fix that will turn this economy around. As John Key said, it will be a rolling maul—a positive rolling maul that will go forward as we roll out a range of initiatives. These rotary club members were pleased to see a Government that has some real empathy with the problems they face and is actually getting on with the job of addressing the issues before us.

The Hawke’s Bay economy is an export-driven economy. Over the last 20 years we have diversified our export markets to China, South Korea, Vietnam, Thailand, and Indonesia. When we read figures such as those used by Rod Oram in Sunday’s newspaper, we see that many of our key trading partners have projected economic growth worse than our own, and we know that it will be a tough ride for the next few years.

Businesses like Apollo Pac Ltd, Crasborns, and Bostocks in Hawke’s Bay, between themselves and the growers they support, employ hundreds, if not thousands, of workers in the Hawke’s Bay region. They know it will be tough; they know it will be hard. These men and women are already looking at their profit and loss statements and their balance sheets, and they are going through them line by line to see how they can make a difference to their business, how they can reduce costs in their business, and how they can be in a position to get through this recession.

Those businesses will be there, because they know they will get through this recession and they want to be in the best position to come out with strong growth, and they are looking for a Government that will be doing the same. That is what we are doing with this rolling maul of initiatives. I am proud to stand here today in support of this Taxation (Business Tax Measures) Bill and the initiatives it implements.

Hon CLAYTON COSGROVE (Labour—Waimakariri) Link to this

The previous speaker, Chris Tremain, talked about the great National rolling maul. I refer him to a learned business person called Brian Gaynor. Whether one is on this side of the Chamber or in Government, I think most people would say that Brian Gaynor is an eminent business person and commentator. He said this in the Weekend Herald of 7 February, when comparing the National Government’s effort—the so-called package that will save us from a deepening recession and an international economic crisis, referred to by the previous speaker as a rolling maul—with what our trans-Tasman neighbours are doing: “… our transtasman neighbours are planning to take the direct and aggressive route to the try line while we have a slow moving maul with little idea who is carrying the ball and which way the maul will move next.” I think that is probably a damn good quote that sums this up.

If we compare what we are doing here in New Zealand with our Government—and I am not talking just about the dollar for dollar, head to head quantum, I am talking about the aggressive action that, say, the Americans are taking—I point out that it is very interesting that Mr Key today, as he did in the election campaign, likened himself to President Barack Obama. It was very interesting. Barack Obama was elected about the same time as Mr Key—within days—and as President-elect, before he had any constitutional power to do anything, he had announced, planned, and began jawboning, lobbying, and gathering support for his aggressive economic package, and its second phase, before he even had his hands on the constitutional levers to do anything. Then, when he was elected, he was in the process of punching it through. He did not wait because, unlike Mr Key, the rest of the world knows that the economic crisis coming towards us—the likes of which no one in any country can predict the outcome of, and probably the depth of which we have never seen in our lifetime—is like a tsunami. We have a couple of hours warning that it is on its way. We have a choice. We either start to prepare, sandbag, and do what we are supposed to do, or, like Mr Key and this Government, we wait until the wave rolls in and we measure the height of the water and we hope that it will not be over our necks. We can make a big international comparison between what we are doing and what we are not doing in New Zealand and what they are doing in the United States. As I say, before Barack Obama could do anything constitutionally, he had planned, lobbied, brought up his list of infrastructure projects, costed them, and got the show on the road so that when he was sworn in 3 months later, he was able to move. Mr Key, of course, was elected at the same time, and 3 months later he was on the beach.

Let us look at Australia. Let us not talk mark to mark dollar figures, but let us see what the Australians have done. They have been aggressive. They are running the ball up, as Mr Gaynor says, to get the country across the line. He makes a very interesting observation: “Australian initiatives are mainly directed at low-income individuals and families because they are far more likely to spend additional income. By contrast, the National Government’s revised tax cuts are more beneficial to the well-off who have a greater propensity to save rather than spend.” So I do not quite know how we get fiscal stimulus if we fund those who can afford it and their greatest motivation in life is to put it in the bank and save it, because they can actually afford to do so. We can compare Kevin Rudd’s package, which is aggressive, and running the ball up over the try line, to the sort of rolling maul of this Government, where he funds the bottom end and this crowd funds the top end and there is no strategy there.

Let us look at Gordon Brown’s second package—identified projects, which I think they call “shovel-ready projects”, all ready to go with money going through the system. And what do we have here in New Zealand? National says there is vision. I quote again from one of its own people, Bill English, who said in the presson 6 February—and if this sums up vision I do not know what does—when he was talking about the Australian and US Federal Governments’ packages: “We hope it works because anything that helps Australia’s economy helps us.” I agree with that. The report goes on to say: “Mr English said the best outcome New Zealand could hope for was stimulus not only in Australia but also in the United States and China. ‘These three countries are all on the go.’ ” He was right, and he is right. They are all on the go with aggressive stimulus packages, fiscally responsible stimulus packages, and his strategy is “Let’s hope they get it right because the old tsunami in a positive way might wash over Australia, wash over the UK, wash over the US, and maybe touch us in some sort of positive way. The stimulus might flow through New Zealand and help us. Let us just hope it works.” That is the depth of the National Party vision and I quote from the Minister of Finance himself.

So what have we got tonight? We have a tax bill, and others have outlined many similarities to—

AMY ADAMS (National—Selwyn) Link to this

I am delighted to rise to speak in support of the Taxation (Business Tax Measures) Bill, because this bill contains provisions that are what good law should be. By the agreement of this entire House, which is voting in support of the bill, they are necessary and they will help. This bill is about getting behind the very people who will pull our economy through these difficult times. Small and medium sized businesses are the heart of the engine room. We have to—and we will—do everything we can to assist them, work with them, incentivise them, and encourage them, and this bill is the first part of that.

If one summarised this bill in a couple of words, one would say that it is about cash flow and it is about compliance. I have been both a business owner and an employer, and I have advised many, many businesses. If one talks to businesses they will say that the things that help them relate to cash flow and compliance, particularly when times are tough. Cash flow now is not only being hurt by the hard economic times, but is being doubly squeezed by the credit crunch, with banks more and more reluctant to lend. Even good strong businesses need help with cash flow. If we look at just one provision—the getting rid of the 5 percent uplift in provisional tax—we see that it will put another quarter of a billion dollars back into business accounts where it needs to be. That alone will have the significant effect of helping businesses manage their cash flow—and that is just one measure.

When we talk about compliance let us remember that it is not just about compliance cost; it is also about compliance time. So many businesses spend a huge amount of unproductive time working through Government red tape and bureaucracy. This bill—and I commend the Minister of Revenue for the bill—goes a significant way towards reducing some of that compliance time and money.

I will mention a couple of the provisions that, in that regard, really are highlights for me. They are ones that perhaps have not been talked about so much, but are the ones that as a business owner I thought would be a real help to these businesses. They are about GST, particularly the increase in the threshold at which tax payable must be accounted for on an invoice basis rather than a payments basis. This may not jump out at people who have not run businesses, but I can tell them that if they have a small business and they hit that threshold and suddenly have to account for GST on money they do not even have, it hurts and it is hard. By moving that threshold from $1.3 million to $2 million, a significant number of businesses will not have to deal with that extra cash-flow hurdle. That will make a big difference and, by itself, will make businesses viable that might not otherwise have been viable. When we add that into the increase in the number of businesses that will now be able to file on a 6-monthly basis and the number of extra businesses that can choose whether they wish to register for GST, we see that we will start to make real inroads into compliance costs on small business.

Hon PETER DUNNE (Minister of Revenue) Link to this

I move, That the Taxation (Business Tax Measures) Bill be referred to the Finance and Expenditure Committee, that the committee report finally to the House on or before 23 March 2009, and that the committee have authority to meet at any time while the House is sitting, except during oral questions, and during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c).