Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill

Hon PETER DUNNE (Minister of Revenue) Link to this

I move, That the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill be now read a third time. This bill gives effect to a number of business-friendly tax measures that were introduced in last year’s Budget, with the primary objective of promoting and sustaining New Zealand’s economic growth. The measures that the bill includes are inherently technical, but are extremely important. They include, for example, proposed changes to tax depreciation rules aiming to ensure the more productive use of capital—a package that over the next 4 years alone will amount to $1 billion in revenue forgone by the Crown in the interests of fostering economic growth.

The measures also include a series of changes aimed at making the tax side of business a little bit easier for the many small businesses in New Zealand. We have made changes to the provisional tax date, fringe benefit tax, and GST rules in terms of the dates by which returns have to be filed. We have introduced the notion of compensation for payroll agents, and a range of other measures that make it that little bit easier to do business in New Zealand. We recognise the contribution that our small to medium sized business sector in particular plays in promoting and sustaining New Zealand’s economic growth.

The bill also contains some important measures aimed at improving our access to worldwide capital, skills, and labour, and it recognises the contribution that returning New Zealanders and new residents make to this country by allowing the forgoing for a period of some of their overseas tax obligations once they return to this country. During the Committee stage there was some debate about this particular set of provisions and the relationship they had to, certainly, our major market, Australia, and how comparable they might be. In essence, the situation we arrived at was that these changes are positive. They have been amended by the select committee from what was originally proposed. In many senses they are not quite apples and apples with Australia, because of differing conditions and differing interpretations in that country regarding residence status. But they are a start, and a step in the right direction, and I gave an undertaking that particularly the 10-year limit that is imposed by the bill will be kept under review as we move forward.

There are other significant measures in the bill. An important change, which has been widely welcomed, was introduced by way of a Supplementary Order Paper to deal with the issue of what has become known as an unacceptable tax position. That issue arose out of the 1996 penalties regime, whereby a genuine error by a taxpayer or an agent acting on behalf of the taxpayer hitherto potentially attracted a penalty compounding at 20 percent, but the changes mean that a discretion is now available to the commissioner to apply some judgment in favour of the taxpayer in such circumstances where it is clear that the action has arisen as a result of a genuine error. That move has been widely welcomed, and understandably so. I indicated to the Committee that it was an interim step, pending a wider review later this year of the penalties regime, although I expected that the change made in this bill will not be inconsistent with the changes that are to come a little later on. The bill also gives effect to changes to both the depreciation regime for bloodstock and also the duty applicable to racing clubs, pursuant to the agreement between the Labour-led Government and the New Zealand First Party. I imagine that the Minister for Racing will take a call a little later in the debate to speak about those matters in more detail.

I simply want to say at this stage that I acknowledge the contribution of my own officials in the Inland Revenue Department, the officials in Treasury, and those responsible for the drafting of this bill. It is a very thick tome, as these essentially remedial matters usually are, and it is in clear English—as best as tax legislation ever will be. I acknowledge those who made submissions to the bill. I acknowledge the regulars, like the Institute of Chartered Accountants of New Zealand and the Law Society, and the many other groups that made submissions to the select committee and had an input. I appreciate the consideration that Mr Shane Jones and other members of the committee gave the legislation over a long period of time and the amendments they recommended, which we were pleased to adopt.

Finally, I want to acknowledge the members of the House who contributed to the debate last evening. I thought we were able to have a pretty robust and informative Committee stage debate. I appreciate the support of virtually all parties in the House for the measure.

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

I am pleased to rise to speak in the third reading debate of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill. I would like to make it very clear from the outset that National supports the legislation. We have supported it right the way through its proceedings through the House.

I congratulate the Minister of Revenue, who has just spoken, because, during the Committee stage of the legislation yesterday, he paid the Committee, including members of the Opposition, the courtesy of listening to the serious issues raised and responding to them in an intelligent manner, and that was appreciated. I would like to cover some of those issues. It is also gratifying that the Minister has taken on board some of the issues raised, and that he intends to make sure that the Government monitors the situation over the next period of time to make sure that the measures that the bill is implementing have the desired effect and do not produce unexpected outcomes.

The issues that National focused on related particularly to three groups of issues. The first was the issues surrounding the amendments to the legislation to try to make New Zealand a more attractive place to internationally mobile people with high-value skills. Both sides of the House realise now that there are people in this world who are attractive to a number of countries because they have sought-after skills. They often command quite high wages and salaries, and they are the kinds of people who can live and be paid well in a number of countries. But they have the skills we need here.

If we want to attract those people here, we must make our taxation regime attractive to them. If we have to provide special exemptions to them, I think it does beg the question as to whether our overall tax regime is sufficiently internationally competitive. That is not the subject of the legislation, but it is a point I make. If New Zealand were to make our personal tax regime more attractive—and I appreciate that the business tax regime is currently under review—people who had the choice could then choose to have their international income taxed in New Zealand. So there is the wider issue. The need in the legislation to provide exemptions does bring into question whether our personal tax regime is sufficiently competitive internationally these days. I think it is fair to observe that our higher tax rates cut in at pretty low levels of income, and that does not make our taxation regime particularly attractive internationally.

I come to the specific provisions of the bill. Clause 77 sets out exemptions for certain classes of people seeking to return to or come to New Zealand by exempting certain of their foreign income from taxation here in New Zealand for a period of time.

The debate during the Committee of the whole House focused on a couple of particular issues. There are two sorts of people whom we are trying to attract here. I will deal first with the New Zealanders whom we are trying to attract back to New Zealand. They are highly skilled New Zealanders who have been offshore for a while and who have offshore income because of their time offshore. We want to attract those people back to New Zealand. That is the first group of people we are addressing.

The legislation that is having its third reading today provides a tax exemption for certain of their foreign income if they have lived outside New Zealand for a period of 10 years. The Minister just referred to that. National argued during the Committee stage that the 10-year period is a long time. Ten years is too long for New Zealanders to have to be offshore before they can come back home and qualify for this exemption on certain of their foreign income—they would always be taxed on any income they earned in New Zealand. By the time New Zealanders have been offshore for 10 years, they are thoroughly settled in those foreign countries. They may have married into a family offshore, their children will probably be involved in schools there, and they will be totally involved in those societies and their communities. It will be more difficult to attract those people back to New Zealand.

National members argued that if the time period that New Zealanders had to live offshore in order to get the benefit of the tax exemption could be reduced a bit, it might have greater effect in attracting New Zealanders back here. We all agree that those are the people whom we want back, first and foremost—our own people who have gained the expertise, experience, and skills of having worked offshore. So it is a really important clause. How do we get those people back to New Zealand?

I think it is unfortunate that the Minister—although he did listen to our arguments, and I certainly appreciate that—was not prepared to accept our amendment to reduce from 10 years to 5 years the time period that New Zealanders would be required to be offshore to qualify for the tax exemption. It is interesting that a number of senior tax experts in New Zealand have commented similarly that the Government is missing a golden opportunity here. Having recognised the problem and seeking to address it, the Government is not really solving it by having that long 10-year period. I appreciate that the Minister has accepted that National may have some argument here, and he has given an undertaking that the 10-year period will be under review. That is something National members have achieved through this debate on the legislation. I take it that if the review shows that the 10-year period is too long and that the provision is not having the desired outcome, then the matter could be brought up again for further amendment.

That was the first issue. The second group of people that clause 77 seeks to attract to New Zealand is the new immigrant—that high-value person who is attractive to a number of countries, particularly our competitor Australia across the Tasman. The provision proposed here is that a new migrant should be able to come to New Zealand and get the tax exemption for 48 months. That would apply to new immigrants coming to New Zealand after 1 April this year. National drew to the attention of the Committee the fact that Australia—although it talked about enacting a very similar provision in recent years—in February this year finally introduced legislation that is more flexible in respect of those new migrants. The Australian proposal includes those tax exemptions for temporary residents who have recently arrived in Australia. It is a measure that would help to keep them in Australia.

Again, tax specialists in New Zealand have pointed out that we have temporary residents here—high-value people on work permits. Their employers may have to renegotiate to extend those work permits, and may be vulnerable to losing those high-value people because they will not qualify for the tax exemption, yet they would qualify if they were in Australia. In respect of new migrants, this issue of the competitiveness of our position in this legislation compared with Australia’s position has not been assessed adequately.

Again, I accept that the Minister listened to the arguments of National members. We proposed to extend the provision to make it available to temporary residents or people in New Zealand on work permits who had arrived in New Zealand after 1 April 2005, rather than 1 April 2006. That would enable people who are resident here at the moment to obtain the benefit of the provision. But the Government did not agree with our amendment. We also sought to extend the tax exemption to 60 months, rather than 48 months, to make sure we are really competitive with Australia. Sadly, those amendments did not achieve the Government’s support. I think this whole issue should be kept under review to make sure we remain competitive with Australia.

Finally, I express National’s appreciation for Supplementary Order Paper 19, which the Minister, the Hon Peter Dunne, introduced last night to amend the legislation on unacceptable tax provisions. It has National’s support. We argued strongly in the Finance and Expenditure Committee that the amendment must be brought in, because the way shortfall penalties have to be applied to unacceptable tax positions is simply damaging the goodwill of taxpayers. It is totally irrational and unfair.

Our remaining concern about the amendment is that it leaves a lot of discretion to the Commissioner of Inland Revenue. We would prefer to see a measure that made it automatic that someone who, having been advised of an error in a tax position, then paid the correct amount of tax by the due date faced absolutely no risk of being penalised. Despite those misgivings, National does support the legislation.

Rt Hon WINSTON PETERS (Minister for Racing) Link to this

My colleague the Minister of Revenue has covered the main part of the bill. I want to concentrate on the two Supplementary Order Papers that were in my name and in the name of my party, New Zealand First, in respect of the racing industry.

In essence, this is a red-letter day for all three sections of the racing industry in this country. The Supplementary Order Papers set out to change the taxation regime from a headline rate of 20 percent down to 4 percent for racing—the same rate as for casinos. Racing is, of course, New Zealand - owned, while most casino ownership is foreign. How this situation has lasted so long is beyond me, but we are about to rectify it, and, hopefully, by 1 o’clock on Monday the Governor-General will have signed off this legislation and it will be a fact.

The second thing we set out to do was to provide a fair, internationally competitive depreciation regime for New Zealand stallions down from 4 years to 2 years. There is a different regime for mares so that a horse starting at age 3 will be totally depreciated by age 8, and a mare starting at age 8 will be totally depreciated by age 9. That is dramatically different from the current law and is internationally competitive. Alongside that, we have other plans, but they do not require a statutory framework.

I thank the racing industry, the thoroughbred industry, the harness industry, and the greyhound industry in respect of the changes that they have argued for over a long, long time and that are now to become a reality. It is a pity that my colleague Keith Locke mentioned the length of time that the Security and Intelligence Committee sat for. He does not seem to understand that it is not the time spent that matters but what is done during that time. We have set out to change the shape of racing in this country in order to make the industry far more competitive and to give it a fair go, which is something it has requested for a long, long time.

It is great to be able to tell people going home tonight in drive time traffic who have been concerned about the unfair treatment that this industry has received that it can now confront the United States, the UK, Ireland, Australia, Hong Kong, Singapore, and the Middle East with a new regime that will make us competitive for the first time in a very long time. I thank my colleagues in New Zealand First who have supported this policy for so long and who have made it—alongside our supply and confidence arrangement with the Government—a reality.

JOHN KEY (National—Helensville) Link to this

It appears that the time of the previous speaker, Winston Peters, has expired, so I will take over in his footsteps. On behalf of the National Party I rise in this third reading debate to support the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill.

I start with the point that the bill contains certain measures that are supportive to business. The National Party clearly supports those measures and the attempts to make depreciation rates more realistic, as they apply to the modern economy. This measure was trumpeted by the Labour Party in the last Budget as heralding a great success for businesses around New Zealand, and it was said that New Zealand should be rejoicing because somehow Budget 2005 was business-friendly. When one looks at Budget 2005, one probably reflects on the fact that it was a Budget in the proportions of about $4 billion a year. It was a massive spend-up that was followed by a Labour give-away programme, as we moved towards the election campaign. No doubt the Government will argue that that is the reason it has very little money available this year.

It was interesting that the business tax cuts that were delivered—we will talk about those in a minute—were paid for by the introduction of yet another tax. It is the Michael Cullen philosophy of taxation for all New Zealanders: when he gives with the left hand, he takes with the right hand. Theoretically, on the one hand he was giving businesses something, but, on the other hand, he was taking, and that was the $360 million tax grab in relation to a carbon tax that was, frankly, a “New Zealand experiment”, as the Guardian newspaper described it. Lo and behold, Michael Cullen had to come before the Finance and Expenditure Committee a few weeks ago with his tail between his legs, and forlornly tell the committee that he did not have the numbers to get that bill through the House. So he was forced to make a rapid retreat from his carbon tax—and that was a wonderful idea. The National Party, as members may remember, had already launched its “Axe the carbon tax” campaign, and we were delighted when the carbon tax was removed.

The point I make is that as soon as he got the words out of his mouth—that he was axing the carbon tax—he went on the hunt, as Minister of Finance, for another $360 million to make up the shortfall. Lo and behold, we learnt that tax threshold adjustments would not be introduced. That was the threat, at least, from Michael Cullen—that the tax threshold adjustments that were going to take place—the infamous chewing gum in the “chewing gum Budget”—would not occur in 2008, because despite the fact that the Government was predicting that it would run somewhere between a $3 billion and $5 billion surplus around that time, there was not enough money. I think New Zealanders find that quite remarkable, and it really does not bode well for the infamous business tax review that is taking place at the moment.

The infamous business tax review was pitched in the same way as the supposed infamous, deep, dark secret in Budget 2005. The infamous business tax review was sold and pitched in such a way that businesses were led to believe that it would be good for them, and that, like at Christmas, there would be a present neatly tucked under the bottom of the tree. What they did not know was that Michael Cullen was back to his old tricks of fiscal neutrality, and that if he was going to give with one hand he would need to take with the other—and the other would come in the form of a payroll tax. That is what is coming down the line for businesses in New Zealand under a Michael Cullen – Labour-led Government. That is the bad news.

But should businesses be rejoicing because of the passing of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill tonight? Well, they should probably be grateful for small mercies, because goodness knows that under Labour they do not get a lot of small mercies. But, really, businesses should be far from rejoicing, because the bill effectively says: “We are going to increase the write-off rate—the depreciation rate—for things like laptops.” A laptop can be written off at something like 40 percent in year one. I ask, in all seriousness, whether any New Zealand business thinks it can buy a laptop and sell it 6 months later for anything more than about 60 percent of what it paid for it. I would be amazed if a business got 50 percent of what it paid for it. In fact, quite frankly, in the modern technological age I would be surprised if a business got anything for it. So for Michael Cullen to be trumpeting this as business-friendly was quite unbelievable.

Members may remember around Budget time—I certainly do—that we had a remarkable scenario whereby Michael Cullen was trumpeting this measure as a $1.5 billion return to business. What a business-friendly Government Labour was proclaiming itself to be! The only small problem came in this regard. During the Budget lock-up that occurred an hour before Budget 2005, we asked Treasury officials whether they could tell us what this missing $800 million was that was theoretically some reduction for business.

SHANE JONES (Labour) Link to this

After hearing an opinion like that, I think that someone is about to be scratched from the Opposition, no doubt. However, I have a few things to say, which are obviously in support of what has become colloquially known as the “May tax bill”. Its formal name is the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill. Despite the public policy differences amongst members on the Finance and Expenditure Committee, as I have said earlier, there was a passable level of collegiality. We members of the select committee had different levels of experience and different war stories to tell about either our constituents or our personal interfaces with the revenue collection system.

I point out something that must not go unmarked—that over the period of 4 years, in excess of $1 billion will be restored to taxpayers via, let me say it, this taxation set of measures. I also remind the House that in the last 20 years this is probably the first heavy-duty attempt we have had at finessing or rationalising the fringe benefit tax regime. When the committee left those matters we could not finalise with the officials, it was heartening to know that the officials would go away, put unresolved matters in a business programme, and continue to look for better ways to make the regime more business-friendly or more compliance-friendly.

I think this bill has attempted to do two additional things. Obviously, it is pro-business and pro - economic growth, and the depreciation changes are the largest contribution that the business world, or business owners—taxpayers in a commercial sense—will enjoy. As I have said, they will have in excess of $1 billion over 4 years. But there has been far too much scaremongering over the question of whether we are disappearing into some black hole—something akin to Tasmania—because the rest of Australia is taking us over. This tax bill actually provides incentives, and simplifies the process, for our people to come back home.

Once again, the officials said they would monitor the situation in relation to the 4-year holiday. We have heard from members of the Opposition that, recently, changes have been coming out of the Australian regime, and it is pleasing to note that the officials are conscious that we are in an inexorable contest with our friends in Australia as to whether we can retain, develop, and attract back to Aotearoa the diaspora. It is pleasing to see that although people are going over to Australia, others continue to come back home, as well.

In addition to that, we are seeing an attempt here to lessen the burden on those elements in the small-business community who find the whole tax regime either confounding or an unnecessary distraction. Whether they are in strugglers’ gully or up on the summit looking at a vista of gold, they struggle with the ongoing hassles of dealing with the bureaucracy and ensuring that they are compliant with the tax regime. To that extent, although it is a relatively small amount of money, an important step is being taken in order to ensure that small-business owners have an opportunity to call upon the subsidised services of a payroll agent.

That, however, does place an ongoing obligation on those who implement the regime—in particular, the Inland Revenue Department. Indeed, today we had the review of that department, and we were assured that it continues to believe that the centre of its creed is to be professional, and also to make it easier for those payers to be more conscious of their obligations or to facilitate their meeting. Of course, there are always mistakes and errors, and there are many reasons why those errors take place, but it was pleasing to see that the department will now have discretion to ensure that the full force of the penalties regime does not fall like a guillotine on the necks of a lot of long-suffering taxpayers.

In closing, I say that the bill is business-friendly. It was useful to have the perspectives of all the select committee members. As I said earlier, although there are differing perspectives as to where tax rates should be, I think all of us felt that this legislation is a definite step in the right direction, and officials have gone away to do further work.

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

Tēnā koe, Mr Speaker. Tēnā tātou katoa i te Whare. You know, Mr Speaker, whenever I talk about tax to my constituents, their eyes start to glaze over, the shutters come crashing down, and before I can say “payment alignment dates” they are all asleep. But I know, as do my colleagues in the Māori Party, that every issue raised in Parliament is important to Māori, and that we as a caucus have a responsibility to give each issue the serious consideration it deserves.

During the passage of this bill, the Māori Party has raised a number of issues, including problems with compliance costs, the role that taxation plays in helping to drive local economies, and the need for a sustainable economic base. We have also raised the basic question of how taxation will impact on Māori throughout Aotearoa. Will it eradicate poverty, and how can we refocus our efforts to be more positive in our use of taxation?

We note how easily our Government can make political decisions to improve the status of the poor in South Africa. In that regard, I am mindful of a comment made by Bishop Desmond Tutu, who said: “If everyone who wants to see an end to poverty, hunger, and suffering speaks out, then the noise will be deafening. Politicians will have to listen.” Although the noise during question time can be painfully loud, a stronger and more enduring noise is needed if we are to be inspired to act swiftly and honourably in the interests of the people whose needs are far greater than our own.

When the chairman of the Finance and Expenditure Committee spoke to this bill, he mentioned that tax breaks for those who want to bring finance into Aotearoa would be addressed. The Māori Party would add that it is probably even more important that we look to our own land and see how we may improve economic growth here, rather than look to overseas investment and the problems that it brings for Māori particularly, and for our nation as a whole.

For example, the export revenue from Māori farms is about $800 million a year, but those farms still operate at a level that is only about 70 percent of the national average. It seems that some targeted tax relief in research and development and farm management could go a long way towards improving that return, yet this bill seems to be more focused on research and development tax relief for companies that are bringing in new investors. Again, perhaps we need to look closer to home in order to realise positive growth.

Another area we could target for economic growth is marine farming. The Māori Party notes that the Maori Commercial Aquaculture Claims Settlement Act was rushed through the House as a vote-getter, but not one new marine farm has been set up as a result of it. The potential for marine farming for Māori, and for the nation’s economy, is huge, and I note that when the Act was launched last year the Hon Dover Samuels said it signalled new opportunities for Māori in the marine farming industry. So members can imagine how concerning it is to see, less than 9 months later, the same Dover Samuels report huge frustration amongst coastal Māori over the unworkability of the aquaculture legislation. The Māori Party is happy to back Dover Samuels’ call that Māori marine farming be supported, and, as the member of Parliament for Te Tai Tokerau, I will do my best to see that the Government’s decisions do not continue to deny Māori access to that industry.

I note also Dover Samuels’ comments yesterday that the Government’s oceans policy was pie in the sky and would undermine economic development. The Māori Party will be watching to see what changes are made to legislation as a result of the advice of the Associate Minister.

We all suffer the errors of flawed policy, and we must all take the steps necessary to address those flaws. Yesterday we saw the latest in a long line of Labour MPs trip over his sense of self-importance, but we acknowledge David Parker for recognising his mistakes and taking the appropriate action. His actions were similar to those we have seen in the Māori world, where those who do wrong are expected to front their people on their marae and receive the justice they deserve. It is a pity that we are losing touch with a justice that is as honest as it is simple.

Although I recognise the importance of the changes to the depreciation rules, I know that my constituents will not jump for joy or weep into their beers over them, for the simple reason that they really do not give a stuff. They are more worried about the rise in fuel prices and the impact of that on their wallets and on their lives.

We applaud the Inland Revenue Department for agreeing to waive the penalties for people who make genuine mistakes in their tax returns—and if the tax police can deal with flawed policy, then anyone can.

I also note that the Inland Revenue Department has aligned the GST and provisional tax payment dates, to make it easier for those who pay business taxes. That decision will, I know, help Māori businesses greatly. They have often been affected by the tight payment schedules and the penalty clauses that kick in when they are late due to sickness of the whānau, travel, medical costs, tangihanga, and the need to give koha at times that simply do not fit with Inland Revenue Department schedules. Although we oppose this bill, we support the initiatives to simplify the tax rules and to reduce the number of times people need to deal with the Inland Revenue Department, so that provision is a move in the right direction.

I remind the House that although the Government receives $1.2 billion every year from the taxes on tobacco products, the real costs of smoking—through smoking-related illnesses and the associated health care, through fire, property, life, and health insurance costs, through the cost of refurbishing homes, offices, cars, and workplaces to rid them of the stench of cigarette smoke, through passive smoking, through the loss of earnings of those in care and those who have died unnecessarily, and through the incalculable damage caused to whānau throughout the nation, both Pākehā and Māori—make the tax take look downright miserable, by comparison.

Productivity and growth are not just about hourly output. I recall the comments of New Zealand Council of Trade Unions Māori vice-president Sharon Clair, who said that productivity need not be a negative perception if the benefits of productivity are shared. We need to enhance our potential in areas like marine farming and aquaculture, reduce development that exploits or puts at risk the health and well-being of our communities, and do all we can to achieve real progress for our children, for future generations, for the nation, and for our planet.

I end my speech by paraphrasing the words of Dr Martin Luther King—I hope I can do justice to them. As long as there is poverty, I can never be rich. As long as there is such illness amongst my people and their life expectancy is so wretchedly low, I can never myself be totally well. I can never be what I ought to be until my people are what they ought to be. That is the way my world is made, and such is the way I see it.

CHRIS TREMAIN (National—Napier) Link to this

I rise to support the third reading of the Taxation (Depreciation, Payment Dates Alignment, FBT—[ Interruption]—it is a mouthful—and Miscellaneous Provisions) Bill. In my opinion this is the first piece of legislation from the Labour - New Zealand First Government that goes some way to helping this country take a step forward and lift itself up the OECD rankings. It is the first piece of legislation in over 6 years to do so. Despite our having had the best set of economic circumstances in a generation, only now do we finally see a business-friendly piece of legislation enter this House, at the death knell of this Labour Government. As we are sitting in 21st place out of 30 OECD countries, one would think that a focus on policy likely to push up our standard of living would be welcomed. But, no, over the last 6 years we have seen a focus on income redistribution, social engineering, and increased bureaucracy. Yes, this is the first piece of legislation in over 6 years that will provide genuine benefits to business people and flow-on effects to employees.

Let us be clear about this: business drives the economy. Without businesses we have no economy—we have no ability to drive social services or to redistribute wealth. Yet what are business surveys currently saying? The New Zealand Institute of Economic Research quarterly survey shows that firms are the most pessimistic they have been since 1986. Seasonally adjusted, the result is worse—firms are more despondent than they have been for 35 years, since 1970.

Business pessimism is not alone in condemning the current economic climate. We need to consider a few more hard facts and a few more warning signals. Interest rates have increased. In 2004-05 they were 6.83 percent; now they are 7.53 percent. The current account deficit back in 2004-05 was $8.7 billion; now it is $12.9 billion. Inflation has increased. In 2004-05 it was 2.7 percent; now it is 3.2 percent. Of most concern is the fact that the rate of economic growth is falling, and falling like a stone. Economic growth in 2004-05 was 4.3 percent; now it is just 2.7 percent. Next Friday the fourth-quarter growth statistics will be released. In the September quarter, growth was just 0.2 percent, and indications are that growth in the December quarter will be even worse. It could be zero or even negative. That means that the New Zealand economy has stalled for 6 months—not a good sign for the months ahead. Economic growth has not only fallen like a stone; it has hit rock bottom.

So this taxation legislation is long overdue. It is but one part of the recipe needed to put the economy back on the path towards higher achievement—towards a place in the top half of the OECD rankings. The problem as I see it is that this legislation stands alone. As Mr Key pointed out, it is a breadcrumb. I see little other legislation waiting in the wings to help grow the economic position of this country. We urgently need clear direction in the areas of review of the Resource Management Act, investment in transmission and energy, transport infrastructure, research and development, further emphasis on taxation, and employment flexibility.

Fortunately, the country has some allies in the National Party. Already, despite being in Opposition, we have been able to place on the agenda legislation that will address some of this country’s employment-related issues. Wayne Mapp’s Employment Relations (Probationary Employment) Amendment Bill was successful in getting through the first reading stage, which is excellent. That legislation will give more people the opportunity to enter the workforce, will allow employers to take a risk, and will improve the productivity of this country—so long may that continue!

Returning to the bill before us, I will focus on two areas: firstly, depreciation and, secondly, tax exemptions for new migrants. While the bill deals with many other amendments to a variety of Acts, I believe that those are the two sets of measures that will contribute most to furthering the prosperity of this nation and helping us to move up the OECD ladder.

A number of changes to the tax depreciation rules have been introduced. Firstly, depreciation rates will be more closely aligned with the commercial reality of an asset’s useful life. That is sensible and will further encourage investment in assets that help to make team members more productive, to increase efficiency and output per employee, and to lead to economic growth. Secondly, the low-value asset threshold will be changed from $200 to $500. That will allow companies to write off assets in the year of purchase up to the level of $500, which is a significant improvement on $200. Once again, this is a positive move that encourages investment in assets in order to make businesses more productive—to increase the output per employee, and to increase efficiency and productivity. Both of those items are moves forward, and businesses will welcome them.

However, there is a surprise in waiting. That surprise is for building owners. While depreciation rates for many assets have been increased, depreciation rates for buildings have been reduced. Most submitters to the select committee did not support that move. They reasoned that the pace of change in technology and in consumer preferences means that the useful life of many buildings is in fact shorter than the 50 years on the table. I say that they are right. National members voiced their opposition in the select committee to that adjustment, but unfortunately it fell on deaf ears. This is an opportunity lost. Investment in buildings is one of the key drivers of the economy and of economic growth. Buildings house businesses; businesses drive economic growth. Any decision to discourage investment in that key resource sends the wrong signal and, to some extent, counteracts the positive signals sent by the changes to depreciation in the first part of the bill.

There is also a missed opportunity—the opportunity to add a provision that allows depreciated assets to be fully and finally written off, written out of the asset register, once they reach a minimum threshold level. Under diminishing value, the asset can effectively remain on the books for years. Small-business owners do not have time to run around their businesses or resources to check every asset that is on their registers. So once that value goes below a certain level they need to be able to write the asset off, and to write it off legally.

Last night Dr Lockwood Smith put forward an amendment to introduce a $10 threshold. That was considered by the Minister of Revenue at the time, but was rejected at that point. Interestingly, the Rt Hon Winston Peters in the House last night, across the floor, accused us of being frugal with that request, by asking whether we were from Bosnia. We were in fact being fiscally responsible in our request, hoping to place on the table a realistic amendment to the legislation, and one that we could list in future years. It actually showed that we had thought about the fact. The Minister—listen to this one—went on to say that business owners should instead just write “lost” beside the asset in question. [Interruption] I suggest to Mr Woolerton that that is a dangerous recommendation to make—

R DOUG WOOLERTON (NZ First) Link to this

Tonight we are witnessing a unique event. We are seeing a tax bill proposed by Labour going through the House supported by National, and supported I might say by New Zealand First as well. During this debate we have heard a lot about the Supplementary Order Paper introduced by the Rt Hon Winston Peters, Minister for Racing, and we have had claims from National Party members that it is National Party policy. All I would say to the public of New Zealand is that if it really was National Party policy, I think I can say fairly that National has been in Government more often than New Zealand First, so how come National did not put it into legislation? How come the National Party did not put this racing policy into legislation? Because it was not National Party policy back then; that is why. The National Government was busy cutting this, cutting that, relying on the free market for everything, and the last thing it was interested in doing was aligning the racing industry with casinos, which New Zealand First has had to do.

Just for the record, New Zealand First’s racing policy was posted on its website on 18 July 2001, and that was some time before the National Party’s racing policy. If National is going to swipe our policies, it should either implement them when it is in Government or shut up about them and get on with the business.

New Zealand First has introduced a policy for the racing industry that will return $30 million to that industry. We are confident that it will be used well, that the racing industry finally understands that as well as being in the export industry and the breeding industry it is also in the entertainment industry. If the pages of the New Zealand Herald are anything to go by, where there are not many pictures of racehorses on carnival day, but a lot of pictures of beautiful women in very fashionable clothes, the industry has certainly come to grips with the idea that it is in the entertainment business, as well. But we are pleased to help the industry along, with the introduction of this legislation. It now lines them up fairly, for the first time for many years, with gambling and other types of gaming.

We also make no bones about the fact that New Zealand First believes that the taxation system can, and should, be used by way of incentivising, and giving messages to industry. We have had no hesitation in saying that depreciation on brood mares and other stock in the thoroughbred industry should be speeded up so that it is more advantageous for those people to get into producing good mares, producing good breeding stock, and indeed exporting them, thus helping us with our chronic balance of payments deficit.

It is no surprise to anybody that through this taxation bill—and I might say that the Finance and Expenditure Committee was ably chaired by Mr Shane Jones, and he is getting better and better every day—

CRAIG FOSS (National—Tukituki) Link to this

I rise to speak to the third reading of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill. My apologies for the length of that title to those who may be listening to the radio at the moment. It has been a pleasure, and I congratulate all those who have progressed the bill this far. It is the second major bill that I have been involved in while I have been in this Parliament, and I have learnt a lot from some of the more seasoned hands on the Finance and Expenditure Committee. I reiterate the earlier comments that our chair did a pretty reasonable job, although I do wonder about the amount of patsy questions he seems to ask in the House.

The National Party supports this bill. I personally support this bill, but it is not bold enough. Quite frankly, it does not go far enough, and I look forward to building upon it, using it as a platform for further and fundamental change, and fixing the New Zealand system under the next Don Brash - led Government, with Mr John Key as finance Minister. I look forward to being part of that action.

This 353-page bill is, allegedly, business-friendly. How 353 pages can simplify taxation law I am really not sure, to be honest. Essentially, it just tinkers with existing law, regulation, and our statutes.

I would like to run through some of the key points that the bill addresses. The bill deals with depreciation rules and schedules, as the previous speaker just alluded to, and, in particular, changes the economic life frames of buildings and certain aircraft. It also changes the low-asset thresholds from $200 to $500. My party argued quite intensely on the committee that those thresholds should be higher as recognition of the investment that many companies are trying to make that add value to New Zealand, as opposed to forever worrying about the cost. The fiscal cost of going from $500 to $1,000 would be $400 million, I think Minister Cullen said the other night. Quite frankly, I think that is a very good investment to make in the New Zealand business scene.

The bill also aligns the payment dates for provisional taxation and GST. On its own it is a minor business-friendly measure, but, tragically, that measure has been delayed from 1 April 2006 to 1 April 2007. It also provides for a subsidy for payroll agents. Mr John Key spoke to that earlier and did a very interesting take on it. Goodness gracious, after another 353 pages of taxation law more payroll agents will be employed all over the show, and it will probably be New Zealand’s biggest growth industry over the next wee while. Again, tragically, the implementation and application of that measure has been changed from 1 April 2006 to 1 October 2006.

The bill also touches on the fringe benefit tax, particularly around flip-flop leases and 9 to 5 leases—they have various names. We had an awful lot of submissions on that particular point of the bill. Personally, I found it fascinating that most of those submissions came out of Auckland for some reason. I do not know quite why that was, but it is a major deal there. However, I will be quite upfront and profess that I do not fully understand flip-flop leases and nine to five leases.

The bill also starts to deal with corporate migration and the treatment of assets when a corporate is no longer essentially tax domiciled in New Zealand. OK, it is a fair enough step in the right direction, but I think we need to have the discussion and debate as to why those corporations are choosing to leave New Zealand in the first place. I think that as we speak we will see more and more of those corporates leave.

The bill also provides tax exemption for new migrants and for people returning to New Zealand. The threshold is for them to have been 10 years away. Most New Zealanders leave in their early twenties, so after 10 years away they have spent over a third of their life overseas. They have established themselves, they have paid good tax overseas, and they have started to put down their roots. For an increasing number of New Zealanders, one really has to ask why they would return.

The bill also touches on foreign trusts, particularly in regard to reporting across the Tasman and the sharing of information. Again, I can see the logic behind it, and it is fair enough, but another debate that I believe we need to have in this House and across New Zealand is the increasing Australianisation of all things New Zealand and the de facto adoption by New Zealand of Australia’s various laws and statutes. I point out that as we get more Australianised by the day, Australians are still not eating our apples.

The bill also addresses trans-Tasman imputation credit streaming. It is a reflection of reality and starts to reflect some of the listings on the New Zealand Exchange, and the Australia equivalent, cross share ownership. It is a good move in the right direction, but a small one.

The bill also addresses reverse takeovers and, again, that is a small step in the right direction. Basically, it is recognition of the reality of international commercial life and of some of the cut and thrust of companies that are much, much larger than any of those we see in New Zealand.

As the Minister of Revenue and as my colleague Lockwood Smith particularly spoke about earlier, the bill addresses what has been known as the unacceptable tax shortfall penalty, and a Supplementary Order Paper was tied up with that. National endorses the direction that that is trying to take tax regulation in New Zealand, but I think we have quite a long way to go.

A few Supplementary Order Papers are linked up with this bill, and appear under it, on top of it, and inside of it. I will touch on one: Supplementary Order Paper 380, which has been and gone, surrounding the wine equalisation tax. I just raise the flag that what all of my sources say and everything I hear is that the implementation from the Australian side of that is actually becoming quite difficult. Quite frankly, the Australians are being Australians and are looking after Australia first. Perhaps there is a lesson there.

A Supplementary Order Paper sponsored by another member is very good and beneficial to our racing industry. Essentially it is a cut and paste of the earlier National Party policy, apart from a couple of key dates, and it is a good move in the right direction. I congratulate Mr Lindsay Tisch on the formulation of that policy.

But what is bold about this legislation? What is new? What will thrust New Zealand forward and help us at least to move from No. 21 in the OECD rankings? What will stop us from sliding down those rankings? What will raise the productivity of labour here—and I definitely do not mean “Labour”, because I think that is pretty much a lost cause? What is needed? We must ask that question because bold and dynamic thought is needed and required. We hear from the Prime Minister and the Minister of Finance lately about the “economic transformation” required for New Zealand, yet they do not seem to be able to explain from what to what and how. They must stop tinkering around. It is interesting that this Government has surfed on the back of 6 years of fantastic economic growth but that it had very little part in formulating and starting it. We see from the headline in the New Zealand Institute of Economic Research consensus forecasts that a soft landing is settling in right now, so perhaps there will be some questions to Mr Cullen on the economy, as he was begging for today in the House.

But why do we need this bold change? Well, quite frankly, at the moment the Inland Revenue Department is collecting about $42 billion in revenue out of a total of $60-odd billion of revenue in this economy every single year. Why do we need bold change? Because the dollar has been skyrocketing through the roof, and the damage has been done. There is a crippling cost of working capital for our industries because of the Government’s “spend-athon” and “tax-athon.” Why do we need bold change? Because there are policies such as Working for Families that essentially create 102 percent marginal tax rates for some who are desperately trying to move off welfare. Why do we need bold change? Because over 600 New Zealanders are leaving for Australia every single week. What is the best that the Government can come up with as an alternative to that? We hear about the payroll tax, but the payroll tax—it is nuts, by the way—can be implemented only if it is fiscally neutral. Let us be bold, fiscally aggressive, and innovative. Boldness is what New Zealand needs. Why have the key planks of this business-friendly bill been delayed by 6 months for payroll tax and 12 months for GST?

As I conclude, I point out that these 360-odd pages need to be managed by the Inland Revenue Department. I would like to share with members a little something that I discovered in the Inland Revenue Department’s statement of intent, because it may come as a surprise to some people. This is the desired future, according to the Inland Revenue Department, so listen carefully: “Taxpayers and other customers meet obligations of their own accord—and Inland Revenue makes this easy”. The final goal states: “The community regards Inland Revenue as professional, approachable, effective and efficient.” Well, I certainly hope so, but with all this new tax legislation I do wonder.