4. JOHN KEY (National—Helensville) Link to this
to the Minister of Finance
Does he stand by his statement yesterday, regarding the taxation of overseas share portfolios, that: “Some variant of a deemed rate-of-return method is likely to emerge out of the select committee process, and I am perfectly comfortable with that,”?
Can he confirm that the fact that he is suddenly perfectly comfortable with this proposed deemed rate of return method is a complete U-turn from the position he previously held when a similar scheme was suggested to him in the 2001 McLeod Tax Review, that it is a U-turn from the position he held when the officials reported back to him on the taxation of offshore investments in 2003, and that it is a U-turn of the position he held when he finally read the report into the Stobo report in 2004?
Hon Dr MICHAEL CULLEN Link to this
That added up to four U-turns; presumably I am back where I started from. No. The risk-free rate of return method, which was a 2001 proposal—as I indicated yesterday in a media comment—still seems to have a difficulty around it, in that one ends up taxing people when they make a loss.
When he said recently: “I have considerable reservations around the risk-free rate of return method.”, is that because back then he agreed with me that taxing someone when his or her portfolio does not pay a dividend and loses money is patently unfair; in which case, will he confirm to the House today that if he introduces the deemed rate of return method, he will not in fact be applying that in a year when a portfolio loses money?
Hon Dr MICHAEL CULLEN Link to this
I said yesterday that I have difficulty with the notion of taxing people when they make a loss. If the member had cared to read the full news report, he would not have put out such a silly press statement.
Why, when over 3,000 submitters concluded months ago that the current proposal before the select committee was such a hare-brained, crazy proposal that it would not work, has it taken the Minister so long to work that out that he is now recommending something else?
Hon Dr MICHAEL CULLEN Link to this
The member clearly still has not understood the original proposal, which is based on a version of a deemed rate of return with a final wash-up. The essential difference is that the proposal put forward by Mr Shewan and others, and any form of deemed rate of return, does not have a final wash-up provision.
Why is the Minister coming over the head of the Minister in charge of the bill, Peter Dunne, and putting his own seal of approval on the change before the select committee has reported back; why is he showing complete contempt for the generic tax policy process; why did he follow a similar contempt of process when he undertook the KiwiSaver Bill; and would it not make sense to put these things up front first so that people could make submissions and have their submissions heard—not change the rules right before the last minute?
Hon Dr MICHAEL CULLEN Link to this
We are nowhere near the last minute. I have worked with Mr Dunne on this issue for some weeks, which will come as news to the member.
Hon Dr MICHAEL CULLEN Link to this
No, but I might say that the member’s hearing is always very faulty in these matters. If the member could make an intelligent contribution, maybe we could talk about it.
Rt Hon Winston Peters Link to this
In respect of Mr Key’s views and the representations made by Mr Shewan, could the Minister give us his view as to who on earth would park their money offshore for 3 percent when back home the banks in New Zealand are offering 7 percent?
Hon Dr MICHAEL CULLEN Link to this
I think one of the problems with Mr Shewan’s suggestion—apart from the fact that it would tax on losses—is that the 3.5 percent level is very low, indeed. The average rate of return on equities throughout the 20th century was about 8 percent. Even over more recent times the average rates of return have been more like 8 percent or so over a medium to longer run period.
Is it not the truth that the Minister does not like the deemed rate of return method any more now than when he disliked it back in 2001, 2003, and 2004 when he rejected it, but he cannot get support from New Zealand First and he cannot get support from United Future; maybe even more tragically for him, he cannot get support from his own Prime Minister, who has been running around the country telling people that she does not like the scheme any more than they do, and is that not just further proof that his new-found love of the deemed rate of return is like his new-found love of tax incentives for saving and his new-found love for tax cuts, and maybe it is further proof that she is about to give him the flick?
Hon Dr MICHAEL CULLEN Link to this
It is that kind of shallowness that has put Bill English back in front as the challenger.
Madam SPEAKERThe interjections that were going backwards and forwards, the long question, and the flick at the end got that sort of reply, but, if the Minister wants to make a more substantive reply, he may. It was a very, very long question. The Standing Orders state that questions should be succinct. But I am quite happy for the Minister to address the question again if he would like to.
Hon Dr MICHAEL CULLEN Link to this
I will try to explain to the member again that the current proposal in front of the select committee has, in effect, a deemed rate of return of 5 percent, and a tax on 85 percent of that on an annual basis, but there is a wash-up at the end on realisation. Indeed, a standard deemed rate of return method would not normally have the wash-up at the end, which is precisely what Mr Shewan and others have been proposing. I suggest to the member that what he needs to get his head around if we are going to have that kind of approach, which has simplicity, is that it also has to deal with the issue of not taxing on losses.