Tabuteau Fletcher: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — In CommitteeText is incorporated into the Bound VolumeTabuteau Fletcher: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — In Committee[Sitting date: 03 November 2015. Volume:709;Page:7677. Text is incorporated into the Bound Volume.]FLETCHER TABUTEAU (NZ First): I just want to continue down the line of tax incentives for business. Originally the legislation spoke about incentivising research through tax write-offs. It is a tax remedial bill. New Zealand First looked at that in some detail. In our contributions we noted that the issue with that was it was not actually supporting 98 percent of New Zealand businesses. It seemed to disincentivise or even more than that prevent small to medium sized enterprises from using the tax claim procedures so that they themselves could use the tax write-offs as an incentive to encourage research. It is a small part of it and I acknowledge that the officials have done some work and we are moving in the right direction.But I just wanted to put some context in and around the bigger picture of research in New Zealand. The slump in dairy prices of over 10 percent today just highlights New Zealand’s hang-up with commodities. What we see is a kind of cycle not just in New Zealand but around the world where we invest and then we do not because the prices drop and then there are fewer players in the market so the prices go up so we invest—and so the vicious circle goes on. I know a lot of farmers in New Zealand are quite anxious about the intellectual property that has been sold to overseas dairy interests and so we are kind of competing to provide the lowest price to the world market. That model just cannot carry on for an extended period of time. What I am saying to the Committee today is that you have some very small micro opportunities here in terms of incentivising research. The Government needs to acknowledge this and move our economy out of that commodity conundrum.I was looking at some research and I would like to bring it to the Committee’s attention. New Zealand exported $50 billion worth of goods in March this year. This was the total annual amount: $50 billion—fantastic. It sounds fantastic. We are a population of 4.6 million people. If you contrast that with Singapore that country exported $410 billion worth of goods or commodities. That is about $10500 a person for us and for Singapore it is $113000 per person. I want to highlight the fact that Singapore is an economy that incentivises research. Singapore is meaningful about it and it takes it beyond the tax breaks. Only one of its top 10 exports is actually a commodity and that just happens to be oil. The rest are goods that have intellectual property in them; they have value added. That is a conversation that has been had in New Zealand for decades on so many of the products that we sell abroad—that value-added conundrum. I suggest and I assert actually that this legislation is just a tiny step in the right direction. Research and development expenditure in New Zealand for example is 1.6 percent of GDP. That is tiny and compared with the OECD average it is about half of that. So we have real issues that need to be addressed.This is a start as I have said a couple of times and I will make reference to some of the clauses that I am referencing. So I will speak specifically to clause 192 new Subpart MX in the Income Tax Act 2007. As I said we spoke insistently and strongly about the tax incentives needed for small to medium sized businesses. We noted that the original drafting of the bill did not even acknowledge small to medium sized businesses—well it did but it did not really give them the opportunity to write off those costs because it was kind of post or after the fact. A lot of them were running losses. They were not making the profits that would enable them to compensate as it were for those losses in terms of research.The section I am speaking about is MX6(4): … “the company is liable for an amount of R&D repayment tax equal to the total of the company’s R&D loss tax credits for the tax year corresponding to the reinstatement year and earlier tax years minus the total amount of—”. It explains it in detail. It is hard to summarise it because it is so complicated so with your forbearance I will just read out the paragraph that I think is particularly pertinent: “(a) the company’s terminal tax plus tax credits giving rise to imputation credits minus refundable tax credits giving rise to imputation debits for tax years in the period beginning with the earliest credit year and ending with the tax year corresponding to the reinstatement year:”. It is incredibly complicated language but what I wanted to acknowledge is that that part does mitigate somewhat New Zealand First’s concerns around small to medium sized enterprises being left out.But I ask the Minister—and I ask this earnestly—if this is what was actually wanted what was the subsequent consultation to reaffirm that that was the outcome from this altered clause? Are you getting what you intended from it and are our small businesses able to benefit from it?Just to finish off I keep raising the point—I have in the past—about unintended consequences. Some analysis on this would be hugely helpful. It will be important to understand just how that works in practice. Perhaps if I just leave my contribution there and wait for my next contribution to be able to take on another part separately. Thank you.