Bayly AndrewTAXATION (RESEARCH AND DEVELOPMENT TAX CREDITS) BILLFirst ReadingDebate resumed from 30 October.ANDREW BAYLY (National—Hunua): It's a pleasure to be talking on the Taxation (Research and Development Tax Credits) Bill first reading. I want to start out by saying that National is keen to support creative New Zealand businesses to help them grow and prosper. This includes providing not only the right economic environment for them to flourish but also the ecosystem for younger businesses to flourish. Reducing taxes ensuring laws are kept to a minimum and other such measures are all part of creating that environment. But R & D is also an important part as R & D—research and development—has the potential to drive growth in the New Zealand economy not only by increasing the size of businesses in New Zealand but actually by diversifying the activities that our good companies undertake in New Zealand. It is exciting in terms of the new creative industries that are occurring and the tools that will be adopted in the future—when you go and talk to these businesses the growth in things like robotics artificial intelligence technologies are always going to be there and are an important facet in terms of further growth of our businesses. But that is why the New Zealand National Party has always been keen to assist companies with R & D. The Callaghan Innovation Growth Grants scheme was part of that programme that we put in when we were in power. I think it's slightly perverse that when the Prime Minister was recently at Methven on 3 October waxing lyrically about high-growth companies and the importance of R & D David Banfield presented her with the latest technologies in a showerhead developed by Methven and of course that new technology came out of the direct support from the Callaghan grant scheme which over the last year gave away approximately $150 million a year. But the Government has chosen to do away with the Callaghan scheme and revert back to a scheme that previous Labour Governments have put in place. That is one based around a tax credit scheme where companies undertake R & D activities and then they're entitled to offset 15 percent of the total expenditure they incur and use that as a deduction against their future profits. This scheme that's been put forward has big bucks. It's a billion-dollar programme. The Minister has claimed that businesses will be better off as more companies will be covered by this new scheme. Initially she claimed that 3000 businesses would benefit and then that was reduced to 2000. Now in the scheme of how many businesses we have in operation in New Zealand—nearly 530000 businesses—it was interesting that officials providing advice on this new scheme said that 85 percent of the Government's tax payments would go to approximately about 330 firms. In essence what that's saying is there is a very small clutch of businesses that are responsible for most of the research and development in New Zealand and of course that cuts across the whole concept of trying to provide R & D to a whole raft of companies. The second issue with this scheme is how the Minister knows that only $1 billion will be spent and that's an interesting question. In the Australian R & D tax incentive scheme which is very similar to what's being proposed by the Minister in this bill they originally budgeted for a $1.8 billion research and development scheme. That was put in place in 2011. That subsequently blew out by roughly half to $3 billion. That's the nature of the scheme that's been proposed by the Government. The Minister has claimed that no that's not going to happen with this scheme and she's going to put in mechanisms to make sure that it doesn't take place—that we do not have a ballooning of the $1 billion to $2 billion or $3 billion. But there have been no further details provided by the Minister as to how she will ensure that there is not such a substantial blowout. The advantage of the Callaghan scheme—the scheme that's currently in place—is that it is fixed and it's one where the budget is divided and directed at the highest priority research and development companies. This is the one area of particular importance that we will be ensuring is addressed adequately in the select committee stage. The other issue with this bill is around enforcement. This is a big issue because generally what happens—and this happened when the previous scheme was in place—is that there are rules around which activities will be included and can't be included. In the schedules there are 24 activities that are excluded and 11 other areas that are excluded from supporting R & D. It's interesting: things like the cost of incurring and obtaining patents is actually one of those that are excluded in this R & D expenditure. However rules create the opportunity for interpretation and this is the issue. Commonly referred to as rorting these schemes are open to widespread claims by people to say that what would otherwise be normal business expenditure they incur are subsequently reclassified as research and development. This is a real possibility. Again we will be highly vigilant during the select committee stage as to whether and what measures the Minister will be putting into place to make sure that that does not take place. The other thing and this is one of the biggest concerns for us is that this bill is totally silent on the issue of supporting those young innovative creative businesses made up of wonderful New Zealand men and women who every day are seeking to fulfil their dreams by creating new products and services. That is incredibly hard work and these people often put themselves in a financial disadvantage to be able to go and do it. But these are the success stories of the future and we want to see more of them succeeding. I think one of the things that we can do is we need to see how we can support them. National was very conscious of it and when we were in power we put into place two provisions both in regard to start-up businesses or pre-profit businesses. One was to provide a real tangible benefit which was to the extent that they could take in the form of cash any tax credit equivalent amount of 15 percent of the expenditure which is the most precious element apart from their time in terms of helping them to continue their research and development. That cash-out clause was an important and tangible measure that we put in place.The other thing we put in place was the ability to deduct what's otherwise termed black hole investment which is expenditure that's incurred in doing R & D that sometimes cannot be deducted against future profits. Again we came up with practical measures to make sure that black hole investment expenditure could be depreciated and actually taken into account. But again this bill is absolutely silent on the issue of start-up companies and I think that's a great travesty. This Government should particularly be concerned about the representation from NZTech representing over 800 start-up technology businesses—and by the way New Zealand technology businesses are huge and a large part of our GDP. That organisation made it clear that these proposals do nothing for their members and that is a travesty.On behalf of the National Party I want to say that we support plans to help New Zealand businesses to grow and prosper. That's an absolute given. We understand the value that R & D plays in terms of helping our economy to diversify and to create high-value jobs. In many cases they are very high-value jobs. And unfortunately we've just had the debate around the oil industry. We're not persuaded that this package will work and I've noted some of the specific elements before but we will be supporting this bill through to the select committee because we want to hear from businesses about the specific elements of this package. But I do say that we give no guarantee of our support beyond that because of the significant concerns I've already raised.