Cullen Michael: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Second Reading 
Cullen Michael: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Second Reading 
[Volume:629;Page:1893] 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I have to admit that I feel quite faint after that speech. I know that the National Party has been under instructions to tone it down in the House this week but when Dr Lockwood Smith supports a Labour Government bill on taxation I think that is almost going too far in the direction of reason and good behaviour within Parliament. Maybe he is losing his spark or something like that. 
I just want to pick up on one or two of the issues he raised and try to give some sort of response to them. Firstly I refer to the issue of the threshold of $150000 in relation to provisional tax. Clearly with any move in this respect there is a certain arbitrary limit that will be set at the initial stage and any figure is to some extent plucked off the shelf. I think what is fair to say is that this is a classic case where we can suck it and see. We can see how it works in practice and therefore see whether there is a strong case for extending that threshold upwards to allow a larger range of middle-sized businesses to qualify for the provisional tax approach based on cash flow. 
As the member rightly said—and as I think the Hon Peter Dunne said—this would be particularly useful for seasonal industries. But I suspect that quite a few small businesses will also find it helpful because it will simplify the process of doing taxation and remove a great deal of the worry around the current provisional tax estimation kind of approach which does sometimes get some small businesses into trouble. It is one of those holes where once they start going down it can be very difficult to get back out again despite the freeing up of the penalties regime and more flexibility around that which we introduced a little while ago. 
In terms of the expensing threshold going from $200 to $500 business of course wanted to go to $1000. The additional $500 was something over an additional $200 million of forgone revenue in the first year. It is surprising just how expensive it is to move from that relatively low level of $500 to what is still a relatively low level of $1000. 
I think whatever the level would be that is reasonable—clearly something around those sorts of orders of size are what we are likely to be looking at over the coming years—we are still going to face this problem that it can be broken down into component parts. Even if it were large enough to cover a motor vehicle for example—let us suppose it is $30000—one might break the motor vehicle down into component parts and assemble on that basis for taxation purposes. One thing I have learnt in my 6 years as Minister of Revenue is that there is an endless fund of creativity in New Zealand accounting and legal firms around trying to adopt what they would like to call tax-effective positions—or avoiding tax as I think the more general public tends to know it. 
 Unfortunately lowering the simple tax rate does not seem to make much difference to that behaviour. For a couple of years people say that it is very nice to have a tax rate of only 5 percent and then they say that they hate paying 5 percent so they want to find a way around that as well. It is a sort of revenue equivalent of original sin in effect and we just have to live with original sin in tax as we do in the rest of life. 
In terms of the issue of a threshold for removal from the asset register I think it is something that officials could usefully look at. On a straight-line method it is not such an issue because a straight line will cross the axis at a certain point. But on the percentage reduction method when it is asymptotic to zero then clearly that can lead to infinitesimally small amounts of money requiring things just to remain on the asset register. That is something that is certainly worth looking at. 
On the member’s last point around temporary residency etc. I think he will find that the Australian system is not quite as generous as he thinks in terms of what we have done in relation to returning New Zealanders and permanent migrants. Indeed part of the reason for that is that Australians are less generous around issues of permanent and temporary residency. The member raised issues around people being temporary residents for a number of years. That is a very unusual situation within New Zealand and it would certainly be an extraordinarily unusual situation for somebody who was a high-worth individual in terms of skills and employment. Those people will almost certainly—near enough 100 percent certainty—have permanent residency within New Zealand so that if they are taking up their permanent residency and they have been offshore then obviously they qualify for it. 
In terms of the 10-year limit for Kiwis again there is a quite a difficult trade-off in that respect. If the period is too short then it becomes an incentive for people to simply go offshore for a period of time. In my view 5 years is a bit towards the short end of the spectrum. If people extend their OE to 5 years when they were planning on 3 years they will qualify for tax emption on a whole range of overseas income possibly for a considerable number of years. So I think there is a difficult balance and it is worth continuing to keep that under review as we move along. Again this is a new feature of the tax system so it is one that we need to keep under review to see how it works and to see what the incentives and behaviour responses are in relation to that because there is always the risk of perverse behaviour responses to moves of this sort. 
Finally these are in fact the largest business tax reductions since the late 1980s—since the fourth Labour Government cut the company tax rate at that point from 48c to 33c in the dollar. No reductions in the 1990s were as big. It is one of the key features of the 2005 Budget. The changes in the legislation are particularly helpful for small to medium sized businesses. That was quite a deliberate policy choice by the Government having in effect determined the amount of money it thought was available for business tax reductions. It decided to target those in a way that would be most helpful to small to medium sized businesses because all our experience over the previous few years—including the work that the Inland Revenue Department had done at my instructions—was that there were issues there that were not issues for big business at all. 
Big business was not particularly worried about provisional tax. Issues around depreciation were less of an issue for big business. Issues around expensing thresholds were less of an issue for big business. There were many more issues for small business because of the relationship of those kinds of expenditures to the total expenditure of the business. 
So the legislation should be pretty warmly welcomed by the business community. As always people would like more but then the world is full of Oliver Twists in the world of revenue. It does not matter what the Minister of Finance or Minister of Revenue does one can be sure that somebody is going to come back with his or her plate and ask for at least a second helping if not a third and a fourth. Of course as I have indicated today second third and fourth helpings may be on their way in a number of respects.