Fitzsimons Jeanette: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — First Reading 
Fitzsimons Jeanette: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — First Reading 
[Volume:639;Page:9413] 
JEANETTE FITZSIMONS (Co-Leader—Green) 
: 
 I will address three issues in respect of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. The bill will require some careful scrutiny at select committee given its size and the fact that we have not of course had any opportunity to read it in advance. 
The first issue which has not been much commented on tonight is the lifting of the cap for tax deductibility of charitable donations. The Green Party has for some time argued that that cap should be much higher. We very much welcome the opportunity here to encourage greater generosity to charitable organisations and we welcome the increased income that we hope charitable organisations will receive as a result of this. But we have to look at one or two things very carefully. 
The first one is what the definition of a charity is and what it will become in the future. We have already had quite an argument which has reached a sort of compromise position where there was an attempt to exclude from charitable status any organisation that engaged in advocacy. That would have ruled out immediately all our environmental non-governmental organisations unless perhaps they were picking up oily tarred seabirds from the coast and nursing them back to health or restoring a stream bank. Any organisation doing anything of the nature of the Environment and Conservation Organisations of New Zealand the Royal Forest and Bird Protection Society the World Wide Fund for Nature or all the many others that are involved in trying to lead public opinion and advocate policy changes to Government would have been excluded under that proposal. 
A compromise was reached whereby advocacy is allowed provided that it was not an organisation’s main function. Nevertheless I think it remains to be seen exactly how this will be interpreted in practice. I hope the Inland Revenue Department will not counter the reduction in revenue from the complete removal of the cap by clamping down very narrowly so that only those organisations that help fund ambulances at the bottom of cliffs are able to be charities and not those that are involved in working with society to try to build fences at the tops of cliffs. 
Of course it is not just a question of what the definition of a charity currently is or how that might be interpreted. It is also a question of what that definition might become in the future if too many people get too generous and the Inland Revenue Department starts worrying about its loss of revenue. 
The other question of definition is whether it will be possible to set up charities that comply technically but that in fact may become a kind of tax shelter. It is a very big change indeed to go from a limit of $1890 to a limit of one’s entire salary and I think it is a very sudden step to go that far. I am not sure that we are completely sure of just what the outcome will be. We will be looking very closely at that definition in the select committee. 
Although some charities very much welcome the raising of the cap they are not sure they want it to go to 100 percent of income because of the risk that the State will see this measure as an opportunity for it to withdraw from much of the social service work that it does and leave it to private charities. That is another risk that we do not want to see eventuate. 
Secondly I want to talk about the tax credit for research and development—another thing the Greens strongly support. We do need to lift our investment in research and development in this country very substantially particularly in those technologies that will take us through the twin challenges of climate change and peak oil that will challenge our society very deeply over the next few years. 
But again there is the question of definitions. The bill states that the research must be “systematic investigative and experimental activities”. I would ask what sort of legal definition we will have of those terms and whether we are setting up a gravy train for lawyers to argue whether research and development qualifies. Of course we have to define quite carefully what activities will qualify—we are certainly not in favour of having no definition—but I think it is important that we make sure in the select committee that the definition is robust clear and unambiguous so that we do not spend all year arguing in court about whether research and development investments qualify. 
There is a set of exclusions for qualifying research and development—for example minerals exploration social science research market development stylistic changes to products and the routine collection of information. This is very proper; those things should be a normal part of what a business does and should not require any special tax incentives. But there is the opportunity for these excluded activities to come in through the back door if they are supportive of the matters mentioned in subsection (1)(a) of new section LH4 to be inserted into the Income Tax Act by clause 100(1) of the bill. I think that will also be a matter where there is considerable legal contention about what complies with the law and we need to think about it very carefully. 
A third issue is the liberalisation of tax penalties. It is very sensible for the Inland Revenue Department to develop an attitude of voluntary compliance and to work along with taxpayers to encourage and assist them to get their returns in on time and to comply with the tax laws. But for those who do not comply the penalties now seem extraordinarily light. I cannot imagine that Work and Income would ever treat a beneficiary in this way. I cannot imagine that beneficiaries who failed to comply with the requirements on them to the tune of up to $1.3 million would face a penalty of a mere $50. It seems that some people in society are to be given the benefit of the doubt in compliance matters much more than others. 
We can see the same sort of attitude going through into the KiwiSaver tax credit scheme. Generally we think the scheme is a good idea with the one big exception being that it is increasing greatly the wedge being driven between those on benefits or extremely low incomes and the rest of wage and salary earners. Not only do beneficiaries not get the child tax credit under Working for Families that all working people get but also they will not get the employer top-up of their savings scheme. They will not get the tax credit for savings. Beneficiaries with children do not receive the same State support that working people with children get and because beneficiaries have less opportunity to save they do not even get the top-up that goes with those savings. 
We are already in a situation where we have a group of people at the bottom who are very deprived compared with the rest of society. A great mass has been lifted by measures like Working for Families—and KiwiSaver will lift it again—but some people are being left behind and they are being left further and further behind as we go further down that track.