Robertson GrantTAXATION (ANNUAL RATES FOR 2016-17 CLOSELY HELD COMPANIES AND REMEDIAL MATTERS) BILLFirst ReadingDebate resumed from 14 June.GRANT ROBERTSON (Labour—Wellington Central): When I was rudely interrupted last night we were discussing what had been the best thing to come out of Hamilton and never go back and the people of Hamilton had voted strongly—Tim Macindoe: I was listening avidly.GRANT ROBERTSON: No it was not Mr Macindoe. That is true. Mr Bennett was the export that Hamilton did not want back and unfortunately I cannot go on any more about that for reasons I am not allowed to refer to. What I am here today to discuss is the Taxation (Annual Rates for 2016-17 Closely Held Companies and Remedial Matters) Bill and again we have in front of us a taxation bill that is ad hoc at best. I long for the day that a taxation bill will come to this House that gives us an idea of the overall goals the Government has for the tax system—what it is trying to achieve; the balance that it wants between taxing wealth and taxing income; where it sees the future of taxation going; and a plan for that. But no—every single time it is a bill that is ad hoc and the danger in that is we come back time and time again to correct the ad hoc mistakes or to add a little bit more in and it becomes a system that is very difficult to understand. When we had the last bill in the Finance and Expenditure Committee our expert adviser made this very point: the piecemeal changes the Government keeps making are confusing for the sector that uses them and for the tax accountants who use them let alone the individual taxpayers the people whom the Inland Revenue Department (IRD) actually mainly works with and for. They are confused because there is no coherent framework. So we stand here once again with a bill that is as it is described sometimes by the IRD about making sure the original intent of tax legislation can be clarified. That is a problem. If we are spending all our time doing that let us go back and work out what should be in this legislation. But again it is not. We have a set of ad hoc remedial piecemeal measures that are frankly mostly useful as far as we can tell but do not constitute an overall picture of where taxation should be going in New Zealand. One thing we do know for sure is that this bill will set the annual rates for taxation for 2016-17. Again here would have been an opportunity for the Government to say: It's time for some fairness. It's time to have another look and make sure that we've got the rates set in a way that's fair instead of just automatically rolling them over." Prior to the Budget we heard a lot from the Government about their concerns about what is known as bracket creep fiscal drag or whatever you want to call it—the idea that some people are being "captured" by the fact that their incomes have risen but the tax brackets have not changed. When this bill came out I thought: "There you go the Government will be true to its word. They will have addressed that issue. They're the ones who raised it in the run up to the Budget." Nothing—not a word. Not a single word. So it is crocodile tears when it comes to the people who might over time have seen the fact that their incomes had increased but the tax rates had not changed. Not a word in here—the annual rates have been set for 2016-17 and they go on regardless. The public of New Zealand might want to reflect on the real commitment of the National Government in addressing that. It is all very well to wave around the idea of tax cuts saying they are going to come in the never-never and that they rely on outrageous forecasts in the Budget but then Bill English stands up says: "No there's no room for tax cuts." He puts on his best dour Dipton face and he says: "There's no room for tax cuts." and then John Key comes along "floating from cloud to cloud" as Minister English once said and says: "Oh no we can do them—$3.5 billion I reckon." That was the phrase. That will go down in history. When he was asked how much would be required for tax cuts: "About $3 billion I reckon." That is how they are making tax policy nowadays in the National Government—on John Key's reckonings. We can do a whole lot better than that. This would have been the opportunity for the Government to do that when it set the annual rates for 2016-17 and it completely failed to address any of those issues. The other thing the bill does is a range of measures. The one that I want to focus a bit of time on today is the changes that are being made around look-through companies. The whole issue of the place and role of look-through companies in our tax legislation has been in the spotlight in recent times. They popped up during the Panama Papers in one of the more unfortunate references to New Zealand which was the desire of Mossack Fonseca to sell what it was calling combo packs to interested investors. So here we were as the McDonald's of tax havens with Mossack Fonseca deciding you could get a decent combo pack. It was not fries that came with your foreign trust; it was a look-through company. That was exactly what was being put on the table: that for particular types of investment you could find yourself the look-through company vehicle. The example that was given in the Panama Papers was of a French investor who had previously had his money in a Swiss arrangement but changed that to a New Zealand look-through company arrangement on the basis that that could be zero-rated for tax purposes. If all of the income was foreign income the New Zealand look-through company could be zero-rated for tax purposes and then when the person repatriated their income back into France they were able to say that they had paid tax. They had paid tax at a rate of zero so they had not but they actually were able to tell the French authorities that they had paid tax at that rate. That is what our look-through companies are being used for today. That is what is in the Panama Papers. So when we come to discuss the changes on look-through companies that are proposed in this legislation members on this side of the House will be looking very closely to see what is being done. I think in my first reading speech I will give this to the IRD officials. They are tightening up a little around how look-through companies are being used. Chris Bishop: Oh how generous of you. GRANT ROBERTSON: Well I trust them Mr. Bishop to do that. I am not so sure about the Government members but I think the officials who brought this bill to the House are actually looking to try to tighten up around how look-through companies are run. My colleague Stuart Nash when he was speaking in the House last night was running through the ways in which there was effectively a free untaxed capital gain that was being realised by New Zealand owners of look-through companies. That is certainly an issue to look at. We also want to look at the treatment and use of look-through companies by foreign investors and those who hold foreign trusts because clearly from our point of view that misuse of a look-through company is significantly damaging for New Zealand. It needs to be noted again in the context of my earlier remarks about the piecemeal nature of these kinds of tax bills that it was a 2010 piece of legislation put through by this Government that actually enabled the arrangements for look-through companies as we see them today and the exploitation of them by those with foreign trusts seeking to shelter income from offshore. It was Chapman Tripp that in writing about the changes that were made noted that New Zealand funds were now an attractive alternative to funds resident in Luxembourg Ireland or the Caymans. So that is the league that the 2010 changes put us into and they quite clearly have now been used and we have seen the enormous explosion of foreign trusts as part of the aforementioned combo packs that are being sold around the world. It is on those issues—the look-through company issues—that we will be focusing most of our attention. The remaining remedial matters including issues to do with non-resident withholding tax appear to us to be sensible and are in part a response to the Government's work in relation to the base-erosion and profit-shifting work being done at the OECD. It is again a failure to come to this House with a comprehensive package to deal with that. We heard today from the Minister of Revenue at the select committee that his point of view is that New Zealand cannot really do much. We are just going to have to wait and see what the OECD comes up with. He does not think we need a diverted profits tax in New Zealand like his comrades in Australia and the UK have put in place. He is just prepared to do a few little tiny piecemeal acts in this area. We should be a lot more ambitious than that. The Labour Party will support this bill but it is an ad hoc piecemeal response to a series of issues that require a strategic and coherent plan which is sadly lacking from this Government."