Huo Raymond: Taxation (International Investment and Remedial Matters) Bill — First Reading 
Huo Raymond: Taxation (International Investment and Remedial Matters) Bill — First Reading 
[Volume:668;Page:15134] 
RAYMOND HUO (Labour) 
: 
 I rise to take a call in support of the Taxation (International Investment and Remedial Matters) Bill. Labour supports this bill’s referral to a select committee. Deloitte published in March of this year an article on proposed further changes to international tax regimes. I would like to borrow part of the title of that article: “the good the bad and the ugly”. It is very fitting that I borrow that title to describe the various aspects presented by this bill and the priorities the Government has taken. 
The Minister responsible for the bill the Hon Peter Dunne in his recent speech at the 2010 New Zealand Institute of Chartered Accountants tax conference explained that the bill was a good bill. He said the bill “provides consistency of tax treatment between similar types of foreign investment by extending the active income exemption and active business test (with some small modifications) to non-portfolio foreign investment funds (FIFs). It also extends and rationalises the portfolio FIF reforms so that those investors who are unable to use the active income exemption (due to having an insufficient shareholding or access to information) will generally be taxed on an assumed 5% rate of return (fair dividend rate method).” 
I also note his statement that his Government intends to make New Zealand a more attractive place to invest by lowering withholding taxes through double tax agreements. From the Government’s point of view this bill means that New Zealanders holding stakes of 10 percent or more in offshore companies will not be subject to New Zealand tax on those interests unless the companies earn passive income such as interest royalties and rents. The bill replaces the exemption for non-portfolio foreign investment funds in the eight “grey list” countries with an exemption for non-portfolio foreign investment funds that are resident and subject to tax in Australia. 
As I said Labour supports this bill’s referral to a select committee. This bill is large and complex and it reminded me of the days when I was at the Finance and Expenditure Committee. It is a large and complex bill that warrants careful consideration and the scrutiny of a select committee is necessary and most appropriate. Concerns such as those raised by Deloitte are good examples. Commenting on the discussion document that gave rise to this bill Deloitte stated that the removal of the “grey lists” would expose investors to income attribution when they have previously been exempt. The corresponding tax compliance burden and possible inability to access the required information to meet the alternative exemption may make some New Zealand investors comparatively worse off. This is amplified when we consider that a number of other major trading nations have or are in the process of introducing a form of “grey list”. 
I will remain very interested in the development of this bill and I wish that the Minister would take a call at some later stage and enlighten us as to what he believes to be the best way to address those issues. From a technical perspective this bill follows the Taxation (International Taxation Life Insurance and Remedial Matters) Act 2009 which the Government kindly and inadvertently reintroduced tonight. That legislation changed the way in which a resident’s attributed controlled foreign company income is calculated. 
This bill aligns the method for calculating foreign investment fund income with the current method for calculating attributed controlled foreign company income. It also makes two changes to the thin capitalisation rules. This bill introduces an optional test based on the ratio of deductible interest expenditure to net cash flow. It also changes the rules relating to the grouping for the purposes of the thin capitalisation rules of a registered bank owned by the Crown. Further the bill introduces a zero rate for the approved issuer levy on payments made by approved issuers to non-residents under some debt instruments. The bill introduces other measures as well. 
Although I commend the Minister of Revenue for his obvious contribution towards this bill I cannot help but note a report released yesterday that stated that tax revenue was over $1 billion lower than expected. The Government knew or must have the required knowledge to know that the upper-income tax cuts were unaffordable meaning the Government is having to borrow even more to make up the shortfall for its tax cut to the highest-income earners. That meant the Government broke its promise not to raise GST. It meant huge cuts to our health system to adult education and to early childhood education. Huge cuts to early childhood education funding mean that parents with young children will have to find extra each week. The $1.2 billion hole in health spending over 4 years will hit the elderly and the sick very very hard. 
The National-ACT Government does not seem to be interested in investing in our future either. It is turning students away from universities and polytechnics and it is cutting research and development investment. It even cut the much-needed refugee study grant. I attended the Mangere Refugee Resettlement Centre annual general meeting last Saturday. One could feel that this cut will be felt very hard in the refugee community. Since National has been in office the migrant and refugee community in New Zealand has taken a number of blows. The fact that the unemployment rate amongst the ethnic community has skyrocketed in the past 2 years has been compounded by a number of short-sighted negligent decisions from the National-ACT Government. 
Funding has run out for the refugee study grant and it was axed in the 2009 Budget. The grant was established by the Labour Government in 2003. It created a direct pathway for many hundreds of refugees to get into work. [ 
Interruption 
] Politics is all about priorities. From this move we can see that the National-ACT Government is focused on delivering tax breaks for the privileged few at a time when the majority of ordinary New Zealanders are struggling. A tax switch is no substitute for a real economic plan. 
I support the bill’s referral to a select committee. I look forward to more debate on the various aspects of the bill and the priorities of the Government which will reveal the good the bad and the ugly. Thank you very much. 
Debate interrupted.