Prosser Richard: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — First ReadingText is incorporated into the Bound VolumeProsser Richard: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — First Reading[Sitting date: 11 March 2015. Volume:703;Page:2159. Text is incorporated into the Bound Volume.]RICHARD PROSSER (NZ First): I am pleased to rise on behalf of New Zealand First and on behalf of my colleague Fletcher Tabuteau to take a call in this first reading of the Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill. New Zealand First will be supporting this bill at least to the select committee in the first instance. Bills of this type are generally—or at least we hope they are generally—of a largely non-controversial nature. This is an omnibus bill which makes amendments to no fewer than 10 other Acts with the intention that the current tax settings are improved within as the general policy statement says “a broad-base low rate framework.” This is a commendable intention and we wholeheartedly support it.The general policy statement speaks of fairness of evenness of minimising biases and of the crucial nature of these things in terms of encouraging voluntary compliance which is of course the basis of any successful long-term ongoing taxation regime. We do have some questions and a few concerns in part regarding the sheer number of technical amendments and drafting clarifications contained in the bill—or more to the point the fact that so many appear to have been necessary in what is a large number of Acts affected by this proposed legislation. The taxpaying public in the business community have an expectation—I would contend a right—to expect that tax policy should be very thoroughly thought through and that all the bugs should be ironed out before it becomes law especially given that the penalties for non-compliance are frequently very severe. That so many fixes appear to have been identified and will be addressed is a good thing in the sense that we will gain a better tax system out of it but at the same time it is concerning for New Zealand First that there were so many to begin with.I want to focus on a relatively small number of the areas in which we do have concerns and these are things that we look forward to having examined in greater depth at the select committee. Amongst these is the review of the child support scheme reform to amend the Child Support Amendment Act 2013. There are a number of inconsistencies within this review that we believe are worthy of closer investigation. Section 38 which would have introduced mandatory automatic deductions of child support from employment income will be repealed. When non-compliance is already high we have to ask why this provision is being repealed. Section 38 would also have allowed discretion to recognise other payments such as the payment of school fees and the direct payment of costs associated with additional extracurricular activities such as camps sporting activities and so forth as a percentage of child support payments where these payments directly benefit the child. This is also to be repealed and New Zealand First believes that this is not only counter-intuitive but also counter-productive in terms of delivering better outcomes for children living in circumstances where they are to a large degree estranged from at least one parent.A new definition of “adjustable net income” which includes income adjustments to taxable income such as income in trusts and companies has also been repealed. Again we ask why. The Inland Revenue Department states that changes to the child support scheme reforms enacted in 2013 but not yet enforced are being made to firstly increase priority of reducing child support debt and also to reduce the administrative cost of implementing the reforms. The June 2014 regulatory impact statement prepared by the Inland Revenue Department notes that there has been limited consultation on the options within its statement given the timing restraints on decision making and the sensitivity of the decisions being considered. The Inland Revenue Department’s regulatory impact statement considers whether other options might be cheaper but also just as effective.The question to be asked is whether these chosen components of reform will effectively contribute to a reduction in child support debt. That debt now exceeds $3 billion and some three-quarters of that amount is in the form of penalties which of course do not benefit children directly. New Zealand First acknowledges that the 1991 scheme was in many cases out of date and out of line with social expectations as they have evolved. This undermines some parents’ incentives to meet their child support obligations. The main change in the 2013 reforms was to shift the focus of the child support formula to the level of support that is required from each parent for each qualifying child. With a greater range of shared care the income of all parents of the child including legal step-parents and the average cost of raising a child were all considered by the 2013 reforms. These changes were in the original new amendments amendments that were meant to be implemented on 1 April. But now 10 days after this 153-page bill including its commentary were tabled in the House and with the original amendment having gone through three readings and passed for changes this new bill changes key aspects of the child support system. They are not small tweaks; these are big flip-flops. We ask why.If this is as has been suggested by more than one commentator with regard to section 38 to stop common law from being broken in the form of legalised theft through the mandatory induction of contributions from taxable income does this mean that the law has been broken up until now? Has this issue simply been overlooked at all these preceding stages of the Act which is going to be amended? Or is it because it has been decided that it would be too difficult and expensive to ensure the right process is taken so the Minister has simply chosen to throw it out instead? Finally why with such big reversals and changes in some aspects of how child support is paid does it appear to have been hidden in this great behemoth of a bill? If there were good reasons New Zealand First would have been happy enough to have been apprised of them earlier than this and probably would have supported them.Almost lastly there is the matter of the cash-out of research and development tax losses. Research and development is recognised as a key element in the business growth and innovation process. High upfront costs associated with research and development mean that the profit cycle for research and development projects can be more heavily skewed towards early losses. This of course can be a significant barrier for innovative start-up companies and current tax settings can create cash-flow problems for small and medium sized businesses. These small to medium sized enterprises cannot offset research and development costs against existing streams of income in the way that larger firms are able to do; they do not have the same buffer. Current tax settings can also penalise businesses that engage in research and development that ultimately turns out to be unsuccessful. Current tax provisions state that losses from unsuccessful research and development can only be used going forward if there is a subsequent profitable business.The proposed changes focus on start-up companies engaging in intensive research and development. The changes intend to reduce these companies’ exposure to market failures and tax distortions. Clauses 192 and 213 deal with proposed eligibility requirements and the amount of the cash-out. New Zealand First will be interested in the select committee’s recommendations around the other clauses that deal with the administration and the reinstatement of losses.Finally there are the reporting requirements for employers in the agriculture horticulture and viticulture industries. Clause 224 repeals section 24O of the Tax Administration Act 1994 a section that created a great deal of red tape and trapped employers in the agriculture horticulture and viticulture industries with a requirement to provide the Inland Revenue Department with information about employees covered by an exemption certificate or a special tax rates certificate. This section imposed unreasonable costs on employers and indeed unreasonable inconvenience for the Inland Revenue Department itself and was not effective at identifying non-compliant employees. We have to question whether there was ever much to be gained in the grand scheme of things by attempting to identify what is essentially a very low-end problem anyway.In closing I reiterate that New Zealand First will be supporting this bill at least to the select committee. We do have some concerns. We look forward to examining the bill in greater detail there. Thank you.