Dunne Peter: Taxation (Urgent Measures and Annual Rates) Bill — First Reading Second ReadingText is incorporated into the Bound VolumeDunne Peter: Taxation (Urgent Measures and Annual Rates) Bill — First Reading Second Reading[Sitting date: 09 December 2008. Volume:651;Page:86. Text is incorporated into the Bound Volume.]Hon PETER DUNNE (Minister of Revenue): From the time that theBusiness Tax Review announced in 2007 a cut in the corporate rate effective from 1 April this year to 30c in the dollar it was inevitable that there would have to be substantial movement in the structure of the personal income tax scales. The measures that were contained in the Budget this year started us down that path.The Taxation (Urgent Measures and Annual Rates) Bill does two things in that regard. Firstly it takes us a step further along that path by introducing a second set of changes with effect from 1 April next year; and secondly it also starts to address some of the issues raised in the briefing paper from the Inland Revenue Department which noted that one of the consequences of the structure of our taxation system over the last few years had been because of the high top marginal rate an increasing tendency by high and upper middle income earners to seek to shelter their income through various devices in order to limit their liability. It is important to see the types of changes that this bill makes to the personal income tax scales because that starts the process of lessening the attractiveness to those income earners of the types of sheltering schemes that they have been involved in over the years. I say it starts the process because it is by no means an end in itself.In that regard the objective is stated in the coalition agreement between the National Party and ACT that United Future’s long-term goal is a 30c in the dollar corporate rate a 30c in the dollar trust rate and a 30c in the dollar top personal rate. That has to be what we now aspire to in order to completely remove the anomalies that are currently within our taxation system. At that point we would probably need to look to an intermediate rate of 10 percent and a rate of 20 percent at lesser levels of income to make a top rate of 30 percent work. But that objective is not inconsistent with the approach contained in this bill and it has to be where our tax structure is headed in the long term. The issue is not just about the integrity of the system in New Zealand and already we have seen the example of our system starting to lack integrity. It is becoming complicated; it is becoming a disincentive for people. But the reality of getting a flat top rate of 30 percent actually starts to make it a much more internationally competitive system. That has to be the goal that we work to.The other part of this bill that is less attractive and which I will not be supporting when it comes to a vote in the Committee stage is Part 2 relating to the research and development tax credit. I think that the removal of that provision is a mistake for all the sorts of reasons that I have heard various groups state. I think they are absolutely correct. It is important to note that the scheme actually took effect only from 1 April this year so a massive claim against it is not likely until the end of the current revenue year and that is actually protected by the provisions of this bill. So I do not see much point long term in the elimination of that scheme.I also make the point that one of the incentives behind reducing our corporate tax rate which as I say set off this process of taxation reform was the need for competitiveness with Australia. One of the areas where Australia has a huge competitive advantage over New Zealand is the area of research and development. The tax credit that was introduced at least brought us to parity in that respect. In these days of a single trans-Tasman market and all of the initiatives that have been talked about in respect of that I think it is a retrograde step to be getting rid of that credit at this stage. I think a far better step would be for all the Government’s research and development innovation and enterprise policies to be subject to a significant review to make sure that they meet the objectives that have been set for them. But when we look at that matter alongside the changes being made to personal taxes I think we see that the bill overall does deserve support.This bill also brings in the confirmation of the annual tax rates for this year. It introduces the new independent earner rebate and that deals with an issue that has been of concern for some time. It is available for those people who do not benefit from Working for Families or equivalent packages but who see themselves as being in a disproportionately unfair position in respect of other taxpayers. It is the same sort of argument for single people that I might in another forum advance in respect of income splitting. There will be some complexities around the independent earner tax credit scheme but I think they can be addressed and we have had advice that that can be done adequately in the context of this bill.The question of KiwiSaver is I think one that will be controversial in some areas but I have never seen the changes that are being proposed as gutting the scheme or reducing its effectiveness. The fact that over 800000 New Zealanders have already signed up for KiwiSaver and the fact that compared with other saving schemes on the market at the moment even in its revised form it still remains competitive and attractive I think will ensure its future for a long time ahead. We are starting to see now the development of a voluntary savings culture in New Zealand—something we have sought to achieve for the last 30 years without success. I do not see the changes in this bill given the momentum that there is in place already as detrimentally affecting that toany great extent. I think we will need to address in due course the issue of whether KiwiSaver at some point should be converted from the currently voluntary savings scheme into a compulsory scheme but that is another debate for another day. I do not see these changes as affecting that issue one way or the other.This bill is timely. I think it is appropriate that it be passed before Christmas so that the changes that it intends with regard to personal tax changes can take effect from 1 April next year. That would then give us a three-stage package—a four-stage package if we include the 1 October tax cuts this year—coming in on 1 April 2009 1 April 2010 and 1 April 2011. But even at that point when the top marginal rate has come down to only 37 percent a further reform programme will still be needed to make more substantial change in order to continue to ensure the robustness of our taxation system. As I said when the previous Government’s measures were introduced on Budget day this year they were in my view a transitional step towards the type of change that I have spoken of. I see these changes tonight in a similar regard. They are good for New Zealanders. They will be welcomed by those who will benefit from them and I am very happy to give them my support.