Graham Kennedy: Taxation (International Investment and Remedial Matters) Bill — Second Reading 
Text is incorporated into the Bound Volume 
Graham Kennedy: Taxation (International Investment and Remedial Matters) Bill — Second Reading 
[Sitting date: 09 February 2012. Volume:677;Page:281. Text is incorporated into the Bound Volume.] 
Dr KENNEDY GRAHAM (Green) 
: 
 This bill the Taxation (International Investment and Remedial Matters) Bill seeks to change New Zealand tax law specifically the Income Tax Act 2007 around gains from income in overseas companies and gains by foreign investment in New Zealand companies. 
The main changes are threefold. First it relaxes what is known as the thin capitalisation rules. These rules are designed to deny interest-related tax deductions to multinationals that use debt as a way of avoiding a tax liability here. The Inland Revenue Department claims that the new laws adopted as recently as 2009 have created some unfair consequences for resident companies investing abroad. Secondly it extends the active income exemption to New Zealand businesses operating offshore and rationalises the international tax calculation methods. This brings New Zealand into line with overseas practice freeing companies here from a tax cost they do not face elsewhere. Thirdly it removes the 2 percent tax or levy on bond issues for non-resident investors. This follows one of the recommendations of the Capital Market Development Taskforce. It effectively lowers the cost of raising funds from offshore. 
So what is the likely fiscal cost of these changes in terms of lost company revenue? They are estimated to be somewhere around $15 million in the first instance $10 million in the second change and $5 million in the third—that is to say $30 million all up. This package of company tax totalling $30 million of course pales in the light of the $1.5 billion of company tax cuts already announced by the John Key Government which Todd McClay spoke of so effusively just a moment ago. 
Todd McClay 
: Thank you. Thank you. 
Dr KENNEDY GRAHAM 
: You are welcome. 
And what are the political implications of this bill as well? The provisions of the bill are complex in their detail—ironically because as Clayton Cosgrove said just a moment ago we are all in favour of simplification in our tax laws. But most of them involve a similar kind—generally a broad trade-off as the Green Party said in the first reading; that is lower company tax revenue versus the risk of company emigration offshore. This creates a problematic tension between a race to the bottom with company tax breaks in a race we cannot win in the long term or the loss of tax revenue and jobs as companies move offshore motivated by tax reasons. Each of these cases is slightly different so we may support some measures while not supporting others. 
We shall vote for this bill in the second reading but as a general principle we should not support the slow erosion of our tax base for unquantifiable theoretical gains. Better to understand our natural advantages and play to them while simultaneously extending our efforts abroad in international forums to agree to satisfactory environmental labour and tax standards.