Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — Second Reading 
Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — Second Reading 
[Volume:644;Page:13432] 
Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill 
Second Reading 
Debate resumed from 22 November. 
R DOUG WOOLERTON (NZ First) 
: 
 When I finished speaking for 2 minutes about a week and a half ago now I was saying that New Zealand First unlike the National Party supports tax cuts wherever they may occur. Again New Zealand First unlike the National Party supports superannuation savings wherever they may occur be they small or great or of a design we completely agree with. 
In this case the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill in its content includes KiwiSaver which by and large financial commentators around the country are starting to become enthusiastic about. In the first instances they rubbished it completely and in some cases said there was no need for the Government to introduce such a scheme. New Zealand First is pleased to see that KiwiSaver is encompassed within this bill. 
Along with that we are pleased to see tax credits for research but we understand that that is something that has pitfalls in it. It is an area that has been open to rorting in overseas countries. We are very very pleased that our taxation people have spent a lot of time studying the Australian example because in this country if we are to be competitive in the areas we wish to excel in—namely biotech and high technology areas of all sorts—we no longer want to aim our workforce at unskilled jobs and be the source of cheap exports. We want excellence in this country and to have that we simply must have research and development of the highest order. If the Government wants that to happen it must say so and it must say so in the only sensible manner that business understands—which is to give business a tax credit. 
There have been some issues from our State-owned enterprises. They have had concerns that where they have been in partnership with private entities they are not eligible for tax breaks. New Zealand First says that they should be because they are funded by the Government. In those cases their partners in being private enterprises will have tax breaks available to them and we think that that is right. 
We implore businesses to play the game; we implore them to do what is right in this area. It would be a pity if our renewed experiences in taxation credits and in research and development were ones where we had businesses trying to rort the system. I have enough faith in our businesses to think that that will not happen but we will just have to trust and see. 
This bill also addresses the area of research and development in software. Overseas—again in Australia—there has been a little bit of a problem whereby banks in particular have developed new software and attempted to gain a tax advantage on that by saying that it was research and development expenditure when in fact it was just the redevelopment or even a new development of internal software. That is not what this bill aims to have happen so those things will be looked at very closely if anybody has ideas of getting involved in that. 
I think everybody understands that along with this bill there has been a rewriting of our tax law. Attempts have been made to line us up with Australia which members may be surprised to know New Zealand First is very much in favour of. Wherever we can assist our businesses to line up with other countries with which we compete New Zealand First is right in there voting for that on their behalf. 
We are also very happy to see that the area of charitable organisations is taken account of. We in political parties all know—at least I hope we all know—the huge efforts of people who work for no recompense other than the satisfaction of helping their communities. We are pleased to see that people who give money to and help charitable organisations in this country are at long last recognised and can get a tax break. 
I think that is about all I wish to say on this bill. New Zealand First is wholeheartedly in support of it. Unlike the National Party we support those areas that attend to savings and in the past we have supported those parts that go towards tax reduction and indeed tax credits for research. 
HONE HARAWIRA (Maori Party—Te Tai Tokerau) 
: 
 Kia ora Madam Assistant Speaker. Kia ora tatou e te Whare. Whenever Governments propose legislation they must also consider the views of those they purport to represent and polls are sometimes a good indicator of those views. So it was a very important revelation when a couple of weeks ago the results of the Marae DigiPoll were released. It was all bad news for Labour’s Maori MPs with 55 percent of Maori choosing Maori Party candidates and only 33 percent opting for Labour’s Maori MPs and with the Maori Party candidates winning hands-down in six of the Maori seats and deadlocking in a seventh for which we did not even have a candidate. 
It was also a very clear indicator of Maori opinion that when pollsters were asked who their preferred Prime Minister was they chose three Maori—two from the Maori Party and nobody from Labour. 
Hon Paul Swain 
: Point of order— 
The ASSISTANT SPEAKER (Ann Hartley) 
: I will just deal with it. The member needs to come back to the bill please. I have been a bit tolerant. Please come back to the bill. 
HONE HARAWIRA 
: I am talking about the importance of public opinion because in respect of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill and its reference to KiwiSaver that same Marae DigiPoll said a lot about how disconnected Labour was in terms of its view on KiwiSaver. We find when it comes to this flagship savings policy—KiwiSaver which is referred to in this bill—which was promoted with hundreds of thousands of dollars of taxpayer-funded advertising that 84 percent of Maori said they had not even joined. 
Of course when challenged about the shattering findings of the Marae DigiPoll the Minister of Maori Affairs came up with his standard blub blub blub that the only poll that matters is on election day. It is all well and good introducing amendments about employer contributions and tax credits but what is the point of all the pontificating when Maori are not even bothering with it anyway? And why are they not bothering? The reason is that a lot of Maori Pasifika and Pakeha as well for that matter simply cannot afford to get into KiwiSaver. That is the reason. Eighty-four percent of Maori surveyed have not even joined KiwiSaver and one of the main reasons they give is that they simply cannot afford to get into it. 
We regularly get reports coming into this House highlighting the reality of food banks being swamped by people in need and of families who cannot even afford basic housing heating food and health care. These facts are highlighted by the national homelessness forum held to highlight the sheer scale of homelessness not just in American movies but right here in good old Aotearoa. We know how poverty limits a child’s options and we know only too well how many low-waged workers are teetering on the brink of survival. Hence the importance of reference to KiwiSaver. When a family is struggling to make the zero line the possibility of saving 4 percent a week is just beyond their horizons. Jarrod Rendle from the New Zealand Federation of Family Budgeting Services Inc. says that for many of his clients $15 a week going to savings means $15 less being spent on essentials such as food. For too many families even $10 is $10 too much. 
We support the recommendations of the New Zealand Council of Trade Unions the National Distribution Union and the New Zealand Nurses Organisation about reducing the worker’s contribution to 2 percent in order to encourage workers to join. We support too the submission from Ngai Tahu about amending the withdrawal criteria to make it more flexible and more accessible for people in need such as that already agreed upon to help second-chance homebuyers. We support too changes in the tax structure to help working people to save. We would also like to see real incentives to encourage poor people to save as well. 
Taxation is an important issue for Maori as evidenced in the Marae DigiPoll which showed that Maori-roll voters ranked tax cuts as the most significant issue for them right now for the first time ever. Unfortunately this bill will not deliver the necessary changes and we would recommend further changes in order to enable that to happen. 
In fact the focus of this bill is more about enhancements and amendments flowing on from Budget decisions announced some time ago which we are generally happy to support such as voluntary tax compliance tax exemptions for Pasifika trust funds tax credits for Aotearoa-based research and development and tax relief for charitable donations. We liked also the provision to remove the Maori authority net deduction limit of 5 percent of net income which will mean that Maori authorities with a charitable trust or purpose will now be encouraged to put more money into organisations with a charitable purpose and get a tax benefit from investing in things like education grants and community support projects. 
We noted with concern though an issue raised by both the National Distribution Union and the New Zealand Nurses Organisation that young workers above the compulsory school leaving age or with an early release from school should be eligible to participate in KiwiSaver and that to deny them would be discriminatory. We note that the Finance and Expenditure Committee did not support the proposal which I guess is consistent with this Government’s decision to discriminate against youth workers generally by paying them at only 80 percent of the average wage. 
We note also an opinion confirmed by Maori voters who were asked who most effectively represented their views in Parliament. At the top of the list of 21 Maori MPs was the Maori Party’s Dr Pita Sharples and three of the top four MPs were from the Maori Party. Again nobody from Labour appeared. In fact the Minister of Maori Affairs—Labour’s most high-profile Maori MP—could barely scrape up 5 percent of the vote. 
We will support the second reading of this bill but will continue to raise issues of equity for young workers and support for those most in need in this country as part of our wider commitment to a fair and just society. Thank you Madam Assistant Speaker. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 In speaking to the second reading of this Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill I want to make it clear and to remind the House that National is opposing this bill. We are opposing this bill because it resets income tax rates to exactly where they are today and to where they have been all year. If Labour believed in lower taxes and if Labour believed in reducing income taxes it could do that right now. In the next 2 weeks Labour could introduce a Supplementary Order Paper to this bill to bring down the taxes that New Zealanders pay. We know that Labour believes in tax cuts only in election years and this year is not an election year. So Labour says: “To hell with ordinary New Zealanders this year.” Labour says that people can continue to pay the taxes that have enabled it to collect $22 billion extra every year in tax revenue compared with when it came to office. 
It is no wonder that New Zealanders are getting really sick of this when an average full-time income earner is now paying the top tax rate that used to exist before Labour came to office and when three-quarters of our secondary teachers are now paying the 39c top tax rate that Labour brought in when it came to office. It is little wonder that ordinary New Zealanders are saying they have had enough of all of this. 
When families are considered so poor that they receive Working for Families payments yet they are on the top tax rate that really is a stupid policy. They are considered so poor that they have to get tax credits from the Government when they have dependent families yet they are considered so rich that they should pay the top tax rate. That is a really dumb policy and that is why National is opposing this bill. If Labour genuinely believed in reducing income taxes it could do it next week during the Committee stage of this bill; it could introduce a Supplementary Order Paper to bring down people’s income tax rates. 
There are some bits of this bill that we do support. We support the lower corporate tax rate of 30 percent. We support the reduction in taxation on donations to charities—National’s policy which Labour pinched. We support the changes to the unacceptable tax position penalties in respect of GST and withholding tax. That makes good sense but I should point out that when this issue was last addressed when section 141KB was introduced into our law we thought we would be dealing with these issues—and we did not. I suspect that this change will not deal with the issue adequately either. The relief from unacceptable tax position penalties should really cover voluntary disclosure where people make simple mistakes but this bill does not do that. If someone pays the correct amount of tax but files the wrong tax returns to pay it that kind of mistake will still after this bill is passed incur the big tax penalties. That is just dumb. Why do we not encourage voluntary disclosure? This bill seeks to do it but does not go far enough. That is an issue that I think should be looked at during the Committee stage. Labour has not listened adequately on that particular issue. 
There are a couple of big issues covered in this bill that I want to make some further comments on today in this second reading debate. The first issue is that of research and development tax credits. On 25 July this year the Inland Revenue Department briefed the Finance and Expenditure Committee on the policy of these tax credits and we were told that the policy was essentially based on Australian tax credit policy for research and development. I will tell members what the Hon Shane Jones said. He is now a Minister; I cannot remember which portfolio he holds but I congratulate him on his elevation to Cabinet. I wrote down in my book what he said to the Inland Revenue Department officials when we were briefed on 25 July. He said: “Let’s cut to the chase.”—we know how Shane talks; he is pretty much a straight shooter—“Has there been any demonstrable benefit in Australia in terms of economic growth from research and development tax credits?”. Well the officials just stared back at him blankly. One would have thought that he had farted loudly because the officials just stared back at him blankly. They did not expect the Labour chair of the select committee to ask them that. This is Government policy! Here he was asking them whether there was any evidence that this policy worked. 
Just a few minutes later Shane Jones—chair of the Finance and Expenditure Committee at the time—asked again whether there was any evidence of any benefit from those research and development tax credits in Australia. The officials had to say that they simply did not know. 
In theory research and development tax credits kind of make sense. We want to encourage investment in research and development because we believe it is a good thing to be doing. But members should remember that research and development expenditure is already 100 percent deductible for tax purposes. The research and development tax credit here is essentially a 15 percent tax rebate on top of that 100 percent deductibility. Across the country right now we are seeing accountancy firms putting huge effort into advising businesses on how they can get so much of their current expenditure to comply with these new tax credits in order to get the extra 15 percent tax rebate on top of the 100 percent tax deductibility. That is the problem with this kind of fiddling with the tax system. So many submitters to the select committee pointed this out. They said that it would be better to lower tax rates than to try to pick winners. 
Let me give members one example where I have a deep concern about this. Our Crown research institutes and our universities which do most of the research in this country are excluded from those tax credits. We can understand why; they are essentially Government-funded institutions and the Government is saying that they should not get these tax rebates on top of their Government funding. But some of the most valuable research that is done in this country is done by joint investment between the private sector and those major research organisations—between private business and the universities and between private business and the Crown research institutes. Yet where partnerships are set up to invest in research together and where we get real synergy out of that investment this legislation bars those private investors from getting the tax credits. 
In other words this legislation is against that kind of joint investment in research that produces some of the greatest synergy to get great ideas out there into the private sector. In some circumstances the private sector will be able to get tax credits where it still controls companies and where there is joint investment but the legislation is not as clear as it could be in this area and certainly for much joint investment the private sector will not get the tax credits. I think this is an issue that the Government should be looking at before this bill completes its Committee stage. It should be looked at again because that joint investment is just so important for New Zealand’s future development. 
Finally I will make some comments about the KiwiSaver provisions. This legislation essentially sets up the framework for the employer contributions; the post-Budget legislation set up the framework for the employee contributions. The submissions were fascinating. Representatives from Business New Zealand came along to the Finance and Expenditure Committee. This is not the Business Roundtable; these are the ones who are supposed to be friendly with the Government. They came along and said bluntly that the Government had ambushed employers with this legislation. Those were their words—the Government had “ambushed employers”. That was what they actually said to the select committee. We can understand why because this legislation will be “ongoing industrial sandpaper” to use Business New Zealand’s own words again. That was what it said to the select committee—ongoing industrial sandpaper. 
Do members know why that is so clear? The reason is that where one employee does not have say a dependent family he or she can afford to make the 4 percent contribution that goes into this scheme but another employee cannot afford to go into the scheme because he or she might have a dependent family or home mortgage. As Hone Harawira said many Maori families will not be able to go into this scheme. If the employer says that this person will go into the scheme and will get employer contributions on top of his or her wages or salary but this other person will not then the remuneration package of the person who is not going into the scheme will be less. So what does the employer do? Does it say it will pay that person a bit more cash to make up for it? We can see the ongoing tensions between employees who go into the scheme and employees who do not. 
There were issues that were not properly resolved. The Council of Trade Unions wanted flexible arrangements for lower-income workers who go into the scheme where they could make a 2 percent contribution and work with employers on how to get the total contribution and for 16 and 17-year-old workers to be able to join the scheme. Why does Labour hate young people so much? Why have those members banned 16 and 17-year-old workers from joining the scheme? Why do those members hate 16 and 17-year-old workers? Why do they hate older workers? If people are over 65 and are still working then they cannot join the scheme. Why do Labour members hate people over 65? This is the stupidity that this kind of legislation throws up. If one is a working person in New Zealand then one should be able to join this scheme if the scheme is any damned good. Why has this Government locked out young people—16 and 17-year-olds—and why has it locked out old people? 
There are real ongoing issues with this bill. I must say that the one positive thing is that the Minister said these provisions would be reviewed after 3 years although we must be clear that the excessive taxation regulation and compliance costs of this legislation will simply add to the problems of the collapse in our economic productivity growth in this country. 
JUDY TURNER (Deputy Leader—United Future) 
: 
 I do not normally take a call for my party on tax law as it is not something I pretend to be an expert on but this legislation represents for me personally our finest hour in my involvement with United Future with regard to the rebates on charitable donations. That is the sector I came out of prior to coming to this House and this is something that has been dear to our hearts since 2002. To finally see this legislation before the House today is a very exciting thing. 
What does this legislation do? First of all let us clarify that on estimate 1.3 million people in this country take part in voluntary activities. Donations to charities and to other non-profit organisations amount to about $356 million and that is just from people who claim tax rebates for their donations. So for many many New Zealanders this provision in this Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill represents something that they have been looking forward to for a long time. Certainly in meetings the Hon Peter Dunne and I have had with people from the charitable and voluntary sector they tell us they are absolutely thrilled. 
I would challenge the National member who took a call previously and who tried to take some credit for this policy. I have National’s brochure sitting on my desk right now. It has a photo of Paula Bennett and John Key espousing and supporting the policies that this tax bill now delivers. Obviously this policy has been National’s policy only since John Key became the leader but United Future negotiated and secured this deal straight after the 2005 election. Who was leader of the National Party then? It certainly was not John Key. For National members to start to claim that this is somehow their policy and that the Labour Government has stolen it from them is a very shallow claim. The evidence is made very clear by those members’ own brochure with their new leader and new spokesperson for the charitable and voluntary sector. 
Rt Hon Winston Peters 
: So it’s not true. 
JUDY TURNER 
: It is not true at all I say to Mr Peters. 
Rt Hon Winston Peters 
: So it’s a lie then? 
JUDY TURNER 
: I would not want to use that word but let us say that those members were careless with their use of the truth. 
United Future is hugely thrilled to see this bill going through. What does this mean for the average voter? Let us just imagine somebody who gives $3000 a year to various charities and non-profit organisations and who is on say an income of $35000 a year. Under the current rules that person would be entitled to a rebate of $630. Under the new rules after this law is implemented the rebate would be $1000—33.3 percent of the $3000—and that would be a gain for that voter of $370 of tax rebate. The news is also good for those who are in companies and for Maori authorities. The 5 percent deduction limit on donations is removed and companies are given a much freer hand. 
One of the things that I am particularly excited about is the number of New Zealand businesses that really do demonstrate social responsibility. They are regular givers and they have a charitable wing to their business where they very thoughtfully and constructively give to the voluntary and charitable sector. They welcome this opportunity to be able to give much more generously to causes they believe in. They understand as many New Zealanders and many Kiwi mums and dads understand that giving back to the community is a good thing to do and that the health of the community that they rely on does not exist in some sort of vacuum. It exists because people get off their proverbial backsides and commit their time and money to the good of their community. 
This bill stops at a certain point—it stops at fixing up the rebates on charitable donations—and United Future is acutely aware that there are some other things that need to be fixed for the voluntary and charitable sector. We have continued to do that work. I will mention particularly the work the Hon Peter Dunne has done with Inland Revenue Department staff and the charitable and voluntary sector because there are some other things that need to be looked into. For instance there is the need for a provision as is the case in overseas jurisdictions where people are able to give as part of their payroll provisions and we are certainly looking into that. 
We also need to look at streamlining the tax treatment of volunteers for their reimbursement payments and honoraria and again United Future and the Hon Peter Dunne are taking progressive steps. Peter Dunne has just released a discussion document for New Zealanders to comment on with regard to how these may be implemented. Several models are available for the Government to look at. United Future along with the Government is looking for feedback from New Zealanders as to which of those payroll-giving options would best suit them because we certainly believe that this sector which we could almost describe as the glue that holds New Zealand society together deserves this break. United Future has been very proud to be part of that. 
CHARLES CHAUVEL (Labour) 
: 
 As the newly elected chair of the Finance and Expenditure Committee— 
Hon Paul Swain 
: It starts too early. 
CHARLES CHAUVEL 
: —apart from starting too early as Mr Swain says; we try to run a tight ship that is right it will be a 10 a.m. start tomorrow—I am very proud and pleased to take a call on the second reading of this Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. Mention was made of my predecessor as chair the Hon Shane Jones and I would just like in passing at least to pay a short tribute to his chairmanship of the committee. 
Dr the Hon Lockwood Smith 
: Do you remember him asking whether there was any evidence that the tax credits worked in Australia? 
CHARLES CHAUVEL 
: We will come to the tax credit matters that Dr Smith spoke of earlier. 
I do think that the legislation is better legislation for its passage through the committee. We have recommended several changes to the bill and I would just like to run through some of them. As far as KiwiSaver is concerned obviously it has been a resounding success to date. Over 260000 New Zealanders joining the scheme is testament to that. But the aims of the scheme will be enhanced by the changes recommended to new section 101B of the legislation which will appear in the substantive Act. The changes will clarify as far as employment agreements entered into before the enactment date are concerned that if employment agreements seek to effectively move the burden of compulsory employer contributions to the employee then they will be of no effect. Employer contributions will be in addition to current remuneration. After the date of the Royal assent of the bill compulsory employer contributions under KiwiSaver can be reduced against pay movements where there is mutual agreement between employer and employee. 
In my view that gives the lie to the submission from Business New Zealand that was mentioned earlier. I think the quote was that it would provide “industrial sandpaper”. Certainly that was what was said at the committee. I must say as a former industrial relations lawyer that I cannot see any merit in that submission. The legislation as I have explained permits the parties to the agreement to structure their affairs in an appropriate and sensible manner given the objects of the scheme. 
It is also notable that the definition of “salary and wages” has been reviewed. We have recommended that redundancy payments accommodation benefits and living costs overseas ought to be excluded from the definition. That is obviously a common-sense move. On the other hand Accident Compensation Corporation weekly payments and paid parental leave payments should qualify. 
We have also looked at the minimum employee payments and we have basically suggested that the ability to split the 4 percent—2 percent plus 2 percent—contribution between employer and employee should remain on offer to all employees until 1 April 2010. This will enhance the attractiveness of the scheme further particularly to low-paid workers and it is thus to be commended in my view. 
Another important addition is the recommendation that we extend the second-chance homebuyer eligibility to those who have received a determination by Housing New Zealand Corporation that they are effectively in the same financial position as first-home buyers. For example somebody who has been through a matrimonial or relationship break-up and who has had his or her equity in the property or his or her financial position drastically reduced ought to be able to withdraw funds from the scheme and be eligible for the first-home buyers’ assistance if there is a true case of hardship even if he or she has had that assistance in the past. I think again that that will make the scheme more attractive and fairer to people who really need its assistance. 
I turn now to the research and development tax credit. In order to increase onshore research and development in the private sector a research and development tax credit will be introduced for eligible businesses. The submissions we heard I must say showed overwhelming support for the introduction of the regime. Keeping in mind the purpose of the tax credit we have recommended that residents should not be required to have a fixed establishment in order to be eligible for it. Also a person starting a business within an income tax year should not have to wait until the end of the year for eligibility; he or she should be able to accrue it subject to other eligibility requirements during the course of that year. 
We have also looked at the rules relating to partnerships and collaborations in order to clarify how to treat combinations of ineligible and eligible partners and joint ventures. The definition of research and development activity should in our view be amended to refer to activities that “seek to achieve an advance in science or technology by resolving scientific or technological uncertainty”. We have suggested that the term “appreciable element of novelty” should be clarified according to the Inland Revenue Department’s guidelines. Also we should make it clear that only core activities are actually eligible. 
Dr Smith mentioned the exclusion for Crown research institutes tertiary education institutes district health boards and associates of those entities. Well of course we have excluded those entities; their core business is research. What this tax credit aims to do is to try to stimulate research and development where it is not happening at the moment—that is in the private sector. We want to stimulate research and development in the core private sector not in areas where it is already the core business of the entity. It does not make sense to rob Peter to pay Paul within already funded entities. We want to stimulate research and development in the private sector and that is where we hope to see it as a result of this initiative. 
I was astounded to hear Dr Smith allege that the Labour Government cuts taxes only in an election year. That is a most extraordinary claim. The research and development tax credit along with the company tax rate cuts—which I am about to speak to—amount to a $3.4 billion tax cut which this Government has delivered this year. The company tax rate change is a major enhancement to our international competitiveness. We have reduced the company tax rate to 30 percent—the consequential amendments are in the bill. We think the current transitional period ending on 31 March 2010 allows for an appropriate balance between the requirements of certainty and equity. 
I will speak briefly about the portfolio investment equity regime. In the select committee we looked at the exemptions the fair dividend rate methods and the cost method. We certainly found some of the submissions on these points very helpful and we have asked the Inland Revenue Department to consider them in some detail. We have looked at the criteria in section 91AAO(2) of the Tax Administration Act and we consider that it should be replaced by the new criteria that are contained in clause 165 of the bill. We have also looked at the ability of the commissioner to delegate the power to issue determinations under section 91AAO(2) and we have suggested that this should be delegated only to very senior staff and that the power to issue determinations should be carefully monitored from now on. 
In conclusion the legislation clearly enhances the savings capacity of New Zealanders through the enhancements to KiwiSaver that I have mentioned and also through the portfolio investment entity regime. The legislation introduces a major corporate tax cut and a research and development tax credit and this will contribute in a significant way to enhancing our international competitiveness. This is excellent legislation; I commend it to the House. 
CRAIG FOSS (National—Tukituki) 
: 
 I rise to speak on the second reading of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. I am speaking on a day that is actually a sad and tragic day. This day is when the Prime Minister with her arrogance and her arrogant Government will soon be jumping on her bulldozer to try to push through the most Draconian anti-democratic and disgraceful bill that New Zealand has ever seen. 
Rt Hon Winston Peters 
: Rubbish! 
CRAIG FOSS 
: My colleague over there might have another one. It is an absolute disgrace that on this day when I am speaking about this taxation bill we will also see the Electoral Finance Bill being bulldozed through. To make my point— 
Rt Hon Winston Peters 
: I raise a point of order Madam Speaker. I know this gentleman has not been here long but he knows full well that when you give a speech on the second reading you are required to at least try to focus on it and not to focus on what might be coming up later on the Order Paper. Now that is as old a rule in the book as there has been democracy itself which is one of the great things being upheld today. So I am asking the member to get back to his speech for which for some reason beyond my knowledge or understanding his party put him on his feet. 
The ASSISTANT SPEAKER (Ann Hartley) 
: I just ask the member to keep to the bill. 
Dr the Hon Lockwood Smith 
: I raise a point of order Madam Speaker. I have been a member of this House for some years and the Standing Orders of this House always provide for members to make passing reference to other matters. They cannot continue to speak about a matter not covered in the bill but in all the 23 years that I have been in Parliament—and the Rt Hon Winston Peters knows this full well—passing reference can be made to other matters which is all the member was doing. 
The ASSISTANT SPEAKER (Ann Hartley) 
: I just say to the member that what I have ruled is absolutely clear. I am just bringing the member back to the bill. 
CRAIG FOSS 
: I was just about to finish that sentence before I was interrupted by the other member. To make the point here this taxation bill was introduced not too long after the 2007 Budget. The Finance and Expenditure Committee has been working on it for 6 or so months now. I use that as a comparison against the major constitution-changing bill that will be debated in the Chamber later today which has had 2 weeks before a select committee. I want to make the point that there has been a lot of consultation around this bill and a lot of submissions on it. Submissions have been listened to the bill has been adjusted and debated and the common-sense test was applied along the way—unlike the most disgraceful bill that will be debated later on tonight. 
Yes this is a complex bill. Many many different activities and issues are addressed in the bill—matters ranging from research and development to charities income tax rates company tax rates and the foreign investment changes recently announced. It is well worth a read—at least the first 23 pages are. I suggest that members for interest read through the commentary. 
I take a moment to thank the members of the Finance and Expenditure Committee which generally works quite constructively and tries to work towards better law and better legislation. I think history was made when some of the submitters appeared before us. Members will note in some of the transcripts that there was actually a joint submission along the way from the Council of Trade Unions and Business New Zealand. I thought that was very interesting. 
The most pertinent and revealing part of the commentary is on page 23 which states the minority view that the National Party has put into this bill: “The National Party recognises that the company tax rates will be dropping to 30 percent but we believe that personal income tax rates should also be lowered.” That sums up exactly why National is voting against this bill. This bill does not address go near or touch on income tax rates other than to cement the current rates and schedules that are in place as we speak. That is why National is voting against this bill. Also as I alluded to earlier we are voting against this bill because its origins come from Budget 2007 which was a confidence and supply issue. Obviously National does not have much confidence in this current Government—nor does probably 60 percent of New Zealand now—which is why National continues to vote against any and all activities relating to Budget 2007. 
In fact that same Budget forecasts surpluses upon surpluses after 7 years of surpluses. In that same Budget forecast there is about $56 billion of tax revenue which is why National members argue that there is plenty of room in there for tax cuts. That same Budget also points out the borrowings that the Government under the watch of Dr Cullen will be undertaking this year. Those borrowings will be channelled into the governmental black hole and they may well be used to fund tax cuts. Those same monies raised from those borrowings—of which most are actually offshore—could also be used to fund contributions to the Superannuation Fund of $2 billion a year. So when Dr Cullen gets up and accuses all and sundry of borrowing for tax cuts quite frankly he is obviously doing it himself. 
As I said this bill touches on tax rates for the next financial year. During the committee we heard from the Inland Revenue Department. In the House recently the Prime Minister spoke about the billions of dollars—in fact the previous speaker alluded to it—of personal tax cuts that the Labour Government has brought in over the last few years. I was scratching my head at that moment because I could not think of $1 of personal tax cuts over the last few years—not $1. 
Sue Moroney 
: Working for Families. 
CRAIG FOSS 
: That is not a tax cut. Labour members need to understand the difference between a tax cut and a tax credit. I asked the Inland Revenue Department officials who administer tax cuts income tax and credit schedules—one would think they would know—whether they could name one lowering of any personal income tax rate or changing of any thresholds at all over the last 7 years. They could not name one—not one. In fact as we started to speak the only change that everyone could recall was when the Labour Government put up income tax rates in 1999. It took the top rate from 33c to 39c. At the same time it promised that only 5 percent of New Zealanders would be paying that rate. Now about 13 or 14 percent of New Zealanders are paying that tax rate. 
We acknowledge the lowering of the company tax rate from 33c to 30c and we have applauded that in this Chamber and in public. But again it actually almost raises more problems than it looks to solve because by having a 30 percent company tax rate a 33 percent personal tax rate a 39 percent higher personal tax rate and a 33 percent charity rebate the complexity in and around our tax system is getting worse by the day under this current Government. As I look on the table I see about six volumes of the income tax rewrite bill which would be an awful lot simpler if the top rates were aligned and there were no need for volumes and volumes of paper to try to stop arbitrage between the company tax rates and the personal income tax rates. 
Tax rates have actually increased over the last 5 or so years under the current Government because of fiscal drag. With this current Government pumping up inflation and pumping up interest rates yes wages and salaries have gone up—some may be matched with inflation some may be under inflation—but people have been dragged up so the notional tax take is a lot higher. It is $20 billion more this year than it was in 2000. 
I will talk about one of the measures in the bill: the research and development initiatives. Again the committee worked constructively and we like the direction this bill is taking with research and development initiatives. I think it is maybe too little too late but there is no time like the present to start. At least it may help to stop the plummeting of New Zealand researchers and developments and scientific researchers overseas. Minister Dunne noted the 3-year review around this policy. That should be commended and applauded. I would be quite keen to see that provision being applied to other legislation coming through this House. 
I would like to touch on the finance leases. Supplementary Order Paper 119 originally touched on finance leases in the bill. It raised a concern. I acknowledge that that issue has been pulled from this bill and will be looked at later by Treasury and the Inland Revenue Department. I am concerned that legislation was going to be used for a journey of discovery to discover how these leases were being used and who was using them. It was the threat of litigation and the threat of litigation against retrospective legislation that I think scared off the Minister and Treasury. I suggest that that issue probably should not have been in the bill at the start. 
To wrap up I say that there has been a lot of discussion around KiwiSaver. The committee spent a long time talking about the contribution rates both within the committee and with our submitters. In the bill there is a transitional period—the one percent plus one percent two percent plus two percent etc.—but after 2011 every single contribution rate will be 4 percent from the individual and 4 percent from the employer. What is so special about that date? Why can there not be a transition period after that date for those people who are new to the workforce? That concerns me. I wonder what Dr Cullen has up his sleeve in and around that date for his upcoming Budget. 
As I noted at the start National is voting against this bill because it is a confidence and supply issue for this Government. National has no confidence whatsoever in this current Government. 
Hon PAUL SWAIN (Labour—Rimutaka) 
: 
 We live in curious times when National when presented with a bill that introduces a research and development tax credit which for as long as I have been here National members have either been talking about in Government or promoting in Opposition votes against it. The bill cuts the company tax rate from 33c to 30c which National members talked about in Government but never did—I remember that in 1990-99—yet National is voting against it. National members always talk about the fact that company tax rates are too high but when they had the chance in 1990-99 to change them they never did. Here National members are now presented with legislation that allows that to happen and they will vote against it. 
This legislation increases the tax incentives for people in companies to make charitable donations which is something that National members have also talked about. They get presented with the legislation and they vote against it. When legislation appears that liberalises tax penalties so as to encourage voluntary compliance with the tax regime—which is something that National has campaigned for alongside Rodney Hide from ACT over many many years—they vote against it. It is unbelievable that National can vote against research and development tax credits—for which the business community has been calling for for a very very long time—and vote against a corporate business tax rate cut from 33 percent to 30 percent. 
I think the business community needs to understand that on this kind of thing the National Party is all hat and no horse. Its members talk about tax reform but when they get the opportunity to vote on it they oppose it. It is an absolute unbelievable outrage that National can go around and parade itself as somehow the business-friendly party. 
There are just a couple of quick comments I want to make. Firstly I want to make one on the KiwiSaver regime because a number of people have talked about that. Then I want to talk a little bit about the research and development tax credit and address the issue that Lockwood Smith raised which I thought was quite a fair point. 
The first point is on the KiwiSaver scheme. Everyone recognises that compared with other countries overseas New Zealand’s savings rate is low and we have to do something about it. When we look at the countries that have sustained better economic growth than New Zealand—even though we have had pretty good economic growth over the last 5 or 6 years—we see that all those countries that do better than us have a much better savings regime. 
This savings regime that we are promoting—“KiwiSaver I” introduced it and “KiwiSaver II” introduced the employer contribution—does a number of things; it allows a number of things to happen. First of all it promotes security in retirement. I was amazed to hear the Maori Party oppose this legislation on the basis somehow that Maori should not be secure in retirement. I simply just cannot believe that the Maori Party which is supposed to be talking about the future is harking back to the past all the time. Its members are always whingeing always grizzling and always moaning. Here is an opportunity for Maori in particular to actually get decent security in retirement and the Maori Party members are thumbing their noses at it. I think it is ridiculous. Security in retirement is a critical thing. 
The other critical thing KiwiSaver does is reduce consumption. It takes pressure off inflation and therefore takes pressure off interest rates which is a good thing for those people who are looking to try for example to own their own homes. So that is a good thing as well. Of course the final thing KiwiSaver does is that it starts to create and generate a pool of local investment capital that business can use instead of constantly going offshore and thereby picking up the problems of the exchange and interest-rate risks that are associated with that. 
No one disagrees with the idea that we need better savings; I have not heard anyone say that. But everyone says: “You should not do it that way; you should do it some other way.” Well here is the way that the majority of us on the Finance and Expenditure Committee thought was the best way and I think it has huge support across New Zealand—as the chair of our select committee went on to say during his speech. The Maori Party asks why we did not just phase something in and says that 4 percent is too high. Of course the select committee did come up with some changes. We said that in the end the minimum contribution from the employee up until 1 April 2010 should be 2 percent and so should the employer minimum contribution. It is a phase-in period where the total contribution will be 4 percent. That is up to 2010. By the next year it will be three plus three—3 percent from the employer and 3 percent from the employee—making the contribution 6 percent and phasing in the total contribution after 2011 to four plus four or 8 percent. So we did listen to a lot of the submissions and brought in some transition periods and that is a good thing. 
Just finally I return once again to the tax credit for research and development. The Hon Dr Lockwood Smith says that this tax credit does not apply to Crown research institutes that enter into partnerships or joint ventures with private companies. That is not actually true; it appears that way on the surface. Dr Smith acknowledges that tax credits could not be applied automatically to Crown research institutes because they have already been Government-funded. People came to the committee and said we could not allow Crown research institutes to double-dip. We could not put a whole pile of tax money into them on the one hand and then give them round the back door a tax credit. 
So the argument settled on what happens if a Crown research institute enters into a joint venture with a private company. That is a fair issue. The point is that most of those joint ventures are fifty-fifty arrangements. If they are fifty-fifty arrangements then the tax credit does not apply to that joint venture. But if the joint venture is restructured so that the private sector has 51 percent ownership then it can get the tax credit. So the Crown research institute has to work out that if it wants the tax credit it has to lose some of the control—it is as simple as that. Crown research institutes can get the tax credit if they are prepared to restructure themselves in the interest of the joint venture. That was ultimately the point that was made at the select committee and I do not think it is right for Dr Smith to say that somehow this will kill off these joint venture arrangements. It will only kill them off if the joint venture or the partnership cannot restructure—which is what my recommendation to those joint ventures would be if they want to take advantage of that tax credit. 
In conclusion this is thoroughly good legislation. It is classic good Labour-led legislation that promotes savings promotes investment in research and development and also promotes business confidence by reducing the company tax rate. 
I end where I began. Here is an opportunity for National to vote for tax reductions for business and it decides that it will vote against them. The National Party members will vote against a cut in the company tax rate from 33 percent to 30 percent. People may ask why National members would do that. I say to people in business that they need to be able to talk to their local National member of Parliament and ask him or her: “Here was the opportunity to vote for a cut in company tax which you have been talking about for years and you voted against it. Why was that?” I can tell members that I was on the select committee and I am still at a loss as to understanding that. It is one of the great National mysteries of all time like the mysteries associated with such things as climate change and other matters that National seems to be flip-flopping on. The second issue is that National members are voting against the research and development tax credit when they and the private sector have been talking about it for years. 
The final thing I say is that when it comes to the election next year voters need to look at National’s approach to KiwiSaver because its members have been very very vague on that. The book called  
The Hollow Men 
 states: “Be vague going into the election”. I say to the New Zealand public who have overwhelmingly endorsed KiwiSaver that if they vote National that KiwiSaver programme is in peril. It is in peril because National will fiddle with it and will ultimately get rid of it. It says in that book that National will say one thing during the election campaign and do something different afterwards. 
I think this is great legislation and it is unbelievable that National is voting against it. 
TIM GROSER (National) 
: 
 The member who has just spoken the Hon Mr Swain is of course far too experienced a parliamentarian to believe a word of what he has just said. If that had come from certain other members of the Government whom I will not mention we might accuse them of naivety but we will not accuse Mr Swain of that. Mr Swain has been around here long enough to know that what he said is completely and totally implausible. It would be hard to write up a bill of these dimensions that did not contain individual bits that every single party in this House would support—and this bill is no exception to that. But we are talking about the centrepiece of this Government’s economic strategy—the single most important aspect of being in Government and the single most important responsibility of being on the Treasury benches. The National Party is looking for some policy coherence in the last three terms of this Government; this bill does not give that policy coherence. That is why the National Party opposes this bill. Mr Swain knows that perfectly well. Amidst the barrage of adjectives from him about being outraged amazed and whatever you will he knows that that is the central reality. 
When I got hold of this massive bill the old saying “Brevity is the soul of wit.” came to my mind. Members who remember the Shakespearean origins of that saying which is from  
Hamlet 
 will know that the word “wit” in Old English means wisdom. If it was translated into modern English that well-known saying would be “Brevity is the essence of wisdom.” I will confine my comments to one small passage in this entire bill that I think personifies the very saying “Brevity is the soul of wit.” and it is the minority view of the National Party. It is only 26 words long and I will quote the minority view of the National Party: “The National Party recognises that the company tax rates will be dropping to 30 percent”—exactly the point I made before I say to Mr Swain—“but we believe that personal income tax rates should also be lowered.” I do not think in the 2 years that I have been here that I have ever seen a minority report that does these two things: first express itself in the briefest possible form and second nail the essence of the reason why the National Party is opposing a taxation bill. 
We know perfectly well as we have been told this by the Prime Minister that next year after the Government has built up the kitty there will be some political manipulation of the very issue addressed by the National Party in its minority report. My best bet is that the Government will make some adjustment to the brackets in order to take some account of bracket creep after having failed to recognise the essence of the problem for 7 or 8 years to this date. But that will not represent a road to Damascus conversion on the part of Dr Cullen. Dr Cullen the great surplus denier has had no conversion on this particular road. Dr Cullen has recognised the need to manipulate the taxation regime of this country which is central to the functioning of a market economy for political ends. 
I imagine that few New Zealanders will be interested in listening to a parliamentary debate on this taxation bill but I suspect many New Zealanders are probably now starting to turn up their dials in order to listen to the debate on the next bill that will follow this one which is on a bill of vital constitutional importance to this country. To those New Zealanders who are starting to tune in let me just make this point: in a sense the two bills are linked. After 8 years of failed economic stewardship of this country the next move by this Labour-led Government is to shift the goalposts politically and to cover up the failure of its economic stewardship. We know that the chickens are finally coming home to roost. 
There was so much wind in the sails of the New Zealand economy when this Government took over in the year 2000. In the previous calendar year the growth rate had been 4.3 percent. The growth rate in labour productivity in the 3 years prior to the Government coming into office averaged 3.5 percent— 
Moana Mackey 
: You had 21 percent unemployment! 
TIM GROSER 
: I am very glad that the member over there mentions unemployment because unemployment fell from 11.6 percent in 1991 to 6 percent in 1999. That rate powered by the productivity growth has continued to fall in the subsequent years. Maori unemployment had fallen from 23 percent in 1991 to around 10 percent by the time this Government took office. So strong was the wind in the sails of the New Zealand economy that the death by a thousand cuts took essentially 5 years to show up. That is what the next bill is intended to address. In that sense these two bills are linked. 
What has happened since then is that the growth rate has slumped and productivity has tanked from a high of 3.5 percent. That growth rate was stellar by the way; it was slightly higher than Australia’s labour productivity which is powering a 5 percent underlying growth rate in Australia as we have gone down to 2 percent. It is no wonder that Paul Krugman has said “Productivity growth isn’t everything but in the long run it’s almost everything.” That is the whole key to the economic failure of this Government and its failure to put in place a coherent taxation policy is absolutely central to those chickens coming home to roost. It is no wonder David Skilling said nearly 3 years ago: “New Zealand is not facing a crisis in the literal sense. Failure to act is unlikely to lead to terrible outcomes in the short term but New Zealand’s economic platform is gradually subsiding.” How right he was even though at the time of his saying that nearly 3 years ago the evidence was not really there. 
We have seen a massive massive explosion in the tax take. In the first 5 to 6 years of this Government we have seen a $20 billion increase in total tax. This morning I downloaded OECD statistics from October 2007 that counted all taxes—that is State provincial and local taxes. In Australia the figure was 30.9 percent of GDP in 2005 and in New Zealand the figure was 37.8 percent. This bill does nothing to address the lack of a coherent strategy that is behind that problem—that crisis—facing this country. 
Unfortunately for New Zealand there is worse to come. The people of Australia have just elected Kevin Rudd as their Prime Minister. We know that the Australian Labor Party in contrast with today’s New Zealand Labour Party is a much more politically mature outfit. When we look at the first statements of Prime Minister Rudd and contrast them with the first statements of Prime Minister Clark we see a remarkable difference in tone in rhetoric and in intent. Prime Minister Kevin Rudd has in the last few days talked extensively about continuing the process of microeconomic reform. Has he dumped on his predecessors by referring to their policies—the Keating/Hawke policies—as failed policies of the past as Prime Minister Clark did with regard to her predecessors in 2000? Oh no; quite contrary to that he has absolutely endorsed those policies. Three or 4 days ago on the ABC programme  
AM 
 one of the prime current affairs programmes in Australia Prime Minister Rudd said: “I think there’s a lot of enthusiasm there for us embracing a reform agenda because if you cease reforming this economy you start to strangle long-term productivity growth.” That is a very interesting statement. First of all politically he is not talking about the failed policies of the past; he is accepting economic reality. He describes himself as an economic conservative. 
I say to Mr Swain that if we had had some more mature leadership from this Government over the last 6 years then perhaps today we would indeed see a bill that we could support. 
A party vote was called for on the question  
That the amendments recommended by the Finance and Expenditure Committee by majority be agreed to. 
Ayes 65 
New Zealand Labour 49; New Zealand First 7; Maori Party 4; United Future 2; Progressive 1; Independents: Copeland Field. 
Noes 50 
New Zealand National 48; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Question agreed to. 
A party vote was called for on the question  
That the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill be now read a second time. 
Ayes 65 
New Zealand Labour 49; New Zealand First 7; Maori Party 4; United Future 2; Progressive 1; Independents: Copeland Field. 
Noes 50 
New Zealand National 48; ACT New Zealand 2. 
Abstentions 6 
Green Party 6. 
Bill read a second time.