Nash StuartHon STUART NASH (Minister of Revenue): Thank you very much Madam Assistant Speaker. It's a pleasure to speak on this bill for a number of reasons. First and foremost though I'd just like to address a couple of the points that Brett Hudson made. I hope that the honourable member does get to sit on the Finance and Expenditure Committee. I'm not too sure if he's on the committee or not but I hope he is because what he will see when he is on the committee is that in fact a lot of what he has said is actually incorrect—this will come out in the select committee—first and foremost about rorting the system. We are not the first country in the world to do this; in fact we're one of the outliers. The countries with economies of a similar size to ours the vast majority of them actually have a much higher R & D spend than we do. As a consequence of that what we have done is we have actually gone out and talked to these countries. Officials have gone out and they've had a talk to them and said Hey what works? What doesn't work? How can we end up with a system which isn't easily rorted but is going to drive innovation in the way that we know it needs to happen in our economy?"A classic case is one of the first discussions I had with senior officials from the Australian Taxation Office. They said "An R & D tax system is really good at driving innovation but don't do what we've done." I thought OK well that's a salutary lesson. So we've spoken to the Brits we've spoken to the Norwegians and we've said "How have you"—not you Madam Assistant Speaker—"How have the officials made this work in a way that creates integrity but also drives innovation?" The last thing we want to do with taxpayers' money is end up with a system which is easily rorted. No one benefits from that and that is why we are very careful and have been very prudent in the way we have done this.One thing I will say is when there is a grant-based system what ends up happening is that inevitably you end up picking winners because those that can fill in the forms or have the relationships or have the technology that ticks a whole lot of "gee whiz" boxes end up with a lot of the money. What we're doing with R & D tax credits is actually giving companies the ability to drive their own future. So what we're saying to them is "Hey you think you've got some great R & D? You think you want to drive innovation and growth? Well go hard. We've set up the infrastructure." To give surety we're actually introducing a pre-approval process. So that means that a small to medium business—and as the Minister for Small Business not just the Minister of Revenue this will give a level of certainty. And it's not some massive bureaucratic behemoth we're creating here. We believe that we can provide a yes or no—yes this is R & D and fits within the tax credit structure; or no it doesn't—within about six weeks. So it will give small to medium businesses the certainty they need to move forward in the knowledge that they will be able to acknowledge the R & D tax credit.What we did is we went out—this is Minister Woods and I—and we consulted. We said "We're starting with a threshold here of $100000." What we actually heard was "$100000 is too high. You're not going to get a whole lot of small to medium businesses spending $100000 on R & D." So we said "OK we've heard what you've said; we've come back and we're going to make the limit $50000." They went "Oh well shivers. That's a Government that's listening."Mr Hudson suggested that in fact there's a lot of companies that won't take this up. Well our market research shows that in fact there's going to be about between 2000 and 3000 more businesses that will engage in R & D as a result of this tax credit. So where we think we've landed is a place where we can actually allow businesses to take control of their own future whilst driving research and development in a way that allows us to be productive that allows our small businesses and medium and large businesses to grow. We do not think—we do not believe in any way shape or form—that this is just a system that will be rorted by the big guys who have the really smart accountants because we have learnt about how we can do this better.We understand the need for fiscal prudence. We are not being blasé about this. We are not being casual about this. We know that in order to earn the trust and the confidence of the business sector we need to ensure the integrity of the system. There is absolutely no doubt about that whatsoever. So we have set up a system that we think will provide a level of fiscal prudence. To be eligible for the tax credit claimants have to perform at least one of the core activities in New Zealand. We acknowledge that sometimes it's necessary to go offshore. We know it's necessary to go offshore but what we've said is that no more than 10 percent of a claim can be for R & D credits. In fact what I will do is I'll just sum up in a way because we do want to get this first reading through and the bill to the select committee and I don't want have to come back next week to do this. But one thing I will say is I recently attended the chartered accountants' annual tax conference and I was delighted to hear someone—a chap by the name of Dr Tim Benbow a partner at Ernst & Young—speaking in very positive terms about the approach that the Government is taking and saying that the open discussions that occur between officials and the private sector have made a huge difference.I am interested to hear what submitters have to say on the bill when it does go to select committee but one thing that I absolutely believe this will do is drive research and development in a way that will be positive for our country. I think it's a fantastic bill. Thank you very much."