Smith Lockwood: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Third Reading 
Smith Lockwood: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Third Reading 
[Volume:630;Page:2095] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I am pleased to rise to speak in the third reading debate of the Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill. I would like to make it very clear from the outset that National supports the legislation. We have supported it right the way through its proceedings through the House. 
I congratulate the Minister of Revenue who has just spoken because during the Committee stage of the legislation yesterday he paid the Committee including members of the Opposition the courtesy of listening to the serious issues raised and responding to them in an intelligent manner and that was appreciated. I would like to cover some of those issues. It is also gratifying that the Minister has taken on board some of the issues raised and that he intends to make sure that the Government monitors the situation over the next period of time to make sure that the measures that the bill is implementing have the desired effect and do not produce unexpected outcomes. 
The issues that National focused on related particularly to three groups of issues. The first was the issues surrounding the amendments to the legislation to try to make New Zealand a more attractive place to internationally mobile people with high-value skills. Both sides of the House realise now that there are people in this world who are attractive to a number of countries because they have sought-after skills. They often command quite high wages and salaries and they are the kinds of people who can live and be paid well in a number of countries. But they have the skills we need here. 
If we want to attract those people here we must make our taxation regime attractive to them. If we have to provide special exemptions to them I think it does beg the question as to whether our overall tax regime is sufficiently internationally competitive. That is not the subject of the legislation but it is a point I make. If New Zealand were to make our personal tax regime more attractive—and I appreciate that the business tax regime is currently under review—people who had the choice could then choose to have their international income taxed in New Zealand. So there is the wider issue. The need in the legislation to provide exemptions does bring into question whether our personal tax regime is sufficiently competitive internationally these days. I think it is fair to observe that our higher tax rates cut in at pretty low levels of income and that does not make our taxation regime particularly attractive internationally. 
 I come to the specific provisions of the bill. Clause 77 sets out exemptions for certain classes of people seeking to return to or come to New Zealand by exempting certain of their foreign income from taxation here in New Zealand for a period of time. 
The debate during the Committee of the whole House focused on a couple of particular issues. There are two sorts of people whom we are trying to attract here. I will deal first with the New Zealanders whom we are trying to attract back to New Zealand. They are highly skilled New Zealanders who have been offshore for a while and who have offshore income because of their time offshore. We want to attract those people back to New Zealand. That is the first group of people we are addressing. 
The legislation that is having its third reading today provides a tax exemption for certain of their foreign income if they have lived outside New Zealand for a period of 10 years. The Minister just referred to that. National argued during the Committee stage that the 10-year period is a long time. Ten years is too long for New Zealanders to have to be offshore before they can come back home and qualify for this exemption on certain of their foreign income—they would always be taxed on any income they earned in New Zealand. By the time New Zealanders have been offshore for 10 years they are thoroughly settled in those foreign countries. They may have married into a family offshore their children will probably be involved in schools there and they will be totally involved in those societies and their communities. It will be more difficult to attract those people back to New Zealand. 
National members argued that if the time period that New Zealanders had to live offshore in order to get the benefit of the tax exemption could be reduced a bit it might have greater effect in attracting New Zealanders back here. We all agree that those are the people whom we want back first and foremost—our own people who have gained the expertise experience and skills of having worked offshore. So it is a really important clause. How do we get those people back to New Zealand? 
I think it is unfortunate that the Minister—although he did listen to our arguments and I certainly appreciate that—was not prepared to accept our amendment to reduce from 10 years to 5 years the time period that New Zealanders would be required to be offshore to qualify for the tax exemption. It is interesting that a number of senior tax experts in New Zealand have commented similarly that the Government is missing a golden opportunity here. Having recognised the problem and seeking to address it the Government is not really solving it by having that long 10-year period. I appreciate that the Minister has accepted that National may have some argument here and he has given an undertaking that the 10-year period will be under review. That is something National members have achieved through this debate on the legislation. I take it that if the review shows that the 10-year period is too long and that the provision is not having the desired outcome then the matter could be brought up again for further amendment. 
That was the first issue. The second group of people that clause 77 seeks to attract to New Zealand is the new immigrant—that high-value person who is attractive to a number of countries particularly our competitor Australia across the Tasman. The provision proposed here is that a new migrant should be able to come to New Zealand and get the tax exemption for 48 months. That would apply to new immigrants coming to New Zealand after 1 April this year. National drew to the attention of the Committee the fact that Australia—although it talked about enacting a very similar provision in recent years—in February this year finally introduced legislation that is more flexible in respect of those new migrants. The Australian proposal includes those tax exemptions for temporary residents who have recently arrived in Australia. It is a measure that would help to keep them in Australia. 
Again tax specialists in New Zealand have pointed out that we have temporary residents here—high-value people on work permits. Their employers may have to renegotiate to extend those work permits and may be vulnerable to losing those high-value people because they will not qualify for the tax exemption yet they would qualify if they were in Australia. In respect of new migrants this issue of the competitiveness of our position in this legislation compared with Australia’s position has not been assessed adequately. 
Again I accept that the Minister listened to the arguments of National members. We proposed to extend the provision to make it available to temporary residents or people in New Zealand on work permits who had arrived in New Zealand after 1 April 2005 rather than 1 April 2006. That would enable people who are resident here at the moment to obtain the benefit of the provision. But the Government did not agree with our amendment. We also sought to extend the tax exemption to 60 months rather than 48 months to make sure we are really competitive with Australia. Sadly those amendments did not achieve the Government’s support. I think this whole issue should be kept under review to make sure we remain competitive with Australia. 
Finally I express National’s appreciation for Supplementary Order Paper 19 which the Minister the Hon Peter Dunne introduced last night to amend the legislation on unacceptable tax provisions. It has National’s support. We argued strongly in the Finance and Expenditure Committee that the amendment must be brought in because the way shortfall penalties have to be applied to unacceptable tax positions is simply damaging the goodwill of taxpayers. It is totally irrational and unfair. 
Our remaining concern about the amendment is that it leaves a lot of discretion to the Commissioner of Inland Revenue. We would prefer to see a measure that made it automatic that someone who having been advised of an error in a tax position then paid the correct amount of tax by the due date faced absolutely no risk of being penalised. Despite those misgivings National does support the legislation.