Huo Raymond: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — Second Reading 
Huo Raymond: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — Second Reading 
[Volume:656;Page:5439] 
RAYMOND HUO (Labour) 
: 
 Samuel Johnson once said that great works are performed not by strength but by perseverance. My colleagues from the Finance and Expenditure Committee will agree with me that the Taxation (International Taxation Life Insurance and Remedial Matters) Bill which is undoubtedly a great work is being performed with both strength and perseverance. 
The bill was originally introduced on 2 July 2008 by the Labour-led Government. The proposals contained in the bill are significant and complex and they cover a wide range of taxation issues. Although the bill mainly addresses business tax issues it does cover a wider spectrum than that. As stated in the Finance and Expenditure Committee’s report the size of the bill and the depth and breadth of the material it covers have made our consideration of it more difficult than it might have been otherwise. I agree with what my colleagues said in our report. In future we would prefer to see such proposals introduced to the House as separate more manageable bills. I wish to join my colleagues in thanking the officials and independent specialist advisers for the significant role they played in our consideration of the bill. 
The bill provides for the reform of the international tax rules amongst other measures introducing a tax exemption for the foreign active income of controlled foreign companies and exempting most foreign dividends received by New Zealand companies from tax. This reform aims to allow New Zealand residents with active business in overseas markets to compete on an equal footing with their competitors. In other words to quote the previous Minister of Finance the Hon Dr Michael Cullen and the Minister of Revenue the Hon Peter Dunne when introducing this bill in July 2008 international tax rules for New Zealand - controlled foreign companies are being relaxed so that the active offshore income of such companies is exempt from New Zealand tax. The international tax reforms aim to make New Zealand companies more competitive by taxing them under a regime similar to that of overseas jurisdictions. 
The bill would align life insurance taxation rules more closely with the actual profits of term life insurance business and extend portfolio investment entity rules to life insurance savings products. It includes changes to the income tax rules for petroleum mining such as ring-fencing deductions for petroleum mining undertaken in a foreign country through a branch removing the distinction between onshore and offshore development. It also introduces a voluntary payroll giving scheme which would allow employees to make regular payroll donations from their pay and enjoy the relevant tax benefit immediately rather than at the end of the tax year. 
Other main issues and key amendments introduced in the bill include measures relating to application dates the definitions of associated persons general insurance and risk margins tax pooling rules and the GST treatment of transactions relating to emissions units etc. 
What also interests me is the underlying philosophy behind the bill which replaces the current legislation that was put in place in 1991-92. To some extent the important part of the active-passive distinction to quote the Hon Dr Michael Cullen is whether this country will have an outward-looking taxation system or an inward-looking one. Therefore the real issue is firstly whether we want New Zealand companies to internationalise or whether we believe we can make our living just by taking in each other’s washing for the foreseeable future. Secondly if companies succeed in either having some manufacturing capacity or investment offshore or having very substantial parts of their business dependent upon exporting so that the majority of their income comes from offshore activity then our current taxation system with its lack of an active exemption encourages those companies to move all their capacity offshore. 
What follows is a natural choice for us to make: a choice between an inward-looking mentality where we play a defensive role trying to keep what little we have and an outward-looking mentality where we would try to expand and develop our international influence connections and markets and retain the highest-quality and highest-value parts of our production and service within New Zealand. If we opt for the inward-looking “little New Zealand” policy we will eventually defeat ourselves. If we opt for an outward-looking “greater New Zealand” approach which as far as this bill is concerned requires an active exemption then there is a real prospect for us to build up an expanding economy and avoid the economy declining. 
On this particular point it is worth reiterating that as we are a small country with a small economy if we are to develop the outward-looking approach and expand our New Zealand economy we will need to be more diligent and smarter. Therefore innovations by way of research and development are one of the key factors. International evidence shows that well-designed research and development tax credits can have a positive impact on productivity growth. It is a concern that the main disparity between New Zealand and other OECD countries is in the low research and development spending from businesses which is the very area that was targeted by the research and development tax credits. To worsen the situation it is regrettable to say as my colleague Brendon Burns has just said that the research and development tax credits have been scrapped by the National-led Government. 
When this bill was introduced by sheer coincidence it came into the House for its first reading on the same day as the Committee stage of the New Zealand-China Free Trade Agreement Bill. As acknowledged by the then Minister of Trade the Hon Phil Goff who signed the historic free-trade agreement with China the international market place today is significantly different from that in the past and presents us with new challenges. Governments and businesses have to operate in a more complex competitive and uncertain global environment. The two bills in fact have a great deal of interrelationship in terms of their underlying philosophy of having an outward-looking growing New Zealand economy as opposed to an inward-looking gradually retreating and declining New Zealand. In similar vein countries are recognising that in a world where commercial trade and financial flows are globalised they cannot afford to become isolated. That is evidenced by the trend towards more bilateral and regional free-trade agreements. Countries in our region are becoming increasingly connected by a complex web of trading arrangements. 
This bill when first introduced represented the first stage of the previous Labour Government’s review of our international tax rules and it has been greatly influenced by extensive consultation with businesses and professionals. I commend the bill to the House. Thank you.