Cunliffe David: Taxation (International Investment and Remedial Matters) Bill — In Committee 
Cunliffe David: Taxation (International Investment and Remedial Matters) Bill — In Committee 
[Volume:677;Page:457] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 What a pleasure it is to follow the boy wonder Simon Bridges who has hardly read the Taxation (International Investment and Remedial Matters) Bill by the sound of it. This bill is one which Labour supports on balance but I think the real phrase here is “on balance” because it is a bill made up of the good the bad and the potentially ugly. We will be watching very carefully to see its implementation. The good is undoubtedly the modifying of the thin capitalisation rules to ensure that banks and financial institutions pay out a rather larger slice of tax when they are offshore domiciled in order to contribute to our economy. I think that would be welcomed by all sides of the House. The bad is the approved issuer levy reduction. Now there are a number of important reasons why it is in our view very very questionable to reduce the approved issuer levy and we are going to be watching this one like a hawk.  
The first reason is that it erodes the tax base associated with financial institutions at a very interesting time. At a time when one major bank declared today that it had increased its profit by over 30 percent and the sector as a whole according to the latest KPMG survey increased its profit by a quarter in the last year—by 25 percent in the last year—when GDP was flat and New Zealanders’ living standards if anything went backwards this Government is giving institutions like the banks a net reduction in tax through this bill. What is happening in Europe? France and Germany have said that the real economy is bearing a big load in the recession so it is time for the financial sector to bear a load. And both the conservative Governments of France and Germany are looking at bringing in a financial transactions tax.  
We are not advocating that. It would be pretty difficult for New Zealand to do in isolation but I do point out that this bill is reducing the net tax burden on financial institutions. Now why might that be a problem as well as the fact that we are losing revenue with which we pay for schools and hospitals? Well here is an economic paradox: it is because of this bill cheaper to source funds from offshore now than it was and cheaper relative to funds saved and sourced onshore. In other words it means relatively speaking that foreign banks and foreign-sourced funds are taxed more lightly and domestically sourced funds and institutions are taxed more heavily—thus providing an incentive to shift capital out of the country and to favour foreign institutions over local ones.  
Why would you do that? Not you Mr Chairman; it is not your idea. Why would the Government want to do that? Why would the Government want to provide an additional incentive for foreign-owned domiciled and sourced banks? I note that we are debating this on the day that several Ministers—one of them is sitting in the front row the Hon Maurice Williamson—have been overturned in the High Court. In a rare move the High Court has said that the Ministers misapplied the national economic interest test and wrongly favoured a foreign-domiciled company in the purchase of the Crafar farms. Tonight we are debating a tax bill that favours foreign banks over New Zealand financial institutions by reducing the approved issuer levy that applies to foreign institutions.  
Actually might we think about the reverse? Might we think about ensuring that foreign financial institutions in New Zealand are actually paying their fair share and about getting beneath the question of how come the real economy is flat and the banking sector increased its profit between a quarter and a third in 1 year? No one is alleging malpractice. Nobody is saying that there has necessarily been any breach of the law or anything corrupt—far from that. But the fact remains that one sector of the economy—and it is not dairying; banking—has had a stellar skyrocket year in 2011 and ordinary New Zealanders are wondering how they are going to pay the mortgage and the bill and put food on the table.  
So all I am saying is that this is not a big bill this is not a major piece of legislation but this is another small let-out that allows foreign capital a lighter tax burden in New Zealand. So the bad bit about this bill—and it is against the background that foreign-sourced capital institutions already have a lower tax burden than New Zealand - domiciled capital—is that we tax savings in New Zealand too heavily but we do not tax savings sourced from offshore heavily enough. It is already unbalanced and this bill makes the balance worse. So we will be monitoring very closely the effects of this bill.  
Having agreed with the Government on the thin capitalisation rules having clearly disagreed with the approved issuer levy reductions—that was the good and then the bad—the potentially ugly is the other major part of this bill which is the foreign investment fund regime. This is a hideously complex piece of tax law and for listeners out there I am just going to try to get my head around it and help them. What this bill does is it affects a particular class of investor. It is not the little guys; the little guys are not helped by this bill. Anybody owning less than 10 percent of a foreign investment fund gets no help from this bill. So mum and dad at home if they are middle-class Kiwis and have retirement funds and superannuation funds invested in an offshore fund—Fidelity State Street I do not know; whatever—they get no help from this bill. But if you are a large investor—and this may go to some of the issues that our colleagues from New Zealand First raised—owning more than 10 percent but less than 50 percent of a foreign investment fund you get a tax break.  
Now that may or may not be the right thing to do. There are some design issues and we understood the advice of officials on this matter about making the law symmetrical in some regards to past practice and ironing out some definitional problems and that is why the bill is here before us today. We are going to give the advice a chance but I want to lay down a very clear marker on behalf of the Labour Opposition. This bill is under watch. This provision is under watch. I am sure listeners can hear a pattern emerging. The approved issuer levy part makes it cheaper for foreign financial institutions. They pay less tax. The foreign investment fund rules part means that people owning less than 10 percent of a fund—that is 99.99 percent of New Zealanders—get no help. They are no better off. But the few big rollers who may have a large stake worth more than 10 percent of a fund or an active investment in a substantial offshore company get extra help.  
So New Zealanders need to ask themselves whether Mr Bridges was in fact right with his sunny Bay of Plenty optimism his perma-tan and his lovely sparkling white teeth—oh it is beautiful. They have to ask whether he is right with his sunny optimism because—guess what Mr Bridges—it is only the big fish that get the minnows here. The little fish—the 99 percent of small-business people that that member has got in his electorate—miss out. They are at the bottom of the barrel Mr Bridges and this bill gives them nothing. In fact if they are like most of the small-business people in my electorate who have to borrow capital to survive they are going to be paying more because the foreign financial institution just got a “get out of jail free collect 200 bucks when you pass go” Christmas present from the ever-honourable Peter Dunne. My goodness he has earned his money for the capitalist class has he not? The perennial Santa Claus of rentier capitalism is back in business again. He has had more allegianceships than the Maori Party has had leadership coups. Goodness me I predict that by 2013 Peter Dunne will be back pawing at the glass in the doors at the end of the Labour Opposition corridor saying: “There’s been a misunderstanding.” We have got bad news for David Clark who has the revenue portfolio. Peter Dunne is after his job; Peter Dunne is after his job. When John Key goes— 
Hon Tau Henare 
: Shearer’s got yours. 
Hon DAVID CUNLIFFE 
: Mr Henare your chances of getting back in west Auckland look even thinner. When your mate “Hone” Key goes off to the World Bank what is happening to your poll ratings? When “Hone” Key goes to the World Bank and that Minister comes back begging for a job from us this bill is “all over red rover”.