Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee Third Reading 
Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee Third Reading 
[Volume:657;Page:6637] 
Taxation (International Taxation Life Insurance and Remedial Matters) Bill 
In Committee 
Debate resumed from 27 August. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I seek leave for the remaining provisions of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill to be taken as one question. 
The CHAIRPERSON (Hon Rick Barker) 
: Leave is sought for that matter. Is there any objection? There appears to be no objection. That course of action is agreed to. 
Parts 3 to 6 schedules 1 and 2 and clauses 1 and 2 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 It is a pleasure to take a call in the resumed Committee stage of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill. The Labour Opposition concurs with the Government’s motion to have the remaining parts taken as one question in order to facilitate a more coherent and general discussion. It is also perhaps appropriate to note that in contrast with some of the other legislation that has been debated in the last few days this bill genuinely needs urgency for the sake of clarity to taxpayers and proper tax planning. 
This bill makes some important changes to taxation law but in doing so has represented very poor legislative process. It provides for the reform of international tax rules with the intention of making New Zealand residents with active businesses in overseas markets compete on an equal footing with their competitors. It aligns life insurance taxation rules closer to the accounting treatment of life insurance profits and at the same time it extends portfolio investment entity rules to life insurers’ savings products. The bill provides for payroll giving to enable the establishment of a flexible system and manageable compliance costs. The taxation of emissions units is provided for—we might say thankfully in the light of recent decisions given the loss of the cap from the “cap and trade” system. 
The definition of “associated persons” is reformed. Tax thresholds are raised to reduce compliance costs for small and medium sized businesses. That was a particular priority of the outgoing Labour Government which put this bill in place. The tax treatment of relocation claimants and overtime meal allowances for employees is clarified. The bill includes changes to the income tax rules for petroleum mining—a matter much discussed earlier in the Committee stage. It provides for the new film grant the Screen Production Incentive Fund and it makes a number of other changes. 
This bill is being debated under urgency again today. Labour supports the bill but it is very concerned about the rushed process for the bill. The major Supplementary Order Papers were delivered late without sufficient time to properly consider them. It is a huge and complex bill; I am advised it is the largest tax bill ever outside the rewrite legislation. The deadlines were rushed denying members proper and sufficient time to consider its provisions and there was a general lack of sufficient time to fully consider the immense levels of detail in the bill. For that reason the Finance and Expenditure Committee was very reliant on professional tax advice. 
The process was imperfect because of the breadth and depth of the provisions in the omnibus bill and the select committee therefore had the following to say in its report: “The size of the bill and the depth and breadth of the material it covers have made our consideration more difficult than it might have been otherwise. In trying to meet the report due date for the bill we and our committee consideration processes have been put under considerable pressure. We do not consider it desirable to put a number of very distinct and significant proposals into one bill simply because they relate to one area of law.” That is reasonably strong language in the formal context particularly in the context of the Finance and Expenditure Committee’s commentary on tax legislation which is a matter normally reserved for the driest of the dry as the Minister in the chair Peter Dunne will no doubt attest. 
There are several very important substantive areas in the bill. The first that I will mention in summary today is the definition of “associated persons”. There was extensive discussion of these provisions and right around the select committee there was an agreement that we had a common aim: to ensure that genuinely associated persons were covered so that they could not evade tax and that the rules be tightened to avoid unintended consequences for those whom the association was tenuous or who could not have been expected to know about a particular investment or tax liability of a person deemed to be associated. We appreciate the Minister of Revenue’s willingness to discuss those changes through his officials with the committee. I think and all members of the committee think that good work was done in that area and we thank officials for working in detail through those provisions with us all. 
The main bulk of the bill is associated with the international tax rules. It is an incredibly important and complex area particularly as the world is globalising. As we all know the factors of production and therefore much of our tax base is becoming more mobile and effectively harder to tax. It is for that reason amongst many others that we await with interest the outcome of the Government’s Tax Working Group as we look forward to an ongoing discussion about the optimal balance between different forms of taxation in that regard. This tax legislation modernises the international tax rules particularly in respect of controlled foreign companies—for example to “ensure that key provisions relating to CFC rules … were set out clearly in one place in the legislation.” The select committee recommended “technical amendments to the accounting-based active business test for CFCs … to reduce the cost of applying the test.” It also recommended that “for the purpose of the tax-based active business test consolidation be permitted only when the taxpayer has an income interest of more than 50 percent in each of the CFCs to be consolidated.” The amendments will “allow an active CFC to pay royalties interest and rent to an associated CFC … without the associated CFC having to recognise any passive income only if the CFC and the associated CFC were liable for tax in the same jurisdiction.” So there is some tightening there. There are a number of like rules around controlled foreign companies which were important for the committee to get its head around and are important to modernise because they reflect the changing nature of business practice in this incredibly globalised environment. 
There was discussion of the taxation of life insurance businesses and the select committee recommended a number of amendments to make the proposed provisions clearer and more flexible. For example “all direct and indirect expenditure incurred by a life insurer would be deductible in the shareholder base.” and “in relation to non-life insurance policies life insurers are able to claim a deduction for movements in the outstanding claims reserve.” The amendments ensure that “where a life insurer has overpaid tax on the life office base under the existing rules the overpayments would be carried into the new rules and could be used to satisfy tax liabilities arising on both”. It is fair to say that the committee in closed session also considered in some detail some particular aspects of the rules that applied to particular aspects of the sector. I will not go into the details of that for obvious reasons but I simply note that the committee spent considerable time with officials clarifying a matter that was of some interest to some in the industry. 
There was an extended discussion both in the select committee and on the floor of the Chamber of the tax treatment of petroleum mining. Several members have raised this issue in terms of a taxpayer-specific matter so I will not repeat the taxpayer-specific element. I will say that the committee wrestled with the need to avoid multinational oil companies ripping New Zealand’s tax base off by literally hundreds of millions of dollars by for example attributing to its New Zealand profits the cost of debt incurred in foreign jurisdictions. The Labour Party wants to go on record as supporting to the nth degree the Government’s moves to track this practice down and stop it. Not only is it totally unjustifiable but it is literally robbing the New Zealand taxpayer and beneficiaries of much-needed revenue. We certainly encourage the Government to pursue the transfer pricing and transfer attribution of cost by multinationals in this regard. 
A particular case of the reverse could potentially have been caught inadvertently: a New Zealand company that was investing offshore may have been caught by an unintended potentially retrospective element if indeed it had entered into a contract before the effective date of the announcement of this provision. We are taking the Minister and officials at their word that we will be able to work through in good faith with that taxpayer on the basis of the common law a position that reflects the common view of the committee that this was not the primary issue that the provision was designed to solve and that we were wary as is longstanding parliamentary practice of any retrospective element that operated to the detriment of New Zealand business. 
There are many many pages of detail that I could go through. I have touched upon the main areas of work. There are many others that other members will want to touch on. I will however refer to the fact that we got quite a lot of last-minute Supplementary Order Papers. Perhaps because I am a former Minister I always take a very dim view of officials not providing to the Minister in sufficient time material that then ends up having to come through the Minister to the floor of the Chamber as a Supplementary Order Paper. 
Hon PETER DUNNE (Minister of Revenue) 
: 
 At the outset of this debate on the Taxation (International Taxation Life Insurance and Remedial Matters) Bill I want to make a couple of points. Firstly this is the resumption of a Committee stage debate so a number of the measures that the previous speaker David Cunliffe referred to have already been disposed of in earlier parts of this debate. But I think he was simply reintroducing our memory to those matters. I want to comment on the point though about rushed legislation. I cannot accept his assertion in that respect. I want to place on the record once more a little bit of the history. This bill was introduced in July 2008 over a year ago. Because of the intervention of a general election it had not progressed far before the change of Government last November. It has been worked on pretty efficiently by the Finance and Expenditure Committee during the course of this year. 
One of the issues I was conscience of as the bill was proceeding was that the implementation times for a number of the regimes that it contains—the international tax changes the changes to life insurance payroll giving and there were one or two others as well—were much shorter than they are in the bill at the moment. So rather than the legislation being rushed I wrote to the select committee recommending that it defer the implementation dates to in some cases next year. I did that simply because I wanted to make sure there was sufficient time. One of the reasons I am grateful for this bill being taken under urgency today is that I am getting many inquiries from a number of people seeking assurances that we will stick to this timetable that the dates that we have amended in the bill will be honoured and it will not be further delayed. I do not think we can draw a conclusion from that about rushed legislation. We can draw a conclusion about the size of the bill and I am freely conceding—as I have done before—that this bill in retrospect did bite off too much territory. In future we will do things a little differently. 
I want to pick up on the comment the member made about the associated persons changes and I was grateful for his intervention on this point. I say to the Committee and to any of the public who are anxious about this provision that from the outset we were seeking to simply ensure that the law as put in place—in this instance way back in 1973—worked as it was intended to at that time. We were not seeking to broaden the scope or to introduce new definitions or changes to definitions through that mechanism but simply to ensure that what we thought we had been doing since 1973 was accurately reflected in the law as it stands today. 
Mr Chairman let me make a quick comment in response to the member about petroleum mining. Again there are very substantial points of agreement. One of the things that could conceivably happen under this bill—and I am not being taxpayer specific when I make this observation but certainly to illustrate the point that Mr Cunliffe was alluding to—is that it could well be possible in the future for a company to take advantage of the changes we are making to the international tax rules in terms of the active/passive test and therefore be subject to taxation in the jurisdiction of their location only and not double taxation in New Zealand. At the same time have we not changed the petroleum mining law being able to write off the cost of exploration incurred on that offshore jurisdiction against the New Zealand tax base? So the New Zealand taxpayer in that hypothetical situation not only gets no tax but is paying out a tax deduction to that company. That clearly would be wrong under any reasonable assessment of the law and that is the sort of situation we are trying to guard against. 
With regard to some of the issues that are coming up in the remaining parts of this bill I draw members’ attention to the amendments to the KiwiSaver Act that are contained in Part 4 of the bill. These relate particularly to the situation that has had some publicity of recent times where a contributor has died intestate and the difficulty that the family have had in gaining access to the funds that have been deposited in KiwiSaver. This bill corrects that unfortunate situation and has been backdated to the time of the introduction of the KiwiSaver scheme in 2007 and will be a huge benefit to those families who have been suffering as a consequence of the loss of a family member in that situation and being unable to access the funds that they contributed to KiwiSaver while they were alive. I am grateful for the Committee considering and adopting that amendment in the bill. I am also keen therefore to see it pass so that those people who are in a state of anguish can have some relief. 
PESETA SAM LOTU-IIGA (National—Maungakiekie) 
: 
 Much has been said about the size of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill. I concur with the remarks of the honourable Minister of Revenue about the work done by the officials. We commend that work as well as the work done by the Minister who in a letter to the Finance and Expenditure Committee stated quite clearly that changes would be put in place in terms of the timing of the legislation. 
The bill addresses a number of areas for change. It provides for the reform of international tax rules. Among other measures it introduces a tax exemption for foreign active income of controlled foreign companies—the CFCs as they have been referred to in this debate already. It also addresses aligning life insurance taxation rules more closely with the actual profits of term life insurance businesses. But the area that I would like to discuss is the introduction of the voluntary payroll giving scheme. 
We all know that New Zealanders are generous with their money and their time. Nielsen Media Research found out that 75.4 percent of the New Zealanders surveyed supported the community and voluntary sector in 2007. They supported that sector either by making committed or ad hoc donations volunteering or through another form of support. The research also indicates that less than one in every five people who donated to charity filed a tax rebate for the donation. Payroll giving represents an opportunity for those who give to gain an immediate tax benefit thus eliminating the need to file a rebate annually. 
Following the introduction of similar legislation and a Government-initiated campaign to promote payroll giving the level of participation in payroll giving in Australia doubled. An initial target that has been suggested is that New Zealand aim to achieve a level of participation comparable to that of Australia. I suggest that we aim to surpass the level of participation in Australia by 2011 the year of the Rugby World Cup when we will also surpass Australia on the rugby field. From research conducted by the Tindall Foundation it predicts that unless the Government and business put significant effort and resource into promoting and encouraging similar participation in this country payroll giving is unlikely to gain traction. 
Payroll giving is about enabling employees to receive the benefit of payroll donations each pay day in real time and without the need to have donation receipts. People who make donations other than through payroll giving can continue to claim a charitable donation tax credit at the end of each tax year. A main concern raised by the Finance and Expenditure Committee was the risk that employers could default in transferring payroll donations to the chosen donee organisations especially in insolvency situations. To address that concern the committee recommended a number of changes to the bill. They included an amendment to schedule 7 of the Companies Act 1993 to confirm that when an employer goes into liquidation and has not passed on employees’ donations to donee organisations the return of those donations to the employees will have the same priority as the payment of their unpaid wages. 
That was a short cameo on payroll giving. We have made a number of other more in-depth changes to our tax regime. The bill supports the emphasis this Government is putting on tax reform and tax policy. It is part of a series of tax reforms that will continue into the future of this term of Government. 
STUART NASH (Labour) 
: 
 I say to Mr Lotu-Iiga that I wish we could get one thing clarified. First and foremost the Taxation (International Taxation Life Insurance and Remedial Matters) Bill was introduced by the previous Labour Government on 2 July 2008. It is not a National bill; it was not part of National’s agenda for tax reform. I think we need to get that clear once and for all. 
The Minister in the chair the Hon Peter Dunne is right; this bill has had quite a long process. As I have mentioned it was introduced on 2 July last year. The reason it has taken so long is perhaps that Parliament dissolved for the general election and then we were back into it. But having said that I also understand the need for urgency on the bill because business tends to operate best in an environment of certainty. The sooner this bill is passed the greater the level of certainty there will be for a whole range of businesses. So I support the urgency on this bill in the Chamber today. 
As has been mentioned we support this bill. We have already voiced our concern—I think every speaker has voiced his or her concern—not about the rushed process but about the size of the bill coupled with the amount of time we had to spend on it. We are concerned about—and my colleague David Cunliffe talked about this—the late nature of the Supplementary Order Papers which were tabled without sufficient time to properly consider them. Supplementary Order Papers 34 and 35 in the name of the Hon Peter Dunne were released on 4 August and 25 August respectively. This is a huge and complex bill—most tax legislation is complex—but at 825-odd pages that really made things very tight. There was a general lack of sufficient time to fully consider the whole immense detail of the bill but we did our best. As has been mentioned we relied on the officials and our consultants. 
I will talk about the amendments to the Income Tax Act. In 2007 around 3500 pages of New Zealand tax legislation were enacted. This legislation included the Income Tax Act of 2007. At 2800-odd pages that Act represents the fourth and final stage of a project begun in 1994 to rewrite income tax law in plain-language style. As the length of time taken to complete this task shows this rewrite was an ambitious and aspirational but absolutely necessary task. I know that sometimes the words “tax legislation” and “plain English” in the same sentence are a bit of an oxymoron but this is the way things work out in tax legislation. This task was a definite step forward in terms of New Zealand tax law. But as an inevitable consequence of the rewriting process there was a temporary but large increase in the number of remedial amendments necessary in order to maintain the tax law in sound working order. This increase was in part because very few remedial amendments had been enacted since December 2007. 
Of the remedial amendments proposed approximately 115 are typically of a very minor nature. They are intended to correct matters such as incorrect numbering and cross-referencing printing errors the use of incorrect terminology punctuation issues and omitted words. Despite perceptions and beliefs to the contrary even tax officials and drafters make the occasional mistake. I think we would agree that making 115 drafting errors in 3500 pages of legislation or in the 2800-odd pages of the Income Tax Act 2007 is not a bad effort overall. Other amendments in this bill are of a less clerical nature but arise from both rewrite issues include submissions to the Rewrite Advisory Panel and from clarification of policy in business as usual drafting. These 160-odd amendments affect provisions in the Income Tax Act 2007 the Income Tax Act 2004 the Tax Administration Act 1994 the KiwiSaver Act 2006 as the Minister has alluded to and the Stamp and Cheque Duties Act amongst other Acts. Of these amendments 30 issues were referred to the Rewrite Advisory Panel for resolution. 
In addition to the 119 remedial amendments included in the bill at its introduction the officials recommended that the Finance and Expenditure Committee propose the inclusion of about 150 further remedial amendments the need for which had been discovered since the introduction of this bill. As that shows a lot of work went into this legislation at the officials level at the Finance and Expenditure Committee level and at the consultant and advisory level. 
Several Acts that amend tax Acts have been enacted since the bill was introduced to Parliament. They include the Climate Change Response (Emissions Trading) Amendment Act 2008 the Taxation (Urgent Measures and Annual Rates) Act 2008 and the Taxation (Business Tax Measures) Act 2009. A number of the cross-references in the bill need to be adjusted to take into account the changes made by those Acts. The officials recommended that the committee include such amendments. 
CRAIG FOSS (National—Tukituki) 
: 
 I rise to speak in the continuation of the Committee stage of the very large Taxation (International Taxation Life Insurance and Remedial Matters) Bill. I acknowledge members giving leave to combine the debate on the remaining parts of this bill in order to facilitate its completion. 
Much was said about the bill by speakers when we last addressed it and I am sure we will hear some more points now and in the third reading. We are speaking about Parts 3 to 7 which include clauses 518 to 629 and the title. They cover about 140 pages which points to the substantial nature and breadth of the bill. We must also note that a large part of the original bill is no longer in this bill because it formed part of the small to medium sized enterprise tax recession assistance bill the Taxation (Business Tax Measures) Bill which we passed in March. 
I would make the point that we have an additional Supplementary Order Paper—34. I understand that it consists of simple remedial drafting changes to the substantial legislation and I would be interested to have an assurance that in fact that is the case. I fully accept that it has no policy change from what the select committee saw and what many many submitters spent much time on at the select committee. 
I should acknowledge as this will probably be my final time speaking in the Committee stage the assistance of the Minister of Revenue officials and members of the Finance and Expenditure Committee both in the previous Parliament and in this Parliament in facilitating this bill going through to at least this stage. Cooperation was extended in many many areas. I acknowledge that other members have recorded that for  
Hansard 
 and I appreciate that. I also acknowledge that at times the select committee had to begin meetings early and finish late to facilitate the process. 
When the Minister spoke earlier he spoke about the need the commercial imperative to provide some certainty for the many many sectors of business affected by the bill from insurance to payroll to you name it—to the Inland Revenue Department itself—as to when certain parts of this wide-ranging bill would be implemented. I agree totally with what the Minister said. The commentary states that the Finance and Expenditure Committee was not particularly pleased with the breadth of the bill with its wide-ranging nature and all the commentators also picked up on that. But that does not mean that the bill did not go through the due process. I note that many of the discussion documents that led to this bill particularly those about some matters that have already been raised in the debate actually appeared under the previous administration—as far back as 2006 and even 2007. The legislation was introduced in July 2008 I think it came to the Finance and Expenditure Committee in September or October 2008 and we picked it up with a vengeance early this year as Parliament got back to normal behaviour if you like. 
That was just a quick note to acknowledge all those who have assisted with the bill to reiterate the points made in the commentary and also to put on record for those who pay strict attention to the commentary of the bill not to misinterpret the commentary or to try to put words into it. The commentary speaks for itself and it is not meant to be anything other than the thoughts of the committee at that time. Other speakers have alluded to some of the issues in and around that. On that note I look forward to the third reading. 
RAYMOND HUO (Labour) 
: 
 I rise to take a call on the bill and wish to affix my contribution on the provisions in relation to remedial amendments in the bill in particular the clauses concerning KiwiSaver. The bill introduces a number of remedial amendments to the KiwiSaver scheme and in the Finance and Expenditure Committee we spent a certain amount of time hearing submissions and deliberating on them. A number of submissions are no longer relevant due to the removal of the employer tax credit. What is interesting are the issues surrounding the definition of member credit contribution in section YA 1 of the Income Tax Act 2007 and in section OB 1 of the Income Tax Act 2004. Officials are of the view that the definition should be amended to exclude the $1000 kickstart payment and the member tax credit. This would have the effect of preventing members from double-dipping which would occur if the Crown contributions were included in the calculation of the member tax credit. 
A technical issue arose in relation to whether the amendment would be intended to be retrospective or prospective. If it should be retrospective the recalculation of the member’s accounts would be required. As the independent specialist adviser Therese Turner pointed out in her report recalculation of a member’s accounts would be required. Given that some members may have already withdrawn from the scheme that would be problematic. 
I cited this relatively small part as an example to show how important it is for us to work together to bring our tax law up to date which is the main purpose of this bill in general and to provide some certainty to make the relevant clauses operative. It is particularly so to the 1.1 million New Zealanders who have signed up to the KiwiSaver scheme. I congratulate the Hon David Cunliffe on taking the initiative for the multiparty banking inquiry by the Labour Green and Progressive parties. There are two major concerns; I cited this one because the savings concern is particularly relevant to what we are talking about now. 
Two major concerns were expressed by submitters across the board. The first concern was that banks have grown faster than the surrounding economy indicating that wealth has transferred from the trading economy to the non-trading economy which has made it harder for us to grow a healthy sustainable economy. The second concern which is relevant to this bill is our low savings rates and spending habits of New Zealanders. Unfortunately the Government’s only response so far to the low savings rate is to cut KiwiSaver. The KiwiSaver scheme introduced by the Labour Government was designed to lift private sector household savings in New Zealand. By cutting the incentives for KiwiSaver the National-led Government is decreasing the amount that ordinary Kiwis will be able to save. The Government’s plan betrays the over 1.1 million New Zealanders who have already signed up and the Government’s move has effectively taken away opportunities from future generations. Thank you. 
Hon DAVID PARKER (Labour) 
: 
 I rise to take a call in the Committee stage of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill which Labour supports. I will deal with a couple of technical matters for a start. An important change has been made through this legislation to the treatment of petroleum mining revenue and I endorse the steps that the Minister of Revenue started in the previous Government and has continued in this Government to clarify that the petroleum mining losses that are incurred by a foreign branch of a company cannot be offset against petroleum mining income earned from New Zealand. 
To put that in perspective New Zealand has become quite prospective for oil and gas. The price of oil and gas is a lot higher than it was a few years ago and some of the traditional sources of oil either have become risky for development companies or have been depleted in their reserves. Although as a country and a world we need to transition away from fossil fuels for environmental reasons relating to climate change and also for energy security reasons it is clear that for some time to come the world will use petroleum products and that they are valuable. It is clear that it is in New Zealand’s interests that where we have some of those reserves we use them rather than import from Saudi Arabia or somewhere like that. That adds to our wealth as a country. 
In New Zealand we do not have a Government-owned oil and gas sector. A lot of overseas countries do—for example Saudi Arabia; most of Norway’s exploration and recovery of oil is done by a State-owned company. If a country does that of course the returns from the oil that go through that State-owned company benefit the country and the tax rules are not so important because the profit is earned for the country through the State-owned company. But in New Zealand we do not approach oil and gas that way. We leave it to private enterprise companies—some of them are owned by State-owned companies from overseas actually—to explore for find and extract petroleum products in New Zealand. Recently they have been successful. One of those successes has been the Tui Area oilfield off Taranaki. Many millions of barrels of oil have been extracted from it and that has benefited the New Zealand economy. 
The benefit to the New Zealand economy comes from two sources. One is the royalty that is charged on the recovered oil. That royalty is quite small. Indeed I wonder whether there is any royalty on oil. I cannot recall. 
Craig Foss 
: Yes. 
Hon DAVID PARKER 
: There is a royalty on oil as there is on precious metals. A royalty is recovered on the oil but the main profit for New Zealand is the taxation on the profits of the oil company. Those profits need to be properly taxed in New Zealand. Oil companies have been saying that they will offset against their New Zealand oil-based income expenses that do not relate to New Zealand. It is as simple as that. They have been trying to say that they will deduct those costs in New Zealand that are incurred overseas. Actually I suspect that if we got to the bottom of it we would find that some of what they deduct overseas is being deducted again in New Zealand. It is very hard for us to tell because we cannot see into the detail of those overseas transactions. 
This legislation makes a very important change to our law by saying that the only costs that can be deducted by oil companies for tax purposes against their oil revenues in New Zealand are the expenses that they incur in exploration and development in New Zealand. It does not have to be from the same well but it has to be in New Zealand. That is a good change and I express my support for it. 
There is a possible problem with this change in that we have created a problem for some increasingly successful New Zealand - based companies that are exploring overseas including Greymouth Petroleum which is now working in Chile. That company says that this change is contrary to its interests. I understand that we have had advice from the officials to the Finance and Expenditure Committee that they do not think that is necessarily the case but none the less this issue needs to be monitored. I am sure it will be monitored by those affected who will lobby their members of Parliament if they think that they can prove their case. 
I will talk briefly about a couple of other things. Firstly I will talk about the GST treatment of emission units. That provision was originally in this bill. This bill had a slower passage than the emissions trading legislation that was passed last year and that provision does not now need to be passed because of course we already have an emissions trading scheme. We have an emissions trading scheme that is rational that is economically effective that will not drive industry out of New Zealand—contrary to the claims made by some members of the Government—and that will reduce emissions so as to benefit New Zealand. 
Why do we have that scheme? Well New Zealand already has an obligation under the Kyoto Protocol to take responsibility for its emissions above 1990 levels. After the next version of that agreement which we hope will be agreed to at Copenhagen or thereafter New Zealand’s obligation will be tougher still. We will have to reduce our emissions substantially below 1990 levels. There are two or three ways we do that in the economy. One is through education which is a good thing to do. Another way is through regulation and that is also a good thing to do in parts and where necessary. But if we do it all through regulation we end up having to regulate thousands of different transactions through the economy all of which have an effect on emissions. To do it through regulatory intervention becomes very complex and administratively expensive in that it becomes a large compliance cost and annoying for members of the public. 
An emissions trading scheme changes the relative cost of doing business. It changes the economics of producing high-intensity goods or services and makes doing that relatively more expensive than it is to produce low-emission goods or services. Through that scheme we change the productive base of New Zealand over time. It takes a long time but we have to start. Through that we gradually change our economy—and other economies in the world are starting to do this too—away from activity that causes emissions towards activity that reduces emissions. Emissions will go down sustainably. That is what the effect of the current emissions trading scheme would be. 
From a policy point of view the effect of that scheme in New Zealand is attained by a cap on the number of free units that we give away to people. Some people are exposed to competition from markets overseas that are not properly pricing emissions. It is very proper that we protect those industries against closure by saying that they have a base level of free emissions that they do not have to pay for. At the moment it is 90 percent of their 2005 emissions so they are required to pay for only 10 percent of their 2005 emissions. That will not drive people out of business. The current scheme does not allow people in the industry sector to increase their emissions above 90 percent of their 2005 emissions because to do that would make New Zealand poorer. They might make $1 profit at the margin but the country would suffer a $25 loss at the margin. 
The amendments that are currently being proposed by the National Government will actually make New Zealand poorer and will make the scheme less efficient economically and they are to be criticised. They have been brought here because the Maori Party has said that it will support legislation to soften the scheme having said just a week ago that it would support only legislation that would toughen it. That is an act of a word that I cannot say in this Chamber. It is either that or it is abject incompetence. Those members may think that they can justify it on the basis of the one or two shekels that they have received from the National Government but I cannot see why they would have sold out their interests for that. 
In respect of the other provisions in this enormous taxation bill there are a lot of things in here but I am somewhat surprised not to see anything in it fixing the terrible mistake made by the National Government in abolishing the research and development tax credit. That mistake has not been fixed by this bill. This bill runs to 800 pages yet it does not fix up the abolition of the research and development tax credit. The undermining of KiwiSaver—another revenue measure that used to give tax credits to employers for the contributions made by employers—has not been fixed by this bill. Employers still have to face that cost under the new shrunken scheme without any support from the Government whereas previously they received a tax credit for it. With regard to the amount of the tax advantage for participants in KiwiSaver the generosity of the tax credits available to employees who are saving through the scheme has been halved. That has not been fixed by this bill. Those are two glaring anomalies. Neither does the bill make good on the promise that National won the Treasury benches on—that is that we can have everything we had under Labour plus tax cuts. That promise was never affordable. It has been reversed but once again this bill does not fix that problem. 
AMY ADAMS (National—Selwyn) 
: 
 I am very pleased to take another call in the Committee stage of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill. It has been some time since we last debated the bill’s Committee stage and since I last spoke. We have heard other speakers talk today about the comprehensive and extensive nature—perhaps too extensive—of the bill and there certainly are a number of important elements within it. I hope my contribution is able to add more to the wisdom in this debate than the contribution of the member who has just resumed his seat the Hon David Parker who held up the bill and said there was a lot in is. I thank Mr Parker very much for that in-depth analysis of this 823-page bill. Yes there is a lot in it; he got that quite right. I hope to talk in a little more detail about some of the matters in it. 
International taxation and life insurance are two of the big component parts of this bill but a number of smaller aspects have been a little overlooked in the debate due to the comprehensive nature of the bill and the big elements in it. One that I will touch on because I do not believe it has been mentioned in the debate thus far is the provisions around stapled stock. Stapled stock is not something that is discussed widely outside tax and business circles so I will take a moment to explain what I mean by that phrase. Stapled stock is a set-up that companies often use whereby debt securities—debt instruments—are attached to equity instruments sold by that company. We have seen that this structure can be used to enable companies to pay moneys to shareholders that would otherwise be classed as dividends and to call it interest thereby giving themselves quite a substantial tax advantage through the interest deductions that the company gets although the money ends up in the same place. 
The bill set out to say that for that sort of stapled stock arrangement issued after 25 February last year all the payments were eligible to be treated as dividends as if the entire payment related to the shares as if the entire security was a share. That is an important part of ensuring that there is fair treatment of those moneys and that companies cannot use that sort of structure to effectively avoid tax. The date of 25 February 2008 is important. As far as we know at the time when this rule change was announced no major NZX companies had stapled stock in existence. We also know that a number were certainly looking at doing that so it was a step that had to be taken. 
As the bill proceeded through the Finance and Expenditure Committee we looked at this matter in a little depth. We recommended some important changes to make sure that there was not excessive overreach in terms of these provisions. Among those we looked at was ensuring that debt stapled to a wide range of fixed-rate shares could still be treated this way as a valid instrument. We also thought it was important and appropriate that people with small closely held companies—family companies and the like—where this sort of arrangement came about through a shareholders’ agreement had the freedom and flexibility to enter into that arrangement. We were working to ensure that we protected the tax base against the inappropriate claiming of interest deduction as a way to avoid paying tax that would otherwise be payable but without going into the realm of unnecessarily cutting down the flexibility and the options open to companies to arrange their affairs. As I said what we will now have under these rules will enable all the payments to be treated as if they are shares all the payments to be treated as dividends. But when we talk about company thin-capitalisation rules with those stapled instruments the debt component can still be treated as debt. 
In respect of that particular provision it highlights that there is quite a lot in the bill beyond the title provisions of international tax and life insurance. Those are the leading ladies in the bill but there are a number of quite important lesser issues that the select committee spent an awful lot of time working through. 
At this stage I take a moment to thank Craig Foss for his chairmanship of the select committee. It was a difficult process to work through the bill but the committee worked very well. All the committee members should be acknowledged for their contribution to the work on the bill. Certainly the officials spent a lot of time with us. I commend the Minister of Revenue for not only introducing the bill last year but also having the political tenacity— 
Hon Peter Dunne 
: Masochism! 
AMY ADAMS 
: —perhaps it was—to still be here shepherding the bill through the House despite a change in Government. It is no small piece of work on his behalf and on the behalf of our committee as well. It is an excellent piece of work and I think it makes real progress in ensuring that out tax regime is brought up to speed. 
STUART NASH (Labour) 
: 
 First and foremost even though we are debating the Committee stage—and are about to go into the third reading—in urgency I think it is important to note that after the first reading of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill it went to the Finance and Expenditure Committee. Select committee examination is quite an important part of the legislative process. Some of the other bills before the House recently have not gone to a select committee. Therefore the public does not have any right or ability to present submissions on them. In terms of process this bill followed a very good process. The select committee received and considered 78 submissions and heard 51 oral submissions. As members can imagine they were on some very complex areas of tax law. Reading those submissions and doing the background reading on the oral submissions was quite onerous and that is what I think a lot of members mean when they say that there was quite a tight time constraint. 
It seems a while since we mentioned one of big aspects of this bill and that is associated persons which I would like to talk about. Amy Adams is right; this bill is about more than international taxation life insurance and remedial matters. This bill covers a whole raft of provisions and a whole raft of changes to the actual tax system. It is the largest tax bill apart from the rewrite to come before the House. Let us talk about the definition of “associated persons”. This part of the bill received much consideration from all members and resulted in many reams of paper spitting out a whole lot of judgments from officials consultants and advisers. We wrestled with the risk that by relaxing the rules the resulting law might not catch people who should be caught by an associated persons rule. We all acknowledge that the implementation of this provision will be very important and the ongoing supervision and monitoring by officials will also be important. Because it is a complete rewrite we may be back in this House considering amendments if it does not look good. 
The committee proposed amendments that aimed to reduce uncertainty which is what tax legislation should be about and to narrow the scope of the proposed test to exclude truly arm’s-length transactions. The amendments included narrowing the scope of the tripartite test and excluding certain relatives from it. An example was given of parents who divorce the father marries again and the woman he marries has a son from another relationship; that relationship would have been caught before. We wanted to make sure that those quite tenuous relationships were excluded and to create certainty. We created an additional exception test for relating companies we recommended that the test apply not only for the purpose of land provisions we excluded charitable organisations from the test and we created an exception for certain employee trusts and an exception for partnerships. As I said the associated persons section took up quite a lot of time. 
I would also like to talk about international tax rules. I take the Minister of Revenue’s point that some of these provisions had been debated and discussed in the earlier Committee debate but that was a while ago and I think it is worth reiterating them. This area was incredibly complex and deserved a lot of attention. Well it received a lot of attention but it probably deserved a little more attention. We quite quickly got down to layers of complexity that reflect the ongoing game of poacher versus gamekeeper. I think we all understood that in terms of the global economy and global competitiveness New Zealand’s international tax regime needed to be amended and that was what the bill did but many private entities of course hire very very expensive—the best—tax lawyers and advisers to ensure their tax is minimised. I think it was Dr Michael Cullen who said that if as much time and energy went into creating wealth in this country as go into looking at ways to avoid tax we would be a very wealthy country. The Crown’s officials are required to stay one jump ahead whilst also maintaining the integrity of the tax system and making sure that New Zealand retains its global competitive advantages. 
The bill strikes a reasonable balance between the need to remain internationally competitive and the need to provide clear rules that allow the integrity of the tax base to be preserved. The committee ensured that key provisions relating to controlled foreign company rules were set out in one place in the legislation making the rules more accessible. We recommended that technical amendments to the accounting-based active business test for controlled foreign companies— 
The question was put that the following amendment in the name of the Hon Peter Dunne to a proposed amendment set out on Supplementary Order Paper 34 in his name to clause 2 be agreed to: 
to omit from subclause (29) “and (5)”. 
A party vote was called for on the question  
That the amendment to the amendment be agreed to. 
Ayes 113 
New Zealand National 58; New Zealand Labour 43; ACT New Zealand 5; Maori Party 5; Progressive 1; United Future 1. 
Noes 9 
Green Party 9. 
Amendment to the amendment agreed to. 
The question was put that the amendments as amended set out on Supplementary Order Paper 34 in the name of the Hon Peter Dunn the amendments set out on Supplementary Order Paper 35 in his name and the following amendments in his name to clause 2 be agreed to: 
to omit from subclause (21) “397”; and 
to omit from subclause (27) “421(2) and (4)” and substitute “421(2)” 
A party vote was called for on the question  
That the amendments as amended be agreed to. 
Ayes 113 
New Zealand National 58; New Zealand Labour 43; ACT New Zealand 5; Maori Party 5; Progressive 1; United Future 1. 
Noes 9 
Green Party 9. 
Amendments agreed to. 
A party vote was called for on the question  
That Parts 3 to 6 schedules 1 and 2 and clauses 1 and 2 as amended be agreed to. 
Ayes 113 
New Zealand National 58; New Zealand Labour 43; ACT New Zealand 5; Maori Party 5; Progressive 1; United Future 1. 
Noes 9 
Green Party 9. 
Parts 3 to 6 schedules 1 and 2 and clauses 1 and 2 as amended agreed to. 
Bill reported with amendment. 
Report adopted. 
Third Reading 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (International Taxation Life Insurance and Remedial Matters) Bill be now read a third time 
. The bill introduces a number of major business tax reforms the most far-reaching of which is the reform of the tax rules relating to the offshore income of our controlled foreign companies. Our present system taxes the offshore income of those companies as it is earned and it is being replaced by one that exempts that active income. The result will be better alignment of our international tax rules with those of comparable companies—Australia in particular. That will mean removing a taxed cost for our controlled foreign companies that similar companies in many other countries do not face. These changes are intended to encourage businesses with international operations to remain in New Zealand and to enable them to compete more effectively overseas. 
Modernisation of the tax rules relating to the life insurance business is another important reform that the bill introduces. The rules are being updated to ensure that the term insurance business is taxed on actual profits as other businesses are taxed and that the tax benefits of the portfolio investment entity rules are also available to people who save through life products. The bill also introduces the new payroll giving system for charitable donations which will operate through the PAYE system. It is an initiative from United Future and it means that employees who donate through their payroll will receive the tax benefit of their donations each pay day without having to present donation receipts. The initiative has been warmly welcomed throughout the charitable sector and was generally applauded during the Committee of the whole House stage. On a similar theme the bill also clarifies the tax treatment of volunteer reimbursements and honoraria to make it easier for volunteers and community organisations to comply with their tax obligations and to reduce their compliance costs.  
Other important reforms in the bill that attracted some attention during the Committee stage include changes that strengthen and rationalise the definition of “association persons” in the Income Tax Act as a revenue protection measure. These measures are generally used to counter tax practices that could undermine the intent of the law because of the closeness of the relationship of the parties involved. The bill also seeks to clarify the law to ensure that the employer payments for relocation overtime and meal allowances remain tax free. These changes are designed to remove longstanding uncertainty and to simplify the law which will save time and money for everyone involved and generally allow people to carry on doing what they have always been doing but now in accordance with the law.  
The bill also updates the petroleum mining tax rules in order to remove possible disincentives to further investment in oil and gas exploration and development in New Zealand. As a revenue protection measure it gives effect to changes to ensure that New Zealand receives its proper share of the benefits from our petroleum mining industry which is growing rapidly. The point was made during the Committee stage by more than one speaker that the somewhat perverse situation at the moment could allow the case where a company could in effect offset all of its expenditure offshore against the New Zealand tax base and for various reasons pay very little tax in New Zealand. The net effect of that situation could be that the New Zealand taxpayer is simply subsidising offshore exploration. That is a very peculiar situation and we are closing it off. We are actually the only country in the world as I understand it that currently has a provision of that type in place.  
This speech is a brief summary of the major reforms that are proposed in the bill. There are a number of other changes that I will not go into because I do not have time this afternoon. Various Supplementary Order Papers have been added to the bill since I introduced it in July 2008. One of the members during the latter stages of the Committee stage made reference to stapled stock; we introduced a Supplementary Order Paper in August of last year to ensure that stapled stock instruments are treated as equity for tax purposes. That measure is designed to prevent a loss to the revenue through the increased use of that mechanism. Earlier this year in August I introduced another Supplementary Order Paper which made a number of remedial changes as well as other taxpayer-friendly policy changes to the bill. In that latter category are specific measures that apply to a small number of taxpayers and that needed to be legislated for as soon as possible. One of those measures that I should refer to relates to finance company workouts. A slight wording change is required to ensure that the law also applies to compromises not done under the Companies Act. That adjustment will be made in later legislation and once enacted will apply from the 2008-09 income year.  
I conclude by saying that the bill had a number of interrelated aims: to help New Zealand - based companies compete more effectively overseas to update tax law to reflect today’s commercial environment to clarify legislation to ensure that it works as intended to protect our revenue base and to strengthen the country’s culture of charitable giving. It is a long and technically complex bill. It has required an enormous amount of effort on the part of many people who have taken part in its passage through Parliament: the Finance and Expenditure Committee members the drafters the policy officials the submitters and all of the members of the House. I acknowledge the contribution that all have made to bringing this very big bill to this stage this afternoon. It is a significant point to have reached and I record my thanks to everyone who has made it possible. On that point I commend the bill to the House. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I welcome the remarks of the Minister of Revenue Peter Dunne and I state again at this point in the third reading of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill that the Labour Opposition will be supporting the passage of the bill. 
I concur with the Minister’s warm remarks to officials. It is very easy for us parliamentarians as we debate the generalities of the bill to overlook the amount of detailed consideration that has gone into even just the drafting of its 800-plus pages. Even the remedial Supplementary Order Paper is over 50 pages long and there are other Supplementary Order Papers as well. The fact that typographical corrections and changing commas took 50 pages reflects the volume of work involved. It is really extraordinary. Leafing through the bill I see that every page has its highlighting underlining and revision tracks and every paragraph matters because millions of dollars’ worth of taxpayer funds rest upon such things. We are highly reliant on the good offices of our very dedicated officials and advisers and I join with the Minister in thanking our excellent team. The public are so much better off for the quality of work that has been rendered. I hope the officials and advisers will pass on the thanks of all parties in Parliament to their colleagues for this mammoth piece of work. 
Here the out and out bouquets stop. I think it has been well reflected in the discussion that the process of getting the bill to the third reading could have been on reflection a little bit better. The Minister reminded us that the first reading of the bill was in August 2008 following its introduction in July. There had been working papers and an extensive consultation with interested organisations in advance of that introduction. The bill was referred to the Finance and Expenditure Committee and then the general election happened. I do not know whether it is fortunate or unfortunate but given the election loss at least off the good ship  
Labour Government 
 there were a few lifeboats and the Minister of Revenue took one of them. He managed to steer the bill on its passage through Parliament. The issue was whether the select committee had the time to do justice to the bill and I do not think the dedicated members or even our excellent chairman Mr Foss would in their heart of hearts be able to attest that we were able to give the depth of scrutiny that we would ordinarily like to give to every page of this bill. 
The ambit of the bill if I might take a minute to reiterate themes that I attempted to summarise late in the Committee stage is broad. The commentary on the bill states: “We do not consider it desirable to put a number of very distinct and significant proposals into one bill simply because they relate to one area of law.” The reason is that even a third or a quarter of this volume would have been more than enough for a select committee process to get its head round. Having said that the bill provides for the important reform of international tax rules particularly in respect of controlled foreign companies. The bill regularises and extends life insurance taxation rules closer to the accounting treatment of life insurance portfolios and particularly around modern practices in that respect. It provides for payroll giving; I think parties around the House agree that that is a good way to assist the charitable sector. Taxation of emissions units is provided for. The definition of “associated persons” has been tightened up a bit in the Committee stage. The tax treatment of relocation payments and meal allowances has been optimised. 
There has been significant discussion about the provisions for tax treatment of petroleum mining. Let there be no mistake: in the earlier Committee stage discussion the Labour Opposition strongly supported the Government’s moves to close this egregious loophole which has been ruthlessly exploited by members of the international petroleum industry. I say shame on them for pushing it that close to the line. When one pushes things that close to the line the line gets moved because officials and parliamentarians have a responsibility to stand up for the public interest. So I hope there will be a lesson in that to the market. Labour raised the issue of an unintended consequence or potential unintended consequence. Enough has been said about that issue except that we will hold the Government to its indication of a willingness for there to be a good-faith process with officials on the basis of the common law position. 
It is incumbent upon me as Labour’s finance spokesperson to say that the country is pressed upon by many serious taxation issues not all of which are of the technical nature of even the international tax rules contained herein. New Zealand has in the latest month achieved a vast improvement on our current account deficit. It is only 6.6 percent of GDP this month; that is still bad in most people’s books. Our national debt is in net terms up to 100 percent of GDP and nearly 150 percent in gross terms. This country has to deal with some significant issues. In summing this up I guess Labour has a concern that this bill is a tome of necessary technical and somewhat rushed amendments and that this House is not giving its attention to the priority tax matters. 
What are those priority tax matters? Well there was very interesting debate around Budget 2009; there was great reference to the international credit-rating agencies and the reports for example of Moody’s Standard and Poor’s and Fitch Ratings. Although they came to different conclusions on whether we needed to have our ratings changed they all made the same underlying points: they had counted upon the Government’s fiscal prudence not just because it is a good thing in itself but because it was papering over the cracks of an economy that is fundamentally not saving enough and not exporting enough. How does tax policy play into that? Well we know that we have to innovate more. The rating agencies have made it very clear that we cannot diversify our economy unless we improve our rate of innovation. That means that the tax rules have to better support private sector research and development. The previous Government met the OECD average but private sector research and development was at less than a third. That is why the research and development tax incentives were critical. We cannot see an alternative push from this Government to come up with some better idea. If it in some way did not like the way the incentives were crafted I ask that we have a mature discussion in the national interest about how to carry our research community and our primary sector forward. 
Similarly although it is not a tax matter the Government canned the Fast Forward Fund but has not come up with an equal alternative. KiwiSaver in terms of tax matters saw the employer subsidy withdrawn and the Crown subsidy cut in half. There is a tax-related element to those changes: they were done to fund the 1 April tax cuts. Those income tax cuts dropped the top tax rate and changed some thresholds but the bottom line was that a third of the benefit went to the top 3 percent of earners. The top 3 percent have the lowest marginal propensity to consume and therefore the least multiplier effect during the recession. The cuts did not make equity sense they did not make tax policy sense and they did not make macroeconomic sense. 
We talked about emissions units in this bill. We have the bizarre spectacle this week of a Government that seems to be falling over itself to do some very strange deal with Te Pati Maori at a time when the Maori Party has given nothing more than a nod to the bill going to select committee with no promise of support after that. That might look like a bad deal. I think that the Government apparently gave the Maori Party precisely zero in return for that nod other than indexing benefits which if common media parlance is to be believed were already indexed. The real problem with the emissions trading scheme is that there is no cap on the trade and that means that the Crown’s exposure to the fiscal loss—the tax loss—alongside that is unlimited. The more the pollution is the more the tax subsidy will be. That has to be amongst the most perverse taxation effects this House has considered for some time. Finally of course the manipulation of the carbon price for different public relations purposes will leave the taxpayer—the fisc—picking up the difference between the cap on the carbon price that is used and the international price. That is a severe exposure. 
Although much in this bill is to be recommended and although the process could have been better my final word in this debate is to ask Parliament and to ask the Government to respectfully lift its sights because this country faces absolutely critical issues for our economic future. Although this bill makes a useful contribution to the modernisation of some tax rules it has skirted around the fundamentals just as Budget 2009 did. We look forward to a sensible discussion with the Government about the next steps for our tax system and the contribution it can make to guarantee a prosperous and independent future for New Zealand. 
CRAIG FOSS (National—Tukituki) 
: 
 I was half expecting from the previous speaker the Hon David Cunliffe an apology for the state of the economy that we inherited from his previous Government. He started off on tax but we will come to that. [ 
Interruption 
] Here we go! The caffeine has kicked in lunchtime has kicked in on the other side of the Chamber. 
From speeches made in the third reading of this very large Taxation (International Taxation Life Insurance and Remedial Matters) Bill it seems obvious that some members are looking forward to the end of the process of this bill going through the House. I again acknowledge the commitment and the contribution of members throughout most of the debates on the bill. I forgot earlier to make a special mention of the independent advisers to the Finance and Expenditure Committee and their assistance with this bill. Therese Turner did a great job in our committee. The committee depends very heavily on her advice on aspects in and around tax. We used an independent drafting adviser Mr David McLay. I want to go on record to acknowledge his assistance and drafting expertise. [ 
Interruption 
] He is no relation of my colleague behind me Todd McClay. I acknowledge his assistance with this substantial bill even though we have 50-odd pages of further drafting fixes. 
Much of the bill consists of remedial and technical matters particularly the amendments contained in Supplementary Order Paper 224 and the back sections of the bill which we talked about in the commentary on the bill. I will quickly touch on the last two speakers’ contributions. The first half of the previous speaker’s speech addressed most of these points but I reiterate that the interaction between the committee the Minister the officials the Inland Revenue Department and the private sector around the application dates caused a great deal of angst in many sectors as I mentioned earlier and I acknowledge the way that process panned out. Although there was a bit of tension at the time very good solutions were found. On the changes to international taxation provisions a quote was given to us saying that the changes remove the “grey list” structure that New Zealand has. The previous Minister of Finance said that the “grey list” was basically where New Zealand went boldly where no other taxation authority dared to follow. Now we are trying to remedy that situation. The active-passive proposals and other proposals in this bill are very forward looking and they lock in a more global and outward-looking New Zealand as an exporting nation. 
One of the other speakers spoke about the life insurance changes just before but I note that there was a difference in this bill. Going back to the international taxation provisions given that the bill was so large and given the assistance we needed to get our heads around a lot of the issues we inserted a signposting section into the Income Tax Act 2007. That is section EX 18A inserted by clause 116B of the bill which is a bit of a road map for the uninitiated who may for some reason happen to read the Act. It is a plain language direction as to the intent of that particular clause which is more than would normally appear in an Act. It will be interesting to see how that pans out in other taxation bills that I am sure will come before the Finance and Expenditure Committee and the House. 
On the changes to the associated persons provisions the Minister noted earlier that they were initially born in 1973 I think it was. We had many absurd examples of how people could be associated under the original proposals of the original bill of August 2008. It was pointed out time and time again that the absurd examples could already be used. Common sense prevailed and the original intent of that 1973 provision has been followed through on and clarified in this bill. I say that with all due respect to our committee and officials who made some quite fundamental changes to the bill as it appears in that particular part. I acknowledge the work that went into that because eventually quite a simple test went through with an on-off switch to test in a pretty quick way whether people are associated. 
Changes were made in this bill to the rules on portfolio investment entities to reflect changes that had been made mostly under the previous administration. Again the committee made a few changes there. I know that further discussion is continuing on the issues around the rules on film production and Government funding and I acknowledge the good intent of the Minister and officials in making sure that no unintended mischief has been created. I commend all members following through on the intent of the provisions on payroll giving. I am interested that one party is voting against this bill. I think that is the Green Party and I thought its members would applaud the provisions on payroll giving charities and allowances and the ones that make it easier to give to charitable causes whatever they might be. 
I commented earlier on the commencement date. Tax threshold changes were in the original bill and as I said earlier they were picked up from the February legislation on small and medium sized enterprises. 
I look forward to hearing from other speakers on this taxation bill. I will take only a small amount of time. I am very tempted to respond to the second part of the previous speaker’s speech as he started to get political but I think I will just let it lie on the table. I look forward to other speeches. 
STUART NASH (Labour) 
: 
 I rise in support of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill. The irony has not escaped me or members of the Labour team that we are finally passing this bill under urgency because the bill has a retrospective provision that goes back to 1986. Yes the Inland Revenue Department has caught up with a legal tax problem that had slipped under the radar for 23 years and remained unamended. It relates to the Parliamentary Service and is deemed to apply from 1 April 1986. It is rather fitting then that this bill is included in the urgency motion. As we have discussed for the first time this week an urgency motion is justified because it is appropriate to provide certainty to those who will be affected by this bill. There is no doubt that the passing of this legislation will provide that level of certainty to a whole range of industries that demand it. 
I start by reiterating the tests that tax legislation has to meet. There are basically four tests. First and foremost it has to be effective and it must not hinder growth. Ideally it should promote growth. It would be a grand bonus if all aspects of this bill when implemented would in fact help the long-term sustainability and economic development of our economy both domestically and on the international scene. It allows us to build on a competitive advantage and as mentioned in this day and age of globalisation a tax bill that meets the international standards is very important. This bill does that. Secondly there must be equity. This is the question around who bears the burden of taxes. It cannot place an unfair burden on those for whom there is no equal advantage. For example we cannot be seen to take from Peter to give to Paul. 
Of course I would argue that the Government’s tax cuts for the upper end of taxpayers and the proposal mooted by the Tax Working Group to raise GST so as to be able to lower tax at the top rate does not meet this equity test especially if we extend this test to include social equity which is something the Labour Party has done with every bill in its 94-year history. In fact Harry Holland the first leader of the Labour Party had a very simple test. He always asked “Is it right?”. Harry Holland realised that if it was right for the people of New Zealand it would be right for the New Zealand Labour Party. This underlying principle of whether it was right for the people of New Zealand has guided this party long after Harry’s untimely departure from this world and it will continue to guide the Labour Party under the leadership of Phil Goff the next Prime Minister of New Zealand. 
The third requirement is that any tax legislation has to have fiscal integrity. By this I mean that tax legislation cannot provide incentives for people to restructure their affairs in order to perpetrate tax avoidance. As I mentioned during the Committee stage it was Dr Michael Cullen—who I think was the Minister initially in charge of this bill; if it was the Hon Peter Dunne I apologise to him—who said that if as much intellectual energy grunt and capacity went into increasing the productive wealth of the economy that is now directed into perfecting the art of tax avoidance then we would be a very wealthy nation. I am sure that at some stage we will be back in this House with amendments to this bill. We simply cannot have a bill that is over 800 pages long without the odd error. Goodness knows that the officials consultants and even some of the submitters went to extraordinary lengths to ensure that every possible loophole was identified tested and closed. But as we all know and as is testament to Dr Cullen’s comment—and he was in the House a lot longer than any other members present have been or will be—there will be some smart person out there looking to make his or her reputation at the expense of the greater good by looking for a way to rip off the tax system. My message to that person is that we will close these down as soon as they even think about beginning to appear. Tax legislation is an organic beast and it must be for ever growing and adapting transforming to meet the requirements of the international and domestic users of our system. This bill is testament to that fact. 
The fourth point relates to compliance and administration. Citizens must understand their rights or it must be relatively simple for citizens to be able to access information that will inform them of their rights. Compliance costs should be kept to a minimum without compromising the integrity of the system. I refer back to the 800-page income tax rewrite of 2000 which was part of this compliance and administration test. In fact one of the notable features of this bill is that it introduces significant reductions in compliance costs and thresholds for a whole range of businesses in the tax system as they apply to small and medium sized enterprises. 
We all know that this bill started life as a Labour Government bill. We certainly know that Labour is the party of the small to medium sized enterprise business sector. 
Louise Upston 
: Since when? 
STUART NASH 
: We have only to look back a couple of years. Labour was the only Government in the last 30 years to lower the company tax rates. In fact the last time a Labour Government lowered the corporate tax rate every National MP voted against it. How did National MPs go out and sell that to their business constituents? I say once again that Labour is the only Government to have lowered the corporate tax rate in 30 years and both times every National MP voted against it. It is unbelievable. 
Compliance and administration is also one of the reasons why there are over 300 amendments to other tax legislation that have arisen out of the rewrite into plain English and that are now incorporated back into this bill. As mentioned I know the terms “tax legislation” and “plain English” sound rather odd together in the same sentence. However this is what the Inland Revenue Department has attempted to do and I think it has done a sterling job. As I said of course one cannot avoid a certain amount of complexity in a tax bill of over 800 pages but this has been kept to an absolute minimum whilst ensuring legislative integrity. 
Finally any tax legislation needs to take into account fiscal implications. By this I mean how much revenue it will bring in how much it will cost the Government and the cost-benefit analysis around this whole thing. Obviously in any tax legislation let alone a bill of this size there will be fiscal implications right across the tax base. The Finance and Expenditure Committee Inland Revenue Department staff and advisers and consultants endeavoured to quantify these implications and ensure that the benefit to the economy absolutely outweighed any fiscal costs while ensuring any fiscal benefit in some areas met the other four tests around equity efficiency etc. 
When the select committee approached the deliberation of this bill we had to take these points into account. I reiterate however that due to the size of this bill the depth and breadth of the material covered and the time constraints under which the committee operated it was difficult to give each separate section due consideration debate and consultation. However I believe we did that to the best of our ability. It was difficult but we did it. The bill that will be passed tonight meets the vital tests associated with any tax legislation and this is why I very much support its passage into law. Thank you. 
AMY ADAMS (National—Selwyn) 
: 
 It is quite satisfying to take a call in the third reading of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill if for no other reason than that it is good to know we are getting towards the end of it. It has been a big piece of work as previous speakers have mentioned and it is obviously very much needed in our system which I acknowledge is reflected by the fact that it was commenced under the previous Labour Government and is being completed by the National Government. 
Listening to the previous speaker Stuart Nash highlighted somewhat for me one of the major differences between the Labour Opposition and this National Government. Labour talks a big game when it comes to jobs the economy and small to medium sized enterprises. According to Labour members they understand that side of New Zealand and support it. But the reality is they do not. They can talk about it but New Zealand knows there is no substance. 
Stuart Nash 
: Why are you supporting this piece of legislation? 
AMY ADAMS 
: I say to Mr Nash that that is why he is sitting on that side of the House. Labour members might talk about business but when the rubber hit the road it was the Labour Government that sent the productive sector of this economy into 5 years’ worth of recession. I say to Mr Nash that it was 5 years of recession because his Government could not put conditions in place that allowed businesses to grow that supported enterprise that supported Kiwis who want to get ahead and that created jobs. This National Government understands that if we are to lift the living standards of all New Zealanders and if we are to have New Zealanders employed we need to get behind business and build a tax system that encourages our businesses to build and grow in New Zealand. That is why the National Government does not waste its legislative time on the Electoral Finance Act and other related rubbish that even Labour members are now apologising for at every opportunity. They hope that if they apologise for long enough New Zealand will forgive them for the hash the Labour Government made of the economy. 
This Government does not waste its time on those things; this Government is prioritising doing the things that need to be done to build a productive economy that will create jobs and that will ensure every New Zealander has a chance to get ahead. This bill is a part of that. We are looking at our tax system looking at situations where businesses are not being taxed fairly or appropriately and looking at situations where our businesses need some taxation help to encourage them to stay on New Zealand shores. 
There are two parts to this help and they are about both supporting our productive economy and the New Zealanders who build growth and ensuring that our taxpayers—the hard-working mums and dads of this country who work damn hard to provide a living for their families and who work damn hard to pay money to the Government for it to spend—are supported. We are making sure that life insurance companies will no longer have an unfair tax advantage. That advantage is not fair to people who work hard every day of their lives to pay their taxes. We have reformed the life insurance rules to ensure that life insurance companies are taxed appropriately and that term insurances are taxed in the same way as every other piece of corporate profit. We are ensuring that international taxation encourages growth and investment in New Zealand because that is what we need if we are to turn this country round from the mess we inherited from the previous Labour Government. 
We will set up systems for payroll giving. We are addressing a number of tax remedial issues that need to be sorted out. This stuff is not sexy but it is important to build the economy that this country needs to get out of this global recession—the worst recession we have seen in 50 years. This sort of legislative programme will make New Zealand the country it deserves to be. It is a good bill and I commend it to the House. 
RAYMOND HUO (Labour) 
: 
 In my previous speeches on the Taxation (International Taxation Life Insurance and Remedial Matters) Bill during the Committee stage I might have cited inappropriately a catchphrase invented by the oratorically gifted US President Barack Obama. That catchphrase was “wee-wee’d up”. The media worldwide was puzzled until 2 or 3 days later when White House spokesman Robert Gibbs shed some light on it and gave the definition that “wee-wee’d up” is when people get nervous for no particular reason. He added that “Bed-wetting would be probably the more consumer-friendly term.” A bright side of my using that phrase inappropriately in this honourable House was that it may help us to appreciate how important it is for us to have a consumer-friendly version of the bill and to get the basics right. I thank the officials and other independent specialist advisers for their excellent work in helping to transfer lots of heavy loaded terminology into a user-friendly version when dealing with this huge and complex bill. 
The bill was originally introduced on 2 July 2008 by the Labour-led Government. The bill represented the first stage of the Labour Government’s review of our international tax rules and it has been greatly influenced by extensive consultation with businesses and their advisers. This is a huge and complex bill nicknamed the “September Bill”. As the Finance and Expenditure Committee noted in its commentary on the bill “The size of the bill and the depth and breadth of the material it covers have made our consideration more difficult than it might have been otherwise.” As pointed out by some of my colleagues there was a general lack of sufficient time for members to fully consider the immense detail of the bill. The situation was made worse by the introduction of the large Supplementary Order Papers that had not been referred to the select committee and will not be scrutinised before they are passed into law in this honourable House which is sitting under urgency. 
However Labour supported the bill and it is appropriate for me to reiterate some major points in its third reading. Firstly the bill provides for the reform of international tax rules with the intention of allowing New Zealand residents with active businesses in overseas markets to compete on an equal footing with their competitors. Secondly and what interests me the most is the underlining philosophy behind the bill which replaces the current legislation that was put in place in 1991 and 1992. To some extent the important part of the active-passive distinction is whether our country will have an outward-looking taxation system or an inward-looking taxation system. Therefore the real issue is whether we want New Zealand companies to internationalise compete grow and enhance our export-oriented economy. 
Having said that we cannot talk about our taxation law without addressing some related issues. The major issue relates to the concerns expressed strongly by our export sectors. Banks have grown faster than the surrounding economy indicating wealth transfers from the traded economy to the non-traded economy. As the chief executive of the New Zealand Manufacturers and Exporters Association John Walley pointed out we have a whole range of policy settings that shelter the internal economy at the expense of the traded economy. As a result our economy is on a simplification trajectory that reduces the potential for leverage of creativity innovation and value-adding. The opposite trajectory is increased elaboration and sophistication of products and services. The basic upgrade process amplifies and liberates innovation and creativity. As the Hon David Parker said earlier in this House research and development tax credits are not fixed in this bill. The shocking statistics show that our business expenditure on research and development is one-third of the OECD average. The main disparity between New Zealand and other countries is in the low research and development spending from businesses. Unless we do something about it it will fail us—the export sector competitiveness and other levels of productivity will fail. We urge the Government to reinstate the research and development tax credit. 
To conclude Labour supports the bill. As I said it represented the first stage of the Labour Government’s review of our international tax rules. The focus of several of the reforms is on reducing tax costs for businesses. The bill will also bring tax law up to date with today’s commercial environment ensure legislation is working as effectively as possible and protect New Zealand’s revenue base. I commend the bill to the House. Thank you. 
AARON GILMORE (National) 
: 
 It is a pleasure to rise and talk on the third reading of this bill. Everybody has talked about the sheer size of this bill and the fact of it being intimidating. No doubt it is but the potential impact on the parts of the economy are equally potentially huge. 
I will talk a little bit about my experience with the Finance and Expenditure Committee on this bill given that I am a late arrival to the committee and a late arrival to this bill. As the virgin member of this committee I was deflowered by this bill. I must admit to being quite shocked when I was given this bill amid taking over from the now senior whip Chris Tremain. He gave me a file that was about 3 feet thick and said: “Here you go. Enjoy.” I must admit being given the bill and having 24 hours to get my head around it was an interesting experience. 
I will talk a little bit about some of the positive aspects of this bill because everyone has been talking about the negative issues. There are some really neat positive aspects. I will touch on two of them in particular. One is around the petroleum mining regime changes. Most people do not seem to understand that petroleum mining last year in 2008 was our third-biggest export market. We exported $3 billion worth of petroleum products. That put petroleum exports third behind dairy and meat. Many people are surprised by that. This bill has some changes that bring in some new incentives to allow petroleum explorers to be more creative in their expenditure and that would allow them to spend a little bit more money and effort to drill in New Zealand. That has the potential to make New Zealand incredibly wealthy. We are very lucky and blessed in New Zealand to have the potential to put money into some of our natural resources such as oil and maybe find resources off the coast of the South Island particularly in Canterbury in the South Island that might amount to billions of dollars. If this bill goes a little way towards that I think that is a really good thing. 
The other aspect that I want to quickly touch on is one that has not been mentioned in the Committee stage or during the other readings. That is the change to the GST treatment of loyalty points. Anybody can have a Fly Buys card a BP rewards card an Automobile Association rewards card or whatever. This bill has some changes to the GST treatment of loyalties schemes. That might not mean much to many people sitting in the House today but to the average punter it will. My mum for example was very excited when I explained to her that she might get a few extra points because the GST treatment on the loyalty points will change. That will mean that those companies that currently account for loyalty regimes such as our Fly Buys and Air New Zealand points will have a much better situation and a lot less cost in terms of administering their schemes. We are a Government that is about reducing administrative costs and having more flexibility. 
I will touch on a couple of other aspects that this bill deals with. It contains a complicated set of things that do not link together very well and that has made it quite difficult for people to get their heads around it. Again many people have mentioned how well the officials have done to put such a complicated set of disparate subjects together in a bill and make it work. I think that many Opposition members have spoken on this bill. They talked about Labour introducing this bill and National carrying it on. I do not really care about that. I care about what we have done collectively. We have put in place a bill that will in parts of New Zealand reduce some tax complexity and that has to be a really good thing. 
I also quickly comment—looking at the time tonight—that we have a number of issues to talk about but many people want to get to a couple of functions. We will soon be blessed by having the great Richie McCaw the All Blacks and the Wallabies here. I know that is not the subject of this bill but I look forward to being able to go there. I commend this bill to the House. 
A party vote was called for on the question  
That the Taxation (International Taxation Life Insurance and Remedial Matters) Bill be now read a third time. 
Ayes 113 
New Zealand National 58; New Zealand Labour 43; ACT New Zealand 5; Maori Party 5; Progressive 1; United Future 1. 
Noes 9 
Green Party 9. 
Bill read a third time.