Dunne Peter: Taxation (Budget Measures) Bill — First Reading Second Reading In Committee 
Dunne Peter: Taxation (Budget Measures) Bill — First Reading Second Reading In Committee 
[Volume:663;Page:11114] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I was not going to intervene in the discussion as early as this but given that some measures have been put on the Table that there seems to be a measure of agreement about I thought I would address those now so we could then move on to the more substantive debate about the areas where we disagree on. 
Hon David Cunliffe 
: We were just warming up. 
Hon PETER DUNNE 
: I appreciate that the member may be just warming up and we have a long way to go yet and it can get very hot before it is all over. Mr Mallard raised a question earlier on about the reasons why the tobacco excise increase had been excluded from the CPI calculations in respect of changes to veterans pensions and New Zealand superannuation. The reason is quite simple: it is not a taxation argument; it is simply because compensation would be made available in due course in the normal course of events for that increase. That increase was made to encourage people to desist from smoking; it seems somewhat perverse to then factor in what would effectively be compensation for that decision that had been made. 
Hon David Cunliffe 
: What about the broader 5.9 percent? 
Hon PETER DUNNE 
: That is a question we will come to separately. I am answering questions that have been raised by other speakers. I will come to that point in a moment. But let me just say that when GST was introduced in 1986 the rate of inflation post-introduction rose to about 18 percent. The effect of that was comparatively short term. It is exactly the same here; if we look at the underlying track for inflation over next year the year beyond and the year after it is around 2.5 percent flat. That in fact will mean that the tax changes will not have the negative effect that the member claimed in his address; they will be very beneficial by comparison. One cannot make an omelette without breaking some eggs. The change here gives that short-term boost but in the long term as I say it will even out. 
Let me come to the question of depreciation and the issue Mr Cunliffe raised which I want to pick up on because it is quite critical. The Tax Working Group costed depreciation changes at around $1.3 billion. In fact when officials retested that calculation the figure came out at around half that. So when the member says that we picked up on only half the recommendation in fact we picked up the actual cost if he follows what I am saying. [ 
Interruption 
] Let me just work my way through it. The issue there was not so much of saying we would go with only half the figure; when we looked at the size of a figure it was only half of what the Tax Working Group had set it as being. 
The issue then came down to the introduction of the 50-year limit. That is a very practical exercise given the nature of the buildings that will be categorised as being under 50 years. One may say that that is very easy to get around; I know that one or two colleagues had discussions earlier on about fit-outs and renovations and I think we had given a pretty clear signal that that is on our agenda. There will be a discussion paper issued by the Inland Revenue Department in due course about how those issues will be handled. 
I wanted to talk about the depreciation loading particularly the 20 percent excess. The reason for the change is a twofold one: it is picking up on a recommendation from the Tax Working Group and it is also aligning the rate of depreciation to the actual economic rate of depreciation not the accelerated 20 percent that was there previously. So this is really a streamlining given the recommendation from the Tax Working Group. 
Mr Mallard also raised a question relating to company tax and I am tempted to remind him of his arguments which he knows in reverse very well because they were rehearsed at the time of the 2007 company tax changes. But the reality is this: we live in as members know—I am not going to lecture on this point—a competitive international environment. Our company tax rate was even at 30c out of line with a number of jurisdictions. The international average is around 26.3 percent. We were cognisant of the fact that the Henry review in Australia was likely to recommend a company tax change. In fact it did. The time frame has been a slightly more elongated one. We felt that given the scope of this package it was prudent to make this change now. It certainly gives New Zealand a short-term competitive advantage. It preserves if you like the gain that we had when we cut the tax rate to 30 percent a couple of years ago. 
On the point about who benefits Mr Mallard is correct when he talks about the banks to some extent. But I think the point needs to be made that a lot of New Zealand businesses pitch themselves against that company tax rate. In fact many of those smaller businesses will be more advantaged by the change in the marginal tax rates than they will be by the change in the company tax rate. Some of the very small sole traders I think will do quite well out of that 17.5 percent rate. 
I simply wanted to take a call at this point to cover those points. I appreciate that issues relating to the imposition of the GST and the changes in personal tax rates will excite more debate and I will come back in due course and take part in that.