Cunliffe David: Taxation (GST and Remedial Matters) Bill — In Committee Speaker Recalled In Committee Procedure Third Reading 
Cunliffe David: Taxation (GST and Remedial Matters) Bill — In Committee Speaker Recalled In Committee Procedure Third Reading 
[Volume:669;Page:16108] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I rise to take the first of a series of calls on Part 2. Part 2 as the Chair has rightly described essentially covers pages 3 to 61 of the Supplementary Order Paper concluding at the amendment to insert new clause 75B. It therefore covers the bulk of the matters under consideration on the Supplementary Order Paper. 
Hon Trevor Mallard 
: No there is some really bulky stuff further on. 
Hon DAVID CUNLIFFE 
: There are some substantial matters that come into Part 3 as well. 
Hon Trevor Mallard 
: It is bigger than the last part but there is more substantive stuff to come. 
Hon DAVID CUNLIFFE 
: This will be a long day Mr Chairman. This will be a long day. The opportunity presents itself to repeat that the Labour Opposition along with others I understand has been forced to change its vote on the bill as a whole because of the nature of this Supplementary Order Paper. This Supplementary Order Paper introduces fundamental changes to tax law that affect billions and billions of dollars of Crown revenue. For people who may be just tuning in the changes were not introduced at the select committee they have not gone through the proper tax policy process they have not had the opportunity for public submissions and they have not had the opportunity for submissions by members of the profession. The changes have not had the benefit of advice from the independent tax policy adviser who assists the Finance and Expenditure Committee.  
In so doing the Minister of Revenue has torpedoed what was a consensus on this bill. He had all parties in the House agreeing to the technical parts of this bill which alone were in the bill up until today’s debate. By introducing under the cover of urgency this massive Supplementary Order Paper which is by far the most far-reaching part of the bill—and indeed I would argue that this part of it in particular is the most far-reaching part of the bill—the Government is introducing a fundamental change to our tax law.  
I want to take a moment and I may need to spread it across a couple of calls just to set out for the public the essence of the change that is proposed in this part to the loss attributing qualifying company regime and its replacement by the look-through company regime. I will start by summarising the importance of loss attributing qualifying companies. They were first introduced in 2003 under the previous Government when there were only 63000 of them and the total loss attributing qualifying company losses claimed according to the Parliamentary Library using Inland Revenue Department statistics were $709.8 million. By 2008—that is leaving out the last 2 years of rapid growth—the number of loss attributing qualifying companies had already more than doubled in number to 129900 reporting total loss attributing qualifying company losses claimed of $2.258 billion per annum. That is an extraordinary amount. We should just remember that the total corporate tax take is only about from memory $9 billion a year. This is losses avoided of a bit over $2.25 billion. So over a quarter of the corporate tax take is the subject of flows through the loss attributing qualifying company structure. That is extraordinary. A quarter of all corporate tax goes through loss attributing qualifying companies.  
In urgency without bothering to go to a select committee or the public the Government is undertaking fundamental changes to this process. Not only is that surprising but in so doing the Government has ignored the recommendations of its own Tax Working Group. The Tax Working Group did not say that we should fine-tune loss attributing qualifying companies around the margins call them something different and allow 95 percent of the deductions to continue. The Tax Working Group told the Government that it had a fundamental problem because the existence of those structures is allowing an enormous amount of losses to be claimed. We were told that losses on residential property investment alone which is a subset of this total were in the order of magnitude of half a billion dollars of tax avoided per annum.  
It is absolutely necessary to step the public through why this matters and why the travesty of process that Parliament is enduring today also matters as a consequence. The Government’s changes by its own admission account for around a quarter of the property avoidance alone or—taken across the whole loss attributing qualifying company avoidance of 2 years ago which has been growing rapidly but let us use the 2008 figure—$2.25 billion which is about 5 percent of the total. It is extraordinarily weak. Why is it weak? Because the look-through companies that are set up in this part still allow property losses to flow through past the company boundary to the personal income of the investor. So although it is a small step forward and it means that we cannot write off a company loss at 30 percent or 28 percent we can write it off at the marginal tax rate of the investor which is slightly less of a free shot to the corporate and property community but not much of one.  
The fundamental question that was never able to be debated in the select committee because the Government sneakily avoided putting it to the select committee—this fundamental change affecting billions of dollars—is why company losses should flow through to the personal income tax statements of an investor at all. Parliament has not had that first principles debate. There will be some reasons for that; I do not deny that. And I do not deny that to remove all of them—sometimes loosely called ring-fencing—would be a major step but I have to say that Labour has not been convinced that those reasons are sufficient in these tough times to justify the loss of billions of dollars of hard-needed tax revenue. The erosion of the tax base is just too great and it is compounded by the $14 billion of tax revenue given away by this Government over the planning period in Budget 2010. Is it any surprise that Bill English just this week had to admit that the Government now faces a fiscal deficit of $11 billion this year? Eleven billion dollars! And the Government is not cracking down on $2.5 billion of tax avoidance. It is legitimising it by changing the name of the vehicle and creating a new industry in restructuring for tax lawyers. 
David Bennett 
: Can’t hear him. 
Hon DAVID CUNLIFFE 
: Well I will keep talking until Mr Bennett does. He will be here for a very very long time because we think this matters. 
Hon Tau Henare 
: No one can hear and no one wants to hear. 
Hon DAVID CUNLIFFE 
: I will take the advice of Tau Henare the well-known chocolate-covered banana—I do not know why Trevor Mallard thinks he is chocolate-covered. I personally like the word “butternut”—you know brown on the outside and yellow in the middle. I thought that was a good one but Trevor liked chocolate banana. Either will do me. I will take the member’s advice and lean into the microphone.  
The point is that an enormous amount of pain will be borne by ordinary New Zealanders who will witness what the Minister of Finance has already described as another effort at fiscal consolidation in the New Year—that is another razor gang. He will have to prune hundreds of millions of dollars out of the three-quarters of the Budget baseline—hundreds of millions—that goes into health education and welfare and the only reason he needs to prune it is that the Government is not cracking down on tax avoidance. Here was its opportunity to do that. Here was the opportunity to say that companies should be able to carry forward company losses—there is no argument about that. The intertemporal transfer of company losses is absolutely legitimate but writing off company losses against personal income has to be questioned in these tough times—it has got to be questioned. Parliament was entitled to that debate and it was entitled to the full McCoy; it was entitled to the debate at the select committee. The public was entitled to submit on whether they wanted property companies writing off $500 million of tax losses when we cannot afford teachers in our schools when we cannot afford to pay for a rest home in Taihape and when we could not afford home care for the elderly in the Manawatu.