Copeland Gordon: Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill — First Reading 
Copeland Gordon: Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill — First Reading 
[Volume:616;Page:12501] 
GORDON COPELAND (United Future) 
: 
 Generally speaking this bill will have positive outcomes for New Zealand taxpayers. Firstly I applaud its announcement of the introduction of a 6.7 percent rebate or discount on tax paid to encourage individuals who have been receiving self-employed or partnership income to pay tax voluntarily in the year before they begin paying provisional tax. This will provide some incentive for people starting businesses to take into account their tax liabilities sooner rather than later. 
Evidence both anecdotal and otherwise demonstrates that at the moment many new business start-ups fail during their second year whilst many others survive only by the skin of their teeth. That is because tax relating to the first year of their operations is deferred until the second year but in that second year the fledging entrepreneurs have to cope with provisional tax payments as well. This effective double-up in tax during the second year drains cash out of new businesses undermines their working capital and in all too many cases brings businesses to their knees. This is a tragedy both for new business-owners and for our economy generally. 
Enormous personal sacrifice is required to start a new business and not infrequently the capital used is a combination of hard-won savings a mortgage on the house or loans from friends and families. This capital base is normally pretty thin and not big enough to see a company get through that second difficult year. Under this bill if a company is prepared to discipline itself to pay provisional tax from year one it will effectively earn interest on that amount. That discipline not only enhances its potential to survive during the second year but also in and of itself becomes a success factor in the future growth of the business. 
United Future wants to see small New Zealand businesses grow to medium businesses and medium businesses grow to become large and successful operations. I am sure that the measures introduced in this bill will assist those goals. I am pleased to see also that the bill closes a loophole to prevent the sale and leaseback of intangibles creating tax deductions for what in substance are repayments of loan principal. Simply stated this is a tax avoidance opportunity and it is rightly being brought to an end. 
I am pleased to note however that the new arrangements will apply only to arrangements entered into on or after the date on which this bill is introduced. I believe that retrospective legislation particularly when it is in favour of the revenue rather than the taxpayer is undesirable unless there are clear extenuating circumstances involving significant risk or similar. So in principle retrospective legislation should be avoided if at all possible. 
The new disputes resolution arrangements outlined in the bill are also a positive initiative for New Zealand taxpayers. Two thousand years ago Jesus suggested that it would be better to try to settle matters with our opponents before we get to court. There is tremendous wisdom in that advice and I think it is always better for disputes between the commissioner and taxpayers to be resolved through a robust resolution process mediation good communication and the like rather than through use of the much more cumbersome and expensive court process. 
The only losers from eliminating and minimising the involvement of the courts in resolving tax disputes will in most circumstances be lawyers and other professional advisers. They will not lose out entirely under these new dispute resolution procedures but in the majority of cases the need for their advice and input will be significantly reduced with a commensurate reduction in cost to both the taxpayers involved and to the commissioner. We need to bear in mind also that cost savings to the commissioner represent cost savings to all of us. At the same time when these procedures fail taxpayers will still have the opportunity to go to our courts in the usual way. That is the right of course of every citizen and every taxpayer under our democratic form of Government. 
Unlike the Greens United Future also welcomes the provisions in respect of venture capital. It is vitally important that New Zealand businesses—and in particular our smaller companies—can access venture capital from overseas sources. In speaking against this proposal Rod Donald overlooked the reality that the worldwide pool of venture capital funds is severely limited and that New Zealand competes with other nations for those scarce resources. By exempting from income tax profits made by non-residents who on-sell shares in unlisted companies this bill will improve New Zealand’s competitive position in that regard. Simply stated I predict that the bill will result in an increase in the quantum of offshore venture capital investment in New Zealand. That can only be a good thing for our economy. 
The only other matter I wish to refer to is the confirmation in this bill of current income tax rates. United Future continues to believe that the current rates of income tax of 19.5c—effectively 21c—up to $38000 33c up to $60000 and 39c over $60000 should be adjusted for the cumulative movement in the consumer price index between 1 April 2004 and 31 March 2005—that is the whole year that this bill covers. The Government’s steadfast refusal to adjust the $38000 and $60000 tax brackets for the consumer price index means that in real terms tax rates have increased very significantly for many thousands of New Zealand taxpayers during the last 4 years through what is referred to as “bracket creep”. That creep is now substantial. Based on Reserve Bank forecasts the creep will be 13.95 percent by 31 March 2005 which would see the $38000 bracket move to $43000 and the $60000 bracket move to $68000. 
The Government says that at about $620 million per annum the adjustment would be too expensive but I say what about fairness? What about the cut in real family incomes at a time when the Government is not only running a surplus but the surplus itself is running well ahead of previous forecasts. That point is critical. The operating balance excluding revaluations and accounting changes for the 7-month period ended 29 February 2004 is more than $740 million above the 2003 December Economic and Fiscal Update. So the plain and substantial fact is that the Government could adjust the income brackets for inflation and still find itself about $120 million ahead of its own forecast made as recently as last December. 
I should say that pursuant to United Future’s confidence and supply agreement it will nevertheless support this bill’s referral to the Finance and Expenditure Committee. For the benefit of those Opposition members who ask me why we do not pull the plug on our confidence and supply agreement very simply I repeat that we stand by our word and do not welsh on deals.