Clark David: Taxation (Annual Rates Returns Filing and Remedial Matters) Bill — In Committee 
Text is incorporated into the Bound Volume 
Clark David: Taxation (Annual Rates Returns Filing and Remedial Matters) Bill — In Committee 
[Sitting date: 28 August 2012. Volume:683;Page:4840. Text is incorporated into the Bound Volume.] 
Dr DAVID CLARK (Labour—Dunedin North) 
: 
 I am delighted to take a call on Part 2 of the income tax bill—sorry the Taxation (Annual Rates Returns Filing and Remedial Matters) Bill to give the bill its proper name. I am delighted to take a call on Part 2 which addresses changes in the Income Tax Act 2007. There is a lot of meat in this part of the bill. Although as I have said in my earlier contribution the really big issues facing the economy are not addressed in this bill—I would not want my comment to be mistaken for saying that I thought they were—it does deal with a number of important issues. Some time was spent dealing with these in the select committee process. 
One of the issues was around taxation of bonus shares. We find—there were some interesting submissions from Contact Energy and others on this issue—a concern that a share issued by a company under a profit distribution plan is defined as a dividend. Those who put submissions in on this matter which appears in clause 7 and other clauses in this part of the bill raised the concern that this really might lead to a type of behaviour that was the opposite of saving to dissaving. Whereas the Government currently speaks a big game on saving in fact elsewhere in the assets sales legislation we find the Government is actually trying to pay people loyalty bonuses to hold shares—quite the opposite to what seems to be the intention in this part here. We will also note as we go on that in the KiwiSaver area the Government has been all over the show. It has flip-flopped backwards and forwards on KiwiSaver. All of that indicates that this Government really does not have a plan for savings. It has— 
John Hayes 
: Yes it does. 
Dr DAVID CLARK 
: It has a plan in so far as it has a plan one week and then it changes that plan back the other way the next week Mr Hayes. 
John Hayes 
: Flexible. 
Dr DAVID CLARK 
: It is a “flexible” plan Mr Hayes says. The National Party has flexible plans and I think the truth has come out there. The plans do change from week to week according to which way the wind is blowing— 
Dr Megan Woods 
: Just like kids moving out of poverty. 
Dr DAVID CLARK 
: —and probably very similar to the way in which as my colleague Dr Megan Woods points out kids move in and out of poverty. Look we do not accept that on this side. We do not think that these are trivial matters. As I raised in Part 1 we are very concerned about matters of poverty that are created through the current system of unfair tax distribution that we have in New Zealand. We stand for a fairer tax system that is actually pro - economic growth. The Labour Party is keen to see our economy grow as it did under the Labour Government’s last period of stewardship—25 percent in real terms. The economic cake grew by a full quarter in real terms under the last Labour Government. Under this Government real wages have dropped. So the issue of taxing bonus shares stands as an interesting little commentary in this part of the bill because it says that the Government is discouraging savings as it has done in other areas where it has been paying people in the assets sales area and has had quite different positions on KiwiSaver. 
Clause 17 in Part 2 of the bill refers to software development write-offs and the deduction of liabilities for unsuccessful software development. We in the Labour Party support this measure because it is a way of ensuring that people are not discouraged from investing in this area and from developing intellectual property. We wish to see this proceed because we need to be earning the really good margins that we get from our intellectual property. There are real big opportunities in New Zealand in the area of information technology. We can play to that weightless economy. We turn out we are told the fourth-best students in the world according to Programme for International Student Assessment rankings and long may that continue so long as the Minister of Education does not disassemble our very highly functional secondary sector. As long as we continue to turn out these graduates we have the opportunity to capitalise on that for the growth of our economy. This clause which deals with write-offs in the software development area is surely a good thing. 
On clause 96—I am skipping about. There are many more clauses and I am sure the Minister of Revenue will tell us of the many other useful small changes in this bill. We might classify them as tinkering but many of them are indeed worthy changes. Clause 96 talks about the changes to schedule 28 and notes that 2 percent is replaced with 3 percent. The Minister can correct me but I am assuming that this refers to the KiwiSaver changes that also appear in the later part of the bill. These changes to KiwiSaver rates are something again that we would support. It is excellent to see that the Government is adopting a change of direction in respect of KiwiSaver. This is one of those flip-flops that we would applaud. We only worry that it may be something that the Government may flip back on the other way. If I could just for a minute say why that is a very real risk. If we look at what National did in December 2008 we can see that it cut the minimum contribution rates for employees and employers to 2 percent. It was to have been progressively raised to 8 percent default rate of gross income by April 2011 for employees and 4 percent default rate for employers. National cut that and now in this legislation it is being brought back a little way and we will see no doubt further changes. We are not sure in which direction. Mr Hayes describes it as a “flexible” policy so we will look for more announcements next week perhaps from Mr Hayes perhaps from the Minister in the chair Peter Dunne or perhaps from the member up there at the back our good chair of the Finance and Expenditure Committee Todd McClay. 
National in 2008 discontinued the employer tax credit that effectively subsidised employers for their costs in providing KiwiSaver. It discontinued the fee subsidy of $40 per annum which was aimed at ensuring that accounts with low balances were not eroded through taxes themselves. And of course it repealed sections of the Employment Relations Act which also made it harder for saving. If we contrast that with Labour which has had a much more consistent view on KiwiSaver which indeed introduced KiwiSaver—the original KiwiSaver model was announced in Budget 2005—we saw incentives for members to save. There was a $1000 kickstart for each member joining a fee subsidy that the Government confirmed to $40 per member per annum and a housing deposit subsidy of up to $5000. Budget 2007 saw Labour build savings further investing an additional $3.2 billion in KiwiSaver over 4 years. 
Those changes show a consistent policy from Labour of encouraging savings. Indeed we have heard earlier contributors to the debate refer to the retirement savings system that was put in place by the Labour Government and later repealed by the Muldoon-led National Government. If that system had continued we would have had several hundred billion dollars worth of savings and had an undoubtedly much higher GDP as a country as we would have had savings looking for a home and that home would have been in good business ideas. We know that in Australia which introduced a similar system later they now have A$1 trillion worth of savings looking for a home. 
Sue Moroney 
: How much? 
Dr DAVID CLARK 
: A trillion dollars. New Zealand has a very low savings rate because it was introduced only latterly in a comprehensive way by Labour and then National has flip-flopped on that. So clause 96 which replaces 2 percent with 3 percent is a modest and tentative step by National which is probably not yet sure whether it really believes it is a good idea or not. It is running out of opportunities to make changes because it does not seem to have any ideas but it keeps trying this little tinkering thing here and this little tinkering thing there. 
We have spoken earlier about the difficulties with implementing real change because the Inland Revenue Department’s computer system is on its last legs. Mr Dunne indicated that there will be announcements later in the year. I hope we will get some very real progress soon. On Valentine’s Day this year the Prime Minister said that it was an appalling position that the Government was in—that is a full 6 months ago—where the Government could not introduce real change in the tax system. That has got to be a real real worry for New Zealand. Most Western economies have a tax system; in fact I believe that all Western economies have a tax system. It should not be too hard to rebuild our one in line with those that are in operation elsewhere in the Western World. If we do not do that if we do not get on to that urgently we will be stuck with a tax system that is falling over that cannot implement proper change and that cannot make sure that we have the tax policies that we need to grow our economy rather than leave it in the stagnant position that it is in currently where real wages have dropped under this Government rather than grown where unemployment has risen and where we have migration to Australia at record rates.