Norman Russel: Taxation (International Investment and Remedial Matters) Bill — Third Reading 
Text is incorporated into the Bound Volume 
Norman Russel: Taxation (International Investment and Remedial Matters) Bill — Third Reading 
[Sitting date: 05 April 2012. Volume:679;Page:1762. Text is incorporated into the Bound Volume.] 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on behalf of the Green Party on the Taxation (International Investment and Remedial Matters) Bill. The Green Party is supporting this bill but we do have concerns about it. I want to talk about some of the issues around the bill. I would like to endorse the comments of David Parker—I thought Mr Parker made some very good contributions here—and David Clark. I think it is an important debate. 
The thing that I want to focus on firstly is the way that we think about the tax treatment of companies and investment decisions. There is a very simplistic almost ideological view that says that companies make investment decisions based on differential tax rates or that tax rates have a huge impact on investment decisions whether that is incoming investment or other kinds of investment decisions. There is no question that taxes do have an impact on investment decisions. The question is how significant it is. 
What was interesting about the Inland Revenue Department briefing—or I guess the IR briefing as it is now—to the Finance and Expenditure Committee was that the lowering of the company tax rate in New Zealand appeared to have very little impact in terms of incoming investment into New Zealand. Part of the rationale for lowering the company tax rate was in order to attract a greater level of foreign investment into New Zealand. The argument was that globalisation means we are competing with others so our tax rates need to be the same as or lower than other jurisdictions in order to attract investment. 
I am sure that differential tax rates are a factor. I do not think anyone can deny they are a factor. But to put so much emphasis just on differential company tax rates I think is a mistake. One of the underlying principles behind this bill actually suggests that it is a very very important issue. I would argue that it is an issue—and the reason we are supporting it is that giving some support to New Zealand companies that are investing overseas and affecting some of the implications of the tax system on them is important. But I do think we need to think again about how important differential tax rates are in investment decisions. There are a huge range of other factors that influence the investment decisions of internationally mobile companies. The tax treatment and the company tax rate is just one of them. I think if we do not put attention on those other factors which are much much larger then we can focus our attention on the small stuff rather than the big stuff. 
That is the second issue I want to raise in relation to this bill—it really is a principle that is running through a lot of the Government reform agenda—which is a focus on microeconomic reform. Microeconomic reform is important. The Government talks for example relentlessly about removing red tape. Some of the changes in this bill could be characterised I think as microeconomic reform. We know that microeconomic reform is important. There is no question that it is important but how important are microeconomic reform changes such as small changes in regulation or the burden of regulation as it is called and small changes in tax rates? How important is that to the overall performance of an economy? I think the Government does not really consider that question. 
When you look at for example our largest exporting company Fonterra we did not build Fonterra through a process of microeconomic reform. Fonterra came about through State intervention through Government intervention to build a company that is internationally competitive. Those people who believe that the market always delivers and that microeconomic reform to remove regulation results automatically in a well-performing economy do not pay attention to the way that real companies and real competitive commercial entities develop and become the size where they can actually compete internationally. Fonterra did not happen by accident. It did not happen because the State took a hands-off approach. Microeconomic reform by itself will not deliver the kinds of internationally competitive companies like Fonterra that New Zealand needs. 
I think that there is a fundamental misconception that kind of goes through the Government’s approach to bills like this—and tax policy in general but more generally in its economic strategy—where it believes that microeconomic reform by itself will solve the problem and that the New Zealand economy will suddenly perform really well if we just introduce a series of basically new-right microeconomic reform measures. It does not work. It does not work anywhere. When you look at economic development strategies they are not going to do it. And the changes in this bill—most of them are fine changes with the exception of those identified by David Parker—by themselves do not make an economic strategy that will result in a well-performing New Zealand economy. We actually do need to think larger. The Government has identified some areas of course—you know casinos—where they want to give special treatment but actually the focus on microeconomic reform is the overwhelming focus of the Government and I think that is a bit of a mistake. 
The third issue I want to touch on in this bill is the treatment of incoming and outgoing investment because this bill basically tries to make it easier for outgoing investment of New Zealand companies when they are going somewhere else that they are not effectively double-taxed and so the companies they are competing with are facing a level tax field. This is clearly an important issue—no question about it—and for that reason we are supporting it. What sits behind it is the effect of globalisation. Globalisation means that there are these internationally mobile companies and democratically elected Governments find themselves in the invidious situation where they are actually having to look at whether they should be lowering taxes in a bit of a race to the bottom in order to facilitate both incoming investment and the investment overseas of their companies which is what this bill is responding to—global competition around tax rates. 
The thing about that if you like conception of the problem is that what is happening internationally at the moment is that Governments are not in a race to the bottom any more around tax rates. Because of the fiscal pressures on Governments all around the planet at the moment many Governments actually are increasing tax rates. They are increasing tax rates because of the fiscal pressures on Government budgets. This Government does not seem to quite understand what is happening internationally. When you look at the changes the effect of the changes in the 2010 tax changes which were very fiscally negative you can see that the Government does not quite understand the international context of what is going on in terms of tax rates. 
 The second issue is around how to treat incoming foreign investment and I think this is obviously a very hot issue in New Zealand. The basic principle behind the bill is that there should be a level playing field between the treatment of incoming and outgoing foreign investment. The question is is that in New Zealand’s interests to have that philosophical approach—to treat them the same? We know that some incoming foreign investment when it brings new jobs new businesses and new technology and perhaps new networks adds something to the New Zealand economy. We know that other incoming foreign investment when it buys up pre-existing businesses particularly businesses that are operating in the oligopolistic sectors of the economy such as telecommunications or banking does not necessarily add a lot to the New Zealand economy. 
So we need I believe in terms of an economic strategy to differentiate between different kinds of incoming foreign investment. We should not simply have a level say of “Oh incoming foreign investment is good.” Some of it adds something and some of it does not. I think that we need to use whatever levers we have to actually facilitate the incoming foreign investment that adds something to the New Zealand economy but it does not necessarily add something to the economy if we simply allow the buy-up of pre-existing businesses that are simply earning monopoly or oligopolistic profits such as you know in some of the very mature sectors of the New Zealand economy with relatively low competition. The effect of doing that of course is that once those investments come in— 
Simon O’Connor 
: Give us an example. 
Dr RUSSEL NORMAN 
: —for example in the banking sector—the profits and dividends that come out of that sector simply flow overseas and add to the pressure on our current account deficit. So I think we need to be more differentiating in the way that we treat incoming foreign investment. Then there is the principle that underpins this bill which is to basically be non-differentiating—to have a level playing field between incoming and outgoing. 
None the less there are some positive changes in this bill. They are small; they will make a minor difference. There is some cost to the tax base and some of it is completely unnecessary cost to the tax base but it is a relatively minor cost to the tax base so we will be supporting this bill. But I do think that the Government needs to rethink its approach to how it treats differentiating in terms of incoming foreign investment. I think it needs to think again about relying completely on microeconomic reform in terms of an economic development strategy. I think that we need to think again about why it is that companies make investment decisions and not simply rely on company tax rates and think that somehow that is the solution to the issue we face in the New Zealand economy which is that we need to build competitive businesses based in New Zealand using our global advantages so that they can compete in a global market. And of course some of those are around clean jobs in the cleantech sector but I will not get into those because that is a long way from this bill. So on behalf of the Greens I say that we will be supporting this bill. Thank you.