Key John: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Second Reading 
Key John: Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Second Reading 
[Volume:613;Page:10045] 
JOHN KEY (National—Helensville) 
: 
 I rise on behalf of the National Party to support the Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill which as the Minister quite correctly pointed out is an omnibus bill covering no less than five important parts of tax legislation that govern the New Zealand tax scene. In particular they are the Income Tax Act the Tax Administration Act the Goods and Services Tax Act the Student Loan Scheme Act and the Personal Property Securities Act. In the time available today I want to address four of the key elements of this legislation in particular the trans-Tasman imputation situation—or the triangular tax treatment undertaken by this bill—the reverse charge on imported services as they relate to GST the zero rating of supplies of financial services and the specified superannuation contribution withholding tax. 
Before I do so I turn to Part 1 which is the only part that National vigorously opposes. This is the part that sets annual rates of income tax. I draw attention to the fact that this part confirms the move undertaken by the Labour Government when it first came into office to regrettably lift the top personal rate of taxation to 39c in the dollar. When that move was taken the Crown argued that it would affect just 5 percent of New Zealand taxpayers. The Crown will now note—as we note—that it affects no less than 19 percent of all full-time taxpayers. One in five of all full-time taxpayers is caught by this top personal rate. 
What an anti-growth policy that is! It is not something fiscally required by a Government that is babysitting one of the largest surpluses we have had in some time. This Government is not using this wonderful opportunity—which it describes as cyclical not structural—to do anything to grow our economy. This is simply a Government with no fiscal requirement that has used this bill to reaffirm what we all know is an envy tax. Were the Government to come to its senses and drop this despicable envy tax it would cost no more than $95 million per 1c. It could rapidly move down to a rate of 33c in the dollar—the rate that the fine National Government from 1990 to 1999 had in place—and that would cost the Crown no more than $570 million. What a wonderful incentive it would be to entrepreneurs and risk-takers and hard-working families up and down the country to see their efforts rewarded by that. 
While the Government was at it it could take a moment to also lower the company tax rate which it is affirming in this bill at 33c in the dollar—a rate no less than 3c higher than the Australian tax rate. It makes us uncompetitive with Australia our major trading partner and for just $420 million we could have the same tax rate as Australia. So for $1 billion—only one-fifth of its cash operating balance of $4.8 billion or about a fifth of the operating balance excluding revaluations and accounting changes at $5.6 billion—the Government could deliver some very fine tax measures to this country. But alas I fear we will have to wait for the introduction of a National Government in 2005 before that takes place. 
Hon Chris Carter 
: More likely 2065. 
JOHN KEY 
: No 2005 will be the date when the National Government will introduce those kinds of changes if not more sweeping pro-growth policies. 
I want to take a moment now to talk about the trans-Tasman imputation situation addressed in the bill. This provides changes to the law that address what is known as triangular taxation where New Zealand residents investing in an Australian company—a company that pays fully franked dividends—do not enjoy the full franking of those dividends and have to declare them on their New Zealand tax return and pay tax on them. The bill allows on a proportional basis for that situation to be addressed. It also allows companies in a group structure to move imputation credits around that structure again to the benefit of shareholders. These are positive moves that were undertaken by a National Government and completed with the good work of our friend Peter Costello in Australia. 
As the Minister quite correctly pointed out those moves simply do not go far enough and when back in Government we will be pushing for another step forward in that process. Australia is clearly a very important market to New Zealand and harmonisation of tax treatment between the two countries is vital to allow New Zealand companies to enjoy greater access to the far deeper capital market in Australia. I might add that one of the important aspects of this triangular tax treatment will be in respect of private venture capital or private equity where previously people have been quite badly caught. 
I want to talk about the reverse charge on imported services. This is the situation where previously imported services were not subject to goods and services tax because at the time of implementing GST it was deemed that that was too small an amount. It has really been undertaken for two reasons—first to align New Zealand with other OECD countries and second for reasons of competitiveness. It was seen to be unfair to New Zealand companies to be competing with offshore suppliers who were not subject to GST. 
I might note though that this presents quite an interesting situation for a New Zealand individual who will have to pay GST—even if he or she is GST-unregistered as an individual—for income or imported services over $40000. It will require that person to send that cheque off to the Inland Revenue Department. I hope this important element of the bill gets the media attention it deserves; otherwise I fear that New Zealanders who for instance employ a foreign architect to build a new home for them pay over $40000 and do not recognise the GST proportion of that will be caught. 
I want to move to the zero rating of financial services. Again when financial services were introduced they were exempt from GST. It is an industry I know something about and have very fond memories of. The problem with exempting those services is that when they are in the supply chain they have a thing called “the cascade effect” where by being essentially exempted the GST on inputs can no longer be recovered. The problem then is that cost can only be passed on through prices and rightly so the bill addresses that by zero rating them as opposed to exempting them. 
Before I close I want to look at the deferred deduction rate which is the point the Minister raised about targeting aggressive tax arrangements that offer investors more tax deductions than they would have invested. I simply note that closing this loophole could again have a positive impact on the Crown—estimated at anywhere up to $450 million. As members may recall $450 million is very close to the amount that New Zealand companies are overtaxed compared with their Australian counterparts. I would like to think that with this windfall that they might enjoy the spoils of $450 million that they will look wisely on the companies of New Zealand and therefore pass that benefit on post-haste to flow through the community. 
Very finally I want to talk about the specified superannuation contributions. Previously these were being held at a rate of 33 percent which was a 6 percent deduction or discount for those on the top personal rate but it overtaxed others and deterred them from saving. New Zealand has a significant savings problem which is well recognised. The superannuation fund created by Dr Cullen is one of the great con jobs of all time. It will pre-fund superannuation only $1 in every $7. It will not fix the problem. It is one of the wonderful signs that the spin-machine works but the reality does not so anything we can do to fix savings in this country is appreciated. That is why National will be supporting this important legislation. 
CRAIG McNAIR (NZ First) 
: 
 In speaking on behalf of the New Zealand First Party and my New Zealand First colleagues on this bill I first speak in relation to the part that confirms the annual income tax rates for the 2003-04 year. New Zealand First wants to convey its disappointment in this Government for not taking more initiative in the area of taxation. New Zealand First’s long-term objective is that New Zealanders should pay less tax and everybody knows that is our view. But having said that we believe that the Government’s No. 1 priority should not be to reduce taxation but to reprioritise its social spending so as to place greater focus on the real needs of New Zealanders. The Government should do that rather than spending the income it receives from taxpayers on its politically correct agenda—such as legalising prostitution abolishing the Privy Council and so on. 
New Zealand First does not believe that taxation cuts as advocated by National and ACT are the immediate answer for New Zealand. There are very important issues in this country that need to be addressed first—such as poverty up in Northland and elsewhere. Dr Brash’s 1980s policy of taxation cuts for the rich is worse than having no solution at all for our problems at this point. The real solution does not lie in just keeping the annual taxation rates as they are in this bill but in providing taxation incentives for research and development and also for exporters for example. National and ACT members when speaking about this legislation including the National member who has just resumed his seat have said that a reduction in income tax rates will improve the economy. Whereas Labour believes that keeping the status quo is satisfactory New Zealand First says that as a country we must think outside the square and look at taxation incentives for exporters and for research and development and so on. We should not always be talking about either keeping the annual income tax rates as stated in this bill or reducing income tax; rather we should be thinking outside the box. We all know that exporters are most affected by a rise in the value of the New Zealand dollar and therefore we believe as a party that taxation incentives for that group are one way of stimulating growth in this country. 
Although New Zealand First has concerns about the annual income tax rates we applaud other parts of this bill and commend the Government in respect of them. We commend the taxation advisers and others for their hard work and advice and thank them personally. We thank the officials from the Inland Revenue Department and Treasury for their advice. We especially thank Terese Turner specialist taxation adviser to the Finance and Expenditure Committee because she was informative and is very knowledgeable on the subject. As I said we applaud other parts of the bill—such as those allowing the zero rating of business-to-business supplies of financial services and reforming the imputation laws to reduce the double-taxation of trans-Tasman investments as part of an agreement with Australia. That is the main thing. The bill changes the imputation laws to address the problem of triangular taxation which John Key was talking about. That involves the double-taxation of certain trans-Tasman investments. It allows Australian companies to allocate imputation credits—for New Zealand tax paid—to their shareholders in proportion to their ownership of the company. I note that that arrangement is reciprocal and requires both countries to pass the relevant legislation. It is a very positive move overall as far as trans-Tasman imputation is concerned. 
The introduction of a deferred deduction rule in order to combat aggressive taxation arrangements is a positive move and so are the progressive rates of specified superannuation contribution withholding tax on an employer’s contribution to match the employee’s marginal taxation rate. New Zealand First also applauds measures that provide community trusts with an income tax exemption. Clauses 5 and 17 contain provisions giving the community trusts that were established under the now-repealed Trustee Banks Restructuring Act an exemption from income tax. That exemption will apply from the 2004-05 tax year. Any distributions made by those community trusts will still attract income tax when appropriate. Submitters generally supported that proposal which was something that New Zealand First was looking for. It is intended to reduce compliance costs for those community trusts and we are in favour of anything that can reduce compliance costs. 
I thank you Mr Speaker for allowing me the opportunity to speak on this bill. As I said New Zealand First supports most parts of the bill but we are disappointed in the Government’s lack of vision with regard to taxation.