Smith Lockwood: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — Second Reading 
Smith Lockwood: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — Second Reading 
[Volume:644;Page:13435] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 In speaking to the second reading of this Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill I want to make it clear and to remind the House that National is opposing this bill. We are opposing this bill because it resets income tax rates to exactly where they are today and to where they have been all year. If Labour believed in lower taxes and if Labour believed in reducing income taxes it could do that right now. In the next 2 weeks Labour could introduce a Supplementary Order Paper to this bill to bring down the taxes that New Zealanders pay. We know that Labour believes in tax cuts only in election years and this year is not an election year. So Labour says: “To hell with ordinary New Zealanders this year.” Labour says that people can continue to pay the taxes that have enabled it to collect $22 billion extra every year in tax revenue compared with when it came to office. 
It is no wonder that New Zealanders are getting really sick of this when an average full-time income earner is now paying the top tax rate that used to exist before Labour came to office and when three-quarters of our secondary teachers are now paying the 39c top tax rate that Labour brought in when it came to office. It is little wonder that ordinary New Zealanders are saying they have had enough of all of this. 
When families are considered so poor that they receive Working for Families payments yet they are on the top tax rate that really is a stupid policy. They are considered so poor that they have to get tax credits from the Government when they have dependent families yet they are considered so rich that they should pay the top tax rate. That is a really dumb policy and that is why National is opposing this bill. If Labour genuinely believed in reducing income taxes it could do it next week during the Committee stage of this bill; it could introduce a Supplementary Order Paper to bring down people’s income tax rates. 
There are some bits of this bill that we do support. We support the lower corporate tax rate of 30 percent. We support the reduction in taxation on donations to charities—National’s policy which Labour pinched. We support the changes to the unacceptable tax position penalties in respect of GST and withholding tax. That makes good sense but I should point out that when this issue was last addressed when section 141KB was introduced into our law we thought we would be dealing with these issues—and we did not. I suspect that this change will not deal with the issue adequately either. The relief from unacceptable tax position penalties should really cover voluntary disclosure where people make simple mistakes but this bill does not do that. If someone pays the correct amount of tax but files the wrong tax returns to pay it that kind of mistake will still after this bill is passed incur the big tax penalties. That is just dumb. Why do we not encourage voluntary disclosure? This bill seeks to do it but does not go far enough. That is an issue that I think should be looked at during the Committee stage. Labour has not listened adequately on that particular issue. 
There are a couple of big issues covered in this bill that I want to make some further comments on today in this second reading debate. The first issue is that of research and development tax credits. On 25 July this year the Inland Revenue Department briefed the Finance and Expenditure Committee on the policy of these tax credits and we were told that the policy was essentially based on Australian tax credit policy for research and development. I will tell members what the Hon Shane Jones said. He is now a Minister; I cannot remember which portfolio he holds but I congratulate him on his elevation to Cabinet. I wrote down in my book what he said to the Inland Revenue Department officials when we were briefed on 25 July. He said: “Let’s cut to the chase.”—we know how Shane talks; he is pretty much a straight shooter—“Has there been any demonstrable benefit in Australia in terms of economic growth from research and development tax credits?”. Well the officials just stared back at him blankly. One would have thought that he had farted loudly because the officials just stared back at him blankly. They did not expect the Labour chair of the select committee to ask them that. This is Government policy! Here he was asking them whether there was any evidence that this policy worked. 
Just a few minutes later Shane Jones—chair of the Finance and Expenditure Committee at the time—asked again whether there was any evidence of any benefit from those research and development tax credits in Australia. The officials had to say that they simply did not know. 
In theory research and development tax credits kind of make sense. We want to encourage investment in research and development because we believe it is a good thing to be doing. But members should remember that research and development expenditure is already 100 percent deductible for tax purposes. The research and development tax credit here is essentially a 15 percent tax rebate on top of that 100 percent deductibility. Across the country right now we are seeing accountancy firms putting huge effort into advising businesses on how they can get so much of their current expenditure to comply with these new tax credits in order to get the extra 15 percent tax rebate on top of the 100 percent tax deductibility. That is the problem with this kind of fiddling with the tax system. So many submitters to the select committee pointed this out. They said that it would be better to lower tax rates than to try to pick winners. 
Let me give members one example where I have a deep concern about this. Our Crown research institutes and our universities which do most of the research in this country are excluded from those tax credits. We can understand why; they are essentially Government-funded institutions and the Government is saying that they should not get these tax rebates on top of their Government funding. But some of the most valuable research that is done in this country is done by joint investment between the private sector and those major research organisations—between private business and the universities and between private business and the Crown research institutes. Yet where partnerships are set up to invest in research together and where we get real synergy out of that investment this legislation bars those private investors from getting the tax credits. 
In other words this legislation is against that kind of joint investment in research that produces some of the greatest synergy to get great ideas out there into the private sector. In some circumstances the private sector will be able to get tax credits where it still controls companies and where there is joint investment but the legislation is not as clear as it could be in this area and certainly for much joint investment the private sector will not get the tax credits. I think this is an issue that the Government should be looking at before this bill completes its Committee stage. It should be looked at again because that joint investment is just so important for New Zealand’s future development. 
Finally I will make some comments about the KiwiSaver provisions. This legislation essentially sets up the framework for the employer contributions; the post-Budget legislation set up the framework for the employee contributions. The submissions were fascinating. Representatives from Business New Zealand came along to the Finance and Expenditure Committee. This is not the Business Roundtable; these are the ones who are supposed to be friendly with the Government. They came along and said bluntly that the Government had ambushed employers with this legislation. Those were their words—the Government had “ambushed employers”. That was what they actually said to the select committee. We can understand why because this legislation will be “ongoing industrial sandpaper” to use Business New Zealand’s own words again. That was what it said to the select committee—ongoing industrial sandpaper. 
Do members know why that is so clear? The reason is that where one employee does not have say a dependent family he or she can afford to make the 4 percent contribution that goes into this scheme but another employee cannot afford to go into the scheme because he or she might have a dependent family or home mortgage. As Hone Harawira said many Maori families will not be able to go into this scheme. If the employer says that this person will go into the scheme and will get employer contributions on top of his or her wages or salary but this other person will not then the remuneration package of the person who is not going into the scheme will be less. So what does the employer do? Does it say it will pay that person a bit more cash to make up for it? We can see the ongoing tensions between employees who go into the scheme and employees who do not. 
There were issues that were not properly resolved. The Council of Trade Unions wanted flexible arrangements for lower-income workers who go into the scheme where they could make a 2 percent contribution and work with employers on how to get the total contribution and for 16 and 17-year-old workers to be able to join the scheme. Why does Labour hate young people so much? Why have those members banned 16 and 17-year-old workers from joining the scheme? Why do those members hate 16 and 17-year-old workers? Why do they hate older workers? If people are over 65 and are still working then they cannot join the scheme. Why do Labour members hate people over 65? This is the stupidity that this kind of legislation throws up. If one is a working person in New Zealand then one should be able to join this scheme if the scheme is any damned good. Why has this Government locked out young people—16 and 17-year-olds—and why has it locked out old people? 
There are real ongoing issues with this bill. I must say that the one positive thing is that the Minister said these provisions would be reviewed after 3 years although we must be clear that the excessive taxation regulation and compliance costs of this legislation will simply add to the problems of the collapse in our economic productivity growth in this country.