Russell DeborahDr DEBORAH RUSSELL (Labour—New Lynn): Madam Speaker congratulations on your elevation to the Speaker's Chair. It's a pleasure to see you there and it is a pleasure to take this last call on this excellent tax bill the Taxation (KiwiSaver Student Loans and Remedial Matters) Bill. We've had a number of interesting comments made by speakers in the House this evening and I wish to pick up a number of these comments in turn and reflect on them in the context of this bill.The first comment I wish to reflect on is the one from my colleague Mr James Shaw who asks: Does the detail of the bill meet the purposes of the bill?" A very good question to ask about a tax bill. But a reminder to Mr Shaw that perhaps he might not have all the detail quite covered. There is in fact no chair of the Finance and Expenditure Committee right at this moment. There will hopefully be one after tomorrow's meeting. In any case I am sure that the members of that committee will examine this bill with great care.Moving on from there our colleague Mr David Seymour spent a considerable portion of time worrying about the rates of tax which are paid and arguing that if only we had a flat tax rate we wouldn't need much of the detail of this bill. He is wrong straightforwardly. There is every year of course on the first grounds an annual rates bill which is an open invitation to discuss the rates of taxation. But something else that goes on with tax is not only the need to set a rate or rates of taxation but to think very carefully about the rules by which income is measured the rules by which we assess income and therefore income tax and the rules we have for paying and repaying tax. This is what this bill is about. It is about the machinery of taxation. It is about the architecture of the Income Tax Act. It is about the rules of taxation not about the rates of tax. I invite Mr Seymour to consider that the next time an annual rates bill rolls around as they do every single year.The third issue I wish to speak on is something that was raised by the Hon Michael Woodhouse. A particular detail of this bill and that is to do with our charities law and the fact that each time we wish to give an entity the status of being a charitable entity so that then in that case tax rebates may be claimed for donations to that entity—that appears in primary legislation as it does indeed in this particular bill. We list a number of entities who are going to be given charitable status. Mr Woodhouse said "Well do we really need to do this in primary legislation? Perhaps it could be done in subsidiary legislation." I think Mr Woodhouse has a point. It would be something that would be worth discussing. But just to counter that point it is worth remembering that we are offering a concession to these organisations; that we are offering them something which comes from the pockets of New Zealand taxpayers. So it possibly is worth considering every single one of these entities in turn in primary legislation and by this House. So I'm not sure which of those arguments would carry more weight but I do think there are definitely two sides to that particular point.But the issue I wish to reflect on most of all and it is an issue that concerns me with this bill was something that oddly enough was raised—somewhat in passing I suspect but nevertheless raised—by the Hon Judith Collins who in her speech to us said—she was thanking "employers who collect tax of Parliament". That actually points to a particular issue in this bill that I am very concerned about and it arises with respect to the refundability of research and development tax credits. We intend and want—we are working towards encouraging more research and development in this country. To that end we have put in place a research and development tax credit. But of course one of the problems with tax credits is that in order to claim the tax credit an entity has to pay tax in the first place. When it comes to firms that are engaged in research and development often they're start-up firms.By the very nature of start-ups often they don't make profits for quite some time. So they pay no tax and therefore they can't claim the credit. In the initial legislation around the research and development tax credit we put in place a measure by which firms who were not yet in profit could nevertheless collect some of that tax credit as a refundable tax credit. It's a way of encouraging start-up firms. This particular bill contains a further measure to ensure that firms that are in a loss position for tax purposes and therefore paying no tax can nevertheless at least claim some refundable tax credits. Looking at the regulatory impact statement and some of the information there we are told that we think that of the firms who are performing research and development there might be around about between 750 and 1200 who are in a tax loss position. But under the current rules only 350 to 650 of those might be able to claim the refundable tax credit.So half of those firms who are performing R & D and are eligible for the credit except for the fact that they don't actually pay tax can't actually get that refundable tax credit. So this bill extends that refundable tax credit. But one of the worries when there is a refundable tax credit is that some firms can exploit it. So there is always a need for a cap on it. The cap on this one is set at the amount of payroll tax that a firm pays and this is my issue. I think it sits in clause 111 where a new term is introduced into our Income Tax Act and it's the idea of a payroll tax-based cap. Now my understanding is that a payroll tax is normally an amount that is extra on top of the amount of salary that an employer pays. For example if an employer has a payroll cost of say I don't know $500000 and there is a payroll tax of I don't know say 1 percent well then that employer would pay $5000 of payroll tax. It's extra and over above the basic payroll cost. Some people might characterise our ACC levy as a payroll tax.But the problem with this payroll tax is the amount is actually the amount of PAYE—that's pay-as-you-earn—employer superannuation contribution tax (ESCT) and fringe benefit tax that the employer pays. They are not payroll taxes. A firm pays salary and wages and then as the Hon Judith Collins correctly pointed out the firm collects a portion of those and pays it over to IRD. The firm will pay its employees in the form of perks of cars or whatever or fringe benefits and then on top of that it has to calculate the proportion of that. It is equivalent to the PAYE. The same thing applies with ESCT and the point is that those are not the firm's taxes; they are the employee's taxes. All the firm is doing is collecting the tax on behalf of the employee and paying it over to IRD. So it is the employee's tax not the employer's tax.I think that the term "payroll tax" implies that it's the employer's tax and this is quite a conceptual issue and I think it's one that I hope that the select committee ought to grapple with whether that particular term catches the essence of what is being paid. I think it's the employee's tax. In fact we always think of it as based on the employee's own income not on the employer's. I think it's important to make that distinction and it's something I think we need to look at when we get to the select committee process. It's perhaps a small point but it is a conceptual point. It's one I will be talking to officials and to other members of the select committee about and I hope we can do something to resolve it because it is a new term in our tax system. I think we need to be careful about it—careful with all the detail of the tax bill as Mr James Shaw urged us to be. This is an excellent bill and I commend it to the House."