Cunliffe David: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — In CommitteeText is incorporated into the Bound VolumeCunliffe David: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — In Committee[Sitting date: 10 February 2016. Volume:711;Page:8897. Text is incorporated into the Bound Volume.]Hon DAVID CUNLIFFE (Labour—New Lynn): This is a fairly—what would you say—innocuous sounding bill the Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill. You would think it was just a technical little series of remedial amendments but actually it is much more than that for the reasons that my good colleagues have just said.Let us touch base on what the rates are saying. Let us touch base on where the Inland Revenue Department and child support are at and then let us talk about the choice that New Zealand faces between two different economic futures—a dumb one and a high-value high-knowledge high-tech one—and how this bill misses the boat in helping us turn that corner. Let us turn first to the rates.This bill just perpetuates—there is no other word for it—the lie that National told to New Zealanders. The lie was that it would not raise GST and New Zealanders would have a fair tax system. What it did was raise GST and it made the tax system less fair by disproportionately giving tax cuts to the top end. So 40 percent of the money New Zealanders’ money went to the top 10 percent of income earners the ones who already had more—people like us in this Chamber. We did not need it. We did not want it. But National’s rich mates were greedy so that is why National got elected. It was the only significant economic measure it took in its first term.The Government screwed the scrum from the average joe to the rich and this bill entrenches that inequity for a further year. Government members can dress it up in John Key’s social media. They can go and stand in a cage on morning radio. They can do whatever modern public relations thinks it can buy but it does not change the fact that National has made New Zealand less fair and less prosperous—less fair and less prosperous.Let us turn to one other aspect of the “fairness”: child support. We all know that when families go pear-shaped they can go really pear-shaped. Kids depend upon fair payments between parents who have separated so that they can be looked after. Child support is a mess. Child support debt is going through the roof the new formula is not working properly and New Zealand children are missing out. They are the meat in the grindstone and it is just not working. This is the bill that is supposed to fix child support. What does it do? Oh it votes another $160 million to fix the computer system. What a wasted opportunity.We should be talking about real systemic changes to child support that mean separated parents can work together better for the interests of their children. That includes for separated non-custodial parents—usually the father—the penalty rates being set at a level and there being a process so that when they get behind and get outside the system they can get back in again so that they can be real parents to their children. The amount of suffering that is going on in our country because of the anguish of those parents does not bear thinking about. Here is a bill that could have made real substantive change in dealing with that problem and it has not. It is a missed opportunity.Let us turn to what I think is emblematic of the choice we face between two economic futures. One is that we consign ourselves to being producers of raw commodities. Milk powder—that is worth less and less on world markets sadly. I am not knocking the primary sector—it is our backbone. There are a lot of wonderful hard-working people out there doing their very best to make New Zealand better and to raise their families and good on them. We should always be world’s best in primary agriculture. Do you know what? That is not going to be enough.Raising New Zealand’s income standards providing for all our families building a great future for our children so that our grandkids do not live overseas—that requires more than milking cows more efficiently. That requires us to have a research and development system that generates world-class innovation. We have got two problems: No. 1 we do not have enough research and development and No. 2 it does not work well.Let us deconstruct that. We do not have enough of it. We invest 1.2 percent of GDP in research and development. The OECD average—the rich country average—is more than double that at 2.5 percent. And the small smart country average—the countries that we want to compare ourselves with; Singapore Sweden Switzerland Israel Denmark—those countries invest an average of 3.3 percent. New Zealand invests 1.2 percent. We do not do enough. We do not do enough and this bill again misses the opportunity to fix the system.Why are the incentives wrong? We all know that when someone invests in risky research and development they are doing it for themselves but they cannot capture all of the benefits of that investment because if it works the whole market benefits. They cannot take all of that. That is why around the world Governments sweeten the tax system or provide grants—or usually both—so that innovative young companies can get a leg-up can create jobs can expand and often are born global. So it is really crucial that we do that.What has guided best practice? It is two things. It is a baseline sweetener of the tax system usually delivered through a near-universal or universal tax credit which is what was in Labour’s manifesto last time around and I hope will be again. Then on top of that it is specific interventions in high-value or high-potential industries or regions to encourage growth where it matters most. It is not picking winners at the company level but strategically aligning the incentives and de-risking business enterprise so that people know what the game plan is.What have we got in the current system which this bill tinkers with—with black hole expenditure—but does not demur from? We have got a grant system through Callaghan Innovation which is spectacularly the worst of both worlds.Chris Bishop: Rubbish.Hon DAVID CUNLIFFE: It is not—no no it is not rubbish. It is not a universal tax credit system that is easy to implement and fair to all businesses and actually allows market prices to work nor is it a judicious strategic intervention. What it is is an “automatic” criteria-based grant system with a huge bureaucratic overhead that as often as not ends up with investments that go spectacularly pear-shaped. For example Callaghan Innovation gave a research and development grant to—wait for it—a subsidiary company of Larry Ellison’s Oracle America’s Cup bid when it was racing against New Zealand. The taxpayer paid one of the world’s greatest billionaires—the guy with the huge superyacht—to race against our team through the system.Meka Whaitiri: Treason!Hon DAVID CUNLIFFE: You would not believe it would you? It is unbelievably stupid. It is unbelievably brain-dead.Chris Bishop: Tell us about Sovereign Yachts.Hon DAVID CUNLIFFE: Chris Bishop I think is probably smart enough to know the truth of that. How about dishing out grants to the subsidiaries of German multinationals? As soon as the company got the grant it unbolted and took it back to Germany. That was Bayer. Or a publishing company that was so dodgy that no sooner had it pocketed the money than it was off to the Serious Fraud Office? That one has not even been ironed out yet. Those are the kinds of examples we get of an “automatic” grant system which is still bureaucratic but to which no one is applying a common-sense test. I want to ask the Minister in the chair the Hon Michael Woodhouse—with the black hole expenditure provisions in this bill is he going to look at changing that? Is he going to look at making that smarter? Is he going to look at having the horse in front of the cart rather than behind and having the fence at the top of that cliff not at the bottom?What is wrong with the detail of that black hole expenditure? Well for example the clawback on derecognised non-depreciable assets is a tiny token of what was in Labour’s policy which was an increase in the depreciation rate on high-tech plant and equipment. So alongside a baseline research and development tax credit we increased the depreciation rate to match the actual life of high-tech gear—typically 2 to 3 years. But this rate is based on at least a 5-year life. Who in this country is using a computer today that they bought 5 years ago? Well they are probably not in the leading businesses. If the Minister was the Minister of Foreign Affairs the Ministry of Foreign Affairs and Trade would still be using a quill pen. It is uneven is it not? But this measure does not fix it.Here we have a bill—I am summing up Mr Chair—with a boring little name that completely misses the boat. It perpetuates inequitable tax rates. It fails to deal with the inequities of child support but just basically votes more money for an overblown computer system. And it completely gets it wrong in terms of a decent and sensible tax structure to do what I think both sides of the House want which is to encourage innovative businesses and to give enterprising Kiwis—the job creators the wealth creators—an equal hand up so that they can compete in international markets to win. That is what we believe in—backing Kiwi businesses to go global with a good tax structure with baseline research and development tax credits and an intelligent system of interventions.