Parker David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee Third Reading 
Parker David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee Third Reading 
[Volume:657;Page:6645] 
Hon DAVID PARKER (Labour) 
: 
 I rise to take a call in the Committee stage of the Taxation (International Taxation Life Insurance and Remedial Matters) Bill which Labour supports. I will deal with a couple of technical matters for a start. An important change has been made through this legislation to the treatment of petroleum mining revenue and I endorse the steps that the Minister of Revenue started in the previous Government and has continued in this Government to clarify that the petroleum mining losses that are incurred by a foreign branch of a company cannot be offset against petroleum mining income earned from New Zealand. 
To put that in perspective New Zealand has become quite prospective for oil and gas. The price of oil and gas is a lot higher than it was a few years ago and some of the traditional sources of oil either have become risky for development companies or have been depleted in their reserves. Although as a country and a world we need to transition away from fossil fuels for environmental reasons relating to climate change and also for energy security reasons it is clear that for some time to come the world will use petroleum products and that they are valuable. It is clear that it is in New Zealand’s interests that where we have some of those reserves we use them rather than import from Saudi Arabia or somewhere like that. That adds to our wealth as a country. 
In New Zealand we do not have a Government-owned oil and gas sector. A lot of overseas countries do—for example Saudi Arabia; most of Norway’s exploration and recovery of oil is done by a State-owned company. If a country does that of course the returns from the oil that go through that State-owned company benefit the country and the tax rules are not so important because the profit is earned for the country through the State-owned company. But in New Zealand we do not approach oil and gas that way. We leave it to private enterprise companies—some of them are owned by State-owned companies from overseas actually—to explore for find and extract petroleum products in New Zealand. Recently they have been successful. One of those successes has been the Tui Area oilfield off Taranaki. Many millions of barrels of oil have been extracted from it and that has benefited the New Zealand economy. 
The benefit to the New Zealand economy comes from two sources. One is the royalty that is charged on the recovered oil. That royalty is quite small. Indeed I wonder whether there is any royalty on oil. I cannot recall. 
Craig Foss 
: Yes. 
Hon DAVID PARKER 
: There is a royalty on oil as there is on precious metals. A royalty is recovered on the oil but the main profit for New Zealand is the taxation on the profits of the oil company. Those profits need to be properly taxed in New Zealand. Oil companies have been saying that they will offset against their New Zealand oil-based income expenses that do not relate to New Zealand. It is as simple as that. They have been trying to say that they will deduct those costs in New Zealand that are incurred overseas. Actually I suspect that if we got to the bottom of it we would find that some of what they deduct overseas is being deducted again in New Zealand. It is very hard for us to tell because we cannot see into the detail of those overseas transactions. 
This legislation makes a very important change to our law by saying that the only costs that can be deducted by oil companies for tax purposes against their oil revenues in New Zealand are the expenses that they incur in exploration and development in New Zealand. It does not have to be from the same well but it has to be in New Zealand. That is a good change and I express my support for it. 
There is a possible problem with this change in that we have created a problem for some increasingly successful New Zealand - based companies that are exploring overseas including Greymouth Petroleum which is now working in Chile. That company says that this change is contrary to its interests. I understand that we have had advice from the officials to the Finance and Expenditure Committee that they do not think that is necessarily the case but none the less this issue needs to be monitored. I am sure it will be monitored by those affected who will lobby their members of Parliament if they think that they can prove their case. 
I will talk briefly about a couple of other things. Firstly I will talk about the GST treatment of emission units. That provision was originally in this bill. This bill had a slower passage than the emissions trading legislation that was passed last year and that provision does not now need to be passed because of course we already have an emissions trading scheme. We have an emissions trading scheme that is rational that is economically effective that will not drive industry out of New Zealand—contrary to the claims made by some members of the Government—and that will reduce emissions so as to benefit New Zealand. 
Why do we have that scheme? Well New Zealand already has an obligation under the Kyoto Protocol to take responsibility for its emissions above 1990 levels. After the next version of that agreement which we hope will be agreed to at Copenhagen or thereafter New Zealand’s obligation will be tougher still. We will have to reduce our emissions substantially below 1990 levels. There are two or three ways we do that in the economy. One is through education which is a good thing to do. Another way is through regulation and that is also a good thing to do in parts and where necessary. But if we do it all through regulation we end up having to regulate thousands of different transactions through the economy all of which have an effect on emissions. To do it through regulatory intervention becomes very complex and administratively expensive in that it becomes a large compliance cost and annoying for members of the public. 
An emissions trading scheme changes the relative cost of doing business. It changes the economics of producing high-intensity goods or services and makes doing that relatively more expensive than it is to produce low-emission goods or services. Through that scheme we change the productive base of New Zealand over time. It takes a long time but we have to start. Through that we gradually change our economy—and other economies in the world are starting to do this too—away from activity that causes emissions towards activity that reduces emissions. Emissions will go down sustainably. That is what the effect of the current emissions trading scheme would be. 
From a policy point of view the effect of that scheme in New Zealand is attained by a cap on the number of free units that we give away to people. Some people are exposed to competition from markets overseas that are not properly pricing emissions. It is very proper that we protect those industries against closure by saying that they have a base level of free emissions that they do not have to pay for. At the moment it is 90 percent of their 2005 emissions so they are required to pay for only 10 percent of their 2005 emissions. That will not drive people out of business. The current scheme does not allow people in the industry sector to increase their emissions above 90 percent of their 2005 emissions because to do that would make New Zealand poorer. They might make $1 profit at the margin but the country would suffer a $25 loss at the margin. 
The amendments that are currently being proposed by the National Government will actually make New Zealand poorer and will make the scheme less efficient economically and they are to be criticised. They have been brought here because the Maori Party has said that it will support legislation to soften the scheme having said just a week ago that it would support only legislation that would toughen it. That is an act of a word that I cannot say in this Chamber. It is either that or it is abject incompetence. Those members may think that they can justify it on the basis of the one or two shekels that they have received from the National Government but I cannot see why they would have sold out their interests for that. 
In respect of the other provisions in this enormous taxation bill there are a lot of things in here but I am somewhat surprised not to see anything in it fixing the terrible mistake made by the National Government in abolishing the research and development tax credit. That mistake has not been fixed by this bill. This bill runs to 800 pages yet it does not fix up the abolition of the research and development tax credit. The undermining of KiwiSaver—another revenue measure that used to give tax credits to employers for the contributions made by employers—has not been fixed by this bill. Employers still have to face that cost under the new shrunken scheme without any support from the Government whereas previously they received a tax credit for it. With regard to the amount of the tax advantage for participants in KiwiSaver the generosity of the tax credits available to employees who are saving through the scheme has been halved. That has not been fixed by this bill. Those are two glaring anomalies. Neither does the bill make good on the promise that National won the Treasury benches on—that is that we can have everything we had under Labour plus tax cuts. That promise was never affordable. It has been reversed but once again this bill does not fix that problem.