English Bill: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — Second Reading 
English Bill: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — Second Reading 
[Volume:643;Page:13408] 
Hon BILL ENGLISH (Deputy Leader—National) 
: 
 I welcome the Minister of Revenue’s outlining of the major issues with the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill for the benefit of the House. National will not be supporting this bill; it is part of a Budget we did not support on a confidence motion. We did not support the Budget because we believe that it did not reflect the opportunities the Government should have taken to make broader changes to personal income tax which is something we believe the Government has had the capacity to do for 4 or 5 years now and has neglected to do. 
In that context we in the Finance and Expenditure Committee took a pretty constructive approach to the issues raised in the bill and particularly raised by submitters. I just want to go through a few of those issues. We have taken a pretty constructive approach to the bill because the changes in the bill are significant and likely to be part of the landscape for some time. We have an interest in ensuring—as the Minister has said—that compliance costs are minimised and that there is as much certainty as there can be with the types of measures outlined in the bill. 
I will start with the research and development tax credit. This is pioneering territory in the New Zealand tax system. I note that by international standards our research and development tax credit is at a higher rate more broadly applied and available to a wider range of taxpayers than in Australia for instance. The Government has made an effort in this bill to ensure that there are boundaries on that credit so that it will end up focused on what the taxpayer is paying for—that is an increase in private sector research and development. By the sound of it from the submissions and other discussions we have had the development part of the credit will incur the most fiscal cost and grow fastest as a result of this tax credit being available. 
I welcome the 3-year review the Minister has put in place because I think it is vital that the business sector sees that the tax authorities are going to keep a close eye on how this credit is used. I get a bit concerned when I hear about the amount of resources that large accounting firms are giving to ensure their clients know all about this tax credit. It is vital that they see that the tax authorities are keeping an eye on it. 
Some critical definitional issues are going to arise and they came up regularly during the submissions—for instance the importance of the experimental aspect of the definition of “development”. To use an agricultural example it is the difference between a farmer saying he or she has put another sort of fertiliser on the paddock and therefore it should be eligible for the tax credit because it is development on the one hand but on the other hand real experimental activity which would consist of laying out plots applying different rates of fertiliser on those plots and making sure they were fenced off or grazed in particular experimental ways and may well count as development. The experimental aspect is absolutely vital. 
One area in which I am pleased the committee made some changes was in respect of the eligibility of research conducted overseas by New Zealand taxed entities. In this interconnected world it does seem quite a constraint that a New Zealand entity has to have its research conducted in New Zealand. We are a biological economy. It makes sense for instance to be conducting research all year round depending on seasonal variations because we—maybe literally—may be able to move twice as fast. 
The committee has gone some way without opening the gate too far to providing a bit of flexibility. The reality is that many New Zealand businesses that want to do research are not going to find all the skills they need in what is quite a small scientific establishment. I am sure this is an aspect of the bill that will be discussed as part of the 3-year review. 
I want to move briefly to KiwiSaver on which there was a lot of discussion. I am particularly concerned about the complexity of how existing schemes interact with KiwiSaver. I will not pretend to be able to outline for the House the detail of all those discussions but the issue looked a lot more problematic than I think the MPs expected as the submissioners went through the details. 
Probably the main focus of our interest in the KiwiSaver structure was the concern that so many people will not be able to access KiwiSaver because they cannot afford to. In the initial stages of the scheme that does not make too much difference. Members should imagine two workers in a workplace one of whom has three children and a substantial mortgage and another who is carrying out exactly the same job on the same pay with no responsibilities whatsoever. The second worker can opt into KiwiSaver maybe at 4 percent; the first worker cannot opt in at all. 
As time goes on those two workers will benefit in quite significantly different ways from KiwiSaver. The worker who does not opt in will miss out on the start-up grant ongoing tax credits and benefits to the employer of the employer tax credit which may be passed through to the worker in his or her remuneration. So the differences will grow. I am quite sure that in workplaces this will become more of an issue if the contribution rates go up at the rate set out in the bill. 
We had some combined submissions from the New Zealand Council of Trade Unions and Business New Zealand that highlighted both of the issues I mentioned: one being the affordability of the specified rates of contribution of 4 percent and 8 percent and the other being the industrial relations problems that will arise out of the differences between employees who opt in to the KiwiSaver scheme and employees who do not. 
The committee made some attempt to give clarity to that issue in clause 101. Clearly there are polarised views about the impact of the compulsory employer contribution. Some people think it should be taken out of the remuneration of the employee at one end of the spectrum; at the other end of the spectrum the unions certainly believe that any employer contribution should be in addition to existing remuneration. 
It is an unresolvable problem in a legislative sense but the committee made some attempt to get a solution that respects existing contracts and also leaves room for employers and employees to negotiate as much as possible on that issue between themselves. I would not say that the committee has found the right answer; again I am sure that it is something that will come through in the 3-year review. 
These are significant shifts in our tax base. They are significant changes in the functions of the Inland Revenue Department as they take on KiwiSaver. I can say to the House that the committee did a reasonably good job with what is very complex and lengthy legislation. It will be discussed further of course at the Committee stage but getting the research and development tax credit right and getting access to KiwiSaver right are issues the House should focus on in the next stage of the debate.