Clark David: Taxation (International Investment and Remedial Matters) Bill — Third Reading 
Text is incorporated into the Bound Volume 
Clark David: Taxation (International Investment and Remedial Matters) Bill — Third Reading 
[Sitting date: 05 April 2012. Volume:679;Page:1757. Text is incorporated into the Bound Volume.] 
Dr DAVID CLARK (Labour—Dunedin North) 
: 
 In speaking to the Taxation (International Investment and Remedial Matters) Bill 2010 I wish to start by acknowledging those members of the Finance and Expenditure Committee who did the select committee work on this bill. It was very remiss of me not to have done that in my previous speech. I also want to congratulate Simon Bridges firstly on his appointment as chair of the committee and subsequently on his elevation to the rank of Minister outside Cabinet. The Opposition colleagues and I believe John Hayes enjoyed his brief and able facilitation of questions and the opportunity to shape legislation positively for the benefit of all New Zealanders—something that Mr Brownlee just alluded to. 
Labour supports the bill but we will oppose the part that concerns the removal of the approved issuer levy. Our overall decision to support the bill is an on balance decision having assessed the merits and the demerits of the bill in its current form. The Labour Party’s concern in respect of the approved issuer levy relates to the further erosion of the tax base and this is at a time of falling Government revenue. This wider context matters. The Inland Revenue Department recently admitted in its briefing to the incoming Minister of Revenue that the Government revenues have dropped 4 percent in terms of a percentage of GDP from 35 percent to 31 percent. This is during the time of the previous National Government. It is estimated that about 60 percent of that drop in tax revenue is directly attributable to Government policy changes. This is of concern. People working hard in this country who are doing their best—they are saving they are trying to get ahead and they are involved in community activities—just do not feel like they are getting ahead and that is in part as a result of these tax changes that have benefited the very wealthy at the expense of everyone else. 
They have also affected the overall tax take. The Government continues to push the line that those 2010 tax changes were broadly revenue-neutral. I think entertaining the word “broadly” in this context is stretching the use of the English language beyond belief. Some members opposite might assert that it is plain English. I would certainly not be one of them. If it is typical English it is certainly not helpful English I would submit. 
What is clear is that blaming the widening deficit on the Canterbury earthquake or the global financial crisis is no longer a credible explanation for this $12 billion deficit. This is the result in part of the reduced tax take which this bill does not directly address as fully as it could. The $12 billion deficit that is projected this year will cost New Zealand households $7500 each—that is $7500 being borrowed on behalf of every New Zealand household to fund current programmes including the tax cuts for the very wealthiest New Zealanders. I do not think that is good enough. 
National members continue to repeat as an article of faith that the economy will improve with time but the reality is that they have no idea how they are going to achieve this. This is an article of faith. They have no plan. As revenues drop—and this bill does not guard against it—we cannot afford services that are important to the smooth running of the economy and of society. I think here of the police the Reserve Bank and other features of a stable democracy that is good to invest in which gets to the heart of this matter. As these services drop off it is likely to have a compounding effect on the attractiveness for investment in our country. 
Changes proposed in this bill favour foreign lenders of capital and large entities that borrow from them. Local lenders will not be able to match the rates that overseas lenders offer with their reduced tax rates—that is a fact—so domestic savings will be undermined further compounding the structural problems in our economy. “Joe and Joanna Public” who borrow through the banks will not see any savings but the foreign-owned banks will pocket the wedge. The potential undermining of domestic savings is of course a concern. In fact it is doubtful that the bill will do anything to help increase liquidity despite what the previous speaker Gerry Brownlee has asserted. The bill will not necessarily reduce interest rates or add depth to the capital markets. This was certainly the advice of a number of submitters at the select committee. They took issue with these assertions. 
It is also important to note that we in the Labour Party understand the value of internationally competitive tax rates. We do not wish to see New Zealanders who are competing overseas disadvantaged and we do not want to see those overseas who would wish to invest in and support New Zealand businesses scared off but we do in New Zealand believe in seeing everyone pay their fair share. That is something the Labour Party believes in. National is not happy with that but it is something that we think is a fair proposition. If there was substantial evidence of threats to the ability of New Zealand to fund its offshore borrowing requirements or of our banks and other corporate borrowers to fund their borrowings there might be a case for reducing the costs of overseas borrowers through taxes and approved issuer levies. Substantial evidence on that front I am afraid has not been presented. Instead it looks like once again a tax break is being given to the big end of town to the detriment of our tax base. 
When we are borrowing we New Zealanders all end up paying for this tax break through interest payments that subsume moneys that could otherwise be spent on public goods like education and health services. That is why we in the Labour Party are opposing this aspect of the bill. If it is to tighten up rules around the approved issuer levy it would be much more productive than simply dumping it. I guess an easy ride as it can be said with the approved issuer levy is at least consistent with the current Government’s policy of giving wealthy overseas interests an easy ride and indeed perhaps in some cases putting out the welcoming mat. We will see more of that when it comes to the issuing of shares in State assets I am sure. No one thinks that selling those revenue-generating assets overseas is a good idea and no one but no one thinks seeing those profits disappear offshore is a good thing. You cannot sell your way to a brighter future I submit. 
So to be clear Labour does not want to see tax rules that disadvantage New Zealand businesses and it wants to guard against dead-weight loss to the economy by reducing the proper tax burden for foreign-based companies where it will not affect investment decisions. The zero rate for the approved issuer levy on payments made by approved issuers to non-residents under some debt instruments is not something that we feel is prudent. We on this side of the House are concerned that in some cases the current tax system already effectively offers a lower tax burden to offshore sources of capital thereby providing an undesirable incentive for funds to be sourced offshore rather than to be retained or saved domestically. That is an important point to raise. Ensuring that tax treatment is as fair and balanced across jurisdictions as it can be is the Government’s responsibility. It appears that it could have done further work to allay fears but this is not the case. 
When submitters suggest that the removal of the overseas tax burden will have little effect on investment we should be concerned. But as I signalled at the beginning Labour will support the rest of this legislation. The alignments that will help New Zealand businesses compete in foreign markets by freeing them up from a tax burden that their competitors will not face are a good thing. Labour supports New Zealand businesses. Our capital gains tax proposal that we took to the last election for example would support investment moving away from the speculative sector to the productive sector and National will not consider it. It has no other ideas. This bill tinkers like many of the Government’s efforts. In this instance and on balance we think the tinkering is positive and that is why we will support parts of this bill apart from those that are concerned with the approved issuer levy. Shifting wealth to the big end of town is a theme. Borrowing without a plan to pay it off is unwise. There are much bigger issues to address before New Zealanders feel like they are going to get ahead through their hard work in the current situation. Although we support this bill we do I submit think it contains large elements of tinkering.