Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — In CommitteeText is incorporated into the Bound VolumeTaxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — In Committee[Sitting date: 03 November 2015. Volume:709;Page:7649. Text is incorporated into the Bound Volume.]Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) BillIn CommitteePart 1 Child support remedial mattersGRANT ROBERTSON (Labour—Wellington Central): I am pleased to take the first call of what I am sure will be many on the Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill. As the title of the bill as exciting and interesting as it sounds indicates the bill covers a wide range of topics. Part 1 which you Mr Chair have called us on deals with the matter of child support payments.It is important when we look into this part that we know what the context of this is and it is very well covered I might say in the regulatory impact statement for this particular piece of legislation. I want to cover in my first contribution on this part the background as to why these amendments have been put up and then I want to look at three particular areas that the Minister and the Finance and Expenditure Committee have both looked at and recommended some amendments to. They are around the question of relief from payment the question of the timing of the implementation of various parts of this part and the changes around sole parent students.Before I do that though I do think it is important to understand the context of these changes. There will not be many members of Parliament either in their role as MPs or as individuals who have not had issues raised with them about child support payments. It is a regular topic. I can see Mr Barclay nodding; in his various constituency offices across the lower half of the South Island he will have had people come into his offices with concerns about aspects of child support payments. Certainly nobody on this side of the Committee I am sure will be saying that the child support payment regime is perfect. It does need change and the review that was undertaken that built up to this legislation was needed and timely.Generally speaking I would characterise the issues and complaints that have come to MPs or that have been raised in public as being in the category of those who are the paying parents feeling that they are unfairly contributing and that they are contributing above and beyond what they should be relative to the amount of time they spend caring for children and those on the receiving end being concerned about the level of payment that they are receiving and the times and occasions when people do not make the payments that they should make.It is worth noting that there is around $3 billion worth of child support debt at the moment in New Zealand; 75 percent of that debt is actually in penalties and a big chunk of those penalties are of more than a year’s owing. So that represents clearly a system that has not been working properly if you just look at it in terms of the amount of money that has been paid over and the number of people who are failing to meet their obligations. So as I say there was absolutely no doubt in my mind that the review around these issues was timely.Where concerns were raised with me and where I think the Minister in the chair may care to take a call to help explain whether or not this legislation will deal with these problems was in the process of change. So what we have got is that everything is out of kilter in terms of dates because of the complete disorganisation of the Leader of the House failing to get legislation flowing through this House in order to meet time lines—Hon Clayton Cosgrove: Really?GRANT ROBERTSON: I know you will be surprised by that Mr Cosgrove—failing to meet time lines that have been set. Most of the reform package has actually been in operation since 1 April this year and we are now today in the Committee passing the legislation to try to make that work.There are other elements of the legislation that come into force on 1 April 2016 and that is a timely intervention but a big chunk of the reforms have already been implemented. I will give the example of a case that came to me in my electorate office where the change in criteria the change in process for child support payments led to a situation where there was a rebalancing of who was paying in a relationship and I believe on balance that was a fairer rebalancing. We had a person who had traditionally been the total payer to somebody becoming only a part payer and the person who had previously been receiving taking more responsibility. It was a complicated situation. Each of the parents had new partners and that then led to other considerations that came into play there.But that particular person who came to see me in my office came because as part of this new process—she had a protection order against her former partner—her former partner was now in possession of all of her income details because that was part of the new process. And she said to me: “How can one part of the State want to protect me from my partner but the other part hand over my income details to that person?”. That is a system that still needs work. And there have been others who have come in with very strange calculations based on the new criteria.So I think it would be useful to the Committee for a member of the Government to get up and talk about what lies behind these changes and whether they are satisfied that we now have a fairer system because I am not yet certain of that. What I can say and what the Finance and Expenditure Committee considered were some changes that I think are useful and here I would like to refer to new clauses 44A to 44D proposed to be inserted into the Child Support Act. This means that the regime around penalty payments now includes the ability for the Commissioner of Inland Revenue to consider a wider set of measures as to whether or not there should be write-offs. This is a good thing because up to now it has effectively been a question of the efficient use of resources as opposed to the position that a parent finds themselves in or more important what that means for the child in this case.So clause 44A now includes the idea of whether the recovery of incremental penalties would place the liable person in serious hardship. That is actually an important factor to be able to put into play. It will I hope—if it is implemented properly—actually mean a more realistic assessment of the penalties. As I mentioned before 75 percent of the $3 billion child support debt in New Zealand is made up of penalties and hopefully this will actually create a more reasonable place. So I think under new clauses 44A to 44D we can say that that is a useful thing.But I want to in the remaining part of this call just come back to the wider context of these child support changes. We are talking about—and the Committee has been told that we are now talking about—approaching $200 million to implement these changes. The original costing was $30 million. Remarkably the Inland Revenue Department did not consider that there might be a capital cost with these changes. The department thought it would all be operational and then it realised it was actually fundamentally changing the system and it actually needed to budget for capital and it blew out. It actually blew out to $200 million. It has done some phasing a little bit of jiggery-pokery and it is back to $163 million but that is still a massive massive blowout. And let us bear in mind that Treasury and the State Services Commission said to the Government: “You should align these child support changes with the overall business transformation programme at the Inland Revenue Department.”—a nearly $2 billion programme I suspect by the time that actually comes into place.Hon Clayton Cosgrove: And counting.GRANT ROBERTSON: And it will continue to rise—that is right Mr Cosgrove. What we have not seen from the Government is a realistic assessment of whether or not these child support changes should have been put through at this time or whether they should have been aligned with the overall business transformation programme and I think it is incumbent on the Government to get up in this Chamber and tell New Zealanders why it has overseen a massive blowout of over $100 million in the cost of these child support changes that are being implemented in Part 1 of this bill. That is actually poor government it is inefficient and it is a waste of money at the same time that the system itself is still creaking along. Make the changes—by all means let us improve this part of the system; everybody in New Zealand can see that it is not working properly—but do not do that in a rushed way to look good and then have a massive expenditure blowout.It is hugely disappointing when the Government has its advisers from Treasury and the State Services Commission who are supposed to provide it with the advice about good government and about efficient government and what it actually ends up doing is to say: “No we’re going to ignore that for political reasons. The blowout has happened under our watch. We want to make sure it doesn’t look as bad as that. We’ll phase the expenditure with a bit of creative accounting.” But actually in reality the child support system is struggling and the taxpayer is going to find themselves severely out of pocket as a result.So I would like some Government members to get on their feet and address those two issues: have we now got child support right—FLETCHER TABUTEAU (NZ First): Mr Chair I ask for your forbearance. I will rise many times to speak to this piece of legislation but I just wanted to lay out some generalities.When I last spoke on this piece of legislation I said to the Minister of Revenue that consultation for this type of legislation is essential and not just consultation at this phase. The experts came to the Minister and said “Actually what you need to do for these large omnibus pieces of legislation and these remedial matters pieces of legislation and what would be wise is to come to us early with a draft form of what it is you are trying to achieve so that our industry experts can come in and make fair and reasonable submissions on that draft.”—so that we are not in the position that we are in right now for example.The Minister’s Supplementary Order Paper for the day is about 20 pages of minutiae—changes to clauses and information within the bill. It is a tidy-up. I acknowledge it is fixing up a lot of the changes that have been made subsequently but we continue down a road of necessitating fix up after fix up and we have spoken about unintended consequences on numerous occasions.Speaking specifically to Part 1—I will go straight there—I just want to acknowledge the contribution from the previous speaker Grant Robertson. And actually to be fair I would like to acknowledge the National Government specifically the Minister who is genuinely trying to fix up this large large issue when it comes to the child support payments issue. I acknowledge that he is genuinely trying to fix up this situation.It is a big concern for all New Zealanders and the numbers have already been put to us—70 percent of that debt is kind of backdated penalty fines—Hon Clayton Cosgrove: 75 percent.FLETCHER TABUTEAU: —70 to 75 percent are backdated penalty fines. So when you look at that you understand that there is a problem—there is a problem and it needs to be addressed. But it is a balancing act.I wrote down a few notes and I want to just bring to the Committee’s attention a few issues that would be good to have some clarification on and perhaps the Minister can get up and address it. I noted down clause 57(1). It empowers the commissioner to make what seems to be very arbitrary decisions on the chasing of debt.The problem with this clause is that it allows the commissioner to pursue debt or not based on his call of whether or not the cost of the chase is too great or more specifically relating to the legislation if the pursuit would be an inefficient use of resources.Although that sounds good on paper and when you look at it what is the objective measure? That is New Zealand First’s concern. It makes sense and it looks sensible on paper but what is the objective measure?There was the same concern with the ability for the commissioner to write off debt if he decides it is fair and reasonable to do so. Will the level of what is fair and reasonable change from commissioner to commissioner and dare I say it from case to case? There are some issues there about objective measures and I have spoken previously on that specific issue about exemplars and definitions and the argument of objectivity.I just want to touch on the issue around costs with this specific issue because it is incredibly important to acknowledge that this current Minister has picked up a huge huge issue from the Inland Revenue Department.Hon Clayton Cosgrove: A big bag of steamy stuff.FLETCHER TABUTEAU: I will not go so far as to use that language but it is a big bag of something. The irony of it is that our financial experts did not really factor in that capital cost of implementation and so now we are in that catch-up mode. We are writing—I am not going to say writing off that is the wrong phrase—but we are moving from quarter to quarter kind of adjusting the budgets on the run. So we in New Zealand First acknowledge that there is—Hon CLAYTON COSGROVE (Labour): I have got to say I do not share the total enthusiasm that my New Zealand First colleague Fletcher Tabuteau has for commending the Government on this one. I want to deal with the child support matters and place on record that the Opposition will support the bill. There is an issue in Part 4 which we will come to but in terms of the child support issue I think what the New Zealand First colleague neglected to mention of course is that it is true that Mr McClay who is the Inland Revenue Department Minister and presumably will be vociferously answering all the questions that we put to him today did pick up a steamy political issue shall we say—if I can put it delicately Mr Chairman for your sensibilities—from his previous Minister Peter Dunne. To put it bluntly he inherited a major cost blowout.As my colleague Grant Robertson has said this was costed originally at $30 million—that was in 2011—then in 2014 the estimate blew out to $210 million. Then to give credit to Mr McClay I think he must have hauled in the officials and got down on bended knee and begged them to do something creative to phase it to do something to smooth the books so that the mountain of budget blowout would go down to around $163 million. But of course the balance is in suspended animation—it is yet to come as it is phased in. The point being that if we are asking liable parents to be accountable for the expenditures and to be accountable and ensure that they pay their way for their family members and to be accountable for us to chase them up then I would have thought it would be on principle pretty realistic to expect the Government in the form of the Minister in the chair—who is not the portfolio Minister with respect but the Inland Revenue Department Minister either former or present—to provide us with some sort of explanation as to why particularly Mr Dunne was asleep at the wheel.When a department comes to you and it has not factored in capital expenditure then anybody I would have thought with half a brain awake behind the ministerial desk would say: “Now hang on are we sure there is not a capital expenditure component in this?”. Well Mr Dunne just sort of floated along and when he relinquished—I think he is the longest-serving revenue Minister in any parliament within the Commonwealth; that is some sort of record dubious though it may be. But you would have thought with that wealth of experience—[Interruption] Well I stand to be corrected. But I would have thought that Mr Dunne when presented with a project like this on the back of of course the Business Transformation project where the money is just flowing like the Nile River just flowing out the door—you know raking in the sheaves as it were to use the biblical expression—would say: “Now hang on have we got the figures right?”. Because we know with these sorts of processes that there are always movements and costs but to sit there blindly and not even ask the question in respect of capital expenditure and then the department has got to paper over the cracks is astounding.Mr McClay of course then inherits it and tries to sort of fix it up but for those liable parents and others sitting at home who are expected to—and they should—pay their bills pay their way and look after their family I would have thought that those parents would be sitting back saying: “Well if it is good enough for us it is good enough for the Government that expends this money on our behalf to be at least half awake and to ensure that these blowouts do not occur.” But to date we have had zero explanation—zero explanation—in any stage through this bill. I see the Minister in the chair has changed again not to—with respect—the portfolio Minister. We have had no explanation and no accountability. The previous Minister just wrung his hands and said “Well I’m not there now. Game over.” and passed the baton to Mr McClay and he has been relatively silent if not totally silent on the matter.But I am interested as Grant Robertson said in clause 44 where the commissioner is given discretion to look at other appropriate mechanisms and payment methods in respect of liable parent contributions. It harks back to a previous tax bill that Michael Cullen I recall introduced. It had a similar principle where if a small business had a difficulty—there was a mistake in GST or income tax or whatever—in the old days the penalties in interest would flow as I say like the Nile. A mountain of debt and a mountain of penalties would be put upon those small-business people. OK some may have cooked the books; most—90 percent I would argue—were cases where an innocent mistake had been made. We changed the law to allow that once an intervention was called for everything froze. Then you could examine it in a logical way and deal with it.So I do support this measure because—as Grant Robertson has said and all of us who have dealt with folks on both sides of the equation in respect of child support—it is an extremely difficult position. To be fair the Inland Revenue Department is only the referee and it intervenes in theory only when there is a dislocation or where agreement cannot be reached. It has to deal with this in a formulaic way and that in itself is inflexible. But there are no better ways. That itself is inflexible and does not allow for a whole lot of the subtleties and nuances that we see within the liable caring parent relationship. I think this clause to be fair goes some way to looking at those issues.Where you have got—is it $3 billion worth of outstanding payments—and as Mr Robertson said 75 percent being penalties the system obviously is not working. Obviously what the State wants is for the parents to ensure that those children are looked after. They are irrespective of the relationship breakdown the responsibility of the biological parents. They should be catered for. In good grace I would argue that most Kiwi parents would do that regardless of whether we had an Inland Revenue Department mechanism such as this but there are difficulties in relationships as we know. There are disagreements. There is all sorts of leverage occasionally that certain partners try to put upon others. It is called life. There is a whole representative set of issues and at that point the State in its own inimitable way has to intervene.If one can build in some flexibility like this clause where mechanisms—you could look at other methods to ensure that that money gets to where it is supposed to be going and ensure that those liable parents are accountable without burying them as we have under a mountain of debt but ensuring that they meet their responsibilities. That has to be the No. 1 priority—but basically ensuring the system works. I think this is something that common sense would say one should support.But I do go back to the costs around this. It appears and it worries me that since the retirement of some very very venerable Inland Revenue Department officials—I went to the awards of the trust that has been launched in Rob Oliver’s name last week. He was a very venerable official. He is not the only one of the very experienced officials in the Inland Revenue Department who have now retired. It does worry me that we are getting these sorts of mistakes flowing through. Go back a year or two and we had the computer issue the car parks issue—again Mr Dunne was in charge of that.There are two things that concern me. One is that a Minister should be on top of their game especially if they are in the Guinness Book of Records for being the longest-serving revenue Minister in our history. But secondly Ministers have to be on top of their game and read the papers. When stuff comes through and up on a Minister’s desk that does not add up they need the presence of mind to shoot it down. Secondly it does concern me that some of that long-term policy advice and experience that we have had for many many years is no longer there now. It worries me that the quality and high level of advice may be depleted. There are things that one would have expected would not make a Minister’s desk ideas that would not make a Minister’s desk because as we have shown in the past they have not added up.Finally the concern about the cost blowout flows across the Business Transformation project. Again—and I did say this to the Inland Revenue Department commissioner at a function the other night—we want the Inland Revenue Department to work. We want the system to be the best in the world but we also because we have been through INCIS and other IT blowouts throughout our history want to know that those collecting the money especially are also accountable for its expenditure and are treating the expenditures of public moneys as if they were their own and being as accurate and detailed and focused on ensuring that those expenditures are executed correctly—because it seems to me that we have not had the explanations to justify this blowout. That would suggest that we are not likely to get the explanations to reassure us that the expenditure around the Business Transformation programme is warranted. That leads to questioning the whole set-up.We want to have confidence in this. A good tax system must be simple. It must be clear for people and people must be confident in it. It is the confidence in it and the confidence especially in terms of those who are collecting money being accountable for its expenditure within their own department and Ministers being on top of that regime that we will be focusing on and monitoring very closely even outside the parameters of this bill as it proceeds. So we support the bill.STUART NASH (Labour—Napier): This bill is quite a wide-ranging bill. The thing around child support did not actually receive much attention in the Finance and Expenditure Committee but I actually think it is a very important part of the legislation and will take a few calls on this. Part of the reason for this is to put things into perspective. As of 31 March 2014 there are actually over 203000 New Zealand children receiving child support. There are 134000 receiving care and 36000 liable parents. But as has been mentioned we have got to a stage at the moment where child support debt exceeds $3 billion. It is excessive and it gets to the point where it is just not payable.I remember one of the first cases I ever had when I became a list MP in Napier in 2008. There was a gentlemen who came in who wanted to pay child support for his son but what had happened was that his penalties had got to such an extent that he could not see a way through. What he asked me to do was advocate and say that he was prepared to pay what the Inland Revenue Department was asking him to pay in support if he could get away from paying the penalties. We tried but the Inland Revenue Department would not budge on this. In the end this gentleman went to Australia because he said he could not get a job—whenever he put his IRD number in then a good chunk of his salary was whacked out by the Inland Revenue Department in support payments. That is not the sort of system that is fair. It does not help parents it does not help children and it certainly does not help the system in any way shape or form. But the thing about this—and I will get on to the bill in a quick second—The CHAIRPERSON (Hon Chester Borrows): I hope so.STUART NASH: —yes—is that Minister Dunne as the last speaker Clayton Cosgrove alluded to started a review of this system in around 2008. I remember—I was the revenue spokesperson for Labour at the time—the Minister said it would be over in 12 months. It has taken a long long time to do this. Part of the reason is it is fraught with difficulty because it affects so many people and the law is quite complex even though it says in the regulatory impact statement that it is not. It is quite complex. But it took so long to the point where 6 years later we are still going through this whole process.The Act that set this up was the 1991 Act. The world has moved on since 1991 but the legislation has not reflected that until now. Let me talk about a couple of points. There is a new section 13A. I would say that part of child support—a good chunk of child support—is about perception. It has got to be perceived to be fair by caring parents and also by liable parents. There was a case actually of a high-ranking National Minister at this point in time—and I remember talking to this Minister and she told me about her father who actually managed to put a whole lot of his income through a trust and therefore avoided paying child support. He was living the life of Riley and this Minister and her family were living close to poverty because this man her father was managing to avoid his responsibilities let alone his liabilities. And this is the sort of stuff we have got to change.There are some things that were perceived to be unfair that have been changed. For example there is a new section 13A which introduces the rule that the Commissioner of Inland Revenue must refuse to make a formula assessment if the applicant is a non-parent carer of the child and the commissioner determines that the applicant is the non-receiving carer. Let me give you an example of where this was happening before. Again I dealt with a couple of these. There was a case where for example a gentleman married a lady and that lady had a couple of kids from a previous marriage. He was perceived—in his mind and also in the law—to be the non-receiving carer. However because his income was of a substantial amount he was forced to pay child support for his wife’s children as well as for his own children. That was perceived in his mind and also in mine to be unfair. But let us get a definition of this. A non-parent carer of a child is the receiving carer—so with the non-parent carer we are talking about the stepfather or stepmother usually—for the purposes of a formula assessment in respect of a child if he or she provides at least 35 percent of ongoing daily care for the child. These definitions are actually quite important because what they do is clarify the increasing role of step-parents in managing the financial relationships between their new wife or husband.Sections 13 14 17 and 22 of the new Act basically relate to the calculation of a parent’s income for the child support year. There are a number of changes here that again just make it a little bit fairer. If we have a look at clause 14 in Part 1 a person’s adjusted taxable income is the person’s income from the year immediately preceding the start of the child support year if that is the most recent tax year. I am dealing with a case at the moment where the Inland Revenue Department has assessed a gentleman’s income for about 4 years previous. This guy has brought in all his tax slips—actually I should talk to the Inland Revenue Department about this—saying that it is assessing him on an income of $120000 but for the last 3 years he has earned $50000. He is not hiding it in trusts in any way shape or form. He loves his kids dearly but he says he just cannot pay this. He said that at the end of the day he takes good care of his kids but he simply cannot pay it.So what this bill is doing is saying the tax year immediately preceding the year child support is calculated will be the one upon which his or her payments are assessed but if it does not apply the person’s taxable income—we are going to amended section 35(1)(b) here—is from the year immediately preceding the most recent inflated by inflation percentage for this child support year. It just clarifies a lot of this stuff.Another thing that I am very happy that we put in here is that the commissioner may take overseas income into account. Again what was happening in my experience is that men—and let us be honest it was usually men but I suppose there were cases where women were avoiding responsibilities—were hiding income through trusts or not counting overseas income etc. etc. and were therefore not living up to their responsibilities.The one thing also that has been mentioned by Grant Robertson which I think is actually fantastic and something that we mooted going into the 2011 election is almost having an amnesty. I remember when I asked the officials in the Finance and Expenditure Committee whether this in fact amounted to an amnesty—i.e. if a liable parent starts coming in and paying their dues will they be able to wipe penalties off? They said in essence that this is what it is. Because what we want is for liable parents to start paying their penalties.I remember and I do not think the statistics will have changed that in 2011 there were about 97 percent of parents who were operating under the scheme administered by the Inland Revenue Department—as opposed to a private scheme negotiated between parents—who had suffered some form of penalty at some point in time. In the end it is actually not in the best interests of the child if a liable parent is paying let us say $100 a week and they are paying $75 of that to child support and also paying 25 percent of that or whatever the fee is to pay off penalties on support. I think we all acknowledge that the ideal situation is that all the money that a liable parent is paying goes to the support of the child. If there is a scheme that can be put in place where penalties can in fact be written off if a parent comes in and comes to an arrangement and starts paying their fair share then everyone wins including the Inland Revenue Department.The bottom line is that it is $3 billion we are talking about and that actually is unworkable. I remember having a look at the fees and even in Hawke’s Bay itself there was around about $49 million in penalties and interest that was owing due to child support. As mentioned no one wins in that case. That is all I have got to say on this at this point but I am going to take a couple of calls soon after a couple of my colleagues have decided to have their say. Thank you.Hon DAVID PARKER (Labour): I want to carry on in respect of one of the aspects of Part 1 relating to child support payments. It is the issue that my colleague Stuart Nash has just been talking about which is the influence of penalties on the total liability that is owed to the Crown which is made up of the individual liabilities of thousands of New Zealanders who have fallen behind in their child support payments.I do not think that anyone on either side of this House thinks it appropriate that parents avoid their primary responsibility of paying for the care of the children by not making payments when they should or that they as the parents of the child do not have the first and foremost responsibility to pay for the care of that child even when that child is not in their custody. Therefore they should meet their obligations of child support. But as Stuart Nash has said the total amount of arrears in respect of child support is now about $3 billion—an enormous amount of money. We know that for some people whether it is with child support payments or when they get behind in their student loan repayments the amount of penalties starts to compound at a rate that is just intolerable for them. They give up and not only does the amount that is shown as a liability to the Crown actually becomes a fiction because it can never be repaid but it becomes an impediment to them paying anything because the arrears seem to be so intolerably large.In that regard I want to know why the interest rate that is charged on these debts remains so high in this low interest rate environment. I think it is a bit of a one-way street when it comes to the Inland Revenue Department as to when it adjusts the rates. Interest rates have dropped to the lowest that they have been around the world for well really in everyone’s lifetime and the lifetime of people before them. Interest rates are historically low around the world. In fact I think we heard the Governor of the Reserve Bank saying that English interest rates are the lowest they have ever been in 400 years. New Zealand interest rates are no different; they are very low by historical standards. They are still higher than they are in some other countries which sort of jacks up the New Zealand exchange rate to the detriment of the economy but they are still lower than they have been historically. I want to hear from the Minister in the chair the Hon Jo Goodhew one what the current rate of interest is and two how it is justified.My understanding is that this $3 billion that is owed in arrears—if interest on that is at 5 percent that is another $150 million that those liable parents collectively owe by the end of the year. If it is at 10 percent that is $300 million. If it is 3 percent it is only—it is a lesser amount. I think that the Government kids itself when it adds these amounts to the penalties and does not properly provide for the fact that a lot of these amounts are not ever going to be paid because the penalties have become so high. I know that some provision is made by the Government in the books as to—in fact I would like to hear from the Minister as to what amount if anything is provided for in the Government’s books to show that these amounts are not going to be repaid. I would like to hear why it is that in this tax and remedial matters bill which has a whole section on amendments to child support matters we do not fix this issue of interest rates and why we continue to charge penalties at such a high rate in this low-interest environment.Dr DAVID CLARK (Labour—Dunedin North): I want to speak in support of this bill but I also want to bring some words of caution. It is of course a bill that addresses many things and we will be supporting it precisely because it makes sure that our tax system is robust and we need a robust tax system in order to ensure that as a country we have income that pays for those assets that we need in common—things like roads and hospitals and schools. Across this Parliament of course we will find people who agree that we need those things. We might debate to what extent some of these things should be publicly or privately provided. We certainly on this side of the House think we need more investment focus in the area of things like schools and hospitals so that these things can be available and accessible to all citizens at affordable rates. Court houses are another example and roads certainly need to be maintained to a level where anybody can drive on them without requiring some kind of Hummer or four-wheel drive vehicle.These are the basics of a Western democracy and around the world people agree that common infrastructure is needed to fund those things that we individually could not purchase for ourselves. I certainly cannot afford to retain the world’s best oncologist at my beck and call. We all need to be able to access those people in our times of need and so the system provides for that. A robust tax system ensures that we have that income to afford those very things that we all need. So we support the maintenance of the tax system and this bill at its most basic is actually about ensuring that the tax system remains robust for another year. There are always loopholes in every tax system. There are changing patterns of investment. There are new laws that are brought into place that introduce the possibility of different workarounds or incentivise different behaviours in response to the tax system of the day.We however will have some challenges supporting parts of the bill because for example we know that the child support initiatives that we find in the bill will be very difficult to implement. We know that the department implementing them has been forced to come back to this House to amend legislation that has been put through before in respect of child support legislation because it was unable to implement it and that is because the Inland Revenue Department’s computer system is so out of date. It has not been repaired as recommended to the current Government. It has been neglected and we know now that a $1.5 billion price tag is expected to be attached to the department’s computer rebuild and that that has been on the go-slow for quite some time.So we are apprehensive about the Government’s ability to actually implement some of these changes and we are concerned that we spend time in a Parliament pushing through changes that cannot be backed up and that are going to require subsequent legislation in Parliament to correct them. That is unfortunate and speaks to a Government that has got its priorities wrong. The intention or the good words may be there but often the action is lacking. And that carries a cost to the taxpayer which I guess is the point that I am making and that is a lost investment if we make things that look good on the surface and then have to revisit them. It costs money to put bills through Parliament. All of the people sitting in Parliament today are paid and they have support staff who are also paid. That is proper and right but we should not duplicate our efforts when we could do something right once and get it right and that is the most efficient way of doing it.One of the other issues that we have with the bill is the acknowledgment that the existing tax rates will stay in place. I want to take us back to when they were implemented in 2010. This bill confirms the existing tax rates. When these tax rates were brought in in 2010 they gave a huge wealth shift to the wealthiest 1 percent of New Zealanders. There was a big tax break—40 percent of the value of the tax cuts brought in in 2010 went to the top 10 percent of earners. The bottom 20 percent of earners got just 2 percent of the cuts and they were swallowed up immediately in a GST increase that John Key had not signalled in advance. In fact many have called that a broken promise. That GST increase swallowed up any tax benefit that those lower-income earners got in those tax changes.It is since that time that we have seen a dramatic increase in inequalities in New Zealand. We have seen housing become the least affordable it has been in 60 years—in 60 years. We have seen people who work hard every day unable to afford to buy a house in Auckland and in fact now unable to aspire to own a house in Auckland. And this is as Kiwis and as New Zealanders. This is not the vision for New Zealand that we have where housing is so unaffordable that working people cannot even aspire to own a house. In these tax changes that were brought in a wedge was driven in that has grown that inequality and to afford these tax changes the Government has been borrowing year after year after year. It has now borrowed $100 billion this Government to afford to give the very wealthiest New Zealanders this big tax break.Tim Macindoe: Oh nonsense. You know that’s nonsense.Dr DAVID CLARK: I hear a member opposite say that is nonsense. I mean if they are not borrowing what are they doing? Why is that big liability sitting on the Government’s balance sheet? This Government has borrowed more money than Sir Robert Muldoon’s Government. It is the biggest-borrowing Government in New Zealand history and that means that every New Zealander born today carries a liability of thousands and thousands of dollars or the Government carries it on their behalf. They are mired in debt. Future generations will be paying back the debt borrowed by this Government to afford these tax changes that we are affirming in this bill today.We cannot not support the bill because we need a robust tax system but it is a bitter pill to swallow that we are supporting effectively the Government’s borrowing to afford tax cuts for the very wealthiest New Zealanders as a part of this package. Of course that is a cunning political presentation. It presents it all as one package because the Government does not want to be challenged on its prejudice for supporting the wealthiest 1 percent of New Zealanders at the expense of those in the middle. And let us not forget that it is those in the middle who are suffering the most. Those of course who are most hard-pressed those on the modest incomes often receive some child support from that wonderful tax package that the previous Labour Government put through—the Working for Families package which ensures that the hard-up are supported by the State. Those in the middle those ordinary kind of Kiwis who have some skills and are the tradespeople who work hard all their lives used to think that they could get ahead and today the prospects are far far far worse for them as a result of this wedge that has been driven between the wealthiest 1 percent and the rest of New Zealand who are supporting that wealthiest 1 percent in getting these tax cuts.As I have said just to sum up we will support the bill because we support a robust tax system and we support the changes necessary to achieve that. As a Labour Party we always believe in providing for that common infrastructure the decent and affordable schools access to good health care even though this Government has underfunded it. We support the robust tax system needed to provide at least some level of affordable health care and we support of course the infrastructure the courts the roads the rail—the necessary infrastructure to ensure that we have a functioning democracy that is safe and that provides for all of its citizens. But we are uncomfortable of course affirming those tax changes that mean that the very wealthiest 1 percent are supported whilst the rest of us and future generations are mired in millions and millions and billions of dollars of debt. Thank you.KANWALJIT SINGH BAKSHI (National): I move That the question be now put.Hon DAVID CUNLIFFE (Labour—New Lynn): This is the first opportunity that I have had to make a contribution to the Committee stage of the Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill and in particular to Part 1 which deals with child support. This is a very important part of the bill because it goes to real life for real Kiwis which is not always what people expect it to be.The law as they say is an ass. The law is never able to fit itself to each individual’s personal particulars. So today we are here in the Committee stage to try to tweak mould and update this very complex piece of legislation about child support to ensure that it is fit for purpose and that it meets the needs of New Zealand families which come in all shapes and sizes.I propose to structure my remarks for the Committee as follows: a couple of general comments about the tax context of this bill as set out more broadly with the confirmation of annual rates—a very passing comment there; a recap on the objectives of child support policy diving briefly into some of the core implementation issues; and then there are some specific clauses in Part 1 that I wish to draw the attention of the Committee to and seek the Minister’s clarification on. Her officials are busy and ready to brief her and we will be looking for some comment from the Minister.Firstly I will just briefly reprise the context. This is the annual rates tax bill. For people out there in New Zealand this is the annual instrument that is brought to the House to confirm the tax rate. This one of course comes after what the Government called the tax switch and it was essentially a switch of the burden from the top to the middle. So middle-income New Zealand has been squeezed as 40 percent of the tax remission in the Government’s first term went to the top 10 percent of earners. That has laid the foundation for a period of relative hardship for middle New Zealand families some of which of course are not in their original nuclear structure. People are having to make do even though they have separated or they are divorced or they are in blended families or they are having to take care of child support. But it is against that background of the widening gap between rich and poor which this Government has overseen because of the annual rates reconfirmation.It is a longstanding objective of child support policy that children come first. The law is written around the primacy of the interests of the child and tries to get an equitable formula for the contribution to the upkeep of the children from both parents. Whether one is the primary custodial parent and another one is not principally living with the child or whether they are both sharing parenting the formula has to be flexible enough to cope with a wide wide range of situations and it is never easy when you are writing legislation to take account of the multiplicity of people’s personal situations.It is well known I think in this House and it is part of the context of Part 1 of this bill that there have been major issues with child support over the years. When the current Government took office the debt mountain of unpaid child support and penalties was from memory in the order of something like $500 million or $600 million. It is now around $2 billion.Hon David Parker: $3 billion.Hon DAVID CUNLIFFE: It is $3 billion. Well is not that a calamitous rise in debt. Part of that debt is payments that should have gone to the children in their new family situations and part of it is of course the penalty regime.A quick word on child support penalties. It has been well known that they have been too onerous and that has unfortunately locked a lot of non-custodial parents usually dads out of a situation where they are having ongoing contact because they are so far behind in their debt relative to their earning ability that sometimes they are forced offshore or essentially into hiding. That is bad for the children and it is bad for them and it is an ongoing human tragedy that is going to cost New Zealand for generations to come. So it is really essential when we look at Part 1 of this bill that we have this as a lens on it: are we doing enough to ensure that all parents whether they are the primary custodial parent or the more remote parent are able to contribute and that when they do get behind they can catch up again without a penalty regime that are so onerous that it locks them out of the system? Just imagine the guilt and the grief that that leads to.I wish to turn if I could to several of the clauses that are embedded in Part 1 that I think it would be very helpful to get some clarification from the Minister on. Firstly in clauses 4 5 6 and 8 the bill is updating the definitional language in the Child Support Act. It redefines the benefit types—in terms of the reference to jobseeker support—in subsection (1A) in clause 4(4). It is updating language around transitional applications etc. in clause 5. It is reaffirming in clause 7 that any parent or carer of a qualifying child can apply to the commissioner for a formula assessment. The restating of that in clause 7 which replaces the old section 8(1) I think is very very important. Circumstances change and oftentimes separating parents will be able to enter into an agreement not necessarily foreseeing all future changes and of course the law provides the ability for either parent to return to the court return to the law and to request a formula assessment.The nature of that assessment therefore becomes as important as the process by which it is conducted. So the bill goes on and in clause 9 it inserts new section 13A which states that the commissioner must refuse to make a formula assessment in respect of a qualifying child old enough to demand in their own right an assessment if subsection (2) or (4) applies. That means if they are already covered I think by a receiving carer. But the Minister might wish to comment on the application of subsections (2) and (4) because it is a very confusing reverse link and we would like clarification of how that impacts and the precise grounds in summary on which the commissioner must refuse an application from a qualifying child. The qualifying child definition in itself is a complex one.New section 13A goes on to say in subsection (3) that subsection (2) does not apply if the applicant is a parent and the child has “a parent with whom the applicant is not living in a marriage civil union or de facto relationship; or (ii) a non-parent carer with whom the applicant is not living in a marriage civil union or de facto relationship.” So if the application is made by a parent and the child has a parent or a non-parent caregiver who is not living with them then the subsection applies.It is a complex piece of law because you have got several tiebacks if you like to earlier sections and I would really appreciate it if the Minister would take a call and just clarify in summary what the criteria are for the very strong language in section 13A(1)—“The Commissioner must refuse to make a formula assessment”—because prima facie it seems to lean against the principle that either parent or a qualifying child can request one. So it is rather important to be clear about when and why the commissioner must refuse—because it is a “must”.Clause 10 of the bill amends the original section 25 and notes when liability to pay child support ceases. That is important again because it is impossible to foresee every particular circumstance but we need to have general rules. It is possible under new section 27 in clause 11 for the receiving carer to elect to end a formula assessment. The law is I guess attempting to provide for a basis where a child support agreement can be updated by either party both to bring in a formula assessment or if circumstances change to end it.So for example a custodial parent—often the mother—may re-partner or may enter into a relationship where there is sufficient material support for all of the children of that blended family and the previous formula assessment no longer applies because it either does not fairly reflect the balance of income of the two originally separated parents or it is not needed at all because frankly the new blended family is materially well enough resourced and the non-custodial parent’s contribution becomes unnecessary. These are difficult and complex matters and it is well known that there have been multiple iterations of tax law.TIM MACINDOE (Senior Whip—National): I move That the question be now put.STUART NASH (Labour—Napier): There are just a couple of things that I would like to talk about concerning a couple of clauses. One is clause 57 and this relates to an amendment to the Child Support Amendment Act 2013. This is quite important because what it says is—obviously 2013 legislation is rather new so to be amending it now is not ideal—that we replace a new section with this and this allows the commissioner to determine when he or she would write off penalties. And the replaced new section 135GA(1)(b) says: “the Commissioner is satisfied”—this is the ability to write off; they will not collect penalties—“that recovery of those penalties would do either or both of the following: (i) place the liable person in serious hardship …: (ii) involve an inefficient use of the Commissioner’s resources.”First of all let us have a look at the definition of “serious hardship” because it is defined in section 226C(5) of the Child Support Act 1991. And this is quite important—as MPs we will have dealt with constituents who are paying Child Support who believe that it is too high because of serious hardship. That is actually defined by the Act as the liable person’s “inability to meet minimum living expenses according to normal community standards”. And I wonder whether “minimum living expenses according to normal community standards” have actually changed between 1991 when this piece of legislation came forth and 2015 when we are dealing with it today.Another part is the cost of medical treatment for an illness or injury of the liable person or the liable person’s dependant. What we are saying here is that the commissioner may write off penalties if in fact the liable person has an illness or their wife or husband or partner has an illness that is incurring significant expense which I think is very fair. Or the other one is a serious illness suffered by the liable person or liable person’s dependant. And this is an interesting one because this debate has been in the news recently—so this is defined as “serious hardship” under the Child Support Act 1991 which is still relevant to the legislation we are talking about today: the cost of education for the liable person’s dependant. So if someone is having difficulty meeting the cost of their dependant then they are judged as being under serious hardship. And I wonder because we have heard about this recently—the case of New Plymouth Boys’ High School going very hard trying to collect donations from parents—whether in fact the inability to meet the cost of a donation to a school and I use “donation” in a very wide brief is actually classed as serious hardship.The other thing is of course that what is not included in “serious hardship” is the person’s ability to pay tax or financial support; or if they become bankrupt for example or if the liable person or liable person’s dependant’s social activities or entertainment may be limited which sounds pretty fair. There is no way that a taxpayer or a liable person should be able to claim hardship because they have not got enough money to go to the pub 3 nights a week. But the other one—and this is where I would not mind the Minister just perhaps providing a comment—is that as mentioned the commissioner is satisfied that the recovery of penalties would be harmful; that would “involve an inefficient use of the Commissioner’s resources”.We have heard that 97 percent of parents under the Inland Revenue Department scheme end up at some point in time coming under the penalty regime because they have missed a payment here or whatever. Now I just wonder what that limit is. Is it $200? Is it $2000? How much money does the Inland Revenue Department spend in collecting penalties? For every dollar it collects how much money does it spend? Where is that point? If it is after $100000 does it say it is going to go hard? Whereas if it is $20 or $200 does it decide to pull back? But the corollary of that and I have talked about this case earlier is that if a liable parent owes $100000—and this is not uncommon; it is a lot more common than we would think—would the Inland Revenue Department say that there is no point in going after this person because the only outcome is to send this person into bankruptcy? So I wonder what the definition of “inefficient use of the Commissioner’s resources” is?The other clause I would like to talk about is clause 23 of this bill. It repeals section 45 of the Child Support Act 1991. What section 45 did is it related to—and I actually thought it was not a bad idea—JONATHAN YOUNG (National—New Plymouth): I move That the question be now put.The CHAIRPERSON (Hon Trevor Mallard): I am tempted but this is an important part in an important bill.GRANT ROBERTSON (Labour—Wellington Central): Thank you Mr Chair and I take on board your words that Part 1 is indeed an important part of an important bill. In my earlier contribution I set what I guess was the context of Part 1 which is the review of the child support system. I raised a number of questions. I have been in the Chamber as members of the Labour Party and other parties have raised questions and I do want to just note at the start of my contribution my disappointment at the lack of any substantive replies. These have been genuine questions about a very complex area of law.As I said in my first contribution everybody in this Chamber understands that there is a need to review child support arrangements that there are inequities and that there is unfairness. What we are asking of the Government is whether or not the proposals here in Part 1 actually deal with those inequities and that unfairness or do they in fact create potentially new inequities. It is very very disappointing that we will inevitably reach the end of Part 1 without a substantive contribution from a Government member on these questions which have been genuine questions.But I will forge on and ask two or three questions about elements contained mostly in the Minister’s Supplementary Order Paper 77 on this bill. Actually the first one will not be on that—I will come to those in a moment. The first question is one that has not been raised so far and that is in clause 4(3) and (4) around the amendment of the definition of “social security benefit” in the Child Support Act. The goal here is to exclude full-time students who are receiving jobseeker support on the grounds of student hardship between academic years. The effect of that for sole parent students who are on a form of student hardship benefit during the summer break would be to be treated as being off benefit for child support purposes.I can understand the logic of that particular situation and I do know for people who intend to continue being full-time students who are parents that the period of time outside of when they are eligible for student allowances can cause them financial issues and difficulty because you go from a relatively generous student allowance as a parent—because it takes into account the number of children you have—to transitioning to other types of benefits. Most recently a payment has been available for those parents over the summer break where they had the intention of returning to study the next year which is called the student hardship support effectively.What I think these clauses are doing is allowing a person to be said to be earning sufficient income to be still meeting their responsibilities for child support payments but I am actually not sure about that in all honesty looking at the definition. It is a change that we did not dwell on in the select committee. It would be fair to say that most of the select committee’s time was spent on other parts of this bill so I would like some clarification that the effect of this change will not be to penalise those parents. That is the main point that we need to make sure we are being clear about here.Administratively I can see that it would make sense but we do need some assurance that parents who are in that situation who are potentially having slightly shifting levels of income are actually now going to be treated more fairly more sensitively as a result of this change. I just do not know reading it the way that it is written here. It is partly because it is a definitional question within that part of the bill rather than a substantive one but it was not something we covered but it does get a mention in the Minister’s Supplementary Order Paper.The other matter in that Supplementary Order Paper that I am looking for some further answers on—and other members have raised this point; I acknowledge that but we have not had an answer—is the question of the change from it being the commissioner defining whether or not there should be relief on the grounds of efficiency of use of resources versus the commissioner now having a wider set of criteria to judge whether there should be relief from payments; in particular the question of serious hardship. I have several questions on this front. “Serious hardship” sounds like a term beyond “hardship”. I do not think there is anyone in this Chamber who would want to see children in hardship as a result of a decision that we were to make in this Committee. So putting the word “serious” in front of the word “hardship” in these changes is pushing out where the commissioner could intervene and say “Actually no I want some relief from penalties for this family because the children of this family will suffer if that parent is in hardship.”IAN McKELVIE (National—Rangitīkei): I move That the question be now put.The CHAIRPERSON (Hon Trevor Mallard): I am not going to take it now; I am going to make it clear why. I have been listening to this debate from outside the Chamber and I have been listening to it now. The purpose of the Committee stage debate is for the principles accepted in the second reading to be checked against some technical details of the bill. An important part of that from my perspective is the ability for members to have an interchange with the Minister in charge of the bill and to ask questions. Clearly if the Government declines to take part in that it will not go on for ever but I want to reiterate the message that I have previously given to the Committee and that is that closure motions are more likely to be accepted in a shorter time period if Ministers have engaged in a positive manner to non-political technical questions.GRANT ROBERTSON (Labour—Wellington Central): This is a genuine question and it has been asked not just by me but by other members. I will just finish the point I was making before the end of that last call which is that there is a significant change here in the way in which the Commissioner of Inland Revenue can decide whether there should be some kind of relief from penalties. That in principle sounds fine to those on this side of the Chamber. What we are now trying to endeavour to understand is what the meaning of that is and what the extent of that is.Firstly we have got the change from the question of efficient or inefficient use of resources through to the question of serious hardship. And there is a second part which also requires some clarification: “or that it would be fair and reasonable to grant relief.” That is actually quite a different matter from the question of serious hardship—and this was the concern raised by one of my colleagues—and is that we now have effectively quite a subjective test around what is fair and reasonable and also what is serious hardship. So I would like a member of the Government to be able to get up and describe to this Committee whyfor instance the word “serious” appears in there rather than just the word “hardship” because as I say I do not think any member on either side of this House would be wanting to pass legislation that effectively forced hardship upon children.The second point I want to make around this change is the focus on the role of the commissioner in doing this and what resources and what information the commissioner uses to make these decisions. Bear in mind that we have moved from something that is within the commissioner’s purview—the question of the efficient use of resources—to something that is much more now about the family. It is about the circumstances of that family. I do not think that the Government should necessarily have to put this in the law but what I am not clear on from the lack of response from the Government is what information the commissioner will be using what access to information the commissioner will have and whether they will be enabled to effectively investigate and work with those families.That has actually been one of the criticisms of child support up to now: that just applying very mechanistic criteria has meant that you miss out on a lot of the things. My colleague David Cunliffe was mentioning before what happens when you have got a blended family and that we have not in the past taken into account the change in circumstances. Good—that is good—but what we do not know with such a significant change in the criteria for this is exactly what information will be used and how the commissioner will go about their jobs. I think it is important for this Committee to be able to understand that.We appreciate the idea here that this will help reduce the amount of debt owed from penalties. Of the $3 billion debt 75 percent is penalties. We can all see the penalty regime is not working because people are not actually paying it back. Let us get a fairer system in place. Let us give the Commissioner of Inland Revenue some more tools in order to be able to do that. But I am not clear today as a responsible member of this Parliament about exactly how the Commissioner of Inland Revenue will go about implementing this what information she will have or what tools will be at her disposal and then I am not confident about the definitions that are being put in place.I do not want to stand up in my constituency after this when there are already enough concerns about the child support regime and be so unclear. We are not I predict in a Nostradamus-like way going to get a detailed response to this matter from members opposite and the National Government needs to ask itself: if it is going to bring legislation to this House that makes major changes to the way child support works that its members are not prepared to back what does that mean? Does that mean those members are really committed to these changes? Does that mean they actually want to see a fairer system? Or is it once again another one of those bills papering over the cracks? I offer the opportunity now to National members to stand up and defend this legislation define what these terms mean and reassure New Zealanders that this will still be a fair system.Hon CLAYTON COSGROVE (Labour): I want to take up where Mr Robertson left off because one of the points that I made in a prior contribution one of the difficulties that we have had with child support in the past—and it is not levelled as a criticism of the Inland Revenue Department—is its inflexibility. Where you have relationship breakdown where parties to the relationship the parents cannot agree on the best way in a monetary sense to ensure the kids are looked after then the State has a role to intervene. That role is pretty inflexible because until somebody invents a technology that determines the definition of a good parent as it were a formulaic response is our next best option.Clause 44 as Mr Robertson said has introduced—and I think it is a good thing—an element of flexibility but in doing that and because we have had no clarification from the portfolio Minister Mr McClay or non-portfolio Ministers in the chair such flexibility although on the one hand being very positive also creates uncertainty on the other. So as Mr Robertson and others have asked what is the definition of inappropriate? Clause 44(b) states: “(ii) if the Commissioner considers automatic deduction inappropriate in the person’s case” they may consider “another payment method acceptable to the Commissioner.” That is great. As I have said in a previous contribution the last Labour Government did a similar thing in respect of small businesses. When the Inland Revenue Department was advised there was a difficulty everything froze and a repayment deal if you like was worked through so that the business could hopefully survive and meet its obligations. The Crown would get its money and the taxpayer would be recompensed and the deal was done if you like. On the surface it may well be that this provides a similar benefit ensuring the liable parent meets their obligation which is paramount but ensuring that it can be done in such a way that they are not buried in penalties.This is a good thing but as Mr Robertson said it would be helpful if we could get some clarification around definitions. What does appropriate mean? Is it a “finger in the air”? Is it the amount of income that somebody receives? It could be a multitude of things because it puts the commissioner—although you do not want to overly define it because that is actually defeating the purpose of the nature of flexibility. I would have thought that there would need to be at least on the record of the House which is often quoted in courts in New Zealand some sort of clarification as to the parameters of what would be considered appropriate or not. Otherwise it just simply becomes arbitrary.I see if you go to the regulatory impact statement around this particular issue on page 8 “Objectives” the objectives of this section of course are to “a) reduce child support debt” “b) reduce the implementation costs of the reforms;”—well I have to say that has come a gutser completely given the blowout that has occurred but we will write that one off for the moment—“c) improve the fairness of the child support scheme so that it reflects social and legal changes which have occurred since its introduction in 1992;” and “d) promote” indeed “the welfare of the children in particular by recognising that children are disadvantaged when child support is not paid or not paid on time.”The question is the payment of child support on time—because often payments are made but there is substantial delay often for genuine reasons often for reasons of unfair leverage from one partner on the other and a whole range of other things—is that going to be considered in terms of the factors that the commissioner would consider in respect of altering automatic payments?I think these are really important issues that will end up I suspect challenged in court. And as I say Hansard is used as evidence in court from time to time and it would I think help—and presumably the Inland Revenue Department will put out guidelines which do not have the weight of legislation around this or maybe it will not. We do not know but if you are sitting there just looking at this bill now we commend the Government for clause 44 but we have no idea actually what the parameters of those decisions will be and how they will be made. Will it be a set of criteria drawn up by officials and put to the commissioner? Will the Minister have any role in that? I presume not because the commissioner is independent.But I think as others have pointed out these are not actually political issues. They are really serious issues if we want to get this thing right and child support has been and continues to be extremely complicated.STUART NASH (Labour—Napier): There are just a couple of clauses that I would like to talk on and one is clause 14 “Section 35 amended (Adjusted taxable income)” which talks about adjusted taxable income and the other one is clause 16 which amends section 39A and that talks about the fact that the commissioner may take overseas income into account.The reason why I have a couple of questions on these clauses is that it seems that the language in the bill is a little bit arbitrary and whenever I see the word “may” or “might” as opposed to “must” I wonder under what circumstances the commissioner is actually going to exercise his or her judgment. As a number of colleagues have alluded to we need a system that is robust and we have to ensure that liable parents are actually meeting all of their responsibilities with regard to the children they have got. So this is why I wonder why the heading of this clause is “Commissioner may take overseas income into account”. Under what circumstances would the commissioner not take overseas income into account?What I actually would have liked to see here is “Commissioner must take overseas income into account” because if it is only a “may”—if it is only an arbitrary decision about whether the commissioner will or will not—there are two implications here. The first one is that it can be challenged in court and what could possibly happen is that a wealthy taxpayer a liable parent may start transferring income overseas or come up with some fancy scheme where it is deemed to be overseas income and then he or she may actually take a case against the commissioner to court because there is no obligation to count that overseas income as income as calculated for his or her liability under child support. So under what circumstances would the commissioner look at overseas income or take overseas income into account and under what circumstances would the commissioner not take overseas income into account? I just think it would have been a lot clearer if there had been an obligation on the commissioner to take overseas income into account.The second clause I would like to look at is clause 14 and this talks about a person’s adjusted taxable income. The term “adjusted taxable income” was actually amended in 2013 to bring it in line with Subpart MB of the Income Tax Act and this relates to family scheme income for example—and it says here that income from certain trusts is included. Again what brings a trust into the scheme and what keeps a trust out of the scheme? I think we are all well aware—or if we are not then I certainly can make people aware because I have come across this a number of times—that people hide income in trusts. In the past I remember in 2008 the Inland Revenue Department did some work and it had determined that about 10000 New Zealand families were getting Working for Families because they were not declaring income that was derived from their role as a beneficiary in a trust and therefore they were entitled to it. We changed the law because of that and as a consequence it made it a lot fairer and it made it harder for people to hide income in trusts and therefore avoid their tax responsibilities.But why have we included here only certain trusts? I would have thought that if you are drawing income as a beneficiary from a trust it is pretty clear. It does not matter whether that trust is income you have received from a business venture or whether it is money you have received because you have been lucky enough to inherit it or whatever—it is still income. I would have thought that if we wanted to make this scheme fair and if we wanted to ensure that it is in fact the children who are benefiting out of this we would eliminate any scheme or trust income that is allowed to be hidden or not taken into consideration when determining someone’s liability. I am unsure—the Minister in the chair Jo Goodhew may have some thoughts about this. I am sure she has some private thoughts about this because I am sure like most MPs that she would be disappointed if not disgusted to learn that there are actually still legislative means to hide income for the purposes of assessment for child support.So they are just a couple of quick questions. They are quite relevant because in this day and age there are a number of Kiwis who are earning overseas income. It is easy to structure your affairs. There are a number of Kiwis—and we know this—who are deriving income from trusts.Hon JO GOODHEW (Minister for the Community and Voluntary Sector): I want to respond to a couple of the questions that have been posed by Opposition members during this debate insomuch as I have sought some advice on answers to them.In terms of serious hardship which is a question that has been raised it is already defined in the Act and it has been in place for a number of years. With reference to Supplementary Order Paper 77 this ensures that the serious hardship provision can be used in a wider range of situations alongside the “fair and reasonable” test in order to write off penalties. So that is some clarification that I have been advised on with regard to that question.The question “Does the change to the student hardship benefit definition penalise the student?” has also been raised. In answer to that question the answer is no. The change in the definition will mean that sole parents who are students and who go on a benefit for student hardship are not forced to apply for child support; they can continue with any private arrangement. So I thank the members opposite for their questions and I hope that adds some clarity to the discussion.TIM MACINDOE (Senior Whip—National): I move That the question be now put.A party votewas called for on the question That the question be now put.Ayes 89New Zealand National 59; Green Party 14; New Zealand First 12; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 32New Zealand Labour 32.Motion agreed to.The question was put that the amendments set out on Supplementary Order Paper 129 in the name of the Hon Todd McClay to Part 1 be agreed to.Amendments agreed to.Part 1 as amended agreed to.Part 2 Annual rates of income taxGRANT ROBERTSON (Labour—Wellington Central): I want to thank the Minister in the chair for taking a call and I am not supposed to refer back to the last part but it was useful to have those reassurances and I do think it would be good as we go through the remaining parts of this bill if we could have that continuing dialogue. I am not wholly convinced I have to say by the Minister’s answer but at least we got one.Part 2 of the bill is a relatively simple part but it is one I think that members of the public will be very interested in because this is the bit where we set the tax rates—the rate of tax that New Zealanders actually pay in a given year. These are the annual rates for the 2015-16 year. It was not a subject of massive debate when the Budget came before the House because the Government did not propose to make any significant changes to those tax rates but they are a matter of significant public interest for two reasons: one historical and one looking to the future and that is what I want to talk about in this call.The tax rates as prescribed in Part 2 of the bill are those imposed by section BB 1 of the Income Tax Act 2007 and they must be paid at the basic rates specified in the schedule of that Act. What those rates are which I am sure most New Zealanders know is that from $0 to $14000 your marginal tax rate would be 10.5 percent; from $14000 to $48000 it is 17.5 percent; from $48000 to $70000 is it 30 percent; and from $70000 upwards it is 33 percent.It is that point that I want to note because each year as the House comes to this particular clause or part in a bill it is the bit where we remember what happened in 2010. It is when we remember that a National Government faced with an economy coming out of the global financial crisis—still in it in terms of the effect on most businesses—made the remarkable decision that the best thing it could do with the resources of the Government was to give tax cuts that benefited the highest income earners. That was the best thing that the National Party could come up with: a set of tax cuts where 43 percent of the benefit of those tax cuts went to the top 10 percent of earners. That was the effect of those tax cuts. The effect of those tax cuts was to widen inequality in New Zealand.The Child Poverty Action Group has a wonderful graph and it actually shows that inequality started to reduce once Working for Families was brought in and it continued to reduce until we get to the point of these very tax cuts when it clicks back up again. So that was the effect of the tax changes enshrined now in what we are doing in Part 2 of this bill because Part 2 of this bill reaffirms that decision. It reaffirms the decision taken by this Government to say: “We think the wealthiest of New Zealanders need a break. We are not so concerned about those on low and middle incomes—they can make do for themselves—but if we give that tax break to the wealthiest New Zealanders it will trickle down.” It has never changed—the National Party’s view that that wealth will eventually trickle down. Well it has not happened—it has not happened.Then rather than come back to this House and in this piece of legislation as it could be doingin Part 2—and actually Part 2 would be much longer if it had—prescribe new rates for schedule 1 of the Income Tax Act but it does not because those rates are not changing because this Government is prepared to let inequality grow. If we look to the future as I said I would do we now have the prospect that we will have a longer Part 2 in the version of this bill that will come before the House in a couple of years’ time because the tax cut carrot is being dangled out again by Bill English the finance Minister only just a couple of weeks ago. He is dangling out tax cuts as the economy slows down. We hear this morning that unemployment has gone up to 6 percent; there are 11000 fewer people in work; there are 151000 New Zealanders unemployed.And what could the Government do? It could invest in the regions support research and development support diversification of the economy—but no it wants to dangle out tax cuts again no doubt again weighted to the wealthy. It wants to dangle out a change to the provision in the Income Tax Act that Part 2 of this bill amends because that is its real goal: to reduce that heavy heavy burden on the top income earners in the vain hope that somehow that will trickle down to hard-working ordinary New Zealanders who go to work each week and pay the taxes in the middle bands that are here in Part 2 of this bill and who do not feel themselves getting ahead. They have not been given a break by this Government. This Government does not care about them; it only cares about those people at the high end. Part 2 of this bill entrenches that.Hon CLAYTON COSGROVE (Labour): Like Mr Robertson I am grateful to the Minister in the chair for answering some questions on the previous part and I hope that that will continue as we go on.In respect of Part 2—confirmation of the annual income tax rates—it is interesting to note as Mr Robertson has said that it raises an interesting question: as these rates are confirmed what could have been the alternative? I was debating with one Nicky Wagner on radio on Monday—Grant Robertson: A meeting of minds?Hon CLAYTON COSGROVE: —pass—about the skilled jobs that do exist in Christchurch in the private sector that are required. There are quite a few opportunities despite unemployment moving up—to 6 percent as Mr Robertson said—but the real gap in the whole system is training: training for those young people in apprenticeships and in other ways so that they can fill those jobs.The question that arises as we yet again reconfirm what happened when the Government took office—as Mr Robertson has illustrated—is one could look at the alternative and say that the money could have been redeployed and instead of providing tax cuts that enable the top 10 percent to reap the benefits of 43 percent of those tax cuts it could have gone to reducing unemployment and upskilling our young people and others. The earthquake then sadly rolls through and those young people are there ready willing skilled and able to fill those job opportunities as we go through. That is one alternative that could have occurred.If you look across at Australia at the time of course—unlike what this Government did and reconfirmed every year—during the global financial crisis they targeted their tax cuts at middle and low incomes at those people who cannot actually afford to save it. They have got to spend it and they have got to spend it on the basics of life. That allowed money to flow through the lifeblood of the Australian economy. Yes some people spent it on the odd Lotto ticket but in general people had to spend that money.If you are in the top 10 percent I would argue that well there might be a fair few cases of extra wine and a few other things but you will either retire debt generally or you will save it. It does not allow that money to flow into the lifeblood of the economic system. If Part 2 was to be amended to differing tax rates then those tax rates targeted at low and middle income people—they cannot afford the luxuries of life. They have to spend the dough. They have to spend it and that of course engenders money flowing through the system.That could have been an alternative but we sit here today looking at Part 2. As Mr Robertson has said we may as well get the rubber stamp out and bang it on. That Part 2 is sort of xeroxed out every year. It is just reconfirmed and reconfirmed and the Government is quite happy with the policy it has. However as has been stated—and I think people are getting a wee bit cynical with this—as we move to an election in another 24 months out comes the spectre of tax cuts. But the interesting thing will be whether as we revisit Part 2 prior to the next election—whether those tax cuts if they are going to be put in a bill like this will actually be targeted at people in need. Will they be actually targeted at folks who need them? I am sure that a number of people around here have studied history a bit of political science a bit of theory a bit of practical. I would have thought that the trickle-down theory was discredited 20 or 30 years ago. Maggie Thatcher tried it. Ronnie Reagan tried it. I think most people looked at it and went: “Well it doesn’t really work.” But these guys these geniuses on the Government benches feel that they can just reinvent a tired and discredited old political theory.Every year we come back and we have a Part 2 and they do it again and they compound it again and again and again. This stacks up against evidence as others have said of an income inequality gap that widens and widens and widens and the Government simply fails to acknowledge it through any change through a part like this. They seemed very very comfortable and they seemed extremely comfortable with spending the original tax cuts as we reaffirmed in this part. The top 10 percent gets a big whack. Not spending tax cuts on infrastructure and hospitals and capital expenditure putting value into the economy creating jobs—no simply lining the pockets of those folks who are the recipients of 43 percent of the tax cuts: the top 10 percent of the population. I would be really interested in a response from the Minister on those few points.The CHAIRPERSON (Hon Trevor Mallard): I have probably been negligent in that I did not intervene during Mr Robertson’s speech or at the end of it. I just want to remind members that this is a very narrow debate. The two speeches that we have had so far would have been marginal for a second reading and were certainly outside the scope of this debate. I just want to warn members that we have accepted the principles here and it is now just a question of whether the bill actually does what has been accepted or not. If members have not got some point to make on either side of that then they had better not talk.GRANT ROBERTSON (Labour—Wellington Central): I raise a point of order Mr Chairperson. Thank you very much for that clarification and somewhat pejorative explanation of my speech. Can I ask you a question—a point of clarification? When we are debating Part 2 are we able to draw in material relating to the commencement date of that part or would you rule us as not able to do that as a result of there being a separate debate on clause 2 of the bill?The CHAIRPERSON (Hon Trevor Mallard): I think that if members made passing reference it would be acceptable but if people try to focus their entire speech on something that is actually part of a later part of the bill then I will rule them out of order.STUART NASH (Labour—Napier): I would like to stand up and talk to Part 2 of the bill. The wording around this is actually quite interesting because what this relates to is schedule 1 of the Income Tax Act 2007. The wording in that Act is actually quite humorous because what it says is that a person’s taxable income—this is the formula for deriving a person’s taxable income: “tax under table 1 ÷ taxable income;”. You read that and you go: “‘tax under table’ well goodness me are we including that now?” Luckily they define ‘tax under table 1” as the “Table 1” below that formula so it is not actually “tax under table 1” it is actually “tax under table 1” which specifies the rates. But I suppose that if you read that in a particular way you may be talking about the tax you have received under the table and that is what you are eligible for.This is an interesting part of the legislation because not surprisingly no one submitted on Part 2 to the Finance and Expenditure Committee. But I suspect that if they had submitted on Part 2 on the rates and if it was open to debate then it would have been quite a robust debate. I suspect there would have been a whole lot of submitters who argue that the tax rates as they stand under Part 2 are unfair and are wrong. I suspect that what they would have done—because we debated tax legislation last night; all submitters but two said that the legislation was rushed it was not fit for purpose and it will only cause a whole lot of problems going forward. I suspect that if we had called for submissions on Part 2—and of course the reason we did not call for submissions—David Bennett: You were only meant to talk about the bill.STUART NASH: —on Part 2 or the reason no one submitted on Part 2 of the bill as on page—I am talking about clause 65 Mr Bennett. The reason no one did put submissions on this is that they knew it would be a complete and utter waste of time. They knew it would be a waste of time submitting on clause 65 because the Government would not have listened. It has gone through anyway. It is actually retrospective and so what is the point? I wonder whether the next time that this comes up because it comes up every year clause 65 or whatever the name is on the particular bill—I wonder whether we call for submissions on this knowing that of course it will not have any impact. But then again the Government is not listening to submissions on a whole lot of this stuff. What sort of submissions we would get and how long—The CHAIRPERSON (Hon Trevor Mallard): Order! I am now going to draw the member back to the bill. Submissions that were not made are certainly not part of the debate at this stage of the bill.STUART NASH: OK. Well I was trying to do that. Part 2 as has been alluded to is under the Income Tax Act 2007. By and large the Income Tax Act 2007 and all tax legislation made before 2008 of which this is a piece of legislation was very good tax legislation. What it actually did is set up the country and New Zealand’s families to reap the rewards of a prosperous economy. That is what the 2007 Act did.Unfortunately this amendment to the 2007 Act—because of course these figures have to go into an amended Act and they are not changing but if they did change they would have to go into an amended Act. What it does unfortunately—and the former Minister of Finance the Hon Sir Michael Cullen would be disappointed I suspect if he saw that a piece of legislation under his name from 2007 carried tax brackets that in fact defied or undermined the philosophy that he took as the finance Minister when shepherding this 2007 Act through the House. I know that Michael Cullen really took great care when he put tax legislation forward to make sure that it was fair for all New Zealanders not just the top 0.1 percent. He made sure that the tax burden carried by New Zealanders was done in a way that was fair for everyone. He made sure that the tax system was equitable. He made sure that it was fit for purpose. That is what this 2007 legislation did.However amending the 2007 legislation to put in the tax brackets or the tax burden put forward by the Key Government in fact undermines I believe the purpose and the philosophy that Michael Cullen and that Labour Government of which the Chair was an integral part of course—The CHAIRPERSON (Hon Trevor Mallard): OK that is enough.KANWALJIT SINGH BAKSHI (National): I move That the question be now put.A party vote was called for on the question That the question be now put.Ayes 63New Zealand National 59; Māori Party 2; ACT New Zealand 1; United Future 1.Noes 58New Zealand Labour 32; Green Party 14; New Zealand First 12.Motion agreed to.Part 2 agreed to.Part 3 Amendments to Income Tax Act 2007The CHAIRPERSON (Hon Trevor Mallard): The question now is that Part 3 stand part. Just for clarification this is debate on clauses 66 to 220 and on schedules 1 to 3.GRANT ROBERTSON (Labour—Wellington Central): I was just pausing briefly there to see whether any member of the Government would like to stand up and talk about substantive changes to the Income Tax Act that are all about according to the commentary around this bill improving research and development making the taxation system more efficient dealing with GST and bodies corporate changing Working for Families tax credits—anything? Nothing at all from the Government. It is absolutely remarkable Mr Chair that as you yourself have just alluded to there are 150-odd clauses—or something more than that—in this particular part of the bill. The Finance and Expenditure Committee spent significant time going through a number of issues within this bill checking and then rechecking as to how it would be implemented and not one member of the Government wants to get up on their hind legs and tell us why they are doing it.What does that tell us about what those members are doing here? What does that tell us about their commitment in particular to research and development which is one of the major issues dealt with in Part 3?Dr David Clark: All for show.GRANT ROBERTSON: All for show—that is what it is because if they actually wanted to do something substantive about research and development we would actually be hearing from them about research and development tax credits because that is actually something that the sector wants. It would give some certainty for investment in research and development but there is nothing about that here.One of the main features of Part 3 and the one that I want to talk about in this first of my calls is around the cashing-out of losses for research and development expenditure. There is no doubt that there was a considerable level of sympathy inside the committee for this particular clause. Everybody knows particularly when you are starting a business that being able to invest the money into research and development that you need to create the value in your business to build it and to bring on new products is difficult at the start when cash flow is tight when you have got other things on your mind and when you have probably financed the business out of an extra mortgage or something like that. That ability to be able to deal with research and development or actually get into research and development is limited.So we all know that in the first years of life of companies in New Zealand most of them make losses. It is one of the things that when you do not follow closely the fortunes of particularly small businesses a lot of New Zealanders would not understand. Actually the hard graft of the early years of a business includes almost inevitably making losses year on year at the beginning. It is very difficult at that point to be able to put that money into research and development that is required. So the idea of cashing out losses for research and development expenditure is something that we would certainly support.What this bill does and what this part does is allow certain loss-making companies—and we will come back to that in a minute—to cash out tax losses for research and development expenditure to a limit of $500000 in the first year and $300000 in subsequent years. The important point here is that although those losses can be cashed out and repaid once the company makes a return on its research and development investment it does have to repay it. So that is the point. Companies can cash it out at the point at which it is a cost to them—it is part in effect of the fact that they have made a loss—but then they have got to return it and this to me is the weakness in the National Government’s regime that is being put in place here. By all means have that as part of the process by which companies can make investment in research and development but where is the other end of the equation? Where is the ability of all companies to have some certainty that they can invest in research and development? Because it is not here.It is in fact a deficit model in all respects. It is a deficit model in the sense that it deals with losses but it is also a deficit model in terms of the value of research and development. It is just the smallest of possible gestures that could be made to support research and development. Yes it is welcomed by those companies and those firms that will inevitably take it up and cash out the losses but where is the imagination? Where is the vision for really kick-starting research and development? One of the lowest levels of private sector research and development expenditure in the world is in New Zealand and this legislation says: “Well we’ll do this small piece of tinkering that will help a few companies deal with their inability to really invest in research and development in the early stages of their business.” So I would welcome a member of the Government getting up and telling us—is this it? Is this it in terms of research and development? Is this as good as it gets in terms of how the Government thinks we should be encouraging and facilitating one of the things that will truly drive economic growth in New Zealand and that is investment in research and development? So that would be one particular area that I think we do need a little bit more work on.We certainly got submissions at the select committee that were concerned about issues like the thresholds how the thresholds could be increased over the years and how we were making assessments about whether this really was research and development. One of the things that the committee dwelt on was who would be brought in to make the decisions about this. It will be—I can say that the Inland Revenue Department told us at the select committee—Callaghan Innovation that will play that role. The committee members were relatively assured of that. Callaghan Innovation has a broad range of experience when it comes to research and development.There were some concerns raised at the committee as to whether or not Callaghan Innovation has the capacity for this in terms of its own work. We were assured that effectively the Inland Revenue Department would be paying for the services. There would be a retainer in effect. The other concern that was raised by committee members was the timeliness of Callaghan Innovation’s ability to actually be there make the decisions and enable a business not to have to sit around and wait to see whether or not the work it was doing or the expenditure it was undertaking really was research and development. Again we were assured by Inland Revenue Department officials that that would be dealt with. But I do think there is a real cause here for a Government member to get up and tell us how this in effect does improve research and development in New Zealand and what else the Government may have planned because goodness there had better be something other than this.There are several other issues in this part that I will come to over the next couple of calls. The next thing I want to do is talk about the question of “black hole” expenditure which again the committee spent a little bit of time dealing with. The bill amends the rules relating to “black hole” expenditure and for those who want a definition of that which the committee itself did when we were dealing with it “black hole” expenditure is business expenditure that is not immediately deductible for income tax purposes and cannot be deducted over time as depreciation. The proposals are effectively dealing with a number of anomalies under the current rules that were to be fixed. I guess where the committee got to was around questions like patents trademarks and how we deal with those from a tax deduction perspective. What we got in terms of submissions was that there had been a lot of uncertainty in the accounting profession around exactly what was covered and what was not and the amendment of these rules effectively allows an extension of an asset’s cost to include the underlying item of what is called “depreciable intangible property”. That sounds extremely technical but it was from the submitters who came to us a point that they wanted some clarification on.I will be frank. I do not think committee members across the parties when this was being raised were able to be completely assured that there would not still be loopholes because it is such a technical area. The idea that accountants will now scour through this to see whether there are loopholes and whether things can and cannot be taxed within those areas like patents and particularly when patents are looked at versus knowledge that already exists—how do you construct a taxation regime around that? We have to have some confidence in the officials here that the treatment of “black hole” expenditure is now going to be clearer but I think it does draw to the attention of the House the importance of definition in making sure that taxation law works. We have been assured that we have got that here and I hope we do.The final area I want to talk about in this call—and I definitely want to hear from a member of the Government on this—is the question around GST and bodies corporate. What the amendments here are slated to do is to clarify that services provided by bodies corporate are supplies for consideration for GST purposes and give bodies corporate the option to register for GST. This is effectively about rules that protect the tax base from the adverse consequences of allowing this choice.Dr DAVID CLARK (Labour—Dunedin North):In rising to speak to Part 3 of the bill I acknowledge that it is the substantive part where all these changes are made. I join my colleague Grant Robertson in challenging Government members and Ministers to speak on this bill. I too find it odd that there was not great competition for calls to speak about these changes.The Income Tax Act is a very important Act we are amending. It is the Act that provides us as a country with the resources to afford the assets that we hold in common—the hospitals the schools the roads and the courthouses.Without a robust tax system that promotes enterprise and ensures people pay their fair share of tax from the profits of those enterprises towards the common good we as a country will not go forward we will not grow and we will not maintain the level of services that we have come to expect as a country and the growing level of services we will look forward to in the future.For example in the health sector where the cost of health care goes up and up every year due to new technologies that enable better quality of life in old age—we on this side of the Chamber want a robust tax system that can support those standards of living that we all want.The Government has acknowledged that it has not funded the health system to meet inflationary pressures.The $1.7 billion estimate that Infometrics has put on the underfunding of the health system has a very real consequence for New Zealanders.So I would challenge those members opposite to get up and say why it is that they want to make these changes why they do not want to make the bill more robust still why they do not want to promote enterprise more and why they do not want to have research and development tax credits in here in a way that is readily available to all businesses so that we can actually grow the economy.The current situation where we pick winners and have in this piece of legislation and in this part of the Act clauses that promote a very narrow type of research and development that may benefit the Minister when he wants photo opportunities but does not actually benefit the country in the way that it should is something that needs to be debated. The Government members opposite should justify why it is that we have these narrow research and development provisions in the law and not much broader ones. I expect that the Minister in the chair Nicky Wagner will have some thoughts on that. I look forward to the Minister speaking a little bit about the vision for research and development that she has that we all should buy into because at the moment it is not obvious why it should be so narrow and this is a very important part of the bill.In this contribution I want to speak about some very specific points and the first of those is the exception for overseas accommodation and the second is the exception around accommodation provided to ministers of religion.I think that both of these things are worthy and should be supported for very different reasons.The overseas accommodation exemptions aim to include in calculations at a reasonable level the benefit derived from allowances or payments. I refer members to clause 69B of the bill. These changes are an attempt to ensure that overseas accommodation is supported. So when enterprises are moving out overseas and are expanding their businesses they will have the support necessary to do that in a manner that ensures that they can go about their business in a reasonable way without a great big payment exemption or luxuries being carved out that would stop us getting our fair share of tax from companies and that actually promotes enterprise.I think that one of the basic principles of tax policy is to ensure that it is fair but also to ensure that it promotes economic development in a way that certainly I care about and members on this side of the Chamber care about. Of course we know that Labour Governments historically have had much higher growth rates than National-led Governments.Since World War II National-led Governments have grown the economy on average by 2.9 percent—not bad in itself—but Labour Governments have grown it by 3.7 percent. So we need provisions like this in the law that ensure that enterprise is promoted.The second area I want to speak about specifically is the exception for accommodation provided to ministers of religion. This has been a little bit contentious. I think though that the contentious aspects of this seem to have gone away in the way that it has been resolved in clause 70 as we have here in the bill.We eventually amended the laws around this if memory serves me correctly in the last annual rates and remedial matters legislation that went through for the 2014-15 year in order to ensure that remuneration for accommodation was not calculated in the tax—and the Minister will correct me if I am wrong I hope or the members opposite may rise to their feet and take a call.The attempt was being made to ensure that the remuneration given to ministers for their accommodation—recognising that they are sent places that it is a calling and that it is not necessarily a benefit of a luxury nature—not be counted in their salary.Effectively at one level you could say it is a kind of perk and at another level it is an attempt by the State to support the work that traditional ministers of religions do in small communities around the country.In many small communities particularly those struggling to get new enterprises off the ground—those that were once thriving communities and industries that have struggled in recent years for which we could lay some blame at the foot of the Government for its lack of regional development policies but let us talk about the principle here—those communities often have as the last remaining professional member in them a minister of religion. This is somebody who has a level of education and has been trained in critical thinking in a way that enables them to act in those communities as counsellors or as peacemakers.Often they are the people who will sign official documentation because there is no other professional person in town to witness documents. These are simple everyday matters. They of course bury people and they marry people and so on. The “hatch match and dispatch”—I have people heard people talk of that in those regional communities. That is part of the role of those ministers of religion.But recognising that they are those people who do those duties in those towns and that they actually provide a valuable service and that the State wants in some way to recognise that through trying to ensure that the tax system does not overly penalise them for that accommodation that they have was the intention of the changes last year.The amendments here—I assume having not been a part of that particular debate on the Finance and Expenditure Committee—are aimed at ensuring that the principle that sat behind the amendments we made last year are effective in this law. I refer members to clause 70(3B)  where it says: “For the purposes of subsection (3)(a) the calculation of the amount of the item remuneration excludes the value of accommodation described in subsection (1) that is provided to the person.” That to me as I read it is a clarifying statement to make that absolutely clear. We can only assume that there had been some disputes as a result of the annual rates and remedial matters legislation last year and that therefore the officials have come back in order to make that abundantly clear. I hope my memory of that is correct.I see many officials here who will be available to brief Government members should they have questions or the Minister in the chair if she is not clear on the issue. I think it would be good to clarify for the Committee whether this clause is designed as a clarifying aspect or if indeed it does in some way alter the purpose which I have not captured. I am interested to hear that. I think it is a principle that this Committee should understand so I expect the Minister in the chair may wish to address that—certainly if I have misunderstood it.The other matter I wish to address in this contribution—sorry I am just finding my page. It was around the research and development tax credits—there is a specific paragraph. I have taken my finger off the page. I got so wound up in my exposition around overseas accommodation and the exemption of property provided to ministers of religion that I have lost my place. I might wait for that contribution to be made in another section of the bill because I have lost the page and I do not wish to delay the matters progressing in the Committee.FLETCHER TABUTEAU (NZ First): I just want to continue down the line of tax incentives for business. Originally the legislation spoke about incentivising research through tax write-offs. It is a tax remedial bill. New Zealand First looked at that in some detail. In our contributions we noted that the issue with that was it was not actually supporting 98 percent of New Zealand businesses. It seemed to disincentivise or even more than that prevent small to medium sized enterprises from using the tax claim procedures so that they themselves could use the tax write-offs as an incentive to encourage research. It is a small part of it and I acknowledge that the officials have done some work and we are moving in the right direction.But I just wanted to put some context in and around the bigger picture of research in New Zealand. The slump in dairy prices of over 10 percent today just highlights New Zealand’s hang-up with commodities. What we see is a kind of cycle not just in New Zealand but around the world where we invest and then we do not because the prices drop and then there are fewer players in the market so the prices go up so we invest—and so the vicious circle goes on. I know a lot of farmers in New Zealand are quite anxious about the intellectual property that has been sold to overseas dairy interests and so we are kind of competing to provide the lowest price to the world market. That model just cannot carry on for an extended period of time. What I am saying to the Committee today is that you have some very small micro opportunities here in terms of incentivising research. The Government needs to acknowledge this and move our economy out of that commodity conundrum.I was looking at some research and I would like to bring it to the Committee’s attention. New Zealand exported $50 billion worth of goods in March this year. This was the total annual amount: $50 billion—fantastic. It sounds fantastic. We are a population of 4.6 million people. If you contrast that with Singapore that country exported $410 billion worth of goods or commodities. That is about $10500 a person for us and for Singapore it is $113000 per person. I want to highlight the fact that Singapore is an economy that incentivises research. Singapore is meaningful about it and it takes it beyond the tax breaks. Only one of its top 10 exports is actually a commodity and that just happens to be oil. The rest are goods that have intellectual property in them; they have value added. That is a conversation that has been had in New Zealand for decades on so many of the products that we sell abroad—that value-added conundrum. I suggest and I assert actually that this legislation is just a tiny step in the right direction. Research and development expenditure in New Zealand for example is 1.6 percent of GDP. That is tiny and compared with the OECD average it is about half of that. So we have real issues that need to be addressed.This is a start as I have said a couple of times and I will make reference to some of the clauses that I am referencing. So I will speak specifically to clause 192 new Subpart MX in the Income Tax Act 2007. As I said we spoke insistently and strongly about the tax incentives needed for small to medium sized businesses. We noted that the original drafting of the bill did not even acknowledge small to medium sized businesses—well it did but it did not really give them the opportunity to write off those costs because it was kind of post or after the fact. A lot of them were running losses. They were not making the profits that would enable them to compensate as it were for those losses in terms of research.The section I am speaking about is MX6(4): … “the company is liable for an amount of R&D repayment tax equal to the total of the company’s R&D loss tax credits for the tax year corresponding to the reinstatement year and earlier tax years minus the total amount of—”. It explains it in detail. It is hard to summarise it because it is so complicated so with your forbearance I will just read out the paragraph that I think is particularly pertinent: “(a) the company’s terminal tax plus tax credits giving rise to imputation credits minus refundable tax credits giving rise to imputation debits for tax years in the period beginning with the earliest credit year and ending with the tax year corresponding to the reinstatement year:”. It is incredibly complicated language but what I wanted to acknowledge is that that part does mitigate somewhat New Zealand First’s concerns around small to medium sized enterprises being left out.But I ask the Minister—and I ask this earnestly—if this is what was actually wanted what was the subsequent consultation to reaffirm that that was the outcome from this altered clause? Are you getting what you intended from it and are our small businesses able to benefit from it?Just to finish off I keep raising the point—I have in the past—about unintended consequences. Some analysis on this would be hugely helpful. It will be important to understand just how that works in practice. Perhaps if I just leave my contribution there and wait for my next contribution to be able to take on another part separately. Thank you.STUART NASH (Labour—Napier): Research and development tax credits and black-hole expenditure were a big part of this bill and I will talk about those in a second but there is one clause that I would like to talk about which has sort of flown under the radar but I think deserves a bit of attention and that is clause 69. What this clause does is it amends the available capital distribution amount and it is actually to do with the buying and selling of livestock—around the capital gains and capital losses associated with the buying and selling of livestock. The interesting thing about this clause is that it actually comes into force on 28 March 2012.Now as we know there are a number of pieces of tax legislation that are retrospective for a number of very good reasons and we accept that even though one of the underlying principles of tax legislation is that it is not ideal to have retrospective legislation because people have tended to make decisions based on the current law—as they should.This has eluded my attention I must admit. Maybe I was a bit remiss at the select committee when I looked at this. I am not too sure why we have got a piece of legislation that is actually retrospective for what will end up being about 3½ to 4 years. That is a long time. I am assuming that there is a reason behind this—whether that is case law and I suspect it must be. I am assuming what happened is that a farmer went to court because he or she was very dissatisfied with the outcome of a decision that the tax department had given was taken to court and the court made a decision. That decision has to be ratified through legislation and that is why it has gone back to 2012. But it is rather unusual.I must admit that in my short time in this House including my time as Labour’s revenue spokesperson I have not come across a piece of legislation that is so retrospective. I wonder whether it has any implications for farmers or Queen Street farmers and the dealings they have had over those last 4 years or whether there are going to be any unintended consequences. I suspect there are not but it is just worth noting that it is reasonably retrospective. I wonder whether the chair of the Finance and Expenditure Committee David Bennett has anything to say on that considering he must have bought and sold quite a lot of stock over the last 4 years.What I would like to talk about—and this came up a lot in discussion including in submissions—is the eligibility of the research and development credit. As mentioned we talked long and hard about this. We believe on this side of the House that we need a regime for rewarding research and development. The last speaker from New Zealand First talked about New Zealand’s research and development spend at 1.5 percent of GDP. I suspect that it is actually a lot higher than that. The reason I say that is that in this country you have to capitalise research and development. I believe that if we change the law—and this bill does not do that—to allow people to expense research and development then I think you would find it went through the roof. I suspect that at the moment there is a lot of research and development undertaken that is not counted as research and development but is expensed in some way shape or form. But that is a point for another day.I want to talk about Subpart MX2 the corporate eligibility criteria. In the select committee what we were really keen to ensure was that only New Zealand companies took advantage of this because the purpose of this is to grow New Zealand companies to the point where they can take on the world. Certainly there is a recognition that early-stage companies are often the ones that are the shortest of cash or suffer cash-flow crises but that they are also the ones that are spending a lot of money on research and development. So what we wanted to ensure was that a big corporate did not set up in New Zealand simply for the purpose of leveraging off this research and development tax credit. This is Subpart MX2.We had a definition of corporate eligibility criteria and excuse me but I am just going to read this out because I do think it is quite important just to clarify what we are talking about with eligibility. The first point is that the person is a company that is resident in New Zealand and that there is no double tax agreement under which for the purposes of this a person is treated as a resident of a foreign country or territory. This comes back to the point I was making: we did not want a large corporate to set up a subsidiary here with a view to claiming this research and development tax credit.The third point—this is an “and” not an “or”—is that the person is a member of a group of companies and the group does not include a company that is not resident in New Zealand. We talked quite a lot about this and determined at what level we should take this. There was an agreement that in fact what happens with a lot of these early-stage companies is that they set up offshore marketing or sales forces or incorporate small companies to actually commercialise or sell the research and development in another country. We needed to make sure that we allowed that but however avoided the circumstance I was talking about before. We said also that the company cannot be a company that is treated for the purposes of a tax double agreement as a resident of a foreign territory. And of course that the person is not a special corporate entity that the person is not a qualifying company and there are a number of other provisions.I suppose what the select committee wanted to do was to make sure that we set up a regime that was easy to implement. We talked about the cost of setting this up and we did not want a regime where the cost of setting it up was actually greater than the benefit received which would have defeated the whole purpose obviously. But it needed to be easy to access it needed enough money so that it was worthwhile but the costs and compliance needed to be such that the benefit created was way above that.There were thresholds on this. For example if I am right in saying this—Mr Bennett might be able to correct me on this—and if my memory serves me you can collect only $500000 per year up to a total of $2 million. So again we are talking about really the small and medium enterprise sector. If we say the small and medium sector is defined by having 19 employees or fewer—there may be some companies that go above that but by and large we are talking about small growth companies—it is up to a maximum of $2 million.What the commissioner can do is stated in Subpart MX 5: “The Commissioner must extinguish the person’s tax loss for a tax year to the extent of the amount given by dividing the amount of the tax credit for R&D tax losses for the tax year by 0.28.” So we are using the corporate tax rate on that. There are a lot of clauses that talk about how this is going to be administered and how much is available but I think I will let my other colleagues talk about this. I just want to say that we do believe there does need to be a research and development regime in place implemented by the Inland Revenue Department but we think it could have gone a whole lot further. Thank you very much.Hon DAVID PARKER (Labour): I want to carry on while we are debating this part with the discussion that we have just commenced through Stuart Nash on tax credits for research and development tax losses. The history of research and development tax losses in our tax legislation needs to be referred to. For many many years New Zealand has had a low level of expenditure on research and development in the private sector relative to other OECD countries. Stuart Nash is quite right when he points out that the incentive to under-report research and development expenditure is higher in New Zealand than it is in other countries because you cannot claim a tax deduction for a lot of that expenditure and you are meant to capitalise it and then amortise it. If as a taxpayer you can categorise that as another category of expense and therefore get a tax deduction in the year it is spent you are better off to do that and as a consequence there will be some areas of research and development expenditure that are reported as research and development expenditure in other countries that actually are appearing as other categories of expenditure in New Zealand in order to get that tax deduction.Notwithstanding that there is almost universal agreement in New Zealand that levels of research and development expenditure in New Zealand are lower—that is private sector research and development—than in other countries even when you adjust for that anomaly and that that is one of the reasons why New Zealand’s export performance is worse than it would otherwise be. Because of that historic under-investment in research and development the last Government in the last term of that Government introduced a research and development tax credit of 15 percent qualifying expenditure. The current Government came to power and axed it and it axed it in order to fund amongst other things a decrease in the corporate tax rate I think to 28 cents in the dollar—was it 30 to 28 or did it go down in two stages; I forget the history but it went from 30 down to 28 percent—and it also funded income tax cuts which were as other people have said in other parts of this debate weighted to those who were at the higher end of the income spectrum with 40 percent of the income tax cuts going to the top 10 percent of income earners.The Labour Party at the time was critical of that because we thought that although it was true that some of the money that was received by companies for research and development tax credits would effectively be a tax credit for what they already spent albeit characterised as other sorts of expenditure overall it would have lifted the increase of research and development tax expenditure and that was modelled by Treasury. Treasury opposed the abolition of the research and development tax credit and said that New Zealand’s economy would be weakeras a consequence. The Inland Revenue Department at the time opposed a research and development tax credit and I think it is a matter of public record of a lot of those people who went through the initial stages that they actually found the Inland Revenue Department at that stage quite unreasonable in the way in which it implemented the controls around the research and development tax credit and made it difficult to access.In any event what happened subsequently to that was that the Government found that its export target of increasing exports from 30 to 40 percent of the economy went wrong. Indeed exports as a percentage of the economy instead of increasing from 30 towards that 40 percent target have gone backwards and have dropped to under 30 percent of the economy—to around 28 or 29 percent of GDP and still dropping.As a consequence of that the Government says “Well we’ve got to do more than we’re currently doing in respect of research and development incentivisation.” and it has in new Subpart MX inserted by this bill introduced these new rules in respect of smaller entities that are intensively investing in research and development that do not have other areas of income that they can take advantage of and that they can offset their qualifying research and development expenditure against and therefore ought to be able to get it paid out to them as a credit particularly when they are small companies and they are cash-flow negative.The Labour Party supports that and that is why we are supporting this part of the bill but I do want to highlight what I think are the inconsistent arguments that are being run against research and development tax credits generally by what is happening here. The Government said that research and development tax credits were too complex to operate and yet it has actually got a system here that is more complex than you would have if you had universal rules. Stuart Nash has gone through some of the definitions of the eligibility criteria to determine whether you come within these rules.Look I want to incentivise research and development tax expenditure in New Zealand and I do not object to it being done for these companies but it is somewhat ironic that the Government said that it opposed these sorts of initiatives because of complexity and yet the rules surrounding this bill include rules relating to the research and development intensity of a firm in order for it to qualify. New section MX 1 says that Subpart MX applies to a person—which includes a company; it is a corporate person as well—only if “the wage intensity criteria in section MX 3 are met;” and there are intellectual property outcomes that are intended for the benefit of the company.To get to what that means you then have to look at new section MX 3 which sets out the wage intensity criteria and it is complex. It sets out a formula that has a different rate for example that you can claim in respect of contracted-out research and development expenditure compared with that which is done internally. That is in subsection (3) of the formula in section MX 3. Then it sets out proportions that you can claim for each of them. It then in the next section new section MX 4 sets out that there has to be a tax credit equal to at least the amounts that are set out for various years—very very complex.Then there is section MX 5B which I do not quite understand and I would be interested to hear the Minister explain it. Section MX 5 says that you have got to extinguish your tax loss to the extent that you have had a research and development tax loss credit. That is fair because you do not want the Government paying out a tax loss credit and then people carrying forward a research and development tax loss that could then in a future year be used to reduce your income tax when you were in profit. That would not be fair so they are stopping double-dipping there but then section MX 5B is titled “Deduction if increase in basic tax rate for company”. When this section applies it says that if the person “has an R&D loss tax credit for a tax year” which they call the “credit year” before the current year“for which the basic tax rate for a company is increased (the rate increase) if the rate increase results in a basic tax rate for a company that is greater than the basic tax rate” for the latest year or the credit year then various formulae apply.Again the complexity of this is extraordinary. For the Government to persist in pretending that its mistake in abolishing the research and development tax credit was not a mistake and to come back with this narrower version of a credit for a research and development tax credit—in terms of the ambit of the economy to which it applies which is narrower than the former research and development tax credit—and pretend that 7 years into its Government with exports going down as a percentage of the economy instead of up as it promised is galling. I would like the Minister to take a call and say how the Government can support this provision in respect of a narrow set of research and development and logically oppose broader research and development tax credits. If this sort of tax credit is accepted as stimulating research and development effort in a way that benefits our economy grows the breadth of our exports and grows the sophistication and value of our exports why does that same argument not hold true in respect of other areas—MARK MITCHELL (National—Rodney): I move That the question be now put.FLETCHER TABUTEAU (NZ First): I just wanted to carry on from one of the contributions earlier around the ”black hole” expenditure issue. It is a question of appropriateness and fairness and so the question needs to be put to the Committee: what is this black hole expenditure? It is defined as expenditure that is currently neither deductible nor depreciable over a financial year or in fact at all.And speaking specifically to new section CG 7C of the Income Tax Act inserted by clause 73 and section DB 34(3)(a) of the Income Tax Act in clause 85 what they are trying to do there with this tidy-up of the legislation is to remove—or it is probably best to describe it as reduce—distortions that discourage investments in research and development. So New Zealand First wholeheartedly supports the intent there. There has been a lot of ambiguity and a lot of accountants going back and forth—in fact I think one of the earlier contributions mentioned court cases around what is involved and how we resolve these issues and come back with clear and meaningful definitions.The black hole exemptions have been issues going forward. But what I want to say—and the example I want to use—relates to expenditure on derecognised non-depreciable assets so it is a person incurring expenditure specifically on the development of an intangible asset. I just put it to the Minister—and it is a short call Mr Chair. But when you look at that language—and I will just say again that it is specifically on the development of an intangible asset in terms of a person incurring an expenditure—I put the question to the Minister: will the issue be resolved?New Zealand First acknowledges that the black hole exemptions from items that are neither deductible nor non-depreciable have created an issue in the past. We do want to incentivise small to medium sized businesses particularly in terms of giving them a chance to claim those tax credits but the problem is does this now not create just a different issue of ambiguity around the black hole exemptions? So some clarification is what New Zealand First is seeking there because when you read the legislation the ambiguity is still there to be fair and it is simply a matter of the need for clarification. Thank you.Hon DAVID CUNLIFFE (Labour—New Lynn): I would like to pick up some of the themes that have been echoed by my colleagues Mr Parker Dr Clark and Mr Nash because we are at the heart of the bill and Mr Chairman I know that you know that the previous Chairman guided the Committee to this part of the bill for the substantive part of the debate. This is where the meat of the legislation is and it is very very important that we deal with it substantively.I want to turn in this particular call to the cash-out provisions which are contained in clauses 192 213 and 217 in particular. Let us give context to the public as follows. There was a heated economic and political debate about how we tilt our economy towards more value-added—how we get away from being just a commodity exporter of fairly unprocessed red meat or unprocessed logs or pretty unprocessed milk powders— and how we allow our economy to earn more value so we can pay higher incomes to New Zealanders.Inherent in that strategic transition is the need for doubling if not tripling the level of research and development investment in this country—probably doubling the Crown’s investment but at least tripling the private sector contribution which is derisory. It is in the bottom quarter of the OECD and it is not improving and a key reason for that is the structure of the tax system which gives a real estate speculator a tax break and an innovator in a start-up a tax penalty. That is nonsense. It is so bad for our economy. Is it any wonder that today unemployment has reached 6 percent again and growth is no better than 2 percent?We are in trouble. We are not moving from the pathway to mediocrity at best that has characterised this economy and actually it is in technical stuff like this bill in these clauses that we see the problem. The Government has been too scared to take on the real estate speculators. Money talks and National walks.The CHAIRPERSON (Lindsay Tisch): Order!Hon DAVID CUNLIFFE: In this bill what National is trying to do is get the tax credit which Labour proposed and National cancelled by another means but it has gone in such a roundabout route that it is so cumbersome so detailed and so complex that start-up businesses probably will not be able to access it reliably. We are supporting the bill only because it is better than nothing and only because it is a timid step towards what Labour proposed but it is not good enough.Here is the problem. For example the cash-out provision for research and development expenditure contained in clauses 192 213 and 217 and schedule 1 is designed to provide a temporary tax-flow relief to companies that are high in specific kinds of research and development and then once they are over the cash flow crunch they have to pay it back again. So the first point is that under these clauses it is very different from a proper tax credit—say 12.5 percent as we proposed—where the company gets to keep the tax remission and put it on its balance sheet because it is a legitimate recognition that there is a public interest as well as a private interest in that research and development. Yes it helps the company but it also helps the economy and the whole country and it never works anywhere in the world for the innovator to take all the risk if they cannot keep all the reward. That is why tax credit systems give a permanent remission but this does not. This is only a cash loan. It is a timing change and the company has to pay it back. That is the first problem.The second issue is that when you take this alongside the structure of the Callaghan Innovation growth grants which are not available to companies that spend less than $300000 a year or 1.5 percent of their revenue on research and development and thus are not available to start-ups and have mandatory non-discretionary disbursement criteria so that they are funding—Hon NICKY WAGNER (Minister of Customs): I would like to take just a short call to answer one of the queries that David Clark put up to the House. He was concerned about the accommodation for ministers of religion and this is clause 70 of the bill. Yes I can confirm that this is a clarifying amendment and it is to ensure that the original policy intent is met. The change ensures that the value of the accommodation is not double-counted when accommodation is part of the minister’s remuneration. So it is not double-dipping; it is a clarification.Hon DAVID CUNLIFFE (Labour—New Lynn): Thank you very much Mr Chairman—I appreciate it because we are getting near the heart of the matter here. As I said the Callaghan Innovation grants are not available to start-ups because they have not got $300000 to invest in research and development; they are absolutely scraping by and they do not have a 1.5 percent of revenue - track record that would allow them to get these non-discretionary grants. In the Callaghan system they are giving grants to foreign multinationals like for example Bayer and the Oracle America’s Cup syndicate—can you believe that? But in the detail of this bill in clauses 213 and 217 the excluded activities from this complex halfway house take an opposite approach and—quite rightly I think—exclude activities performed outside New Zealand.If you go down the list of exclusions in this bill there are some that we would agree with such as why would we give a tax credit to research and development done outside New Zealand? Fair enough—good move. Why would we give a tax credit to the acquiring or disposition of land unless it is directly related to the research and development? Good move; I agree with that one. However here are some that we certainly do not agree with: acquiring disposing of or transferring intangible property core technology intellectual property know-how or related activities. So when you are transferring—for example if you are in a high-tech cluster—intangibles or intellectual property from one part of the innovation chain across a company boundary to another you cannot claim the tax credit.Dr David Clark: Which clause is this?Hon DAVID CUNLIFFE: This is in clauses 213 and 217. This is a very unusual move because frankly it shows a misunderstanding of the nature of high-tech clusters where typically you have multiple firms working together to solve complex problems often taking specific parts not only of a business value chain but also of a software process even. So this makes no sense. What is really ironic of course is that at the same time the same Government in the Trans-Pacific Partnership negotiations is making it—The CHAIRPERSON (Lindsay Tisch): Order! That is not part of this bill.Hon DAVID CUNLIFFE: Mr Chairperson—The CHAIRPERSON (Lindsay Tisch): No.Hon DAVID CUNLIFFE: It is directly relevant.The CHAIRPERSON (Lindsay Tisch): We are not talking about the Trans-Pacific Partnership.Hon DAVID CUNLIFFE: I am not challenging your ruling. OK—I will come at that issue in a different way. Were it the case that while excluding a tax qualification for intangible property and intellectual property here somewhere else the Government was extending the life of the same forms of intellectual property protection and was making it harder for small businesses to get one and defend one then there would be a double jeopardy. It is excluded here and it is more difficult there. So again the gestation—the history—of this bill shows the Government tripping all over itself. It would have been so much simpler so much better and so much cleaner to have an across-the-board research and development tax credit properly defined with appropriate exclusions and to have it across the board and bankable rather than this cash-out loan which is so complex that most small businesses will not ever access it. One wonders: is it bad policy design or a deliberate public relations spin so that it looks like a proper tax credit but is in fact not one because it is not fit for purpose and is too complex for start-ups to use?Once again it is a bit like Child Support - lite or Working for Families - lite—or this lite or that lite. The Government has signed up to a concept that the Opposition has been evoking—finally. It brought something in that looks like half a loaf but it just will not work. It is just not good enough. What about the idea of having an accelerated depreciation rate for short-life high-technology plant and equipment? It sounds sensible—there is a body of international literature around that—but it is not in this bill in the same way. In fact the exclusions here include things like the acquisition or disposal of the intellectual property the commercial legal aspects of the patenting and licensing the excluded use of the services of developing through an external contractee the acquisition of intellectual property and excluding the cost of acquisition or transfer—again making it very difficult for small companies working in a cluster to access these benefits.The reinstatement of losses is contained in clauses 99 117 119 192 194 195 and 213—The CHAIRPERSON (Lindsay Tisch): I am sorry to interrupt the honourable member. The time has come for me to report progress.Progress to be reported presently.House resumed.The Chairperson reported progress on the Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill no progress on the Weathertight Homes Resolution Services Amendment Bill no progress on the Radio New Zealand Amendment Bill and no progress on the Health (Protection) Amendment Bill.Report adopted.