Cullen Michael: Taxation (Urgent Measures and Annual Rates) Bill — In Committee 
Cullen Michael: Taxation (Urgent Measures and Annual Rates) Bill — In Committee 
[Volume:651;Page:170] 
Hon Dr MICHAEL CULLEN (Labour) 
: 
 Parts of this bill are either unfair dishonest incompetent or plain stupid. This is the plain stupid part—the abolition of the research and development tax credit. The member has just been talking about tax cuts. Let me enlighten him: this is a tax increase. This is a tax increase of $330 million a year on business. This part claws back what is getting on for half of the corporate tax rate cut. Why should we be surprised? Which Governments have ever cut corporate taxes in New Zealand? Only ever a Labour Government has in 1998 and in 2008. Those are the only times in the last 50 years that corporate tax rates have been cut in New Zealand and both times were by Labour Governments. National has never ever cut those rates. 
So when we cut it this was yet another one of those bitter little things for Mr English which he had to reverse some way or another because he was not allowed to let Labour have any credit for anything. So he is clawing it back but is he clawing it back off everybody? He is clawing it back off the most innovative productive and exporting firms in the country. Let me tell Mr Bennett something else. What was he referring to as Agriculture New Zealand? 
David Bennett 
: AgResearch. 
Hon Dr MICHAEL CULLEN 
: No—that is a Crown research institute. AgResearch is a Crown research institute that has been underperforming actually for some years. But that is public sector research and development. If the member knew anything he would know that New Zealand’s underperformance is in private sector research and development. Why? That is because we are about the only country in the world up until recently that has not been offering any inducement to private sector research and development. In an ideal world no country would offer incentives for research and development. In an ideal world we would have a level playing field and decisions would be made by the market and nothing would happen. But once some countries have research and development incentives it becomes very hard. 
You see National is still playing the early 1990s’ trick. It is still  
Star Trek 
 in reverse for National. Its members still want to go where no man will follow. They still want to go down a route with no research and development tax incentive and they will be surprised that firms will shift research and development to Australia where there are research and development tax incentives. What have we heard for years from National members? “Everybody who is bright has gone to Australia.” And looking over the other side of the Chamber whenever they said it I thought maybe it was true because what was left from what I could see was not bright. They said: “We’ve got to stop people going to Australia.” 
So what do they do? They do something to threaten portability of superannuation and they remove the research and development tax incentive designed to get research and development in New Zealand and to keep it here because they want it to go there. And what are they going to make it up with? They are going to put more money into the State’s research and development. When they go up on the platform and slaver in front of Business New Zealand the Chambers of Commerce and the Business Roundtable dripping sincerity say in the way only Tony Ryall and others can: “It is the private sector only that creates wealth in New Zealand so what we will do is take money out of the private sector and put it in the public sector.” 
That is what is called Logic 101 for the National Party—just follow the logic: “Only the private sector creates wealth so let’s take that wealth away and give it to the public sector. And if a public sector identity or entity is not performing particularly well and not managing to live within budget we’ll just give them more money. We won’t ask any questions about what they are doing. We won’t say whether other CRIs such as HortResearch might be doing better research. We won’t say whether they should work better with the private sector. No we’ll just give them some more money.” 
That is what the Government has done. So that is wise is it? That will grow the economy? I listened yesterday to the sorts of clichés in a kind of National Film Unit documentary for the 1950s way that finished off the Speech from the Throne and I heard about the turbocharging of the New Zealand economy. I now understand it. We are going to have a turbocharged 1953 Morris Oxford and we will call it the New Zealand economy. I have to tell the Committee that a modern Japanese mini-car can outstrip a turbocharged 1953 Morris Oxford. It is no wonder that the leading agricultural scientist in the National Party was not allowed to be a Cabinet Minister. He was parked on the Speaker’s bench instead because in fact he might know too much about some of these areas to be involved in making decisions. 
Do we really want to grow this economy and how do we do it? We do it in the modern world by developing human capital by investing in research and development and by investing in new products. In New Zealand we do that particularly in the primary sector industries because that is where our comparative advantage lies. So what is the Government doing? It is abolishing what was going to be a $2 billion Fast Forward Fund to invest in agriculture and to invest in the primary sector and it is giving a lick and a promise that it will increase funding for the Crown research institutes. 
But of course Mr English is about to work on a Budget. He is about to work on a Budget that will project cash deficits in excess of $10 billion a year by the end of the forecast period. So do Mr Hutchison and others think they will get this extra money in large amounts for Crown research institutes? That will be a lick and a promise; it will get pushed out and squeezed and will not look like the Fast Forward Fund. But that fund was there it was locked in it was provided for and it was going to happen. The Labour Government was getting ready to do it. It is a bit like broadband where people are lined up ready to put their stuff in. They have made the applications but now they will have to wait 18 months or more for National to work out how actually to operationalise its funding in that area. We will wait ages. 
We have firms working in research and development but we are told they are rorting the system. Well how do we know? Nobody has had a research and development tax incentive approved by the Inland Revenue Department yet. They have yet to apply. Indeed the only complaints that I have heard of is that it is too hard to get the incentive. It is not too easy to rort it; it is too hard to get it. Indeed we will find that out after April when people apply but they knew. Indeed National members did not put lots of thought into this. It was not a well-developed policy to abolish the research and development tax incentive. National announced its policy months ago. The policy was to cut the incentive to 10 percent—which is at the lower range of international comparability whereas the 15 percent was at the higher range of international comparability—to save a bit of money. 
Then of course those members had the preview and for some peculiar reason they did not think the preview was going to show a worsening situation compared with the Budget. They knew what was going on in the world. It was pretty obvious to anybody that the world was slowing down faster than we had all thought in April of this year. Then they said: “Oh my gosh!”. We promised the average person on the average wage a $50-a-week tax cut. Well we can pretend that it is not on top of Labour’s package so that will save us a lot of money. And now we need to squeeze and push. So what goes?”. 
What goes is the remaining 10 percent of the research and development tax credit. This is called going for growth—$2 per week on average per taxpayer to pay for the research and development tax credit. That I tell Mr Bennett will really turbocharge the New Zealand economy. It will be an extra couple of dollars a week of spending power in the average taxpayer’s pocket but no doubt it will be spent in large part on imported consumer goods. It might provide about the equivalent of one drop of petrol for the South Chinese economy not for the New Zealand economy. The Government should be investing in the private sector to gear up. The private sector has been woefully inadequate in New Zealand in investing in almost any way in future development—such as research and development human capital and new plant and machinery. So the Labour Government lowered the corporate tax rate. We increased depreciation rates. We brought in the research and development tax credit. We put forward an integrated Skills Strategy and improved the investment in that Skills Strategy in the workplace. 
Those are the drivers of economic growth not piddling little tax cuts going into consumption to buy stuff not even noticed—not even a block of cheese barely a slice of cheese not even a half of the kind of loaf that Paul Hutchison would buy every day. He would not buy the $1 loaf at the garage; he would buy the $6.99 special loaf down at the Italian bakery. This tax cut would not even buy half of one of those loaves of bread a week and we are somehow going to turbocharge this economy. Well we might be slightly heavier we might be slightly weightier but we will not have a faster-moving economy as a result of this part of the bill. 
National is reducing savings and investment in research and development and human capital and calling that turbocharging. This is National going for growth. I say this is the worst of all possible nightmares for anybody with any aesthetic sense. This is Ruth Richardson without a tracksuit.