Nash Stuart: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — First ReadingText is incorporated into the Bound VolumeNash Stuart: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — First Reading[Sitting date: 11 March 2015. Volume:703;Page:2168. Text is incorporated into the Bound Volume.]STUART NASH (Labour—Napier): I am rising to speak in support of the Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill. First of all I would just like to address a couple of the points made by previous speakers on the Government side. I think a couple of them actually need correcting. The first one is one of the members who held up LanzaTech as a great example of a New Zealand company that had received a whole lot of grants from the Government and said was not this company and the technology it had created wonderful. Well yes it was a very good story up to a point. That point however was crossed when it realised that there was not the business environment within this country that allowed it to stay here. LanzaTech is a great example of a New Zealand company that came up with a fantastic innovative idea and then went to the United States of America. It has an American chief executive officer. Its head office is based in the United States and it is doing all its work out of America. The reason for that is because this Government did not create the sort of environment that allows these companies to stay here employ Kiwis earn export dollars and thrive and grow into big companies. They felt as if they had to go to the United States. This is where the current business regime is wrong.The thing about these research and development tax credits which are a great idea—they have been Labour’s policy for the last two elections—is that perhaps if these had existed 6 years ago then perhaps companies or organisations like LanzaTech would be able to stay in New Zealand. I do not know the exact reasons why it left even though I have talked to some of the people who work there. It just did not feel as if New Zealand was supportive enough. This is the amazing thing. We often hear that National is the party of business but when you look at the policies it is actually Labour that creates the environment that allows businesses to thrive. I remember talking to one of my very good friends in business and he said to me: “I have got a real dilemma. I am a businessman. Mum and Dad were National but my business always does better under Labour.” I think that is the feeling across a lot of the business sector because there is more money in the economy there are a lot more incentives for business to grow and we support them a lot more as opposed to being hands-off.The research and development tax credit in this bill is not a bad idea. Anything that gives small businesses a chance has got to be good. But I suspect that when we come back for the second reading Committee stage and third reading this bill will look quite different. The reason I say this—and let us not get caught up in the fact that this is about small businesses—is first of all that the business has got to be able to make a loss. So if they are making a loss after 5 years it gets really expensive and they can claim only up to a maximum of $2 million after 5 years. How this bill defines “sufficient intensity of activity in R and D”—that is the definition of whether a company is going to be allowed to claim this research and development tax back—is where a “… proportion of expenditure on labour that is engaged in R and D is used as a proxy to measure this intensity.” Well good luck with that.The reason I say that is we often hear that New Zealand has one of the lowest research and development spends in the OECD. In fact Andrew Bayly talked before about how the Government has an aspiration of 1 percent of GDP spent on research and development. Goodness me! If that is aspirational then heaven help us. It is generally accepted that to get the really high end of research and development spend you need about 14 to 20 percent of your revenue spent on research and development. So 1 percent is about what Fonterra spends and that is why we are a huge commodity economy based on exchange rates and international variables that we have no control over. If we really want to get to a highly specialised non-commodity economy then 1 percent spent on research and development? Goodness me!Part of the problem at the moment is that for the vast majority of research and development you have got to capitalise it so you cannot expense it. I suspect that if you actually went out to companies and said “OK you can expense all your research and development no matter if you are big or small or whatever size.” suddenly you would find that the research and development spend in this country would be significantly higher than it is at the moment. But what people do at this point in time is they do not call it research and development; they call it an operational expense or “whatever it is” expense. I suspect that that might happen with this bill. As someone on the Finance and Expenditure Committee I know that I and my colleagues will be looking very hard at this to make sure it cannot be gamed. The classic case is to say: “Oh well we have got to have a portion of expenditure on labour that is engaged in research and development to be able to claim this back.” and then to say to Joe who is sweeping the floors “That is a very innovative broom mate. You are doing a lot of good work. You are engaged in research and development.”The thing about a tax system is that it has got to have a high level of integrity. One of the speakers before talked about the fact that our tax system is very simple and it is fair. Well that is true by and large but if we put processes or taxes or tax rebates in place that are easily gamed then that erodes the integrity of the tax system. However one of the speakers—and I must admit we have got to be a little bit careful here as he has a lot to gain—talked about the evils of a capital gains tax. Mr Scott has done very well and we applaud that. We accept his success. But I suspect that if he had to sell some of his assets he would be up for a mighty big capital gains tax bill. If he did it now under National he would be fine. I would not want to say there is a conflict of interest at all but the thing about a capital gains tax is it makes the system fair. What it actually does—and I am just responding to a query that was put forward over here—is it says that if you are earning revenue then you should pay tax on it. I think that is a fundamental principle of any tax system. Tax avoidance through not paying capital gains tax is really ripping off the whole country and I do not think that is right at all in any way shape or form.The interesting thing is we hear from the Government benches that this bill is designed to help small companies reduce their tax compliance etc. Well the interesting fact is that people in one or two-person companies—so we are talking about the tradesman the tradeswoman—are very good at what they do and then they go out and employ one or two people to help the business grow. They are never going to be a Fletcher’s or a Carter Holt Harvey but they serve the community well. These are the companies that are the backbone of our economy. They spend about 15 percent of revenue on tax compliance. I do not know whether they would say that the tax system is fair and simple. I suspect that they would argue that it could be a lot simpler and perhaps could be a lot fairer but that is the nature of business. I think the great thing about Labour is that we signalled at the last election and we will certainly take it into 2017 a much fairer tax system for all businesses but especially for small businesses.Spending 15 percent of your revenue on tax compliance I think any member would agree is simply too much of a burden.The other thing about this bill is child support. I think everyone every MP who has sat in an MP’s office and heard constituents would agree that a simple effective child support system that makes it easier for children is an absolute must. There is no doubt about this at all. But I will tell you that already this last week I have had two constituents whom I met with in my office say: “This is ridiculous. I’m a hell of a lot worse off. I don’t know how I’m going to cope.” I have no doubt at all that this bill will go through—we are supporting it—but the child support legislation will be back in this House again and again because we have not got it right. We simply have not got it right. The thing that concerns me is that when we talked about child support there was an initial budget of $30 million. To you and me $30 million spent on a system sounds like a lot of money. But no then it went up to $130 million. You would think we were in the wrong game. It was $130 million for a system that is a tack-on to the current system. But no wait there is more. Now they are talking about $200 million for child support.One thing we do know is that at the moment in New Zealand about 25 percent of children live in poverty. That is not a Labour or a National measure; that is a measure put forward by the Children’s Commissioner. I suspect $200 million would have made a whole lot of children really happy. But no it is going to be spent on the child support system. It started at $30 million; it is now $200 million. How much further is this going to go? This has turned what was a reasonably simple process but it needed tweaking into quite a complicated one.The last point I will make Mr Deputy Speaker before you tell me to stand down is that I remember Peter Dunne saying promising in 2008 that he was going to revise the child support regime and it would be done in a year. I as our revenue spokesperson asked him about five times when it was coming. It is a little bit like déjà vu. I am back. I might as well not have taken 3 years off. We are still dealing with it now. I do not think that is fair to the mothers and the fathers of New Zealand but especially to the children of New Zealand. Thank you very much.