Foss Craig: Taxation (Urgent Measures and Annual Rates) Bill — In Committee 
Foss Craig: Taxation (Urgent Measures and Annual Rates) Bill — In Committee 
[Volume:651;Page:166] 
CRAIG FOSS (National—Tukituki) 
: 
 I will totally ignore the previous speech as will most of New Zealand probably because it was not particularly relevant. [ 
Interruption 
] That has woken the Opposition members up. I am sure those members had a very good lunch. Part 2 “Research and development tax credits repeal”— 
Hon Dr Michael Cullen 
: Tukituki—farming horticulture viticulture? 
CRAIG FOSS 
: If members opposite want to have a bit of a go I can tell them that there is an interesting provision in clause 20(2) that makes a change to the Income Tax Act 2007 which came before the Finance and Expenditure Committee. The current Opposition spokesman on finance may have further advice on that because clause 20(2) states: “The definition of district health board is repealed.” He may want to speak on various other ways of doing that later on. 
Hon David Cunliffe 
: I think you need to focus on finance. 
CRAIG FOSS 
: Yes I will focus on finance because this is a financial bill. 
When the 2007 bill came before the Finance and Expenditure Committee there were many many submissions on the research and development tax credits. From memory most of the submissions were along the lines that the tax credits would create tax arbitrage and accounting arbitrage. Of course everyone argued that he or she should be included and that perhaps someone else should not be included. In fact I remember that an organisation that is partially funded by the Crown came before the Finance and Expenditure Committee and told us the truth. It told us what was really going on. Then I subsequently found out that the organisation had a very interesting phone call from a Minister’s office not long after that telling it that it should never appear before a committee like that without the Minister knowing and that he did not like what it had said. But anyway I digress a wee bit. 
Hon David Cunliffe 
: A wee bit? How about coming back to the bill? 
CRAIG FOSS 
: I mentioned the words “accounting arbitrage” before and I will explain that term to the member later. What is going on here is that the higher the tax burden is and the more imposing the tax structure is on an economy the greater the incentive is to find ways around it through it to plead for a credit and to take something from someone else and get a credit for oneself. That is what happens and it is what is going on with regard to the research and development tax credit. 
Some members have argued that the tax credit has only just started so how can we say all these things? Very simply as my colleague Mr Hutchison noted earlier there were roadshows going around the place. Companies were going to them and they were being told: “Show us your expenditure sheet show us your models and we will try to make them fit the new definition of research and development in order to get you a tax credit. We will try to do that. Of course we cannot do it straight away but we will go through your books and try to find what we can to get you some benefit out of this.” So the roadshows were being entrepreneurial if one likes but it was to the detriment of the New Zealand economy because it did not add to the quantum of research and development in New Zealand. 
About 3 months before the election I had a very interesting meeting with a company that had started to set up some research and development under the model in the existing legislation. It was looking to invest the money and to take some benefits from it with its 15 percent. That was OK but then the company told me about the problem. The problem was that it could neither attract to New Zealand nor keep the people here to do the research and development because of New Zealand’s high personal tax structure. It was quite simply because of that. 
The finance spokesperson on the other side of the Chamber David Cunliffe alluded at the start of this debate to the fact that these research and development tax credits have been—or at least will be—repealed in order to help fund the personal tax cuts that we announced long before the election and that were resoundingly endorsed by New Zealand. The point is that we can have all the credits we like but if we do not have the people who are attracted to New Zealand stay here who can be rewarded for the risk they take in being here and being involved in research and development in New Zealand it actually does not matter. Unless we have those people here adding to our economy we can have all the research and development tax credits we like and it will not matter. Some of the stuff I saw going on was stuff that was being structured in New Zealand to utilise Australian people to whip over here and do the research and development so that local companies could enjoy the research and development tax credit and of course the individuals concerned were located in a lower tax environment—that is in Australia. 
The research and development tax credit part of the bill—the clauses here—is about priority because there are some hard choices to be made. Once the books were opened—or at least partially opened—in the pre-election fiscal update and when they continued to be opened a bit more recently with all the other shenanigans going on it actually made it even more pertinent that we repeal these credits right now.