Copeland Gordon: Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill — Second Reading 
Copeland Gordon: Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill — Second Reading 
[Volume:621;Page:16405] 
GORDON COPELAND (United Future) 
: 
 This bill makes a number of positive incremental improvements to the current New Zealand tax regime. In particular I welcome the new tax rules in relation to venture capital. If the New Zealand economy is to continue its growth and expansion then it will need for the foreseeable future to attract capital investment from overseas. 
This is particularly true for venture capital which can be defined as high-risk high-reward investment. It is exactly such new venture investment that has the potential to take new technology and biotech breakthroughs from the laboratory into the domestic and international marketplace. In that regard New Zealand competes for venture capital with the rest of the world. We cannot afford to remain non-competitive. New rules set out in the bill will bring New Zealand into line with Australia and I am hopeful that as a result we will see New Zealand’s share of the venture capital pool enhanced in the years ahead. At the same time I am conscious that this is still a work in progress. Much more can be done to make New Zealand a venture capital destination of choice. However this bill represents an important beginning. 
The bill also updates and enhances the framework through which disputes arising between the Inland Revenue Department and individual or corporate taxpayers are resolved. This is another important improvement on the current position. By any standards New Zealand tax law has become extremely complex. In that environment notwithstanding the many tax practitioners in both the legal and accounting professions it is clear that disputes will remain a feature of the New Zealand tax system long term. Given those realities we need an effective disputes resolution system that at least provides certainty of process if not of outcome. At the same time the opportunity has been taken to clarify the Inland Revenue Department’s obligation concerning refunds of excess tax paid—yes the taxpayer rather than the Inland Revenue Department is occasionally right—and the period for claiming input tax credits for GST. 
As one who grew up on an apple and pear orchard I am also pleased to see that the bill incorporates new provisions in relation to the tax treatment of horticultural plants to clarify the correct tax treatment in relation to the replacement of trees and other issues. Again this is a step forward and will create greater certainty for orchardists in New Zealand. 
I am pleased too that the bill introduces an early payment discount in relation to business start-ups. It is an unfortunate fact of life that many new businesses that start up do not make it through the third year of their operations because of the double-whammy tax effect that arises in the second year when the business owners are endeavouring to meet both provisional tax payments and terminal tax obligations from the first year of their operations. Anything that assists business to survive through that critical period is therefore to be welcomed. 
The bill is also accompanied by an extensive Supplementary Order Paper in relation to the taxation of investments by New Zealanders in Australian unit trusts. This closes a loophole that allows those investments effectively to be classified as tax-free in both Australia and New Zealand. That is clearly an unacceptable outcome. As a result of the tax loophole predictably huge amounts of money have been invested by Kiwis in these Australian unit trusts and the Government has my support in moving to close that loophole. It is unfair and unwarranted. It is extremely important that the taxation on different kinds of investment be it investment within New Zealand or overseas does not act to distort market signals. Investment that is driven purely by tax advantages normally turns out to be poor-quality investment in the long term. On the other hand if the tax outcomes between different classes of investments are neutral and we have a level playing field then distortions are eliminated and investment will flow to where the highest returns can be gained consistent with risk. To put it another way the market itself will operate to incentivise investment in those areas of the economy that have the greatest potential for growth because they are providing goods and services that relate to and meet the needs of the community. 
This bill also establishes the rates of income tax for the current 2004-05 income year. These remain unaltered from those established on 1 April 2000 which is now some 4½ years ago. United Future does not support that element of the bill although consistent with our supply agreement with the Labour-led Government we will be voting for the bill as a whole. I want to make one point clear—because I know that Pansy Wong will have a crack at United Future on this issue. When United Future now or in the future—and in the future it may be with another party in this House—signs its name saying it will give confidence and supply to the Government for 3 years it actually intends to follow through on that promise. I believe that that is a very important principle that we are demonstrating because it gives certainty to business. I tell Ms Wong of the National Party in case she wants to have a crack at us on this that our stand on that is well understood by the business community and is very popular. 
To make that distinction clear however I will during the Committee stage introduce a Supplementary Order Paper that would see tax rates cut from 1 April 2005. By that date we will be past the time for a cut in income tax rates. Under a progressive taxation system if the tax threshold limits are not adjusted to take account of inflation then in real terms taxes are being increased. That is the factual position and it is really beyond dispute. I will put it another way: it means that unless the Government brings a bill into this House reducing tax rates by default it is allowing tax rates to increase. In my view the Government continues to expose itself to a certain moral hazard in that regard as those members clearly said prior to being elected to Treasury benches in 1999 that they would not having put in place the new 19.5c 33c and 39c progressive tax system thereafter increase taxes. It is becoming harder and harder for the Minister of Revenue to sustain his obscurantism and smoke and mirrors exercise in that regard. Come 1 April next year 5 years will have passed since the current rates were established. The rise in the cost of living over that period will be about 13 percent and people’s pay packets have gone up accordingly. Thousands of people therefore who previously were paying a maximum of 19.5c have now moved into the 33c bracket. Thousands of others who paid the 33c maximum are now paying 39c. 
One can when in Government fool some of the people some of the time and some of the people all of the time but Dr Cullen and the Government may yet find that even they seemingly invincible in the polls cannot fool all of the people all of the time. In United Future’s view it is time for a tax cut.