Parker David: Taxation (International Investment and Remedial Matters) Bill — Second Reading 
Text is incorporated into the Bound Volume 
Parker David: Taxation (International Investment and Remedial Matters) Bill — Second Reading 
[Sitting date: 08 February 2012. Volume:677;Page:248. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 This bill the Taxation (International Investment and Remedial Matters) Bill makes a minor change to tax rules that will be beneficial overall to the New Zealand commercial community. I would note that I would not want to overstate the importance of it. I think that is borne out by the fact that it was reported back by the Finance and Expenditure Committee on 9 May last year and it did not make it up the Order Paper before the election so it is hardly the most important piece of business in terms of the future of the New Zealand economy.  
I will make one or two comments. I do agree with the Minister of Revenue that it is important that we do not allow New Zealand ownership of offshore operations to be undermined by uncompetitive tax rates in New Zealand on overseas income. If we do that we create a perverse incentive for those companies to move their operations from New Zealand to a low-tax jurisdiction and we have to guard against that.  
If we are looking then at areas where we have residual concern I think more work needs to be done in respect of offshore royalty income. The Labour Party took to the last election a proposal that we consider whether there should be a reduction in tax on overseas royalties earned by intellectual property - rich companies based in New Zealand. Those companies more than almost any other company can base themselves in just about any other jurisdiction in the world because they are not reliant on manufacturing facilities in New Zealand. They are not reliant on New Zealand land for production of primary produce. They can locate themselves where it is most beneficial to their shareholders. We need to take care that if we want to encourage the growth of some of those clever technology companies we do not encourage their early transition out of New Zealand in order to chase a lower tax rate on their royalty income.  
I heard from one of the senior partners of one of the Auckland accounting firms. I will not name the firm to identify the individual but he acts for many of the successful technology companies. I went to see him in the course of my responsibilities as the then spokesperson for Labour on economic development. I asked him what changes he thought were necessary in New Zealand to stimulate the growth of that sector. He thought that a review of the treatment of taxation on royalty income from intellectual property rights held by New Zealand companies in respect of their offshore operations was necessary which is why we took that to the election. I think that is unfinished business Minister and I would hope that that is under consideration by the Inland Revenue Department.  
One area where I disagree with the import of this legislation—the Labour Party notwithstanding that opposition will be supporting the legislation because overall it is good legislation—is the removal of the approved issuer levy. The minority report from Labour in the report back from the select committee noted that we had submissions from a number of submitters that the proposals outlined which reduce the revenue to the Crown will not in their opinion help increase liquidity of loans flowing into New Zealand.  
There is no other reason to do this. Why should we be reducing the tax burden on effectively overseas lenders into New Zealand if there is going to be no difference in liquidity or lower interest rates in New Zealand? Already the overseas lenders to New Zealand face a very low tax burden compared with a domestic earner of interest in New Zealand. If interest is paid to a non-resident by a New Zealand enterprise the non-resident withholding tax rate is much lower than that paid by a resident.  
There is a reason there is a tax rate differential. One reason is the fact that if you are a non-resident you do not enjoy all the services that we enjoy as residents. You do not get your share of health services and you do not get education services so in a fairness sense you would not expect them to be paying as high a rate of tax. But it is also true that they do get the benefit of a stable democracy and the things that are paid for by taxation so they should be paying some taxation on the interest that is earned from New Zealand borrowers be they corporate or private borrowers.  
Already in New Zealand we have granted increasing exemptions over the years to reduce the tax burden—I should not call it the tax burden—the tax paid by those overseas lenders into New Zealand who are earning interest from their investments in New Zealand. We have done that by exempting people from non-resident withholding tax which they have been able to get around through—and the Minister can tell me if I have got this wrong—the approved issuer levy process. So if they come through the approved issuer levy route they can on occasions avoid non-resident withholding tax. Already the substitute if you like for non-resident withholding tax—the approved issuer levy—is at a considerably lower rate not only than the tax that would be paid by a New Zealander being paid interest if they were a resident in New Zealand but also than the non-resident withholding tax rate.  
Yet the proposal here is not to move to equalise that and perhaps garner a bit more revenue for the Crown. You know the Government is running an enormous deficit at the moment; it needs to get some money from somewhere as well as trim its expenditure and grow the economy. It needs some more revenue. Why would we be giving revenue away through abandoning the small amount of revenue that we get from the approved issuer levy rather than actually making it more robust? I do not think that would be causing an unfairness. If we have substantial evidence that there would be threats to the ability of New Zealand to fund its offshore borrowing requirements or for our banks and other corporate borrowers to fund their borrowings then maybe there would be a substantial case for reducing the costs of overseas lenders through taxes and approved issuer levies. But that case has not been made out.  
For that reason Labour is critical of this part of the legislation which effectively again seems to serve the interests of the big end of town to the detriment of the New Zealand tax base and yet there does not seem to be a proven need to do it. Rather we would have thought there would be a desire to get an appropriate balance between those different actors in the economy who pay tax.  
Plainly the people who invest money in New Zealand get an interest benefit from the interest that is paid by New Zealanders. They do get a benefit from New Zealand. They in part get that because of the things that New Zealand funds through taxes that are collected such as an educated population that can work and be productive and therefore afford to pay interest to those overseas lenders into New Zealand. They are benefiting from police and they are benefiting from the enforcement of the rule of law which means that their contracts are enforceable in New Zealand and they will get repaid.  
These are all things that are sustained by the New Zealand institutions that are in part funded by taxation and I think it is fair that we expect the recipients of those rewards—that interest that has been paid from New Zealand to those overseas people—to bear a tax burden. Yet this legislation goes in the opposite direction. Not that it was a heavy burden through the approved issuer levy but rather than actually trying to equalise things in a way that is fair it has just said “Look we’ll just give up and we won’t charge any.” I do not think that is good policy I do not think it stands scrutiny and that is why Labour has opposed this part of the bill which is the removal of the approved issuer levy.  
I have just about run out of time; I would say in closing that if we want to get right the investment signal into New Zealand businesses it is much more important that we do things like get a neutral tax signal through a capital gains tax so that people invest on the basis of the profitability of the investment rather than the tax treatment of it. If it is good enough for the Minister of Revenue to come here and say that it is important that we have these changes in order to have a relatively level playing field about where people invest overseas why can we not have similar logic applied to our tax system in New Zealand so that we encourage the more productive use of capital in New Zealand discourage the over-investment in the speculative sector and encourage investment in the productive sector? Through that we would reduce our current account deficit and get wealthier as well as improve the tax base.