Nash StuartTAXATION (KIWISAVER STUDENT LOANS AND REMEDIAL MATTERS) BILLFirst ReadingHon STUART NASH (Minister of Revenue): I move That the Taxation (KiwiSaver Student Loans and Remedial Matters) Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill.Madam Speaker let me start by saying congratulations on your elevation to Assistant Speaker. I know you'll do a fantastic job and it's great to see you sitting up there. Kieran McAnulty: Greaser. Hon STUART NASH: Thank you Mr McAnulty. This taxation bill aims to improve the tax system by making it simpler and fairer. It also includes support for business. Broadly the policy proposals in this bill have three main objectives. Firstly to continue the Government's simplifying and modernisation of the tax system. Secondly to further improve the application of our broad-base low-rate framework. And thirdly to further encourage research and development expenditure. Members familiar with the ongoing tax simplification programme will be aware of the various tax types that are being transitioned to a new technology system in an orderly manner. As each of the tax types moves across the Government has taken the opportunity to fix a range of issues that have been around for some time resulting in better customer service for taxpayers. We have previously been unable to implement improvements because inland revenue were hobbled by old technology. Today this bill asks us to consider a range of measures which would improve the system for KiwiSaver members and student loan borrowers. There are a host of proposed improvements so we'll touch on just some of the headline ones. KiwiSaver—one of the proposals in this bill addresses an issue that has been in the public eye of late: savers being on the wrong prescribed investor rate or PIR. The ongoing modernisation of the tax system means that inland revenue is starting to receive more frequent employment and investment income information. One of the benefits of this more timely collection of income information is that inland revenue is now better able to identify when someone appears to be using an incorrect tax rate. But even armed with that information inland revenue is not currently able to correct the issue so the investor is overtaxed. The bill therefore would allow inland revenue to notify the KiwiSaver scheme or other managed fund providers using an incorrect rate for an investor and alert them to the need for change. Being on the correct prescribed investor rate will help ensure the correct amount of tax is deducted in the future. The issue does however require further work. Under the current law—in place since 2007—people on too low a rate are required to pay a shortfall while those on too high a rate are not entitled to a refund. Clearly this should be reviewed and I've asked my officials to investigate options. Another issue that has been irksome for savers has been that employers can sometimes be late paying KiwiSaver employer contribution amounts to the employee's scheme provider. As you can appreciate this means that the employee is not getting their full entitlement and is missing out on investment returns. We are proposing that inland revenue should be allowed to pay KiwiSaver employer contribution amounts to scheme providers before the contribution amount has actually been received by inland revenue. Another longstanding issue is addressed by this bill—when KiwiSaver was introduced inland revenue's systems could not calculate interest on KiwiSaver contributions from the employee's pay day without imposing compliance costs on employers. But the recent introduction of pay-day filing overcomes this obstacle. The bill therefore contains proposals to ensure that interest on employer and employee contributions begins to accrue from the employee's pay day until the contributions are forwarded to the KiwiSaver scheme provider. Student loans—along with a focus on improvements to the administration of KiwiSaver the bill also focuses on student loan borrowers. We are aware of borrowers who are based overseas and whose health problems make them unable to meet their repayment obligations. We don't want to add further to their stress by having a loan hanging over their heads accruing interest. So we're proposing that those overseas-based borrowers with serious illnesses or disabilities be treated as New Zealand - based borrowers and therefore not be subject to loan interest. There is also a proposal in the bill addressing the situation where too much is deducted by a borrower's employer for their final repayment. This is a systems issue and previously could not be addressed leaving borrowers out of pocket until it could be repaid. The bill proposes that inland revenue notify employers when their employee's loan balance is close to zero so they can deduct the correct amount for the final deduction and avoid an over-deduction. The bill also simplifies the student loan scheme by reducing the number of cases where inland revenue will go back and reassess a borrower's loan balance prior to 1 April 2013. The only cases where they would go back would be where the borrower has gone overseas and inland revenue didn't know about it where the borrower committed fraud or where the borrower did not file a tax return. The bill also contains the protection for borrowers to ensure that they are not unduly disadvantaged by these proposals. I said before that this bill will help support businesses. Members will recall that an important part of the Government's support for encouraging greater business investment in research and development is the R & D tax credit which passed into law in May. When the tax credit was developed there was an acknowledgment at the time that the next phase of that scheme would be required. This bill therefore introduces the next phase of support and a further incentive for businesses. In most cases a firm will bear the cost of its R & D work before it can reap financial reward from that R & D. This means that very often these firms will be in loss. Under the current rule many businesses in loss will not be able to access their credits until they become profitable further down the line. We want to support more business expenditure on R & D whether these businesses are in profit or loss. So this bill will extend the availability of refundable R & D tax credits to a much greater segment of loss-making businesses. The refundable tax credits would generally be available up to the amount of payroll tax paid by the business in the same year but there will be no payroll cap if the business uses an approved research provider like for example a university. For example a pre-profit start-up investing $2 million in eligible R & D would be entitled to get back $300000 of its investment in cash provided it met the broader conditions. We have set the ambitious target of raising New Zealand's R & D expenditure to 2 percent of GDP over 10 years. To meet this goal we need to get behind all of our businesses including pre-profit firms. There are other matters related to R & D included in this bill including a clarification. The R & D tax credit is aimed at providing businesses with additional support and minimising the risk of undertaking R & D but that credit is not aimed at tax-exempt entities who are outside the tax system and already receiving concessions. The bill therefore clarifies that most tax-exempt entities will not be eligible for the credit. This bill represents the next wave of the Government's ongoing simplification and modernisation of the tax system. Already businesses and individuals are benefiting from simpler smoother GST processes and automatic refunds to name just two examples. The proposals in this bill will extend the benefits of a simpler tax system to KiwiSavers and student loan borrowers and along the way it tackles some longstanding problems and issues. This bill introduces the next phase of support for businesses undertaking R & D. I'm very proud to commit this bill to the House.