Smith Lockwood: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — First Reading 
Smith Lockwood: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — First Reading 
[Volume:639;Page:9404] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 Let me make it clear at the outset that National will be opposing the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. This is important legislation and it is just such a crying shame that this Government cannot bring in legislation that addresses some of these issues in a more appropriate way. The biggest problem facing the New Zealand economy right now is the fact that during a period when we are quite low in our economic growth phase—we are towards the bottom of the economic cycle if one likes—our economy is growing at under 2 percent per year right now. Yet our capacity utilisation is high and Dr Cullen cannot deny this. The Reserve Bank is deeply concerned about it. That is why it is having to raise interest rates because we are in a position where we cannot get non-inflationary growth. That is a huge problem. It is growth that delivers wealth but we cannot get the growth because at the moment our capacity utilisation is so high that we cannot get non-inflationary growth. The Government believes that this bill might improve that. Of course the real issue is productivity or the lack of it. Our productivity growth is so disastrously poor and that is why we are not getting non-inflationary growth. 
Much of Part 1 of this bill is about these new tax credits for research and development. The Government argues that this is great because this extra investment in research and development will improve our productivity—at least that is what I presume is the theory behind it. But the problem is that if I look at what is in this bill I can see it actually damaging our productivity because as businesses are forced to go through all the hoops they will have to go through to try to get these tax credits productivity will actually suffer. 
We have seen it all before around the world where Governments offer this kind of incentive. It reminds me of the European Common Agricultural Policy and how disastrous that subsidy scheme has been for productivity. Mr Assistant Speaker I invite you to look at Part 1 and see what the Government defines as qualifying research and development. It has to be “systematic investigative and experimental activities that seek to resolve scientific or technological uncertainty or that involve an appreciable element of novelty”. How the hell does one define that in law? Of course the Government tries to define it—in dozens and dozens of pages. If one looks at clause 100 onwards one sees dozens of pages in which it tries to define this stuff. 
What is extraordinary is that if one is spending money on buildings for example or tangible assets to deliver this novel research work then one can actually claim the depreciation on those. But if one needs to acquire the intellectual property—the intangible assets on which to build one’s real-value research work—one finds that that is excluded. As I read the legislation I find that expenditure on intangible assets is excluded. If the Government is serious about doing something about productivity then it will realise that the whole set of provisions around these research and development tax credits will simply have businesses—as they always do—trying to see whether they can get a handout from the Government and it will realise that the loss in productivity as they go through the whole paraphernalia of trying to actually qualify for these tax credits will all be unproductive activity. There will be the employment of people in unproductive work. I cannot believe that the Government has been convinced to go down this track when it is just going to be adding compliance costs adding more regulation. I accept that Dr Cullen has had nothing to do with business. 
Darren Hughes 
: Well he is giving them a tax cut. In the previous bill you voted against that. 
Dr the Hon LOCKWOOD SMITH 
: I ask the member whether Dr Cullen has ever run a business. 
Darren Hughes 
: Well he’s cut taxes for them. He did it before; the member opposed it. 
Dr the Hon LOCKWOOD SMITH 
: He has not has he? He was a history lecturer. At least I still run a small business. But everything Dr Cullen does—everything in this bill—I have tried to comply with. As a small employer I have to comply with all this stuff. All I can tell Dr Cullen is that it all adds compliance cost and it is all more regulation. He has got to come to understand that excessive regulation is one of the major reasons why productivity growth has collapsed. The business sector of New Zealand has become overburdened with regulation and for more and more cost there is no more output. That is why our level of productivity is collapsing. This bill is adding nothing to improving our productivity because it will involve businesses in a whole lot more worthless work as they try to qualify for these tax credits. 
In Part 1 of the bill there is also an interesting section on the Working for Families tax credits. This is hugely important stuff. Do you know what this part of the bill does Mr Assistant Speaker? It changes the name of family assistance to Working for Families tax credits. It changes the name of family support to family tax credit. It changes the name of the in-work payment to in-work tax credit. It does not change the name of the parental tax credit but it does change the name of family tax credit to minimum family tax credit. Is that not important stuff? That is hugely important stuff to bring into this House under urgency! But it shows the mindset of this Labour Government. It has no understanding of what productivity is about and no understanding of what is damaging this economy. 
If it wants to have a look at what is damaging the economy then it should look at the effective marginal tax rates around that package of Working for Families tax credits. I say to Dr Cullen that when our effective marginal tax rates are up over 90 percent they have major disincentive impacts. No wonder a lot of women are no longer working extra hours when they get to keep 7c to 8c out of every extra dollar they earn! I say to Dr Cullen that it is not worth it. If he is concerned about productivity then he should have a look at some of the fundamentals involved in this legislation. 
I want to refer now to Part 3 of the bill because it is Part 3 that brings in the provisions to actually require employers to now make contributions to the KiwiSaver scheme. The Government has argued that part of what will help employers to do this is the business tax cut. No one I have heard in this debate today since the Budget was presented has mentioned or pointed this fact out: a lot of New Zealand’s businesses and employers which employ most of our workers are small employers. A lot of them are not corporates; they will not get the tax reduction for the corporates down from 33c to 30c yet the small employers will have to pay out these compulsory contributions to this KiwiSaver scheme if their employees want it. 
It is quite clear that the tax credit available back to those employers will not cover the cost of their compulsory contributions. It is dead clear that it will not cover the costs. So what will happen is that our small employers will suffer yet higher costs under this regime. 
I cannot believe that this Government has no understanding of what it is like to run a small business—no understanding at all. All this bill means is that the cost to small businesses will go up. A lot of them are not corporates; they will not get the benefit of tax reduction but they will have to make these compulsory contributions which are all set out here in Part 3 of this bill. No consideration has been given to the impact of this on the viability of our smaller businesses in New Zealand which are so important to our economy. 
Finally I want to make this point about this KiwiSaver scheme and all the incentives around it. It will not do anything for middle to lower-paid New Zealanders. If Dr Cullen thinks that people on $20000 $25000 or $30000 can put 4 percent of that into the KiwiSaver scheme when they face all the realities of trying to meet their costs of living today he is deluded. So they will not get any of the benefits of those tax credits—not even at age 65 which of course is when these tax credits are available to them. 
It is sad that as we debate the first reading of the bill that it is ordinary low-income hard-working New Zealanders who pay a significant hunk of our taxes if they do not happen to have any children who will not get any benefit out of this because they cannot afford to put 4 percent of their income into such a scheme. It is in fact higher-income earners who will benefit just as it was with Labour’s Working for Families package cynically directed towards middle New Zealand to try to buy votes at the last election. That did nothing for low-income New Zealanders and the KiwiSaver scheme will do nothing for low-wage earners.