Groser Tim: Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill — Second Reading In Committee 
Groser Tim: Taxation (Annual Rates Savings Investment and Miscellaneous Provisions) Bill — Second Reading In Committee 
[Volume:636;Page:7110] 
TIM GROSER (National) 
: 
 First of all like Mr Hide I would also like to thank Robin Oliver for his great contribution and advice over the years. My past career has not much run into his although I have talked to him from time to time. But I have certainly been aware of his considerable influence and of the respect in which his advice is held in a number of important quarters in this country. I am not sure that I want to follow Mr Hide in congratulating Mr Jones on his chairmanship of the Finance and Expenditure Committee. That is not because I have any particular reason to doubt the judgment; I attended my first meeting of his committee only 2 working days ago. It is just that Mr Jones may have a significant role to play in the Labour Party’s political future and whether receiving high praise from the leader of the ACT party is of great benefit to him is something on which I would pass no particular judgment. 
I have been watching the political progress of this bill with a mixture of bemusement amusement and sometimes I would have to say amazement. The first question was—and I am really addressing here the question of the differing treatment of overseas investment income—whether there was a problem. Oh yes we have known for a long time there were a number of problems—a number of distortions. But the first-order question that would arise because it really is an implied quantitative question is about the extent of the problem and whether the problem was of such a dimension that attempting to fix it would not raise larger costs than those resulting from the problem in the first place. The second order in any logical sequence of thought would have been to ask about the optimal ways through to address that problem. 
The deluge of submitters against the bill has really meant that this bill—a bill of extraordinary complexity—has undergone the equivalent of genetic modification: political manipulation. It reminds one very much of that clichéd joke about the camel having been composed or designed by a committee. In some parts the bill looks as though it bears only a casual resemblance to its original life form its original structure and its original ideas. It has been pushed and pulled to assuage this or that submitter this or that party in support of the bill this or that opinion and this or that new fact that emerged in the process of examining the bill. 
That reminds me of something that is often said about ideas that run into trouble. They are said to go through five stages. The first stage is the first-mover stage. Somebody in Mr Cullen’s office—maybe Dr Cullen himself; I do not know whether it was him or an adviser in his private office—or someone from Treasury or the Inland Revenue Department would have drawn attention to this distortion and made the argument that something needed to be done about this problem. Stage two is of course growing interest in the proposal. Stage three is that the proposal is the new consensus; everyone around Dr Cullen’s office agrees that now is the time to move to reduce or remove the distortion. Everyone is on board. Technicians perhaps in the Inland Revenue Department who are aware of the vast technical complexity actually involved in implementing such a policy recommendation are very wise to stay quiet. 
I think we are now at stage four of the idea with one further stage to come. Stage four is the stage when an idea goes a little sour. Growing doubts appear about the wisdom of having embarked on the course of action in the first place. So now that the submitters have come in we see water is pouring into the ship and instructions have gone out to put out the political lifeboats and get ready to jettison some of the ballast that is not required. We have the extraordinary vision of Sir Ron Brierley who has now through the political process that I am describing gone beyond the status of being a living legend amongst New Zealand investors to become effectively at least for some years to come a de facto head of State in terms of taxation treatment. 
We have not quite got to stage five. Stage five is of course the stage where the pernicious unintended effects of legislation like this come fully home to roost. Those who were not involved are rewarded and those who were involved and were responsible for the idea are punished. Well fortunately we have a thing called the democratic process and the people responsible for that are the New Zealand electorate. I took particular note of the point that Bill English made earlier in this discussion about the Government almost certainly being unaware of the huge numbers of New Zealanders—not just a few rich folk out there—who are affected by this bill and I am sure Mr English was absolutely right. The Government had quite a shock when it found out the dimension of the problem that it had raised by stirring the swamp up on this particular issue. 
The bigger picture here frankly is the need for serious tax reform rather than fiddling with something that could well have been left alone. We now see that we are in a position in this country where we have the fatal combination of bracket creep in terms of taxation jargon and unadjusted taxation rates. This bill of course does not want to go anywhere near that issue. We understand that because we know there is a subsequent stage to come in the process of so-called taxation reform. It will come sometime before the next election when an adjustment to the brackets is made in order to take account of the fact that in the last 6 years there has been a 50 percent growth in the number of taxpayers who fall into the $38000 to $60000 a year income bracket where they move because of the discontinuity in the tax break from paying 19.5 percent of their income to paying 33 percent. So the argument will be made later on the adjustment will be made and then the New Zealand public in a rather larger political debate than even this debate will have to make up its mind as to whether in the course of a 3-term Government that amounts to a credible and continuing commitment to taxation reform. 
The second bigger picture here is the need to do something about this country’s savings position. Like others I am sure in this House I am aware of quite a complicated debate in economic circles—well at some levels people say there is not necessarily a problem and others define it in terms of the way that one measures savings flows. That often comes down to a question about whether a dollar invested in housing equity is equal to a dollar invested in a Government surplus is equal to a dollar invested in managed funds and about the complicated economic effects that arise from those different forms of savings. Although I accept that there are differences of view amongst commentators on that I do not think there is any serious question that a couple of things in that overall picture are of great importance to New Zealand. 
First of all if we look at the narrower definition of savings in financial assets we see we do not look very flash. As time goes by particularly in comparison with Australia the situation looks increasingly less attractive from our point of view. That is factor No. 1. Factor No. 2 which I do not think there is a great deal of disagreement on is the dismal picture on investment flows which are—at the present moment with our current account deficit being around 9.7 percent of GDP—the second-highest in the developed world behind Iceland’s. That is a very serious problem for this country. Part of the problem of course is the huge imbalance in investment income. That is not an argument to put controls on inward investment. No no we should be very thankful that foreigners are prepared to fund a high level of consumption with their own savings. 
But of course there is a problem here. In 2005 some $13 billion went out of the country in terms of investment outflows. That represents a return from investment in New Zealand assets. So it is a matter of some importance that we actually implement policy structures that are designed to encourage an outward flow of investment from New Zealand taxpayers which will actually start to ensure that we have some reverse flows to balance off that rather dismal picture overall. 
Does this bill address that issue? Does it provide the greater certainty required for New Zealanders to invest increasingly more of their assets in overseas investments? I think not; I think decidedly not.