Groser Tim: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — First Reading 
Groser Tim: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — First Reading 
[Volume:648;Page:17388] 
TIM GROSER (National) 
: 
 I do not think I can afford to fall back on the new MP excuse after 2½ years here. Nevertheless I have to admit to finding it rather daunting to be given a 600-page document that includes explanatory information containing issues of vast complexity in which I have no professional background and then to be expected to make a serious contribution on it. However there are one or two things in the Taxation (International Taxation Life Insurance and Remedial Matters) Bill—that National members support being referred to the select committee for a first reading—that do some sensible things and merit some comment. I will focus on those issues which are very much related to the challenge of globalisation that is facing New Zealand. 
I acknowledge that the bill is a multi-faceted bill and that it simplifies a number of tax thresholds. It helps the voluntary sector in terms of the mechanisms used to make contributions to charities. That is a strong position of the National Party; we were not surprised when it was taken over by the Government but it is the right direction from our point of view. I wish to focus in a few brief comments on one or two of the moves the bill makes in terms of coming to terms with the integration of the New Zealand economy from a tax perspective into the global economy. 
I recognise that some of the terminology is formidable. Until 2½ years ago I thought CFCs were a particularly potent form of greenhouse gas; I now understand that this acronym refers to controlled foreign companies. I have to admit that one day while driving in Auckland and listening to talkback I heard the announcer say: “After the break we’re coming back to a huge argument that’s erupted over the rules for pies.” I thought I might have to rethink my thinking on talkback radio because I had not realised that listeners would be interested in portfolio investment entities. Unfortunately my pleasure was very short-lived when I found they were actually objecting to the fact that the winner of the New Zealand 2007 pie contest had produced a vegetarian pie which in the opinion of many of the listeners was something akin to the end of civilisation as we know it. 
Craig Foss 
: It was from Hawke’s Bay that pie. 
TIM GROSER 
: I am well aware of that and I am sure it was an excellent pie but I have to tell the member the decision was deeply controversial in Auckland however popular it was in the bay. 
The challenge facing New Zealand to adjust its thinking and its policy structures to globalisation is truly formidable. I am sure that this bill takes us in a certain direction I am sure that it is a work in progress and I am certain that further pieces of legislation will be required as we all adjust our ways of thinking our behaviour and our legislation to the fact that we no longer live in a closed economy. I remember a speech that Bill Clinton made in his first presidency—a brilliant Clinton speech—about how even in his lifetime he had gone from seeing a local economy in Arkansas to seeing the shops and services that he had grown up with start to trade more and more with other American states and then move into an international economy. So the most sophisticated country in the world the United States has gone through this process; we are going through this process. In that respect I agree with the comments that Dr Cullen has made—that there is a close linkage between this bill that we are considering for the first time and the very extensive discussion we have just had on the China free-trade area. There is a close relationship—and a need to have some coherence in our country—between the trade and the investment sides of the equation. 
We have just spent a fair bit of time in this House on the trade side so let me reflect on the challenge facing us on the investment side. I first became aware in a personal sense of how poorly New Zealand performs on the investment side—I am talking about outward investment here—when I read a monograph written by none other than Alan Bollard actually when he was with the New Zealand Institute of Economic Research. He chronicled the history of New Zealand attempts to invest successfully outside New Zealand. It does not make pretty reading. I know there are some highly commendable exceptions to that so far be it from me or any member to criticise the pioneers who got out there and frankly made efforts that did not always quite succeed. 
But the fundamental point is this: New Zealand is a poor investor overseas. That is a fundamental problem facing New Zealand. Although I suspect that the key to it lies within the corporate culture of this country and not the Government it nevertheless is incumbent upon the Government to make sure that the policy framework we have in place does not get in the way of successful investment. I think in that respect it is very clear that some aspects of our external tax regime have done precisely that—put in place perverse incentives sometimes in the name of what sounds like good policy such as tax neutrality. But at the end of the day they simply do not aid corporate New Zealand in the task of coming to grips with its challenge to integrate its own operations not just in terms of the trading of physical goods and physical services but also in terms of its own investment operations. 
In case any members are thinking that this is some minor technical point I am making let me just throw some numbers around. It is a bit of an exaggeration but we can say that New Zealand does not have a trade problem in the sense of the current account deficit; New Zealand actually has an investment problem. I think that is overstating it for the very reasons we have just debated in the context of the China free-trade agreement. Actually New Zealand is not performing in line with other small developed countries on the trade side and there is an enormous amount we must do. Nevertheless the point that I think the metaphor makes—which I have heard in a number of contexts; it is not mine—has an essential truth in it. 
If we analyse our current account deficit we can see that the trade account is not in too bad a shape but it is completely overwhelmed by a massive deficit in investment income. We measure the stock of accumulated foreign investment in our country vis-à-vis the stock of investment of New Zealand - controlled foreign companies—and I agree with Dr Cullen that the term itself suggests some appalling multinational corporation from Detroit but actually it may mean a Kiwi company from Hawke’s Bay operating somewhere in Australia or Singapore and these are companies we all very much wish to support—through a measure called the “IIP” or the international investment position which accumulates the stock of our investments in other countries vis-à-vis the stock of foreigners’ investments in New Zealand. 
We have two fundamental problems. The first is the relative size of those two stocks of investment. Broadly speaking from memory we have something like $110 billion of assets overseas versus I think about $250 billion of assets in our country owned by foreigners indicating an unwillingness by New Zealanders such as myself to live on a more straitened income than we might otherwise have done so we have accessed foreigners’ savings to meet our investment needs. But this has generated a stock of investment flow that is grossly imbalanced. Worse still the average rate of return on the stock of New Zealand investments by our controlled foreign companies is immeasurably lower on average than the rate of return of foreigners’ investments in our own country. If we add those two lethal elements together we have a major national problem on our hands whereby even though we continue to perform at least credibly on the trade front we are bleeding on the investment account. 
So we have if you like this fundamental challenge facing New Zealand which is to lift our game on foreign direct investment in other countries. It is vital that we do not just take a tax minimisation account on that but that we look at it strategically. I refer to some of the changes that are suggested in terms of the treatment of active income. The Hon Peter Dunne indicated the way in which the definitions will apply. It is the reciprocal of passive investment. I think there are some interesting starts and I am sure that in the process of this bill being taken to the select committee we will have a lot of evidence that will need to be sifted through very carefully indeed.