Smith Lockwood: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Second Reading 
Smith Lockwood: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Second Reading 
[Volume:629;Page:1890] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I want the House to know that National will be supporting this Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill. It is kind of unusual I suppose for National to support a tax bill that Labour has brought into this House because so many of Labour’s tax bills increase tax impositions on New Zealanders and New Zealand businesses. But we recognise that this bill is business friendly in a number of areas and it contains a number of important provisions. I wish to go into one or two of those provisions in some detail because despite the work of the Finance and Expenditure Committee I think during the Committee of the whole House we will need to make sure we have one or two of the provisions right because in this modern competitive world we have to make sure we are keeping up with international developments.  
There are several reasons why National supports this bill and I will just run over two or three of them. The first one is that difficult issue for so many businesses of provisional tax. Under current law provisional tax is based principally on the residual tax paid by a company or a business for the previous year. Many businesses say the problem is that their business can change so much that because the income this year is so different from last year’s income the provisional tax impost is simply unrealistic for their business. This bill introduces a useful measure that offers a different mechanism for calculating provisional tax whereby a business can relate its provisional tax to essentially its cash flow through relating it to its GST payments. I think that is a useful mechanism and it will be of assistance to businesses because where businesses have to find provisional tax payments it is a direct cost that can put a business in a very difficult financial position whereas the option that is provided by the clause on provisional tax in this bill will give businesses an option that more realistically reflects the economic climate financial position and likely profitability of a business in any particular financial year. 
So we think that is a sensible move. Some people argue that it is being restricted to businesses that are too small. If I recollect correctly the residual income tax threshold from the previous year that would qualify businesses to use this provision is $150000 and some have argued that it should actually relate to the turnover or size of the business rather than the residual tax position from the previous year. But I do not think it is worth arguing to the death on that point. The benefit that will come from the provision makes it worthwhile to support the provision. 
As the Minister of Revenue has also just outlined there are important depreciation changes in this legislation. The raised depreciation rates for certain plant and equipment more closely align the depreciation to the economic value of that plant and equipment which is what depreciation is meant to do. So again it is a positive move. 
There is also a change to the asset value threshold requiring assets to be capitalised and therefore to go on the asset register rather than to be expensed in any given year. I think the current $200 threshold was established in 1993 13 years ago and it has not been changed since. This bill moves in the right direction. It proposes raising that asset threshold from $200 to $500. It is a useful step and positive for business. It means that assets below $500 in value can be expensed rather than having to go on to the asset register and be depreciated. 
But issues were raised with us that were not sorted out by the select committee where one can have an asset that can be made up of a number of small pieces and the combined value of those small pieces may be over $500. Some have argued that the $500 threshold was too low because all it means is that businesses will purchase one element of that asset every week for a while so that they do not exceed the asset threshold value. That is an issue that deserves more work from the Government. The Minister should explore that issue further to see whether there is a way to simply reduce compliance costs in that situation because we all know what businesses do and we really ought to try to get a sensible measure into our legislation to address that matter. 
A very important issue in relation to asset registers was raised at the committee by both submitters and National Party members. My good colleague Chris Tremain an excellent member of the committee raised the issue of the possible removal of assets from asset registers. If we have a $500 threshold for assets that have to go on to the asset register at the moment we have assets that are being depreciated on a straight-line depreciation. Technically one can never remove an asset from the register as long as the asset remains—as long as one has not sold it or it has not been stolen or something and one has claimed insurance on it— 
Hon David Cunliffe 
: What? 
Dr the Hon LOCKWOOD SMITH 
: Well mathematically— 
Hon David Cunliffe 
: A straight line goes through the axis at some point logically or it would not be a straight line would it? 
Dr the Hon LOCKWOOD SMITH 
: OK—if it is a percentage reduction one cannot ever get it off one’s asset register. If it has been depreciated by a certain percentage a year one can get it down to an asset value of $50 or down to $20 and it is still on one’s asset register. There is a significant compliance cost because under the law businesses are meant to check their asset registers each year to make sure they are correct. Even in a small business an asset register gets a mile long because there are assets on it of almost negligible value that cannot be expensed because under the current provisions there is no minimum threshold for removing an asset from the register. I think the Minister of Revenue should again look at this. 
Officials promised the select committee they would explore this further. We were told that if we were to use that $500 asset threshold it would be too big a fiscal cost. National accepts that. We are not asking the Government to give away hundreds of millions of dollars of revenue. What we are looking for is a sensible threshold where the fiscal cost is not too great and where assets could be written off that asset register and the remaining value just expensed. There ought to be a threshold value where that makes sense. 
Another important element of this legislation is the exemption for new migrants coming to New Zealand in relation to income from offshore assets—certain overseas income. When the Minister of Revenue spoke on the bill a moment ago he spoke of the importance of trying to align our provisions here with Australia’s. Although the provisions in this bill are useful they in fact do not align us with Australia. They would have aligned us with Australia given what Australia was originally planning to do. Australia was originally planning to have the 4-year exemption for new migrants. Australia had the provision that they had to be not resident in Australia for 10 years which is what this New Zealand provision in this bill does. But Australia has changed that so that any holder of a temporary resident’s visa in Australia even if that person is currently resident in Australia would be able to gain that exemption while he or she holds that temporary resident’s visa. That will give Australia a huge competitive advantage in hanging on to people with a temporary resident’s visa in Australia. 
The New Zealand business sector has raised the concern that our provision although it has been improved over what was originally in the bill still has some constraints around it that make it not competitive with Australia. I would suggest that during the Committee stage the Minister might do a little bit of work to have a look at whether we could align with Australia so that we are not less competitive for people who are currently resident on temporary visas—in other words people who have not been out of New Zealand for the last 10 years—and what the fiscal cost of that would be. We certainly are not competitive with Australia given Australia’s latest changes. 
I see Dr Cullen shake his head but he must see that we could easily lose those people. We do not have them locked into New Zealand. If a hugely more favourable position is being offered offshore in a country like Australia those people—who are mobile people—could go. 
The other issue in relation to this provision is for returning New Zealanders. What about the situation of the 10-year requirement for their absence? Why did we make it 10 years? Why do we not consider a period of 5 years? Once a New Zealander has been out of the country for a decade he or she is pretty much locked into life offshore. If we want this provision to make New Zealand more attractive to New Zealanders coming home why not consider a shorter time period there? 
Finally in the last few seconds I want to pick the Minister of Revenue up on the issue of the unacceptable tax position in respect of penalties. National wants to see that Supplementary Order Paper delivered into this House because the situation is totally unfair to taxpayers at the moment. A taxpayer may for example file a GST return that has a mistake in it correct that mistake before the due date pay the correct amount of tax and be penalised 20 percent up to a maximum of a quarter of a million dollars. It is not a tiny penalty that is involved here; it is a maximum of a quarter of a million dollars. National makes it very clear that we want to see that Supplementary Order Paper because it is important for the goodwill and integrity of our tax system.