Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Second Reading 
Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Second Reading 
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Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill 
Second Reading 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I move  
That the Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill be now read a second time 
. This bill introduces a package of tax measures that is designed to promote economic growth—in many cases by reducing tax-related impediments to that growth. Other changes in the bill aim to ensure that investment is as productive as possible in order to increase New Zealand’s access to worldwide labour skills and capital or to reduce business compliance costs. 
The Finance and Expenditure Committee has considered the bill and recommends a number of amendments to the proposed legislation to ensure that it operates as intended and as well as possible. One of the most important features of the bill is a series of changes to the tax depreciation rules. Those changes are designed to better reflect our assets decline and value and to ensure more productive use of capital. The bill lowers the depreciation rate for buildings while it raises the rate for short-life plant and equipment. 
The ASSISTANT SPEAKER (Ann Hartley) 
: I am sorry to interrupt the member but there is just far too much noise. I ask members to please leave quietly and not talk to others on the way out. 
Hon PETER DUNNE 
: To reduce some of the compliance costs associated with depreciation the bill raises the low-value threshold for depreciable assets. To reduce compliance costs further the committee has recommended that taxpayers be given the option to apply for the new depreciation method for plant and equipment that is acquired from their 2006-07 income year in order to prevent taxpayers from having to adjust depreciation rates that have already been entered into their asset register. 
The committee has recommended that relief from the new building depreciation rates be allowed for transfers of buildings between companies where there is a 100 percent common ownership and that the same rules apply to transfers of relationship property—buildings—between husbands and wives de facto partners and same-sex partners. This will result in a more even-handed application of the law and will reduce a possible tax consequence that may affect decisions about the reorganisation of assets within a group of companies. The committee considered the compliance cost implications for businesses that for depreciation purposes must attract large numbers of assets that have very low values. Instead of an amendment to the proposed legislation the committee would like to see other options to reduce compliance costs in this area explored between small business and officials. I share the committee’s concern about the need to ensure that compliance costs are kept to a minimum. The challenge will be to come up with options that address taxpayers’ concerns without costing a fortune. 
The bill also introduces measures to make tax matters easier for small businesses and to lower some of their compliance costs. It aligns the payment dates of GST and provisional tax in order to reduce the number of payment dates that businesses have to cope with. It will now also be possible for small businesses to make more frequent payments of provisional tax if they want to to help with their budgeting. Businesses may also choose to base their provisional tax payments on a percentage of their GST turnover which will suit those businesses that have seasonal income and want a closer alignment of tax payments and income flow. 
The third key element of the small-business package is the introduction of a subsidy to encourage small businesses to avail themselves of the help that payroll agents can give them in dealing with PAYE child support and student loan deductions from staff wages. The application date for two of those small-business changes—the alignment of payment dates and the payroll agent subsidy—was to have been 1 April this year. The alternative method of calculating provisional tax would have been available from the 2007-08 income year. However the delay in the passage of the bill which was originally expected to have taken place last year has meant that a 1 April 2006 application date is now unrealistic. The committee has therefore recommended later application dates for those measures in order to allow time for information on the proposals to be distributed to businesses and for businesses to prepare for the changes. 
The committee has recommended deferring the application dates of the proposed GST due date from 1 April 2006 to 1 April 2007 deferring the payment dates alignment and use of the provisional tax ratio method from the 2007-08 income year to the 2008-09 income year and deferring the proposed payroll subsidy from 1 April 2006 to 1 October 2006. The committee has also deferred the application date for the Accident Compensation Corporation (ACC) attendant care proposal from 1 April this year to 1 April next year in order to allow sufficient time for the regulations to be drafted following the enactment of this legislation and for the Inland Revenue Department and ACC to make the necessary systems changes. 
This bill also proposes changes to the fringe benefit tax (FBT) rules which are designed to reduce compliance costs and remove anomalies in the legislation that have developed over time. Although several submissions favoured retaining the current treatment of nine-to-five and flip-flop leases of motor vehicles the committee has recommended that the proposed changes proceed. That recommendation has been made on the basis that the proposed changes are necessary to achieve the intention of the current law which is that shareholder-employees should come within the ambit of the FBT rules rather than the rules that apply to sole traders and partners. The committee has however recommended that a full deduction of both business and private motoring costs be allowed in relation to the vehicles covered by the “nine-to-five” and “flip-flop” leases—the same as already occurs in other situations when FBT is applied. The committee has recommended a number of other changes to the proposed FBT legislation which are intended to further reduce compliance costs including several technical and drafting changes to improve the clarity of the legislation’s intent and to better align it with the intended policy objective. It has been recommended that this proposed application date remain at 1 April this year. 
To remove a tax barrier to international recruitment to this country the bill introduces a tax exemption for certain types of foreign income to be made available to migrants or returning New Zealanders who have been non-resident for tax purposes for 10 years. The committee has recommended that instead of having a two-tiered exemption distinguishing between employees and others there be one class of exemption for all and that it apply for the first 48 months following someone’s arrival. The concern behind that recommendation was that a two-tiered exemption might signal that New Zealanders are interested in attracting only employees not the self-employed which is wrong. The committee has also recommended that the exemption be extended to cover dividends interest and bonus payments from employment that was carried out overseas before coming to New Zealand. Australia intends under a similar proposal to exempt dividends and interest and the committee sees merit in aligning our proposed exemption with Australia’s. 
This bill updates the tax rules on share-lending transactions in order to bring them into line with the rules on other commercial transactions and with those of countries such as Australia. These changes are intended to remove tax barriers to securities lending transactions and to make New Zealand more attractive to international investment while preventing the use of securities lending for tax avoidance purposes. The key change recommended by the committee is the adoption of a single application date for the share-lending legislation. Otherwise having different application dates that depend on a person’s balance date would mean that certain taxpayers would be given a commercial advantage. The committee has recommended a new application date of 1 July this year in order to give the industry time to comply with the new rules. It is also recommended that the proposed non-resident withholding tax share-lending rule be removed until the Government’s current review of non-resident withholding tax is completed. 
 This bill introduces new tax rules on corporate migration to ensure that companies that migrate from New Zealand pay tax on the worldwide income they earned while they were resident in New Zealand. The committee has recommended the inclusion of a grandparenting provision for companies that had done everything within their control to migrate by 21 March 2005—the date of application—but had not yet become non-resident by then. As it would be unreasonable to apply the new rules in such cases the companies in question would not be subject to them. 
These are the main changes that the committee has recommended be made to this legislation. The bill contains a number of other important changes to which the committee has recommended that there be no amendment. At the Committee of the whole House stage I shall release a Supplementary Order Paper relating to the operation of the shortfall penalty for taking an unacceptable tax position—a measure that I announced earlier this month. In addition my colleague the Minister for Racing will be releasing Supplementary Order Papers relating to the reduction in gaming duty for racing and an accelerated write-down regime for bloodstock—measures that he announced last week. I express my thanks to the Finance and Expenditure Committee for its very careful consideration of this rather technical bill. I commend the committee’s report and the bill to the House. 
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. 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 I have to admit that I feel quite faint after that speech. I know that the National Party has been under instructions to tone it down in the House this week but when Dr Lockwood Smith supports a Labour Government bill on taxation I think that is almost going too far in the direction of reason and good behaviour within Parliament. Maybe he is losing his spark or something like that. 
I just want to pick up on one or two of the issues he raised and try to give some sort of response to them. Firstly I refer to the issue of the threshold of $150000 in relation to provisional tax. Clearly with any move in this respect there is a certain arbitrary limit that will be set at the initial stage and any figure is to some extent plucked off the shelf. I think what is fair to say is that this is a classic case where we can suck it and see. We can see how it works in practice and therefore see whether there is a strong case for extending that threshold upwards to allow a larger range of middle-sized businesses to qualify for the provisional tax approach based on cash flow. 
As the member rightly said—and as I think the Hon Peter Dunne said—this would be particularly useful for seasonal industries. But I suspect that quite a few small businesses will also find it helpful because it will simplify the process of doing taxation and remove a great deal of the worry around the current provisional tax estimation kind of approach which does sometimes get some small businesses into trouble. It is one of those holes where once they start going down it can be very difficult to get back out again despite the freeing up of the penalties regime and more flexibility around that which we introduced a little while ago. 
In terms of the expensing threshold going from $200 to $500 business of course wanted to go to $1000. The additional $500 was something over an additional $200 million of forgone revenue in the first year. It is surprising just how expensive it is to move from that relatively low level of $500 to what is still a relatively low level of $1000. 
I think whatever the level would be that is reasonable—clearly something around those sorts of orders of size are what we are likely to be looking at over the coming years—we are still going to face this problem that it can be broken down into component parts. Even if it were large enough to cover a motor vehicle for example—let us suppose it is $30000—one might break the motor vehicle down into component parts and assemble on that basis for taxation purposes. One thing I have learnt in my 6 years as Minister of Revenue is that there is an endless fund of creativity in New Zealand accounting and legal firms around trying to adopt what they would like to call tax-effective positions—or avoiding tax as I think the more general public tends to know it. 
 Unfortunately lowering the simple tax rate does not seem to make much difference to that behaviour. For a couple of years people say that it is very nice to have a tax rate of only 5 percent and then they say that they hate paying 5 percent so they want to find a way around that as well. It is a sort of revenue equivalent of original sin in effect and we just have to live with original sin in tax as we do in the rest of life. 
In terms of the issue of a threshold for removal from the asset register I think it is something that officials could usefully look at. On a straight-line method it is not such an issue because a straight line will cross the axis at a certain point. But on the percentage reduction method when it is asymptotic to zero then clearly that can lead to infinitesimally small amounts of money requiring things just to remain on the asset register. That is something that is certainly worth looking at. 
On the member’s last point around temporary residency etc. I think he will find that the Australian system is not quite as generous as he thinks in terms of what we have done in relation to returning New Zealanders and permanent migrants. Indeed part of the reason for that is that Australians are less generous around issues of permanent and temporary residency. The member raised issues around people being temporary residents for a number of years. That is a very unusual situation within New Zealand and it would certainly be an extraordinarily unusual situation for somebody who was a high-worth individual in terms of skills and employment. Those people will almost certainly—near enough 100 percent certainty—have permanent residency within New Zealand so that if they are taking up their permanent residency and they have been offshore then obviously they qualify for it. 
In terms of the 10-year limit for Kiwis again there is a quite a difficult trade-off in that respect. If the period is too short then it becomes an incentive for people to simply go offshore for a period of time. In my view 5 years is a bit towards the short end of the spectrum. If people extend their OE to 5 years when they were planning on 3 years they will qualify for tax emption on a whole range of overseas income possibly for a considerable number of years. So I think there is a difficult balance and it is worth continuing to keep that under review as we move along. Again this is a new feature of the tax system so it is one that we need to keep under review to see how it works and to see what the incentives and behaviour responses are in relation to that because there is always the risk of perverse behaviour responses to moves of this sort. 
Finally these are in fact the largest business tax reductions since the late 1980s—since the fourth Labour Government cut the company tax rate at that point from 48c to 33c in the dollar. No reductions in the 1990s were as big. It is one of the key features of the 2005 Budget. The changes in the legislation are particularly helpful for small to medium sized businesses. That was quite a deliberate policy choice by the Government having in effect determined the amount of money it thought was available for business tax reductions. It decided to target those in a way that would be most helpful to small to medium sized businesses because all our experience over the previous few years—including the work that the Inland Revenue Department had done at my instructions—was that there were issues there that were not issues for big business at all. 
Big business was not particularly worried about provisional tax. Issues around depreciation were less of an issue for big business. Issues around expensing thresholds were less of an issue for big business. There were many more issues for small business because of the relationship of those kinds of expenditures to the total expenditure of the business. 
So the legislation should be pretty warmly welcomed by the business community. As always people would like more but then the world is full of Oliver Twists in the world of revenue. It does not matter what the Minister of Finance or Minister of Revenue does one can be sure that somebody is going to come back with his or her plate and ask for at least a second helping if not a third and a fourth. Of course as I have indicated today second third and fourth helpings may be on their way in a number of respects. 
PANSY WONG (National) 
: 
 Dr Cullen our Minister of Finance has apparently quietly delivered one of the business community’s biggest expectations of tax cuts. I hope that during the Committee of the whole House stage or whenever else Dr Cullen brings the spark back into his speeches. The lack of spark is much lamented by the  
New Zealand Herald 
 which pointed out that possibly the single biggest thing that has upset Dr Cullen’s good humour was the expectation last year that he would relax fiscal policy with substantial tax cuts. He did not work hard enough to dispel that expectation of a substantial tax saving yet he wants to tell the business community and small to medium sized business that this is one of the biggest tax cuts he has delivered. 
National supports this legislation but none the less I think there is a lot more that the Hon Peter Dunne and Dr Michael Cullen can do to improve it. For a start I find it astounding that in this bill of 346 pages there is no compliance cost statement. I thought it was standard practice that all legislation was to be accompanied by a compliance cost statement because that is the time when the Minister should hold the officials to account as to the impact of taxation legislation on business. 
I welcome the Hon Peter Dunne’s announcement that there will be an amendment to the unacceptable tax position shortfall penalty because that is one of the problems we are talking about regarding the defect of not having a compliance cost statement. If there had been one the officials might have picked up the difficulty of imposing the unacceptable tax position shortfall penalty. It is worthwhile to draw on that a bit. Apparently in the original version of the bill the officials came up with a 20 percent penalty to be imposed on a taxpayer if viewed objectively—I am not sure from whose point of view—the taxpayer’s tax position failed to meet the standard of being “about as likely as not to be correct.” Therefore if from the Internal Revenue Department’s point of view a businessperson’s tax position is not likely to be correct it may impose a 20 percent penalty tax. 
Recently there is a group of young and some senior businesspeople who were involved in TradeMe which sold for over $700 million and we were all very proud of that. Suddenly those entrepreneurs had an influx of money paid into their bank account. Members can imagine their altered tax position derived from just the interest income alone or alternatively depending on the business structure and how much of the proceeds may be subject to taxation. That would substantially alter their tax position and I am not sure that it is a situation that can be foreseen. I know that for a number of years those businesspeople were discussing a possible sale with various buyers but that deal came through pretty quickly. So for the Inland Revenue Department to say that from its point of view if somebody’s tax position is not likely to be correct then a 20 percent penalty tax will be imposed on them that is pretty severe. 
It is always very easy for Government departments to impose those standards on taxpayers but sometimes the way they are enforced is from only the Inland Revenue Department’s point of view. It is the Inland Revenue Department’s job to be fair—that is what it says. But I will discuss a particular case: that of a taxpayer who has run a company relating to safety products since 1999 and who wrote to us. We all know that businesses get into trouble with cash-flow problems every now and then. This particular company faced those problems during 2004 entered into some repayment arrangements with the Inland Revenue Department and got into trouble with complying with them. One Friday the company found that the Inland Revenue Department using its statutory power had withdrawn money from the company’s bank account and left a balance of 45c. That particular company was due to have a discussion or negotiation with the department on the following Tuesday. So I call upon both the Hon Peter Dunne and the Hon Dr Michael Cullen to be very careful about how the department sometimes administers the law. If the department is going to be fair its staff need to understand that people who operate in a pretty uncertain business environment at times need to have rules that enable both parties to negotiate in good faith. 
I also disagree with Dr Michael Cullen’s statement that a reduction in company tax and personal tax would not have removed the desire for people to play games or arrange taxation plans. Since I am a qualified accountant I can say that it is well known in the tax planning sector that ever since personal tax has gone up in effect a lot more energy has gone into and a lot more of tax planners’ work has involved the minimisation of taxation. Certainly the 340-odd pages of this bill would have been reduced if New Zealand’s individuals companies or other types of business arrangements had faced a lower taxation regime. When people face a lower taxation regime they actually channel their energy into managing their businesses rather than into engaging with their tax planners on how to minimise their taxes or play around with taxation law. 
In order to see how complicated taxation law has become we have only to look at one of the provisions in this bill. It is to further stipulate a date of commencement for the subsidy for payroll agents. That particular provision demonstrates Labour’s approach: instead of using a simple logical way to tackle the issue its instinct is to turn businesses or middle-income families on to the welfare State. The Labour Government offered a subsidy to small businesses that voluntarily make use of a PAYE intermediary. So instead of simplifying PAYE or taxation law or not requiring the company to adhere to a whole raft of taxation measures used to deliver social policy the Government preferred to put those small businesses on to welfare and pay them a subsidy. In order to do that we then had to consider and deliver legislation last year that defined who could be payroll agents and what the criteria had to be for businesses to get that subsidy. I find that rather ironic. 
Although I welcome the provision of tax exemptions for new migrants coming to New Zealand or for New Zealanders returning to this country I cannot help thinking once again that maybe the Immigration Service and the Inland Revenue Department are heading in different directions. On the one hand the Inland Revenue Department is taking the right step towards attracting migrants but on the other hand our immigration law has continued to change dramatically in a short time and is hardly an incentive to entice new migrants or encourage Kiwis to return to New Zealand. 
Finally I say the reason that most people want to live in a country is to have the opportunity to earn high incomes. 
R DOUG WOOLERTON (NZ First) 
: 
 New Zealand First intends to support the Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill—a long name for a very long bill. I would like to congratulate our Finance and Expenditure Committee chairman Shane Jones who led us through this in a most able fashion. I am sure it was more difficult for him than it was for me coming into the bill process a bit late after the last general election when a lot of work had already been done on the bill. However that is the nature of things. Mr Jones did a great job and he will continue to do so. We can already see his expertise in business coming to the fore in that committee. 
New Zealand First encourages any bill that looks to make the business of doing business easier that simplifies some complicated matters and that gives encouragement to people in effect to go out there and do it for themselves. In some cases this bill does make a couple of moves to protect revenue and we understand that that has to be done. But in the main the bill gives some comfort to businesses and helps them on their way. 
In particular I want to talk about a Supplementary Order Paper which will be lodged in the name of the Rt Hon Winston Peters that addresses issues in the racing industry. That industry has been promised relief for many many years by just about all parties in this House and we are proud to be able to deliver on some of those things now in the name of New Zealand First. I have been asked to recognise particularly the Hon Peter Dunne who as Minister of Revenue has had his officials do a fine job on this bill and who has been able to accommodate provisions around racing and make them work. We recognise his input and feel that this matter is probably close to his heart as well. 
For too long this country’s racing industry has been at a disadvantage when compared with other gambling enterprises—namely the casinos that have come of late into our country and have caused a lot of angst amongst the racing fraternity. In a way they have stolen a march on an established industry that employs—depending on who one talks to—between 25000 and 30000 people. New Zealand First has always made no bones about the fact that we believe in incentivised messages going out to the public and we particularly believe that the taxation system is the avenue we should look to in order to provide those incentives. With the help of the Labour Government and the Hon Peter Dunne we are able to make these things come to fruition. 
The racing industry for too many years has been at a disadvantage. That will be fixed now by the totalisator duty being reduced to 4 percent which brings it into line with levies for casinos. We think that that is a huge step forward. 
Dr the Hon Lockwood Smith 
: Which part of the bill—which clause? 
R DOUG WOOLERTON 
: Oh there are plenty of clauses. I could read out the clauses because I have them all written out in front of me. But as the member very well knows I am not a technical person so I do not intend to do that. 
It is important that people understand that we also have in the Supplementary Order Paper to be introduced into the bill depreciation rates at a far higher level for stallions and brood mares in the racing industry. People understand that a lot of these horses are not productive. They need to be written down more quickly than they have in the past and this Supplementary Order Paper will provide for that. The bill will take notice of these things and provide a better deal for people in the racing industry to the extent of some $30 million. 
It is always interesting to tell people of the differences between the racing industry and casinos. In casinos one enters a room that is usually without windows and usually without a view of anything else but the machines that people want to play on. In the case of racing not only is there a family environment but there is an industry behind it which is so important to our well-being. It is no secret to anybody that we also believe that this country’s export industries need help. The racing industry has a huge export component and it will have a far greater opportunity to carry that out on a fair basis with the passage of this bill. 
One of the things that interested me as I sat in the committee was that this bill intends to give a lesser rate of depreciation to buildings and no doubt that will cause a fuss in real estate circles. But one of the ironies in my mind has always been that while we are allowing depreciation rates on buildings particularly large commercial buildings for people who own them the buildings are also appreciating. This bill takes care of some of that. 
Another matter that this bill takes care of is the so-called flip-flop leases of motorcars whereby an employee leases his or her motorcar to his or her employer—in many cases a partner in the same firm—for the working hours and then the lease lapses for a period while the employee uses the motorcar in a private capacity. As members can imagine it is really nothing more nor less than a mechanism to get around the fringe benefit tax. When I spoke about protecting the revenue this is one of the areas where this bill does not provide necessarily a benefit. I believe that people will not be hindered in their endeavour to get a tax write-off on their motorcars; they just need to do it in a far more transparent and dare I say it honest fashion. 
So there are areas of this bill that protect the revenue make things fairer and more transparent and get rid of what in effect are just mechanisms to avoid tax. We will be backing this bill and we look forward to others in the House doing likewise. 
JEANETTE FITZSIMONS (Co-Leader—Green) 
: 
 The Green Party will be supporting this bill. We welcome its approach in aligning tax measures particularly for small businesses thereby reducing their compliance costs. We think it is a common-sense approach that has been needed for some time and we are glad to see it now being enacted. 
HONE HARAWIRA (Maori Party—Te Tai Tokerau) 
: 
 Tena koe Mr Speaker. Tena tatou katoa i te Whare. I actually sit on the Finance and Expenditure Committee but I still come to this bill with a number of questions. Our concern is not about the best date for the subsidy for payroll agents or whether 1 April is a good day for GST due date changes but about whether this new bill will mean a good day for all citizens in Aotearoa. When I talk about a good day I am talking about a day when this Parliament gives as much time and energy to the health wealth and well-being of low-income families and workers as we do to international capital. Let us stop tinkering around with tax write-off levels and start talking about the nearly two million taxpayers getting less than $25000 year. Let us keep the talk short and get to the action. 
Most people in my electorate have a weekly wage less than my tax bill and that is a frightening thought. Why? Because we in this House live in a world no longer connected to the reality of our voters. More important and more dangerously we live in a world where hundreds of thousands of our own people no longer have a stake in the world we talk about here. If I have to fly to Whangarei when I go home I hitchhike back to Kaitaia so that I can hook up with the people I represent. When they ask how much I get and when I tell them most of them cannot even understand how much money that is. The inequities of this society are a crying shame. 
That is why so many poor people—those who cannot afford it—turn to Powerball Keno Strike Lotto and pokie machines to scramble out of the poverty trap. So I shake my head at the thought that this bill is actually going to give tax breaks not to the poor but to those who run the gambling machines. It seems that this Government is willing to reward pokie operators and loan sharks while ignoring the plight of families on benefits despite the huge impact that gambling has on the poor. In fact Lorna Dyall says that from a Maori perspective gambling is a social hazard that should be managed in the same way we manage biological and chemical hazards. 
I am not interested in tinkering with estate and gift duties tax administration and goods and services tax. Yes we support moves to simplify fringe benefit tax to enable a more simple process of book-keeping but it is still hard to understand why fringe benefit tax paranoia stops people from using their iwi vehicles to pick up kaumatua and kuia and take them down to the doctor during the weekends. It is hard to watch resource teachers of Maori up north and down the coast spending their own money on travel because of the pitiful reimbursements they get when they try to claim fringe benefit tax. It is silly it is non-productive and we need to design systems that promote community support rather than impede it. 
As a dutiful member of the Finance and Expenditure Committee I sat through 4 mind-numbing hours of hearings about tax depreciation depreciation for plant and equipment and for buildings and so on. I thank my colleagues particularly Mr Gordon Copeland for their diligence in monitoring every clause in the bill. But the biggest challenge before this Parliament is to restructure the current system of direct taxation and to consider the role of tax in our economy. Let us move away from our fixation on GDP and instead think about a genuine progress index to measure our activities. Let us use a genuine progress index to accentuate the positive in a community where the benefits including the potential for wealth creation are owned by the citizens of our nation where tax revenues and Government expenditures are targeted at positive results and where we can deal with the challenges of climate change overpopulation over-consumption wastage peak oil and the growth of GDP. Last week marked the 50th anniversary of a ground-breaking speech accurately forecasting the peaking of United States oil production. These are some of the challenges and the opportunities we need to turn our own minds to: how we maintain current roads and increase public and freight transport through a national electrified and city light rail system; how we reduce the gap between low-income taxpayers and those on the average income; and how we raise the minimum wage quickly to at least $12.50 an hour. 
Taxes have always been a huge issue for Maori both inside this House and out. Back in 1943 Rongomaiwahine MP Tiaki Omana MP for Eastern Maori noted that settlements should not be reached without full and proper investigation that independent Maori efforts to improve local economies were being frustrated by the inability to raise loans and that without access to investment capital or a sustainable economic base Maori people could not break out of the cycle of subsistence living. So these are not new issues that I raise here. 
Reducing compliance and tax costs is also an issue very relevant to movers and shakers within Maoridom. We have spoken proudly in this House on the unique contribution that Maori enterprise makes to our nation’s economy. I point out that many Maori people are dedicated to securing economic independence through business activity and this bill proposes a number of changes that will help small businesses. 
Finally I return to the bigger picture. Like many other pieces of recent legislation this bill approaches a significant issue in a piecemeal fashion. Last month we dealt with the Tariff (Trans-Pacific Strategic Economic Partnership) Amendment Bill and in this bill today we see many of the same themes. Although other countries such as the USA India Brazil China Singapore and Chile protect their national interests our Government continues to travel down a road of open access. But new groups of people are challenging globalisation including the Zapatistas to whom I referred last night Subcomandante Marcos Chittaroopa Palit from the Indian Narmada valley and the Brazilian Sem Terra people. 
Similar challenges are also being made here. One made by a Pakeha academic Jane Kelsey reminds us that we are vulnerable in a grossly unequal global economy that eliminates many of our options to respond to the challenges that confront us. We all have a part to play in ensuring a fair and equitable system of gathering the revenue necessary for efficiently managing our economy. We need to think local while respecting the big picture; to encourage growth and productivity; to encourage savings; and to ensure that our tax system works to help all of our citizens and not just the rich. 
In closing I remind the House of the words of Nelson Mandela who said that political power should be the basis for the economic empowerment of the people. I urge that we exercise that power wisely. 
SHANE JONES (Labour) 
: 
 I rise to speak in favour of the Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill which is obvious given that I had the pleasure of chairing the Finance and Expenditure Committee that dealt with the legislation. I pay a vote of thanks to the fellow members of the select committee. They waded along with me through some highly complex and occasionally arid detail. Although obviously there were different perspectives from a public policy view there was a sense of collegiality that we do the best we can in terms of the implementation dimensions of the legislation and that we also give submitters an opportunity to speak to their submissions—but in such a way that they do not put the members of the select committee to sleep but focus our attention on those elements in their submissions that really were deserving of full attention as opposed to the inevitable filigree that accompanies in my brief experience a lot of substantive points in the select committee process. 
I point out that the bill from my perspective reminds us of the three or four elements that underpin economic growth. Firstly in respect of the application of innovative technology the bill contains a number of ideas and provisions that will improve the manner in which people can both use and depreciate the smaller items of technological value. Secondly labour productivity is an important ingredient in economic growth. The bill does something very sensible in the sense that it expedites and facilitates the easier return of either Kiwis overseas or other people who are coming to Aotearoa to work and improves the tax treatment on their sources of income that are outside our country. In that way it also shows how we are inexorably becoming closer to Australia. In many respects we find that we are competing with Australia for high-quality and specialist employees. One of the issues that the Minister and certainly our committee gave consideration to is whether through tax treatment we were unwittingly making it more hazardous and difficult for people to resume a position of employment or take self-employed status back in New Zealand. That is one of the very sensible ways in which labour productivity will be improved. 
The efficiency of capital is a key ingredient that all economies must look at and indeed that all Governments and parliamentarians should be very very thoughtful about. In that sense the way in which the depreciation schedule has been visited upon capital assets such as buildings sends an important message that any economy that is to sustain the levels of growth that we have enjoyed needs to have an efficient style and pattern of capital deployment. 
Finally the bill represents in excess of $300 million worth of tax relief. That puts paid to and makes a lie out of the critics and those who would denounce the strategy that we are pursuing of which the bill is one important part. The bill offers tax relief simplification and a reduction of compliance hazards for people in business and I have no doubt that they will enjoy the fruits of this legislation. 
CRAIG FOSS (National—Tukituki) 
: 
 First of all I thank the Finance and Expenditure Committee. Having been an MP in this House for 6 months—180 days are almost up—I can say that I have very much enjoyed being part of the committee. I endorse the sentiments of the previous speaker in respect of the willingness of everyone to try to make good legislation even though inherently we may not agree with the legislation or regulation. It would be great if the public could see more of what actually goes on in and around such a select committee rather than perhaps the somewhat ugly picture they get of this debating chamber sometimes. I am also indebted to the officials who contributed to the bill. They provided expert advice to the committee and followed us around the country as we heard submissions etc. I think the public would be surprised at how much effort goes into making this good legislation. 
The National Party supports the bill. The bill is a step in the right direction—perhaps a small step; a big toenail. It is tentative and yes I have to concede that it is business-friendly thus the National Party is endorsing the bill and helping it along the process. I guess it is also part of dragging current tax regulation and thinking into the new millennium. That can only be a good thing but boy we have a long way to go. There were many submitters on the bill from Federated Farmers down to individuals who have a stake in the future of our economy and in the goings-on of their own financial affairs. The committee is indebted to their expertise and the sacrifices they made in coming. It is a very technical bill in places. National supports the bill in the direction it is being taken. 
One point I raise—and I am quite happy to be corrected—is that I believe that the Minister of Finance talked about this bill being of benefit to industry etc. by hundreds of millions of dollars. I am quite happy to be corrected but I do not think that is quite the case. It is a cash-flow issue between various payments of various taxes. It is a cash and funding issue or an opportunity cost issue of the non-use of various funds that are paid on say GST payroll tax and fringe benefit tax. I am happy to hear more on that one later. 
The bill also deals with asset thresholds. I applaud the movement from $200 to $500 for the thresholds but I argue why we should stop there. Many submitters argued that we should go further and I acknowledge previous speakers who have at least considered the issue. They should be bold be brave. Yes consideration was given to perhaps moving that threshold to $1000 and to what the fiscal costs would be but we did not look at the benefit of having trust and faith in investing and lessening the tax base growing New Zealand’s economy and therefore creating more tax in the second place. We should have faith in New Zealand’s taxpayers. Every quarter Statistics New Zealand releases numbers. The surplus is bigger than forecast by another billion dollars or so. Billions and billions of dollars are coming in and more money is being siphoned off the private sector yet the private sector is struggling and here we are tinkering to say the least with existing tax regulation. I think we need to be much bolder and to go much further. 
That boldness would not extend of course to something like the payroll tax which has been discussed in recent forums. I suggest that that same payroll tax is not the bold measure we need to take New Zealand forward. In fact it would do quite the opposite particularly for those workers whom the Labour Party alleges to represent and care about. I hope that the Minister of Revenue and the Minister of Finance get together and find a similar line on that issue. 
The previous speaker mentioned New Zealand’s productivity and the difference between capital productivity and labour productivity. We need to have that discussion because New Zealand’s productivity has hardly moved. It has moved on the basis that we have worked longer hours. The Government is essentially regulating to incentivise capital productivity over labour productivity—making it more expensive and therefore harder to employ people—but I do not think the public are aware of the implications of where that will take us. Again I ask the Ministers to have faith and back New Zealanders—back them to make the right decisions for themselves. 
I would like to touch on the returning migrants clause. Again yes it is a step in the right direction. But let us look at the underlying assumption. Why is it necessary to incentivise Kiwis who have long since abandoned New Zealand by offering them a zero percent tax rate for 3 or 4 years? Does not that speak absolute volumes about the existing economic tax and fiscal conditions of New Zealand? I would like one day to go to the place where there is no need to offer incentives for Kiwis to come home after 10 years. In fact I would like them to stay here in the first place. Ten years is the limit that people have to be overseas before they can apply. How do we incentivise those 600-odd a week who have fled across to Australia over the last 6 years of this Government? By merely trying to match what Australia is offering all we will do is cement ourselves and our distance behind Australia. We have to be bolder we have be more aggressive and we have to have much more lateral thinking. I for one do not agree with what I read that the Minister of Finance said recently that Australians should treat New Zealand as the fourth state. 
Hon Dr Michael Cullen 
: I didn’t say that. 
CRAIG FOSS 
: Again I am happy to be corrected. 
We touched on asset schedules throughout the bill. There has been discussion on the straight-line percentage base. I think most people out there got the point. But again companies out there have forests of books bookkeeping asset schedules etc. to the nth degree of some asset they started to write off 4 or 5 years ago. It is just pointless. Again it is a useless compliance on business. Businesses are wasting time not doing what they are supposed to be doing or trying to do which is adding value to the New Zealand economy. 
The bill also touches on share lending. Again it is a step in the right direction. It is the beginning of the process of developing the repo market for equity securities. Well done on that part but again we have so much further to go. The result is that essentially it incentivises one asset class over another. Everyone even the submitters agrees there is a lot more work to do on that particular part of the bill. I look forward to contributing to part of that work as part of the Finance and Expenditure Committee—particularly once we touch on the areas that are not even addressed in the bill of derivatives credit derivatives etc. that have a massive impact on the true value of various companies. 
The bill also touches on flip-flops. That term has been bandied around in this Chamber recently. The flip-flop leases the 9 to 5 leases and the various ways in which the bill is trying to address them and fix them are very technical. In fact I think most of the submitters were talking about these particular issues. I fully confess I am no expert in that field. Again it is a step in the right direction but we are tinkering with existing law. We are applying band-aids. We are tinkering with flip-flop leases. We are tinkering with asset thresholds. We are tinkering with payment dates. We need fundamental change. I look forward to the day when Mr John Key is Minister of Finance and we start to address fundamental change. Also a previous speaker touched on the racing industry policy. I hope he acknowledges later on that this is an outright steal of National Party policy. It was a plank that we went to the previous election on. 
I would also like to say that in the middle of preparing for this 10-minute speech I attended the welcome on the parliamentary steps for the petition that has just arrived. It really brought home to me that New Zealanders are dying New Zealanders are suffering as the Government cannot find funds to assist them. It brought home to me that it is people people people. Yes this is a law; this is tax tax tax and we have to get it correct. But it is the people who are important and I hope we keep that fully in mind as we go forward and try to make New Zealand a better place. 
I will be supporting this bill. The National Party supports this bill. It is a tentative step in the right direction. 
CHRIS TREMAIN (National—Napier) 
: 
 I rise to speak in support of the Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill of 2005. The National Party has very high goals for this economy. Unfortunately the Labour Party has given up its goals of getting New Zealand back into the top half of the OECD. Today I drew some statistics from the Parliamentary Library’s intranet website. It is interesting to see where New Zealand now sits in its wider goals for the economy. I will read through the top statistics that came out of that review. I will start with economic growth. In 2004-05 growth was 4.3 percent. This year it is down to 2.7 percent. If we look at unemployment we are holding our own and staying even at 3.6 percent. Inflation was 2.7 percent in 2004-05 and it is now 3.2 percent. Our current account deficit was $8.7 billion in 2004-05 and it is now $12.9 billion in 2005-06. Interest rates were 6.83 percent in 2004-05 and they are now 7.53 percent. All the indicators are going the wrong way. If we are looking at getting ourselves into the top half of the OECD this does not look like a good way to go about it. 
I would also like to refer to the much-maligned business confidence surveys that have been coming out as indicators of where the economy is going. I will read comments on one particular survey: “The Government needs to face reality and cut the red tape and cut the tax burden on businesses.” A couple of economic surveys have come out—in particular the New Zealand Institute of Economic Research quarterly survey of business opinion which shows that firms are the most pessimistic they have been since 1986. Seasonally adjusted the surveys have been the most despondent for 35 years since 1970. That is significant. 
Labour Party members stood and said that National is talking down the economy. I would say that this is an orange light as to where the economy is going. It is very important that we stand up and look at the indicators that I have just talked about—economic growth is going down; unemployment is the same; inflation is going up; the current account deficit is going up; interest rates are going up; and business pessimism is the worst in 30-odd years. These are key indicators of where our economy is going so it is very important that we put a group of policies together that will drive this country forward. There is no silver bullet whatsoever. It will require a raft of policies to take our economy forward. 
The first one that we saw before the second reading of this bill was Wayne Mapp’s Employment Relations (Probationary Employment) Amendment Bill that has come before the House. It is a fantastic bill and it is great to see that a National Party policy from the election has been put forward and has been successful in this House by a good majority. It is a fantastic result. My hat goes off to Wayne Mapp and his success with that bill. It is also great to see that another bill against the Government came through last night. I do not believe that that bill will necessarily increase productivity—although it might within this House. It is fantastic to see two bills against the Government coming through within the one day. It will be interesting to see where that goes over the next while. 
I come back to not having a silver bullet to take the economy forward. We need a package of business-friendly things that will take us forward. Obviously Wayne’s bill is fantastic in that regard. I do believe that this taxation bill will help businesses in a number of ways. I stand in support of the bill on that basis. I would just like to touch on a couple of aspects in the bill that I think will be significantly business-friendly. First is depreciation rates. It is great to see depreciation rates improving for fixed assets. I think that will help businesses to invest their capital more wisely. It will help businesses to go forward; I think that is excellent. One of the things we brought up in the select committee was that depreciation rates have improved and the threshold has improved which is another excellent situation whereby we have brought the threshold from $200 for the write-off of a fixed asset to $500. That is a significant improvement but there were a couple of issues that were of concern. 
Large companies are forced to lump many assets together in one chunk. For instance if a large company went out and bought 50 chairs it was forced to lump them together in one lot and depreciate them overall. That is silly because the chairs could be bought individually and not be subject to depreciation at all. They could be written off because they would be under the $500 threshold. 
The second area which Dr Lockwood Smith spoke about earlier is that there is no threshold where assets can be written off if they are initially brought into the balance sheet at above $500. That to me having run many many businesses in the past is ludicrous. One of the members on the other side of the House said that they would eventually be written off. But people like me who have been running businesses for years do not actually go around counting every computer and calculator in their businesses at balance date. If small-business people had to go around identifying where every asset they had brought into their balance sheet was then that would be compliance gone crazy. They would spend hours doing that. It would just be a waste of time. That is why we need a threshold where assets can be written off fully and finally. I accept that $500 was too high. The committee came back and told us that it was far too high and that fiscally it would be a big drag on the economy and I accept that. But even if the amount was $10 and people knew they could write off assets from their registers fully and finally those of us who have run businesses know what the value of that would be. It would be a fantastic idea. 
The other area I want to talk about is provisional taxation alignment rates. Having been in business for many years it defies me why it has taken so long for this to come into action. People who have run businesses year after year understand that they cannot guarantee what the turnovers of their businesses will be this year next year or the following year. It is ludicrous to expect people who run businesses to guess what their provisional tax will be for the following year and then be penalised if they get it wrong. It is nuts—absolutely nuts—particularly if we look at some businesses whose turnovers fluctuate wildly from year to year. 
Take development businesses for example—businesses that are out there investing in the infrastructure of the economy and taking it forward. Those people do not know when their investments may settle. For instance land developers may take a punt and buy a piece of land for development only to be held up by major issues with the Resource Management Act consents from the local body. They never know exactly when they may be able to settle on their land. A good example is of people who might embark on projects this year thinking they might be able to settle in the coming financial year. They pay out exorbitant amounts of provisional tax in advance because if they do not the Inland Revenue Department whacks on massive interest rates. Because they are held up by obtaining Resource Management Act consents from the local council they may have gone through a whole financial year and settle in April after having paid provisional tax all year. Sure they can get that refunded from the Inland Revenue Department but financing provisional tax in advance is another cost to their businesses. So this measure is I think a fantastic opportunity that businesses will grab with both arms. They will have the opportunity to align their provisional tax payments with their GST returns. That is excellent. 
In supporting the bill I believe that to take our economy forward we need not one silver bullet but a combination of business-friendly packages. It has been fantastic to see Wayne Mapp come in with policies as part of that business package. National will be fighting for a range of different policies to put up against the Government. We have proved in the last few days that we can come up with excellent policies such as those from Mr Wayne Mapp. It will be great to see them driving this Government forward and driving our economy forward. 
Bill read a second time.