Nash StuartSTUART NASH (Labour—Napier): I would like to elaborate a little bit on the accounting income method (AIM) but before I do I would actually like to just look at the commencement date for some of these clauses. The reason I do that is if you look at clause 2(2C) this talks about the brightline test. The reason I would like to talk about this—so we are talking about page 47 clause 55B this amends the Income Tax Act. We were in this House less than 12 months ago talking about a bit of legislation that the IRD itself admitted would not work. It did not want it. There were actually three bills going through the House at one time and we had the unusual situation in the Finance and Expenditure Committee where in fact we had submitters coming in and submitting on the wrong bill because they thought it was the next bill. We were all a little bit confused and the officials were sitting there rubbing their heads going—well you could almost hear them say even though they were too polite to do that—We told you this would happen."So we are back here again. This is not the fault of the officials. I do not blame them for amendments within 12 months to something like this.Hon Clayton Cosgrove: Not the chair of the FEC.STUART NASH: Yes I would probably blame him. I do not blame the officials. I do not even blame parliamentarians or even our expert adviser. What I do say is this actually is the result of rather sloppy rushed legislation because this was in effect poll-driven legislation where as mentioned it went against all the officials' advice. I remember in speeches—55B. We said at the time: "This legislation is not robust and I will guarantee we'll be back here within 12 months amending it." Well—Grant Robertson: We are.STUART NASH: —we are. We are. I suspect that in the next tax bill and the one after that—and there are a lot coming through the pipeline—we will continue to amend this because it is imperfect legislation and it is not the way to make tax law. The other thing also about retrospective tax law is you have got to be very very careful with this because people make decisions based on the law at the time. If in fact it is retrospective then often people may say: "Well I wouldn't have made that decision if in fact I had known that that was the rule at the time." Part of the problem with this is—it is fixing a loophole; there is no doubt about that. But it was still the law and people still made decisions. The problem of course that parliamentarians have is that some of the sharpest minds in the country like the Attorney-General over there who is working very hard—oh no he is awake. Some of the sharpest minds in the country—Hon Christopher Finlayson: I'm reading the Boston Globe.STUART NASH: Ha ha! Some of the sharpest minds in the country are engaged in pointing out and finding holes and loopholes in our tax legislation. We often joke about this. We often say if they concentrated their vast intellectual effort improving the tax system and working in a positive way then we would all be better off. But of course they would not be able to generate the huge fees they do in finding these loopholes for their clients. But we just have to be aware that retrospective tax legislation is quite difficult and it does create precedents that can be quite dangerous.If I may say so I did find the speech from the last member—Alastair Scott who is now I understand the deputy chair of the Finance and Expenditure Committee—rather enlightening. The reason I say that is he stood up here and said that estimating provisional tax can be a real pain for small-business owners. It is a real problem—I am talking about Part 2 of the bill here—it is a headache and they have got all of these things to worry about. Well the surprising thing for me is—there are two things. First of all the small-business owners have had to estimate provisional tax for the 8 years that that member has actually been in Government. So for 8 years the Government did nothing about it. The other thing is in fact this does not come into being until 2018.We talked about this at the Finance and Expenditure Committee and we said to the officials: "Why are you waiting so long to bring this into force?" when normally with a bill as the chair was well aware the bill receives Royal assent and then away we go. But this is pushed out even longer because it was felt that it would take some software companies a while to get used to this or it would take companies a while to order their affairs etc. which we found a little strange.So what this actually means is that from the time that that member was in Parliament all the way through to when this actually diminishes as a "pain to small businesses" is going to be over 10 years. The member is right. The member is very right. It is an impost on small-business owners when they have a whole lot of things to consider yet it has taken the Government 10 years to do it.The other thing is there are now a range of software packages like Xero for one. I mean the reason I quote Xero is that the guy who is the main driver behind this the main owner is from Hawke's Bay—a Napier Boys' High School boy fantastic school that it is. These software packages have actually diminished the angst faced by a lot of these small-business owners. The removal of provisional tax—well provisional tax still exists actually. The provision of another option is all very well but the angst faced 8 years ago when that member was in Parliament is nowhere near as bad as it is now because these software packages have made it so much easier for small-business owners to actually plan with the degree of certainty.Andrew Bayly: No. STUART NASH: Yes. That is absolutely true—absolutely true. I challenge that member to give Mr Rod Drury a call and ask him whether in fact I am right. Now let us be clear about one thing: what this is doing is not replacing provisional tax; this is providing another option. So if small-business owners still want to pay provisional tax in the way that they are doing at the moment then they are still able to do that. In fact there are currently three methods of assessing provisional tax: standard uplift method the GST method and now we have got this.But there are some interesting things about this. First and foremost in order for a small-business owner to use the accounting income method they must use a software package that has been approved by the commissioner and certified as an AIM—look it is easier if we use the acronym AIM now which stands for accounting income method—approved software package. In order to become an AIM-approved software package they must get permission from the commissioner.We did have a slight concern about this. The concern we had is that it is almost forcing small-business owners who use one of the let us say smaller accounting software packages to move to one of the larger ones or what it will do is it will buy the level of compliance to that small software package to go through the process of becoming AIM-certified. This is easy for Xero and Mind Your Own Business (MYOB). You could argue that Xero and MYOB but mainly Xero are up to date with this anyway. But for a lot of the smaller ones this could be the death knell of their business. This is in clauses 32 34 and 36. So it has to be certified software.The other thing is that there are actually exclusions so there are reasons why a company might not be able to use this method. They are quite logical if you go through the bill but we have to be a little bit careful when we say that no longer can a small to medium sized business use the AIM methodology when in fact that person or that business has had to go through the software package that is AIM-certified.So it sounds a little bit counterintuitive and I get the impression that this could become a little bit complicated. What will happen and this is one of the unintended consequences is that small and medium sized business owners will become so reliant on their software providers that they themselves may in fact lose a level of accountability or certainly lose the day-to-day feel of running their own businesses.The one thing I also must talk about is—when the last speaker talked about cash flow of course there is that old adage that cash flow is king but of course it is about profit as well. You do not pay tax on cash flow; you pay tax on profit. I remember one of the first headlines I got ever—one of the few—was when the sub-editor on the Dominion Post got it wrong and I talked about how much tax farmers had not paid due to record cash flows. They apologised in the end but we were talking about profit. So we have got to be a little bit conscious of the fact that you do not pay tax on your income; you pay tax on your profit. There is a big difference there. So we are calling this the accounting income methodology but let us not lose sight of the fact that we want these companies to pay profit and we want them to get it sorted.The previous speaker Mr Tabuteau was right: the tax-pooling method actually worked very well. The tax-pooling industry is quite sophisticated and it has done a very good job of—I would say again—mitigating the effects of underpayment or overpayment. The problem with the tax-pooling system is you had to understand how it worked. You had to be keyed into a tax expert who actually knew how to take advantage of the tax-pooling regime. That was not always the case for your plumber who employs two or three people. It did add a level of complexity.I am not saying this is a bad thing. What I am saying is that there was actually a far better method of doing this and I am assuming the next speaker will probably talk about that in much greater detail. This is not the be-all and end-all by any stretch of the imagination."