Key John: Income Tax Bill — Second Reading 
Key John: Income Tax Bill — Second Reading 
[Volume:616;Page:11791] 
JOHN KEY (National—Helensville) 
: 
 National will be supporting the rewrite of the tax bill. However as the Minister pointed out taxation law in New Zealand is growing ever more complex by the day. I say that because since the Labour Government took office in 1999 we have seen in the order of 17 increases in taxation to New Zealanders. Those 17 changes have led to an increased tax burden on average households of $2600. It is no wonder that taxpayers around New Zealand are confused about why a Government that is running a $5.6 billion surplus the largest surplus in 50 years—a surplus generated off hard-working New Zealanders and businesses that day after day toil and graft to make this a greater country—has been unable through the Income Tax Act to deliver just a small portion of that back to hard-working New Zealanders. 
Taxpayers are confused because this bill is so complex. They are confused too about the comments made by the Minister of Finance yesterday when National boldly took the step of wanting to reduce corporate taxation. National boldly took the step to a new frontier where it would once again put New Zealand corporates in a position of equal footing with those in Australia and would seek over time to have a real advantage. The Minister of Finance completely dismissed that wonderful opportunity for New Zealand businesses to regain their strength and position. All he could do was scoff that it would not be terribly good because some of that benefit would go back to foreign companies. I am surprised that the Minister of Finance has taken such a shallow view of that position. 
I shall outline to the House why in the Income Tax Bill the Minister of Finance could have taken an opportunity to put New Zealand on the front foot and why he is so lacking in his knowledge base about this issue. Firstly New Zealand relies on foreign investment. Foreign investment has flowed into our country and has built stronger and stronger businesses. Investors look at the nominal corporate tax rate as one of the very factors on which they base those decisions. They look at that tax rate and currently today they see a tax rate that is 33 cents in the dollar for corporates. They look at the Australian corporate tax rate of 30 cents in the dollar and very often if not on many many occasions they then decide to put that investment in Australia. 
Yesterday I was shocked absolutely stunned when the Minister of Finance was not telling the people of New Zealand that he would not be encouraging more investment from off shore and more opportunities to build greater businesses for New Zealand. Only on Saturday the Minister of Finance told the people of New Zealand: “We’re going into harder times. We’re going into growth rates of less than 2 percent. Tighten your belt.” He knows he took $5.6 billion extra from people last year and he is not going to give any of it back to them in the next Budget. He knows times are going to get harder. He knows that people are struggling with the proposed changes to the labour laws and with the 17 tax increases he has put on them over the last 4 years. He knows that people are struggling with a mountain of compliance costs and he knows they are struggling under a higher dollar but he is not going to do anything for them to help build foreign investment. What a disgrace that was to the hard-working businesses of New Zealand! They are toiling away working hard and looking for the green light from the Minister of Finance. He is just putting up red lights and stop signs in front of them and it is despicable. 
Secondly the Minister showed an amazing display of lack of knowledge when it came to the issue of multinational transfer pricing. Only a few months ago one of the world’s leading experts came to New Zealand and warned our country that we would be subject to a major deterioration in our corporate tax base if we did not recognise that issue. We need look only at the number of major law suits around the world that are taking place—Toyota in Australia and Glaxo in the United States where a huge amount of corporate income is determined solely on the basis of the tax base. We need look only for instance at the position in Ireland where so much revenue is booked because the corporate tax rate is low and at where expenses are booked in the United States where corporate tax rates are higher—absolutely higher. That is the issue of transfer pricing. 
I suggest to members of this House that they would be well served to read the  
Economist 
 magazine. I know they probably do not read those kinds of comics during the weekend but I suggest they pick up the  
Economist 
 magazine and look at the corporate tax take in the United States of America. It is about 1 percent. It is very low and deteriorating. Why is that? Because it has been subject to transfer pricing from multinationals. I suggest that the Latvia curve effect would take place in New Zealand. That is the effect whereby if the corporate tax rate were lowered the tax take of this country would go up. However yesterday when the National Party boldly took the step of telling New Zealand it would reduce corporate tax rates unfortunately the Minister rejected it. 
Finally we know that when companies come to New Zealand they invest because they want to grow. They will pick up the income tax rewrite and they will be shaking their heads in bewilderment at the various clauses. They will be looking to their tax accountants and they will not find clarity in this position. The bill has failed in every extent other than the fact that it is a wonderful doorstop. It has failed to provide that great fillip that is required. 
I do want to congratulate the Minister on just two things if I may as well as the select committee the number of people who submitted to the committee and the advisers. One was an understanding that a later date of implementation should take place—about 12 months longer than was originally intended—and because of the complexity of this bill the unusual nature of it and the extreme work that has to be done to understand it I think that that was a very wise situation indeed. I want to commend the officials for pointing out—and I congratulate the Minister on accepting it—that the situation related to unintended consequences should be taken into consideration so that if a taxpayer is in a position where his or her tax changes not knowingly and where it was an error in the bill and a non-intended consequence the bill will be retrospectively changed to allow that. 
One of the reasons that tax legislation is increasingly complex in our country is due to the divergence between the top rate and the company rate. That was brought about by one Government and one Government alone. One of the very reasons why the Income Tax Bill is such a long and wordy piece of legislation is that when Labour came into office despite running very large surpluses despite the fact that it did not require the revenue and despite the fact that it is now running a $5.6 billion dollar surplus it chose to increase the top personal tax rate and cause a great deal of complexity that is now bound up in this bill. 
Darren Hughes 
: Is the member still whingeing about that? 
JOHN KEY 
: What will happen in the Budget? Mr Hughes would be well advised to take an opportunity to look at what will happen. Mark my prediction: in the 2004 Budget that will be read by the Hon Dr Michael Cullen the Future Directions package will enclose in it a great deal of revenue a great deal of opportunity and a great deal of resource for beneficiaries in this country. It will do very little for hard-working families very little for the Kiwi battler and very little for Kiwi companies. They will have to rely on the 2005 National Government to get some respite.