Taxation (Annual Rates GST Trans-tasman Imputation and Miscellaneous provisions) bill — First Reading 
Taxation (Annual Rates GST Trans-tasman Imputation and Miscellaneous provisions) bill — First Reading 
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Taxation (Annual Rates GST Trans-tasman Imputation and Miscellaneous provisions) bill 
First Reading 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 I look forward in this debate to actually speaking to the bill—unlike the position in the last debate—because there is a great deal of meat within the bill. I move  
That the Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill be now read a first time. 
 I shall be recommending to the House that the bill be referred to the Finance and Expenditure Committee for consideration. 
The major feature of the bill is the introduction of legislation that brings into effect New Zealand’s part in a joint Australia - New Zealand agreement to remove a tax impediment to trans-Tasman investment which we have just learnt from Mr Gerry Brownlee that the National Party opposes. 
Earlier this year Mr Peter Costello and I announced that Australia and New Zealand expected to be introducing legislation to deal with a longstanding tax problem involving trans-Tasman investment often referred to as triangular tax. The problem arises when investors in either country make equity investment in their own country for a company resident in the other country. Under current law both countries that are only tax-paid in their own country can generate imputation credits—what the Australians call franking credits—and only resident companies are allowed to pass on imputation credits to their shareholders. The shareholders in those trans-Tasman companies do not have access to imputation credits for tax that the company pays in the other country so they are effectively taxed twice on the same income. 
The legislative solution is to extend each country’s imputation system to include companies resident in the other country that want to take part and participation on the part of other companies is entirely voluntary. The bill before the House today achieves that for New Zealand making it possible for Australian companies to join New Zealand’s imputation credit rules. Meanwhile similar legislation before the Federal Parliament in Canberra will make Australian franking credits available to New Zealand companies. 
Given its necessary bilateral nature the solution to the triangular tax problem has been a long time coming. Over the years successive New Zealand Governments have tried to move things along so I am very pleased of course that we have finally progressed to the point of introducing legislation in both countries and I am pleased that Mr Costello has agreed to move this issue along in a way that previously had not been the case. New Zealand has always been seeking that movement. This long-sought change will remove an obstacle to trans-Tasman business and it is particularly fitting that it is happening in the year of the 20th anniversary of the signing of the closer economic relations agreement. 
The bill also introduces a better alignment of the GST treatment of the financial services sector with that of other sectors. This is a major change that will be particularly welcomed by the financial services sector. A wide range of transactions will be affected including the provision of loans taking deposits and trading in financial securities. When GST was introduced in New Zealand financial services were exempted because of the difficulty of including them within the rules—a difficulty that is acknowledged internationally. Being exempt from GST however can disadvantage the finance sector because it cannot recover GST on purchases related to the supply of services to other businesses which results in the overtaxation of the sector. The recoverable GST formspart of the cost of production and providers must raise the price of the services or absorb the GST cost. When they pass the cost on to other businesses those businesses face the same choice. 
The bill proposes a solution. Financial services supplied to registered businesses will no longer be exempt from GST but they will be zero-rated for GST purposes. That means that financial services will still not attract GST but providers of those services to other businesses will be able to recover GST on related purchases. Again participation in the new rules will be entirely voluntary. Registered suppliers who do not wish to take part may continue to treat the supply of financial services as exempt from GST. 
Another major change introduced in the bill ensures that GST does not unfairly disadvantage New Zealand interests at a time when we are making increasing use of electronic commerce and importing many more services than we did in the past. The problem is that under current law services purchased from New Zealand companies attract GST but similar services purchased from non-resident companies do not. That is because when GST was introduced our consumption of imported services was low so their exclusion from the tax base was not particularly distortionary. The later deregulation of telecommunications and financial services markets in New Zealand together with rapid developments in communication technology and electronic commerce opened the door to a wide range of services produced in other countries: such things as management computer and advertising services. Thus New Zealand service providers who must charge GST on services supplied in New Zealand face a competitive disadvantage. 
The bill proposes a solution to the problem in the form of a reverse charge in imports and services by GST-registered businesses such as financial institutions that would not be able to claim back the cost of the GST in those solutions. If a business requires services that would be subject to GST had they been supplied in New Zealand the recipients will be required to add GST to the price of the service. This measure will alleviate the current distortion in favour of imported services and align New Zealand’s treatment of imported services with that of most other countries that have a value-added tax or GST system. 
It will also introduce an important revenue protection measure to combat certain aggressive tax arrangements that are often mass marketed. These are arrangements that result in investors receiving more in tax deductions than the money they invest in the arrangement. Investors typically make a cash return regardless of whether the arrangement is a commercial success. A new rule would target arrangements in which investors are not at any real risk of having to repay associated loans raised for the purchase of high-value assets that diminish in value over time and the higher the purchase value the greater the tax deduction. The proposed solution in the bill is to defer tax deductions on loans to meet the criteria set out in the bill. Following initial consultation on the proposed rule its coverage has been tightened to ensure that it does not apply to genuine commercial transactions. 
The bill also introduces legislation enabling employer contribution to superannuation funds on behalf of employees earning less than $38000 a year to be taxed at a lower 21 percent rate. I acknowledge the pressure exerted by the Green Party for this measure over a number of years though that pressure was nothing like as large as the pressure exerted on the Minister and his officials to achieve this outcome. This measure is intended to reduce the over-taxation of retirement savings of low-income people and to remove a disincentive to saving. 
This is an omnibus bill covering a very wide range of activities so I do not have time in a 10-minute speech to cover all the areas available. For a detailed description of these and other measures in the bill I recommend the separate 123-page commentary on the bill as weekend reading. It has been distributed to all members. 
I do need to deal with one other matter. The bill has not had a positive New Zealand Bill ofRights vet because in common with the remainder of the Income Tax Act in certain key areas there are provisions where in effect old-fashioned definitions of a marital relationship apply rather than more modern definitions. That is in dealing with associated parties in certain connectionswe use the old-fashioned definition of marriage which can be regarded as discriminating in favour of de facto couples or same-sex couples. It is difficult to deal with this issue as a one-off in one particular amendment bill and the Government is working on full amending legislation covering the entire range of these issues some of which of course involve discrimination against some in favour of traditional married couples but it is fair to say—ironically given the views of some members in this House—that most of the current provisions of both social security legislation and tax legislation actually discriminate against traditionally married couples and in favour of de facto or same-sex couples—for example in the ability to access two single-level payments under social security as opposed to the combined married-level payments which is lower. 
I recognise this inadequacy. I am sure the select committee will want to address that and comment on it. If it finds that it is able to arrive at a solution within this area—which deals with the issue just within this area—I have no objection to that but I thinkit will find that it is impossible to deal with that within an isolated part of the Income Tax Act. The whole set of relationships needs to be dealt with across the board and work is proceeding as quickly as possible in those respects. 
Dr the Hon LOCKWOOD SMITH (NZ National—Rodney) 
: 
 The National Party will be supporting this bill to the select committee because it does have a couple of important and valuable measures in it. In introducing it though the Minister of Finance Dr Michael Cullen has just told us that there is a lot of meat in this legislation. I am interested in knowing how much more tax revenue is in it. I wish the Minister were able to stay around to respond because there are some measures in this bill that we are not happy with at all. 
Let me start right at the beginning. Part 1 sets the annual rates of income tax for 2003-04. This Labour Government has had 4 years in Government and is heading into its fifth and in that time frame has refused to adjust the thresholds for the different tax rates to apply on income tax in this country. As a consequence New Zealanders in the last year faced the second-highest increase in income tax of any country in the developed world. Only in the Czech Republic—according to OECD figures—did workers face higher increases in income tax than is the case in New Zealand. One of the main reasons for that is that this Labour Government has refused to adjust the thresholds. As a consequence Dr Cullen has grabbed millions upon millions of extra tax. The average income of New Zealanders has just moved above that $38000 threshold where the tax rate goes up to 33c in the dollar. 
As a consequence New Zealanders are now finding themselves paying a whole lot more money. When Dr Cullen brought in the top 39c tax rate he said that only 5 percent of New Zealanders would pay that 39c tax rate. Ten percent of New Zealanders are now paying it because of a process called fiscal drag. As salaries go up people move into higher tax brackets and the Government grabs more tax. We see that done unashamedly by this Labour Government. 
Its supporters do not agree with it. I know that Mr Copeland ofUnited Future does not agree with it. He thinks that the Government should adjust the thresholds for inflation. If United Future is prepared to stand up for what it believes in it should put some pressure on the Government to amend this part of this legislation. After 4 years as this legislation applies to the fifth year of this Labour Government it is time it eased the income tax burden on working New Zealanders. 
 It is not good enough to have our working people facing the second-highest tax increase of any country in the OECD after the Czech Republic. It is shameful and United Future which supports this Government on confidence matters should not support this measure without adjustment to those threshold levels because it is simply unfair to working people in New Zealand. So that is my first complaint about this legislation. 
Having said that let me be fair and congratulate the Minister on the first part of Part 2 the trans-Tasman imputation provisions because I know a bit about the history of those. As a former Deputy Minister of Finance and former trade Minister I tried hard to get Australia to agree to making these kinds of changes and I know from that involvement that it was not easy. It was quite challenging and I do congratulate Dr Cullen on achieving this. On the 20th anniversary of closer economic relations it is a good move. This part of the bill National supports wholeheartedly. 
I know that it was not easy to get it in place. In fact Dr Cullen did pick up from where National was in working this through with the Australians. It is not as though Dr Cullen started from scratch. National had done years of work on trying to get this measure in place but I do congratulate Dr Cullen on building on National’s work and bringing it to fruition. It will be very important for New Zealand businesses and help keep a number of companies registered in New Zealand that otherwise might have had to shift their head office to Australia to avoid the problems of trans-Tasman triangular taxation. 
While I am being positive about the Government I want to mention the second thing that we support in this legislation and that is the specified superannuation contribution withholding tax. What is a bit rich about it is that when National sought to introduce legislation like this back in the late 1990s Labour voted against it. We tried to do this when we were in Government but Labour voted against it. 
Hon David Carter 
: In the House and during the Committee stage. 
Dr the Hon LOCKWOOD SMITH 
: Yes. In the House and during the Committee stage Labour voted against it. I suppose this is the “Maharey principle” at work is it? The “Maharey principle” is to vote against something when one is in Opposition but to vote for it when in Government. That shows a Government of integrity does it not? It shows great integrity and great principle! It voted against the same measures when in Opposition but now in Government it will do it. Despite the—I cannot use the word “hypocrisy”—of that— 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: No. 
Dr the Hon LOCKWOOD SMITH 
: Let me say despite the—I am not sure I can find a word that says a similar thing because it is a bit like that when the Government flip-flops. Let me say that despite the flip-flop by the Government National endorses the move. We are not unprincipled like Labour. Despite the fact that we are in Opposition we will support this measure because it is the right thing to do. Labour should have had the integrity to do the right thing when it was in Opposition. Labour members should have had the you-know-what to do the right thing. They flip-flopped—but that is good because it is good for New Zealanders and that is why National will support that measure in this legislation. 
Let me now move to the measures that are just a little more tricky. This is where we need the select committee to look at some of the measures quite carefully because they are quite complex and we need to make sure there are not fishhooks in them that we are not aware of. 
Let me start with the deferred deduction rule which the Minister referred to. On the face of it it looks like closing a serious loophole that verges on the move away from tax avoidance towards the tax evasion scale of things whereby people are able to claim a greater tax deduction than they have actually invested. But it is interesting to note that this measure will net the Government between $400 million and $450 million. Let us not forget the very first thing: fixing the current tax rates nets the Government a whole lot of extra tax through fiscal drag or bracket creep as some people call it. This measure will add another $400 million to $450 million to the Government’s coffers. It cannot help itself. 
This rapacious Government and Michael Cullen love to collect tax and this measure will collect a whole pile of it for him. What we must make sure of at the select committee is that what this measure does is no more than is set out on the face of the bill. Although National accepts that there is a loophole we want to make sure that the measure proposed closes only that loophole and does not go further. 
Likewise there is the repeal of the sick accident or death benefit fund income tax exemption. Again I think that on the face of it that measure is possibly worth supporting but at the select committee we need to know for example how much tax will be grabbed from that one. Quite clearly there will be a further tax grab from that one and the Government has not told us so far about that. 
Finally let me mention the last issue and that is the zero rating of business to business supplies of financial services. Again National is likely to support that measure because of the cascading cost effect in the current arrangements. But again it is a measure that we need to examine in some detail at the select committee to make sure that there are not some unforeseen consequences in that zero rating of business to business supplies of financial services. On the face of it National would support that measure because of the possibility to reduce costs to businesses. 
But there we have it typical of a Labour taxation bill a couple of positive measures. The two most positive measures are the two things that the previous National Government had worked on. One of them I give credit to Dr Cullen for because he has taken it further than we achieved and that is the trans-Tasman imputation provisions but the bit that one cannot help but be cynical about is how the Government has flip-flopped on the specified superannuation contribution withholding tax. Labour had the audacity to vote against it when the previous National Government moved it and now it brings it forward itself. It is just as well that the National Party is more principled than the Government because we will support what is right in this legislation and we will fight the tax-grab bits of it that are unsatisfactory. 
Hon CHRIS CARTER (Minister of Conservation) 
: 
 It was so nice to hear some positive words from Dr Smith. I hope that that positive contribution will continue as this bill goes through the select committee process. This is just a short contribution to say that I fully support this bill and look forward to its passage through the House. 
CRAIG McNAIR (NZ First) 
: 
 New Zealand First will support this bill to the Finance and Expenditure Committee. Tax legislation is among the most important and relevant legislation that we debate in the House. Because New Zealand First believes so strongly that tax legislation is very important because of its effect on every New Zealander and the impact it has on the economy we will seriously consider submissions on this bill in the Finance and Expenditure Committee. The bill confirms the annual income tax rates that will apply for the 2003-04 income year. The annual income tax rates to be confirmed will be the same as the rates that applied for the 2002-03 income year. 
In terms of Part 1 which deals with annual rates of income tax for 2003-04 and to protect our nation’s tax base New Zealand First wants to reform the taxation system by simplifying tax processes clarifying tax legislation ensuring that the taxation laws of New Zealand are upheld and that all—large or small—pay their taxes. However our long-term objective is to see New Zealanders paying less tax. 
New Zealand First is opposed to any increase in general taxation. Following the achievement of intermediate growth goals and focused social expenditure we want to aim to reduce personal income tax levels. We also want to reduce tax compliance costs by monitoring evaluating and amending as necessary the measures introduced during our time in Government. Priorities remain—the streamlining of taxation analysis in preparation of returns processes in making the tax system as neutral and equitable as possible. 
I turn to the amendments to tax pooling provisions in Part 2. Four amendments are proposed relating to the tax-pooling provisions recently enacted. The most significant amendment is a change to the imputation provisions to allow taxpayers who through an intermediary deposit an amount in a tax-pooling account with the Inland Revenue Department to receive an imputation credit when the amount is deposited and not when that amount is allocated from the pooling account to the company’s income tax account. The amendment should remove a disincentive for taxpayers to pay tax through a pooling account. 
New Zealand First wants to do everything it can to help business in this country. We also believe in introducing an accelerated depreciation regime for specified industries and selected approved investments so as to assist business development. That is just one thing that we want to do. I look forward as the New Zealand First representative on the select committee to considering the bill. As I said we will support the referral of the bill to the select committee because we believe that taxation law is something that affects all New Zealanders. One does not have to be a rocket scientist to figure that out. Obviously we disagree with a lot of the Government’s rules and regulations placed on small businesses and the taxpayer in general so we want to look at this bill in its entirety. We look forward to hearing submissions on it. 
GORDON COPELAND (United Future) 
: 
 United Future also is pleased to support the first reading of the annual taxation bill. As the Minister said it involves some major policy initiatives and I would like to touch on a few of those. The first one is to do with GST and the zero rating of financial services which will reduce costs for banks and other financial organisations and lead in turn to reduced fee charges to customers—something that will be greatly welcomed. AsDr Cullen has done I want to touch on the trans-Tasman imputation system which is now being introduced. This is an initiative that I strongly support. It strengthens closer economic relations between the Anzac partners and will free up investment flows between our two nations. It is clear to me that New Zealand’s economic and defence future will remain strongly linked to that of Australia. Together we are just 24 million people—way way smaller than the state of California. We can continue to seek mutual advantage in doing many things together and by working together. Free and open labour markets already exist between our two countries and unlike Dr Cullen at least in his reported comments I would not rule out a future Anzac currency union. However before that can happen we need to continue to harmonise tax law. 
I also want to mention United Future’s absolute delight that this bill also sees an increase in the threshold for child tax credit and the threshold for parental tax credit. We warmly welcome these changes which we have worked hard with the Government to bring into being as well as the principle of consumer price indexation that they embrace. We hope that the Government will continue down this track. It is a small beginning but it is a beginning. I hope that the provisions will become a permanent feature of family assistance in the new measures to be announced in next year’s Budget. 
Raising kids is an expensive business but it is the most important business. Our beautiful children are our future and I know that all of us in Parliament of whatever political persuasion want to give them the best possible future. 
I want to comment too on the new rates of withholding tax for employer contributions to superannuation funds. I commend the Government for this initiative. Michael Cullen mentioned that the Greens had been talking to him about this issue. Well so has United Future. I do not expect that on its own it will be enough to boost superannuation savings in New Zealand. The reality is that savings rates in New Zealand are going backward and we are steadily becoming more and more indebted. For many New Zealanders the old Negro refrain is a reality: “one day older and deeper in debt”. Certainly as a nation we are also becoming steadily more and more indebted. Nothing short of behavioural change is now called for. I call on all parties in this House to exercise their collective wits to see how that might best be achieved. Our future prosperity or its lack demands no less. 
Lastly I want to say a word on the new deferred taxation rules. These are being brought in to prevent elegant tax evasion schemes. In my career before coming into Parliament I have seen the lengths that people will go to in order to evade tax. In principle when evasions are discovered it makes sense to close the loopholes—provided we do not go down the path of retrospective legislation with arrangements that are a matter of avoidance and therefore legal. It helps me always to keep in mind for example a nurse doing long hours in an intensive care ward and paying her full whack of tax. It is simply fair play to ensure that others do not rort the tax system. With those comments I have pleasure in signalling again United Future’s support for the first reading of this bill. 
Hon DAVID CARTER (NZ National) 
: 
 I rise also to support this legislation going to the select committee and I note the superb timing of the Government. After introducing a flatulence tax earlier in the week and announcing thoughts about a “fat tax” yesterday it is now introducing a further tax bill to which I now have the opportunity to speak. I want to start by referring to the move to adjust the particular tax rate on savings for people who earn income of less than $38000. I congratulate the Minister of Finance the Hon Dr Cullen on finally recognising this problem and on finally doing something about it. I listened earlier to a speech from the New Zealand First representative who also supported this legislation but I remind Dr Cullen and I remind New Zealand First that this is not the first opportunity they have had to adjust the tax rate on savings so that people earning less than $38000 would be taxed at a lower rate than they are currently—which of course is at a rate of 33c in the dollar. 
I am referring of course to the move made by the then - National Government in 1998 when we had legislation accepted into Parliament supported by Labour and New Zealand First in being sent to the select committee and returned from the select committee back to the House while still receiving the support of Dr Cullen and the Labour Party and at that stage of Winston Peters and the New Zealand First Party. But in its final stages as it went through the Committee stage there was a sudden change in point of view by both the Labour Party and New Zealand First. They then determined that it was not a good idea to deliver a lower but more true tax rate to income earners earning less than $38000; they voted against that particular clause at the Committee stage and so that opportunity was lost in 1998. 
So I say to Dr Cullen “Well done for doing it now.” But I say that if he had not changed his mind and if Winston Peters and his then-members of New Zealand First had not also changed their minds this significant benefit could have been delivered to New Zealanders earning less than $38000 5 years ago. So when the New Zealand First member laments the fact that New Zealanders are not saving enough—and I accept that—and when he laments the fact that one of the reasons New Zealanders are not saving enough is that until this legislation is passed they are in effect paying at a tax rate substantially higher than what they will pay on their personal income I say to him that there was an opportunity to correct that 5 years ago. If that opportunity had been accepted rather than being used for blatant politics—as it was at the time—then we would have made considerable progress. As I have said that was a move initiated by Dr Cullen and the Labour members of Parliament at the time and by Winston Peters and the New Zealand First members of Parliament at that time. 
I want now talk to other aspects of the bill. I note that this is a typically complex tax bill the type that Robin Oliver and his merry men manage to present to Parliament whenever they get together. I do regret that I will not have the opportunity of working in the select committee to iron out the many amendments that will be required to make sure we get workable tax legislation back before the House but I wish members of the Finance and Expenditure Committee well with their task. 
The second thing that has not been mentioned by speakers as we debate this bill today—and it certainly was not mentioned by the Minister of Finance when he introduced this legislation to the House—is that this legislation sets again the annual tax rates for another year. Even the Speaker turned a pale shade when we talked about the annual tax rates because the bill cements in place the “envy tax” of 39c that was passed in this House in the year 2000. 
Brian Connell 
: Talk about fiscal drag. 
Hon DAVID CARTER 
: I am going to talk about fiscal drag. 
Brian Connell 
: It’s a real drag. 
Hon DAVID CARTER 
: It is a real drag is it not? Over time we have seen that as the incomes of New Zealanders have moved up—and that is not surprising considering the amount of inflation we have had—people have found they have moved into another income tax bracket. It is that fiscal drag that has contributed significantly to the point made by my colleague Dr the Hon. Lockwood Smith when he said he can find only one country in the world that faces higher taxes than New Zealand and that is the Czech Republic. 
Simon Power 
: That can’t be right. 
Hon DAVID CARTER 
: I think it is right Mr Power and I think that is one of the reasons that this Government faces a real problem with those growth predictions. Many members of the House will remember those wonderful growth predictions that the Prime Minister pinned her hopes on. In fact she wrote a foreword. I think she signed the foreword but maybe she did not write it. 
Simon Power 
: Signs anything you put in front of her! 
Hon DAVID CARTER 
: Yes she signs anything. The prolific signature of the Prime Minister was attached to this promise that we would get our growth targets back into the top half of the OECD by the year 2011. One of the reasons the Government is now embarrassed by that target and has in fact forgotten it ever set that target is that we simply will not reach it when we are passing a tax bill like this that locks in tax rates of this magnitude. 
The very fact that we had a Budget presented in this House not so long ago that talked about surpluses around $4 billion or more causing the Minister of Finance to crow about his success and his acumen as a Minister of Finance belies the truth with regard to these tax rates. It is easy for any Minister of Finance to achieve surpluses of that magnitude if he taxes more than he needs to—and that is what the Government is proposing to do with the annual tax rates being locked in today. 
I say to the Government that if it is serious about lifting New Zealand’s economic performance; if it is serious about closing that significant gap that exists between us and Australia; if it is serious about making sure that the pay packets opened at the end of each week here in New Zealand compared with the pay packets opened at the end of each week in Australia do not show that Australians are $200 better off than New Zealanders; if it is serious about addressing those concerns it needs to rethink these tax rates. 
We have the concept of fiscal drag and the Government just refuses to look particularly at that $38000 threshold past which many New Zealanders have moved over the last 3 years because it likes these big surpluses. It likes the opportunity to spend money on things like the America’s Cup once we have lost it. 
Brian Connell 
: Doesn’t spend much on roading though does it? 
Hon DAVID CARTER 
: My colleague Brian Connell says it does not spend much on roading. He and I know that Transit New Zealand is not proposing any significant projects in Christchurch or other parts of Canterbury for the next 10 years and as that fact becomes more known I doubt whether New Zealanders are going to accept it. 
I want to finish by referring to question time in the House today when the Minister of Finance was questioned on the faith he has in the Budget forecasts it being noted that they are less than mediocre. I want particularly to refer to the Business and Economic Research release earlier this week which stated: “Economic mismanagement has choked out a perfectly sound period of growth and we are in for 2 to 3 years of a stored economy.” There is an opportunity to recognise that that comment has been made by Business and Economic Research there is an opportunity to do something about that comment and there is an opportunity to lock in sustained growth rates but it will not be done if the House has to address this bill coming back from the select committee unless that particular committee has bothered to address the oppressive tax rates we now have in this country. 
DAVE HEREORA (NZ Labour) 
: 
 I stand to speak in support of the Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill. The bill brings into effect New Zealand’s part in a joint Australia-New Zealand agreement to remove a tax impediment to trans-Tasman investment. The imputation systems of each country are being extended to include companies resident in the other country that want to take part. The bill will make New Zealand imputation credits available to Australian companies while similar legislation before Parliament in Canberra makes Australian franking credits available to New Zealand companies. I commend this bill to the House. 
STEPHEN FRANKS (ACT NZ) 
: 
 This bill has a number of provisions that ACT would be happy to support going through to the select committee. It has a number of provisions that some might say are overdue and others would say are part of the normal process of fine-tuning and updating a tax system. But of course we cannot support this bill and will vote against it because it also confirms this year’s tax rates which continue the envy basis of Labour Government fund-raising. 
 This bill confirms the 39c rate for people whom the Government considers wealthy. That started out being the top 5 percent of earners; now it is the top 8 or 9 percent of earners. There is no indexation in this bill. If the Government had wished to preserve any integrity in the promise it gave to New Zealanders in 1999 that the “envy tax” or the “wealth tax” would be for the top 5 percent only the rates in this bill would not have been set as they have at the same level for each of the years since then. They would have been dropped progressively to reflect the fact that inflation has been giving people an illusory higher income and that meanwhile the Government has been taking more and more tax. So ACT will not support this bill. We will vote against it. 
However I wish to comment on several other aspects that I hope the select committee will look at very closely. First is the trumpeted change to the flat rate deduction of 33 percent of specified superannuation contributions. The Government is rightly concerned that New Zealanders are not saving. The Government is probably privately panicking about it but publicly is still looking sanguine. Our savings rates will not change dramatically until New Zealanders get a Government that is willing to be honest with New Zealanders and say that Father Christmas will not be there when they retire. Father Christmas will not pop out of the woodwork to say that a country that has been spending more than it has earned for 40 or 45 years has ended up with enough income to support its elderly. There is no “them” who can support the enormous number of people in this community now expecting to live off what the Government will raise from “them” and distribute to those who do not have their own savings. The change to make superannuation savings slightly more attractive will probably have no effect whatsoever. 
Further it is mean-spirited. The Government is trying to reduce the taxation rate on superannuation savings to the employees’ top marginal rate but of course that is exactly what it does; it is the top marginal rate so although a person with an income of say $25000 has an effective tax rate that is well below 21 percent because that person’s tax is spread over two rates—I cannot do the calculation off the top of my head but it might be that the actual tax rate is something like 15 percent or 12 percent—that person’s superannuation will still be taxed at the rate of 21 percent. There is still a tax disadvantage. This Government which claims to look after those at the lower end of the scale is giving people on the top tax rate a continuing advantage. Those whose tax rate is 39 percent get the benefit of being taxed at only 33 percent on their superannuation contributions. Perhaps that is a small grudging guilt and embarrassment payment to those who are liable to the “envy tax”. 
Another little element that I trust the select committee will look into—it is a curiosity really—is the reference in the compliance cost statement section of the explanatory note to the new trans-Tasman imputation regime. Of course if it were a true regime to avoid double tax it would allow companies to take all the tax that has been paid in one country as a credit for the shareholders who ultimately get a distribution from that company. It does not. It goes halfway only. 
But more significantly although it is recognised that there are material costs—real costs—in administering this complex new scheme there is no estimate in this compliance cost statement section of whether New Zealand will be a net winner or a net loser. I suggest that New Zealand will be a net loser out of this because the owners of a company need to request that the company apply and go through the paperwork to benefit from this scheme. Although we can well imagine the Australian owners of a company incorporated in New Zealand saying: “Hey register under the Australian federal scheme so that we can get the benefit of this imputation regime.”. It is highly unlikely that New Zealand shareholders will have nearly the same clout in requiring an Australian company to provide the same benefit for them. 
I think it is curious that the Government has made no attempt to tell the House what it expects the uptake of this scheme to be. If the uptake of the scheme is differential we could see the New Zealand Government losing a considerable amount of tax with no corresponding benefit to New Zealand shareholders from the Australian exchequer. That is a matter that this House should have expected the compliance cost statement or impact statement section to give some commentary on. It simply states blithely that the compliance costs “are expected to reduce over time as Australian companies become more familiar with the New Zealand imputation rules.” That will happen only if Australian companies can be persuaded by their New Zealand shareholders to invest the time needed to become more familiar with the Australian Scheme and I cannot see very many Australian companies paying enough attention to their probably small New Zealand shareholding to think that worth their while whereas I can see a good number of Australian shareholders being in a position to require New Zealand companies to do just that. 
I also hope the select committee will take a very close look at the new provisions to get student loan repayment deductions running even if the student just forgets to mention that he or she has a student loan. That issue should very much be a trans-Tasman one in this situation. I imagine that because of the bad relationship that the New Zealand Government has established with Australia through its reneging on defence ties and through its unilateral abrogation of the understanding on immigration—its swinging open the back door to Australia and its tossing off at the Aussies for their contribution to Iraq—we would not get much sympathy or help from the Australian inland revenue department in relation to the collection of student loan repayments from New Zealand students and graduates in Australia but those provisions should mean something. 
 Lastly I hope the select committee will report on just exactly what the new charitable donee status for nine additional organisations means. That is a benefit for organisations that can give a direct tax refund to their donors. I wonder why the list starts off with Books for Africa. It almost sounds like a joke does it not? I am sure it is not a joke. We have the Bright Hope International Trust the Cheboche Area Trust—Cheboche sounds as though it is somewhere in Tibet—and the Greater Mekong Subregion Tertiary Education Consortium Trust. That sounds a highly communist name and I wonder whether it involves some kind of reciprocal relationship between the Labour Party and its communist mates in Hanoi. There is Plan New Zealand and there is the Sampoerna Foundation Ltd. Then amongst all the odd trusts that are going to get this Government handout there is the Sir Edmund Hillary Trust. What a sad remnant! The Hillary Commission was changed to Sport and Recreation New Zealand and now we at least get slight recognition of Sir Edmund hidden deep in the fine print of our tax legislation. 
ACT will vote against this bill proceeding further but if it does go ahead we hope we get some answers from the select committee to those questions. 
ROD DONALD (Co-Leader—Green) 
: 
 The Green Party will be supporting this bill going to the select committee if for no other reason than that it includes a significant victory for the Green Party. We have long campaigned to force the Labour Government to look after hardworking New Zealanders by giving them an incentive to save for their retirement. In March 2000 the Greens supported a tax bill to bring in multi-rate fringe benefit tax because it was a great help to employers with staff earning less than $38000. At that time we called on the Government to introduce the same multi-rate mechanism for the specified superannuation contribution withholding tax. The Government said it was too hard but we did not give up. We kept the pressure on as Dr Cullen acknowledged in his speech today. I do acknowledge the resistance that he faced from officials but I am glad that on balance he has moved in our direction. 
We were keen to keep the pressure up because we were concerned that Labour was penalising the very people it claims to represent—the hardworking low-income families of New Zealand. The vast majority of the people who vote for Labour were being rewarded for their support with a large tax penalty imposed on their employers and what is more Labour doubled the insult to its traditional supporters by introducing a 6 percent tax incentive for well-paid salary earners when the marginal tax rate increased to 39 percent and the specified superannuation contribution withholding tax remained at 33 percent. That meant that employers got a 6 percent tax rate on any subsidy they offered to their well-paid workers which is a great incentive to provide staff with subsidised superannuation but only those staff earning more than $60000 a year. Meanwhile good employers were penalised if they provided superannuation to staff earning less than $38000 and employers who were not offering any superannuation to staff earning less than $38000 were being given absolutely no encouragement by this Government to help those people save to have a more comfortable retirement. 
It is therefore no surprise that the number of employer-subsidised superannuation schemes is plunging and that the number of people who are members of those schemes is also plummeting. As I said in the debate on the Business Law Reform Bill earlier this week it is a sad indictment on successive Governments that at the end of June last year only 245003 people were members of employer-subsidised superannuation schemes—down from 310741 only 12 years ago. That is a drop of 65000 in workers who are members of employer-subsidised superannuation schemes. That is of significant concern to all of us in this country at a time when our saving rate is negative. Indeed the negative saving rate is actually getting worse. 
It is not that I am excusing employers from helping their staff to save for their retirement—and the pressure will now need to come on them—but I am simply saying that successive Governments have put too many impediments in the way of employers. There are others that are now also being removed. I acknowledge the Government for introducing Parts 10 and 12 of the Business Law Reform Bill which will also reduce compliance costs for employers in terms of both prospectuses and annual reports. Together these three moves are very much steps in the right direction. We acknowledge and support those steps because the Government is partially removing the disincentive to employers to offer subsidies to their staff. But the Government has introduced only a two-tier optional system not the progressive system that it is claiming. That means that workers earning between $9500 and $38000 will not be penalised any longer because the new rate applying to them will be 21 percent but anyone earning less than $9500 will still be paying a 6 percent penalty—or their employers will—on any contributions made to their retirement savings. 
Treasury might say that anyone earning less than $9500 cannot afford to save in the first place but we say why penalise them if they can. There are good people mainly women who work part-time to bring a second income into a home and who want to save for their retirement and they deserve the chance to do so without their boss losing 6c on every dollar he or she provides in subsidised superannuation. This bill discriminates against those people and must be changed. 
We look forward to working with all the parties on the select committee to amend the bill accordingly. Even the ACT party which says it will vote against the bill has highlighted—in the speech of its member—this discrimination. I hope the ACT member on the committee will stand by what Stephen Franks said in the House and will support an amendment to remove the discrimination against those earning less than $9500. I do not expect the cost will be significant. In fact I expect the cost will be minimal but the result will be beneficial. 
I will also seek multiparty support to extend the 6 percent superannuation savings tax incentive which is currently available to those earning more than $60000 right across the board to all income brackets. I note that the speeches made today by National New Zealand First United Future and ACT members give me confidence that we could have the numbers to have an amendment on that go through. I hope that parties will support such an amendment. Indeed I hope that the Government will have second thoughts on this matter and concede that that is a worthy measure. It is a measure that would bring in some equity and would not count against those people who are on middle or low incomes. I look to the members on the Government side and ask how in all honesty they can offer people who are earning more than $60000 a 6 percent tax incentive to save for their retirement and not offer the same incentive to those earning less than $60000. Why should every member in this House be in a position to benefit from that 6 percent incentive but the people who voted for us be forced to miss out on it? 
When we think about the money that is involved we realise it will not cost the Government a lot to make this change. Dr Cullen conceded today during question time that it would probably cost only about $54 million a year to extend that 6 percent incentive right across the board. That is a small price to pay to give employers a real incentive to provide their staff with subsidised superannuation. 
That is a very small cost when compared with the cost of the New Zealand superannuation scheme. The Government currently has $1.9 billion sitting in the bank for that scheme. Fortunately it has not started to gamble it on the casino economy yet. All one would need to meet this year’s cost of extending the 6 percent incentive right across the board is 2.8 percent of that fund and ongoing one would need less than 3 percent a year to do the same. We say that is a much safer bet in terms of tackling the negative savings rate in this country which is around 4 percent now and expected to climb to 6 percent in the next few years than to gamble that money on the international sharemarket. We have only to look at what has happened to the Government Superannuation Fund. It has lost hundreds of millions of dollars in the last couple of years because it invested in the sharemarket and now the New Zealand Superannuation Fund is about to jump over the same cliff. 
Make no mistake the Green Party supports universal provision of superannuation. We believe that every New Zealander is entitled to superannuation when he or she retires. We are concerned about providing certainty and security in retirement. We believe that the New Zealand Superannuation Fund will achieve exactly the opposite outcome because of the way that the Government plans to invest that money—putting it on a fragile and volatile overseas sharemarket. It makes far more sense to use a small proportion of that money to ensure that there are tax incentives right across the board to help all people save for their own retirement and to try to reverse the situation we are in now where net household debt accounts for 120 percent of annual income. That is an extraordinary indictment on this country. 
BRIAN CONNELL (NZ National—Rakaia) 
: 
 I rise to take a call on the first reading of—let me take a deep breath—the Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill. I think there is probably a compliance cost just in saying that name if one takes time into account. 
I am in a reasonably conciliatory mood and I acknowledge the Government for introducing this legislation. Essentially it is pragmatic. It supports business—yes I said that it supports business. Generally I do not think it is picking favourites and I think it treats all citizens fairly. Accordingly National will support this legislation going to the select committee. But I make the point that like my colleague Stephen Franks I think a lot of work needs to take place in the select committee before the bill gets our universal support. I might add that the bill’s pragmatism and the areas that support business that I have alluded to now make some sense my having listened to some of my National colleagues; in essence what I am talking about is legislation that the National Party initiated. 
I would like to take a bit of a walk through the explanatory note of the bill and in particular I want to start with the section on Part 2 “Amendments to Income Tax Act 1994” which includes the trans-Tasman imputation component. This is reasonably complex so I will read just the first piece for the sake of accuracy: “Australia and New Zealand are reforming their imputation laws to reduce a long-standing problem of the double taxation of certain trans-Tasman investments known as ‘triangular tax’.” It goes on to state: “As part of a joint Australia/New Zealand initiative amendments are proposed that permit Australian companies to join New Zealand’s imputation credit rules.” This is a significant step forward. Anything that helps to attract and retain investment in New Zealand is on the right path. It is sorely needed. However it will not be enough in itself. It is on the right track but unless we deal with and address the issues of the Kyoto protocol the Resource Management Act and in particular electricity we will not get the foreign investment that we are looking for. 
 I want to take a moment to expand on my concern about electricity. Business of course is concerned about cost but generally it is more concerned about certainty and guarantee of supply. The one component that will turn investment away from these shores is if we cannot give certainty on this core commodity. 
I expect that the Government now that it has started down this path will finish the job and start to write back some of its anti-business legislation starting with—but not exclusively confining itself to—its accident compensation legislation its employment relations legislation and its minimum wage legislation. I was going to take bids but there are not enough of us here so I will help out members. Some of the other things that I think might be of interest to note include some of the taxes or levies that have been introduced in the last 2 or 3 years that are hurting business. I believe that the Government has to turn its attention to those. We have touched on income tax and if we look at the fiscal drag—or bracket creep—in that component itself we see that it now attracts the 10 percent of the population who are now caught up in that higher marginal tax rate than was first intended. That is something the Government said it would not do. Fringe benefit tax has increased from 49 percent to 64 percent. The excise duty on tobacco has risen by 23 percent. I am not a fagger but I just do not know how people can afford to smoke under that type of regime. 
Hon Dr Michael Cullen 
: Good. 
BRIAN CONNELL 
: I agree with the Minister. I have been conciliatory—I am actually giving him some bouquets today. The levy on petrol and diesel has gone up considerably as have road-user charges. Members will remember that that was just a temporary initiative but it has now gone beyond its 18 months and is approaching its second year. I do not think that members of the House dispute that half that money has gone into the consolidated account. I know that people particularly in the South Island are concerned that no roading projects are due to start in the South Island inside the next 10 years. We have seen the accident compensation levy and we know where that is going—and Dr Cullen knows that a levy is a tax. We have seen the alcoholic beverages tax—the sherry tax. That I have to admit was not anti-business; it was anti-everybody particularly old folk. Accident compensation motor vehicle levies have gone through the roof. I have touched on just a few. 
The other thing I would like to commend the Government for is its work on the deferred deduction rule. That rule is designed to combat aggressive tax arrangements many of which are mass marketed. Members of the House know and accept that in the last 20 years in Australia a number of scams and schemes emerged that essentially exposed hard-working people and investors to rip-offs. A few that come to mind were the tea tree oil scam and some of the ostrich scams. Essentially they were funded by the taxpayer. I have to admit that I was nearly tempted to get involved in a couple but I did not. However I did see my friends get involved and they lost considerable amounts of money. When the Australian Taxation Office was forced to step in and do something about the matter the blood was on the streets for everybody to see. There was a real mess and the office had to exercise the courage of its convictions and work through it. Essentially those schemes are funded by taxpayers and that is not fair. 
The bill’s explanatory note gives a number of examples and I agree with most of them. But I suggest that the select committee has a close look at the rule because not all such schemes are bad. We do not want to discourage legitimate research. We do not want to discourage legitimate development legitimate investment or sensible risk-taking. I accept that on balance it is a problem. As one of my colleagues has already noted the amount of money that taxpayers are funding is in the vicinity of $400 million to $450 million and that is a major exposure. I refer to the last paragraph under the heading ”Deferred deduction rule” in the explanatory note. It is a steer to the select committee. It states: “Loans where the terms are on an arm’s-length basis where the lender regularly lends money on arm’s-length terms and carries on business in New Zealand are excluded from the definition of ‘money that is not at risk’.”—and I agree with that—“Also excluded are loans by associated persons who are not otherwise parties to an arrangement and whose money is genuinely ‘at risk’.” They are the people whom the select committee should look at carefully so that the bill does not kill the goose that lays the golden egg. That is my advice to the select committee. 
I note also that a number of the initiatives that this legislation looks at pick up compliance costs. I think there are some sensible and pragmatic suggestions here and they have my support. I finish by saying that although National supports the bill going to the select committee we will be looking at the select committee to be very cognisant of the issues that I and my colleagues have raised. On that basis I conclude. 
A party vote was called for on the question  
That the Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill be now read a first time. 
Ayes 103 
Labour 52; New Zealand National 21; New Zealand First 13; Green Party 9; United Future 8. 
Noes 7 
ACT New Zealand 7. 
Bill read a first time and referred to the Finance and Expenditure Committee. referred to the Finance and Expenditure Committee