Dunne Peter: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
Dunne Peter: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
[Volume:644;Page:13701] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I want to respond to a number of the points that have been raised so far by members who have taken part in this debate. I will start by talking about the issue of finance leases. I note incidentally that the report of the Finance and Expenditure Committee stated: “The majority of us accept that a change was necessary because a small number of cross-border leases have been classified as operating leases for tax purposes even though they are financial transactions and treated as such in the financial accounts of the taxpayers.” And further on the committee stated: “We asked officials to consider further the application of the legislation to existing arrangements. We understand that officials have since been working on alternative transitional options for existing leases” etc. That is precisely what has been happening since the decision was taken to withdraw Supplementary Order Paper 119. The amendment on Supplementary Order Paper 167 in my name reflects the work that has been done and the solutions that have been reached. 
I ask members to let me go through precisely what Supplementary Order Paper 167 says then I will come to some of the questions that Mr Foss has raised. Under the proposal on Supplementary Order Paper 167 the leases to be affected by those rules are those that were entered into after 20 May 1999 and in which the lease asset is used mainly overseas and a person other than the lessor is earning income that is not subject to New Zealand income tax from the use of that asset and a person other than the lessor has substantially all the risks and rewards incidental to ownership of the asset. Leases that do not satisfy those requirements which in effect are most leases will be unaffected by the amendments that I have tabled as part of this bill. If the lease is affected the consequences depend upon the date that the lease was entered into. For leases that were entered into prior to 20 June 2007 the lessor will have to pay back one-sixth of the depreciation previously claimed and to reduce future depreciation deductions by one-sixth. That treatment is a pragmatic compromise that deters aggressive tax minimisation schemes and recovers some lost revenue while limiting the negative effects on existing commercial arrangements. For all other leases the taxpayer will be required to reclassify the lease as a finance lease and to recognise additional income or expenditure in the year when the lease becomes a finance lease. 
Mr Foss asked some questions relating to the likely cost of the proposal. The advice I have is that from known leases the likely cost is around $92 million and that the cost as a result of these amendments will reduce by $16 million. I need to advise the Committee that there is some sensitivity around this point. It is a net present value calculation. We are aware of only two leases at the moment that come within this broad contention. Therefore it is not appropriate for me to discuss taxpayer affairs further. But I can say to the Committee that in developing the solution set out on Supplementary Order Paper 167 there have been consultations with affected parties and others and the solution that has been arrived at is one that seeks to deal with the particular problem. It is a much narrower solution than was proposed on the original Supplementary Order Paper. 
If I can turn to some of the other issues that members have raised I think it was Mr Groser and one or two other speakers who made reference to clause 3 which relates to the personal income tax rates issue. I am someone who has been on record for a very long time as being a strong advocate for personal income tax reductions. I think I have that reputation. I note that this year— 
Dr Wayne Mapp 
: Prove it! 
Hon PETER DUNNE 
: The last time we had personal tax reductions in this country I was also in the position that I am in now. My record speaks for itself; it is not just words. The reality is that in this term we have done significant taxation reform. The business tax reform package was a United Future initiative as part of our confidence and supply agreement. It was the first business tax reduction in this country in 20 years. I am committed to seeing personal tax reductions. I know that the Minister of Finance is as well and I can assure the Committee that we are working on those reductions at this moment. Members will just have to wait and see what transpires from that. 
One of the previous speakers referred to the charitable donations regime. That again arose contrary to what Ms Wong said from the confidence and supply agreement with United Future that was signed in October 2005—long before the National Party released its policy. I welcome National’s support for the policy we set out to achieve from October 2005. I think it is a good policy and I am glad National agrees with it. 
I also want to say some words about Ms Wong’s proposed amendment with regard to the redundancy provision in so far as it affects accident compensation payments. There are some problems with the amendment she proposed and I need to advise the Committee of those. The amendment proposed by the member actually amends the 2004 Income Tax Act. The difficulty with that is that that Act has been repealed with effect from 1 April 2008 under the rewrite bill which brought in the new Income Tax Act 2007. So the member seeks to amend legislation that does not exist. But beyond that her amendment does not have any impact beyond 1 April 2008. It would apply to accident compensation payments for the period from December 2006—so presumably from the commencement of the 2007 calendar year—through that little window that ends in April 2008. So in that sense the amendment is unworkable. I understand the sentiment behind the amendment but I say it is unworkable. 
I think those are the major points that members have raised to date and I have sought to comment on them. If other matters are raised I will comment on them as the evening progresses.