Dunne Peter: Taxation (Business Tax Measures) Bill — In Committee 
Dunne Peter: Taxation (Business Tax Measures) Bill — In Committee 
[Volume:653;Page:2002] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I hesitate to take a call at this point but a number of things have been said about the parentage and the history of this bill that I am in the unique position to comment on and I thought I should put these comments on the record before the Committee this afternoon. At the outset I acknowledge the work that the Finance and Expenditure Committee has done and I acknowledge the generally cooperative and bipartisan way in which the Committee of the whole House is approaching this bill today. 
The previous speaker Raymond Huo said that this bill was drafted in August last year. That is wrong; it was drafted in January this year. He may have been referring to the previous bill—the more substantive bill that was before the select committee. That bill had its origins in the Business Tax Review 
that was undertaken in 2006-07. That bill was drafted around the time of the Budget last year and was introduced into the House in July last year. So that bill has been before the select committee since that time. 
The changes contained in this bill in terms of their impact on revenue are about a sixfold increase on the changes that were contained in the bill introduced in July last year. So this is quite a substantial measure in its own right. 
I will make some comments about three of the issues that have been raised by a number of the speakers to date. The first issue is in respect of the use-of-money regime. I will break this discussion into two parts. Mr Cunliffe suggested that the previous Government had a plan in mind for a different use-of-money regime than the regime that was implemented in January and that is given effect to in this bill. I need to say to the Committee that what Mr Cunliffe was talking about was the Labour Party’s policy. No work had been done by officials prior to the change of Government on giving any effect to that proposal. So the changes that were agreed to by Cabinet earlier this year and are reflected in this bill arose as a result of work that was done after the change of Government to give effect to work that had been under way last year in respect of the formula. That is as far as things had got at that point. 
Let me make a couple of comments about the issue of deductibility. There has been an assumption over time about use-of-money interest being deductible and a number of taxpayers have from time to time gone to the Inland Revenue Department to seek rulings on the issue. I have to say that there appears to be a measure of inconsistency about that provision. What is happening at the moment is that officials are working through this issue to determine where the balance should be and I give an undertaking to the Committee that we will come back and may well make an amendment to the main bill that is currently before the select committee or include measures in a subsequent bill to be introduced later this year if the outcome of that consideration is that we need to make a legislative change. So I give the Committee that commitment. 
The question was also raised about the deductibility of patent costs. This is an interesting and new issue because it has not featured on the Inland Revenue Department’s work programme thus far. It is not actually on the programme at this point. However there are some issues that I should put on the table about the tax deductibility of patent costs. A number of speakers have raised questions or made comments about it as we have gone through today. It is worth noting that although the maximum legal life of patent protection in New Zealand is 20 years the initial period of protection is 4 years. There are certain renewals that occur after that time. Patents are generally depreciated over the full 20 years but there is not sufficient knowledge at this point about what the average length of a patent is in New Zealand. So it is therefore likely that the length of time will vary depending on the industry type and the nature of the asset. 
The question was also raised about comparability with other jurisdictions and I will give the Committee four examples of what happens in other places. In Australia the patent protection period is 8 years for innovation patents and 20 years for a standard patent. The federal regime in Canada provides for 25 percent of useful life. The United Kingdom has an accounts write-off or 25 percent of preferred. The United States at the federal level provides for a patent protection period of 15 years as a general rule. The Committee will see that there is actually no uniform rate and one of the difficulties we have in determining where we might pitch ourselves vis-à-vis another jurisdiction is trying to determine where that line might be. 
The final question I will comment on very quickly relates to the issue of the change to the provisional tax regime. The real issue here is how much revenue we can afford to give up at this time. This whole measure including the use-of-money interest proposals is around a $450 million package. That is quite a substantial commitment given the size of our economy. The issue as to what we are doing in the long term is that if we were to move to 100 percent there would be no immediate revenue impact in the next couple of years However there are some issues regarding cash flow and some other implications for use-of-money interest that may make it not the attractive proposition that it has been suggested to be. That is something I am sure the officials and the Committee will give some further attention to. 
I simply conclude at this stage by observing—and I do not want to use the analogy of a rolling maul because that has been used elsewhere—that this is an evolving process. 
Chris Tremain 
: Rolling maul is good. 
Hon PETER DUNNE 
: Well it depends; I personally was a fan of good old South Island rucking but never mind. Progressive changes will be made as the situation unfolds over the next year or so. In a very short way this bill puts in place some immediate measures that we felt were a step up on what was contained in the bill last year. These measures came forward in January of this year. We think they have generally been welcomed and supported and they will be a valuable addition once they are implemented in time for 1 April.