Cunliffe David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee 
Cunliffe David: Taxation (International Taxation Life Insurance and Remedial Matters) Bill — In Committee 
[Volume:656;Page:5999] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I want firstly to comment on the tax treatment of Kyoto emissions units in Part 1. Of course it is a salient day to be considering the emissions trading scheme given the extensive discussion earlier around the Standing Orders and the presentation or otherwise of the special select committee report in that regard. I am sure I would express the hope also of members opposite that the report of the special select committee will be made available to members for consideration at the earliest possible opportunity. The chairman of the committee the esteemed “permanent” Minister of Revenue the Hon Peter Dunne is no doubt on the horns of a dilemma having had a minority report presented by the deadline and then withdrawn again. But let us get back to Part 1. 
There was a question before the committee as to whether the tax treatment of Kyoto emissions units ought to be equivalent to that of non-Kyoto emissions units. That is a pretty important point because all emissions units are not equal. For a start the Kyoto regime codifies much more closely not only the tradability but also the verifiability of emissions units to a much higher degree than normal Kyoto units and the quality variation in non-Kyoto units like assigned amount units for example is very high. So depending on the source country of origin—and some would say that perhaps Russia is one of the more dubious in terms of its accounting and verifiability—we question whether those units equivalent to a climate junk bond ought to receive the same tax treatment under this bill. There was extensive debate about that because we do not want to see the emissions trading scheme sold short either by placing excessive reliance on unverifiable emission credits or at worst—and here I think it is fair to say that the NZX has made a big push—by creating a secondary market of derivatives for those units that end up in a bubble of risk that could be akin in 10 years’ time to the bubble of risk that has imploded now around real estate bonds and collateralised debt obligations. We do not want the next recession to be caused by the implosion of emissions unit derivatives—and that is a really important matter that the committee considered. In the end on balance we felt that the complexities that would arise by differentiating between the two classes of units in tax law were a worse evil than the recognised variability and quality of the non-Kyoto units. So although we want to deal with the primary issue we do not believe that this is the place. But I am sure that officials will keep that distinction in mind. 
I will turn to the issue of portfolio investment entities or PIEs—a cute name for a relatively simple concept once we get our heads around it. A portfolio investment entity is a vehicle that is designed to allow savings to be taxed at the marginal rate of the saver rather than at the corporate rate of the savings vehicle. It is a walk-through provision which is important because for a child without much income who is saving hard in his or her piggy or Kashin elephant bank—and we want to acknowledge the passing of Kashin this week a much loved elephant in Auckland Zoo— 
Craig Foss 
: Cash is king! 
Hon DAVID CUNLIFFE 
: —cash in honour the members opposite say—we need to recognise that portfolio investment entities in principle are a good idea. But besides the technical aspects of portfolio investment entities which are related in this bill there is one significant issue of policy that we believe merits the further consideration of the Committee—it is relevant to this bill and it comes up again in the tax bill currently before the select committee—that is whether the top portfolio investment entity rate ought to be equivalent to the top company rate or the top personal income rate. It is our view on reflection that in fact the top portfolio investment entity rate should be equivalent to the top personal income rate not to the company rate of 30 percent. The risk is that this well-intentioned set of vehicles could simply become a way of disguising tax liabilities for upper-income individuals who would otherwise be paying 38 percent. They could just channel income through a portfolio investment entity and hey presto the maximum rate would be 30 percent. Some people say that that does not matter because a high-wealth individual can already use a trust structure.