Hudson BrettBRETT HUDSON (National): Thank you Madam Assistant Speaker. We rise in support—at least at the first reading—of the Taxation (Research and Development Tax Credits) Bill with some reservations. The reservations are actually historical fact. Historical fact should always trump optimism. So the research tax credit has been tried before in New Zealand—tried and proven to be rorted. Now I know this for a couple of reasons. One is I trust official advice—and I'll come to that in a minute—but I also know it because I had customers telling me not only that they were rorting it when it was last in this country but how they were able to rort it. So particularly in the area of information technology businesses were able to reclassify simple maintenance activities upgrade activities as research and development and claim the tax credit. An absolute rort—running all the way to the bank which is possibly also somewhat symptomatic of the customer in question. So it is a rortable event. The official information of the time actually put that to the Governments of the day both Labour and then National. The point they made was that a tax credit was far less certain and less likely to provide an incentive for genuinely new research and development. The information they had and the projections they made were that it would be more likely to foster if anything perhaps some acceleration but simply the undertaking of R & D that was going to happen anyway. Their advice of the day was that a grant-based system would be far more likely to create a genuine incentive for new research and development—that which wouldn't have otherwise happened. That might go some way to explaining why it was for instance that the National-led Government in 2008 and beyond chose to get rid of the tax credits and instead use a system of grants-based assistance to businesses in research and development. So the rorting of it is a serious serious issue. But the better question—Dr Webb said it's a question of whether we want research and development tax credits. Really the question is: are tax credits a better method than other options available? The advice of some years ago suggests very strongly that that's not the case. There are other elements of a tax credit and particularly the implementation proposed that suggest that it is a suboptimal approach to particularly the grant structure that was used under the previous National Government. Dr Webb has said it's a simple threshold to meet and the relief is quite generous—well that's debatable but that was his position. That being the case there was therefore an incentive for as many businesses as possible to recode their activities to take advantage of it and to meet those so-called simple and worthwhile thresholds. But it also creates a system which simply means that if you meet the threshold you get the cash back in effect—you get the credit. So there's no cap on the actual expenditure for Government and this is what happened under the previous Labour Government—the actual cost of the tax relief was much higher than had been budgeted for. But secondly it risks creating the ongoing expectation within business that they will always get that level of Government assistance to help part-fund in effect their research and development. It creates an expectation that that will perpetuate. So instead of perhaps the approach that the previous National Government had which is prime the pump"—get businesses investing because they get the returns from it they get the benefit from it and they get the realisation that it is worth their while making continued private personal investments in R & D. Well the tax credit isn't going to do that. It's simply going to perpetuate the same level of assistance no matter how much you do over how many years. You might take for instance our growth grants. Over the term of the Government we started off by having something of a 50/50 split so the business had to show that their ideas were good enough to get half of the funding from private risk and private investment. Then over time we shifted that up so they had to provide even greater than 50 percent of that investment from private funding sources before the Government would contribute the remainder. That actually helps to wean—if I can use that word—businesses off an over-reliance on money from the State to undertake research activities that principally they are going to be the beneficiaries of. This tax credit system actually undermines that approach. But we do believe in listening to business. We believe in listening to New Zealanders. We think it's worthwhile that this goes to select committee so we can tease those and other matters out—matters like will software development and labour-based activities be included; if so will there be any caveats any thresholds any protection measures? These are all things worthwhile canvassing in select committee. It's for that reason that we will vote in support to go to select committee."