Wood MichaelMICHAEL WOOD (Labour—Mt Roskill): I rise to speak to the Taxation (Annual Rates for 2016-17 Closely Held Companies and Remedial Matters) Bill and I rise to confirm Labour's support for the bill to progress. We acknowledge the work that the Minister of Revenue has done on it. I think the Minister could have pepped up her speech actually. It is a good bill but I have heard more passion in old episodes of George & Mildred than in that speech.I am a relatively new member and I was not present for the select committee hearings on this bill but I have consulted colleagues read submissions and read through some of Hansard's most gripping pages ever to get to grips with the intent of this bill and its delivery mechanisms and as I say the Labour Party supports it. Before going into detail though I do want to comment on the sheer volume of tax bills that the House the tax community and the broader public are having to consider at the moment. Often these bills are very weighty. As the Minister commented this is a big bill something like 400 pages and there is a lot of technical detail. This is a matter that has been commented on by submitters to the Finance and Expenditure Committee and on this side of the House we would like some serious consideration to be given to better process for tax legislation to be compiled and to make its way through the legislative process. We benefit from the input of the tax community and the public. Let us not wear them out.On the process front it is also appropriate to point out that one of the most important aspects of this bill not commented on by the Minister is the setting of income tax rates for the coming year. We are running perilously close to the cut-off date for being able to implement those rates in the new financial year. Colleagues more experienced than me have commented that this is the latest that they recall the annual rates being set. In this case there will not be a crisis—the Government will not be shut down—but running the process this late does create real risks for the smooth running of government and we should ensure that it is done in a more organised fashion in future years.Befitting of its size and despite the fact that it is a very detailed and technical bill in some ways this is also an important bill. Aside from setting those annual tax rates it provides for some important changes to ensure the ongoing integrity of our tax system. It has something for everyone. There is stuff about the aircraft overhaul expenses which I think have been a singular achievement of Mr David Seymour and something he can take back to the people of Epsom. Horse racing gold and silver are all covered by this bill and what that speaks to is the way that the tax system touches on every aspect of our economic lives.That is what makes it extra important that our tax system has integrity that it is clear that it is not open to abuse and that it does not get caught and bogged down in litigation. As one of the overviews of the bill says it aims for the tax treatment of alternative forms of income and expenditure to be as even as possible. That is something that we on this side of the House support and in fact we want that principle to be extended in the future to ensure that across our whole tax system we achieve balance.Having affirmed the importance of tax rates being set for the new financial year I do want to reflect that we on this side of the House view it as a missed opportunity to ensure that our tax system is fair progressive and driving the kind of productive economy that we would all like to see in New Zealand. This bill simply rolls over existing rates when what we actually need is a more fundamental review of our tax system to ensure that it is modern fit for purpose and balanced. While we wait with trepidation for possible Government announcements about tax changes in the Budget and while there is a degree of political interest in whether the former Prime Minister's north of $3 billion of tax cuts are still on the agenda or whether it is the new Prime Minister's less cloud-bouncy approach that prevails it is Labour's belief that we need a proper review of the system to ensure that tax is applied fairly across taxpayers and our economy and that everyone pays their fair share.Chris Bishop: What does that mean?MICHAEL WOOD: Just rolling over the rates or changing a few thresholds does not achieve that. It means doing better than we are doing now Mr Bishop.In considering the existing rates we might also reflect on the fact that these rates came in as a result of the 2010 tax switch overseen by Mr English which resulted in 40 percent of the net benefit of that package going to the top 10 percent of earners. That was not an equitable outcome and any future changes to tax rates need to do a much better job of ensuring that New Zealanders who really need an income boost receive one. Our tax system is important to how we incentivise growth and investment in our economy and it is also important in ensuring fair distributional outcomes. That is what Labour will push for as we review those tax rates in the future.I now want to move on to some of the other changes proposed in the bill. I am going to focus particularly on the aspects relating to closely held companies and I am sure my colleagues will cover others. In doing so I do want to acknowledge the work of the Finance and Expenditure Committee in smoothing out some of the changes that were originally proposed in this area and dealing with the sensible submissions of submitters.Probably the most substantial area of change does relate to look-through companies (LTCs) which the Minister referenced. Look-through companies are a legitimate form of business partnership but it is also clear that they have been the target of some sharp and aggressive tax practice. So it is appropriate that we examine the structure to ensure that it is meeting its intended objectives and not those of people and organisations who would simply use them to minimise legitimate tax obligations. Look-through companies comprise a large number of active companies in New Zealand. They are companies whose shareholders elect—as the name would suggest—to be looked through for tax purposes. The expenditure income and resultant tax obligations flow through to shareholders who are then taxed at their marginal rate and of course on the other side losses can also be offset. Particularly for sole traders looking to expand without more convoluted company structures they can be a useful vehicle for bringing in additional business partners.Essentially the bill tightens the criteria for companies electing to become LTCs with measures including a stronger set of rules around the five counted owners test to ensure that those benefiting from distributions are actually captured within that test instead of various financial mechanisms meaning that there are potentially far more beneficiaries than might otherwise be seen to be the case.Amongst this and other changes which will have the likely effect of reducing the number of LTCs the Finance and Expenditure Committee has worked hard to ensure that there is a fair transition regime for those whose circumstances may be affected by the passage of the bill. For those LTCs who lose their status in the ensuing tax year a new transitional rule is proposed that enables tax book values to be rolled over to the new ordinary company to ensure that there is no unintended tax impact from that changeover. That is a sensible change proposed by the committee which we support.The committee was also very keen to ensure that charities and Māori authorities that have used LTCs are not unfairly disadvantaged by the proposed changes which to most intents and purposes do remove the right of charities and Māori authorities to use LTCs. A grandparenting arrangement was originally proposed for Māori authorities. However the select committee determined that that wording needed to be tightened so that only interests acquired before the 3 May 2016 grandparenting date are allowed whereas the original wording of the bill captured only the need for an LTC to be established before that date and not interests that might come into it afterwards. This is a tidy-up that I believe meets the original intent of the bill and Labour supports.There have also been some concerns from charities that have to some small degree legitimately used LTCs for certain activities and would be disadvantaged by the original proposal to simply end the right of charities to own LTCs. The committee has suggested—very pragmatically in my view—that a grandparenting provision aligned to that of Māori authorities should apply.Finally I want to turn to Supplementary Order Paper (SOP) 261 tabled by the Minister about depreciation roll-over relief for quake victims. Clearly those in the upper South Island and the greater Wellington region with destroyed assets who receive the small solace of some depreciation recovery should not then face a tax disadvantage. So it is only fair and sensible as proposed by the SOP that this obligation can be deferred while people and business owners move their way through that rebuild process.As I say Labour through its work on the select committee is satisfied that this bill is moving us in the right direction. We have a fundamental belief that further work is needed on the integrity of our tax system to make sure that everyone is paying their fair share and to make sure that the system is balanced across our whole economy. But we have no hesitation in supporting the positive changes that are included in this tax bill and we look forward to further stages of this debate. Thank you.