Taxation (Urgent Measures and Annual Rates) Bill — In Committee 
Taxation (Urgent Measures and Annual Rates) Bill — In Committee 
[Volume:651;Page:161] 
Taxation (Urgent Measures and Annual Rates) Bill 
In Committee 
Debate resumed. 
Part 1 Personal tax cuts ( 
continued 
)  
LYNNE PILLAY (Labour) 
: 
 As I was saying before the lunch break the personal tax cut part of this bill is actually a redistribution of wealth; a redistribution from working New Zealand families from modest-income earners and from beneficiaries to the wealthiest who are the biggest beneficiaries of this bill. Every worker earning under $44000 and particularly those who have families will be worse off yet those are the people who need tax cuts the most. Over 2 million New Zealanders—65 percent of New Zealanders—will not benefit and some will be disadvantaged by this bill. That shows how out of touch the National Government is. 
Let us look at the 800000 people who have signed up to KiwiSaver. They have committed to saving 4 percent of their incomes with fair employer contributions—and 4 percent is a fair employer contribution—[ 
Interruption 
] Yes this change is on top of the tax cuts. Now the employer contribution will be slashed to 2 percent and that will have a dramatic impact on those people’s ability to save for their future on their children whom they have signed up to KiwiSaver and also on their dream of having a sizable deposit for a new home. National members have said they will maintain Working for Families; after their calling it “communism by stealth” and pouring vitriol over us for introducing that policy they are going to maintain it. But indeed working families are going to be much worse off under National’s tax policy. 
I think many many Kiwis have been conned. They are expecting a sizable tax break. When Kiwi battlers get their first pay cheque in April they will realise that oh my goodness the future is not very bright for them and they will wonder what they are going to do. They are on a low income and they have not had a tax cut. Their income has been cut—not their taxes. They may think that State housing can help them get ahead but guess what? Building new State housing has ceased under the National Government as well. They may think about compensating for the cut in their income that effectively the tax increases have given them. They may try to get a better-paid job so that they can break even and be where they were before. If they get a new job they may get an extra 50c an hour but guess what? They will have no security of tenure in that job. Under National’s policy in the future they can be sacked any time within 3 months after being hired. That will be a big risk for them to take if they want to better their income to get ahead and to get back to where they were before. Kiwis have been conned. They believed that there was going to be a brighter future. I say that if this is a brighter future I would hate to see a gloomy future for Kiwis. 
Another implication of the tax cuts is that we will have less money in the tax take. There will be a big drain of money from the tax take because of the big tax cuts for those on high incomes. People such as members of this House will benefit tremendously at the cost of low and modest income earners and Kiwi families. The implications of the tax cuts will affect us all. They will affect health spending. They will affect education. They will probably affect early childhood education tertiary education and apprenticeships—all the trade training that started under this Labour Government. 
NATHAN GUY (Senior Whip—National) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 68 
New Zealand National 57; ACT New Zealand 5; Maori Party 5; United Future 1. 
Noes 52 
New Zealand Labour 43; Green Party 8; Progressive 1. 
Motion agreed to. 
A party vote was called for on the question  
That Part 1 be agreed to. 
Ayes 68 
New Zealand National 57; ACT New Zealand 5; Maori Party 5; United Future 1. 
Noes 52 
New Zealand Labour 43; Green Party 8; Progressive 1. 
Part 1 agreed to. 
Part 2 Research and development tax credits repeal 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 Now we come to the heart of this bill. How is it funded? The goodies that are being handed out apparently willy-nilly have got to come from somewhere. They come from two substantial sources. The first is $3.5 billion from KiwiSaver which we will be talking about in the debate on a subsequent part. The second is the cancellation of the 115 percent research and development tax credit. Through that measure $1.5 billion will be saved. We believe that the Government will come to regret the day that it moved this part. 
It is very interesting to begin with the analysis set out in the explanatory note of the bill. It recognises that there are significant externalities associated with research and development. The company undertaking the research and development can never capture all of the benefits. Innovation benefits the whole of society the whole of our economy. It lifts the game it improves productivity and it drives us all forward. The data we have shows that companies that invest intensively in research and development tend on average to employ more people to grow more quickly to register more patents to have higher productivity and to export more products and services. Why would the Government not want to encourage such companies? Moreover how could it begin its year with the commitment that it will do everything it can to focus on productivity and growth then cancel one of the better growth tools in the innovation tool box—the research and development tax credit? 
The second issue we have is one of trans-Tasman equivalence or business diversion. It is accepted that our colleagues in Australia give their Government a much more proactive role in boosting research and development both directly—historically—through the magnitude of its subsidies to the Commonwealth Scientific and Industrial Research Organisation and many other organisations and indirectly through significant subsidies and tax concessions for innovative firms. One of the principal reasons why New Zealand’s research and development tax credit was brought in in the first place was to ensure equivalence between New Zealand’s innovative firms and those of their colleagues across the Tasman—to make sure that the Government’s footprint was not accentuating any trend towards trans-Tasman business migration. That theme was picked up by the current Government—then Opposition—during the election campaign. The bogey of New Zealanders moving across the Tasman was repeated at every opportunity like a mantra. So what has happened? On the first business day of the House the National Government attempts to repeal the research and development tax credit which has been one of the sources of guaranteed trans-Tasman equivalence. 
The reaction has been completely predictable. Selwyn Pellet the chief executive of one of the Deloitte/Unlimited Fast50 fastest-growing companies—Imarda—said: “We are right this minute deciding where we do R&D whether it’s New Zealand or Australia and the removal of the tax credit here negatively incentivises the decision to bring it back to New Zealand.” The Manufacturers and Exporters Association has been highly critical of this bill. It has been highly critical of the removal of the research and development tax credit—which was to be fair signalled before the election. It has been highly critical of the environment that New Zealand manufacturers exporters and innovators have to cope with. This move makes it worse. 
When we look at the ledger of what is being done and what is being undone we have to ask why. On the one hand we have the removal of something we know is generating sound returns; on the other hand it is going in order to fund a consumption tax cut that is both highly inequitable and badly designed. It is so badly designed that the explanatory note of the bill states that neither the proper consultation nor the regulatory impact assessment has been completed and the impacts have not been quantified. 
Some of the key issues as we debated in the debate on Part 1—[ 
Interruption 
]—9 years to do it—are first that this is a long-term fix for a short-term problem. It is a structural tax change to address a recession trend. Second we are putting in place a consumption tax cut—funded largely by borrowing and these productivity tools—whereas what we need is something that will lift productivity itself. In that respect this cut is in extremely stark relief. 
I think the reaction of general commentators is instructive at this point. John Armstrong from the  
New Zealand Herald  
said the winners from this package taken on balance are easy to identify: working singles and couples without children. The comparative losers are families or those on below the average wage. Jenny McManus from the  
Independent 
 said: “Voters awaiting National’s grand plan for managing the effects of the global financial crisis will be disappointed at the tax and economic package …”. Jo Doolan from Ernst and Young said that she is “gutted” at the package: “The whole thing is hurried and ill-conceived. … We need to develop a savings culture and this sort of thing doesn’t help.” Gordon Campbell said: “Putting tax cuts ahead of science and research neatly underlines the lack of vision or sensible strategy for growth in the National package—”. 
I know from walking around the press gallery that journalists—and no doubt soon the public—know what is going on. They know that despite the rhetoric of the election campaign on this first business week of the House certain things are being done that deliver certain benefits to constituencies that have it “owing to them”. Surprisingly enough it is not our innovative exporting businesses that are getting the nod here; it is the financial sector and top-income earners who will be the general beneficiaries of the package. It is our poorest Kiwis our struggling families and oddly our innovative businesses that will pay for it. 
Leaving aside the equity arguments that we discussed in the debate on Part 1 the lack of logic between the negative productivity impacts of this move and Government members’ stated aim—even if we take them at their word—is extraordinary and compelling. Mr English in speaking to Part 1 said: “Well we poked and prodded at your plan. We campaigned on ours. Our having been elected there is no need for our plan to be scrutinised.” So there is no need for it to be scrutinised no need for the select committee process and no need for bills to be tabled? The bills to be debated in the rest of the week are still not on the Table. That one has gone through an election campaign is justification apparently for setting aside the normal process of Parliament. Of course we have seen the lie to the proposition that “No one is worse off because certain changes have not happened yet.” This bill undermines measures that have already been passed into law and therefore the Opposition is fully justified in showing that people are worse off. 
In summing up taken as a whole the retrenchment of this research and development tax credit will be bad for our best businesses and bad for New Zealand. It will be bad because it is a poor source of funding for a misguided bill. But even if one takes the Government at its word and swore for a moment that these tax changes are necessary funding them by removing the research and development tax incentive does not serve even this Government’s stated ambition of lifting productivity and growth. 
Dr PAUL HUTCHISON (National—Hunua) 
: 
 I am grateful for the opportunity to speak on Part 2 “Research and development tax credits repeal”. This is a very sobering part and it has been undertaken with great thought over a period of time— 
Hon David Cunliffe 
: Minutes! 
Dr PAUL HUTCHISON 
: That is quite wrong. This move was indicated quite clearly in National’s pre-election policy and the great concern was about the quality of the investment. If we look around the world we see one of the points made in Australia’s innovation policy of 2002 is that unless the basic business environment is optimal it is very hard for research and development and innovation to thrive. This is underlined in the foreword to the policy where the point is made that it is very important to have a low broad-based simple tax system that it is important to have a flexible labour market and that it is important to have an optimal regulatory regime. 
All these things will be carried out by the National Government and the direct opposite happened unfortunately under the Labour Government. Nevertheless there was a question at one stage of events of whether 10 percent of this tax credit would remain. However due to the extraordinary circumstances—the legacy of the Labour Government—that were established in the pre-election fiscal update whereby the seriousness of the international crisis was beginning at last to be felt and certainly was ignored very largely by the Labour Government the realisation was that it was inappropriate to continue with this tax credit. 
It is important to remind the Committee that in the select committee prior to this tax credit coming into being it was opposed by the major accountancy firms it was opposed by Treasury and it was opposed by Business New Zealand. However once it did come in the major accountancy firms set up a travelling roadshow around the country to give people an opportunity to use the tax credit. The great danger was that it would not be a quality investment research that was going to be carried out anyway would be carried out there would be new business activities that were inappropriate to research and development and on balance it was felt that in these dire economic times—times left as a legacy of the poor management of the Labour Government—it was appropriate to repeal the tax credits. 
I for one am absolutely committed to championing the evolution of research and development in New Zealand into the future. But we want to ensure that the spend is a quality spend and I am quite sure that over time the National Government will achieve exactly that. I remind the Committee that in the Hon Bill English’s media release of 9 December he stated: “We firmly believe in the importance of research and development to keep New Zealand internationally competitive but the tax credits aren’t the most effective way to ensure that. We will work with business to better target government expenditure on innovation.” 
I am sure that Mr Hodgson must feel very disappointed given the fact that he worked on this matter for about 9 years. I think it was back in 1988—or maybe 1998—when he proposed that such a thing should happen. Once again it took 9 long years and more. It was almost equivalent— 
Hon JIM ANDERTON (Leader—Progressive) 
: 
 The really scary thing about that speech is that the member said that it had taken a long time and a lot of thought to come up with this policy. I would have been much more comforted if Government members told me they gave it no thought and had no time to spend on it. The fact that they spent a lot of time and thought on it and came up with a dog of a policy like this is almost beyond belief. But the incredible thing is that we are told that we cannot afford to have research and development tax credits at a critical time for the New Zealand—let alone the world—economy but we can have and we can afford in the face of this enormous financial crisis around the world personal tax cuts that deliver 132 times more for the most affluent New Zealanders compared with the poorest. We can afford that but because of the world crisis we cannot afford to have research and development in New Zealand. 
Then we are told that we really want a quality spend. Well there is one thing that is slightly worse than that and that is no spend at all which is what this bill proposes. Part 2 is about destroying research and development capability in New Zealand. This part is an example of a Government that has put class warfare ahead of the need to grow our economy. We heard a lot about growing the economy yesterday—going for growth! The Government is going for growth one day but the next day it is cancelling all of the research and development credits proposed in previous legislation. On day one it is going for growth; on day two it is cancelling the possibility of growth by having no research and development credits. 
The most incredible thing of all is that it is not about punishing all businesses in New Zealand it is about punishing the most innovative and creative businesses in New Zealand—the businesses we depend on for our economic growth and development. Those are the very businesses the Government is targeting with this bill. It will target those companies in a way that is almost beyond belief in that at the same time someone who is earning say $750000 a year will be 132 times better off than someone who earns $25000 a year. So even if the Government is going to target the most innovative businesses in the community one would think it would help those who are the poorest but no it is doing the reverse. 
The National Government is clearly opposed to innovation. It can say what it likes but it is opposed to it. The Government is opposed to business success because the very businesses we want to succeed are the ones this bill punishes. The National Government is opposed to the agricultural backbone of our economy. I never thought I would have all the evidence to say that in this Chamber but this bill is clear evidence of it. The bill is what it looks like when we have a Government run by sneering city financiers instead of people who understand the real productive economy. 
Allan Peachey 
: Oh ha ha! 
Hon JIM ANDERTON 
: I will prove it to the member then. Can Government members answer three questions? How many times in the Speech from the Throne was the word “agriculture” used? None. There was not one mention of it in the Speech from the Throne. Where was the Minister of Agriculture in having any input into that? How many times in the Speech from the Throne was the word “exports” on which the First World standard of living of this country depends mentioned? 
Hon Ruth Dyson 
: How many? 
Hon JIM ANDERTON 
: None. There was not one mention of exports. How many times were the words “scientific research” mentioned in the Speech from the Throne? Scientific research is what our First World standard of living will depend on for the future in terms of the quality of the processed goods we produce and export to the world. 
Hon David Cunliffe 
: Twice? 
Hon JIM ANDERTON 
: No. 
Hon David Cunliffe 
: Once? 
Hon JIM ANDERTON 
: No none. In the Speech from the Throne there was no mention of scientific research which will set up this ambitious visionary Government for New Zealand. There was no mention of the most important backbone of the economy of New Zealand—our agricultural production—which members opposite suggest they represent. There was not a mention. I wonder what I will hear from Federated Farmers tomorrow. I got a framed certificate for putting agriculture at the top. Government members are not even putting it at the bottom. It does not get any mention whatsoever. Despite all the cant we had from Dr Hutchison scientific research could not even get a mention in the Speech from the Throne. 
CRAIG FOSS (National—Tukituki) 
: 
 I will totally ignore the previous speech as will most of New Zealand probably because it was not particularly relevant. [ 
Interruption 
] That has woken the Opposition members up. I am sure those members had a very good lunch. Part 2 “Research and development tax credits repeal”— 
Hon Dr Michael Cullen 
: Tukituki—farming horticulture viticulture? 
CRAIG FOSS 
: If members opposite want to have a bit of a go I can tell them that there is an interesting provision in clause 20(2) that makes a change to the Income Tax Act 2007 which came before the Finance and Expenditure Committee. The current Opposition spokesman on finance may have further advice on that because clause 20(2) states: “The definition of district health board is repealed.” He may want to speak on various other ways of doing that later on. 
Hon David Cunliffe 
: I think you need to focus on finance. 
CRAIG FOSS 
: Yes I will focus on finance because this is a financial bill. 
When the 2007 bill came before the Finance and Expenditure Committee there were many many submissions on the research and development tax credits. From memory most of the submissions were along the lines that the tax credits would create tax arbitrage and accounting arbitrage. Of course everyone argued that he or she should be included and that perhaps someone else should not be included. In fact I remember that an organisation that is partially funded by the Crown came before the Finance and Expenditure Committee and told us the truth. It told us what was really going on. Then I subsequently found out that the organisation had a very interesting phone call from a Minister’s office not long after that telling it that it should never appear before a committee like that without the Minister knowing and that he did not like what it had said. But anyway I digress a wee bit. 
Hon David Cunliffe 
: A wee bit? How about coming back to the bill? 
CRAIG FOSS 
: I mentioned the words “accounting arbitrage” before and I will explain that term to the member later. What is going on here is that the higher the tax burden is and the more imposing the tax structure is on an economy the greater the incentive is to find ways around it through it to plead for a credit and to take something from someone else and get a credit for oneself. That is what happens and it is what is going on with regard to the research and development tax credit. 
Some members have argued that the tax credit has only just started so how can we say all these things? Very simply as my colleague Mr Hutchison noted earlier there were roadshows going around the place. Companies were going to them and they were being told: “Show us your expenditure sheet show us your models and we will try to make them fit the new definition of research and development in order to get you a tax credit. We will try to do that. Of course we cannot do it straight away but we will go through your books and try to find what we can to get you some benefit out of this.” So the roadshows were being entrepreneurial if one likes but it was to the detriment of the New Zealand economy because it did not add to the quantum of research and development in New Zealand. 
About 3 months before the election I had a very interesting meeting with a company that had started to set up some research and development under the model in the existing legislation. It was looking to invest the money and to take some benefits from it with its 15 percent. That was OK but then the company told me about the problem. The problem was that it could neither attract to New Zealand nor keep the people here to do the research and development because of New Zealand’s high personal tax structure. It was quite simply because of that. 
The finance spokesperson on the other side of the Chamber David Cunliffe alluded at the start of this debate to the fact that these research and development tax credits have been—or at least will be—repealed in order to help fund the personal tax cuts that we announced long before the election and that were resoundingly endorsed by New Zealand. The point is that we can have all the credits we like but if we do not have the people who are attracted to New Zealand stay here who can be rewarded for the risk they take in being here and being involved in research and development in New Zealand it actually does not matter. Unless we have those people here adding to our economy we can have all the research and development tax credits we like and it will not matter. Some of the stuff I saw going on was stuff that was being structured in New Zealand to utilise Australian people to whip over here and do the research and development so that local companies could enjoy the research and development tax credit and of course the individuals concerned were located in a lower tax environment—that is in Australia. 
The research and development tax credit part of the bill—the clauses here—is about priority because there are some hard choices to be made. Once the books were opened—or at least partially opened—in the pre-election fiscal update and when they continued to be opened a bit more recently with all the other shenanigans going on it actually made it even more pertinent that we repeal these credits right now. 
MOANA MACKEY (Labour) 
: 
 Well we just learnt from Mr Foss in that extraordinary speech that he does not want highly qualified skilled educated people coming from other countries to work in New Zealand because of the research and development tax credit to help grow our economy to grow our tax base and to pay for all the things that New Zealanders want paid for. The research and development tax credit has apparently been keeping people away from New Zealand and if we get rid of it—dumbing down our economy—as this legislation does that would be good for New Zealand. Well that kind of falls in line with the Speech from the Throne from the Prime Minister that we heard yesterday. We can gather from that that the only turbocharging we will get is a turbocharging of empty slogans and empty rhetoric. For all their talk about innovation for all their talk about turbocharging everything nothing in this bill does that—nothing. In fact it does the complete opposite. 
I wish the Minister for Research Science and Technology were in the Chamber so that he could speak to this issue. We asked him questions earlier because we wanted to confirm that the third of this money that is being saved from cutting this research and development tax credit will still go to Crown research institutes and universities to fund research; he refused to answer earlier on. He refused to answer but I think that the scientific community deserves to know whether that money will still go there. I am sure if Dr Paul Hutchison were in Cabinet he would have an answer like that because that is the kind of man he is. I am very sad that he did not get that portfolio; he worked very hard in it when he was in Opposition but no it was whisked away from him and given to someone else. 
Hon Pete Hodgson 
: What’s his name? 
MOANA MACKEY 
: Oh I cannot remember. He has a lovely new haircut though. I say to Mr Foss that it is appalling that he stands up in this Chamber and says that he will not respond to the speech made by the Hon Jim Anderton. He deliberately said he would ignore his speech. Why? That is because he has no answers to that speech. He has no answers to answer why when we are going into a global crisis and when liquidity in the capital venture market will become more restricted we will be penalising and raising taxes on our most innovative companies. These are the companies that we should be putting front and centre and the companies that we should be saying are the ones that will help lift us out of this global recession and that on average export more pay more highly and grow our economy more. 
What is the National Party’s answer to that? The National-ACT - Maori Party Government will raise the taxes paid by those companies by getting rid of a research and development tax credit which is supported—for all that Mr Foss may say—by all their friends. We know that when National announced their tax policy people were flying all over the country to meet with Mr English to say: “Don’t do this. This is a huge mistake.” It is a mistake for the economy it is a mistake for our exporters it is a mistake for our manufacturers and it will be a mistake for New Zealand when it comes to growth and coming through this recession in a positive way. 
What Dr Hutchison says is that they just rort it—scientists just rort it. This is a member who went around the country campaigning on how we need to trust scientists we need to let them do their own thing and that there is far too much management of what they do. Then in the Chamber today he stands here and says that the scientists just rort it—it is not new stuff they just write down stuff they are already doing as new stuff so they are just rorting it. He also by the way wants to get rid of the $700 million Fast Forward Fund and direct the way that that goes as well and direct that solely to try to get out of the mess National has got itself into on the emissions trading scheme. 
I refer to Jacqueline Rowarth who is the Massey University director of agriculture. She said that she is incredibly concerned about the ramification of the removal of the research and development tax credit and she says: “Australia removed its R and D tax credit because it thought people were fiddling the books.”—as Dr Hutchison thinks—“Then it reinstated it within a year because the downturn was worse than that fiddling.” 
So when Dr Hutchison gets up and talks about how this is the way the world is going he is actually not telling New Zealanders the truth. The fact is that the Labour Government brought in this tax credit to make New Zealand internationally competitive. Members on this side of the Chamber understood that these kinds of policies will assist our small and innovative businesses our businesses that are going to lift our economy and our businesses that do a significant amount of exporting. Even Business New Zealand chief executive Phil O’Reilly who has been quoted by Dr Hutchison as saying he was opposed to it has said that we need to give this research and development tax credit time. John Key said that no one has taken it up yet. 
Then we heard from the Manufacturers and Exporters Association’s Mr Walley who said that that was a daft statement as the tax year has not even finished yet. How would John Key know unless he had the power of clairvoyance—and I am not saying that he does not claim to have the power of clairvoyance—how many people will take it up? 
DAVID BENNETT (National—Hamilton East) 
: 
 When we talk about the research and development tax credit it is important to remember some of the history of what has happened in the Labour Party. 
Hon Pete Hodgson 
: You come from the Waikato remember? 
DAVID BENNETT 
: Yes let us talk about the Waikato and what the Labour Party has been doing there. It is pretty rich for these guys to come into this Chamber and talk about research and development tax credits when AgResearch was laying off staff before the election and they did not do a thing. Where did we see the Labour Party in the election campaign? In Hamilton East we campaigned against the Labour Party. Labour members would come along to campaign meetings and say “Look at our research and development policy.” All I had to ask them was why they were laying off people at AgResearch. They would not come to the support of scientists. 
The reality is that scientists have never got anything out of the Labour Party and they never will. Scientists’ incomes are about 15 percent lower than any other profession and the Labour Party did not come and help them did it? It had 9 years of talking about how it loves science how it loves research and development how that is the future of New Zealand and how we will have a knowledge wave and a global economy. What did it do? It gave up on the knowledge wave and it did not give those increases in wages. In fact it put AgResearch in a position where it had to lay off staff to meet its budget. That is what the Labour Party does: it says one thing and then it does another. Reality speaks and the reality is that the National Party has come to the aid of scientists helped out and made sure that we do not have the degree of job losses that the Labour Party started out with. 
There has been a great change in mood because people realise that reality is more important than words. Labour members are bringing out words today—look they have all gone silent now! They know they are in trouble. They know that they cannot go out there and say what they have been saying because it is not true. They know that they were the ones screwing the research and development budgets by making sure it was hard for AgResearch to employ people and that is the reality of the situation. How dare the Labour Party come in here today and try to say how it is the research and development party and how it is there for agricultural research! Labour should have put its money in front of it when it was in Government; it did not so it should not come in here and try to do it now. It had its chance and it blew it—it will not get another chance to do it again. 
The reality is that the biggest thing we can do for the research and development sector is to give it a growing economy. That is what it needs. If there is growth in the economy businesses will invest in the future. That is the reality. These tax cuts are the first step in providing that growth economy. This is what the National Party is about. We have a programme for growth and these tax cuts are the first step. If we really want to look at what will be best for research and development in the future we see that it is the growing economy that the National Party will produce. We will invest in this country’s infrastructure and we will give people money in their hands so that they can spend it in this economy. 
We will not invest all our money in the US stock exchange just as Mr Cullen did and lose it. We will look after our people in our country and we will build a stronger country. This is what will happen. The reality is that New Zealand will be stronger we will have a growing economy we will have a position where businesses want to invest in research and development and we will be able to deliver to the agricultural the research and the scientific sectors the vision they require. They will actually see a future ahead of themselves because they will see corporates and enterprises making money that will be able to be invested in research and development. This is not a question about the tax credit as such; this is a question about how we provide the environment for research and development to flourish. To create that environment we need a growing economy and the National Party is committed to that. 
Labour members are sitting there now and trying to attack this legislation on the basis of research and development expenditure. Well that is not the case. The case is that the Labour Party did not come to the aid of research and development did not come to the aid of AgResearch before the election—you just let them go. You were quite happy to see those people go out of work; you went through an election campaign not actually doing that— 
Hon Trevor Mallard 
: Point of order— 
The CHAIRPERSON (Lindsay Tisch) 
: I know what— 
Hon Trevor Mallard 
: If you are aware of it you should be stopping it. 
The CHAIRPERSON (Lindsay Tisch) 
: The member cannot use the word “you”. 
DAVID BENNETT 
: The Labour Party did not come to the aid of that sector. It did not come to the aid of those people who were going to lose their jobs. 
Hon Dr MICHAEL CULLEN (Labour) 
: 
 Parts of this bill are either unfair dishonest incompetent or plain stupid. This is the plain stupid part—the abolition of the research and development tax credit. The member has just been talking about tax cuts. Let me enlighten him: this is a tax increase. This is a tax increase of $330 million a year on business. This part claws back what is getting on for half of the corporate tax rate cut. Why should we be surprised? Which Governments have ever cut corporate taxes in New Zealand? Only ever a Labour Government has in 1998 and in 2008. Those are the only times in the last 50 years that corporate tax rates have been cut in New Zealand and both times were by Labour Governments. National has never ever cut those rates. 
So when we cut it this was yet another one of those bitter little things for Mr English which he had to reverse some way or another because he was not allowed to let Labour have any credit for anything. So he is clawing it back but is he clawing it back off everybody? He is clawing it back off the most innovative productive and exporting firms in the country. Let me tell Mr Bennett something else. What was he referring to as Agriculture New Zealand? 
David Bennett 
: AgResearch. 
Hon Dr MICHAEL CULLEN 
: No—that is a Crown research institute. AgResearch is a Crown research institute that has been underperforming actually for some years. But that is public sector research and development. If the member knew anything he would know that New Zealand’s underperformance is in private sector research and development. Why? That is because we are about the only country in the world up until recently that has not been offering any inducement to private sector research and development. In an ideal world no country would offer incentives for research and development. In an ideal world we would have a level playing field and decisions would be made by the market and nothing would happen. But once some countries have research and development incentives it becomes very hard. 
You see National is still playing the early 1990s’ trick. It is still  
Star Trek 
 in reverse for National. Its members still want to go where no man will follow. They still want to go down a route with no research and development tax incentive and they will be surprised that firms will shift research and development to Australia where there are research and development tax incentives. What have we heard for years from National members? “Everybody who is bright has gone to Australia.” And looking over the other side of the Chamber whenever they said it I thought maybe it was true because what was left from what I could see was not bright. They said: “We’ve got to stop people going to Australia.” 
So what do they do? They do something to threaten portability of superannuation and they remove the research and development tax incentive designed to get research and development in New Zealand and to keep it here because they want it to go there. And what are they going to make it up with? They are going to put more money into the State’s research and development. When they go up on the platform and slaver in front of Business New Zealand the Chambers of Commerce and the Business Roundtable dripping sincerity say in the way only Tony Ryall and others can: “It is the private sector only that creates wealth in New Zealand so what we will do is take money out of the private sector and put it in the public sector.” 
That is what is called Logic 101 for the National Party—just follow the logic: “Only the private sector creates wealth so let’s take that wealth away and give it to the public sector. And if a public sector identity or entity is not performing particularly well and not managing to live within budget we’ll just give them more money. We won’t ask any questions about what they are doing. We won’t say whether other CRIs such as HortResearch might be doing better research. We won’t say whether they should work better with the private sector. No we’ll just give them some more money.” 
That is what the Government has done. So that is wise is it? That will grow the economy? I listened yesterday to the sorts of clichés in a kind of National Film Unit documentary for the 1950s way that finished off the Speech from the Throne and I heard about the turbocharging of the New Zealand economy. I now understand it. We are going to have a turbocharged 1953 Morris Oxford and we will call it the New Zealand economy. I have to tell the Committee that a modern Japanese mini-car can outstrip a turbocharged 1953 Morris Oxford. It is no wonder that the leading agricultural scientist in the National Party was not allowed to be a Cabinet Minister. He was parked on the Speaker’s bench instead because in fact he might know too much about some of these areas to be involved in making decisions. 
Do we really want to grow this economy and how do we do it? We do it in the modern world by developing human capital by investing in research and development and by investing in new products. In New Zealand we do that particularly in the primary sector industries because that is where our comparative advantage lies. So what is the Government doing? It is abolishing what was going to be a $2 billion Fast Forward Fund to invest in agriculture and to invest in the primary sector and it is giving a lick and a promise that it will increase funding for the Crown research institutes. 
But of course Mr English is about to work on a Budget. He is about to work on a Budget that will project cash deficits in excess of $10 billion a year by the end of the forecast period. So do Mr Hutchison and others think they will get this extra money in large amounts for Crown research institutes? That will be a lick and a promise; it will get pushed out and squeezed and will not look like the Fast Forward Fund. But that fund was there it was locked in it was provided for and it was going to happen. The Labour Government was getting ready to do it. It is a bit like broadband where people are lined up ready to put their stuff in. They have made the applications but now they will have to wait 18 months or more for National to work out how actually to operationalise its funding in that area. We will wait ages. 
We have firms working in research and development but we are told they are rorting the system. Well how do we know? Nobody has had a research and development tax incentive approved by the Inland Revenue Department yet. They have yet to apply. Indeed the only complaints that I have heard of is that it is too hard to get the incentive. It is not too easy to rort it; it is too hard to get it. Indeed we will find that out after April when people apply but they knew. Indeed National members did not put lots of thought into this. It was not a well-developed policy to abolish the research and development tax incentive. National announced its policy months ago. The policy was to cut the incentive to 10 percent—which is at the lower range of international comparability whereas the 15 percent was at the higher range of international comparability—to save a bit of money. 
Then of course those members had the preview and for some peculiar reason they did not think the preview was going to show a worsening situation compared with the Budget. They knew what was going on in the world. It was pretty obvious to anybody that the world was slowing down faster than we had all thought in April of this year. Then they said: “Oh my gosh!”. We promised the average person on the average wage a $50-a-week tax cut. Well we can pretend that it is not on top of Labour’s package so that will save us a lot of money. And now we need to squeeze and push. So what goes?”. 
What goes is the remaining 10 percent of the research and development tax credit. This is called going for growth—$2 per week on average per taxpayer to pay for the research and development tax credit. That I tell Mr Bennett will really turbocharge the New Zealand economy. It will be an extra couple of dollars a week of spending power in the average taxpayer’s pocket but no doubt it will be spent in large part on imported consumer goods. It might provide about the equivalent of one drop of petrol for the South Chinese economy not for the New Zealand economy. The Government should be investing in the private sector to gear up. The private sector has been woefully inadequate in New Zealand in investing in almost any way in future development—such as research and development human capital and new plant and machinery. So the Labour Government lowered the corporate tax rate. We increased depreciation rates. We brought in the research and development tax credit. We put forward an integrated Skills Strategy and improved the investment in that Skills Strategy in the workplace. 
Those are the drivers of economic growth not piddling little tax cuts going into consumption to buy stuff not even noticed—not even a block of cheese barely a slice of cheese not even a half of the kind of loaf that Paul Hutchison would buy every day. He would not buy the $1 loaf at the garage; he would buy the $6.99 special loaf down at the Italian bakery. This tax cut would not even buy half of one of those loaves of bread a week and we are somehow going to turbocharge this economy. Well we might be slightly heavier we might be slightly weightier but we will not have a faster-moving economy as a result of this part of the bill. 
National is reducing savings and investment in research and development and human capital and calling that turbocharging. This is National going for growth. I say this is the worst of all possible nightmares for anybody with any aesthetic sense. This is Ruth Richardson without a tracksuit. 
Hon BILL ENGLISH (Minister of Finance) 
: 
 Well Dr Cullen is wrong about one thing. I do give him quite a bit of credit—or whatever the terminology was that he used—as easily the most competent member of the previous Labour Government. He did all the hard work and he has something to show for it but none of the rest of the members of that Government do including the previous Prime Minister. I give Dr Cullen full credit for the huge effort he put in while he was the Minister of Finance. 
That does not mean of course that he was right about everything and it does not mean that when the Government changes there will not be different priorities. That is really what this debate on the research and development tax incentive is about. It is an idea with some merit. The question is whether it has sufficient merit to be put ahead of all the other calls on the Government’s resources including what was National’s top priority in Opposition and what remains its top priority now that we are in Government and that is to reduce personal income tax rates. In the situation that New Zealand is in with the economic outlook that we face we have to make choices about priorities. Opposition members think the world is always the way that they experienced it when in Government; they experienced a fiscal tsunami every year of waves of money crashing on to the Government beach where they lazed around deciding among themselves how to give it out to someone. 
Hon Tony Ryall 
: Like some sort of version of  
From Here to Eternity 
. 
Hon BILL ENGLISH 
: That is right. It may well be that any Government in that situation would behave in the same way. I happen to think that Labour is more partial to enjoying giving out other peoples’ money than perhaps other Governments would be. But that was the business of Government. That has now changed. Now we have to make decisions about priorities. In the case of economic growth we did not believe that this tax incentive would be a sufficient driver of it. The Opposition believes that it would be. All I can say is the Labour Government floundered in the knowledge wave. After 7 or 8 years and hundreds of millions of initiatives driven off the idea that the economy could be transformed we ended up with a conversion on the road to Damascus whereby the only member of the Progressive Party suddenly decided that New Zealand was about primary production. Well that was fantastic. It just happened to contradict all the policy that that Government had tried to implement for the previous 6 or 7 years. 
The reality is that a National-led Government with a good understanding of and strong representation from the whole productive sector of the New Zealand economy is focusing on lower tax rates less regulation better infrastructure and higher education standards. Certainly we could focus on 16 other objectives. Every strategy of the previous Government that I read had about 16 other objectives—all contradictory none of them achieved but lots of meetings that gave the impression of action. Well we will not go down that path. 
We have discussed the research and development tax incentive with people who are using it and actually we get contradictory stories. One of the strongest advocates owned up in my presence that he had spent $70000 on the accountant and it turned out that the research and development tax credit was only $50000. The deal he had was to give the accountant 40 percent of any recoverable credit which I gather is the upper end of the going rate. Most accounting firms are pitching themselves at 20 percent to 30 percent. They turn up to a business with their Australian supervisor go through the books work out what the tax credit might be—it is turning out to be quite a bit smaller than many companies had expected—then take about one-third of it as their fee. Well that is innovative but it is not what we would call innovation. 
In Australia it is not 3000 highly productive companies that get this credit; banks and mining companies make up by far the largest number of claimants of this incentive. In New Zealand the banks have their own ideas of what they regard as research and development. They now represent themselves as being essentially information technology companies because they are based on information technology and any development that they do in that area must count for the research and development tax credit—and how would one say no to that? 
A research and development tax credit is not a bad idea; it is just that it is not the priority of the newly elected Government. We are focusing on basic things that will affect every organisation company and household such as lower taxes and better infrastructure. 
Hon PETE HODGSON (Labour—Dunedin North) 
: 
 I did hear the Minister of Finance say that we have to make choices about priorities. I did hear him say that. In fact that is what Governments do all the time; they do it all the time. I would like to suggest that the choice that the Government has made to eliminate the tax credit for research and development is simply the wrong choice. I want to adduce a little bit of evidence to that effect. 
Members will be aware that New Zealand is a poor performer in the research and development stakes. The normal way of measuring research and development effort is to measure research and development expenditure as a percentage of GDP and to look at it in the public sector and in the private sector. Compared with countries around the world in the public sector New Zealand underperforms a little. We are around about three-quarters of the Western World average. It would be good if we could get ourselves up to 100 percent or indeed 120 percent of the Western World average but we are below the Western World average in the public sector. However in the private sector we are not at 75 percent of the Western World average; we are at 33 percent of the Western World average. New Zealand private sector investment in research and development is amongst the lowest in the world. The good news is that it used to be even lower. In 1999 it was not 33 percent of the Western World average; it was 25 percent of the Western World average. A number of things have contributed to that increase such as the Venture Investment Fund Technology for Business Growth the Pre-seed Accelerator Fund the law around venture capital and the establishment of the Incubator system and on and on it goes. Throughout the past 9 years a lot of private sector effort and a lot of Government effort have gone into improving private sector investment in research and development. It has gone from 25 percent of the Western World average to 33 percent. That is progress but it ain’t much progress. 
When the Labour Government decided to introduce the tax credit at 15 percent—and it came in on 1 April 2008—the Inland Revenue Department had to determine how much money it would forgo. It had to do the modelling. It knew that it would take a while for private sector entities to get used to the new system. It knew that it would take a while for companies to gear up their research and development. It knew that it would take a while for companies to stop oozing offshore and to start coming onshore with their research and development. It knew that it would take a little while so it did a 4-year projection and at the end of 4 years the amount of money forgone—the amount of money going to businesses for innovation—would have been $332 million a year. 
The point is that if we do our sums and work out how much research and development would have to come to book in order for $332 million to be forgone we see that New Zealand’s private sector research and development would rise from 33 percent of the Western World average to almost exactly twice that—to almost exactly 66 percent of the Western World average. That is still below 100 percent of the Western World average but way better than 33 percent. Of course we know that it would include some research and development that was under-reported. That is known that is taken into account and that is modelled. It is also known to give the case cited by the Minister of Finance that the banks might call themselves information technology companies and claim that their software development was somehow eligible for a research and development tax credit. So we put a cap on that. We said that a company could not claim more than $2 million per year for software. That was a black hole that we would not let the Inland Revenue Department fall into. So the tax credit was designed to be both generous in terms of rate and limiting in terms of rorts. It was designed that way. 
We had long enough to design it. As the previous Minister of Finance the Hon Michael Cullen said he wished he had done it earlier. But you see if the Inland Revenue Department predicts that New Zealand’s reported private sector research and development expenditure will go from one-third of the Western World average to two-thirds of the Western World average over the next 3½ years then I suggest that if we are to pass this legislation we have to be prepared to acknowledge the fact that that expenditure will stay at 33 percent over the next 3½ years that therefore the economic base of New Zealand will stay at a lesser amount than it would otherwise have been and that therefore the taxable base will be a lesser amount than it would otherwise have been. 
This is fiscal nonsense. This is as Dr Cullen said the stupid part of the legislation. To have the good Dr Paul Hutchison get up and try to defend it—well all I can say is that I saw him wringing his hands and he wrung his hands for the whole 5 minutes that he spoke. I heard Mr Bennett the member of Parliament from the Waikato—I am sorry; I have forgotten his first name—get up and tell Labour members to put our money where our mouth is when it comes to primary production research and development. My retort rather obviously is that we did—$0.7 billion. It was called New Zealand Fast Forward and this Minister of Finance swiped it. He swiped it. He got rid of private sector involvement got rid of the fact that there would be a legacy fund got rid of the fact that there would be certainty about the money and replaced it with nothing. Labour members think that that will be very very bad for New Zealand’s economic development future. 
The tragedy is that 3½ years from now this $330 million if it is divided amongst 4.1 million New Zealanders will put about $1.60 in the pocket of every man woman and child per week—$1.60 a week. That is the price we pay for a dumb economy. Every person in New Zealand will get it except of course the poor people—they will get nothing. The rich people will get let us say $3.20 a week in their pockets and we will have a dumb economy a slower-growing economy a less export-oriented economy and a less innovative economy and we will have a bunch of firms that will not be able to grow faster because they do not have a tax credit and therefore cannot fund their own growth as quickly as they otherwise could have done. It is a really dumb policy. It is one that I am really sad about. And when I am not sad about it I am angry about it. I think New Zealand will be a worse place as a result of this decision I think $1.60 per person per week is a very very low amount of money and I do not think the decision that this Government has taken—it says that it has to make choices about priorities—is the right one. I think that if it is going to prioritise an extra $1.60 per person per week for consumption over an innovative future if that is its priority choice then clearly it has taken the wrong choice. 
Dr PAUL HUTCHISON (National—Hunua) 
: 
 Thank you Mr Chairman for the opportunity to speak again on Part 2 “Research and development tax credits repeal”. I think it is important to reaffirm that central to the Australian innovation policy was getting right the basic business framework in order to carry out research and development innovation and in order for that country to benefit from it. Australia’s priorities were clearly spelt out as getting taxes down getting the regulatory regime right and having a flexible labour market. There is no doubt that this Government’s programme does exactly that and in terms of the scientific field it will be helped by the improvement of the Resource Management Act and the Hazardous Substances and New Organisms Act. 
I acknowledge very much the fact that the Hon Pete Hodgson put a lot of effort thought and time into research and development over the last 9 years. I think that some worthy programmes were brought in such as the Incubator phenomenon the Venture Investment Fund the Pre-seed Accelerator Fund and numerous others. However this question of the quality of the tax credit has certainly played on the minds of many thinkers throughout the world for many years. The Hon Jim Anderton might say that to remain competitive we have to do what the rest of the world has done. But Finland one of the countries that have demonstrated high economic growth year after year and prominence in innovation does not depend on tax credits at all. In fact it has targeted funding of research and development. 
I emphasise once again the press release that the Hon Bill English put out the other day. It pointed out: “We firmly believe in the importance of research and development to keep New Zealand internationally competitive but the tax credits aren’t the most effective way to ensure that. We will work with business to better target government expenditure on innovation.” This is one of the areas that I for one will make sure I keep reminding the Minister of Finance about. 
But I also think it is important to point out that it was the Hon Pete Hodgson who said that New Zealand was underfunded in terms of investment in research and development both in the public sector and certainly in the private sector. Well it is a bit rich for Labour members to talk about this. They had 9 years and as a percentage of GDP investment in the public sector actually went down slightly over the last 9 years. It went down at a time when New Zealand had the greatest opportunity to grow investment in this crucial area. After all it was Helen Clark who said in the Speech from the Throne in 2005 that research and development innovation was critical to driving New Zealand’s economy yet the next Budget spent billions of dollars on areas that will only cement in intergenerational welfare dependency and a mere $19.4 million was put into research and development. Here they were at the eleventh hour setting up the Fast Forward Fund which we will be replacing with exactly the same amount of funding but far far less bureaucracy. We have committed to the initiatives that are of high quality and to spending very much the same amount but we will avoid the duplicative bureaucracy that Jim Anderton managed—inevitably with his Pavlovian socialistic reflex—to put into that fund. But we think investment is very very important and I accept that. 
The other point which Moana Mackey made was regarding the $315 million over 3 years. That $315 million is absolutely committed to go to secure funding for the Crown research institutes something which has been recommended by the OECD and many others for many years. That was very much the point made by my colleague the good Mr Bennett from Hamilton East who said that one of the legacies of our pre-eminent Crown research institutes AgResearch is the fact that it is having to make 50 60 or 100 scientists redundant as a result of its poor performance under the watch of the Labour Government. That is a particularly important point. The other 50 percent of that $315 million will go to the Health Research Council the Performance-based Research Fund and the Marsden Fund. Clearly those are funds that are very much in need of support from Government because they will not get it from anywhere else. 
In terms of private research and development and the effect of the tax credit there certainly has been a very mixed reaction on behalf of businesses. Many of them have said to me—and I personally am involved in two businesses that carry out research and development—that they are going to carry on with the investment despite the repeal. They will carry on and they will most likely increase their investment because of the fact that a new National Government will improve the business environment so that many thousands of businesses in New Zealand particularly innovative businesses can indeed thrive. We will continue to decrease taxation we will improve the regulatory regime and we will make the labour market more flexible. 
As Bill English said there is no doubt that this is a matter of choice and in the circumstances where we had dire warnings in the pre-election fiscal update this was the only wise choice to make. After all this Labour Government has left us the legacy of 10 years of deficits and it did not even have the honesty to disclose the huge accident compensation losses. When Dr Cullen says this particular part of the bill is dishonest unfair and plain stupid I would reply to him that he is myopic in denial and the man responsible for taking New Zealand two steps further down the ladder of the OECD. There is no doubt that research and development are vital for New Zealand that they absolutely will play a part in the economic growth of the future and that National will be committed to high-quality investment in this area. 
Hon JIM ANDERTON (Leader—Progressive) 
: 
 Unlike Mr Foss I want to deal with some of the idiocies trumpeted by the last few speakers. If the National Party thinks that private sector investment and public sector investment are important for the future of this economy I ask why on earth it would throw away the first and most important partnership between the Government and the private sector in our most important economic base—agriculture and horticulture and the scientific research and development that backs it up—to the tune of $2000 million comprising $1000 million from the Government matched dollar for dollar by the private sector. Here is the challenge: can Dr Hutchison or anyone else Mr Bennett and all of them included guarantee to me that the private sector will put up $1000 million over the next 10 to 15 years without the Fast Forward scheme and without the research and development tax credit? If those members can let us hear all about it. 
Hon Dr Nick Smith 
: They never promised that. 
Hon JIM ANDERTON 
: Here comes Mr Smith again. Mr Bennett says that science is very important to National. It is so important that in the aspirational and visionary—as National members describe it—Speech from the Throne it was not mentioned once. That is how important science is to National. I think it came as a surprise to Dr Hutchison and a few others over there that it was not mentioned. They could not believe it; they know how stupid that was. The agricultural sector was not mentioned and exports were not mentioned. I ask how that fits with a Government that is “going for growth”. 
Mr Bennett says that tax cuts will lead to equal growth in science. I see. Will someone on $750000 who gets a $264-a-week tax cut invest that money in Crown research institutes or in research and development to support agriculture? They are more likely to go for a holiday to Bali actually. That is the truth of it. 
This is a terrible indictment on a Government that claims that it wants to “go for growth”. What does this mediocre visionless Government propose to do? The first act it takes in this Parliament is to introduce the largest tax increase on business in New Zealand’s history—the largest tax increase on business in New Zealand’s history. Never before has any Government come into this Parliament and massively increased tax on innovation. 
Hon Dr Nick Smith 
: It’s not as much as the Alliance wanted. 
Hon JIM ANDERTON 
: Mr Smith would not know anything about it of course. Never before has any Government come into this Parliament and carefully targeted tax increases at not just any businesses but the most innovative and creative businesses in New Zealand the ones that we need the most for our economic development. What are the chances that this aspirational and visionary policy and leadership are going to succeed? 
Dr Paul Hutchison 
: Very good. 
Hon JIM ANDERTON 
: Very good are they? I see. The title of an earlier part of the Taxation (Urgent Measures and Annual Rates) Bill was “Personal tax cuts”. If we are consistent the title of this part of the bill should be “Business tax increases”. That is what the title should be because that is the reality. 
Before the election a very creative and successful Auckland business leader took out a full page advertisement in the  
New Zealand Herald 
. Members may have forgotten it so I will show it to them. The advertisement said: “I’ve voted as many times for National as for Labour. I’m a founder of five successful companies selling globally to more than 30 countries.” Then he went on: “The party that should get your vote is the one with the best policies for real economic growth.”—the one “going for growth”. Well I ask members to guess which party it was. It was not the party now on the Government benches. If people want to know why they just have to look at this bill. He goes on to say: “Borrowing for tax cuts”—which is what this Government is doing—“going into a global recession is an attempt to drive a consumer spending recovery and frankly that is placing our kids in debt without addressing the financial crisis in any meaningful way.” I have heard today that we can afford tax cuts for the richest people in New Zealand but we cannot afford research and development investment for companies in New Zealand to develop our economy. I ask how that squares with “going for growth”. The truth is that it does not. I suspect that most of the members of the National Party know it. Most of its members outside Parliament know it and most of the people here in the House know it. 
Hon Dr Nick Smith 
: They voted against it. 
Hon JIM ANDERTON 
: Yes I am quite sure that the National Party told people “Don’t worry about it; we’ll fix it.” I think removing tax credits on research and development undermines our manufacturers and our exporters and their ability to compete against global competition. The global competition they are competing against has tax credits. Most of them do. 
Members can say that the previous Government brought in the tax credits late in the piece. That is fine; I will accept that. I had been arguing for them for some time to be honest and others had been too. Anyway we got there. We were late sure and we should have done it earlier sure but we got there. We had not only research and development tax credits but also a partnership with industry whereby industry would put in $1000 million. What does this visionary aspirational Government do? It cans the lot. Research and development investment and Fast Forward are gone. Where does the replacement come from? It comes from $262 a week extra for someone on a salary of $760000. Well that will do it! It is like that Tui ad: Yeah right!”. That will fix it. That will give us the visionary economy. 
By abolishing the research and development tax credits as well as Fast Forward National is telling New Zealand that we have enough research and development in this country already. Do we? We know that is not true. It is saying that it will work against companies that are thinking about doing more investment in this vital area. It is going to work against them. It is going to punish them for doing it. It is going to punish the most creative and innovative ones—not the rest but the ones who are actually doing the job now. 
In the last election—perhaps more than in any election in recent history—the economic management of this country was a critical issue. I accept that. People expect that we will make decisions for the long-term future of New Zealand. How is the long-term future of New Zealand benefited by $260 a week for say the richest New Zealanders versus research and development tax credits and investment in Fast Forward? 
I can give the Committee one simple story. The best and brightest student at Massey University—the best and brightest—had a scholarship to go to the UK. When our Government announced the Fast Forward scheme he announced without any influence from anybody that he was going to leave that scholarship after 6 months and come back to New Zealand because he could see a future here for scientific investment research and development particularly in the agriculture and horticulture sector. What are we saying to him now? We are saying: “Don’t worry it will be all right because when you are on a salary of $760000 a year you will get another 262 bucks a week.” That is not what he said he was coming back for. He was coming back to be a part of a future for research and development industry in New Zealand as the best and brightest student at Massey University. 
The National Government is closing the door on students like that. If it wants to see the best and brightest New Zealanders leave this country—and it claims it is against that—then it should just carry on with policies like this one and it will succeed. Countries are going to the IMF for loans and banks are closing all around the world. New Zealand I must say is in a much better position than most of those countries. We have a much better opportunity particularly as the world’s most efficient country in terms of food production. Our future in my view is much more secure than that of many countries but it will depend on the quality of the research and development investment we make at both public and private levels. In my view right now in Wellington in this Parliament the National Government is closing the door to that future because it is saying “No” to investment and it is saying “No” to long-term development in favour of a short-term return that it thinks will garner it support. 
I say to the Maori Party in particular and to United Future that their constituencies did not vote for this kind of future. Many of the Maori incorporations and developing Maori companies will be hit because of this research and development close-off. The challenge for the Maori Party is to work out what it is going say to the Maori companies and corporations which are starting to be an important element in New Zealand’s economic development. 
It seems to me that this legislation is the most short-sighted that I have seen in Parliament for a very long time. It is short-sighted in inspiration it is short-sighted in aspiration and it has no practical hold on the reality of what our country desperately needs. This side of the House will fight for the next 3 years to make sure that the National Government and its acolytes if they vote for it are held accountable for what will happen as a result of this failure. 
CHRIS TREMAIN (Junior Whip—National) 
: 
 I move  
That the question be now put 
. 
Hon SHANE JONES (Labour) 
: 
 Tena tatou katoa. Firstly I say greetings to you Mr Chairman and I acknowledge the status that has been bestowed upon you. No doubt you sought something else but your very dry and balanced approach from the deep south will balance our liveliness from the north. Tena koe. To those who have been made Ministers I say we look forward to ensuring they earn their keep and to returning all the favours they sought to send in our direction—including Mr Hide who occupies the seat of Winston Peters and who no doubt celebrates his success in politics such as it is by wandering around Auckland and claiming to be the man who buried Winston. He of course will in good time learn that what goes around comes around and I look forward to enjoying many lively whakataetae with him. 
Hon Rodney Hide 
: I raise a point of order Mr Chairperson. There are two things about the Hon Shane Jones’ speech. First he is not actually addressing the Committee stage of the bill which he is required to speak to even at this late stage under urgency. Secondly I have always been quite clear about it being Mr Peters who buried himself and the Labour Party. I did not do anything. 
The CHAIRPERSON (Eric Roy) 
: That is not a point of order. 
Hon SHANE JONES 
: There were three points coming out of the Speech from the Throne crafted for the Prime Minister. It stated that it is “very clear that at all times strengthening the economy will be front and centre of … priorities. For it is this growth agenda upon which my Government’s vision for New Zealand rests.” Other than the mangled and worsening style of speaking—obviously John Key is the worst presenter we have seen in terms of a Prime Minister—the first thing we see today is the stripping away of the capital base of New Zealand’s industry by this mean-spirited attempt to take away the research and development contributions imagining that somehow the funding will materialise when it has not been there for nigh on a decade. Where is it going to go? It will go to reward the partisan interests of those who have quietly plotted away to bring John Key forward and surely John Key will bring out his foul scheme. 
Not only do we see a complete absence of anything in that speech about how we are to inject greater strength in the capital base of New Zealand’s economy but we see absolutely nothing to grow exports and to grow value-added industries. Rather it is a revision a return back to Ruth Richardson’s approach which is firstly to strip people of their labour rights and secondly to reward those who are doing well and in some way to make the vulnerable and the anxious more insecure as if that will stop the flow of Kiwis going to Australia. And to ensure that the Kiwis whom the Government is supposedly apprehensive about disappearing go even more quickly the Government says it will destroy the KiwiSaver scheme and make it a skeletal anaemic version of what the Aussies enjoy. 
So it is a disappointment Mr Chairman that you so early in your tenure should be exposed to such falsehoods. First the savings regime is being gutted. Secondly this measure is very mean and short-sighted—it fits with Mr English’s Cheshire cat Lewis Carroll style of enigmatic smile which we have tolerated. But the reality of point number two is that these research and development tax credits are indeed business growth credits. When they are stripped away that weakens the firms that are supposedly to grow the jobs and grow the wealth of New Zealand. National is scaring further people away from coming back here because that reduces our competitive advantage to a dreadfully low scale. Thirdly I note a great line here from the Speech from the Throne: “Honourable members. In going for growth”—permanent growth—“my Government will be acutely conscious of the fact that it is … to the detriment of us all to allow an underclass to develop in New Zealand.” I say that without jobs without ongoing investment in firms without the creation of a flow of goods and services through excellent research and without income within the class of those people in our society who are vulnerable and anxious that rhetoric there will be made into a dreadful lie. 
So it will be great over the next 3 years as invidious as this position is proving to be personally to remind all our iwi that the Maori Party is actually supporting a set of initiatives that not a single Maori on the Maori roll voted for. Secondly it will be great to remind that party that it is supporting a group of people who are rewarding a very narrow partisan group within society without a skerrick of concern for the broad base out in the pastoral farming areas and in industry and in the knowledge that the Aussies have double the performance in relation to research and development as a percentage of GDP that we have in our country. Without an initiative of this nature we will never recover. Of course National does not want us to recover. It actually wants to reward that narrow group who are doing reasonably well as it is. One does not send this type of Christmas present without being rewarded with a harsh response. 
DAVID BENNETT (National—Hamilton East) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question that the question be now put. 
The CHAIRPERSON (Eric Roy) 
: Before I announce the result of the vote I just remind members that votes are to be taken in silence for two reasons. The first is that it is hard for the Clerk at the Table to hear at times if he or she is computing and secondly no member in this Chamber will vote under the duress of having other people speaking for whatever reason when he or she is voting. So I just remind members and say there will be no tolerance about breaches of that rule. 
A party vote was called for on the question  
That the question be now put. 
Ayes 68 
New Zealand National 57; ACT New Zealand 5; Maori Party 5; United Future 1. 
Noes 52 
New Zealand Labour 43; Green Party 8; Progressive 1. 
Motion agreed to. 
A party vote was called for on the question  
That Part 2 be agreed to. 
Ayes 67 
New Zealand National 57; ACT New Zealand 5; Maori Party 5. 
Noes 53 
New Zealand Labour 43; Green Party 8; Progressive 1; United Future 1. 
Part 2 agreed to. 
The CHAIRPERSON (Eric Roy) 
: We come now to Part 3. This part sets the rates of income tax for the 2009-10 year—that is clause 29 does. Standing Order 333 requires the Committee to take such a provision as a separately debatable question unless the Committee by leave decides to do otherwise. As clause 29 sets the annual rates of income tax we will take it first before the other provisions of Part 3. It is in fact the first clause in Part 3. The question is that clause 29 stand part. 
CHRIS TREMAIN (Junior Whip—National) 
: 
 I raise a point of order Mr Chairperson. I am seeking clarification. Are you saying that clause 29 is to be taken as a separate debatable motion? 
The CHAIRPERSON (Eric Roy) 
: Yes. 
Hon Dr MICHAEL CULLEN (Labour) 
: 
 The member is probably not aware that this is a new provision in the Standing Orders. It actually came in with the changes made just before the election as a result of Standing Orders Committee deliberation. 
The CHAIRPERSON (Eric Roy) 
: I hope that is clear. I think members ought to be cognisant of the fact that the debate should pertain particularly to the tax rates for the 2009-10 year. That is what the debate is about. It is not a wide-ranging debate. 
Hon Judith Collins 
: It is a wide-ranging debate. 
The CHAIRPERSON (Eric Roy) 
: Well it is wide ranging but it is about taxation issues. 
Hon Dr Michael Cullen 
: It should be about the rates of tax. 
The CHAIRPERSON (Eric Roy) 
: Yes exactly. Do we all understand? 
Clause 29 Rates of income tax for 2009-10 tax year 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I will restrict my comments to one brief call on this very specific clause. It sets the rates for the 2009-10 tax year and as such it brings us to the heart of a point formerly made by the Minister of Finance. His suggestion was that nobody would be worse off because the progressive tax reductions that had been put in place by the previous Government had not been implemented yet. Well if that were the case there would be no need for this part which changes the tax rates for the coming year. This particular clause is necessary because Labour’s proposed rate reductions are already part of our law. 
That takes us to why significant proportions of the New Zealand public will in fact lose. Before I return to the specifics of the mechanisms that mean that many New Zealanders will lose let me clarify a very important prior point and that is the difference between the average-income earner and the median-income earner. We know that the “average” income is $45000. It is very interesting that in my electorate of New Lynn 66 percent of all taxpayers earn less than $40000—earn significantly less than the average income. Two-thirds of people on less than the average wage? What is that about? It is because the average is skewed by a small number of very high earners who drag the average above the median. So when we say that the average-income earner gets $1.92 out of the National Government’s tax reduction and anyone on below $44000 with children gets nothing or loses we are actually saying that two-thirds of all taxpayers in my electorate of New Lynn are either not affected or worse off and only one-third gains. In Mr Tremain’s electorate of Napier 71 percent of all taxpayers earn less than $40000 so 71 percent of his taxpaying constituents—if they have children—potentially are worse off as a result of this tax change. Why is that? When we get into the mechanics of the bill— 
Hon Steve Chadwick 
: Is that “nobody”? 
Hon DAVID CUNLIFFE 
: That is nobody who will be voting for Mr Tremain next time. 
This issue is of particular importance to the Maori Party. The Maori Party is supporting this bill. If two-thirds or more of all taxpayers across the country earn less than the average income and therefore are going to be losers under this bill—if they have children—imagine the implications for Maori communities whose incomes are skewed below the mean. The vast majority of Maori New Zealanders will be hurt by this bill. We know as a start-off that most people who voted for Maori Party candidates gave Labour their party vote so this is a sensitive matter for the Maori party members anyway given that they have gone into coalition with National—all for two seats outside Cabinet. 
Hon Clayton Cosgrove 
: Mana-enhancing! 
Hon DAVID CUNLIFFE 
: Mana-enhancing for the individual Maori Party MP but not for the community. Those people will be asking their representatives why they have done this. Why have they inflicted upon them in the first business week of the House a tax increase? 
What is the mechanism? I see that Mr Tremain still does not understand. If one is on an income of between $14000 and $20000 by April 2011—following the period during which this clause applies—one would by law have been on a marginal tax rate of 12.5 percent under Labour; under National those people will be on a rate of 21 percent. That is a big difference. That is a big big difference. Merry Christmas to all of those people who thought that they were going to get a tax cut! 
Hon Clayton Cosgrove 
: They did not tell us that before the election! 
Hon DAVID CUNLIFFE 
: They did not tell us that before the election. I think this measure is a symbol of a much much deeper problem and of course it is a problem that the Maori Party will have to wrestle with and that is that National campaigned on the glossy idea that everybody would have everything that he or she would have had under Labour but with a few fresh faces to carry it forward. It was a very palatable suggestion. It fed into that old idea that it was time for a change—“But we actually quite like you guys so we do not want too much change.” Mr Key understood that and he campaigned on not making too much change. 
But the rhetoric did not match the reality. On the first business day of the House in comes a tax bill that gives a tax rate cut and a threshold lift to upper-income earners and of course—supported by the financial sector—penalises real businesses our innovators and exporters which lose their research and development tax credit and penalises low and middle income families the heartland of New Zealand. It disproportionately penalises Maori and Pacific Island New Zealanders. Good luck to Mrs Turia good luck to Dr Sharples and good luck to all the Maori Party MPs in their next round of hui as they explain what is in this bill for ordinary Maori people who will be paying more not less tax during the period to which clause 29 applies. 
Hon Dr MICHAEL CULLEN (Labour) 
: 
 This is an interesting clause—and in ways a somewhat unusual one—which is a kind of historical relic. We have to pass legislation to confirm the annual tax rates even though in Part 1 of the bill we have set the annual tax rates for 2009-10. In Part 3 we have another provision to confirm that we have actually set those annual tax rates for 2009-10. One may well ask why on earth we have to do that. Well the historical reason is quite simple: we are confirming the Sovereign power to tax and we are not allowing the King or in our case these days the Queen to levy monies without the consent of Parliament. Although in one bit we have said that those are the tax rates in this bit we confirm that it is the intention of Parliament and we have the authority of Parliament to levy those particular tax rates. 
This is interesting because this is the one year in which nobody loses—2009-10—because the current tax law provides for a series of tax cuts in 2010-11. In 2010 the bottom threshold will move from $14000 to $17500 and then to $20000 on 1 April 2011. On the other hand the changes made in Part 1 will remove that increase to that threshold so on incomes from $14000 to $20000 a year a higher level of tax will be paid. But that change will not occur until 1 April 2010 so for this one brief year of glory the National Party will be able to parade around the country saying that nobody is worse off as a result of its tax changes. 
But wait—help is on the way from this side of the Chamber as has so often been the case so far in this Parliament. We have had to help those members procedurally and we are now going to help those members in terms of what they will try to tell everybody up and down the country. Very shortly we will come to an amendment when we get on to the next question. It will continue the ability to ensure that nobody is worse off as a result of this bill by providing a mechanism where nobody will see themselves worse off than they would have been under the provisions in place before this bill is enacted and comes into force. 
That is where it will be very interesting to see how people vote. I am particularly interested to see how the Maori Party votes both on this clause and on later clauses. The Maori Party has been calling I think for a kind of expansive policy—for the first $25000 to be tax free for the lowering of GST and for an enormous range of things which add up to a vast and gob-smacking sum of money that would clearly have to be raised by an enormous number of raffles being run up and down the country because it would run into many many many billions of dollars a year. What it had to do with Maori needs is by no means apparent to many of us. Those members now have the chance to decide whether they really want to vote for big tax cuts at the bottom or big tax cuts at the top because this tax bill provides for tax cuts at the top and increases in tax at the bottom. 
I do not think the Maori Party members understood that. I do not think they were properly briefed on that. I do not think that when they signed up to something that was supposed to be mana-enhancing they thought they were signing up for the exact reverse of what they had promised their constituents. We will be happy to help their constituents as well. We will be happy to remind them of how their members have voted because we know that for small parties of only five members it can be very difficult communicating with their constituents and telling them what they have done. We will be very happy to assist in that and make sure the Maori Party’s constituents are properly informed about how their members have voted within Parliament. 
We will also be very interested to see what judgment those constituents make upon that party. It is not beyond the realms of possibility that those constituents will decide that having seen a tax increase over what they were expecting to get that is somewhat mana-reducing from their perspective rather than mana-enhancing. It may well be goodbye to the Maori Party at the 2011 election which will solve a lot of problems for a lot of people. But of course Mrs Turia has a way of making up the difference. She believes that Maori own the foreshore and seabed; no doubt she will be charging for entry to that at some point in the future under a National Government and that may well make up some of the difference for some of the families involved. 
I think not; I do not see the National Party going down that route. The polling tells us—amazingly—that people believe that any change to the current law should reduce Maori rights not increase them. So I strongly advise the Maori Party to adopt the route that Ngati Porou has taken and to advise people to negotiate very strong agreements that will give proper recognition of those rights rather than hold out a false impression that something more significant can be gained from a National-led Government which will certainly not be the case when reality sets in. Like the Resource Management Act changes it will be the reverse of what many people were hoping to see. 
Therefore this small part confirms those annual tax rates. For this one brief year of glory nobody will lose and then the losing will begin. 
Hon DAVID PARKER (Labour) 
: 
 I rise to take a brief call on this particular section of the Taxation (Urgent Measures and Annual Rates) Bill as well. As has been said by the previous speaker this section of the bill sets the tax rates for the forthcoming years at the rates that have been set out earlier in the bill. In other words this entrenches for the future a decrease in taxes that is weighted to those who already earn the most and a tax increase for those on lower incomes. It is exactly the opposite of what Maori Party members say that they stand for given that Maori are disproportionately among those who are low earners. Their already low socio-economic status will be hurt by the provisions in this bill that will entrench tax cuts for those who are better off and tax increases for lower-income earners. 
This also entrenches the somewhat inconsistent position taken in the legislation compared with the National Party rhetoric in prior years. Over prior years they have continually said that the price point or the income point at which the highest tax rate kicks in should be raised. The Labour Government legislated for an increase to $80000 above which the higher tax rate kicked in. This new tax rate kicks in the highest tax rate at $70000. This seems to me to be yet another broken promise by the National Party compared with the rhetoric of yesteryear on what is but day two. 
Here we have a National Government doing exactly what the Labour Party predicted it would do; that is prefer the interests of those who are already well off over those who are less well off. Far from being the friendly face from being all things to all people as National members tried to present themselves over the last period prior to the election they are already being exposed as preferring the interests of those who are better off over those who are less well off. It seems unimaginable at a time when we have rising unemployment as that means that there will be more people on low incomes as they are reliant on part-time rather than full-time work. They will fall within the low-income bands rather than the high-income bands. Against that reality that we know is real at least for a short period in New Zealand given international events those members are proffering a tax package that reduces the tax entitlements of people who are on lower incomes and prefers those who are on higher incomes. It is funded of course by the research and development tax credit cuts that were spoken of recently and also by the gutting of KiwiSaver. So we have fewer jobs in the economy and those on shorter hours of work as a consequence with lower incomes will be among those who suffer the tax consequences of a lower taxable income. It is a matter of some concern for me that the first act of National Party members is to visit the cost of their unwise tax cuts upon those least able to afford the loss of income that will accrue. 
Hon CLAYTON COSGROVE (Labour—Waimakariri) 
: 
 Earlier in the debate I took out a copy of the National Party’s taxation policy. In referring to this part of the bill I note it confirms the tax rates going forward for 2009-10. I reflect on Dr Cullen’s words and those of my colleagues Mr Parker and Mr Cunliffe when they talked about fairness. I look back at the National Party’s weighty document of propaganda and recall how all the National members—some soon to give their maiden speeches some from Maori constituencies as well; and now supported aided and abetted totally sycophantically by the Maori Party—went around and said National knew that New Zealanders wanted a tax system that was fair. I reckon we could probably all sign up to that; we all say we want a tax system that is fair. The problem lies in the definition of fairness. If members look at the confirmation of these rates they will see that what we would define as fair and what most ordinary New Zealanders would define as fair is not something that the National Party defines as fair. 
National Party members told everybody before the election not about these rates and how they would be confirmed today but that the tax system would be fair. The document also states: “National’s tax package will give households confidence and some cash in their back pockets.” I just ask as the Government confirms these tax rates what is fair about what we have heard today when for instance a person with no children and an income of $23999 a year will get nothing? I wonder what Mrs Turia and Ms Parata the new member who will purport I suspect to represent a Maori constituency will say to their constituents when they go back to the marae. As the National Party confirms these rates they know that those at the very bottom will get no assistance at all or will end up paying more tax than they currently pay. I wonder how those members will respond when somebody on the marae stands up probably quotes this document and asks Ms Parata or Mrs Turia: “How do you define fairness?” 
To be charitable to the Maori Party—let us be a little bit charitable—maybe it got sucked in by this bill. Maybe the Maori Party members did not read it or it was not explained; maybe they were hoodwinked or maybe they were not told. Let us be as charitable as we can. But they have been told today and they were told yesterday about this measure; it has been explained over and over again. What will be etched in my memory is the face—and I have some sympathy for him—of poor old Hone Harawira as he buried himself behind the desk yesterday and put up his hand to vote with the National Party— 
Hon David Cunliffe 
: Trembling! 
Hon CLAYTON COSGROVE 
: —knowing that morally this is wrong. He knows that all the constituents he works for—and I am told he is a damn hard-working MP and is respected as Mr Mallard said last night—will be sold out by this measure in toto. I am going to find the situation very interesting as we deal with the confirmation of these rates when some of the Maori members go back to their marae and their communities and somehow explain this measure to them. It is going to be an interesting course of events. 
It shows me that this is a traditional National Party move: to have an election promise fairness equity aspiration love peace and happiness to all and then to do people over—put the sword into them and slash at the most vulnerable part of our communities. The National members are doing that before Christmas under urgency with no select committee scrutiny in the vain hope that people are tired of politics. They hope people will want to get out to the barbecue and go to the beach with the family to have a few sausages play a bit of golf or whatever else and be with their kids and will not concentrate on politics. They hope and pray that our communities are thick. Well I say our communities are not thick and when people open their pay packets in the months and years to come and when they try to do some good for their children and their loved ones— 
Chris Tremain 
: I raise a point of order Mr Chairperson. Clause 29 is a very narrow clause. The member is an experienced speaker. He is way outside the scope of clause 29 which is very narrow. 
Hon CLAYTON COSGROVE 
: Speaking to the point of order I have consistently referred to the confirmation of the tax rates and I am now explaining the consequences of confirming them. That is in order. 
The CHAIRPERSON (Eric Roy) 
: The Hon Clayton Cosgrove. 
Hon CLAYTON COSGROVE 
: Thank you very much. The National members may not like that or course. They do not like to hear that. They do not like it when Dr Cullen repeats that. A couple of them over there grin and laugh and they do not like it when we repeat what the consequences of the actions taken in this Parliament over the next few hours will be. They can jeer and they can laugh. Mr Dunne is a straw man who blows with the breeze—the great man of common sense. I suspect that deep down—although he has his backside in the LTD I have respect for the member—even he knows this is wrong. Even he knows this is wrong deep down. 
It is very interesting I say again as we confirm these rates that not one member in the National Party has contradicted Dr Cullen me David Cunliffe Mr Mallard or Mr Parker when we have stood up and given case after case of situations where injustice will occur as a result of confirming these rates. Not one of them has contradicted that. I would have thought that if we were wrong OK we were wrong. But the National members should tell us that give us the evidence stand up and justify their position. They cannot do so; they will not do so. They have no evidence. I look forward to holding up this document around the country and inviting people to say whether in their communities they have been treated with fairness with dignity and with respect. Have they had their aspirations warmed and supported and have they chosen a brighter future when those who need some dough and some help are being sold out by those guys over there? 
Debate interrupted.