Wood MichaelMICHAEL WOOD (Labour—Mt Roskill): I'm very happy to rise to give a brief contribution in support of the further passage of the Taxation (Research and Development Tax Credits) Bill. This is a really important bill. One of the challenges that New Zealand has faced over the last 40 years has been the challenge of declining relative productivity. That is for each hour that our citizens work when they give their labour or every dollar of capital that we invest we get relatively less back than many other countries do. That is a productivity gap that has opened up over the last 40 years. Ultimately it is productivity that drives our ability to generate the national wealth that we need to ensure the well-being of New Zealanders. So if you want to look at the long-run economic challenges that New Zealand faces this is one of the biggest ones because what we've been doing in this country is taking the low road in terms of growth quite often—low wage economy relying on immigration and population growth shifting towards a service-based economy and not actually putting the investment into plant machinery R & D and all those things that the most successful economies over the last 40 50 years have put the investment into. This bill addresses one of those gaping holes which is R & D. New Zealand as it stands has one of the lowest private sector rates of research and development in the OECD. In terms of public sector investment we're kind of roughly mid-range bottom of mid-range. In terms of private sector investment we are one of the lowest. One of the ways that we can seek to address this is by directly saying to businesses that Within your operations we will recognise your investment in research and development". This I think goes to one of the critical points that the previous speaker the Hon Paul Goldsmith raised one of the critical points of debate in respect of the bill—it's how do you go about doing that? Mr Goldsmith has put up the argument for a grants system. He's right in one respect: I guess if you say we're going to give out $50 million in grants this year—or whatever the figure is—then you know what the figure is. Well that's not really an argument for a system that will enhance research and development in the country; that's an argument for knowing how much you're going to spend on it. What the research and development tax credit does and this happens in many many other jurisdictions is it actually says "We'll recognise the R & D that you do. You don't have to jump through hoops. You don't have to go through a process. You're not reliant on the particular political mood of the day in terms of what's a good thing to be funding and supporting." Actually in terms of a market mechanism to recognise the research and development contribution of companies to our economy a research and development tax credit is where it is at and it is somewhat surprising in that respect that our Opposition on that side of the House who consistently tell this side of the House that we don't understand how markets work want to intervene and pick winners through a grants-based process. I would argue that this system is not only more equitable which means that any company that is carrying out R & D and that qualifies gets it rather than a grants system whereby someone gets it only if they apply and if they happen to be the one that is granted it out of that limited pool. So I think this is a far more effective way of ensuring that we incentivise R & D. And as I say that's going to be a long-run driver of productivity and the generation of wealth and good jobs for people in New Zealand. The select committee had a full process for this bill. We heard I think about 32 submitters and had a lot of dialogue with officials. I want to thank and acknowledge officials for their support on this bill. As a result of that dialogue on the select committee there are a number of changes to the bill which I think has taken a bill that had a good concept sitting in behind it and has made sure that it will be as effective as possible. One of the areas that we have made a change in is recognising that sometimes particularly with start-up companies there are changes in what are called controlling rights. That's how start-up companies often get the capital that they need to push themselves along. Yet in its original form the bill would have meant that if there was a change in controlling rights of more than 49 percent you would have potentially lost the access to the tax credit. We've rectified that issue here so that's going to be a real boon to those small start-up companies going through changes in ownership who might still benefit from this. We've made a change in respect of what's called the contractor's margin. In the bill as it originally came to the committee if the R & D was done by an outside contractor then only 80 percent of the value of the tax credit would have been applied. That was effectively saying "Well there's a profit margin and we don't want to be providing the tax credit to that." The point that was well made in submissions is that actually there are some companies for whom the only viable option is to get R & D support externally and we shouldn't be playing favourites there. So we've got rid of that provision in the tax credit—100 percent will apply in either of those situations. This is a good bill. It'll enhance New Zealand's productivity it will enhance our national wealth it will deliver good jobs for our people and I commend it to the House. Thank you."