Smith Lockwood: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Instruction to Committee In Committee 
Smith Lockwood: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Instruction to Committee In Committee 
[Volume:630;Page:2016] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I will take over from where my good colleague Craig Foss stopped and focus particularly on the measure in Part 2 to try to make New Zealand more attractive to highly skilled mobile international employees. Often New Zealanders have been working offshore and the whole idea of clause 77 is to try to make New Zealand more attractive in order to bring those people home and more attractive to highly skilled potential migrants. National commends what the Government is trying to do. I say to the Minister in the chair the Hon Peter Dunne that we agree with what the Government is trying to do but we are focusing tonight on whether it is doing this as well as it needs to be doing it. 
Our immediate competitor in this part of the world is Australia. Australia has also recently announced measures to make the Australian tax regime more attractive both to temporary residents in Australia and to people with international occupations coming back to Australia. We have to recognise that if we do not match Australia in this area then the measure will not be successful and Parliament is wasting its time in passing legislation if it will not be successful. 
As I see it three elements are quite crucial to this. The first is in respect of residents—and this is where Australia has gone further than New Zealand—who might have come to New Zealand in the last 12 months on a temporary arrangement. At the moment this legislation does not cover them. These are very mobile people. They may have the chance to extend their contract in New Zealand or they may go. If our legislation provides no relief for them on their foreign income then we do not match Australia and we are not competitive. That is the first issue—temporary high-value residents who are already in New Zealand. 
The second issue relates to New Zealanders living offshore whom we want to bring back to New Zealand. We are saying in this bill that those people must have been offshore for 10 years before we will give them the tax concession on their foreign-earned income—on investment or whatever income that has been earned offshore. The top tax specialists of not only PricewaterhouseCoopers but also KPMG have said that that incentive is too tough and that if we want the measure to work the time period for someone to have been offshore should be no more than 5 years. Dr Cullen when he spoke in the second reading on this bill admitted that there is nothing magic about a period of 10 years. We need to find the right time period. Maybe 5 years is too short but I think 10 years is too long because by the time a Kiwi has been offshore for 10 years he or she is well settled offshore. If we want to attract our really skilled people back to New Zealand with this tax concession measure then we have to think about trying to attract back those people who have not become totally settled and involved in their new home environments. So I urge the Minister to give some thought as to whether 10 years is too long. Senior partners in both KPMG and PricewaterhouseCoopers have suggested that in their experience it is too long and they are the kind of people who are involved in trying to bring those high-value New Zealanders back home to New Zealand. 
The third key issue that we want to debate more this evening is the concession or exemption we are giving which the legislation after being amended by the Finance and Expenditure Committee now proposes should be a 4-year exemption from tax on offshore income. People are not exempt on the income they earn in New Zealand of course—that is taxed like the income of any other New Zealander. The exemption is only on certain aspects of offshore income. The exemption in the bill is now 48 months. Again we are not matching Australia because Australia is saying that for the period of time that a person is a temporary resident the State will provide the exemption for that time. 
I have not heard the full debate over whether 4 years is sufficient to match the Australian provision. I have suggested an amendment which is on the Table to extend that time from 48 months to 60 months to make sure that we are competitive with Australia because that is what this measure is about. Australia has recently introduced legislation. It has changed what it said it would do. Australia originally had that 10-year provision and those time constraints and it has freed it up. 
I would like to focus now on the amendments that National is proposing because I know that the Minister in the chair will take these issues seriously and will comment on them. I will deal with my first amendment—it is to new section FC 23 which clause 77D proposes to insert into the Income Tax Act 2004. I propose to replace the phrase “at least 10 years” with the phrase “at least 5 years”. This amendment would have the effect of reducing the time that New Zealanders would have to be resident outside New Zealand before coming back to New Zealand to qualify for that tax exemption on certain aspects of their offshore income. At the moment the bill states that New Zealanders have to be resident offshore for a minimum of 10 years. National members and a lot of senior tax experts in New Zealand are saying that 10 years is too long because we will not get those New Zealanders back. So with this amendment we are saying that we should make the period at least 5 years. I would appreciate hearing the Minister’s argument if he does believe that we should stick with 10 years as to why he disagrees with those top tax specialists. They were quite strong in their advocacy. Although they supported the idea of the measure and they have no argument with what the Government is trying to do they are saying that the Government is very severely limiting the value of this measure by having that 10-year limit. At least one of those senior tax partners suggested the 5-year substitute which is why we have proposed that amendment. That is the first amendment National is proposing. 
The second amendment relates again to clause 77D which also proposes to insert new section FC 24 into the Income Tax Act 2004. The amendment would substitute in paragraph (b)(ii) the phrase “the last day of the 48th month” with the phrase “the last day of the 60th month”. That is intended to extend to 5 years the tax exemption on offshore income. I stress that the reason is that Australia has removed time limits. Australia originally suggested and proposed 4 years which is why I think New Zealand initially matched that 4-year period. Australia has now removed that 4-year limit. If we want to match Australia I suggest we extend the exemption to 5 years because Australia originally said 4 years but in the bill introduced there in February of this year that time limit was removed. I would like the Minister to think about it consult with his officials and advise us whether we are matching Australia adequately because Australia is our big competitor for those high-value internationally mobile employees. 
My third amendment is again to clause 77D. It proposes to make a change in clause 77D(3) to the dates in respect of a person’s residence in New Zealand for which the tax exemption would apply. The intention of that amendment—and only officials could tell us whether it will adequately deliver what we want it to do—is to make sure that high-value employees who are temporarily employed in New Zealand at the moment who do not have access to this tax exemption and who once Australia enacts its new law could be attracted offshore to Australia very easily are captured in this measure. The provision should be designed not only to attract high-value people to New Zealand but also to keep in this country high-value residents who are already here in New Zealand on a temporary basis. Again those senior tax partners who are major tax specialists in New Zealand have been very strong on this point. Although they support what the Government is trying to do here they say the Government is ignoring the reality of high-value people who are temporarily resident in New Zealand and that once Australia enacts its legislation those people could shoot off to Australia—and we would lose them. We would lose their skills and their value to our economy. Keeping high-value people who are already in New Zealand is just as important if not more important than trying to attract people who are currently offshore back to New Zealand. 
So those are the three amendments we are making. They are totally consistent with the principle that the Government is pursuing with this legislation but they address the issue of whether we are adequately competing with Australia pointing out that Australia changed in its legislation what it said it would do. I suspect from looking at the nature of our legislation and at what Australia said it would do that our legislation is very consistent with what Australia said it would do. But Australia changed its legislation when it was introduced in February—16 February I think—and we should look at it very hard to make sure we remain competitive.