Cunliffe David: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — In CommitteeText is incorporated into the Bound VolumeCunliffe David: Taxation (Annual Rates for 2015-16 Research and Development and Remedial Matters) Bill — In Committee[Sitting date: 03 November 2015. Volume:709;Page:7682. Text is incorporated into the Bound Volume.]Hon DAVID CUNLIFFE (Labour—New Lynn): I would like to pick up some of the themes that have been echoed by my colleagues Mr Parker Dr Clark and Mr Nash because we are at the heart of the bill and Mr Chairman I know that you know that the previous Chairman guided the Committee to this part of the bill for the substantive part of the debate. This is where the meat of the legislation is and it is very very important that we deal with it substantively.I want to turn in this particular call to the cash-out provisions which are contained in clauses 192 213 and 217 in particular. Let us give context to the public as follows. There was a heated economic and political debate about how we tilt our economy towards more value-added—how we get away from being just a commodity exporter of fairly unprocessed red meat or unprocessed logs or pretty unprocessed milk powders— and how we allow our economy to earn more value so we can pay higher incomes to New Zealanders.Inherent in that strategic transition is the need for doubling if not tripling the level of research and development investment in this country—probably doubling the Crown’s investment but at least tripling the private sector contribution which is derisory. It is in the bottom quarter of the OECD and it is not improving and a key reason for that is the structure of the tax system which gives a real estate speculator a tax break and an innovator in a start-up a tax penalty. That is nonsense. It is so bad for our economy. Is it any wonder that today unemployment has reached 6 percent again and growth is no better than 2 percent?We are in trouble. We are not moving from the pathway to mediocrity at best that has characterised this economy and actually it is in technical stuff like this bill in these clauses that we see the problem. The Government has been too scared to take on the real estate speculators. Money talks and National walks.The CHAIRPERSON (Lindsay Tisch): Order!Hon DAVID CUNLIFFE: In this bill what National is trying to do is get the tax credit which Labour proposed and National cancelled by another means but it has gone in such a roundabout route that it is so cumbersome so detailed and so complex that start-up businesses probably will not be able to access it reliably. We are supporting the bill only because it is better than nothing and only because it is a timid step towards what Labour proposed but it is not good enough.Here is the problem. For example the cash-out provision for research and development expenditure contained in clauses 192 213 and 217 and schedule 1 is designed to provide a temporary tax-flow relief to companies that are high in specific kinds of research and development and then once they are over the cash flow crunch they have to pay it back again. So the first point is that under these clauses it is very different from a proper tax credit—say 12.5 percent as we proposed—where the company gets to keep the tax remission and put it on its balance sheet because it is a legitimate recognition that there is a public interest as well as a private interest in that research and development. Yes it helps the company but it also helps the economy and the whole country and it never works anywhere in the world for the innovator to take all the risk if they cannot keep all the reward. That is why tax credit systems give a permanent remission but this does not. This is only a cash loan. It is a timing change and the company has to pay it back. That is the first problem.The second issue is that when you take this alongside the structure of the Callaghan Innovation growth grants which are not available to companies that spend less than $300000 a year or 1.5 percent of their revenue on research and development and thus are not available to start-ups and have mandatory non-discretionary disbursement criteria so that they are funding—