Chauvel Charles: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — Second Reading 
Chauvel Charles: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — Second Reading 
[Volume:644;Page:13439] 
CHARLES CHAUVEL (Labour) 
: 
 As the newly elected chair of the Finance and Expenditure Committee— 
Hon Paul Swain 
: It starts too early. 
CHARLES CHAUVEL 
: —apart from starting too early as Mr Swain says; we try to run a tight ship that is right it will be a 10 a.m. start tomorrow—I am very proud and pleased to take a call on the second reading of this Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill. Mention was made of my predecessor as chair the Hon Shane Jones and I would just like in passing at least to pay a short tribute to his chairmanship of the committee. 
Dr the Hon Lockwood Smith 
: Do you remember him asking whether there was any evidence that the tax credits worked in Australia? 
CHARLES CHAUVEL 
: We will come to the tax credit matters that Dr Smith spoke of earlier. 
I do think that the legislation is better legislation for its passage through the committee. We have recommended several changes to the bill and I would just like to run through some of them. As far as KiwiSaver is concerned obviously it has been a resounding success to date. Over 260000 New Zealanders joining the scheme is testament to that. But the aims of the scheme will be enhanced by the changes recommended to new section 101B of the legislation which will appear in the substantive Act. The changes will clarify as far as employment agreements entered into before the enactment date are concerned that if employment agreements seek to effectively move the burden of compulsory employer contributions to the employee then they will be of no effect. Employer contributions will be in addition to current remuneration. After the date of the Royal assent of the bill compulsory employer contributions under KiwiSaver can be reduced against pay movements where there is mutual agreement between employer and employee. 
In my view that gives the lie to the submission from Business New Zealand that was mentioned earlier. I think the quote was that it would provide “industrial sandpaper”. Certainly that was what was said at the committee. I must say as a former industrial relations lawyer that I cannot see any merit in that submission. The legislation as I have explained permits the parties to the agreement to structure their affairs in an appropriate and sensible manner given the objects of the scheme. 
It is also notable that the definition of “salary and wages” has been reviewed. We have recommended that redundancy payments accommodation benefits and living costs overseas ought to be excluded from the definition. That is obviously a common-sense move. On the other hand Accident Compensation Corporation weekly payments and paid parental leave payments should qualify. 
We have also looked at the minimum employee payments and we have basically suggested that the ability to split the 4 percent—2 percent plus 2 percent—contribution between employer and employee should remain on offer to all employees until 1 April 2010. This will enhance the attractiveness of the scheme further particularly to low-paid workers and it is thus to be commended in my view. 
Another important addition is the recommendation that we extend the second-chance homebuyer eligibility to those who have received a determination by Housing New Zealand Corporation that they are effectively in the same financial position as first-home buyers. For example somebody who has been through a matrimonial or relationship break-up and who has had his or her equity in the property or his or her financial position drastically reduced ought to be able to withdraw funds from the scheme and be eligible for the first-home buyers’ assistance if there is a true case of hardship even if he or she has had that assistance in the past. I think again that that will make the scheme more attractive and fairer to people who really need its assistance. 
I turn now to the research and development tax credit. In order to increase onshore research and development in the private sector a research and development tax credit will be introduced for eligible businesses. The submissions we heard I must say showed overwhelming support for the introduction of the regime. Keeping in mind the purpose of the tax credit we have recommended that residents should not be required to have a fixed establishment in order to be eligible for it. Also a person starting a business within an income tax year should not have to wait until the end of the year for eligibility; he or she should be able to accrue it subject to other eligibility requirements during the course of that year. 
We have also looked at the rules relating to partnerships and collaborations in order to clarify how to treat combinations of ineligible and eligible partners and joint ventures. The definition of research and development activity should in our view be amended to refer to activities that “seek to achieve an advance in science or technology by resolving scientific or technological uncertainty”. We have suggested that the term “appreciable element of novelty” should be clarified according to the Inland Revenue Department’s guidelines. Also we should make it clear that only core activities are actually eligible. 
Dr Smith mentioned the exclusion for Crown research institutes tertiary education institutes district health boards and associates of those entities. Well of course we have excluded those entities; their core business is research. What this tax credit aims to do is to try to stimulate research and development where it is not happening at the moment—that is in the private sector. We want to stimulate research and development in the core private sector not in areas where it is already the core business of the entity. It does not make sense to rob Peter to pay Paul within already funded entities. We want to stimulate research and development in the private sector and that is where we hope to see it as a result of this initiative. 
I was astounded to hear Dr Smith allege that the Labour Government cuts taxes only in an election year. That is a most extraordinary claim. The research and development tax credit along with the company tax rate cuts—which I am about to speak to—amount to a $3.4 billion tax cut which this Government has delivered this year. The company tax rate change is a major enhancement to our international competitiveness. We have reduced the company tax rate to 30 percent—the consequential amendments are in the bill. We think the current transitional period ending on 31 March 2010 allows for an appropriate balance between the requirements of certainty and equity. 
I will speak briefly about the portfolio investment equity regime. In the select committee we looked at the exemptions the fair dividend rate methods and the cost method. We certainly found some of the submissions on these points very helpful and we have asked the Inland Revenue Department to consider them in some detail. We have looked at the criteria in section 91AAO(2) of the Tax Administration Act and we consider that it should be replaced by the new criteria that are contained in clause 165 of the bill. We have also looked at the ability of the commissioner to delegate the power to issue determinations under section 91AAO(2) and we have suggested that this should be delegated only to very senior staff and that the power to issue determinations should be carefully monitored from now on. 
In conclusion the legislation clearly enhances the savings capacity of New Zealanders through the enhancements to KiwiSaver that I have mentioned and also through the portfolio investment entity regime. The legislation introduces a major corporate tax cut and a research and development tax credit and this will contribute in a significant way to enhancing our international competitiveness. This is excellent legislation; I commend it to the House.