O'Connor DamienTAXATION (KIWISAVER STUDENT LOANS AND REMEDIAL MATTERS) BILLSecond ReadingHon DAMIEN O'CONNOR (Minister of Agriculture) on behalf of the Minister of Revenue: I move That the Taxation (KiwiSaver Student Loans and Remedial Matters) Bill be now read a second time.The policy proposals in this tax bill have two objectives: to support the simplification of the tax system and to support business. These are important objectives for our economy and for our society; so I am very grateful to the Finance and Expenditure Committee for their recommendations on this bill which in my view strengthen and improve the proposals.For the benefit of the members and people listening I'll give a quick recap of some of the main proposed measures in this bill. Members may be familiar with the simplification programme being run at Inland Revenue. If they're not they should be. Already most of the IRD's services and functions had been transitioned to a new simpler set of processes. And indeed yesterday someone said to me how good it was now to deal with IRD. This year it will be the turn of KiwiSaver and student loans. Information will be processed more quickly and will be more accurate. My daughters with their student loans will be grateful for this improvement.I'd like to thank my colleague the Hon Kris Faafoi for introducing this important addition to this bill and to Tim and Joan for advocating for this change which will improve the retirement years of many Kiwis. I'm also pleased that this bill contains provisions to allow Inland Revenue to refund investors who have paid too much tax on income from their portfolio investment entities or their PIEs as they're known. The ongoing simplification of the tax system now allows Inland Revenue to see more clearly when a person is on the wrong tax rate. When investors are on an incorrect prescribed investor rate—or a PIR—too much or too little tax can be paid. There has been no provision under current legislation to allow refunds to people who have paid too much tax on their PIE income. And this Government is about fairness. That's why we're making these changes. I'm pleased to be able to inform the House that this bill sets that right.In designing a solution to this problem we wanted to ensure we had a clean simple and above all fair system that would address both the over and underpayments. Members will be pleased to hear therefore that this bill now includes provisions for a square-up process to ensure that investors pay neither too much nor too little tax.The beauty of this solution is that in keeping with the IRD's automatic refunds process PIE investors will not need to do a thing to get a refund; it will all be done automatically for them. But prevention is better than cure so the bill also allows IRD to contact the investor's PIE fund to put people on the correct PIR so that there are no over or underpayments in the first place.Student loans: a very important area for not only the students but for their parents and indeed often their grandparents. Shifting now to the other main focus of the bill this bill contains several measures to improve and simplify the administration of the student loan scheme including treating those overseas-based borrowers with a disability or serious illness as New Zealand - based so they don't have to pay interest on their loan. It will also allow Inland Revenue to notify a borrower's employer when the borrower's loan is close to being fully repaid. This will enable employers to make final deductions to reflect the remaining loan balance preventing overpayments by the borrower.The Finance and Expenditure Committee has recommended a number of changes to the student loan proposals in this bill following further advice from officials in consultation with affected employers. This includes a proposal to reduce the threshold for making student loan repayments on other income such as investment income from $1500 to $500. Now that most people have their tax returns automatically completed by Inland Revenue the compliance costs for filling tax returns are minimal or even non-existent for most people so there is no longer a need for such a high threshold.IRD research and development refundability: this Government wants to grow our economy and improve living standards and wellbeing by building a productive inclusive and sustainable economy. For businesses research and development is recognised as a key indicator of innovation which enhances their ability to succeed in changing and dynamic markets. More broadly R & D enables the diversification of the economy by encouraging new industries and companies new jobs and new ways of doing business. So we have committed to increasing R & D expenditure to 2 percent of GDP over the coming decade of the 20 years that we should be in Government. This bill continues that focus. We want to support more business expenditure on R & D whether these businesses are in profit or loss.When the new R & D legislation was introduced last year it proposed that as well as offsetting against a taxpayer's tax liability R & D tax credits could be refunded up to $255000 for companies that have at least 20 percent of their salary and wage costs dedicated to research and development. This was always intended as a temporary measure while a more comprehensive refund scheme was developed. That new more comprehensive scheme is now contained in this bill. Under these proposals taxpayers will be able to claim refunds up to a cap based on the amount of labour-related taxes they have paid in New Zealand such as PAYE or fringe benefit taxes. It will also make refunds available to a broader range of businesses. These changes will allow us to provide more support to more businesses while protecting against the risk of fraud. The bill also contains a number of smaller improvements to further enhance the R & D scheme. Once this taxation bill is passed I believe that we'll have an R & D tax credit scheme that we can all be proud of.Other amendments: the bill also contains a range of other amendments and improvements necessary for the smooth operation of our tax system. Many of these amendments align the law with the original policy intent. There are also several remedial changes to the provisional tax rules which simply clarify existing rules. We're also making some changes to the employee share scheme rules to improve their workability for businesses including those with Trans-Tasman schemes.In conclusion these then are the main features of this bill. The objectives of the bill are firmly aligned with the Government's aspirations for the tax system for the economy and for our society. There are many many areas of legislation that we have to improve after nine years of neglect by the previous National-led Government; we are working through these systematically to ensure that our taxation system and our system of providing Government services are fair to each and every New Zealander. This piece of legislation will be one more step in that right direction. It is therefore with pride that I recommend this bill to the House for its consideration.