Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill

, on behalf of the Minister of Revenue: I move, That the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill be now read a first time. Later I shall be recommending to the House that the bill be referred to the Finance and Expenditure Committee for consideration. This omnibus bill reflects several important themes of the Government’s tax policy work programme: measures to promote growth and innovation; to simplify the tax system, especially for small business; to reduce compliance costs; and to protect the revenue base.

The bill aligns New Zealand’s venture capital tax rules more closely with those of Australia, removing a tax barrier to unlisted New Zealand companies gaining access to foreign venture capital. This will help New Zealand to compete more effectively with Australia for international venture capital supply. The change targets foreign investors who, because they are tax exempt in their own countries, cannot claim or make use of credits for any tax they may pay in New Zealand. They will be exempted from the New Zealand income tax on the sale of shares in certain unlisted New Zealand companies. The change will apply to foreign investors who are resident in one of 26 countries with which New Zealand has a double-tax agreement, and who are unable to claim credits for any tax they pay in New Zealand. It will not apply to residents of Switzerland because that country has a limited exchange of information with us under our double-tax agreement. The change will also apply to foreign funds from countries representing our main investment partners who invest on behalf of foreign venture capital investors who are generally exempt from tax at home.

The bill also introduces a business-friendly 6.7 percent rebate, or discount, to encourage people who begin receiving self-employment or partnership income to make voluntary payments of income tax during their first year of business. As members know, businesses do not have to pay tax on income earned during their first year of business until the second year, but both years’ payments can be due at about the same time. Paying two lots of income tax very close together can create real financial hardship for some small businesses, and the measure proposed in this bill is designed to relieve that problem. The rebate, or discount, is one of a series of proposals canvassed last year on ways of making tax easier for small business, and is the first to make it into legislation.

It received significant support from submissions and from consultation with small and medium sized businesses. Further announcements on the other major proposals canvassed in that package will be made later this year.

Also introduced in this bill are changes to improve the legislative framework within which disputes between taxpayers and the Inland Revenue Department are resolved. The changes seek to ensure that the current process for resolving disputes, introduced in 1996, is doing what it was intended to do—namely, deal with disputes fairly, efficiently, and quickly before they get to court. Several amendments fine tune the legislation in this regard, or reduce the costs involved in preparing the necessary documentation. Other changes affect time frames for both taxpayers and the Inland Revenue Department.

The bill allows costs associated with patent and resource management consent applications that are not granted, or are withdrawn, to be tax deductible. Under current law those costs cannot be claimed because they are regarded as a capital expense, nor under common law can they be depreciated because no depreciable asset is involved. The tax treatment of replacement plantings of fruit trees and vines is a subject of other changes introduced in the bill. They follow Government consultation with the fruitgrowing industry over a proposal to allow a limited proportion of replacement planting to be deductible in a current income year. That will make the tax treatment more flexible and encourage the planting of the most commercially desirable varieties.

To prevent a potential and significant revenue loss, the bill closes a loophole involving the sale and lease back of intangibles such as trademarks and newspaper mastheads. The proposed changes target transactions that could result in participants claiming tax deductions for what are in substance repayments simply of loan principle. The changes will not affect normal sale and lease-back transactions entered into for commercial reasons.

Finally, an annual event, the bill sets the income tax rate that will apply for the 2004-05 income year. Changes introduced in the bill are described in detail in the 77-page commentary, which has been distributed to members of the House, and I recommend it to members. I commend the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill to the House.

I think that the public and all members on this side of the House would quite like the Minister to take another call to explain why confirming an income tax rate of 39 percent for hard-working New Zealanders who earn only $60,000 and above would motivate them to earn more, and would stimulate growth. I think that this legislation to reaffirm the company tax rate of 33 percent and the high personal income tax rate is the Labour Government’s cruel Easter gift to hard-working New Zealanders.

For the 8 months to the end of February 2004 the Crown’s operating surplus was $1 billion more than forecast. Part of that was due to the tax collected being higher than forecast by $154 million. Even the cash flow for core operating and investing activity was $781 million higher than forecast. The Minister had the nerve to bring in this legislation to reaffirm the Labour Government’s policy to impose high tax on hard-working individuals.

Anyone who is earning above $60,000 is classified as wealthy and is penalised by having to pay the higher marginal tax rate of 39c. Currently, one in five hard-working New Zealanders are affected by that tax rate. National will not support this legislation that reaffirms the high tax policy to penalise the wealth creators in our country. We will not support this envy tax that will punish individuals who want to earn more in order to support their family better, and that will create further wealth.

I shall demonstrate further the total lack of rationale and consistency of this Labour Government. One has only to look at the Business Law Reform Bill passed by this House last night. That bill’s definition of a “wealthy person”, apparently, refers to one who has an annual income of at least $200,000. Yet the socialist Labour Government is driven by envy to punish individuals who earn more than $60,000. Those individuals are not even wealthy by the definition included by the Government in the Business Law Reform Bill.

Of course New Zealanders are being overtaxed. As I mentioned previously, the Crown financial statement identified that the tax revenue was $154 million ahead of forecast up to February this year. Since the Labour Government came into power it has introduced 17 new taxes, in addition to new personal tax rates. There is a raft of new taxes ranging from fringe benefit tax, trust income tax, resident withholding tax, tobacco tax, and sherry tax, and increased rates of taxation on petrol and alcoholic beverages.

However, I have to come clean and say that the Labour Government does cut taxes—but only for Māori authorities. That is one tax that was reduced, but I had hoped that this Labour Government would apply one law for all and propose to reduce tax for all our hard-working New Zealanders.

When we look at the legislation, which reaffirms the income tax rate for individuals, trusts, and companies, we want to ask not only why New Zealanders are overtaxed but where that tax money has gone. In recent weeks we learnt that $1.3 million went on consultation over a prison site, an overseas trip to study hip-hop music, and community educational courses for singalongs in people's own homes next to their own radios. A sum of $2 million was spent on the export credit office, which has not signed a single export insurance scheme. Not only have hard-working New Zealanders paid too much tax, but those taxes have gone to waste.

Recently, we learnt that gallstone sufferers were told that unless they had three attacks and blackouts, it would be unlikely they would receive health treatments. So New Zealanders are overtaxed, taxes are wasted, and when it comes to essential health services, people are not even receiving those.

The Minister of Finance should explain to the public why he is claiming credit for the last few years’ good economic growth when it had been due to the previously lower exchange rate, favourable international commodity prices, and National’s strategies for immigration and international students. Recently, when the Hon Michael Cullen learnt about the loss of business confidence, and now that a lower economic growth rate is foreshadowed, he simply said he always knew that the good times would not last. I think it is more a case of this Labour Government never tackling a hard chore when the sun is shining. High taxes and more red tape will drive a wedge between employers and employees, thus pandering to union representatives. I think that cutting tax for both individuals and companies would be a good start to making up for lost time.

The Minister of Finance’s spin on this bill is to focus on two other issues instead of on higher tax rates. First, he championed a tax exemption for certain proceeds from venture capital investors’ sale of investments, and that is a sensible move. However, this Labour Government’s indifference to, and lack of understanding and respect for, the risk-taking attitude of entrepreneurs is in itself a barrier to the growth of our venture companies.

The report of Ernst and Young, in commenting on the monitoring of the venture capital industry sector in New Zealand, said that venture capital in New Zealand is coming of age. Ernst and Young reckons that, based on global trends, biotechnology and information technology will continue to receive significant funding in the year ahead, anyway. The company went on to say that in its opinion the type of environment in which the venture capital sector will grow is one where a dynamic business environment and culture thrive.

I cannot say that the policies of the Labour Government are providing a dynamic environment in which venture capital can grow. For example, the recent collapse of Project Aqua is sending the message to both domestic and international business communities that business in New Zealand suffers from uncertainty about long-term power supply, and from a lack of urgency in tackling infrastructure issues such as roading, and transport in Auckland, Wellington, and Tauranga, to name a few.

The other issue the Labour Government is championing in this bill is a tax rebate for people who move into business. Let me remind the public that the benefit of that move will need to be demonstrated. The rebate is available only if those businesses that do not have to pay provisional tax choose to pay; hence, it is more to do with the time-use of money than with a rebate, per se.

The Minister just mentioned the improvement in the dispute resolution process. Well, I am sure that all my colleagues in this House have heard complaints from taxpayers feeling a bit intimidated in dealing with tax disputes with the Inland Revenue Department.

💬 Rodney Hide: Not very!

My honourable colleague obviously has prior experience. The finance Minister would have us believe that these provisions will resolve that problem. But let me just pose questions about two scenarios for the Minister to answer. Firstly, why does the Inland Revenue Department have the ability to reopen an assessment for up to 4 income years, yet taxpayers get just 4 months, under those proposals? Secondly, the legislation does not tackle the issue of a favourable case decision or ruling for the taxpayer, yet the only taxpayer to benefit from that ruling is the one who takes part in that procedure.

I rise in support of the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill and am pleased to support its passage through the House.

I follow the senior Government whip, who has just given her longest speech in the House this year.

💬 Hon David Cunliffe: It was a good one.

It was a good one. It was more coherent than some of the interjections and contributions that Mrs Pettis has made. I must admit it was very good to hear the Hon David Cunliffe introduce this bill. I quite like listening to him because I like to hear both sides of an argument. In fact, when I was listening to him I think I heard about six sides of an argument. Last week he was explaining to us how he is a Christian socialist when it came to shop trading, I think, and this week we heard about him being a venture capitalist and all that he was doing.

💬 Jim Peters: From the Boston group.

Yes, the man with the Harvard accent. If this Government was serious about venture capitalism, if this Government was serious about entrepreneurship and investment in New Zealand, it would not be fiddling with this bill. As my colleague Rod Donald says, it would be cutting taxes. He is quite right, because the one thing I know and I like about Rod Donald is this: he does not like business, he does not like economic growth, he does not like success, and he does not like commercialism, which is why he favours higher taxes. He sees lower taxes as giving economic growth, which, if one is a Green, is a bad thing. But across the floor in Mrs Jill Pettis’ party, and in the Hon David Cunliffe’s party, they say: “We’re for economic growth and we’re for high taxes.”

💬 Hon Paul Swain: Yep!

The Hon Paul Swain from the great Department of Corrections with the iwi consultation at $1.3 million to talk to a—

💬 Hon Paul Swain: This is “Beat them up Rodney Hide” all the way from the Fiji consultation.

Oh! So $1.3 million to talk to 150 Māori, according to this Minister, is excessive spending. When asked on television: “What about this letter?”, he said: “I don’t know anything about the letter.” They said to him: “But you signed it, Minister.” And did he not look a turkey on television when that happened? What a turkey of a Minister! [Interruption] He pipes up and says: “Yes, we are in favour of higher taxes and economic growth.” Because the one thing that Paul Swain has in common with Jill Pettis and with Mr David Cunliffe is this: no concept of the impact that tax has on entrepreneurship, on investment, on venture capitalism, and on growth of the New Zealand economy. If they were serious they would not be fiddling; they would not be sitting over there trying to laugh at Mrs Pettis’ jokes; they would actually be getting some serious tax policy on the Table, which would be lowering the top rate on those earning over $60,000.

💬 Darren Hughes: Another rort.

Well, this is the great thing about the member for Otaki.

💬 Darren Hughes: I pay my taxes. It’s a great thing.

The great thing about “Mr Whoever” paying his taxes, is all it is is a bookkeeping entry, because his entire salary is paid by the taxpayer of New Zealand. The member is sitting there saying that he pays his taxes and anyone else who is wanting to lower the top rate of tax down from 39c to 33c to 25c to 20c is somehow making a rort. But what we are talking about is taxpayers’ money. Mr Hughes might want to take that money from those taxpayers and give it over to the Hon Paul Swain so he can splurge it on a scheme of iwi consultation at $1.3 million to talk to 150 Māori, and when the television cameras come along he says: “Oh, yes, this is excessive spending.”, but that Minister over there and his predecessors approved it and directed it. That is what happened. Then the Minister is confronted with a letter and says he does not know anything about the gate but he signed the letter. That must have been one of those things he sort of signed when he was asleep, just like Parekura Horomia. But I ask Mr McCully why can we not get the top rate of tax down to 30c, 25c, and 20c. Mr McCully is indicating we should go a bit further. Well, I would concur with that.

💬 Jill Pettis: I will tell you why—because you’re not the Government.

Oh, well! Mrs Pettis has worked it out. I do not know how long Mrs Pettis has been in this Parliament but she has finally worked out something—she is in Government and we are not. Well, that is about to change, and I am so pleased she has figured out why she is sitting over there. We know what it is. So does the rest of the country, and they are sick of it.

I have to say one other thing about Mr David Cunliffe, when he was talking about the new culture in the Inland Revenue Department. I have to say that there are elements of this bill that are taxpayer-friendly, and we will be interested in looking at the detail. I know things have got pretty bad under the sisterhood, under “Helengrad”, but I am astonished that Mr Cunliffe is sanctioning a manager turning up to the call centre of the Inland Revenue Department each and every day in a fairy suit with wings and a crown on, and a magic wand, and saying she is a fairy. This is what David Cunliffe says is OK in the Inland Revenue Department. I do not think so. I do not think that is a very good idea. Here we have Mr Cunliffe thinking he is in charge of the Inland Revenue Department. Do members know what the fairy does each day? She dances around the call centre, spreading a bit of twinkle dust here and there, and it is designed to—

💬 Jill Pettis: Sounds like that member’s had some twinkle dust during the dinner break.

I might have had a bit of twinkle dust, but I hope that member gets home by midnight, otherwise the pumpkin might turn into a princess for a change. Would that not be something—the old pumpkin turning into a princess?

I have to say to Mr Cunliffe that having the old fairy walk around the call centre spreading a bit of twinkle dust when we are saying:“We need a new culture at the IRD.”, is a bit over the top. Another thing that is happening at the call centre at the Inland Revenue Department—the new, caring, understanding employer, the New Zealand Government—is that if people are working at the call centre, they have to put a sign on their seat, and that sign is a picture of a monkey.

💬 Darren Hughes: From the member’s website.

No, no, the call centre. So people arrive at work and they get to choose which monkey they are. I have to say that I think David Cunliffe is on to it—because over there, do we not have a Cabinet full of monkeys? We used to have a barrel of monkeys, but over there on that side of the House there is a Cabinet full of monkeys, and I think we are on to something. We have them over there, on the foreshore and seabed issue. We have the Minister of Corrections—see no evil, hear no evil, do no evil. That is what is happening with this Government. I have to tell Government members that the public are awake to the duplicity of this Government. They are awake to this Government.

We have a simple proposition: do not fiddle around with the tax system. Let us get some real entrepreneurship. Let us get some real investment. Let us get New Zealand moving and let us drop the top rate of tax down from 39c. Let us drop the company rate down and let us go for a flat tax of 20c in the dollar.

There are some very good features in this bill that are certainly worthy of support. I would like to run through some of those. The first one, of course, is on provisional taxation. The 6.7 percent tax discount that is being offered to encourage individuals to pay tax voluntarily in the year before they begin to pay provisional tax is an excellent idea and one that will help the self-employed and those in partnership to get on their feet and to get over that often difficult hurdle of having to pay 2 years’ worth of provisional tax in one hit. I am sure all small-business people and all entrepreneurs who are setting up in business will look forward to that measure coming into effect.

There is also an excellent initiative to end the scam that was initiated by a number of companies to try to rort the tax system by selling intangible assets then leasing them back in order to avoid paying tax. It is good to see that the Government is closing that loophole, and that it is very keen to protect the tax base. We applaud that initiative.

It is also good to see the disputes procedure being improved. I thought Rodney Hide might have been a little gracious and also might have taken a bit of a pat on the back for the role he played in trying to improve the customer relationship of the Inland Revenue Department. Under David Butler it has improved even further, and, with this new disputes procedure, the department will be as popular as an inland revenue department could ever become.

But the Green Party cannot support this bill. We cannot support this bill because of one key feature it contains, and that is the proposal to exempt offshore venture capitalists from paying tax on the profits of their New Zealand share sales. It is ironic that in this bill, on the one hand, the Government is talking about closing a loophole on the sale and lease-back of assets, in order to protect its tax base, and, on the other hand, it is deliberately undermining the tax base by exempting venture capitalists from paying their fair share of tax.

The Government says it needs to do that because New Zealand is not attracting enough venture capital. It also says it needs to do it because Australia has that rule and New Zealand does not. Well, excuse me, but why should we be letting foreign investors make tax-free capital gains in New Zealand, especially when the Government is determined to throw our hard-earned taxes at the global sharemarket through its New Zealand Superannuation Fund? Is it not amazing that we supposedly have a shortage of venture capital in this country when, at the same time, the Government is putting at least $2 billion a year in the Superannuation Fund, which, in turn, tosses most of that money at the global sharemarket and at other overseas investments? The remedy for the venture capital shortage is, clearly, in the Government’s own hands. All that it needs to do is to use some of the $2 billion it puts into the Superannuation Fund to set up a venture capital fund in New Zealand.

Despite what Rodney Hide says, the Greens are actually very keen on venture capital. Our own superannuation fund has money invested in wind power, and that is still very much a venture capital exercise at this stage. We have money invested in organic food products. We are currently scoping other investment opportunities, such as solar power. All the investments we make are designed to help the New Zealand economy become sustainable and self-reliant, and we will continue to do that despite the tax exemption that this bill proposes to offer foreign investors, and despite the fact that that incentive, that tax break, will not be available to New Zealand investors.

But I have to say that other superannuation funds will not be so understanding. Already there is a strong push from New Zealand superannuation funds and other New Zealand investment vehicles to be exempt from capital gains tax. We have the opposite view. We think that capital gains tax should be investigated on all but the family home, because we want to shift this economy from being a speculative economy to being a productive economy. So we would not support getting rid of capital gains tax on share sales and on other capital gains such as from property.

But with this Government opening the gates for foreign investors not to have to pay tax on the capital gains of some of their share sales in New Zealand, the pressure will really come on the Government to deliver some tax breaks to the New Zealand superannuation funds; otherwise, they will justifiably claim that they are being treated unfairly. I cannot put a price on what is at risk, because the officials are still working that out, but I predict it will be tens of millions of dollars. So the Government is deliberately undermining its tax base by putting up this proposal for venture capitalists to get a tax break.

The worst thing about this proposal is that it will be retrospective, and most members of this House do not like retrospective legislation. I would like to draw attention to the fact that this legislation is to take effect from 1 April just passed. So by the time this bill is passed, assuming other parties support it and assuming the Government does not recognise its folly and withdraw this particular section of the bill, there will already be overseas venture capitalists coming here to make hay while the sun shines, and New Zealand businesses will be increasingly upset that those foreign investors have an advantage that is not available to them.

So I would like to invite the Minister of Finance and also the Government members on the Finance and Expenditure Committee to reflect on the implications of what they are doing with the venture capital section of this bill. If it were not for that section, I am sure the Greens would be able to support this legislation, but I am afraid that putting in a tax break for venture capitalists is simply unacceptable to us, and therefore we feel obliged to vote against this legislation. I look forward to hearing Government members put up some substantive arguments in this debate as to why our position is wrong, why it is OK to let foreign investors come here and have an advantage over New Zealand investors, and why it is OK for the Government to be exporting our funds—taxpayers’ funds—through the New Zealand Superannuation Fund and gambling those on the overseas sharemarket, instead of using that money to strengthen our own economy by investing in sustainability and self-reliance within New Zealand.

In rising to speak to the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill, I want to indicate to the House that New Zealand First will support this bill going to the select committee so that the public, companies, businesses, and corporations—whatever—can have their say. With regard to the number of significant changes this bill will make to taxation laws, New Zealand First’s priority is first and foremost to encourage New Zealanders to save and invest in our economy, and keep the resources of New Zealand in the hands of New Zealanders, as stated in our 15 founding fundamental principles. So we will be keeping a close eye on that part of the bill.

I now want to focus mainly on Part 1. The commentary states: “The rates in Schedule 1 vary from the rates that applied for the 2003-04 income year in the following ways:”. One of the ways is: “a rate of 19.5% will apply to Maori authorities (see section 78(2) of the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003);”. In speaking to the Taxation (Annual Rates, Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Bill about a year ago, on Wednesday, 19 March 2003, I moved an amendment on behalf of New Zealand First that all sections of the New Zealand community should be able to take advantage of the proposal relating to basic tax rates of 19.5 percent. We did not support that part of the bill, because we felt it was unfair. I reiterate that New Zealand First wants to treat all New Zealanders equally, and at that time I put forward an amendment to give effect to that view.

I want to read that amendment; briefly, I want to inform the House again of what that amendment was. I moved in Committee the following amendments in relation to clause 24(1): that the words “Subpart 1—Maori authorities” on page 18, line 9, be deleted and be substituted by the words “Maori authorities and applicants”; and that on page 21, between lines 6 and 7, the following words be inserted: “Election to become applicant—(1) The applicant whose tax characteristics and tax rates are similar to those of a Maori authority as referred to in this Act shall be entitled to make a similar application to the Commissioner as a Maori authority can under this Act by giving notice to the Commissioner as a Maori authority is entitled to do in terms of section HI 1C of this Act and shall receive the same treatment as a Maori authority is entitled to receive in terms of this Act. (2) The words ‘applicant or applicants’ shall include all persons legally entitled to be called a legal person in terms of any and all Inland Revenue Department and any other tax legislation including (but not exclusively) individuals, companies, incorporated societies, charitable trusts, sole traders, partnerships and any other parties liable to pay income tax. (3)” —the last part—“the provisions of Subpart 1 as applicable to Maori authorities shall apply to an applicant.” Regarding the amendments I proposed, I would also like to add that the Federation of Māori Authorities welcomed the amendment I put forward to the House at about this time last year.

Staying on Part 1, I want to say that, unlike the Greens, New Zealand First is not in favour of tax increases, and, as I mention many times in this House, unlike the National Party, which just wants tax cuts for the rich, we advocate tax incentives for exporters. For example, we would announce tax abatement and concession policies, such as a 20 percent tax rate on new export net income, to ensure that viable exporting opportunities and innovation are not lost.

In ending, I want to say that New Zealand First is looking forward to hearing submissions on this bill at the select committee, and we will make our decision from there. But, as always, we support good legislation and we oppose bad legislation.

Generally speaking, this bill will have positive outcomes for New Zealand taxpayers. Firstly, I applaud its announcement of the introduction of a 6.7 percent rebate, or discount on tax paid, to encourage individuals who have been receiving self-employed or partnership income to pay tax voluntarily in the year before they begin paying provisional tax. This will provide some incentive for people starting businesses to take into account their tax liabilities sooner rather than later.

Evidence, both anecdotal and otherwise, demonstrates that at the moment many new business start-ups fail during their second year, whilst many others survive only by the skin of their teeth. That is because tax relating to the first year of their operations is deferred until the second year, but in that second year the fledging entrepreneurs have to cope with provisional tax payments as well. This effective double-up in tax during the second year drains cash out of new businesses, undermines their working capital, and, in all too many cases, brings businesses to their knees. This is a tragedy both for new business-owners and for our economy generally.

Enormous personal sacrifice is required to start a new business, and not infrequently the capital used is a combination of hard-won savings, a mortgage on the house, or loans from friends and families. This capital base is normally pretty thin and not big enough to see a company get through that second difficult year. Under this bill, if a company is prepared to discipline itself to pay provisional tax from year one, it will effectively earn interest on that amount. That discipline not only enhances its potential to survive during the second year, but also, in and of itself, becomes a success factor in the future growth of the business.

United Future wants to see small New Zealand businesses grow to medium businesses, and medium businesses grow to become large and successful operations. I am sure that the measures introduced in this bill will assist those goals. I am pleased to see also that the bill closes a loophole to prevent the sale and leaseback of intangibles, creating tax deductions for what in substance are repayments of loan principal. Simply stated, this is a tax avoidance opportunity, and it is rightly being brought to an end.

I am pleased to note, however, that the new arrangements will apply only to arrangements entered into on or after the date on which this bill is introduced. I believe that retrospective legislation, particularly when it is in favour of the revenue rather than the taxpayer, is undesirable unless there are clear extenuating circumstances involving significant risk or similar. So, in principle, retrospective legislation should be avoided, if at all possible.

The new disputes resolution arrangements outlined in the bill are also a positive initiative for New Zealand taxpayers. Two thousand years ago Jesus suggested that it would be better to try to settle matters with our opponents before we get to court. There is tremendous wisdom in that advice, and I think it is always better for disputes between the commissioner and taxpayers to be resolved through a robust resolution process, mediation, good communication, and the like, rather than through use of the much more cumbersome and expensive court process.

The only losers from eliminating and minimising the involvement of the courts in resolving tax disputes will, in most circumstances, be lawyers and other professional advisers. They will not lose out entirely under these new dispute resolution procedures, but in the majority of cases the need for their advice and input will be significantly reduced, with a commensurate reduction in cost to both the taxpayers involved and to the commissioner. We need to bear in mind also that cost savings to the commissioner represent cost savings to all of us. At the same time, when these procedures fail, taxpayers will still have the opportunity to go to our courts in the usual way. That is the right, of course, of every citizen and every taxpayer under our democratic form of Government.

Unlike the Greens, United Future also welcomes the provisions in respect of venture capital. It is vitally important that New Zealand businesses—and, in particular, our smaller companies—can access venture capital from overseas sources. In speaking against this proposal, Rod Donald overlooked the reality that the worldwide pool of venture capital funds is severely limited, and that New Zealand competes with other nations for those scarce resources. By exempting from income tax profits made by non-residents who on-sell shares in unlisted companies, this bill will improve New Zealand’s competitive position in that regard. Simply stated, I predict that the bill will result in an increase in the quantum of offshore venture capital investment in New Zealand. That can only be a good thing for our economy.

The only other matter I wish to refer to is the confirmation in this bill of current income tax rates. United Future continues to believe that the current rates of income tax of 19.5c—effectively 21c—up to $38,000, 33c up to $60,000, and 39c over $60,000 should be adjusted for the cumulative movement in the consumer price index between 1 April 2004 and 31 March 2005—that is, the whole year that this bill covers. The Government’s steadfast refusal to adjust the $38,000 and $60,000 tax brackets for the consumer price index means that in real terms tax rates have increased very significantly for many thousands of New Zealand taxpayers during the last 4 years, through what is referred to as “bracket creep”. That creep is now substantial. Based on Reserve Bank forecasts, the creep will be 13.95 percent by 31 March 2005, which would see the $38,000 bracket move to $43,000, and the $60,000 bracket move to $68,000.

The Government says that at about $620 million per annum, the adjustment would be too expensive, but I say, what about fairness? What about the cut in real family incomes at a time when the Government is not only running a surplus, but the surplus itself is running well ahead of previous forecasts. That point is critical. The operating balance excluding revaluations and accounting changes for the 7-month period ended 29 February 2004 is more than $740 million above the 2003 December Economic and Fiscal Update. So the plain and substantial fact is that the Government could adjust the income brackets for inflation and still find itself about $120 million ahead of its own forecast, made as recently as last December.

I should say that pursuant to United Future’s confidence and supply agreement, it will, nevertheless, support this bill’s referral to the Finance and Expenditure Committee. For the benefit of those Opposition members who ask me why we do not pull the plug on our confidence and supply agreement, very simply, I repeat that we stand by our word and do not welsh on deals.

I stand in support of the first reading of this bill. The reasons why the Government is introducing it have been made well clear by the Minister. I wish it well as it goes to the Finance and Expenditure Committee, which does very good work in considering taxation bills, and I look forward to the second reading within a very short space of time.

One always knows that the Government is trying to rush legislation and not have debate when it gets the junior Government whip, Darren Hughes, to rise to his feet to make a few comments about a tax bill that he has only just picked up off the Table and does not have a clue what it is about.

💬 Hon David Benson-Pope: He doesn’t pay tax.

I am not sure about that. I start my contribution by concentrating on the parts of this bill that the Associate Minister of Revenue—the junior Minister—the Hon David Cunliffe, forgot to mention when he made his speech to the House an hour or so ago. It has long been accepted that when a Minister comes into this House to introduce legislation before it goes to a select committee, he or she spends that 10 minutes honestly outlining what the bill does. I listened with interest to the words of the Hon David Cunliffe, and I never heard him at any time at all refer to the most important part of this legislation—the most critical part, and the reason we are having to rush this legislation through—Part 1, which sets the annual rates of income tax for the 2004-05 year. It is little wonder that—

💬 Hon David Cunliffe: I raise a point of order, Madam Speaker. I seek leave to table a copy of the speech.

💬 Madam DEPUTY SPEAKER: The member knows that it is not on to interrupt another member’s speech. I apologise.

I can understand why the Minister is somewhat wounded. It is also apparent to me that whenever there is unpopular legislation to be introduced, the real Minister of Finance and Minister of Revenue always manages to ask his junior, David Cunliffe, to come down and do it for him. David Cunliffe acknowledges that. A discussion probably occurred on the 7th floor whereby Dr Cullen said he would prefer not to introduce the bill, because it is not one he is proud of. I accept that that was probably the case, so David Cunliffe has dutifully come down to introduce the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill.

I repeat the statements made by Pansy Wong. I can assure the House that the National Party will vote against this bill, because it cements in place for yet another year the highest tax rates in the South Pacific and Asian regions. New Zealand has the highest tax rates of any country with which we trade. David Benson-Pope shakes his head in amazement. He is another recently appointed Minister, and he did not realise that this—

💬 Brian Connell: A short-term appointment.

A very short-term appointment. He is acknowledging today in the House that he did not realise—

💬 Hon David Benson-Pope: Tell the whole story.

Now he is telling me to tell the whole story, and I am happy to. I will ask for an extension of time to carry on telling the whole story. The whole story is that this bill cements in place the highest tax rates of any country in the South Pacific and South-east Asian regions. That is the whole story. That is why countries like Australia can regularly perform over a period of time at a higher growth rate than New Zealand. The average weekly pay packet of Australians, as opposed to New Zealanders, has approximately $200 more in it because they do not have to pay crippling tax rates that stifle the economy.

Let us look at the highest tax rate of all—the personal tax rate of 39c.

💬 Brian Connell: That’s a killer.

My colleague Brian Connell is absolutely right. It is an absolute envy tax. I recall that the Labour Party campaigned on the tax with two messages. Firstly, it said that it would affect only 5 percent of taxpayers, and it is now being paid by nearly twice that many—about 10 percent of taxpayers. But the other thing Michael Cullen, David Cunliffe, and Darren Hughes campaigned on was that they would apply this extremely high tax rate only to the wealthy. That is what they said—it is only for the wealthy. Then we find out—and it is being re-cemented in this legislation today—that their idea of wealth is someone who earns $60,000 a year.

David Cunliffe nods his head and says yes, that is a wealthy person in New Zealand. If that is his level of aspiration for this country, it is no wonder that the public of New Zealand have finally woken up to this Government. Sixty thousand dollars is not wealthy. It equates to close to the support wage that the Americans pay. [Interruption] It is effectively the poverty line in the United States, and because of its lack of ambition for this country, it is recognised by the Labour Party as a wealthy position to be in. I say to that Government that if it thinks $60,000 is wealthy, and the sort of wage at which people should be asked to pay 39c in the dollar tax, it is too high.

The other thing I want to move on to in the bill is a section that, again, David Cunliffe did not make mention of. The rates in schedule 1 vary from the rates that applied for the 2003-04 income year in the following way: a rate of 19.5 percent will apply to Māori authorities.

💬 Brian Connell: That can’t be right.

That is what this legislation does. It reinforces a special rate for Māori authorities that is just impossible to justify. I have heard Dr Cullen come into the House and attempt to justify it. His rationale goes something like this: the beneficiaries of Māori authorities tend to be lower-income New Zealanders, and on that basis the Government will make those authorities pay 19.5c. The ma and pa investors in Air New Zealand will, on the whole, be low-income New Zealanders. They will be paying tax rates of around 21c, so why not apply the same logic to them? Darren Hughes does not have an answer to that, because there is no answer. This law gives a special tax rate to the Māoris. No one can argue against that.

💬 Darren Hughes: No, that’s not right.

I invite Darren Hughes to take the next call, having read the bill. It is in black and white, Part 1, cementing in a tax rate of 19.5 percent for Māori authorities. Darren Hughes cannot deny that.

My time is running out. This bill means that on Monday and Tuesday, people work for Dr Cullen and the Government; on Wednesday they work to pay GST and local government rates; on Thursday and Friday they start earning for themselves, and then have the ability to buy their cars, fuel their cars, feed their families and pay other bills. If Darren Hughes thinks that is not a high tax rate, I ask him to take some time out and look at the successful economies in the world. They are not stifled with tax rates like this.

💬 Darren Hughes: They have higher tax rates to pay.

They do not have higher tax rates at all, and Darren Hughes knows that. He knows that New Zealand is a high-tax economy, and that is why people in this country get fed up with seeing money going into Government coffers and then being spent on things like a $26,000 hip-hop tour.

I look forward to the time when the National Party will get over its paranoia about Māori. I wish to say that this tax bill is a jolly good bill, and it does show that this Government is listening to people. I thank John Tamihere and those who have been around the country, listening to and holding meetings with small-business people. Particularly good is the part of the bill that introduces a rebate of income tax for small-business taxpayers who pay their tax on their self-employed or partnership income in their first year. That is what we have heard people saying they want, and this is a Government that does deliver.

That last speech was lacking in inspiration, was it not? It is just as well it was very short. Mr Carter’s speech, however, was full of inspiration, and I congratulate him on it. It dealt with some of the real, true issues of what this Government is really all about. It is one tax policy for some, and another tax policy for Māori. But we will come to that in due course.

Despite all the rhetoric that this Government has taken us through this evening, I have to say that this is not good legislation. Despite David Cunliffe’s assurances to the contrary, this is not good legislation, and that is a widely held view in the business community. But I will allow that there are some good aspects of this legislation. There are a couple of initiatives. In particular, I am referring to tax treatment of venture capital. I would give that a tick. Sales and leaseback intangibles, and patent and resource management application costs, I would also give a tick. But on balance, the National Party opposes this legislation, because it simply does not deal with the very vexed issue of taxation. I would like to come back to this, if time allows, but I want to deal with other areas of concern first.

The commentary really makes me chuckle. It makes reference to the Government’s growth and innovation strategy. This is really a joke. Promoting venture capital investment moves in the right direction—I have already said I agree with that—but if this Government thinks that that is the solution to the problem of attracting foreign and domestic capital, it is woefully wrong. The real blockage to investment and the development of industry in this country is the Resource Management Act and red tape. This Government continues to demonstrate that it just cannot intellectualise this problem. If it could, it surely would have by now. Does Mr Carter think that is fair? If it could have, it would have by now.

💬 Hon David Carter: This is the Government that tried to tax farting.

I agree with Mr Carter. The Resource Management Act is the biggest handbrake on growth in living memory, and I want to give the House an example of what foreign investors think about it, as well. [Interruption] This bill does absolutely nothing to address this fundamental problem, absolutely nothing, and Mr Mark knows this. He knows this. At Christmas I had the opportunity to deal with some executives from a multinational conglomerate, a forestry company called Weyerhaeuser. This company turns over US$22 billion a year. Do members know what they said to me? They said: “We like your country. We like this place for growing trees, but your Resource Management Act is a showstopper.” They also said: “And by the way, your corporate tax rate is far too high.” They said that we are simply not competitive. The real issue here is that those guys left with their chequebook unopened. They came here to invest, and they left with their chequebook unopened. [Interruption] If Darren Hughes had more years of experience, he would realise that that hurts every New Zealander, even his constituents in Otaki. [Interruption] An ounce of intelligence would help, as well.

I want to pursue for a while the matter of the amendments to income tax, introduced as a rebate on income tax for small businesses. We have been told to swallow this as good for cash flow pressures. But I have to say this is a real sham, an absolute sham. It is a sprat to catch the mackerel. It would catch someone like Darren Hughes out. He would think this is a good idea, because he is a sprat. [Interruption] I said sprat. This would catch him out. It is going to improve cash flow pressures, all right, but guess whose?

It will improve the Government’s cash-flow pressures, and nobody else’s. It is an incentive for the unwitting to pay tax before they have to. They will put pressure on their own cash flow and the Government will have us believe that it went around the country consulting broadly. What it did was get a few Government patsies—it was a bunch of old cobblers, really—to turn up and listen to John Tamihere rattle on for a while, and then they told us that everyone was converted and this is good. I will now turn to annual rates of income tax, because this is, I suppose, the issue that hurts us most.

💬 Hon David Carter: Darren Hughes laughs.

He is not used to paying tax. It probably has not hurt him yet. He probably still has tax incentives from being at university.

Not only has the Government not dealt with the issues of corporate tax, or the top marginal tax rate, it has reverted to type when the pressure has come on. Mr Carter has already dealt with this but I have to say that when he referred to it in his speech I could hardly believe it. I read the legislation, I turned to the page, and, despite Darren Hughes’ denials, I read and reread it and it says that Māori authorities will pay a tax of only 19.5 percent. I was a bit excited when I first heard that because I thought it was a good idea to have a flat rate of 19.5 percent. That would get my vote—it would get a lot of votes. I started to get a bit concerned as I realised it could not be right, so I reread it. Mr Carter was dead right—it applies only to Māori authorities. Other Kiwis will cringe when they hear about this. When the Government tries to justify this—

💬 Rodney Hide: Where in the world is your tax determined by your race? Only in New Zealand.

Does the member know what it is called? It is called being racist. It is discriminatory—it discriminates on race. The Government has tried to justify this on the basis that some Māori trusts are poor. Some Māori authorities suffered double taxation whammies, and in some cases I have to agree that that was taking place. But we cannot fix the problem by creating a worse one. Fix double taxation, yes, but do not cherry-pick on the grounds of poverty, because if poverty is the issue, what about poor white businesspeople? What about Asian and Pacific Island businesses—why can they not have the same tax advantages that the Māori trusts are now enjoying? I would have thought that this Government had learnt its lesson. The recent polls have been telling it that the population en masse is sick of these types of discriminatory policies and they will bring it down. I fear that Government members will learn their lesson only when the next election takes place and they find themselves out of a job. That is what will happen. I have tended to focus on the major issues of this legislation, but there are some minor amendments that I do not think we should bother speaking about.

I will conclude by saying that this legislation falls well short of the Government’s intention to try to stimulate investment in this country. David Cunliffe is sitting opposite, and he cannot look me in the eye because he knows that what I am saying is true. He knows now that this is wrong and that he cannot justify a 19.5 percent tax rate for Māori authorities when the rest of the country can go and sing. He cannot justify it. [Interruption] Dianne Yates is calling out. She had an opportunity to take a call for 10 minutes and I think she was on her feet for 30 seconds. She did not want to talk then but now, when her opportunity is lost, she wants to interject. That just will not wash. People in this country will vote at the next election to show that they are tired of this type of racist, discriminatory legislation. I have to say that the Finance and Expenditure Committee will have one heck of a job trying to sort this bill out, because members know that if they continue down this path there will be a change of Government and the present Government members on that select committee will be very uncomfortable. At this stage, unless some monumental changes are made by the select committee, the National Party simply cannot support this legislation and we remain strongly opposed to it.

💬 Darren Hughes: Oh!

Mr Hughes knows that is a prime ministerial speech in the making and he is now cringing because there will be a huge change.