Taxation (Annual Rates, Venture Capital andMiscellaneous Provisions) Bill

I move, That the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill be now read a second time. The Finance and Expenditure Committee has considered the bill and recommended a number of changes, some of them minor, to ensure the legislation operates effectively. The bill confirms the annual rates of taxation, and that is probably the only part of the bill that is reasonably significantly controversial. The rest of the bill is pretty widely supported. Some would argue that it should go further in some respects. I do not think anybody argues that changes should not occur.

The bill removes the tax barrier to unlisted New Zealand companies gaining access to offshore private equity, including venture capital. Private equity investments encompass everything from the funding of new companies—the early expansion capital—to management buy-in and buy-out transactions for established companies. Investment is usually into unlisted companies. At present there are no special tax rules for venture capital investment, so investors who purchase shares in an unlisted New Zealand company may be taxed on any gains in accordance with ordinary tax concepts. If they hold the shares on revenue account, they will be taxed on their share profits. That could create uncertainty for non-residents who may be contemplating venture capital investment in New Zealand.

The changes proposed in the bill are targeted at non-resident venture capital investors who are considered sensitive to the imposition of New Zealand tax. They are usually investors who are tax-exempt in their countries, which means that they cannot claim tax credits there or make use of them with the New Zealand tax they have paid. A number of institutions that have invested in venture capital internationally, such as US pension funds, are in that situation, being tax-exempt in their home countries. The bill introduces venture capital rules that are similar to Australia’s, and that should help us to compete effectively with Australia for venture capital investment.

The main change introduced in the bill is that certain non-residents who sell shares in certain unlisted New Zealand companies will be exempted from New Zealand income tax. The change will apply to foreign investors who are resident in one of 28 countries with which New Zealand has a double tax agreement and who cannot claim tax credits for tax they pay in New Zealand. It will also apply to foreign funds that invest on behalf of foreign venture capital investors who are generally exempt from income tax in their own countries. The committee has recommended extending the second aspect of the exemption to foreign funds established in one of 28 countries with which we have a double tax agreement. The original proposal limited the exemption to funds established in countries representing our main trading partners. The change will remove tax barriers to a greater range of venture capital investment.

Another important feature of the bill is the introduction of changes to improve the legislative framework within which disputes between taxpayers and the Inland Revenue Department are resolved. The current framework for resolving those disputes, introduced in 1996, was established to ensure that tax disputes are handled fairly, efficiently, and quickly before they end up in court. The changes introduced in this bill are the result of the Government’s post-implementation review of the legislation to see if it is achieving that.

Several of the changes proposed in the bill either ensure that the disputes process is completed as the legislation intended or, due to the costs involved, re-preparing the necessary documentation. Others affect the timing of various stages. The committee has recommended a number of changes to clarify the proposed amendments. For example, a proposal to improve the rules where Inland Revenue may exceed the 4-year statute bar for disputes is being removed from the bill for further consultation.

The bill contains amendments to protect the tax base against transactions that allow deductions to what are, in substance, repayments of loan principal, contrary to policy intent. Some concerns were raised in submissions that normal commercial leasing transactions that do not raise tax base concerns could be inadvertently affected by the amendments. Therefore, the committee has recommended a more targeted approach, to ensure that the legislation operates as intended.

The bill also deals with the tax treatment of replacement plantings of fruit trees and vines following consultation with the fruit-growing industry. It will give the industry certainty about when deductions can be claimed for orchard plants, and provide amortisation rates that reflect the useful lines of different kinds of plants. The changes are intended to ensure that the most commercially desirable varieties are used. The Finance and Expenditure Committee has recommended that wine growers be excluded from the proposed treatment at the request of the wine industry and that they continue to operate under the existing tax rules for vines.

The bill introduces the first of a series of changes as a result from the publication last year of the Government discussion document “Making Tax easier for Small Businesses”. There is a 6.7 percent discount for self-employed people who make voluntary payments of income tax at any point during their first year of business to reduce the financial strain of paying 2 years’ tax in their second year of business. The measure has enjoyed a relatively wide measure of support, both in industry consultation and in submissions on the bill, and I emphasise, of course, it is a voluntary measure by business.

The main change recommended by the committee is that the proposed measure be tightened to prevent it from being misused. During the committee’s consideration of the bill, I asked it to consider the inclusion, within the bill, of changes proposed on two Supplementary Order Papers. The committee has recommended that the provisions on the Supplementary Order Papers, subject to minor amendments, be incorporated into the bill. The first deals with a legislative loophole through which New Zealand residents receive income from Australian unit trusts that is taxed neither in New Zealand nor in Australia. The changes will close a technical gap in the way the New Zealand dividend tax rules operate. The committee recommended some useful changes, including limiting application to offshore unit trusts.

The second Supplementary Order Paper is in response to the February storms and floods in the lower North Island, and deals with issues such as the tax treatment of trading stock that was donated because of the disaster. The committee has recommended extending these amendments, as well as the disaster relief provisions enacted in March, to taxpayers affected by storms in the Bay of Plenty in July. The March legislation enacted under urgency, as members will remember, gave the Inland Revenue Department greater flexibility in dealing with business taxpayers who were badly affected by the disaster, and was part of a Government package of relief measures for the agricultural sector and wider community.

Those are the main changes the committee has recommended to the proposed legislation contained in this bill. There are several other measures to which the committee has recommended no major change so I shall not describe them here. I want to thank the committee for its careful consideration of the bill. I commend its report to the House, and I commend the substantial improvements in this bill in the taxation regime. I have no doubt that most of the debate will concentrate on why we should lower tax rates. I simply remind the public that it is quite a simple issue: if one wishes to lower tax rates one either lowers expenditure or one will face higher interest costs as a consequence. We have seen a recent election fought on the issue of higher interest rate costs, so I invite the Opposition to propose them over the coming period of time.

It is somewhat ironic that we are discussing taxation and the payment of taxation in the very week when the House has been dominated by a member of Parliament who looks like he possibly has not paid taxation on his golden handshake. I have no doubt that in the taxation annual rates provision of the bill there is quite some discussion about the fact that tax should be paid on a golden handshake. It is also, may I say it, somewhat ironic that the Finance and Expenditure Committee spent some time considering the discussion document on small businesses headed: “Making Tax Easier for Small Businesses”. No doubt the Minister for Small Business, Mr John Tamihere, read that with eager interest and recognised the first part of the document, which discussed that one should pay tax.

National will be opposing the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill for a number of reasons. The first is, as I noted before, that the bill seeks to reconfirm the annual rates of taxation. Immediately we are struck by the fact that the top rate of taxation, at 39c, will be confirmed in this bill; at a time when in the last 5 years the Labour Government has enjoyed an additional $34 billion worth of tax revenue—$34 billion collected from hard-working taxpayers in New Zealand and from businesses up and down the country; at a time when the Government is running the largest surplus in New Zealand’s history; and at a time when many New Zealanders could do with that tax because they surely could spend it better than any Government would.

Just today I heard from someone who came to see me in my office just exactly how awash with cash Government departments are. They are so flush with cash they do not know how to spend it, while hard-working New Zealanders are having to work an extra few hours and stay up a little bit later because the Government wants to keep the cash and does not want to give any of it to the hard-working people of New Zealand. They will enjoy, too, the economics lesson no doubt that Dr Cullen tried to give the Opposition in the last part of his speech.

I want to turn, for a moment if I may, to the venture capital aspects of the bill. The Minister rightly pointed out that some progress has been made in this area. Venture capital, of course, is a very significant area in New Zealand, and venture capital payments are growing. Venture capital is equity that is put into a small and fledgling business, where it is often seen as relatively high risk. Nevertheless, they are the seeds of commerce from which all around the world some tremendous operations have grown and flourished. So it is very important for New Zealand businesses to have access to that capital. We have, as most people will be aware, a relatively low savings rate, so it has been quite difficult to get access to that capital in New Zealand. Despite the fact that there has been the emergence of a number of players in the venture capital area, it has still been quite difficult to get those funds within New Zealand, although I was pleased to note in yesterday’s Dominion Post that direct capital was oversubscribed in an issue that they have just undertaken in the New Zealand market. Nevertheless, the reliance on foreign capital in the area of venture capital is increasingly important. In one sense we welcome the steps to change the taxation laws in New Zealand in relation to venture capital and the way that taxation treatment will be issued on the ownership of those shares by non-resident investors. We make the point, however, that the bill fails to progress the issue where it is meaningful.

A number of submitters came before the committee, and they all made the main point, which is that the bill will not work because it does not include two very important aspects of investment by non-residents in venture capital. The first was that it does not include funds that operate in a grey-list country. It includes the eight or 10 non - grey list countries, but the others are excluded. The second issue was an issue around limited partnership structures, which are not recognised by the Inland Revenue Department. That is quite a significant issue, because, again, it is a vehicle that has been used and not recognised in New Zealand. It is extremely important if one wants to compete internationally for access to venture capital, that one has to be able to put in place structures whereby the tax treatment of those structures will be recognised in the home country. Otherwise, it simply becomes too difficult and too challenging to attract that capital. We welcome the fact that this provision is a step in the right direction, but we really ask the Minister to do the job properly, by reassessing the matter.

I turn now to Australian unit trusts. Quite simply, there was a capacity for investors to get around the intention of the legislation that previously related to these unit trusts. The way it worked was that New Zealand investors invested through an Australian unit trust that bought New Zealand Government stock. In normal circumstances, if that New Zealand investor had directly bought New Zealand Government stock, then he or she would have had a tax liability on the interest dividend that came off the Government stock. Instead, the way it worked through Australian unit trusts was that special bonus issue shares were issued in lieu of the dividend payment that would have been received. They could then be sold by the investors, and, of course, would be tax-free in New Zealand because there is no capital gains on them. So we in the Opposition would acknowledge that, in one sense, there was some mischief, shall we say, and that there was a need to close that down. But once again, it seems as if the Minister is allowing this bill to go through in a very Mickey Mouse fashion, quite frankly. There are quite a number of structures that are similar to Australian unit trusts and differentiate largely only because of country of domicile. If we look at the United Kingdom situation with open-ended investment companies—a relatively similar type of transaction vehicle—we see that our Inland Revenue Department has chosen not to close down that area, at this point.

I have no doubt that the department will come back to the House at some time in the future and seek to address that issue, but it has failed to do so at this point. The industry talked to the Finance and Expenditure Committee about that situation, and, in my due diligence on this, again, we looked at it. We spoke to quite a number of industry players, who said: “We don’t mind the rules, but we do want them to be consistent.” This bill closes down one small area while a whole lot of others will continue to operate. That will lead to other members of the industry seeking to go out there and change into, for instance, United Kingdom - based unit trusts, for want of another term.

The second issue is that the Government has been undertaking quite a significant amount of work through a review undertaken by Craig Stobo. He is looking at advising the Government on the onshore and offshore tax treatment of collective managed funds. He is due to report back very soon, I think by the end of October. Dr Cullen in his speech to the Institute of Chartered Accountants last week made reference to the fact that the Government is likely to accept Mr Stobo’s work in this area. I would argue quite strongly that the Government, rather than forcing what is an inappropriate solution by means of this taxation legislation, should have waited and done the job properly in totality.

I want to mention the sale and leaseback of intangible assets. This was a structure put in place by investment banks to allow, essentially, what looks like a loan-type facility to take place, or an asset to be stripped out. The most obvious example was when APN used this structure to buy the New Zealand Herald, amongst others, here in New Zealand. What subsequently happened, and the reason why this provision is in this taxation bill, is that Fairfax indicated, when it was going to buy the New Zealand operations, which included the Dominion Post, that it was going to use the similar sale and leaseback of intangible assets. Of course, the Minister said that was unacceptable, that he was not happy with the structure, and that he would therefore change the law. Again, we respect his decision to do that, even if we do not always agree with it. But what he has done is, effectively, retrospectively gone back and changed the position that was in place when APN bought the New Zealand Herald. We on this side of the House do not favour retrospective legislation in the tax area. It leads to a great deal of uncertainty and a great deal of concern among investors, but particularly foreign investors. We do not like the fact that that is happening in this particular way.

I want to comment about the incentive for early payment for tax for individuals starting a business. It is quite true that, as the Minister said, currently the situation with a new business is that that tax is payable in the second year, for 2 years, and that some new companies when they start up do not recognise that fact and therefore make no provision for it, and when they come to make the tax payment, 2 years on, they obviously face financial difficulty. So the Minister has offered the 6.7 percent discount, through this legislation. We welcome that change, but what we would really welcome from the Minister is a complete reduction in tax rates in New Zealand. National will oppose this legislation.

It is a pleasure to rise and take a very brief call in support of the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill. In so doing, I note that it is an omnibus bill—and part of the Government’s busy tax-work programme—that contains several important themes around promoting growth and innovation; tax simplification, especially for small business; reduction of compliance costs; and, in the case of the issue referred to by the member who has just resumed his seat, protection of the tax base.

It is to the sale and leaseback issue that I first wish to draw the House’s attention. I note that the member who has just spoken from the National Party said that he did not necessarily agree with the Government’s policy intent on this matter. I ask the Opposition exactly which part of a sale and leaseback proposal that is designed essentially to defraud the public of taxation—which it needs and which it is legitimately entitled to—does it agree with? I do not concur with the construction that has been put on this matter—namely, that it is retrospective. Indeed, the Government’s policy intent on this matter was well signalled and was necessary in order to avoid a sequence of major transactions ricocheting through some of the country’s largest corporations, with major risks to the tax base. So I think, once again, we can see with some clarity the contrasts between the approaches taken by both sides of the House on that matter.

With regard to the Stobo review on taxation of savings, which the previous speaker raised, may I say that that is a much broader work programme than the very specific issue that is contained herein on venture capital, and a matter that I was pleased to help the Minister work on.

It is well recognised that New Zealand does not attract its fair share of international venture capital flows. As it does not, there is no risk of tax loss to the country, because those flows that would not be taxable in New Zealand under this legislation currently do not come to this jurisdiction. Unless we have a measure like this we will simply not be able to get our share of those flows, at least vis-à-vis Australia. So this is a very important provision, and it is part of a very systematic attempt by the Government to improve the accessibility and continuity of capital availability to companies right through their life cycle, from set-up until maturity.

Finally, can I mention briefly the 6.7 percent rebate to small businesses in their first year of operation. We hear so much from the Opposition about corporate tax cuts. When we give an effective tax cut to small businesses, it is gracious of Opposition members to say that they agree with that. But I want to suggest that this is but a small part of an ongoing programme—which, again, has been well signalled—that is about making life easier and better for small businesses and simplifying the tax structure. We are pleased to see this.

The Government is very grateful for the work of the Finance and Expenditure Committee, chaired by my colleague Mr Cosgrove. The committee worked through the bill in detail and has recommended a number of minor changes. The committee accepted two Supplementary Order Papers from the Minister, and this is a very good example of the tax process working as it should. I believe, indeed, that the generic tax policy process in New Zealand is regarded as a model worldwide.

New Zealand First will be voting against the bill for a few main reasons. We have some concerns that go to the very foundation of this legislation. New Zealand First has always had the philosophy that we will support legislation that is good and oppose legislation that is not quite as good. I, like Rod Donald, disagree with giving certain non-residents a tax advantage on profits from the sale of shares in unlisted New Zealand companies, because it disadvantages New Zealand resident venture capital investors and undermines the tax base to a certain degree. Even John Key pointed out that it would still not attract the appropriate capital needed for the purposes and reasons for which this part of the legislation was created. So that is one reason but there are many others, that I do not have time to go into.

I want to touch on Part 1, “Annual Rates of Income Tax 2004-05”, in terms of inflation adjustment for personal marginal tax rates. The Labour Party will have to face the fact, sooner or later, that it told the electorate in 1999, before being elected, that the highest marginal tax rate would affect only 5 percent of the earning community.

💬 Hon David Cunliffe: Which it did.

Which it did then, but I am telling the Associate Minister, with respect, that the threshold has expanded. Some people argue that it is not quite 20 percent; that it is around 18 percent or maybe 17 percent. Whatever the figure, whatever side of the argument one is on, the percentage has expanded, and sooner or later the Government will have to address this matter. That is all I am going to say to the Government and the Minister.

While I am on that subject I note that the United Future member Gordon Copeland has put in a Supplementary Order Paper, and we will be supporting that. I am interested that United Future has put in a minority report on the bill. I do not know whether it will be voting against the entire bill, although this issue is quite a major part of it. New Zealand First supports the notion that in order to preserve the present tax thresholds in terms of purchasing power, the present tax bands should be expanded from $9,500 to $10,750, from $38,000 to $43,000, and from $60,000 to $68,000. That issue forms a pretty major part of the bill, and I will be interested to hear what that member has to say, as far as supporting the entirety of the bill is concerned, since his party has put in quite a lengthy, and I must say, substantial minority report. I thank United Future for doing so.

In talking about income tax, and confirming the annual rates of income tax, as we are in this bill, I believe that this country faces an even greater problem. I have mentioned the issue in the House before, but I believe it needs to be addressed again. Instead of thinking that a lowering of the rate of income tax is the answer to all our problems, as some in this Chamber believe, we should be looking at other alternatives, as well. We need to be looking at tax incentives for exporters. If one looks at Singapore—and I do not want to spend any time on this because it is not directly related to the bill—one will see that that country exports around $60,000 per man, woman, and child. Ireland exports around $40,000 per man, woman and child, but New Zealand exports around $8,000 per man, woman and child. I think right there our Government needs to say: “OK, we must provide tax abatement and concession policies to ensure that viable exporting and innovation opportunities are not lost.” For example, a 20 percent tax rate on new export net income would be a great start.

If we are to protect our nation’s tax base, then we ultimately need to reform the taxation system by simplifying tax processes, clarifying tax legislation, ensuring that the taxation laws of New Zealand are upheld, and ensuring that all companies, large or small, pay their taxes.

Another issue faced by this country, and the Minister of Finance, and the Associate Minister sitting over there, is that our big banks, sadly, are owned by foreign enterprises. One of the biggest tragedies of our nation is that our big banks are owned by Australians mostly, and only a very small percentage, such as Kiwibank and the Taranaki savings bank, are New Zealand - owned. That is sad enough, but the foreign-owned banks are not paying something like an estimated $360 million in tax. I know we are going through a process to correct that, which is great. Hopefully, we will get more New Zealand - owned banks in the process, as time goes on. While I am on the subject, New Zealand First’s long-term objective is for New Zealanders to be paying less tax. As a Parliament we need to remain opposed to any increase in general taxation, so supporting Gordon Copeland’s Supplementary Order Paper would be a good start.

There are positive aspects to the bill. I want to touch briefly on dispute resolution. Last year we focused a bit on that, and we do need to improve the legislation every year. This bill amends the framework for resolution of tax disputes between the Inland Revenue Department and taxpayers. The amendments to the bill follow on from a discussion document about resolving tax disputes. A report on a legislative review was released in July 2003, and the three main stages are intended to ensure that all relevant evidence, facts, and legal arguments are explored before a case goes to court and are essential to the disputes resolution process. I do not think the House wants me to read them out verbatim. I think the House knows exactly what I am talking about. It is a positive move that new section 89N inserted by clause 84 prevents the commissioner, in cases where a dispute has not been resolved between the parties, from amending the assessment without first completing the disputes process.

There is one other issue, and we talked about it at some length in the Finance and Expenditure Committee. Last year the House enacted the Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act, which allows employers to use accredited intermediaries to assume the employer’s PAYE obligations. This bill includes several small amendments to those rules to improve the operation.

New Zealand First is opposing the bill.

This legislation has some good features, but we have two principal concerns about it, which means we cannot support it. It also totally lacks the measures we believe are necessary to put New Zealand’s tax system on to a sustainable basis, as well as to provide the appropriate carrots and sticks to achieve an ecologically sustainable and socially just economy.

💬 Hon David Cunliffe: It doesn’t achieve world peace?

We could have a go at world peace too if the member would like. I like to set high goals and aspirations. But I will come back to world peace later.

I would like to explain why we cannot support this bill. The two key reasons are outlined in our minority report. First and foremost, the bill will give certain non-residents a tax advantage on profits from the sales of shares in unlisted New Zealand companies, but it will not offer that same advantage to New Zealand shareholders. That is not what we are asking for. We do not think that any shareholders should get those tax advantages, but the particular measure in this bill undermines our tax base and discriminates against New Zealand resident venture capital investors.

💬 Hon David Cunliffe: There’s no such thing.

If Mr Cunliffe does not agree with me, I will quote what PricewaterhouseCoopers said to me in an email: “Those resident investors who hold shares on revenue account are liable to tax on any gain on sale of the shares, and are therefore prima facie disadvantaged in comparison to those foreign investors who meet the requirements of the new rules.” The member should not believe me; he should talk to the tax experts at PricewaterhouseCoopers.

We think it is ironic that the Government has introduced this venture capital measure, because it claims that New Zealand is not attracting enough venture capital. It also says we need to do it because Australia has that rule. Well, excuse me, 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. It is not amazing that we supposedly have a shortage of venture capital in this country, because at the same time the Government is putting at least $2 billion a year into the superannuation fund, which in turn tosses most of that at the global sharemarket.

The remedy, surely, is in the Government’s own hands. All 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. It does not need to give tax incentives to foreign investors.

Our other concern about this change—and I highlighted it in my minority report—is that it could lead to pressure to remove tax on other capital gains. I am afraid to say that my premonition has been proved correct, because only this week Dr Cullen signalled that he plans to remove the capital gains tax that applies to superannuation schemes and actively managed unit trusts. The Green Party supports a level playing field for Kiwis to invest their savings, but instead of removing capital gains tax from superannuation funds, the Government should investigate introducing a capital gains tax on all realised capital gains.

The absence of such a tax encourages investors to sink their savings into property instead of productive enterprises. No such perverse incentive currently exists for superannuation funds, because they have to pay capital gains tax. I should say “we”, because the Green Party does have its own superannuation fund, and our members are very happy to pay capital gains tax on any realised capital gains we make. But the point is that superannuation funds do have to pay capital gains tax. However, if Dr Cullen removes that tax he will open the floodgates for superannuation funds to shift their investments from equities into property. That would have a disastrous effect both on the property market, because it would artificially inflate prices, and on the sharemarket, because it would cause share values to plummet.

New Zealand already has a savings crisis. The Reserve Bank reports that our Kiwi savings rate is minus 11 percent. In simple terms, we are collectively spending more than we are earning. We will not turn that unsustainable behaviour around by removing a capital gains tax on superannuation funds. As I said before, such a step would only encourage more property speculation and more spending, because it is clear that people are borrowing against their property values. That is fine when values are high, but it becomes a disaster when they drop and investors face a situation of negative equity.

💬 Hon David Cunliffe: Wait and see.

Well, I tell the member that we want a soft landing, surely, rather than a crash-landing. The last thing one does is dig up the runway just because the rest of the airfield does not happen to have any tar-seal. That is exactly what Dr Cullen is doing here by removing the capital gains tax on superannuation funds.

I move to the second issue that we have raised as a concern—and it is very much a related issue—which is the lack of serious incentives to encourage people to save for their retirement. As I said in my minority report, the Green Party believes that the 6 percent tax differential between the specified superannuation contribution withholding tax rate of 33 percent and the top PAYE rate of 39 percent should be extended to all salary and wage earners.

It is an indictment on this Labour Government that it introduced a 6 percent tax incentive for the most well-off wage and salary earners in this country while for a long time it left a penalty in place on middle and low income earners. At least it has now removed that penalty tax by making the superannuation withholding tax a flexible rate that ties in with a person’s top rate of tax. However, it still creates the unfairness of low and middle income earners having to pay the same marginal tax rate while those of us on the top income tax rate are paying only 33 percent on our savings.

So the Green Party will be putting up a Supplementary Order Paper to this bill to amend the rates to 9 percent for incomes up to $9,500, 15 percent for incomes between $9,500 and $38,000, and 27 percent for incomes between $38,000 and $60,000. I would like to thank Treasury officials for drafting that Supplementary Order Paper to make sure it is sufficiently robust to be worthy of passage, and I hope that other parties in this House, particularly those that encourage people to save for their retirement, will support that Supplementary Order Paper.

However, I would like briefly to say that by far our preference would be for the Government to look seriously at the “t’s and e’s” of superannuation. We believe that the logical step forward is to make contributions exempt so that they come out of gross salary, and to tax what people withdraw at the time they realise their superannuation savings. That would both create for the Government a tax deferral to a time when it will need it more, and give people the upfront incentive to save that they should have right now.

In talking of incentives, I say that the Government is not doing what it needs to do as far as making our economy and its tax base more sustainable. It should be introducing eco-taxes right now. It should be bringing the carbon tax forward from 2007. It should certainly pass the Customs and Excise (Motor Spirits) Amendment Bill that creates the facility to bring in an extra petrol tax, and it should not delay bringing that in while waiting for the equilibrium price to drop to $19 a barrel, because that will never happen. So I hope Dr Cullen does not delay for too much longer. At the same time, the Government does need to bring in an excise tax on diesel. There are other eco-taxes that I will talk about when we get to the other tax bill.

In closing, I would like to observe that United Future wants to give all its MPs a $1,155 tax break by shifting tax levels, when at the same time its MPs have just received a 3 to 3.5 percent increase in their salary. I do not think that that goes down well with working people in this country. I urge United Future to back the Green Party call for the minimum wage to be lifted to $12 an hour, so that the people who really need an extra $50 a week get it and not just members of Parliament who are already doing very well, thank you very much.

This bill makes a number of positive incremental improvements to the current New Zealand tax regime. In particular, I welcome the new tax rules in relation to venture capital. If the New Zealand economy is to continue its growth and expansion, then it will need, for the foreseeable future, to attract capital investment from overseas.

This is particularly true for venture capital, which can be defined as high-risk, high-reward investment. It is exactly such new venture investment that has the potential to take new technology and biotech breakthroughs from the laboratory into the domestic and international marketplace. In that regard, New Zealand competes for venture capital with the rest of the world. We cannot afford to remain non-competitive. New rules set out in the bill will bring New Zealand into line with Australia, and I am hopeful that as a result we will see New Zealand’s share of the venture capital pool enhanced in the years ahead. At the same time, I am conscious that this is still a work in progress. Much more can be done to make New Zealand a venture capital destination of choice. However, this bill represents an important beginning.

The bill also updates and enhances the framework through which disputes arising between the Inland Revenue Department and individual or corporate taxpayers are resolved. This is another important improvement on the current position. By any standards, New Zealand tax law has become extremely complex. In that environment, notwithstanding the many tax practitioners in both the legal and accounting professions, it is clear that disputes will remain a feature of the New Zealand tax system long term. Given those realities, we need an effective disputes resolution system that at least provides certainty of process, if not of outcome. At the same time, the opportunity has been taken to clarify the Inland Revenue Department’s obligation concerning refunds of excess tax paid—yes, the taxpayer, rather than the Inland Revenue Department, is occasionally right—and the period for claiming input tax credits for GST.

As one who grew up on an apple and pear orchard, I am also pleased to see that the bill incorporates new provisions in relation to the tax treatment of horticultural plants, to clarify the correct tax treatment in relation to the replacement of trees, and other issues. Again, this is a step forward and will create greater certainty for orchardists in New Zealand.

I am pleased too that the bill introduces an early payment discount in relation to business start-ups. It is an unfortunate fact of life that many new businesses that start up do not make it through the third year of their operations, because of the double-whammy tax effect that arises in the second year, when the business owners are endeavouring to meet both provisional tax payments and terminal tax obligations from the first year of their operations. Anything that assists business to survive through that critical period is, therefore, to be welcomed.

The bill is also accompanied by an extensive Supplementary Order Paper in relation to the taxation of investments by New Zealanders in Australian unit trusts. This closes a loophole that allows those investments effectively to be classified as tax-free in both Australia and New Zealand. That is clearly an unacceptable outcome. As a result of the tax loophole, predictably, huge amounts of money have been invested by Kiwis in these Australian unit trusts, and the Government has my support in moving to close that loophole. It is unfair and unwarranted. It is extremely important that the taxation on different kinds of investment, be it investment within New Zealand or overseas, does not act to distort market signals. Investment that is driven purely by tax advantages normally turns out to be poor-quality investment in the long term. On the other hand, if the tax outcomes between different classes of investments are neutral and we have a level playing field, then distortions are eliminated and investment will flow to where the highest returns can be gained consistent with risk. To put it another way, the market itself will operate to incentivise investment in those areas of the economy that have the greatest potential for growth, because they are providing goods and services that relate to, and meet the needs of, the community.

This bill also establishes the rates of income tax for the current 2004-05 income year. These remain unaltered from those established on 1 April 2000, which is now some 4½ years ago. United Future does not support that element of the bill, although, consistent with our supply agreement with the Labour-led Government, we will be voting for the bill as a whole. I want to make one point clear—because I know that Pansy Wong will have a crack at United Future on this issue. When United Future, now or in the future—and in the future it may be with another party in this House—signs its name saying it will give confidence and supply to the Government for 3 years, it actually intends to follow through on that promise. I believe that that is a very important principle that we are demonstrating, because it gives certainty to business. I tell Ms Wong of the National Party, in case she wants to have a crack at us on this, that our stand on that is well understood by the business community and is very popular.

To make that distinction clear, however, I will, during the Committee stage, introduce a Supplementary Order Paper that would see tax rates cut from 1 April 2005. By that date we will be past the time for a cut in income tax rates. Under a progressive taxation system, if the tax threshold limits are not adjusted to take account of inflation, then in real terms taxes are being increased. That is the factual position and it is really beyond dispute. I will put it another way: it means that unless the Government brings a bill into this House reducing tax rates, by default it is allowing tax rates to increase. In my view the Government continues to expose itself to a certain moral hazard in that regard, as those members clearly said, prior to being elected to Treasury benches in 1999, that they would not, having put in place the new 19.5c, 33c, and 39c progressive tax system, thereafter increase taxes. It is becoming harder and harder for the Minister of Revenue to sustain his obscurantism and smoke and mirrors exercise in that regard. Come 1 April next year, 5 years will have passed since the current rates were established. The rise in the cost of living over that period will be about 13 percent, and people’s pay packets have gone up accordingly. Thousands of people, therefore, who previously were paying a maximum of 19.5c, have now moved into the 33c bracket. Thousands of others who paid the 33c maximum are now paying 39c.

One can, when in Government, fool some of the people some of the time, and some of the people all of the time, but Dr Cullen and the Government may yet find that even they, seemingly invincible in the polls, cannot fool all of the people all of the time. In United Future’s view, it is time for a tax cut.

I have much pleasure in participating in this debate on the second reading of our Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill. I also want to thank United Future for having the vision and commitment to support our Government on this omnibus bill. The bill reflects several important themes of our Government’s tax policy work programme, in the context where we are looking at measures to promote growth and innovation, to simplify the tax system—especially for small businesses—to reduce compliance costs, and to protect the revenue base.

The bill will help New Zealand to compete more effectively with Australia for venture capital. It will introduce a rebate of income tax for small-business taxpayers who pay tax on their self-employed or partnership income during the first year. It introduces amendments to the legislative framework governing the resolution of disputes between taxpayers and the Inland Revenue Department, to improve the process for both parties. It looks at the closing of a loophole involving the sale and leaseback of intangibles, such as trademarks and newspaper mastheads. As my colleague Gordon Copeland said, it sets the income tax rates that will apply for 2004-05.

The Finance and Expenditure Committee has recommended a number of minor changes to ensure that the legislation is tightened up and operates effectively. The two Supplementary Order Papers introduced by our Minister of Finance, Dr Michael Cullen, concerning Australian unit trusts and the February 2004 storms, were also considered. I also want to thank the chairperson, Clayton Cosgrove, members of our select committee, and our Inland Revenue Department officials and Government officials for the hard work they have done on this bill, and especially for engaging with the key stakeholders.

I will make just a brief comment on United Future. One of my colleagues described that party as having a bob each way; I would describe it as having a bob in every direction anyone can think of. United Future is going to vote for and against the main provisions of this bill—the main provisions being the ones by which New Zealand sets its tax rates. United Future will vote for those provisions when it votes for the Government, but against them when it puts up its own Supplementary Order Paper. This is a pattern of behaviour. United Future members told Unitec that they opposed the Education (Establishment of Universities) Amendment Bill, then went to a select committee yesterday and voted with the Government to make sure the bill will be jammed through before Christmas.

💬 Pansy Wong: It’s a decent party.

It is a very decent party, and at least its definition of consistency aligns with Helen Clark’s definition of consistency. What United Future does not understand is that its promise to support the Government on confidence and supply guaranteed the passage of a whole series of social measures to which its voters are totally opposed.

💬 Gordon Copeland: I raise a point of order, Mr Speaker. We are actually having a debate about taxation in terms of annual rates and venture capital. I do not understand what social engineering has to do with taxation.

The ASSISTANT SPEAKER (Hon Clem Simich): No, no. That is not a point of order.

I think the United Future member’s reaction points to those members’ fundamental problem of how to stay relevant when they vote for a Government that does all the things they are opposed to.

I have not been on the Finance and Expenditure Committee for some time, but I see in this bill, though, that there is one matter on which I could have contributed some expertise—that is, the section of the report that is on the use of the colon in tax legislation. I believe, quite seriously, that that section about the meaning of the colon in our tax legislation will have much greater impact on our tax law than all those other measures put together. I make that as a serious point. But I do struggle with the conclusion that the committee came to, which raises doubts about whether its members understood the rest of the bill. We have now found out what the definition of the colon is. The reason for the use of the colon is that it is not “and” nor “or”.

💬 Lindsay Tisch: Can you explain that?

Well, I will. It is an indication that the statements in the items are not linked conjunctively or disjunctively. That is what it means: it is not “and”, and it is not “or”; it is a colon. Then we find that that is unique in the world. Well, why do we not just get with it? Everybody else in the world uses a semicolon. We now have to follow world accounting standards and world other standards, so why do we not just follow world tax law grammatical standards and settle for the semicolon?

The only other thing in this legislation that is more important than the use of the colon is the way that it sets our tax rates. A simple phenomenon has occurred over the last 5 years. New Zealand has had a growing economy, and it has also had rising inflation. A tax base is defined by the nominal size of the economy, not the real size of it; as the simple number of dollars grows, the tax base grows. What has happened is that Dr Cullen has kept more than his fair share of that growth in the Government bank accounts, and working families and small businesses have had less than their fair share. I invite the Minister to go and look at the change in net wages over the last 5 years. I can tell the Government that its surplus and tax take have grown many times faster than net after-tax wages. How can Government members go out and say to the ordinary people of New Zealand, the battlers struggling to pay their mortgages, that we have had the best boom in a generation, but the Government has got more than its fair share and they have got less? What should have happened is that people’s net incomes, their net after-tax wages, should have grown at least as fast as the Government surplus has done, and they have not.

Now we have the ridiculous situation where the tax rates in this bill mean that when Dr Cullen wants to make a long-term investment, he pays for it out of this year’s cash; when anyone else wants to make a long-term investment, they have to do it the hard way, because they are not allowed to keep the proceeds of their work. They have to get a mortgage—a long-term loan to match their long-term asset. That is a measure for ordinary people of how much cash Dr Cullen has. He has enough such that when he wants to make a long-term investment he pays for it out of this year’s income. While he is doing that, working families are struggling to pay their interest rates and their mortgages, and superannuitants are struggling to pay their rates. Working families are buying raffle tickets to pay teachers, while Dr Cullen is using tax rates to collect money that he is wasting on a huge scale.

I shall speak about my own portfolio of education, in which the Government is wasting hundreds of millions of dollars. We heard an example today in the House. The Government spent $15 million on one computer course in Christchurch. Out of the 15,000 people who enrolled in it, 13,000 never did it. There is no evidence that they did the course. That means the Government paid out $12 million for something that never happened. It told us today that it did not get 1c of the money back, although it had promised the House that it would. Why does the Government believe that this House will support tax rates that allow the Government to behave in that way? It has kept much more than its fair share of the growth dividend, and it is wasting it.

It is also sitting on this cash and adopting the course of action that has come through in this debate today, and that came through in the Finance and Expenditure Committee yesterday. Instead of having cuts in tax rates that treat everybody fairly, and that are open, transparent, clear-cut, and predictable, it gets the cash in a pool and makes a series of targeted political decisions. For example, the Minister has now decided that the centrist Labour Government should favour small business as it goes into an election year. But instead of reducing the tax rates of small business, it will come up with a series of tax concessions. It will change the depreciation rates on technology. It might change the depreciation rates on other things. It might change other aspects of the tax system, and the Minister has signalled some of those already. So he is turning the business of setting tax rates into a political auction. He will have a stream of people coming in and out of his office as he uses our money to dispense political favour.

There are other, detailed aspects of this bill, some of which are positive, but I will raise one in particular, with which the Government is cleaning up another mess of its own making. I refer to the provisions that relate to the deductibility of costs for resource consents. That looks pretty desirable. This bill states that if a person spends money on a resource consent and does not get it, the expense is deductible. Who is the biggest spender on a resource consent that never happened? Meridian Energy—a Government-owned company. By my estimate, which is pretty rough, Meridian Energy spent at least $40 million on getting a resource consent for Project Aqua, which never happened. The biggest impact of this provision will be to affect the tax status of one of the Government’s biggest State-owned enterprises. That is what the provision is for. A few other little bottom-feeders out there will get some benefits, as well, but the Government is trying to cover up a massive waste of money by one of its own companies, with an apparently obscure provision in this bill. I invite the next Government speaker to tell the House what effect this bill will have on Meridian Energy and the $40 million of expenses that it incurred for Project Aqua—a project that will never happen and for which consents were never gained.

As my colleagues have said, we will be voting against this bill because it locks in the current tax rates. Those rates have collected $34 billion in extra tax in the last 5 years, and the Government has wasted a significant proportion of it.

I rise on behalf of the ACT party to speak on the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill. The ACT party will be voting against this bill because, essentially, it is legislation that allows New Zealanders to remain overtaxed. We are overtaxed. This Government is running a surplus. It is a very simple matter. If the Government took just as much as it needed, we could say that it was not greedy. But we do have a greedy Government that takes far too much money from working families and is spending it essentially on trying to win the next election. We all know what it uses a lot of that money for. It is simply vote buying.

I will start by saying that as I sat here quietly listening to this debate, I found it absolutely unbelievable that United Future claims on one hand that taxes are too high in New Zealand, and on the other hand will vote for this bill. It is the worst example of double standards that I have seen for a very, very long time. I think it is appalling that there can be a party sitting in Parliament today agreeing with the Government to pass the laws that keep New Zealand’s tax rates too high, and that then says it will campaign in the next election on lowering taxes.

We have to remember that voters out there have a great deal of common sense and that they will look at the antics of United Future, which is in cahoots with the Government, and ask whether that is a party that they can trust or hold to its word. The answer is no. If, on one hand, one says one wants lower taxes, and then votes with a Government that is keeping taxes high, then clearly that is not a very clear statement from a party.

I say to voters that we have a situation here whereby the only reason taxes are being kept high is that United Future is voting with the Government. If United Future were to do what it said and vote with the side of the House that says taxes are too high, this bill would fail and New Zealand could look forward to a tax regime that is much easier to take, because it would not be such a greedy regime.

The bill reconfirms the annual tax rates in New Zealand. We have already heard in the debate that since Labour has been the Government, it has taken $34 billion extra in tax. It is keeping tax rates high up there at 39c. Since Labour has been the Government, we have seen a 38 percent increase in the number of working New Zealanders who now pay the top rate of tax—the number of New Zealanders who now have to pay that rate has gone up from 185,000 to 255,000, in spite of Helen Clark’s credit card promises when she was elected in 1999 that the top tax rate would apply only to 5 percent of New Zealanders. That rate is going up. The Government has not looked to adjust it in any way, at all. United Future can talk all it likes but it is not doing anything to help, so more New Zealanders are now being stung by taxes that are too high.

The result is not the rising standard of living that we would all expect. If we look at the numbers—the growth rates—we should be seeing families who are feeling wealthier and who are more prosperous today than they were 5 years ago. But they are not. They are struggling harder. We have a situation whereby working couples can no longer choose to have one parent stay at home to raise the kids. They are both having to work because they are struggling just to get ahead—to pay the mortgage, to pay the bills, and just to get by.

I say to the Labour Government that it is meant to be looking after workers in New Zealand. We have an appalling state of affairs. The surplus each year is $6 billion to $7 billion, but instead of just giving it back to those families who are struggling so hard, the Government keeps it as a windfall gain. We on this side of the House see all sorts of spending that we think is irresponsible—like the $21 million the Government is going to use to sell last year’s Budget. It will spend most of that next year in election year. It will be wrapped up with Labour Party branding that states: “What a great Labour Party we are—and, by the way, this is how your family support package is going to work.” It is an outrage that it has even been able to get away with doing that. That is a gross misuse of public money.

I think if we cut through it all, we come to this point: in the last week or so we have heard of people dying on hospital waiting lists. We have heard of emergency services in hospitals that are having to be closed down because they cannot afford to provide the health care that New Zealanders absolutely deserve. Here is a Government that is allowing that to happen on its watch—while it takes $6 billion or $7 billion extra in tax, it is not able even to provide the basic services to New Zealand that New Zealanders deserve. I think it is absolutely disgraceful that that is happening under the watch of this Government that likes to say how much it cares.

It is ridiculous, really. How can we trust a Government when that sort of thing is going on? How can any New Zealander trust the Labour Government when it is allowing people to die, and when it has $6 billion or $7 billion in its coffers with nowhere to go? The Government is looking for a home for the surplus—it is sitting on it and keeping it so that it can try to spend it next year to win votes to get it elected.

I think that by next year the public of New Zealand will look at that situation and say that it is a disgrace and that this Government is too greedy by far. The public will be demanding lower taxes—as much of the Western World is demanding that taxes come down.

Earlier on last year, Treasury did a report about how we could bring taxes down to 20c in the dollar. A low flat tax would create a prosperous New Zealand, and it would not cost any more than the surplus. We could leave all the other spending in place—just take the surplus and drop taxes down. Treasury did not even refer to the incentive effect that would drive this economy to growth rates we cannot even imagine.

In Ireland the company tax rate is 10.5 percent. If a person in Europe is thinking about where to build a factory, the place to go is Ireland, because its tax rates are so low that they generate a whole avenue of productivity and growth. New Zealand could do that if it had the political will.

This Government is a socialist Government. It certainly will not do it. But if we think hard about New Zealand in the future, low taxes should be what we as a country should look forward to. In this bill are a whole lot of provisions about venture capital. If we had low taxes, New Zealand companies would not need to look offshore to try to get money to support their new businesses. We could look internally. If families had more disposable income, they would put money into venture capital funds. They would put money into saving for their retirement. They would put money into buying health care so that they did not have to trust the Government system that is being underfunded by Labour.

ACT opposes this bill, and we suggest to the Government that it should take note of some of these ideas that have been raised by the Opposition, and lower taxes.

I sat on the select committee that considered the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill. It was interesting that both the National Party and the ACT party spokespeople who have spoken in the debate before me were not on the committee and know nothing about the bill. I wonder why Pansy Wong, who was on the committee, had to be relegated behind Bill English. It was largely because we heard that ridiculously political speech that concentrated his entire intellect on looking at the use of colons in one part of the bill. It is interesting that the once-great National Party, as people have described it, used to be there for business people and farming people.

Did we hear one thing about what this bill does in respect of helping people affected by those terrible floods earlier this year? There was not a scrap. Nothing. The bill also deals with the tax treatment of replacement plantings of fruit trees and vines. Did we hear the party that used to represent rural New Zealand say anything about those good provisions? No, not a thing. No wonder people in those parts of New Zealand have abandoned the National Party in such great numbers! And then the pretenders to the throne, at 1 percent—who will be pretending for a very long time—the ACT party, which is supposed to be here in the interests of consumers and, sometimes, taxpayers: did we hear anything about the improvements for new businesses starting up, the discount for early payment? Did we hear any of that from Muriel Newman? No! No wonder that party is dead in the water and cannot even get its finance spokespeople to turn up and debate these sorts of issues!

This is a good bill. It deals with a lot of issues that have been raised by taxpayers and business people in the past. One of those things was dispute resolution. I heard the submissions and I watched the work of our advisers, who are from the industry and who are expert in the area. We took notice of it. The bill has been changed, and it is now a very good bill. That is why United Future is supporting this legislation. It helps business, the rural community, and the people who make this country great, and National and ACT are opposed to that. It is so sad that those parties that pretend to be here representing the interests of business, the rural community, and taxpayers completely fail to do so, and will vote against the bill. That is shocking. That is why the ACT party is at 1 percent and dropping rapidly, so that Bill English’s result will look pretty good, next time.

The Labour member Mark Gosche thinks that the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill is a good bill—so good that he took only 2 minutes to tell the public how good it is. That is all Mark Gosche had to say—2 minutes’ worth.

National opposes this bill. We lay down a challenge to United Future, which I will detail later. Since the minority Labour Government came into office in 1999, it has increased the tax take by $34 billion—$34 billion dollars’ more tax is being taken off ordinary, hard-working New Zealanders. Where, as Muriel Newman asked, has it been spent? The hospital waiting lists get longer. Recently we heard that Wellington is the second big city to announce that the emergency clinic would no longer take night calls. People have to queue up in the hospital’s emergency department.

💬 Hon Bill English: And they have to pay.

They have to pay. We also learnt that the Ministry of Health has now relaxed the criteria on the waiting time it is deemed acceptable for people to wait in the emergency departments of our hospitals. Where has that $34 billion extra tax gone to? The Labour Government announced in its latest Budget its biggest spend-up—the so-called family package. It is so complicated that nobody understands it, so it has to throw another $21 million at it to promote it. But $34 billion additional tax was taken from ordinary New Zealanders. That is a big part of this bill.

When the public looks at this legislation, they may get confused. This tax grab bill was recommended to pass by a majority of members on the Finance and Expenditure Committee. It is not unanimous. When I flicked to the end of the commentary on the bill, I became a bit confused, because the parties holding a minority view include ACT, New Zealand First, and United Future, and we do not support it. Where is the majority? If we are all against it, where is the majority that supports the bill? But more than that, United Future’s Gordon Copeland has tabled a Supplementary Order Paper to index the increase of the tax threshold. Although National does not believe that is the total answer, we will make a commitment to support United Future’s Supplementary Order Paper. I know that New Zealand First will support it. I think ACT will support it, and the Greens probably will. Now all that is missing is Labour’s support, and I think that United Future should be able to demand that its Supplementary Order Paper be supported by Labour. Then a lot of taxpayers will get instant relief.

💬 Dail Jones: Yes.

I hear from my colleague from New Zealand First that they will support United Future’s Supplementary Order Paper. In looking forward to the Committee stage and the third reading, we now lay down the challenge to United Future to show that it is a decent party—a party that would represent its constituents by coming to Parliament to keep the Government honest. We look forward to seeing it vote against this “Tax Grab Bill” if Labour does not support its Supplementary Order Paper. If United Future exercises its power in this way, taxpayers would not continue to be overtaxed by this “tax and spend” Labour Government, which likes to redistribute hard-working New Zealanders’ hard-earned money.

Much has been made of the big step taken in terms of the amendment relating to attracting foreign funds to invest in New Zealand’s venture capital. I do not think the public should be misled. The three groups of submitters who came before the Finance and Expenditure Committee basically represented 100 percent of the venture capital industry. They were unanimous in telling the select committee that the amendments included in this bill were not worth the paper they were written on. I quote from New Zealand Venture Investment Fund Ltd: “In summary, the tax changes proposed in the April tax bill will not attract the targeted offshore investors because the eligibility criteria are too restrictive.”

New Zealand Venture Investment Fund Ltd has taken a very responsible step. It went out and surveyed nine substantial foreign fund investors and gauged their opinions on whether the amendments included in this tax bill would lead them to invest in New Zealand. I am afraid the answer is that these amendments are far too narrow and restrictive. They spelt out the most effective approach to ensure that foreign investors would be interested to invest in New Zealand. They said that the amendments would have to contain certain features. For example, a tax-exempt status was needed for offshore investors who invest in New Zealand ventures through appropriate venture capital investment vehicles, regardless of their domestic tax status. That is not included in this bill. The types of mechanisms they are looking for are a new limited partnership vehicle and mutual recognition between Australia and New Zealand of partnership structure and tax structure. I am afraid that, as usual, the minority Labour Government is all light and no heat. It continues to waste the time of Parliament by passing legislation that feels good but that in substance will not do much.

We do not have much of a problem with the Government introducing the amendment to close down the so-called loophole in respect of Australian unit trusts. However, we do think it is a problem that the Government is once again having a knee-jerk reaction and is not, at the same time, tackling the same issue in respect of Britain. I quote a salient point that was made by the submitter: “Ultimately the existence of investors looking for mechanisms such as the Australian unit trust was because of the tax regime in New Zealand. While New Zealand continued to tax the pool investment fund at 33 percent, our investors will be looking at loopholes and setting up vehicles to do that.” Instead of taking up the opportunity to make New Zealand competitive, we are debating piecemeal legislation that has the effect of plugging one hole, with another one opening up very soon somewhere else because of the underlying principle that New Zealand investors are being overtaxed.

I rise to take a very brief call to support the second reading of this bill. The thing I find interesting, having listened to Dr Cullen, the Minister of Revenue and Minister of Finance, explain why the tax rates will be set at these levels, and what the effects of this bill will be, is the absolute crocodile tears from National Party members, who will oppose this bill but have not told us what tax rates they would like to see put in place. Despite having all these calls in the debate, they have not told us, nor disclosed to the public, what tax rates they would put in place. The public knows, by the passage of this bill, the tax rates that the Labour-Progressive Government will be setting for the coming year. They know what we will do with their money. We will provide strong public services for our communities and for our families, which is very important in terms of securing fairness and opportunity for ordinary New Zealanders. All we know from the National Party is that it would slash taxes for its rich mates, and cut public services for ordinary Kiwis.