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

National will be opposing the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill. I want to address Part 2, and clauses 26 to 28 that, interestingly enough, concern Māori authorities.

💬 Hon David Carter: John Tamihere.

It is about how they have a special tax rate of 19.5 percent. I would be very worried about that if I were John Tamihere. But I am not so worried because we heard from the Prime Minister today that John Tamihere will be ringing in to contribute to the debate. He will probably do that on his Telstra free line, but he will be ringing in—0800 HELP. Let us face it, 19.5 percent would be better than what they actually got, which was zero, so maybe it is a positive.

A 19.5 percentage rate for Māori authorities is a very interesting position—

💬 Hon Damien O'Connor: It’s now your poll rating.

No, our poll rate is not 19.5 percent; Mr O’Connor does not need to worry about that—but the interesting point about that rate is that the Government pushed it through on the basis that most beneficiaries of Māori authorities would have had it as their final after-tax rate. So in principle the idea was that it would save them having to re-file and to top up taxation again. The interesting issue about that, of course, is not about the final beneficiaries. That may, in fact, be correct when it is distributed to final beneficiaries of Māori authorities, but in the interim they have cash available to them for which other companies would have to pay a company taxation rate of 33 percent. One might sit there and say: “Oh well, maybe that’s not really that big a deal.”

💬 Hon Richard Prebble: But they have higher koha payments.

They do have higher koha payments. Interestingly enough, one might have a look at the position recently with Aotearoa Fisheries Ltd. That company is now in the position where it will be paying 19.5 percent taxation—and competing with the private sector that is out there paying 33 percent—under clause 27, “Distributions by Maori authority”, and clause 28, “Amount distributed to member by Maori authority”. That makes a nonsense of the fact that this Government does not want to lower the company tax rate, for all sorts of reasons. Michael Cullen has gone up and down the country telling us that it does not matter that companies pay a higher rate of taxation in New Zealand than they pay in many other parts of the OECD.

I want to draw Mr Cunliffe’s attention to this point. He was quoting some statistics from the OECD, but this is the important statistic he should consider: In 1999, when the then National Government left office, the company rate of taxation in New Zealand was 33 percent, and the average in the OECD was 35 percent. We had a competitive advantage—2 percent, compared to the advantage—and I will allow Mr Cunliffe to work that out.

Today as I look around, I see that the average corporate tax rate in the OECD is 29.6 percent. New Zealand’s rate, interestingly enough, sits at 33 percent and the rate for Māori authorities sits at 19.5 percent. New Zealand has gone from a position of competitive advantage under a Labour Government to a position of competitive disadvantage. So if Mr Cunliffe wants to have a look at the OECD and at how this Government is structuring New Zealanders and giving them the opportunity to participate, to be successful, and to compete, then I strongly suggest that he takes a moment to have a look at what has been happening there, and to have a look at the situation in relation to New Zealand’s relative position in the OECD.

I want also to talk for a moment, if I may, about issues in relation to PAYE and intermediaries. Under clause 54 some interesting moves have been made in terms of providing a situation where tax advisers will be in a confidential position. We would welcome that, although it is not a change in this particular bill. But interestingly enough, at the same time as the Government is introducing that, it has tried to bring out an amnesty for the black economy here in New Zealand. When we had the Inland Revenue Department before the Finance and Expenditure Committee to talk about this very issue, we asked it how large it thought the black economy was in New Zealand, and what amnesty might be available if the Government could get it right. The answer was that the department estimated that no tax is paid on around 10 percent of the economy.

💬 Hon Richard Prebble: Have they heard of the Waipareira Trust?

We know where the 10 percent is sitting, funnily enough. We could point the department in that direction. The department does not need an amnesty for that one; it will be able to be pointed in the right direction. However, roughly $15 billion-worth of revenue is actually not getting tax treatment.

As we debate Part 2 of the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill, I cannot help but scrutinise a significant number of clauses, from clause 4A through to clause 68. Members of the Committee will remember that it was not that long ago that Labour had a member of Parliament in trouble. Do members remember the situation with Harry Duynhoven? The Government passed special retrospective legislation to get Harry Duynhoven out of trouble and to enable him to stay in this Parliament. Now, I have been looking at this part, and I note that Labour now has another member, the Hon John Tamihere, who is in trouble.

💬 John Key: Deep trouble!

Dr the Hon LOCKWOOD SMITH: Deep trouble. What are Labour members sneaking into this bill retrospectively to get John Tamihere out of trouble? Lots of clauses in this part need to be examined. I draw members’ attention, for a start, to clause 66, “Meaning of ‘income tax’ ”. Maybe this Labour Government is changing the meaning of income tax to get John Tamihere off the hook, so let us have a look at clause 66. What does it say? Clause 66 states: “In section OB 6(1)(b), ‘CB 2,’ is inserted before ‘CB 10.’ ”

💬 Opposition Member: What does that mean?

Dr the Hon LOCKWOOD SMITH: I am not sure what that means but it troubles me that that could be something designed to get John Tamihere off the hook for not paying his taxes. Maybe they have changed the meaning of “income tax”. One gets more suspicious when one looks at other clauses. There is a clause about the rebate for gifts of money. Maybe they are changing that law to make it so that when the Hon John Tamihere received this koha, as he calls it, this—

💬 Hon Richard Prebble: Golden!

Dr the Hon LOCKWOOD SMITH: Yes, golden koha or something. Maybe they are changing the rebates rules around gifts of money. That is what clause 32 is about. We should look at that carefully to make sure they are not changing the rules to get the Hon John Tamihere off the hook.

It does not finish there—we should look at clauses 34 and 35. Clause 34 is about refunding excess tax. What are they changing there in order to try to argue that the Hon John Tamihere has paid excess tax on some of his earnings, perhaps, to get him off the hook there? When one reads clause 35, “Limits on refunds of tax in relation to Maori authorities” in conjunction with clause 27, “Distributions by Maori authority”, and clause 28, “Amount distributed to member by Maori authority”, one has to ask what the Government is sneaking in there. We should have a good look at clause 28 because I am suspicious that—just as they did with Harry Duynhoven—they are sneaking something in there to get the Hon John Tamihere off the hook for not paying his taxes. He received an amount distributed to him by a Māori authority. Is clause 28 a sneaky little clause to get John Tamihere off the hook?

What gets me even more concerned is clause 8, “Exception for withdrawal when member ceases employment”. Now we know that the Hon John Tamihere got his golden koha when he ceased employment, so one can see that there are a number of clauses in Part 2 that need the scrutiny of this Committee. So many of them could enable this sneaky Labour Government to get John Tamihere out of trouble. We know what it did to get Harry Duynhoven off the hook when he was in trouble.

There are so many clauses in this bill that in fact, according to what is said in the titles of those clauses, they could be designed to get John Tamihere off the hook for not paying his taxes. We know that Helen Clark has not dismissed him from Cabinet. She seems keen to find a way to keep him in Cabinet. I get suspicious when we debate legislation that talks about distribution by Māori authorities to members, exceptions and withdrawals when members cease employment, and the meaning of income tax. In fact, all those clauses could be designed to change the meaning of the Income Tax Act, because they are all amendments to the Income Tax Act 1994. The Committee should spend considerable time examining each of those clauses to make sure that what they mean is clear. I quoted clause 66, and it is far from clear what it means.

I want to take the opportunity to outline some of the key provisions of Part 2, for the assistance of the Committee. The first key provision is to remove a tax obstacle to unlisted New Zealand companies gaining access to private foreign equity, including venture capital. It does so by introducing venture capital rules that are the same as in Australia, thereby equating the tax treatment between the two countries. In Part 2 also is a measure to help small businesses. It introduces a tax discount for self-employed people who make voluntary payments in their first year of business. We all know that if they do not make such payments, as they are allowed not to, in their second year they tend to be hit with a tax crunch, so the Government is offering a discount to help smooth the tax payments of small businesses across their first 2 years.

Part 2 also allows—and this is another taxpayer friendly provision—the costs associated with patent and resource management consent applications that are withdrawn, or not granted, to be tax deductible. Another taxpayer friendly provision in this part is to make the tax treatment of replacement planting of fruit trees more flexible, to encourage the use of the most commercially desirable varieties. Part 2 also closes an egregious loophole involving the sale and leaseback of intangibles such as trademarks and newspaper mastheads. Finally, it deals with some tax issues arising out of the recent severe flooding, to allow farmers to file late tax returns once the damage has been recorded and is in order.

Finally, I want to contrast the points made by Mr Key in relation to the OECD tax rates. I draw his attention to the fact that as of 2001, which to my knowledge is the last fully complete comparative tax analysis by the OECD, New Zealand’s corporate tax rate at 33 cents differed only very slightly from the OECD average of 32.9 cents, thereby showing that as of that date New Zealand’s corporate tax rate was smack on the OECD average.

What we see is the Government, once again, moving forward a range of measures that are designed to make tax easier to pay and to simplify the system, and that is the kind of work that the country expects of a good Government. It is yet more evidence that that is what the country has.

I was quite impressed with the deep knowledge that my colleague Lockwood Smith showed in this part of the bill, and the relevance of it to current events. I was looking at clause 32, “Rebate for gifts of money”, where we have, among other things a list—and I presume this is eligibility for rebates for gifts of money—included in which is Medicine Mondiale, the New Zealand Jesuits in India Trust, and the Operation Vanuatu Charitable Trust, but not the Waipareira Trust. That is not covered under the provisions for rebates for gifts of money.

Progress reported.

The House adjourned at 9.56 p.m.