Taxation (Urgent Measures and Annual Rates) Bill

Now we come to the heart of this bill. How is it funded? The goodies that are being handed out, apparently willy-nilly, have got to come from somewhere. They come from two substantial sources. The first is $3.5 billion from KiwiSaver, which we will be talking about in the debate on a subsequent part. The second is the cancellation of the 115 percent research and development tax credit. Through that measure, $1.5 billion will be saved. We believe that the Government will come to regret the day that it moved this part.

It is very interesting to begin with the analysis set out in the explanatory note of the bill. It recognises that there are significant externalities associated with research and development. The company undertaking the research and development can never capture all of the benefits. Innovation benefits the whole of society, the whole of our economy. It lifts the game, it improves productivity, and it drives us all forward. The data we have shows that companies that invest intensively in research and development tend, on average, to employ more people, to grow more quickly, to register more patents, to have higher productivity, and to export more products and services. Why would the Government not want to encourage such companies? Moreover, how could it begin its year with the commitment that it will do everything it can to focus on productivity and growth, then cancel one of the better growth tools in the innovation tool box—the research and development tax credit?

The second issue we have is one of trans-Tasman equivalence or business diversion. It is accepted that our colleagues in Australia give their Government a much more proactive role in boosting research and development, both directly—historically—through the magnitude of its subsidies to the Commonwealth Scientific and Industrial Research Organisation and many other organisations, and indirectly through significant subsidies and tax concessions for innovative firms. One of the principal reasons why New Zealand’s research and development tax credit was brought in in the first place was to ensure equivalence between New Zealand’s innovative firms and those of their colleagues across the Tasman—to make sure that the Government’s footprint was not accentuating any trend towards trans-Tasman business migration. That theme was picked up by the current Government—then Opposition—during the election campaign. The bogey of New Zealanders moving across the Tasman was repeated at every opportunity, like a mantra. So what has happened? On the first business day of the House, the National Government attempts to repeal the research and development tax credit, which has been one of the sources of guaranteed trans-Tasman equivalence.

The reaction has been completely predictable. Selwyn Pellet, the chief executive of one of the Deloitte/Unlimited Fast50 fastest-growing companies—Imarda—said: “We are right this minute deciding where we do R&D whether it’s New Zealand or Australia and the removal of the tax credit here negatively incentivises the decision to bring it back to New Zealand.” The Manufacturers and Exporters Association has been highly critical of this bill. It has been highly critical of the removal of the research and development tax credit—which was, to be fair, signalled before the election. It has been highly critical of the environment that New Zealand manufacturers, exporters, and innovators have to cope with. This move makes it worse.

When we look at the ledger of what is being done and what is being undone, we have to ask why. On the one hand we have the removal of something we know is generating sound returns; on the other hand it is going in order to fund a consumption tax cut that is both highly inequitable and badly designed. It is so badly designed that the explanatory note of the bill states that neither the proper consultation nor the regulatory impact assessment has been completed, and the impacts have not been quantified.

Some of the key issues, as we debated in the debate on Part 1—[Interruption]—9 years to do it—are, first, that this is a long-term fix for a short-term problem. It is a structural tax change to address a recession trend. Second, we are putting in place a consumption tax cut—funded largely by borrowing and these productivity tools—whereas what we need is something that will lift productivity itself. In that respect, this cut is in extremely stark relief.

I think the reaction of general commentators is instructive at this point. John Armstrong from the New Zealand Herald said the winners from this package, taken on balance, are easy to identify: working singles and couples without children. The comparative losers are families or those on below the average wage. Jenny McManus from the Independent said: “Voters awaiting National’s grand plan for managing the effects of the global financial crisis will be disappointed at the tax and economic package …”. Jo Doolan from Ernst and Young said that she is “gutted” at the package: “The whole thing is hurried and ill-conceived. … We need to develop a savings culture and this sort of thing doesn’t help.” Gordon Campbell said: “Putting tax cuts ahead of science and research neatly underlines the lack of vision, or sensible strategy for growth in the National package—”.

I know from walking around the press gallery that journalists—and, no doubt, soon the public—know what is going on. They know that, despite the rhetoric of the election campaign, on this first business week of the House certain things are being done that deliver certain benefits to constituencies that have it “owing to them”. Surprisingly enough, it is not our innovative exporting businesses that are getting the nod here; it is the financial sector and top-income earners who will be the general beneficiaries of the package. It is our poorest Kiwis, our struggling families, and, oddly, our innovative businesses that will pay for it.

Leaving aside the equity arguments that we discussed in the debate on Part 1, the lack of logic between the negative productivity impacts of this move and Government members’ stated aim—even if we take them at their word—is extraordinary and compelling. Mr English, in speaking to Part 1, said: “Well, we poked and prodded at your plan. We campaigned on ours. Our having been elected, there is no need for our plan to be scrutinised.” So there is no need for it to be scrutinised, no need for the select committee process, and no need for bills to be tabled? The bills to be debated in the rest of the week are still not on the Table. That one has gone through an election campaign is justification, apparently, for setting aside the normal process of Parliament. Of course, we have seen the lie to the proposition that “No one is worse off, because certain changes have not happened yet.” This bill undermines measures that have already been passed into law, and therefore the Opposition is fully justified in showing that people are worse off.

In summing up, taken as a whole, the retrenchment of this research and development tax credit will be bad for our best businesses, and bad for New Zealand. It will be bad because it is a poor source of funding for a misguided bill. But even if one takes the Government at its word and swore for a moment that these tax changes are necessary, funding them by removing the research and development tax incentive does not serve even this Government’s stated ambition of lifting productivity and growth.

I am grateful for the opportunity to speak on Part 2, “Research and development tax credits repeal”. This is a very sobering part and it has been undertaken with great thought over a period of time—

💬 Hon David Cunliffe: Minutes!

That is quite wrong. This move was indicated quite clearly in National’s pre-election policy, and the great concern was about the quality of the investment. If we look around the world, we see one of the points made in Australia’s innovation policy of 2002 is that unless the basic business environment is optimal, it is very hard for research and development and innovation to thrive. This is underlined in the foreword to the policy where the point is made that it is very important to have a low, broad-based, simple tax system, that it is important to have a flexible labour market, and that it is important to have an optimal regulatory regime.

All these things will be carried out by the National Government, and the direct opposite happened, unfortunately, under the Labour Government. Nevertheless, there was a question, at one stage of events, of whether 10 percent of this tax credit would remain. However, due to the extraordinary circumstances—the legacy of the Labour Government—that were established in the pre-election fiscal update whereby the seriousness of the international crisis was beginning, at last, to be felt, and certainly was ignored very largely by the Labour Government, the realisation was that it was inappropriate to continue with this tax credit.

It is important to remind the Committee that in the select committee, prior to this tax credit coming into being, it was opposed by the major accountancy firms, it was opposed by Treasury, and it was opposed by Business New Zealand. However, once it did come in, the major accountancy firms set up a travelling roadshow, around the country, to give people an opportunity to use the tax credit. The great danger was that it would not be a quality investment, research that was going to be carried out anyway would be carried out, there would be new business activities that were inappropriate to research and development, and, on balance, it was felt that, in these dire economic times—times left as a legacy of the poor management of the Labour Government—it was appropriate to repeal the tax credits.

I for one am absolutely committed to championing the evolution of research and development in New Zealand into the future. But we want to ensure that the spend is a quality spend, and I am quite sure that over time the National Government will achieve exactly that. I remind the Committee that in the Hon Bill English’s media release of 9 December he stated: “We firmly believe in the importance of research and development to keep New Zealand internationally competitive, but the tax credits aren’t the most effective way to ensure that. We will work with business to better target government expenditure on innovation.”

I am sure that Mr Hodgson must feel very disappointed, given the fact that he worked on this matter for about 9 years. I think it was back in 1988—or maybe 1998—when he proposed that such a thing should happen. Once again it took 9 long years and more. It was almost equivalent—

The really scary thing about that speech is that the member said that it had taken a long time and a lot of thought to come up with this policy. I would have been much more comforted if Government members told me they gave it no thought and had no time to spend on it. The fact that they spent a lot of time and thought on it and came up with a dog of a policy like this is almost beyond belief. But the incredible thing is that we are told that we cannot afford to have research and development tax credits at a critical time for the New Zealand—let alone the world—economy, but we can have, and we can afford, in the face of this enormous financial crisis around the world, personal tax cuts that deliver 132 times more for the most affluent New Zealanders compared with the poorest. We can afford that, but because of the world crisis we cannot afford to have research and development in New Zealand.

Then we are told that we really want a quality spend. Well there is one thing that is slightly worse than that and that is no spend at all, which is what this bill proposes. Part 2 is about destroying research and development capability in New Zealand. This part is an example of a Government that has put class warfare ahead of the need to grow our economy. We heard a lot about growing the economy yesterday—going for growth! The Government is going for growth one day, but the next day it is cancelling all of the research and development credits proposed in previous legislation. On day one it is going for growth; on day two it is cancelling the possibility of growth by having no research and development credits.

The most incredible thing of all is that it is not about punishing all businesses in New Zealand, it is about punishing the most innovative and creative businesses in New Zealand—the businesses we depend on for our economic growth and development. Those are the very businesses the Government is targeting with this bill. It will target those companies in a way that is almost beyond belief in that, at the same time, someone who is earning, say, $750,000 a year will be 132 times better off than someone who earns $25,000 a year. So even if the Government is going to target the most innovative businesses in the community, one would think it would help those who are the poorest, but, no, it is doing the reverse.

The National Government is clearly opposed to innovation. It can say what it likes, but it is opposed to it. The Government is opposed to business success, because the very businesses we want to succeed are the ones this bill punishes. The National Government is opposed to the agricultural backbone of our economy. I never thought I would have all the evidence to say that in this Chamber, but this bill is clear evidence of it. The bill is what it looks like when we have a Government run by sneering city financiers instead of people who understand the real productive economy.

💬 Allan Peachey: Oh, ha, ha!

I will prove it to the member then. Can Government members answer three questions? How many times in the Speech from the Throne was the word “agriculture” used? None. There was not one mention of it in the Speech from the Throne. Where was the Minister of Agriculture in having any input into that? How many times in the Speech from the Throne was the word “exports”, on which the First World standard of living of this country depends, mentioned?

💬 Hon Ruth Dyson: How many?

None. There was not one mention of exports. How many times were the words “scientific research” mentioned in the Speech from the Throne? Scientific research is what our First World standard of living will depend on for the future in terms of the quality of the processed goods we produce and export to the world.

💬 Hon David Cunliffe: Twice?

No.

💬 Hon David Cunliffe: Once?

No, none. In the Speech from the Throne there was no mention of scientific research, which will set up this ambitious, visionary Government for New Zealand. There was no mention of the most important backbone of the economy of New Zealand—our agricultural production—which members opposite suggest they represent. There was not a mention. I wonder what I will hear from Federated Farmers tomorrow. I got a framed certificate for putting agriculture at the top. Government members are not even putting it at the bottom. It does not get any mention whatsoever. Despite all the cant we had from Dr Hutchison, scientific research could not even get a mention in the Speech from the Throne.

I will totally ignore the previous speech, as will most of New Zealand probably, because it was not particularly relevant. [Interruption] That has woken the Opposition members up. I am sure those members had a very good lunch. Part 2, “Research and development tax credits repeal”—

💬 Hon Dr Michael Cullen: Tukituki—farming, horticulture, viticulture?

If members opposite want to have a bit of a go, I can tell them that there is an interesting provision in clause 20(2) that makes a change to the Income Tax Act 2007, which came before the Finance and Expenditure Committee. The current Opposition spokesman on finance may have further advice on that, because clause 20(2) states: “The definition of district health board is repealed.” He may want to speak on various other ways of doing that later on.

💬 Hon David Cunliffe: I think you need to focus on finance.

Yes, I will focus on finance, because this is a financial bill.

When the 2007 bill came before the Finance and Expenditure Committee there were many, many submissions on the research and development tax credits. From memory, most of the submissions were along the lines that the tax credits would create tax arbitrage and accounting arbitrage. Of course, everyone argued that he or she should be included and that perhaps someone else should not be included. In fact, I remember that an organisation that is partially funded by the Crown came before the Finance and Expenditure Committee and told us the truth. It told us what was really going on. Then I subsequently found out that the organisation had a very interesting phone call from a Minister’s office not long after that, telling it that it should never appear before a committee like that without the Minister knowing, and that he did not like what it had said. But, anyway, I digress a wee bit.

💬 Hon David Cunliffe: A wee bit? How about coming back to the bill?

I mentioned the words “accounting arbitrage” before, and I will explain that term to the member later. What is going on here is that the higher the tax burden is and the more imposing the tax structure is on an economy, the greater the incentive is to find ways around it, through it, to plead for a credit, and to take something from someone else and get a credit for oneself. That is what happens, and it is what is going on with regard to the research and development tax credit.

Some members have argued that the tax credit has only just started, so how can we say all these things? Very simply, as my colleague Mr Hutchison noted earlier, there were roadshows going around the place. Companies were going to them and they were being told: “Show us your expenditure sheet, show us your models, and we will try to make them fit the new definition of research and development in order to get you a tax credit. We will try to do that. Of course, we cannot do it straight away, but we will go through your books and try to find what we can to get you some benefit out of this.” So the roadshows were being entrepreneurial if one likes, but it was to the detriment of the New Zealand economy because it did not add to the quantum of research and development in New Zealand.

About 3 months before the election I had a very interesting meeting with a company that had started to set up some research and development under the model in the existing legislation. It was looking to invest the money and to take some benefits from it with its 15 percent. That was OK, but then the company told me about the problem. The problem was that it could neither attract to New Zealand nor keep the people here to do the research and development, because of New Zealand’s high personal tax structure. It was, quite simply, because of that.

The finance spokesperson on the other side of the Chamber, David Cunliffe, alluded at the start of this debate to the fact that these research and development tax credits have been—or at least will be—repealed in order to help fund the personal tax cuts that we announced long before the election, and that were resoundingly endorsed by New Zealand. The point is that we can have all the credits we like, but if we do not have the people who are attracted to New Zealand stay here, who can be rewarded for the risk they take in being here and being involved in research and development in New Zealand, it actually does not matter. Unless we have those people here adding to our economy, we can have all the research and development tax credits we like, and it will not matter. Some of the stuff I saw going on was stuff that was being structured in New Zealand to utilise Australian people to whip over here and do the research and development, so that local companies could enjoy the research and development tax credit, and of course the individuals concerned were located in a lower tax environment—that is, in Australia.

The research and development tax credit part of the bill—the clauses here—is about priority, because there are some hard choices to be made. Once the books were opened—or at least partially opened—in the pre-election fiscal update, and when they continued to be opened a bit more recently with all the other shenanigans going on, it actually made it even more pertinent that we repeal these credits right now.

Well, we just learnt from Mr Foss in that extraordinary speech that he does not want highly qualified, skilled, educated people coming from other countries to work in New Zealand because of the research and development tax credit to help grow our economy, to grow our tax base, and to pay for all the things that New Zealanders want paid for. The research and development tax credit has, apparently, been keeping people away from New Zealand and if we get rid of it—dumbing down our economy—as this legislation does, that would be good for New Zealand. Well, that kind of falls in line with the Speech from the Throne from the Prime Minister that we heard yesterday. We can gather from that that the only turbocharging we will get is a turbocharging of empty slogans and empty rhetoric. For all their talk about innovation, for all their talk about turbocharging everything, nothing in this bill does that—nothing. In fact, it does the complete opposite.

I wish the Minister for Research, Science and Technology were in the Chamber so that he could speak to this issue. We asked him questions earlier because we wanted to confirm that the third of this money that is being saved from cutting this research and development tax credit will still go to Crown research institutes and universities to fund research; he refused to answer earlier on. He refused to answer, but I think that the scientific community deserves to know whether that money will still go there. I am sure if Dr Paul Hutchison were in Cabinet he would have an answer like that, because that is the kind of man he is. I am very sad that he did not get that portfolio; he worked very hard in it when he was in Opposition, but, no, it was whisked away from him and given to someone else.

💬 Hon Pete Hodgson: What’s his name?

Oh, I cannot remember. He has a lovely new haircut, though. I say to Mr Foss that it is appalling that he stands up in this Chamber and says that he will not respond to the speech made by the Hon Jim Anderton. He deliberately said he would ignore his speech. Why? That is because he has no answers to that speech. He has no answers to answer why, when we are going into a global crisis and when liquidity in the capital venture market will become more restricted, we will be penalising and raising taxes on our most innovative companies. These are the companies that we should be putting front and centre, and the companies that we should be saying are the ones that will help lift us out of this global recession, and that on average export more, pay more highly, and grow our economy more.

What is the National Party’s answer to that? The National-ACT - Māori Party Government will raise the taxes paid by those companies by getting rid of a research and development tax credit, which is supported—for all that Mr Foss may say—by all their friends. We know that when National announced their tax policy people were flying all over the country to meet with Mr English to say: “Don’t do this. This is a huge mistake.” It is a mistake for the economy, it is a mistake for our exporters, it is a mistake for our manufacturers, and it will be a mistake for New Zealand when it comes to growth and coming through this recession in a positive way.

What Dr Hutchison says is that they just rort it—scientists just rort it. This is a member who went around the country campaigning on how we need to trust scientists, we need to let them do their own thing, and that there is far too much management of what they do. Then in the Chamber today he stands here and says that the scientists just rort it—it is not new stuff, they just write down stuff they are already doing as new stuff, so they are just rorting it. He also, by the way, wants to get rid of the $700 million Fast Forward Fund and direct the way that that goes as well, and direct that solely to try to get out of the mess National has got itself into on the emissions trading scheme.

I refer to Jacqueline Rowarth, who is the Massey University director of agriculture. She said that she is incredibly concerned about the ramification of the removal of the research and development tax credit, and she says: “Australia removed its R and D tax credit because it thought people were fiddling the books.”—as Dr Hutchison thinks—“Then it reinstated it within a year because the downturn was worse than that fiddling.”

So when Dr Hutchison gets up and talks about how this is the way the world is going, he is actually not telling New Zealanders the truth. The fact is that the Labour Government brought in this tax credit to make New Zealand internationally competitive. Members on this side of the Chamber understood that these kinds of policies will assist our small and innovative businesses, our businesses that are going to lift our economy, and our businesses that do a significant amount of exporting. Even Business New Zealand chief executive Phil O’Reilly, who has been quoted by Dr Hutchison as saying he was opposed to it, has said that we need to give this research and development tax credit time. John Key said that no one has taken it up yet.

Then we heard from the Manufacturers and Exporters Association’s Mr Walley, who said that that was a daft statement, as the tax year has not even finished yet. How would John Key know unless he had the power of clairvoyance—and I am not saying that he does not claim to have the power of clairvoyance—how many people will take it up?

When we talk about the research and development tax credit it is important to remember some of the history of what has happened in the Labour Party.

💬 Hon Pete Hodgson: You come from the Waikato, remember?

Yes, let us talk about the Waikato and what the Labour Party has been doing there. It is pretty rich for these guys to come into this Chamber and talk about research and development tax credits, when AgResearch was laying off staff before the election and they did not do a thing. Where did we see the Labour Party in the election campaign? In Hamilton East we campaigned against the Labour Party. Labour members would come along to campaign meetings and say “Look at our research and development policy.” All I had to ask them was why they were laying off people at AgResearch. They would not come to the support of scientists.

The reality is that scientists have never got anything out of the Labour Party, and they never will. Scientists’ incomes are about 15 percent lower than any other profession, and the Labour Party did not come and help them, did it? It had 9 years of talking about how it loves science, how it loves research and development, how that is the future of New Zealand, and how we will have a knowledge wave and a global economy. What did it do? It gave up on the knowledge wave and it did not give those increases in wages. In fact, it put AgResearch in a position where it had to lay off staff to meet its budget. That is what the Labour Party does: it says one thing and then it does another. Reality speaks, and the reality is that the National Party has come to the aid of scientists, helped out, and made sure that we do not have the degree of job losses that the Labour Party started out with.

There has been a great change in mood, because people realise that reality is more important than words. Labour members are bringing out words today—look, they have all gone silent now! They know they are in trouble. They know that they cannot go out there and say what they have been saying, because it is not true. They know that they were the ones screwing the research and development budgets by making sure it was hard for AgResearch to employ people, and that is the reality of the situation. How dare the Labour Party come in here today and try to say how it is the research and development party and how it is there for agricultural research! Labour should have put its money in front of it when it was in Government; it did not, so it should not come in here and try to do it now. It had its chance and it blew it—it will not get another chance to do it again.

The reality is that the biggest thing we can do for the research and development sector is to give it a growing economy. That is what it needs. If there is growth in the economy, businesses will invest in the future. That is the reality. These tax cuts are the first step in providing that growth economy. This is what the National Party is about. We have a programme for growth, and these tax cuts are the first step. If we really want to look at what will be best for research and development in the future, we see that it is the growing economy that the National Party will produce. We will invest in this country’s infrastructure, and we will give people money in their hands so that they can spend it in this economy.

We will not invest all our money in the US stock exchange, just as Mr Cullen did, and lose it. We will look after our people in our country, and we will build a stronger country. This is what will happen. The reality is that New Zealand will be stronger, we will have a growing economy, we will have a position where businesses want to invest in research and development, and we will be able to deliver to the agricultural, the research, and the scientific sectors the vision they require. They will actually see a future ahead of themselves, because they will see corporates and enterprises making money that will be able to be invested in research and development. This is not a question about the tax credit as such; this is a question about how we provide the environment for research and development to flourish. To create that environment we need a growing economy, and the National Party is committed to that.

Labour members are sitting there now and trying to attack this legislation on the basis of research and development expenditure. Well, that is not the case. The case is that the Labour Party did not come to the aid of research and development, did not come to the aid of AgResearch before the election—you just let them go. You were quite happy to see those people go out of work; you went through an election campaign not actually doing that—

💬 Hon Trevor Mallard: Point of order—

The CHAIRPERSON (Lindsay Tisch): I know what—

💬 Hon Trevor Mallard: If you are aware of it, you should be stopping it.

The CHAIRPERSON (Lindsay Tisch): The member cannot use the word “you”.

The Labour Party did not come to the aid of that sector. It did not come to the aid of those people who were going to lose their jobs.

Parts of this bill are either unfair, dishonest, incompetent, or plain stupid. This is the plain stupid part—the abolition of the research and development tax credit. The member has just been talking about tax cuts. Let me enlighten him: this is a tax increase. This is a tax increase of $330 million a year on business. This part claws back what is getting on for half of the corporate tax rate cut. Why should we be surprised? Which Governments have ever cut corporate taxes in New Zealand? Only ever a Labour Government has, in 1998 and in 2008. Those are the only times in the last 50 years that corporate tax rates have been cut in New Zealand, and both times were by Labour Governments. National has never ever cut those rates.

So when we cut it, this was yet another one of those bitter little things for Mr English, which he had to reverse some way or another, because he was not allowed to let Labour have any credit for anything. So he is clawing it back, but is he clawing it back off everybody? He is clawing it back off the most innovative, productive, and exporting firms in the country. Let me tell Mr Bennett something else. What was he referring to as Agriculture New Zealand?

💬 David Bennett: AgResearch.

No—that is a Crown research institute. AgResearch is a Crown research institute that has been underperforming, actually, for some years. But that is public sector research and development. If the member knew anything, he would know that New Zealand’s underperformance is in private sector research and development. Why? That is because we are about the only country in the world, up until recently, that has not been offering any inducement to private sector research and development. In an ideal world no country would offer incentives for research and development. In an ideal world we would have a level playing field, and decisions would be made by the market, and nothing would happen. But once some countries have research and development incentives, it becomes very hard.

You see, National is still playing the early 1990s’ trick. It is still Star Trek in reverse for National. Its members still want to go where no man will follow. They still want to go down a route with no research and development tax incentive, and they will be surprised that firms will shift research and development to Australia where there are research and development tax incentives. What have we heard for years from National members? “Everybody who is bright has gone to Australia.” And looking over the other side of the Chamber whenever they said it, I thought maybe it was true, because what was left, from what I could see, was not bright. They said: “We’ve got to stop people going to Australia.”

So what do they do? They do something to threaten portability of superannuation, and they remove the research and development tax incentive designed to get research and development in New Zealand and to keep it here, because they want it to go there. And what are they going to make it up with? They are going to put more money into the State’s research and development. When they go up on the platform and slaver in front of Business New Zealand, the Chambers of Commerce, and the Business Roundtable, dripping sincerity, say, in the way only Tony Ryall and others can: “It is the private sector only that creates wealth in New Zealand, so what we will do is take money out of the private sector and put it in the public sector.”

That is what is called Logic 101 for the National Party—just follow the logic: “Only the private sector creates wealth, so let’s take that wealth away and give it to the public sector. And if a public sector identity or entity is not performing particularly well, and not managing to live within budget, we’ll just give them more money. We won’t ask any questions about what they are doing. We won’t say whether other CRIs, such as HortResearch, might be doing better research. We won’t say whether they should work better with the private sector. No, we’ll just give them some more money.”

That is what the Government has done. So that is wise, is it? That will grow the economy? I listened yesterday to the sorts of clichés, in a kind of National Film Unit documentary for the 1950s way, that finished off the Speech from the Throne, and I heard about the turbocharging of the New Zealand economy. I now understand it. We are going to have a turbocharged 1953 Morris Oxford, and we will call it the New Zealand economy. I have to tell the Committee that a modern Japanese mini-car can outstrip a turbocharged 1953 Morris Oxford. It is no wonder that the leading agricultural scientist in the National Party was not allowed to be a Cabinet Minister. He was parked on the Speaker’s bench, instead, because in fact he might know too much about some of these areas to be involved in making decisions.

Do we really want to grow this economy, and how do we do it? We do it in the modern world by developing human capital, by investing in research and development, and by investing in new products. In New Zealand we do that particularly in the primary sector industries, because that is where our comparative advantage lies. So what is the Government doing? It is abolishing what was going to be a $2 billion Fast Forward Fund to invest in agriculture and to invest in the primary sector, and it is giving a lick and a promise that it will increase funding for the Crown research institutes.

But, of course, Mr English is about to work on a Budget. He is about to work on a Budget that will project cash deficits in excess of $10 billion a year by the end of the forecast period. So do Mr Hutchison and others think they will get this extra money in large amounts for Crown research institutes? That will be a lick and a promise; it will get pushed out and squeezed, and will not look like the Fast Forward Fund. But that fund was there, it was locked in, it was provided for, and it was going to happen. The Labour Government was getting ready to do it. It is a bit like broadband, where people are lined up ready to put their stuff in. They have made the applications, but now they will have to wait 18 months or more for National to work out how actually to operationalise its funding in that area. We will wait ages.

We have firms working in research and development, but we are told they are rorting the system. Well, how do we know? Nobody has had a research and development tax incentive approved by the Inland Revenue Department yet. They have yet to apply. Indeed, the only complaints that I have heard of is that it is too hard to get the incentive. It is not too easy to rort it; it is too hard to get it. Indeed, we will find that out after April when people apply, but they knew. Indeed, National members did not put lots of thought into this. It was not a well-developed policy to abolish the research and development tax incentive. National announced its policy months ago. The policy was to cut the incentive to 10 percent—which is at the lower range of international comparability, whereas the 15 percent was at the higher range of international comparability—to save a bit of money.

Then, of course, those members had the preview, and for some peculiar reason they did not think the preview was going to show a worsening situation compared with the Budget. They knew what was going on in the world. It was pretty obvious to anybody that the world was slowing down faster than we had all thought in April of this year. Then they said: “Oh, my gosh!”. We promised the average person on the average wage a $50-a-week tax cut. Well, we can pretend that it is not on top of Labour’s package, so that will save us a lot of money. And now we need to squeeze and push. So what goes?”.

What goes is the remaining 10 percent of the research and development tax credit. This is called going for growth—$2 per week, on average, per taxpayer to pay for the research and development tax credit. That, I tell Mr Bennett, will really turbocharge the New Zealand economy. It will be an extra couple of dollars a week of spending power in the average taxpayer’s pocket, but no doubt it will be spent in large part on imported consumer goods. It might provide about the equivalent of one drop of petrol for the South Chinese economy, not for the New Zealand economy. The Government should be investing in the private sector to gear up. The private sector has been woefully inadequate in New Zealand in investing, in almost any way, in future development—such as research and development, human capital, and new plant and machinery. So the Labour Government lowered the corporate tax rate. We increased depreciation rates. We brought in the research and development tax credit. We put forward an integrated Skills Strategy, and improved the investment in that Skills Strategy in the workplace.

Those are the drivers of economic growth, not piddling little tax cuts going into consumption to buy stuff not even noticed—not even a block of cheese, barely a slice of cheese, not even a half of the kind of loaf that Paul Hutchison would buy every day. He would not buy the $1 loaf at the garage; he would buy the $6.99 special loaf down at the Italian bakery. This tax cut would not even buy half of one of those loaves of bread a week, and we are somehow going to turbocharge this economy. Well, we might be slightly heavier, we might be slightly weightier, but we will not have a faster-moving economy as a result of this part of the bill.

National is reducing savings, and investment in research and development and human capital, and calling that turbocharging. This is National going for growth. I say this is the worst of all possible nightmares for anybody with any aesthetic sense. This is Ruth Richardson without a tracksuit.

Well, Dr Cullen is wrong about one thing. I do give him quite a bit of credit—or whatever the terminology was that he used—as easily the most competent member of the previous Labour Government. He did all the hard work, and he has something to show for it, but none of the rest of the members of that Government do, including the previous Prime Minister. I give Dr Cullen full credit for the huge effort he put in while he was the Minister of Finance.

That does not mean, of course, that he was right about everything, and it does not mean that when the Government changes there will not be different priorities. That is really what this debate on the research and development tax incentive is about. It is an idea with some merit. The question is whether it has sufficient merit to be put ahead of all the other calls on the Government’s resources, including what was National’s top priority in Opposition, and what remains its top priority now that we are in Government, and that is to reduce personal income tax rates. In the situation that New Zealand is in, with the economic outlook that we face, we have to make choices about priorities. Opposition members think the world is always the way that they experienced it when in Government; they experienced a fiscal tsunami every year of waves of money crashing on to the Government beach, where they lazed around, deciding among themselves how to give it out to someone.

💬 Hon Tony Ryall: Like some sort of version of From Here to Eternity.

That is right. It may well be that any Government in that situation would behave in the same way. I happen to think that Labour is more partial to enjoying giving out other peoples’ money than perhaps other Governments would be. But that was the business of Government. That has now changed. Now we have to make decisions about priorities. In the case of economic growth, we did not believe that this tax incentive would be a sufficient driver of it. The Opposition believes that it would be. All I can say is the Labour Government floundered in the knowledge wave. After 7 or 8 years, and hundreds of millions of initiatives driven off the idea that the economy could be transformed, we ended up with a conversion on the road to Damascus whereby the only member of the Progressive Party suddenly decided that New Zealand was about primary production. Well, that was fantastic. It just happened to contradict all the policy that that Government had tried to implement for the previous 6 or 7 years.

The reality is that a National-led Government with a good understanding of, and strong representation from, the whole productive sector of the New Zealand economy is focusing on lower tax rates, less regulation, better infrastructure, and higher education standards. Certainly, we could focus on 16 other objectives. Every strategy of the previous Government that I read had about 16 other objectives—all contradictory, none of them achieved, but lots of meetings that gave the impression of action. Well, we will not go down that path.

We have discussed the research and development tax incentive with people who are using it, and, actually, we get contradictory stories. One of the strongest advocates owned up in my presence that he had spent $70,000 on the accountant, and it turned out that the research and development tax credit was only $50,000. The deal he had was to give the accountant 40 percent of any recoverable credit, which I gather is the upper end of the going rate. Most accounting firms are pitching themselves at 20 percent to 30 percent. They turn up to a business with their Australian supervisor, go through the books, work out what the tax credit might be—it is turning out to be quite a bit smaller than many companies had expected—then take about one-third of it as their fee. Well, that is innovative, but it is not what we would call innovation.

In Australia, it is not 3,000 highly productive companies that get this credit; banks and mining companies make up by far the largest number of claimants of this incentive. In New Zealand, the banks have their own ideas of what they regard as research and development. They now represent themselves as being essentially information technology companies, because they are based on information technology, and any development that they do in that area must count for the research and development tax credit—and how would one say no to that?

A research and development tax credit is not a bad idea; it is just that it is not the priority of the newly elected Government. We are focusing on basic things that will affect every organisation, company, and household, such as lower taxes and better infrastructure.

I did hear the Minister of Finance say that we have to make choices about priorities. I did hear him say that. In fact, that is what Governments do all the time; they do it all the time. I would like to suggest that the choice that the Government has made to eliminate the tax credit for research and development is simply the wrong choice. I want to adduce a little bit of evidence to that effect.

Members will be aware that New Zealand is a poor performer in the research and development stakes. The normal way of measuring research and development effort is to measure research and development expenditure as a percentage of GDP, and to look at it in the public sector and in the private sector. Compared with countries around the world, in the public sector New Zealand underperforms a little. We are around about three-quarters of the Western World average. It would be good if we could get ourselves up to 100 percent or, indeed, 120 percent of the Western World average, but we are below the Western World average in the public sector. However, in the private sector we are not at 75 percent of the Western World average; we are at 33 percent of the Western World average. New Zealand private sector investment in research and development is amongst the lowest in the world. The good news is that it used to be even lower. In 1999 it was not 33 percent of the Western World average; it was 25 percent of the Western World average. A number of things have contributed to that increase, such as the Venture Investment Fund, Technology for Business Growth, the Pre-seed Accelerator Fund, the law around venture capital, and the establishment of the Incubator system, and on and on it goes. Throughout the past 9 years a lot of private sector effort and a lot of Government effort have gone into improving private sector investment in research and development. It has gone from 25 percent of the Western World average to 33 percent. That is progress, but it ain’t much progress.

When the Labour Government decided to introduce the tax credit at 15 percent—and it came in on 1 April 2008—the Inland Revenue Department had to determine how much money it would forgo. It had to do the modelling. It knew that it would take a while for private sector entities to get used to the new system. It knew that it would take a while for companies to gear up their research and development. It knew that it would take a while for companies to stop oozing offshore and to start coming onshore with their research and development. It knew that it would take a little while, so it did a 4-year projection, and at the end of 4 years the amount of money forgone—the amount of money going to businesses for innovation—would have been $332 million a year.

The point is that if we do our sums and work out how much research and development would have to come to book in order for $332 million to be forgone, we see that New Zealand’s private sector research and development would rise from 33 percent of the Western World average to almost exactly twice that—to almost exactly 66 percent of the Western World average. That is still below 100 percent of the Western World average, but way better than 33 percent. Of course, we know that it would include some research and development that was under-reported. That is known, that is taken into account, and that is modelled. It is also known, to give the case cited by the Minister of Finance, that the banks might call themselves information technology companies and claim that their software development was somehow eligible for a research and development tax credit. So we put a cap on that. We said that a company could not claim more than $2 million per year for software. That was a black hole that we would not let the Inland Revenue Department fall into. So the tax credit was designed to be both generous in terms of rate and limiting in terms of rorts. It was designed that way.

We had long enough to design it. As the previous Minister of Finance, the Hon Michael Cullen, said, he wished he had done it earlier. But, you see, if the Inland Revenue Department predicts that New Zealand’s reported private sector research and development expenditure will go from one-third of the Western World average to two-thirds of the Western World average over the next 3½ years, then I suggest that if we are to pass this legislation, we have to be prepared to acknowledge the fact that that expenditure will stay at 33 percent over the next 3½ years, that therefore the economic base of New Zealand will stay at a lesser amount than it would otherwise have been, and that therefore the taxable base will be a lesser amount than it would otherwise have been.

This is fiscal nonsense. This is, as Dr Cullen said, the stupid part of the legislation. To have the good Dr Paul Hutchison get up and try to defend it—well, all I can say is that I saw him wringing his hands, and he wrung his hands for the whole 5 minutes that he spoke. I heard Mr Bennett, the member of Parliament from the Waikato—I am sorry; I have forgotten his first name—get up and tell Labour members to put our money where our mouth is when it comes to primary production research and development. My retort, rather obviously, is that we did—$0.7 billion. It was called New Zealand Fast Forward, and this Minister of Finance swiped it. He swiped it. He got rid of private sector involvement, got rid of the fact that there would be a legacy fund, got rid of the fact that there would be certainty about the money, and replaced it with nothing. Labour members think that that will be very, very bad for New Zealand’s economic development future.

The tragedy is that 3½ years from now this $330 million, if it is divided amongst 4.1 million New Zealanders, will put about $1.60 in the pocket of every man, woman, and child per week—$1.60 a week. That is the price we pay for a dumb economy. Every person in New Zealand will get it, except, of course, the poor people—they will get nothing. The rich people will get, let us say, $3.20 a week in their pockets, and we will have a dumb economy, a slower-growing economy, a less export-oriented economy, and a less innovative economy, and we will have a bunch of firms that will not be able to grow faster, because they do not have a tax credit and therefore cannot fund their own growth as quickly as they otherwise could have done. It is a really dumb policy. It is one that I am really sad about. And when I am not sad about it I am angry about it. I think New Zealand will be a worse place as a result of this decision, I think $1.60 per person per week is a very, very low amount of money, and I do not think the decision that this Government has taken—it says that it has to make choices about priorities—is the right one. I think that if it is going to prioritise an extra $1.60 per person per week for consumption over an innovative future, if that is its priority choice, then clearly it has taken the wrong choice.

Thank you, Mr Chairman, for the opportunity to speak again on Part 2, “Research and development tax credits repeal”. I think it is important to reaffirm that central to the Australian innovation policy was getting right the basic business framework, in order to carry out research and development innovation and in order for that country to benefit from it. Australia’s priorities were clearly spelt out as getting taxes down, getting the regulatory regime right, and having a flexible labour market. There is no doubt that this Government’s programme does exactly that, and in terms of the scientific field it will be helped by the improvement of the Resource Management Act and the Hazardous Substances and New Organisms Act.

I acknowledge very much the fact that the Hon Pete Hodgson put a lot of effort, thought, and time into research and development over the last 9 years. I think that some worthy programmes were brought in, such as the Incubator phenomenon, the Venture Investment Fund, the Pre-seed Accelerator Fund, and numerous others. However, this question of the quality of the tax credit has certainly played on the minds of many thinkers throughout the world for many years. The Hon Jim Anderton might say that to remain competitive we have to do what the rest of the world has done. But Finland, one of the countries that have demonstrated high economic growth year after year, and prominence in innovation, does not depend on tax credits, at all. In fact, it has targeted funding of research and development.

I emphasise once again the press release that the Hon Bill English put out the other day. It pointed out: “We firmly believe in the importance of research and development to keep New Zealand internationally competitive, but the tax credits aren’t the most effective way to ensure that. We will work with business to better target government expenditure on innovation.” This is one of the areas that I, for one, will make sure I keep reminding the Minister of Finance about.

But I also think it is important to point out that it was the Hon Pete Hodgson who said that New Zealand was underfunded in terms of investment in research and development, both in the public sector and, certainly, in the private sector. Well, it is a bit rich for Labour members to talk about this. They had 9 years, and, as a percentage of GDP, investment in the public sector actually went down slightly over the last 9 years. It went down at a time when New Zealand had the greatest opportunity to grow investment in this crucial area. After all, it was Helen Clark who said in the Speech from the Throne in 2005 that research and development innovation was critical to driving New Zealand’s economy, yet the next Budget spent billions of dollars on areas that will only cement in intergenerational welfare dependency, and a mere $19.4 million was put into research and development. Here they were, at the eleventh hour, setting up the Fast Forward Fund, which we will be replacing with exactly the same amount of funding but far, far less bureaucracy. We have committed to the initiatives that are of high quality, and to spending very much the same amount, but we will avoid the duplicative bureaucracy that Jim Anderton managed—inevitably, with his Pavlovian, socialistic reflex—to put into that fund. But we think investment is very, very important, and I accept that.

The other point, which Moana Mackey made, was regarding the $315 million over 3 years. That $315 million is absolutely committed to go to secure funding for the Crown research institutes, something which has been recommended by the OECD and many others for many years. That was very much the point made by my colleague the good Mr Bennett from Hamilton East, who said that one of the legacies of our pre-eminent Crown research institutes, AgResearch, is the fact that it is having to make 50, 60, or 100 scientists redundant as a result of its poor performance under the watch of the Labour Government. That is a particularly important point. The other 50 percent of that $315 million will go to the Health Research Council, the Performance-based Research Fund, and the Marsden Fund. Clearly, those are funds that are very much in need of support from Government, because they will not get it from anywhere else.

In terms of private research and development and the effect of the tax credit, there certainly has been a very mixed reaction on behalf of businesses. Many of them have said to me—and I personally am involved in two businesses that carry out research and development—that they are going to carry on with the investment despite the repeal. They will carry on and they will most likely increase their investment, because of the fact that a new National Government will improve the business environment so that many thousands of businesses in New Zealand, particularly innovative businesses, can indeed thrive. We will continue to decrease taxation, we will improve the regulatory regime, and we will make the labour market more flexible.

As Bill English said, there is no doubt that this is a matter of choice, and in the circumstances where we had dire warnings in the pre-election fiscal update, this was the only wise choice to make. After all, this Labour Government has left us the legacy of 10 years of deficits, and it did not even have the honesty to disclose the huge accident compensation losses. When Dr Cullen says this particular part of the bill is dishonest, unfair, and plain stupid, I would reply to him that he is myopic, in denial, and the man responsible for taking New Zealand two steps further down the ladder of the OECD. There is no doubt that research and development are vital for New Zealand, that they absolutely will play a part in the economic growth of the future, and that National will be committed to high-quality investment in this area.

Unlike Mr Foss, I want to deal with some of the idiocies trumpeted by the last few speakers. If the National Party thinks that private sector investment and public sector investment are important for the future of this economy, I ask why on earth it would throw away the first and most important partnership between the Government and the private sector in our most important economic base—agriculture and horticulture, and the scientific research and development that backs it up—to the tune of $2,000 million, comprising $1,000 million from the Government matched dollar for dollar by the private sector. Here is the challenge: can Dr Hutchison or anyone else, Mr Bennett and all of them included, guarantee to me that the private sector will put up $1,000 million over the next 10 to 15 years without the Fast Forward scheme and without the research and development tax credit? If those members can, let us hear all about it.

💬 Hon Dr Nick Smith: They never promised that.

Here comes Mr Smith again. Mr Bennett says that science is very important to National. It is so important that in the aspirational and visionary—as National members describe it—Speech from the Throne it was not mentioned once. That is how important science is to National. I think it came as a surprise to Dr Hutchison and a few others over there that it was not mentioned. They could not believe it; they know how stupid that was. The agricultural sector was not mentioned, and exports were not mentioned. I ask how that fits with a Government that is “going for growth”.

Mr Bennett says that tax cuts will lead to equal growth in science. I see. Will someone on $750,000 who gets a $264-a-week tax cut invest that money in Crown research institutes, or in research and development to support agriculture? They are more likely to go for a holiday to Bali, actually. That is the truth of it.

This is a terrible indictment on a Government that claims that it wants to “go for growth”. What does this mediocre, visionless Government propose to do? The first act it takes in this Parliament is to introduce the largest tax increase on business in New Zealand’s history—the largest tax increase on business in New Zealand’s history. Never before has any Government come into this Parliament and massively increased tax on innovation.

💬 Hon Dr Nick Smith: It’s not as much as the Alliance wanted.

Mr Smith would not know anything about it, of course. Never before has any Government come into this Parliament and carefully targeted tax increases at not just any businesses but the most innovative and creative businesses in New Zealand, the ones that we need the most for our economic development. What are the chances that this aspirational and visionary policy and leadership are going to succeed?

💬 Dr Paul Hutchison: Very good.

Very good, are they? I see. The title of an earlier part of the Taxation (Urgent Measures and Annual Rates) Bill was “Personal tax cuts”. If we are consistent, the title of this part of the bill should be “Business tax increases”. That is what the title should be, because that is the reality.

Before the election, a very creative and successful Auckland business leader took out a full page advertisement in the New Zealand Herald. Members may have forgotten it, so I will show it to them. The advertisement said: “I’ve voted as many times for National as for Labour. I’m a founder of five successful companies selling globally to more than 30 countries.” Then he went on: “The party that should get your vote is the one with the best policies for real economic growth.”—the one “going for growth”. Well, I ask members to guess which party it was. It was not the party now on the Government benches. If people want to know why, they just have to look at this bill. He goes on to say: “Borrowing for tax cuts”—which is what this Government is doing—“going into a global recession is an attempt to drive a consumer spending recovery, and frankly that is placing our kids in debt without addressing the financial crisis in any meaningful way.” I have heard today that we can afford tax cuts for the richest people in New Zealand, but we cannot afford research and development investment for companies in New Zealand to develop our economy. I ask how that squares with “going for growth”. The truth is that it does not. I suspect that most of the members of the National Party know it. Most of its members outside Parliament know it, and most of the people here in the House know it.

💬 Hon Dr Nick Smith: They voted against it.

Yes, I am quite sure that the National Party told people “Don’t worry about it; we’ll fix it.” I think removing tax credits on research and development undermines our manufacturers and our exporters and their ability to compete against global competition. The global competition they are competing against has tax credits. Most of them do.

Members can say that the previous Government brought in the tax credits late in the piece. That is fine; I will accept that. I had been arguing for them for some time, to be honest, and others had been too. Anyway, we got there. We were late, sure, and we should have done it earlier, sure, but we got there. We had not only research and development tax credits but also a partnership with industry whereby industry would put in $1,000 million. What does this visionary, aspirational Government do? It cans the lot. Research and development investment and Fast Forward are gone. Where does the replacement come from? It comes from $262 a week extra for someone on a salary of $760,000. Well, that will do it! It is like that Tui ad: Yeah, right!”. That will fix it. That will give us the visionary economy.

By abolishing the research and development tax credits as well as Fast Forward, National is telling New Zealand that we have enough research and development in this country already. Do we? We know that is not true. It is saying that it will work against companies that are thinking about doing more investment in this vital area. It is going to work against them. It is going to punish them for doing it. It is going to punish the most creative and innovative ones—not the rest, but the ones who are actually doing the job now.

In the last election—perhaps more than in any election in recent history—the economic management of this country was a critical issue. I accept that. People expect that we will make decisions for the long-term future of New Zealand. How is the long-term future of New Zealand benefited by $260 a week for, say, the richest New Zealanders versus research and development tax credits and investment in Fast Forward?

I can give the Committee one simple story. The best and brightest student at Massey University—the best and brightest—had a scholarship to go to the UK. When our Government announced the Fast Forward scheme, he announced, without any influence from anybody, that he was going to leave that scholarship after 6 months and come back to New Zealand because he could see a future here for scientific investment, research, and development, particularly in the agriculture and horticulture sector. What are we saying to him now? We are saying: “Don’t worry, it will be all right, because when you are on a salary of $760,000 a year you will get another 262 bucks a week.” That is not what he said he was coming back for. He was coming back to be a part of a future for research and development industry in New Zealand, as the best and brightest student at Massey University.

The National Government is closing the door on students like that. If it wants to see the best and brightest New Zealanders leave this country—and it claims it is against that—then it should just carry on with policies like this one, and it will succeed. Countries are going to the IMF for loans, and banks are closing all around the world. New Zealand, I must say, is in a much better position than most of those countries. We have a much better opportunity, particularly as the world’s most efficient country in terms of food production. Our future, in my view, is much more secure than that of many countries, but it will depend on the quality of the research and development investment we make at both public and private levels. In my view, right now in Wellington, in this Parliament, the National Government is closing the door to that future, because it is saying “No” to investment and it is saying “No” to long-term development, in favour of a short-term return that it thinks will garner it support.

I say to the Māori Party in particular and to United Future that their constituencies did not vote for this kind of future. Many of the Māori incorporations and developing Māori companies will be hit because of this research and development close-off. The challenge for the Māori Party is to work out what it is going say to the Māori companies and corporations, which are starting to be an important element in New Zealand’s economic development.

It seems to me that this legislation is the most short-sighted that I have seen in Parliament for a very long time. It is short-sighted in inspiration, it is short-sighted in aspiration, and it has no practical hold on the reality of what our country desperately needs. This side of the House will fight for the next 3 years to make sure that the National Government and its acolytes, if they vote for it, are held accountable for what will happen as a result of this failure.

I move, That the question be now put.

Tēnā tātou katoa. Firstly, I say greetings to you, Mr Chairman, and I acknowledge the status that has been bestowed upon you. No doubt you sought something else, but your very dry and balanced approach from the deep south will balance our liveliness from the north. Tēnā koe. To those who have been made Ministers, I say we look forward to ensuring they earn their keep and to returning all the favours they sought to send in our direction—including Mr Hide, who occupies the seat of Winston Peters and who no doubt celebrates his success in politics, such as it is, by wandering around Auckland and claiming to be the man who buried Winston. He, of course, will in good time learn that what goes around comes around, and I look forward to enjoying many lively whakataetae with him.

💬 Hon Rodney Hide: I raise a point of order, Mr Chairperson. There are two things about the Hon Shane Jones’ speech. First, he is not actually addressing the Committee stage of the bill, which he is required to speak to even at this late stage under urgency. Secondly, I have always been quite clear about it being Mr Peters who buried himself and the Labour Party. I did not do anything.

The CHAIRPERSON (Eric Roy): That is not a point of order.

There were three points coming out of the Speech from the Throne, crafted for the Prime Minister. It stated that it is “very clear that at all times strengthening the economy will be front and centre of … priorities. For it is this growth agenda upon which my Government’s vision for New Zealand rests.” Other than the mangled and worsening style of speaking—obviously John Key is the worst presenter we have seen in terms of a Prime Minister—the first thing we see today is the stripping away of the capital base of New Zealand’s industry by this mean-spirited attempt to take away the research and development contributions, imagining that somehow the funding will materialise when it has not been there for nigh on a decade. Where is it going to go? It will go to reward the partisan interests of those who have quietly plotted away to bring John Key forward, and surely John Key will bring out his foul scheme.

Not only do we see a complete absence of anything in that speech about how we are to inject greater strength in the capital base of New Zealand’s economy but we see absolutely nothing to grow exports and to grow value-added industries. Rather, it is a revision, a return, back to Ruth Richardson’s approach, which is, firstly, to strip people of their labour rights, and, secondly, to reward those who are doing well and in some way to make the vulnerable and the anxious more insecure, as if that will stop the flow of Kiwis going to Australia. And to ensure that the Kiwis whom the Government is supposedly apprehensive about disappearing go even more quickly, the Government says it will destroy the KiwiSaver scheme, and make it a skeletal, anaemic version of what the Aussies enjoy.

So it is a disappointment, Mr Chairman, that you, so early in your tenure, should be exposed to such falsehoods. First, the savings regime is being gutted. Secondly, this measure is very mean and short-sighted—it fits with Mr English’s Cheshire cat, Lewis Carroll style of enigmatic smile, which we have tolerated. But the reality of point number two is that these research and development tax credits are indeed business growth credits. When they are stripped away, that weakens the firms that are supposedly to grow the jobs and grow the wealth of New Zealand. National is scaring further people away from coming back here, because that reduces our competitive advantage to a dreadfully low scale. Thirdly, I note a great line here from the Speech from the Throne: “Honourable members. In going for growth”—permanent growth—“my Government will be acutely conscious of the fact that it is … to the detriment of us all, to allow an underclass to develop in New Zealand.” I say that without jobs, without ongoing investment in firms, without the creation of a flow of goods and services through excellent research, and without income within the class of those people in our society who are vulnerable and anxious, that rhetoric there will be made into a dreadful lie.

So it will be great over the next 3 years, as invidious as this position is proving to be personally, to remind all our iwi that the Māori Party is actually supporting a set of initiatives that not a single Māori on the Māori roll voted for. Secondly, it will be great to remind that party that it is supporting a group of people who are rewarding a very narrow, partisan group within society, without a skerrick of concern for the broad base out in the pastoral farming areas and in industry, and in the knowledge that the Aussies have double the performance in relation to research and development as a percentage of GDP that we have in our country. Without an initiative of this nature, we will never recover. Of course, National does not want us to recover. It actually wants to reward that narrow group who are doing reasonably well as it is. One does not send this type of Christmas present without being rewarded with a harsh response.

I move, That the question be now put.

A party vote was called for on the question that the question be now put.

The CHAIRPERSON (Eric Roy): Before I announce the result of the vote, I just remind members that votes are to be taken in silence for two reasons. The first is that it is hard for the Clerk at the Table to hear at times if he or she is computing, and, secondly, no member in this Chamber will vote under the duress of having other people speaking for whatever reason when he or she is voting. So I just remind members, and say there will be no tolerance about breaches of that rule.

We come now to Part 3. This part sets the rates of income tax for the 2009-10 year—that is, clause 29 does. Standing Order 333 requires the Committee to take such a provision as a separately debatable question, unless the Committee, by leave, decides to do otherwise. As clause 29 sets the annual rates of income tax, we will take it first, before the other provisions of Part 3. It is, in fact, the first clause in Part 3. The question is that clause 29 stand part.

I raise a point of order, Mr Chairperson. I am seeking clarification. Are you saying that clause 29 is to be taken as a separate, debatable motion?

The CHAIRPERSON (Eric Roy): Yes.

The member is probably not aware that this is a new provision in the Standing Orders. It actually came in with the changes made just before the election, as a result of Standing Orders Committee deliberation.

The CHAIRPERSON (Eric Roy): I hope that is clear. I think members ought to be cognisant of the fact that the debate should pertain particularly to the tax rates for the 2009-10 year. That is what the debate is about. It is not a wide-ranging debate.

💬 Hon Judith Collins: It is a wide-ranging debate.

The CHAIRPERSON (Eric Roy): Well, it is wide ranging but it is about taxation issues.

It should be about the rates of tax.

The CHAIRPERSON (Eric Roy): Yes, exactly. Do we all understand?

Clause 29 Rates of income tax for 2009-10 tax year