Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill

I move, That the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. Like most economies, ours has been battered by the global financial crisis. Consequently, the Government’s focus has been on positioning it for the future to take advantage of global economic recovery. In that context, it is right that the tax system should ensure that all taxpayers pay their fair share of tax, thereby reducing our national debt burden. At the same time, it is also appropriate that the tax system seeks to minimise the burden it places on business. This bill contains measures that are aimed at both those objectives. To that end, the bill proposes to tighten the rules relating to the tax deductibility of expenditure relating to assets such as holiday homes, boats, and aircraft that the owner uses both privately and to earn income.

The Government has no argument with people owning and enjoying such assets. These tax changes are not a form of envy politics but really about getting a fair outcome. It is a principle of our system that a person is allowed a tax deduction for expenditure if it is incurred in deriving their income or in the course of carrying on a business. But unfairness arises because owners claim that the house is available for rent during significant periods of the year, when it is actually unoccupied. That provides them with a basis for claiming tax deductions for expenses relating to the period the property is empty. If the owner holds the asset primarily for private enjoyment, this is simply a taxpayer-subsidised asset, and it is very difficult to justify. Members may recall that this proposal was part of the Budget 2012 announcements.

Also raised at the time was a change to livestock valuation rules, which made elections to use the herd scheme generally irrevocable. That, again, was a question of fairness. So a key component of this bill includes supporting provisions proposed to the livestock valuation rules that made elections to use the herd scheme generally irrevocable. We had made the policy decision earlier; this bill puts that decision into effect. What this bill does also is propose one exemption to the core herd irrevocability rule that we enacted as part of Budget 2012, and sets out new rules for the disposal of herd scheme livestock.

The bill also makes some important GST changes to rectify a problem with our tax laws that disadvantage businesses that compete globally. Under the existing GST rules, a non-resident doing business in New Zealand can incur GST as an economic cost, and this makes our goods and our services less competitive. Our international competitors provide ways of reducing this cost, and, frankly, so should we. So the bill proposes to allow certain non-resident businesses to register for GST and claim import tax deductions for GST incurred on approximately the same basis as a resident registered person. Also of note in the bill are changes to the time periods for claiming refunds under the Income Tax Act 2007; provisions to ensure that expenditure on trees and plantings for erosion, shelter, and water protection purposes is tax deductible; and some provisions to address anomalies that have been highlighted by the kiwifruit Psa virus issue.

Donee status is proposed for three organisations: the Hunger Project New Zealand, OneSight New Zealand, and the Fund for Timor.

Finally, the bill introduces a range of remedial amendments, including a better alignment of the primary sector amortisation rules with the general depreciation rules, the elimination of tax treatment mismatches to certain foreign currency hedges, and correcting a minor and unintended change to the tax treatment of MPs’ allowances.

I want to advise members that I intend to release a Supplementary Order Paper to this bill, which will cover two main matters. Broadly speaking, those matters are changes to the tax treatment of car parks and the inclusion of more non-cash benefits in social assistance calculations, and lease inducements and surrender of payments. The Government has already made announcements in respect of its intentions with regard to both of those matters. My intention is that the Supplementary Order Paper will be released in sufficient time to allow it to be considered by the select committee alongside the other provisions of this bill, and for submissions to be called on those provisions as well as the provisions in the bill.

So these are the main features of this legislation. Taken together they will help strengthen our tax system and support our economy. They are consistent with our overall objectives of making the tax system fairer, modernising its provisions to keep pace with the times, and making it easier for taxpayers, both personal and corporate, to comply with and meet their obligations. Against that backdrop I am very pleased to commend this bill to the House.

The Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill is a bill that Labour will support, albeit within the wider context of concern that this Government lacks real vision for making the changes that are needed across the economy to get our economy back on track.

This Government has the worst economic record of any Government in the last 50 years, and here we are debating a bill that makes minor changes across the tax framework. It will be interesting to see what things come up at the Finance and Expenditure Committee, because some of the rules prescribed could well be questioned—and I am sure they will be—by those with an interest, and there are alternative ways of going about skinning the cat of tax avoidance in terms of assets that are privately owned.

This bill makes changes that are important in relation to the livestock valuation methods. Switching methods of livestock valuation has provided farmers with an unfair advantage in terms of tax for a very long period of time. Those farmers who followed the rules as they were intended to be used were placed at a competitive disadvantage. The Labour Party supports this change because it is a fair change that makes sure these rules are applied in a fair way. I understand this bill provides some exceptions and, no doubt, that is around tidying it up so that it is a policy that can be implemented for the benefit of our country.

There is some rich irony, of course, in the Minister talking about all New Zealanders paying their fair share. Today I have released information that makes it clear that multinationals like Facebook are not paying their fair share in this country. We have seen it pay $5,000 in tax in New Zealand in 2010. It has gone up a little, to $14,500 in 2011. When it has 2.2 million users it seems unbelievable that in 2010 it paid less tax than your average New Zealand labourer. When we do not make progressive changes to our tax system and we do not close loopholes, we end up with a system that is unfair and that undermines the credibility and fair functioning of our tax system.

This bill could go a long way further to address the big issues in our economy, but it is stuck addressing one or two sensible matters without progressing the bigger picture. We will certainly be supporting the changes proposed in terms of livestock valuation because they make the system fairer.

I am sure the changes in respect of mixed-use assets will be hotly debated at select committee. Businesses that use an asset for fewer than 62 working days—if the asset is simply used on working days—will find it is considered a mixed-use asset, and the tax rules applying to that asset will change. There are other ways of addressing this problem, such as applying rules in a similar way to which the fringe benefit tax rules are applied in respect of cars. It is a fair question to ask why we are not going down that track, and why we are instead creating some complex rules that will be difficult to police.

Of course, these mixed-use assets are close to Kiwis’ hearts. We know that the home, boat, bach, and aircraft—if you are fortunate enough to have these assets—are things that will be looked after and valued, both for private use and public use, and these things are dealt with very directly in this bill. I do not want to go too far down the route of exploring whether these rules will be applied to cabbage boats, or whether helicopters owned by German billionaires will be captured within these rules, such as the helicopter owned by Kim Dotcom that flew the member for Epsom to and from the Dotcom mansion in John Key’s electorate.

💬 Hon Trevor Mallard: It landed beside the giraffe, which he then forgot.

Mr Mallard tells me that the helicopter landed beside a giraffe, which Mr Banks must have forgotten. He certainly forgot about the money in the brown envelopes he was handed. You know, all of this sounds a little bit implausible, and one hopes that the Government will be able to remember how to apply these laws if it is fortunate enough to pass them through the select committee process and refine them in an appropriate fashion.

These issues are sensible to address, but, as I said at the outset, there are many ways to skin this cat. There are other things that could be done, that we know will not be done because the Inland Revenue Department’s computer systems are ageing. The core FIRST IT system is over 20 years old, it can no longer handle big changes, and so this Government is in the process of backtracking on various changes it has realised it cannot make. It is also highly likely that the Government would not currently be able to introduce a pro-growth capital gains tax, should it see the light and understand the benefit of sending a neutral investment signal to business people, rather than one that implies tax avoidance through investment in housing.

That problem alone probably limits the scope of this bill in a way that is incredibly unfortunate. The current Minister of Revenue has been aware of this problem for all the 7 years that he has been Minister, and yet he has failed to lay out a credible time line for fixing the computer system and failed to be transparent about costs and processes. We saw today in the House, at question time, his refusal to release any information on 80 documents directly relating to the business transformation process that the Inland Revenue Department is undertaking in order to eventually—one hopes—update those IT systems, but we do not know. Mr Key said on Valentine’s Day this year—on 14 February—that Kiwis need an IT system that works in their Inland Revenue Department. That is a sensible thing to wish for. I support him in that.

💬 Dr Rajen Prasad: He was loving it.

He was loving it. I support him in that, because every country in the Western World needs a functioning tax system. But we have seen no action since.

The Government has not announced any changes, has not announced any credible time line, or a change programme. Instead, we are left tinkering with legislation that will not change much. It will plug a little hole here or there, it will debate what the best way to do things is, or it might change some of the GST rules, and we have seen, of course, the Government doing that before. Mr Key said he would not put up GST to 15 percent—then I think he said we live in a dynamic environment—and next thing you know, it was 15 percent. Kiwi families have been struggling ever since, because those GST changes hit those families in the middle and on low incomes the hardest. Those who are best-off are doing pretty well. We understand 90 of the top 100 earners in New Zealand do not declare tax that is consistent with being on the top tax rate. Although they may have hundreds of millions of dollars, they are not declaring income that is above $70,000. So those who are very well-off carry on as they were, without being challenged by a proper, functioning tax system.

Tax revenue has dropped 4 percent under this Government’s watch. That is partly because it has overseen the worst economic growth record of any Government in 50 years, and partly because of policy changes it has made, and in small part it is due to the impact of the global financial crisis. That is the advice that has come from its own department—that the global financial crisis is only a small part of that picture. The Government is mismanaging the economy.

As I come to a conclusion I want to point out that Labour will support this bill going to the select committee, because we can see the benefit in addressing some of these loopholes. But we think that this is a lost opportunity for Kiwis to have a better, fairer tax system, to implement pro-growth tax reform that would include a capital gains tax and would increase savings through universal KiwiSaver, and to introduce research and development tax credits. We would put in monetary policy changes that would give the Reserve Bank the tools to manage the exchange rate in the interests of an export-led recovery. We would also build 100,000 affordable homes over 10 years. We would be converting the dole into a subsidy for apprentices. These things would actually grow our economy, unlike the tinkering we see time after time when bills come before this House, in the Government’s name.

This Government is out of ideas and out of plans. John Key is disappointing New Zealanders. He is not delivering on the promises he made, and he is out of touch. It seems that Mr Key is content to see New Zealand decline. He continues to oversee the worst economic record of any Government in the last 50 years.

This bill, the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill, continues the Government’s focus on ensuring that everybody pays their fair share of tax whilst at the same supporting our economy. I want to thank the Minister of Revenue, Peter Dunne, for his work in developing and bringing this bill to the House, because I think it does a number of very important things. It is also good to see members opposite saying that they are going to support it. It is a long time since I remember them supporting something the Government is doing that is so important to New Zealand. Therefore, that is a good thing. Perhaps we are all learning here in this House.

There are a couple of things I want to touch on in particular. The first is that Budget 2012 made a number of changes to the way that livestock in New Zealand is valued. This bill further supports those changes with provisions to enact that to a greater degree. There is a tightening of rules for reducing the cost of assets that are used privately by the owners who also seek to gain revenue from them. I think it is very important that we have a debate around this. As with the last person who spoke in this debate, Dr David Clark, I am sure we will receive a number of submissions in the select committee on this very issue. There are several GST-related changes and, importantly, there are changes to the time period in which entities or individuals are able to claim refunds.

The last speaker in the debate said that the Government was out of touch, and I want to absolutely tell you that that is not the case. There is one change that is coming about in this bill that is not only extremely important to many hard-working New Zealanders but also extremely important to my electorate, in the Te Puke area, where we grow kiwifruit. Of course, all members of the House will be as concerned as I am about the effects the Psa virus is having upon the kiwifruit industry. This bill will also have rules concerning the tax treatment of certain capital payments and receipts and capital losses in the horticulture industry. It will clarify those, and these are generally of assistance to the kiwifruit orchards that are affected by Psa. What does that mean? Well, it means, actually, that the kiwifruit industry some time ago came to the Government and made a case for the difficultly it would have as it moved through dealing with Psa, and the tax treatment where there are likely to be losses where crops are wiped out and the growers need to reinvest.

I want to thank the Minister for understanding the growers’ concerns and listening, and for bringing this bill, which will assist them to get back on their feet. It will better align amortisation rules for primary sector businesses with the general depreciation rules as a result of Psa in kiwifruit. That is not a Government that is out of touch; that is a Government that is listening and delivering direct assistance to an industry that very much needs that assistance. It is saying that this House’s thoughts and the Government’s support are with the growers in the industry around Te Puke and in other parts of New Zealand at the moment. I look forward to their submissions on the bill. Thank you.

I want to reaffirm the statement made by Dr David Clark that Labour will support this bill, the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. Tinkering bills like this generally do no harm, so there is no harm in supporting them. This bill does clear up a few loopholes in the tax system, and it will be good to have the discussion at the select committee about exactly which loopholes need to be tidied up.

But, frankly, this bill just reflects more muddled thinking from the muddled orcs of “Muddled Earth” over there on the Government benches. On the one hand, Government members are saying to their base, their core, the farmers of New Zealand, “You need to pay more tax and stop rorting the tax system, farmers. We are going to close the loophole on you.”—on the farmers, Mr Assistant Speaker Robertson, not on you; I am sure you are not evading any tax. On the other hand, multinational corporations like Facebook get to continue their tax rort. Facebook gets an effective tax rate in New Zealand of 2 percent. That is a tax rate that Mitt Romney can only dream of. Google gets to carry on with that tax rort. Facebook is rorting the system as well, unabated, untouched by this bill. A multinational corporation is left alone and left untouched while the poor farmers of New Zealand, whom the National Party claims to be the champion for, are getting attacked once again by this disappointment of a National Government.

They will not be the only group who are going to be disappointed by this bill in the name of the National Government. All those poor doctors, and vets, and other students who were promised a great deal out of the Voluntary Bonding Scheme from this National Government now learn that the income they earn from the Voluntary Bonding Scheme will not be applied to KiwiSaver, thanks to this bill. So their KiwiSaver contributions from their employer are going to drop. They are losing out because this Government cannot keep its promises. It cannot keep its promises, so the poor medical students, when they graduate, and the vet students from Massey University, when they graduate, are going to go out there and are just going to have one more disappointment from this very disappointing National Government. This is muddled, muddled thinking from this Government.

On GST, well, we are going to see again that foreign corporations and foreign businesses get to register for GST now. So they can reduce the hit that they have to take on their GST bill. Meanwhile, the hard-working people of New Zealand, every time they go to the supermarket, every time they go to the petrol station, every time they go to buy clothes for their kids, and every time they go to get the school uniforms, are paying more GST. So the citizens of New Zealand are paying more GST whilst the foreign corporations are being given another free ride, just like Warner Bros. They get to dictate to us in New Zealand what our laws are, and now what our tax laws are as well. I think that this bill really sums up the way this Government thinks.

It is good to see some loopholes being closed on some major assets—holiday homes, for instance. I do not know whether or not this impacts on holiday homes in Hawaii—probably not, because this Prime Minister likes to make sure that any additional tax changes do not affect him personally, but that would be interesting to know. As for boats and aircraft, I wonder whether, in order to register your aircraft for this taxation, you have to remember whether or not it exists. Even if you sign a document saying that you have one of these aircraft, I wonder whether signing it actually matters any more, because we know that with John Banks he could not remember the helicopter ride, and when he signed his election return, that did not mean anything, because he had not read it and his signature was not worth anything. So I would like to know what the criteria will be around those assets such as aircraft and holiday homes.

But, of course, what this does not do is have a real change in the tax base, which would be a real opportunity to make sure that everybody is paying their fair share, and have a growth-focused tax regime, because there is no mention of a capital gains tax in this legislation. Of course, that would be too bold for this Government. That would be too much about economic growth for this Government. That might actually show some signs of a plan, which is the last thing that we are going to see from this Government. More muddled thinking from the poor muddled orcs across the other side there. Of course, there is no sign of the research and development tax credits that might grow our productive sector. No, they are missing from this bill. Nothing about monetary policy, and nothing about dealing with our fluctuating exchange rate, which makes it so difficult for our exporters to actually budget and plan ahead, because this Government does not think or know about planning, so that is not an issue for it. Certainly there is nothing as bold as a plan to build 100,000 new homes, which would actually get our economy moving again and make sure that there is affordable housing for people. No sir, none of that.

This bill symbolises a continuation of what we saw on Budget day with the paper boy tax. It is petty penny-pinching to make up for the unaffordable and ill-conceived income tax cuts that the Government brought in a couple of years ago. It is desperately short of revenue, and now Government members are hunting around, looking under the couch to see whether there are any coins there, and tipping up the paper boys and shaking their pockets out. You know, it is good to see that they are even going to try to tip up Kim Dotcom—good luck with that—and shake his pockets out as well.

This bill just signifies what poor, muddled thinking was behind the income tax cuts that this Government gave to the rich and, of course, offset by increasing the GST on the poorest New Zealanders. It is just another disappointment from John Key. Here is a slogan for you, because we know that New Zealanders are not loving this. Here is a slogan for you: “John Key: 100 percent pure disappointment.” That is what this Government has been. It is a 100 percent pure disappointment, and this legislation is just another example of what this Government has come to stand for.

I rise to speak on behalf of the Green Party on the first reading of this Government bill, the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill, that has come before us this afternoon. The Green Party will be supporting the bill going to the Finance and Expenditure Committee. This bill makes a large number of changes to the Income Tax Act. Some of them are remedial in nature; some of them are in line with the changes proposed in Budget 2012. It covers such things as—and I am not going to go through all of them, but some of them—tightening the rules for deducting the cost of assets such as holiday homes, boats, and aircraft, used both privately and for business purposes. It also covers changes to the way livestock are valued, which has been quite controversial; some significant changes to GST, especially the way non-resident companies can claim GST credits; changes to the tax treatment of foreign currency hedging, which I think I might get back to; a reduction to 4 years from 8 years of the period during which people can claim tax refunds; changes to the way that some farm capital expenditure is accounted for; and removal of the historic tax concessions for Tīwai Point—amongst many other remedial matters, such as clarification of the term “dividend”, for example.

From our point of view, this bill is a pretty complicated bill and covers a whole bunch of issues, many of which we can support, and that is why we are supporting it going through to the select committee. We do support a large number of the measures in the bill. Although I agree with the previous speakers that this certainly does not address some of the fundamental changes we need to make in tax policy in order to get a more productive economy, none the less many of these changes are very sensible. Those that we query are those with significant fiscal risk. Some are in the order, in terms of risk to the tax base, of $10 million to $15 million per year, so we will be looking at that legislation in the select committee to figure out whether we think those changes are worth it.

The kinds of areas of concern for the Greens are around the tax treatment of foreign currency hedging. The concern here is that it will open up further opportunities for tax avoidance, unless the Inland Revenue Department commits more resource into the area for monitoring and compliance. Secondly, there is concern around the passing on of the cost of foreign companies claiming GST refunds back on to those companies. The question is whether we should be offering them a more transparent regime like they are doing in the UK. The participants in the Government’s Voluntary Bonding Scheme have gained a financial advantage, and we want to have a look at that. Of course, there is the reducing of the time in which you can claim a tax overpayment, and whether it is fair, in fact, to reduce the time during which you can claim a refund.

Many of the changes in this bill make a lot of sense and we will be supporting them through to the select committee. Some of them we are not so sure about, which is why we want to have a closer look at them in the select committee. But we will be voting for the bill going through to the select committee. Thank you.

I want to take just a very short call on this, the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. One of the Government’s four priorities for this term is building a more competitive and productive economy, and part of that is having an effective tax system. Only by lifting our economic performance can we create jobs, boost incomes, improve living standards, and provide the world-class public services that Kiwi families need. This bill promotes fairness and integrity across the tax system, and strengthens our economy by doing just that.

I will not go into the details, but it is building on the livestock valuation rules in the Budget 2012 legislation, tightening the rules for deducting the cost of assets—I see we have widespread support for that across the House—and also changing the timing periods for claiming refunds. Any successful economy has an efficient tax system, and this is a bill that is doing a number of small things that are keeping the tax collectors one step ahead of the more inventive of our fellow citizens who are out there trying to do their best. I commend this bill to the House. Thank you.

As prior speakers on behalf of the Labour Party have already said, the Labour Party will be supporting this bill, the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill, to the select committee.

I want to make a contribution in respect of two issues in particular. The first is livestock valuation issues. This is long overdue for remedy. At the moment we know that one of the most successful sectors in New Zealand is the dairy sector, and yet the dairy sector pays very low rates of taxation. That is for a number of reasons. One is that we have a gaping hole in our tax system—it is not fixed by this legislation—which is that capital income is not taxed in New Zealand, whereas income earned through other means is, and that produces distortions as well as unfairness in the tax system. This bill does not fix that, despite the fact that it drives unusual and economically inefficient and unproductive outcomes in our rural sector as well as in other sectors.

A second reason why taxable profits are reduced in the farming sector is that we have got a very unusual situation in that farming companies can opt into different livestock valuation schemes. They can switch from having livestock on capital account to having it on income account, and then change that decision again in the future.

💬 David Bennett: They can’t.

They cannot, Mr Bennett?

💬 David Bennett: No, they can’t.

They cannot? Well, actually, I thought that is what this bill was doing.

💬 David Bennett: Listen and learn.

Well, the advice that I have, and I thought that was advice that was coming from the Minister of Revenue, was that the livestock valuation methodologies can be changed—

💬 David Bennett: You can change them, but the first part of your thing is wrong.

Sorry, the first part of my thing? Sorry, I misinterpreted what you are saying. The Government members now agree that under the existing law you can change the livestock valuation methodology, and as a consequence you can change the tax consequences. As I understand it, and I might be wrong here, but I was informed that under current law you can effectively treat increases in your livestock as being on capital account, for which you are not liable for tax, and then the taxpayer can change it and put livestock on income account, even capital stock, and they can claim a deduction for a decrease in the value of that stock. That is my understanding of the current legal position, but Mr Bennett, I think, is suggesting that it is not.

💬 Dr David Clark: That’s what the changes in the Budget were all about addressing.

I thought that is what the changes referred to in the Budget were about changing, and that is what this legislation is meant to do. If my understanding of that is wrong—

💬 Dr David Clark: The legislation refines that.

This legislation refines that, and if I am wrong then I will learn about that at the select committee. That is a good thing, because that should be fixed.

In respect of mixed-use assets, this again is a bit of a rort at the moment. This can be used for things like superyachts. A superyacht could be used mainly for private purposes, but it could have a sign put on it that says it is available for rent. It might be used by someone who rents it for 1 or 2 days a year. It might be used by the owner, who has it for mainly recreational purposes, for 30 days a year. The rest of the time, i.e. 11 months of the year, it could lie idle. Under current tax law the rental income for those 2 days is fully taxed, but 11/12ths of the expenditure, 92 percent of all costs relating to the yacht, are deductible, resulting in a very significant loss for tax purposes. So, in effect, taxpayers at the moment, under current laws, are subsidising superyachts.

💬 Dr David Clark: It’s a rort.

It is called a rort. That is just unfair, and it needs to be closed down as a loophole. What this legislation does is address that problem by effectively apportioning what can be deducted as an expense, so that there would not be significant losses that could be offset against other income.

This will apply also to holiday homes. I am informed that many people do this, even though it is a pretty disreputable thing to do. This is an example of where this Government beats up on beneficiaries—and, of course, beneficiaries who act fraudulently ought to be brought to account, but so too ought wealthy people who effectively use tax devices so that they do not pay their fair share of income tax. Indeed, some of the wealthiest people in New Zealand currently pay lower rates of tax than a single person on the minimum wage.

We agree with both of those intentions. We are not sure whether the mechanism being used in respect of mixed-use assets is correct. I think there is a proper question to be asked as to whether the fringe benefit tax arrangements or the principles that lie behind fringe benefit tax would be a better method of remedying this than the approach that is being used.

There are other changes made by this bill, including changes to the period for which you can claim a refund. At the moment that period is longer than the Inland Revenue Department would like it to be; it would like to limit that to a period of 4 years. At the moment refunds can be claimed for up to 8 years where there is a clear mistake or an oversight. We are not sure why this change is being made, and I am not sure that it is fair. I do not know how it relates to the reciprocal right of the department to go back and claim underpaid tax—whether it can go back further than 4 years—but I thought there should be some reciprocity in respect of that requirement.

There are changes to cross-border GST transactions. I have not got my head around those properly, and that is one of the things that we will be looking at in the select committee.

The general direction of this bill is a good one. The quarantining of some interest deductions that are being used on mixed-use assets is appropriate. I look forward to considering the detail of this bill at the select committee.

I take a call on behalf of New Zealand First on the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. New Zealand First will not be supporting this bill, as we do hold a number of reservations concerning it. Although New Zealand First does support good policy and does support moves to improve taxation, we do believe there are some reservations concerning this bill in regard to two factors—the first being new farmers having reduced autonomy by having purchased herds, and, secondly, due to debt stacking.

Firstly, on the new farmer situation, herd scheme valuations began in the late 1980s, and the idea was to effectively treat livestock as a capital asset. Under the herd scheme, changes to the value of their livestock were not subject to tax. In 2003 and 2009 many farmers left the herd scheme, predicting that livestock values would decrease. They did not want to pay a higher tax rate than what their livestock was actually worth, and that is understandable. This Government, this National Government, has since announced that farmers cannot elect to exit the herd scheme. The National Party—you know, it is surprising, considering that a big chunk of its support comes from the likes of Federated Farmers, as we heard earlier in the Local Government Act 2002 Amendment Bill debate—likes to pride itself on individual responsibility, but it will not allow individual farmers this fundamental control over their assets. Under this new piece of legislation herd scheme livestock that is sold to an associated party will also be required to remain under that same scheme. So someone’s new asset will be subject to a scheme that was either accepted or rejected by a previous owner. We in New Zealand First do not believe that that is fair, and once again we feel that the Government is doing a disservice to its very constituents, the farmers of New Zealand, by adopting this, and that has been the feedback from many farming circles in respect of it.

Secondly, in regard to debt stacking, KPMG has also come out and advised that it has concerns about the debt-stacking aspect to this bill. It says: “For mixed-use assets held by a close company the concern is that all interest deductions in respect of the asset will be allowed (under the general interest deductibility provision for companies) and/or the debt might not be in the company itself. Therefore, an interest apportionment rule is proposed to address situations where debt is in the company, or its shareholders’ hands.” It goes on to give examples of debt-stacking complications and how it would not necessarily work. So when you have the likes of KPMG, on the one hand, raising some doubts about the debt-stacking side of this, and when you have some in farming circles saying that they do not feel it is right that they cannot withdraw from a herd scheme that is somewhat historic and that they do not want to be in any longer—but this Government is requiring them to stay in it—then we feel that there are some errors in the way this legislation has been brought to the House.

But perhaps it is symptomatic of a wider rust, or rot, in terms of this bill, because we have heard about some of the other bills where the Government is focused on tinkering around the edges, such as taxes for paper boys and paper girls in this country. You know, it is attacking those who can least afford taxation changes while, at the same time, giving huge tax relief, several billions of dollars, to its rich mates, the wealthy, and the top 10 percent earners of New Zealand: the $5 million Telecom man who got $4,000 or $5,000 a week in tax relief, and the Prime Minister, who got $1,000 a week more in tax deduction. Those sorts of things are all very well, but then National goes and attacks its very own supporters, the farmers of New Zealand, with their herds and other aspects, which is not right. This is at a time when New Zealand has record unemployment. We have got massive overseas debt, and rising, the balance of payments is appalling and predicted to rise even further, and the manufacturing sector is in crisis, and, indeed, in meltdown. What does this Government do through all this? It just, basically, tinkers around the edges with the taxes, such as this bill, and really does not get on with the bigger picture of growing the pie in New Zealand, growing the economy, growing the opportunity for jobs and employment, and giving younger people an opportunity in this country to actually leave university, or leave school, leave education and get into a worthwhile career. It tinkers around the edges with silly little bills like this herd management scheme. New Zealand First will not be supporting this bill. We oppose it.

The last three speeches from Opposition members have demonstrated a complete lack of understanding of what the Taxation (Livestock Valuation, Assets, Expenditure, and Remedial Matters) Bill is about, and I have got to say that they have not read it. Can I say to the New Zealand First member who has just spoken, Andrew Williams, that if he wants to make changes to this bill, the smart thing to do is to come and support it through to the select committee process and contribute to the collective wisdom of the House to get the legislation changed.

The fact is that this legislation fits one of the four priorities of this term of Government, particularly that of building a more competitive and productive economy. The centrepiece of the Budget in 2010 was a major tax package reforming the tax system to make it fairer and more sustainable, and providing better support for economic growth. That is what this bill does, and I support it totally.

This is a split call, as I understand it.

It give me a lot of pleasure to follow the new questioner for the Māori Party, John Hayes, known as Hone Kuti Taru these days, but it is a pity that he could not have applied some of his experience in kuti taru lifting to thinking about this bill. [Interruption] It is cut grass, or hay.

There are a number of points that have to be made here, and the first, from my perspective, is that the Government was very quick to hammer the paper boys in the Budget—very, very quick to hammer the paper boys—but is taking its time to close what is a much bigger rort.

I will say to my colleague Andrew Williams from the New Zealand First Party that I think he does have it wrong here. The ability of people to switch their tax systems, to pick and choose, to say one day that they are dairy farmers and the next day that they are fattening their beasts, and to switch back again the next year because their stock numbers are different or the valuations are different is just wrong. It is a rort. It has been a rort for far too long. Frankly, it should have been closed off when we were in Government, and if the Minister of Revenue had been more active back in those days, it would have happened then. But we all know that he is a lazy Minister. He does not work very hard. It should have been fixed at that stage. But I do say to New Zealand First members that I think they are wrong on that.

I actually agree with John Hayes’ advice on this. On tax matters where there are not enormous principles at stake, it would be better to get the bill off to the select committee, to hear the submissions, to get it tidied up, and then if a party is still against it, to vote against it at a later stage, especially where there is clearly revenue to the Crown involved.

The point that I would like to make is that there are a lot of areas that should be in here that are not. What we are seeing is a massive reduction in the potential GST revenue as a result of the way the world is changing with internet trading and with the loss of GST that is occurring on transactions of under $400. I will use as an example the importation of bicycles. People are importing a frame valued at $395—[Interruption] Well, not me. I would not know how to put them together. Wheels are valued at $395 each, braking systems are valued at $300, and gearing systems are valued at $300. They are importing them as separate items all under the threshold but avoiding GST, and, at the same time, causing New Zealand wholesalers and retailers to go out of business. All over the country there are retailers going out of business in a variety of areas because the way that commerce is done these days, people are avoiding the retailer not only for a matter of convenience but also for a way of avoiding the GST that would otherwise be applicable if they went to their local shop.

It is a matter of fairness that we get this issue sorted out. Australia is getting it sorted out. Australia is getting a number of areas sorted out. It is, for example, working on the Google problem and the Facebook problem. The massive companies that come to New Zealand use all of our services but do not pay their tax in New Zealand. Companies that are paying under one-tenth of 1 percent of their New Zealand profits in tax are wrong—companies that do not recognise the revenue in New Zealand. People who take a Facebook ad out in New Zealand take it out with an Irish company in order to avoid tax. Facebook does it completely, it does it deliberately, it does it for the vast majority of its New Zealand revenue, and it does it in order to avoid paying tax in New Zealand, and that is wrong. It cannot use our resources without paying its tax.

I tell the lazy Minister of Revenue not to take as long fixing that one up as he did fixing up the fat cow tax.

I take a short call just to reaffirm the Green Party’s support for this Taxation (Livestock Valuation, Assets, Expenditure, and Remedial Matters) Bill, but also to remind the House that our support is contingent only. It is support through to the select committee and it is contingent on clarification of a number of issues.

In brief, to review what this bill is aiming to do, it is to tighten the rules for deducting the costs of assets such as holiday homes and so on; obviously, to change the way livestock is valued, which has been discussed here a little; make changes to GST especially on the way non-resident companies can claim credits; make changes to the tax treatment of foreign currency hedging; make a reduction to 4 years instead of 8 years for retroactive tax refund claiming; make changes to the way some farm capital expenditure is accounted for; clarify the term “dividend”; and remove historic tax concessions to Tīwai Point and one or two other companies.

It is a complex bill. There are nine regulatory impact statements. It is arguably, as New Zealand First said, tinkering at the margin, but its intent is sound—basically, to improve the New Zealand tax base. Yet it potentially puts tax revenue at risk to the tune of, perhaps, up to $15 million, which is not insignificant. So we do need to be confident as a House that what we are doing here is worth it in terms of improvement to the tax law.

We have specific issues of concern. We think that the changes to the tax treatment of foreign currency hedging could open up further opportunities for tax avoidance unless the Inland Revenue Department commits more resources to monitoring and compliance. We think the Inland Revenue Department is perhaps passing the cost of foreign companies claiming GST refunds back to those companies, requiring them to register for GST rather than offering a more transparent and simple refund scheme such as, for example, the British VAT scheme.

We are concerned that participants in the Government’s Voluntary Bonding Scheme may have, through oversight, gained a financial advantage if enrolled in a KiwiSaver scheme. Government departments are required to match contributions, and this match may not have been budgeted for. We are concerned about the reduction, as I mentioned, down to the 4 years for claiming refunds. I recall David Parker’s concerns about what he called the “rorting of the system” for superyachts being taxed, which is an issue that should never have arisen in the first place. So there are a number of complex issues, and each one is not simple and needs to be considered in the select committee in some depth.

Just to round off—it is a broader issue. I think there have been various comments from the Opposition, both Labour and New Zealand First, that this bill in a sense holds up a mirror to the current Government’s overall economic policy, and, you might say, world view. I think it was David Clark who lamented that this New Zealand Government lacks a real vision of getting the economy back on top. I think that is fair comment. The answer was Paul Goldsmith’s mercifully short defence of the bill, to the effect that it was building a more competitive economy—building a more competitive economy—and it was going to do this by improving the tax system.

How are we going to do that? How are we going to improve and make a more competitive economy by just tinkering at the margin with this bill? Andrew Williams noted that the balance of payments is in a mess, that the manufacturing sector is in crisis, and here we are, tinkering at the margin with the tax improvement system.

What we need to do, if we want to make our economy properly competitive, is to look to the underlying drivers that the Government is claiming—six main drivers to improve the economy. It has omitted the fundamental drivers, which is that we are an inefficient, fossil fuel - driven economy, and we need to bring in adequate climate change policies that allow us to convert to a low-carbon, green economy. That is the main problem, not this bill.

It is good to see that most parties are supporting this, and I would have to agree with Trevor that I think New Zealand First has got it completely wrong here—

💬 Hon Trevor Mallard: Who?

—Trevor Mallard—in not supporting the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill. There is a problem in the tax system in this area. This is a capital gains tax. It is one of the few capital gains taxes that we actually have in our system. Effectively, normally when you pay tax it is on profit, which is revenue minus expenses. But when it comes to livestock, there is a capital gains tax in our system now. There were different valuation mechanisms that have been used, effectively for some people, to not pay tax and to reduce their tax liability. So it needs to be changed.

This is a good bill. It is in the right interests of New Zealand and the industry. It does show the difficulty that when you try to put capital gains taxes on, like the Labour and Green parties want to, you do set up a system that people will try to use to their advantage. Thank you.