Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill

When we were last debating the second reading of this bill, Grant Robertson had the call and has 4 minutes remaining to speak.

Thank you—4 minutes.

💬 Hon Ruth Dyson: I thought it was 3:47.

Well, I think an extra 13 seconds is well merited on this piece of legislation.

When I was last debating this the other evening, I covered mainly the broader issues around our concerns about ad hoc tax legislation and the spectre of having to revise and amend legislation that the House passed only a matter of months ago and our concerns on that, and also the question that this piece of legislation sets New Zealanders’ annual tax rates for the 2016-17 year, which is actually nearly over.

The Government has not quite managed to get this bill in front of the House until now. We are debating the second reading today, and I suspect that by the time we get through the Committee stage and the third reading, we will be pushing through April, and so there will be just a couple of months where the tax rates that New Zealanders have actually been paying this year will have been legislated for. I will leave viewers and listeners to make their own minds up as to what that says about the levels of organisation within the Government—particularly within the management of the House.

I do just want to refer very briefly to a couple of the substantive issues in the bill that the committee dealt with. I just want to acknowledge on this occasion—I know I am not supposed to say this, but he was not here the other evening when we began the second reading—the former chair of the Finance and Expenditure Committee, David Bennett, who really did shepherd this piece of legislation through its work. We do miss him. Chris Bishop gave a speech that David Bennett just would not have given in this House the other night, and I will leave it up to listeners to decide what that means as well. But I do acknowledge Mr Bennett’s work in seeing this legislation through.

The two issues I want to mention that did attract the attention of submitters were around the changes for look-through companies—closely held companies, generally, but in particular look-through companies, which are, as other speakers have said in this debate, legitimate devices for managing the affairs, particularly, of small businesses and small groupings of taxpayers. What the bill and the officials sought to do was to ensure that look-through companies are being used appropriately, not being misused. The committee understood that this was a small number of look-through companies that may be falling into that category.

What submitters wanted to do was to make sure that the tightening of the rules did not take out those people who were legitimately using these devices. I believe we have struck that balance, in particular through the change around the transitional provision for existing look-through companies. I think that gives an assurance to those who are using these vehicles that if they are being used legitimately at the moment, there is now a process that will not impose a burden upon those companies during the 2017-18 tax year. There were some exceptions around charities, and those concerns will, I suspect, come back to the committee at a time in the future.

The other major issue was around the changes to the net non-resident withholding tax and the approved issuer levy rules, as they apply to interest paid on debt provided by non-residents. This is consistent with the changes around non-resident withholding tax that both the Government and the Labour Party have proposed in the past, and I do believe they make good sense as well.

So, overall, the Labour Party is happy, as we always are, to support tax legislation that gives us a fair system and gives a system that is clear and understood by all taxpayers in it. I want to thank the officials, who had quite a tough job of pulling together a number of disparate elements into one piece of legislation. I shall leave it to our colleague Andrew Bayly to describe, in great depth, aircraft overhaul expenses and the changes that are being made to those, because he and David Seymour—

I am sorry. The member’s time has expired.

It gives me great pleasure to rise in support of the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill. It has already been described well by my predecessors—speaking-wise, that is. It covers seven Acts, including the income tax Acts and GST Acts. It deals with lists of charities that are now able to take advantage of tax benefits. Look-through companies have been described, as have GST, non-resident withholding tax, and tainted capital gains—and that is where we have a situation where we have a capital gain that is, essentially, locked up in a limited liability company. This legislation allows that capital gain to be distributed to shareholders as if the shareholders were the original taxable entities in themselves. A much fairer—as Mr Robertson described it—system has evolved as a result of this legislation.

I would just like to pick up a couple of points that Mr Wood mentioned in his contribution. He asked for a review of the tax system. He did not think the tax system was very fair, and he thought this was an opportunity to do something with the tax rates. I can tell Mr Wood that the only thing that would occur with a review—and with a Labour-Green Government, if that could ever possibly happen—would be that tax rates would rise.

And there is really no concern, Mr Robertson, about the tax rates being set at a late rate, because the public knows that the National Government is reliable and steady as she goes, and that the discussion is around decreasing taxes. That is simply because things are in hand, the economy is growing, and choices are available.

But I can tell you, Mr Wood, that were the Greens attached to a Labour coalition agreement, there is absolutely no way that taxes would ever be considered to be thought of to be falling. That is because of the ad hoc, expansive, “lollipop”—“lolly scramble”—policies advocated by, particularly, the Greens.

💬 Hon Ruth Dyson: I like lollipops better.

Well, the “lollipop”—Ms Dyson—“lolly scramble” policies that your party advocates are, for example, free tertiary education—

The ASSISTANT SPEAKER (Lindsay Tisch): Order! We should focus on the substance of the bill and not on speculating.

Thank you, Mr Assistant Speaker. That is the second time that has happened to me in a couple of days. This is a very tidy piece of legislation. It sets the income tax rates for the year 2016-17. The public can be assured that with this Government the tax rates will remain the same or go down. That is because there are options available to the Minister of Finance to do such a thing, which would be an impossible situation to imagine with a Labour-Greens coalition. I do commend this bill to the House.

I feel I will have to respond to the previous speaker, Alastair Scott’s, contribution to some extent, to say that I think that he is mistaken about the nature of the policies proposed by both the Green Party and the Labour Party, because the Green Party is, as always, a party that is very focused on living within our means and so a Green Government would, of course, be entirely fiscally responsible but, better than that, would take into account the things that New Zealanders actually want.

I would say that New Zealanders know that you get what you pay for, and that if we do not make contributions to Government services, then with a National Government they will see increasingly eroding public services and squeezed health services, because—as that member accurately pointed out—his party is ideologically committed to reducing taxes, particularly on those who are earning the most money and those who own the most wealth. So the rich will get richer under the National Government, and the rest of the country will suffer and not receive the services that they want—the social and physical infrastructure that they know will build a long-term, healthy economy and society. This is what a Green and Labour Government would absolutely prioritise—a long-term, healthy society—because we know we can have that.

So when it comes to tax law, it is riveting, and I am sure people at home would love me to go through the detail of this particular bill. Unfortunately, I was not on the Finance and Expenditure Committee for the entirety of the submissions on the bill, though I was there for the beginning. People at home can see this is the bill, this is the commentary on the bill, and this is the disclosure statement and the regulatory impact statement, all for just one bill. So tax law—as always, it is very interesting to delve into the detail of it.

I will start by saying there are a couple of principles, and one is that tax law needs constant monitoring and improvements to make sure it is working the way that it is intended to work. So I congratulate the work of the officials on this, and all of the officials at IRD, who are, hopefully, working very hard and are properly resourced to ensure that our tax law is being complied with and is working as intended, because, as ever, there will be people who are seeking to exploit loopholes in the tax law to avoid paying their fair share of tax, and there will be things that are not working as intended that actually send the wrong signals to households and businesses and create problems for them in achieving what they want to achieve.

One of the major parts of this bill—the one that we heard the most submissions on in Part 2—related to closely held companies and, particularly, look-through companies, which was the replacement structure introduced in 2010-11, when we lost the loss attributing qualifying company category. What a look-through company does, or was intended to do, is enable the owners of the company, the shareholders, to pay the tax directly on the earnings or to offset the losses of that company against their own personal income. So it is not the company that pays the tax or absorbs the losses; it goes straight through the company to the owners of the company, and that enables them to offset, at times, losses against their personal income. There have been some difficulties with this identified by IRD over the last few years. There was not quite the same uptake that it expected, and so there are changes that have been proposed.

Hopefully, this will enable the tax law to be more transparent but also to work as intended, because I think one of the unintentional consequences of the look-through companies, combined with our very unusual foreign trust law, was that a number of people offshore who are non-resident in New Zealand were able to set up foreign trusts in New Zealand with look-through companies and, effectively, use these structures in a way to avoid paying tax in their home country. That is something that we certainly—I do not think most New Zealanders would be in favour of our tax law and foreign trusts law being used to that extent.

There has been another bill already passed into legislation in this House recently that does address some of the problems with foreign trust law. This one had already been initiated and makes changes to the eligibility of having a look-through company and to the way in which dividends were treated, and, of course, the select committee made the decision to add some transitional provisions for those who were affected by the changes to the eligibility to be a look-through company. So you can find that in clause 118B in this bill.

Another change is to non-resident withholding tax and the approved issuer levy—or AIL, for those who really follow the acronyms of tax law. All of that is part of our ongoing work through the OECD on BEPS—that is, base erosion and profit shifting.

This is incredibly important work. It is incredibly important that we address this global challenge, because companies and individuals globally have been incentivised, to some extent, to minimise their tax liability. You can understand why companies and individuals and households would try to minimise their tax liability, but we actually need tax in order to invest in the physical and social infrastructure that makes society possible and makes business possible. Most of the great innovations that have been incredibly profitable—whether it is Apple or Facebook, or a variety of different innovations—are almost always supported by some sort of Government investment. Whether that is the simple physical infrastructure of something like the internet or whether it is Government grants or investment in research and education that enables those businesses to create good ideas and then run with them, we need to have businesses and individuals giving back to society, so that we can maintain the level of investment in the infrastructure that makes our society possible and makes ongoing prosperity possible.

So I think, globally, there really needs to be a movement. It is important that New Zealand continues to contribute to this, and I am happy to say that it seems to me that the changes in this bill will go some way to assisting with a bit of a crackdown on multinationals that are trying to exploit our tax laws and trying to avoid paying their fair share of tax here in New Zealand. Of course, that ends up hurting the people of New Zealand, and, ultimately, it is going to hurt us all in the long run, because we are all in this together and it is a really important job for the Government to protect and empower people to ensure that the rules are fair and to ensure that the rules are complied with.

The global challenge we have right now is because of the interconnectedness of communications and the global scale of trade, and all of that makes it more likely that companies can play countries off against each other. They can threaten to pull their particular investment in a country on the basis of tax preference. Companies—multinationals—are actually in the position of playing countries off against each other, so that countries are in a race to the bottom to make their tax laws the most favourable for the companies, which is going to be worse for each society. Globally, we have to work together to stop this sort of behaviour, so that society can flourish in the long run.

I will just end by talking about—going back to Part 1 of this bill, which of course sets the income tax rates for the coming year. I actually thought the observation my colleague Michael Wood made in his contribution to this reading of the bill was really important, which is that the income tax rates set for the coming year, effectively, reflect a redistribution away from the poorest New Zealanders and middle-class New Zealanders to high-income earners. They were instituted by this National Government with its tax changes now 7 years ago.

There is an ongoing cost to that, and that ongoing cost can be seen in the increasing pressure on mental health services, and health services in general. It can be seen in education, in the ongoing need for schools to rely more and more now on contributions from parents for programmes and the sorts of technologies that students need to be learning at school. It can be seen in the ongoing deficit in infrastructure investment in Auckland, which is going to result in an absolute catastrophe in a few years’ time, with the ongoing population growth. We simply are not seeing the level of investment in public transport infrastructure that we need. A lot of this comes back to the choices that were made by this National Government to prioritise tax cuts for high-income earners over the future of the country.

I am very pleased—quite excited, in fact—to rise on behalf of New Zealand First and on behalf of my colleague Fletcher Tabuteau to take a call on the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill at its second reading. I am excited because, obviously, as Mr Robertson touched on, and Ms Genter as well, the minutiae of tax law is a riveting business. Just to have the chance to be enmeshed in it for even a fleeting few moments will serve as a highlight of one’s parliamentary career—however long that lasts.

New Zealand First will be supporting this bill, and for that reason I do not intend to take up too much of the House’s time going through it in intimate detail, but there are some matters that we feel do warrant being addressed further.

Like many omnibus taxation bills, this one contains many technical details and quite a plethora of legislative minutiae. As my colleague mentioned in the first reading, there are more than 50 changes to amendments across seven pieces of legislation, ranging from the Income Tax Act 2007 to the Stamp and Cheque Duties Act 1971. Personally, I have not had a cheque book for about 6 years now, but I guess some people still use them and cheque duties are therefore relevant.

These somewhat weighty taxation tomes contain a multitude of proposed amendments, under the umbrella of remedial matters, and they do deserve a greater degree of focused attention and consideration by the House. Although I was not present for all the submissions, it is apparent that even industry experts were confused at some stages as to which particular taxation bill they were submitting on.

This bill makes amendments to aircraft overhaul reserves, horse racing prizes, GST on second-hand goods and gold, the time frame for refunds of overpaid tax, losses offset by mineral miners, parent tax credit entitlement rules, foreign tax dividend payment provisions, the disposal of livestock on the sale of a business, and the sharing of non-personal information under an approved information-sharing agreement. The list could go on, and doubtless it does.

The submissions received by the select committee, both written and oral, definitely informed the improvements to the original legislation. The select committee process, even for matters as detailed as this, is a fundamental part of our open democracy. It is the process whereby industry and community groups and individuals have the opportunity to voice their opinions and express their concerns.

References to the time frame regarding the confirmation of the 2016-17 tax rates, in Part 1 of this bill, have already been made. We do have to ask how it is that we are determining rates in March for the 2016-17 year. Mr Scott has assured us there will be no increases in tax under this Government, only reductions, so we certainly hope that such taxes that have been paid thus far, under rules that have yet to be set, have in fact been completely lawful and we are not going to find ourselves in the situation where we have to come back and pass retrospective legislation to tidy up the fact that actions have been taken without the proper legal framework in place.

The bill aims to improve current tax settings within a broad based - low rate framework. That sounds a bit like a sound bite, and I guess the electorate will judge that on its merits. The Government’s revenue strategy seeks to ensure that our tax system is broadly fair, to encourage voluntary compliance. Well, that is always good. A bit of carrot is always better than the entire stick.

New Zealand First acknowledges that changes in business practices are dynamic, and the rate of change in the 21st century continues to accelerate. Amending our tax system so it remains responsive to those changes and fit for purpose is therefore important. The overview of this bill states that the tax treatment of alternative forms of income and expenditure needs to be as even as possible.

A significant section of this bill proposes changes to look-through company rules, regarding eligibility entry tax, deduction limitations, debt remission, tainted capital gains, resident withholding tax and dividends, and PAYE for shareholder-employees. My understanding is that look-through companies are the modern equivalent of what used to be loss attributing qualifying companies back in the day when I had anything to do with such matters, before handing it over to my accountant because this kind of thing tends to make my eyes glaze over.

When I was contracting, I said to him: “I don’t want to do any unnecessary paperwork. I’m going to write one cheque at the end of the year, and it can either be for your bill or for the tax department’s bill.” He took on the challenge. I paid him, and that was all taken care of. So I never got deeply involved in it, but I understand that the structure of the look-through company was put in place to counteract some of the business practices that had evolved around loss attributing qualifying companies. We are allowing some individuals, entities, to perhaps pay a little bit less of what society would consider their fair share of the tax burden. Now it appears that the replacement is itself in need of a little bit of tweaking and adjustment.

The rule changes are intended to reduce compliance costs yet remain robust and in line with policy intentions, and, like many other pieces of taxation legislation debated in this House, it is imperative that any unintended consequences of proposed rule changes are minimised—if, indeed, not eliminated.

Members of the select committee, including the Rt Hon Winston Peters, have responded to submitters and made some common-sense amendments, like the transitional provision for existing look-through companies. The committee’s proposed changes to grandparenting guidelines for charities and Māori authorities that use look-through companies strengthen the legislation as it was originally proposed, and that, of course, we support.

The bill also proposed changes to land tainting rules and council-controlled organisations, and amendments proposed in the bill to the Income Tax Act 2007 exempt entities controlled by local authorities from the land tainting rules. In its submission, in fact, the Dunedin City Council supported the officials’ view that in the context of local authority groups, land tainting rules are overreaching their purpose. Officials have no tax avoidance concerns in relation to land owned with a local authority group.

Another significant part of the bill deals with non-resident withholding tax, specifically regarding related parties and branch lending. Changes as proposed to the non-resident withholding tax and the approved issuer levy rules are to ensure that they are both applied consistently to economically similar transactions. A new category of non-resident passive income is introduced, that being non-resident financial arrangement income. The select committee recommends refining the definition of this, which would, in turn, amend the description of how the non-resident financial arrangement income is calculated.

New Zealand First does support Supplementary Order Paper 261, tabled by Minister Collins, regarding the depreciation rollover for businesses that were affected by the November 2016 quakes. I also would like, at this point, to draw the House’s attention to Supplementary Order Paper 260, from New Zealand First’s deputy leader, Ron Mark. The proposed tax deductibility measures in this Supplementary Order Paper would make it clear that the cost of any seismic work may be deducted, thereby reducing net income on which tax is levied under the Income Tax Act 2007. We certainly hope that the Government will see fit to see the wisdom in that and support it, to the benefit of taxpayers and, indeed, Government revenues.

We agree with the Government’s intent regarding this legislation, in the main, given the select committee’s efforts to change the bill, reflecting the concerns of submitters. The Government has got this one right, and that being the case, New Zealand First is happy to support this piece of legislation. Thank you.

I am going to be extremely brief; I am not as excited as Richard Prosser.

💬 Grant Robertson: You sat through the submissions.

I did sit through all the submissions, Grant Robertson. We had submissions, it was a very technical bill, and there were technical changes made at the Finance and Expenditure Committee, which Grant Robertson spent many, many hours following closely. He has done an excellent speech, of course, on many of the technical matters.

The bill covers, as has been outlined, the most important part around setting the annual rates for taxation for New Zealand for the year. It also has had, as has been canvassed already, very technical changes around closely held companies, simplifying processes to make it easier for New Zealanders to do business. It has changes around GST, changes around non-resident withholding tax—they are in such detail in this bill that we could spend hours going through them in detail, like Mr Prosser. But I am not going to do that—

💬 Dr David Clark: Is this bill worth putting through the House or not?

It is worth putting through the House, because it has the annual rates. The most important part of it, Dr Clark—the new health spokesperson—is that it funds the health system, which is seeing more New Zealanders getting access to elective surgeries. He is going to spend hours decrying that in the House. It funds all of the Government services that his constituents are enjoying year after year, and when he goes to the election later this year, he is going to find that all the services that are funded by this bill are proving to be beneficial for New Zealanders. He should probably calm down a little bit when he speaks in the House later.

The next call is a split call, and I am calling Barry Coates—5 minutes.

Tēnā koe e Te Māngai. This bill goes by the name of the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill—what a mouthful. I think my next member’s bill might be to limit the length of titles of Government bills.

I want to highlight some of the welcome provisions in this bill. There is a removal of GST from capital-raising costs. That is really important for entrepreneurs and small companies, and we support it. We are adding 14 charities with overseas tax purposes—congratulations to those charities. As a former head of Oxfam New Zealand, I welcome new ideas and new energy into the overseas development sector. There are also minor changes to the Working for Families tax credits. Obviously, that is tinkering, and far deeper reform is required if that system is to work for the benefit of all in our society.

The most significant changes in this bill are to tax laws that close loopholes, particularly the stronger look-through company rules and the non-resident withholding tax and approved issuer levy rules. We support these. These are important ways to close the loopholes that have allowed foreign multinationals to get away with not paying New Zealand tax amounting to hundreds of millions of dollars, if not more, while wage and salary earners are left to bear the brunt of the taxes.

Last week we saw some papers go out for consultation, announced by the new Minister of Revenue, Judith Collins. Those changes—those consultation papers—are consistent with the amendments that are proposed in this bill. We welcome this bill as part of that broader effort to reform our tax system. We also welcome New Zealand’s participation in the OECD base erosion and profit-shifting process, often known as BEPS. It is really important that New Zealand is a part of that process and that we are actively implementing some of the recommendations that come out of it.

We are concerned that this bill is very much tinkering and that the proposals made last week do not go far enough. We need, in New Zealand, a diverted profits tax, which would provide the incentives for multinationals to pay their fair share of tax, to cooperate with tax authorities, and otherwise, as in Australia and the UK, they would pay a penalty rate of tax. Those measures are necessary to bring companies to the table. We need GST on the imported products that are sold online, and we need a claiming back of unpaid taxes from all of those who have abused our tax rules in the process of avoiding their legitimate tax obligations in the past, as the UK, Italy, and France have done in taking cases against multinational companies.

From the Greens’ perspective, although we welcome the amendments in this bill, these loopholes in our tax system have lasted for far too long. The Government needs to stop giving New Zealand companies disadvantages against foreign companies and foreign competition. We need to stop giving foreign investors advantages so that they can buy our assets tax free and have an advantage over bidders from New Zealand. We need to stop loading the burden of tax on to wage and salary earners, and we need to stop giving tax cuts to the rich.

So what do we want from our tax system? This bill will help with the first of the requirements. We want a system of integrity, and part of that integrity is to make sure that multinationals cannot avoid paying their fair share of taxes. We also need a system of tax that is far more fair and protects the vulnerable, supports productive work, and provides incentives for innovation. And we need a tax system that makes the polluter pay and supports a low-emissions economy and sustainability. These are what our tax system should be doing.

This bill does some useful tinkering. We will support it, but we believe that a far deeper process of tax reform is urgently required. The Green Party aims to provide a fairer tax system when we become part of the Government on 23 September. Thank you.

I have 5 minutes, so I have no choice but to make it brief. I think one of the most important things happening in this bill is the obvious bit that is right up front: the annual rates. We are confirming the annual tax rates for New Zealand. That is an important process that this Parliament does every year—as “annual” suggests—but then a notable thing this time around is that we are in March, and these tax rates are due to expire in June. I suspect that by the time this bill gets through the House, it will be April. It may even be an April Fool’s joke that we are experiencing as it goes through. It is a bad joke to have the tax rates confirmed this late in the piece. It is shoddy—9 months down the track, the tax year is nearly gone, and it is chaotic. It shows that this Government really is kind of all over the place when it comes to what goes on in this House, but we also see it in the policy setting.

If we cast our minds back to when these tax rates were first introduced to New Zealand in 2010, we remember that they involved a switch around of the tax system, where over 40 percent of the benefits of the tax cuts that were given went to the wealthiest 10 percent of New Zealanders. The bottom 20 percent in that 2010 tax package got just 2 percent of the value of those tax cuts in 2010. And—and—the Prime Minister of the day introduced a great big GST increase that swallowed up all of the benefit for those lower income earners who thought they were getting a tax cut in that 2010 package. That in itself broke a promise that the Prime Minister had made: he said he would not increase GST, but he did. So there was some level of deception—I suppose that is the kind way of putting it—in that particular tax package. That is the tax package that is carried through to today.

The point I would want to make around that is that this Government has borrowed to fund that tax package that gave the very wealthiest New Zealanders—those in the top 10 percent—over 40 percent of the value of that tax package. This is a Government that has borrowed and borrowed and borrowed and borrowed to fund tax cuts for the very wealthiest New Zealanders, and I think that that gives us all here pause for thought. That shows the priorities of this Government. It has debt now of $80 billion. This is the biggest borrowing Government in New Zealand history standing opposite us here in this Parliament. This National Government has borrowed more than Muldoon’s Government borrowed—

The ASSISTANT SPEAKER (Lindsay Tisch): Back to the bill.

—and it has done that to fund those tax cuts that were put through in 2010—and we are affirming those rates here today in the bill that I have in my hand here. Part 1 says, on page 21 of the copy here, that we affirm those tax rates yet again, and they are there in a way that ensures that the very wealthiest have got the biggest tax cut.

It may well be that this is now the right tax package. You know? For now, we have people who are gaining from the particular tax package that we have. But, in the meantime, health services have been cut—$1.7 billion in health services have been cut. And then, the Government has just been borrowing—borrowing, borrowing, borrowing—to afford this particular tax package that we have got now, for those wealthiest New Zealanders. That does not seem right to me—that does not seem right to me at all.

Now, on this side of the House, we will support this tax bill going through because it does tidy a few things up, and we believe that a tax system should be fair and tidy without too many loopholes in it. That is what we believe on this side of the House. We want a fair tax system where everybody pays their fair share. Look, we think it could be better, we think it could be fairer, and we think the tax system in New Zealand needs an absolutely thorough review—not the kind of piecemeal approach you get with these bills that the Government is putting though, which has this minor change here, closing this look-though rule there, and so on. I suspect part of it is that because they took so long to upgrade the IT system in 2012, the then Prime Minister of that Government said it would be a shame if we could not put a policy through because we had an outdated tax package to run it. Well, that tax package is still in place. I suspect that is part of what is holding the Government back, but I think it is just out of ideas. That is why we are seeing this particular piecemeal tax package and are affirming again that tax package that included borrowing to fund tax cuts for the very wealthiest New Zealanders.

The previous speaker, Dr David Clark, in his 5 minutes, was probably right for about 5 seconds of that. Almost every other point he made was incorrect and, actually, had very little to do with the bill itself, of which there are many of these types of bills. I think the bill has been supported totally across the House. It is an omnibus bill, and yes, there is tinkering in it. There are some fundamental shifts in it as well—that is what taxation bills do. And, yes, there will be more of this nature to come in the ongoing upgrading, updating, and tidying up of New Zealand’s tax law and tax parameters to help our economy to continue to grow like it has been over the last few years, and, particularly, in leading the OECD.

The bill—as I have mentioned, I think—came through the Finance and Expenditure Committee relatively unscathed, and I acknowledge and thank the committee for its work and the suggestions it made with officials to make for better legislation as it arrives in the House. One earlier speaker noted the need for “constant vigilance”, I think she said, in and around all things tax—that is absolutely correct. Total, constant, and absolute vigilance is needed in and around all things tax to make sure the tax system is as effective and as efficient as the desires of the Government and the people of New Zealand need it and want it to be.

In the context of these changes in this tax bill, I do note, because, obviously, many members seem to forget this, that this kind of upgrade, and the tax system that we currently have, contribute to help making New Zealand No. 1 or No. 2 of countries leading the world for the ease of doing business, No. 1 or No. 2 for starting a business. All this contributes to our top ranking across the OECD in particular and in those countries we compete with and source capital from, to lead us in the top 1 or 2 or 3 all the way through. The job of making a better, more efficient and effective tax system is never complete, but this is yet another step as we move towards—

The ASSISTANT SPEAKER (Hon Trevor Mallard): Order! I am going to interrupt the member. The member has, I think, gone for well over 2 minutes now without really referring to the substance of the bill at all. I think it is fair to say that members in the Chair are going to take a tighter attitude on that. Hearing repeated comments from various members, which are not related to the substance of the bill but are very general, are going to be less acceptable than they have been in the last few years.

Thank you, Mr Assistant Speaker, and I acknowledge you are tightening up as you have arrived in the chair during my speech. Just to round off, this is, as I have said, an omnibus bill. I am enjoying this, and I thank the rest of the House for their support and ongoing commitment to the good, rapid progress of upgrading New Zealand’s taxation law. Thank you.

As a number of my colleagues and members have alluded to, this is quite a large bill—the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Bill—for a good reason. There is some very complex tax legislation in this, and by its very nature tax, law is complex. But what we seem to have seen in this House—and I must make this point before I talk about the substance of the bill—is a note that has been passed on to the Financial and Expenditure Committee (FEC) members, as well as through the IRD, that the number of tax bills coming through the FEC is such that there is a belief that those who are submitting actually have not got the time to give these bills the respect that they need.

These are complex pieces of legislation. The people who are actually often submitting on these bills are the big law, accountancy, and other companies. They take these very seriously. They go through these with a fine-tooth comb. We know that there is a high level of consultation, both prior to the bills’ drafting as well as through every stage of drafting, in order to get them right. My view is that if the IRD actually wants to create good legislation—and we all want that—then it just has to pull back a little bit.

A member last night talked about the fact that we should not be complaining about the amount of tax legislation coming through the House, because what it shows is that there is a very busy Government working on a whole lot of complex areas. Well, that is true, but the correct way to do this is if it had started 6 months into Government, as opposed to waiting for 6 years into Government. This FEC has, I think, seen more tax legislation in the last 2½ years than it saw in the first 6 years.

There are four pieces of tax law that this bill deals with. The first one is about closely held companies. What are now closely held companies started out life as loss attributing qualifying companies—this would have been about 25, 30 years ago, I think. The reason for loss attributing qualifying companies is that they provide the tax advantages of a partnership while providing the limited liability advantages of a company. The main difference between both of those is that they can have only five core shareholders. There are supplementary shareholders—like, if I were a shareholder and five of my colleagues were, then my wife could also be one because she is from the same family as me, and closely held.

Closely held companies morphed from loss attributing qualifying companies—and my understanding is that they actually started life as a way for property developers to get into houses. Then they were abused a little bit—for example, forestry companies ended up with partnerships of 25 loss attributing qualifying companies under one partnership, so that they got around the 25-partner rule by having 125. What happened is that the IRD realised that these companies were being abused to a certain extent. They went from loss attributing qualifying companies to qualifying companies, and now they have gone from qualifying companies to being called closely held companies.

What this legislation seeks to do is to simplify this even further. There has been a lot of consultation around this—I acknowledge that—because it is a complex area of tax law and, in fact, there are now a lot of closely held companies out there. There are still a number of qualifying companies out there, but this legislation means that they have all got to morph through to closely held companies. One of the good things about that, I must admit, is that a look-through company can transition to a closely held company without triggering immediate tax consequences. That is quite important. If someone holds a qualifying company and is required to move through to a closely held company, this just simplifies it, and we are all for business simplification.

The second area increases and tightens the rules around tax treatment of interests earned, changes to non-resident withholding tax, and approved issuer levies. Again, this is a reasonably complex area of law, but what happened was that those with significantly bigger brains than me, and certainly with much more knowledge of the tax system, were finding loopholes. The last thing we want in our tax system is loopholes, because the integrity of the tax system cuts to the very heart of the economy. Actually, what is really the last thing we want is foreigners ripping us off—there is enough of that that goes on as it is—so this legislation tightens those rules around non-resident withholding tax and approved issuer levies.

The third area is GST. Basically, we have got a pretty simple GST regime in this country, but it could be better—there is no doubt about that. One of the things in this bill, and one of reasons why we will support it—well, we support all tax legislation, but one of the things that is good is that it actually means that GST can be deducted off costs associated with capital fund-raising. That just makes sense. Again, that makes it easier for businesses to go out and raise capital when they are looking to grow.

My comment on this is that there are a number of things that we can do to make it easier for businesses to grow and to really encourage businesses to innovate, to seek capital, to raise capital, and to drive sustainable growth. The concern I have is that this is possibly one of the more minor things we could use the tax system for, in terms of business growth. There are things like research and development tax credits, which the last Labour Government put in place; however, this Government withdrew them, against the advice of Treasury. In fact, I am a huge believer in using the tax system to drive certain behaviours.

I think that if this Government was really bold, and if this Government really wanted to support businesses—and certainly small to medium businesses—in the sort of growth that creates sustainable jobs for New Zealanders, then it would use the tax system in a much more positive way to drive the sort of growth that Mr Robertson talked about. Mr Robertson today highlighted the fact that New Zealand has the fourth-lowest labour productivity in the OECD. What that actually highlights is that businesses are not investing in capital assets that drive productivity growth. We love to think that we live in this land of milk and honey—and it is the best country in the world, we know that—but this bill could have been used to drive growth in a way that really increases productivity. It is a major problem with this legislation. The Productivity Commission came out and outlined a whole lot of different areas where we could do so much better.

The fourth area that this bill deals with involves a whole lot of technical amendments, and in any bill the size of this one—well, it is actually a remedial matters bill, and in any remedial matters bill involving the tax system there are a number of pieces of tax legislation and similar legislation that will be changed. The challenge with this is that it creates a whole lot of work for those who, as I mentioned, submitted on it. It is also a whole lot of work for the tax experts, but, more so, for those who are charged with implementing it—and often it is those small to medium businesses that are required to do that.

One of the things that is interesting about this bill is that 14 charities have been added to the list of donee organisations with overseas purposes. These are held in schedule 32 of the Income Tax Act. What this means is that New Zealanders who donate to these organisations are actually eligible for tax benefits on their donations from 1 April 2016. We all know that the charitable status of certain organisations is actually quite contentious at the moment. For example, in Napier there is a scaffolding company that has just been undercut by a charitable organisation that does not pay tax—because it does not pay tax, it has actually undercut that organisation by 25 percent on every single contract. This is an organisation that is set up as a charity but undertakes commercial operations. I think we probably all know who we are talking about here.

Just to reiterate, Labour does support this bill. We support the majority of tax legislation that goes through this House, because most of it is good. We just believe that the legislation put forward by this Government could have been a whole lot bolder. I would love to be standing up here talking about the 5-year brightline test, as recommended by the IRD. Mr Robertson agrees with that, do you not, Mr Robertson?

💬 Alastair Scott: It’s in the bill, is it?

There is so much we could do for businesses. Mr Alastair Scott knows this—he is a businessman. Mr Alastair Scott may look at this and he—[Interruption] Mr Craig Foss, who was the Minister for Small Business—I hate to think how much dialogue he has had with the Minister of Revenue that says: “Please, can we do something to help small businesses?”. In the meantime, until 23 September, we have got to put up with this. It is hardly inspirational, and it certainly is not aspirational. On that note, thank you very much.

It is my pleasure to commend this Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Bill to the House.

Bill read a second time.