The CHAIRPERSON (Ann Hartley): The House is in Committee for consideration of the Income Tax Bill. As determined by the Business Committee on 24 July 2007 there will be a single debate of 4 hours for the Committee stage of the bill.

Hon BILL ENGLISH (Deputy Leader—National) : I think this must be the largest single question that the Committee will debate in this parliamentary session.

Hon Dr Michael Cullen: Ever.

Hon BILL ENGLISH: Apparently it is the largest single question ever. Anyone who is listening to this might wonder why the whole of the Income Tax Bill is being debated as one question. The reason is that, at least in the redrafting of the Income Tax Act, there is no particularly strong disagreement. This is a project that goes back, I think, some 10 years, perhaps further. It may even go back to the time when I had a brief and glorious reign as the Minister of Revenue or, in fact, to before that time, so it has been a long time coming.

The idea of having transparent tax legislation that can be understood by a wider range of people than just those well-educated experts was always a noble idea. I am not totally convinced that this bill achieves that end, not because of any lack of intent or capacity on the part of those who drafted it but simply because the legislation is very complicated because the situations the legislation is trying to deal with are very complicated. That complexity arises from people trying to minimise their tax legislation, so rules have to be written that tell them it is not worth trying too hard.

In this discussion National members generally will be supporting the Committee stage of this bill, because we believe that it will make our tax law more readable—or at least more understandable. But this bill comes at a time when the substance of our tax law itself is headed in the other direction, towards greater complexity. The discussion of the bill will also raise a point of political contention around the use to which the new Income Tax Act is put. There are different views in the House on how extensively people should be taxed, and on the stewardship of the current Government of the tax system and how it regards that system.

There is a different point of view from the Opposition. I suppose that difference can be best summed up by the Prime Minister’s description of what the Government regards as its policy for the fourth term. When she was asked what the Government wants to do for its fourth term, her comments were directly relevant to the Income Tax Bill. She said: “Well, it took us a while to build up the kitty for Working for Families and early childhood education, and it took us a while to build up the kitty for”—I cannot remember what the other thing was—

Dr the Hon Lockwood Smith: Interest-free student loans.

Hon BILL ENGLISH:—“interest-free student loans. There will be new things we’ll want to do but we’re not sure what they are.”

Dr the Hon Lockwood Smith: We’re building the kitty.

Hon BILL ENGLISH: They are building the kitty, and this is the kitty building tool—the Income Tax Bill. It actually will not matter how clearly written it is. It is being used for one purpose only, and that is to gather revenue for a Labour Government that is struggling to retain the confidence of the House, struggling to execute a legislative programme, and struggling to hold Government support.

It has now become clear that the Government sees its primary function as the distribution of money taken off other people by the Income Tax Act. In that respect this piece of legislation is absolutely central to the reason for the existence of the current Government, not just because of the constitutional significance but because of the way Government members think about it. That is why the Government has, until the last Budget, been very reluctant to give away any tax revenue, on the simple basis that it believes it can use it better than any of those people out there. That is a view shared by some commentators—in my view, erroneously. They believe that if the Government leaves a tax dollar in the hands of an ordinary New Zealand household, that household’s inclination is to waste it. The use of the tax dollar by the Government is just as important as the way in which it is raised. Would it not be terrific if we could apply as much clarity to the spending of Government money as this bill does to the raising of it?

Hon Dr MICHAEL CULLEN (Minister of Finance) : I thank the member. I think he started off quite well, but, unfortunately, he started to deteriorate reasonably quickly in that speech.

Let me say that this Income Tax Bill is part of a historic process that was begun, if my memory serves me correctly, by Wyatt Creech as Minister of Revenue. It is an attempt to rewrite the entire Income Tax Act. A number of other jurisdictions have attempted to do this, such as the United Kingdom and Australia. No other jurisdiction has succeeded in this enterprise. That probably in part reflects the fact that, despite what the member has just been saying, actually the New Zealand Income Tax Act by international standards is relatively simple.

The corresponding legislation in the United States runs to some 20,000 pages, whereas this bill is around 2,500 pages. I think the United Kingdom legislation is somewhere around 8,000 pages, from memory. Not surprisingly, the attempt to rewrite it has failed in those jurisdictions. That means that they have missed the opportunity to present legislation in a much simpler form in terms of its organisation, in a much more logical structure, and, as far as one can, in a much more plain-English approach in the expression of the language within the legislation.

As we move on from here, particularly with the Public Access to Legislation programme coming into force, there will be the ability to update legislation much more quickly and on a much more user-friendly basis than by having the old bits of sticky paper stuck inside the volumes, which we have been accustomed to for a very long time in New Zealand. The project has been carried on under a very large number of revenue Ministers, of which, I think, Mr English was briefly one and Mr David Carter was another. I think even Mr Ryall had his sticky fingers in the revenue pot at one point. There was myself and Mr Dunne—indeed, it was Mr Dunne twice, because Mr Dunne was the Minister of Revenue in 1995 and 1996. So there have been a lot of Ministers, and the Inland Revenue Department has managed to maintain resources all the way through to carry out this exercise, which was not an easy one.

As the member rightly says, there is still a lot of complexity in the legislation. That is inevitable. In an increasingly sophisticated international environment in terms of income and economies, tax law cannot be made very, very simple at all, unless, of course, one has the simplest kind of tax law, which simply gives the department and the Minister an entire discretion in terms of determining how the tax law should operate. But, generally speaking, in New Zealand we tend to adopt a reasonably brightline, black-letter approach to taxation law. One can argue whether that is in fact the best approach, but it tends to be the approach we have adopted within New Zealand. Therefore, that means having to have a degree of complexity, particularly as avoidance mechanisms become more and more sophisticated and tax law has to write its way around those sophisticated mechanisms.

The bill is not in fact in 26 parts, because, as members will see, although it goes from Part A to Part Z, a number of parts are not actually there because for various reasons they have lapsed as the rewriting process has occurred. It is laid out in a very simple fashion in terms of the organisation. “Purpose and interpretation” is first, then comes “Core provisions”, “Income”, and “Deductions”. Basically, for most people, that is it. Parts A to D really cover the great bulk of the interaction of the public with the income tax system, because from there on we are getting into the complex parts, which relate largely to the commercial sector. Those are such things as timing and quantifying rules, recharacterisation of certain commercial arrangements, avoidance and non-market transactions, taxation of certain entities, and so on and so forth.

Of course, as I think members on all sides will recognise, most people do not actually come within that part of the Income Tax Act at all. They come within the first part, “Income” provisions and “Deductions”—and they are lucky if they get deductions these days. That is pretty much it as far as most people are concerned.

I would hope that the debate tries to address some of the issues of principle within taxation legislation, and the details as articulated within this particular bill. There is a very large Supplementary Order Paper, and I am grateful to the House for its agreement to deal with the third reading of the bill by starting that immediately after the Committee stage. Otherwise it would be necessary to reprint the whole bill for the third reading to proceed, and that in itself would take many, many weeks.

The intention is that on the completion of the Committee stage and the moving of the third reading, which will be sought to be adjourned immediately, the House will return to the third reading on, I think, 25 October—

Hon Bill English: Can you just run through that again?

Hon Dr MICHAEL CULLEN: The bill, on completion of the Committee stage, will be set down for third reading forthwith. The Minister—or, if he is not here, probably myself—will move the third reading but not speak to that and will instead seek leave to adjourn the debate immediately, so that there is no debate. That is to avoid having to reprint the whole bill with the Supplementary Order Paper before we get to the third reading, which would be many weeks of work and a huge amount of printing, as one can imagine.

Then we will come back to the third reading on 25 October, which is the last Thursday in a sitting period. This will give the Clerk’s Office the time to prepare a clean version of the bill ready for passage, so that the clean copy can then be taken as quickly as possible to the Governor-General for assent, because no other third reading that has been passed after this one can be dealt with until this one has been prepared in a clean copy.

That is the reason for this slightly strange procedure, which the Business Committee has agreed to, and which the House has, in effect, supported. I am extremely grateful for that, because it means we can deal with this important achievement for successive Governments in a logical and coherent fashion and as efficiently as possible, without creating a great deal of additional expense in reprinting along the way.

R DOUG WOOLERTON (NZ First) : New Zealand First will be supporting the Income Tax Bill right the way through the Committee stage, and the Supplementary Order Paper where it is warranted. New Zealand is very fortunate in so far as most people understand our tax laws to be fair. They understand that tax is something that must be paid for the betterment of society—we must have roads, schools, hospitals, and all those forms of infrastructure—

David Bennett: Baubles!

R DOUG WOOLERTON: No, not baubles, in actual fact, but all the necessities of life. To hear the National Party members speak, one would think that none of those things should be purchased and that none of those things are needed by society, and that they, in fact, would not have income tax legislation. In fact, most people see tax as fair, as I said, so we have a very high rate of compliance in New Zealand. When people try, shall we say, to mitigate their taxation they usually do it in a legal manner, and in many cases the Inland Revenue Department invites them to have dialogue, which I think is a marvellous thing, so they can avoid tax in a lawful manner.

From time to time holes that appear in the taxation system have to be plugged, because technology moves on and case law moves on. Thus unintended consequences are taken of, and they have been taken care of in this bill, which seems like five bills but in fact is only one. So we in the select committee had a lot of discussion on where that was necessary, and we understood that those things needed to be taken care of where they appeared. New Zealand First does not intend to get up at every chance and talk about this, but we will be supporting this legislation right through the 4 hours to the end.

Dr the Hon LOCKWOOD SMITH (National—Rodney) : This is quite an important debate this afternoon, because the opportunity for wide consultation, and the opportunity, for example at the select committee, for those who are concerned about precise wording changes to have those changes thoroughly considered, are very important in this rewrite process of the Income Tax Act. Let me give members an example. In one part in the Act we have traditionally referred to where a person lives as a person’s “place of abode”. The rewrite proposed to change that to some other terminology—forgive me, because off the top of my head I do not recollect exactly what the rewrite proposed—

Chris Tremain: Permanent home.

Dr the Hon LOCKWOOD SMITH: “Permanent home” was the new proposal, as distinct from permanent place of abode. But at the Finance and Expenditure Committee it was argued with committee members that that change should not be made because “permanent home” would mean something different from “permanent place of abode”; therefore, in the bill before us now the change has not been made.

Members may wonder why I am referring to this. The reason is that that has been part of why the rewrite process has been successful. I think that it is in schedule 51, or some schedule like that, that the intended changes are spelt out, and there is a list of intended changes. But what has been hugely important in this rewrite process is that unintended changes have been avoided. Part of the success in avoiding those unintended changes has been the extensive consultation with professionals, and, when officials and professionals have not been able to agree on wording, the chance for the select committee to be able to make recommendations. For example, in the rewrite the select committee suggested—and again I am going from memory—that a “loss attributing qualifying company” be changed to just a “contributing company”. Again, the select committee was able to be convinced not to change the words, and to stick with the terminology that had meaning in New Zealand, because a contributing company—and again I am going from memory—could have a different meaning, and therefore produce an unintended consequence.

My reason for raising this concern is Supplementary Order Paper 136, which has well over 250 pages. This Supplementary Order Paper, as I see it—and today, as we are entering into this debate, it is the first time I have seen it—writes into the rewrite of the Income Tax Act the legislation in the new language, if you like, that has been passed in the last year or so. For example, the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 that was passed last year introduced the offshore portfolio investment regime, which was commonly called the fair dividend rate legislation. But the rewrite of that legislation, because it was so recently passed, was not written in the language of this rewrite.

So we can see that the rewrite of that legislation is certainly covered if we look in this Supplementary Order Paper at the rewrite of sections under new clause DN 6. Clause DN 6(g), for example, covers the rewrite of how a fair dividend rate is calculated and relates to former sections EX 48 and EX 49 in the Income Tax Act, which are covered in Volume 2 in that rewrite. But in this printed version, of course, the legislation we passed last year for the foreign investment fund regime, or the fair dividend rate, is incorporated literally, or word for word, into this bill we are addressing. This Supplementary Order Paper has the rewrite, as I interpret it, of that legislation in the actual language, I presume, of this rewritten Income Tax Bill.

What is crucial about that is that the select committee has had no chance—no opportunity—to hear from tax professionals about wording changes. The Minister in the chair, Lianne Dalziel, should tell us which of the legislation passed, I presume in the last 12 to 18 months—such as the original KiwiSaver legislation, and certainly the Taxation (Savings Investment and Miscellaneous Provisions) Bill, which colloquially became known as the RC legislation last year or the 2006 Act that brought in the new fair dividend rate—is covered in this Supplementary Order 136, and the extent to which the Law Society and the New Zealand Society of Accountants are happy with the wording that is now to be incorporated via this Supplementary Order Paper. It is our experience, on considering the wording in the principal bill in front of us, that there were significant words about which various professional groups came to the select committee and said: “Look, you people need to be mindful of this, this, and this, because if you don’t attend to this, there will be the risk of unintended consequences—perverse outcomes.” I think we need to know whether the Minister in the chair can guarantee us there are no provisions, no wordings, and no constructions in Supplementary Order Paper 136 in which there is still any controversy, at all, among the professional sector out there. This Committee has had no opportunity to read this nearly 300-page Supplementary Order Paper this afternoon—no opportunity.

What is more, I believe it is crucial that the Minister in the chair puts in front of the Committee the key issues. It is hard to believe that all of this can be rewritten in the language of this new bill without there being some controversy surrounding some of the wording and some of the construction. If there is no controversy, I guess we will just have to accept the Minister’s word on that, but it puts at risk this whole rewrite project, whose success has been in the fact that people could come to the select committee and make their points, and the select committee could say: “Yes, it makes no sense to change that.” There is no opportunity for that to happen this time around, because we do not know what those professional taxation bodies have to say about the rewrite contained in Supplementary Order Paper 136, which is important stuff because it covers all of the offshore portfolio investment legislation.

As I say, the bill that we have in front of us, without the Supplementary Order Paper, will simply be incorporated, as we passed into law last year. But I presume that this Supplementary Order Paper does rewrite the legislation. For example, if members look at the wording right at the start of that fifth regime, at clause DN 6, they will see that the whole clause of the bill is rewritten, and that this Committee has no idea whether all of the wording of that is free of any controversial words and structures. So I think we need the Minister to give us very clear assurances on the exact status of this Supplementary Order Paper, the extent of consultation, and whether there are any wordings in it where officials and taxation professionals are in disagreement.

If they are in disagreement, I do not believe that we should be completing this Committee stage. The provisions in Supplementary Order Paper 136 are too important simply to hope that it will be OK. Many, many New Zealanders’ tax affairs are caught up in Supplementary Order Paper 136, and I would certainly appreciate the Minister’s assurances on that.

Hon PAUL SWAIN (Labour—Rimutaka) : I will make some general comments about the Income Tax Bill, but I also want to follow along from what Lockwood Smith has just said. I think the Finance and Expenditure Committee worked reasonably diligently on these matters—

R Doug Woolerton: Extremely!

Hon PAUL SWAIN: Well, it worked extremely diligently, I hear.

Dr the Hon Lockwood Smith: But we didn’t consider that.

Hon PAUL SWAIN: I will come to that point. I do not know whether I hear anything better than “extremely diligently”, but it certainly worked very hard on it. The point that Lockwood Smith makes is a fair one. The vast majority of big issues had been resolved, but a few issues were still being debated right up to the end of the process. I think the member mentioned issues such as place of abode, which was an area where there was some disagreement about whether it would be clear enough as to whether it was in the old or new style.

I think it would be useful for the Minister in the chair, Lianne Dalziel, to make a quick comment about whether there was any major debate about Supplementary Order Paper 136. The Minister is nodding in order to show that, yes, she feels that she might be inspired, shortly, to rise and give a view on this matter. That would be extremely helpful coming from the Minister, whom we know has a deep interest in this matter.

Having said that, I say that it is important to know that there are no outstanding issues when we consider the amendments on this Supplementary Order Paper. I assume that there are not any issues; I assume that the Rewrite Advisory Panel has had a long conversation with the industry and that all is OK. I suppose that all we need is for the Minister to say that all is OK. Her word is good enough for me, because she is a conscientious and hard-working Minister, as we know.

Putting that to one side, I would say that the issue, of course, is non-controversial. The bill is a rewrite of the Income Tax Act, hopefully in modern, plain language. I remember the great comment John Shewan made before a select committee once. He said that trying to explain tax law to people was like trying to explain television to a goldfish. That was probably a fair kind of analogy.

Chris Tremain: What are you saying about the Minister?

Hon PAUL SWAIN: What did he say about the Minister? He did not say anything, particularly, about the Minister, except to make that comment about tax law.

One of the issues, of course, is the hope that people and individual taxpayers can more easily understand their obligations. That is the hope, and I hope that it comes about. However, whether fewer people will now take on tax accountants and take less advice as a result of this legislation remains to be seen. The vast majority of people will probably not wade their way through the one, two, three, four, five volumes, and now the Supplementary Order Paper, in looking at their particular issue. But I do think that this legislation is an important piece of work. It is a huge piece of work, as has been pointed out, that goes right back to the 1990s and to the previous National Government, which began the whole process.

We have had a number of stages. The first stage was the reordering of the whole Act in order to get that into place. The second stage was a partial rewrite of the core provisions. The third stage, in which further parts were rewritten, was completed in 2004, as the previous speaker has just said. Today’s bill rewrites the remaining parts of the Act, and this is the fourth and final stage. It has been an interesting process whereby an advisory panel has worked with the industry. Bearing in mind that there were no policy issues to be raised, it was simply a case of rewriting, if you like, what was already in the Income Tax Act and transferring that into modern, plain language.

Any policy issue was left to one side, and rightly so; it was not the time and place to have the policy debate. I was a bit disappointed in the Opposition spokesperson on finance, Bill English, who kind of wandered into that debate. I will not really respond to that.

R Doug Woolerton: I thought it was shameful.

Hon PAUL SWAIN: Well, in fact, it was shameful, because we agreed that this legislation is not supposed to be controversial and we agreed that it is not about policy.

I could easily get into asking exactly what National’s tax policy is, and asking who would be worse off, who would be better off, and what would be cut in order to fund it. I will avoid asking those questions, because this is neither the time nor the place for that kind of discussion.

TIM GROSER (National) : This is obviously an issue of major complexity. We have heard people with long experience and long experience of the Finance and Expenditure Committee—I did not participate in the select committee—describe the long genesis of this process, going right back to National Government days. The enormous complexity of the task reminds me of a story I once read some years ago about the US tax code, which makes this admittedly complex legislation look like a primer on tax policy. Every year the National Society of Accountants, the body that represents US tax accountants, holds a contest. It picks out a single, admittedly fairly complex, tax return, it excises the name from the tax return, it then takes out any personal information that could in any way endanger this person’s privacy, and it sends the tax return off to about 300 of its members and asks them to calculate the tax. In the years that this contest has been running, there has never been one occasion when the 300 different experts have ever calculated the tax burden to the exact same cent, which indicates the enormous complexity of writing tax law when it comes down to this issue.

I regard this, frankly, still as a work in progress. I would be surprised if the experts in the Inland Revenue Department and in other departments who have a major policy interest are not, almost literally as we speak, starting to develop discussion papers and ideas for the next generation of this bill, because this has always to be considered as a work in progress. I remember as a very small boy, having been brought up in Perth in Scotland, being much impressed with the Forth Bridge over the Firth of Forth, which is one of the great monuments to the industrial age in Scotland. What struck me as a small boy was that whenever we went across the bridge on the train, people were always painting it. They never stopped painting it. As soon as they got to one end they would start at the other end. So my supposition is that our tax painters are already considering the issues for the next generation of this Income Tax Bill, and a future Parliament will be placed, in perhaps some 8 to 10 years’ time, in the position that the select committee and Parliament as a whole have been placed in today.

So there is a need to adapt the tax system to the realities of New Zealand’s place in the international economy. That has a technical aspect to it—obviously—which is the focus of this bill, and I am very pleased to see that it is being dealt with in a non-contentious way. But—I am sorry to disappoint Mr Swain once again—there is, of course, a much deeper policy question behind it, which is the purpose to which we put tax administration. The role of tax in general economic policy and the overarching question on what Mr English correctly called the stewardship of the tax policy system will remain a very live political question at the heart of the difference between us and the Labour Party in the electoral context, and that is where we have a fundamental difference of view.

The fundamental difference of view—not to be obscured by the reasonably high degree of consensus on the administration issues and the highly technical legal issues—simply comes back to a consideration of first principles around tax policy. They are, first, that we live in a largely market-driven economy; the incentives drive the allocation of resources; and tax is an absolutely vital aspect of that policy setting. This determines, not wholly but very significantly, where resources flow, where people live, and whether people remain in New Zealand or seek their fortunes outside of it. It is all a matter of looking at it in terms of the emerging international economy and the place that New Zealand has. The changing place of New Zealand in the global economy will always require us to come back to tax administration legal issues, such as the place of abode. After all, it is becoming increasingly redundant to look at the future, both in this country and in many other countries, of a person as necessarily wholly resident in one country for income-earning purposes, and I do not think there is a clear view about where we need to go in this country on that matter. But one thing is absolutely certain: we will have to revisit this question to maintain our position in the international economy.

But the broader question that is at difference is, of course, the use of tax policy for general economic purposes, and here we have one of the most fundamental difficulties between us and the Labour Party. It has been a difficulty now going back over many years, basically for the reasons Mr English put forward—that is, the Labour Party’s view that they have a better idea of how to allocate people’s resources than they do, so it wants to build up the kitty, to build up the policy structures, and to direct resources rather than risk trusting New Zealanders to do it for themselves. Right at the start of this phase in the electoral cycle—in 2005, when this Government entered its third term—Treasury advised the Government, in unmistakable terms, what one of the key issues was that faced it. It said: “…high marginal tax rates on personal and company income are more likely to have a negative impact on growth … by inhibiting the decisions that drive investment and enabling people to make the most of their economic opportunities.” This is hardly complex; it goes right to heart of the incentive-driven nature of our economy.

So the Labour Party inherited this, having created some political fantasy that economic growth started the day it got elected late in 1999, and, basically, it has not addressed that issue. The fundamental thing for us to consider is, of course, the competitive nature of tax in the global economy. In the case of Australia there have been, I think, 13 significant tax cuts since the late 1970s.

Darren Hughes: And what’s their highest rate?

TIM GROSER: I will tell the member what the highest rate is. The highest rate is 45 percent, which is higher than 39 percent. But is the member not aware where that cuts in? It cuts in at the equivalent of NZ$180,000. Only 2 percent of Australian taxpayers are caught by this largely mythical higher rate. The more important reality is that vast numbers of Australians are sitting in a tax bracket that gives them a 30 percent rate, up to the equivalent, depending on the exchange rate one chooses, of approximately NZ$90,000. So Labour members rest their whole case on this largely mythical tax rate in Australia, which cuts in at the equivalent of NZ$180,000. Two percent of Australian taxpayers—I have seen calculations that would suggest that it is less than 1 percent if people shifted across the Tasman from New Zealand, given incomes here—are missing the meat in the middle of the hamburger. The meat in the middle of the hamburger is that if one earns up to NZ$90,000, one pays 30 percent in Australia at the marginal tax rate. That is the real tax rate that those opposite should be focusing on.

The fundamental reason why they have chosen not to do this is that they have failed to address the issue of bracket creep. They know the data. In the last 5 or 6 years there has been roughly a 50 percent increase in the number of taxpayers moving into that crucial $38,000 to $60,000 bracket. So people earning below $38,000 pay 19c in the dollar, which is a reasonable tax rate, but as soon as they go above that they pay 33c in the dollar. There has been a massive increase under this Government.

Hon LIANNE DALZIEL (Minister of Commerce) : I would like to say that I was standing to respond to my colleague the Hon Paul Swain, but I am not; I am actually standing to respond to the questions that were posed by Dr the Hon Lockwood Smith. The reason I prefer the question he asked is that I actually wanted to congratulate him on highlighting the only provisions on Supplementary Order Paper 136 that were the subject of a substantive rewrite, and they are exactly as the honourable member has stated. They relate to the fair dividend rate in clauses CQ5, and DN6, and subpart EX. So I think that congratulations are in order on his identifying that these were a substantive rewrite.

I am advised by officials that the New Zealand Law Society, the Institute of Chartered Accountants of New Zealand, and the Rewrite Advisory Panel were all invited to comment on these rewritten provisions. So that will provide the level of assurance the member is looking for. They had no significant concerns over any aspect of those substantive rewrite provisions. The rest of the provisions in the Supplementary Order Paper involve necessary consequential drafting changes, renumbering insertions—for example, for KiwiSaver—or drafting corrections.

It is a substantial Supplementary Order Paper but, in essence, most of its provisions are not substantive. The ones that are substantive relate to the rewrite of the fair dividend rate. They have been through a very good process in terms of ensuring that those key experts who assisted the select committee in its very detailed analysis of the bill were able to contribute to the process. I trust that will satisfy the Committee.

CHARLES CHAUVEL (Labour) : I shall take just a brief call to comment on the speech made by Tim Groser. It was actually very sad, in my view, to hear yet another advocate for the strategic deficit that members opposite like to create by starving the Government of spending assets and then taking the view that it is best to deprive the Government of revenue; to criticise the tax take; to subscribe to the Garfield Barwick doctrine that every taxpayer has a duty to minimise his or her exposure to tax; and to pretend that revenue gathering for good purposes is somehow a bad thing.

I would remind the Committee of some of the things that can be done with the revenue that is being collected from the tax system, which will be able to be collected on a more efficient basis from now on, once this legislation is passed. We have the research and development tax credit for businesses at 15 percent, which was introduced by the Budget. That was not something that members opposite were prepared to do when they were on the Treasury benches.

Let us look at some other things that are able to be done with this revenue. Creative New Zealand has received funding of $15.5 million this year. In 1999, when this Government took office, Creative New Zealand had received $2.4 million. So this year’s funding for the creative sector is seven times that amount. That is quality spending, thanks to the revenue able to be collected through the tax system.

Let us look at another example. The annual average investment on the electricity transmission grid in 1999 was $80 million. Now it is $500 million. So we have more quality spending through the revenue gathered from the tax system. Let us not pretend that that is not a good thing to do for a country in need of infrastructural investment, like ours.

The spending in 1999 on low and middle income families—the same families that now benefit from Working for Families—was zero. Today 350,000 low and middle income families benefit from spending on Working for Families.

There are further examples. Annual funding for land transport in 1999 was $1 billion. It is now $2.2 billion. Funding for land transport, including ONTRACK, in 1999 was $880 million. Now it is $1,783 million. There has been a 750 percent increase in spending on public transport over the period that this Government has been in office. Those are marvellous achievements.

I could go on—industry trainees numbered 63,000 in June 2000, and there were 123,202 as of June 2006. There were no apprentices in training when this Government came into office, but we had 9,466 Modern Apprenticeships in December 2006. So let us not pretend that revenue gathering is a bad thing when it is used efficiently, in the manner that this Government patently does.

CHRIS TREMAIN (National—Napier) : I rise to speak to the Income Tax Bill and to respond particularly to some comments made by Mr Paul Swain in regard to the Minister in the chair at the time, the Hon. Lianne Dalziel. It is interesting to see there has been a change of Minister since that time, and it would be good to have the present Minister in the chair, the Hon Judith Tizard, take a couple of calls on the Income Tax Bill. Mr Swain referred to the Hon Lianne Dalziel as having a deep understanding of the Income Tax Act, and I suggest that probably the present Minister has a good understanding, as well. But perhaps the comments Mr Swain made about Minister Dalziel, in terms of referring to her as a goldfish in respect of how she used to turn on the television set, should not be applied to the present Minister.

For the benefit of listeners out there who are engrossed in the Committee stage of this bill, I want to focus on what it has all been about. It has been about the rewriting or reorganisation of the Income Tax Act 1976. As Dr Cullen said earlier, it has been a historic process, which was commenced by Wyatt Creech many years ago. It has had the hand of many Ministers over that time, as has been alluded to today. Tony Ryall has had his hand in there; David Carter has had his hand in there; Minister Cullen himself has had his hand in there. There has been a real mix in regard to bringing this legislation together.

I remind members that the initial stage was the reorganisation of the Income Tax Act 1976, and that reorganisation was enacted by means of the Income Tax Act 1994. Stage two, a dynamic process, was the rewrite of the core provisions of the Act, and that was completed in 1996. Stage three was a rewrite of Parts C to E and was completed in 2004. But stage four is the one we are debating now in the Committee stage.

This is the ultimate stage of the Income Tax Bill. It rewrites Parts F to Z. I would like the Minister in the chair to give us an explanation of Parts F to Z. I remind her that Part F deals with the taxation treatment of certain transactions and arrangements. I would like her to address Part G in particular, which deals with avoidance issues, because the Minister of Finance, the “Treasurer”, has avoided any sort of discussion around tax—around the philosophical reduction of tax over the last 8 years. That Minister has set about increasing the tax take of this country significantly. Some $20 billion in additional tax has been collected over that period—$20 billion.

That Minister has also introduced a 39 percent tax rate; that was done in 1999. He promised the citizens of this country that only 5 percent of them would end up in that tax bracket—just 5 percent. But at Budget time this year, Treasury papers released on Budget day showed that nearly 14 percent of Kiwis were now in that top tax bracket. So the more worrying point is the tax bracket creep that we have seen. Hard-working Kiwis in this country—workers on the wharf in Napier, doctors, nurses—have moved through different tax categories. I know that some members on the other side of the Chamber have a strong union background, and would be concerned about their members, particularly those at the Port of Napier. It would be interesting—

Moana Mackey: Look at the huge pay increase we gave them. We gave nurses a huge pay increase.

CHRIS TREMAIN: Pay increase? People are paying a lot more tax than they did before. The average Kiwi out there is paying $2,400 more tax than he or she was back in 1999—$2,400 for the average tax earner is significantly more.

We have seen tax bracket creep over this time. We have seen Kiwis move from paying 19.5 percent to 33 percent, and then go from 33 percent into the 39 percent tax rate. But the Minister said not to worry and that the Government would give people a tax break in 2008. It was called the “chewing gum tax break”, if members can remember. But did we get that tax break?

Hon Member: Never.

CHRIS TREMAIN: Never! It became fiscally impossible for the Minister to give that. He thought he knew best how to spend the tax he got from people’s income, but he could not deliver on his “chewing gum tax break”.

SHANE JONES (Labour) :Tēnātātou katoa, Madam Chairperson. This Income Tax Bill, as I said last week in the second reading, should not be commented upon until we acknowledge the work of the officials, and I am sure I speak for all members of the Finance and Expenditure Committee in singling out Therese Turner and the redoubtable Sir Ivor Richardson, who, we were told, was in a class of his own.

Unfortunately, New Zealand Aotearoa and the House have just suffered the tedium of Tim Groser’s speech. I thought we might have encountered some sweet aroma, some high sensation, but, despite his youthful flight of fancy and experimentation, none of it was present in his speech. In fact, he reminded us of why the committee functions really well—given that he is not on the committee.

We have heard a great deal from members opposite as to what is wrong with this bill. This bill is a monstrous improvement: the text is clearer, the content is far more accessible, and, as we have said, there are some areas where transitional work is being undertaken. But, at a deep fundamental level, it is providing a pretext for our friends from the Opposition to put out gingerly a few ideas.

Idea No. 1 that Opposition members have put out is that there will be tax cuts and that service deterioration will follow. They are using this debate this afternoon to test whether they have the courage or the vigour to tease that idea through. Idea No. 2 is that the State has grown too big, and now they are toying with which areas of the State they will excise or lop off. This bill revises historically the work that officials have done, and it goes back to Wyatt Creech’s efforts, etc., but we should not allow the bill to be subverted so that members of the Opposition can talk about things they are unwilling to talk to the media about on a day-to-day basis in tax policy.

Our tax policy—partially reflected in this bill—is available on every street corner, in every church hall, in all four corners of this Chamber, and on every marae. We want a blend of policy that enables the core functions of the State, especially in those key social areas, to continue to deliver high-quality services. So we are not interested in buying into a bidding war where people may be tricked into thinking they will be better off by gaining small improvements in their tax situation, only to learn that doctors, schoolteachers, nurses, and a host of other essential contributors to the economy will be hobbled. Of course, our friends from the Opposition fear that quality of debate; we look forward to it.

Mr Tremain will no doubt have his passable speech blighted by a repetition from Mr Foss. They are great ones for commenting on how their ideas will be a great improvement on those of their elders.

I have a great deal of respect for my fellow Northlander Dr Smith.

Darren Hughes: What?

SHANE JONES: I am not talking about Nick Smith; this is not medicinal legislation. Dr Lockwood Smith is a fellow Northlander. All committees need a good deputy chair, and from time to time this chair is known to be absent—very infrequently though, I might add, but there are certain athletic duties that call from time to time—and the deputy chair has provided some good historical context. I am sure that all members of the Finance and Expenditure Committee agree that this was a successful and overdue effort, etc., but where we do not agree is the direction of tax policy.

Labour will not abandon key groups, including the schoolteachers, health professionals, those who contribute to art and enrich the identity of the country, and those who see a future for our infrastructure being funded through public resources. We will not turn our backs on them. But neither will we exaggerate—like the Opposition is doing—how better off people might be through having indiscriminate tax cuts. We are looking forward to a great tax policy coming forward, in contrast to the vacuity we have had from members on the other side of the Chamber. Kia ora tātou.

CRAIG FOSS (National—Tukituki) : It is always a pleasure to help to wake up listeners to the radio after the previous speaker. He will be interested to know that I have found some very interesting facts about what goes on up north, from another gentleman at a function I was at on Friday night. I look forward to discussing those with him and seeing whether those allegations are true.

The previous speaker talked about National policy around tax affairs, etc. I will ask that member some very, very simple questions. What will be in the Government’s 2008 Budget? Why does the Government not release it today? Why does it not tell us and provide some certainty now for electors? Why does it not release it now? What will be in its mini-Budget after the regular Budget in 2008? Why will the Government not release that policy now? What is it doing with tax cuts now? In question time today Minister Maharey seemed to take them right off the agenda. I do not know whether Dr Cullen had actually read that part of his answer, because he has been speculating wildly about tax cuts lately. I guess we can contrast that with what Mr Mallard said recently when he put Mr Goff into it. So we really do not know what the policy is, in and around things to do with taxation, over on the Government side of the Chamber at the moment. The moment the Government tries to get National to bring in its time frame and framework early, I will ask the member to start releasing what is going to be in the 2008 Budget.

I have been part of the Finance and Expenditure Committee. It has been a pleasure working with officials around this bill, which has been 10 years or more in formulation. Along with previous speakers, I give particular thanks, acknowledgment, and a bell to Sir Ivor Richardson for the mana he brought to our committee. We all admired his steady hand, and would it not be good if we had many more like him in our Chamber today?

As previous speakers Mr Bill English and Dr Lockwood Smith have noted, the Income Tax Bill, which has about 3,000 pages and I think another 250-odd pages in the Supplementary Order Paper, sets the framework for all things in and around income tax. I will put some numbers to that. Another previous speaker, Mr Chauvel, started lurching back to the previous millennium with various statistics, but I think it is more relevant to talk about today, and I enjoy talking about today and about ambitions for tomorrow.

This Income Tax Bill provides the framework for over $52 billion of tax revenue per annum—$52 million. Those 3,500-odd pages deal with $52 billion per annum. Fair enough; perhaps that is why the Government took 10 years to get to this point, although I did note in my previous speech that it is quite amusing to read in the commentary that some issues were not addressed because of time constraints. But going back to that $52 billion, and to the 10 to 12 years the bill has been in formulation, I note that that figure is actually $20 billion more per annum than at the time this Government took office in 1999—$20 billion more.

For the layman, I guess that those figures are still crazy numbers with heaps of zeros behind them, but I ask listeners out there and people paying attention to Parliament today to note particularly that $1 billion per week will be taken out in tax revenue in the current financial year—that is, $1 billion per week. Of those $52 billion, $1 billion is due purely to fiscal drag, due purely to the inflation that has been seeded and bred by the unproductive spending of the current Government. Yes, there was the promise of a tax break, an indexation of thresholds to try to deal with that, but they were put on the table and were then snatched away. The message taken by the public was that this current Government cannot be trusted one iota in all matters of taxation. We have seen time and time again that the public should ignore totally anything and everything that this current Government is talking about on the potential for tax cuts.

I acknowledge the New Zealand Institute of Chartered Accountants and the New Zealand Law Society for their submissions to the bill. Yes, the legislation is very complex, and previous speakers—and the Minister, indeed—have noted that. It is a bill in progress, and different reasons have been given for that, but I admire those two professional bodies because the more complex and the more archaic the taxation law is, the more opportunity they have in their professional lives to charge their various clients to interpret the current law.

Dr the Hon LOCKWOOD SMITH (National—Rodney) : I would just like to pick up from the comments my good colleague Craig Foss made, when he mentioned that this framework legislation now collects for New Zealand $52 billion a year in total tax, which is a $20 billion increase under this Labour Government. I note today there was a publication by Dr Alex Robson of the Australian National University. It was a study, quite a comprehensive study, into the cost of collecting that tax—the dead weight cost. This independent—he is from the Australian National University so I guess he has nothing to do with New Zealand—economist’s paper today has suggested, on his analysis, that the deadweight losses from all taxes collected in 2005-06 here in New Zealand amounted to between $10 billion and $13 billion. So when I hear that new list member Charles Chauvel, or whatever his name is, talking about how wonderful the Government is spending money on this, that, and its other pet project, I think he should never forget that the Government actually has to achieve extraordinary efficiency in spending taxpayers’ dollars to overcome that massive deadweight cost. If this economist from the Australian National University is correct, the deadweight cost of collecting that $50 billion in 2005-06 was $10 billion to $13 billion. So these tax matters are serious matters.

I would like the Minister in the chair, the Hon Judith Tizard, to explain a couple of things about Supplementary Order Paper 136, because I do not think the members of the Committee had seen it until this afternoon. There are a number of issues in it that the Finance and Expenditure Committee has had no chance to address. I would like the Minister in the chair to explain to us the reasons for the change from tax year to accounting year in a number of the clauses in the bill. I would like her to explain that, because whereas much of the Supplementary Order Paper has to do with the rewriting of the foreign investment fund legislation, the portfolio investment legislation, the incorporation of the portfolio investment entity legislation from last year, and the original KiwiSaver legislation, some of the provisions in this Supplementary Order Paper do not appear—and I stress “appear”.

The Minister may be able to tell me that, yes, they are part of those newly rewritten bits that were not part of the bill the select committee considered, but I would appreciate her explaining, for example, why under clause CW 58(2) we are omitting “tax year” and substituting “income year in which the amount is derived”. I hope the Minister in the chair can help us with that, because I think most members who are familiar with taxation matters will know there is a big difference between tax year and accounting year. We want assurance that that is not making any change to our current legislation. I ask members to remember that this rewrite is not meant to be changing anything. So I would appreciate the Minister in the chair, the Hon Judith Tizard—I think she is the Minister with responsibility for Auckland Issues, and Associate Minister for Arts, Culture and Heritage—to explain to us why that change is being made.

The other thing I would like her to explain is why, if we go back to volume 1 of the bill and look at the commentary from the select committee, we see that the select committee, after it had examined these 3,000 pages, had this to say about Part M—Part M includes the Government’s flagship Working for Families policy—“However, given the complexity of the policy underlying the Working for Families Tax Credits, and the difficulty of rewriting Part M in the rewrite style, we believe that any review of Part M to address these concerns should be undertaken separately.” I would like the Hon Judith Tizard to explain to us a whole lot of provisions on Supplementary Order Paper 136 relating to Part M. I think they start on page 99 of the Supplementary Order Paper, for the Minister’s assistance. I ask the Minister to please explain to us the provisions on Supplementary Order Paper 136 relating to Part M, which concern the Working for Families scheme.

For example, if we look at clause MA 1, we see that the part now has new wording there. It states: “This Part identifies the tax credits to which a person is entitled under—(a) the family scheme for a tax year:”—that is the Working for Families stuff, but this next provision is new; this was not in the old bill—“(b) the superannuation savings scheme for a year beginning on 1 July and ending on 30 June.” But that is not in the bill in front of us, so if that is not introducing change, I would appreciate the Minister in the chair explaining to us exactly what it is doing. It is not clear. If we just read Supplementary Order Paper 136 on its own, it is not clear whether this is a complete rewrite of Part M, which the select committee had concluded was too complex to consider doing at this stage. That was the last word from the select committee back to the Committee—I quoted from the select committee’s report to the Committee. If anyone doubts me, it is on page 7 of the commentary on the bill, in volume 1. If that is what the select committee said, the Minister in the chair should explain to us what these changes to Part M starting on page 99 of Supplementary Order Paper 136 are. There are a number of changes there. I would appreciate her advice on whether that represents the rewrite that the select committee was led to believe was too complex and could not be done. If it does not; what is it?

What does that change to clause MA 1 mean? This Working for Families stuff is hugely important. I would like the Minister in the chair to explain to us whether she is comfortable with the fact that a family with, say, three dependent children, earning between $40,000 and $100,000 a year, which captures most of middle New Zealand—and I would like the Minister to listen to this—will on the next dollar that that family earns have their marginal tax rate range between 55 percent and 61 percent. That is the marginal tax rate over that entire income range. Under this Government’s wonderful Working for Families policy—covered by Part M in this bill—if families have an income range of $40,000 through to $100,000 a year, the marginal tax rate on the next dollar that any family with three children in that income range earns will be between about 55 percent and 61 percent, depending on the particular income within that range.

If the Minister is not moved by that, maybe she cares a little more about somebody trying to work his or her way off a domestic purposes benefit. If that person—who is often a woman—is earning $10,000 and is still getting a lot of domestic purposes benefit but is trying to get off it, then he or she has to earn about $25,000 a year to do so. At $15 an hour, that is an extra 20 hours of work a week. Is the Minister in the chair, the Minister with responsibility for Auckland Issues, comfortable that her Government takes in tax 90 percent of every dollar that person earns between the amount he or she earns working 10 hours a week at $15 an hour, and the amount earned when he or she works an extra 20 hours a week to get from 10 hours work a week to 30 hours work a week? Is she comfortable that the Government takes 90 percent of all of that income and leaves that person with just 10 percent of it? That is the effect of a marginal tax rate. In other words, if someone is earning $15 an hour and trying to work his or her way off the domestic purposes benefit, he or she gets to take home about $1.60 of it. I would like the Minister in the chair to tell us that she thinks that is a great policy—a great policy to trap those people in poverty.

You know, one of the mothers that John Key met at McGeehan Close came up to me the other day and said: “Lockwood, you are dead right on this. I am trying to work my way off the domestic purposes benefit, and I am trapped. The more I try to earn my way off this benefit, the more the Government takes and I get nothing.” Someone earning $15 an hour—[Interruption]; those are the facts—gets to keep, over that entire 20 hours’ extra work a week, about $1.60 an hour of it, and Labour thinks that that is helping low-income people! It is a disgrace. It is a poverty trap, and I would like the Minister in the chair, the Minister with responsibility for Auckland issues, to tell us that she thinks that it is great.

In particular, I would like the Minister to explain those key issues with this Supplementary Order Paper. What does it mean to go from tax year to accounting year in so many clauses of this bill? Are the provisions relating to Part M—that is the family tax credit part on page 99 of the Supplementary Order Paper—a complete rewrite of Part M? If they are not, what are they? Are they just incorporating the portfolio investment entity legislation, whereby if someone invests their income in the KiwiSaver scheme through a portfolio investment entity, it is not meant to affect their family tax credits, because Labour would not want that person taxed at those marginal rates I spoke of. Imagine a family whose marginal tax rate is 60 percent on $50,000 or $60,000 a year, which is the way that every family on Working for Families is. If, through investing in the Government’s KiwiSaver scheme, that family lost 60 cents in the dollar in tax on all of that savings income, they would not be too happy. Maybe these rewrite provisions on page 99 relate to that, but I think the Committee has a right to know from the Minister in the chair.

SHANE JONES (Labour) : The contributions to this debate from the other side of the Chamber are deteriorating with each contributor. We have heard from the first of the twins from the Hawke’s Bay, Mr Tremain. In other parts of Aotearoa, when we see characters who are somewhat similar, being difficult to distinguish in terms of rhetoric if not physical appearance, they are called peas in a pod. But up there in the Hawke’s Bay, the Heretaunga region, their contributions—and they do surface from time to time in the select committee—are seeds in a core. But the core of their debate is rotten. The core of their debate has nothing to offer, and nothing about it resonates with what New Zealanders expect us to provide through the framework of this bill.

New Zealanders expect the provision of ongoing, affordable, safe, and secure services, which will not come to pass if contributors from the other side of the Chamber have their way. They do not necessarily want to rewrite the text of the legislation that we have before us, because it is a lot more lucid than it was previously. Indeed, it is a lot warmer now, given the content that we have invested into the bill, as a result of the regime we have had in place over the last 8 or 9 years. But at a deeper level the Opposition members do not want a system, and they do not want a quality of Government, that continues to allocate public resources to key essential areas.

For every problem that the Opposition members identify and try to get New Zealanders to buy into, they have no remedy and no solution. Our solutions are very clear. We support work. We support families, and families that are in work are entitled to assistance. We are going to give that assistance in a targeted fashion, and we are giving it at the moment. They seek to strip that away, hidden between the pillars of two false arguments. The first is that people are afraid to go out and work. People definitely want to work, which is why the unemployment rate in the area that Dr Lockwood Smith and I come from has just enjoyed a massive drop.

Members on the other side of the Chamber need to have more confidence in the citizens of our country, and should stop leading them astray with promises that they can give richer New Zealanders inordinate tax cuts without the poorer New Zealanders suffering. It just will not work like that. It never has, and it never ever will. What will come to pass is that the failings of the Opposition members will become evident, as their rhetoric is tested. As we move towards the election next year, unfortunately for them taxation policies of an improved nature will come to pass. Kia ora tātou katoa.

CHRIS TREMAIN (National—Napier) : I want to take up from where the previous speaker left off. When he started his speech he was talking about one of the two members from Hawke’s Bay—the respectable and hard-working member from Tukituki, Craig Foss. He is the electorate member, I would add in that regard. Mr Foss in his speech talked largely about the Income Tax Act and the structure and the framework within which the tax system works within New Zealand. He talked about that structure collecting some $52 billion within the New Zealand economy. Much of that tax take—probably a disproportionate amount of that money, I would say—comes from the Hawke’s Bay, and much of it is due to the apple industry. I am pleased to be able to say that that industry pays its fair share of tax, under the auspices of the Income Tax Act. I am also proud to say that that industry is on the precipice of being able to pay larger tax, through higher profits, from the actions that Mr Foss and myself began 2 years ago when we helped to lead the Apple Access Group protest to Parliament to shake the shackles from this Government for prompt action and to get it to take, finally, an action against the World Trade Organization.

Finally there has been a result, and finally there is an opportunity for our apple growers from Hawke’s Bay to take their produce across the Tasman. There is potentially an extra $15 million in revenue across the Tasman. There has been a huge contribution, and I think it is excellent. Businesses in the Hawke’s Bay, like the pack-houses Apollo Pac Ltd and Crasborne Group Ltd, under the auspices of the income tax legislation, are now on the precipice of being able to take on that Australian market to pay more taxes. But the point I want to make is that exports, such as from those fine apple producers, make up only 29 percent of the GDP in this economy now. It is one of the smallest percentages of GDP in the OECD, in terms of exports, so there is no doubt that we have to increase those exports. In fact, in this country we have only 125 companies that export $25 million or more in product.

Two fine companies in my own electorate are Vectek Electronics Ltd and Future Products Group Ltd. They are doing an amazing job in that regard, despite the difficulties they have within the current tax regime. The Future Products Group is doing an amazing job. Can I tell members that story. This company started from two people, and now has a contract on the west coast of the United States of America to put in 500 McDonald’s McCafé franchises. That is an amazing success story.

But these companies, in growing to the export market, face some significant difficulties. Obviously we have a small domestic market, and our geographical isolation is difficult. It is imperative that we have a best-practice benchmark economy. The way we charge income tax is critical to these organisations. I thank the officials for the hard work they have done on the rewrite of the income tax legislation, and Therese Turner and Sir Ivor Richardson have done a fantastic job on the review of it. But, philosophically, these companies are still paying too much tax, and individuals in this country are paying way too much tax. They are not in a great position to try to provide a benchmark economy.

We have seen recently an income tax drop, from 33 percent to 30 percent. That is a good thing. But, in saying that, I point out that partnerships and sole traders missed out on that opportunity, and they are the biggest contributors in terms of numbers of business organisations in this country. They did not get the tax break, but they got the sting in the tail of an employer contribution to KiwiSaver, which they will now have to pick up over the next 4 or 5 years, as well as having no tax deduction.

In summary, I say that we need a best-practice benchmark economy. In terms of the rewrite of the tax legislation, this bill has tried to make the legislation clearer, more concise, and more easy for tax practitioners to understand, and I think it has done that. In that regard, the National Party supports the tax rewrite.

Hon PAUL SWAIN (Labour—Rimutaka) : On this side of the Chamber we have all been resisting having a debate on the wider taxation policy, because that is not what this bill is about. The bill is about a rewrite of the Income Tax Act, in such a way as to make it simpler for people to understand. That is a good thing. We have heard very little about the fact that that was begun under a previous National administration. It was a good thing to have started, and it is to be finished now under a Labour-led administration. But now that the debate has opened up a bit, it is reasonable for us to engage in that.

The first thing we learnt from Chris Tremain, who is a member of the Finance and Expenditure Committee—quite a humble member—is that after 85 years of problems with regard to exporting apples from New Zealand to Australia, suddenly the problems have been solved by one demonstration, and by him personally, together with the member for Tukituki. Humility is important, but obviously it is not known in the Hawke’s Bay. But let us say it is important that the World Trade Organization situation has been taken up.

The member also went on to talk about how exporters need more support via the taxation law, and of course the strange thing we ask then is why he and the member for Tukituki decided to vote against the really important research and development changes that would have helped export industries. The Government introduced research and development changes after many—

Chris Tremain: Three reasons.

Hon PAUL SWAIN: Oh, three reasons.

Darren Hughes: The reason was that he wanted to flatten the tax rate.

Hon PAUL SWAIN: That is right, yes. He wanted to flatten the tax rate. But you see, the problem here is one of being able to decide the things that one supports and the things that one does not. We would have thought that, given—

Chris Tremain: It is all about exports, not research and development.

Hon PAUL SWAIN: No, research and development does help exporters, as I remember the situation—but I might be wrong; I might be naive—but the point is that many industries have been—

Chris Tremain: What about tax breaks?

Hon PAUL SWAIN: Well, people have been calling for research and development support and for a better regime, and, after a long period of time and a lot of consideration, because there are major, complicated issues there, the Government did make some changes, which are designed to support our export industries—and the member voted against them.

Of course, the other issue was that the Government decided to reduce the tax rate that impacts on export industries from 33 percent to 30 percent. I would have thought that the member for Napier and the member for Tukituki would support that, given the speeches I hear about the importance of our export industries—

Darren Hughes: They are identical speeches!

Hon PAUL SWAIN: Yes, they make those identical speeches, which they tend to pass back and forward between each other. I would have thought that they would vote for that move, but, no, they voted against it.

So the problem that people will have in those members’ electorates is that although they may not agree with everything that this very good Labour-led Government has done, when there are a couple of specific initiatives that do help exporters I think people there will ask why those members did not support them. People do not understand all the hoo-ha about caucus rules and things like that. What they see is a couple of good initiatives that could help people, and they will wonder why the local members did not support them—something that I am sure our people will be pointing out when it gets closer to the election.

Darren Hughes: They will be too busy solving the trade issues for—

Hon PAUL SWAIN: Yes, they were probably focusing so much on solving the apple thing, which has been going on now for 85 years—

Darren Hughes: They are so clever, those lads!

Hon PAUL SWAIN: But it was solved very, very quickly—with all humility—by those two members over there.

If we are to widen the debate out into the taxation policy issue, which I now hear members over there wanting to do even though this bill has nothing to do with that, certain questions must, of course, be asked. The first one is who would win under National’s taxation policy and who would lose. We are hearing that no one would lose under National’s taxation policy—

Craig Foss: Everyone is a winner!

Hon PAUL SWAIN: Well, given that we have not even seen it yet, everyone is a winner.

Craig Foss: You cannot wait to hear it!

Hon PAUL SWAIN: I hear members over there saying that everyone will be a winner under National. I heard Craig Foss say that everyone will be a winner. I do not think National’s leader was quite as specific as Craig Foss about that, and that will be interesting later on.

CRAIG FOSS (National—Tukituki) : It is a pleasure to follow the previous speaker, but I just need to make one thing clear: I and Mr Tremain did in fact lead two protests around the issue of apple access. In May 2005 I was dressed as Trevor Chappell, bowling underarm throughout Wellington at the front of the march, and Mr Tremain was dressed as Brian McKechnie. We bowled and hit all sorts of apples all over Wellington, while leading the march. I still recall the look of horror on the faces of the two MPs who were later kicked out of Hawke’s Bay electorates, but who are still with the Labour side, as we unmasked ourselves as leading the march. Funnily enough, 2 or 3 months later they were kicked out, because although we were supporting our province and what is very important to our region, they had long since abandoned it.

An earlier speaker, Dr Lockwood Smith, made a very, very interesting point when he was talking about Supplementary Order Paper 136 in the name of the Hon Peter Dunne. He asked the Minister to clarify a few points, and I think the intent of what we are doing here is worthy of reiterating. Yes, we are having a broad debate about various taxation policies, etc., but the commentary on the bill needs to be read again: “The Government agreed to promote a remedial amendment to the Act to correct any provision that was found to produce a different result from that which would have been produced under the Income Tax Act 1994, provided that no policy change was intended.” Basically, the committee said: “We strongly urge that such a process is adopted for the bill.”

The National Party is voting for this bill, but there is a huge question mark over that Supplementary Order Paper, and Dr the Hon Lockwood Smith spent a lot of his speech asking various questions of the Minister. Yes, they were somewhat technical, but we have officials who are able to assist there, hopefully. I think it is very, very important—in fact, essential—as we progress and go to a vote later on, that those questions are clarified, and clarified pretty soon.

I recall going through the bit on page 5 of the commentary at the Finance and Expenditure Committee. In the first write of the bill, the word “charities” was taken out and replaced with the term “public benefit gift”. I think we were in general agreement that that was somewhat politically correct, and I guess it is a credit to the committee officials, etc., that we put back the words “charitable or other public benefit gifts”, because we all understand what “charitable” means. Members across the parties were in agreement there. I still cannot quite define what that other term means.

Interestingly, I recall that around the time when we were looking at that issue at the select committee, National actually announced its policy on removing the cap on charitable giving. Subsequently, because that was such a good policy, about 2 months later in the Budget Labour took it on almost verbatim, word for word. So to the previous speakers who have again called for us to announce our policy outside our own time frame, I say that they should keep hoping. It is interesting to see the anticipation from various retiring members from the Government side of the Chamber and the interest that they have in our taxation policy, because I guess it will affect them personally as they wonder what to do with their quite substantial parliamentary pensions and how to manage their assets.

The previous speaker was talking about the research and development changes, etc., and about the various so-called incentives that have been provided. We are actually on a slippery slope here back to Muldoonism, I think. Many submitters to the Finance and Expenditure Committee now spend thousands and thousands of dollars on lawyers and accountants, because they are submitting and pleading and telling us why they deserve the latest tax credit and why they should have the latest tax bribe, or, in fact, why one should be invented for them. They almost spend more time on trying to minimise their taxation affairs than they do on actually getting on and adding value to the economy. That is “Productivity 101”. I would like to remind the House of an absolute law in many fields, which we can apply to tax here. It is a law that I think has been long forgotten in the Beehive: the attraction of tax incentives is totally and positively correlated with the level and the complexity of taxation. It is pretty simple; it goes without saying.

The Reserve Bank, Treasury, and all sorts of submitters have told us how complex the legislation has to be now in order to accommodate the various personal tax rates, the new change to the company tax, all the things in and around the fair dividend rate and portfolio investment entity regimes, and the KiwiSaver regime, which started on 1 July and then goes privately on 1 October. Some submitters have gone as far as saying it is an administrative train crash that is about to happen, but I guess we will wait and see whether that occurs.

CHARLES CHAUVEL (Labour) : It is interesting listening to the debate as it is unfolding, and particularly listening to members opposite talk about the headline corporate tax rate, because if one looks at the last 25 years, when both parties have led Governments for about equal amounts of time, I think—probably 14 years for Labour and 11 years for National—one sees who has the better record on the headline tax rate. In 1982 that tax rate was 48c; in 1988, under a Labour Government, it was cut from 48c to 33c; between 1990 and 1999 the tax rate remained the same at 33 percent—no change under a National-led Government—and then in 2007 we see a reduction to 30 percent under a Labour-led Government. So what we really need to do is just look at the facts—

Hon Tau Henare: That was some time ago!

CHARLES CHAUVEL: Well, it may be terribly inconvenient for members opposite to be reminded of the facts and figures, but none the less that is what they are. If one looks at who is trying to put in place a friendlier regime for business as far as the tax rates are concerned, one sees that it is clearly Labour. Stack that up with the research and development tax credit, and the tax breaks that come in with the introduction of KiwiSaver, and we actually have a very equitable package as far as business taxation is concerned. If we combine that with the red-tape cuts that the Minister of Commerce has been working on, we can see why New Zealand rates so well internationally as far as its environment for doing business is concerned.

Dr the Hon Lockwood Smith: That’s why Kiwis are leaving in droves.

CHARLES CHAUVEL: Dr Smith talks about Kiwis leaving in droves. If he were a more patriotic New Zealander, he would stop talking this country down and stop encouraging that trend. In fact, the statistics demonstrate just how well this country is doing. I wish Dr Smith would talk about some of the good news that Kiwis are entitled to hear about economic performance under this Government, rather than trying to constantly talk this country down and commit economic treason by encouraging people to leave these shores.

Let us have a look at some of those facts. For New Zealanders in work, seasonally adjusted, the figures speak for themselves—

Dr the Hon Lockwood Smith: I raise a point of order, Mr Chairperson. I realise that what the member is saying is so boring that you probably were not listening, but I do not think that accusing a member of this Committee of treason is acceptable.

The CHAIRPERSON (H V Ross Robertson): I am sorry, I did not hear that. If the member did accuse anyone of treason, the member must withdraw and apologise. It is not acceptable parliamentary language.

CHARLES CHAUVEL: I withdraw and apologise. As I was saying, the facts as to economic performance speak for themselves. I heard members opposite speaking earlier about high interest rates. Let us look again at a comparison of the interest rate for the average variable first mortgage. Between 1991 and 1999 the rate was 9.68 percent. Between January 2000 and June 2007 the rate was 8.33 percent. The employment figures are also similarly good news. The figure for the number of New Zealanders in work, seasonally adjusted, in March 1999 was 1,741,000. In March 2007 that number was 2,143,000. I just want to make sure that the Committee is reminded of those statistics, given that the debate has clearly become quite wide ranging on economic performance. When the facts are actually addressed, it is seen that the members opposite do not have a lot to crow about.

I was also interested to hear the claim that no one would lose under a National Government’s tax policies. It is interesting, is it not, to consider that claim. Of course, the policy of members opposite has been to scrap a large part of the Working for Families package in favour of tax cuts, leaving Kiwi families with less money in their pockets, and putting that money into the bank accounts of wealthy New Zealanders. Middle to higher income earners are, supposedly—according to Mr Key—those eligible for assistance under the Working for Families programme. Under National’s policy settings these people would get the money in a tax cut instead. I was interested to see Mr Key admit in 2005, in the New Zealand Herald on 14 April, that his tax cuts would not actually help as many Kiwi families as the Working for Families package. He said that the number of families paid under a National-led Government will be lower. In other words, the reach would be smaller, and eventually National would have to look at redesigning the whole families package.

This legislation is a non-controversial technical rewrite of the Income Tax Act. There are no policy changes in it, so it is interesting that the debate has ranged so widely. I think the modern, plain language rewrite of the legislation is a desirable thing, and I commend it to the Committee.

The CHAIRPERSON (H V Ross Robertson): Dr Smith, just before I call you, I want to point out that you have already had four speeches on this part. I recognise, of course, that there is a single debate of 4 hours for the Committee stage of this bill, and in recognising that I invite the member to seek leave of the Committee to be able to speak again.

Dr the Hon LOCKWOOD SMITH (National—Rodney) : I am happy to do that, Mr Chairman, although I do not believe I should have to, because this is a time-limited debate. There is no restriction on the number of calls, because the debate covers all parts. But I am happy to seek leave if it—

The CHAIRPERSON (H V Ross Robertson): I think that the Committee will be quite lenient, but I want to do it by following the procedure.

Dr the Hon LOCKWOOD SMITH: OK, I will seek leave, Mr Chairman, if that is helpful.

The CHAIRPERSON (H V Ross Robertson): Is there any objection to that? There is none.

Dr the Hon LOCKWOOD SMITH: I think it is a bit of an indictment on the member who has just resumed his seat, Charles Chauvel—and I accept that he is a new member—that he had the chance here to speak on 3,281 pages of legislation and he could not do that. He is a member of the Finance and Expenditure Committee.

I want the Minister to answer some specific questions about the legislation in front of us. Supplementary Order Paper 136 in the name of the Hon Peter Dunne has been dropped on the House this afternoon. It is 250 pages long. We know that part of it is a rewrite of the fair dividend rate legislation that passed through the House in 2006. We know that it is a rewrite of the Taxation (Savings Investment and Miscellaneous Provisions) Act of 2006. I asked specifically a call ago about the rewrite of Part M, which starts on page 99 of the Supplementary Order Paper. As I read those changes to Part M, it appears to me that what is happening there is that the Supplementary Order Paper rewrites part of the Working for Families tax credit legislation, because that is all contained in Part M of the existing Act.

If members look up Part M in the bill that is in front of us, they will see it is covered from page 1,692 onwards, under the heading “Tax credits for families”. It seems to me that this Supplementary Order Paper incorporates the tax credits under the Government’s KiwiSaver scheme: the tax credits to those who participate, as distinct from any tax credits back to employers. It seems to me that tax credits to participators in KiwiSaver will now be covered in Part M of the Income Tax Act. That is quite a significant development, and someone from the Government ought to explain it. The member Charles Chauvel should be explaining what the hell the Government’s legislation is doing. I suspect that he does not know. I think that the Government needs to assure us about this legislation.

If I am right, the changes to Part M that start on page 99 of Supplementary Order Paper 136 bring into this rewrite the legislation that was passed through this Parliament on the day of the Budget, without reference to a select committee. That legislation was passed through the House following the presentation of the Budget just a short while ago, and it passed through all stages without reference to a select committee. Now it would appear—and I stress that it would appear, because I do not know this for certain—that those changes are now being incorporated in this rewrite. At no stage has that legislation ever been to a select committee. It went through all stages here following the Budget. As I recollect matters, the provisions for tax credits for contributors to the KiwiSaver scheme are part of the Budget legislation. That legislation went through all stages following the Budget, and now this Supplementary Order Paper—from page 99 onwards, in the various sections in Part M—incorporates those changes into this rewrite. No select committee has ever had a chance to hear submissions on any of that legislation.

I want the Minister in the chair to address this issue. I am prepared to accept that I am wrong. I am prepared to accept that my reading of this situation is not correct. I stress that I have seen the Supplementary Order Paper only this afternoon. If I am wrong that is great, but I believe that the Committee should know what on earth these changes mean. It seems to me that the Supplementary Order Paper does refer to tax credits for people involved in the KiwiSaver scheme. For example, new Subpart MK is entitled “Tax credits for KiwiSaver schemes and complying superannuation funds”—there it is, in black and white. Tax credits for KiwiSaver schemes were part of the Budget legislation, if I remember it correctly, and therefore have never been to a select committee.

How can the Minister assure this Committee that what we are going to incorporate into this hugely important rewrite of the Income Tax Act has been sufficiently thoroughly scrutinised, when it has never been to a select committee, neither in its original passage through this House nor now—because this Supplementary Order Paper will not go to a select committee? Can the Minister assure us that there are no technical problems on this Supplementary Order Paper? It adds whole new bits to Part M of the Act. Part M of the bill at the moment does not incorporate tax credits for the KiwiSaver scheme. Of course there are no provisions for the tax credits of the KiwiSaver scheme in the bill, because when the Income Tax Act was being rewritten that legislation had not been passed.

I believe that if the Government is taking Supplementary Order Paper 136 at all seriously, someone on the Government side ought to know what the devil the Government is doing. Instead of making ignorant contributions like the one that we heard from Charles Chauvel, Government members should tell us what the Supplementary Order Paper is doing and whether any select committee has ever had a chance to look at it seriously. They should give the Committee some assurance that it is not full of problems.

CHRIS TREMAIN (National—Napier) : I rise for a third time to speak to the Income Tax Bill, and specifically to reply to Mr Charles Chauvel, a colleague on the Finance and Expenditure Committee—and an intelligent member of that committee, I might add. He stood up here today and told us—he waxed lyrical—about headline tax rates and Labour’s record on them. I just remind the member that Labour increased the headline tax rate to 39c in the dollar in 1999, immediately after coming into Government. If that is not increasing the headline tax rate, then I do not know what is. Let us have a look at the effect of that headline tax rate, the effect of inflation going forward, and the effect of bracket creep with regard to where the average Kiwi has now ended up as a consequence of the economy and that increase in the headline tax rate.

Dr Cullen told us in 1999 that 95 percent of Kiwis would remain outside that headline tax rate. Well, the fact is that that is in no way the case now. Treasury’s Key Facts for Taxpayers, released on Budget day, tells us that that 14 percent of Kiwis are now paying at or above the high headline tax rate. So I ask Mr Chauvel how that shows a good record in terms of the headline tax rate. I just cannot see that, for the life of me.

The other thing, which is probably more important, is the situation of the average Kiwi. I tend to focus on where the average Kiwis are at with regard to their tax contribution to the country, not those “high price” guys. What is important is the average hard-working men and women and what has happened to them. Tax creep over the last 8 years has pushed them from 19.5c in the dollar, to 33c in the dollar, to 39c in the dollar, and what we have seen is an average increase in personal income tax of $2,400. So once again I struggle to see how there has been an improvement for the average taxpayer in this country. We are talking tax here, in relation to the Income Tax Bill.

The second point Mr Chauvel went on about was that the facts speak for themselves in terms of economic performance. He then went on to talk about interest rates. Interest rates are only one part of the economic pie. What we need to look at is the result of economic performance. Let us look at our overall wealth as a nation—the average wealth of the average Kiwi. This Government told us early in the piece that its goal was to get us up into the top half of the OECD. That was a big goal. Helen Clark and Michael Cullen proudly set out that goal, and I admire that goal. It is a goal we should be aiming at. I fully endorse that. The reality is, however, that we have dropped two places. So under the structure of the Income Tax Act as it is now, New Zealand has dropped two places in the OECD. I say to Mr Chauvel that in terms of economic performance we have come down the ladder.

This debate has been broad, and I want to bring it back to more specific comments about some specific changes brought to the select committee. I want to comment firstly on some of the comments made by some of the submitters. There were not a lot of submitters on this bill. KPMG and the Institute of Chartered Accountants of New Zealand made some specific calls in terms of the definition “permanent place of abode” versus “permanent home”. The advice was initially that they change the definition to “permanent home” as opposed to “permanent place of abode”. It was subsequently decided that that change in definition would have an impact on the legislation, so it was decided we should stay with the initial definition.

The second thing that the Institute of Chartered Accountants recommended was around the definition of “close relative”. The initial definition did not include a surviving spouse, a civil union partner, or de facto partner. But the revised addition, after advice was given by Therese Turner and Sir Ivor Richardson, was that the definition should be changed. So the new definition of “close relative” was revised to include “a surviving spouse”, and “a civil union partner and/or a de facto partner”.

There was some discussion about where some other definitions in other legislation should be pitched. Some submitters said that all the definitions should be placed in this legislation.

ERIC ROY (National—Invercargill) : I have been here this afternoon listening to the debate on the Income Tax Bill, and I am moved to take a call. Two or three issues have encouraged me to take that course of action.

The first is that I have in front of me Supplementary Order Paper 136, which is dated Tuesday, 14 August. It consists of some 284 pages. For those who are listening to the radio as they drive home, I note that a Supplementary Order Paper is an amendment, or amendments, to a bill. The bill is a significant piece of legislation. [Interruption] Well, it is five tomes, and each one is bigger than the Wellington telephone directory. This bill is a complete rewrite of the Tax Act, as I understand it.

Hon Bill English: The Income Tax Act.

ERIC ROY: Yes, the Income Tax Act. I guess that for the average punter there is an issue of comprehension. I do not know whether there is anything we can do about it, but we are locked into a kind of accountancy mentality, and the common man, I am sure, would have grave difficulty trying to work his way though this legislation. Someone in my electorate has an issue about companies on the “grey list”. I have just been reading the clauses on the Supplementary Order Paper, and I have to confess that despite having studied what is there, I am not in a position to give any advice to my constituent who came to see me. So my first issue is that this is rather complex legislation, and I am concerned that a Supplementary Order Paper of this size—284 pages—has been dropped before the Committee. I think something as big as this Supplementary Order Paper should have been referred to the select committee that considered the five volumes that make up the bill. That may have happened, but my understanding is that it did not. If we are going to do these rewrites, we need to get them right. Tax is a crucial issue. There are a few areas on which parties across the Chamber have some agreement, and I think we would agree that people who should be paying tax should be paying tax, and they ought to be able to understand the rules that determine the amounts they should be paying.

One or two speakers said early on in this debate that there was some kind of loose agreement that we would not get into the philosophical bit about why we pay tax, but each person who made that statement immediately dropped himself in there and made it a part of his contribution, and I intend to do the same. I can recall very clearly a very wealthy uncle of mine who paid what I considered at the time to be huge quantities of tax. I told him he needed to buy some more investments so that he could have some tax write-offs. He said: “I wish I was paying a lot more tax, because then I’d be a wealthy man.”, then climbed into his Mercedes 500 and disappeared over the hill. The notion was that the more tax one paid, the better off one was. Well, that to a degree is right. But the impost of paying tax does have an implication, and if I look at the New Zealand economy, I have to say there are some issues that we should deal with philosophically.

Our economy, for example, gets the speed wobbles if it gets growth rates of over 3 percent. We have never seriously addressed how we get the New Zealand economy to grow and not get those speed wobbles. If we look at Asian models, or any other kind of model where growth rates are in double digits, we see that they seem to be able to manage it. I would have thought that if we were addressing a rewrite of the Income Tax Act, we would look at issues such as the philosophy behind how we tax and why we tax, what the levels should be, and what the impact on individuals and on the economy should be. You see, what we have now with the current administration, the Labour-led Government, is increasing tax rates, and that has occurred not because the rates have gone up but because they have not come down at the rate at which income has gone up. For goodness’ sake, some of my kids tell me they are nearly in the top rate now. When they began work 5 or 6 years ago they did not think the top rate was something they would pay in their lifetime. The impact of paying that tax rate is a disincentive.

I said our economy gets the speed wobbles if growth rates get over about that 3 percent level. We have had, week after week in the House, the Labour Government extolling the fact that the unemployment level is quite low. Yes, it is, but so is our productivity level. It seems to be creeping back and back. It is of concern to me because when our productivity level goes down we do not compete as well with other nations in this global village, which, as an export nation, we sell our product to. We need a tax system that incentivises productivity. It is one of those things among the matrix of factors that we build into an economy that can encourage certain outcomes. One of those outcomes, which this Government has not performed well on, is productivity levels. We have become kind of State dependent in a whole lot of ways. Working for Families has dragged in a whole lot more people. Yes, they need support, but the mechanism has made them dependent. We have lost that kind of intuitive, No. 8 fencing wire attitude—go out and make it in the back shed, get in there, learn a few more skills, go the extra mile, work the extra hour—that means we do those bits we need to do to lift productivity. I say that the sort of taxation regime we have, where we have not reduced tax as incomes have gone up, has a big bearing on the productivity rate, on the desire of individuals to go forward and do things.

Another point about the taxation rate we have is that one of the things this country needs to engage in—and we are well behind in every measure that one likes to take—is our investment in research and development. Some of us about 4 weeks ago went to Taiwan. Over there, the percentage of GDP that goes on investment in research and development is 2.4 percent. We came back and looked up the figures here; we are about 0.8 percent. That is just not good enough. When the Government creams off all the tax that it is currently taking, there is not really enough left for individuals, companies, or anybody else in the private sector to do that investment in research and development.

That is another philosophical difference between the major parties, and I believe we have to address it. I believe that when we do a rewrite of the Income Tax Act, that sort of philosophical stuff should be discussed, and we need to have some focus on it. Quite clearly, we have low productivity, we have a lack of investment in research and development, and we are losing our competitiveness with competing exporting nations around the world—our competitors out there that are producing similar sorts of stuff. We are losing the margins on that, and tax does have a very big bearing on that. I am saying quite clearly that here we have a major rewrite—five times bigger than the Wellington telephone directory—of the Income Tax Act, plus a Supplementary Order Paper that would choke a bull, and we are not really dealing with fundamental issues that this economy needs to have dealt with. If we need to do all this stuff just to institute a fair tax system, if we put energy into wading through all that information, we should look at the wider picture, at the philosophical stuff that we actually need to deal with.

Hon PETE HODGSON (Minister of Health) : I have been listening to the debate with some interest and have not taken a call until now. But I was moved to respond to Eric Roy’s comments. He is a sensible man, a good solid Southland citizen, and I thought that his comments were interesting but I did not agree with too many of them. As he went on I found myself actively disagreeing with him and I wanted to get up and explain that—it is to do with research and development.

You see, the research and development effort in New Zealand compared with, say, Taiwan is exactly as the member describes it. This is a low-investment country in research and development. If we unpick where the under-investment is, it is, relatively speaking, in the private sector, although our public sector investment is a little below the OECD average. We under-invest a little in the public sector and we under-invest significantly in the private sector, and successive Governments have sought to address that.

The underlying reason for us under-investing in the private sector is the nature of our economy. That is to say that our research into primary production, which we are amongst the best of the world in and are very good at, is none the less a relatively low intensity research and development sector compared with, say, pharmaceuticals or aeroplanes, or motherboards if one wants to go to Taiwan.

Yet the truth of the matter is that the member—perhaps unwillingly or unwittingly; I am not sure—was one of those of his caucus who trooped out into the Noes lobby when the tax credit for research and development was put to this House only 3 months ago. A very substantial tax change was made, proffered by the Minister of Finance, and National Party members, almost unbelievably, voted against it. They did not set out to split it off in the way that they spoke or in the way that they voted. They said they opposed it. But the truth of the matter is that if there can be more research and development investment made by a private sector business in this country now, then there is a very significant tax credit available—very significant.

That is to say that if the member wants to talk about philosophy, then this is the way to deal with that issue. I absolutely agree with him that under-investment in research and development is an issue for us. It is a systemic issue in our economy and there are very many ways of fixing it. His Government, when it was in power, and this Government now in office have been looking to improve that situation through various policy changes. One of the most significant was always going to be to have a tax credit for research and development, and when it came forward in the Budget 3 months ago, his party voted against it. I thought the Committee should be reminded of that.

Dr the Hon LOCKWOOD SMITH (National—Rodney) : Mr Chairman—

The CHAIRPERSON (H V Ross Robertson): The member will need to seek leave to have another call. We can have a 4-hour debate, so I hope the Committee will be generous to you.

Dr the Hon LOCKWOOD SMITH: I seek leave to take a further call.

The CHAIRPERSON (H V Ross Robertson): Leave is sought for the member to take a further call. Is there any objection to that course of action? There is none. There may be multiple calls, Dr Smith!

Dr the Hon LOCKWOOD SMITH: I probably will not take the full time, but we now have a Minister in the Chamber who understands the legislation, which is helpful.

During my last call I asked a reasonable question about Supplementary Order Paper 136. We have established that that Supplementary Order Paper incorporates in the rewrite the provisions of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006, and we acknowledge that there are some risks around that, because it has never been to a select committee. But a previous Minister in the chair was able to assure us that the tax professionals—the Institute of Chartered Accountants of New Zealand—and the Law Society believe that the wording is satisfactory in respect of those measures, particularly the fair dividend rate measures and the portfolio investment measures.

But in my last contribution in this debate I raised the issues around Part M of the Income Tax Bill—Part M being the Working for Families tax credit provisions. When the Finance and Expenditure Committee looked at this rewrite of the Income Tax Act, it concluded that Part M was too complex to include in it—and that is mentioned on page 7 of the select committee’s commentary on the bill—yet Supplementary Order Paper 136 includes a whole lot of rewritten provisions of Part M. It particularly includes the new Subpart MK, “Tax credits for KiwiSaver schemes and complying superannuation funds”. The point I made in my last contribution was that, if I recollect correctly, the legislation that this bit rewrites was passed through all stages following Dr Cullen’s presentation of the last Budget. Tax credits for savings were all part of that legislation. That legislation has never, therefore, been to a select committee; it went through all stages straight after the presentation of the Budget. We are now incorporating those provisions, as I read Supplementary Order Paper 136—the parts that rewrite Part M of the Income Tax Act—in this rewrite, without their having been referred to a select committee.

The issue I want the Minister to address—Dr Cullen is here now, and he may be able to give the Committee some assurance—is whether all those involved in the rewrite have had a thorough look at these rewritten arrangements for the Budget legislation. I presume they actually rewrite the Budget legislation, which went through all stages just a short while ago. I would like the Minister to assure us that there are no technical problems around these changes, because they are quite significant. Part M is now being changed; instead of being tax credits for families, it is now tax credits paid in cash, and there is a families bit and a bit to do with superannuation savings schemes. I believe we deserve to have from the Minister an absolute assurance that these measures have been thoroughly examined by the various professional organisations and the rewrite advisory panel, because no select committee has ever had the opportunity to look at any of that legislation.

• The question was put that the amendments set out on Supplementary Order Paper 136 in the name of the Hon Peter Dunne be agreed to.

• Amendments agreed to.

• Clauses A1 and A2, Parts A to Z, and schedules 1 to 52 as amended agreed to.

• Bill reported with amendment.

• Report adopted.

Hon Dr MICHAEL CULLEN (Minister of Finance) on behalf of the Minister of Revenue: I move, That the Income Tax Bill be now read a third time.

• Debate interrupted.