Hon GERRY BROWNLEE (Minister for Canterbury Earthquake Recovery) on behalf of the Minister of Revenue: I move, That the Taxation (International Investment and Remedial Matters) Bill be now read a third time. The bill continues the reform of New Zealand’s international tax rules by bringing our tax rules more into line with those of other countries, and making it easier for New Zealand - based businesses and investors to compete more effectively in foreign markets. Previously, a New Zealand company’s active income from its offshore subsidiaries was taxed by New Zealand. This placed New Zealand companies at a disadvantage in terms of tax costs that similar companies in other countries did not face. To overcome this obstacle, foreign companies controlled by New Zealand investors became eligible for a tax exemption on income from active activities such as manufacturing, as part of the international tax reform introduced in 2009.

The main measures in this bill further extend the active income exemption to include joint ventures and other significant New Zealand shareholdings in foreign companies that are not controlled by New Zealand investors. Under the proposals in the bill, New Zealanders with stakes of 10 percent or more in offshore companies will not be subject to New Zealand tax on those interests unless they earn passive income such as interest, royalties, or rents. To further rationalise earlier international tax reforms, the current exemption on non-portfolio foreign investment funds in the eight grey list countries will be replaced with an exemption for non-portfolio foreign investment funds that are resident and subject to tax in Australia.

The bill also introduces a nil rate of approved issuer levy for interest paid on corporate bonds that are widely traded in New Zealand and that meet other criteria. This is a targeted measure to enhance the development of New Zealand’s bond market. A 10 percent rate of non-resident withholding tax will continue to apply to related party loans, such as loans from a foreign parent to a New Zealand subsidiary. A 2 percent rate of approved issuer levy will continue to apply to loans from foreign banks and bonds that are issued into foreign capital markets. The change is limited to bonds that are traded on the New Zealand bond market. Currently, a 2 percent rate of approved issuer levy applies when these bonds are purchased by non-resident investors. There are concerns that this may limit the size and liquidity of the New Zealand bond market by making it more expensive for New Zealand businesses to issue bonds in New Zealand. The bill addresses these concerns by removing the tax impost on those interest payments. As a result, it will become relatively cheaper for New Zealand businesses to issue bonds in New Zealand, rather than obtaining a loan from a bank or issuing bonds in offshore bond markets. This very practical measure follows the recommendation of the Capital Market Development Taskforce.

The remaining changes in the bill are largely technical or remedial in nature, to clarify parts of the earlier international tax reforms and to correct minor drafting oversights.

In bringing this bill to its third reading, I wish to acknowledge those who have contributed to its successful passage so far. My thanks go to the policy officials and the drafters for their work on the detail of this very technical tax bill, and to those who made submissions to improve the practical application of the measures it contains. I also wish to record my thanks to the Finance and Expenditure Committee for its detailed consideration of the bill and its recommendations for reducing compliance costs for businesses and making the rules proposed in the bill easier to apply.

The process goes across Governments, and by removing a further tax barrier to offshore expansion by New Zealand businesses, this bill will make it easier for New Zealand businesses and investors to compete more effectively in foreign markets, with resulting benefits to this country in the longer term. I therefore have great pleasure in commending it to the House.

Dr DAVID CLARK (Labour—Dunedin North) : In speaking to the Taxation (International Investment and Remedial Matters) Bill 2010, I wish to start by acknowledging those members of the Finance and Expenditure Committee who did the select committee work on this bill. It was very remiss of me not to have done that in my previous speech. I also want to congratulate Simon Bridges, firstly, on his appointment as chair of the committee, and, subsequently, on his elevation to the rank of Minister outside Cabinet. The Opposition colleagues and, I believe, John Hayes enjoyed his brief and able facilitation of questions and the opportunity to shape legislation positively for the benefit of all New Zealanders—something that Mr Brownlee just alluded to.

Labour supports the bill, but we will oppose the part that concerns the removal of the approved issuer levy. Our overall decision to support the bill is an on balance decision, having assessed the merits and the demerits of the bill in its current form. The Labour Party’s concern in respect of the approved issuer levy relates to the further erosion of the tax base, and this is at a time of falling Government revenue. This wider context matters. The Inland Revenue Department recently admitted in its briefing to the incoming Minister of Revenue that the Government revenues have dropped 4 percent in terms of a percentage of GDP, from 35 percent to 31 percent. This is during the time of the previous National Government. It is estimated that about 60 percent of that drop in tax revenue is directly attributable to Government policy changes. This is of concern. People working hard in this country who are doing their best—they are saving, they are trying to get ahead, and they are involved in community activities—just do not feel like they are getting ahead, and that is, in part, as a result of these tax changes that have benefited the very wealthy at the expense of everyone else.

They have also affected the overall tax take. The Government continues to push the line that those 2010 tax changes were broadly revenue-neutral. I think entertaining the word “broadly” in this context is stretching the use of the English language beyond belief. Some members opposite might assert that it is plain English. I would certainly not be one of them. If it is typical English, it is certainly not helpful English, I would submit.

What is clear is that blaming the widening deficit on the Canterbury earthquake or the global financial crisis is no longer a credible explanation for this $12 billion deficit. This is the result, in part, of the reduced tax take, which this bill does not directly address as fully as it could. The $12 billion deficit that is projected this year will cost New Zealand households $7,500 each—that is, $7,500 being borrowed on behalf of every New Zealand household to fund current programmes, including the tax cuts for the very wealthiest New Zealanders. I do not think that is good enough.

National members continue to repeat as an article of faith that the economy will improve with time, but the reality is that they have no idea how they are going to achieve this. This is an article of faith. They have no plan. As revenues drop—and this bill does not guard against it—we cannot afford services that are important to the smooth running of the economy and of society. I think here of the police, the Reserve Bank, and other features of a stable democracy that is good to invest in, which gets to the heart of this matter. As these services drop off, it is likely to have a compounding effect on the attractiveness for investment in our country.

Changes proposed in this bill favour foreign lenders of capital and large entities that borrow from them. Local lenders will not be able to match the rates that overseas lenders offer with their reduced tax rates—that is a fact—so domestic savings will be undermined, further compounding the structural problems in our economy. “Joe and Joanna Public” who borrow through the banks will not see any savings, but the foreign-owned banks will pocket the wedge. The potential undermining of domestic savings is, of course, a concern. In fact, it is doubtful that the bill will do anything to help increase liquidity, despite what the previous speaker, Gerry Brownlee, has asserted. The bill will not necessarily reduce interest rates or add depth to the capital markets. This was certainly the advice of a number of submitters at the select committee. They took issue with these assertions.

It is also important to note that we in the Labour Party understand the value of internationally competitive tax rates. We do not wish to see New Zealanders who are competing overseas disadvantaged, and we do not want to see those overseas who would wish to invest in and support New Zealand businesses scared off, but we do in New Zealand believe in seeing everyone pay their fair share. That is something the Labour Party believes in. National is not happy with that, but it is something that we think is a fair proposition. If there was substantial evidence of threats to the ability of New Zealand to fund its offshore borrowing requirements, or of our banks and other corporate borrowers to fund their borrowings, there might be a case for reducing the costs of overseas borrowers through taxes and approved issuer levies. Substantial evidence on that front, I am afraid, has not been presented. Instead, it looks like, once again, a tax break is being given to the big end of town, to the detriment of our tax base.

When we are borrowing, we New Zealanders all end up paying for this tax break through interest payments that subsume moneys that could otherwise be spent on public goods like education and health services. That is why we in the Labour Party are opposing this aspect of the bill. If it is to tighten up rules around the approved issuer levy, it would be much more productive than simply dumping it. I guess an easy ride, as it can be said with the approved issuer levy, is at least consistent with the current Government’s policy of giving wealthy overseas interests an easy ride, and, indeed, perhaps in some cases putting out the welcoming mat. We will see more of that when it comes to the issuing of shares in State assets, I am sure. No one thinks that selling those revenue-generating assets overseas is a good idea, and no one, but no one, thinks seeing those profits disappear offshore is a good thing. You cannot sell your way to a brighter future, I submit.

So, to be clear, Labour does not want to see tax rules that disadvantage New Zealand businesses, and it wants to guard against dead-weight loss to the economy by reducing the proper tax burden for foreign-based companies where it will not affect investment decisions. The zero rate for the approved issuer levy on payments made by approved issuers to non-residents under some debt instruments is not something that we feel is prudent. We on this side of the House are concerned that in some cases the current tax system already effectively offers a lower tax burden to offshore sources of capital, thereby providing an undesirable incentive for funds to be sourced offshore, rather than to be retained or saved domestically. That is an important point to raise. Ensuring that tax treatment is as fair and balanced across jurisdictions as it can be is the Government’s responsibility. It appears that it could have done further work to allay fears, but this is not the case.

When submitters suggest that the removal of the overseas tax burden will have little effect on investment, we should be concerned. But, as I signalled at the beginning, Labour will support the rest of this legislation. The alignments that will help New Zealand businesses compete in foreign markets by freeing them up from a tax burden that their competitors will not face are a good thing. Labour supports New Zealand businesses. Our capital gains tax proposal that we took to the last election, for example, would support investment moving away from the speculative sector to the productive sector, and National will not consider it. It has no other ideas. This bill tinkers, like many of the Government’s efforts. In this instance, and on balance, we think the tinkering is positive, and that is why we will support parts of this bill, apart from those that are concerned with the approved issuer levy. Shifting wealth to the big end of town is a theme. Borrowing without a plan to pay it off is unwise. There are much bigger issues to address before New Zealanders feel like they are going to get ahead through their hard work in the current situation. Although we support this bill, we do, I submit, think it contains large elements of tinkering.

JOHN HAYES (National—Wairarapa) : I want to point out that the Labour Party has just indicated that it wants a fair tax system. I absolutely agree with that. It needs to hit everybody reasonably. The second thing Labour has done is that it has said it wants a system that does not disadvantage New Zealand companies operating offshore and competing with foreign ventures. That is what the Taxation (International Investment and Remedial Matters) Bill does. The bit that Labour members do not seem to comprehend is that it is only by lifting our economic performance that we can create jobs, that we can boost incomes, that we can improve living standards, including in the Wairarapa, and that we can then provide the world-class public services that Kiwis want, particularly in the health and education areas.

The centrepiece of the Budget in 2010 was the delivery of a major tax package, which was about reforming the tax system to make it fairer, as the Labour Party wants, to make it more sustainable, as the Labour Party wants, and to provide better support for economic growth, which this whole House wants. That is what this bill is about. The Taxation (International Investment and Remedial Matters) Bill promotes integrity across the tax system. Integrity means fairness, so why would you stand against this bill, or even parts of it? The point of the bill is that it is going to bring New Zealand’s tax rules into line with the practice in other countries. For example, a New Zealand - owned manufacturing plant in China will now generally face the same tax rate, once this bill is passed, as other manufacturers operating in China. The changes will improve the competitiveness of the New Zealand tax system, and encourage businesses with international operations to remain, to establish themselves here permanently, and to expand.

I do not want to spend a long time this afternoon, but I just want to make two more points. The bill modifies the thin capitalisation rules that apply to investors with controlled foreign companies, so that these apply to investors in non-portfolio companies that use active income for the active income exemption or the Australian exemption. If we did not have such rules, there could be an incentive for businesses to reduce their taxable income by stacking additional debt against their New Zealand operations, when in fact they are using these funds to equity finance their exempt offshore investments. So the whole point of this bill is to make it fair. I support this bill unreservedly and commend it to the House. Thank you.

Hon DAVID PARKER (Labour) : Can I begin by responding to something that John Hayes said, which was that the changes to the tax system made by National in its last term of Government made it fairer. Well, the National Party has a different definition of fairness from this side of the House.

Dr Russel Norman: The Tui billboard definition.

Hon DAVID PARKER: Thank you, Dr Norman. The Tui billboard response to that is “Yeah, right!”, because—

Michael Woodhouse: You had the chance to campaign on reversing them.

Hon DAVID PARKER: Well, actually we did campaign on reversing some of them, because they were so unfair: 40 percent of those income tax cuts went to the highest 10 percent of income earners in New Zealand. It was only—

Paul Goldsmith: How does this relate to the bill?

Hon DAVID PARKER: Well, it actually relates to the comments that your own member unwisely made, Mr Goldsmith, in this debate. For him to say that that made the New Zealand tax system fairer does not stand scrutiny.

In reality the only people who did substantially well out of the so-called tax switch were people who managed to switch their taxes by paying less, while the overall proportion of taxation that was paid by the vast majority of New Zealanders went up: i.e., the proportion of total tax that was paid by the people who were already the wealthiest in New Zealand went down, and the proportion of tax that was paid through GST and PAYE in respect of low and middle income earners—their proportion—went up. The relative position of high-income earners went up and everyone else, relatively, went backwards. So do not call those tax cuts fair, please, Mr Hayes, because it does not stand scrutiny.

There is another thing those tax cuts did, as Dr Clark said—and we have had Russel Norman running this issue this week, as well; thank you for doing that, Dr Norman. We have had this fiction being run by National that the Budget deficit is not partially its own fault by having added to the deficit through its tax cuts, which it pretends were broadly fiscally neutral by using a very loose definition of broad—

Hon Member: And neutral.

Hon DAVID PARKER: —that is right—and a very broad definition of neutral. The reality is that Treasury’s own forecasts in respect of the Budget package found that they were fiscally negative. The shame of it is that Treasury in New Zealand, despite the fact that since then the deficit has got worse, has not done any analysis as to why it is so much worse and how much of it relates to the tax package. Why is that? Well, we actually do not know, but the suspicion is that it is because on further analysis the National Party’s abuse of the English language as to “broad” is proven by the fact that the hole in the Government accounts is substantially caused by its so-called tax switch, which was for the benefit of the top 10 percent of New Zealanders and under which everyone else went relatively backwards.

I want to turn to another instance of tax unfairness and the lack of wisdom in the Government’s approach to tax legislation. Last year New Zealand had an $18 billion deficit. It was not all the Government’s fault; some of it was from tax changes, but not all of it. This year it is about $12 billion, and probably closer to $13 billion. We will know by the time we get to the Budget what the actual figure has been. Next year it will be about $6 billion, and in the following year it will be gone to about zero. That is the case whether it is under National or Labour. We would have got back to Budget surplus at about the same time, as well.

But if you were running so close to the wind as the Government is and you had a deficit that large, why would you be giving unfair and unnecessary tax breaks to foreign lenders into New Zealand? That is what this Taxation (International Investment and Remedial Matters) Bill does. The approved issuer levy is a substitute for paying tax. [Interruption] It does, Mr Bennett, and if you do not understand that yet, after having sat on the Finance and Expenditure Committee and heard all of the debates on this, there is really not much hope for you. Perhaps you should give back your accounting certificate to the society, because that is exactly what this bill does. If you do not understand that, I am sorry, but you were not listening to the submissions and you did not read the bill.

What happens in New Zealand for some borrowers is that some lenders into New Zealand normally pay non-resident withholding tax, so that when interest is paid to the lender, to the New Zealand company, to a New Zealand individual, or to the New Zealand Government, the interest that they earn incurs some tax. That tax rate is not set at the same rate that we pay on income tax on our income in New Zealand, because overseas people do not get the benefits of everything under our tax system. They do not get a direct benefit from health services or education services, they do not use our roads, and they do not use the police. So they do not pay the full rate of tax in New Zealand, just as in overseas countries New Zealanders do not normally pay the full rate of tax for income that they derive from those countries. But they do pay some tax, because those overseas countries do gain some benefits from what Governments do in New Zealand. They get the benefit of an educated population, they get the benefit of the enforcement of the rule of law, and they get the benefit of a healthy population who can turn up to the workplaces that pay the people who work in the factories that pay the interest. So they do pay some tax, and they pay it through non-resident withholding tax at a lower rate.

There is another exception to that, which we allow in New Zealand and have historically allowed in New Zealand. For some lenders into New Zealand, instead of charging them non-resident withholding tax, we charge them an approved issuer levy. That approved issuer levy is at an even lower rate than the non-resident withholding tax. It is not at a punitive rate now. What this legislation says is—look, you can avoid that at the moment by legal means of tax avoidance, for which loopholes have not been closed. So what does the Government do? Does the Government close the loophole and ensure that it has got a fair tax system, with people who are receiving income from New Zealand paying some rate of tax, albeit lower than the rate that is paid by a New Zealander? No, the Government does not do that. Despite the fact that it is running probably a $13 billion deficit, the Government says the answer is to take it to zero. It takes the approved issuer levy to zero. Well, there will be no avoidance of that, because there is nothing to avoid.

This is absurd. We should not be reducing the tax paid on earnings by foreigners investing in New Zealand to zero. We should not be reducing it to zero. They do get the benefit of taxes that are paid in New Zealand by others. It is not going to increase in any material way the money that is flowing into New Zealand. If you were going to try to incentivise more money into New Zealand, you actually would not do it by giving a tax break to these guys. You would do it by giving a tax break to someone who is going to be investing in a new company that brings new jobs. This part of the bill is just silly; it is just silly. Why would we give a tax break to these people, taking their tax rate to zero? The National Party members are quiet, because there is no answer to that. There is no answer to that; there is no logic to that.

We would all love to have the benefit—well, not all of us, but lots of us would love to pay zero tax and have a bit more money in our pockets. We certainly need it, because our wages are not going up at the same rate as they should be, and a lot of people have not got jobs. But why give a zero tax rate to some lenders into New Zealand? And if we are giving it to those lenders, why not give it to all of them? Where is the logic there? Why do we not give it to all of them? There is no logic to this part of the bill. It should be called what it is, which is bad policy. It is another example of economic mismanagement by the Government.

This is the same Government that this week blocked Treasury even being called to account for probably hundreds of millions of dollars of additional losses—additional losses—through the Crown Retail Deposit Guarantee Scheme. This Government pretends to be a good manager of the economy. Another example for you, Mr Woodhouse—how about the Ministry of Foreign Affairs and Trade, where $9.2 million was wasted—

Michael Woodhouse: I’m trying to find it in the bill.

Hon DAVID PARKER: —$9.2 million. Well, it is actually another example of why there is such a hole in the Government’s accounts as to make it necessary that we have the Taxation (International Investment and Remedial Matters) Bill being passed in this House to improve our tax system, when the economy is performing so poorly that the Government is not collecting enough tax to pay its bills.

This legislation does have some good points. We have acknowledged that, but that point in respect of the approved issuer levy is just nonsensical.

Dr RUSSEL NORMAN (Co-Leader—Green) : I rise to speak on behalf of the Green Party on the Taxation (International Investment and Remedial Matters) Bill. The Green Party is supporting this bill, but we do have concerns about it. I want to talk about some of the issues around the bill. I would like to endorse the comments of David Parker—I thought Mr Parker made some very good contributions here—and David Clark. I think it is an important debate.

The thing that I want to focus on, firstly, is the way that we think about the tax treatment of companies and investment decisions. There is a very simplistic, almost ideological, view that says that companies make investment decisions based on differential tax rates, or that tax rates have a huge impact on investment decisions, whether that is incoming investment or other kinds of investment decisions. There is no question that taxes do have an impact on investment decisions. The question is how significant it is.

What was interesting about the Inland Revenue Department briefing—or, I guess, the IR briefing, as it is now—to the Finance and Expenditure Committee was that the lowering of the company tax rate in New Zealand appeared to have very little impact in terms of incoming investment into New Zealand. Part of the rationale for lowering the company tax rate was in order to attract a greater level of foreign investment into New Zealand. The argument was that globalisation means we are competing with others, so our tax rates need to be the same as, or lower than, other jurisdictions in order to attract investment.

I am sure that differential tax rates are a factor. I do not think anyone can deny they are a factor. But to put so much emphasis just on differential company tax rates, I think is a mistake. One of the underlying principles behind this bill actually suggests that it is a very, very important issue. I would argue that it is an issue—and the reason we are supporting it is that giving some support to New Zealand companies that are investing overseas and affecting some of the implications of the tax system on them is important. But I do think we need to think again about how important differential tax rates are in investment decisions. There are a huge range of other factors that influence the investment decisions of internationally mobile companies. The tax treatment and the company tax rate is just one of them. I think if we do not put attention on those other factors, which are much, much larger, then we can focus our attention on the small stuff rather than the big stuff.

That is the second issue I want to raise in relation to this bill—it really is a principle that is running through a lot of the Government reform agenda—which is a focus on microeconomic reform. Microeconomic reform is important. The Government talks, for example, relentlessly about removing red tape. Some of the changes in this bill could be characterised, I think, as microeconomic reform. We know that microeconomic reform is important. There is no question that it is important, but how important are microeconomic reform changes such as small changes in regulation, or the burden of regulation as it is called, and small changes in tax rates? How important is that to the overall performance of an economy? I think the Government does not really consider that question.

When you look at, for example, our largest exporting company, Fonterra, we did not build Fonterra through a process of microeconomic reform. Fonterra came about through State intervention, through Government intervention, to build a company that is internationally competitive. Those people who believe that the market always delivers, and that microeconomic reform to remove regulation results automatically in a well-performing economy, do not pay attention to the way that real companies and real competitive commercial entities develop and become the size where they can actually compete internationally. Fonterra did not happen by accident. It did not happen because the State took a hands-off approach. Microeconomic reform by itself will not deliver the kinds of internationally competitive companies like Fonterra that New Zealand needs.

I think that there is a fundamental misconception that kind of goes through the Government’s approach to bills like this—and tax policy in general, but more generally in its economic strategy—where it believes that microeconomic reform by itself will solve the problem and that the New Zealand economy will suddenly perform really well if we just introduce a series of basically new-right, microeconomic reform measures. It does not work. It does not work anywhere. When you look at economic development strategies, they are not going to do it. And the changes in this bill—most of them are fine changes, with the exception of those identified by David Parker—by themselves do not make an economic strategy that will result in a well-performing New Zealand economy. We actually do need to think larger. The Government has identified some areas, of course—you know, casinos—where they want to give special treatment, but actually the focus on microeconomic reform is the overwhelming focus of the Government, and I think that is a bit of a mistake.

The third issue I want to touch on in this bill is the treatment of incoming and outgoing investment, because this bill basically tries to make it easier for outgoing investment of New Zealand companies when they are going somewhere else, that they are not effectively double-taxed, and so the companies they are competing with are facing a level tax field. This is clearly an important issue—no question about it—and for that reason we are supporting it. What sits behind it is the effect of globalisation. Globalisation means that there are these internationally mobile companies, and democratically elected Governments find themselves in the invidious situation where they are actually having to look at whether they should be lowering taxes in a bit of a race to the bottom in order to facilitate both incoming investment and the investment overseas of their companies, which is what this bill is responding to—global competition around tax rates.

The thing about that, if you like, conception of the problem is that what is happening internationally at the moment is that Governments are not in a race to the bottom any more around tax rates. Because of the fiscal pressures on Governments all around the planet, at the moment many Governments actually are increasing tax rates. They are increasing tax rates because of the fiscal pressures on Government budgets. This Government does not seem to quite understand what is happening internationally. When you look at the changes, the effect of the changes in the 2010 tax changes, which were very fiscally negative, you can see that the Government does not quite understand the international context of what is going on in terms of tax rates.

The second issue is around how to treat incoming foreign investment, and I think this is obviously a very hot issue in New Zealand. The basic principle behind the bill is that there should be a level playing field between the treatment of incoming and outgoing foreign investment. The question is, is that in New Zealand’s interests to have that philosophical approach—to treat them the same? We know that some incoming foreign investment, when it brings new jobs, new businesses, and new technology and perhaps new networks, adds something to the New Zealand economy. We know that other incoming foreign investment, when it buys up pre-existing businesses, particularly businesses that are operating in the oligopolistic sectors of the economy such as telecommunications or banking, does not necessarily add a lot to the New Zealand economy.

So we need, I believe, in terms of an economic strategy, to differentiate between different kinds of incoming foreign investment. We should not simply have a level, say, of “Oh, incoming foreign investment is good.” Some of it adds something and some of it does not. I think that we need to use whatever levers we have to actually facilitate the incoming foreign investment that adds something to the New Zealand economy, but it does not necessarily add something to the economy if we simply allow the buy-up of pre-existing businesses that are simply earning monopoly or oligopolistic profits, such as, you know, in some of the very mature sectors of the New Zealand economy with relatively low competition. The effect of doing that, of course, is that once those investments come in—

Simon O’Connor: Give us an example.

Dr RUSSEL NORMAN: —for example, in the banking sector—the profits and dividends that come out of that sector simply flow overseas and add to the pressure on our current account deficit. So I think we need to be more differentiating in the way that we treat incoming foreign investment. Then there is the principle that underpins this bill, which is to basically be non-differentiating—to have a level playing field between incoming and outgoing.

None the less, there are some positive changes in this bill. They are small; they will make a minor difference. There is some cost to the tax base, and some of it is completely unnecessary cost to the tax base, but it is a relatively minor cost to the tax base, so we will be supporting this bill. But I do think that the Government needs to rethink its approach to how it treats differentiating in terms of incoming foreign investment. I think it needs to think again about relying completely on microeconomic reform in terms of an economic development strategy. I think that we need to think again about why it is that companies make investment decisions, and not simply rely on company tax rates and think that somehow that is the solution to the issue we face in the New Zealand economy, which is that we need to build competitive businesses based in New Zealand using our global advantages so that they can compete in a global market. And, of course, some of those are around clean jobs in the cleantech sector, but I will not get into those, because that is a long way from this bill. So on behalf of the Greens I say that we will be supporting this bill. Thank you.

PAUL GOLDSMITH (National) : I am very pleased to speak in favour of this bill, the Taxation (International Investment and Remedial Matters) Bill. I am very relieved to hear that the Green Party does accept that at least some foreign investment is good for the economy. I just wish it did not have quite so much faith in the ability of bureaucrats to decide unerringly what good investment is and what bad investment is. You know, I think the power of the market, and the millions of voluntary decisions that people make every day about what they want to buy and what they do not buy, is generally a more accurate description of how things go.

The centrepiece of the Budget of 2010 was the delivery of the major tax package, reforming the tax system to make it more sustainable and a better support for economic growth. This bill falls into our tax reforms and promotes integrity across the tax system. It builds on and extends earlier international tax reforms. The main proposal is to extend the active income exemption introduced in 2009 to offshore subsidiaries, so that it also applies to joint ventures and other significant shareholding in foreign companies that are not controlled by New Zealanders.

This is a formidably complicated area of law, where the more fundamental law of unintended consequences usually predominates. The fact that we as members have to rely on the advice of officials so heavily in the development and wording of this kind of legislation only adds, I think, to the danger of passing international tax laws. We did that in the 1980s and 1990s and they had their own internal logic, but since the rest of the world did not follow, it proved disadvantageous to a lot of New Zealand businesses and the economy.

So the point of this bill, particularly in relation to the active income exemption, is that it brings New Zealand’s tax rules into line with the practice of other countries. This gets us on to safer ground, I believe, and will help New Zealand - based businesses compete more effectively in foreign markets by freeing them from tax costs that similar companies based in other countries do not face. So it will improve the competitiveness of New Zealand’s tax system and encourage businesses with international operations to remain, establish, and expand, and that is what we need.

Why is that important? Because we want New Zealand businesses to grow into international businesses based in New Zealand. That is how we build an economy and earn the money we need to maintain the living standards we all aspire to. The tax laws have frequently made that very difficult in the past, and in some instances have added to the pressure for companies just to leave New Zealand or, more frequently, just not to attempt international expansion. So if we can help in that area, all to the better. I think I will leave it at that. I commend this bill to the House.

ANDREW WILLIAMS (NZ First) : Well, I was not expecting to get a call, with only about 2 minutes to go before the House rises before the adjournment, but I will stand on behalf of New Zealand First to support the Taxation (International Investment and Remedial Matters) Bill, even though we have a matter of only minutes left remaining. This will help New Zealand in terms of its corporates. It will help our companies compete on a global stage. It allows for income that has a source in New Zealand and for which relief from New Zealand tax under double tax agreement is unavailable. This bill serves to help improve New Zealand’s economic performance. It means that New Zealand enterprise is able to operate on a level playing field in markets where we trade and have investments.

New Zealand First is well known for being the party that has stood up for fairer taxes over many, many years, with, of course, the Rt Hon Winston Peters being the most known in this House as being a champion of fair taxes for all, exposing the likes of the wine-box situation, where people were trying to avoid their taxes and relocate their businesses to other jurisdictions in order to avoid tax. I know we have not got much time left, but I need to say that we do support—

The ASSISTANT SPEAKER (Lindsay Tisch): I am sorry to interrupt the honourable member, but leave has previously been granted for the House to adjourn at 5 p.m.

• Debate interrupted.