ANDREW WILLIAMS (NZ First) : When the House rose 3 or 4 weeks ago we were discussing the Taxation (International Investment and Remedial Matters) Bill for its third reading. At that time I was able to start only a couple of minutes before the House rose, so I would like to continue where the House left off.

This bill serves to reduce tax barriers for New Zealand companies operating on the 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 also 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 or have investments. This can only be good for New Zealand commerce, for New Zealand international trade, and to ensure that the New Zealand economy benefits from working on a level playing field with our trading partners and in markets where we have significant economic interests.

New Zealand First supports fairer taxes for all. New Zealand First has been a party, as you all know, that has stood up over many, many years, since the foundation of New Zealand First, to stand for fairer taxes, including taxes on business. We have been the party most known for ensuring that we expose any tax loopholes and rorts that were going on in the past, such as—we all know—the wine-box saga, where there was a deliberate attempt to avoid paying what were taxes due to the New Zealand Crown. Hundreds of millions of dollars potentially could have been lost over the years if such tax situations were not exposed and if the New Zealand Government was not on top of the matter in terms of ensuring such tax rorts were not taking place.

This Taxation (International Investment and Remedial Matters) Bill, in a sense, serves to continue that direction in terms of ensuring that there are common taxation arrangements between different countries, and ensuring that New Zealand interests are seen on that same level footing wherever we have international financial interests. The New Zealand Government has, over the years, worked towards ensuring that New Zealand companies can be more competitive. It has worked to ensure that we are able to play a significant role on the global stage, and this bill serves to do that.

New Zealand First certainly supports this bill through the third reading. We believe it has benefits for the New Zealand economy. We believe that, as a result, it will make this economy more competitive. It will also attract potentially more investment to New Zealand. It has the potential to also attract interest where otherwise there may not have been interest in New Zealand, and to ensure that there are not double taxation standards in New Zealand compared with many of the countries where there are potential investors possibly looking to invest in our economy.

New Zealand First follows this through to the third reading. It has already been covered off, to a great extent, in terms of what this bill offers. Therefore I rise in support. I commend the bill to the House, and we will be supporting this bill.

Hon Dr NICK SMITH (National—Nelson) : I am pleased to join members of the Government and other parties to support the third reading of this Taxation (International Investment and Remedial Matters) Bill, as part of this Government’s broader programme of improving the international competitiveness of New Zealand. The key focus of this Government’s economic programme, whether it is our work in tax, whether it is our work in economic development, or whether it is in employment law—right across the board—is in terms of making New Zealand more competitive. In that context, this Government is very outward-looking. So often we hear speeches from Opposition members who are so almost North Korean in their view of the future of New Zealand. If we are to make the living standards that we desire for New Zealanders, we need to look externally, because we on this side of the House believe that New Zealand can compete internationally, that we can match up and make investments offshore, and that we can, without sort of protectionist, inward-looking legislation, provide those sorts of incomes and jobs for fellow New Zealanders.

Interestingly, the biggest gains in this bill are for New Zealand companies that are investing overseas. For instance, if you are Fonterra, and you have got substantive investments, as Fonterra does, in countries like China, those companies are currently disadvantaged by those tax rules. So it is sensible that this Parliament wants to make those international businesses more competitive internationally. What I find ironic, from the contribution from New Zealand First, is that when it comes to an issue, for instance, of China wanting to invest in New Zealand, it becomes North Korean in its outlook, but when it is the other way around with this tax bill, in terms of wanting to invest overseas, sometimes it changes its tune. The difference, and the real substance, of what this Government is doing in this space is that we are consistent in our view of international outlook, and recognising the change of globalisation, and wanting to make sure that we have got a consistency of tax rules that ensures that we can invest overseas, and that we can have those sorts of global businesses based here in New Zealand.

I want to compliment the work of Peter Dunne. No area of law is as complex and as challenging as tax law, let alone when you are trying to work in the international environment. This is a simple but small and effective part of the incremental plan that this Government has for growing the economy. It is part of that theme of doing everything that makes the boat go faster, and getting good international tax rules around investments is part of what New Zealand needs to do to be competitive, to create jobs, and to grow the wealth of New Zealand.

Hon TREVOR MALLARD (Labour—Hutt South) : I want to acknowledge Nick Smith. I am not sure whether that is the first speech he has made as a backbencher since he became one, and I want to indicate some sympathy for him when he watches in this House the treatment—the preference—that has been given to John Banks in much worse circumstances than that member was in—

Hon Dr Nick Smith: What was this member’s approach when he was convicted of assault?

Hon TREVOR MALLARD: This member has not been convicted of assault.

Hon Dr Nick Smith: With respect to Tau Henare, when you got—

The ASSISTANT SPEAKER (Lindsay Tisch): Order! That is not necessary.

Hon TREVOR MALLARD: There is no doubt that I pled guilty to fighting. I did, and there was a period of time when I was in some pretty serious trouble, and I did not come into this House during that time, but we sorted it out. But the point I am making is that John Banks is getting an easy ride. John Banks is getting a very easy ride, whereas the Prime Minister knew he could rely on Nick Smith. Notwithstanding Judith Collins dumping on him, he knew he could rely on Nick Smith. That meant that Nick Smith goes back, and John Banks keeps, at least for a period of time, his ministerial portfolio. I noted the former Minister also used the expression that “the boat goes faster” under a National Government. I wonder whether he was referring to the cabbage boat going faster, as his friend John Banks has been on regular occasions.

Labour members are supporting this bill, the Taxation (International Investment and Remedial Matters) Bill. It is fair to say that we are doing so not with enormous enthusiasm. It is on balance a bill that we are prepared to support, but there are some concerns around the removal of the approved issuer levy on the payment of interest on securities meeting certain requirements as notified under the Income Tax Act. What we are concerned about is that this is a further erosion of the taxation base associated with financial transactions. It is both an erosion in the amount of total tax, and a narrowing of the systems of collecting tax, when we need at the moment, especially given the Minister’s billion-dollar sudden deficit, all the tax that we can get, and it does not seem wise to be sacrificing tax in this way. I think it is also felt that it is better to have a number of bases to the revenue rather than, as we appear to be doing at the moment, being narrower and narrower in the areas from which we collect tax, with the changes here—the changes to do with gift duty and a number of areas.

It was interesting to look at the submissions and at the way the submitters indicated that the proposals will not help increase liquidity in New Zealand, they will do nothing to reduce interest rates, and they will not add depth to the capital markets. It is fair to say that the Government is, for a National Party Government, in a relatively unusual position to be criticised by submitters on this bill and to be criticised by some people who one would have thought would be their real allies on the sale of State-owned enterprises. The submitters were basically saying that although they agree in principle—and, in fact, I am sure they agree in their pockets—with the sale of State-owned enterprises, they think that the Government is making a mess of that particular exercise.

In addition, something that Labour members are getting more and more concerned about is that the current tax system effectively contains a lower rate of tax on offshore sources of capital relative to the tax on domestic savings, thereby providing what is really an unhealthy incentive for funds to be sourced from offshore rather than from savings in New Zealand. The effect of the taxation system is that returns are more for offshore lenders than they are for onshore lenders in New Zealand. If the returns are more for the funds that are sourced offshore, then the effect of that is that our debt, our capital coming into the country, will increase and our balance of payments will, over time, get worse.

I think that it does not matter which side of the House people are on; there is an understanding that the invisible side of our balance of payments is a major issue. We quite often get into a trade surplus situation—not as often as we should, with the very good commodity prices and terms of trade, but we often get into positive balance there. But it is the invisibles that are mainly associated with overseas ownership of such a high proportion of our economy, and the rents, the profits, the dividends, and the interest that are going offshore as a result of that foreign ownership mean that we have to earn more, and more, and more offshore in order to stay in balance in the current account. That is why members from our side look pretty carefully at any exercise like this one, which, in fact, worsens the situation.

We believe pretty strongly that we do need to have further work to improve the neutrality, at least, of tax treatment across domestic and international sourcing. In fact, I think even to say neutrality might lack ambition. A lot of countries have a preference for sourcing their financing onshore, rather than offshore. One of the things that we need to consider is whether, rather than giving preference to offshore lenders, we should, in fact, focus on building up our own domestic capital and domestic borrowing in order to retain the financing of our businesses onshore as much as possible and thereby reduce the flow offshore.

That, of course, would require more ambition around savings than we currently have. I note that it has been the policy of the Government to not put money into the Cullen fund. I note that it has been the decision of the Government to run down KiwiSaver, to reduce the incentives, and to reduce the flow of payments into the system, and that, of course, is something that works against the development of capital in New Zealand. I think that has been a short-term approach. It is the approach, I think, of people who are more used to playing the markets and to being currency traders, rather than people who have a genuine view on the importance of investment and of productive investment. I am careful as I say this, with the member for Piako or similar—

The ASSISTANT SPEAKER (Lindsay Tisch): Waikato.

Hon TREVOR MALLARD: —Waikato—in the Chair, but it is not only investment in our farms and our traditional productive sector but also investment in some of the smart, new firms that we have around the country. I spent some time over the adjournment going to quite a number in my own electorate, and there are a couple there at least that within 10 or 15 years could be billion-dollar industries—if we can hold them. The key to holding them is making sure that we have the onshore capital in order to have the investment in them and to keep the ownership in New Zealand. What is clear is that all around the world there are people who are bidding for those businesses, and while we are giving them more favourable terms in their purchases and in their financing arrangements than we are giving to local purchasers, that is something that tips the balance towards some of our best businesses going offshore.

In conclusion, the Labour Party will support this bill. We do so because it is not doing massive harm, but we are concerned that there is no plan to do what is right in the financing area.

DAVID BENNETT (National—Hamilton East) : This bill, the Taxation (International Investment and Remedial Matters) Bill, is now coming to its third reading in this Parliament and it is a bill on which it is good to see support from the other main party, the Labour Party, in regard to taxation policy because it is a complex area of policy and it is an area that you need some consistency in. It is really about New Zealand’s international approach in financial matters. Just like we have consistency in our international approach on diplomatic matters, it is quite helpful to also have consistency in our international approach in this Parliament on financial matters. So it is good to see Labour coming to the party on this occasion.

However, through the process it did have some concerns. Essentially this bill extends the active income exemption to offshore subsidiaries, commonly called controlled foreign companies or CFCs, so that it also applies to joint ventures and other significant shareholdings in foreign companies that are not controlled by New Zealanders. It is an extension of that role and rule to non-portfolio foreign investment funds. When we look at that active/passive taxation exemption, there is a big contrast between the earning of active income and passive income. Active income is your typical manufacturing-type business, and passive income is more your interest, dividends, and royalties. This bill is important in that distinction and how we treat income earned by those companies.

Also, there are some changes around the international tax calculation methods—just rationalising those—especially in the case where there is not sufficient information and there needs to be some kind of arbitrary decision on an assumed rate of return. There are also some changes in regard to Australian companies. One of the other areas in this kind of tax area was in regard to having grey list countries, and that has been simplified now with Australian treatment and non-Australian treatment, essentially. That is another change that is in the best interests of tax simplification.

So there are a few other changes in this bill, but essentially it makes it easier for New Zealand businesses to compete in the international theatre. It is important that as a Government we do that and support our businesses so that they have the ability to compete, and the taxation policy of New Zealand is not something that hinders or prohibits their competition. This bill is good for New Zealand business. It is part of that process of helping to grow a stronger economy, and we look forward to it being passed through this House today.

Hon SHANE JONES (Labour) : Thank you for the opportunity. This is a 5-minute call, and it will be followed up by the Green Party, our comrades-in-arms. We actually are supporting the Taxation (International Investment and Remedial Matters) Bill, and, unlike the previous speaker, my contribution will echo something sensible and penetrating, as came from Mr Mallard. Naturally we are aware of how important the application of a rational tax regime is, enabling us to ensure we gain access to international funds, but at all times never lose sight of the fact that one of the maladies confronting our economy is the absence of domestic or indigenous savings. Every step we take in this direction unfortunately proves to be a step away from the orthodoxy that the Government is following.

On many of these large taxation changes, or minor taxation changes, we look for what is best in terms of “New Zealand Inc.”. This is a set of refinements, and indeed some of them follow the work that Michael Cullen did in terms of changes to the international tax regime and a deemed rate of return, so there is some tidying-up that has happened there. But we will always raise questions as to whether or not we are simplifying a process for those who are actually inhibiting the development of a domestic funds industry. Of course, we are seeing the worsening of this situation once this foul policy to do with privatising our State assets goes ahead, and we unfortunately are going to see a drift of opportunity overseas, etc., not the least of which we have seen through the sale of our land, etc.

Dare I say it, as of yesterday a number of us have been participating, with a host of other stakeholders, on what is the future of the dairy industry. I fear, under the parlous leadership of the current Minister for Primary Industries, otherwise known as the Minita o te Atu Matua, of the new Ministry for Primary Industries, it is evident that although it is not directly related to the taxation that we are dealing with here, there is a connection because every opportunity that we produce for investment opportunities to be scooped by people overseas, to the detriment of New Zealand industry or New Zealand funds participants, is something that should be raised in this House as a matter of key economic public policy. It is unfortunate that this bill, along with a host of other measures, has never really represented a coherent response as to how, in the 3 years since the last election, and in particular since John Key and his soon to be departed to Hawaiki nui, Hawaiki roa, Hawaiki pāmamao for redundant politicians, John Banks, you will find then that a great opportunity has been squandered.

We wanted to see in a bill of this nature, included possibly in this bill, further incentives for deepening our reserves of domestic savings through an improved KiwiSaver scheme. We wanted to see something ambitious to do with superannuation policy because that in itself is related to tax, but no, we have seen this ongoing tinkering. So we hope to engage in the debate, because unfortunately, as this policy is implemented, the policy pertaining to the privatisation of our key utilities and our key assets, an impact that they may say on that side of the House is unintended, but an impact that is going to worsen the level of ownership that will come to pass in hands that may not be directed towards the best interests of New Zealand. In that case, we will certainly be borrowing more and more money and will be reliant more and more on overseas funds.

That is not to say that we are islands to ourselves and we should not draw from international capital, but over time all economies and all successful regimes have to have a balance. This Government, this particular Minister of Finance, and his sort of inept helpers have worsened that level of balance and it is disappointing that legislation of this nature has not seized the opportunity to move in the right direction.

The ASSISTANT SPEAKER (Lindsay Tisch): My apology, that was a 4-minute bell. I do not know whether the member was going to go for a 5-minute call. I rang the bell at 4 minutes.

Hon SHANE JONES: I will gladly continue in the Ngāpuhi dialect. Some would say missionary-trained translator, although probably his translation services will be needed somewhere near Coatesville, somewhere near Epsom. In fact, I think I know the word for Epsom and it is ka mate ka ora—ka mate, you die. Anyhow, I will come back and round up: yes, we do support this bill, but the deeper issue, which we will never support, is an erosion and undermining and an absence of policies to actually grow New Zealand’s depth of savings, other than the fact that the current Government believes that by hocking things off, New Zealanders are going to be fantastically rich—by hocking things off that are disproportionately going to disappear overseas—and all we are going to see is the new stakeholders wanting to expand revenue. That is higher costs—higher costs in an area where the competition could definitely be improved.

The ASSISTANT SPEAKER (Lindsay Tisch): I am sorry now to interrupt the member. Before I call Dr Kennedy Graham, just to elaborate on the mistake I made, I will ring the bell at 4 minutes, so you will have a minute to go.

Dr KENNEDY GRAHAM (Green) : Just to pick up from the sublime appellation of our colleague Shane Jones earlier, let me greet all 121 comrades-in-arms in the fine art of capitalist taxation tuning. This bill—

Hon Member: I think it’s 120 colleagues you have got.

Dr KENNEDY GRAHAM: It is 120 plus me. [Interruption] Well, I am not the comrade. This bill, the Taxation (International Investment and Remedial Matters) Bill, having ground its way through to the third reading, has really been damned with faint praise. It is clear that it is going to get general, lukewarm support from all parties. I think what it does do is reflect a Government whose ideological conviction largely competes with its rigidity of approach and cautious disposition. That becomes manifest in this bill, along with a whole raft of all the economic and fiscal legislation that it has produced, both in the 49th and 50th Parliaments.

The Green Party, from the beginning, made it clear that it was prepared to support the bill, along with other parties, but, I think, largely on the general understanding shared by all that it is not going to change very much. Let me just use my limited time here, before we indicate that we will finally vote in this third reading of the bill, to identify, I think, probably a syllogism of three propositions that the National Party works on and offer the alternative three that the Green Party works on. This Government, with its ideological view, has the following three propositions: one, that globalisation is good; two, that the economic and tax regime has, therefore, to be more competitive and can be, therefore, more competitive, and that anyone who disagrees comes from North Korea; and, third, that the tax rates must be lowered for the New Zealand economy to become more competitive, and anyone who disagrees comes from North Korea.

In contrast, the Green Party believes that globalisation can and often does cause more harm than good to the public interest—not to the corporate interest, necessarily, but to the public interest—secondly, that New Zealand can indeed become naturally more competitive through fine-tuning of taxation legislation, but not necessarily through the obtuse instrumentation of this kind that we see before us in the current bill; and, thirdly, that, following from that, New Zealand tax rates of this kind must distinguish between certain foreign investment inflows and others, rather than treating them all as one, and that not all will be competitive, as we heard from the Inland Revenue Department briefing.

New Zealand’s economic success is really dependent less on this kind of microeconomic fine-tuning, based on ideological conviction, which misperceives the reality of where we are in the global economy, and more on a broader structural restructuring of our economy pertaining to the value of the dollar, pertaining to the current account deficit, pertaining to the use of our natural resources in an ecologically sustainable way, and also pertaining more to our tax framework rather than to the microeconomic management that is pronounced in this bill. Having damned it with faint praise, I reassure the Government that we shall vote for it. Thank you.

MAGGIE BARRY (National—North Shore) : I rise in support of the third reading of the Taxation (International Investment and Remedial Matters) Bill. It is set down today for its third reading and is sponsored by the Minister of Revenue, Peter Dunne. It is very much in keeping with National’s policies—our fiscal policies. It is a measure that was first outlined in our 2010 Budget: that we would deliver a major tax package that would reform the tax system to make it fairer, more sustainable, and a better support for economic growth. I believe that this bill does that.

The taxation bill is really a natural extension of our earlier international tax reforms, and it builds on and extends those reforms. The active income exemption brings our tax system into line with the policies and practices in other countries, and it really will help New Zealand - based businesses to compete more effectively in foreign markets by freeing them up from a tax cost that similar companies in other countries do not face. So it is a basic fairness issue. One of the examples that is topical, and I think relevant to us today, is that a New Zealand - owned manufacturing plant in China will now generally face the same tax rate as other manufacturers competing in China.

There are a number of measures, of course, in the bill. It rationalises our international tax calculation methods; it also maintains the exemption for investments in Australia. It also removes a tax barrier to non-resident investment in New Zealand corporate bonds, so it will attract investment to New Zealand, and that is pretty much in keeping with the recommendations that were made in 2009 by the Capital Market Development Taskforce. It wanted to see the approved issuer levy be reduced from 2 percent to nil for some public issues of debt by New Zealand residents. That has been done by this bill. There are a number of other messages and elements within it that have been outlined by my other colleagues and by the people on the other side of the House. We are all speaking in support of it. I think that from my point of view, I see it as a consistent and fair bill that promotes the sort of integrity that we need as a nation. So I commend this bill to the House and look forward to it being passed today.

• Bill read a third time.