TOC1

Dr the Hon LOCKWOOD SMITH (National—Rodney): Part 2, as I mentioned when we were heading towards closure last night, covers the amendments to the Tax Administration Act 1994. The main set of issues in Part 2 in respect of that Act relates to compliance, and this is obviously very important, because New Zealand’s tax system relies on voluntary compliance. We do not have a huge army of inspectors out there going around inspecting all employers to see that they are complying with our income tax requirements in relation to PAYE, or to our GST requirements. As a PAYE taxpayer and a GST taxpayer, I do my own returns. One does get checked from time to time, but the system essentially relies on voluntary compliance and therefore on a certain amount of goodwill, because it is impossible to check every taxpayer. That is where the provisions in Part 2 are so important.

There are three clauses in Part 2 that in particular cause concern. The first of them I mentioned last night—and I will not go over it in full detail again this morning—is clause 184, “Unacceptable tax position”. I mentioned last night that in 2006 Parliament tried to fix this problem. Parliament accepted that the way in which the unacceptable tax position provisions were applied was unreasonable, unfair, and in fact did not lead to sensible voluntary compliance with our law. So in 2006 Parliament amended the law to try to give the commissioner the opportunity not to impose unacceptable tax position penalties on people where it was unreasonable. The net outcome of that was unsatisfactory. We did not succeed in 2006 in fixing up the unacceptable tax position provisions. So subsection (2) in clause 184(2) makes it very clear that GST and withholding tax payments will henceforth be excluded from unacceptable tax position provisions, leaving only income tax in there, and the thresholds are changed for income tax to try to make that a little more fair, as well.

But the key issue I was referring to last night is that clause 184(3) makes these new provisions come in from 1 April 2008. National is arguing that this is unreasonable. They should be backdated to when Parliament tried to fix the problem before. If we believe that in fact our effort to fix it in 2006 did not work, we should fix it now and backdate it to when Parliament wanted the change. Parliament wanted the change in 2006, so the amendment I have tabled amends clause 184(3) to replace 1 April 2008 with 1 April 2006 to make this clarifying provision come in from when Parliament intended it should.

I covered that in detail last night, so I will go on to the next issue, which relates to clause 188, “Reduction in penalty for voluntary disclosure of tax shortfall”. Again, this is very important, because, as I said, our system relies on voluntary compliance. Therefore, it is really important that taxpayers, when they realise they have done something wrong, actually tell the Inland Revenue Department that they got it wrong, that they disclose to the department they made a mistake, and that they pay the additional tax required. That way we collect more revenue. It is really important that when people make these voluntary disclosures they do not get penalised for it, because if they get excessively penalised for it, they will not do it; they will try to cover up their mistakes and get away without paying the extra tax.

The issue here is that clause 188 reduces the penalties for voluntary disclosure, and that is good; we all agree with that. But again the provision is coming in from 17 May 2007, and all the professionals feel that, again, because we tried to deal with this unsatisfactorily in 2006, it should be backdated to when Parliament tried to fix this problem and failed.

So there are two key clauses in relation to which Parliament tried to fix the problem last year and it is accepted that we failed because the legislation is back in the House now. We are actually trying to fix up what we tried to fix last year, because when we tried to fix it last year it did not work. In the meantime, people have been caught through the commissioner not applying the law in the way Parliament expected that the commissioner would. We expected the commissioner to do certain things, but it did not happen. Hence, I have put forward these two amendments to backdate these provisions to when Parliament intended that the change should happen.

Hon PETER DUNNE (Minister of Revenue): I will take a brief call to respond to the points that have just been made, because I think the spin that has been placed on the events of the last couple of years by Dr Smith does not accurately reflect the position. Let me rehearse the situation as it occurred, and I speak with some long-term interest in this, having been the Minister of Revenue at the time the original voluntary disclosure, disputes, and penalties regime was put in place, over a decade ago. When I returned to this portfolio after the last election, the issue of the way in which the voluntary disclosure rules and unacceptable position rules were working was raised with me. The upshot was that in a similar piece of legislation to this last year, I introduced what I said at the time was an interim measure—that we would work on a detailed solution, which is the solution contained in this bill.

So I do not accept the proposition that what we did then we are now correcting because it had not worked. What we did then was put in place an interim solution, recognising all the way through that a more detailed solution would emerge, and that solution is contained in this bill. The consequence of that in terms of the commencement dates, aside from any administrative complexity that going back to 2006 might give rise to, is that the dates more appropriately take effect from the time of the passage of this legislation, or, in relation to the provisions of clause 188, from the time of the Budget announcement in May this year.

I acknowledge that Dr Smith has put forward his amendments, and I acknowledge the fact that he had the courtesy to come and discuss those with me sometime yesterday. I appreciate that. I had officials consider those amendments and give me some advice about them, and we are satisfied that a couple of issues arise. Firstly, there are practical difficulties with the timing change; there are revenue implications that are potentially significant. The second issue is that we are not persuaded that the situations he sets out, in particular with regard to clause 188, are in fact desirably changed by legislation or not even provided for in the current provisions. So we are not disposed to support those amendments, but I acknowledge the way in which he brought them forward and I appreciate the fact that he had the courtesy to alert me to them in advance and enable us to give some consideration to them. But I put on record that the genesis of this is not a recognition that what we did last year failed; the genesis of this is that what we did last year was to say that there was an interim regime pending the development of more final rules, which are given effect to in this bill.

CHRIS TREMAIN (National—Napier): I take the opportunity in this urgency debate to speak to Part 2. This part specifically deals with amendments to the Tax Administration Act 1994. I want to use my 5 minutes to ask the Minister in the chair, the Hon Peter Dunne, about the way in which this policy will be introduced, particularly in respect of clause 175, with the insertion of section 139AAA and the new proposals around the late filing penalty for GST returns. I know that it is a matter of some interest, or more than some interest, for many constituents around the nation. I know that Parekura Horomia’s constituents throughout his electorate will be interested in this particular issue, and I look forward to the Minister taking a call about the late filing penalty for GST returns. Māori businesses and Pākehā businesses will be impacted by this, will they not, Mr Parekura?

Hon Darren Hughes: Mr Parekura!

CHRIS TREMAIN: Mr Horomia. They will be impacted by it. Many small businesses around this country deal with taxation and the taxman. They know that dealing with taxation—the filing of GST returns, fringe benefit tax returns, PAYE returns, resident withholding tax, and provisional tax—creates large compliance costs for them in terms of getting their returns done. The key issue is whether we are creating a regime that will enhance the provision of these returns or will exacerbate the provision of these returns. That is the point I am making. Although we write into legislation the particular penalties that may accrue here, we are actually changing the system quite dramatically from what it was.

In clause 175, which inserts section 139AAA into the Tax Administration Act, we are changing the system so that a business that is working on an invoice basis will be charged $250 if it has a late return. If it is working on a payments basis, or on more of a cash basis, then it will be charged $50 for the late filing of a return. This is particularly in relation to GST. That changes the system somewhat from what it is currently. Those late filing charges have not been placed on taxpayers when they put in their returns, but there has been an assessment of the revenue that would be taken. In that regard the Inland Revenue Department has not been lenient—“lenient” would probably not be the correct term—but it has been helpful. I know of certain situations where businesses—for example, my own business—have put in tax returns and for one reason or another they may have been late. Often in small businesses that happens accidentally, not because there is any purpose to try to defraud the department. I remember one time when on holiday, I asked someone else to do a particular return for me and it was just never done. In those situations the department has been lenient and has come back and allowed us to put in the return, as long as it was within a particular time. With these fines, we will see a fine of $250 or $150—whack! This will happen as soon as a business is late in putting in a return.

I just want to know from a policy point of view how the department will deal with those late returns. I know that small businesses around the nation will be interested in this matter. Minister Horomia’s constituents will be interested in it as well, so I ask the Minister in the chair, Peter Dunne, to take a call on that.

I guess the key point I am making is that although we may relax penalty regimes or change them to encourage compliance and try to decrease compliance costs, it will do nothing if the Inland Revenue Department is pernicious in throwing these fines into place and starts getting small businesses’ backs up. These people pay most of the tax in this country. Not only do they pay provisional tax, fringe benefit tax, and GST but also they employ the majority of people in this country. Those employees pay a significant proportion of tax in this country, and on that basis it is very important that the Inland Revenue Department stays onside with small businesses. They are a key part of our nation, and that is why I am asking how the department will deal with the situation where a return is late. Will it be Draconian in the implementation of the $250 fee for a person working on an invoice basis, and will it be hard on a taxpayer on the $50 basis?

KATRINA SHANKS (National): It is my pleasure once again to speak on Part 2 of the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill. When looking at this bill, we see it is a very, very comprehensive bill. The thing we have to think about when putting together legislation like this is that we should be putting together legislation that is streamlined, that is in accordance with all the other tax legislation, and that flows nicely, instead of putting together piecemeal legislation that will then create complexities for the people who use it. Although the Inland Revenue Department gives out booklets to guide business people and anybody else who has to use this type of legislation, at the end of the day there has been a history of those booklets having errors in them.

The electoral funding legislation is an example of a situation where the Electoral Commission put out booklets telling people about its summary of that legislation and how it would impact on their lives and their returns, only to find its interpretation was different from the law. The commissioner’s interpretation was different from the law itself. The onus is on the person concerned to go back and understand the law and not to rely on those booklets, which are guideline booklets for people.

My concern is that this tax legislation is very, very complex, and we cannot really expect Joe Bloggs on the street, the dairy owner, the owner of the chemist shop, or the person who owns the garden centre, people who are really busy in their businesses, to go ahead and read this legislation because they cannot rely on the guidance provided by the Inland Revenue Department in the booklets that it gives out. At the end of the day, the onus is on people who are filling out returns to get things right themselves and to understand the legislation. So it is very important that we try to keep the tax legislation as streamlined as we can, because it does impact on most New Zealanders. It is important that it is not complex.

I become concerned when I see big bits of legislation—and the legislation before us is massive—and also big Supplementary Order Papers around the legislation. That means that maybe the legislation has not had as much discussion as it should have had, if there are such big Supplementary Order Papers supporting it. I would like to think that discussion is available. For example, there was obviously not enough discussion around the finance lease provisions of this legislation when it was put out. I am hoping that the Government has a good strategic view on that issue, and that we have a vision for where we want to be with regard to taxes in the future and a view on whether this legislation is a good vehicle to take us to where we want to be.

I would like to talk specifically to one measure in Part 2 of this legislation today: new section 34B inserted by clause 153, which is about tax agents. Tax agents play an extremely important role in terms of getting people’s tax returns right to begin with, and also in ensuring that if they get them right, then the Government and the Inland Revenue Department are maximising their net revenue because they know they are capturing all the revenue they should get. As time has gone on, tax agents have become more and more important in our society, as the tax legislation has become more and more complex. Now, the onus is on those accountants—it is normally chartered accountants who are tax agents; that is not always the case, but quite commonly they are chartered accountants—to have a good understanding of this legislation. Also, they are now accountable for the returns that they put in. If people represent themselves as tax agents and as professionals, they are liable, I do believe, for any errors in those tax returns.

So when we are talking about penalties, I say it is important that this legislation gets the provisions on tax agents and the listing of tax agents absolutely right. The legislation states in new section 34B(2), inserted by clause 153, who can be a tax agent. It can be a person who “(a) prepares the returns of income required to be furnished for 10 or more taxpayers; and … a practitioner carrying on a professional public practice”. A person providing that information also has to update the commissioner about the changes around him or herself. The Law Society has brought out a really good submission on clause 153, where it talked about its issues in relation to that. When it talked about new sections 34B(2)(b) and 43B(12)(c), it talked about the Tax Administration Act and how it should apply to the size of an organisation, so that the obligation to provide an updated list of partners or members is relaxed in the case of organisations over a particular size.

In big organisations where a tax lawyer or a tax accountant does the returns for that big organisation, or in a chartered accountancy practice where returns are being done for many, many organisations, there can be a very high turnover in staff in the organisations themselves where those people work. Part of the requirement here is for the tax agent to provide details of shareholders of closely held companies, partners in partnerships, and members of unincorporated entities. It may not be appropriate in all cases to go back to the commissioner and keep on telling the commissioner about the changes in those organisations. In some instances, changes could be occurring nearly weekly. That is a massive administration nightmare for some of the big organisations. It is also another form of cost for the people who use those organisations, because every time the organisation fills out a new form more time is spent on doing administration, the cost of which is then passed on to the clients. That is particularly the case in large partnerships, where partner turnover is such that lists of partners would be required to be updated several times a year.

The submission from the Law Society pointed out that maybe we should include a size threshold in new section 34B(12), or enable the commissioner to dispense with those requirements in certain cases, having regard to the size of the organisation. When looking at tax agents, I think it is important to see the whole range that is offered there. We need to have provisions in this legislation that do not make it more onerous on those tax agents, moving forward.

The other area that the Law Society talked about was the type of foreign investment fund and the determination on the type of interest in foreign investment funds and the use of the fair dividend rate model. That is in clause 165 of the bill, which seeks to repeal sections 91AAO(2) and 91AAO(3) of the Tax Administration Act 1994 and to repeal their effect on a retrospective basis. In this clause we are talking about a retrospective basis going back to 2006. That is a long way to go back in legislation, considering we are coming into 2008. Section 91AAO(2) provides the principles by which the commissioner would be guided when issuing determinations as to the availability of the fair dividend rate model. The society disagreed with the proposal to repeal that provision, though it did accept that there might be an alternative form to amend it.

The repeal of that provision would allow the commissioner to determine whether the fair dividend rate method applied to an investment, without giving taxpayers any basis for reviewing that decision. The commissioner would not be required to follow the published criteria. If criteria were published, there would be an amendment as the commissioner saw fit. If the fair dividend rate method has any validity, then the principles as to when it does and does not apply must be capable of expression. Those principles should be expressed in section 91AAO(2) of the Tax Administration Act, so that the commissioner is not left to make and change the law in that area at his or her own discretion and without principled guidance.

I think it is also important to look at the penalties around people when they are doing their voluntary tax, because tax is voluntary. As my good friend beside me Chris Tremain from Napier said, many, many people do make stupid mistakes, and normally they are just stupid mistakes—they are an error. It is really important to allow the Inland Revenue Department to keep having some discretion, so it can go in and say someone is a good taxpayer, and it knows he or she has made a mistake. The inputs may have been put in the outputs and the outputs in the inputs by mistake, because the schedule was accidentally upside down in the spreadsheet when the taxpayer was compiling it. Many people do that. Many people do not have accounting systems in their small businesses, and they run things off spreadsheets all the time. It is easy to look at a revenue line and an expenditure line, and to put inputs and outputs in the wrong way around. It is actually really, really simple to do that in a small business.

CRAIG FOSS (National—Tukituki): I welcome the welcome from those members on the other side, and I would like to note that we are under urgency at the moment. The only good thing about urgency is it gets the members on the other side of the Chamber to work before lunchtime. I say good morning to Mr Swain, in particular, and I am sure my fellow Finance and Expenditure Committee members will comment on that one later.

Part 2 deals with the nuts and bolts of this legislation, although as I noted last night it is a moving feast. I presume it will not change much from the version for which we have had notice in total of not even 12 hours yet, which, as I have noted, quite frankly I find a disgrace and not a good look for Parliament at all.

Part 2 talks about tax credits, tax rebates, etc., and I think it is important to note two things. The attraction of a tax credit, a tax rebate, be it a research and development credit or be it a rebate, as mentioned in Parts 1 and 3 and on Supplementary Order Paper 167, is that the higher the tax burden the more attractive are rebates and credits, and special favours. As previous speakers have noted around various bills covering KiwiSaver, taxation, etc., many submitters to the Finance and Expenditure Committee are now saying essentially “me too” because they would like a share.

I think it is important also to note that the Inland Revenue Department has had a lot to do with the formulation of this bill, and it will be administering it, and the Minister of Revenue is in the Chamber, and to note two of the key points of the “desired future” of the department. The second major point—and there are five of them—is that the Inland Revenue Department’s desired future is: “We make it easy for customers to get it right and hard to get it wrong.” Well, after I do not know how many pages of a bill, plus the Supplementary Order Papers, I think that is around the wrong way at the moment. The redundancy rebate was announced yesterday—in fact, the Minister himself talked about a simpler, less complex regime. Essentially he argued for a flat tax on redundancy payments, but we will talk more about that in Part 3.

I also note that Dr Lockwood Smith’s Supplementary Order Papers tried to address issues where that regime is not made easy. Also, the fifth point in the “desired future” of the Inland Revenue Department states: “We are professional, approachable, effective and efficient.”

I have talked about a few of the clauses in Part 2, particularly clause 147, which is about the keeping of business records. The majority voted for a change to the heading to section 22 in the principal Act, from “business records” to “business and other records”. On a first look, that is fair enough. Perhaps it is a modernisation. It is a different way of keeping records, or is it spreading the tax matrix even wider and higher and longer and deeper? In fact, what are “other records”? To me, that reads as: “Just hand over any, all, and total information about your relationship.”, particularly as it concerns superannuation contribution resident withholding tax rules.

We have had a recent example of the Inland Revenue Department putting the onus on and increasing the cost structure—and the Minister touched on it before—around the fair dividend rate changes of last year. He mentioned that there were worries at the time, that the earth was going to freeze over, etc. Actually, the costs have gone up because the onus there was that the record keeping had to go back to the year dot in order to claim the $50,000 de minimis for the various fair dividend rate issues in the earlier taxation bills.

Clause 147C, which inserts a new section 28B into the principal Act, again puts the onus further down the track, where the investor again changes to the portfolio investment entity regime: “Investor to advise portfolio tax rate entity of investor’s tax file number”. Again, on the face of it, most people accept that. I think it is on our bank statements now. But, actually, must we do that? There are already provisions. There is a 45c tax rate to be charged if people do not do that—it is the non-declared tax rate and tax code. I do not quite understand why that might be there. Perhaps there is a simple answer and the Minister could address it.

Hon PETER DUNNE (Minister of Revenue): I will respond briefly to a couple of the questions that have been raised. I want to go back to Dr Smith’s comments earlier. I have now received some information about the interim measures that were put in place over the last year, which he may be interested in. I am advised that since the legislation was passed last year, the commissioner has received some 604 applications not to apply penalties, and of those 604 applications 393 have been agreed to. That is about two-thirds in the year to June 2007. It is clear, contrary to the assertion that has been made, that the interim measures actually have worked out extremely well. If two-thirds of the applications for relief have been agreed to, then I think that is a pretty high hit rate. I think it sets a good platform for the changes that are contained in the current bill.

Mr Tremain asked some interesting and valuable questions about the new GST filing rules. Just to refresh the point on this, I note that we are moving from a system where at the moment effectively a penalty is applied to the principal outstanding to one where in certain circumstances a fee of either $50 or $250 becomes payable. The concern he was raising was related to how arbitrary the application of those fees would be. In other words, could we have a situation where at the moment, under the current regime, that amount might be added to principal and take some time to be resolved but a flat regime of specified amounts could apply immediately?

I want to assure the member of a couple of things. Firstly, the way this regime will work in practice is that where a taxpayer clearly is in error through the employer monthly schedule, then the Inland Revenue Department will advise that person that the GST payment is late and that subsequent breaches will be penalised. The late filing penalty will be imposed on any returns that are filed late in the 12 months following that first breach. So if all the returns are on time, then the process kicks off next time around. So I want to assure him that the concern he expressed, as I understood it, related to whether the removal of the current regime and its replacement with a flat fee would mean that people would simply be stung like an instant traffic fine. The answer is no. They will receive a warning, and if there is a breach for the second time within that 12-month period, then those fees will apply.

I again want to make the point that this change is really designed to simplify the process, to make it easier for people to comply, and to get away from a situation where the way in which the current rules apply often means that the debt imposed is much greater than simply having a fee regime. But we are not going to turn the Inland Revenue Department in this instance into a set of GST traffic cops who go around stinging those who fail to meet that first date. There will be that warning period, then the follow-up if the breach is repeated within the 12-month period.

Dr the Hon LOCKWOOD SMITH (National—Rodney): I appreciate the advice the Minister has just given us about the situation in respect of unacceptable tax positions and shortfall penalties. But I might say to this Committee that the concern about backdating the provisions in this bill is not just something that the Opposition has dreamt up. There are many in the profession who believe it should be backdated to 2003, and National has simply said that that is unreasonable and that we should go back to when we tried to fix it up. I accept what the Minister has said—that the effort to fix it up last year has improved the position for many taxpayers. But this is a balance of the Government’s desire to keep maximum revenue and its responsibility to be fair to taxpayers. The changes that are made in this bill are designed to try to make the system more fair to taxpayers, and it therefore should be accepted that what will be left now from 2003 on—but we suggest backdating it to only 2006—is that there will be some taxpayers left who will be treated unfairly by the way this Parliament sees this situation today. That is not right.

I want to go on because we are running out of time, I sense. My most important amendment is in fact to clause 191. If we look at clause 191 we see it looks very simple. It is simply headed: “Section 141KB repealed”. So it is important that members understand what section 141KB is in the existing Act. What section 141KB is all about is that it gives the commissioner discretion to cancel some shortfall penalties. That was the provision we brought in to try to deal with some of these problems. But what section 141KB gave the commission to do was to deal with issues covered by section 141B. Now, section 141B is the section that deals with unacceptable tax positions. So what is being repealed here is section 141KB, which gave the commissioner discretion to deal with what were considered to be unacceptable tax positions.

The amendment I want to make is this: none of the provisions in this bill deal with simple mistakes. It is what my good colleague Katrina Shanks was talking about. She is an experienced person in this area, and she knows that people filing tax returns can make simple mistakes. Let me give the Committee an example of what I mean. Some taxpayers pay the correct amount of tax, but file the wrong tax return. They have made a mistake. According to the tax returns filed they have not paid the correct tax, because according to the return they were meant to have filed they have paid no tax. Those taxpayers have paid all the tax they should have paid but filed the wrong return, so that cannot be recognised as the correct tax paid. What happens? The taxpayer gets penalised for making a mistake—in fact, the correct terminology is “not taking reasonable care”—which is covered in section 141A.

My amendment to clause 191 simply retains the title of section 141KB—“Discretion to cancel some shortfall penalties”, and would enable the commissioner to deal with unfairness in both unacceptable tax positions and not taking reasonable care—in other words, deal with issues that arise under sections 141B and 141A of the existing Act. My amendment would enable the commissioner to use the discretion when faced with a clear mistake—when someone has paid the full amount of tax owing, yet has done something wrong technically. The officials look a bit puzzled. The Institute of Chartered Accountants of New Zealand is deeply concerned about this, not just Lockwood Smith. The institute is concerned, because it sees this happening amongst its members all the time. People make these simple mistakes, and although they have paid the correct amount of tax, they are penalised. Is that fair?

I really put it to the Minister, and urge the Committee, to give full consideration to the amendment that I have placed on the Table. All it would do is give the commissioner the discretion to not impose shortfall penalties where it is obvious that a mistake has been made. The Government has all its revenue. If the Committee says that it will not accept my amendment because it would have fiscal implications and that it was lodged with less than 24 hours’ notice, I would argue that that decision was not valid because the amendment just gives the commissioner the right to exercise discretion. The Government is not going to lose any revenue. A technical mistake might have been made, but at the moment the commissioner cannot deal with that issue in a fair manner. I urge that my amendment be given consideration.

CHARLES CHAUVEL (Labour): I move, That the question be now put.

CRAIG FOSS (National—Tukituki): I would like to speak to two other clauses in Part 2—first to clause 173 and then to clause 184, which talks about the International Financial Reporting Standards. Clause 173 deals with provisional tax and rules on the use of money interest. There is always discussion about this, but in particular this provision looks at the rules around the use of money interest—that is, when there are excess funds at the Inland Revenue Department, the department has use of funds. At the moment it pays a credit rate of, I think, 6.5 percent, or, if the taxpayer supposedly has moneys due, he or she has use of the funds owed and is charged something like 13 or 14 percent—about a 7 percent spread. So that is a 7 percent spread between the money that is owed to a taxpayer and stays at the Inland Revenue Department and the money that it is essentially lending to the taxpayer. Any bank or financial institution would give its right arm, its left arm, and probably both its legs to have an interest rate spread between deposits and loans of over 7 percent. That is absolutely outrageous. I think the term there is “usury”.

There has been much commentary, even from members on the other side and from the smaller parties, on the unfairness of charging interest rates like that and actually driving people into further debt, borrowing to pay the borrowings to pay the borrowings. The amendments proposed by my colleague Dr the Hon Lockwood Smith try to address some of the issues that bring people into that position. Again I will quote from the Inland Revenue Department’s desired future details: “Society has confidence that appropriate action will be taken against customers who do not apply.” That also implies that those customers who are doing the right thing and pay the right money at the right time, but perhaps tick the wrong box in the form they send in, also need to know there is good faith on the part of the Inland Revenue Department. I would be interested to hear the comments of the Minister in the chair, the Hon Peter Dunne, on the good-faith ambitions of the Inland Revenue Department and whether it will be addressing the difference between its borrowing rate and its lending rate.

Clause 184, as Dr Lockwood Smith touched on earlier, talks about the unacceptable tax position. Towards the end of clause 184 is an explanation of what does and does not put someone in an unacceptable tax position. Interestingly, it talks about the International Financial Reporting Standards, which have been recently adopted. I believe that there is such a thing as the New Zealand version of the International Financial Reporting Standards. Is that deliberate or is it just to internationalise it? We have asked Treasury about this quite a few times at the Finance and Expenditure Committee, and even the Government accounts have been reproduced under the New Zealand Financial Reporting Standards as opposed to the International Financial Reporting Standards. I apologise to the many listeners out there who think that this may sound like gobbledygook, but, sadly, this is taxation law. Even Landcorp in its annual report suggested that the International Financial Reporting Standards made a mockery of its reporting, etc. So Landcorp cannot understand it.

I believe that in a recent paper Treasury said it was looking to readdress the necessity of the New Zealand Financial Reporting Standards, or at least how it was created and measured against the International Financial Reporting Standards and whether it was having a desired outcome for New Zealand. In many instances the fluctuations in their profit and loss accounting, and, therefore, their tax obligations, were flying around all over the place and not giving a solid and transparent report to whomever their agents might be.

There is one other clause in here that we discussed at the select committee—and I apologise for not finding it right at the moment—but the Minister or the officials may remember it. It addresses KiwiSaver and refers to KiwiSaver members being able to forgo interest in relation to funds at the Inland Revenue Department or, I believe, at some entity.

DAVE HEREORA (Labour): I move, That the question be now put.

DAVID BENNETT (National—Hamilton East): I rise to take a call on this bill because when we talk about the implication of putting penalties on people who do not file GST or other returns, simply for the sake of having a mandatory penalty, it smacks of a Labour - United Future - Progressive Government that has no comprehension of what it is actually like to be in business. These people have never been in business. They have probably never filed a GST return—apart from for a union. For them to now put in a mandatory penalty just for the sake of it shows their comprehension of what it is like for the people who actually earn the money that pays the wages of those members, who sit on that side of the Chamber and tell them what to do through tax bills such as this.

The Minister has come back and made a valid point that there will be some discretion within the 12-month period, and that people’s history in relation to the filing of returns will be looked at. That is fair enough. That is what happens now. The Inland Revenue Department looks at people’s history of filing returns. If they have a history of being a good filer of tax returns, then it will sometimes waive the penalty, let them get away with it, and say they made a mistake. That would be the appropriate approach, and the department does that now. It looks back over the past year at one’s filing history.

What is the purpose of putting on a $50 mandatory filing fee? Why put on a $50 or $250 mandatory fee for people who fail to file on time? The only purpose can be that the Government wants to sting hard-working employers in this country. It wants to hold business back and it wants to increase compliance costs—to be the bane of hard-working New Zealand business people, basically. The Labour Government wants to restrict and compromise the ability of those people to carry on their own approach in their businesses. There is no need for an extra filing fee for late filing. The Inland Revenue Department still can use discretion, and that should be sufficient. There is no need at all for these fees. The Government should take a call on this issue and explain why it wants to introduce these fees. There is no good rationale to do so. It is merely another attempt to put more compliance costs on to small business, and it shows that the Government lacks any comprehension of what it is like to have a small business and have to file GST and other returns on a compulsory basis over a number of months in a year.

I encourage the Minister to take a call and explain the rationale for introducing these fees.

The CHAIRPERSON (Hon Clem Simich): The amendments in the name of Dr the Hon Lockwood Smith to clauses 184, 188, and 191 are out of order because there may be an impact on the fiscal aggregates, and they were lodged with less than 24 hours’ notice.

The question was put that the following amendment in the name of the Hon Peter Dunne to the proposed amendment to clause 151(4) set out on Supplementary Order Paper 168 in his name be agreed to:

to number the paragraph being inserted after section 33A(2)(d) as “(db)”.

A party vote was called for on the question, That the amendment to the amendment be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Amendment to the amendment agreed to.

The question was put that the amendments as amended set out on Supplementary Order Papers 167 and 168 in the name of the Hon Peter Dunne to Part 2 be agreed to.

A party vote was called for on the question, That the amendments as amended be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Amendments as amended agreed to.

A party vote was called for on the question, That Part 2 as amended be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Part 2 as amended agreed to.

Part 3 Amendments to other Acts and Regulations

The CHAIRPERSON (Hon Clem Simich): We now come to Part 3, clauses 200 to 275, with new clauses 276 to 545 therein, on Supplementary Order Paper 168. The debate on this part includes schedules 1 and 2 and new schedules 3 to 5, also set out on Supplementary Order Paper 168.

Dr the Hon LOCKWOOD SMITH (National—Rodney): Part 1 of the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill, which we debated earlier, covers amendments to the Income Tax Act. Part 2 covers amendments to the Tax Administration Act. Part 3, which we are debating now, covers amendments to other Acts and regulations. The principal set of amendments that National will be focusing on in this debate is the set of amendments to the KiwiSaver Act 2006.

They are very significant amendments. What these amendments do, and what Part 3 does, is introduce the whole compulsory employer contribution regime for the KiwiSaver system here in New Zealand. These are the provisions that caused Business New Zealand to come to the Finance and Expenditure Committee and say that New Zealand businesses had been ambushed by the Government, and that the Government proposed these measures in the Budget without consultation with employers and businesses in New Zealand.

That is pretty powerful language from a group that is not known to be anti-Government. Business New Zealand works quite closely with the Government, but it said to the select committee that these provisions ambushed New Zealand businesses. It went further and told the select committee that some of the provisions around the compulsory employer contributions were “employment relations sandpaper”. In other words, the provisions would cause major problems to employment relations in New Zealand as we look ahead.

What did Business New Zealand mean by that? Probably the best example of what it meant by that can be found if we look at clause 219 in the bill, which is on page 363. Clause 219 is a long clause with many amendments to the existing Act, such as sections 101A, 101B, 101C, etc.—it goes right through. The new section that will cause quite a lot of trouble is new section 101B, to be inserted by clause 219. Let me draw the Committee’s attention to what that new section is doing. It states: “The purpose of this section is to ensure that, for contractual arrangements of parties to an employment relationship (as defined in section 4(2) of the Employment Relations Act 2000), compulsory contributions are paid in addition to an employee’s gross salary or wages described in section 101D(3).”

This means that employers may have entered into existing agreements with employees based on an employer’s ability to pay a certain level of wage or salary based on the business’s income. Suddenly, this legislation will require employers to add to employees’ total remuneration package through making contributions under this clause to the compulsory employer contributions. To land that on employers part way through negotiations on an employment relations agreement, when they may be already fully stretched in meeting the obligations of that agreement, is obviously a very significant imposition on employers.

We will be covering a number of the various new sections inserted by clause 219 as this debate goes on, but perhaps one of the features that concerns us most as we look ahead—and a number of features concern us—relates to employment agreements and the negotiation of them. How are employers to handle them? An employer may negotiate an employment agreement with a number of workers, and some workers may say: “Yes, we want to be part of KiwiSaver.”, and the employer may say: “OK, if you want to be part of KiwiSaver we can afford this much as a salary or wage increase. But then we have to consider that on top of that we have to pay our compulsory contribution, so we will agree to this deal for you.” Other employees may say: “No, we’re not going into KiwiSaver.”, so the employer may say: “OK, to make it a fair package, you have to be remunerated a little more to make sure you have an equivalent package.” So a slightly higher wage or salary is agreed on for that person because the employer does not have to make a compulsory employer contribution, which is part of a total remuneration package.

What happens, then, if a few weeks or a couple of months later an employee who gets that slightly higher wage or salary remuneration because he or she is not part of the KiwiSaver scheme, suddenly says they want to be part of the scheme? That person has a right to do that under the law, so the employer is caught. The employer has agreed to a certain wage or salary package on the basis that a person was not part of the scheme, but the person changed his or her mind and now wants to become part of the scheme.

That is the kind of friction that Business New Zealand was talking about. The select committee heard a lot of submissions on this particular issue. A lot of submissions were received on new clause 219. There are a number of other areas, such as the age of entitlement, on which employers make contributions. Other colleagues will be covering the full range of issues, but I wanted to emphasise that first set.

CHARLES CHAUVEL (Labour): I would like to make some brief comments about the changes to KiwiSaver made in Part 3, and also to direct some comments to the Minister’s Supplementary Order Paper 167, at least in as far as that Supplementary Order Paper will make changes to the KiwiSaver scheme. The changes proposed on the Supplementary Order Paper will assist to make sure that KiwiSaver does work as intended, and to the best effect.

Dr Smith is quite right; we did hear some very compelling submissions on KiwiSaver at the Finance and Expenditure Committee. The select committee proposed a number of changes to the legislation and recommended, for example, allowing employees who contribute to KiwiSaver schemes to phase in their minimum 4 percent contribution, starting at 2 percent on 1 April 2008 and arriving at the full 4 percent as late as 1 April 2011. To be consistent, that option is to be offered to members of complying superannuation schemes, as well, and that is obviously a commendable move. I note that the New Zealand Council of Trade Unions last week issued a statement welcoming, in particular, that change and asserting—I think with a degree of justification—that the KiwiSaver improvements will help those on low incomes. It was speaking in particular about that recommended change, and I think that will encourage what is already a spectacular rate of KiwiSaver uptake.

Just having a look at the other changes recommended by Supplementary Order Paper 167 in this area, I note there will be good consumer protection measures that will require complying superannuation funds to ensure that their fees are not unreasonable. This requirement already exists for KiwiSaver schemes. The Government actuary will be empowered to monitor any fee changes to see whether they are unreasonable, so there is a good prudential oversight regime that will be introduced. These changes will see the introduction of a public register of complying superannuation funds so that everybody can see whether a specific scheme will attract the relevant KiwiSaver benefits. So the changes mooted will increase transparency and make what is already an excellent scheme an even better one.

GORDON COPELAND (Independent): I will also speak about Part 3, in particular about clause 235 and the provisions thereafter that relate to the mortgage diversion provisions in relation to KiwiSaver. I think that all of us in this Committee recognise the importance of homeownership, not just to provide stability for families, which in itself is a most important public policy goal, but also in retirement. In fact, a free home in retirement is the difference for many hundreds of thousands of New Zealanders between relative comfort and moderate to severe hardship. All of us know that New Zealand superannuation is inadequate if, at the same time, a person is trying to pay rent on a house.

In that connection, I will draw some statistics to the attention of the Committee, prepared for me by the Parliamentary Library. The number of privately owned owner-occupied homes in New Zealand peaked as a percentage of all homes at 73 percent in 1986, but by the year 2000 that percentage had dropped to less than 50 percent. That is a massive drop of 23 percent in just 20 years. By contrast, the percentage of people renting or leasing a home went from 23 percent in 1986 to 44 percent in 2006—almost a corresponding offset. One statistic, the percentage of private homeownerships, went down 23 percent, and there was a 21 percent increase in the number of people renting or leasing.

That brings into focus, I suppose, the tremendous importance of the mortgage diversion part of the KiwiSaver scheme. It can be utilised by people who have been in KiwiSaver for 12 months, and it enables them, under subparagraph (i) of new section 229(2)(i) in clause 235(6), to divert “half of the total contributions deducted for or contributed by the person, received by their KiwiSaver scheme provider;” into the repayment of a mortgage on their home, for as long as that mortgage continues. That of course is a very, very important part of the overall arrangements. That is a holistic approach to savings, because it enables a KiwiSaver member both to pay off a mortgage and to save systematically for retirement, at one and the same time. As a result many will enter their retirement with both a freehold home and a well-diversified portfolio of financial investments. That is the goal we want to achieve through this important legislation.

The first anniversary of people coming initially into KiwiSaver will occur on 1 July 2008, so in practical terms mortgage diversion will start from that point onwards. I can confidently predict that this facility will be extremely popular. Why do I say that? I say that based just on my own personal experience and that of many other people I know. We all appreciate that for young people raising children and endeavouring to pay off mortgages, it is also very difficult at that point in time—when the bills are mounting and there are mouths to feed—also to be setting aside money systematically for retirement. That reality has not changed. In fact, the statistics I have just quoted show that it has actually become worse—much worse—in the last 20 years.

In my view the huge reduction in the level of homeownership rates and the increasing number of people who are forced, long-term, to rent, is now one of the great problems that face our society. So we need to find a way through that, and that is what mortgage diversion does. It is a vitally important component of KiwiSaver, in my view, and one that I have no doubt will make an important contribution to both the social and financial security of hundreds of thousands of New Zealanders as we move through time. I can foresee 20 years from now that this House and all New Zealand will look back on the introduction of KiwiSaver, including the mortgage diversion component, and say that it has profoundly affected the financial and social security of New Zealanders and their families. For that reason, this part of the bill has my wholehearted support. It was something I personally worked very hard to bring into legislation. I am delighted that it was adopted by the Government and I think that in time it will prove to be a very, very important contribution. Thank you.

CHRIS TREMAIN (National—Napier): Gordon Copeland has just spoken on the mortgage diversion scheme and on the part he played in bringing that to its inception. Although I certainly have empathy with his view of the level of homeownership in this country—and he is right; it has dropped significantly, which is nothing for us to be proud of as a nation—I am not so convinced that the mortgage diversion scheme will be as successful as he makes out.

It is an initiative, yes, but the reality is that other issues involved in getting people into their own home, such as the cost of that housing, need to be considered first. There is a lot of debate around once people are in properties where the full amount of their savings should be going. There is a lot of argument to say that the money should be going fully into the house. With the combination of higher interest rates and capital accretion that can be achieved through having our own home, it can be argued that people are far better to have their money going entirely into the savings in those homes than going, by a convoluted process through KiwiSaver with its added bureaucracy, back into the home in another way. However, it is an initiative and part of the scheme, and we will be interested to see how the numbers work out when we go into July next year and see the effect then.

I will focus on Part 3 of the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill, largely on the amendments to the KiwiSaver Act 2006. In my 5-minute slot this morning I will focus on three specific areas. The first I will deal with is the age of entitlements debate, which was an area the Finance and Expenditure Committee had quite significant representation on. I will also talk about the salary sacrifice agreements and the position that employers such as the Christchurch City Council found themselves in. I will also touch on the transitional rates and the position we have got to in regard to those rates.

I start with the age of entitlements. This was an issue that did not perplex the committee but that the committee gave some consideration to. It concerns the question of whether we should allow individuals under the age of 18 to obtain all the benefits of the KiwiSaver scheme. Many submissions were received from people from across the board, and particularly from the unions, who felt that the full benefits of the KiwiSaver scheme should apply to 16 and 17-year-olds. Both the National Distribution Union and the Council of Trade Unions were most vocal on this particular aspect of the legislation. The Council of Trade Unions, the National Distribution Union, and the New Zealand Nurses Organisation said that preventing young workers from gaining tax credits and employer contributions was somewhat discriminatory.

The argument behind not providing the credits to 16 and 17-year-olds was that the Government felt that it would take away the focus on education, and that 16 and 17-year-olds should remain in the education system. I take a different point of view, in that I believe that some 16 and 17-year-olds out there are better off in the workforce. They have reached a point in time at that age when, for one reason or another, they have decided that they have reached the end of the road as far as school is concerned. But many of them go on into careers. They become young apprentices and take on jobs where their future is in doing the hard yards of being an employee and learning a trade. Sometimes, their education blossoms for them as they take up an apprenticeship and learn many more skills through doing that.

My argument is that we should be encouraging 16 and 17-year-olds to be saving as early as possible. In that regard, I think it is good reasoning to allow 16 and 17-year-olds to take up that opportunity once they end up in employment.

I understand the argument that by totally removing any age criteria we are allowing many families to take up these tax credits for very young children. It will be interesting to see how many take-ups of KiwiSaver there are by those under 20, which have been taken up by families getting their 5, 6, and 7-year-olds into a savings scheme early on in their life. I think members will find that quite a significant number of families of high net worth are taking up that opportunity.

KATRINA SHANKS (National): It is my pleasure to speak to Part 3, and I will address the KiwiSaver aspect of this bill. I would like to talk firstly about the uneven playing field out there. With this legislation I would not like to be an employer or an employee, because the playing field has become really uneven. When an employer goes along and offers KiwiSaver to its employees, that is all very good, but the reality is that not everybody will take it up. Employers may be offering this scheme to encourage their employees to work and save, which is absolutely great, but under this scheme employers are also contributing up to 4 percent going forward. An employer is giving one employee who is taking up the scheme 4 percent, and another employee who has not taken up the scheme is not getting that 4 percent.

The Government says that is fine because the employer can negotiate with its staff, according to who has taken up the scheme and who has not. But, at the end of the day, somebody may leave the scheme because he or she is in financial hardship and needs to have a respite from it, so he or she will lose that 4 percent, or an employee may decide to enter the scheme after he or she has been through a wage negotiation round, and that employee has every right to enter that scheme. But all of a sudden the employer’s payroll is changing. It cannot predict what the payroll will do from month to month, so it is up to the discretion of the employees as to what they will do.

The great thing we have had in the past with salaries and wages is that they have been pretty transparent. When someone goes in and earns $20 an hour, that person actually earns $20 an hour. The person beside that employee who earns $20 an hour earns $20 an hour as well, and that is the way it is. I thought that we brought in the fringe benefit tax a few years ago to keep that situation transparent. To keep things even, those people who got benefits like cars and perks relating to their work would put in a fringe benefit tax and they would be taxed at a higher rate. There was a disincentive so that people got a dollar value for the work they did. In that way we could even out that playing field and there would be a bit more transparency.

Now in the workplace we still have the fringe benefit tax to keep that transparency, but we also have Working for Families, which complicates that situation. We can now have a situation where two people are working beside each other and doing exactly the same job. One person is getting Working for Families and is getting a little more. That person is still doing that same job but is getting a little more. That person could also decide to go into KiwiSaver, and could again get a little more. All of a sudden a gap is created and it is growing between two people who are doing exactly the same job. One is getting KiwiSaver and Working for Families, and the other is not getting those payments but is doing the same job, and the gap is growing. It also works in the reverse, which is quite complicated. One person who is getting Working for Families might not want to go into the next income level because that would affect the Working for Families payments, and the other person is not getting Working for Families and might take that promotion because it does not affect the income that the person is bringing home. By the time we put KiwiSaver into that mix as well, it all gets really murky.

Where is the transparency in the workplace when employers go into negotiations with their employees? We are creating complexity in the workplace. I would ask how employers are meant to act in good faith with their employees all the time, which is what we ask them to do under our labour legislation, when there is a moving feast in front of them. What employers want to do is to reward and pay people an amount of money for the work they do, but how can they do that when there is shifting ground underneath those employees all the time? Employers cannot do that.

I think we will find that, going forward, a lot of court cases will show that employers are not being fair when, in fact, they are trying to be very fair but the rules they have been given create this changing ground underneath them. I would ask how an employee who cannot afford to go into KiwiSaver might feel working beside somebody else who can afford to go into the scheme and who is getting a 4 percent bonus to go into KiwiSaver. The first employee cannot afford to go into KiwiSaver and has not gone into the scheme, so he or she is not benefiting from it. How do those people in the workforce feel? We have to ask ourselves whether we have given employers and employees a fair playing field now.

CRAIG FOSS (National—Tukituki): I speak now to Part 3, which deals with changes to various other Acts and regulations. First of all, a previous speaker Mr Gordon Copeland mentioned the mortgage diversion part of the general KiwiSaver scheme, which is alluded to in, I think, Supplementary Order Paper 168 and in this part. Gordon Copeland is no longer on the Finance and Expenditure Committee since he went out on his own, and I think it is important to note that pretty much after he left there has been virtually no discussion whatsoever, no lobbying for, and no sponsoring of the mortgage diversion facility or that part of KiwiSaver. In fact, commentary has been very, very silent because most commentators believe that, yes, it is a worthy goal or worthy ambition to have some facility like that, but it does not sit very tidily at all within KiwiSaver—a long-term retirement savings scheme—to have as part of that same suite of bills a system that assists and encourages people to borrow money.

I note that even the monetary policy inquiry we had, which touched on all things KiwiSaver, shied away from the mortgage diversion part of KiwiSaver. There is obviously a reluctance to take that part out, but I imagine the Minister’s preference would be to take it out—perhaps to carve it out and let it form some part of other legislation. I do not think that is such a bad idea, and the National Party would welcome such discussions, firstly, to simplify the KiwiSaver legislation and, secondly, to make a more pure and transparent method to homeownership. Further to that, even the Council of Trade Unions did not comment on the mortgage diversion part of it, but it did note how unaffordable New Zealand housing is. It was not talking about the debt of the mortgage; it was talking about the ability to fund a mortgage or to get a deposit for a first home. The council lamented how badly New Zealand wages had fallen behind Australia’s. The head of the Engineering, Printing and Manufacturing Union, Andrew Little, before our committee on other business, recently also noted that. He used the example of how in New Zealand an electrician could get between $70,000 and $85,000 a year, while over in Australia the same electrician was on A$120,000 to A$130,000. He agreed, as part of his submission about some other matters before the committee, that that attraction was pretty hard to resist.

I think it was Mr Tremain and Katrina Shanks who earlier touched on the contributions around KiwiSaver. That issue is alluded to in this part but is not hugely addressed. It is more about home affordability, and KiwiSaver will struggle because—remember—it is 4 percent of gross, not 4 percent of those moneys left, which is about 5.5 percent or 6 percent of net. Quite frankly, when people are saving towards KiwiSaver, over time their annual return after tax will be about 3-ish percent, I guess, and their mortgages will be at 8 percent to 10 percent. Why on earth would they save towards KiwiSaver whilst they still had a mortgage? That is the contradiction that the mortgage diversion part starts in this bill.

I will just touch on the amendments to clause 284 set out on Supplementary Order Paper 168. It defines certain disposals by portfolio investment entities or by the New Zealand Superannuation Fund. I would like to mention that New Zealand is heading towards some dangerous territory here. Admittedly it was not a portfolio investment entity or the New Zealand Superannuation Fund, although they have been doing this; it was the Earthquake and War Damage Fund, I believe, which divested from tobacco stocks, thinking that Dr Cullen wanted it to divest from those, and believing that he would be pleased and happy for it to do so. Now, that is a debate that we should have, for sure, but Ministers of Finance, Ministers of the Crown, and any members of Parliament, of course, must be at total arm’s length from any funds that the Crown owns and from any way that their influence could even be misconstrued. Be they for moral or ethical reasons, if it is set up in the deed of those funds, then they should be left alone.

I also seek the Minister’s opinion and advice on the amendments to clause 263B set out on Supplementary Order Paper 168. I would welcome it if he could explain to us the issues around the Health (Drinking Water) Amendment Act 2007, which is included in the Supplementary Order Paper—or perhaps someone from the various health portfolios would like to participate on that one.

Dr the Hon LOCKWOOD SMITH (National—Rodney): The Opposition would really appreciate the Government responding to some of the concerns that are being raised—for example, the concern expressed by my colleague Chris Tremain about the age limitation on the KiwiSaver provisions in the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill.

The select committee was asked many times by people making submissions why the provisions were restricted to people above the age of 18. If we want to develop a savings culture in New Zealand, if we want to encourage saving at a younger age, when people first start to work—and of course they can legally work at age 17—why not enable them to be part of the full KiwiSaver scheme when they can legally work in New Zealand? If the Government is serious about supporting a savings culture with this now quite complex KiwiSaver scheme, it seems wrong to tell young new workers that, sorry, they cannot become part of the full KiwiSaver scheme until they are 18. Where is the logic in that?

If the Minister stood up and said that, at the end of the day, it was a revenue issue, that the whole scheme was costing a lot of money, and that if the Government lowered the age of eligibility down to 17 or 16, it would cost too much money, I could understand that. I could understand the Government making a pragmatic decision about the revenue cost, because KiwiSaver is going to cost the Government a lot of money over the next few years—a lot of money—and there are very significant revenue issues. But we need to understand why we do not let people be part of the KiwiSaver scheme when they start work. It is very clearly spelt out in clause 219, where the age of entitlement is specified. National members are at a loss to understand why new workers cannot get into the KiwiSaver scheme when they first start work. It seems bizarre that they cannot do that at whatever age they can legally start work. That is the first issue, and we would really appreciate hearing the Government’s explanation.

The second issue is covered in the transitional provisions of clause 237. Members on the select committee listened to submissions—often from unions, particularly the Council of Trade Unions—that argued quite strongly that the 4 percent contribution from employees is a big ask for low-income earners. Middle and higher income earners already save. One of the big issues with the KiwiSaver scheme—if it is to work properly—is whether it can help lower-income people to start saving and to get the benefits of saving. So many submissions to the select committee stated that 4 percent is a big ask for middle to low income earners.

Many of them asked why we would not allow flexibility whereby an employer could agree with an employee, as part of a remuneration package, to make a greater contribution, thus allowing the employee to put in, say, 2 percent, rather than the full 4 percent. The Government partially responded to this question by saying that, as a transitional measure, it would allow an employee to put in 2 percent for 2 years, if the employer agreed to put in 2 percent—rather than 1 percent, which is the standard rule for employers that is set out in this legislation. It said it would allow that transitional provision for 2 years, then in the third year the employee would put in 3 percent, to be matched by 3 percent from the employer.

The issue is that the transitional measure is not recognising the position of low to middle income earning New Zealanders. A lot of our people are in that area. People do not realise that the average income of New Zealanders is about $10,000 a year higher then the median income, from memory. It is significantly higher. If we look at the median income of New Zealanders, we see that it is somewhere down in the $30,000 to $38,000 range. It is a huge ask to expect people with families to contribute 4 percent of that gross pay to this scheme.

We should hear from the Government why it was unacceptable to it to have employers agree to make up the difference as part of a total remuneration deal, and why it refused to listen to the representations from the unions that it allow a more flexible scheme.

Hon PETER DUNNE (Minister of Revenue): I am glad that earlier Mr Foss spotted the most critical element of this bill in the massive amendments that are being moved to it, when he referred to the new Part 2A, inserted by clause 263B, which affects the Health (Drinking Water) Amendment Act 2007. This was the deep, dark secret of this bill, and I give him credit for having discovered and revealed it.

I should tell the Committee precisely what this change does. It replaces section OB 1 of the Income Tax Act 2004 with section YA 1 of the Income Tax Bill. More seriously, this change is a drafting change consequent upon the rewrite of the Income Tax Act. It picks up the provision that is in the 2004 Act, which technically no longer exists, and carries it over to the bill. But I give the member credit for his perspicacity in getting to the heart of the issue.

On a less serious note, I turn to the more substantive comments the member’s colleagues have made. Mr Tremain and Dr Smith have raised questions about young people taking up KiwiSaver, why the member tax credit is not available to those under the age of 18, and a range of associated issues. The underlying concern that they have expressed is that this legislation is potentially limiting entry into KiwiSaver by people under the age of 18. I am pleased to inform those members that of the 316,000-odd people who have signed up to KiwiSaver already, just over 16,000 of them are 16 and 17-year-olds. So despite the absence of the member tax credit and despite some of the other incentives such as compulsory contributions not being available to those people, we still have a significant uptake.

Craig Foss: That’ll be by the parents.

Hon PETER DUNNE: The member says that may be by the parents entering into a savings arrangement on behalf of the children. That is quite probable. I can remember many years ago when some of us were young, callow youth, there were various savings schemes our parents entered into on our behalf that, as we grew older and became earners, we were able to carry on. I think precisely the same will happen with KiwiSaver, and I welcome the fact that we are already seeing such a significant uptake.

Dr Smith said earlier that the Government may run some huge fiscal risks here. That is absolutely correct. We have already exceeded 100 percent of our year 1 target for KiwiSaver, and the year from July is barely half over—

Charles Chauvel: An excellent response.

Hon PETER DUNNE: On the one hand it shows that we will run some risks, and, on the other, as Mr Chauvel says, it is an excellent response. People can see that KiwiSaver is a scheme that is entirely beneficial to them and to their long-term interests.

Dr Smith raised a concern about employers having to pay their contribution on top of existing salary or wages they may be paying out and settlements they may be reaching in respect of their employees. He overlooks the fact that employers will be eligible for an employers’ tax credit of up to $20 a week to offset the cost of that contribution. The consequence of that is that in 2008 the employers’ contribution is 1 percent, and the salary or wages that will be covered will be up to $104,000 per employee. That will go to 2 percent in year 2, or down to $52,000; 3 percent in year 3, or down to $34,000-odd; and in year 4, with the 4 percent contribution rate, the subsidy will still cover $26,000 of salary contribution.

Over that 4-year period there is a deliberate phase-in. Employers will be able to restructure their costs in such a way as to not be adversely impacted. If the current trends continue, we will see a substantial proportion of the New Zealand savings market enrolled in KiwiSaver and able to take advantage of all of its provisions—for the first time, perhaps.

I remind the Committee that this country has had a shocking history of long-term savings over a long period. We can go back to the 1970s and the superannuation debacle at that time, the 1980s superannuation debacle, and the mid-1990s superannuation debacle. For the first time KiwiSaver, based on voluntary contributions, has the potential to get us over that crisis that we have all lamented at various times over the last three decades. That crisis has put us into a position where our lament now is: “Look how good Australia is. Look how good Australia has become since compulsory superannuation came in in that country.” I remind the Committee that that was in the mid-1990s. It is a comparatively short transition. I suspect very strongly that if we were to have this debate in a decade’s time, we would be saying that some of the great strengths of the New Zealand economy at that point will be occurring because of the investment through KiwiSaver and the level of uptake.

I think that this scheme not only is very timely, but also is on the right track. It has all the right incentives for people to join. I want to make just a quick comment as I close, in response to Katrina Shanks and one or two others who have talked about—and I think Dr Smith used this phrase—“ambush and sandpaper arrangements” in respect of employers. I think that is most unfortunate. At the time that these proposals were being developed earlier this year, in the context of the 2007 Budget, it was totally appropriate that there be a measure of secrecy and security about their development. I well recall being at the Budget lock-ups where employers were first briefed on the impact of these changes. I did not see and do not remember anyone at those meetings talking about ambushes or other things. In fact, their initial reaction to the changes was extraordinarily positive. If one goes back and looks at their initial statements immediately afterwards, one will find that that was the case.

There will be implications for employers—of course there are—but they are essentially matters to be resolved between employers and employees. I find it somewhat ironic that those groups that spend a lot of time telling successive Governments to butt out of the employer-employee relationships now turn round and say: “Oh, you’ve made it difficult for us because you’re going to require us to talk to our employees, to negotiate with them.” This is the very thing these groups have been telling Governments for years they should be able to do in a free and unfettered way. They cannot have it both ways.

CHRIS TREMAIN (National—Napier): I want to take the debate in a slightly different direction in this 5-minute speech. I want to focus on the Customs and Excise Act 1996, and the two amendments to that Act that will have quite a significant impact on child support payments in this country.

The first is section 280K, which is inserted in the principal Act by clause 263. It deals with the disclosure of arrival and departure information for the purposes of the Child Support Act 1991. Subsection (1) states: “The purpose of this section is to facilitate the exchange of information …”. Section 280L provides for the Inland Revenue Department to have direct access to arrival and departure information, to help it apply the Child Support Act 1991. In that regard, a range of information is to be provided, and I think that is a good thing. Subsection (4) of section 280K refers to the person’s name, the person’s date of birth, the person’s tax file number—all information that I think will be hugely relevant in starting to dealing with what can only be described as the mountain of unpaid child support.

I want to bring to the Committee’s attention some of the figures, which are frightening. I find it unbelievable that parents can have children, then walk away from their obligation to bring up those children. I find it simply quite unfathomable.

Hon Peter Dunne: Unconscionable.

CHRIS TREMAIN: “Unconscionable” is the word that the Minister uses. For the life of me I cannot understand how someone can bring a small baby into this world, see that baby grow, then walk away from one’s responsibility to bring up that child. I accept that people move out of relationships. I understand that. It happens around the world, and that is not going to change. But for a parent to actually walk away from his or her obligation, both financially and on a relationship level, to bring up that child I find totally unconscionable.

Here are some of the figures. Child support debt now has risen to $1.129 billion. That is up from $380 million in 2000. We have seen this exponential increase in parents of either sex—but I have to say mainly men—walking away from those relationships, walking away from their responsibilities to bring up their children. Quite frankly, I find that unconscionable, as the Minister said.

The second point I will make here is that the amount of assessment debt has gone from $192 million to $450 million. As at 31 March, 23,959 liable parents owed more than $10,000 each in child support. Over 23,000 people in this country have walked away from their obligation to bring up their children, their obligation to financially support their children. To allow the State to take over that role is just unbelievable.

Of those parents, 11,793 now live in Australia, and they owe a collective $354 million. Although this side of the Chamber does not support the vision of this bill, particularly the taxation provisions, in terms of the Customs and Excise Act 1996 I believe that there is an onus on this Parliament to come down on those parents, to make it difficult for them to walk away from their obligations. We should not accept, by any stretch of the imagination, their walking away from their obligations. We should come down hard on those parents who are living in Australia. The provisions of section 280K, “Disclosure of arrival and departure information for purposes of Child Support Act 1991”, and the provision allowing that information to go to the Inland Revenue Department, will help us to clamp down on those parents and get them to take on their obligations. I do not know why the Government should have to do that. It is something that parents should do as of right.

Lastly, and in that regard, although both men and women are involved in this issue, 288 fathers earning over $100,000 have total child support debts of $5.5 million. What are those men doing? What do they think? Do they think they can just walk away from their obligation to raise their child? It is totally unacceptable. National supports sections 280K and 280L.

The question was put that the following amendments in the name of the Hon Peter Dunne to the proposed amendments to Part 3 set out on Supplementary Order Papers 167 and 168 in his name be agreed to:

to omit from subparagraph (ii) inserted by paragraph (b) of clause 201(6) the word “share”, and substitute the word “scheme”;

to omit from paragraph (a) of clause 298(3) the words “paragraph (c)”, and substitute the words “paragraph (d);

to renumber paragraph (c) inserted by paragraph (a) of clause 298(3) as paragraph (d);

to omit from paragraph (db) inserted by subclause (2) of clause 402 the words “section LH 2(4)”, and to substitute the words “section LH 2(6)”;

to omit from the heading to section OB 7C inserted by clause 464 the word “business”;

to omit from subsection (2) of section OB 7C inserted by clause 464 the word “business”, and substitute the words “research and development”;

to omit from row 5C inserted in table O1 by clause 466 the word “business”, and substitute the words “research and development”;

to omit from the heading to section OK 4B inserted by clause 480 the word “business”;

to omit from subsection (2) of section OK 4B inserted by clause 480 the word “business”, and substitute the words “research and development”;

to omit from row 4B inserted in table O17 by clause 481 the word “business”, and substitute the words “research and development”;

to omit from paragraph (bb) inserted by clause 482 the word “business”, and substitute the words “research and development”;

to omit from the heading to section OP 11B inserted by clause 484 the word “business”;

to omit from subsection (2) of section OP 11B inserted by clause 484 the word “business”, and substitute the words “research and development”;

to omit from row 6B inserted in table O19 by clause 485 the word “business”, and substitute the words “research and development”;

to omit subsection (3B), other than the heading, inserted by clause 519B, and to substitute the following new subsection:

(3B) Despite subsection (3), this section does not apply for the purposes of section LH 1(2) (Who this subpart applies to); and

to omit paragraph (ob) inserted by subclause (1) of clause 521, and substitute the following new paragraph:

(ob) subpart LH (Tax credits for expenditure on research and development):.

A party vote was called for on the question, That the amendments to the amendments be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Abstentions 6

Green Party 6.

Amendments to the amendments agreed to.

The question was put that the amendments as amended set out on Supplementary Order Papers 167 and 168 in the name of the Hon Peter Dunne to Part 3 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Abstentions 6

Green Party 6.

Amendments agreed to.

A party vote was called for on the question, That Part 3 as amended be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Abstentions 6

Green Party 6.

Part 3 as amended agreed to.

Schedule 1

A party vote was called for on the question, That schedule 1 be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Abstentions 6

Green Party 6.

Schedule 1 agreed to.

Schedule 2

A party vote was called for on the question, That schedule 2 be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Abstentions 6

Green Party 6.

Schedule 2 agreed to.

New schedule 3

A party vote was called for on the question, That new schedule 3 inserted by Supplementary Order Paper168 in the name of the Hon Peter Dunne be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Abstentions 6

Green Party 6.

New schedule 3 agreed to.

New schedule 4

A party vote was called for on the question, That new schedule 4 inserted by Supplementary Order Paper 168 in the name of the Hon Peter Dunne be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Abstentions 6

Green Party 6.

New schedule 4 agreed to.

New schedule 5

A party vote was called for on the question, That new schedule 5 inserted by Supplementary Order Paper 168 in the name of the Hon Peter Dunne be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Independent: Copeland; Independent: Field; Progressive 1.

Noes 48

New Zealand National 48.

Abstentions 6

Green Party 6.

New schedule 5 agreed to.

Clauses 1 and 2

Dr the Hon LOCKWOOD SMITH (National—Rodney): I will use this debate on clauses 1 and 2 to re-establish exactly why National is opposing this legislation, because there are some matters in here that we support, as members listening to this debate will have heard. We support, for example, the reduction in the corporate tax rate. We support a number of the different measures in the bill. But the fundamental issue in respect of this bill is that this bill is what is colloquially called “the May tax bill”. It is an annual tax bill. What the annual tax bill does every year is set the income tax rates for New Zealanders. The Government had the opportunity with this bill to cut tax rates for ordinary wage and salary earning New Zealanders. This was a fantastic opportunity given that the Government now says that cutting taxes for ordinary wage and salary earning New Zealanders is a priority on its agenda and is something it now considers important. It could have done that with this legislation because this is the bill that sets those income tax rates. But the Government has not. It has not had the slightest interest in reducing income taxes for New Zealanders. Sure, the corporate tax rate is reduced, but there are not that many corporates in New Zealand. Most New Zealanders pay personal income tax. This bill, the annual tax bill, is the vehicle for dealing with that. It is spelt out in the title of the bill. Clause 1, “Title”, spells it out. It has those words “annual rates”.

This is a bill that sets the annual income tax rates, and the Labour members could have used this bill if they genuinely believed in lower income tax rates for wage and salary earning New Zealanders. They could have done it with this bill that we have been debating for these last few hours, which has been in front of this Parliament since May this year. But the Government has not done so. That is why the Opposition is opposed to this bill. We believe in reducing personal income taxes on all New Zealanders. That is what we totally support. We are committed to it. The ACT party is committed with us, but certainly none of the Government parties are committed to income tax reductions for New Zealanders. I know that the Minister in the chair, the Hon Peter Dunne, has taken exception to that comment, and I accept that United Future believes in personal income tax reduction. But does that not show the paradox? He is the Minister of Revenue. Does he not feel something like a neuter? What an extraordinary situation we have in this country today—the Minister of Revenue can say he personally thinks that income taxes should come down, and everyone knows his views are irrelevant. His views do not matter a damn. This Labour Government is not about to bring down income taxes, regardless of what the Hon Peter Dunne personally believes. It is staggering. I was at a conference with the Hon Peter Dunne the other day and as the Opposition spokesperson I dared not say what I believed, because it would have set the hares running, whereas Peter Dunne, the Minister of Revenue, could say what he thought should happen to personal income taxes, because everyone knows it does not matter what he thinks. Everyone knows that Labour takes no notice of what he thinks.

What we all know in this Parliament, and I think what New Zealanders are coming to see, is that Labour might, in election years, talk about tax cuts. It did last time; Labour talked about tax cuts prior to the last election, and once it got back into office it changed its mind. Labour promised to shift the income tax thresholds—a very minimal move but it would have helped. It would have helped avoid the need to deal with redundancy payments in this legislation as an ad hoc measure brought in at the last minute. If the Government had shifted those tax thresholds as promised at the last election, we would not need the ad hoc measures that are being brought in by this legislation. So that is what the people of New Zealand have to be very sceptical about. Labour promised personal income tax cuts prior to the last election and then backed down. It broke its promise on it. We know that Labour will promise income tax cuts again as we head towards this election. We know that Labour thinks about personal income tax cuts only in election years, and all New Zealanders should be very suspicious. Last time, Labour promised tax cuts and reneged after the election. New Zealanders should be very suspicious because everyone knows that Dr Cullen does not believe in lower personal taxes.

CRAIG FOSS (National—Tukituki): I am speaking to the title of the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters Bill. As I keep noting, this debate incorporates many, many Supplementary Order Papers, some of which are very, very fresh off the press.

I think this bill should actually be renamed the “Sorry, the Government Spending Has Dragged You Into a Higher Tax Bracket Bill”. Because, as Dr the Hon Lockwood Smith just noted, with Government spending New Zealand workers are being dragged into higher and higher tax brackets. In fact, the infamous “chewing gum tax cuts” announced in the 2005 Budget were dragged off the table and are now no more than a piece of dodgy, disgusting chutty on the bottom of some school desk somewhere. They are long forgotten. But, as Dr Smith just noted, election year is coming up and, funnily enough, tax cuts are being talked about.

If the Prime Minister wrote the bill, perhaps it would be entitled the “Oops, Sorry, Treasury Got It Wrong Bill”. Apparently the Prime Minister’s road to Damascus conversion on tax cuts has come about and previous lack of tax cuts are all Treasury’s fault because its forecast was so wrong over so long. In fact—I tell members just as an aside—Treasury produced some papers recently that point out its forecast has not been wrong. It has been predicting surpluses for quite some time, and it has just projected a structural forecast further out.

Perhaps this bill should be the “We Just Thought of Something About Redundancy (We Have Had a Chat to the CTU) Bill”. I would like to talk about the redundancy clauses of this bill. The redundancy provisions were picked up in the Supplementary Order Papers, and there were public relations statements from both Ministers Dunne and Cullen. But I raise the point again about the redundancy rebate clauses in this bill. They have never been aired. They have never been aired in this forum. They have never been aired in a select committee. They have never been discussed by this Parliament. We have not received advice from officials on this—absolutely never. These provisions have never been debated in this Chamber up until the last 15-odd hours. They have never been debated in Committee with cross-party buy-in to try to make some decent legislation. Even if philosophically National might disagree with it, we would try to contribute and help.

The redundancy rebate has never been challenged out in the public by those taxpayers who, at the end of the day, will have to be funding this. It has never been challenged by those who perhaps want some of this tax revenue spent somewhere else—be it on hip operations, education, student loans, or whatever. It has never been challenged other than in a dodgy discussion in a backroom in some Minister’s office up in the Beehive.

The redundancy rebate has never been quantified or qualified. How much is it? What will it cost? What is the fiscal impact? National has Supplementary Order Papers pushed aside because of the supposed fiscal impact of them, some of which is quite minimal. What is the fiscal cost of the redundancy rebates of 6c in every dollar up to $3,600? What is the cost? What is the study historically? How does that rewrite the accounts? How does that rewrite the forecast accounts?

This bill is part of a suite of bills that fell out of Budget 2007, which is a good reminder of the confidence and supply issue. I guess the confidence and supply issue is why the Greens over there are abstaining on this bill and, of course, why National is voting against it. We do not have any confidence in the supply of funds to the current Government.

The title of the bill, I think, is quite misleading. There are some absolutely classic quotes that came from Dr Cullen’s and Minister Dunne’s press releases that I think will come back to haunt them. This is their road to Damascus. Dr Cullen has essentially said that he likes a flat tax rate of 6c in the dollar for any redundancy payments. That is actually what he says. I will read to members, perhaps with a minor change or two, what he said, and this could be the title of the bill. Dr Cullen and Mr Dunne said yesterday, when talking about redundancy, that taxation payments should be fairer to people who are pushed into a higher tax bracket when they receive redundancy payments—and they extended it to lump-sum payments. Well, income is income. If one tries to argue that this income should be treated differently by the Inland Revenue Department than one’s own income, then one is in trouble. The department will go after that person. If one keeps it simple—“keep it simple, stupid”; give the department a big kiss, if you like—one sees income as income. The complexity that this starts to bring into the tax system is not welcome.

Another point is that the redundancy rebate is not quite as generous as the Ministers have announced, because it has to be claimed. It is not a rebate. A person does not suddenly get a cheque when he or she receives redundancy pay. It has to be claimed.

TIM GROSER (National): As with my other colleagues, I think it is really important to go back to first principles when we look at this massive complex bill and see the giant central piece of the jigsaw puzzle is simply not there—a coherent and strategic approach to tax reform, which is the very purpose of this massive undertaking, and which this Government has singly failed to address. The reason it is the central issue, and the reason it will be one of the central stories next year as the political competition heats up, is because fundamentally we are a market driven economy. That means that people move themselves and their resources in accordance with economic incentives, which are vitally influenced by tax policy structures. Therefore, the absence of any coherence in the life of this Labour Government since 2000 towards a strategic approach to tax is a massive, missing central piece of the political jigsaw puzzle.

The idea that perhaps we could have looked at this in a closed economy setting 30 or 40 years ago is completely out of date in light of the rise of the global economy. The often quoted facts about this massive exodus of New Zealanders—not simply to Australia, but elsewhere—is perhaps the clearest illustration that members of the public can fully understand the need to have a competitive tax structure. Even when we look at the bits in this curate’s egg that we like, such as the reduction of the corporate tax rate, we see that we are lacking coherence there. This is not an overall strategic approach, and I will just mention two or three of the obvious reasons why it is not. Firstly, it is not a comprehensive approach to business tax reform. What we know is that there were—from memory—75,000 individual proprietorships and 44,000 partnerships in New Zealand in the year to December 2006. If we were to have had a comprehensive approach to business tax reform, we would have had some solution for those people.

The second obvious point is that we all know the issue of disintermediation in tax and banking policy—we are about to discuss that in a bill coming up shortly, the Reserve Bank of New Zealand Amendment Bill (No 3). What the Government has now done by failing to have a strategic approach is open up a massive wedge of 9c in the dollar in relation to the top marginal rate. I find it laughable to use the phrase “top marginal rate” when I know it cuts in at $60,000 gross tax, but nevertheless that is the decision the Government has made. To me $60,000 a year does not sound like an enormous amount of money—and we could ask any nurse, doctor, or teacher earning that salary whether he or she feels “rich”—but that is meant to be the threshold for cutting in at this tax rate. So this gap has been opened up and the lack of a coherent, strategic approach now creates this problem. So, yes, bits of this legislation make sense, but overall, when we look at this massive document, we have to say it is a lack of strategy and a lack of coherence.

More recently we have heard the Prime Minister in particular rabbit on about the tax being consistently made in respect of the surplus. She said: “Well, nobody told us. Treasury got it wrong. Treasury didn’t tell us.” What a load of cobblers—I do not think that is unparliamentary language, Mr Chairperson. Let me quote directly from the Treasury advice to the incoming Government in 2005. Members will recollect the Prime Minister’s spin that nobody told the Government it had a surplus and nobody told it about income tax reform. Let us reflect on the following statement to the incoming Government 2 years ago: “high marginal tax rates on personal and company income are more likely to have a negative impact on growth than others, by inhibiting the decisions that drive investment and enabling people to make the most of their economic opportunities.” There are a dozen other such statements from Treasury contained in documents that even we have public access to, going back years, that indicated to the Government, if it had been of a mind to listen, the need to address the problem of growing surpluses, the need to address the growing competition in tax policy, and the need to advance a coherent and strategic approach to these issues. The reduction in corporate tax to 30 percent might have been a pretty hot policy position to take 15 years ago, but not so today.

KATRINA SHANKS (National): It is my pleasure to speak on the title of this bill. In the debate on this bill I have spoken about KiwiSaver and research and development tax credits, but I have not yet spoken about corporate tax rates, and I want to address them for a little bit. However, the one theme that is coming through as we read this bill, digest it, and understand it is the theme of how complex it is. Where is the long-term strategy for tax in New Zealand? There does not seem to be a long-term strategy. It all seems to be very piecemeal, and I have a problem with that.

I talked about research and development tax credits. We can talk about how there are now vehicles to try to get research and development tax credits. The perfect example was that the policy for research tax credits came from Australia. In Australia, banks tried to take advantage of these research and development tax credits by saying that development of their software was research and development, when actually it was redevelopment of software they already had. And that is what we will see. We will see people coming in and trying to take advantage of situations. Obviously there are loopholes in this legislation that enable people to do that, and I do not think they have been addressed as they should be.

When we talk about research and development it is just one tiny portion of this legislation. There are gaps in the legislation where people will try to take advantage of tax credits. Once again we have created a little tax pocket for a limited number of businesses. When we talk about KiwiSaver tax credits we are talking about exactly the same thing. We are taking about applying a specific tax advantage to a small portion of our population—to those going into KiwiSaver. I get confused as to where the strategy is. Should we not have one tax structure—structure, not rate—for everybody that is the same, so that everybody progresses through the tax structure, instead of “You belong in this silo, you belong in this silo, and you belong in this silo.”, and making it very piecemeal?

I believe that the Minister Peter Dunne, who has put this big bit of legislation together—and it is a big bit of legislation—supported Working for Families when it went through this House, and it is another form of tax credit. The Labour Government would say that it is a tax cut but, in effect, it is a tax credit. For years this Minister has campaigned on income splitting, but nowhere in this bill have I seen income splitting come through. He has campaigned and campaigned on income splitting for the last 24 years. One would think that the Minister of Revenue would be able to get it into this tax bill, but it has not made it. So how does what he has here line up with his long-term strategy for where he wants to see tax in New Zealand? It is quite interesting because obviously he is passionate about that matter, but this legislation does not support what he believes. It will be interesting to see what the long-term strategy is for this legislation.

I would like to touch on the corporate tax rates in this legislation because I believe that they add another level of complexity. We now have a corporate tax rate at 30 percent, a personal tax rate at 33 percent, a personal tax rate at 39 percent, and then there are not-for-profits, which are still sitting on 33 percent. We have a range of tax rates now that people can use, depending on the legal entity vehicle they are using. So we have silos again. People will really have to think about how they will structure their organisation to get the best tax benefits they can. This creates another vehicle for people to get into the 30 percent rate. We do not want to encourage avoidance, which I think this legislation does by widening the gaps between all the different tax rates. We have to be careful when we generate new legislation that we do not allow this to happen, but I believe that is what we are doing in many areas in this legislation. We are creating silos where people can apply, do a bit of manipulation, and move their businesses around. Accountants and lawyers must be extremely happy with this.

CHRIS TREMAIN (National—Napier): I rise to speak to the title of this bill and to bring another strain of thought to the research and development tax credit side of this debate. I want to speak specifically on that matter and, more generally, on the wider tax base.

National will not be voting for this legislation. We believe that the tax position put forward under clause 3 is not the direction in which this country should be heading. This bill is not going down the track of setting the vision that we need as a country and, as a result, we will not be voting for it.

I want to focus on the research and development tax credits and why we do not believe they will specifically achieve what we need in this country. Under the Labour Government we have seen a supposed agenda of economic transformation. But the reality is that although the New Zealand economy has changed over the last 6 to 8 years, there is no way that it has transformed. Other countries have changed rapidly. The export composition of many countries—of many small nations like Finland, Ireland, and Singapore—has transformed their economies significantly, to the point where their exports as a percentage of GDP are significantly higher than those of New Zealand. We still wallow at the 20 percent level of exports to GDP while other countries like Ireland have a significantly higher rate than that. Those countries saw 10 years ago, 8 years ago, 6 years ago, the need to transform their economies away from specifically agricultural-based industries into more of a weightless economy, and they transformed their economies rapidly.

The legislation before us gave us the opportunity to leapfrog, to go forward, and to focus specifically on the industries that will transform our economy. I think the bill has lacked focus in that regard and that New Zealand has lacked focus in terms of its economic transformation agenda. New Zealand needs to act quickly to take its exports forward. The area where I think we can do that significantly is in the weightless economy. In 1996 our total exports were $20 billion and in 2006 they were $32 billion—a growth rate of some 51 percent. That is a significant contribution. If we look at the weightless economy, which are services that New Zealand provides to economies overseas—such as 24-hour telecommunications services and helpdesk services—we see that they have grown from $792 million to $2.3 billion over the same period of time. That is a 193 percent increase in exports generated out of this nation. To me that is the focus that we should have had with this bill.

I see that the research and development tax credits in this bill are across all industries, such as my own businesses—my real estate business, my travel business, and development companies in Hawke’s Bay. I fail to see how an investment in research and development tax credits for those businesses will take this nation forward, or encourage export growth, or improve our balance of payments deficit. Quite frankly, it will not. Companies that are not in that market will use all manner of means to get a tax credit they would not otherwise get. I think that is the wrong approach. The research and development tax credit was an opportunity to focus on the weightless economy and to focus on our export markets to drive our exports as a percentage of GDP forward and upward. In that regard, I am disappointed.

I do not think there has ever been a precedent for an Opposition party to vote for another party’s tax bill, and National will not be changing that tradition. National is against this bill and will not be voting for it.

A party vote was called for on the question, That clause 1 be agreed to.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Clause 1 agreed to.

The question was put that the amendments set out on Supplementary Order Papers 167 and 168 in the name of the Hon Peter Dunne to clause 2 be agreed to.

A party vote was called for on the question, That the amendments be agreed to.

Ayes 61

New Zealand Labour 49; New Zealand First 7; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Amendments agreed to.

A party vote was called for on the question, That clause 2 as amended be agreed to.

Ayes 61

New Zealand Labour 49; New Zealand First 7; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Clause 2 as amended agreed to.

Hon PETER DUNNE (Minister of Revenue): I move, That the Committee divide the bill into the Taxation (Annual Rates of Income Tax 2007-08) Bill, the Taxation (Business Taxation and Remedial Matters) Bill, and the Taxation (KiwiSaver) Bill, pursuant to Supplementary Order Paper 169.

A party vote was called for on the question, That the motion be agreed to.

Ayes 61

New Zealand Labour 49; New Zealand First 7; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 48

New Zealand National 48.

Motion agreed to.

Bill reported with amendment.

Report adopted.

Dairy Industry Restructuring Amendment Bill (No 2)

Second Reading

Hon JIM ANDERTON (Minister of Agriculture): I move, That the Dairy Industry Restructuring Amendment Bill (No 2) be now read a second time. The Dairy Industry Restructuring Amendment Bill (No 2) was introduced into the House on 14 August this year. It was read for the first time on 21 August and was referred to the Primary Production Committee for consideration. The committee received and considered 10 written submissions on the bill. The bill amends the Dairy Industry Restructuring Act 2001. It provides for the export rights to 11 designated dairy export markets, at the expiry of the rights currently held by the Fonterra Cooperative Group. The bill will complete the transition begun in 2001 to a new industry structure, without the monopoly powers of a statutory marketing board. It will also provide certainty to all the dairy industry’s stakeholders about the future access they have to these markets.

As well as provisions relating to dairy export markets the bill also extends existing regulation-making powers relating to the New Zealand Dairy Core Database. This is an important industry-good asset containing information on dairy herds and their production performance. The key issues raised in the submissions on the bill related to which export markets should have all restrictions removed and which should continue to be regulated under the new system, the term of allocation for export licences, how long allocated export licences should be valid for, and the scope of powers given to the chief executive of the Ministry of Agriculture and Forestry for the purposes of monitoring and enforcing compliance with new allocation rules.

Issues about the current management of the New Zealand Dairy Core Database were also at issue. Of the current 11 designated markets, the bill provides for all export restrictions to be removed from two markets and from parts of four other markets; in other words, these two markets will no longer be designated markets. In the case of four further designated markets, new, narrower definitions are provided for. The bill provides for export licences to all remaining designated markets to be reallocated periodically among New Zealand dairy companies, on the basis of each company’s share of total milk solids collected from New Zealand dairy farmers. The new arrangements will come into effect as the initial allocations made to Fonterra in 2001 expire, from now through to 2010.

Some submissions to the committee strongly supported removing export restrictions to certain markets, as this would complete the transition begun in 2001, and provide more export opportunities for dairy companies. However, one submission strongly opposed removing export restrictions to some markets, on the basis that this could risk destruction of some value to New Zealand interests. The committee has not recommended any change to which market should remain regulated and which should have restrictions removed. I believe that the committee has considered this matter carefully in the context of the relevant purposes of the principal Act, and I commend its final decisions and recommendations to the House.

The fact is that for some markets, because of the particular import arrangements operating, export licences allocated to multiple participants would not be legally enforceable. The New Zealand Government could therefore not guarantee that licence holders would be able to exercise their rights, even if those rights were actually given. Therefore, the New Zealand Government, by removing export restrictions for these markets, will be providing opportunities for a wider group of New Zealand - based companies to expand their export activities. For one other market the benefits of regulation are not sufficiently large to justify the cost of continuing a regulation.

The bill provides for export licences to be allocated to multiple participants on a periodic basis. This was to be done annually, for the next 3 years, which was proposed in the bill, but moving to every 3 years—that is, triennial allocations—from 2011 onwards. The proposed triennial allocation period was intended to provide a balance between the interests of growing companies, which would tend to favour a shorter allocation period, of course, and those of established companies, which would tend to favour a longer allocation period. The committee has recommended that export licences should always be allocated annually; in other words, the committee recommends not moving to triennial allocations in later years. As the committee points out, no matter what the allocation period is, companies will be able to predict with relative accuracy what their share of export licences will be, as each allocation approaches.

The bill provides a number of powers to the chief executive of the Ministry of Agriculture and Forestry for the purposes of monitoring and enforcing compliance with the rules of allocation for export licences. These include powers of entry, search, seizure, and the power to require certain information. After seeking clarification of the rationale and scope of these powers, the committee has recommended a number of amendments. These amendments aim to clearly define when and how these powers will apply, and to generally make the monitoring of the compliance regime more workable and effective. I believe they are all in the spirit of good legislative practice, and I am therefore appreciative of the committee’s work in this regard.

The bill extends existing regulation-making powers relating to the New Zealand Dairy Core Database, so that if a copy of the database is vested in an entity other than the current operator, which, of course, is the Livestock Improvement Corporation, regulations can be made to apply to any new entity. This will ensure the ongoing integrity of the database, for the benefit of the whole industry.

This bill represents an important step in the evolution of the New Zealand dairy industry. It provides a fair and equitable mechanism for a wider group of companies to access designated dairy export markets. I would like to thank the chairman and members of the Primary Production Committee for their expeditious but thoughtful consideration of the bill and for their timely report, which was tabled on 31 October this year. I commend the bill to the House.

Hon DAVID CARTER (National): National will be supporting the Dairy Industry Restructuring Amendment Bill (No 2) through all its stages, and I thank the Minister for his comments. To my mind this legislation shows the maturity of the dairy industry and the way it has moved a huge amount since the late 1990s, when we considered whether there was a better way than the old mechanism of sale through the New Zealand Dairy Board. Following the initial restructuring of the dairy industry, we saw the formation of a very large company called Fonterra, which collects 95 percent of all milk produced in this country. The company has clearly done very, very well in the last few years, and I congratulate Fonterra on its performance.

I also share the celebration of dairy farmers who now find themselves seeing a record payout. This is driving the whole of the economy, and if members want further proof of that, they can just look at the comments made by the Governor of the Reserve Bank when he reviewed interest rates a couple of times ago. He made the comment then that interest rates would remain high because of the Fonterra payout. It was interesting that he made those comments as the payout was being predicted by Fonterra, and certainly before any dairy farmers had actually received the benefit of that additional payout.

What the statement proves, and what all New Zealanders need to realise, is that the economy of New Zealand is hugely affected by the success of the whole of the dairy industry. Because of Fonterra’s dominance within that industry, the success of Fonterra affects the livelihood and the standard of living of all New Zealanders. So National is pleased at this further step in the maturing of the dairy industry, and is certainly heartened by the performance of the dairy industry since that time.

The Minister said that the Primary Production Committee handled its role efficiently and reported back on time. Again, it is a disappointment to me to find that we are in urgency—the final rush before Christmas—having to now put this bill through all its stages, when it has been sitting on the Order Paper for the whole of November and could have been done under the normal process. But the legislation must be passed by the end of this year. If members look at the commencement date, which is covered in clause 2, they will see that the legislation will come into effect on the receiving of the Royal assent. We all know that even the Governor-General requires his Christmas holidays, so here we are in urgency making sure that this bill is actually put through. I acknowledge that the whips rang me quite recently to say that we would be changing the Order Paper this morning as a means of making sure that this legislation would go ahead of the taxation legislation. That is how critical it is that the bill be passed.

I will make a couple of comments about the procedure through the select committee and about one or two of the changes we made. As the Minister said, there is the issue of the allocation period for licences. We heard submissions both ways as to whether it should be on a 3-yearly or a 1-yearly allocation basis. Although we were persuaded in the end that there would be an additional cost associated with an annual allocation process—we did not think those costs would be huge—we were very keen that the industry maintained a system that allowed maximum efficiency within the industry. That means that we are encouraged by the dairy industry restructuring legislation and by the way that new players have been coming into the scene and competing against the dominance of Fonterra.

I do not think that Fonterra has much to worry about, because it is such a dominant player, but these new players—the likes of Synlait and Open Country Cheese—have been good for the industry by giving the farmers of New Zealand other choices as to where they may decide to send their milk. We were keen to make sure that the allocation process reflected what we predict, from the select committee point of view, will be ongoing new entrants into this industry. This has to be good for farmers and also for the whole of the New Zealand economy.

The committee was certainly also concerned, initially, about issues around the powers of entry, search, and seizure. We put a lot of effort into this, but at the end of the day the committee was convinced that whilst the measures within the legislation are quite severe, they are necessary. Under no circumstances can the Government entertain not being in a position to carefully monitor compliance with the actual figures by which these quota allocations are finally made. They will be made on the basis of the milk collected from individual farmers. On that basis it will be a direct proportional share of the dairy industry, and the Government needs to have the ability to make sure that that system is sound and complied with by the industry—not that I suspect any of the players who are responsible would attempt to cheat that system.

The final issue I will touch on is the core database. We received submissions—particularly from one company, Ambreed New Zealand—that argued that what is in place now has not delivered fairly, as was expected by the select committee when it heard the original dairy industry restructuring legislation back in early 2000 or 2001. Having listened to the arguments from Ambreed, I sympathise with the position it finds itself in. As it clearly said to us, price equals access, and I think there is an issue around whether we got that legislation right in the original Dairy Industry Restructuring Act. Having said that, I point out that the committee was quickly made aware that the very issue raised by Ambreed was actually outside the scope of the bill. I think it is important that Parliament notes the words in the report from the select committee: “This matter, however, is outside the scope of the bill, but needs further investigation.” I suspect that over time that will occur.

This legislation is necessary. It has to be passed by the end of this year—in other words, within the next few days so that the Governor-General can put his signature to it and then himself have a holiday. I think the select committee did a very admirable job with this complex legislation. This legislation will put the dairy industry in good heart for the future. This industry is also of vital importance to New Zealand.

Dr ASHRAF CHOUDHARY (Labour): I will take just a very brief call on the Dairy Industry Restructuring Amendment Bill (No 2). As the previous speaker said, this is a bill on which the Primary Production Committee took a very bipartisan approach. We all worked together on it for the farmers of this country and for the industry. We are very pleased it is to be passed before the end of this year, because it will be applicable from early next year.

The bill removes the restrictions of exporters through to markets, and, as was highlighted before, it gives us a reference period for determining the allocation. That means the data will span three seasons rather than two, which was originally in the bill. Also, it highlights the power of entry, search, and seizure of documents in the workplace and talks about the control of a core database.

Overall, it is a very good bill. As the Minister said before, it is really an evolution of the dairy industry from 2001 onwards. It will certainly allow exporters a much better and more streamlined opportunity to export our dairy products around the world.

With those few words, I commend this bill to the House and look forward to the deliberations on it. Thank you.

ERIC ROY (National—Invercargill): As those listening may have ascertained, there is a great deal of unanimity on the Dairy Industry Restructuring Bill (No 2), so I will not be taking a very long call. I think there are some salient things that need to be said, and I will run through those.

The first is that the Primary Production Committee, under the chair of David Carter, continues the tradition of looking for the best outcomes in solving whatever comes before it. There is always a great deal of goodwill and unanimity about what we end up doing, and this bill is no exception. We recognise the significance and importance of the dairy industry to New Zealand, and we gave earnest consideration to the issues raised in the Dairy Industry Restructuring Bill (No 2). This bill was quite specific. It was not wide ranging, and, as has been suggested, some submitters wished to bring up matters that were not contained within the bill. Whether or not we are sympathetic to them, we are limited in what we can and cannot do.

When the Minister of Agriculture introduced this second reading, he made a comment that I think we can identify with. He said that this bill is part of the evolution of the dairy industry. The dairy industry is New Zealand’s most significant exporter. Fonterra is our biggest company; it generates huge amounts of revenue through exports. But the dairy industry is an evolving industry, and one of the interesting things is that we have seen that it does have the maturity to actually advance. It is not trapped in any kind of time warp.

Besides Fonterra, there are now seven other players, even though their combined mass occupies about 5 percent of the dairy industry. The provision allowing those players to operate is what we actually had to deal with, and the allocation of opportunity in the area of export markets. There are perhaps four conditions that come into decisions about this matter. There are the conditions and rules of the importing country, the desires and expectations of the exporters, the desires and expectation of the producers, and the international rules that exist under the World Trade Organization. All those things kind of come together, and we had to look at allocation of specific markets. Other speakers have outlined the issues surrounding that.

As David Carter said, one of the issues that perhaps has a bit of traction but is not within the bill is the way in which the core database is operated. His comment that price is access sums it up. I think an issue that the industry needs to address is whether what exists now is serving the industry in the best possible way. If the industry is to continue to progress, it needs to have all the information in the database relatively available to other players; otherwise, we are limiting the genetic resources, the sharing of information, and all of those matters. As I said, this matter is outside the scope of the bill and therefore was something we could not consider. However, it may well be addressed at a different time in a different forum.

I am pleased that the Minister is prepared to accept all the amendments recommended by the select committee. We gave quite considerable consideration to how this measure can best operate, and I think we are all pretty much happy with the bill as it is reported back in this second reading. As has been stated, National will support this bill through all its stages.

NATHAN GUY (National): I think it is important that I make a contribution to this debate. I want to put it on the record from the start that the company I am involved with is a Fonterra supplier and a shareholder in LIC, but the Dairy Industry Restructuring Amendment Bill (No 2) is going to enable greater competition in the dairy industry, which I think is fundamental. The important point I want to make around those two companies is that there are seven players outside of Fonterra, albeit they are small players in the overall dairy industry. But it is important that the markets are opened up and that Fonterra does not have a monopoly over them. I think that that is what this bill sets out to achieve.

I also make the particular point that here we are, at 20 to 12 during the day. We are in urgency—we do not normally sit at this time of the day—to put this bill through Parliament because it is important. But I say to the Minister and the other members over on the other side of the Chamber in the Labour Government, and to those members who prop up the Labour Government, that this bill has been lurking around on the Order Paper for about the last month. Yet here we are, having to put this legislation through in a mad panic under urgency. It is important for the cornerstone of our economy that it goes through today—extremely important—and we will support it in going through. But I make the point that the Government has had to slam the House into urgency because it is so hopeless at managing the things on its Order Paper. This is a hopeless Government. It has had a month to get this legislation through, but here we are today, at 20 to 12, having to put it through under urgency.

Another important point that I make on this bill—and I will probably make further contributions on it when we get into the Committee stage—is that it will allow export licences to be allocated on the basis of a proportion of the milk solids collected from dairy farmers, with a minimum threshold of 0.1 percent of the total milk solids collected. Those export rights will become available between 2008 and 2010 on a yearly basis. That is a very important point to make there. Those rights outside that period will become available from 2011 on a 3-yearly basis.

The other important point, which has been touched on but which I think it is worth making a further contribution on, is around the core database that LIC tends to have a monopoly over in the current regime. It was a little outside this bill to get into the nitty-gritty of that, but I think that with Mr Carter’s chairmanship of the Primary Production Committee, it may be something that the select committee seeks to have a further look at in 2008. It is not necessarily fair that price dictates the level of service for the other minority companies that are trying to get involved in providing a service and dealing with the core database.

So those are some issues that I think we need to make a contribution on. I would like to get the Minister, in the Committee stage, to talk about the definition of milk solids, because that would be an important contribution. I think the Minister should tell the House that whether “milk solids” is written as one word or as two words is significant, because the words have a different definition. So it would be worthy of the Minister in the Committee stage to make a contribution and explain the definition and why that is so, for the benefit of listeners.

National is supporting the passage of this legislation through the House. We wonder why we need to be in urgency to get it through, because if the Government were organised we would not need to be ramming it through under urgency.

R DOUG WOOLERTON (NZ First): Thank you—

Hon David Carter: Oh, here we go—the Labour leftie.

R DOUG WOOLERTON: In reply to David Carter, I say we will pay it back, on our own terms and when we think it is appropriate—with the appropriate hype and all the rest of it as members would expect. So I tell those members they will not miss it when we do it—

Colin King: Go home and have a look at the news.

R DOUG WOOLERTON: —and they should keep an eye on the news, and they will get there.

I think that it is right to say that New Zealand First supports this Dairy Industry Restructuring Amendment Bill (No 2). I was listening to the previous speaker Nathan Guy, and I just want to run over the things that have made the New Zealand dairy industry great.

Hon David Carter: A lot of people want to run over you.

R DOUG WOOLERTON: I know that a lot of people want to run over me, and I know the reasons they want to. But I will talk about what made the New Zealand dairy industry great, and why we in New Zealand First have concerns about it. A lot of it is encompassed in this bill, but not in the detail. This bill allows the transfer of quota that was shifted from the New Zealand Dairy Board to Fonterra, and that will now go further out to other dairy companies. I will give a couple of illustrations of that.

The New Zealand dairy industry has done well, because we have ensured that it stayed in the ownership of New Zealand farmers and in the ownership of New Zealand, and we have made no bones about the fact that we would protect that industry in any way, shape, or form that we could. It has been a longstanding joke that if the Dairy Board of the day got into trouble it would come to this Parliament, talk to the Prime Minister and the Minister of Agriculture, and ensure that laws were put in place to guard the dairy industry. Now we are seeing proposals to split up the dairy industry and to open it up to overseas owners and wider ownership.

People do not remember, and many people do not understand, that it is the quotas we hold, and the quotas that have allowed us to get into markets—mainly in Europe—that have provided the cream on top of the cake for the dairy industry. Those quotas were held and jealously guarded by the Dairy Board and by Fonterra. Now they are going wider, and I hope that the companies that pick them up respect that, and guard them as jealously and as carefully as has been done in the past.

Dairy farmers, traditionally, have understood something that beef farmers, sheep farmers, and wool farmers in New Zealand have not understood. They have understood the value of vertical integration. Individual farmers have understood that they could not market their products themselves, and they could not turn milk into cheese themselves. So they hired “suits” or, in the early days, white-coated people, dairy factory managers, to do those things while the sheep, beef, and wool industries allowed overseas interests to dominate the market. They became price-takers, and the Vesteys, Hellabys, and all the rest of them clipped the ticket on everything. So that made those industries that allowed overseas companies to dominate the marketing of their products weaker than the dairy industry.

The dairy industry kept our marketing in-house, we kept it in New Zealand, and we make no bones about it. That has been the strength of the dairy industry. Dairy farmers have always understood that they had to hire marketers, they had to market manufacturing people, and they had to market their products in other countries while retaining ownership, retaining control, and making sure the returns thereof came back to this country.

A couple of smaller dairy factories are starting up around the country as we speak. One is called New Zealand Dairies Ltd, in Studholme, not far from Timaru, but we are seeing in those companies a lack of capital. We are seeing them go to the people they are selling to. In this case it is a bunch of Russians. I do not mean a bunch of Russians in that they are not honest; I mean—

Hon David Carter: Xenophobia!

R DOUG WOOLERTON: No, no. This is a fact, and these people have put money into this company and now want to control it. I say to Mr Carter and to this House that xenophobia is what has made the dairy industry great. The dairy industry did not follow the stupid, naive market views that were followed by the meat industry, which is now giving profits to everybody except farmers; or the wool industry that is now on its knees, giving profits to everybody except farmers; or the sheepmeat industry, which is now giving profits to everybody except farmers. That is what—

Colin King: That is rubbish.

R DOUG WOOLERTON: Oh no—it is not rubbish, because the dairy industry that once was the poor cousin of agriculture now dominates agriculture and is earning in excess of 20 percent of our export earnings—because of xenophobia. We decided we would keep this industry within this country and we could control it, and we should still be doing that. We should not allow other countries or other people to come in and take the profits away from our farmers. We have the ability in this country to provide the money we need for this industry.

Hon Member: Come on, Stalin!

R DOUG WOOLERTON: This is not about Stalin. I would just like people who are listening to know that the National members are laughing and mocking in a way that seems quite sad to me, because I grew up in a National Party that took the ownership of the dairy industry seriously. It believed that the ownership of the dairy industry should be in the hands of New Zealand farmers. That was the National Party I grew up in, and now National members mock me for making this speech to say that this industry should be New Zealand - owned. I am not saying that Fonterra should have a total stranglehold on the industry—

Eric Roy: You just did.

R DOUG WOOLERTON: —but I am saying there should be legislation ensuring that whoever starts up dairy farming in this country is a New Zealand company with New Zealand ownership. I hear Mr Eric Roy, who now comes to this Parliament to earn the substantial part of his living. Mr Roy owns a big sheep farm down out of Gore but it does not make enough money for him, so he has to come to this Parliament as an MP to supplement his income, and now he sits here and mocks me when I am trying to protect the dairy industry. Instead of flitting around the world, why did he not involve himself in his industry and protect it while the dairy people were protecting theirs?

Eric Roy: I’ll put my record up against yours any day.

R DOUG WOOLERTON: Well, the member can put his record up against mine. I would like to see that, actually, because my record on dairy company directorship is a damn sight better than Mr Eric Roy’s record on his pitiful sheep-farming career. I tell members that if they look at the returns going to sheep farmers and at the returns going to dairy farmers, then therein lies the story. There is no need to look further. But because of a philosophical belief in unfettered markets, Mr Eric Roy is happy to see the dairy industry go to whoever is the highest bidder. We in New Zealand First are not.

Hon David Carter: Oh, rubbish!

R DOUG WOOLERTON: Mr Carter can say “rubbish” and we will hear his contribution, but Mr Carter is happy for other people beyond these shores to involve themselves in the New Zealand dairy industry. We in New Zealand First are not.

Bill read a second time.

In Committee

Part 1 Amendments to Dairy Industry Restructuring Act 2001

Hon DAVID CARTER (National): I think the important section of the bill is around clause 2, “Commencement”. This legislation has to be passed by 31 December 2007. The date is important because it was the original date on which the allocation to Fonterra of these licences was set. The history goes back to the issue around quota allocation being very difficult to determine at the time of the dairy industry’s restructuring in 2001, when the Dairy Industry Restructuring Act was going through Parliament.

I point out that although the Act went through Parliament in 2001, the discussions on the deregistration of the New Zealand Dairy Board and the opening up and restructuring of the industry actually commenced through the late 1990s. I think Parliament should record today the efforts made by a former Minister of Agriculture, the Hon John Luxton, who drove this process and initiated it. It was something that at the time was not widely accepted by some of the dairy—

R Doug Woolerton: While he and Wyatt Creech were starting up a cheese factory.

Hon DAVID CARTER: Well, Mr Woolerton says that they managed to start up a cheese factory, which was a very successful initiative. It was allowed by this very legislation, and it is something that that member ought to applaud instead of knocking. But that member is at the stage when he is living in the last century, I assure members. Mr Woolerton is living in the last century, but I just say to him—I have a few things I want to say, but I do not want to use up my time—that this industry has been moving on for a long time. It is time that “Rip Van Winkle” woke up and took the chance to look at what has happened, because we should be very proud of this industry.

I say to the Minister in the chair, Jim Anderton, that one of the interesting little developments in the Primary Production Committee was to be found in the definitions. We found, to our surprise, that the whole of the quota issue is determined by the amount of milk solids collected on New Zealand farms. Through this process we found, to our absolute amazement, that the word “milksolids”—and I say it as one word because we found there was a reason why it had to be one word rather than two words—had never been defined in legislation. So we have included that definition to make sure it is there in the legislation so that any subsequent allocation is made on that basis.

The other issue I will touch on, which I did not mention in my first contribution, is around the calculation of quota and the ability of companies now to do that over a period of three seasons. This was something that struck the select committee. The select committee members know, because of the climate change issue as much as anything else, about the issue of droughts affecting particular regions. It is certainly something that is on the minds of the select committee members.

For example, if Westland were to be devastated by a drought in any one particular year, then more than that year would be affected in production terms. The effect of that drought could flow over 1 year, 2 years, or even 3 years. The select committee recognised that and has therefore given the ability for the calculation of quotas to be on the basis of recognising the effect on more than 1 year or 2 years’ production, but in actual fact 3 years’.

I think those are the main points, but one that is certainly of annoyance to members on this side of the Chamber is the fact that the Government, after having had this bill on the Order Paper for some time, has not been able to move it in normal sitting time. Here we are now in urgency, driving the bill through all its stages so that the Governor-General can get it on his desk prior to the Christmas break, sign it, and make sure it is done.

This issue has been around since early 2000. The Government has had 7 years, and now here we are, in the very last, dying days of this Parliament—in fact, in the dying days of this Government, I suggest—rushing it through all its stages.

Dr Ashraf Choudhary: Dream on!

Hon DAVID CARTER: Ashraf Choudhary laughs, but he is the only member on that side of the Chamber who is laughing. At least this bill is finally being attended to, and for that I congratulate the Minister.

ERIC ROY (National—Invercargill): As has been suggested, there is a great deal of unanimity about this Dairy Industry Restructuring Bill (No 2). However, it is appropriate that we need perhaps to highlight one or two natural issues because, as the Minister said, we are in a process of evolution and we may want to come back and look at some of the things recorded in this debate.

I draw members’ attention to clause 4, “Interpretation”, in Part 1. I note the somewhat vitriolic attack on my good self by Doug Woolerton in the earlier stages of this debate about the need to be xenophobic. If he is prepared to look at who is an eligible participant within the interpretation provision of this legislation, he must be shaking in his shoes. There are two qualifications to be a participant: an entity must hold an export licence and it must collect at least 0.1 percent of the milk production of New Zealand. For a member who is claiming that we need to be xenophobic and need to protect the monopolistic structure, he is allowing and sanctifying in this legislation a provision that someone who holds one-thousandth of the production of New Zealand and an export licence is out there competing in the export field. I am sure this must be of great concern to Mr Doug Woolerton, who has this view that it is extraordinarily necessary to be a monopoly.

I would just make the point that we are in a state of evolution. That is good, because we cannot stand still—we go either forwards or backwards. I believe this legislation is going forward. But the time may well come when we say: “Hang on, we used to have a monopoly and now it is an oligopoly.” As I said in the second reading, as far as I am aware—someone may correct me—seven players are now contesting with Fonterra. At the moment this is not an issue, because those players only have to have one-thousandth of the production in order to be in there.

Hon David Carter: They could be Russians.

ERIC ROY: Some of them could be anybody. Yes, that is a very good point, I say to Mr Carter. For example, New Zealand Dairies, which is situated at Studholme, is a Russian investment in the New Zealand dairy industry. Mr Woolerton, who is claiming the xenophobic approach to monopolistic management of the dairy industry, must be gravely concerned about that.

R Doug Woolerton: I said that’s what made this industry great.

ERIC ROY: Yes, well, Mr Woolerton must be worried that the industry is turning on its head.

R Doug Woolerton: Of course, I’m worried. You’ve seen my statements all over the place. You’re not worried.

ERIC ROY: But he is still voting for this provision.

The second point I wish to raise is in relation to section 28A, which is to be inserted into the Dairy Industry Restructuring Act by clause 12. Here we give a delegated responsibility in terms of transferring export licences. I commend to members the amendments that are in place. One of the things we tend to do with quite a degree of abandon at times is to put these delegated responsibilities into legislation that states that we can do whatever we want by Order in Council. To transfer a licence is quite a significant issue, and although it is appropriate that it be done by Order in Council, it is also appropriate that we have a very clear methodology and process so that there is adequate consultation and adequate checks and balances. That is why I commend to members that the amendments in this bill are passed, because the Primary Production Committee has given due consideration to all of those elements.

The third point I would raise again in this Committee debate relates to the elements to the database. Although the dairy industry is a leading light in many respects in the New Zealand pastoral industry, in terms of genetic gains it is not the leader. The leader now in terms of production through genetic gains is the sheep industry. I believe that one of the key factors is the fact that the sheep industry has open access to its database. Yet the dairy industry has said that it is under the Livestock Improvement Corporation and, yes, there can be access, but the access costs so much per cow. One of the members of the select committee may remind me what the figure is, but I think it is about $2 a cow. As David Carter said earlier, price is access. If I were a dairy farmer and I said that the genetic property of the Livestock Improvement Corporation is the only one we are really interested in—

COLIN KING (National—Kaikoura): It is a pleasure to speak in the Committee stage of the Dairy Industry Restructuring Amendment Bill (No 2), and I take great confidence and comfort from the speakers who have spoken previously. I want to deal with two areas, one of which is the integrity that is required around a quota system. It is very, very important, because we mention the farmer a lot—the producer of milk solids and suchlike—but the quota is owned by the Crown, and is part of the process of our getting free trade or privileged access to various markets. On that basis, whatever a quota management scheme is about, it has to have integrity.

When we look at new section 29A, inserted by clause 14, we understand just how structured and how principled this process is. That cannot be overlaboured, because we are an export nation; we export 85 percent of what we produce in this country. It is very difficult when we hear the speaker from New Zealand First talking about Fortress New Zealand and that kind of mentality, because, in actual fact, we have to continually argue for the removal of barriers. Quota access, by its very nature, is privileged nation access. It is a very fine line. Effectively, in the world of trade, New Zealand runs two arguments, and it is very important that we are seen to be very thorough and have quota management processes that have integrity.

When we go through section 29A to section 29J, we find that the chief executive has some wide, sweeping powers to be able to go in and check the data, the record-keeping, of anybody who has access to that export market. We see that, at the end of the day, if any of those laws and regulations that underpin the integrity of the quota system are breached, the fines are quite substantial. We see that the fines have been extended under this bill up to $200,000, with a further fine not exceeding $10,000 for every day or part of a day during which an offence is continued. So there is a high level of accountability. That is good to see, and I myself think it has to be there, because from time to time people from the dairy industry have been dragged before various countries’ officials to explain their actions. That sometimes can have an effect upon other quota markets that are held. When we look at the dairy industry we see that this quota is not large as a proportion of the whole of the dairy industry—it is rather small. But in the sheepmeat industry, a very large part of the access to Europe is under quota. So I am pleased, and I take great comfort from the way that this bill progressed through the select committee. I am comfortable that it is fine.

The second thing I want to talk about is the Livestock Improvement Corporation’s core database. This issue is something we need to get sorted, because in itself it can actually be a barrier to improving the productivity of this nation—and not only within the dairy industry. As there is more demand for our products to be scrutinised, we will have to get into areas such as animal identification, and the Livestock Improvement Corporation’s database is a vehicle whereby we can identify the very cuts of meat that people are consuming. The Livestock Improvement Corporation has raised an issue here—we see that it came from AmBreed New Zealand originally, which is a competitor within the market—and it is important to realise that there are other valuable aspects that the Livestock Improvement Corporation’s animal database can contribute to. As a nation we will continue to export a lot of what we produce, and when we consider that 85 percent of what we produce overall goes overseas, it is important that we do it well.

I commend the select committee for processing this legislation in a timely fashion. This issue is something that those in rural areas have been very concerned about since 2001.

R DOUG WOOLERTON (NZ First): I just want to cover a couple of points made by Eric Roy, when he mockingly said I would be quivering in my boots at this legislation. Of course, he is right, because I and some of my colleagues voted against the Dairy Industry Restructuring Act, the one put into this Chamber by Mr John Luxton when he was the Minister for Food, Fibre, Biosecurity and Border Control. It broke up the monopoly of the Dairy Board and allowed Fonterra to become a monopoly, to a degree. Before that it was not possible to start up a private dairy company, as we know. While Mr Luxton was changing the law for the dairy industry, he was proceeding with plans to start up his own dairy factory, and that is what he did. The National Party thinks that that is good business. I do not think it is the right thing to do. Yes, Mr Luxton obeyed the letter of the law, as we do, but did he do what was morally right? No, he did not, and neither did his colleague Mr Wyatt Creech. He also did not do what was morally right, but now they both have a very successful dairy company, which they are about to lose control of. Mr Talley is going to own that dairy company in Matamata, and Mr Luxton and Mr Creech will do very well out of that. So I will not be going to great lengths to thank Mr Luxton for the Dairy Board restructuring, or, indeed, for any of the legislation that followed.

We in New Zealand First do worry about those sorts of things, because the laws that allowed the dairy industry to become huge and great and internationally competitive are now bit by bit being dismantled. Part of that is the record-keeping that we hear the members of the National Party talking about in LIC, based in Hamilton, which has an amazing database. It is one of the most amazing outfits in the world when it comes to genetics for dairy cows. There have been many assaults on the Livestock Improvement Corporation, which is what it was known as then. People have wanted to get access to its database and access to its information for years, not for the assistance of the dairy industry and not to progress our enterprises, but for their own material gain. That has been staved off, but for how much longer, one wonders?

The arguments are always along the lines of those we have heard today: that opening up access to that information to everybody and his or her mother’s dog will help things in New Zealand and in other countries. We in New Zealand First want to know how it will do that, because we do not believe it will. We think that information should be protected for the benefit of the people who paid for it, for the people who set it up, and for the people—

Eric Roy: It’s xenophobic!

R DOUG WOOLERTON: It is not xenophobic; it is called looking after one’s best interests.

Hon David Carter: It’s communism too!

R DOUG WOOLERTON: No, it is not about communism. New Zealand First supports PGG Wrightson and the sort of enterprises it is involved in overseas, such as operating dairy farms in Chile and that sort of thing, because hopefully the money will return here. But we do not support people who come here and take our money back to their country.

Eric Roy: Oh, so we don’t have reciprocity. It’s a one-way street.

R DOUG WOOLERTON: We do have a one-way street. Those members over there used to believe in reciprocity in the sheep industry, and they used to believe in a fair go.

I remember my father telling me about the days when the farmers in the South Island would toddle across to Tooley Street—I do not like to bring the Chair in, but this is of interest to people, I am sure—and the English of the day used to treat them to drinks, look after them, and give their wives little presents. And they would do the farmers like a dinner. My forebears in the dairy industry thought that that was for toffs and idiots who did not know how the world worked. We believed that an industry should be tied up by those who owned it and should operate for their benefit. But no, no, the people across the Chamber who come from sheep and beef stock backgrounds believed that we should give the wealthy English lords and ladies their cut of the pie. They have done so, and they still do today.

I hope those people are happy about that, because in the dairy industry we think that is nonsense. In the dairy industry, we think that is a rip-off. In the dairy industry, we think that is just childish, naive behaviour. We think the dairy industry should be run for the benefit of the farmers, not for the benefit of the ticket-clippers throughout the world. That is the way the dairy industry has been run and that is what has made it great, over and above other industries that have been going a lot longer than it and that were in fact seen as the premier industries in the agricultural business.

New Zealand First reluctantly supports this bill. We make the points I have made: that it is certainly a sad day when we see people gradually losing control of their industry, supported by the National Party. [Interruption] While I am making this speech I am being mocked by the very people whom farmers put into this Parliament, thinking they would support farmers. I am here to tell farmers not to rely on the National Party for the support of their industry, sadly.

RODNEY HIDE (Leader—ACT): I rise on behalf of the ACT party to support the Dairy Industry Restructuring Amendment Bill (No 2); it is a good bill. I will respond to some of Mr Woolerton’s comments. It seems to us that this is a good bill, because I do not think that farmers’ interests and producers’ interests are served by having only a monopoly exporting into those quota markets. If we look at the history of the world, then we will see that it has always been smaller companies with an idea that have come along, have innovated, and have provided the new markets and the new ways of doing things, and they have provided for an increase in prosperity for everyone. That is why we support this bill.

I have to say that I was somewhat amazed when I listened to Mr Woolerton’s comments. He does know the industry, having worked in it, but I would suggest to Mr Woolerton that if xenophobia worked, as he says it does, then countries like Albania, North Korea, and Cuba would be rich and prosperous. In a country of 4 million people, we cannot eat all the cheese we produce, we cannot drink all the milk we produce, and we cannot use all the primary produce we produce, and that is why xenophobia does not work. We have to be open to the world. We have to like people from other countries.

Mr Woolerton has an idea to build a fortress around our industry, where we would not change anything, we would not allow any competition or choice, and we would not innovate.

R Doug Woolerton: Oh no, I didn’t say that.

RODNEY HIDE: Mr Woolerton says he did not say that, but the implication of having one buyer and it being run as a farmer cooperative is precisely that. Mr Woolerton said that, yes, New Zealand First has the view that we should have a fortress around New Zealand and that we should protect ourselves from foreigners. We also learnt that Mr Woolerton thinks that anyone who disagrees with New Zealand First and Mr Woolerton is, somehow, an idiot who does not understand the issues as well as he does. He would rather say that than debate the arguments and ideas.

I have also learnt this about Mr Woolerton, and I think this is a sad day. When Mr Woolerton disagrees with someone, it is because that person has ulterior motives. I think it is a sad day when we attack former members of this House for having ulterior motives for what they do. We might disagree with them, but I do not think we have seen people here with ulterior motives promoting legislation.

I make this point, again to Mr Woolerton. Having people who are doing well in business and making money is good for New Zealand, it is good for the farming industry, and we want a successful and prosperous dairy industry all the way along, at every step of the way. That is what will make the dairy industry successful into the 21^st century and beyond. The idea that we can somehow have a locked-up little market, where one company sells to the world and that will be good for farmers, has to be absurd. Like I have said, I say to Mr Woolerton that if that worked, then Albania would be rich, North Korea would be rich, and Cuba would be rich.

Hon David Carter: And Doug would be president.

RODNEY HIDE: And Doug could be the president of those countries for life. So the ACT party rises to support this bill.

I learnt one other thing about New Zealand First members. Here they are, railing against this bill, and I have learnt that they are xenophobic and proud of it. I learnt that they want to have a fortress around New Zealand, that they believe in monopolies, that they attack people who disagree with them as having ulterior motives and for being stupid, and that this bill is a disaster for the dairy industry. I then learnt one other thing: New Zealand First will vote for the bill, along with every one of us. Thank you, Mr Chairman.

Hon JIM ANDERTON (Minister of Agriculture): Because of some of the comments made, I should apologise profusely, having been in Parliament for 24 years, 9 of them under National Governments. Never before has there been urgency before Christmas to push things through, so I have to acknowledge that this is an extraordinary precedent, and it is probably due an apology! Those members who have not been here as long as I have will know that this is all correct! I am putting this through to the Tui ads, so they can say “Yeah, right!” at the end of it.

In a slightly more serious vein, I want to move an amendment on the advice of parliamentary counsel, which I have discussed with the Chairman of the Committee. The amendment will see a minor change in wording, but there will be a different meaning. I refer to page 18, paragraph (b) in clause 29, which has the wording: “(b) the right to access documentation relating to the application for a search warrant and the exercise of a search power under the Official Information Act 1982.” I am advised by parliamentary counsel that the correct wording should be “the right under the Official Information Act 1982 to access documentation relating to the application for a search warrant and the exercise of a search power …”. I am sure the select committee meant exactly that, but I am advised that it would better to have that wording rather than the original wording. Thank you, Mr Chairman.

Hon DAVID CARTER (National): The National Party will certainly accept that amendment as proposed now by Mr Anderton. I just want to tidy up a comment that Mr Anderton made. It is not clause 29; it is actually clause 14, which inserts new section 29K(6)(b). Just for the record, it is clause 14 that is being amended. But I think it is a very sensible amendment. I am surprised the select committee did not pick it up in the first place.

The question was put that the amendments set out on Supplementary Order Paper 171 and the following amendment to clause 14 in the name of the Hon Jim Anderton to Part 1 be agreed to:

to omit paragraph (b) of new section 29K(6) and substitute the following new paragraph:

(b) the right, under the Official Information Act 1982, to access the documentation relating to the application for a search warrant and the exercise of a search power.

Amendments agreed to.

Part 1 as amended agreed to.

Part 2 agreed to.

Schedule agreed to.

Clauses 1 and 2

NATHAN GUY (National): I want to make a contribution today that I think is very important in the Chamber. I want to talk just on the schedule. The Primary Production Committee worked hard on this to get it right, and I think it is a fair point that I am about to make. The director-general or chief executive of the Ministry of Agriculture and Forestry technically allocates the export licences. We need to be mindful that the New Zealand dairy industry is primarily based on pasture-fed diet, and primarily our animals are outdoors all year round. We all know that climatic changes occur. In parts of New Zealand we can have a drought, and we are currently experiencing a mini-drought on the East Coast of the North Island. If we think back, in recent times we have had floods, we have had snowstorms, and we have had weather bombs throughout the country.

The significant point I want to make to the Committee is that the select committee worked hard and has come up with the provision in schedule 5B that allows those seeking an export licence to have their historical data analysed out to three seasons. The point I am making is that if we have a weather bomb, and farmers are constrained, as we know can be the case, that flows through to the heifer replacements—that is, the young cows that are going to come into the herd. It needs to be broad in its approach, so that we looking at not just one season or two seasons, but we are taking that data analysis out to three seasons, which I think is very, very important. I acknowledge the hard work, under David Carter’s leadership, of those members on the select committee who do own a set of gumboots, and who have come through a grassroots upbringing, like some of us in the National Party, who were well aware of the point that this is very, very important.

I turn to those members on the other side of the Chamber who were on the select committee and who have not come through that process. I am not sure whether there is one farmer left in the Labour caucus who would even be aware of that point. So this is a significant point in this bill that will mean it is fair, right across the board, that when the director-general or the chief executive of the ministry is technically allocating quota, he or she can look back across those three seasons of data.

Clause 1 agreed to.

Clause 2 agreed to.

Bill reported with amendment.

Report adopted.

Third Reading

Hon JIM ANDERTON (Minister of Agriculture): I move, That the Dairy Industry Restructuring Amendment Bill (No 2) be now read a third time. The bill was introduced into the House, as I said during the Committee stage, on 14 August this year. It was read for the first time on 21 August, then referred to the Primary Production Committee for consideration. The committee tabled its report on 31 October. The bill has now had its second reading and has passed through the Committee of the whole House.

The New Zealand dairy industry has become the country’s largest and most important export industry. For the year ended 31 March 2007, the dairy industry contributed a total export value of $8.4 billion, representing 25 percent of total merchandise exports. New Zealand dairy products are exported to 152 countries.

At the farm level, dairy accounts for an estimated 35 percent of the agricultural sector’s GDP and 2 percent of total GDP. When we include dairy manufacturing and the dairy industry’s contribution to other sectors, such as wholesale trade, we see that the wider dairy industry’s contribution to total GDP is around 7 percent.

The bill is the obvious next step in the industry’s transition to a new structure without the monopoly powers of a statutory marketing board. In the 6 years since the Dairy Industry Restructuring Act was passed, the industry has shown itself to be extremely capable of not only surviving but also thriving in this less regulated environment. This bill will provide the industry with certainty about designated export markets, and will therefore allow industry players to plan for the future with confidence. I believe that this is why the industry has expressed general support for the approach taken in this bill.

The industry has shown itself to be a highly successful organisation and industry sector in reaching world markets and helping New Zealand to be well positioned for the future. The framework contained in this bill will allow all industry players to participate fully in that success and continue to position the industry well on the world stage. I commend this bill to the House.

Hon DAVID CARTER (National): National supports the Dairy Industry Restructuring Amendment Bill (No 2) and congratulates the Government on finally bringing this matter before the House today. I think that when people analyse the contributions made in the debate we have had in the second reading, the Committee stage, and now the final reading in quick succession, the interesting Hansard will, of course, be that of the New Zealand First member Doug Woolerton. I thought I would make just one or two points, because a lot of the information he stated in his contribution—which was absolutely incoherent, I might add—is incorrect.

First of all, Mr Woolerton congratulated the dairy industry and noted its huge progress over the last decade, and I support that. But he then went on to criticise the Dairy Industry Restructuring Act of 2001, which led to the formation of Fonterra. So in one breath he was criticising Fonterra and its performance, and in the next breath he was saying what wonderful progress this company has made for the benefit of all New Zealanders. I find that logic very, very difficult to understand.

Mr Woolerton then spoke against two of my former colleagues in this Parliament. I am referring to the Rt Hon Wyatt Creech and the Hon John Luxton. He said that both those people drove through the dairy industry restructuring legislation in 2001, and he implied quite definitely that they did that for personal gain. For the sake of the record, I say that neither of those gentlemen was in Parliament in 2001 and they could not have been involved in the debate. They were not in Parliament. To be absolutely fair to them, I note that by that stage they had retired from Parliament. They saw an opportunity under the dairy restructuring to set up a very successful dairy process called Open Country Cheese, and I congratulate them on their ability to establish that company. It has been a significant contributor to the very regional economy that Mr Woolerton came from.

The final point is that Mr Woolerton, having railed against the Dairy Industry Restructuring Bill (No 2), concluded his remarks by saying that the bill was dreadful legislation but that he would vote for it. I think that just goes to show something about Mr Woolerton’s career. He has been involved in the National Party and in New Zealand First, and he now completes his parliamentary career as a true and committed member of Helen Clark’s Labour team.

Dr ASHRAF CHOUDHARY (Labour): I will take just a brief call. First, I thank David Carter for his good chairmanship of the Primary Production Committee. We work very closely and in a bipartisan way on that committee.

Earlier on, Nathan Guy suggested that the Minister should probably define the term “milk solids”. I will define that term for the House. As a scientist I guess it is probably my job to explain these things. We have two definitions. “Milksolid” as one word is milk solid that contains milk fat plus protein. The definition of the second term, which consists of two words, “milk solids”, is milk protein and fat plus other elements in the milk. So two clearly defined words have been used, I say for the sake of clarification. The farmers get paid on the basis of milksolid—one word—which is milk fat and milk protein, and, of course, the levies to the dairy farmers are also based on that definition. With that explanation I commend the bill to the House.

ERIC ROY (National—Invercargill): I too will take a brief call in the third reading debate of the Dairy Industry Restructuring Amendment Bill (No 2). It is not so much that there are concerns that some things are not being covered, but that all that is said in the debating process is recorded in Hansard, and at future times people will look at that record and interpret the bill against that. I am largely stimulated by the remarks of the New Zealand First member Doug Woolerton, who seemed to have some comments to make about the ills of the meat industry in relation to the dairy industry.

I ask members to let me just place it on the record that I, along with the rest of the National Party, am essentially very proud of the achievements of the dairy industry. We think it is great that the dairy industry is the leading industry in New Zealand. We are pleased with the way that it has gone forward, particularly after the Dairy Industry Restructuring Act of 2001 was passed, when Fonterra came forward. If the measure is the viability of the dairy industry and the price increases we are seeing in dairy products right now, we can see that rather than the restructuring being an impediment to development, the industry has done exceedingly well. I note, coming from my part of New Zealand, Southland, the great desire of people from the North Island to invest in dairying in the south. If that is an indication of the state of the dairy industry, it is certainly doing very well.

Mr Woolerton alluded to the comparative situation between milk and meat, and said that if we transferred a xenophobic cooperative structure into the meat industry we would immediately solve all the problems, or that had we gone there initially we would not have the problems in the meat industry that we have today. There are some significant issues which I think change the whole landscape.

For example, those who represent dairy farmers in terms of their processing and marketing are under a greater degree of scrutiny than anybody else, because the farmers are themselves under scrutiny. Every single day, sometimes twice a day, when dairy farmers milk they have an opportunity to measure their own performance. They might note that they have more milk and the milk vat is up one day, and ask what they did or did not do. So dairy farmers have a very, very rigorous way of measuring themselves, and they tend to apply that to those who represent them.

The second thing is that milk is a homogenous product. Milk is pretty much the same all over New Zealand. There are variations in butterfat levels and slight variations in milkfat percentages, but, essentially, the product is the same. That is not so in the meat industry.

Thirdly, milk stores relatively easily after it has been processed in comparison with meat products. Particularly as the future of the meat industry is moving into chilled products, meat is becoming even more fragile and requires a greater movement of product through, so it cannot be stored for any length of time till the market is just absolutely right.

Fourthly, there is just an acceptance of milk generally as a product. If people in the world who have never consumed Western products before are given a variety of foods to consume, of the three products that they will consume again and again, two of them are milk products: ice cream, and chocolate. There just is a universal acceptance of milk as a product in the world, and there is a great desire of Third World countries to consume more calcium in order to be healthier and grow better, and that association is with milk products. So there is a universal acceptance of milk. Which product do dairy farmers have as a competitor? Well, they have soy milk. That is virtually the only competitor that is out there to milk, so they have captured an opportunity that is just there because there is such a great demand for the product. But in the case of meat, it competes with a whole range of animal and fish proteins that are out there, so it is in a much more competitive environment. So just to say we should apply this to that, and that will solve all the problems, is an issue. I think we needed to simply place that on the record.

As has been said, the milk industry—the dairy industry—is the foremost part of the New Zealand economy. It is important that we pass this legislation today so that the industry can take the next steps, and so the people who are now involved in company structures outside of Fonterra have an opportunity to provide some stimulus to the industry, not on a competitive basis—well, not specifically for that reason—but with product development, and with opportunities in packaging, marketing, and branding. They are in the marketplace enhancing and increasing the appreciation of the products that are produced out of New Zealand. Yes, those people are a very small section of the industry, but we also need them as a measure against Fonterra. How does one measure a monopoly if there are no other players in the market to say how well they are doing? When they do that, we actually have some measures. I see all those things as healthy, and I see it as a sign of a company that is viable, healthy, growing, maturing, and serving a very, very useful part of New Zealand’s economy.

National supports the third reading of this bill.

R DOUG WOOLERTON (NZ First): New Zealand First also supports the third reading of the Dairy Industry Restructuring Amendment Bill (No 2), but it does so with provisos—our vote will not come with a proviso; one either votes for a bill or one does not—and with warnings. This bill is at the end of a very long chain, which started with the Dairy Industry Restructuring Act. To guard ourselves against the ramifications of that Act, we had the formation of Fonterra, which came after that Act. The farmers believed that they needed a bigger company in order to protect themselves from competitors. I was a very strong advocate for Fonterra. I was opposed to the Dairy Industry Restructuring Act, but once that had passed I was a very strong advocate for Fonterra. The National Party was not, and many other people were not as keen on Fonterra as I was. My faith, and New Zealand First’s faith, in Fonterra has been realised. But members should make no mistake about it: we are now in a situation where Fonterra will be very different from what it has been, and in our view it will be weakened because of proposals on the floor that are currently outside the parameters of this bill.

Let me deal with a few of the issues that have been raised after my previous speech. One of those issues concerns the word “xenophobia”. Somebody was giving me a lecture about the dairy industry not being able to eat all its cheese and having to export. Well, that is precisely what the proponents of the cooperative structure in the early days of the dairy industry understood immediately—that this was all about exporting. It was all about excellence, and it was all about marketing. The farmers of the day hired people to do all those things, and they did them successfully. I might say that they were not afraid to pay them. Right from the earliest days the salaries in the dairy industry, outside of the farming operation itself, have been very, very good, and the expertise has been at the leading edge of innovation in our country.

The people who set the industry up knew that we had to export. We had to get into new products, and we had to innovate. They did all those things through retained earnings and through borrowings, to the degree that Fonterra now has a credit rating that has slipped since the announcement that it may list on the stock exchange, but that is still second only to that of the Government. Fonterra does not have a credit rating of some third-tier meat company, or whatever, but one that is second only to that of the Government. Those people went after innovation at a rate seen nowhere else in our economy, and it has been really, really successful.

So rather than looking backwards—and I note the talk of Rip Van Winkle and xenophobia—this is an outward looking industry that has always been at the forefront of innovation. This is an industry that is modern. This is an industry that has not gone to other places and begged. This industry has looked after itself. It has been a leading-edge industry, and I have been a proponent of it since my earliest days.

Nathan Guy: You are flip-flopping!

R DOUG WOOLERTON: Oh no, we are not flip-flopping.

I might say that the retained earnings of myself, my three brothers, my father, and many of our contemporaries are still in that company today, because in the days that we operated—not the days of my brothers, though one of them is still going—it was a dollar in and a dollar out for the share. In those days we did not allow other people to come in and get a chunk of the dairy industry. There was one motivation: to grow the company and to grow the industry. Every farmer knew that the result of that growth was a better milk price. Farmers knew what was happening in their company. They knew how successful the executives and the managers were by what was in that milk price.

I tell members that farmers understand this industry like no other. They understand what the executives are doing and they understand the profits that come from the different profit centres within this industry. They are not just suppliers of milk, but they will be if they let other people into this industry—they will become suppliers of milk. But at the moment they own a leading-edge company that from this little place, New Zealand, controls one-third of dairy produce available for market in the world. That is no mean feat. That has been mocked today by members of the National Party as being xenophobic and backward looking, which it is not. It is leading edge technology, and I support it.

The difference comes when New Zealand First says that this industry should be protected, as it always has been, as opposed to what the National Party says, which is led by ticket clippers and market people who just want a chunk of this industry. They do not want to do the graft, they do not want to put in the work, they do not want to take the risk, and they do not want to put up the dough for investment; they want a chunk of this company. I tell members that if I were them and not involved in the dairy industry, and if I were just a money man from wherever, I would want a chunk of it too. But New Zealand First says: “Don’t let them have it.” We implore the farmers to keep control of it themselves as they always have. If they nurture this company and carry on as they have in the past, they will reap the benefits through their milk price. They will not reap the benefits of this company through a share price, because that is a one-off, and they will not reap the benefits of this company from a return on dividend. Other people will reap the rewards of the company through those avenues.

Farmers’ only avenue to a guaranteed result is through their milk price. The forefathers of this industry knew that. It is what they set up—

Sue Kedgley: What about the foremothers?

R DOUG WOOLERTON: And the foremothers. Sue Kedgley is absolutely right to pull me up, and I apologise to her for not mentioning them. In the farming industry it is the women who drive the finances, and they always have. It is the women who have largely had control of the purse strings. I could relate to members many an argument over those matters, but that is indoors stuff.

This industry has been at the forefront, and we are in danger of seeing it slip back. New Zealand First members will not stand by and keep their mouths shut and watch that happen.

NANDOR TANCZOS (Green): I will begin by indicating that the Green Party is supporting this bill through its third reading, as I think all other parties in the House are. I simply say that this is a sensible bill. As has been said, it continues the process of dairy industry restructuring that has been going on for some time. It opens access and increases flexibility, and we support it for all those reasons.

I think Mr Hide was right in saying that innovation tends to come from smaller operators who come up with those innovations—before, of course, they are munched by the big operators who have the economic might in the marketplace. That is why the Green Party says that we are pro-business but we are anti-corporatism. In particular, we are against corporate welfarism, which is something we continue to see with the environmental subsidy going to a number of big businesses.

I also wish to make just a brief comment on the issue of the context of the broader Fonterra restructuring, which Mr Woolerton has spoken about very eloquently. The Green Party has also expressed concerns around the proposals. We see this as an inexorable process towards the overseas control of Fonterra and the end of the interests of New Zealand dairy farmers being at the heart of the company. We are aware that there are a number of safety mechanisms within the proposals, but we see them as delaying rather than stopping that process, so we do have concerns about those things.

A lot has been said about the bill itself and the access to those markets, and I think there has been a good discussion. I thought it would be useful to take a slightly broader view, because there is always great interest in the dairy industry across the nation and in Parliament. As I think Eric Roy in particular said, what affects the dairy industry affects the New Zealand economy as a whole. So there is always broad interest in these things.

I was interested in the dispute between Mr David Carter and Mr Woolerton in relation to the role of John Luxton and Wyatt Creech, whom Mr Woolerton alleged were setting up a cheese factory while preparing this legislation. Mr Carter made comments in reply but I was not here when they were here so I do not know about the ins and outs of that matter. But I do note something quite interesting in Speakers’ Rulings. Speaker’s ruling 71/2 talks about declaring financial interests. It states: “A farmer member does not have a financial interest in a bill to provide for the payment for and marketing of dairy produce.” I thought that was quite interesting when I came across it, because it kind of indicates another standard for farmers in the Speakers’ Rulings of the House itself. It is interesting because it seems to be the same across a number of issues in relation to farmers.

There have been big payouts to farmers recently and there are flows to the economy from that. Of course, the payouts to farmers flow to the economy for good and for bad. In the past there have been a number of calls for land use diversification, because when those payouts go down the whole economy is vulnerable. By increasing land use diversification we increase the resilience of the New Zealand economy. That has happened at times when there have been lulls in those prices. A booming wine industry is one example of a focus on diversification and on other ways of producing value from our land. For example, there has been the increase in forestry, although that has been moving backwards in recent times. There is a concern that the big payouts are reversing that trend and moving towards a conversion of large amounts of land into dairying, and there is a kind of monoculture spreading across the New Zealand landscape. I think someone described it as a geological shift in land use.

It is also interesting that much conversion is not on the basis of the payout per se, but on the capital gain to be made from the conversion. This is particularly so as access to water becomes more of an issue. Of course, there is increasing tension in this country and around the world in terms of access to clean water, and that will be an increasing issue for the rest of this century.

There has been massive expansion and intensification of dairy farming, sometimes in areas that are entirely inappropriate for dairy farming, and this is something that the Green Party is seriously worried about. I note the comments made by Environment Waikato’s Dr Peter Singleton, who said that the issues of dairying and water quality are urgent and critical, and that the only hope is through regulation. That comment was made in the context of Federated Farmers running a massive campaign to gut the Resource Management Act—side by side with the National Party, I might add—and to remove all environmental restrictions on farming activity. This is of enormous concern. In fact, Charlie Pederson said that Federated Farmers could not accept any constraint on the continued growth of dairy farming. I have to wonder whether he is including the laws of physics in that, because the reality is that we are starting to hit the environmental constraints, and no business can continue to expand indefinitely exponentially when confronted with environmental limits.

Let us be clear that the Green Party does want what is best for New Zealand farmers. We recognise the enormous economic importance of farming, and we recognise the communities that are built around farming, as well. We have opposed vigorously the closing of rural services—for example, schools—because we see the importance of those things. But we also continue to assert environmental accountability from farmers as we would from any other business. We recognise that the environment was not a big issue in the past. Many farming practices were developed at a time when environmental accountability was not really a matter of debate. No one was talking about it.

We also recognise that there is a natural stewardship in farmers. Farmers live on the land; they are obviously concerned with the sustainability of their farming operations, particularly family farmers, people who may have got their farms from their ancestors and who want to pass them on to their descendants. In that context we also note the increasing extent of corporate farming, where those social and family constraints are not as apparent. Of course, that is not always true, and being a family farmer does not necessarily mean one is a sustainable farmer, but I think there is an intrinsic interest among family farmers to look at questions of sustainability. That influence is now perhaps becoming less important in the farming sector.

We acknowledge that there has been a huge amount of progress in the farming sector. We have seen the growth in, for example, nutrient budgeting, which is an important mechanism for increasing sustainability and reducing environmental impact at the same time as increasing profitability in farming. We are seeing increasing riparian protection, and effluent management has become a lot better, but we have to acknowledge that many farmers are still not participating. We are saying that farmers’ representative organisations like Federated Farmers should be spending their energy supporting the change leaders in these areas, rather than continually defending the laggards.

The reality is that even with best-practice farming, simply as a result of the massive intensification and expansion of dairy farming, we will see a decline in water quality in this country. The point is that this is a challenge for all New Zealanders, not just farmers. We need to move beyond the rural-urban divide, and we need to move beyond seeing this as a farmer versus a greenie thing, and actually start to work together. I know that some farmers feel like they are getting the bash from environmentalists all the time, but we need to work together on these huge challenges.

Sitting suspended from 1 p.m. to 2 p.m.

NANDOR TANCZOS: In confronting the environmental challenges before farmers, we have to move beyond the rural-urban split and start to work together. That means giving credit where it is due—and it is due in places; a lot of progress has been made—but also it is about farmers acknowledging that a lot needs to be done. We need to move beyond denial. We need to move beyond minimisation and ask how we are going to work on this stuff together. In the context of mass conversions, where a lot of money is being invested in dairy conversion, we have to acknowledge that the context is changing.

Climate change will change farming, both because of the climatic impact and because of the price of carbon. Environmental regulation will increasingly change the context. Issues around water access will increasingly change the context of farming, and there is increasing talk now of farmers and commercial users of water paying a price for the use of that water. That is something that will affect farmers. So industry leaders have to understand how the world is changing, rather than trying to hold back the tide.

TARIANA TURIA (Co-Leader—Māori Party): It is good to be able to speak to legislation on which—an unusual occurrence—we generally all agree. That is pretty good, actually. When Samuel Marsden arrived in the Bay of Islands in 1814 with two cattle and a bull, he probably had no idea that less than two centuries later the dairy sector would constitute New Zealand’s biggest industry, injecting some $8 billion into the economy and constituting some 20 percent of all our exports. As the good reverend set about training Māori in British farming and gardening techniques, believing that those would pave the way to the adoption of Christianity, he would have been amazed at the dividends that such skills would pay off in 2007, for the Māori dairy sector now owns over 100,000,000 dairy shares, and Māori also represent over 15 percent of all sheep and beef interests in Aotearoa. That is the context in which the Dairy Industry Restructuring Amendment Bill (No 2) is being read.

The bill allows the Fonterra Cooperative Group to have the right to keep exporting to designated markets, and also allows for other dairy processors to become eligible to hold export licences. The bill consolidates the position of New Zealand in the global marketplace once more, after the expiry date of the dairy quota markets established under the Dairy Industry Restructuring Act 2001. This opportunity to again secure a welcome mat in external markets is a move that the submitters and the Primary Production Committee endorsed, and it is a move that we in the Māori Party also fully embrace.

We see that the allocation of export rights to dairy quota markets to a wider group than Fonterra is consistent with kotahitanga, the principle of unity and purpose of direction. Allowing for greater participation and certainty in the dairy industry is a more inclusive approach, which should bring with it a wider support base amongst the industry. Public feedback supports that claim. The submission from the Tātua Cooperative Dairy Co. Ltd, which is based in Tātuanui, outside Morrinsville, supported the bill as finally enacting the goals of the Dairy Industry Restructuring Act: to maximise economic benefits for our country arising from tariff quotas as maintained by foreign Governments.

In that regard we know that Māori dairy farmers are ready and willing to take on the world. They want to be poised to benefit from the widened eligibility for export rights that will be put in place by this legislation. Just how ready they are is able to be gauged from a project that is currently collecting physical, financial, and environmental data from 45 properties in the Tai Tokerau, Te Arawa, Taranaki, and Ikaroa Rāwhiti regions. I am pleased to share with the House that the Māori dairy farmers of New Zealand have a project supported by the Ministry of Agriculture and Forestry that benchmarks Māori dairy farm physical, financial, and environmental performance. The data will be collected for three seasons, to balance the effects of climate, from across the four North Island regions. The farms will be benchmarked for their physical and financial performance, as well as receiving overseer assessments for environmental sustainability. The farms reflect varying ownership structures, from sharemilker to owner-operated to Māori incorporation - owned and governed farms.

We are hopeful that through that project, Māori farming authorities—incorporations and trusts—will be able to realise the benefit of meaningful management and monitoring information in order to support their future progress and development. The Māori Party welcomes the advancing of projects such as that one, as they will lead to a strong platform from which to enter designated dairy markets that operate country-specific tariff quotas for New Zealand products.

The bill will also provide future certainty to the industry, and given that the Livestock Improvement Corporation advises us the New Zealand dairy industry enjoyed, in 2006-07, its most productive season on record, such certainty is clearly a bonus. Just to put some context around all of this, I tell members that we are talking about 11,630 dairy herds and a population of 3,917,000 cows, which is an increase of 84,000 just in the least year.

But we do note that the changes will not be without controversy, particularly associated with Fonterra. It appears that Fonterra strongly opposes removing export restrictions for Japan in the cheese market, and for those parts of the United States designated markets without provision for designated imports. It believes that removing the restriction risks a significant loss of value to the New Zealand dairy industry and economy over time.

Meanwhile, other players, such as the Tātua Cooperative Dairy Co., have a completely opposite view to that of Fonterra, suggesting that the key thrust behind the Dairy Industry Restructuring Act of maximising the economic benefits for New Zealand arising from tariff quotas will be better achieved by the removal of export restrictions, thereby allowing other companies to expand and increase their performance. In such a view, the removal of export restrictions for cheese exports to Japan is therefore desirable.

We know that Fonterra held a round of five meetings with all of its Māori shareholders in the last week of November, so we are hopeful that if Māori had a view about the maintenance of tariff quotas, it would have been raised in those hui. We are all awaiting, too, the results of those hui, as we are keen to hear from whānau their thoughts on the selling-off of Fonterra shares to the overseas market.

The Māori Party has always believed that farmers must keep control of the dairy industry, and as such the proposal to sell off interests to external markets leaves us with considerable room for concern. It is the farmers, who own the shares now and who have put their hard work into the production of milk and the tilling of the land, who require our support. We would be concerned if overseas investors took control over an industry that is so crucial to the future prosperity of this country. So although we support the general intentions of this bill to open up the market, which will allow for greater participation and certainty in the dairy industry, we are, if you like, alert to the possibility of the inevitable issues around control that come when overseas investors raise interest in our land. Nā reira, tēnā koutou.

NATHAN GUY (National): I wish to thank that member, Tariana Turia, for her contribution on the Dairy Industry Restructuring Amendment Bill (No 2). I enjoyed listening to the very sound debating points she put in front of the House today. This is a very important bill for the cornerstone of New Zealand agriculture. I have also enjoyed hearing the debates from the Green Party and, in particular, New Zealand First, because I want to take up the challenge from New Zealand First around what Mr Woolerton has been talking about in terms of Fonterra looking to the future around its capital structure regime. Mr Woolerton has spoken two or three times today, and it seems that during his addresses, he has been all over the park. On the one hand he has been saying that we do not want Fonterra to look offshore to overseas investors or even to internal New Zealand investors, and on the other hand he is saying we support competition. I believe that this bill will allow greater competition in the New Zealand dairy industry. Where Fonterra in the past has probably had a monopoly on some of these overseas markets, this legislation will let the smaller players—

Hon David Carter: They did have a monopoly.

NATHAN GUY: The chair of the Primary Production Committee, David Carter, points out that it did have a monopoly. The smaller players—there are about seven of those smaller producers in New Zealand, making up about 5 percent of milk that is exported—now have the ability to get into those markets. But I say to Mr Woolerton and New Zealand First, who are wading into this debate, it is really up to New Zealand farmers. Tariana Turia has acknowledged that today. New Zealand dairy farmers will make that decision without New Zealand First wading into the debate. New Zealand farmers are smart enough, and Fonterra, I believe, is smart enough, to recognise that we need to get Fonterra’s suppliers to agree to 75 percent of this to get it through. Seventy-five percent of farmers need to look outside their own backyards to make a decision in the direction of where Fonterra wants to go—not be driven to listen to what New Zealand First is saying, because it seems that New Zealand First is keen to look inwards instead of outwards. This is a big decision that New Zealand farmers need to make, and they will make it in their own time when they get all of the facts. I am not sure New Zealand First is full of the facts when it joins this debate today, because listening to Mr Woolerton I am confused as to where his party actually sits on this issue.

The other important thing to realise is that this industry is producing 15 billion litres of milk a year. When one thinks about it, one realises that we cannot export that fluid, fresh milk around New Zealand, so it has to be processed. The money for all New Zealand dairy farmers is in the fluid, fresh, the liquid milk market around the world. That means investing in worldwide markets. But New Zealanders cannot do that without opening it up. So the challenge to New Zealand First is whether it wants to see the status quo with Fonterra or whether it wants to see Fonterra move into the worldwide markets. I say to Mr Woolerton that New Zealand farmers, not the influence of New Zealand First, will make that decision.

The important issue with this bill—and we are in urgency—is for us to realise that it will allow greater competition in the New Zealand dairy industry. New Zealand dairy farmers have other external factors tthey are concerned about. I believe those external factors will be further debated in the House this afternoon. Farmers are concerned about the emissions trading scheme, and it will be interesting to hear the debate on that this afternoon. Agriculture is set to join that scheme in 2013, and I know that some of my colleagues will make valuable contributions this afternoon around that issue. We should not get drunk in charge and follow willy-nilly and be world pace-setters in this climate change debate, because we need to weigh up the economic opportunities and our environmental obligations. That is what the members of the Green Party and the Māori Party have been talking about this afternoon—balancing those issues. If we look at where New Zealand First members would like to see this whole debate go, we see they believe we should just stay in and look inwards instead of outwards.

Those are some of the challenges we need to think about addressing in the future—not having knee-jerk environmental debates such as Labour wants to have. We need to make sure we are investing in the future of research and development to ensure we are changing the microbes in the rumen of the cow’s gut and ensuring we are making changes at the grassroots level. The most important thing with an emissions trading scheme is to change behaviour—not to have it overall as a tax, which will just be struck down on each individual farmer. We need to change behaviour, and I am acknowledging that, but we need to ensure that the emissions trading scheme will direct the change of behaviour and not be just another tax. We have seen the Government come into the House to try to pass the “fart tax”. We have seen the Government come in to try to impose a carbon tax. We need to be mindful of weighing up the environment and the economic drivers.

In conclusion, the Dairy Industry Restructuring Amendment Bill (No 2) is very important. We are in urgency on a Wednesday afternoon, and the Ministry of Agriculture and Forestry has had this lurking around on the Order Paper for the last month. Now we find ourselves in urgency because it is very important that this bill is passed and gets the Royal assent before the end of the year. So National is supporting the bill. It is fortunate that we have had the good work of the Primary Production Committee, which has focused on the grassroots to ensure that some of the good changes in this bill will help as we move forward, accepting the challenges for the New Zealand dairy industry that lie ahead of us.

RODNEY HIDE (Leader—ACT): I rise to support the Dairy Industry Restructuring Amendment Bill (No 2). The ACT Party is in favour of competition and choice, and it is in favour of opening up opportunities to our dairy farmers. We support this bill in its third reading.

Bill read a third time.

Taxation (Annual Rates of Income Tax 2007-08) Bill

Taxation (Business Taxation and Remedial Matters) Bill

Taxation (KiwiSaver) Bill

Third Readings

Hon PETER DUNNE (Minister of Revenue): I move, That the Taxation (Annual Rates of Income Tax 2007-08) Bill, the Taxation (Business Taxation and Remedial Matters) Bill, and the Taxation (KiwiSaver) Bill be now read a third time. The Taxation (Annual Rates of Income Tax 2007-08) Bill is the annual bill that sets out the income tax rates to apply, in this case, for the 2007-08 tax year.

The Taxation (Business Taxation and Remedial Matters) Bill introduces a wide range of important measures. It introduces the new 15 percent research and development tax credit—a measure that is intended to help raise the amount of private sector research and development in New Zealand. The bill also introduces amendments resulting from the recent reduction in the company tax rate to 30 percent. I should point out that both sets of changes are a direct result of the recent business tax review that was carried out as part of the confidence and supply agreement between United Future and Labour.

The bill also relaxes a whole range of tax penalties, such as that for taking an unacceptable tax position, so that those penalties now reflect the seriousness of the offence and distinguish between people who try to do the right thing and fail, and those who have no intention of doing the right thing. The idea behind these changes is to further promote voluntary compliance.

The bill also increases tax incentives for making donations to charitable organisations—again, a particular consequence of the confidence and supply agreement between United Future and Labour, and arising out of the discussion document on charitable tax changes that we issued last October. The changes include removing the current rebate thresholds on donations made by individuals, and removing the deduction limit on charitable donations made by companies and Māori authorities. So from 1 April next year all charitable donations will be tax deductible. That is a significant and dramatic step forward.

On the savings front, the bill allows policyholders in unit-linked life insurance products to access some of the benefits of the new portfolio investment entity rules. It also allows certain contributions to retirement schemes to be subject to withholding tax rather than income tax, which means that contributions to those schemes will not be taken into account for social assistance purposes. I might observe in passing that earlier I made a call for an objective of tax policy to be an alignment of personal, company, and trust tax rates at 30c in the dollar. The combination of the business tax changes and the changes related to the tax treatment of certain savings vehicles contained in this bill gets us just over halfway along that path.

The bill also allows for the introduction of data matching between the Inland Revenue Department and the New Zealand Customs Service. That change will enable the Inland Revenue Department to identify when people with outstanding child support debt enter and leave New Zealand, so that it can take steps to recover that debt before they leave the country. I acknowledge that that provision of the legislation received pretty much universal support from the House. There is no tolerance for those who shirk their child support responsibilities. The change that is contained here will make enforcement of the existing regime that much more effective, and it comes on top of changes that we made last year to introduce further incentives for people to meet their obligations.

Supplementary Order Paper 167, which was released yesterday, added two further important policy measures to the legislation. The first was the introduction of a new tax rebate for redundancy payments, to make the taxation of redundancy payments fairer for people who find themselves in a higher tax bracket as a result of receiving a lump-sum payment. The second change was to reintroduce legislation intended to shut down tax schemes relating to leases on overseas assets that result in a loss to the New Zealand revenue. The amendments had been introduced at an earlier stage, but were later withdrawn to allow the Government more time to consider transitional concerns that had been raised in submissions made to the Finance and Expenditure Committee. As a result, the proposals have been modified to allow a less disruptive transition to the new rules for parties that were involved in leases that existed before 20 June this year.

These are the main policy changes to which the bill gives effect. It also contains a number of remedial changes designed to ensure that the tax law is as effective as possible and always works as intended. Supplementary Order Paper 168, which was also released yesterday, takes amendments made by each of these bills to the Income Tax Act 2004 and inserts them into the Income Tax Act 2007, which was enacted while this legislation has been before Parliament. This lengthy process involved restructuring the legislation proposed in these bills, and using the new terminology developed as part of the overall process of rewriting the Income Tax Act, and it contributed to the substantial size of that particular Supplementary Order Paper.

The third bill is the Taxation (KiwiSaver) Bill, which gives effect to Budget announcements relating to employer contributions to KiwiSaver and to complying superannuation schemes. The main changes, of course, are the introduction of compulsory contributions on the part of employers to match their employees’ contributions, and the introduction of an employer tax credit to help offset the costs to employers. These changes are part of the package of KiwiSaver changes that were introduced in the Budget this year with the primary objective of increasing the incentives for people to save for their retirement. The fact that over 316,000 people have joined KiwiSaver in the first 5 months of its operation shows not only that this savings scheme is meeting a need but also that people do want to save for their retirement. It is particularly encouraging—and this was a point noted during the Committee stage debate—that many of these savers are younger New Zealanders who are being introduced to a savings habit that will, hopefully, stay with them for their life. That has to be good for the country in the long term.

It was also observed that the Government does run huge financial risks here. The biggest risk is the popularity of the scheme. The fact that after 5 months we have exceeded the year 1 target for uptake shows that most New Zealanders were ready for a scheme of this type, applauded its introduction, and are pleased to be part of it. This Government and successive Governments will have to cope with the consequences of the popularity and the vitality of KiwiSaver.

These three bills, which emerged from legislation that, until divided by the Committee, was one piece of legislation, have required a huge effort on the part of a number of people. I acknowledge, in no particular order, the contribution of members of the Finance and Expenditure Committee, who worked through this legislation over some months; the drafters; the policy officials in the Inland Revenue Department, Treasury, and my own office; and the people who made submissions. I acknowledge the members of this House who participated in the debates for their lengthy and complex consideration of this matter. Very detailed issues are contained in these bills, and I think that, as they arrive for their third readings, the legislation is in good shape. This marks another significant achievement in the process of tax reform in New Zealand. I want to record my thanks to all of those people for the contribution they made, at whatever stage, to make this legislation possible. Therefore, I commend these bills to the House.

Dr the Hon LOCKWOOD SMITH (National—Rodney): This legislation that we read for a third time today reveals the full sham of this Labour Government’s new-found interest in personal income tax cuts. The Government members tell us now that Treasury has finally told them that the Government can afford personal income tax cuts. Well, this was the first test. This Taxation (Annual Rates of Income Tax 2007-08) Bill was the test. Labour could have reduced personal income tax rates. It was the first test. And what does Labour do? It fails, because it does not reduce the rates at all. We know why. The reason is that there is no election this year. There is no election this year, and this Labour Party is so dumb it thinks the people of New Zealand can be fooled into believing that Labour supports tax cuts when the only time it talks about them and promises them is in election years, and then it does not do it.

So, what have Government members done with this bill? What they have done is so extraordinary it would find a perfectly good place in a Monty Python show. They have suddenly decided: “Redundancy payments! We’ll reduce the tax on all redundancy payments by 6c!”. Has anyone had a chance to make any submissions on that policy? No. Has the policy been through the generic tax policy process, which is an important part of trying to make sure our tax legislation in this country makes sense? [Interruption] Paul Swain knows about it. The young Darren Hughes would not know anything about it, but Mr Swain knows about the generic tax policy process. It is an important process. Did this 6c rebate in redundancy payments go through that process? No.

Let me share just a couple of things that show what is so stupid about this provision. The Minister Peter Dunne has just said that the reason for it is that a redundancy payment can put a taxpayer into a higher tax bracket, and therefore that taxpayer pays more tax than he or she should on that redundancy payment. I have no problem with that argument. But the Minister should think about it a bit. Let me give him an example. Let us say for argument’s sake that a salary earner on $40,000 loses his or her job. This person has been in this job for a few years, so he or she gets a $40,000 redundancy payment. Under this legislation, this person will get a 6c rebate on that $40,000 redundancy payment. But I want the Minister to reflect on this. If this person genuinely was getting a reduction for the tax that the higher tax bracket would impose on him or her, he or she would not get a 6c rebate on all of that $40,000.

Hon Paul Swain: Yes, they do.

Dr the Hon LOCKWOOD SMITH: No, that person would not. That person would not, if, in fact, he or she was being compensated for being taken into the higher tax bracket. You see, at $40,000 of salary, this person’s marginal rate is 33c. It does not change to 39c until he or she hits $60,000. So the first $20,000 of the redundancy package would be taxed at only 33c, and only the last $20,000 would face the 6c higher marginal rate. But by giving the full 6c rebate on the entire $40,000, on the bit from $40,000 to $60,000, this person is paying a 27c tax rate on that bit of income. Where is the logic in all of that? I see the Minister frowning. I can tell him that I am right. My figures are absolutely right. I am correct. Where is the logic in saying that the person getting this payment should pay only 27c on the bit between $40,000 and $60,000? Where is the logic in that?

What makes it more stupid is that the person we are talking about is, sadly, now put out of work and gets a redundancy payment—and of course we should be concerned about excessive tax on that payment—but what about the same person on the same salary who is injured at work, sadly so injured that the person will not be able to work again for the rest of his or her life? At least someone who gets redundancy has the chance to get another job. Someone who will not be able to work again for the rest of his or her life will get a lump-sum payment from the Accident Compensation Corporation, say for argument’s sake for the same amount of $40,000. But that poor person who perhaps can never work again gets the full tax—the full 39c—on their lump-sum compensation.

Why does Labour hate injured workers? Why does Labour hate so much these poor people who get put out of work and cannot work again because of a tragic injury that may not even be their fault but have to pay the full tax rate, and someone who is made redundant, whose prospects are nowhere near as serious because he or she can at least work again and get another job, gets this really special tax treatment whereby over a certain range of income the tax rate is below the tax rate that ordinary people earning that kind of money would pay? Had this policy been through the generic tax policy process, all these silly anomalies would have been sorted out.

What we see with this legislation we are debating in the third reading today is really a reversion back to the bad old days. When I came into this Parliament in 1984 we had ridiculous tax law. I think something like 70 pages of tax deductibilities were available to taxpayers in New Zealand. I give the Labour Government of those days some credit—the Labour Government post-1984—and Michael Cullen was part of that Government. It is a shame Michael Cullen has forgotten some of the good things he did back in those days. It is a shame he resiles from some of the good things Labour did in those days. Labour simplified the tax system. It accepted that the policy of a lower, broader base actually brings in more tax revenue. But what we see with this legislation now is that, today, this modern, Helen Clark - Cullen Labour Government is turning its back on that sound tax policy. What we get is a whole lot of adhockery, such as the 6c rebate on redundancy payments and the tax credits for working families or for all kinds of New Zealand families. This bill also changes the names of the various family tax credits.

What is so bizarre about this bill is that a family that Dr Cullen considers is so rich it should pay the top personal tax rate is on $60,000. Dr Cullen considers that someone on $60,000 is so well off he or she should pay the top personal tax rate.

Hon Dr Michael Cullen: The top.

Dr the Hon LOCKWOOD SMITH: Michael is right—the top. But if they have five children then the Government considers that they are so poor they should pay no income tax. So on the one hand the Government is saying those people are so wealthy they should pay the top rate, yet on the other hand if they have five dependent children they are so poor they should pay no income tax at all. Those are the facts. If a family has an income of $60,000 and five dependent children, their net tax position is zero. So we can see this stupid adhockery. Why do we maintain these ridiculous high tax rates on ordinary working New Zealanders, then say: “Hang on! After we have collected all this tax, we have to give it all back to them.”?

That is not the only adhockery in this legislation. It now brings in the tax credits for research and development. What we will see with those—and we are already seeing it—is accountants up and down this country, working on how much of most businesses’ current expenditure can be brought in to qualify for the research and development tax credits. We know that Shane Jones, the Labour member and chair of the Finance and Expenditure Committee, asked officials whether there was any evidence at all from Australia that these tax credits work. The officials had to say that there is not. We have all these bits of adhockery that this legislation brings into our law.

The final one I want to mention is this: in the final stages of major tax law we had five Supplementary Order Papers—three major ones and two minor ones—just dumped on this Committee yesterday. That is not very good tax legislation. One of them brought in a new provision for cross-border operational leases whereby one-sixth of the depreciation write-off available for these leases will now no longer be available. What is objectionable about that is that the Government tried to sneak in a Supplementary Order Paper on that a while back. The select committee examined it, found that it would be unacceptably repressive on certain business deals done in New Zealand through its retrospectivity, and threw it out. But the Government then brought in this Supplementary Order Paper and dumped it on the Table yesterday.

The commercial interests involved now have to work through how they will actually live under this new provision. Time will tell whether serious litigation follows this measure. Again, it is ad hoc. Again, it has no rational basis behind it. That is the problem with this legislation. It ignores a rational reduction in tax rates for all New Zealanders and brings in a whole rash of ad hoc provisions. That is why National is opposed to the bill.

Hon Dr MICHAEL CULLEN (Minister of Finance): We have just heard from a member of the tax-cutting National Party. It is the party that has run for years that the only thing that matters in life—the only maiden’s dream that is worth having—is having a tax cut in one’s Christmas stocking, or somewhere or another. We heard from Lockwood Smith, first of all, that the tax cut for redundancy is too big and has to be opposed. It is not fair; it is too big.

Secondly, we heard that the Government is providing tax credits for families, so that people with five children will get, and are getting, a tax reduction compared with somebody with no children—somebody who shall remain nameless in this House. I gather from recent rulings that we are allowed to refer to childlessness now; but I will not mention the member in that regard. People with five children will pay less than somebody who does not have any children. The member may not know this, because his specialisation in life is dairy herds or something of that sort, but I tell Dr Lockwood Smith that bringing up children is expensive. He should try it some day. It is still not too late. It is still not too late, by the look of those photos we have seen of him. He could still be the father of some children, and he will find that they cost money.

In most countries—in almost every Western country that I know of—the tax system recognises the cost of raising children. That might be a rort to an accountant—though how I do not know—but to the rest of us it is regarded as some form of social justice and social equity. If the member wants to think about why we have a simple 6c in the dollar rebate on redundancy, he should think about the accountants he was just referring to. What he is proposing in terms of the marginal rate approach provides a huge opportunity for a tax rort. It means that after working 1 month somebody on, for example, $150,000 a year could collect that month’s salary, and the remaining 11 months’ salary as a redundancy payment, and be taxed at 15c in the dollar. The member has gone quiet now.

Then we come to the issue of the top tax rate, which for some reason obsesses the National Party. Of course, the level it cuts in at depends on what the rate is. When the National Government left office, the top tax rate was 33c and it cut in at 1.1 times the average wage. Actually, I am wrong in that; it cut in at below the average wage in 1999—$35,000, and the threshold was $38,000. Now it cuts in at well above the average wage, and it is slightly higher. Is it huge by international standards? The famous low tax rate country, Ireland, taxes at 40c in the dollar—and has no imputation credit for dividends—and it cuts in at 1.2 times the average wage. The National Party—I hate to tell members this, because they might not have learnt this—in living memory, has never ever cut the top tax rate when in Government. It has never ever, in living memory, cut the corporate tax rate when in Government. It has never ever, in living memory, cut the tax rate on savings when in Government. So where is that tax-cutting National Government?

What has this Government done? We have cut the tax rate on savings, and this legislation carries that forward somewhat further. We are cutting—and this legislation will carry out the completion of the process—the tax rate on business for the first time since the time of the last Labour Government in the 1980s. National did put up the top tax rate, and it was National that left the 66c in the dollar tax rate in 1981 that the member referred to. I tell Mr Foss that there is no point in apologising now; he was probably not even born then. But the fact is that it was a National Government that put up the top tax rate, and it never lowered it. So let us try to work out which Government actually delivers in these areas, and which Government just talks about it. National puffs up its chest in Opposition and says that it will cut taxes, but it gets into Government and puts them up.

What is the other feature of this legislation? We have heard practically nothing about this. This legislation has important considerations in respect of KiwiSaver. Have we heard anything about KiwiSaver from the Opposition in this debate? Those members do not want to talk about it. We have well over 300,000 people enrolled in KiwiSaver, and the number is growing by thousands every week—every week. The National Party does not want to say now what its position is on KiwiSaver.

Hon Member: What is it?

Hon Dr MICHAEL CULLEN: Oh well, at some point it used to be that it was terrible, it was a rort, it was unfair, it was indecent, and it would do nothing. Now National is saying: “Oh my gosh, there is well over 300,000; it will be well over half a million by the time of the election. What is our position going to be on KiwiSaver?”.

Then we heard from Dr the Hon Lockwood Smith PhD and bar about research and development tax credits. He is opposed to them, but he did not hear his deputy leader’s speech in an earlier stage of this legislation, where Bill English gave them reasoned support. Why? I have to tell the member that life has moved on since the 1990s. The evidence is now very clear that limited tax credits do work—

Dr the Hon Lockwood Smith: Oh yeah—

Hon Dr MICHAEL CULLEN: Oh yes! And the reason for that is that the return to society from investment in research and development is not the 20 percent or so that is the return to the business; it is more like 90 to 100 percent. How come New Zealand firms—including Fonterra—have been doing research in Australia since Australia introduced research and development tax credits? And how come Australian businesses are looking to move research and development to New Zealand, now that we are talking about research and development tax credits within New Zealand?

The point is that we can be so pure that all we do is drink pure water, and wonder why people are enjoying champagne in other countries. Well, it is time for us to get just a little bit more intelligent about, firstly, how we support savings in this country. If anybody thinks we do not have a savings problem, that person should just go and look at the data, at the weakness of our capital markets, and at the price we pay for interest in this country compared with our competitors. We should look at the cost to business that that creates and realise that we have to act on this challenge. Cutting the top tax rate, compared with lifting the performance of our capital markets, is a matter of utter, utter insignificance.

When members opposite finally get around to the point of announcing what their tax policy will be, they will have to explain what will happen to those who are earning modest incomes. Will they receive anything? Will they follow Dr Lockwood Smith’s prescription today, which is to cut assistance to families in order to give money to people like Dr Lockwood Smith? He said that people on $60,000 a year with five kids—five children—should not receive any tax credits—

Dr the Hon Lockwood Smith: I didn’t say that, at all.

Hon Dr MICHAEL CULLEN: Oh yes, he did. He said that it was wrong; it was wrong that people on $60,000 a year with five children received tax credits in relation to the cost of raising those children. Well, we on this side of the House are very proud that with Working for Families we are helping a broad range of lower and middle income New Zealanders to meet the cost of raising a family. Nothing is more important than that in New Zealand.

We are proud that we are introducing a research and development tax credit that will help to lift our performance. We are proud that we have a KiwiSaver scheme that is already a stunning success, and that will lift the savings rate within New Zealand. We are proud that we are lowering the corporate tax rate, and in next year’s Budget we will announce personal tax cuts that will not go to all of National’s friends, but will go, in significant amount, to people on low and modest incomes, because it is about all Kiwis sharing in the economic success that this Government has created.

Unlike Mr Hide, who said in the Committee stage that people who earned more than $60,000 were the only people who worked hard in this country, we believe that all New Zealanders contribute to the success of this country—[Interruption] And at that they jeer. Well, if they want to jeer at that, they should go out door-knocking in the average Kiwi suburb and tell people that they do not contribute to New Zealand. We will follow and collect their names, because they will be voting Labour on election day.

Debate interrupted.

Personal Explanations

New Zealand First—Donation of Money

Rt Hon WINSTON PETERS (Leader—NZ First): This morning at 9 o’clock in Auckland, on behalf of New Zealand First, I handed a cheque for $158,000 to Kay Hyman from Starship Children’s Health. The money will be used for paediatric research.

We have always contested, and continue to contest, the findings of the Auditor-General’s report against both New Zealand First and United Future, because both had their expenditure pre-approved by the Parliamentary Service and the Chief Electoral Office. I have written—

Hon Bill English: I raise a point of order, Mr Speaker. The member sought the indulgence of the House to make a personal statement, and the requirements around a personal statement are very well-known. This statement is going well outside those requirements. If we were aware that this would be the subject matter of the personal statement, we certainly would not have given leave, because it would not have met the requirements of the Standing Orders.

Rt Hon WINSTON PETERS: The claim cannot be made that if one was aware something might have happened somewhere during someone’s personal statement, consent would not have been given. That would require someone to be clairvoyant. Mr English knows that. But the most important thing is that I have only two more sentences to go, one of which concerns the Auditor-General. It is a personal statement because it concerns exactly what we have done. That is all it is—two more sentences. All right?

Mr DEPUTY SPEAKER: Yes, of course you will finish. But I just say that the member should not stray outside the facts of the matter he is raising. He is entitled, in my view, to have gone as far as he has, because he and his party have been under considerable attack in this House in respect of the subject matter of his personal explanation. I think he is explaining what they have done and why. But I advise the member not to go too wide.

Rt Hon WINSTON PETERS: Thank you, Mr Deputy Speaker. I have written to Kevin Brady, the Auditor-General, advising him of the donation and explaining that at least now some good will have come from this issue. I seek the leave of the House to table a photo of the donation taking place and my letter to the Auditor-General.

Chris Tremain: What about the press release—table that, too?

Mr DEPUTY SPEAKER: I am pleased you waited till the point of order was finished, Mr Tremain. Thank you. Leave has been sought to table those items. Is there any objection? Yes, there is objection.

Rt Hon WINSTON PETERS (Leader—NZ First): I also seek leave for the National Party to explain now why it has not paid its GST—

Mr DEPUTY SPEAKER: No. Thank you, Mr Peters.

RODNEY HIDE (Leader—ACT): In a similar vein to Mr Peters’ seeking of leave for National to make an explanation, I seek leave for Mr Peters to make an attempt at an explanation about why he has not paid back the money yet.

Mr DEPUTY SPEAKER: No, the member may not seek leave for any other person or party.

Rt Hon WINSTON PETERS (Leader—NZ First): I raise a point of order, Mr Speaker. In response to an allegation that has now been made across the country by Mr Hide, I say that if he knew anything about the law, then he would know full well there is no cubby hole into which to poke any such payments, as the law has now changed. But we have done something worthy in the interests of the ordinary, poor people of this country—

Mr DEPUTY SPEAKER: No, no. We are now debating the motion that was moved by Mr Dunne.

Taxation (Annual Rates of Income Tax 2007-08) Bill

Taxation (Business Taxation and Remedial Matters) Bill

Taxation (KiwiSaver) Bill

Third Readings

Debate resumed.

Hon BILL ENGLISH (Deputy Leader—National): Well, Mr Peters might want to explain just where he got the $158,000 from.

Rt Hon Winston Peters: I raise a point of order, Mr Speaker. I did not get it from abroad, as the member’s party did.

Mr DEPUTY SPEAKER: Enough points of order have been raised this afternoon. Members will settle down please, particularly Mr Peters.

Hon BILL ENGLISH: What we do know about New Zealand First’s repayment is that those members did not get it from the taxpayer, which is where Dr Cullen got the money he used to break the cap on electoral expenses in the 2005 election, in a manner that was unprecedented. That is directly relevant to this legislation, which sets our tax rates, because that particular incident helps explain some of Dr Cullen’s ambivalence about tax policy and where it is headed. I will just pick up on some of the statements Dr Cullen made in his speech to the House. He is falling back on the mechanism that Labour uses when it is in electoral trouble—that is, the making of loud and vigorous statements of principle.

Dr Cullen made a couple of statements that I think bear some scrutiny. In relation to the first, one would think that Labour had invented the idea of compensating families for the cost of raising children. Well, it did not. Working for Families is simply an extension of the child tax credits that were brought in by National in 1996 and 1997. Those child tax credits, which were much criticised by Labour at the time, were simply an extension of the rationalisation of family assistance through family support that was carried out by the Labour Government in 1987, under Roger Douglas when he brought in the family support system. So for Dr Cullen to claim that only Labour has ever recognised the cost of raising children, and that it is some kind of radical new statement of equity, is rubbish. It is just rubbish. He updated a model brought in 10 years ago under National, a tax package that cost, I think, about $3 billion, which was the largest personal income and family support tax package the country has ever seen, even including those in the 10 years since then—even since then.

The point my colleague Dr the Hon Lockwood Smith was making was simply that taxing people at 39c in the dollar when they earn under $40,000, and then recycling all of that money back to them as child tax credits, is a system that bears some scrutiny because we may be able to simplify it. We have had quite a lot of discussion about how that could happen, but Dr Cullen is going far too far—in the manner he has become accustomed to—by saying that Dr the Hon Lockwood Smith is opposed to Working for Families and tax credits for families. Of course, the system can be simplified.

The other statement Dr Cullen made in respect of equity for taxpayers leaves me absolutely puzzled. You see, as Dr the Hon Lockwood Smith pointed out, tax policy has become a hotchpotch of ad hoc arrangements. One of the reasons is that Dr Cullen is now implementing policies he has opposed for almost all of the time he has been the finance spokesman for Labour, going back, I think, to 1994 or 1995. So he has had to change his mind under political pressure—

Hon Paul Swain: What an outrage.

Hon BILL ENGLISH: Well, that is not an outrage, but there is clearly no principle in what he is doing. I will just use the examples that have come through the debate. The way the Government will handle the tax on redundancies will effectively reduce the tax rate on redundancy payments, compared with the tax rate people are due to pay on their income. So someone on the tax rate of 39c in the dollar, which cuts in at well under the income levels that anyone would consider wealthy, will be paying 39c in the dollar on their income tax and they will pay 33c on their redundancy payment. People who earn $400,000 can use tax and company structures that mean, effectively, they pay the same tax rate as a person who earns $40,000. They can pay 33c in the dollar. Under Labour, people who earn less than the average wage—who earn $39,000—pay tax at the rate of 33c in the dollar. Again, the tax regime on savings now provides through the portfolio investment entity regime the opportunity for people who pay 39c in the dollar on their personal income to pay 30c in the dollar on the income they earn on savings.

What is actually happening is that Dr Cullen is gradually flattening the tax rates on everything except personal income. Why is he doing that? Well, one can only assume that it is some kind of obsession, as expressed the other day when he referred to the leader of the National Party not just as a “scumbag” but also as a “rich”—and then a four-letter word that I think is probably unparliamentary.

Rodney Hide: Five letters.

Hon BILL ENGLISH: It was a five-letter word that we cannot repeat. Dr Cullen and Labour have this fixed view that anyone who earns $60,000 is rich and, therefore, that they should be punished. So he has reduced the tax on companies, reduced the tax on savings, and today he has reduced the tax on redundancy payments. He has done everything except reduce the tax that people pay on their personal incomes. What is it with Dr Cullen that, although he claims to be the guardian of equity, the first $2 billion worth of tax cuts he has made have gone to companies? How does he explain that to the Council of Trade Unions conference—to the person on $39,000 who has had no tax breaks for 8 years under Labour, but who knows that $2 billion worth of taxes a year have been reduced for companies. What did Dr Cullen used to say about company tax cuts? He used to say that they were mindlessly stupid. He used to say that the only beneficiaries of company tax cuts were overseas investors who owned businesses in New Zealand.

Hon Darren Hughes: Disproportionately that’s true. Disproportionately that’s right.

Hon BILL ENGLISH: Well, I ask whether that is right. Why is it that Labour, all fired up about equity and fairness, has given the first $2 billion worth of tax cuts to the overseas owners of New Zealand businesses? That is apparently what Labour has done, according to its own logic. Of course, there is a logic to what Labour has done, which is that the lower company tax rate means that companies will retain their profits and reinvest them. There is some logic to that, but what has happened to the equity argument? How will Labour MPs explain to middle-income New Zealanders on the factory floor why those people have not had a single tax break in 8 years? Labour members cannot explain it. They cannot explain it, and that is why they have lost the argument.

Hon Darren Hughes: Oh, no.

Hon BILL ENGLISH: Well, they have lost the argument. That is why Helen Clark suddenly announced her new-found understanding of fiscal surpluses, and said that they are big enough for tax cuts. The reality is that middle New Zealand should have had a dividend from economic growth over the last 8 years. People are looking increasingly to Australia, where workers have had a dividend from economic growth. New Zealand workers can feel doubly aggrieved that the dividend from economic growth has gone to people who can afford to save, to people who run companies, and to Kiwis who live in Australia. So Kiwis have had tax breaks, but they have had to go to Australia to get them.

Dr Cullen cannot have it both ways. One argument he makes is that National is a bunch of mad tax-cutters who cannot be trusted. Today he made the opposite argument: that people cannot trust National to cut taxes because it never has. He is actually wrong about that. But he cannot have it both ways.

Labour members will have to make up their own minds about tax cuts. They need to own their record and their record is that they have given tax breaks to those who are better off, to people who own companies, and to those who can afford to save, but Labour’s own supporters have gone wanting for 8 years for a single dime, for a single cent. Dr Cullen promised them in 2005 the “chewing gum tax cuts”—as the leader of the ACT party so grandly called them. Then he took those cuts away. So the only thing Labour members promised workers, it took away. That is why, next year, workers will not trust them. Labour members had the chance, with the passage of this bill this year, to give some tax reductions to low and middle income New Zealanders, yet for the eighth year in a row they have refused to do it. But magically in election year the workers out there who have had to pay more and more tax are meant to believe that now Labour members are giving tax cuts out of the goodness of their hearts. What a load of rubbish! Dr Cullen has spent 8 years ruining his credibility on tax; it will not come right next year.

RODNEY HIDE (Leader—ACT): The performance of the Rt Hon Winston Peters in the House, just before, illustrates why we have got ourselves in such a muddle over tax policy. It was all about politics and grandstanding and nothing about principle or sound policy. Just to recap, I remind members that all of the political parties were discovered by the Auditor-General at the last election to have spent money outside what the rules were considered to be, and every party—some begrudgingly—paid the money back. Mr Peters and New Zealand First did not. They were going to take a legal case, they held off, and they kept the interest, apparently, on their money all that time. Then, rather than pay back the money to the taxpayer, as every other party did, they grandstanded and had their picture taken giving the money to a hospital. That is like a taxpayer who, on being found not to have paid his or her tax, does not actually pay it back for 2 years and does not pay any interest or any penalties, but who then gives the money owed to the taxman to his or her favourite charity, gets his or her picture in the paper doing so, and says: “Look at me, how wonderful I am!”. There is nothing principled or sound about that.

If Mr Doug Woolerton wants to keep chirping in as he does, he and his party should announce where the money that New Zealand First has been spending has actually come from—not just the money it paid to the hospital but the money that Mr Peters spent in taking Bob Clarkson to court—money that has never been declared. I say to New Zealand First members that before they start giving some bad motives to the National Party or to the ACT party over what those parties are doing, I think they should be a bit more upfront about where their leader has been getting his money from all these years.

As to this bill, I say that the problem is that there is no principle, there is no sound policy, and there is no forward thinking in anything that this Government is doing in the area of tax. Let me explain. The first thing we should do with a Government is decide what we want that Government to do. Once we decide what we want the Government to do, we can then go and figure out how we raise the money for that. But that is not what this Government has done. It has sat on a pile of cash and asked “How can we spend it?”. In fact, it has asked “How can we get more?”. It has put up taxes and charges to get more money to spend rather than think about what New Zealanders want their Government to do.

The second thing we should do, having decided that, yes, it is appropriate that the Government spends this amount of money, is raise tax as efficiently and as effectively as possible, because a poorly designed tax system puts costs on the economy—that is to say, on all New Zealanders. The costs are not just the cost of filling out the forms, the costs are what is called in the jargon the dead weight costs of tax—the costs, the trades, the deals, the business, the jobs, and the opportunities that are not realised because of the tax system that this Parliament has put in place.

If people think like that, they will want this—they will want the tax system to be fair. It is fair to say that fairness is somewhat in the eyes of the beholder, but let us discuss both concepts. If we want a tax system to be efficient—that is, to raise a set amount of money in the least costly way—then, indeed, we will have a low flat tax on income, or a consumption tax like GST. That is the way we will do it. And we will say to ourselves: “We are not going to have a tax system that is designed to push people a certain way, or that tells us how to spend our remaining bits of money left after the tax has been taken.” No, because when we do that, we distort the economy, we add costs to the tax system, and we complicate the tax code.

So we would be looking for, maybe, a flat tax of something like 18c in the dollar and a GST of 12.5c in the dollar, and then people would be left with the money above that to spend as they choose, not as politicians think they should choose. That is what we would be doing; not saying “We think saving’s a great idea. Let us allow people to keep some of their money if they save it.”, or “We think research and development is a good idea and we will give tax breaks for that.” No, we would not say that, because that is just politicians telling people what to do with their own money.

Here is another thing. We would not be having this argument about tax rates of 39c and 33c in the dollar, because we would be thinking about tax from the point of view of efficiency and fairness. We would say that the fair proposition is that if someone earns twice as much money as others, they should pay twice as much tax—not three times as much, not four times as much, and not 100 times as much, as can happen under the Labour Government, but twice as much. People can live with that, but they cannot live with the idea that as they earn more money they should pay not just progressively more tax but exponentially more tax, because that quells any incentive to be entrepreneurial, to invest, and to get ahead. That is another feature we have seen in our current tax code.

But there is a big elephant in the whole room of this debate about tax, and it is the one that I think we have to link in much more closely—that is, we cannot talk about tax cuts, or what tax rates should be, unless we get Government expenditure under control. As long as politicians sit there and view the cash they take off New Zealanders through the tax system as a war chest to spend on policies to win an election, then no tax cuts will be sustainable, taxes will continue to rise, New Zealand’s economy will continue to be sluggish, our performance will be poor, and our best and brightest will leave for overseas climates. In order to get a strong economy, in order to get savings, and in order to get interest rates down, one thing is needed, and that is for the Government to get its own spending under control.

Government spending is not under control. This Parliament cannot begin to scrutinise the spending of Government departments that are running out of control. The budgets are simply too big. When I first came here I made a bit of a name for myself by exposing the odd million dollars, $10 million, or $20 million that was wasted. I made a bit of a name for myself, but I soon realised that those sums were a pittance because while I was doing that, this Parliament had gone from spending $100 million a day every day to $150 million a day. That is what happened. While we were saving by exposing the odd scandal of around a few million, actual Government spending was going up by billions.

What should we do about it? It seems to me, and to the ACT party, that we do need some discipline on ourselves and on Governments to constrain Government spending. I think we should agree to hold Government spending at the rate of inflation. How is that for a start? Then Government spending can increase to compensate for inflation, but it cannot go beyond that. We constrain ourselves. If the Government wants to spend more money, there is a simple solution to that: ask the people. Let us have a referendum and say “Look, we have all these great projects. We have got KiwiSaver, and this and that, and we want to spend the money on that.” Let us ask taxpayers if they want their taxes to go up this year at a rate faster than inflation. I know that it seems odd to people in this House that we would actually ask for taxpayers’ consent, but, after all, it is their money. Thank you very much.

R DOUG WOOLERTON (NZ First): New Zealand First supports the third readings of the three bills arising from the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill—

Hon Members: Pay the money back!

R DOUG WOOLERTON: Seeing as those members want me to talk about paying the money back, I will talk about that in a moment. Firstly, I say that New Zealand First supports, and always has done, any cut in taxation that we possibly can support. We support savings wherever and however we see them packaged, we support incentives that give an advantage to our producers and our entrepreneurs as opposed to those in other countries, and we support the Government to help our businesses wherever it can.

We believe that the Working for Families package is a positive thing, and that it sends the right messages and does the right thing. I say for about the sixth time that if at the time of the last election—around the time when Working for Families came out—we had adopted across-the-board tax cuts as proposed by the Opposition, I would have received something in the vicinity of $90-odd a week extra, as an MP, which I would have enjoyed. As opposed to that my son, who has a very good job, and his wife have recently had their second child. She was off work—off paid work, I might say, but working harder than ever as a mother—and they would have received nothing under across-the-board tax cuts. Under the Working for Families package they received in excess of $100 per week, and I received nothing. [Interruption] We will never cross the divide on that argument, because it is a philosophical one. We in New Zealand First believe that Working for Families is the right way to go, and we support this bill.

Talking about principle, Mr Hide made a statement that we are not acting in a principled way in New Zealand First. I say to members that if we believe that we have not done wrong, if we believe that we have been served badly by circumstances or a wrong decision, and if we believe that the principle is wrong, then it is wrong to go, under pressure, and pay back money when we do not believe we owe it—

Rodney Hide: Pay it back to the tax department!

R DOUG WOOLERTON: We are talking about principled decisions now; we are not talking about the tax department, or anything close to the tax department. If we want to act in a principled way—and, as a party, we want to give the message that we understand people’s concerns, but we will not fulfil the demands of people who demand wrongly that we pay some money back that we do not believe we owe—then we take a principled decision and give the money to a worthy charity. That is what we have done. We have paid the money to a charity, and good will come out of that.

Hon Members: You stole taxpayers’ money!

R DOUG WOOLERTON: Let the members in the Opposition tell me whether they would take the money off Starship Children’s Health. Would they take it away from those children? Will they say that that money is not doing good? Are they saying that that money will not help a child in New Zealand? Are they saying that that money does not help the community? Are they saying that that is not the right thing to do? If they are saying that, let them go into the public, and stand on a platform at election time and say that they would take that money off Starship Children’s Health and deny those children the opportunity for health. That is what we call a principled decision. I come back to the bill—

Dr the Hon Lockwood Smith: You stole taxpayers’ money.

R DOUG WOOLERTON: We have not stolen any money, and we certainly do not use $7 million of public money like the National Party does.

We support this legislation because we believe it does all of the right things for society. It sends the right messages, it provides help where it is needed, and it is good for society overall.

NANDOR TANCZOS (Green): I rise to give a brief contribution on two points in the legislation before us.

The first one is in relation to the tax cut debate that has been going on here. The National Party and Mr Hide have talked a lot about the need for greater tax cuts, and that has been debated both here and in the public domain. The Green Party considers it unfortunate that the debate in this House, in particular, is always between whether we should have higher or lower rates of income tax, or, for that matter, company tax. We believe that it is time to redefine the question of what is being taxed. Outside this House there is increasing recognition of and support for the use of Pigovian taxes and other forms of eco-taxation as a way of both simultaneously addressing environmental problems and raising revenue, ideally to provide a means to reduce income tax as a result. The Green Party will continue to push for the use of those forms of taxation.

The other issue relates to KiwiSaver, where the Green Party would have liked to see substantial ethical investment criteria set out in the legislation. There are obviously strong incentives for New Zealanders to participate in the KiwiSaver scheme, and we support it, but it seems obvious to us that making substantial ethical investment criteria part of the package would have been a sensible thing to do. We think it is unfortunate that that has not happened.

On both of those fronts, we consider the failure to incorporate those ideas to be a lost opportunity.

CHARLES CHAUVEL (Labour): I am going to take a brief call on these bills that enact promises outlined in the 2007 Budget, and which are the latest example of this Labour-led Government keeping its promises to continue the process of New Zealand’s economic transformation.

In this third reading speech I want to address three of the matters that are dealt with in this legislation—KiwiSaver, the company tax cut, and the research and development tax credits. I will start with KiwiSaver. An important aspect of these bills is the enhancement made to KiwiSaver, first, in the Budget, secondly, in the recommendations coming from the Finance and Expenditure Committee, and, thirdly, in the Minister’s Supplementary Order Paper. To refocus KiwiSaver, definitions have been reviewed, loopholes have been closed, and general submissions as to the burden on companies and individuals have been considered and dealt with. This bill will ensure that the original aims of KiwiSaver will be met in the fairest and most efficient way possible.

The enhancements to KiwiSaver, introduced by this legislation, will make it even more attractive to New Zealanders, and they certainly come in a timely fashion. If anyone doubted the need for this scheme, he or she should consider the statistics that I found the other day when I was considering the remarks that I would make on this occasion. Members opposite might be interested to know that in the year to March, prior to the opening of the scheme, savings from all sectors in New Zealand fell to $1.3 billion. This was down from $5.9 billion in 2005, and $7.4 billion in 2004, and our household savings rate remains very poor. New Zealanders spend $1.15 for every $1 saved. Just this month a World Economic Forum report ranked New Zealand 108^th out of 131 for our national savings rate. Those are historical scandals.

We simply must do something to address those dreadful savings rates, and KiwiSaver starts us along the road. The public understand this. They have embraced the scheme. As the Minister of Finance and the Minister of Revenue observed, over 300,000 New Zealanders have enrolled in the scheme already, after only 6 months of it being open for enrolment. Finally, 32 years after the Kirk Labour Government first sought to guarantee retirement peace of mind to New Zealanders, and after all the years after National dismantled it and put nothing in its place, KiwiSaver, along with the New Zealand Superannuation Fund, accomplish that goal. I cannot describe how proud I am to be about to cast a vote for that future.

I want to speak briefly also about the company tax rate and the research and development tax credits. I am not one of those people, like members opposite, who believe in cutting tax for the sake of it. Frankly, anyone who does is a fool. Depriving a State—distant from its markets and with a history of under-investment in infrastructure—of revenues can be downright dangerous, as the 1990s showed us. I am not one of those, like members opposite, who think that tax rates by themselves are the only determinant of where companies choose to base themselves. If they were, no company would ever elect to base itself in the United States with a federal company tax rate of 39.3 percent, or Japan 39.5 percent, or Germany 38.9 percent. For the foreseeable future, clearly we will never compete, nor should we, with ultra-low corporate tax regimes in nations like Singapore and Hong Kong.

Having said all that, though, it is clearly desirable to maintain rates of taxation that are broadly competitive with those jurisdictions in our neighbourhood and with those with living standards with which we like to compare ourselves. Australia is obviously relevant in this regard, having cut its corporate tax rate last year to 30 percent. Even though we have to treat comparisons with Australia with some caution as we have a very simple tax system, unlike Australia’s system with its payroll tax, superannuation levies, Medicare surcharges, and stamp duties, it was clearly important to consider following suit and to make the necessary amendments. We now do so and, as Dr Cullen said, we are doing it in the first cut in corporate tax rates in New Zealand since Labour was last in office in 1988.

The value of these tax cuts to New Zealand business next year will be $2.1 billion. Astonishingly, members opposite, whose rhetoric is all about cutting tax—indeed, it seems to be their only policy—are voting against this legislation. This legislation also introduces a 15 percent research and development tax credit to bring us into line with the many other developed countries that invest in building know-how in this way.

Just as KiwiSaver is addressing our abysmal savings record, so too research and development tax credits will help to raise the level of private sector investment in research and development in New Zealand. It will benefit business to the tune of $630 million in its first year of operation. I really do believe that this measure will help New Zealand businesses to expand domestically and overseas, to improve their ability to research and develop new products, and to invest in skilled staff. All this will drive higher productivity with internationally competitive firms selling products for which international consumers will pay a premium. These outcomes are absolutely key to our future economic success.

I say in conclusion that New Zealand is enjoying the longest period of economic growth in 30 years. Since 1999 our average growth rates have outstripped those of Europe, Japan, the US, and the UK. Company tax returns show that recent profit growth has averaged some 20 percent per annum. We continue to rate highly in terms of international competitiveness, openness, freedom from corruption, and ease of doing business. Unemployment at 3.6 percent is at record lows, and labour force participation is at record highs. None of this is happening by accident. It is in very large part a legacy of Michael Cullen’s excellent economic management, typified by the measures contained in this legislation. Long may that continue.

Dr PITA SHARPLES (Co-Leader—Māori Party): Tēnā koe, Mr Deputy Speaker. At the end of this month all Ngāi Tahu whānui who have joined the Whai Rawa programme will be eligible to receive the next distribution from Te Rūnanga o Ngāi Tahu. The distribution of some $250 is twice as much as last year. Every dollar that a member contributes to his or her savings under Whai Rawa will receive $1 in matched savings from Ngāi Tahu. It gets even better for Ngāi Tahu rangatahi, youth, who are matched at a ratio of 4:1. So if one of their young people under 16 years of age saves $15, Ngāi Tahu will match it with $60. This is Māori enterprise and success at its absolute best. It is a programme designed to provide a base level of saving for all registered Ngāi Tahu members, as well as supporting a culture of savings and asset building.

At the end of July 2007 there were over 6,300 members and over $1.5 million invested. But the entrepreneurial capacity of Ngāi Tahu is confined not only to their steady membership and the fund size of their medium to long term savings scheme. The influence of Te Rūnanga o Ngāi Tahu is also felt in this legislation. Ngāi Tahu specifically lobbied to ensure there was creativity and clarity around the retirement scheme contribution tax. Their efforts have been rewarded through the provisions that Ngāi Tahu have promoted, which means that contribution tax can be directed at source, rather than 6,300 members having to make their own individual contribution.

We commend Te Rūnanga o Ngāi Tahu for their efforts, and we acknowledge also the sponsor of this legislation, the Hon Peter Dunne, for being willing to do what was necessary to achieve simplicity and clarity. We also note that this legislation enables the retirement contribution to be offset by any imputation credit or Māori authority credit. These two initiatives, we believe, will avoid setting up a whole new raft of compliance issues that can only run the risk of creating non-compliance breaches at an individual level.

The legislation we are debating today sets the annual income tax rates for the 2007-08 year, introduces amendments to encourage voluntary compliance with tax obligations, and amends other Acts and regulations such as the KiwSaver Act 2006. In many respects there are some positive proposals included within the legislation. We welcome the tax credit for research and development, and support the changes made in the select committee to the eligibility criteria for clarity purposes and to make them less restrictive.

We believe that it is a very positive initiative to establish a tax credit for science and technology - based research and development conducted predominantly in New Zealand by New Zealand businesses, and we are confident that such support will pay dividends in the long run. We support also the tax incentives for charitable donations. We accept the rationale of submitters who suggested that increasing the tax incentives will in itself increase the opportunity for charitable giving. We will be interested to learn how the Inland Revenue Department will take this into account in its review of tax incentives, which is to be reported back on 31 March 2008.

The other major development we wish to speak to in this legislation is the recommendation that the minimum employee contribution be reduced to 2 percent to facilitate greater participation in the KiwiSaver scheme. At the second reading of the legislation, my colleague Hone Harawira revealed the results of the Marae DigiPoll carried out just 1 month ago, in which it was disclosed that 84 percent of the 1,000-strong group polled had decided not to join the KiwiSaver scheme—84 percent.

Yet although there was such little interest in KiwiSaver, there was enormous interest in the issue of tax cuts. Tax cuts were one of the highest priorities. We in the Māori Party are very interested in the whole concept of support for tax cuts. Manaakitanga and rangatiratanga lead us to address the impacts for low-income taxpayers. We certainly are of the view that those people on lower incomes should carry less burden proportionately than those who are on high income levels. We know, for instance, that 1.9 million taxpayers are on an income of $25,000 or less and that these people are paying $1.5 billion in tax while the Government is accumulating surpluses of $4 billion to $7 billion per year. It is this group that should benefit from tax cuts.

I come back to the issues with KiwiSaver. We are pleased to note that following advocacy from the New Zealand Council of Trade Unions, the National Distribution Union, and the New Zealand Nurses Organisation the minimum employee contribution will be reduced to 2 percent in order to facilitate greater participation in KiwiSaver. The recommendation that came back from the Finance and Expenditure Committee duly included a minimum contribution rate of 2 percent of gross salary until 31 March 2010, 3 percent from 1 April 2010, and 4 percent from 1 April 2011.

Although we are pleased that the recommendation for a lower contribution rate for KiwiSaver was accepted, we were disappointed that another recommendation from the combined unions that under 18-year-olds should be eligible for KiwiSaver was not accepted. We did have to wonder at the evident flaws in the argument that opening up the door for people under 18 might reduce incentives for young people to remain in education and training. We have to ask whether this will be another piece of legislation that acts against the interests of our young people, just as, for instance, we saw the Minimum Wage (Abolition of Age Discrimination) Bill have the words “age discrimination” removed from the title, and promptly do exactly that.

Like many of thesemultifaceted bills, some very positive changes are included alongside the not so desirable changes. We support the tax credit facility for research and development, tax relief for donations, tax exemptions for Tokelau and Niue trusts, and the lower contribution rate agreed to for KiwiSaver. But we have to once more temper our support by asking the constant question: when will we see tax changes for the poor that will bring about justice for those who are not currently enjoying an enviable standing of living? We wonder why the endless name changes are necessary. The terminology that has been associated with tax—for example, credits for families, the in-work tax credit, the parental tax credit, Working for Families tax credits, family assistance, family support, and minimum family tax credits—just adds layer upon layer of confusion, which makes an already alien concept like taxation even more inaccessible to the general public. It is just as nonsensical as the logic around excluding 18-year-olds from being able to join.

We will be supporting this legislation, and we hope that some of the issues we have raised here tonight will be given further consideration in the interests of the well-being and the wealth of all peoples of Aotearoa.

Hon PAUL SWAIN (Labour—Rimutaka): There are lots of businesses in my electorate, and I will tell those businesses that the National Party voted against a tax cut for them. I will tell the businesses in my electorate that when National, the so-called party of tax cuts, had a chance to vote for a reduction in the corporate tax rate, it voted against that—again. I am absolutely going to tell them that.

Lots of businesses in my electorate do research and development. I have something to tell those companies, which wanted a tax incentive to be provided for research and development. [Interruption] Mr Bennett has been saying he supports a tax incentive for research and development. I will ask those companies whether they know that when the Government took legislation to Parliament that gave companies incentives for research and development, Mr Bennett voted against it. I will tell them that all Mr Bennett did was to shout and scream across the House. He would not stand up and make a speech to tell people why he was voting against research and development incentives. He just shouted across the House. I will tell businesses that.

I will tell the companies in my electorate that make charitable donations that when the Government put forward legislation to try to improve the incentives for that, the National Party voted against it.

Hon Members: Oh!

Hon PAUL SWAIN: Yep—National members did. They voted against incentives and improved contributions for companies, which they had been calling for for some time. Pansy Wong stood in this House and said she was pleased that that would happen. I will say to those companies that when National members had the chance to vote for that, they voted against it.

Then, of course, I will be talking to lots of people in my electorate who have joined the KiwiSaver scheme. I will tell those people that when the Government introduced legislation to make improvements to the KiwiSaver scheme, so that when they retire they will have more money in their pockets—which I thought the National Party was in favour of—the National Party voted against it.

Hon Ruth Dyson: What?

Hon PAUL SWAIN: National voted against it. No one has given us any reason why that should be; National members just shout across the House. [Interruption] No, I did not hear anything from the National Party as to the reason for that. I think National will remove those incentives. In fact, the message that is going out is simply that if people vote for National, the KiwiSaver scheme is in peril. In my view, it is gone if the National Party gets in. That is just a message of warning to the voters.

Now, a few workers in my electorate have been made redundant, particularly at South Pacific Tyres. I will tell those workers and their families that when the Government introduced a scheme in this legislation to give them a tax rebate of 6c in the dollar on their redundancy payments, the National Party voted against it. The National Party voted against a tax rebate on their redundancy payments.

Finally, there are taxpayers in my electorate who have suffered penalties—we know people who have suffered penalties. I will tell the taxpayers in my electorate that the Government listened to what they said. We said that the penalty regime was too rigid, and that we would introduce a scheme to make it more flexible and more reasonable, in order to encourage compliance. I will tell them that the National Party voted against that.

National voted against tax cuts for business, voted against incentives for research and development, voted against improvements for companies that wanted to make donations to charities, voted against increased incentives for KiwiSaver, voted against a better redundancy for workers, and voted against a more liberalised scheme for the penalties that taxpayers have to pay. National is a party that has only one policy: tax cuts. It is the only tax policy it has. Of course, we waited during the entire debate on this legislation to hear what National’s policy was. There was not one dicky-bird, not one sausage, and not one mention of what the National Party was going to do. National talks about making tax cuts when it is in Opposition; it never gives them when it is in Government, of course. It has talked about tax cuts for years. Here was the chance for National members to stand up and say what they were going to do, and there was not one mention of that—not one dicky-bird. And when the National members had the chance to vote for tax cuts, they decided to vote against them.

I want someone to explain the reason for that. I cannot understand it. Maybe I am missing something. Maybe I am not bright enough to get the little nuances from the National Party. But I do not understand why, when the National members had a chance to vote for tax cuts, they voted against them.

In conclusion, all I will say is that the National Party supports tax cuts; it says it is in favour of tax cuts. But when it is in Opposition and it gets the chance to vote for tax cuts, it votes against them. That is why no one will trust National on tax cuts. I say roll on next year!

CHRIS TREMAIN (National—Napier): Well, that was Mr Paul Swain, the hard-working MP from Rimutaka, who just gave an election platform speech for the next election.

R Doug Woolerton: And very good it was, too.

CHRIS TREMAIN: There is one problem.

R Doug Woolerton: What is that?

CHRIS TREMAIN: Mr Swain will not be giving that speech, because he is, in fact, retiring from Parliament at what I would suggest is a very good time in his career. He is retiring before the Labour Party is run out of office. So I say to Mr Swain “Well done!”; that was a good election platform speech, but unfortunately the electorate will not be hearing that one when it comes to the next election.

I want to get into the taxation debate, but before I do that I must comment about the antics of Mr Winston Peters this afternoon. The leader of New Zealand First, before waltzing into the Chamber, quietly had a look at himself in the window to make sure he was looking just right for the occasion. He came in, sat down next to Mr Woolerton, and requested leave of the House to table a picture of himself—a picture of his giving a gift to Starship Children’s Health hospital. I am a short-term MP here, but the arrogance of that is hard to justify, and I cannot understand it. It begs the question whether young MPs like myself should be seeking leave to table pictures of ourselves giving donations to charities in, say, Napier, because we do not feel like paying our Bellamy’s bill on a particular occasion. Quite frankly, it was unbelievable. But we are not here to debate those antics; we are here to discuss the third readings of the taxation legislation.

I want to get to the guts of why National is not supporting this legislation. Mr Swain stood over there and spoke at length about how he could not understand why we are against it. Various members across that side of the House have tried to say that our opposition to this legislation is all about protecting our rich mates. Well, if they call nurses, policemen, and wharfies our rich mates, then maybe they are right. If they call builders, plumbers, engineers, and fitters and turners our rich mates, then maybe they are right. If they call university staff, plumbers, and Wellington bureaucrats our rich mates, then maybe they are right. We believe that hard-working Kiwis are being overtaxed, and this legislation does nothing to resolve it—absolutely nothing.

I want to talk to five specific points this afternoon to put our side of the argument as to why we are not supporting the legislation. The first point is the increasing tax burden, and the second is the quantity—the mountain of tax that has been collected in the last 6 years. I want to touch on fiscal drag, I want to look at our surpluses vis-à-vis Australia’s, and, lastly, I want to finish on the chance of tax cuts under this Government.

Once again, we think Labour has overtaxed hard-working Kiwis, and, as a result, we will not be supporting this legislation. In terms of the increasing tax burden, when Labour came into office and introduced the 39 percent tax rate, Dr Cullen said on 23 December 1999 that 95 percent of people will not be asked to pay more tax, and that, instead, only the top 5 percent of income earners will pay more. According to Cullen’s answers to questions in the House just recently, not 5 percent but 12.9 percent of taxpayers are now expected to pay the top income tax rate in the 2008 income year. They include those nurses, those wharfies, and those fitters and turners who are now in that top tax bracket, and who that side of the House believes are rich. Treasury’s key facts paper released on Budget day actually goes further than 12 percent; it states that 14 percent of taxpayers are now paying that level of taxation.

Remember also, and more important, that virtually everyone—not just those top taxpayers but virtually everyone—is paying more tax because of bracket creep. People on the 19.5 percent rate will have drifted to 33 percent simply because of CPI increases in their wages without any accompanying adjustment to the bracket levels. Bracket creep means that in real terms our tax rates increase subtly every year as we earn more income and move to higher tax brackets. As a result, a person on the average wage now pays an extra $2,400 in personal income tax a year than he or she did in 2000, despite being no better off in real terms. It is those people who have moved into higher tax brackets who that side of the House believes are in the rich category.

Note too that our top tax rate kicks in at only 1.4 times the average wage. Although Australia has a higher top personal tax rate—National members acknowledge that—it kicks in at $180,000, not $60,000. That is what catches our nurses, that is what catches our policemen, and that is what catches our wharfies. Do members on this side of the House think that nurses, teachers, and wharfies are rich? No, not one iota. We think Labour has overtaxed those hard-working Kiwis, and as a result we do not support this legislation.

Secondly, in terms of the quantum of the tax burden, let us have a look at how much tax has been collected over the last 6 years. In the year ended 30 June 2000, $34.4 billion was collected in tax in this country. In the year ended 30 June 2007, it had risen to $56.5 billion. That is a whopping $22.1 billion increase in taxation across the country over those 6 years—$5,525 per man, woman, and child in this country in extra taxation—a whopping 64 percent increase in additional taxation. If that is not reason enough to be voting against this legislation, then I do not know what is. National members think Labour has overtaxed hard-working Kiwis, and as a result we are not supporting this legislation.

The third point is fiscal drag, which is the net effect of additional tax collected through people rising into higher tax brackets. Fiscal drag in New Zealand since 1 April 2000 is estimated as being in the order of $1 billion in extra income tax revenue. Since 2000 Australia has increased tax thresholds and reduced tax rates. Like I said before, the top personal income tax threshold has increased in Australia over that period from $60,000—where we are at now—to $180,000. The lower personal tax rate, which applies immediately after the tax-free threshold—yes, the Australians have a tax-free threshold, which they are aiming to pick up to $20,000 over the next 6 years—has reduced from 17 to 15 percent. So, above the tax-free threshold, if one is a low-income earner, the lower rate that one pays is 15 percent. These tax changes have largely offset the effects of fiscal drag in that country, and that was a key reason behind average take-home pay increasing in Australia over recent years. Between 2000 and 2006, the gross average hourly wage in Australia increased by 34.3 percent, and the average net income increased at a similar rate.

But here in New Zealand, between 2000 and 2006 the gross average hourly wage increased by only 22.1 percent. New Zealand net incomes have grown at a slower rate. That has to do with income taxation. That has to do with the personal tax rates that we charge people in the middle and lower income levels. Changes to those levels can have a massive impact on the take-home pay of hard-working Kiwis, and that is why we are not voting for this bill.

This situation has been exacerbated in no small way by the number of Kiwis moving to Australia. There were 75,000 last year in total, with net migration of some 40,000. Dr Cullen wrote that off as a lifestyle choice. He said people were leaving because of a lifestyle choice. Then he went on to say that they are functionally innumerate and we do not need them anyway. Unbelievable! In closing, I say that I think those people understand the numbers. I believe they are not functionally innumerate. They understand that the tax rates are lower there and that they earn a better wage there, and that is why they are going.

KATRINA SHANKS (National): It is a pleasure to take a call on the third readings of the Taxation (Annual Rates of Income Tax 2007-08) Bill, the Taxation (Business Taxation and Remedial Matters) Bill, and the Taxation (KiwiSaver) Bill.

First of all, I acknowledge the Minister in the chair for the Committee stage, Peter Dunne. He sat in that seat and listened very carefully to what the debate was about, and he responded on a very regular basis in order to address the concerns we had in relation to the original Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill. I realise I am new to this House, and I have spoken few times compared with everybody else, but it is not often that I have watched a Minister sit there, listen intently to the debate, respond, and add some value to the debate as a bill has gone through the Committee stage. That is what he did, and I acknowledge that, because we appreciate the respect he showed in paying attention to what we were saying during the debate.

At the same time, I apologise to the officials who normally would be sitting on those seats by the Chair. They sat here all last night, until 10 o’clock—because we sat until 10 o’clock on this legislation—and they listened and took notes. Then they came back into the Chamber this morning to listen to the rest of the Committee stage. Obviously, they did not realise that this debate on the legislation would come up now. The legislation is being rushed through—that is what happens in urgency; things are pushed through this House, instead of being planned out—and they have not been able to make it back for the third readings. I apologise to those officials. They do good work for this Parliament and this Government, and they work long and hard to try to make legislation as good as they can for the Government at the time. I apologise to those officials who have done the long yards for us and who are not here today.

I must say that during the Committee stage I was expecting the Labour MPs to take a lot more calls than they did. I think one call was taken, by Charles Chauvel, in over 2 hours of debate this morning, and that is disappointing, because this legislation is really important for New Zealanders. The fact that Labour members did not give it enough respect during the Committee stage to get up to speak to it and support it says something about this legislation.

I have been sitting here during these third readings and I have been disappointed again in the personal attacks happening in this House—the attacks Michael Cullen made against Lockwood Smith—and I really think we can do better for New Zealanders. I think New Zealanders are getting frustrated by the personal attacks that are happening in this House. It is about time we raised the level of debate in the House.

I come to the taxation bills that we are here to talk about. This legislation is very comprehensive and it has taken a long time to come before the House, but the thing that strikes me about it is that there is nothing about personal taxes. People are coming to our constituency offices to talk about how they do not have enough money, and how they find it hard to make ends meet. One would think this legislation would address that at some level, but, no, there is nothing about personal tax cuts in it. In fact, soon this Government will not have to worry about it, because 40,000 people a year are leaving this country to go where they can get tax cuts—Australia. More and more people are leaving. Steve Chadwick over there is laughing her head off, thinking it is funny, but it is not, because what we are losing are the people we want to keep—good, hard-working New Zealanders. We want them to stay in New Zealand and get ahead under their own steam because we have a good environment for them.

Moana Mackey: Oh yeah, it was fantastic in the 1990s. It was wonderful.

KATRINA SHANKS: We hear Labour members say “What about 1990?”. I do not actually care about 1990. I care about the future. I care about the future for myself, my family, and my children. If that member wants to sit there and talk about 1990 and live in the past, she should please do so, because next year, in 2008, when the people of New Zealand get to have their say, they will not say that they want a worn-out, tired Government, which you are, because you have no answers to any of these issues—

The ASSISTANT SPEAKER (H V Ross Robertson): Order!

KATRINA SHANKS: My apologies, Mr Assistant Speaker. The people of New Zealand will be asking for a change of Government, and they will put National on to the Government benches. That is what will happen, because they are sick of this Labour Government interfering in their lives and not delivering what Labour said it would deliver. Take, for example, the “chewing gum tax cuts”. Where are they? Where are they in this tax legislation? They are absolutely nowhere. Many, many more people will be joining those 40,000 people who left last year to go to Australia to get the tax cuts that they deserve because they are hard-working New Zealanders. The Government over there does not believe in building the kitty like the Government here does.

I looked at this tax legislation in quite a bit of detail the other day, when I knew I would be speaking on it, and I could not figure out where the long-term strategy for tax was. Where are we going with our taxation policies in New Zealand? The Minister of Revenue is in charge of this legislation. He has advocated for 24 years for income splitting—that is his passion. He has been in charge of this legislation. He has charged ahead, taken the lead, and gone out there, but there is nothing in this legislation about his passion. There is nothing about what he really believes will make a difference to New Zealanders, which is income splitting. He has put together this tax legislation, but he has not put in it what he believes in. So how much is his heart in it, and does he really have a long-term strategy, considering that he thinks he will change this legislation in a year’s time? That is not what the people of New Zealand want. They want to see a Government that is committed to a long-term tax strategy that will get us ahead in the years to come.

At the same time, the Government should be interested in protecting its revenue base. That is very important for this country, if we want to get ahead as a country. What we do not realise when we look at this legislation is that the New Zealand Government is the biggest business in New Zealand. It takes the most money—it has the biggest revenue—of any business in all of New Zealand. Given that it takes in the most revenue in New Zealand and it has no long-term strategy, what does that tell us about this legislation? It tells us quite a bit. It tells us that it has no direction and that it is piecemeal legislation. I truly believe that is what we are seeing here today.

This legislation addresses four or five main issues. They are the new research and development tax credits; a reduction in corporate tax rates; the KiwiSaver employer tax credit and compulsory employer contributions; moving the rebate cap on charitable donations, which is what the National Party talked about last year, and which this Government has picked up on; technical changes to portfolio investment entity rules, which have already had changes; offshore portfolio share investment rules; and amendments to tax penalties, which are interesting in themselves. When I was out there in my previous life as a chartered accountant, I talked to those poor business people who try their hardest to keep it together and run their businesses. They have a passion for their small businesses. They are trying to make ends meet, which is really hard for many small businesses out there, and they wear every single hat one can imagine. They do HR, they do finance, they do law, they import—you name it, they do it in their businesses—and then they forget to file a GST return on time.

Or they make simple errors because they cannot afford accounting systems. Many small-business people do not know how to use accounting systems, which is even more important; they do not have the time to sit down and learn that, because they are busy trying to run their businesses. So they input a spreadsheet backwards on to a GST return, inputs become outputs and outputs become inputs—it is very easy to do, and many people do it in New Zealand—and all of a sudden they are slammed for a false return, or for a return that is dated incorrectly, or for a return that is on the wrong form. Many businesses do Internet banking today, and they may draw down the wrong form off their Internet banking website. All of a sudden they find that there are a zillion transfers between all these accounts to make up the differences—which the Inland Revenue Department automatically does—and before they know it they have got a muddle and they cannot get out of it. It is such a common theme coming through, which I saw as a chartered accountant. All of a sudden one has four or five different tax accounts within the Inland Revenue Department—one for GST, one for annual tax, one for provisional tax, and so the list goes on. Then one has PAYE and student allowances. It is really difficult for people out there.

To conclude, I would like to say that this tax legislation that the Government has put together for New Zealanders is disappointing.

A party vote was called for on the question, That the Taxation (Annual Rates of Income Tax 2007-08) Bill, the Taxation (Business Taxation and Remedial Matters) Bill, and the Taxation (KiwiSaver) Bill be now read a third time.

Ayes 65

New Zealand Labour 49; New Zealand First 7; Māori Party 4; United Future 2; Progressive 1; Independents: Copeland, Field.

Noes 50

New Zealand National 48; ACT New Zealand 2.

Abstentions 6

Green Party 6.

Bills read a third time.

Climate Change (Emissions Trading and Renewable Preference) Bill

First Reading

Hon TREVOR MALLARD (Acting Minister for Climate Change Issues): I move, That the Climate Change (Emissions Trading and Renewable Preference) Bill be now read a first time. This is a debate about a landmark piece of legislation—the Climate Change (Emissions Trading and Renewable Preference) Bill—and at the appropriate time I will move that this bill be referred to the Finance and Expenditure Committee.

The bill establishes two new tools in delivering climate change solutions—an emissions trading scheme, and a preference for renewable energy generation by implementing a 10-year restriction on new fossil fuel thermal-energy generation, with exceptions that ensure the security of New Zealand’s electricity supply. This will assist in meeting the Government’s goal of 90 percent of our electricity generation being from renewable sources by 2025.

Reducing greenhouse gas emissions below “business as usual” levels is the objective underlying the emissions trading scheme. The broad design of the policy has received considerable praise—both within New Zealand and internationally. I might say, having acted previously for the Minister at the United Nations, our approach caused considerable comment from a number of countries.

People have by and large accepted that climate change is real and that we must reduce emissions if we are to do our bit in helping the world deal with it. Most people agree that the emissions trading scheme needs to cover all gases and all sectors, and I think this is the difference between the approach New Zealand is taking and the approach of many countries so far. Overall, and generally, they agree with a gradual, staged introduction.

The Government’s approach is to maximise the scheme’s environmental integrity while minimising any costs and adverse effects. The Government will assist households and businesses to adapt, and will provide a smooth and gradual transition. The Government has relaxed the penalty regime and set up a consultative process to develop allocation plans.

Other key issues that arose during the previous engagement focused on three key aspects: how the Government should assist through the free allocation of units to sectors and within sectors; how the market will operate in terms of international linkages, liquidity, and the unit of trade; and the treatment of pre-1990 forest.

The legislation maintains a policy of free allocation of units, as was discussed in the framework document. It makes clear that the planned review of the emissions trading scheme must consider our allocation model in the context of the emissions pricing policies of major trading partners. Even in the last few weeks, the international competition issues for our economy have decreased as a result of the new Australian Government’s decision to ratify the Kyoto Protocol, and through it to take on a binding cap on its emissions.

Final considerations on the matter of the phase-out of allocations are not complete, and the ongoing views of stakeholders through the Climate Change Leadership Forum and other ongoing engagement are important. The legislation also contains the Government’s preferred approach around issues such as international linkages to other emission trading schemes, liquidity, and the unit of trade.

An important issue on which the Government has yet to make a decision at this point is the inclusion, or not, of the so-called hot air assigned amount units in the emissions trading scheme. Hot air units is the term given to certain Kyoto units issued to countries like Russia and the Ukraine under the Kyoto Protocol. These units represent real emissions reductions in Russia, whose ratification of the Kyoto Protocol was crucial to it coming into effect. The Government intends to analyse a series of options prior to making a final decision next year. The ongoing engagement with stakeholders will be highly relevant to this consideration.

The existing Climate Change Response Act provides a regulation-making power to impose restrictions on the units that may enter the New Zealand Emission Unit Register and what they can be used for. The bill re-enacts this power, making it possible to place restrictions on hot air units if the decision is to do so. Any changes to the rules on what units can be surrendered for compliance or held in the registry will not apply retrospectively, and the bill makes this clear.

In respect of pre-1990 forest, the Government’s proposal would see compensation for landowners on the basis of hectares of forest. The Government has not been able to identify any fairer method for targeting that assistance. The overall level of allocation to deforestation is generous, and it is equal to the full amount of deforestation emissions at historic rates of deforestation. Some forest owners purchased their forests after the cap on deforestation was announced. Some forest owners have deforested significantly in the period since the cap was announced, and others have been unable to.

The bill is silent on how units will be distributed to individual landowners, and provides a process for an allocation plan to provide for free allocation to landowners of pre-1990 forest. The allocation plan will be publicly released in draft form, and submissions will be considered before the final plan is agreed.

The bill provides for a self-assessment model, in which participants who do activities must monitor their activities, record their emissions, report them, and surrender units to cover the emissions. Provision is also made for participants undertaking removal activities, such as afforestation of post-1989 forest land, to earn units for every tonne of emissions they remove from the atmosphere. The administering agency will have the powers to audit participants’ compliance with their obligations, and to take enforcement action where there is failure to comply.

Important issues remain upon which the Government has yet to make decisions. We are determined to engage fully in these issues over the next year.

The legislation being introduced includes default provisions for all sectors, including activities on the dates upon which sectors assume obligations, which align with the announced dates of entry into the scheme. The bill also sets broad parameters that will govern the free allocation of units to the forestry, industrial, and agricultural sectors, although it does not state the total number of units available for allocation to the industrial or agricultural sector, or precisely which individuals and firms within the sectors will receive a free allocation of units. The inclusion of these default provisions in no way negates the Government’s commitment to ongoing engagement with stakeholders on implementation issues. The default provisions are included because an essential principle of the scheme’s design is that it applies fairly across all sectors and to all greenhouse gases.

It is important that there is certainty to all sectors, in the absence of further legislative action, that they will be covered by the scheme. It is important that the forestry and transport sectors, which are entering the scheme first, have the assurance that they will not be alone in having obligations under the scheme. The option of either a processor or a farm-level obligation in the agricultural sector is one example where the Government wishes to consult further before making a final decision and where the legislation allows either decision to be implemented.

One important element in the original framework of the emissions trading scheme elicited little debate, indicating a broad consensus. That was the overall objective of the scheme. The objective outlines the need to establish a new equilibrium between environmental impacts and economic growth. For too long there has been an imbalance.

There must be a concerted international response to climate change. Emissions trading is a crucial element of New Zealand’s response. It is especially pleasing that the framework we launched in September has received strong support in many quarters, including reviews by internationally respected organisations. I commend the bill to the House.

Hon Dr NICK SMITH (National—Nelson): National supports the first reading of the Climate Change (Emissions Trading and Renewable Preference) Bill because we believe that an emissions trading system is the sensible approach for New Zealand to take in response to the huge challenge of climate change. In fact, back in 1999 the National Government did a large amount of policy work on this subject and it concluded that an emissions trading system was the right way forward. When the current Government proposed a carbon tax, National members said that an emissions trading system was a better option. Then 18 months ago, when we produced A Bluegreen Vision for New Zealand, we again said an emissions trading system was the right way forward. The irony is that at that time Labour heavily criticised the proposal. We now welcome the fact that there is consensus between the major parties that an emissions trading system, covering all sectors and all gases, is the right way forward.

The reason National believes that emissions trading systems are the foundation for a sensible climate change policy is that pricing signals are the best way in which to incentivise people in forestry, agriculture, energy, and transport to make better decisions in respect of the environment. We think that a little country like New Zealand needs to take into account the decisions that other countries are making, as we respond to the challenge of global climate change. We look at the United States, where 23 states are now part of emissions trading schemes. We look at Canada, we look at the European community, and we look at the decision of both the previous Government of Australia and the new Government, all of which have come to the same conclusion that an emissions trading system is the right way forward.

National believes there are a number of very important detailed issues in how emissions trading systems are put together, and believes also that this bill needs very heavy scrutiny. The Acting Minister Trevor Mallard noted the issue of whether we should accept into our market Kyoto-compliant units from those Eastern European countries. In truth that will probably make it less expensive. It will make it more unstable, and it may mean it has less environmental integrity. National members look forward to detailed work at the select committee to make the right choice around that important issue.

There is the big issue about allocation plans. New Zealand has major industries such as agriculture, forestry, steel, aluminium, and cement. National does not want to provide a bill that simply exports those industries and jobs offshore because of the costs that we impose on them in New Zealand. The proposition in the bill for an allocation plan of units to those industries that face competitive issues is the right way to address that. But National raises questions about the very rapid level of removing that assistance where, effectively, from 2012 to 2025 all of that assistance will be taken away. If that is broadly in line with where the international community moves, that would be appropriate. Having just returned from an international parliamentary conference in London and the United Nations conference in Bali, I think the Government is being overly optimistic about the level of international progress, and that is an issue that we will want to visit.

Furthermore, New Zealand needs to understand that in respect of the areas of forestry and agriculture this emissions trading system is unique. To date, no other country has attempted to put land use and the issue of agricultural emissions into an emissions trading scheme. We in National will want to scrutinise those provisions of the bill very closely at the select committee, because New Zealand will pay a high price if we get those provisions wrong. In National’s proposal for an emissions trading system we felt that we should put the electricity sector first rather than the transport sector. The argument is over 1 year. We will not argue heavily about that, although I raise the question of timing. Why has the Government decided to put our landfills that emit emissions at the very last point—in 2013—when all of the evidence is that that is some of the lowest-hanging fruit, of which we can, for the least cost, make the most gains? National’s preference would be to see that sector come in earlier.

I must make comment on the proposition in this bill to put a ban on new thermal generation. We have seen a real hotchpotch of Government policy in this respect. Let me recite the history. The Government intervened in the electricity market in 2002 in levying all New Zealand electricity consumers to build the new Whirinaki oil-fired power plant. It then came along in 2003 and rejected the Dobson hydro scheme, which would have produced renewable energy. The Government intervened and stopped it. It then came along in 2004 and through legislation blocked Project Aqua, the biggest renewable energy project this country has seen in a long time. The next year the Government provided a guarantee for the massive new E3P gas-fired generator at Huntly. And now it will put a ban on new thermal. I simply ask the Government: where is the consistency? One moment it is intervening to stop renewables and to provide Government guarantees for thermal—as for the oil-fired power station and the gas-fired station—and the next minute it does a massive U-turn and wants to completely reject and ban them. Albeit, I have to say I think the ban in the bill is something of a Clayton’s ban in that there are some gigantic outs.

I think what is really going on with those provisions is that under this Government we have seen a trebling of the amount of electricity produced from coal. The Government is deeply embarrassed by that. It knows that will be an albatross around its neck as it goes into the next election, and it is trying to cover its base with this Clayton’s ban on thermal generation to save it from its appalling record in that regard. National says that we want to heavily scrutinise all of those issues in the select committee.

I will also comment on the wider debate around climate change. I am somewhat amused by the debate around climate change in New Zealand as to whether we are going to be a world leader or a fast follower. I have to say, that is like arguing over whether we want the gold medal or the silver medal when we are last in the heats. If we look at this Government’s actual record on emissions we see that it is pretty appalling. If we look at the United Nations and its report on emissions, we see that of the 36 countries that have commitments under the Kyoto Protocol, New Zealand’s record is the fourth worst. Our emissions have gone up by 25 percent. I compare that with our near neighbour Australia. Australia is on track to actually meet its Kyoto Protocol requirements with a growth of 4 percent in its net emissions.

The truth is that because of the shenanigans we have seen in public policy in New Zealand, despite ratifying the Kyoto Protocol in 2002, it is now 2007 and we have lost 5 years. The loss of those 5 years, in which there has not been any substantive policy on climate change, has seen us now with this bill only 2 weeks prior to the Kyoto Protocol coming into effect. We must be honest and say that this bill includes retrospective controls on industries like forestry. The Government has had 5 years to do its work and it let us down.

I draw Parliament’s attention also to the international council on integrity around climate change, which, when it takes into account record and policy, again ranks New Zealand at the very bottom end. Labour promised when it came to Government that it would reduce emissions by 20 percent by 2005. It has not. Emissions have gone up by 12 percent. National wants to play a constructive role in getting the right sort of emissions trading system for New Zealand, because climate change is an issue that is bigger than any party in this Parliament or than any single country. We want to take a responsible approach to it.

Hon JIM ANDERTON (Leader—Progressive): I am glad National has joined the 21^st century. Last year it was in climate change denial. Last year the National Party was taunting this Government and saying that New Zealand should follow the example of Australia and the United States and not sign up to the Kyoto Protocol. The interesting thing is that had we not signed up, we would now be following Australia to Bali to sign up. What would that make us? It would make us followers, like some other party in this House that I know. The truth is that if we had followed that advice, we would be a laughing stock now. It is a bit rich to be getting advice on the Kyoto Protocol and climate change from the National Party when it has been in denial all along.

New Zealand is exposed to climate change in multiple ways. We face a choice: we can strongly seize the benefits and reduce the liabilities, or we can sit on our hands as the Opposition would have had us do and be exposed to enormous risks. We are more dependent on climate and climate change than any other developed country, because more of our economy is based on climate-dependent production. In our export markets, consumers and regulators are already asking hard questions about the sustainability of our produce. Unless we can say that our exports are from the first truly sustainable country in the world, we will increasingly be shut out of markets upon which we rely. Fortunately for New Zealand, climate change is not only a risk but an opportunity. As consumers are turning away from environmentally damaging products, they are also turning towards environmentally responsible production and are prepared to pay a premium for it. If we can get our own house in order, New Zealand can take advantage of this opportunity.

The emissions trading scheme is a landmark in our efforts to address this crucial issue. It puts sustainability at the heart of our economy. The underlying principle behind the emissions trading scheme is that it should cover all sectors and all gases. It therefore has profound effects on the future of our primary industries. The nature of the effects on forestry and agriculture, in particular, deserves special attention. Agricultural sector emissions represent almost half of New Zealand’s total greenhouse gas emissions. These emissions are currently significant because they are a major source of emissions growth.

It was not plausible for New Zealand to leave our major industries out of the emissions trading scheme. It would have meant, at the very least, that the cost of the sector’s emissions would need to be paid elsewhere in the economy. So all sectors are in the scheme, but we have also had to design a trading scheme that allows for a smooth transition. Emissions trading allows flexibility in land use while ensuring that decision makers consider the true costs, including the environmental costs, of their choices.

We can particularly see the strength of the emissions trading scheme in the forestry sector. A couple of decades ago, the Government used to provide subsidies to farmers to farm marginal lands more intensively—in other words, to cut down their trees. We ended up with eroding hill country and inadequate protection for our soils, waterways, and communities. Emissions trading turns that around. In Gisborne there is a river on land where farmers were subsidised to cut down all the trees. The bed of the river rose 50 feet. The Government was then asked to pay to help with the flooding that resulted. Emissions trading makes for less erosion, because the scheme gives an economic incentive to plant more trees. Protecting against erosion helps the environment and protects communities. It is much better for farming business than over-intensification of marginal land. The emissions trading scheme allows forest owners to benefit from the value they provide to the rest of us when the forests store carbon.

The forest sector will enter the emissions trading scheme on 1 January next year. Forest land will be designated as either pre-1990 or post-1990 forest land. Owners, lessees, and rights holders of forests planted after 1989 can join the scheme if they choose to. They will then receive New Zealand units when their forests grow, and surrender units if their carbon stocks decrease. Depending on the price of carbon, it is likely to be worth at least several hundred million dollars to the forestry sector.

One advantage of the emissions trading scheme is that it allows the benefits and costs from the Kyoto Protocol to be devolved. In fact, the more that costs and benefits are devolved, the more effectively the trading scheme works. It puts the incentives closest to the contributors to the problem and to the solution. From 1 January, owners of exotic forests first planted before 1990 will be liable for emissions if they choose to convert their forest to another land use—for example, if they move from forestry to agriculture. If someone owns a small forest, such as a forest smaller than 50 hectares, and it was planted before 1990, then he or she can be exempted from the scheme. Naturally, if no liabilities are faced, no free allocations will be received.

Deforestation is the second largest source of greenhouse gas emissions globally. Therefore, we have to do something about it. Reducing deforestation is one of the lowest-cost options for reducing emissions. It is also important to address it immediately, as forestry is the one area where individuals can bring forward their emissions to beat any future measure. The Government is easing the transition for the sector. It will meet the cost of 21 million tonnes of deforestation emissions from exotic forests until 2012. An allocation will also be made to cover a further 34 million tonnes of deforestation emissions after 2012. The assistance given to pre-1990 exotic forest owners is equivalent to the historic rate of deforestation over the current exotic forest estate. The first reporting period for deforestation of pre-1990 forests will conclude at the end of 2009, at the same time as transport. The two sectors will be able to trade emission units between themselves. In total, the assistance package offered to pre-1990 exotic forest landowners is worth around $825 million at a carbon price of $15 a tonne. This is a very substantial commitment.

The Government is still looking at the question of indigenous forests. There has been some consultation with owners of indigenous forests planted before 1990. It is unlikely that much of our native forest can be chopped down now, because it is largely protected. For example, we have stopped cutting down 1,000-year-old beech trees on the West Coast, and the region has already been compensated for that.

Other sectors, like agriculture, will not come into the emissions trading scheme for a number of years. They still need certainty, and for that reason the bill includes provisions about that point of obligation. Back in 2003 the Government agreed to meet the cost of non - carbon dioxide emissions from agriculture until 2012. In return, the sector increased its research efforts on cost-effective abatement technologies. That agreement has been kept, and agriculture will not come into the emissions trading scheme until 1 January 2013. In the meantime, the agricultural sector will start measuring and reporting its emissions before trading begins from 2011.

There is more work to do in deciding some issues affecting the sector. One crucial question is where the point of obligation can lie. Options include at the farm level, at the process or company level, or at the sector level. At the moment the Government preference is for a process or company level point of obligation, but we will work with the sector closely to develop a practical and cost-effective system that rewards good environmental practice. The Government will work with the sector on these and other issues, and the issue of a phase-out of free allocations by 2025 is still on the table for discussion. The bill we are introducing today has review provisions on this that will ensure we consider developments with our major trading partners.

This issue of climate change, and the policies that this and other Governments will follow to reduce emissions, is one of the most complex and vital issues that we have ever faced in this Parliament, and probably one of the most complex and vital in terms of the planet—all of us are in this together. We now have a comprehensive package of measures to rebuild capacity in order to address New Zealand’s land-management challenges. New Zealanders expect our primary industries to play their part. Our markets expect us to play our part. We have to get started with a vision of a sustainable and carbon-neutral New Zealand. This Climate Change (Emissions Trading and Renewable Preference) Bill gives us a historic place to start, and I commend it to the House.

GERRY BROWNLEE (National—Ilam): I will follow the comments made by my colleague the Hon Nick Smith in response to the Minister’s speech earlier this afternoon, because he very clearly articulated National’s position and our concerns. We are committed to going through the select committee process in order to ensure that New Zealand gets a very good climate change and emissions trading regime. It was disappointing, therefore, hear the second speaker for the Government sound, again, a little petty about how people get themselves to any particular position. I would be quite within my rights to say that the Government is only now, after 8 years, getting to where National was back in 1999.

The tragedy is that we have seen an extraordinary deforestation of this country over the past few years. The very Minister who is criticising the position taken by us—which is in favour of this bill, I might add—is the person who has presided over the felling of some 15 million trees in the last 2 years, and who this year, in 2007, has presided over some 30,000 hectares of New Zealand forests being cut down and not replaced. That has to be a concern to anybody who looks at New Zealand’s emissions profile. I agree with him that we have to do something because of the reliance we have on the world’s demand for agricultural products from our country. If we do not have a tidy carbon footprint, then we are likely to see a degree of stress, probably significant stress, in the markets we need to access in order to sustain our lifestyle in this country.

One of my other responsibilities is in the area of energy, and I want to make a couple of comments about the way that this bill is supposed to fit in with the Government’s Energy Strategy. The Energy Strategy was produced after a long gestation, and I think it was somewhat of a disappointing document, inasmuch as it talks about a whole lot of concepts and has some very, very challenging goals in it, but does not talk about the practicalities and realities that will face this country in meeting the energy needs of its citizens and in trying to comply with a regime that demands we reduce the carbon dioxide emission profile from that sector.

The only thing I take comfort in is that the emissions trading system should see encouragement for some fuel substitution inside the energy market, particularly around fossil fuels, and it should see, we would hope, more renewable generation come into play. But as my colleague Dr Smith pointed out, every time that this Government has had an opportunity to support a sizable renewable energy project, it has found some reason to knock it over. That has to be the ultimate irony that works against the credentials it is trying to claim as a Government that is keen on looking after the environment.

Some serious questions need to be answered in the select committee process, and not the least of those, when it comes to energy, concerns the definition of security of supply. If we look at the demand curve for electricity in this country, we see that the Government has massively underestimated what it is likely to be. Currently, if we read the Energy Strategy we learn that it says there will be about half a percent of demand growth every year. But we know that historically that rate has been well ahead of 2 percent. There is a suggestion there that energy conservation will make up the difference. Well, that is highly unlikely, in our view. As Dr Smith pointed out, the dependence that New Zealand now has on thermal generation means that the challenge to get back to a higher level of renewable generation is even greater than it was some short years ago.

Not only do we want to know what the definition is for security of supply but we are fascinated to know what non-baseload thermal generation actually means. Right now, every bit of thermal generation capacity in this country is running, unless it is designated as reserve. Here we are heading into the warmer months of our climate, but we still have thermal generation running at peak loads. So what is non-baseload generation? At the moment every little bit we have is in fact baseload generation.

We would also like to know, in looking at the exemptions provisions of the bill set out in clause 60 right through to clause 62, what will trigger some exemptions being granted. Will it be a price signal? If there is a price trigger, can New Zealanders look forward to massively increased electricity prices? I for one do not accept that we need to have rising prices in an environment where we are reducing our greenhouse gas emissions from our electrical-energy sector. I think there are things we can do. One of the aspects of the energy portfolio is the scarcity of electricity. If it was not in scarce supply, we would not be seeing some of the dramatic price rises that we have seen over the past few years.

So there is a real challenge here to have a better regime for renewable energy to be fed into the grid and to be developed, and for some sensible legislation around the role that thermal generation will play in supporting that. People will be aware, I hope, that Contact Energy has a $1 billion project for the development of a very, very large wind farm on the west coast of the North Island, just below Auckland. The company has made it very clear that it will have to back up that big wind farm with a smaller amount of thermal capacity. That brings us back round in a circle, and causes us to ask what security of supply is, as a definition, and what non-baseload generation is, as a definition. We want to know those two things. We also want to know whether a price signal will trigger the exemption process, or whether it will just be a matter of whoever is the Minister of the day making up his or her mind about what that means.

Another interesting aspect of this bill is the fact that we see nothing in it that talks about how New Zealand might better develop carbon stores. We heard Minister Anderton talking about various projects around the place, but as we have said, some of the biggest carbon stores in this country have been completely knocked over and taken out in the last couple of years. There is no suggestion from the Government in this bill that we are to look at how we might measure the improved carbon store in the country’s pastures or how we might encourage the agricultural sector to get some benefit from improved soils—making the effort to improve carbon sequestration, effectively, in the improved soils. Also, there is no suggestion that active work will be done by the Government of the day, whichever Government it may be, to ensure that we have soil stabilisation. Much of Mr Anderton’s speech made mention of it, but, sadly, none of what he was talking about is reflected in this bill.

Our commitment is to travel with this bill into the select committee, supporting it, and then we will pick up on what the Hon Trevor Mallard said today. He said that the Government wants to consult widely and that it wants to work closely with all of those who have an interest in New Zealand’s future, particularly with regard to climate change, because there is no doubt that we cannot separate what we do to mitigate against climate change and what we do to reduce our carbon dioxide emissions profile, from what our future economic prospects will be. We accept that the Minister is saying in good faith today that he wants to work with us, and we make that commitment as we support this bill going to a select committee.

R DOUG WOOLERTON (NZ First): New Zealand First supports the Climate Change (Emissions Trading and Renewable Preference) Bill going to a select committee. New Zealand First looks forward to the debate on this bill, because, like most caucuses, we have people who are slowly coming to the realisation that climate change is a problem. We have people who agree and people who disagree, and we have had many debates in our caucus over this issue.

I will mention that Peter Brown has problems with Part 2—he asked me to mention it—and he will be watching over my shoulder as we go through the process, to ensure that we do not get too silly on those aspects. I welcome that, because I think every caucus in Parliament—perhaps not the Greens’ caucus—has struggled with this issue.

We are certainly looking forward to the debate. We will not beat the Government or anybody else over the head about the 5 years that National says have been lost. I am sure that the Greens feel that we have all been latecomers to the party, as it were. But I think those 5 years have been a period when the opinion of the public of New Zealand has moved, and the polls we are seeing now reflect that climate change is of concern to in excess of 70 percent of the population. I think that now is about the right time for us to be debating a bill such as this.

New Zealand First was not amongst the first in this race, but we certainly will be approaching this bill with an open mind, and we are intent on getting things done. It is absolutely true that the debate over the whys and the wherefores has moved on. I think that debate was important, but now we need to approach what we actually will do about it. When I see—what do they call them—Green Cabs running around Wellington—

Hon David Carter: And the Green Parrot.

R DOUG WOOLERTON: —the Green Parrot—I see that the realities of life are moving into the commercial world. People are seeing that they can have a little competitive advantage. I and, I am sure, the National Party and others welcome that sort of thing, and that is the sort of positive debate we are seeing come out of this discussion. We will see many more such positive things. If slings and arrows are cast around, we will just have to accept that, but at least now we in this Parliament are all moving in the right direction.

We, as a population, have had debates with foresters and we have had talks about rights. We in New Zealand First voted against the carbon tax. Now we have come to an emissions trading regime. Others know far more about it than perhaps we in New Zealand do—people in Europe, for instance—but it is still a relatively new science. The trading regime is still relatively new, and I think we have a long way to go before we perfect it. There are a lot of arguments to be had before we agree amongst ourselves, but the debate has started. We in New Zealand First embrace it with open arms, and we will do everything in our power to progress it to the advantage—but not to the cost—of New Zealand.

JEANETTE FITZSIMONS (Co-Leader—Green): As we debate the first reading of this Climate Change (Emissions Trading and Renewable Preference) Bill to establish an emissions trading scheme for New Zealand, our representatives are in Bali at the annual meeting of the parties to the Kyoto Protocol, discussing the nature of an agreement to follow the current protocol from 2013. The science has crystallised around the key number of 2 degrees of warming, beyond which there is little chance of arresting a process of climate change that will continue to accelerate. There is a strong and urgent international call for countries to agree that keeping warming below an average of 2 degrees must be the goal of everything we do. New Zealand has not yet signed up to that goal. The best scientific advice is that to meet that goal we need to reduce emissions by between 25 and 40 percent by 2040. Europe has agreed to that. Australia, under its new leadership, has just agreed to that. New Zealand has not yet signed up to that, either.

The time for debate about whether human-induced warming is occurring is over. A few sceptics remain, but their arguments have been rebutted repeatedly by the Intergovernmental Panel on Climate Change. Sceptics claim that changes in solar activity are causing the warming—sunspots. The Intergovernmental Panel on Climate Change has systematically investigated and debunked that idea. Sceptics say that warming has stopped and that the world has cooled since 1998, but that is an example of how statistics can be used to justify a lie. The year 1998 was a standout year. It was much warmer than any previous year, and the years since have not been so warm, but they have still all been warmer than the years before 1998. If we remove that one anomalous year, then the warming trend continues smoothly.

So there has been enough talk; it is time to take action. If we had taken action when the Kyoto Protocol was first negotiated in 1997, on the basis of some pretty certain science, then our task today would have been much easier. But like most of the world, we wasted those 10 years, saying “After you.”, and “No, no, after you.”, while the world burned. Although New Zealand’s emissions are small on a per capita basis, they are 4½ times worse than China’s, despite our renewable hydro resources and despite all the coal we are selling to China that it burns and takes responsibility for. Our extraordinarily high emissions per person are a serious trade risk if we do not reduce them substantially by the time our trading partners demand clean trade. Compared with Europe our cars average fuel use of 11 litres per hundred kilometres, while theirs use 7 litres, and our car ownership is the highest in the world. Our homes are poorly insulated, our industry has bad-quality electric motors and compressed air systems that leak, and we have very little public transport. And that relates only to the half of our emissions that do not come from farming.

Addressing climate change has to use all the mechanisms at our disposal: public information, education, skills training, demonstration, benchmarking, regulation, and pricing. This bill is about pricing. It is designed to make fossil fuels and other causes of climate change relatively more expensive, and renewable energy, energy efficiency, and alternative farming technologies relatively cheaper. It is designed to change behaviour and that is how we must measure its success.

Since 1993, the Green Party has been advocating a carbon charge, with corresponding reductions on the bottom band of income tax. So we welcomed the Labour Government’s 2002 policy that among other things promoted a carbon charge. But because the Government did not say what it would do with the money, it lost the political battle and, frightened of even more tractors on the steps of Parliament, it abandoned the charge in 2005. That was 4 years wasted. We now have a second-best system of an emissions trading scheme, and economists and a number of business people have recently come out in support of the view that it is a second-best system. Too late, those who now regret their opposition to the very much simpler and fairer carbon charge, with lower compliance and administration costs and real revenue to recycle, must accept their role in killing the better scheme and accept the second-best. It is here, and we have to make it work.

That is why the Greens will support the bill’s first reading, but we will work very hard to improve it at the select committee. The first question is “Will this complex system reduce New Zealand’s greenhouse emissions?” The answer is—on its own, not very much. There is no requirement for any of the emissions reductions to be made in New Zealand. The intention here seems to be to purchase cheap Clean Development Mechanism credits from developing countries that have no caps on their emissions but that need funding from developed countries to improve their energy efficiency, build renewable energy, and expand their forests. So far, so good—that is how Kyoto works—except that there is now a lot of published evidence that many of those Clean Development Mechanism credits are poorly verified and are, in fact, fraudulent. We need to do a lot more at home rather than rely on those trades.

The Government estimates emissions trading will reduce transport emissions by 0.3 percent; the statistic disappears into the margin of error in any calculation. By comparison, setting fuel efficiency standards for vehicles entering the country, as now agreed to under the Energy Efficiency and Conservation Strategy, will save 25 percent of the fuel that those cars use. This system is claimed to be a world first that includes all sectors and all gases. In fact, it does neither. Half of our emissions are not covered at all until after the first Kyoto commitment period is over.

Agriculture, the major emitter of methane and nitrous oxide, is totally exempt until 2013. Dairying must be the most profitable sector of the New Zealand economy at present, as well as one of its dirtiest. It is the fastest growing source of methane and nitrous oxide emissions. It can well afford to pay for them, but it has been given a taxpayer subsidy for 5 more years, during which time it will grow, converting more and more forest area to dairying, and being aided and abetted by the Government’s own company, Landcorp, that actually does the conversions. It is not as if there is nothing farming can do. Nitrification inhibitors are now available to significantly cut nitrous oxide emissions, but where is the incentive to use them? This huge taxpayer subsidy of well over $1 billion is founded on an agreement in 2003 that the industry has not kept, despite what Mr Anderton just said about research funding. The industry has done nothing to voluntarily reduce its emissions.

Also exempt, but in this case forever, is the methane emitted from underground coal mines. New Zealand is accountable for it under Kyoto but, once again, in a substantial subsidy—this time to the coal industry—the taxpayer will pay for coal seam methane. Unlike a carbon charge, the emissions trading scheme produces no revenue for the Government to recycle in order to help the most disadvantaged become more energy efficient so they can cope better with the higher prices.

It is quite possible to have higher fuel and power prices but lower bills. If a person’s home is insulated and that person has better public transport and a more efficient car, then that person needs less energy. But any money provided for that—and there should be some—will again have to come from the taxpayer, because what little revenue the scheme does provide is all going to subsidise farmers.

Some weeks ago I warned that the Green Party is not of a mind to support legislation that leaves all the most critical decisions to regulation, over which Parliament has no scrutiny, and that is what this bill does. It is critical for the environmental integrity of the scheme that we do not allow Russian hot air—units resulting from the collapse of their industry—into our registry. But that decision is left to an Order in Council decision under new section 30G, as is any decision to link with other trading schemes overseas. Also without parliamentary scrutiny, the Minister has wide powers of exemption, may issue new New Zealand units and auction them, and must make allocation plans.

The hardest decisions of all—and I have been warning of these since the mid-1990s—are the decisions around the allocation of free credits to protect firms that are trade-exposed. The timing in this bill allows the Government to be comfortingly vague until after the election about who will qualify for free units, how many, and over what part of their emissions. The crunch decisions will be announced after the election in the form of allocation plans. We considered very carefully whether we could support such a delegation of powers by Parliament. The mitigating factors are that clear criteria are set in the bill and there will be a process of public submissions. We believe that that has taken care of enough of our concerns, and that it will be workable. However, we will work very hard, with many others who want a system with environmental integrity, to have agriculture enter earlier, to have coal seam methane captured, to exclude Russian assigned amount units based on hot air, and to persuade the Government to sign up to the internationally recognised critical goal of no more than two degrees warming and to a very substantial emissions reduction target within New Zealand in the post-2012 period.

HONE HARAWIRA (Māori Party—Te Tai Tokerau): Tēnā koe, Mr Assistant Speaker. Kia ora tātou e te Whare. As I was thinking about what to say on this bill, a couple of emails came in. The first was from Lowndes Associates proudly announcing that it is the first law firm to get carbon neutral certification in Aotearoa—although given the amount of methane coming off the bull droppings that are a natural part of law firms, one would have to assess that claim through a healthy whiff of incense. To its credit, though, Lowndes Associates also has an army of legal experts to help its clients understand the Government’s emissions trading scheme and the emerging carbon trading market—and that suggests at exactly what level this whole thing is being pitched.

The second email came from the Indigenous Environmental Network at the United Nations climate talks in Bali, urging Governments to reject the World Bank initiative to include forests in carbon markets. The Forest Carbon Partnership Facility was set to be launched as a key project to reduce emissions through deforestation in developing countries, but the Indigenous Environmental Network said that the scheme would not make any difference because all that it would do is let industrialised nations and companies buy their way out of emissions reductions.

When law firms, international indigenous groups, and the World Bank all get caught up in something as big as climate change, we know that it is a big deal, so we have to ask how come this Government is introducing something as important as this bill under urgency. We simply do not get robust and intelligent debate on a bill that is squeezed into the middle of 19 other bills being rammed through the House just before Christmas. What we get is limited discussion from MPs thinking about something else, and no real depth of understanding of the costs and benefits of an emissions trading scheme to support global efforts to reduce greenhouse gas emissions—a lot of which I am getting from other members in this House today.

But there are a couple of concepts I would like to present as the Māori Party contribution to this debate, if I could. The first is our responsibility as tangata whenua to care for all those who live in this land, and their descendants, in line with our kaupapa of rangatiratanga, manaakitanga, and whānaungatanga, and the obligations we have of care and preservation. This emissions trading scheme has a similar philosophy of recognising and honouring obligations in the industries of forestry, mining, steelworks, and farming, through the verification and surrender of emission units.

The second is the concept of kaitiakitanga and our responsibility to care for our world through the reduction of those activities that would harm and, indeed, destroy that world. In the interests of life itself, let alone social, economic, and environmental sustainability, we have a responsibility to reduce our carbon output. Māori have a role to play in the reduction of greenhouse emissions, and we do not resile from that responsibility, but Māori also have the right to manage what little assets they may have for the betterment of their people. We realise that in order to manage both roles effectively we must—and we do—appreciate that our total well-being, our health, our economy, and our sustenance are dependent on the well-being and health of our world, just as all indigenous peoples across the globe understand their unique role of caring for and conserving mother Earth.

But is this emissions trading scheme really the answer to all our climate change problems, or is it just creating another property rights regime to let the world’s biggest polluters continue along their merry, filthy way? Charging people for greenhouse gas emissions was supposed to encourage businesses to come up with alternatives to fossil fuels, but all it is doing is giving them an excuse to continue. Why bother with the expensive, long-term structural changes if we can meet our targets by simply buying pollution rights from operations that can reduce their carbon cheaply?

To understand how the Climate Change (Emissions Trading and Renewable Preference) Bill will affect Māori we looked at what it would mean for Crown forestry. In a report called Māori Impacts From Emissions Trading Scheme we get a clear understanding of the responsibility Māori owners of Crown forest licence lands have: “In determining what constitutes a fair, equitable and proportionate burden, Maori are assumed to be concerned with their level of economic development relative to non-Maori (as a consequence of past Crown actions or otherwise) as well as their relative contribution to New Zealand’s green house gas emissions.” There are no simple solutions to this problem, particularly with so many factors at play. To meet the challenges posed by greenhouse gas emissions we need to be creative and innovative.

Furthermore, there is the question of whether the 55 million carbon credits due to be allocated to pre-1990 forests under the proposed Act for Crown forestry lands should be allocated as part of Treaty settlements, and here is where it all gets kinda tricky. Naturally, Government officials say the claimants should have to buy their carbon credits out of their settlement moneys, whereas Māori involved with Crown forestry rental lands quite rightly say that those carbon credits should be treated like accumulated rental separate from their settlements. The Māori Party supports the advice from the Climate Change Iwi Leadership Group and the Māori reference group that carbon credits should be allocated on the same basis as accumulated rentals held by the Crown Forestry Rental Trust. In other words, once one has acquired Crown forestry land, one gets carbon credits of equivalent monetary value over and above one’s settlement. We do not see the sense in making claimants buy these carbon credits from their settlement. In fact, we believe that to make them do so would constitute a further breach of the Treaty of Waitangi. Claimants are not the reason these lands are not in Māori ownership, and Māori should not be punished for that while still being denied the same opportunities available to other New Zealand owners of pre-1990 exotic forest lands.

We also note the concerns of the New Zealand Council for Infrastructure Development that this legislation might place a 10-year ban on thermal energy. We have a particular interest in this, given the contribution the Tuarōpaki Trust is making to geothermal power through Mōkai I. The Tuarōpaki Trust, which comprises hapū of Ngāti Tūwharetoa and Ngāti Raukawa, is an ahu whenua trust that is fast advancing progress in efficient thermal generation, and we will be extremely interested to hear from its chairperson, Tūmanako Weretā, about the implications of this bill for them.

As I said earlier, there are some huge issues in this bill; issues that will linger long after this session of urgency has been lifted. We welcome the opportunity for iwi to reflect on the issues that emerged at the national climate change hui in October, and the national Māori forestry hui held just last month. We recommend in the strongest manner that all Māori interested in this debate make sure they get along to the next national hui on this climate change bill, which will be held at 1 p.m. on Tuesday, 18 December, at the Brentwood Hotel in Wellington. We cannot just leave this to chance. We must manage both the opportunity and the risk that presents itself with this bill. So the Māori Party will support its first reading, to enable those debates to be held. Kia ora, Mr Assistant Speaker. Kia ora tātou e te Whare.

Hon PETER DUNNE (Leader—United Future): In 1989 I had the privilege of leading the New Zealand Government delegation to the first Conference on Atmospheric Pollution and Climate Change, in a little village called Nordvijk just outside The Hague in the Netherlands. The events of that meeting, which was attended by representatives of 160 countries, became somewhat overshadowed when on day 2 of the conference the Berlin Wall fell and most of the Eastern European delegates who had been there suddenly shot home very quickly. I recall at breakfast on the day of that event dining with the East German Environment Minister, who assured me that there would have to be one or two changes back home, but nothing serious was going to happen. By lunchtime, he was gone—

Hon David Carter: At least he’d finished his breakfast!

Hon PETER DUNNE: It was a good breakfast, too. That meeting set the pathway for what became the Rio Earth Summit in 1992, which, in turn, set the groundwork for the Kyoto meeting that led to the Kyoto Protocol, and, now, the Bali meeting, which is looking at the post-Kyoto environment. It is interesting to track the change in thinking that has occurred over those two decades. Back in 1989, the focus was much more on atmospheric pollution, the concern about deforestation, the fact that there were issues relating to international development and debt, particularly amongst Third World nations, and there was this consequential thing in the background about how this might be doing something to promote greenhouse gases, which might be damaging to our environment.

Over the subsequent two decades the emphasis has shifted 180 degrees. We are now totally preoccupied, and quite properly so, with climate change and the ways in which that can be mitigated. These other matters that were at the forefront of the agenda at that first round of discussion are now seen as more of the symptoms of the problem, rather than the problems themselves to be resolved.

Over those two decades a number of issues have arisen as ways in which we should address those issues. The bluntest instrument of all, in my view, was the notion of a universal carbon tax. I think it is totally appropriate that having looked at this matter the New Zealand Government abandoned it in 2005, because it was too blunt an instrument. I do not accept the viewpoint put forward by an earlier speaker that moving to an emissions trading regime is a second-best option. I have long felt that that is actually the better option, where we put a price on a product, enable people to trade in the commodity, and establish the type of regime that is, in fact, envisaged in this bill.

Having said that, it is one thing to take a view in theory about what is desirable; it is quite another thing to design a workable system in practice. While we will support the introduction of this bill, we give notice that the detail that needs to be resolved will require a great deal of work by the select committee before we could feel confident—and I am sure others would have a similar view—that the regime we are putting in place is a sustainable and workable one.

For example, let me turn to the provisions under Part 1 relating to the point at which various sectors will enter the regime. On the face of it, it seems logical to have a staged approach, presumably based around the complexity of resolving industry or sector-specific issues. I suppose one could say, given the work that has already been done in some quarters, that it is logical that forestry should be the first entrant, liquid fossil fuels should follow, stationary energy, industrial processes, agriculture, waste, and so on. But it is actually not as simple as that, because while forestry might, for example, appear to be the obvious candidate, it does not necessarily follow that all of the issues relating to forestry are resolved at this point, or are in a state where they are likely to be resolved to enable, without significant work being done, the entry of the forestry regime in part by 2008—that will not happen—but certainly by 31 December 2009. There are issues relating to some of the technical details, and I had advice only this afternoon about more problems that will need to be addressed in that regime. The same applies to the various other sector areas set out in this bill.

So we support the bill going to a select committee. We support it being carefully considered and these matters being resolved to the greatest extent possible. But I want to enter a couple of caveats. There will be natural tendency to have this bill passed before the election, because the Government, and, I suspect, parties supporting it, will want to be able to go out and say: “We have done something. Look at this, it has been passed into law. New Zealand has a strategy.” If that can be achieved, well and good, and the cards will fall where they will. But this is an issue—and I think Dr Smith made this point in his remarks earlier on—that is bigger than any particular political party, this Parliament, or any particular Parliament. I would far rather that we took a little longer and got it right, rather than rush to a glory that might be very short-lived because we are amending it at our leisure over the subsequent years. That is the first point I have some concern about.

The second point is that, as we work our way through this, it is going to be critical to get the maximum buy-in from the largest number of people possible. As I hear all the discussion about this group being involved, that these meetings are being held, that these people are in favour, and so on, there is one large group of New Zealanders who are completely left out of the process to date, but who are in fact going to be critical to its ultimate achievement in so many different ways. I refer to New Zealand households. We are going to be talking, through the various stages of sectors joining this regime, about all sorts of impacts on households.

Reference has been made to some form of compensatory adjustment being made available to them so that they are not adversely financially affected by the provisions of this bill. That is all fine in theory, but the real test will be the extent to which they feel, as the regime unfolds, they are actually part of what is happening. Because if they feel in any way disconnected or imposed upon, or unfairly treated, or unequally treated, then I strongly predict that there will be an adverse political reaction that will see the Government of the day, whichever it might be, forced to make compromises and changes that will challenge the fundamental integrity of what we are trying to do. I strongly urge that the Government—in the first instance—the select committee, and all those involved with furthering the development of this process take some time over the next few months to make sure that we are not just putting in place a high-level strategy with a language all of its own that most New Zealanders do not understand, but that we start to talk about it at a level that people can relate to and can start to see what the impact on them will be, what the consequences will be, and where those compensations, if they are to be made, might be.

Otherwise, we will be setting this up to fail. We have gone down the path previously of saying that we do not want a carbon tax. I think that is absolutely right, because it is a blunt instrument, unevenly imposed, etc. There is an overwhelming public view that we have to do something. The danger here is that if we put in place a regime that is half-baked, ill-considered, and does not have public buy-in, it too will go the way of a carbon tax, and as other regimes and other agreements enter into it, New Zealand will still be left in the position of trying to figure out what its response is. I do not think we can afford to do that.

RODNEY HIDE (Leader—ACT): I know that Mr Harawira worries about the quality of the speeches given under urgency, but I say that the speeches on this bill have been excellent.

On behalf of the ACT party I feel as though I need to offer an explanation, because I believe that we will be the only party voting against this bill. Let me explain. I first became aware of the possibility of anthropogenic effects on the world’s climate, I believe, in 1972. There was some debate then about whether the earth could be possibly warming or cooling, and certainly there was a possibility of an effect of industrialisation and its impact on world climate. Subsequently, the consensus emerged in the late 1970s, interestingly, that the earth was cooling as a consequence of human actions. Indeed, because of my interest in such matters I went on to do a master’s degree in ecology and environmental science, and indeed lectured in environmental science for many years, and did a master’s degree also in resource economics.

Over that time a lot of scares came along and obliterated the concern people had about the possibility of human impact on world climate. These scares have come and, thankfully, gone. I am mindful of Mr Peter Dunne when he was speaking, and alarming the House about Y2K. The scare now of course is global warming, or in fact as it has now been called, climate change.

It is a worry, of course, because we are having such a large impact on the earth, and it is a worry in a host of complex ways. New Zealand is a trading nation, and the perception of New Zealand and our markets is crucial. So whatever we might think of the science, we have to be good environmental citizens. I use the word “good” not in an objective, scientific way, but in a way to justify ourselves to the very peoples we want to be selling our products to in order to maintain our access, and, more particularly, to win a preference for New Zealand goods and services. It is good that New Zealand maintains and extends its green image, and I fully support that.

Let me just run through why we are opposed to this bill. I think essentially it is that we do not want to be running ahead of the rest of the world. If we are going to constrain carbon emissions in New Zealand, it is going to be a huge cost on New Zealand. I find it interesting that not even a rudimentary cost-benefit analysis has been done on the scheme. I notice with some interest that the National Party leader, John Key, said “Oh, by 2050 we’re going to reduce what emissions were in 1990 by 50 percent.”, which is a huge stretch. It would constrain enormously New Zealand’s capacity to produce, and divert resources out of current industries from which we make a great deal of money into those that are not even on the horizon. It is hard to imagine how New Zealand could possibly meet that goal. Even holding the level of emissions has proved impossible for this Government. We can set these worthy goals without thinking about the costs, but if we are going to hold down carbon emissions it will be a huge cost on the economy, and indeed a huge disruption to the economy. So members should make no bones about it; this is a big issue.

The second point I will make is that although there is some debate about the science, I think a good working place for politicians to start is the Intergovernmental Panel on Climate Change. We can all point to that and say that, yes, this is where—I guess I am saying—there is scientific consensus, but we all know that science is not run by consensus; it is run by facts. Yet as politicians we have to come up with a response, and that is a good place to start. I should point out that that is a political response. The science does not tell us what we should do. At the end of the day it is going to be politicians, not scientists, who have to decide what the response is to any environmental scare or threat. As limited as we are in many people’s imaginations, it is hard to think of any other route whereby there can be a response, other than a political one, to the questions and issues of science and, in particular, of the environment.

When we look at it, certainly the alarm statistics we were having some years ago have somewhat diminished, so it is less scary than it was. We are talking a long time frame—a hundred years, a temperature rise of 2 or 3 degrees over a hundred years. But a lot can happen in a day, a lot can happen in a week, a lot happens in a year, and a heck of a lot will happen in a hundred years. For example, the Western World will probably be three times richer per capita. Poorly developed countries will be eight times richer per capita, hopefully, if they pursue good policies. So the world will be a richer place, it will be a different place, and it will be a technologically advanced place compared with what it is now. So the sorts of things that we are worried about—about where we are going—are quite something.

Let us think about temperature. There are a lot of cold countries in the world. Finland is cold, and it is a very successful economy. I guess its average temperature must be zero degrees or 5 degrees. If we look at Singapore, its average temperature must be jolly hot, and the temperature range between Singapore and Finland is far, far higher than any change we are talking about for the world, even in the worst case scenario from the Intergovernmental Panel on Climate Change. That is the point that I would like to make in this speech. The amazing thing about human beings and modern society is our ability to adapt to our environment and, indeed, our ability to change our environment, which is what we are debating here. All this alarm that we have that we must stop climate change, and that we must stop carbon emissions, escapes the point that we can adapt to changes. We can adapt to somewhat higher water levels; of course we can. We have adapted to far worse. We can certainly adapt to different temperature regimes. Human beings demonstrate that. We can succeed in cold environments and warm environments. Yet the suggestion is that somehow some change in temperature would be a calamity. Actually, the facts do not bear that out. So my view on the science is that we should just be a bit cautious and a bit sceptical, particularly in our response.

I know that Jeanette Fitzsimons said that this bill will have an almost negligible effect on New Zealand’s carbon dioxide emissions. That is absolutely true. This bill is a political thing so that Parliament, the Government, and the political parties can say they are doing something. But the actual impact is quite small. It goes nowhere to meeting the commitments that Labour and National have signed up to; all it does is set up a soft regime. That is another point about this environmental trading scheme.

Here is my worry about it. I was involved on the side, as an academic, in setting up the quota scheme for the fisheries, so I know something about setting up market schemes. I heard Dr Nick Smith say that we need to incentivise in pricing, and I think that that is true. But what we are doing here, I think, is setting up a scheme that will be a potentially corrupt scam worldwide, because what is being traded is an odd thing—the ability to emit carbon dioxide, and eventually other greenhouse gases, I guess. Countries that are crooked will be involved, and companies that are crooked will be involved, and they will be trading in these emissions.

There will also be people sitting on property rights that are made valuable simply because of legislation such as this. They will defend those rights to the death, lobby politicians, and say: “No, you can’t do that.” We have seen that already in New Zealand with the forest owners. They said: “We thought we were planting these trees and that we’d own these carbon credits.” I think the potential for abuse and corruption on this is massive. I agree with Jeanette Fitzsimons that this is a very second-best solution. We can achieve Nick Smith’s goal of incentivising in pricing by a tax. The virtue of a tax is that it does not create a property right or therefore a political lobby group that will be arguing around that. In fact, a tax creates a lobby group that says: “Is this a good thing that we should be doing—paying this tax?” But the lobby groups will be huge on this bill when it goes through the committees, and over time.

It is a great thing to be part of the ACT party. We are just two MPs, but we have two votes against this scheme.

MOANA MACKEY (Labour): I am very happy to stand up and take a call in the first reading debate on the Climate Change (Emissions Trading and Renewable Preference) Bill. With reference to the member Rodney Hide, who has just resumed his seat, I say with the greatest respect that, if anything, there has probably been too much caution and too much scepticism from politicians around the world on this issue. I do not think we could say that that has been lacking. I think that were we ever to rely on science to produce an absolute result on anything, we would be very disappointed, particularly when it comes to an issue as complex as climate change.

This issue is not about deciding where we will spend our holidays next year because it will be 2 degrees warmer somewhere and 2 degrees colder somewhere else; it is actually about the very subtle but important changes that happen in ecosystems with very small increases or decreases in temperature, which have huge flow-on effects that impact on the rest of our economy. We have had issues in this country, such as the importation of honey from Australia, which have highlighted what could happen if new pests are introduced into New Zealand. If our bee populations were to suffer, that would have huge flow-on effects down to our agricultural sector. This House should take very, very seriously any indication that there may be a change in climate.

Even if we take the very sceptical view and say there is only a 1 percent chance that all the scientists in the world whose research has been quality peer-reviewed are right and we are on a pathway to massive destruction, we should take that seriously, because by the time we are certain that climate change and its devastating consequences are a reality, it will be too late to do anything about it. A year ago the Government released five energy and climate change discussion documents and engaged in a significant consultation process. The 3,000 submissions that were received showed the depth of feeling out there in the New Zealand community, and those submissions have been worked through over the last year. Certainly, we know that around the world the depth of feeling about climate change is high. I take on board what the Hon Peter Dunne said, but, of course, this bill is only one tool in the arsenal to combat climate change. Other policies and other initiatives are also going on. It is not the only one, although it is obviously an incredibly important one.

Other members have gone through at length what the bill does, but it is important to highlight the need for New Zealand to play its part. We are second only to Australia in the amount of greenhouse gas we generate for every dollar of economic activity. That means that New Zealand, as one of the OECD’s biggest per capita polluters, needs to stand up and say we are prepared to take seriously our role in climate change reduction.

Again, in contrast to what Mr Hide was saying earlier, there are actually many precedents in the world already for emissions trading schemes. New Zealand is certainly not “well ahead” of the pack when it comes to emissions trading schemes. There are active trading schemes in a variety of pollutants, not just greenhouse gases, around the world, and the largest is the European Union Emission Trading Scheme, which I am sure the select committee will take a great interest in. Also, various states in the United States have their own schemes, including markets to reduce acid rain, reduce nitrous oxide, and other schemes like that. I think it will be very important for the select committee to look at the experiences of the European Union, even though New Zealand has a very different greenhouse gas emissions profile, and we are bringing in a different trading scheme.

I note for members’ benefit that, since the beginning of 2005, 12,000 energy-intensive plants in the European Union have been able to buy and sell permits that allow them to emit carbon dioxide into the atmosphere. The companies that exceed that individual limit are able to buy unused permits. This scheme goes on until the end of 2007, when the second period will start. Although organisations such as the UN and the World Bank have praised the European Union Emission Trading Scheme and highlighted it as a scheme that could form the basis of a global system, in practice there have been a few bumps that I think we need to look at during the select committee process. For example, the accusation has been made that more permits to pollute have been granted than were needed. Certainly, that is something we should look at.

Of interest is the fact that the European Union now wants to bring the aviation sector into its emissions trading scheme. It produces about 3 percent of the European Union’s greenhouse gas emissions, but it has had an 87 percent increase in carbon dioxide emissions since 1990. Following the emergence of cheap air travel in the European Union, with £5 fares, that is hardly surprising. According to the European Commission, someone taking a return flight from London to New York will generate the same amount of carbon dioxide as an average person heating his or her home for a year. That tells us how significant this issue is for the European Union. This proposal has been strongly opposed, not surprisingly, by the International Air Transport Association, and airlines outside the European Union, particularly those in the United States, have said they will oppose the proposal, and plan legal challenges. The US has even warned that it could spark a trade dispute. I think these are issues that the select committee needs to look at when considering our emissions trading scheme.

A number of suggestions and proposals were considered during the consultation period, and it is important to look at why an emissions trading scheme was pursued. From those submissions, it was clear that there was broad—although, it must be said, not unanimous—support to introduce an emissions trading scheme. There was strong consensus that, to be fair to all sectors involved over time, it had to involve all gases and all sectors, and that is what this bill does. An emissions trading scheme is also the most flexible and the lowest-cost option, and it enables firms and industries across all sectors to pursue emission reductions, and that is something we want to incentivise.

Also, the science tells us that we need to control the quantity of our emissions. We can talk for a long time about where those emissions should come from and which industries can do better, but, of course, over time the important factor is an overall reduction in the total amount of emissions. If we look at New Zealand’s current net position, we see that our emissions are set to continue to rise if we do not introduce measures now to stop that. This bill is an important part of that. The good news for New Zealand is that we can, in a cost-effective way, reduce our emissions substantially through both a range of recently announced policies and this emissions trading legislation.

Of the sectors that will be brought in, a lot will be said about the agricultural sector. There has been a large amount of discussion about the time frame for bringing in the agricultural sector. Unlike most developed countries, almost half our emissions come from the agricultural sector. We are unique in the world in that respect. It is our single biggest source of greenhouse gases. One-third is from nitrous oxide, and approximately two-thirds is from carbon dioxide—a by-product of partial digestion in ruminant animals. A fair and equitable emissions trading scheme, I think we all agree, must over time include agriculture as well as all the other big emitting sectors. Part of the reason is there is huge opportunity within our agricultural sector for low-cost greenhouse gas emission reductions. It would be a huge cost on the rest of the economy if we were to exclude them and not get the benefit from the potential that lies within that sector. It would also be unfair on all the other sectors and on the taxpayers, who would have to carry the burden of those emissions if this sector was not brought in to play its part.

But we have acknowledged that its inclusion is complex, and therefore it will not happen till after the first commitment period, although, as already indicated, monitoring of this sector will commence well before then. Minister Parker has said that when the sector joins the scheme, the Government would prefer to impose direct obligations on processing companies rather than individual farmers, but many approaches will be investigated and all options will be looked at. Fortunately, I think our agricultural sector is known for being adaptable, and it is known for leading the world. We know we have a lot to lose if we open ourselves up to false barriers to our trade from markets that are prepared to say they will not deal with a country that does not have an emissions trading scheme. We are already world leaders, because we know that we produce 1 kilo of meat or 1 litre of milk far more efficiently than anyone else in the world does.

I welcome Federated Farmers’ response to this bill and their commitment to being part of the solution. The challenge has been firmly laid at their door, and the Government is coming to the party with an investment of $175 million over the next 5 years in a plan of action for land management and climate change, and in science and technology. Although work has been done on nitrogen inhibitors, methane reduction research is still in its relative infancy, and it holds huge potential. The benefits to New Zealand of that could be not only greenhouse gas reduction and the trade benefits that would come from that, but also the use of that technology around the world to bring in other countries, and to ensure that once again New Zealand is seen as a leader in assisting the entry of the rest of the world’s agricultural sector into the Kyoto Protocol. That perhaps could also allay many of the concerns around the world about the implication for food supplies of the Kyoto Protocol. No other country is looking to bring agriculture in at this stage, although the European Union reform of the common agricultural policy has led to some reduction in greenhouse gases, and what New Zealand is doing here is being watched with interest.

We have addressed many of the other issues in other speeches today, but I just want to say that the select committee will have a range of important options to look at. One that has been pointed out is minimising environmental leakage, which is going to be extremely important, and also making sure that as the methods of measuring greenhouse gases change over time, any scheme that we put in place here is able to adapt to that. Thank you, Madam Assistant Speaker.

Hon DAVID CARTER (National): As has been stated earlier by my colleagues Nick Smith and Gerry Brownlee, National supports the Climate Change (Emissions Trading and Renewable Preference) Bill to the select committee, but we do so with caution. We will use that select committee process very, very carefully to analyse, or attempt to analyse, the effect that this legislation will have on New Zealand’s economy. Under no circumstance can I accept legislation that will significantly impact on our New Zealand economy at a rate far greater than any similar economy in the world. That will not achieve anything for New Zealand.

I want to pick up on two or three comments that have been made by earlier speakers. Firstly, in relation to the contribution made by the ACT member Rodney Hide, I say to him that it is not an option to do nothing. New Zealand ratified the Kyoto Protocol in 2002. There was significant debate around that decision of Helen Clark to ratify at that time. I remember National arguing very strongly that we did not need to be ahead of our major trading partners. But that debate is a past debate. New Zealand has ratified Kyoto. We have significant international commitments to meet; therefore we have to get on with it.

The current Government has an appalling history of rushing to ratify, and then spending 5 years to get to the current position. The Government had the “fart tax” as its first proposal. Well, that cost the member who promoted it—the Hon Jim Sutton—his job. He is no longer in Parliament. Then Labour pronounced a carbon tax, and we have had a number of people talk about that today.