Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill - First reading

Wednesday, March 11, 2015

STUART SMITH: It is a pleasure to speak on the Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill. Tax does matter. A good tax system is essential in a modern democracy. There are certainly tax systems in less-than-desirable political systems, but it really matters that we get a tax system that delivers to the Government enough money to provide the goods and services that it needs to enable it to support the people who cannot support themselves, whilst not putting an impediment on business and investment.

A great example of good tax support is the income support payments that households receive. Those households that earn a combined income of less than $60,000 and get income support effectively do not pay tax because of the support they get back. That is as it should be. People who cannot look after themselves or are in a position of disadvantage are benefited by income support.

But from time to time tax systems need to be tweaked and brought up to speed, and that is what this bill does. I want to focus on the research and development side of the bill. I think that is a fantastic initiative and something that we need, to ensure businesses grow. I am going to give a few examples this evening. Regional economies are what drive New Zealand’s economy, despite what many people might think. Certainly, 80 percent of New Zealand’s aquaculture and 80 percent of New Zealand’s wine production come from the KaikĊura electorate.

Simon O'Connor: How much?

STUART SMITH: It is 80 percent.

Simon O'Connor: That’s huge.

STUART SMITH: It is massive. In addition to that of course, we have very strong agricultural, forestry, fishing, manufacturing, and tourism industries, and a bit of aviation thrown in for good measure. But amongst some of those businesses—and I will go back to aquaculture. One person who is well known nowadays, whose name everyone should know if they drink a bottle wine now and again, is Peter Yealands. He started out in the aquaculture industry. He had an idea. He wanted to go mussel farming and he tried to design his own mussel floats. He started out with concrete floats. Concrete does float, if you do it right. But it was not all that successful, so he decided he would develop plastic mussel floats. It took a number of tries until he got an idea and a bit of a design in his mind. He developed this on his own and then bought the machinery to make the floats. If anyone has seen a mussel farm today, those floats were developed by Peter Yealands.

But that took a lot of investment and it took time. He put all of that money in himself. There were a number of iterations before he got something that worked properly. But that is a big cost on a small business, and it was a small business. My colleague Alastair Scott was talking before about the example of a small business that is not making any revenue but putting up a whole lot of costs to develop things. Peter, of course, has gone into the wine industry now, and it is a very innovative wine industry. Peter has now got the largest solar array in private hands on the roof of his winery. In addition to that, he has developed other innovative ways to generate energy. He bales up grapevine prunings into a round bale, puts them into a large circular boiler, and uses the heat gathered from that to heat the water and run his winery. That is another innovation that came from Peter. Again, that is a lot of innovation, driven by money and investment, by a relatively small company, although it is a lot bigger now.

The wine industry is a hotbed of innovation, as indeed a lot of agricultural industries are. In the wine industry, stripping the grapevines when they have been pruned—that is, taking all the canes out that are not required—is the most physically demanding job in the vineyard. What individuals have done is develop machines to do this, rather than having to do the work manually, and leaving all the skilled workers—as it was often the skilled ones who were doing the cuts, having to strip the grapevines out. So it is much more productive. It was a Walter Langlois who designed a stripping machine with two counter-rotating car tyres. The machine is driven along, above the trellis, it strips all the vine trimmings out, and they go through a mulcher. So that was a good innovation. He developed that in his backyard, after having a small vineyard and deciding there had to be a better way. Once again, he invested the time and the energy, and had a number of trials before he got the right thing.

But the KLIMA company has developed a far more sophisticated machine now, which does a fantastic job. They have developed it over a number of years, and now sell it in all the winegrowing regions around the world. It is a fantastic piece of machinery. It takes quite a bit to explain how it works, so I will not go into that tonight, but that is another great thing. The pruning of grapevines we might think is something that will never be anything but manual work, but, in fact, there is quite a lot of work going on through I think it is Canterbury University’s engineering department in designing a robotic pruner. One of the big problems that it had in designing this pruner was getting a viable 3-D image of the grapevine so that it could make a decision as to which canes to cut, and the problem with it was shadow in the canopy. So the university has designed a shroud that goes over the trellis to keep the daylight out, and the 3-D cameras—[Interruption] Yes, I am pulling it in. This is all tax credits.

Stuart Nash: I raise a point of order, Mr Speaker.

Mr DEPUTY SPEAKER: I anticipate what the member’s point of order is. I have indicated to the speaker that he should—sit down, please—bring his contribution back to—sit down—[Interruption] Sit down. As interesting as it was and as entertaining as it was, and as much fun as it was to see other members get upset, the member must pull in his contribution to the provisions of the bill, please. Continue.

STUART SMITH: Well, a number of my colleagues enjoy a glass of wine and I rather thought that they might like to know what went into it. The point is that innovation is driven by people making an investment. That investment costs money, it costs time, and it is often the small businesses that are doing it, and that is why these tax credits are so important. There are so many aspects of this bill that I could talk on, but I actually think that research and development is the most important part of it, and it is one thing that a National Government will support.

We have heard a lot of talk this evening about a tax that we do not even have—a capital gains tax—so I thought that that was quite broad. But, Mr Deputy Speaker, can I broaden my argument out to why we should not have a capital gains tax. A capital gains tax would be all very well if it covered every aspect like the family home, but, of course, the people who are advocating for having a capital gains tax do not want that to be a part of the system. And why is that? Well, the simple taxes are the best, and a capital gains tax has a major problem. It is very lumpy. You gain the tax only when the property is being sold.

Carmel Sepuloni: The biggest problem is it affects that Government and all of their mates. That’s the biggest problem with it.

STUART SMITH: Oh, well, if people are concerned about mates, I guess that would be why they do not want the family home involved. I think that is a good demonstration of why a good, simple tax system should not include a capital gains tax.

Stuart Nash: It’s OK, all is forgiven—talk about wine again.

STUART SMITH: Yes, well, actually, I know quite a bit about CarbonScape, which is another industry in Marlborough that is still in the innovation stage, and that company has yet to make a dollar from selling anything. It has developed a system where, through microwave technology, it can make coke to go into high-grade steel-making. That company has spent a lot of time and money developing that technology without getting a dollar from income, but under the new innovations in this taxation bill, that company can get a rebate on that. That is fantastic for business.

Brett Hudson: Pragmatic support.

STUART SMITH: It is pragmatic—absolutely. This is a Government that understands business, it understands the difficulties that businesses have to go through, and this company will have great products other than that. There is graphene, which is a very fascinating material. It is likely to be the new plastic. There will be wearable carbon film that is one atom thick, and that will be what will drive our new mobile phones and wearable technology. So that company has come a long way.

Thank you, Mr Deputy Speaker, for allowing me to inform the House on a number of matters. I am sure that people will enjoy a glass of wine in a much better situation to understand how it got there. Thank you. I commend the bill to the House.