NEWS ON POLICY AND POLITICS
18 May, 2007

Watching Brief is a regular publication from Russell McVeagh on developments in public law and policy of interest to New Zealand business.

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Budget Special 2007 - click here for more ...

IN PARLIAMENT

Bills Introduced more...
In Committee more...
Bills Defeated more...
Open for submissions more...
Submissions closed more...
Bills Reported Back more...
Supplementary Order Papers more...
Bills Passed more...
Acts Assented more...
Regulations more...

HEARINGS OF NOTE more...

LEGISLATION IN THE WINGS more...

IN CONSULTATION more...

The Tipping Point?

The Government needed a circuit breaker. Several months of bad polling and the relegation of Helen Clark as preferred Prime Minister left Labour with a pressing need to present a reinvigorated face to the electorate. Today's budget announcement afforded it the opportunity.

It was one for which the Government had thought itself well-prepared. The unwanted baggage of electoral spending and smacking had been squared away, and pre-Budget announcements had sensitised the public to a forward-looking programme of action on corporate taxation, R&D, savings, health, transport, and fiscal management.

Certainly, savings sweeteners and lowering corporate taxation are initiatives that can be trumpeted as bold new innovations. But the failure to respond in any tangible way to public sentiment on personal taxation sends an unequivocal message that Government is unwavering in its presumption that the State should continue to sit at the heart of social and economic management.

It was a flaw of which Government was obviously aware, if belatedly. The eleventh-hour announcement of possible tax cuts after the 2008 election was presumably intended to reflect that. But the perpetuation of what has become an annual taxation tease only strengthens the frustration of middle income earners with a growing cynicism about the bang Government delivers with their buck. This, and the sense that the only answer for perceived problems - such as the cost of housing - is to throw more money at bureaucrats, suggests a budget that is just not bold enough.

The Detail

The sustainability theme taken by the Prime Minister in her opening address to Parliament had its coda in the $800 million to be devoted to making New Zealand a carbon neutral and sustainable nation. Key initiatives include:

• Public transport: specifically the electrification of Auckland's rail network, and the upgrade and maintenance of Wellington's network, and improvements to the national network. Public transport is seen as a key way of reducing carbon emissions.
• Public Service: building sustainability into procurement by government agencies and moving the public sector towards carbon neutrality.
• Commercial: working in partnership with business to enable firms to adopt more sustainable practices and to use them for competitive advantage. This includes the funding of eco-verification, eco-labelling and eco-standards to encourage the investment in cleaner technologies, and growing the market for environmental goods and services.
• Household energy efficiency: a household sustainable living programme focused on promoting the uptake of sustainable behaviour and actions in the home.
• Recycling: partnering with local government to construct a network of public space recycling bins throughout New Zealand.

Government will also spend $12 million over the next four years on:

• providing international leadership and establishing international partnerships on agriculture and forestry research.
• research into the impact of climate change on New Zealand and techniques for mitigation and adaptation.

Housing Investment

A number of initiatives relating to housing have been incorporated into Budget 2007. For first home buyers there is the obvious potential for saving a deposit through Kiwisaver. A further $1.4m has been set aside by the Government to investigate the potential take up of a shared equity scheme. The intention, should there be demand, is to introduce a pilot scheme in the next budget.

For existing low income homeowners the emphasis is upon healthy homes. The Budget provides $72.4 million over the next four years to help Kiwi families live in warm, dry, healthy homes that are energy efficient and better for the environment. The new funding builds on existing government programmes such as the solar water heating programme, home insulation and clean housing retrofit programmes, and the review of the Building Code.

Further the government aims to provide $6.8 million to do more research on energy efficient technologies so ultimately the government may provide support for businesses that supply and install energy efficient technologies, and provide support for councils to implement a new Building Code.

For the property investor the Budget suggests that speculative activity has played a part in pushing up house prices and household debt levels. Budget 2007 provides a further $14.6 million to Inland Revenue to strengthen its auditing of property transactions, the intent being to ensure property speculators pay their fair share of tax, and potentially to reduce the impact of speculation in the housing market.

Transport

Major spending includes:

• $600 million for the electrification of Auckland's urban passenger network and the upgrade and maintenance of Wellington's network.
• $50 million to upgrade the national track system.
• $145 million of capital for the State Highway Construction Plan.

A regional fuel tax is also proposed for specific transport capital projects that would otherwise not attract funding within the timeframe that regions might desire. The first region likely to have a regional fuel tax is Auckland, where a 10 cents per litre tax on petrol and diesel is expected to raise about $120 million a year and could support a debt of about $1.5 billion over 30 years. Both Cullen and King emphasised that this tax would allow the government to support Auckland's transport priorities and the targeting of increased public transport patronage.

Finally, the Government is investigating the option of using all taxation received from fuel excise duties for land transport expenditure purposes, including public transport.

KiwiSaver

Speculation that KiwiSaver would be reinforced with tax incentives (again) has proved true. From 1 July 2007 (when KiwiSaver is due to commence in earnest) employees (and the self-employed) will be entitled to a tax credit to match their employee contributions into KiwiSaver, up to a cap of $20 per week (about $1,040 per year).

These tax credits will be paid into an employee's KiwiSaver account rather than be available to offset the tax on their employment income. Two further enhancements are set to be implemented from 1 April 2008. Employers will have to match an employee's contribution up to 4%. From 1 April 2008 employers will be required to contribute 1% of an employee’s gross salary and wages into their KiwiSaver account if that employee is contributing to KiwiSaver (or a complying fund). The rate of compulsory employer contributions will increase by an additional 1% each year until 2011/12 (when the compulsory contribution reaches 4%). Employers will not be required to match the higher 8% contribution rate. To offset this cost employers will receive a tax credit for their contributions to employees’ KiwiSaver accounts up to a cap of $20 per week per employee.

KiwiSaver providers will be required to disclose their approach to "responsible investing" and a joint working party with scheme provider representatives will be set up to develop guidelines on responsible investing.

Taxation

In addition to the changes to KiwiSaver the Budget also contained other food for thought for taxpayers. The most obvious, although potentially not the most significant, is the reduction in the headline company tax rate. From 1 April 2008 the company tax rate will be 30%. The top tax rate for Portfolio Investment Entities and the rate for other widely held vehicles will also fall to match the new rate.

Dr Cullen has outlined significant changes to the controlled foreign company ("CFC") regime (this is the regime that taxes New Zealand resident taxpayers on the income of foreign companies that they control). The much discussed active/passive distinction will be introduced to New Zealand's CFC regime. This will result in a tax exemption for the active income of CFCs (that is income derived from active businesses, such as from manufacturing or industrial activity). For ease of compliance all income of CFCs with less than 5% passive income will be treated as exempt. Dr Cullen also announced other "consequential amendments" to the international tax regime:

• a tax exemption for ordinary dividends from CFCs;
• the grey list exemption will be abolished;
• the introduction of interest allocation rules for offshore investments; and
• the repeal of the conduit rules.

Other points of note include:

• The introduction of a tax credit for research and development, to encourage greater innovation and dynamism in New Zealand businesses and to make New Zealand a more attractive location for innovative businesses. The tax credit will be 15% of eligible expenditure.
• The Government will not be adjusting the personal income tax brackets as outlined in the 2005 budget.
• A tax Bill will be introduced today that includes changes to the compliance and penalties regime. Further, the Government will release a discussion document targeted at further measures for simplifying tax compliance.
• The rebate thresholds on individuals' charitable donations will be removed, and the deduction limit on charitable donations made by companies and Maori authorities will be removed. Small unlisted companies will also be able to claim a deduction for charitable donations.

Forestry Agriculture

Forestry and Agriculture issues have played a small part in this budget with the exception perhaps of the four-year investment package for R&D which includes the improvement to sustainability and primary sector productivity ($28 million) through:

• $8 million for climate change research,
• $12 million additional funding for Pastoral 21; and
• $8 million for research into increasing productivity and sustainability across primary sectors.

Eldercare

The headline announcement for the elderly is the raising of NZ superannuation to 66% of the average wage. The Government has committed to setting the net married couple rate of New Zealand Superannuation (NZS) at 66% of the net average wage, with effect from 1 April 2007. Other rates of NZS were also adjusted accordingly, including those of the Veteran's Pension, meaning older New Zealanders enjoyed a 5% lift in their after-tax pension income. As part of this package, the income thresholds for abatement of both the Disability Allowance and the Community Services Card were increased to ensure no superannuitants or veterans would lose their eligibility to these entitlements. This represents expenditure of $280.7 million from 2006/07 to 2010/11.

Senior Citizens Minister Ruth Dyson said today

"from 1 April this year more than half a million older New Zealanders have been better off due to increases in Superannuation and Veterans' Pensions. Single superannuitants living alone receive an extra $13.16 every week and couples, an extra $20.24 a week."

Health

Health care remains one of the Government's highest spend areas. Most health spending is a result of previous commitments by the Government. There will be $3 billion ($750 million per year) allocated to improve access and quality of health services. This includes:

• Expanding elective surgery initiative ($238 million);
• Increasing the focus on obesity through Healthy Eating-Healthy Action and Get Checked ($63.9 million);
• Furthering the Cancer Control strategy ($26 million);
• Modernising information technology infrastructure ($61.8 million);
• Improving services for people with disabilities and older people, including through addressing workforce issues arising from low-paid workers in DHBs and within aged residential and home based support settings ($356 million);
• Addressing emerging pressures on DHB pharmaceutical budgets ($80 million); and
• Including the pneumococcal vaccine in the National Immunisation Schedule to protect the public from this disease ($68 million).

Export incentives

The key theme for the 2007 Export Year is "partnership". The current government identifies that export performance is crucial to lifting standards and further transforming New Zealand into a higher-wage and more innovative economy.

The Market Development Assistance Scheme ("MDAS") enables firms to explore and develop offshore markets. In a joint media release Trade Minister Phil Goff and Economic Development Minister Trevor Mallard acknowledged that the extra funding of MDAS of $87.8 million over four years reflects the decision not to proceed with a tax credit for export market development.

Furthermore, Phil Goff has commented that this year's Budget has focussed on developing key Asian markets. In particular, Goff is concerned that New Zealand should be positioning itself so that it can take full advantage of the opportunities and growth of the following countries: India, China, United States and Japan.

National Identity

National Identity provides for New Zealanders view of our world and of course how the world sees us. The Budget provides funding intended to continue making our national identity a priority and investing further in celebrating New Zealand's culture and values.

Funding is provided for:

• meeting New Zealand's aid responsibilities ($246m)
• Defence responsibilities internationally and activities of the Ministry of Foreign Affairs and Trade on New Zealand's behalf ($163m)
• Heritage ($8.2m)
• Vietnam veterans ($16.5m)
• Maori and Treaty initiatives ($35.8m)
• Conservation ($21.8m); and
• Broadcasting ($21.3m).

Bills Introduced

International Finance Agreements Amendment Bill
Government Bill: Hon Dr Michael Cullen
This Bill amends the International Finance Agreements Act 1961. It provides for New Zealand to become a member of the Multilateral Investment Guarantee Agency. The Agency is one of the five that make up the World Bank group. Its core mission is to enhance the flow of capital and technology to developing countries for productive purposes by providing investment insurance for member countries against both sovereign and political risk.

Education (Tertiary Reforms) Amendment Bill
Government Bill: Hon Dr Michael Cullen
This Bill implements the Government’s reform of the system for planning, funding and monitoring the provision of tertiary education.

Farmers' Mutual Group Bill
Private Bill: Hon Steve Maharey
The Bill is intended to incorporate Farmer's Mutual Insurance Organisation as a mutual, change its name to Farmers' Mutual Group, give the Mutual the same capacity and powers as a company, establish a modern governance regime, and disband some obsolete requirements.

In Committee

Education (Tertiary Reforms) Amendment Bill (Education and Science, submissions close 29 June 2007).

International Finance Agreements Amendment Bill (Foreign Affairs, Defence and Trade, submissions closing date to be determined).

Bills Defeated

Easter Sunday Shop Trading Amendment Bill

Open for submissions

Submissions Closed

Bills Reported Back

Succession (Homicide) Bill
Wills Bill

Supplementary Order Papers

SOP 113: Social Security Amendment Bill
Sue Bradford

This SOP omits clauses 4(2), 9 and 15. In addition clause 15 proposes to insert the new sections 132H and 132I in the principal Act that provide for rules to be made by Order in Council that prescribe the determination of income or property. Clause 4(2) and clause 9 are consequential upon this.

SOP 112: Social Security Amendment Bill
Hon David Benson-Pope

The proposed new clause 33A replaces section 77(4)(b) of the principal Act with an expanded provision. As it is to be inserted into Part 2 of the Bill, the new clause will come into force on 24 September 2007. In general, a benefit is not payable to a beneficiary who is absent from New Zealand.

SOP 111: Social Security (Entitlement Cards) Amendment Bill
Rt Hon Winston Peters

This SOP amends clause 2 by altering the commencement date of the Social Security (Entitlement Cards) Amendment Bill from 15 May 2007 to the day after the date on which it receives the Royal assent. This SOP also sets out an amendment to clause 5(2) of the Bill which will enable an entitlement card to contain all or any of the information listed in paragraphs (a) to (f) of section 132A(2) of the Social Security Act 1964 in a barcode in a microchip embedded in the card.

SOP 110: Social Security (Entitlement Cards) Amendment Bill
Heather Roy

This amendment will delete clause 5(2) of the Social Security (Entitlement Cards) Amendment Bill which allows a microchip to be embedded in the Super Gold Card. The Government has stated that it has no plans to include a microchip in the Super Gold Card at this stage.

SOP 108: Wills Bill
Hon Clayton Cosgrove

This SOP extends the Will Bill's commencement date to 1 September 2007, allows members of the Armed Forces to make informal wills if they are either on operational service or at sea, and corrects two typographical errors.

SOP 107: Crimes (Substituted Section 59) Amendment Bill
Hon Peter Dunne

This SOP amends the Crimes (Substituted Section 59) Amendment Bill by adding new subsection (4) to the substituted section 59. The Police have a long-established discretion as to the action they take in regard to complaints about minor breaches of the law reported to them. That discretion is considered essential to daily policing.

SOP 103: Oaths Modernisation Bill
Hone Harawira

The Oaths Modernisation Bill is amended by inserting an optional pledge to uphold the Treaty of Waitangi (te Tiriti o Waitangi).

Bills Passed

Crimes (Substituted Section 59) Amendment Bill
Social Security (Entitlement Cards) Amendment Bill

Acts Assented

Immigration Advisors Licensing Act 2007
Human Rights (Women in Armed Forces) Amendment Act 2007
Justices of the Peace Amendment Act 2007

Regulations

Civil List Determination 2007
Social Security (Temporary Additional Support) Amendment Regulations (No 2) 2007
Social Security (Long-term Residential Care) Amendment Regulations (No 2) 2007
Social Security (Income and Cash Assets Exemptions---Vietnam Veterans Ex Gratia Payments) Regulations 2007
Trans-Tasman Mutual Recognition (Special Exemptions Extension) Order 2007
Securities Act (Equity Partners Infrastructure Company No. 1 Limited) Exemption Notice 2007
Securities Act (KCL Investments Limited) Exemption Notice 2007
Building (Consent Authority Accreditation Fees) Regulations 2007

The Commerce Committee heard further evidence on the Major Events Management Bill. The Committee is exercised by the need to protect events sponsors against ambush marketing in an environment of increasing commercial sophistication.

The Committee also commenced hearing evidence on its inquiry into valuation methodology and practice for valuing State-Owned Enterprises. Evidence was also heard in relation to the Housing Affordability Inquiry.

The Government Administration committee reported back on the Daylight Savings petition, presented by Nelson Councillor Mark Holmes and United Future Leader Peter Dunne (signed by more than 42,000 people). The petition requested that Daylight Savings be extended by three weeks. The committee did not recommend any further action given that Parliament had already extended Daylight Savings by three weeks recently. The committee has continued its consideration of the Therapeutic Products and Medicines Bill; the Animal Welfare (Restriction on Docking of Dogs Tails) Bill; the Births, Deaths, Marriages and Relationships Registration Amendment Bill; and the Statutes Amendment Bill.

The Local Government and Environment committee continues to hear evidence on the Waste Minimisation (Solids) Bill. On 17 May, the committee will receive a briefing from the Office of the Auditor-General on its performance audit of territorial authorities' waste management planning for solid waste.

The committee also continues to hear evidence on the Building (Late Consent is a Free Consent) Amendment Bill.

The Transport and Industrial Relations committee has commenced hearing evidence on the Aviation Security Legislation Bill. It also continues to consider the Minimum Wage (Abolition of Age Discrimination) Amendment Bill.

Climate Change framework
The Minister for Climate Change Issues, Hon David Parker, has released the Government's timetable for New Zealand's climate change policy and statutory framework. Legislative drafting is scheduled for July-October, with initial plans to introduce legislation for first reading before the end of October. Further consultation with industry stakeholders is planned for June-August.

Public Access to Court Records
The Government has responded to the Law Commission's recommendation for a new Court Information Act relating to the public's access to court records. The Government has recommended that a select committee inquiry be held so that public debate can occur on issues such as the recommended presumption of open justice and what type of documentation should be included or excluded in the statutory definitions. Legislation will follow.

Sedition
Cabinet agreed last week to repeal the criminal offence of sedition (on the recommendation of the Law Commission).

Land Transport Licensing Bill
Cabinet has agreed to a final policy for a Land Transport Management Transport Services Licensing Bill with respect to regional councils' procurement of public passenger transport.

Amendment to Corrections Act 2004
Cabinet has agreed to an amendment bill with respect to the Corrections Act and the strengthening of provisions relating to drugs, contraband and seizure powers.

What's New

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