Taxation (Annual Rates and Budget Measures) Bill

MICHAEL WOODHOUSE (National) Link to this

I thought it was very important to come back and complete my call, given the confused look on the face of Labour’s spokesman on revenue when I tried to explain the answer to the question that Mr Cunliffe posed in his last call in respect of why top tax rates are sacrosanct. Well, I would not say that they are sacrosanct, but they are certainly at the appropriate place. He simply could not believe that the total tax paid by a family earning $90,000 a year with two children under the age of 13 was 676 percent more than the same family earning $60,000. The journey from $60,000 to $90,000 under the present regime is steep. The effective marginal tax rates are somewhere in the region of 56 to 58 percent, depending on the earning trajectory. But it is challenging and it is one of the reasons why many people faced with that hurdle choose to go somewhere else, like Australia, for low effective marginal tax rates.

We heard yesterday an absolute admission that Mr Cunliffe’s party will campaign this year on increasing the top tax rate or creating a new top tax tier. Labour members denied that when I challenged them on it yesterday. It means that the top tax rate of $70,000 will probably stay at $70,000. Those really big income earners in that earnings bracket, like senior nurses and policemen—you know, the real uber-rich that Labour is calling the rich pricks—will suffer the extra tax that that party would put in place were it to attain the Treasury benches.

I am very grateful to Deloitte for its Budget 2011 perspective report, which was released yesterday afternoon. It firmly confirms that last year’s tax switch was, indeed, fiscally neutral, according to the tax bands. I paraphrase from page 18 of that report. In 2008-09, earners of over $70,000 a year contributed 46 percent of the income tax base. This year, after the tax switch, which Labour members bang on about, those earners of over $70,000 will, according to Deloitte—on reliable information that is better than the information Mr Nash got, I have to say—contribute 51 percent of the income tax base. So rather than tax cuts for the rich, that group is contributing another 5 percent to the total tax base.

About 12 or 13 percent of the earning population are paying more than 51 percent of the income tax in this country, and Labour wants to punish that group further. It is punitive. It adds to the confused fiscal and monetary policy that that party is coming out with: raising tax rates, loosening monetary policy so that interest rates go up, and increasing spending, which will plunge our children into more debt by about $45 billion. At some point the rot has to stop. This legislation is really sensible and sound. If we put those top tax rates back, of course, the sorts of things that the Minister in the chair, the Minister of Revenue, talked about yesterday will certainly come back.

Hon PETE HODGSON (Labour—Dunedin North) Link to this

Clause 3 of the Taxation (Annual Rates and Budget Measures) Bill is a piece of law that says that tax rates are not going to change. This side of the Chamber asks why the hell not. When the global economic crisis struck, we all became Keynesians around the world, and we all did two things: we increased expenditure and we reduced taxes. This country increased expenditure and reduced taxes. The April 2009 tax cuts all went to rich people—that is a matter of fact. Now it is time to wind back from that Keynesian impulse and start to get our deficit of $17 billion under control.

There are two ways of doing it: one is to reduce expenditure, and one is to increase taxes. We did both the first time round, but we are doing only one the second time round. We want to know why when tax cuts came they went to rich people, but when costs are to be increased they are borne by low and middle income earners. That is what we want to know. It is the essence of this Budget and of the past 2 years.

When David Cunliffe spoke he laid out the costs of the Labour tax cuts in October 2008, the tax cuts in April 2009, and the tax switch of last year. He laid it out and added up the millions. He told us where that money went and how much was lost to the Government accounts. He made it clear that the amount of tax that had been cut over the past 2½ years under successive Governments had reached the point where it ought to be partially reversed. But we are not doing that in clause 3—we are not doing it. We are leaving tax rates exactly where they were. The net result is that the rich have done better over the past 2 or 3 years and the low and middle income earners will do worse.

Take me: I am on $130-something-thousand. [Interruption] That seems to have caused a whole lot of interjection from a bunch of people on the other side of the Chamber, all of whom are also on $130-something-thousand. My story is the same as theirs. Let us hear what that is. Roughly, I am $100 or so a week better off as a result of the changes that this Government has made over the past 2 years. I am roughly $100 or so a week better off, or a bit over. I have not been hurt by this Budget one iota. I have been asked to give back nothing.

CRAIG FOSS (National—Tukituki) Link to this

There is an old adage in politics: “Explaining is losing”. I admire the more senior departing member Pete Hodgson for trying to go to the rescue of his colleague Mr Nash, who found himself on the front page of the paper the other day discussing things related to taxation, and promoting, perhaps, the Labour turnover tax or whatever it may be called. Other members have tried to come to Mr Nash’s rescue. Even his party leader tried to come to his rescue. The sad truth of it in terms of Mr Nash’s career is that he is the Labour Party spokesperson on revenue, and because that is his portfolio I presume that one day he would like to sit where the Hon Peter Dunne sits as the Minister of Revenue. But Mr Nash is now for ever tainted in the sector that he wants to become the Minister in charge of, if you will: the financial sector, or at least part of it. Every time that he gets up to speak we will be asking him, and the public will be asking him, to tell us about the turnover tax he promoted on the front page of the Dominion Post.

I am sure—and we know that explaining is losing—that in order for that kind of story to get out, it would have gone from Mr Nash to Mr Cunliffe, and then it would have gone to the inner sanctum of Mr Goff, so it would have had the total approval of the Labour Party and its hierarchy. There is a fair bit of back-pedalling and re-explaining going on. That does not matter. Mr Nash got on to the front page, but I think it was for all the wrong reasons.

What is the obsession that Labour has about increasing taxes? What is the obsession about that? We can recall way back, to when Labour brought in GST. It went from zero to 10 percent and there was no compensation, although Labour had increased taxes. When GST went from 10 percent to 12.5 percent, Labour increased taxes but there was no compensation. The only time that Labour did provide compensation was when Dr Cullen was looking at the polls in 2008 and decided even he could not trust himself, so he legislated to provide for the first tax cuts in about 9 years under the Labour Government. I cannot understand that obsession.

The previous speaker talked about fairness. What could be fairer? About 72 percent of New Zealand taxpayers face a highest marginal tax rate of no more than 17.5 percent. How could that be made fairer? That is what is confirmed in Part 1 of the Taxation (Annual Rates and Budget Measures) Bill. How could that rate be made fairer? Although GST is not income tax, GST has been confirmed as staying at the current rate of 15 percent. What could be fairer than providing that those who spend more pay more tax? The gentleman talked about progressive tax. Well, there we go. If someone is on a higher income, that person spends more and pays more GST. I do not understand the Labour members’ obsession. They try to use the word “fairness”, yet they really get it wrong.

Interestingly, to go back to the story on the front page of the Dominion Post, the allegation was that farmers do not pay, or the rural sector does not pay, their fair share of tax. That is an interesting argument, and I will address it, as I am sure others will.

Yesterday there was a protest outside Parliament. I did not know about it until I read about it somewhere. Just like Mr Cunliffe’s polling on the Budget, which was conducted 2 days before the Budget, a protest against the Budget was apparently held 2 hours before the Budget was delivered. But, most interestingly, I believe that the protest was organised by the Unite union. If we are talking about fairness in terms of tax, and about an organisation that supports the Labour Party and that owes the Inland Revenue Department $200,000 to $300,000 of PAYE from its employees, then I say that is not fair. That was in the newspaper. Next time I will bring to the Chamber the article from Stuff; it was from about a year ago. That is not fair. If members on the other side of the Chamber want to talk about fairness or otherwise, I suggest that they think a bit more carefully.

Finally, these income tax rates also have the effect of confirming lower interest rates for longer for New Zealand. The ability to meet the cost of living by lifting after-tax incomes, which is confirmed by Part 1, is enhanced not only by this bill but by the actions of this Government over the past two Budgets and the Budget we are talking about today. Fairness is enhanced, the ability to own a home is enhanced, and the ability to fund a mortgage is enhanced by record low, short-term interest rates. Floating mortgage rates are at a record low, and in some instances are almost half what New Zealanders had to suffer under the previous regime, when those rates hit 10 percent and higher. When Labour members talk about fairness, let us hear them talk about the fairness of the double-digit mortgage rates that we had under the Labour Government, versus the single-figure 5 and 6 percent mortgage rates that we have under this Government, as confirmed by the tax rates in Part 1.

STUART NASH (Labour) Link to this

It is very kind of Craig Foss to be concerned about my career. He said that he is concerned about my career, but I say to Mr Foss that he should perhaps worry about his own career. With that sort of attitude, Mr Foss’s chances of holding the Tukituki electorate have just diminished, let alone his chances of sitting in the same chair that the Minister of Revenue is sitting in at the moment. Mr Foss, unfortunately, may never realise his ambition of being a Cabinet Minister, because with this sort of Budget, with that sort of speech, and with that sort of attitude I do not think that this Government has much longer to go.

Mr Foss asked what Labour’s obsession was about raising taxes. I would turn that round: what is that Government’s obsession with cutting taxes for those who do not really need it? We are talking about Part 1, “Annual rates of income tax for 2011-12 tax year”, and these are the very same tax rates for someone on a million dollars. The Inland Revenue Department told me that 650 New Zealanders had a declarable income of a million dollars. If a taxpayer earned a million dollars, then that person last year received a tax cut of a thousand dollars a week—a thousand dollars a week—extra, in the hand. A person on the median wage in Napier received about $5 a week extra.

Mr Foss and other Government members have trumpeted the fact that 72 percent of New Zealanders are on one of our two lowest tax rates. But I have to ask whether it is really a fact to trumpet that we are such a low-wage economy that the vast majority of our taxpayers are on a low tax rate. I actually do not think that it is anything to be proud of, at all. In fact, I think that the fact that so many of our workers are on such a low rate of tax is quite shameful. Goodness me; I would have thought the aim of any Government was to drive wages up, because through increased productivity, increased wages, and increased growth the economy would grow and people would be better off. But, no; it is apparently a point of competitive advantage when we have a low-wage economy.

Pete Hodgson nailed a further point, and it was confirmed by John Hayes. Pete Hodgson said that he is better off under these tax cuts—under the rates we are debating in clause 3. But do members know what John Hayes said? He told Mr Hodgson to put the money in KiwiSaver or save it. Do members know the problem we have? The problem we have at the moment is that the tax cuts that were implemented last year, the rates we are debating in clause 3 at the moment, have had absolutely no positive effect on this economy. This is “Keynesian Economics 101”. It says that if tax cuts are given to the very wealthy in times of recession, the very wealthy will save the money from those cuts; they will not spend it. But if tax cuts are given to those who really need it, those who are really struggling, then those people will spend the money from those cuts, and that will help to drive economic growth in this country, which is what we need at the moment. That is what we need—economic growth. We need incomes to rise, and we need people to be spending money in this economy, which is one of the problems we have with the cuts to KiwiSaver, and the cuts to Working for Families. In Napier and in Hawke’s Bay, Working for Families pumps about $120 million into the local economy. If we take that money out of the local economy, it will have a huge impact on the people of Napier, and a huge impact on the people of Hawke’s Bay.

I would like Mr Dunne to take a call, and I would like Mr Dunne to chastise the first speaker of the day, Michael Woodhouse, because Mr Woodhouse said he would trust the figures from Deloitte much more than he would trust my figures. Do members know where my figures came from? They came from the Inland Revenue Department. They came from that Minister’s department. I tell members I have much more faith in the figures provided by the Inland Revenue Department than I do in the figures provided by Deloitte. In the Finance and Expenditure Committee we hear a lot from the Inland Revenue Department, because a lot of tax laws go through that committee, and my experience of the Inland Revenue Department is that it does a very good job. The figures that the Inland Revenue Department provides are first class. The advice that the Inland Revenue Department gives is normally very, very robust and very, very sound. In fact, I think the Minister presides over what I would say is one of the better ministries—one of the best ministries—of this Government. I congratulate the Inland Revenue Department, and that is why I find it quite insulting that Michael Woodhouse would say that the figures from Deloitte are much better than the figures from the Inland Revenue Department.

When I look at the figures from the Inland Revenue Department with regard to this Budget, I have some grave concerns about the fundamental premise of the figures provided by Mr Key and Mr English yesterday. Why? There was a $4 billion discrepancy between the forecast from the Inland Revenue Department, and the forecast from Treasury on which this Budget is based—a $4 billion discrepancy. As I said, my dealings with the Inland Revenue Department through the Finance and Expenditure Committee have been very, very good. I think it is a very professional organisation. In fact, I was saying to the Minister the other day that of all the written questions I send to all ministries, I think those from the Inland Revenue Department come back in the quickest time and provide the best data. So I ask why the Government would trust Treasury, which has constantly got it wrong, over the figures from the Inland Revenue Department. There is a grave concern when advice from the Government’s tax collectors is ignored. There is a grave concern there; of that there is no doubt.

Mr Woodhouse and all the members on that side talk about Labour’s obsession with raising tax rates. They talk about our obsession with taxing the very wealthy. Well, I say that our system is called a progressive tax system. How a progressive tax system works is that those who can pay the most tend to carry a little bit more of the burden, because they can. It is exactly the same sort of system that citizens have in Australia, and exactly the same sort of system they have in the United Kingdom, and in the United States. In fact, every single OECD and developed country in the world has a progressive tax system. As Pete Hodgson said, our top tax rate is one of the lowest in the OECD; it is one of the lowest in the world. In fact, Australia’s top tax rate is 45 percent and ours is 33 percent. The Australians have not given $1,000 a week to someone who earns a million dollars; I think that is actually quite reprehensible. When John Key was asked about it, he gave that classic, very wealthy man’s response: “Well, I earn so much, so why should I have to pay so much?”. We asked him to pay only 39 percent; that is all he was paying. He was still getting 61 percent of everything he earned, in his back pocket. Goodness me! Was 39 percent too much to ask?

Hon PETER DUNNE (Minister of Revenue) Link to this

I am happy to put Mr Nash out of his excitement over the status of the company tax rate. Legislated for in Part 1 of this Taxation (Annual Rates and Budget Measures) Bill is a company tax rate of 28c in the dollar. The Government has no intention of changing that. It is not in our forecast and it is not on our horizon. The reference the member makes, if I recall it correctly, actually relates to provisions in confidence and supply agreements, written after the 2008 election. It is a commitment, really, about the alignment of rates. We have achieved two-thirds of that, in terms of the trust and personal rates being aligned. The outlier is the company rate. Any alignment will be downwards, not upwards. I assure the member of that point.

DAVID SHEARER (Labour—Mt Albert) Link to this

It is a bit rich for Peter Dunne to stand up and say what he said. The Taxation (Annual Rates and Budget Measures) Bill is not what he talked about. It is simply about ideology. It is about the ideology of bringing down tax rates and rewarding those people at the top of the tax pile.

The reason we are here today talking about this bill is that we will be stripping out provisions on Working for Families and KiwiSaver, and making changes that will affect the middle-income people we do not have enough of, according to the Minister. We are doing that because we have a $16.7 billion deficit. This Government came in on a $5 billion surplus, and we now have a $16.7 billion deficit—in 3 years. That is extraordinary. How can a Government fail so comprehensively in 3 years? The only comparable thing I can think of is when the man who is now the Minister of Finance took over the National Party when it was polling at 30 percent and drove it down to 21 percent in 3 years, between 1999 and 2002. That is the only thing I can think of that is comparable to such a failure as taking a $5 billion surplus and turning it into a $16.7 billion deficit.

Because the Government has restructured the tax rates so inequitably, we are now sitting here debating how we will strip out the KiwiSaver provisions, undermine people’s confidence in KiwiSaver, and hit those people whom Mr Key calls “richer people” on Working for Families. My God, those people are not rich. They are the people who come into my electorate office.

PAUL QUINN (National) Link to this

This is extraordinary: we are into the third year of this Government’s outstanding stewardship of this country, and for the third year we hear the same rhetoric and the same arguments. I am intrigued as to when Labour members will work out that the arguments they have been running for the last 2½ years have got them only 20 percent—and falling—support from the populace. They need to change their story. If they are going to succeed—

BRENDON BURNS (Labour—Christchurch Central) Link to this

I start by expressing some disappointment in the Minister in the chair, Peter Dunne, because he has made it his hallmark to represent the middle classes of New Zealand. That has been his rallying cry. His political rhetoric has been built around assisting middle-income New Zealanders to get ahead. But this Budget, in my view, is doing nothing to assist middle-income New Zealanders to get ahead.

I think he has bought into the rhetoric that was very much in prominence back in 2008. Basically, the deal from National to the New Zealand electorate was that people could have their cake and eat it as well. The New Zealand electorate could have everything that the Labour Government had provided to it. They could have Working for Families and KiwiSaver, and they would be given tax cuts as well, as picked up by Part 1 of the Taxation (Annual Rates and Budget Measures) Bill, which enshrines the tax cuts that have been put in place by this Government.

But here is the reality: as we see in this bill, those tax cuts, as enshrined by Part 1, are only part of the equation. They are being eroded—they are being eroded—by all the other measures that are included in this bill, and by other Government measures we have seen in the recent past, such as the cuts in early childhood education and resulting increase in fees, increases in accident compensation levies, and the like.

I also note that that set of tax cuts, as implemented by Part 1, was affirmed as feasible and realistic by National when in Opposition in 2008, just as the world’s financial markets were falling apart. New Zealanders were told that those tax cuts, as enshrined by Part 1, were affordable, even after Goldman Sachs had collapsed and the US economy was in turmoil, and even after Merrill Lynch had collapsed and had to be bailed out by the taxpayers of America to the tune of $3 billion.

Where do we end up? Part 1 has the tax rates that will apply through part of this year, as set out by this legislation. What is the legislation trying to deal with? It is trying to deal with a deficit of $16.7 billion—$16.7 billion. That is what the tax revenue is attempting to address. As my colleague David Shearer pointed out, when this Government came into office there was a surplus of $5 billion, so that is a turn-round of more than $20 billion. We now have 16 billion tonnes of debt upon our backs, and this part of the bill is attempting to have tax revenues offset some of that debt.

I ask the Minister in the chair how secure the revenue predictions are that underlie Part 1 and the tax rates that will apply in the financial year ahead. I ask that because already we are hearing through the media today that employers are saying that the other measures in this bill in respect of KiwiSaver will have to be met by their cutting back on the tax they pay and putting increases on to their employees. We have heard Alasdair Thompson of the Northern Employers and Manufacturers Association say that the employers’ KiwiSaver components in Part 2 will be coming out of the wage increases—the wage increases—of employees. How can we set any store by the tax-projected revenues incorporated in Part 1 of this bill, when employers are saying that they will not be meeting the KiwiSaver ramifications included in Part 2? Instead, they will be looking to their employees to meet those costs. I ask the Minister what revenue implications that will have. What revenue implications will it have for Part 1 of this bill?

I also point out the difference between the Inland Revenue Department’s projections and Treasury’s projections, as outlined in the Budget’s Economic and Fiscal Update. The difference is in the order of $3.5 billion over the next 4 years, which is nearly $1 billion a year. That is a huge component, as we know, in respect of Part 1 of this bill.

CHRIS TREMAIN (National—Napier) Link to this

Just before I start my speech on the unfair incidence of taxes, an issue that the Opposition has been raising today, I want to put on the parliamentary record that those of us on this side of the Chamber have been enduring about 80 or 90 decibels—[ Interruption] in fact 95 decibels—from Mr Quinn. I was thinking we would quite possibly have to bring in the Occupational Safety and Health Service before I commence my speech.

Hon Sir ROGER DOUGLAS (ACT) Link to this

I think it is worth asking the Minister of Revenue to advise the Committee whether he is confident that Treasury has its predictions right. More particularly, if Treasury’s predictions are wrong, what does that do to the Budget and what does it do in terms of New Zealand’s credit rating, etc.?

I have had my staff look at recent predictions made by Treasury, and those predictions do not give me a lot of confidence. If we look at Treasury’s predictions of GDP, we see they are all in the band between slightly higher than 1 percent and 4 percent. I have here a graph showing the actual GDP line. We are being told in this Budget that growth will be up near 4 percent initially and then will tail off. That is one side of the ledger, and one has to feel that Treasury predictions of growth, and wage growth in particular, are pretty high. But if we look at Treasury predictions of core Crown expenditure from 2005 through to 2010, we see that the one consistent factor is that every year the predicted expenditure is lower than the actual. It is lower by an average of 6.8 percent, which is about $4 billion. So if the predictions are wrong again this year, we will have a deficit of $20 billion. Treasury is actually saying that over the next 2 or 3 years Government expenditure will not go up by the $4 billion to $5 billion that it has been going up by each year; it will go up by only 1.4 percent.

This graph shows us the difficulty we have. It shows the amount of growth consumed by Government spending. The green line shows the increase in nominal expenditure, and another line shows the increase in Government expenditure over 3-year periods. We get to a stage where the Government—

Hon NANAIA MAHUTA (Labour—Hauraki-Waikato) Link to this

Kia ora. I am happy to speak to the Taxation (Annual Rates and Budget Measures) Bill, and in particular focus on Part 1, “Annual rates of income tax”. I listened very carefully to contributions from members of the Government. I came out with three very clear points. First, the member Craig Foss promoted the idea that if one talks about something long enough, maybe people will believe it. He made the point that 13 percent of people pay 51 percent of tax. If we take that tag line alone, it explains exactly why most of the tax cuts go to top income earners. But I do not think people are convinced by Mr Foss’s argument. In fact, I think they are more perplexed with that rationale because it justifies the unfairness of the current tax system and the fact that the Government is prioritising investment that does not benefit a lot of people.

Then I listened to Mr Paul Quinn. He operates by the standard that if he talks loud enough then maybe people will hear him. But we all know that once the decibels start to rise, people turn off. In fact, I could not quite figure out what point he was making with regard to Part 1 of the bill. Then I listened to the member Chris Tremain. He operates by the edict that if he says it often enough then maybe even he will believe it. One of the points he made was just how much middle-income earners are benefiting under this Government’s tax cuts.

I present a response, particularly in relation to Mr Tremain’s points about income tax for middle-income earners. He highlighted these groups specifically: nurses, policemen, teachers, wharfies, and builders. He made the point that under Labour they were paying a higher marginal tax rate and under National they are not. Let me say this: those same people are parents, those same people have kids, those same people utilize public services, and those same people are saying—we are listening to them—that they did not bet on the rate of GST increasing, on paying more over the counter for their kai, or on rising petrol prices. They say that when they take their kids to the doctor the after-hours costs are as much for them as they are for anyone else, and they are still paying the mortgage. Some of them are paying higher rents, particularly in areas like Auckland.

Those nurses, policemen, teachers, wharfies, and builders are making the same noises in terms of concerns about where this Government has got its priorities wrong. Even though they are middle-income earners and they have a lower marginal tax rate, they have to pay exorbitant costs at the other end because this Government has its priorities in the wrong place.

The Government has ripped out the guts of the public health sector. It says it is moving resources to the front line. It says it is moving resources to the front line, but backroom functions cannot be absorbed by front-line staff. Those members might not like that, but they know it is true. Those middle-income families are parents, they have kids, they are paying the same costs as low-income families, and they have the same concerns: paying more for their kai, paying more for petrol, and paying more for after-hours general practitioner services—paying more and getting less. Their wage is worth less under this Government than it ever was before. Why? Because they are feeling the pay at the other end.

TIM MACINDOE (National—Hamilton West) Link to this

I am delighted to follow the Hon Nanaia Mahuta. Of course, we represent the same area—her electorate is a little bigger than mine, but we are in the same region. I particularly thank her for acknowledging that under this Government tax rates have come down and that this Government has been focusing particularly on the needs of vulnerable New Zealanders, those on low and fixed incomes, who have needed protection through the worst impacts of the current economic recession.

Hon SHANE JONES (Labour) Link to this

Tēnā tātou. Greetings, Mr Chairperson. It is a pleasure to stand and—unlike the previous speaker, Tim Macindoe—to direct our attention to Part 1 of the Taxation (Annual Rates and Budget Measures) Bill, which is to do with the tax rates. Mr Chairperson, given that you have provided a level of latitude to the man who has put to sleep what will remain of the farming community, unless it starts to pay its way in areas such as Matamata, Morrinsville—

STUART NASH (Labour) Link to this

Mr Jones actually nailed it on the head. A Government can use the tax system in a number of ways. What the Labour Government fundamentally believes—it is one of Labour’s basic principles, and what Phil Goff has said many, many times—

JO GOODHEW (Junior Whip—National) Link to this

I move, That the question be now put.

CAROL BEAUMONT (Labour) Link to this

I appreciate being able to speak on the Taxation (Annual Rates and Budget Measures) Bill. I am very pleased to follow my colleague Stuart Nash. He has been making outstanding contributions in this debate and has enlightened a lot of New Zealanders on issues to do with our tax system, and that is very important. Part 1 is about our current tax system, and I want to make some comments following on from Mr Nash’s comments. Perhaps I should seek leave of the Committee to allow Mr Nash to make some more comments. I think he has done an exceptional job in enlightening New Zealand on how unfair our current tax system is.

It has been a deliberate decision of this National Government to create a less fair tax system. Let us be clear about what we are talking about here. We are talking about tax rates that were changed so that the top 10 percent of earners in New Zealand had significant tax cuts—tax cuts that they do not need, and tax cuts that have not actually benefited our economy. On this side of the Chamber we do not believe in the trickle-down effect that members on the other side of the Chamber seem to be so reliant on. We do not believe that just because those at the top are given more money in their pockets, they will spend it in a productive way that assists the economy. We believe that the people who need assistance from the Government are low and middle income New Zealanders.

As Mr Nash pointed out to us, the Government tried to sell those tax cuts as being fiscally neutral. It said that they were a tax switch. Members across the other side of the Chamber must think New Zealanders are very silly. I certainly do not, but you must think they are—

JOHN HAYES (National—Wairarapa) Link to this

I move, That the question be now put.

GRANT ROBERTSON (Labour—Wellington Central) Link to this

This is my first opportunity to participate in the Committee stage of the debate on the Taxation (Annual Rates and Budget Measures) Bill and we come now to Part 2. It is worth noting that the discussion we were just having on Part 1 often impacted on both the specific changes to Working for Families and to KiwiSaver. As we begin the discussion of these changes in Part 2 we need to look at the wider context in which they are set in this Budget. Essentially these are the big changes for National. The big vision for National in this Budget is to cut Working for Families and to cut KiwiSaver. That is it. There is no big vision about growing the economy. There is no big vision about innovation in our economy. There is no attempt to say how we will create the jobs that will keep New Zealanders in New Zealand rather than going to Australia. Instead Part 2 of this bill, which we debate under urgency, cuts in to low and middle income earners’ income; it takes out income from 1.7 million KiwiSavers. That is what Part 2 does because this Budget has no vision and no plan; it is a defensive Budget.

My colleagues on this side of the Chamber know that I am a fan of sport. For me this Budget, from the Government’s point of view, is all about the All Whites going out on the field to play a game of soccer and putting all of their players inside their own penalty area and having no one upfront trying to score any goals. That is what this Budget is about: it is a defensive Budget with no vision. We heard ambition for New Zealand a couple of years ago from John Key and Bill English. But, instead, as I sat and listened to the Budget speech yesterday I kept waiting for the plan, for the things the Government was going to do. Yes, there were going to be cuts. Yes, we are living in tight financial times. Then we expect to hear the plan. But, instead, the plan is the cuts—that is it. There is nothing else. There is no vision for the future. There is, as we see in Part 2 here, simply cuts to Working for Families and to KiwiSaver.

The promise that National delivered pre-Budget—and it is surprising that anyone would really believe promises that National delivers any longer, after it increased GST when it said it would not—is that it wanted to get at those people on Working for Families who are earning high income levels. It wanted to get at those people earning over $100,000, because they should not be on Working for Families. National says those people are on a kind of middle-class welfare that we do not need. But the reality of the changes in Part 2 is that it kicks in for people earning as little as $36,000 a year. It kicks in for the security guards who work around this building and other places. The level of pay they are getting means they are too rich to be supported. They are the people who do not deserve support for raising children. That is what this Budget says. That is what Part 2 says.

This is not about high-income earners; this is about people who are currently struggling to meet the cost of living, and they are being told that they are the people who have to bear the burden of the financial problems facing New Zealand. It is middle-income earners who have to bear that burden with the cuts to Working for Families. One of the things that are frustrating for people on this side of the House is that when Working for Families is presented, it is presented as being about somebody who is on an income of $70,000. Let us be absolutely clear—this is about family and household income. If a household has an income of $70,000, that can be two earners, each earning $35,000 a year. If they are raising two children in that environment, that is difficult at the moment. They are the people who are struggling to put healthy food on their table. They are the people who need support to ensure that those children get the kinds of opportunities in life that everyone in this House would want them to have.

In Part 2 of this bill, Working for Families has been cut for those people. It has been cut, so the opportunities are simply not there for those people in the future. The problem is that the whole Budget is based upon fiction, figment, and this notion that there will be 170,000 jobs. From where? From where will those jobs come? There are not 170,000 jobs in rebuilding Christchurch. There are some jobs in that, but there are not 170,000.

The Rugby World Cup gets a good play in the Budget, in terms of economic growth. I hate to tell Mr Key and Mr English but the Rugby World Cup finishes in October. It will not be there in the future. The Rugby World Cup ends in October and that is it. That is the end of the plan for the growing of jobs. It is a figment. What is more is that jobs and growth projections in this Budget are based on nothing. Not only do we think so but the Inland Revenue Department thinks so and the Ministry of Social Development thinks so. As my colleague Stuart Nash said in the Part 1 debate, there is a $4 billion gap between the forecast of what the people who actually collect the tax think they will get and Treasury, which is making these bold, heroic projections about growth. What is more, the Ministry of Social Development is projecting that it will be paying out more and more in benefits at exactly the same time as Treasury thinks the number of people employed will be going up. There is a problem there. If Treasury’s projections and forecasts were accepted across the Public Service, then the Ministry of Social Development would be forecasting the main benefit costs to go down. It is not forecasting that; it is forecasting benefit costs to go up.

We have the Inland Revenue Department and the Ministry of Social Development saying that Treasury’s forecasts do not stand up. They are a figment. They are not real jobs, because there is no plan to create those jobs in this Budget. There is nothing about skills, nothing about increased research and development, nothing about innovation, and nothing about supporting exporters. This Budget is built on a fallacy of hope that there will be jobs in the future, and no plan to get there.

When we get to Part 2 we see that the big plan is based on cuts. Here is a message for National: cuts do not amount to a plan for the economy. It is a defensive attitude and not one that will help grow the economy. Why is it that time and time again with this Government, when the belts have to be tightened, it is those at the low and middle-income end who have to do the tightening? In the end, that is about—and Part 2 is about—the fact that nothing has changed for National. It is still about trickle-down economics. It is amazing. The idea has been around for 30 years but it has not worked. It is not working, yet we have another Budget presented to this House that is about a belief and a faith in trickle-down economics, rather than a Government that will do something to help create jobs and to grow the economy.

Part 2 tells us that Working for Families needs to be adjusted because it is not affordable at the moment. I say to National that those people on those low and middle incomes are being affected—for example, the couple I was talking to last night. The husband is a security guard who works full time and the wife is an early childhood education teacher who works part time. They are trying to raise their children. They are losing as a result of these Working for Families changes. They are also KiwiSavers and they are losing out there, as well. They are being hit twice. Their incomes are being hit, while the people on the top tax rate continue to enjoy the benefits of tax cuts that were unaffordable, which is part of the reason we have the deficit in front of us today. Make no mistake; this deficit in this Budget is National’s deficit. It is a deficit that it has created by its lack of an ability to help grow this country and by its short-sighted policies that are not about the long-term future and innovation of the country and that are not about skills.

This Budget is based on a fallacy. It is based on a hope and a faith that jobs will be created. It is not based on a plan. In Part 2 the core of the Government’s policy is to cut Working for Families and KiwiSaver and to look tough. Where is the gain that goes with the pain? I do not see it. New Zealanders know we are in tight financial times. They all want to pull together and work, but New Zealanders also fundamentally believe in fairness. They believe in fairness and they believe that it is important that we look after each other in times of need. When people are trying to bring up children, who will be the future of this country, they deserve support for that. Instead, Part 2 of this bill delivers cuts to those very people in Working for Families and KiwiSaver. KiwiSaver is one of the things that we on this side of the House are proudest of, because it put in place a regime that got New Zealanders saving. That is compromised by Part 2 of this bill.

JACINDA ARDERN (Labour) Link to this

It is a pleasure to rise and give a contribution on Part 2 of the Taxation (Annual Rates and Budget Measures) Bill, which, as my colleague Grant Robertson has pointed out, focuses on the changes to Working for Families and KiwiSaver. I will home in specifically on KiwiSaver.

In light of the fact that members on both sides of House acknowledge that we have a significant issue when it comes to Kiwis’ own personal savings rates, it seems phenomenal to me that this is the third change I have seen in this House relating to superannuation schemes and our preparedness for future generations’ retirement. Members will remember that the first change was to the New Zealand Superannuation Fund. For my first Budget I sat in this Chamber and watched as the Government claimed that out of necessity it would suspend payments to the Superannuation Fund. Our preparation for my generation’s retirement would be suspended, not for 1 year or 2 years but for 10 years. For 10 years we were going to look entirely past the issue of our superannuation preparedness, despite knowing that we would be paying for the baby boomers in the very near future. Those on this side of the House have watched as there have been changes to the one thing in the Government books that looked quite good, which was the Superannuation Fund. Members will note that I am no longer calling it the Cullen fund. Michael Cullen has specifically requested that if the Government will not fulfil its obligations to pay into that fund, then it should hereby be known as the English fund. The Cullen fund was about being prepared; the English fund is about suspending responsibilities.

The second change we have seen to our preparedness for superannuation is a cut to KiwiSaver contributions. Members on this side of the Chamber will remember that Labour specifically legislated that contributions by members of KiwiSaver and by employers would sit at 4 percent. In its first Budget the National Government immediately slashed that to 2 percent, and we protested because we knew New Zealanders needed a high rate of savings if we were to be prepared for our retirement.

Now we come to the third set of changes. I do not know whether the Government thinks it is a sneaky change and perhaps the public will be duped by it, but almost in an attempt to cover up the fact that it has made changes to the Government contributions, the Government has now lifted employer and member contributions by 1 percent. They are now back at 3 percent, but that is still lower than it was when National was elected.

Hon DAMIEN O’CONNOR (Labour) Link to this

This is the first opportunity I have had to speak in this debate. Part 2 deals with KiwiSaver and savings. I point to the regulatory impact statement, where I believe a mistake has been made. It states: “The Government has signalled its desire to focus Budget 2011 on measures which will boost national savings …”. No, it should read: “measures which should boost saving National.”, because that is what the Budget is about.

National claims that this is a savings Budget. I ask what savings are being made. First, will this Budget save opportunities for adults who lost the opportunity to upskill, retrain, and get jobs? In the 2009 Budget the Government slashed adult and community education, and in this Budget it has chopped the opportunity for people aged over 55 to get a student loan. Has the Government saved opportunities for older people in retraining? I say no. Has the Government saved opportunities for middle-income New Zealanders to save with security? I say no, again. What it has done, like Rob Muldoon, is destroy the confidence of middle New Zealanders in the need to save for their retirement—absolutely destroyed it. No, it has not saved the opportunity for those people. Has this Budget saved the opportunity for young families to get affordable early childhood education? No, there are no savings there.

So where has National made savings? Well, the regulatory impact statement is incorrect—this is a “saving National Budget”. I asked where the Government saved. Does this Budget save the $1,000 a week tax cut that John Key got? It did, yes, so maybe that is the saving that National refers to. Did it save access to BMWs with heated seats? Yes, it did. This is the “savings Budget” that we are hearing about. Finally, is this “savings Budget” about whether we can save NZX and the stock market? Well, I say that the answer is yes, because that is about all it does. The sell off, or the mixed-ownership—or the mixed-up ownership—model that the Government proposes for State-owned enterprises is just outrageous. It is about savings; it is about saving the New Zealand Stock Exchange, which has been a poor performer. It is about saving opportunities for the people who got tax cuts in the first National Budget. It is about saving opportunities for them to invest and to make nice, healthy profits through the buy-up of State-owned enterprises. Those are the only savings we are dealing with in this Budget.

Part 2 changes KiwiSaver and undermines people’s security into the future, unless those people had a big tax cut in 2009. The people who got that saving will now have the opportunity to invest in blue-chip Kiwi investments that will deliver them a healthy dividend while the rest of the owners—the present owners, those on lower incomes—will lose ownership to those people. That is an outrage. I say it is immoral. This Budget should be totally rejected. Part 2 is a classic case of injustice, and savings for National, not the national savings that this country could enjoy. It is an outrage, and we should all vote down this bill.

I will do my very best to ensure that the savings we are trying to achieve, which Labour advocates for, are for the people who need them, not for the people who do not. This Budget is about saving National, it is not about saving the nation. That is a huge difference. As people go through the figures—try as the Government might to hide them in these lengthy documents—and as we investigate this Budget, more and more New Zealanders will work out that the regulatory impact statement is worded incorrectly and should read that the Government is determined to have a Budget that will save National.

CRAIG FOSS (National—Tukituki) Link to this

I thought the previous speaker, Damien O’Connor, was going to speak on behalf of farmers about the proposed Labour turnover tax, his having a farming background, but I guess we will have to wait for another day.

I will make a couple of points in respect of Part 2, which addresses some changes and enhancements to KiwiSaver. I will note a fact that members may be interested in. There are about 1.7 million New Zealanders, I think, in KiwiSaver right now. It actually begs the question why every New Zealander is not in KiwiSaver, because of the $1,000 upfront signage fee. It is interesting that when KiwiSaver was first announced, the predictions were for about 500,000 to 600,000 sign-ups. It has been a roaring success; no one denies that, and it has been acknowledged that KiwiSaver was brought in by the previous administration, and good on it.

Hon PETE HODGSON (Labour—Dunedin North) Link to this

The member who has just resumed his seat is the chair of the all-powerful Finance and Expenditure Committee. He said that he is very proud because inflation is low. He also said that under the previous Government inflation ran north of 5 percent. Well, in which year—in which year, I ask the chairperson of the Finance and Expenditure Committee? The only year inflation has been at 5 percent is the year we are in now—under his Government. That is the truth of the matter. I could pick on any part of that member’s speech, but the last part of it will do. It was full of factual inaccuracies, as has been the case, commonly, in this debate.

This country went into deficit 3 years ago. On the change of Government 2½ years ago, the big deal, a few months later in April 2009, was tax cuts for the rich. Let me say that again: our nation, our official books, started running at a loss and the big public policy response was to cut tax for the rich—not smart. That is the first point. Therefore, we had to borrow more to pay for those tax cuts than we would have, had we not made those tax cuts. That is just arithmetic.

We are borrowing to pay for tax cuts for rich people. That is irresponsible, it is ideological, it is very expensive, and in Part 1 of the Taxation (Annual Rates and Budget Measures) Bill we had a chance to revisit it. We argued it for hours, but the Government said: “No, tax cuts for rich people will stay where they are, we are not going to reverse them.” Governments are reversing tax cuts in many other jurisdictions, but not here. The Government will not reverse tax cuts for the rich. So the Government will have to find money from somewhere else. Therefore, we go to Part 2 of this legislation and find that that money is coming out of Working for Families and we find that it is coming out of KiwiSaver.

Remember that the Government says that it does not like the idea of having to borrow to then put money into KiwiSaver accounts. I will quote the Minister of Finance from his speech. It is a very short quote: “it means the Government is borrowing … to contribute to private savings. This does not lift national savings.” That is what the finance Minister said, and he is correct. If the Government borrows a dollar from offshore and puts it into Clayton Cosgrove’s KiwiSaver account, the national savings are not improved. But nor are they worsened. However, if the Government borrows money and gives it to Clayton Cosgrove as a tax cut, dissaving gets worse. We have a Government whose members say they do not want to borrow to sustain KiwiSaver, in Part 2 of this legislation, but they are really happy to borrow until their eyes water to pay for tax cuts for rich people. That is not fair, that is not just, and that is not right. And I am angry about it.

I will tell members something about KiwiSaver. KiwiSaver is not the preserve of rich people; KiwiSaver is something that everyone uses. Labour members, when we got started, were surprised at how popular KiwiSaver was amongst low-income earners and middle-income earners, as well as high-income earners. I agree with Craig Foss when he says that it is not rational not to have a KiwiSaver account, because one gets a thousand bucks for nothing just to get started. I agree with that. So it stands to reason that KiwiSaver is something that can be found across all parts of society, yet all parts of society will now get it in the neck twice. Less money from the Government will go into KiwiSaver—because the Government cannot bear to borrow for that; it will borrow for tax cuts but it will not borrow for that—and then there will be a requirement for half of the contributors to KiwiSaver to lift their savings from 2 percent to 3 percent, because National members are concerned about savings.

If National members are so concerned about savings, the way to fix that is to lift the minimum contribution rate from 2 percent to 3 percent, or from 2 percent to 4 percent if they wish, and to retain the Government contribution and pay for that by reversing the tax cuts for the rich. It is easy. At that point two things would happen. Our savings would get even better—and, boy, do we know that our savings in this country need to get better, especially in the private sector; we know that. The second thing that would happen, the second leg of the double, is that if the tax cuts for the rich were reversed, the current account and the balance of payments would improve, because rich people spend disproportionately on imports. Why? Because they can—the classic example is an overseas trip.

So if we wanted to look at what this country needs most of all, we would see that, overall, it is to reduce our debt by improving our savings—savings not in the Government’s accounts but across the entire economy, so we can own more and more of our own country instead of less and less of it—and to improve our exports. Part 1 of this legislation, by not reversing tax cuts for the rich, therefore makes the current account worse. Part 2 of this legislation, by not backing Kiwis to save, makes our savings record worse. It is not OK to take a scheme as popular as KiwiSaver and make changes as large as these, twice in 2½ years. That destroys confidence. KiwiSaver is an opt-out scheme so that is a saving grace. It may be that people will just continue to fall into it. But, my goodness, this is an economically reckless Budget, for those reasons.

Let us leave aside the effect the Budget will have on an imagined family with so many kids on so many dollars and what will happen to the family’s amount of money per week. Leave aside all that and sticking only with macro-economics, only with what is good for the nation, I ask why we in this Chamber are under urgency deciding that we will not reverse tax cuts for rich people, thereby not improving our current account and further damaging our savings record, which is appalling. Why has this Government, when faced with the choices of needing to get money from somewhere—we earnestly agree with that; the deficit must come down—chosen that way to do it? What is good about it, apart from the fact that it is ideologically suitable for the Government?

It is ideologically suitable for the Government to use the sophistry that tax cuts are fine because they cause people to somehow create jobs instead of spending money on overseas trips—but who believes that—and that cutting the Crown’s contribution to KiwiSaver is also fine because it is mandated that everyone on a 2 percent contribution rate will lose 1 percent of their income because they will have to go to a 3 percent rate, because that is what the Government says. That is not very bright. It is not very fair—but that is another speech. It is economically dumb, and the Government needs to be told off roundly for its economic stupidity.

Let us have Government members get up and defend the Budget. Let us have them get up instead of lowering their heads—every one of them. Look at them. Not one of them is looking me in the eye. Oh, one or two of them are pretending to now. [Interruption] Well, they are now awakened. Even Rodney Hide is awake. Let one of them take the call now and refute my analysis that this country needs to save more, that this country needs to export more, and that both parts of this bill damage both of those goals. That is the essential thesis.

Hon PETER DUNNE (Minister of Revenue) Link to this

That superficially plausible analysis from the member who has just resumed his seat, Pete Hodgson, does not actually stack up when we start to look at it. I will go through the arguments that he raised.

Firstly, he said that we should reverse the tax cuts for the rich so that we can pay for what is effectively being reclaimed through KiwiSaver to reduce the deficit. It sounds good on the surface, but it does not work in practice, for this reason: the bulk of the tax cut package was delivered to those who were on the bottom two tax rates. So, in terms of the dollars spent, if his argument has credibility—that that money should not have been spent—in fact the people who would bear the brunt of his policy being implemented would be the very people he is seeking to protect, because in relation to income they benefited most from that tax package in terms of the level of expenditure. He also overlooked the fact that the tax package was revenue-neutral. It was funded by the increase in GST. There was an element between the period from October 2010 to April this year that was covered by some very short-term borrowing, but, fundamentally, it was a revenue-neutral package.

He then turned to KiwiSaver, and talked about—well, I do not think he used the word “destruction”, but that was the clear implication of what he said. Let me go through what the situation is prior to the passage of this Taxation (Annual Rates and Budget Measures) Bill, and what it will be after this bill is enacted. As of today, right now, someone joining KiwiSaver joins on the basis of a “2 plus 2” contribution rate—2 percent from the employee and 2 percent from the employer. They qualify for a $1,000 kick-start for their savings. They qualify for a member tax credit of $1,040 on an annual basis. There will be no tax on the employer’s contribution to that superannuation contribution. That is the status quo. The destruction that the member talks about sees the person who starts today still starting on “2 plus 2”. When that was brought in as the default position 2 years ago, the Opposition claimed that it was a cut because it should have stayed at “4 plus 4”. Well, we get the chance in 2013 when we go back to “3 plus 3”, and I do not think those members are really opposed to that. So the person who starts today still starts on “2 plus 2”, and still gets the $1,000 kick-start. That has not changed. The only thing that has changed in terms of the impact on the saver is the change to $521 per annum in the member tax credit. Taken over the life of a KiwiSaver contribution, that has minimal impact on their savings. They still get the same benefit at the point that they get their payout at the age of 65. They also will be satisfied, I think, with the fact that the employer will now be paying tax on the contributions they make.

So the point I am making in response to the member who has just resumed his seat, Pete Hodgson—and he normally is someone who gives considered analysis, and I respect him for that—is that his case is factually incorrect, for the reasons I have stated. What the Government is faced with—and I think it is the one point that everyone seems to agree on—is that a deficit of this size in the unusual circumstances we are in is too high. We need to bring it down. We need to look at introducing what the Leader of the Opposition said were “bold measures” to bring the deficit down. That is what this Budget seeks to do. We have not heard any “bold measures” from the Opposition, other than to raise taxes on the rich. But the point I make is that, given where the balance of the expenditure in the tax cut package last year went, if raising taxes on the rich was to be a “bold measure”, we would actually be raising taxes on everyone, and that is not what the Opposition seems to be arguing for. The KiwiSaver changes have a very small impact on the individual saver but taken collectively they save us about $2.6 billion, which is a significant contribution to reduction of the deficit.

If we look at the changes to Working for Families, we see that in fact the picture becomes even more obscure as far as the Opposition’s position is concerned. The changes in the threshold take 4 years to implement, at the rate of $450 of income per year. The changes in the abatement rate in some cases will take as long as 8 years to implement, and in most cases about 4 years. So these are very modest adjustments. There will still be provision for an increase in the rate of payment according to the existing formula, and that will take place next on 1 April next year.

But, overall, both these sets of changes secure these social policy initiatives for the future. I go back to the point that Jacinda Ardern made a little earlier—and I cannot remember whether it was during the debate on the previous part of the bill or on this part—about her generation. This bill is really about her generation, because one of the great tragedies is that New Zealand for so long has had very short-term, selfish thinking. What these measures are designed to do is protect and enhance KiwiSaver long into the future, and make sure that the basis of Working for Families remains and is beneficial to the families that need it. The tax package that, if you like, lies behind all of that is ensuring a fairer and better system. I come back to the point I made during the debate on Part 1. A situation where 75 percent of New Zealand taxpayers—about 2 million people—pay a top tax rate of just 17.5c in the dollar has got to be good. It is certainly the lowest tax rate paid by those households in the lifetime of anyone in this House, and that is something we should be celebrating, not criticising.

CHRIS HIPKINS (Labour—Rimutaka) Link to this

I start by complimenting the Minister in the chair, the Minister of Revenue, who has just resumed his seat, on the very polished way he seamlessly transitioned from defending a previous Labour Government to defending the current National Government. I think I will leave my comments simply at that.

However, I want to pick up a point made by Craig Foss. It was ironic for Craig Foss, a National member of Parliament, to stand up in this debate on Part 2 of the Taxation (Annual Rates and Budget Measures) Bill and talk about the failed finance companies and the people who have lost their savings, given that National has had 2½ years to do something about that and has done absolutely nothing. But then, that could have something to do with the fact that half of them used to work for the failed finance companies. It is a bit rich for National members to say they will deal with the failed finance companies by hocking off the State-owned enterprises—that is effectively what Craig Foss argued in this Chamber.

I want to pick up the issues around KiwiSaver, and in particular the changes to the member tax credit. This Government will be effectively cutting it in half. But before I do that I want to pick up a comment from the speech made by the Minister of Finance in the House yesterday. People will find the comment on page 27, in the Budget speech—and it also relates to KiwiSaver. He states: “The Government will require agencies to fund the cost of KiwiSaver, and some State sector retirement schemes for their employees. This will generate savings of $650 million.” We should think very carefully about what that actually means. It means that those State sector agencies that will have to pay their share of the cost of KiwiSaver are effectively having their funding cut by $650 million. So if somebody is working in a large social policy area where the salary costs are high—for example, education or health—their funding, in real terms, will be cut, because they will now have to meet the cost of the employer contribution to KiwiSaver. That is a real-terms funding cut. So when the Government talks about increasing funding for areas like health and education, I point out that a big chunk of it is already taken up by the other changes it is making in the area of superannuation, and it is not being upfront and transparent about that. It is a sort of a triple whammy.

I come back to the issue of the tax credit. Let us take the example of someone in the education field, a teacher, for example, who signed up for KiwiSaver. They will find that their member tax credit gets cut in half by the Government. Clause 7 addresses this issue. The tax credit will go down from $1,042.86 to $521.43. Basically, the member tax credit is cut in half. Then they find that the funding of the employer’s contribution means that other parts of their work are being cut—suddenly the money to fund the employer contribution has to be found from somewhere else because the Government has hacked away at that, as well. So they are getting a double whammy. If the Government is taking $650 million out of the employer side of the contributions to KiwiSaver, that has to come from somewhere else. I see the Minister of Revenue shaking his head. I simply turn his attention to the Budget statement on page 27 of the Budget documents. If I have interpreted that wrongly, I would welcome him standing up and clarifying it. I think that is the only way it can be clarified. If the Government is requiring agencies to fund the cost of KiwiSaver, saving $650 million, that money has to come from somewhere else, so that money has to be a cut in real terms. If I have interpreted it wrongly, I look forward to the Minister of Revenue’s clarification of it in his contribution to this debate.

National went into the last election promising New Zealanders that it could afford tax cuts and that nothing else would change. There would be no changes to KiwiSaver other than the changes National foreshadowed in its election manifesto. National said it would not cut Working for Families and it would not cut interest-free student loans. National has broken those promises in this year’s Budget. Here we go again, particularly when it comes to retirement savings. National has a very proud history of taking very good savings schemes introduced under a Labour Government and ripping the guts out of them. That is exactly what Rob Muldoon did in the 1970s after a very good savings scheme was put in place by the Norm Kirk Labour Government. Rob Muldoon bribed New Zealanders with their own money in order to win the 1975 election and sabotaged New Zealand’s savings for over two decades after that. The last Labour Government started to deal with that by introducing KiwiSaver, and, once again, we are seeing the National Government ripping the guts out of it. This is National’s pattern when it comes to savings.

It is a bit rich for Bill English to stand up in this House and bemoan our poor savings record when, as the Minister of Finance, he has consistently undermined it. The first thing he did was to cut the minimum contribution to KiwiSaver in half, from 4 percent to 2 percent. He cut funding for the New Zealand Superannuation Fund. He stopped putting away the funding to pay for the baby boomers’ retirement. Then he turned round and said we had a terrible record of saving for retirement. The Government is not leading by example—but then this Government never leads by example. It tells everybody else that they have to stomach cuts but it is never willing to cut the money it spends on itself. The Government is happy to have new BMWs, new carpet, and so on. The Government is not willing to lead by example, particularly when it comes to savings. The Labour Government led by example when it came to savings. We set up the KiwiSaver scheme and we put the member tax credits and the kickstart in it. We led by example when it came to savings by setting up the Cullen fund, the New Zealand Superannuation Fund, to pay for the baby boomers’ retirement. They are both things that this Government is kicking the guts out of and hacking into.

This Budget has no real vision for the future, and no real plan to get New Zealand moving. It has no real plan to make sure New Zealanders can live a comfortable and safe retirement. It is not there; I have read it. I spent the evening last night sitting in the Chamber reading through the documentation. There is no plan. This must be one of the blandest Budgets; all the Government is doing is cutting: cut here, cut there, cut here, cut there. There are lots of cuts and lots of pain but no real gain. New Zealanders at home will be asking about the gain and the plan. The Government is asking New Zealanders to stomach all these cuts, but New Zealanders are not seeing any light at the end of the tunnel. This Government has mismanaged the economy. It has taken it from a surplus of $5 billion to $7 billion every year to one of the biggest deficits ever recorded in New Zealand’s history. That is what we get with Bill English as the Minister of Finance. He failed when he was the Minister of Finance the first time round in the last National Government, and he has failed again in the tenure of this Government. That is one of the reasons why New Zealanders are going to vote out this Government at the coming election. I tell members that the feedback that has been coming overwhelmingly in the last couple of days is that people have changed their minds about National because of what it is doing to KiwiSaver. New Zealanders know how important KiwiSaver is to the future of this country, and this Government is kicking the guts out of it. This Government is kicking the guts out of KiwiSaver, and I think that is totally wrong. It is short-sighted, and that pretty much sums up the Government’s approach.

The Government is also getting into Working for Families. What was National’s promise before the last election? What was the absolute promise of John Key? He told New Zealanders that National would not touch Working for Families. Hang on a minute, I think there is even a pledge card with the promise on it not to touch Working for Families. It was on a pledge card, but it is not even worth the paper it was written on. It was headed up with the words “My key commitments to you”. I think that National, after this Budget, has broken just about every one of those promises. I do not think there is a single commitment left on that pledge card, with John Key’s signature on it, that he has not broken. He has broken almost every one of them, and I think that is absolutely outrageous. That is one of the things New Zealanders will be keeping in mind when it comes to voting at the next election. They can vote for Labour, which keeps its promises and makes promises we know we can afford, or they can vote for National, which promises before an election whatever it needs to in order to get elected, and then does whatever it wants once it gets the Treasury benches. Nothing sums that up more than the two major changes being made in this part of the bill. There are the cuts to KiwiSaver, which kick the guts out of the Government’s contribution to KiwiSaver. The Government says to New Zealanders that it wants them to save, but it is not willing to do its bit. And the Government is cutting Working for Families, even though it promised it would not do that. Working for Families was another initiative introduced during the term of the last Labour Government. That initiative lifted hundreds of thousands of New Zealand children out of poverty, which is something we on this side of the Chamber are incredibly proud of and will continue to defend right the way to the very bitter end. Working for Families is a good policy. It recognises the fact that those families raising kids face higher costs, and that we as a society should help with them.

SUE MORONEY (Labour) Link to this

The Taxation (Annual Rates and Budget Measures) Bill, which we have in front of us, and Part 2 in particular show just how much of a failure yesterday’s Budget was. We always expect to be debating taxation after a Budget, and this bill allows for that debate. But if yesterday’s Budget was a fair Budget, then we would be debating the $9.1 billion that was given away in tax cuts in the last Budget to the top 10 percent of wage earners in this country. I think everyone believes and knows that, yes, we are in tough fiscal times. The Government has not been able to grow the economy—it has not risen to that challenge—and we have very difficult fiscal times in New Zealand because of the economic mismanagement of the current Government. But we all accept that that is where we are. If that is the case and we all have to tighten our belts, then why is it that this bill asks only hard-working New Zealand families to tighten their belts while the top 10 percent of wage earners continue to have $9.1 billion worth of tax cuts untouched, even in these tough economic times.

That goes to the basic unfairness of what this Government is doing. It means that the Prime Minister, John Key, gets to keep the additional $1,000 a week that he got in last year’s tax cuts. That figure is more than some people earn a week, but that is how much extra he got in tax cuts from last year’s Budget. He gets to keep that, but hard-working New Zealanders get to pay for that Government’s folly by having their money for KiwiSaver cut in this Budget. Hard-working wage earners are the people who will suffer through this part of this bill, because this part attacks KiwiSaver and Working for Families.

It is absolutely clear by now that only a Labour-led Government can save KiwiSaver. This Government is not interested in saving KiwiSaver. Ever since this Government took office, it has diminished KiwiSaver from every single angle it possibly can. The Government started off diminishing KiwiSaver by cutting its contributions in half, from a 4 percent contribution down to a 2 percent contribution. Immediately on taking office, this Government cut KiwiSaver in half.

But not content with that, the very next thing the Government did, with regard to superannuation and the future of savings in this country, was to immediately suspend payments and contributions from the taxpayer into the New Zealand Superannuation Fund, which is the fund on which there was a multiparty agreement that we would continue to put money in, in order to make sure that when we, the baby boomers, got to the age of receiving superannuation, there would be enough money in the Government coffers to pay for that. Forward thinking by Michael Cullen had led to a multiparty accord to forward-fund the scheme, so that there would be money in the scheme for all of us, when, as baby boomers, we needed that money for superannuation. But this Government took the knife to that accord as soon as it took office. In respect of the multiparty agreement, the ink was hardly dry when the new Government came into place, and it broke that accord straight away.

The Government’s record on superannuation is terrible, and it continues with Part 2. The Government is saying that times are tough, that it has not been able to get its act together, that it has not been able to grow the economy, and that it does not have the lift it has been promising now for 2½ years. The lift in the economy is still not with us, so the Government has had to start taking the knife to Government spending.

Where are the areas that the Government has chosen to cut? They have not chosen the area of tax cuts for very, very high earners in this country—tax cuts for the wealthy. We will not hear any member of the Government, any member on that side of the Chamber, even mention the word. It is like not mentioning the war, when those members pretend that people did not get those huge tax cuts in the last Budget. Although the Government pretends that everyone has to tighten their belts, that certainly is not the case for all New Zealanders. For the vast majority, New Zealanders are finding the current economic situation very, very tough indeed.

BRENDON BURNS (Labour—Christchurch Central) Link to this

I hope that I might get a chance later in this debate to talk about the Working for Families components of Part 2 of the Taxation (Annual Rates and Budget Measures) Bill.

PESETA SAM LOTU-IIGA (National—Maungakiekie) Link to this

It is a real privilege to speak on Part 2 of the Taxation (Annual Rates and Budget Measures) Bill. We have heard this morning from a number of contributors across the aisle. We have heard the type of negativity that pervades the Labour Party at the moment. We have heard speeches that have not set out any vision for this country, but speeches that appeal to the rabid left—anarchists, communists, socialists, and the lazy.

This Budget has confirmed the competent management that Bill English has displayed in the 2½ years since National took power. We know that the Budget is about setting a credible path to a surplus and helping to lift national savings. We have heard about the changes to KiwiSaver and how they will increase private savings through contributions that are, we might add, from employers and employees. What has not been mentioned by members opposite has been the context in which we find ourselves in May 2011. When we took power 2½ years ago there was a global economic recession. It has bitten many countries.

We heard from the Leader of the Opposition yesterday that this recession is over. Yet we look at countries like the United Kingdom that are going through massive changes and upheaval to their social services and their budgets, and we see that this Government has taken a very firm but very fair and balanced approach to our Budget. Although we hear complaints about the types of policies that aim at the fringes, what we really have is a Government committed to boosting investment in our health and education services. That is something we will not resile from.

We have heard questioning regarding facts. The Opposition continues to advocate taxation of revenue and sales, it advocates increasing taxes on high-income earners, and it seems to be focused on those who earn $1 million, but it has not presented any of the facts. The facts are that in the year to March 2009, only 597 people earned over $1 million—597. Labour members stand here whining and moaning about 597 people who earn over $1 million a year. Of those people, only 120 are salary and wage earners—120. There is all that energy over 120 people.

What Labour members do not realise is that there are people who earn high incomes who provide jobs and provide opportunities. Those people are entrepreneurs, who are investing in productive assets. Yes, it is about investing in the productive assets that will earn the export dollars that will push this economy forward. We have not heard anything from that party opposite, which governed during the best years of our economy, yet exports decreased for 5 consecutive years. We have not heard anyone from that party come up with any answers as to why that happened.

Hon MARYAN STREET (Labour) Link to this

It is my pleasure to participate for the first time in this debate, in looking at Part 2 of the Taxation (Annual Rates and Budget Measures) Bill. There are a couple of points that I will make, but with reference to the member who has just resumed his seat, Peseta Sam Lotu-Iiga, and some of the other National members who spoke yesterday, I will just remind them that the 9 years of the Labour Government were spent in improving New Zealand’s export opportunities. I ask what those members call the Free Trade Agreement between the Government of New Zealand and the Government of the People’s Republic of China, an agreement that, although some members opposite wish to contest the fact, was signed by the Hon Phil Goff as Minister of Trade. The agreement has resulted, in its first year—no thanks to this Government—in a 62 percent increase in dairy exports alone, not to mention forestry as well. That member opposite needs to get some facts straight about who laid the groundwork for growth.

This Budget goes in exactly the opposite direction. This is a stifling Budget. It is a stifling Budget that does not promote growth. Members opposite had 9 long years in Opposition—9 long years, as they like to say—to come up with a plan for economic growth and for some new, fresh ideas about how to pull this country out of the financial crisis and into growth and recovery. But what did we get? We got the same tired old recipe that we got in the 1990s. We got asset sales and tax cuts. Those members have done the tax cuts, and now in this Budget they are promising to do the asset sales.

In this Budget, and in the part of the bill that is under consideration at the moment, we have the technical bits about cutting KiwiSaver and Working for Families. In 2008 John Key went around this country saying to the people of New Zealand: “You like KiwiSaver; we will keep KiwiSaver. You like Working for Families; we will keep Working for Families. You like New Zealand superannuation; we will keep New Zealand superannuation.” But what did the National Government do? From day one it began to gut all three of those great innovations of the previous Labour Government.

The talk about needing to change our culture to a savings culture, with this bill in front of us, is simply that—it is talk. The cuts to KiwiSaver provide disincentives for people to join the scheme, and disincentives for people to continue their savings. They do not create the kinds of growth and savings that are required if we are to have the investment in jobs and people that is sorely needed for the productive economy in New Zealand.

I will turn now to something to do with the context in which this bill is set. Towards the back of one of the documents we were issued yesterday, the one that contains the speech made by the Minister of Finance, there are assumptions that underpin his speech and this Budget. They are included in upside and downside scenarios. I would like to accentuate the positive and talk about the upside scenario, but draw to the Committee’s attention how deeply, deeply flawed that scenario is. If the upside scenario is flawed, what hope is there for anything good to be done by this Government for our economy? The upside scenario states that it “incorporates a stronger economic recovery led by domestic drivers … with commodity exporters anticipating permanently higher returns and households more confident in house price rises.” It goes on to state: “At the same time, house prices are slightly stronger, growing 5% by mid-2012, rather than 1.8% as in the main forecasts. Higher house prices in the near term reflect current low interest rates and developing housing …”—

CLARE CURRAN (Labour—Dunedin South) Link to this

I am pleased to speak on Part 2 of the Taxation (Annual Rates and Budget Measures) Bill, as it relates to the cuts to KiwiSaver and Working for Families. This Government makes stuff up, and that is what this Budget is based on. We have heard so much stuff that has been made up. In the time I have been sitting in the Chamber this morning I have heard a lot of it. Before the Budget was released, a few days ago a headline in one of the newspapers said this Budget would be about higher wages and more jobs. What a load of rubbish; absolutely. We have heard today that this Budget is about protecting the next generation. What a load of rubbish that is. Where are the jobs for that generation? Where are the decent wages? What is to stop them from going overseas? That is one of the major issues this Budget should have addressed. We have heard also from another member, who claims that there is so much innovation happening in New Zealand right now as a result of his Government. What a load of rubbish that is. There is nothing in this Budget that promotes innovation, will promote jobs, and will promote strong export-led industries, which is what this country needs. Instead, we have cuts to KiwiSaver and cuts to Working for Families, which is what Part 2 is about, instead of the Budget providing the things we need most. John Key was on Radio Dunedin this morning, just a few minutes before I was. He was asked where these 170,000 jobs would be coming from. He fudged it. He did not have an answer, because there is no answer from this Government in this Budget.

This Budget should have been about hope. It should have given people hope for the future that things will get better, that they will be able to pay their bills, that they are not going backwards, and, worse still, that they will not end up in financial strife. They should have been given hope that their kids will get jobs when they leave school, and that they will not go to Australia. Unfortunately, the Budget is about cuts—cuts to KiwiSaver. KiwiSaver is growing, and is actually giving people an incentive to save. It will provide certainty for people’s futures. But instead we are seeing cuts, we are seeing the burden placed on employees and employers, and we are not, as members have heard from previous speakers on this side of the Chamber, going to see wage growth. Government members are making stuff up. It is not too much to ask for a Budget to provide hope, for a Budget that gives us hope as nation. A Budget that will set a course for the future will show us where those jobs of the future will come from.

Peter Dunne earlier in this debate talked about equity. Equity for whom, I thought to myself—equity for whom? It is not equity for all those hundreds of thousands of families across the country who are struggling with their budgets every week—every week. The do not know whether they will be able to afford pay their bills: their telephone bills and electricity bills, their rent or mortgages—the bills they have to pay—let alone petrol and their food bills. They are not bills just for buying new clothes or going on a holiday but the bills they have to pay to get through the week, and through the month. Where does this Budget address that issue? Nowhere; instead it is a Budget that just makes stuff up. It forecast 170,000 jobs—170,000 jobs. Where will they come from? I heard what Stuart Nash said earlier on today about the forestry sector, and that jobs are going in that sector. We heard that John Key talked about commodity prices strengthening, and therefore jobs will come from that. Where will the jobs come from? They will not come from the manufacturing industry, let me tell members. If this Government actually invested some money instead of cutting KiwiSaver and cutting Working for Families, if this Government invested some money in this economy in a way that actually stimulated the economy and stimulated skills in the economy—

Hon PETER DUNNE (Minister of Revenue) Link to this

I am glad the member who has just resumed her seat, Clare Curran, talked about making up stuff, because there has been a lot of that going on from that side of the Chamber during this morning’s debate. Earlier we heard from Sue Moroney, who talked about reversing the $9.1 billion of tax cuts to top-income earners.