Taxation (Annual Rates and Urgent Measures) Bill

Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this

I move, That the Taxation (Annual Rates and Urgent Measures) Bill be now read a first time. At the conclusion of the first reading, I shall move that the bill be referred to the Finance and Expenditure Committee for consideration, and that it be an instruction to the committee to report back the bill to the House by 5 December. I will also seek leave for an instruction to the committee, through Supplementary Order Paper 1, to consider amendments to the bill to enable the Inland Revenue Department to assist in the administration of the Australian wine producer rebates. I thank all other parties for their expression of support for that measure being included, and I understand that that does not necessarily mean they will support other parts of this bill. The bill will be fast tracked through all its stages before the House rises in mid-December. That will enable the changes it introduces to take effect from 1 April next year, which, of course, is consistent with the pledges made by the Labour Party before the election.

The bill delivers on three key election pledges, to the real benefit of hundreds of thousands of ordinary New Zealanders. It reflects the Government’s commitment to an inclusive society that is based on fairness, security, and opportunity for all its people, including its young people. The bill extends the Government’s landmark Working for Families package. It builds upon changes that were already scheduled to come into effect on 1 April next year as part of the phased implementation of that package. As a result of the changes in the bill, about 100,000 working families who were to receive increased assistance next April will receive even more, and an extra 60,000 families will become eligible for family assistance under the Working for Families programme.

The size of the extra relief introduced in the bill will depend on family circumstances, including the number of children and the family income, but will average around $50 a week. For example, a family that was already on track to receive an extra $55 a week from 1 April next year will now receive an extra $48 a week on top of that—a total of $103 a week. That is achieved by raising the threshold at which family income assistance begins to abate, from $27,500—actually, at the moment it is still $20,000—to $35,000, and by reducing the rate at which assistance abates for income that is over the new threshold, from 30 percent to 20 percent, which, for very large numbers of working families, also decreases the effective marginal tax rate by some 10c in the dollar.

The bill further honours the Government’s election pledge to make student loans interest-free for most borrowers. The changes are designed to reduce the cost to students of tertiary study, and to encourage tertiary-educated New Zealanders to invest their skills in New Zealand. From 1 April next year, borrowers who are studying part-time or full-time will continue to have the interest on their student loans written off. Borrowers who are no longer studying, regardless of whether they have gained a qualification, will pay no interest on their student loans, provided they are living in New Zealand. Interest will be charged on student loans if borrowers are away from New Zealand for more than 183 consecutive days, which is, of course, the same criterion that applies to tax residency within the taxation legislation. Short visits of 31 days or fewer to New Zealand will not count as living in New Zealand. The Inland Revenue Department will have the discretion to exempt from this rule borrowers and their partners who are overseas for a variety of reasons, including postgraduate study or being unexpectedly delayed overseas.

There has been a considerable degree of interest in the cost of this policy, and we have heard some very large claims being made about that. Before the election, the Labour Party costed the impact on the operating provisions of this policy as rising to some $300 million or so a year by 2008-09. This was attacked as being ludicrously low. Let me announce today that Treasury has refined its costings of the policy, and I have to admit that the Labour Party was significantly in error. The actual costing will be $202 million a year by 2008-09 in terms of the impact on the operating provisions. Those are the actual Treasury costings—not done on the back of an envelope like its first effort, but done somewhat more carefully, taking account of all factors. [Interruption] I am so sorry to disappoint the members opposite about that fact, and I must congratulate myself on my self-discipline in holding back those numbers until the first reading of this particular bill, because I have been sitting on them for some time up to this stage.

The third key election pledge delivered in the bill is for an amnesty on student loan penalties for borrowers in arrears who are living overseas at 1 April next year if they give an undertaking to meet all their obligations under the Student Loan Scheme Act for a 2-year period. That will apply to those borrowers who give the necessary undertaking between 1 April next year and 31 March 2007. The removal of the very, very large penalty payments that some people overseas have accumulated offshore will enable them, if they want to, to come back to this country. A significant proportion of the level of outstanding debt on the student loan scheme is accounted for by a relatively small number of borrowers, nearly all of whom are actually offshore and whose penalty payments have now mounted to the point where it becomes impossible for them to return to New Zealand. That is not in our interest as a nation.

The changes in the bill will save many thousands of dollars a year for many young people in terms of the costs of their tertiary study, and will knock years off repayment times. Indeed, the new member for Tauranga has already had an effect on Government policy. This was one of the three elements in his speech—apart from, one might say, the somewhat uncharitable remarks about his predecessor. He might have learnt that one is usually nice about one’s predecessors in this House when taking over a new seat. Mr David Carter managed to bring himself to be so when he was once an electorate MP.

The bill also fixes the rates of income tax for the 2005-06 tax year, which is an annual requirement. That is contained in the main tax bill, but there is a risk—I hope not a serious risk—that that bill may not be passed by the end of March. I am hopeful that the Finance and Expenditure Committee will be able to get that bill through by the end of March so that measures such as depreciation and other changes can come into force on 1 April. But there has been some pressure, I might say, from the Institute of Chartered Accountants of New Zealand, amongst others, to delay the provisional tax and GST measures for a short period to give some more time for publicity and other matters.

In closing, I am extremely pleased that the Government has been able to deliver so quickly on the promised reforms introduced in the bill, which will have long-term benefits for New Zealand and its people. I commend the bill to the House. We anticipate it passing in the last sitting week before Christmas—13 to 15 December.

JOHN KEY (National—Helensville) Link to this

I rise on behalf of the National Party to oppose the Taxation (Annual Rates and Urgent Measures) Bill, and all I can say—and I do want to touch on the student loan scheme in a moment, because it clearly forms a significant part of the legislation—is that this policy has caused Michael Cullen tremendous embarrassment so far in the House. I know that Labour stands for the notion that the means justify the ends and it does not matter what it takes to get there, but he has embarrassed himself even further in the House today if he seriously expects anybody in New Zealand to believe that it will cost $202 million to run this policy. I am tempted to repeat what Mr Locke said—he said he would go naked in Epsom if Rodney Hide won the seat. I do not want to make a similar pledge because my wife could be listening, although she hardly listens to Parliament, but I am tempted to say that that kind of pledge is befitting of the comments of Michael Cullen.

Just a very simple analysis of cancelling the interest alone equated to around $348 million. No, Treasury was right when it costed the policy as one that was tremendously expensive.

The front page of the New Zealand Herald was right, the day after John Belgrave, the Ombudsman, required the Government to release that document, when it led with the headline: “What Labour didn’t want you to know”. That was the headline: “What Labour didn’t want you to know”. That is quite a significant issue that I wish to discuss. But before I start I want to draw to the House’s attention Part 1, which deals with the affirmation of the annual income tax rates, and I say that for this reason. At 4.30 this afternoon the Government dumped on the media unit its incoming briefing to the Minister. The Government dumped it at 4.30 for a reason—it does not want it on the 6 o’clock news tonight. The Government could have dumped it at 6.01 p.m. but chose not to do that because that would have been tremendously embarrassing for a Government that does not want that kind of information in the public domain.

But for the listeners to this address, and for the members of the House, let me just paraphrase what the briefing says. It says that if this country wants to get into the top half of the OECD, then it needs a lot more than rhetoric, and that what the country actually needs is growth-enhancing policies, and that Treasury’s No. 1 growth enhancing policy is to cut taxes. It says that New Zealand will not get into the top half of the OECD with Labour-led policies. It says that this country has grown at a rate of around 2 percent per capita and it needs to grow at a rate of 4 percent if it wants to get back into the top half of the OECD. The briefing makes it quite clear: the international evidence is overwhelming that if we want a fast-growing economy, and for this country to get what it wants and deserves—a growing economy that delivers opportunities—then this country must cut taxes, and that information comes on the day the Government released its full-year surplus of around $8 billion—$2,000 per head. In case the Minister of Finance has missed it, it was a 42 percent increase in tax revenue.

This country needs a lower-taxing Government. The country voted for tax cuts. Treasury said that National was right to advocate that position. The international evidence said that National was right to advocate that position. The public said we were right and the public knew we were right. Treasury said that if New Zealand wants to get into the top half of the OECD it is the No. 1 most important thing to do, and the leading statement in the Speech from the Throne was that this Government—this Labour Government—will not be cutting taxes. This Labour Government will not be growing this economy, and this Labour Government will not be taking New Zealand back into the top half of the OECD. It does not matter how many times Michael Cullen, Helen Clark, and the rest of the Labour front bench come to this House and argue to the contrary, they are wrong, just as Michael Cullen is wrong when he embarrasses himself by claiming that a policy such as interest-free loans will cost $202 million. As I said last night the most sense we will get out of Michael Cullen now will be when he delivers his valedictory in 2½ years’ time.

I want to move on to the student loan policy, because it was an amazing policy. I remember that before the forty-seventh Parliament broke up, I asked Michael Cullen what the cost to the balance sheet would be—in other words, what the cost would be of having roughly about $6 billion worth of loans that no longer have any interest bearing on them. My previous history was in the financial markets, and anybody in the financial markets will know that a valuation of a loan portfolio that all of a sudden yields zero is worth considerably less than a portfolio that has an interest rate applying to it. And that was right, because earlier in the year the Government had passed the financial reporting legislation, which required New Zealand to adopt international accounting standards. I argued with Dr Cullen that that cost would be $1.7 billion, nearly the equivalent of taking Solid Energy and Landcorp and giving them away to anybody for zero. Michael Cullen looked at me, grunted a few things, did not really say a lot, and sat down. Again, about a week ago in a rather embarrassing and sort of coy moment for the Minister of Finance, he had to admit that in fact even I was wrong—it was not $1.7 billion; it was $2 billion.

This is a Government that took $2 billion and gave it away. It does not want to privatise assets, but it is happy to give some things away for zero because Helen Clark was so desperate to become Prime Minister again. She did not care that the country will not get back into the top half of the OECD, and she proved it because she is doing the complete opposite of what Treasury said. She just gave away $2 billion. It was a disgrace. Michael Cullen went on to say in his press release that it was a one-off charge. Well, that is not correct. What actually happens is that for every dollar that gets written in student loans—and there will be a great many student loans written—about 30c will have to be written off the Crown balance sheet. That is the truth of this policy. It is a policy that tells young New Zealanders to go and borrow—

Hon STEVE MAHAREY (Minister of Education) Link to this

I do not think that we have very many worries about Mr Key opposing this legislation with every bone in his body. I am not sure how many he has got left after the election that he helped to lose—that he helped to ensure would put the National Party back in Opposition for what is going to be a historic 9 long years. Dr the Hon Lockwood Smith will be retired, nosed out, by the end of that period of time, and will slip off into the darkness, having never returned to where he wants to be on the Government benches. The man to blame for that, Mr John Key, just spoke. He helped to lose the election, and Bill English, no doubt, is seeing that his chances of returning to the leadership—having lost it some time ago—are now rising because of John Key’s performance. [ Interruption] It is worth pointing out to Dr the Hon Lockwood Smith, who is calling out across the House, that the National Party lost the last election.

This is a Government that has won not one term, not two terms, but three terms. It went back into power with 100,000 more votes than it won last time. After three elections we have 0.03 percent less of the vote than last time, and we won on more votes this time, than we won on in 1999. That is not bad for a third-term Government—not bad for a Labour Government, I would say, on looking back over history.

I say to people on the National side of the House that they should ask themselves why that was. I think the simple answer to that question is that New Zealanders believed they wanted to see a continuation of investment in the things that make a real difference to the future of this country. The students of this country understand themselves to be people who will get an education and then invest their skill back into what we do in this country. They know that if the costs of that education are too high, then the chances are that they may take those skills somewhere else. If we want to retain those people—if we want to ensure that they can start a family, buy a house, start a business, and do all the things we want them to do—we should not have them leave tertiary education with the kind of burden they would have under a National Government.

Members should remember National’s track record. Who allowed the fees to rise, on average, 12 percent every single year in the 1990s? National. Who said that people did not really need an allowance as students? National. Who put in the loan scheme? National. Who gives the signal that they will give people back a tax cut, but that they will pay more for their education because all the regulation of fees will be lifted? The National Party. Students could see that; anybody could see that. So students said that they wanted to look at a party that would invest in keeping the cost of education down, and that they would then stay in the country and invest their skill here, as they should. I want to applaud students for saying that that is what they wanted to do, and for not being led off by some massive bribe by the National Party that says: “ Let’s cash up the hard-won gains of the last 6 years—the hard-won gains that came under a Labour-led Government—and just blow them on immediate consumption.”, as would have happened if the National Party were the Government today. Students understand that investment is the key.

I want to turn to the Working for Families policy. It is one of the most important policies this country has seen in 30 years, because it is the first time in 30 years that we have set an intentional, purposeful redistribution of wealth in this country into the pockets of people in lower-income brackets all over the country. It means that they get accommodation supplements and childcare supplements, and that when they go to work from a benefit they will get a definite increase in their take-home pay. It means that money goes into the households of families, and kids all over the country are better off on that. Now, Dr the Hon Lockwood Smith would say we should not do that, but should give more money to higher-income people. But we have said that we have to start reinvesting in having children in this country. That is not just something an individual should be doing by himself or herself. This country has always stood for sharing the costs of having children, and for making it attractive to have a family.

We on the Government side of the House believe in families, and I see Gordon Copeland sitting there, representing a party that wants to make sure that families are something people want to have, because they can share the cost with people across the country—as they should be doing. That is what Working for Families does; it is a direct investment in the families and children of this country.

I say to Dr the Hon Lockwood Smith that we were seeing child poverty driven to a point where one in five children were in poverty under the previous National Government in this country. We are now finally seeing ourselves on a track by which we can compare ourselves to the best in the world. That has to be an achievement that everybody in this House should be proud of. Iknow the National Party is not proud of that. It would rather have given more money to people who are well off, as an incentive for them to work harder—as if people who are less well off do not work hard! National does not seem to want to put money directly into the pockets of families who have children. It does not seem to want to be family-friendly. It does not seem to want there to be an in-work payment so that when a person goes from a benefit into work he or she actually gets genuine money. It does not seem to want to help with childcare costs.

But Working for Families does provide such assistance. It was another part of an investment policy, alongside the investment in keeping students in this country so their skills will stay here. Students know that their country has invested in them, and they will invest their lives in this country, just as generations of us in this House today have done—staying here to live and investing our lives here. Labour has invested in working families; we have invested in children. That is the difference between Labour and National, and we are on the Government side of the House because we belong to a group of people who said: “Please carry on investing in the future of this country. Do not cash up after only 6 years of really getting some gains, carry on making a difference, and do not have the short-sighted view that Dr Brash and John Key had.”

That is why we have the privilege to be on the Government side of the House, leading this country, and why the National members have the privilege of going for 9 long years—probably 12—sitting there opposing, opposing, and opposing.

Hon BILL ENGLISH (National—Clutha-Southland) Link to this

One does wonder what the question was that Helen Clark was asking herself when she came up with an answer that was to put Steve Maharey on the front bench and back into education. I think it must have been: “How can I destroy any possibility that he will become leader of the Labour Party?”. And she got the right answer. The most incompetent education Minister the country has seen in my lifetime was sacked from that portfolio, then put back 12 months later. I note that she said he was there because of his marketing skills. I hope, on behalf of hundreds of thousands of children in New Zealand, it means he will not actually be allowed to do anything, because he will be busy marketing. I hope that is the case.

I remind Mr Maharey, who in the fashion of left is totally rewriting history, that the in-work payment was invented by National. It was called the child tax credit, and he said that it was a right-wing conspiracy against fair pay for the workers. Now he calls it the in-work payment and says it is the best thing in 30 years. The childcare subsidy has been there for a very long time, it was not invented by the Labour Party, and this false and new interest in families from Steve Maharey and the Labour Party is just about more than I can sit here and listen to. These are what are called his marketing skills!

I want to give Mr Maharey one simple fact out of one of his own Government publications. He says that Working for Families is the biggest redistribution of income in 30 years. Well, he is wrong about that. The tax packages of 1996 and 1997 were a much, much larger redistribution, and he should be smart enough to know that, but he wants to rewrite history. I had a look at the social indicators report. After 6 years of Labour being in Government, income inequality in New Zealand is worse than it has ever been.

Hon BRIAN DONNELLY (NZ First) Link to this

To start with I wish to take the opportunity to express my sense of loss at the passing of Rod Donald. Having made my affirmation the previous three Parliaments alongside Rod, I tangibly felt his absence last Monday. I also sat beside him for some time during the last Parliament, and seeing his seat empty last week certainly was poignant.

New Zealand First has some misgivings about this legislation. However, I can say at this point that we will be supporting it through its first reading. There are two reasons for that. The first is an important thing called democracy. We recently had an election. Different parties put up their policy positions, and the largest number of New Zealanders voted for the party that proposed the policy changes contained in this legislation.

New Zealand First listens to the voice of the people—as we did back in 1997. We put to the people a proposal regarding a retirement savings scheme. We responded to the voice of the people, even though it overwhelmingly rejected our very sensible proposal. In the same way, the voice of the people on 17 September told us it was largely in favour of the policies that this legislation advances.

The second reason we will support this legislation going to a select committee is much simpler: we agreed to do so in our confidence and supply agreement with the Government. I shall read the relevant passage—and also tell members about the bauble that came with it: “The government has identified the pledges on its commitment card along with their election policy to extend the working for families package as priorities for them and New Zealand First agrees to support the legislation if required to give effect to these policies.” New Zealand First is an honourable party and we will be honouring that pledge. Honouring that pledge in no way denies us the right to express our misgivings.

This legislation deals with the Working for Families package. From New Zealand First’s point of view, if there is redistribution of wealth, it makes sense to target such redistribution to families with children. Some years ago economist Brian Easton did some research into this and revealed that four-fifths, or 80 percent, of the total cost of rearing a child falls to the family. One-fifth, in fact, is funded by the State. However, the benefit of the educated, healthy, pro-social adult that the child becomes accrues to all members of society. Therefore, New Zealand First supports the targeting of redistribution to families with children.

However, our misgivings lie in the potential of this proposal to lock in welfarism. Let me put it this way. My father was a shirt-cutter by trade. I do not think that the trade actually exists any more, but it certainly was not a very highly paid job by any means. His tax code would have been M5—married with five kids. As a result of that he would not have paid very much tax at that time, but he never brought home more than he earned—and that is the problem this legislation has. The thinking of the day was that if one was funding the upbringing of children directly, as a parent must, then one paid less in taxation. It was not welfarism.

The problem we have now is that because we have become such a low-wage economy, many people cannot earn enough in a normal week to fund the costs of catering for the physical, health, educational, and social needs of their children. So we have the prospect of decent, hard-working families being forced on to welfare for the mere basics of survival of the adults and children within those families.

New Zealand First believes that the real challenge to our nation is to become a high-wage economy rather than the low-wage one that the forces of Rogernomics and “Ruthanomics” created. To that effect, we believe that New Zealand First’s gain in the confidence and supply agreement—to raise the minimum wage to $12 per hour by 2008—is a bauble we are quite happy to accept. This policy will create a “trickle-up” effect, and we well know that the trickledown theory just did not work.

However, we will continue through the period of this Parliament to work towards the other part of the quinella of New Zealand First policy, which is to reduce the company tax rate. Business creates jobs, and nothing but social good flows from the employment created by business. Government policy that maximises profitability of businesses needs to be devised. So New Zealand First supports the idea that we invest in our children by creating more disposable income within families; it is just that we see fish-hooks in the manner in which this legislation will achieve that.

New Zealand First’s second area of misgiving is interest-free student loans. We believe that is a simplistic answer to a genuine problem of student debt. During New Zealand First’s short period in Government in 1997-98 it took steps to reduce student debt. For example, we stopped the lump-sum loans that existed at the time, and we introduced in 1998—people will remember that the Rt Hon Winston Peters was the Treasurer at the time—a partial interest write-off on student loans. What we would not do, however, was to wipe out the base rate, which accommodates inflation so that the student pays back the real amount of the loan.

This Government’s policy is, in fact, a giveaway, because students will be paying back less than what they are borrowing and not the real amount. The worst feature of the policy is that rather than reducing student debt, it will dramatically increase it. The Minister of Education has come up with some figures in the House today that are really quite unbelievable. When the Minister announced them to the House he told us that the calculations were based on a loan uptake of 70 percent of students. Well, guess what—the current take-up rate is 70 percent. We are being asked to believe that this policy will not make any difference to the take-up rate of students, and if I looked out of the window I would see pigs flying by if I were to believe that particular premise.

However, I also make the point that National needs to come clean with its policy, which was based on treating education as a commodity. New Zealand First believes that education cannot be equated with a set of carpenter’s tools or a herd of cows, but that is exactly what National’s policy was based upon.

New Zealand First has long had a policy of a universal student allowance. Its rationale is based on a fundamental belief in the manner in which our society should operate. We believe—and, in fact, all the parties in the House, with the possible exception of ACT, believe—that one of the fundamental principles of our society is this: if, for whatever reason, a person is unable to earn the rudiments of survival, which are food, shelter, and warmth, then there is a collective responsibility to provide those rudiments. That principle is fundamental to the way our nation operates. Yet students, as the only people in our society who are unable to provide for themselves because of their full-time study, have to borrow, purely and simply, to live. There is already an opportunity cost in full-time study, so why do we also burden our students with debt by making them take out loans purely and simply to live? This bill will not lead to reduced debt; it will lead to increased debt.

The real problem that our society faces is the level of student debt, and we believe that a universal student allowance would have cut into it in a manner that this bill will not. Nevertheless, we will support its passage through to the Finance and Expenditure Committee. We believe that we have an obligation to do so, because in doing those sorts of things we have enabled ourselves to achieve some of the other baubles, such as the $12 per hour as a basic minimum wage. We are prepared to pay that price.

SUE BRADFORD (Green) Link to this

The Green Party will support this bill through all stages of its progress through the House, but not without reservations. We will certainly be seeking to put up amendments at the appropriate stage in the process. Although we welcome unreservedly the bill’s improvements to the student loan scheme, which I will turn to in more detail shortly, it is in the area of Working for Families that we take particular exception to the underpinning assumptions that the Government is making in carrying out these reforms. This bill increases the annual income level at which the abatement of family assistance starts, from $27,500 to $35,000, at the same time as it reduces the rate of abatement from 30 to 20 percent. Dr Cullen estimates that this would help up to 160,000 families, at an average additional $50 a week—great stuff! The Green Party has no objections per se to this extension to the Working for Families package. We appreciate and support any increase in assistance to families struggling to raise children in our current low-wage, high-cost economy.

However, what we do object to—as we have done since Working for Families was first introduced—is that a bonus has once again been given to what the Government calls “working families”, while the children of beneficiaries continue to miss out. Right from the start, even through its very name, Working for Families has been the latest subtle tool in an ideology promoted by National and Labour from the mid-1990s through to the present day. It is an ideology that promotes structural discrimination against children if they happen to be unfortunate enough to come from a family dependent on the benefit system for survival. According to the last publicly available Government figures, over 20 percent of our country’s children still live in poverty, and that is according to the Ministry of Social Development itself. A high proportion of those children come from sole parent and/or beneficiary families. On principles of social justice and human equity, it is simply wrong and cruel to continue to increase the amount of Government assistance that is going to the better-off, while denying that the child tax credit / in-work payment should be given to those children who need it most, just because one of their parents is not in the paid workforce for 30 hours a week, or more.

As the Child Poverty Action Group stated last week, “it is misleading for the Governor General to claim that the change ‘will mean tax relief for every low and middle income family with children in New Zealand.’ ”, when, in fact, this addition to Working for Families offers nothing to the 250,000 poorest children in Aotearoa. The Child Poverty Action Group’s finance spokesperson, Dr Susan St John, also went on to say: “The latest changes only shunt the poorest kids further to the back of an already long queue, when they urgently need to be first in line,”.

On top of the intrinsic unfairness epitomised by this bill—in its current form at least—is the fact that Labour in the new Parliament appears bent on continuing with its intention to scrap the special benefit, which was brought in through the legislation that also produced the initial Working for Families package. The special benefit is to be replaced by temporary additional support, or “TAS”, as it is colloquially known, which the Government claimed would save it some $26 million in the 2006-07 financial year, and a further $38 million in 2007-08. This new system, as far as we are able to ascertain, will mean an end to the last layer of discretionary support that allows people who do not have enough to live on to survive. The fact that a Labour Government makes no bones about saving an initial $64 million through cutting this special benefit is a disgrace. The special benefit under both the National and Labour Governments has been the only means by which Work and Income can exercise discretion in making sure that at least some of those who do not get enough to live on by other means can access the bare essentials of survival. Without a discretionary benefit like this, poverty and indebtedness will only increase for those who are already suffering the consequences of unemployment, sickness, long-term disability, or sole parenthood. Those impacted are, disproportionately, tangata whenua, Pasifika peoples, and refugees and migrants.

Strangely enough, the Hon Mark Burton, in a speech to the House in 1995 criticising the National Government’s then social welfare reforms, said that the removal of discretion from special benefits was “just a de facto extension of benefit cuts”. The new Minister for Social Development and Employment, the Hon David Benson-Pope, should take this opportunity, in taking on his new portfolio, to reflect on his colleague’s earlier comments and to reverse this further attack on those in our society who already have the least. Mr Benson-Pope should either allow the special benefit to continue until such time as benefits are enough for people to live on with dignity, or ensure that the new temporary additional support regime continues to allow discretion and to meet people’s actual, rather than imagined, needs. The Government should not take Green Party support for this particular bill before the House today to mean that we accept Labour’s further consolidation of systemic bias against the children of the non-working poor, nor that we will stay silent if it continues with its plans to end genuine discretion at the tough end of the benefit system.

To those who may be asking why on earth the Green Party is supporting this bill at all, given the criticisms I have just been making, I must reply that not only are we giving it our backing because it does increase aid to some families, but also because of what it does to student loan recipients. The current $8 billion or so of student debt is not affordable for our graduates or for our country. We have to stop seeing education as a cost, and understand that it is an investment in the future of Aotearoa New Zealand. In amending the Student Loan Scheme Act 1992 to allow a full interest write-off for resident borrowers, and in granting an amnesty on penalties for people who return home between April 2006 and March 2007, the Government is taking a major step towards reducing the horrendous consequences of this dreadful scheme. The Green Party has been campaigning for an end to the student loan scheme for many years. It has been a key plank for us in the last few election campaigns, and we remain committed to getting rid of the whole thing, alongside reducing and capping fees, instituting a universal student allowance that is a truly universal allowance—not a partial one—and allowing a year for year debt write-off for people who stay in the country and still have loans outstanding.

Meanwhile, we enthusiastically welcome any moves in the right direction. Students should not be forced to borrow to live, any more than beneficiaries should be forced to borrow to live. We also believe that high-quality tertiary education is a public good, not a private property right. Those complaining about the potential costs of interest-free student loans are wrongly assuming that our young people will act like property speculators. National seems to be saying that if students are offered interest-free loans, they will all borrow the maximum amount in order to make a profit from the State. This assertion is completely out of step with reality. The vast majority of students borrow money because they have no choice if they want to pay their course fees and study, and if they want to meet their basic living costs while studying. In 1999 when Labour and the Green Party made student loans interest-free for the period of study, National predicted that all students would rush out and get loans, yet the pick-up rate barely moved. A recent study by the Educational Policy Institute found that New Zealand’s student loan interest rate of 7 percent is higher than any other comparable OECD country. Our graduates are paying one of the highest student loan interest rates in the world.

For all these reasons the Green Party is therefore delighted that scrapping student loan interest, as laid out here today, will wipe years off the repayment schedule of many loans, and will save an average of $4,000 in interest payments per graduate. I imagine there will be some complaints of unfairness from graduates now living and working overseas, as two of my own graduate offspring currently do. However, I think it is fine to have a scheme that offers such a great incentive to our young people to come home and bring their New Zealand education and overseas experience back with them to enrich our society and our economy. Our support for this part of the bill rests on our commitment to a tertiary education system that is accessible to all, and that, through that accessibility, can manifestly benefit the country as a whole, not just students and graduates as individuals. I hope that before too long the Green Party will be part of a Government that is foresighted and courageous enough to get rid of the whole foolish student loan scheme, altogether.

TARIANA TURIA (Co-Leader—Māori Party) Link to this

Tēnā koutou katoa. I rise on behalf of the Māori Party to speak to the Taxation (Annual Rates and Urgent Measures) Bill. We support this bill in light of the commitment to a full interest write-off for student loan scheme borrowers. We also support the expansion of the Working for Families package in the bill, despite many concerns.

We do, however, have very serious reservations regarding the need to respond to the most vulnerable—the poorest families and, in particular, the tamariki who are severely affected by the trauma of poverty. Our party supports the introduction of a full interest write-off for student loan scheme borrowers. We have consistently argued the need to respond to the huge number of past, current, and future tertiary students with loan debt. We believe that the $8 billion student debt is a huge barrier to learning for the next generation. If we are serious about supporting our rangatahi towards making a successful transition to parenthood, homeownership, financial security, and community-mindedness, we need to demonstrate the willingness of the State to invest in education as a public good.

In particular, our concerns are with the fact that Māori student debt is escalating at a greater rate than non-Māori student debt. This is due to a number of factors: a greater proportion of Māori are undertaking tertiary education—more than any other group; and a greater proportion of Māori students take out a loan, reflecting socio-economics. Māori also earn significantly less than non-Māori after graduation—because of this, repayment times for Māori are significantly longer, and with accumulated interest they pay significantly more than non-Māori for their education.

Although the interest-free loan scheme legislation will alter things and is a significant step in reducing the student debt crisis, the fact still remains that more Māori will hold a debt and they will take longer to pay it back because they will earn less. Debt limits the ability to get credit for some of those things that we consider necessary to enable us to participate as citizens within Aotearoa—things such as a warm, secure home. We support this bill being passed through as quickly as possible in order to ensure that students receive the vital support they require as soon as possible. It is my firm belief that education should be free and should be seen as an investment not only in our future but in the future of this country.

I turn now to the expansion of the Working for Families package. The Māori Party is very pleased that the bill introduces additional targeted tax relief to 160,000 working families. Although the size of the tax reduction will differ for different families, it will average around $50 a week, and there is no doubt that that will make a difference.

Our concern, however, is for the many families, and the children therein, who will not receive the benefits of that package. The Māori Party recognises some very serious reservations in the effectiveness of this bill to offer relief to those who most need it—benefit-dependent families. The Working for Families package has targeted relief for those engaged in either part-time or full-time paid work. What this means, in effect, is that the expansion offers nothing to the 250,000 poorest children in Aotearoa. That is despite the Prime Minister’s statement yesterday that addressing child poverty should be a high priority for this Parliament. I am sure that the issue of child poverty will be of particular interest to the UN special rapporteur on the situation of human rights and fundamental freedoms of indigenous peoples in his visit to New Zealand this week.

We know that more than one in five children live in low-income families, which is nearly twice the level of the late 1980s. If we were to see real child poverty addressed, the Māori Party would expect to see a number of specific strategies in place. The strategies that we present include establishing a poverty line in Aotearoa and monitoring it with living standards assessments each year, setting agreement on specific target dates to reduce child poverty, and reviewing the child tax credit to ensure that children of parents whose income includes benefit assistance are also supported within the Working for Families package.

The poor are not responsible for being in poverty. They did not create the conditions in which they find themselves today. We need to consider that today’s political solution is an attempt to correct yesterday’s political solution, which was, in fact, a failure but was at the time claimed to be the mother of all solutions. It is an indictment on both Labour and National Governments that, besides inflationary adjustments, core benefit levels have not changed since 1991.

Our preference would have been for lower taxes for those families. We cannot understand why taxes are taken from a low-wage worker and then given back to them under another name. That creates the perception that this is a benevolent Government. This Government wants to present itself as caring for the working person, yet it does not want to care for our poverty-trapped children of beneficiaries. All this package does is continue to entrap workers in welfare, rather than give workers a sense of pride in saying: “We earned this money.” The Government’s redistributing of the tax denies the initiative, entrepreneurship, and creativity that should be rewarded by a higher working pay. Those who have only just escaped are actually being re-entangled back into the welfare net, just as our old people use the hīnaki to entrap a slippery, slimy eel. Should not the focus be on helping people out of the net, as opposed to what is currently being done, which is trapping them back into that net?

This whole package is designed to force beneficiaries to become the working poor—to join their many kith and kin, whom my former colleague Parekura Horomia, in referring to our people, frequently says are the working poor. He knows that well, because the wall of wood that was supposed to descend from the East Coast is actually a barrier to forestry workers earning a decent living wage while employed in a highly dangerous occupation. Their level of remuneration does not reflect the danger of the work they do, and the Minister of Māori Affairs knows that.

This is a war that is being waged on the poor. What hope is this Government offering to those who are more than willing to give a decent day’s work for a decent day’s pay? How will this Government explain to the many workers in this country that if they work hard they will be able to enjoy the fruits of their labour, when we all know that many people have worked hard? As my colleague and co-leader, Pita Sharples, stated in his maiden speech, many of the hard-working people in his electorate can never afford a home in Kohimārama. How do we explain that away?

Finally, the Māori Party will support the Taxation (Annual Rates and Urgent Measures) Bill going through to the select committee, where we hope that many of these issues raised today will be discussed in more depth.

GORDON COPELAND (United Future) Link to this

Pursuant to the confidence and supply agreement with the Labour Party, United Future will be voting in favour of this bill. Notwithstanding that reality, when it comes to the issue of the removal of student loan interest post-graduation for those who remain in New Zealand, our own policy position differs greatly from that of the Labour Party. We believe that a policy that would write off 10 percent of the principal of a student’s loan for each year he or she remains in New Zealand post-graduation would better incentivise debt repayment and avoid the obvious moral hazard of Labour’s policy. However, we live in a democracy and, as the saying goes, the people have spoken. By a narrow margin we have a Labour-led Government through the last election.

Our approach to the provision of an adequate income for families with children also differs from the extension of the Working for Families package as it is proposed in this bill. Having said that, however, I say an adequate income for such families is also a high policy priority for United Future. I think that any civilised country, particularly one such as New Zealand with a history of social justice, needs to give—

RODNEY HIDE (Leader—ACT) Link to this

I rise on behalf of the ACT party to oppose the Taxation (Annual Rates and Urgent Measures) Bill. I was very heartened to hear from Brian Donnelly, because one of the things that has happened with New Zealand First is that part of its—what is it called, I ask Mr Brown—

Hon DAVID BENSON-POPE (Minister for Social Development and Employment) Link to this

It is great to have the opportunity to speak in this debate, and it is great to be part of a Government that is delivering on its promises. We gave these undertakings to the electorate just a few weeks ago, and already we have in the House legislation to deliver on those undertakings and commitments to our community.

This bill represents the biggest investment in families made by any Government in decades, and it will have a dramatic effect on child poverty in this country. The widening of the scheme was promised as part of our election campaign and means that almost all families earning up to $70,000 will qualify for extra support. We are committed to the belief that the top priority for tax relief right now is for our hard-working families. They face the extra costs associated with raising children, and the well-being of the next generation should be of vital concern to all in this country.

As the people of New Zealand have known for the past 6 years, they can trust Labour to deliver on its campaign commitments—and deliver fast. Members can compare that with National, which rolled over on every single campaign pledge it made, as it tried desperately and fruitlessly to form a Government. Dr Brash turned out to be just another used car salesman in a cheap suit. Ōrewa was gone, the Māori seats were fine, and the hypocrisy that that party and its policy displayed, continued. As the Prime Minister noted yesterday, what distinguishes centre-left Governments from those of the right is a determination to see the benefits of our growing economy reach households and families across the land.

The extension of the Working for Families scheme will see an extra 60,000 families eligible for relief, increasing the number of families helped by the Working for Families package to 350,000. We are putting more money in the pockets of New Zealand’s low and middle income families with children, and making work pay for parents who move off benefits and into work. Significantly, the extension of Working for Families sees substantial income gains for middle-income families and greater income support for working families. Combined with the existing package it will reach a total of 348,000 families from 1 April.

RODNEY HIDE (Leader—ACT) Link to this

I raise a point of order, Madam Speaker. I know that the Labour Party does not take Māori seriously, but it is a convention in this House that members try to pronounce people’s names appropriately. I think that Mr Benson-Pope should be pulled up for the way he pronounced Tau Henare’s name.

The ASSISTANT SPEAKER (Ann Hartley) Link to this

The member knows that is not a point of order.

RODNEY HIDE (Leader—ACT) Link to this

I raise a point of order, Madam Speaker. Could you please explain why members in the previous Parliament were constantly pulled up for mispronouncing surnames in this House, yet when Mr David Benson-Pope does it in respect of my colleague Tau Henare it is suddenly OK, and even raising the matter is not a point of order.

The ASSISTANT SPEAKER (Ann Hartley) Link to this

I have already told the member that that is not a point of order. [ Interruption] The member is interrupting me while I am ruling on the point of order. If there is a deliberate failure to address a member properly, then, yes, that would be something. But that is not the case in this instance. It is not up to the Speaker to correct the mispronunciation of a member’s name. The member will now leave the Chamber.

Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this

It is not often that even this Labour Government introduces into Parliament legislation that I totally oppose every part of. Usually, in taxation legislation, there is something we can support, but I totally oppose every part of this bill. I shall tell the junior Government whip, who is trying to interject, why that is. This Labour Government—

Hon DAVID CARTER (National) Link to this

I certainly join with my National Party colleagues in opposing the Taxation (Annual Rates and Urgent Measures) Bill. Is it any wonder that in the first few days of this Parliament, the very first piece of legislation the Labour Government introduces is a taxation bill in order to grab more money off hard-working New Zealanders? Here we are debating a taxation bill within the first few days of Parliament, because Dr Cullen wants not only to accept an $8 billion surplus but to see whether he can do better than that.

First of all, I will address the issue of the incorporation into this legislation of interest-free loans to students. I agree with what Lockwood Smith said. That policy was the most blatant election bribe I have ever seen in the time I have studied politics. I remember the pledge card of 1999—with Helen Clark’s dollied-up photograph—which stated that the Government would address the issue of student loans. At that stage, student debt was $4 billion. In order to address the quantum of student debt in this country, Dr Cullen and his cohorts came up with a mechanism to make loans to students interest-free while they study. Well, surprise, surprise, student debt did not come down; it finished the last parliamentary term at over $6 billion. Helen Clark pledged to address student debt, yet it has gone up by over 50 percent. Because the election was suddenly looking pretty tight and Labour needed to do something very, very desperate, it advanced a policy to make all student loans interest-free. We are told by Treasury that the quantum of student debt in the next few years will peak at $18 billion. That is because of Helen Clark and Michael Cullen, who promised to address student debt.

I also want to talk about the costings. Dr Cullen came into the House today and said that Treasury has re-costed the policy at $202 million. Yet I listened with interest to John Key, who said that income from interest on student debt is currently around $360 million. In other words, I have no faith at all in the figure of $202 million that Dr Cullen introduced into the House tonight. I suggest that if that is not a Treasury burp, it is probably a Michael Cullen burp. The reason the costing will exceed that figure considerably is that Dr Cullen seems to fail to realise that students will now borrow to the max. Why would they not? If they have the intelligence to involve themselves in tertiary education, they surely have the intelligence to take up a student loan to the absolute maximum quantum available to them. If they do not need it, they can stick it in the bank and earn bank interest rates. That is another reason why, under this policy, student debt will extend extensively, to at least $18 billion.

The other thing in this legislation that I will talk about is Dr Cullen’s attempt tonight to confirm the annual taxation rates for the 2005-06 year. He has an $8 billion Budget surplus and is continuing to tax what he calls wealthy New Zealanders—those earning over $60,000 per year—at a rate of 39c in the dollar. We know that Labour introduced that “envy tax” after the 1999 election, and we know it will stick with it. But let us look at the parties that we think will support this legislation being referred to the select committee and, following that, through its readings in this Chamber.

During the election campaign, New Zealand First campaigned around the country for lower taxes. Somebody suggested today that New Zealand First campaigned for a company tax rate of 20c in the dollar. For a small bauble of power, New Zealand First has sold its principles completely, and will now vote for the continuation of a company tax rate of 33c in the dollar. New Zealand First is not the only party that will do that. United Future candidates argued all around the country that the country is overtaxed and that they would make sure they delivered lower taxes to New Zealanders. Do the United Future members look as though they will vote for this legislation to go to the select committee? Yes, again, they do.

That is what happens when an election campaign becomes as tight as the last one was. Dr Cullen got into a situation that gave him a hell of a fright. If we go back to the start of this calendar year, we see that the members of the press gallery, one and all, were saying that the election could not be lost by the Labour Party, because the economy was so strong. But Dr Cullen personally underestimated the strength of ill feeling among New Zealanders who know that they are completely overtaxed. Suddenly, as the polls became tighter and tighter, the student loan policy came out. Then, at the end of the day, Labour could not form a Government without giving the bauble of power—only one bauble—to Winston Peters. Doug Woolerton missed out. Ron Mark would have been a superb Minister of Police. He deserved to have the title “Honourable” added to his name, but he did not get anything. Winston Peters took the lot, and sold the New Zealand First members down the drain.

There is one small piece of this legislation that I want to agree with and acknowledge tonight. The matter is on Supplementary Order Paper 1, which Dr Cullen has put before the House very late in the piece. It will change the taxation laws in New Zealand in order to allow New Zealand wine producers to also collect the rebate that was announced by the Australian Government in a previous Budget. The Australian Government, for reasons known only to itself, determined that a tax rebate would be made available to wine producers in Australia for produce sold in Australia. That was a complete breach of CER, and the Government was not prepared to do anything about it until the Wine Institute, supported by the National Party, raised it as a serious issue. Very belatedly, the Minister for Trade Negotiations, the Hon Jim Sutton—[Interruption] He was the Minister at that stage, and he still is the Minister for another month or two as he speeds around the country. Dr Cullen then managed to raise the issue sensibly with the Australian Government, and what we see is the Supplementary Order Paper tonight. When enacted into law, it will change the taxation law sufficiently so that the Inland Revenue Department can monitor that situation and make that rebate available to New Zealand wine producers who produce wine here in New Zealand and market it for consumption in Australia.

Those are the only couple of pages in the whole of this legislation that are worth anything at all. The rest, the fact that taxation rates delivering an $8 billion surplus continue to be raised in this country, is an outrage. Well-qualified, talented New Zealanders continue to leave this country in droves, because suddenly it is a lot easier to make progress in Australia. Dr Cullen is going to continue that process, unless he is prepared to investigate and reduce taxes. He can appear on television on Close Up and waffle all he likes about the Treasury report; New Zealanders now know the truth about the taxation situation in New Zealand. They know that New Zealanders are heavily overtaxed, and that we will continue to see qualified, talented young people leave this country unless the Government is prepared to do something about that.

Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this

I move, That the Taxation (Annual Rates and Urgent Measures) Bill be referred to the Finance and Expenditure Committee referred to Finance and Expenditure Committee