Hon CLAYTON COSGROVE (Labour—Waimakariri) Link to this
That speech by the chair of the Finance and Expenditure Committee, Mr Foss, was—
Nicky WagnerHon CLAYTON COSGROVE Link to this
No, it was not fantastic; it was insightful because of what it said and what it did not say. That member started his speech by talking about this Budget and the Taxation (Budget Measures) Bill being fair and equitable. Let us examine what this bill does. My colleague David Cunliffe said a person on the average wage, after we factor in the increased GST and inflation at 5.9 percent, will be $30 a week worse off than at present. A millionaire earning $1 million a year will be $1,000 a week better off. Now, I do not know how Mr Foss, in his little world, explains and defines fairness and equity, but in my world that is not fair, is not equitable, and is not right.
A person on the average wage apparently—Mr Key said this to every New Zealander, and there are many people who are worse off today—should not be jealous of the guys on the top of the heap, the super-wealthy. They should not look up at the super-wealthy and be jealous. Well, Kiwis, in my view, are not generally jealous creatures. They will not be jealous; they will feel let down, angry, and disappointed. I wonder what people on the average wage will think tonight about being $30 a week worse off because, at the hands of that crew and its mismanagement of the economy, we are about to see some of the worst inflation that we have experienced and the increase in GST. Will people hang on the words of Mr Foss, who says this is fair and equitable, when they realise that if they were earning a million bucks a year they would get $1,000 a week back? I wonder what Mr Foss, on the campaign stump, will say to those people in his constituency, or where he resides, who are on the average wage. They will come to his office and say to him that they do not think it is fair or equitable that they are 30 bucks a week worse off because of his mismanagement of inflation and his GST hike. What will he say to them? Silence—silence is deafening. What will he say to them? He will not have an answer, because he knows—and if he does not know, there is a word that I will not use, but it is the word for what he is—that this is not fair and is not equitable. He knows that this is not fair and is not equitable.
When we look at this Budget, we can see what we get. We get inflation going up by 5.9 percent. We get debt skyrocketing. If we look at page—
Hon CLAYTON COSGROVE Link to this
Oh, hang on; the squawk-boxes are going over there. Well, I invite those members to look at page 30 of volume B.2 and B.3 of the Budget documents. The report states: “Financing new and maturing debt will require the Government to borrow around $240 million every week over the next three years.”
Hon CLAYTON COSGROVE Link to this
Hang on; is there a squawk over there? I say to Amy Adams that she should look at page 30. Then the report states: “Debt is projected to reach $68 billion”—that is, billion with a “b”, for the benefit of the uninformed over there—“by 2014/15.” If we look at the next sentence, we see that it is a cracker: “This substantial rise in debt will mean that interest costs more than double.” So inflation is going up, debt is going up, and interest is going up. What effect will that have on the average Kiwi?
If we turn over to page 40 of the same document, and look at “Figure 2—Finance costs”, we see that the financing costs, the interest on that massive debt, will not even start to decline until about 2021. So we know—
Hon CLAYTON COSGROVE Link to this
I invite the member to read her own Budget documents, because that is what they say. Debt will be going up, inflation will be going up, and interest costs will be massively exploding, which will effectively mortgage our kids’ future. What is fair and equitable about that, of course, is that the person on the average wage will be 30 bucks a week worse off, but a millionaire, someone who earns a million bucks a year, will get back a thousand bucks a week.
So I ask the members opposite to explain their definition of fairness and equity today. I ask them to tell us in the coming days, and in the coming hours of this debate, how it is possible for people on the average wage to feel that they have been treated fairly or equitably, when they are 30 bucks a week worse off, which is what the documents show. I would like Government members to explain how they will justify that to average New Zealanders.
It was said—I think in Muldoon’s time, when we had an explosion in inflation —that the biggest thief taking money from our wage pocket was inflation. The biggest thief taking money from the pockets of working men and women was, at that time, said to be the spectre of inflation. Now inflation is projected to go to 6 percent. So interest is going up, debt is going up, inflation is going up, and the average Joe in the street will be worse off. I would like those members—
Hon CLAYTON COSGROVE Link to this
Nicky Wagner says no, and shakes her head. I doubt whether she has got past the contents page of most of the Budget documents, but I give her an invitation. I know that members on this side of the House are quite happy to go out to their constituencies, have a group of average New Zealanders on the average wage come in, and debate the Budget with the National crew. Let us have a meeting about it. Let us get the responses of people who are on the average wage to the Budget, in a hall anywhere in this country—in Ōtaki, in Dunedin, in Rimutaka, or in Auckland. Let us get a group of them together in a room, and ask them whether they feel they have been dealt to fairly and equitably by that crew over there.
Phil TwyfordHon CLAYTON COSGROVE Link to this
They have been dealt to, my colleague said—absolutely; they have been dealt to.
The only rooms that the members opposite, the National crew, will be happy and comfortable in are the cabins of the yachts parked in the Viaduct Basin harbour, which belong to the people who will be a thousand bucks a week better off. I can see Gerry Brownlee in the galley, with his mates who are on a million bucks a year. They will be congratulating Mr Brownlee and saying how wonderful it is that he is giving a thousand dollars a week back to them. But we will not see Gerry Brownlee at the food bank—well, we might, but for different reasons—talking with ordinary New Zealanders. The food banks in my electorate and around this country are chocker, but we will not see Gerry Brownlee and Bill English at the Salvation Army, at Presbyterian Support, or at the Methodist Central Mission, as people rock up day after day, trying to make—[Interruption] “Evidence”, Mr Bennett says. He wants to be given evidence. Well, I invite him to come to Kaiapoi and visit Kaiapoi Community Services—old “Cue-ball” in the back row over there—where I will introduce him to some of the lost and lonely people in my electorate. I will introduce him to them, and they will be very happy to sit down with that member, Mr Bennett, and explain to him how life goes for people who are on the bottom of the heap.
It might be instructive for Mr Bennett to actually meet somebody who is scratching for it. It might be instructive for Mr Bennett to meet a couple of constituents in my electorate, one of whom is a builder who lost his job. His wife is in two part-time jobs. They have a vegetable garden and grow produce that is better than that of Turners and Growers. They preserve that produce, freeze it, and do everything else that they can to make ends meet. They have a couple of kids. But that family cannot make it, and their mortgage may well be foreclosed. I can tell members that after the Budget today, that family of four will not be any better off. They will not feel that they have been treated fairly. They will not feel that the veil has been lifted from politics in New Zealand, that there has suddenly been a redistribution of wealth, and that they will be looked after. Oh, no!
Hon CLAYTON COSGROVE Link to this
So if Mr Bennett and the other member over there whose name I cannot remember want to come to my electorate and meet some of the lost and lonely people—those who live on income that is below the average wage—let alone the people on the average wage, who will be $30 a week worse off, then I am quite happy to take them around. But they just squawk over there.
I am sure that Kate Wilkinson, a Cabinet Minister who resides in my electorate, would not know a poor person if she fell over one. I wonder whether she is prepared to have a public meeting with a group of people on the average wage, and to front up and explain to them that she is a Cabinet Minister, and that she sat in Cabinet and voted for this package. I wonder whether she is prepared to say that she sold out Waimakariri and the rest of New Zealand, and that she did not oppose a thing. I wonder whether she will tell that to the people on the average wage, or whether she will swan around the various public houses and clubs in New Zealand where those members over there enjoy the finer things of life. She will feel very comfortable in those places, I am sure, because she will not be challenged there; she will be congratulated.
I say to Government members that they should have a good look in the dictionary and see what “fairness” and “equity” mean. They should go and talk to a few ordinary people who are scratching for that now. They should not go and talk in the fashion-ways of Christchurch—no, no—but should go and talk to some ordinary people, and ask them whether they feel equitably and fairly treated today. Those members should ask ordinary people whether they feel ambitious for New Zealand or inspired by this Budget. Oh, no! They feel let down, angry, and disappointed.
Dr RUSSEL NORMAN (Co-Leader—Green) Link to this
I stand to speak on the first reading of the Taxation (Budget Measures) Bill. This bill is part of the Government’s overall Budget package, and part of the Government’s overall fiscal strategy. I said earlier today, in reference to the Budget, that in many ways this Budget is a triple-deficit Budget. It runs a fiscal deficit, it adds to the social deficit, and it adds to the environmental deficit. I appreciate that the Government inherited some deficits; there is no question about it. It inherited a fiscal deficit, and with this Budget it is making it worse. It inherited a social deficit, and with this Budget it is making it worse; and it inherited an environmental deficit, and with this Budget and this bill, the Government is making it worse. But it is worth examining some of the particular measures that are being proposed in this combination of tax changes.
I think that when the Minister of Finance said we should look at the tax changes as a whole, he has a point. We should look at the tax changes as a whole. When we look at the impact of the income tax changes, which lower the tax rates very significantly, and combine that impact with the impact of a GST change, we see that the two tax changes together are doubly regressive. When the two elements of them are incorporated—one of which lowers the top tax rates and the other of which increases GST—we get a doubly regressive tax policy, and the tax changes announced in this bill will be doubly regressive for that reason.
We know that GST is a regressive tax, because those on the bottom decile spend about 14 percent of their incomes on GST, whereas those at the top spend about 4 percent. So GST acts as a regressive tax because it punishes the poor more than the rich. At the same time we know that the changes to income tax will make the tax scale flatter and not as progressive as it currently is. So when we combine the two elements together—the changes to GST and the changes to income tax—we end up with a more regressive tax system.
That might not be the worst thing in the world, if New Zealand did not already start from a position of being one of the most unequal countries in the whole OECD. If we started from a position of massive equity, from a very flat income scale, then it would not necessarily be a big deal that we flatten the progressivity of the tax system, and that we increase GST. It would be a problem, but it would not be a big deal. But when our starting point is that New Zealand is one of the most grossly unequal countries within all of the advanced industrialised countries on the planet, it does not make any sense to introduce a combined tax package that, put together, is highly regressive. It is hard to fathom why a Government that is governing a country that is already grossly unequal would introduce a package that increases inequality.
It is important to understand just how grossly unequal our country is. For example, we know that the top 50 percent of income earners earn 84 percent of all the income, and the bottom half of income earners earn 16 percent of all the income. Eighty-four percent of all income goes to the top half, and 16 percent of all income goes to the bottom half. When we look at those numbers, we get a sense of how out of touch the people in this Chamber are. Almost all the people in this Chamber are paid well above the average wage. They have no idea that half of the country earns 16 percent of the income. How else could we pass a tax package that adds to inequality? How could we possibly pass that tax package, which National, ACT, and the Māori Party are proposing to do today? How could those three parties support a tax package that will increase inequality in New Zealand, when we already start from a position of being one of the most grossly unequal countries in the OECD? Why would we add to that inequality?
One of the justifications the Government gives is that it will increase GDP growth. The Green Party is a bit sceptical about GDP growth. We recognise that we live on a finite planet, and we cannot continue to grow the use of resources and the use of pollution when we live on a finite planet. There is that small issue that there is only one planet, which pretty much every other party in the House struggles to come to terms with. Let us put that to one side, in order to just indulge the Government’s argument that it will grow GDP.
We know that in 1986, the last time there were very significant tax cuts, the New Zealand economy, in terms of GDP per capita, absolutely flat-lined. It flat-lined straight after the biggest tax cut package this country has ever seen. It was a huge cut. We cut it from I think 66 percent down to 33 percent, or something like that. We went from a very high percentage, down to 33 percent. That was during Labour’s term, when Roger Douglas introduced the package. I know that colleagues in the Labour Party do not agree with that any more, and recognise the wrongs of their ways back then when Roger Douglas was in charge. What happened after Labour cut the taxes so significantly? GDP flat-lined; it absolutely flat-lined. That was the impact. I am not saying there is cause and effect, because there are so many more complicated factors—the relationship between GDP change and income tax rates is very complicated—but we certainly cannot walk away from that and say that if we cut personal income tax rates, it results in an increase in GDP, because the exact opposite happened.
Of course the other thing that happened in 2000 was that we increased tax rates. The top tax rate went from 33 percent to 39 percent, and what happened? Did the economy, in terms of GDP, flat-line? No, it grew. We had the situation that after the increase in income tax rates the economy grew, and after the drop in income tax rates, overseen by Roger Douglas, who is sitting to my left, the economy flat-lined. The evidence is compellingly against the argument that the Government is putting forward.
The second argument that is put forward is the one around tax avoidance. That is a really interesting argument. The tax avoidance argument says that there are all these people who are using the loopholes in the tax system to avoid tax. Did it never occur to the Government that maybe it should close the loopholes? If there are loopholes in the tax system, maybe the Government should close the loopholes. Let us take the example of people avoiding other laws, such as the laws around shoplifting. If a whole bunch of people are coming into a shop and shoplifting all the time, does the proprietor say: “Well, that’s a bit of problem. What we need to do is to drop all the prices and put a fixed charge on everyone who comes into the shop, in order to cover the difference.”? Instead of saying we will enforce the rules against shoplifting, the opposite is that we say no, obviously our prices are too high so we will cut the top prices, and because there will be less income, every person now coming into the shop will have to pay a little fee at the door. That is effectively what the Government is doing. That is the Government’s argument around tax avoidance. The Government’s argument is that there are people avoiding the tax, so what it needs to do is to cut the top tax rate, rather than enforce the rules. There was another option here. The Government—the National Party, the ACT Party, and the Māori Party—had an option other than making our tax system more regressive. The option was to enforce the tax rules as they currently exist. That is an option the Government has chosen not to take.
I would like to talk briefly about the property tax changes. The Green Party obviously has been a supporter of trying to direct a lot of our savings away from investment property, because we have had a speculative boom in investment property. The obvious solution to it is a capital gains tax, excluding the family home—we all know that—even though the Government does not have the political courage to do what it knows should be done. There are two parts to the problem with the way the Government has addressed investment property. It is far too weak and will not have the effect we are talking about. David Cunliffe said earlier that loss attributing qualifying companies will be only marginally affected. The other part is that to the extent it puts an impact on rent—and to the extent that it is effective, it will have some upward pressure on rent prices—what we have to do is make sure there is a supply of affordable rental properties to account for that.
The Green Party has a programme, for example, of massively increasing the number of affordable State houses so that we can deal with the fact that the Government is putting upward pressure on rents, which is what this package will do, and make sure that there is more affordable housing available through State housing, through non-governmental organisation housing, and through council housing. Unfortunately, in this Budget the Government has slashed to almost zero the amount of money that is going towards new State housing. At the time that the Government is proposing to put upward pressure on rents, it has cut all new building of, or acquiring of, affordable State rental housing. That is just damn wrong. The Government cannot do that. At the one time that upward pressure is going to be put on people’s rental prices, to the extent that the Government’s changes in property will do that, we should make sure that affordable rental properties are available. This Budget is inequitable. It leaves a social deficit, an environmental deficit, and a fiscal deficit, and this bill is part of the problem.
Hon Sir ROGER DOUGLAS (ACT) Link to this
I have recently been reported in the newspapers as giving National three out of 10 for this Budget.
Hon Sir ROGER DOUGLAS Link to this
Well, it is slightly tough, I think, but in fact it was not quite what I said. I said that this Budget was being prepared against three trends. The first trend was the fact that New Zealand, relative to other countries, had been in decline for 40 years, and I gave the Government three out of 10 in terms of whether I felt it would make the changes that were necessary. The changes that I felt were necessary were very low taxes—and the Government has gone some way towards that—and the need to introduce competition and private enterprise into the areas of health, welfare, and education. I knew that would not happen, so I gave the Government three out of 10.
I said, on the expenditure front, that, frankly, for 13 years successive Governments have spent way above the rate of inflation. I thought that probably the Government would get a score of six or maybe even seven. I have had to revise that score down to five, I am afraid. But on the other hand, in terms of the Government’s tax proposals, I said that I thought the Government would get maybe four or five, and I would certainly revise that up to six or seven. Just what it is overall, whether it is 3½ or four, I am not sure. Maybe on Tuesday, when I speak in the Budget debate, I will make that decision.
If I look at this particular tax bill, and at what is in it, I would say that there are some good measures. But I think it could have been improved considerably from where it is. I will touch on where I believe it could have been improved.
The first point I will make is that I do not believe there was any necessity whatsoever to increase GST. I believe that it was possible to have reduced Government expenditure by at least the net amount of revenue that GST will bring after compensating superannuitants and welfare beneficiaries. I say that for a number of reasons, and I will give some examples. First of all, in a paper that I put out the other day, I identified about $3 billion worth of possible expenditure savings, which is double what GST net will bring in. If I look at this particular Budget and at items of what I would call corporate welfare—handouts to various businesses, organisations, and the like—I can see that that comes to about $2.6 billion, and I am sure that over the weekend I will find other costs that will take it to over $3 billion. So handouts to corporates, subsidies for this and that, the emissions trading scheme, etc., come to over $3 billion. Again, that is double what will come in, in terms of the net return from GST.
The next point I will make is that if I look at page 15 of the Minister’s executive summary in the Budget documents—and this is why I marked the Government down from seven to five—I see that Government expenditure this year, rather than flat-lining as I thought it would, has actually increased by 9 percent. It has gone up from $64.79 billion to over $70 billion. It has increased by just over 9 percent. I accept, and I think it is being fair to the Government to say, that almost 2 percent of that 9 percent increase is compensation for the GST increase, but even allowing for that the increase in Government expenditure in this Budget is 3½ times the current rate of inflation. I have to say that this country cannot continue to increase Government expenditure at 3½ times the rate of inflation. At some point in time, that has to stop. It has been going on for 13 years. We had a Labour Government that simply did not care and got us in a hell of a mess, and we need to stop that. That is the first point I would make. I do not believe that GST needed to go up from 12.5 percent to 15 percent.
What were the other parts of the tax package that I personally do not really agree with? I would not have reduced the 12.5 percent rate down to 10.5 percent on the first $14,000 of income. The thing that impacts on people’s behaviour is the rate they pay at the margins—what they earn on their extra few hours of overtime. The rate that is paid is what determines whether a person will do overtime; that final rate is what determines whether people will invest, etc. We know that those people who earn under $14,000 actually come from the wealthy families of this country, so when we reduce the tax rate from 12.5 percent to 10.5 percent we are not in fact helping the low-income earner; we are helping the more affluent—the person who is able to income split, etc. I remember that vividly from the time I tried to put in a flat tax rate of 23c, and we were concerned about lifting everyone from 15c to 23c. The fact was that 90 percent of the people who were paying simply the 15 percent came from wealthy families. They were the wives, husbands, or children of people who were earning high incomes. Their families had high incomes. So I would not have done that.
The other thing that I would have tried to do—and I really do not understand why the Government did not do it—was to align tax rates. I believe that the Government should have aligned the various rates, whether of personal income tax, corporate tax, or tax on trusts, at a rate of 30c, and then, maybe next year, it should move the rate down to 29c, and move it in the following year to 28c. But at some point in time it is important that the corporate and the top personal income tax rates are aligned, otherwise we are simply encouraging people to try to dodge tax payments.
AMY ADAMS (National—Selwyn) Link to this
I am delighted to have the chance to stand here on Budget day and speak to the Taxation (Budget Measures) Bill. Today Bill English delivered a Budget that will move our economy from the sluggish, underperforming, unbalanced, debt-driven, and consumption-focused economy that the previous Government encouraged and presided over. It sat by with its head in the sand for 9 years while our productive sector went down the toilet. This Budget will move us from that position, where we were consistently living beyond our means, and put us back on the track to becoming an economy focused on growth. That is what this Budget is about. It is about having an economy focused on growth.
Why is growth so important? Well, for the benefit of members in the House who do not seem to grasp it, I say that growth is important because through growth we will see jobs. Growth will create real jobs in this country. Members should not tell me that there is nothing in this Budget about jobs. Growth is what will gives us jobs, and this whole Budget is about delivering growth to the New Zealand economy. It will give us not only jobs—and not just jobs in the public sector, but real jobs in the productive economy—but better incomes and a higher standard of living. That is what we in the National-led Government want for this country, and that is what this Budget is moving us towards achieving.
Let us look at some of the projections that we have heard today. They are stunning—they are stunning. We have 3 percent projected growth every year for the next 4 years. That is a staggering turn-round for this economy, and it is a mark of the success of John Key and this National-led Government. Growth of 3 percent every year for the next 4 years will mean 170,000 new jobs—170,000 new jobs. That is what Treasury is telling us. That is Treasury’s conservative estimate of what that sort of growth means to this economy. Not only that, it also means an average of $7,000 a year of extra income for New Zealand families. That is what I came into Parliament to help deliver, and I am incredibly proud to be part of a Government that has delivered a Budget like the one we have seen today, which will give that sort of growth, that number of new jobs, and that level of lift in income to all New Zealand families.
That growth comes about from a couple of very important aspects of this Budget. It comes about through controlling our national debt. Debt is a massive issue, as Greece and the UK know. It is their No. 1 issue. Let us just remember that without the changes that this Government made in last year’s Budget and in this Budget, by 2020 we would have been looking at net Crown debt of 60 percent of GDP. Now it is projected at that stage to be 20 percent. From 60 percent under Labour’s policies to 20 percent under National’s policies—that is the sort of control that will make a difference in this country.
That growth comes from supporting business. All we have heard today, particularly from the Green Party, is how those members would shut down and kill the productive sector. They do not like farming, they do not like the productive sector; all they want to do is to shut it down. We are about supporting our industry and supporting growth, because that is where jobs will come from. Importantly, in respect of this bill, growth is about getting the incentives right. It is about ensuring that, through our tax system, we say to New Zealanders that we will get behind them if they are going out there to work hard and get ahead. We will not be getting behind the consumptive, debt-driven economy; we will support Kiwis who are trying to work hard and get ahead.
Labour spent most of the afternoon trying to tell us that this Budget is about favouring the rich—talk about last resort of the desperate! Let us look at what is really happening. Two-thirds of all the tax cuts delivered in today’s Budget will go to reducing the bottom two income tax brackets. Two-thirds of everything will go to the bottom two income tax brackets. After the passage of this bill, 73 percent of New Zealanders will face a top tax rate of no more than 17.5 percent. Nearly three-quarters of all New Zealanders will face a tax rate of 17.5 percent or less. Labour is trying to tell us that it is about a few rich pricks at the top; well, it is not. This is about fairness. It is about equity. The only reason that Labour is so angry is that this Budget has left it with nowhere to go. National is delivering to all New Zealanders. We are delivering to low and middle income New Zealanders, and Labour knows it. Labour knows it, the public knows it, and the commentators know it.
Let us took at what the commentators say. Bernard Hickey today reported that “Labour cannot accuse the Government of delivering a budget for the rich because rich property investors and foreign investors will be hit most by this Budget.” He is right. Tracy Watkins commented: “If the holy grail of budgets is that they under promise and over deliver, Finance Minister Bill English can score Budget 2010 as a win. … everyone will be better off.” I encourage anyone listening to this debate not to buy into the histrionics and crocodile tears from across the House, because those who know economics know that this Budget today is delivering a fairer, more equitable tax system and a stronger, growing economy for all New Zealanders, and I am very proud to commend it.
Hon DAVID PARKER (Labour) Link to this
How one values this Budget depends on how much one values one’s word. On this side of the House, members value their word, but this Budget has been built on three broken promises, which the National Party cannot deny. The first promise was that National would not increase GST. John Key was on camera immediately before the election promising that there would be no increase in GST. That is the first broken promise of this Budget. How does one value that? Well, National does not put much value on its word. It lacks integrity. It lacks integrity—
Craig FossI raise a point of order, Mr Speaker. I believe that under the Standing Orders, a member cannot question the integrity of other members in the House. As well as that, I take offence at the accusation made by the member opposite.
Mr DEPUTY SPEAKER Link to this
The Speakers’ rulings are quite clear that one cannot challenge members’ integrity. I am sure that the member will be able to use some other phrase, and I ask him to continue.
Hon Clayton Cosgrove Link to this
I raise a point of order, Mr Speaker. This is not to challenge your ruling, but as I understand it, Mr Parker was talking about the National Party—
How does one value one’s word? I value my word highly. National obviously does not value its word. It promised before the election that it would not increase GST, but this Budget increases GST.
National’s second promise was that it would not increase borrowing for tax cuts. That promise has been broken. The Government’s borrowing has increased as a consequence of the tax cuts in this Budget. That is the second broken promise.
The third broken promise is that National would not cut public services. In particular, it promised explicitly that it would not cut early childhood education—in fact, it would have made it free. What did National do in this Budget? Audrey Young picked up on this issue in her column today. She stated that it will “save about $400 million over four years in abolishing the top two funding rates for early childhood centres”. That means in those cases a decrease in the subsidy that parents get for their children of about $25 per child per week—$25 per child per week. That is the third broken promise.
Amy Adams says that that is not a broken promise. She does not know what a promise is.
The other thing that needs to be said in respect of the changes to income tax is that we know the projection of the rate of inflation as a consequence of these changes is that, next year, inflation will be 5.9 percent. As for the income tax cuts that people will get to compensate them for the increase in GST, all but the most wealthy people will have them eaten up as a consequence of the increase in the prices they will pay when they go to the supermarket. Rather than being some great boon to people, the money will be gobbled up by an increase in their cost of living. Their rents will go up, their supermarket costs will go up, all of their costs will go up.
We heard Amy Adams say that the income tax cuts are being fairly distributed, but 41 percent of the income tax benefits will go to the top 10 percent of income earners—41 percent goes to the people who already earn the most. New Zealand already has low income tax rates for high earners. That is set out in the Tax Working Group paper that was produced on behalf of the Government. It stated: “The current New Zealand top personal tax rate at 38% is not especially high by OECD standards,”. It was already low by OECD standards, and this Government is cutting it further for the top 10 percent of income earners. The top 10 percent of income earners will pick up 41 percent of the decrease in income tax. That is just not fair.
I will say something about the rebalancing of the economy. The Government said that this Budget is all about rebalancing the economy. The Tax Working Group stated that we needed to rebalance the economy away from speculative investment in housing towards the productive sector. Labour agrees with that as an ambition. Until today, we were all expecting that there would be ring-fencing of losses, so that people would not be able to buy some residential property and offset the interest costs on the loss they make on that rental property in order to decrease their personal income overall. What has the Government done? It has backed away from that. One of the disappointments that Bernard Hickey has with this Budget—and he is right—is it does not properly rebalance the economy away from speculative investment in the housing sector. People can still make those investments in the residential property sector, incur a big mortgage cost and offset that against their personal income tax. Rather than closing that loophole, the Government has gone a little bit of the way and said that people cannot deduct depreciation costs on buildings that will last for more than 50 years. That is a fair enough step and I do not criticise that, but the Government has not taken the more important step of ring-fencing those losses.
What has the Government done about catching up with Australia? Well, the answer is nothing. The growth rates in New Zealand projected for the years out are lower than the growth rates predicted in Australia, so the gap continues to grow between New Zealand and Australia. The wage gap between New Zealand and Australia will continue to grow ever bigger, and this Budget does absolutely nothing to reverse that trend.
What has the Government done in terms of encouraging smart business? It has cut the depreciation rates that businesses can claim for investments in high-tech plant and equipment. It has cut depreciation rates, so it is going in exactly the opposite way there.
Fran O’Sullivan wrote a very good column in the New Zealand Herald a couple of weeks ago, I thought, or it might be about a month ago now. She stated that given the high rates of youth unemployment in New Zealand and given our experience last time we had high rates of youth unemployment, particularly Māori and Pacific Island unemployment—and the last time we had that in New Zealand was in the 1990s, under the Bolger Government and then the Shipley Government—a big mistake made then was that we did not spend enough on training, and the people who were on the dole queue ended that period of unemployment without further skills and had got into the habit of sitting on their bums at home. They did not have a work habit. She said that this Budget needed to be judged in terms of what it would do for the training of the large cohort of young people in New Zealand who are currently unemployed. What this Budget does about that is just about nothing. Rather than increasing the amount of funding that is going into training, the Government is setting quotas on the number of people who can go to university. People are being excluded from university, and we do not have an increase in funding for training for those people who, because of the state of the economy and through no fault of their own, are stuck on the dole.
What does this Budget do in terms of debt? It stated that the amount that will be spent on the interest on Government debt goes from $2.5 billion per annum to $5.5 billion per annum. That is a big increase in the amount of our taxes that is being spent on interest.
What it does in terms of the current account deficit is woeful. We heard the Government say that it will rebalance the economy towards exports. What does this Budget show? It shows the current account deficit going up every year from now on—the current account deficit goes up to 7 percent of GDP. How is that proof of rebalancing the economy? It is not. It is proof of a return to a deficit-based economy, so much weighted towards the property sector with not enough exporting. This Budget does not solve that problem. The effect is that by 2014, New Zealand’s total net assets as a country, including both Government and private debt, will rise to negative 100 percent of GDP—100 percent of GDP. Rather than going in the right direction, the deficits from the Government and the lack of movement of the economy towards the productive sector and exports will mean that total net assets will go to negative 100 percent of GDP.
Lastly, I will mention the fact that the position of the Government and the country would have been even worse were it not for the fact that the previous Government reduced debt. Bill English and John Key, every time, said the previous Government should have had tax cuts, not surpluses, but that would have led to more inflation. It would have to led to higher interest rates and to a higher level of debt than the current Government has inherited. New Zealand would have been closer to the position that Greece and Great Britain are in and closer to the position that the National Government under Muldoon left the country in, with debt at 80 percent of GDP. Instead, we reduced gross debt to 17 percent of GDP and reduced net debt to 0 percent of GDP. This Government has got it going in the other direction.
The Government has not rebalanced the economy. The tax cuts will be eaten up, for all but the most wealthy people, in the extra costs that people face in rent and in inflation on their food costs. But overall, the worst thing about this Budget is that it breaks three promises.
Hon TARIANA TURIA (Co-Leader—Māori Party) Link to this
In Māoridom we say “Te pō uriuri me te ao mārama”, which basically means “In the darkest of dark and the lightest of light”. The general concept is like the Chinese version of the yin and the yang—the need to balance and achieve a sense of equilibrium as we take a steady foot forward. It is with this sense of balance that I stand to speak to the Taxation (Budget Measures) Bill.
The previous speaker, David Parker, talked about the high unemployment rate amongst Māori and Pasifika and the need for more training. Some in the room will remember that in the 1980s, when we had really high unemployment, our people knew what it was like to be on the “training-go-round” through access training, steps programmes, you name it. Did any of those young people get trained in real job skills? No, they did not. Why did they not? The union movement would not allow the kind of skills training that needed to take place for those young people—training that would have given them really employable skills in the workforce—because it was afraid that by training these young people in those skills they would take jobs away from those who were working. It is one thing to get into the whole notion of Māori unemployment and talk about skills training and development, but our young people want training that will get them into the workforce. They want training and education that will give them the opportunity to improve their life chances and their educational opportunities, so that they will not end up always being the last on and the first off in the job market.
I think it is really important that we had 9 years of plenty, yet Māori youth unemployment rates and Pasifika youth unemployment rates were still incredibly high during those years.
Hon TARIANA TURIA Link to this
It is not a load of rubbish. I think it is probably a really good opportunity for those who are shouting at me in the House to go back and look at those figures. Māori youth under 24 years of age had a high unemployment rate in a time of plenty. It is manifestly evident that something is wrong with the state of the nation when we can sit back and think that really a high unemployment rate amongst young Māori people is OK. It is not OK. If we do not have those young people contributing to the economy in the way that they should be, in productive work, we will be in serious trouble with this ageing population, so that needs to happen as quickly as possible.
I will move off that take. Something is wrong when New Zealanders are crowding the property market and feeding their own wealth, yet no new jobs are resulting from it. Something is wrong when our economy is trapped in excessive debt and cycles of long-term borrowing, and business and investment confidence is declining with it. We do not want to pass on this history of unmitigated spending and debt to our young.
We will be supporting this bill in its entirety, as is the expectation of our coalition agreement with National, and in doing so we will seek to promote two particular priorities throughout the passage of the debate. The first is that we want to be sure that new tax rates for companies and savings, the depreciation in capital contributions, the personal tax cuts, and the other tax changes proposed in this bill give confidence to people to invest in businesses, which can then grow and strengthen the economy and give confidence to employers to employ more people.
Hon TARIANA TURIA Link to this
Mr Deputy Speaker, I object to the person across the House making the comment that the Māori Party has sold out. I object in the strongest terms possible.
Mr DEPUTY SPEAKER Link to this
The member has taken offence under Standing Order 116; it is a personal reflection on the member. I ask the member to withdraw that comment and apologise.
Hon Clayton Cosgrove Link to this
I withdraw. I raise a point of order, Mr Deputy Speaker. I think other speakers have ruled on these sorts—
Mr DEPUTY SPEAKER Link to this
I have ruled. The member took offence, and we take her word for that. She was offended by the comment. I have ruled, and that is the end of the matter.
Hon TARIANA TURIA Link to this
The second priority is the vital need to guarantee that poverty will be addressed and that household income, standards of living, and economic performance will indeed be lifted. It is vitally important to us that we do what we can to build our economic recovery and to provide more opportunities for New Zealanders to back themselves. We need incentives in place to strengthen the economy and make a brighter future. But this is not just about the Government tipping the scales to create the balance that we need. This is also about us—about our people and our nation preparing for our future.
If my colleague Rahui Katene were here, she would talk to the House about Whai Rawa. Whai Rawa is designed to provide a base level of savings for all registered Ngāi Tahu to support a culture of savings and asset building to encourage and assist Ngāi Tahu w’ānui to improve their financial situation and knowledge. Whai Rawa is about empowerment and giving Ngāi Tahu the ability to create a better tomorrow for themselves and for their children. It is about rebuilding the savings culture that we once believed in. Māori are phenomenally thrifty people who can make a meal spread to feed a crowd. They know how to make the best of what they have in front of them. But also we are a people who focus on the future for the generations to come. In this sense, although our people did not like the proposal to increase GST, they are also not happy with the concept of leaving our grandchildren burdened by the heavy price of debt.
The Māori Party entered into coalition with National with the explicit focus that we seek significant outcomes in Whānau Ora through eliminating poverty, advocating for social justice, and advancing Māori social, cultural, economic, and community development in the best interests of this nation. These are ideals that we hold true to as much today as we did when we signed up to that agreement. Unlike the two major parties of this Parliament, we are not afraid to say the word “poverty”. Indeed, in our policy manifesto we made the explicit commitment to set a deadline to eliminate child poverty by 2020 and to designate an official poverty line. We will not resile from the challenge of preventing poverty.
In today’s Budget an additional $1 million is being invested in Maara Kai, recognising that community gardens are a key means of encouraging us to live more collectively and to live alongside one another, restoring our families to being the gardeners, the hunters, and the gatherers that they once were. In today’s Budget we also have seen honoured one of our policy goals to raise core benefit levels.
Over the past few months as the policy thinking around this Budget has evolved, all of our MPs have hit the road, taking the challenge of the tax question to our constituency. I have to say that no one in our electorates was pleased about the proposed rise, but there was a general acceptance of the rationale for why we needed to support the tax changes. Primarily this issue is a condition of our coalition agreement, and, to that extent, our constituency told us clearly that they want us to continue to have the influence that we do. But other members can understand the precarious financial position that we are in: the situation that, on average, New Zealanders are spending more than they earn—some 22c more than every dollar we make.
I come back to the notion of “Te pō uriuri me te ao mārama”. We believe in balancing up the scales and making things spread. It is in this light that we support this bill.
DAVID BENNETT (National—Hamilton East) Link to this
I congratulate the Minister of Finance and the Prime Minister today on an excellent Budget. It has been well received by the public and the commentators of New Zealand. It is a Budget that shows leadership in the economic and the political fields that this country has lacked for many years. I bet members that the headlines in the Sydney Morning Herald will read “Why haven’t we got a John Key and a Bill English to take our country forward?” like this country has been taken forward today. People around the world will be looking at New Zealand as an example of how to build a stronger country, of how to create economic management, and of how to have reform in our tax system, which has been long overdue. It seems crazy that in this place Labour, with its position of looking after the downtrodden and those on low incomes, did nothing about property investors for 9 years. They did nothing about that and it came only to us. We had to make that change to taxation, which delivered the right incentives for New Zealanders.
I look forward to the young people of New Zealand knowing that they need to get an education, that they need to work hard, and that the opportunities are there. We will give them the rewards. We will make it worth their while to do the right things in life. That is the signal and the incentive this Budget sets.
I thank our coalition partners, because they see the big picture. They do not see the small petty-mindedness of what one needs to do to win elections; they see that we need to build a stronger people so that we can have a stronger country and that their success will be our success in building that country in the future. We look forward to that. This is a tremendous day for New Zealand. It shows that we can get out of recession quicker than we thought, that we can create tax change that is meaningful and that delivers the future, and that we can look after our public services, and health and education, which need investment. This is a great day for New Zealand, a great day for National, and something that all New Zealanders can be very proud of. Thank you.
STUART NASH (Labour) Link to this
I want to deal with some facts. The Māori Party member Tariana Turia has sold Māori out. Seventy-three percent of the people in that member’s electorate earn under $40,000 a year. If her support for the Budget is not regarded as selling Māori out, then I do not know what would be. That party is about to vote in a Budget that will increase GST from 12.5 percent to 15 percent whilst it has a member’s bill, which was just pulled out of the ballot, that proposes removing GST from healthy food. Now that is hypocrisy, if I have ever heard it.
I withdraw.
Tariana Turia talked about high Māori unemployment. Well, let me tell her about high Māori unemployment. When Labour took over in 1999, the Māori unemployment rate sat at just about 30 percent. The previous Labour Government took it down to a 32-year low of 12 percent. Does the member know what the Māori unemployment is at the moment? It sits at 20 percent—it sits at 20 percent. The previous Labour Government was the first Government to bring down the Māori unemployment rate to a level that was even close to becoming acceptable—in fact, it was not acceptable, at all. Does that member know what this Budget will do? This Budget will be the worst Budget for Māori since the “mother of all Budgets” in 1991. This Budget is a travesty, and for that member to stand up and say it is a wonderful Budget is a complete sell-out of Māori. Seventy-three percent of the people in her electorate earn under $40,000 a year.
Mr Bennett over there talked about the downtrodden corporate property investor. The downtrodden corporate property investor—now that is a strange one. I do not know what sort of electorate he lives in or where his downtrodden people are, but I can tell members that the really downtrodden people in this country will be sitting back and asking how this Budget will help them, when all it delivers is an extra $16 a week, or a mere $5 a week extra to those on the median wage, after the GST hike has been taken into account. I ask members to remember that 50 percent of Kiwis still earn under the median wage. Those people will receive less than an extra $5 a week in the hand, when the Prime Minister will receive $350 a week more in the hand. The chief executive officer of Telecom will receive $1,600 a week more in the hand. That is 100 times more—100 times more—than the increase for a person on the median wage. That does not take into account the inflation rate of nearly 6 percent that this Budget creates. This is not a Labour Party figure; this is not scaremongering. This figure is in the Budget documents. It is the Minister of Finance’s figure, this 6 percent inflation. That is the bogeyman that Mr English does not want to talk about, because he knows that it not only erodes but eradicates the effect of the tax cuts.
Phil Goff, the next Labour Prime Minister and the next Prime Minister of this country, has pointed that out. Mr English informed a horrified National caucus—[Interruption] We can see them. He talked about inflation. The National members had their statements. The National members were ready to go out and tell people how much better off they were going to be, but then Phil Goff told them what inflation would do to the tax cuts. I saw the reaction of the National members in the back row. Those members over there were saying “Oh, goodness me. How will I counter this?”. I ask those members whether Mr English told them about the rise in inflation. No, he did not tell them about it at all, because those members were sitting back saying “Oh, goodness me.” As Mr Cosgrove said, those members should go to halls full of their constituents, and tell them that their Prime Minister will be about $350 a week better off and that they will be worse off, but that that is OK. I ask those members how they will sell that. How will they sell that? I would like to see them do that.
I think the theme song for this Budget should be “(I Can’t Get No) Satisfaction”. That song was about a young man who, no matter what he did, could not get ahead. People kept telling him that everything was better; there were mixed messages, but still there was no joy. That is what this Budget is about: mixed messages from Mr English and Mr Key. They told Kiwis that they would all be better off under this Budget—that this would be a Budget for all Kiwis. It does not matter to Mr English and Mr Key that there is to be $11 billion—$11 billion—in extra revenue from GST over 4 years. They are giving the lion’s share of the tax cuts to the very wealthy, to the likes of Mr Key and the chief executive officer of Telecom, who will receive $1,600 in the hand every week. That money is coming from the 50 percent of Kiwis who earn under $30,000 a year or the 75 percent of Kiwis who earn the average wage. But those members say that is OK, because Mr Key will receive $350 a week in the hand!
I do not think there will be feelings of envy from Kiwis about that, as Mr Key suggested there would be. I think there will be feelings of anger. They will be thinking “Oh my God, we’re being let down again”. Mr Key promised—he looked into the camera and promised—prior to the election that he would not raise GST, but he has done that. He said he would not do that, but he has done so. That is not nice. It is not fair, and it certainly is not what people voted for.
The first principle of tax legislation is that there should be equity. This is about who carries the burden of tax. I argue that those who are less well off will carry the significant burden of tax through the increase in GST. That is a regressive tax, because it is a tax on petrol, food, electricity, and all the items that people need in order to lead a decent life—a life with dignity. GST is increasing, at a time when most people are struggling with rising costs and falling real wages. What we have not heard is that Mr English has said to Mr Brownlee that he wants to have increased dividends from the State-owned enterprises. Do members know what that means?
Brendon BurnsMr Burns is right. This will be a real winter of discontent. People will look at the Budget tomorrow and think that they have a bit of extra money, but they will realise that their power bill will go up by 10 percent. Inflation will erode their tax cuts, and their real wages will be eroded. This is not a Budget for the many, at all; it is a Budget for the very, very few.
The Reserve Bank Governor, Alan Bollard, wrote a paper in 1992 entitled New Zealand’s Experience with Consumption Tax. It dealt with the implementation of GST in New Zealand. He wrote: “in 1989 when GST was increased to 12½% the effect on retail sales and subsequently on growth was marked; after experiencing signs of a pick-up the economy dropped back to recession the following year.” Let us remember that when GST was increased by 2.5 percent in 1998, Kiwis at the top end had received massive tax cuts in 1988. Less than 12 months beforehand, the top marginal tax rate had dropped from 48 percent to 33 percent. I wonder whether anyone has asked Dr Bollard what he thinks about the idea of increasing GST. Just as he is managing the economy out of recession, this increase comes along. He probably read through the history books and reread his paper with a sense of impending dread. We are borrowing $1.1 billion over 4 years in order to fund tax cuts for the very wealthy at the expense of the many, and, in all probability, at the expense of the economy. It is a dreadful legacy for those who are at school at the moment.
I would like to point out that last year’s Budget focused on three objectives. The first was to help Kiwis through the recession and support jobs. The Government had a Job Summit, and what did that throw up? The cycleway. How many jobs came from that cycleway? Six. Let us forget about that objective, because the jobs thing seems to have petered out with a whimper. The second objective was to lift productivity. I understand that a report released today says we have dropped five places in productivity down to 20 percent, while Australia has increased its ranking. That one is a failure. The third objective was to keep future Government debt under control. I can tell members that Labour got rid of debt through 9 years of prudent fiscal management. Even Dr Bollard said in his latest statement that the reason that this recession was not as bad in New Zealand as it was overseas was due to the prudent management of the previous Government and the way that Labour left the finances. Dr Cullen’s legacy was set, but it has been destroyed in 18 months by this Government.
I will make one final point, in which I will give the perspective of an entrepreneur. This is a case study—a real-world example. I spoke to a very good friend of mine who is one of New Zealand’s most successful entrepreneurs. He is worth $100 million, give or take a little. He does not like those guys over there in National, by the way. His comment was that the tax rates do not even come into the equation when he is considering a business venture. So Mr Key and Mr English should not tell me that the National Government is cutting taxes in order to stimulate economic growth, because that is just not the case. This is a Budget for the very few, not the many, at all. Thank you.
PESETA SAM LOTU-IIGA (National—Maungakiekie) Link to this
I rise to support the Taxation (Budget Measures) Bill for 2010. The previous speaker, Stuart Nash, asked about facts. I tell that member that the one fact he has not got quite clear in his head is that his tie is an ugly, detestable tie, and he should not wear it 2 days in a row in this House.
The member talked about electricity prices going up.
Hon Trevor Mallard Link to this
I raise a point of order, Mr Speaker. I was waiting for you to intervene on the personal nature of the comments just made by that member about the dress of a member on this side. If we started criticising members opposite for their dress sense, you would intervene pretty quickly.
Mr DEPUTY SPEAKER Link to this
I am actually quite fashion conscious on some of these matters, so I did not take offence. I did not take offence myself, but if the member took offence I apologise for not interrupting earlier. Possibly, if someone has taken offence, our clothing might be something to be mindful of.
PESETA SAM LOTU-IIGA Link to this
I apologise to the member. I described his tie in such a way only because he—
Mr DEPUTY SPEAKER Link to this
No, I have already ruled on this. It has been very clear that exception was taken and I ruled on it. Do not mention it again.
PESETA SAM LOTU-IIGA Link to this
This tax bill is about compensating ordinary Kiwis for a rise in GST by cutting personal income tax rates, increasing superannuation payments, and increasing Working for Families payments and benefits—something Labour did not do last time it increased GST. Labour says that this bill compensates only the rich. The previous speaker wanted facts; I will give him facts. Seventy-three percent of income earners will have a top tax rate of 17.5 percent or less. Two-thirds of the tax cuts will apply to people on an income below $48,000—two-thirds. They are low to middle income earners.
This is a Budget that has delivered for New Zealanders. It builds on the good work that has been done in the past 18 months of this Government. It will secure prosperity for New Zealanders. It lowers tax rates. It allows exporters to get on with producing and selling goods and services overseas. The company tax rate is being decreased from 30 percent to 28 percent. We are encouraging savings through various changes in portfolio investment entity rates and personal income tax rates. This Budget will deliver surpluses sooner rather than later. We inherited a bad economy and a bad recession from the previous Government. This Government is about taking action, about investing in New Zealanders’ future, and about the prosperity of our people. I support this bill and I look forward to the second and third readings. Thank you.
A party vote was called for on the question,
That the Taxation (Budget Measures) Bill be now read a first time.
Ayes 69
Noes 53
Bill read a first time.