Taxation (Budget Measures) Bill

STUART NASH (Labour) Link to this

We heard some interesting speeches in the Chamber last night. One of the most interesting speeches was the one from Simon Bridges, who stood up and said this Budget was not about the wealthy lawyers—and obviously he is one—but about the street sweepers and the cleaners. Mr Bridges said this Budget allowed the street sweepers to actually get ahead and advance themselves. He thought that an extra $5 a week would allow that to occur. Well, I would argue, of course, that the street sweepers had a chance to get ahead because they had adult and community education. But I can tell members that in Hawke’s Bay there are no more courses going on at the moment. Of course, cutting the education budget in real terms, cutting community education even further, and cutting tertiary education means that this Budget is not about getting ahead at all; this Budget is about going backwards. But I digress.

I will talk about the GST increases. I will give members a real-world example that Mr Quinn could well learn something from; I think that his mother, who lives in Napier, will be very interested in this. We are talking about the elderly sector. In Napier about 10,000 people rely on superannuation, and that number will increase by another 12,000 in 15 years’ time. That does not mean we will get 10,000 plus another 12,000, because obviously some will fall out of that group. But I am saying a significant number of New Zealanders—

PAUL QUINN (National) Link to this

It is important to realise that the genesis of yesterday’s tax announcements lies in the changes made by that chappie called Cullen in 1999, when, driven by his fantasy of what he called “rich pricks”, he introduced an envy tax. All this bill does is remove the envy tax that Cullen brought in in 1999. That enables people, the true professional people in this country, such as doctors and hard-working New Zealanders—

MOANA MACKEY (Labour) Link to this

It is always an honour to follow on from Paul Quinn, who, apparently, overnight has spoken to every person in New Zealand and is testament to the old adage that ignorance never sleeps. Mr Quinn talked about Labour’s “envy tax” in 1999 when we raised the top tax threshold. At least we went out on the election campaign trail and were honest about what we were going to do. Mr Quinn’s party, the National Party, went out on the election campaign and promised that it would not increase GST. In 1999 Labour did exactly what it promised. We did not hide anything during the election campaign, and I think that is an important distinction. Mr Quinn might not think so; he might think it is OK to say one thing to the voters of New Zealand before the election and do the exact opposite afterwards, as National said before the election that it would not increase GST, but has increased it afterwards. The people of New Zealand will see that for what it is, which is a tax swindle.

Mr Quinn referred to the Close Up poll last night where he said 80 percent of people are for this Budget. I tell Mr Quinn that that is because the people who are opposed to it could not afford 75c a text to phone in like his rich mates can. The National research unit would have been sending emails around telling people to text in and make sure they say that they are for the Budget.

Hon MARYAN STREET (Labour) Link to this

I wish to speak to Part 1 of the Taxation (Budget Measures) Bill. There is only one part I wish to speak to, which is the increase in GST. I would like to unpack that a little bit in so far as the way it will impact on students. It seems to me that in this Budget, tertiary education is the big loser—tertiary education across the board is the big loser.

It does not matter how the Government chooses to spin this. Let us have a look at some of the facts and the details. There will be a GST increase, which all students will feel on their rent, their food, and their books. We have not heard anything about any compensation; we have not heard any specifics but let us assume that it is the same compensation that the Government says it intends for superannuitants and beneficiaries—for example, a 2 percent increase on student allowances. First of all, it will not compensate adequately for the GST increase, and, secondly, the 4 percent annual maximum fee movement that the Budget provides for tertiary institutions is GST exclusive. So now students will have to pay not only the increase in GST in everything they purchase in order to live—so that will cut their spending power even further in the supermarket as they search for the cheapest items they can find and for things that are on special—but it will also mean that they will face a 4 percent increase in fees across their institutions and their courses. They will then have to pay GST on top of that.

But let us look more closely, because the 4 percent annual maximum fee movement is effectively a cut for most tertiary institutions. I do not know whether the members opposite grasp this point. Previously there was a spectrum up to 5 percent for institutions under the fee maxima policy—they could raise their fees on courses by up to 5 percent. Now Auckland University is probably the only institution that is sitting at its fee maxima on its courses. Other institutions—universities and polytechs—are sitting somewhat beneath their fee maxima. Auckland University may do quite well because it is allowed to increase things by 4 percent, although it might have wished to be able to increase things by 5 percent. The 4 percent that it is getting now means that that was rather unexpected and will be useful, given that it is sitting at its fee maxima. However, other institutions whose courses are not sitting at their fee maxima may have wanted to go to their 5 percent in order to recover the costs that this Government is not putting into tertiary education. So they are getting a 1 percent cut. That is a cut to the institutions, and I want to know how the members opposite justify that.

It is clear that this Government is shifting the cost of tertiary education away from the Government and into the institutions, on to the institutions themselves and, further than that, on to students. So not only do students have to wear the 2.5 percent increase—the 15 percent GST, which is in Part 1—on everything they buy, but also they have to wear that on top of a 4 percent course fee increase.

I am not sure that members opposite have grasped this, but further to that there are cuts in this Budget to adult and community education, which indicate that this Government has learnt nothing from the intense protests last year about cuts to adult and community education. It has taken $3.4 million out of schools and community groups. I think that was about all that was left last year in the adult and community education budget, which went to schools and the community groups that they fund. I need the Minister to clarify what is left for night classes. These are the night classes that Mr English so praised previously because he said his mother was able to take advantage of night classes in secondary schools.

CHRIS HIPKINS (Labour—Rimutaka) Link to this

This Budget demonstrates very clearly what a cruel hoax the National Party played on New Zealanders at the last election. National members went up and down the country and said that New Zealanders could have significant tax cuts, with no cuts to public services and no increase in borrowing. They could still have big tax cuts. Did they get that yesterday? No, they did not. They got both of those things: they got cuts to public services, and they got an increase in borrowing to pay for tax cuts. That is exactly what the National Party said it would not do. This is a Budget of broken promises—be very clear about that. National broke so many of the promises made in its manifesto, it is almost impossible to count them all.

John Key stared down the barrel of a TV camera and said that if he did a halfway decent job of managing the economy, National would not need to increase GST. Here we are, only 18 months into National’s management of the economy, and what has it done? National has increased GST in order to pay for tax cuts that will disproportionately go to those on the highest incomes.

A full third of the money that was dished out in tax cuts yesterday goes to the top 5 percent of income earners. People like Mr Key, and me even, who are in the top 5 percent of income earners will get the lion’s share of the tax cuts that are being dished out, while those on the lowest incomes will continue to scrape by in order to meet the increased cost of living that this Budget will impose through increased GST and increased inflation. Every time hard-working Kiwis go to the supermarket, they will pay more. Every time they fill up their cars at the petrol station, they will pay more. Every time they pay their rates bill, they will pay more. For every bill they pay that has GST on it, they will pay more. New Zealanders will pay more. People on average and lower incomes will be given only modest, very small tax cuts that will not compensate for the extra money that average, hard-working New Zealanders will be paying in order to fund the tax cuts that disproportionately go to those on the highest incomes. Broken promises are what this Budget is all about.

There were going to be no cuts to early childhood education under National, but that is exactly what it has done. Not only has National made cuts to early childhood education but it has made cuts to the highest-quality early childhood education. Those parents who send their kids to early childhood centres that made the effort to get 100 percent of their staff qualified are having their funding cut. They are going to pay more; if they have 2 kids they will have to, potentially, pay 50 bucks extra a week—50 bucks extra a week—for their early childhood education. It will not be compensated for by the tax cuts that the Government has offered. Those families will get clobbered. That is a broken promise.

National said that it would keep student loans interest-free. Well, the Government has not introduced a market interest rate: it has introduced a new annual fee instead. That is another broken promise. It said that it would not introduce interest-free student loans and instead it has introduced a new annual fee.

National said it would focus resources on the front line, and would deliver tax cuts. National has not focused on the front line in respect of accident compensation. In fact, it has doubled the policy advice budget for the Accident Compensation Corporation. Why has National done that? Because Nick Smith wants more advice on how to privatise accident compensation. National says that in the Budget document. National has another $2 million going into policy advice on how it can privatise the accident compensation scheme. This is another broken promise from the National Government.

The biggest hoax of all, though, was that National would not increase borrowing to pay for its tax cuts, because that is exactly what it is doing in this Budget. I say to all of the baby boomers in particular who will retire in the next 10 years that there will be a significant increase in the cost to the Crown of their retirement. Where will the money to pay for their superannuation come from? Where will the money to pay for their health care come from? The Government has not been contributing to the Superannuation Fund, and it is still not contributing to the fund. Instead, it is giving out tax cuts to those on the highest incomes. What does that mean for the baby boomers who will be retiring in the next 10 to 15 years? John Key said that he will resign if their superannuation is cut. He will not be here in 10 to 15 years’ time when the baby boomers retire, but he will have left a strategic deficit, a massive deficit. Borrowing to pay for tax cuts will be his legacy. In 10 years’ time we will have increased debt and a baby-boomer population wanting to retire and wanting their superannuation, and the cupboard will be bare. There will be no money left to pay for it, because John Key and Bill English dished it all out in unaffordable tax cuts in this year’s Budget.

Hon CLAYTON COSGROVE (Labour—Waimakariri) Link to this

People have called this Budget a “borrow and hope Budget”. In fact, Ganesh Nana on Morning Report this morning when asked—[ Interruption] Shirley Temple in the corner over there laughs, as she is wont to do. She laughs at everything. She laughs when a rapist is on the run, laughs when a corrections officer gets his bones broken, laughs, laughs, and continues to laugh. But here is the thing that Ganesh Nana said—

BRENDON BURNS (Labour—Christchurch Central) Link to this

This Budget is a payback Budget. It delivers to people who have supported this Government in the past. It is a business-class Budget. It is moving people in business class up to first class, while those down in cattle class start paying for their lunch. This Government sometimes attempts to portray Labour as a party that wants to spend money. Well, the Government is borrowing to cut the top tax rate for those at the top end. We have seen that in the past. It is the sort of policy that Ronald Reagan introduced in the United States. It was called a strategic deficit, and all it did was rob the poor to pay the rich. It is voodoo economics.

Supposedly, the economy will recover to pay for this, but let us look at the Budget tables. The balance of payments has not been in surplus in this country since 1973, since we were last, as a nation, in the black. This Government says it wants to see export-led growth. Well, the balance of payments deficit goes from $4.9 billion this year to $8.9 billion next year, to $13.1 billion the following year, to $15.7 billion the year after that, and to $17.2 billion the year after that, according to Treasury projections. So where is the export-led growth that will reduce our balance of payments deficit? The balance of payments is the measure of what we, as a nation, export as opposed to what we import.

List MP Nicky Wagner said last night that this Budget was a cracker. Well, she should explain that comment to the 76 percent of people in my electorate of Christchurch Central who earn less than $40,000 a year. They will not be calling this Budget a cracker. She should explain that comment to the Manufacturers and Exporters Association based in my electorate of Christchurch Central, who issued a press release about the Budget. It was headed: “Rhetoric does not match the reality.” Chief executive John Walley said: “The changes to property taxation, the corporate tax rate and GST go some way … but they fall a long way short” of what the Tax Working Group recommended. He said: “The removal of accelerated depreciation loading for plant and equipment will be detrimental to business investment.” That is why we are seeing that balance of payments gap deteriorate hugely under this Budget.

We were told that there was a need to cut the top tax rate from 38 percent to 33 percent, because that kind of gap encouraged people to move their tax into company structures to avoid the top tax rate. So what does this Budget do? It cuts the company tax rate back to 28 percent, so the differential between the top tax rate and the business tax rate is still the same—5 percent. Obviously there is still every incentive for people to move their tax into a company where that is possible.

We are told that this Budget is supposedly about driving down the issues of tax shelters. The real impact of this Budget relates to GST and what is yet to come. As Treasury forecasts note, we will see inflation nudging 6 percent in the year ahead, which will simply erode the benefits of the tax cuts being introduced at the middle and lower end of the income scale.

I noted that a housing commentator on Campbell Live last night asked where the stimulus was in this Budget for building new homes. Of course, GST will apply to new homes, so they will cost an extra 2.5 percent. Already, the housing market is less than buoyant; in fact, it is dead flat. The projections are that this Budget will see an 8 to 10 percent depreciation of the existing housing market, which will fall most heavily on the new housing market. This Budget has done nothing to stimulate the building sector—in fact, it is taking it backwards—and we will see much fewer new houses built.

Nothing in this Budget encourages younger New Zealanders, who are first-time home buyers, into their first home. In fact, it does absolutely the opposite. Before members opposite attempt to suggest that tax cuts will stimulate this, I ask them what $1,000 or $2,000 of tax cuts will do for a young couple trying to buy their first home. It will be absolutely eroded by the GST increase, but if there is anything left, what will that contribute to their ability to service a mortgage or to put down a first-home deposit? It will contribute absolutely nothing. Meanwhile, the Budget supposedly trumpets the increases in health and GST, but those are worth nothing with inflation of 6 percent.

CAROL BEAUMONT (Labour) Link to this

I rise, too, to speak about the great tax swindle. This Budget is meant to be delivering a taxation system that will better reward work and savings and that will make the system fairer. That is what is explicitly stated in the Government’s rhetoric about this tax swindle. It goes on to say that the Government is delivering a package that not only is fair but is seen to be fair. The Taxation (Budget Measures) Bill has a number of aspects. I will talk about two of them, and those are the lifting of GST and the reducing of personal income tax.

Last night I thought that I would look at the word “fair”, given that much has been made of fairness. We on this side of the House are certainly very committed to the concept of fairness. The Government has used the word “fair” in its Budget statement and all its Budget documentation, so let us look at what it means. According to the Oxford Dictionary the word “fair” is about concepts like justice, equity, and reasonableness. I want to know whether, in all honesty, those people across the other side of the Chamber can consider their actions to date to be fair. The Salvation Army, earlier this year, when it reviewed the first year of this Government in its document A Road to Recovery, noted very strongly that in the last 12 months: “ … gains that have been made over the past 5 years in reducing child poverty have probably been lost, and there are signs of a widening income gap between the well paid and poorly paid.” One could ask whether that is fair.

One could also ask whether the actions in this Budget will address issues like child poverty and widening inequality in New Zealand. I thought that I would look at some of the figures that were given out as part of the Budget package. What will people actually get? Well, if someone earns $16,000 per year, the tax cut will give that person a certain amount extra, but then of course he or she will be paying extra GST, so the person will supposedly be $1.36 better off a week. That is before the implications of inflation and other cost rises, like the increases to accident compensation levies and other costs, that have not been factored into that table are taken into account. So people who earn $16,000 a year will be better off by $1.36 per week. I went on to a supermarket website last night to look at what that would get them. I found that they could buy—probably appropriately—a four-pack of Home Brand toilet paper with what they will receive. The $1.36 will buy a four-pack of toilet paper—that is great!

People on $22,000 per year will also have a tax cut and pay extra GST. As I said, I am not counting in all the other costs associated with rising inflation, accident compensation levy lifts, petrol lifts, and all of those things; I am counting only the straight figures. Those people will receive an extra $3.56 per week. What can they buy with it? Well, on the supermarket website, I saw that they could buy themselves 2 litres of milk. That is pretty good! If people are on $30,000 per year, they will receive an extra $6.28 per week, and that would get them 2 kilos of apples. The supermarket website shows that people on $38,000 per year could buy a bit more than that. They will receive an extra $9.21, so they will be able to buy a loaf of Vogel’s bread and 2 dozen eggs. They will be able to have poached eggs on toast—fantastic!

If people are on $100,000 per year—let us jump to the other end of the income scale—they will be $41.66 better off a week, without including all the other costs that I have parked. At $120,000 per year, they will be $56 better off a week. On an income of $300,000 a year, which is the average salary of the chief executive officer of a large company, people will receive $178 more a week. Of course, the chief executive officer of Telecom will receive an extra $4,845.44 a week. I did not work out what that would get him at the supermarket, but obviously it would get him quite a lot.

How can that be just—being able to buy toilet paper, versus receiving an extra $4,000-odd a week? How can that be just for those on the lowest incomes, who cannot make ends meet, and who really are struggling? I do not know whether members opposite are talking to their local budgeting advice services, but I have been doing so all around New Zealand in relation to my member’s bill, which deals with the issue of loan sharks. I can tell members that those services know how hard families are struggling. They know that most of the people whom they see have to resort to things like high - interest rate loans. I do not think that this Budget delivers for those New Zealanders, yet they are the New Zealanders who need to be given a helping hand. They need to receive something from the Government.

Hon DARREN HUGHES (Labour) Link to this

Part 1 of the Taxation (Budget Measures) Bill is the “robbing Peter to pay Paul” part. This is the part of the bill where tax rates are changed on the one hand, and on the other hand Government fees, the cost of Government services, and the goods and services tax go up to wipe out all of the gains that most people in New Zealand will receive by way of the first change that the Government is making. The National Government is robbing Peter to pay Paul, and when people work out in a few months’ time that their financial situation has not changed enormously, I think it will rebound on National in quite a big way.

Here is the point. My colleagues have already pointed out that the Budget documents show that inflation will be 6 percent in the coming year. That is hardly a model of economic stability and orthodox management on the part of the National Government. A 6 percent inflation rate will immediately flow through to the cost of living, because higher inflation will erode people’s purchasing power. When people pick goods off the supermarket shelves they will find that prices are higher. When they go through the checkout and get their bill they will find that the taxes on the products they have bought are also higher. So not only will inflation erode the cost of living of people but the GST changes will put a 15 percent fee on the final price of the product.

That is hardly what people thought they were getting when they voted for the National Party at the last election. I do not remember the National Party campaigning at the last election on a policy of increasing GST. John Key, in that complicated way he has of explaining himself, said: “Oh well, I said we wouldn’t put up GST to fund a deficit.” I looked at the Budget documents and in the next financial year we as a country will be in deficit, so GST will be put up at a time when we are in deficit, even though National said first of all that there would be no rise in GST, and we then had the complicated explanation from John Key that in his head he was trying to say that if there was a deficit he would not put up GST. National has failed on that test, as well.

This measure affects hard-working New Zealanders, and that is people who work hard, full stop. Of course, in the eyes of National members one is a hard worker only if one earns a lot of money. We hear all the time from members opposite about hard-working New Zealanders who earn over $100,000 a year. Sure, there are probably some hard-working people who earn over $100,000, but lots of people who earn over $100,000 do not work very hard, and I can see quite a few of them this morning as I look across the Chamber. As I look across the Chamber I see plenty of people who earn over $100,000 whom I would never describe as hard-working New Zealanders.

MICHAEL WOODHOUSE (National) Link to this

I want to pick up on Ms Beaumont’s analogy of the four-pack of toilet paper and perhaps remind her, in case her memory is a little bit short, about what we saw under 9 years of a Labour Government. Does the member recall Dr Cullen’s “chewing gum Budget”? What happened to the chewing gum? He took it back. In those 9 years he said: “I’m going to give you a pack of chewing gum and then I’m going to take it back.” But we then we had the pièce de résistance: after several days the top tax rate was raised by 9 percent. We waited 9 years, and what did we get? We got a block of cheese.

I want to go through some inconvenient truths for our friends on the other side. Under this Budget 73 percent of income earners will have a top tax rate of just 17.5 percent. That is nearly half what it was under the previous Labour Government. That is not the top income earners but the middle and lower income earners. These people will be far, far better off under this Government than they ever were under the Labour Government. People who earn the average income of $48,000 a year will pay a total tax rate of just 15.3 percent. A family with two children does not start paying income tax until its income exceeds $50,000. [Interruption] The member mentioned GST. I find it astounding that the members Hipkins and Street—the latter has been a Crown Minister and sat around the table considering revenue bills—did not know that GST is not payable on rents. It simply is not. There is no GST on residential rents. Those members both mentioned it in their calls. I think those comments continue the ignorance around the sorts of effects that the tax arbitrage frameworks that Labour put in place, after 9 years, had on hard-working New Zealanders.

Mr Burns talks about continuing the gap between the top personal income tax rate and the company tax rate. That was not the problem. The main problem was the large gap between the top personal income tax rate and the trust rate, because that was the vehicle that top income earners were using to protect their income. The company tax rate is ultimately paid by individuals and they get imputation credits attached to them. Whatever that company tax rate is, their personal income tax rate will be what it is. So the really important gap is the one between the trust rate and the top personal tax rate. I am very pleased to see that that has been lined up.

Mr Cunliffe was very confused about loss attributing qualifying companies, and in an astounding comment he made in his call in the first reading, he said that Labour had put in place loss attributing qualifying companies but Labour had no idea they would be used for the purpose to which they were eventually used. God forbid, loss attribution would be used to attribute losses! That just does not make sense. But it became worse with Dr Norman’s analogy of shoplifting, I think it was. Does any member recall that comment in the first reading? He said that instead of controlling the shoplifting, what National has done is lowered the price of goods and applied a fixed charge across all the goods. But here is the thing: using legitimate tax vehicles to manage one’s income tax liability is not shoplifting; it was perfectly legal, and it was legal because it was put in place by the Labour Government with the full support of the Greens.

But here is what the Greens really want to do: to have equity, what they really want, but do not say, is to put all of the rates up to the top personal tax rate of 38 percent. If we want equity, they say we should raise the trust rate, raise the company rate—raise, raise, raise. Well, that is what will drive our best and brightest New Zealanders across the ditch. That is what has been done over the last few years. It is the one thing we are No. 1 in the OECD on—the export of our best and brightest. I am very impressed to see that, whereas a person needed to earn $228,000 in New Zealand to pay less tax than in Australia, that has just gone down to as low as $55,000. My prediction is that those best and brightest will start coming back across the Ditch. I am absolutely delighted to see that the rot is stopping in respect of those very talented New Zealanders.

I will go on and touch on the tilt, because this Budget has support for what New Zealanders were already doing. The consumption and debt-fuelled growth that we saw after the last 10 years has stopped. People are not borrowing any more.

CARMEL SEPULONI (Labour) Link to this

I go back to something that the Hon Lianne Dalziel brought up last night. A taxi driver had pointed out something to her. It was the fact that John Key, with regard to this Budget, was basically saying to New Zealanders: “Let them eat cake. They can’t afford bread, but let them eat cake.” We have heard from Mr Key that he does not value people who are on low incomes. He does not value those who earn the least amount of money, even though they are hard-working New Zealanders. We have heard him say in the House that those people do not contribute because they do not pay tax. Because they get Working for Families, they are not contributing members of our society. He does not value them. Whom does he value? He values those who are just like him, those who are earning high incomes in this country.

JOHN BOSCAWEN (ACT) Link to this

I congratulate Carmel Sepuloni on her speech, because I think she is absolutely right. She said that we may have a honeymoon period for this Budget. Certainly, the commentators are saying that it is a good Budget, and I think that most New Zealanders perceive it to be a good Budget. But she said that people will eventually wake up to the increases in GST, and they will eventually wake up to the increases in accident compensation levies. I have heard the words GST and accident compensation mentioned time and time again over the last 12 hours—time and time again. The tragedy for the Labour Party is that it could actually make that criticism stick if it told the truth. There is another elephant in the room, and it is the emissions trading scheme.

Hon DAVID PARKER (Labour) Link to this

I want to comment on what I think is the greatest misrepresentation of this Budget, and that is the myth that it rebalances the New Zealand economy. I will not deal with the issue as to whether the tax switch, as the Government has called it, is the right tax switch or whether it is weighted unfairly to the higher-income earners. I think other speakers have dealt with that well. But I will deal with the myth being pushed by the Minister of Finance that this is the greatest change in tax policy for 20 or 30 years. Plainly, it is not. Plainly, it does not rebalance the economy away from speculative investment in property towards the tradable sector and exports. That is plain from the forecasts that are included in the Budget.

If we look at this Budget we see that it does not redistribute investment between property and the tradable sector; it redistributes the amount of income and consumption tax that is paid by different people in society. It states that, overall, less of those taxes, as a proportion, is paid by high-income earners, and more of them is paid by low and middle income earners. It does very little to change the balance between taxing capital and labour, because it does not do much to tax capital.

Indeed, it is interesting that, in terms of picking up the recommendations of the Tax Working Group, it goes a little way in respect of investment in property. It does not catch the kernel of the problem, which is over-investment in residential property. This Budget could have done that through ring-fencing losses, but instead it has done away with the ability to claim depreciation on buildings, which has as much effect in the commercial property sector as it does in the residential property sector. The Budget does not curb the largest of the problems, which is over-investment in the residential property sector, with people incurring large losses in respect of their mortgages on residential borrowing, which they offset against their other income.

Why can I say with absolute confidence that this Budget has not rebalanced the economy? Because we see it in what happens with the current account deficit. If this Budget was going to improve the current account deficit, we would see the current account deficit going down, but we do not. We actually see the current account deficit going up year on year to 7 percent of GDP. I think that the best commentary on this so far from the commentators has come from Business and Economic Research. Business and Economic Research is not overcome by the somewhat surprising amounts of the Government’s tax switch; it looks at the effects on the fundamentals of the New Zealand economy. Business and Economic Research says—and I think it is right—that at least it is good to see the Minister of Finance acknowledge that New Zealand’s largest single vulnerability is now its large and growing net external liabilities. New Zealand now owes $168 billion, which is about 90 percent of GDP. So, overall, New Zealand’s net asset position in the world is that we owe more than we own. We owe so much that if we total it up and compare it to the size of our economy, we already owe the equivalent of 90 percent of GDP. Under this Budget that situation gets worse, at the equivalent of 7 percent of GDP per annum. So by 2014, New Zealand’s net asset position in the world is that our debt will be 100 percent of GDP.

So if our growth is not coming from export growth, and if we have an increasing current account deficit, as is shown by the projections in this Budget, where is the growth in this economy to pay for the borrowings and to overcome the increase in borrowings that is needed to fund the tax cuts? It is actually coming from internal growth in the property sector. It is not coming from export growth; it is coming from exactly the problems that the Prime Minister and the Deputy Prime Minister said they were trying to overcome in this Budget. It is actually coming from those imbalances in the economy getting worse again. I think the Business and Economic Research analysis of this Budget is very interesting. This is a quote; it states: “If the net external sector is not the lead driver of Treasury’s growth forecast, what is? Our reading indicates the growth forecast relies heavily on a noticeable rebound’’—

Dr CAM CALDER (National) Link to this

I compliment the previous speaker, David Parker, on his sartorial elegance. This Budget is the Budget of a Government that is committed to creating a strong economy that is built on and led by sustainable growth and value-added exports, which will underpin jobs and create opportunities for all New Zealanders to realise their hopes, dreams, and aspirations. This is a Budget of a strong and courageous Government that believes in acknowledging and rewarding the pursuit of hard work and excellence. This Government is a perceptive Government. It understands that the positive, can-do attitudes of every New Zealander are our edge in competing and ensuring our country’s future success on the highly competitive global stage.

This Government is a standard-bearer for unlocking the potential that lies within the heart of every New Zealander. We are working relentlessly for every New Zealander to share a sense of purpose and a feeling of belonging. We have no time for the politics of envy. We will not rob Peter to pay Paul. What good is there for any of us if Peter or Petra is a neurosurgeon, a skilled sparky, a committed, effective teacher, a nurturing nurse, or a competent carpenter who decamps to Australia or further afield in pursuit of greener pastures? John Key’s National-led Government is principled and pragmatic, and it believes in creating a brighter future with all New Zealanders, for all New Zealanders, and of all New Zealanders, right here in our homeland of Aotearoa New Zealand.

This Budget, with its across-the-board tax cuts to help families get ahead and more money for education and health, will lift long-term economic growth, responsibly reign in past fiscal profligacy and massive public debt, and encourage better front-line public services. This Government’s resolute decisiveness is a stark contrast to the looseness of the last late, unlamented Labour administration. It was an administration that has turned into a group of loquacious lobbyists whose only concern is legislative languor, listlessness, lassitude, and lethargy. This Government is a stark contrast to that cavilling caucus, where the words “hope”, “enterprise”, and “ambition” are heard as rarely as “Mine’s a Laphroaig” at a temperance conference. However, one must give Labour members their due. In some respects, they were virtual prestidigitators of fiscal policy and conjurors of economic underperformance.

The maladministration of the previous administration managed to parlay the best economic conditions since World War II into year after year of decline in the performance of our tradable sectors—our exports, which are the drivers of our economy. They managed to turn the longest spell of global economic golden weather in modern memory into years of localised thunderstorms, hail, rain, and sleet over the whole of New Zealand. They hamstrung our economy. It is our economy that underpins the quality of life for all New Zealanders. It allows us to educate our young people, to provide world-class medical care for our sick and injured, and to protect the most vulnerable. That dance of the desperate and dateless dispensed fiscal doom and despondency because of blind adherence to a borrow-and-spend dogma. There was a remarkable record of failure by the last Government. I ask how effective Labour’s illiterate economic policies were. They were as effective as a papier mâché demolition ball, a one-legged man dancing the cha-cha, or an empty can of air freshener in an abattoir.

The global economic framework is still fragile and there may be some bumps ahead, but here in New Zealand this Government’s effort over the short time we have held the levers of power has seen the right sort of recovery. It is one that is export led, rather than based on the previous model.

GRANT ROBERTSON (Labour—Wellington Central) Link to this

It is always a pleasure to follow on from the president of the North Shore Toastmasters. Members know that they are in trouble when Paul Quinn is nodding and saying: “That’s right.” beside them—it is terrible. Part 1 of the Taxation (Budget Measures) Bill is about choices and priorities. National made it very, very clear to the country yesterday where its priority lies. Its priority does not lie in looking to the future and having a plan or a strategy. This Budget was given two out of 10 for its strategy yesterday, because no long-term plan is present in it.

Yesterday’s Budget speech by Bill English was remarkable in a number of ways. One of them was the complete absence of any plan for how to grow this economy. There is an obsession with tax cuts delivered to the rich and of avoiding talking about the Government’s plan or strategy. Apparently we have to cut the top tax rate in order to keep people in New Zealand and stop them going to Australia. The message for the National Government is that it is not the tax rates that will send people to Australia; it is the wages and the jobs that need to be created as part of a long-term plan to grow a sustainable economy. Taxes in Australia, and the headline rate of tax there, are only one thing. Under the Kevin Rudd Government, Australia has been planning and investing in skills and training to try to get people into work. This Budget is devoid of a strategy or a plan for the future. It is a short-term-thinking Budget that will not deliver to New Zealanders the increased well-being and the standard of living that we all want.

An obsession with tax and with tax cuts for the wealthy is not a path that will deliver a sustainable economy. The priorities that the Government is putting out here show that, yes, we have to borrow money. What should we use that borrowed money for? Should we use it for tax cuts for the wealthy few, or should we use it to invest in something that will be good for our long-term future, like early childhood education? Why would a Government cut $400 million from early childhood education? Is that not a priority for this Government? That is the message that the public of New Zealand is getting, as 25 percent of the money that is being cut—the so-called low-value spending—is from early childhood education. The message that this Government is sending is that early childhood education is low-priority spending. That message will not be good for the future of New Zealand.

The National Government is doing a “hit and hope” Budget. National is lining up to take its shot—and Mr Woodhouse plays a bit of golf—on the first tee, but it has no idea where the hole is. National is just hitting the ball up in the air to see whether the tax cuts work and deliver growth. There is no real plan or idea of where exactly National wants the ball to go—it is just hitting and hoping. From the international experience we know that tax cuts do not deliver a sustainable economy. Tax cuts will not—

DARIEN FENTON (Labour) Link to this

Mr Chairperson—

Hon Sir ROGER DOUGLAS (ACT) Link to this

It does not matter what side of the Chamber one is on, the fact is that this Budget to date has gone down particularly well. The next point I make to the Labour Opposition is that there are sound grounds to criticise this Budget, but when members opposite are using any story at all to criticise it, then they do not do themselves any good. Let us take Grant Robinson. He suggested—

Hon TREVOR MALLARD (Labour—Hutt South) Link to this

That speech was a bit rich coming from that member, Sir Roger Douglas. He talked about the gap opening up between Australia and New Zealand. When did that gap open up? It was when his policies and those of his acolytes, especially Ruth Richardson, were biting. It was at the very end of the 1980s and through the 1990s that that gap opened up, and it was when his policies and his approach were at their height. It was especially in the early 1990s, when Ruth Richardson was implementing the things that Roger Douglas wanted to do but was not allowed to. That is when the gap opened up between New Zealand and Australia, and he should take some responsibility for it, rather than trying to develop again the policies that would make it worse.

“Rip Van Winkle” went to sleep for about a decade, and when he woke up he found that unemployment was down, he found that early childhood education was working well, and he found that Working for Families meant that a number of families that had been below the poverty line were now above the poverty line. He woke up and said that he did not like it, and that there was not enough pressure on the poor. He wanted to put some more pressure on the poor. That was the approach of Sir Roger Douglas when he woke up from his decade of sleep away from the political world.

This is a disgraceful Budget. I invite people to have a very good look at the table on page A2 of today’s Dominion Post. Forget the headline; look at the numbers. I ask people to think carefully about what happens when we apply 5.9 percent instead of 2.2 percent.

DAVID SHEARER (Labour—Mt Albert) Link to this

I want to touch on a point that was brought up by Michael Woodhouse about the differential between Australia and New Zealand: the fact that our taxes have gone down will somehow attract back here, in floods, people from Australia. The reality is, I say to Mr Woodhouse, that in Australia GST is at 10 percent, not at 15 percent, and if he thinks that people will come running back for the 3 or 4 or 5 dollars they have got as a result of this Budget, he should think again. Inflation is at 6 percent, and the Government has not factored in accident compensation levies going up, the tobacco tax, the power price rises, and—for people unfortunate enough to live in Auckland—the funding of the debacle that is the super-city. Nobody will be killed in the rush of people coming through Auckland Airport back from Australia. They will come back for better wages when we lift our productivity, but this Budget does not do anything to lift our productivity.

The way we lift productivity is to encourage companies to invest and to be innovative. Look at what Australia has done in innovation in the past year. It has increased its research and development spend by 25 percent. It upped its tax credits for innovative companies by giving a tax credit of 40 percent. What did the Government here do for innovation in this Budget? I am really pleased the Minister of Research, Science and Technology is here in the Chamber to hear this. This part of the Budget was announced early because of its importance, according to the Prime Minister. It increased our Budget in research and development by $56 million a year. Most of that goes into grants and vouchers to business.

So what do businesses have to do? They have to get on their hands and knees and go to the Government to say: “Please give me a grant for R and D.” And a bureaucrat sits there and says yes to this person and no to that person. Who benefits? Not the small innovative companies that are out there. I happen to believe—[Interruption]—I say to Mr Mapp that those people who put their butts on the line, who mortgage their houses, and who borrow from their friends and their family in order to get a good idea out there to market deserve a break. That is what the Labour Government did in its term of office. It gave them a 15 percent tax credit. Under this Government, businesses have to go on their knees to a bureaucrat who will assess their case and then possibly give them a grant at that point. Imagine the bureaucracy, the transaction costs, and the sheer frustration of small companies having to go through that ordeal. Our business research and development is one-third of the OECD average. What does this Government do to lift that? It is zip, zero. It increases the State contribution to research and development by 3 percent but it does not do anything to our business research and development shift.

METIRIA TUREI (Co-Leader—Green) Link to this

This part of the bill deals with the tax cuts that will significantly benefit the rich and leave the poorest of our most vulnerable families, and particularly their children, with the least. It is considered by this Government to be fair that the children of the wealthiest families get more than the children of the most vulnerable and poor. National calls that progress and it calls that fair; the Greens call it a national disgrace. There are alternatives, of course. These tax cuts do not have to be so utterly regressive that our poorest children will suffer the most; they could be progressive tax cuts. I would like to outline a proposal that the Green Party presented on Monday in our Mind the Gap package, which is a set of solutions designed precisely to deal with the rising gap between rich and poor in terms of inequality and income disparity, which is one of the most significant social and economic problems in this country—and a growing problem in this country.

One of our proposals is that there should be a tax-free band of $10,000 whereby all people who earn income, including beneficiaries, would not pay tax on the first $10,000 of their income. That is a truly fair and truly progressive personal tax cut option. It is a choice that John Key could have made, which would make a significant difference to the children of the poorest families. We know that the children of the poorest families in New Zealand go without. It is not because their parents do not care; it is because there simply is not enough money. Children go without shoes, raincoats, breakfast, lunch, school trips, and after-school programmes. Those children go without their basic rights to good health and a good education. Some members on the National side of the Chamber who believe in the deserving poor charity model might suggest that those people go to budgeting services. In fact, that is what Paula Bennett suggests as part of her reforms in social welfare. But there is no budgeting advice in the world that can make up the difference if there is simply not enough money to care for the needs of those children. The children who are in the worst poverty require more support.

The choice, which John Key could have made but did not make, of providing a tax-free band of $10,000 would provide—we estimate, without Government resources—something like $15 or $17 a week in the back pockets of every earner. That means that every person would receive the same amount, which is fair in the context of a progressive tax. But because $15 or $17 is proportionately much more significant for those on $10,000 a year, as opposed to those on $150,000 a year, it is a fairer tax cut for the country, for earners, and for the children who are the most disadvantaged. This measure, I say again, was a choice that this Government could have made. It is a cheaper tax cut option than National’s package. It does not cost $4.5 billion; it costs around $3 billion. Any kind of tax cut that is imposed will cost the country money. There will always be a question of whom we choose to benefit the most from any tax cut. The Green Party would choose families who are on the lowest incomes. The Green Party would choose children who are living in the worst poverty. We would choose them to benefit the most from a personal tax cut. But this Government did not do that. This Government chose instead to benefit the most wealthy, some of our highest-income earners, by thousands of dollars a week, while those on the lowest incomes are arguably much worst off than they were previously.

At a best estimate, someone who earns $10,000 a year might get 85c a week. That is a very best, generous estimate. But why should the families who are on the very lowest incomes, and the children who suffer from the worst possible poverty in this country, be the ones who pay? Why should they be the ones who subsidise the wealthy? Why should they be the ones who enable the most wealthy New Zealanders to get thousands of dollars a week in their back pocket, when they got nothing? There is no justification for that. John Key’s Government is increasing inequality in this country.

JOHN BOSCAWEN (ACT) Link to this

We often have banter in the Chamber, and when members with the call pick up on the comments of other members, it is recorded in Hansard. One particular comment was made this morning that was not picked up in Hansard, but I think it is very important that it goes on the record. My colleague Sir Roger Douglas said that no matter what one thought of the Budget, the reality is that the media are reporting it in a good light. If I heard correctly, I heard Steve Chadwick say: “Wait and see.” I think that Steve Chadwick is absolutely right, just like I think her colleague Carmel Sepuloni is right. She said that all the hype will die down in 2 or 3 days and then people will be faced with reality. People will not have to wait until 1 October for the increase in GST, because the cost of living is going up from 1 July. That is when the emissions trading scheme is coming in, that is when Treasury has forecast that electricity will go up by 5 percent per year, and that is when Treasury has forecast that petrol will go up by 4c a litre.

We are debating Part 1 of the Taxation (Budget Measures) Bill today. This part increases the rate of GST. Trevor Mallard proudly got up and showed to the Committee the increases in GST that people will pay on various incomes. My message this morning is to National members. Steve Chadwick is absolutely right when she says: “Wait and see.” There is no reference to the impact of the emissions trading scheme in people’s average incomes.

I come back to page 9 of the Budget document. We have just heard from the co-leader of the Green Party, who said that this is actually a subsidy from the poor to the rich. Well, I say to Metiria Turei that at least those people earning less than $40,000 a year get something. The Budget talks about an increase of 0.7 percent, and they will have to give back only 0.4 percent. So although they will not get much, at least they will get something. But we should look also at the big group of people in the income bracket of $40,000 to $85,000. The Budget forecasts here in black and white that they stand to get a net 0.4 percent out of it. Treasury forecasts that that whole benefit will be wiped out by the emissions trading scheme. It is no wonder that members of the National Party’s grassroots are revolting against the emissions trading scheme. It is no wonder that a resolution was put at the central North Island conference of the National Party last week calling on the Prime Minister and the Minister of Finance to suspend the emissions trading scheme. It is no wonder that the Tāmaki electorate, where I live—Allan Peachey is my local MP—have a remit before the National Party’s Auckland conference in a fortnight’s time.

I say to Labour that Steve Chadwick is right and that Carmel Sepuloni is right. But Labour members should get out and criticise the emissions trading scheme. They talk about inflation of 5.9 percent. They should go out and tell the people that electricity is forecast to go up by 5 percent. They should go out and tell people that the price of petrol will go up. People will see those things soon. Carmel Sepuloni is right: people will not be fooled for ever. I say to members of the National Party that people will see it a lot earlier than some people think they might.

I will explain to Louise Upston—who represents the electorate of Taupō, which is an area that has huge amounts of forestry—why GST is going up. Well, the reason it is going up is that there is an allocation of an extra $1 billion to people who planted trees in the 1990s and early 2000s, and also in the 1970s and 1980s. Those people planted trees and are now retrospectively being given over $1 billion of credits for those trees. It is a tragedy because there is no guarantee that the Kyoto Protocol will be extended. There is no guarantee that New Zealand will have any commitment beyond 2012.

In this measure we have a wealth transfer. It is not necessarily to rich people; it is to people who planted trees in the 1990s and early 2000s without any expectation of this massive subsidy. Although the National MPs in this House may want to put their heads in the sand, the members of National Party are not dumb. They see it, Paul Henry on Breakfast this morning sees it, and Steve Chadwick sees it. She says that we should wait and see. Time will tell, and people will realise that there is no net gain to them. Yes, there is redistribution.

Hon CHRIS CARTER (Labour—Te Atatū) Link to this

I rise in the Committee in an unusual circumstance, in that I agree with John Boscawen. It is not often that I do that, but I certainly agree with the comments he just made about this Budget.

Hon DAMIEN O’CONNOR (Labour) Link to this

This Budget is a disgrace. It is a very dumb Budget if one wants to run a smart economy. It is a regressive Budget if one wants to run a progressive economy. I will quote from Bill English something that most people in this Parliament would accept: “This lacklustre performance from the export sector lies at the heart of our growing vulnerability.” I ask what this Budget did for the export sector and for the primary drivers of that sector, the farmers and horticulturalists. Well, not once in the Budget statement did Bill English, whose brother is the chief executive officer of Federated Farmers, mention agriculture or horticulture—not once. In fact, he made only a brief reference to exports or exporters. So how will this Budget grow our economy?

We should look at a few reports on our economy, because we would see that there are some challenges going ahead. We accept that we need to have better performance from the export sector. New Zealand’s largest single vulnerability is now the large and growing net external liabilities. But having identified this vulnerability, what does this Budget do about it? Well, to quote Bill: “Very, very little.” If we do not grow our earnings, no amount of shuffling around of tax rates and tax benefits will get us out of the hole we are in, because we need to be driven by greater exports up and down this country.

Not once was agriculture mentioned. That is a disgrace. But worse than that, if we had a productive sector wanting to invest in higher levels of productivity, new technology, and better machinery, the Government cut the depreciation allowance right out from under its feet—right out from under its feet. I was talking with one of the largest exporters in this country less than 2 weeks ago. He said we needed a higher level of depreciation allowance for new plant and equipment to lift the level of productivity in this country. John Key has said a lot about productivity, but he thinks productivity is paying less to workers to give more to the people at the top. Well, he did that, I guess—I guess he did that in the Budget. Yes, he has given crumbs to the people at the bottom and given a bigger slice of the cake to the very wealthy of this country. That is immoral. It is absolutely immoral, and it is dumb, dumb thinking if we are trying to develop a smart economy.

People will be packing their bags and going to Australia, because no amount of tinkering with the tax rates will make up for the huge gap between what we can pay workers in this country and what Australia can pay workers, and its higher savings rate, and its better superannuation benefits. But what did this Budget do to address that? Nothing—absolutely nothing. It is a pathetic Budget from a mean Government that does not understand the terms “fair” or “equitable”. It has driven this economy further behind. There is nothing for the export sector and nothing for the farmers. In fact, if there were farmers earning over $70,000 a year, they might have benefited more. But Federated Farmers, reluctant as they may be to criticise the Government, admitted that very few farmers pay tax. So they will face higher levels of GST. I say to them that if they are bleating about the emissions trading scheme’s cost to their business, they should sit down and do a calculation about the increased cost from the rise in GST. It is about time they did that, and Connor English should get off his chuff as a chief executive, challenge his brother, and say: “You, Mr English, my brother, have imposed huge costs on the farming and export sector and offered us nothing by way of your Budget.” They do not have a vision—

CHRIS HIPKINS (Labour—Rimutaka) Link to this

I am looking forward to the contributions from the Māori Party to this debate. Driving home last night, I had to stop for petrol. The Māori woman behind the counter asked me “Is the Māori Party really going to vote to increase GST for me? Is it really going to vote to increase my GST? I have checked it out on the website and I do not get much of a tax cut. I am on a reasonably low income. I am working behind the counter at a petrol station.” She told me that she had voted for the Māori Party and that she was pretty surprised that, given all of its rhetoric before the election, its members were now coming into this House to vote in favour of increasing GST.

She had seen Hone Harawira’s comments in the paper yesterday. I told her not to worry, because I knew that Hone Harawira was a man of great courage. I do not think Hone Harawira would ever say outside Parliament something that he was not willing to come down and stand eyeball to eyeball with the National Government to say in this Chamber. I think he has a lot of courage and he will come down, he will be in the Chamber, he will take a call, he will speak against a rise in GST, and then he will cross the floor and vote against it. I do not think Hone Harawira would be a lion out in public and then be a pussycat curled up in John Key’s lap here in the House. I do not think Hone Harawira would do that. I look forward to his joining us in the Noes lobby when it comes time to vote against this increase in GST, which will hit Māori particularly hard.

The people in my electorate ask me what is in this Budget for them. I say to them that for the 69 percent of people in my electorate who earn under $40,000 a year the answer is not very much. Most of the people who earn under $40,000 a year, according to the tax table that was produced with the Budget, will get less than 25 bucks a week in their tax cut. They will pay at least another 13 bucks a week in increased GST, so that is less than 10 bucks a week in the pocket. If they have children in early childhood education, they will be looking at about another 25 bucks a week per child for early childhood education. They will be worse off. If they are superannuitants who have had their home help cut, they will be worse off. If they are tertiary students who now have to pay extra on their student loans, they will be worse off. Even worse, if they want to be tertiary students but find they cannot get into a university or a polytechnic, they will be worse off. They may get an extra 10 bucks a week—that is if they are at the highest end of that 70 percent who earn under $40,000. If they are on that $40,000 mark, they will get about $9.94 a week according to Bill English. But for those people down at the bottom end, at the minimum wage level, who earn around $28,000 a year it is about five bucks a week. That is worth about two or three packets of chewing gum to the people on the lowest incomes. The tax cuts from the National Government are certainly not enough for a block of cheese or even half a block of cheese for those people on the lowest incomes. National is interested only in those who are at the top of the heap.

I am really looking forward to hearing the contributions from the Māori Party members, who campaigned before the election about removing GST from food altogether. I am looking forward to hearing their justification for voting in favour of a 2.5 percent increase in GST—hiking up the food and grocery prices for every working family in New Zealand. And it will not be just food and grocery prices that will be going up, either; it will be rates, insurance, and all the other services that will go up as a result of the extra 2.5 percent on GST, which will go up to 15 percent. It is a tax swindle, not a tax switch, as the Government has talked about.

The hollow rhetoric from the hollow men in the National Government is simply misleading. It shows that their promises before the election were simply a hoax. They promised that everyone could have a tax cut, that they would not increase borrowing to pay for it, and that they would not cut public services. Well, they are giving tax cuts to the people on the highest incomes while those on the lowest incomes face a tax increase through higher GST. They are increasing borrowing and cutting spending on public services. They are cutting spending on health. They are not allowing health spending to keep up with the growing population or the growing demand. Health spending will not keep up with the demands of an ageing population, so people will be paying more.

I heard Ganesh Nana from Business and Economic Research Ltd on Radio New Zealand National this morning saying that in the short term this Budget is affordable but in the long term the tax cuts the Government has delivered are not affordable. The National Government is mortgaging up the nation’s children and grandchildren to pay for the tax cuts it is dishing out today.

STUART NASH (Labour) Link to this

I heard the most amazing thing in the Chamber when my colleague the Hon Damien O’Connor was speaking a few moments ago. He asked what this Government had done to increase the growth of this economy, and Dr Wayne Mapp, who is the Minister of Research, Science and Technology, said it had cut taxes. That was what the Minister of Research, Science and Technology said about how to grow the economy. He said the Government had cut personal taxes. My colleague David Shearer stood up here and asked what had happened to the funding for research and development, which we need in order to drive the economy forward. The best answer that the Minister could come up with was to cut personal taxes.

I can picture National Ministers sitting around the Cabinet table and Bill English asking what the Government could do to drive the economy. Dr Wayne Mapp would have had his head down, and Bill English would have asked Dr Mapp what he thought the Government should do to drive economic growth. His reply would have been that National should cut personal taxes. Why did he not stand up and say the research and development spend needed to be increased, or that we should at least go back to what Labour did? Did he stand up and say that? Did he stand up and fight for those companies in this country that require research and development funding in order to drive this economy forward? That is what is needed. We have the smart men and women of this country saying we need to invest in research and development and develop a high-class, highly educated economy. We need companies that can take things to the global market. The Government has done nothing about that. It has cut research and development spending to half of what Labour provided. It is one of the more ridiculous things that I have heard in this House, and I think it is a crying shame. Quite frankly, it astounds me, because I really thought Dr Mapp was better than that.

I would like to talk about another thing that astounds me—

METIRIA TUREI (Co-Leader—Green) Link to this

It is a shame that we do not have the pleasure of John Boscawen’s company. In his earlier contribution he said that those on the very lowest incomes should be terribly grateful that they got 85c or some such in the Budget, because they could have got nothing. He is quite right. John Key’s Government had a choice about who would benefit the most from this Budget and who would benefit the most from the personal tax cuts in the Taxation (Budget Measures) Bill. His decision was that those on the lowest incomes would not benefit the most, and certainly that we should not have a progressive and fair tax system or progressive and fair tax cuts in this Budget. John Key’s choice was that the richest people in this country—the richest New Zealanders—should benefit the most. We certainly see that that is the case. Of course, John Key could have chosen differently, but he did not. He has chosen to increase the gap between rich and poor.

Earlier I talked about an alternative—and I see that John Boscawen is now here—to this tax cut regime that would be progressive and fair, which is having a zero tax rate for the first $10,000 of income earned. I mention in relation to that alternative that not only is it progressive, fair, and cheaper than the current tax cuts proposed in this Budget and in this bill, but also it is used in many other OECD countries. In Australia the zero tax threshold is $16,000, in Canada it is $10,000, in France it is $5,600, and in Germany it is $7,800. We certainly would not be leading the charge on a tax-free band of income that is progressive and benefits those on the lowest incomes. Of course, in those countries too they have much higher tax rates at the top. In Australia, for example, there is a 45 percent tax rate for those who earn over $180,000. So it is a more progressive system of tax than we have here.

One of the other provisions in this part of the bill is the increase in GST. That is an additional regressive tax on top of the regressive personal tax cuts that are being proposed. The increase in GST is not fair, because it will hurt the poor more. We know that those on the lowest percentile or 10th percentile pay 14 percent of their income in GST, and those on the very top percentile pay only 4 percent. So proportionally those on the very bottom percentile will pay more GST in proportion to their income than those at the very top. Therefore any increase in GST is grossly unfair.

That is why the Green Party continues to propose the much fairer system of a capital gains tax, excluding the family home. In the long term that system would return some $4.5 billion to the income sector. It would also broaden the tax base across the community and provide significant incentives for a shift in investment away from the property sector into more productive investments. The John Key Government says it wants to do that, but it has done nothing to make sure that it happens. It has no kind of strategy to ensure a genuine shift of productive investment away from a property boom into more productive areas.

The Government had another choice with tax cuts, whereby people on the lowest incomes could benefit. Inequality is one of the bigger issues that this country faces. The Greens released the Mind the Gap package on Monday, and in it we proposed that the in-work payment, which replaced the child tax credit and applies only to some families, should be extended to apply to families at the very bottom of the income sector. Those families are beneficiary families; 140,000 families do not qualify for the in-work payment because they are beneficiaries or they do not meet the working hours criteria. The children in those families live in the worst poverty in this country. Some 200,000 children live in the worst poverty and they are the children of these families. Why are these children suffering just because John Key wants to put thousands of dollars in the back pockets of some very, very rich people?

It would cost around $300 million a year to extend this payment, so there is a cost.

LYNNE PILLAY (Labour) Link to this

First, I commend Metiria Turei for a great speech. I totally agree with all the points that were raised. We all know on this side of the Chamber—

CAROL BEAUMONT (Labour) Link to this

One of the most annoying things I have heard in this debate so far is that every time members on this side—Green or Labour—outline the absolute unfairness of the tax changes that are being made by the Government, we have levelled at us that our comments are about the politics of envy. I can only conclude that the reason that little Crosby/Textor line, no doubt, about the politics of envy is being trotted out is that those members know that what we are saying is true. They know that the small tax cuts that people on low and middle incomes will get will be completely offset by increases in GST and other inflationary pressures.

That is unfair. How just is it that those on the lowest incomes, who cannot make ends meet at the moment, will get a paltry increase in income, while those with more than enough will get huge increases? How just is that? How just is it that they will face significantly higher costs as a result of inflation peaking at 5.9 percent, which will wipe out their tax cuts? How just is that? How just are these changes, when they follow on from the previous unfair tax cuts made by this Government? In the electorate of Maungakiekie, where I am working, 64 percent of people earn $40,000 or less, and they received no tax cut in 2009 or 2010. Now they will get a paltry tax cut, which will be offset by increased costs. How just and how fair is that? Members opposite can call my comments the politics of envy if they like, but they know that that position is not fair.

I want to talk about the economy. The rhetoric of the Budget—and we heard it leading up to the Budget, and we hear it in the Budget-speak—is all about rebalancing the economy. The Government says that we will have a smart economy, and that it values education. Actually, the only measure to appear in the Budget is the waving of the magic wand of tax cuts. Suddenly, the economy will be rebalanced! Suddenly, there will be the growth in productivity that there is a lot of rhetoric about! There is a lot of rhetoric about lifting productivity. Nobody in this House would disagree about the need to lift productivity, but talking about it is not sufficient. Where is the investment in people? What is going on in terms of tertiary education funding is social and economic vandalism.

I will talk particularly about investment in people who are already in the workplace. There are further cuts to adult and community education, which will affect those who want second-chance learning. Where is the money for industry training? Where is the money that would actually lift us in terms of the technical skills we need? We have a structural skills problem in New Zealand. Where are the initiatives in the Budget to deal with that? I ask that somebody opposite stands up and answers that question. Eighty percent of the people who will be in the workplace in 10 years’ time are already in the workplace, so to change our skills deficit we cannot just invest in people entering the workforce; the Government also has to focus on investing in those who are already in the workforce. People who, in their own time, want a second chance at education through adult and community education are out of luck in many parts of New Zealand, and I am sure that position will get worse. What about those who want to learn when they are in the workplace? Where is the extra funding for that kind of learning? There is a lot of talk about productivity, but without the skills to change how work is undertaken, without the skills to implement and utilise new strategies and new technology, we will not go forward as a country.

When we look at the reduced increase in funding for research and development, the complete absence of initiatives in terms of skills, and the absolutely minuscule funding for tertiary education, we have to ask ourselves how serious the Government is about lifting productivity. The answer, I am afraid to say, is it is not serious at all. Cutting taxes will not lift productivity. Other measures have to be taken. There have to be economic development strategies. There needs to be investment in our people. I would have really appreciated seeing some effort put in that area, but, no, there has been none.

METIRIA TUREI (Co-Leader—Green) Link to this

I will briefly refer to the corporate tax rate, which is being cut in Part 1 of the Taxation (Budget Measures) Bill. We know that the corporate tax rate will go from 30 to 28 percent. We also know that this Government has an intention to continue its approach concerning alignment, and I wonder whether—we have heard nothing, as far as I am aware, from the Government at this stage—the Government, in fact, intends to eventually bring the top tax rate down to 28 percent. If it is truly committed to alignment, that is obviously what it will do next. The question is whether it would do that in an election year—which would be the next Budget—or afterwards. Will the Government tell New Zealanders that it intends to not only lower the top tax rate by 5 percent in this Budget, which is twice as much as the tax rate has been lowered for those on the lowest incomes, but that it intends to give those on the very top incomes another tax cut in the very near future to 28 percent—the corporate rate?

That discussion has not been raised yet in the debate on the corporate tax rate, as far as I am aware. It is of serious concern if it is the intention of the Government to continue to lower the top tax rate, because the burden and the cost of that will be borne by those at the very bottom. They will pay, and continue to pay, not only for the corporate tax rate, whether in GST increases or in some other form, but also for increasing cuts to the top tax rate.

I referred earlier to one of the other choices that this Government had to reduce the gap between rich and poor, income disparity, and inequality in Aotearoa. I described the alternative that we had proposed in Mind the Gap regarding the in-work tax credit. I follow that up by saying that if the in-work tax credit were extended to those who are on benefits and those who are not working and who currently do not meet the hours criteria for paid employment, we would see $60 a week in disposable income going to 130,000 of the poorest New Zealand families who have up to three children. The 10,000 poorest New Zealand families who have four or more dependent children would benefit even more. It is about benefiting and supporting our children, the children who need the most because they are the most vulnerable and the poorest.

Part of it is also about housing. There are clauses in the bill that deal with housing. What is obvious, and my colleague from Labour talked about this earlier, is that this Government has cut provision for the building of new State houses. It has cut at least $100 million from the State housing budget such that there will be no upgrades and no building of new State homes. That is a disgrace. We have 10,000 families on the State house waiting list. All that is happening is that those families are churning around through the existing State housing. Some come out and try to get into private rental housing; some go back into State housing. The waiting list has continued to churn. This Government is doing nothing to provide housing—homes—for our most vulnerable families. Those are families who are desperate just for somewhere to live. Instead, we have two or three families crowded into private rentals that are expensive, cold, and damp. That is causing $1 billion worth of health problems from cold, damp, overcrowded housing. Yet this Government will give thousands of dollars in cash to the richest people while families are desperate for just somewhere to live.

This is the Aotearoa that we have now—an unequal country where those families who need somewhere to live have nowhere, because this Government will not build houses and invest in those families. This Government will spend $10 billion on new motorways, which are holiday highways for their friends, but they will not spend money on homes for our families who need it the most and for our children who are in the worst poverty—the 200,000 children who live in the worst poverty in this country and the poorest families who are in desperate need. This Government does not even see those people. They are invisible to this Government. They do not know them, they do not see them, they do not care.

Hon PETER DUNNE (Minister of Revenue) Link to this

I take a brief call to respond to some of the points just made by the member who has resumed her seat, Metiria Turei. She asked whether some dastardly plan was afoot to align the personal and corporate tax rates at 28c at some point in the future. I disillusion her by saying that there are no present plans to move in that direction. The Government’s medium-term intention remains the alignment of rates, but, frankly, that will occur as fiscal circumstances permit. If one looks at the Budget tables and the Budget figures, one sees that there will not be a rapid path in the direction that she fears and that others would welcome.

I come to the real point that lies behind the issue. As the Tax Working Group disclosed, the big issue was the discrepancy between the top personal rate and the trust rate, because over the last decade, since the Labour Government in 1999 hiked that top rate, we have seen a massive explosion in the use of trusts.

MOANA MACKEY (Labour) Link to this

I thank the Minister in the chair, the Minister of Revenue, for taking a call. You know, it is interesting that the Minister was responding to the Green member Metiria Turei. Well, she talked about people and about the impact of this Government on people. With the greatest of respect to Government members, I have been noticing that they are not talking about people. They like to talk about the taxation system, but they do not like to talk about how that system works for the people of New Zealand, because these changes will not work for the people of New Zealand. The Minister said the Government may be looking at making a further alignment of tax rates, as fiscal circumstances permit. Well, fiscal circumstances do not permit the changes that are happening in this Budget and in this legislation. In fact, we have a hole of half a billion dollars coming from a Government that promised not to borrow in order to fund tax cuts. Members on this side of the House would argue that fiscal circumstances do not permit these changes to be made, so why should we have any confidence that the Government will wait for fiscal circumstances to permit further changes to be made?

The Minister of Revenue also mentioned the revenue windfall that will come from the alignment of the trust rate and the personal income tax rate. Well, if there is to be such a windfall, why are we increasing GST? Why do we need to increase GST when the changes to the income tax rates, by the way, as an unintended consequence happen to deliver a $1,000 a week tax cut to someone who is on a million dollars a year? Why are we doing that if we have to raise GST? Clearly, the revenue windfall will not be as great as the Minister and the Government would have us believe, because we have to load a tax increase on to the poorest families in New Zealand, which John Key promised before the election that he would not do.

DAVID SHEARER (Labour—Mt Albert) Link to this

I want to take another call in the debate on Part 1 of the Taxation (Budget Measures) Bill. Basically, Tracy Watkins has it pretty much right: the Budget is an “Old-fashioned vote-winner”. It is not really about increasing our productive economy, and it is not really about trying to grow our economy; it is really about the Government getting back into power in 2011.

There is a lot of positive talk out there about the tax cuts and how much they will bring in. I believe that over the next few days, as we start to unpick what the Budget really means, we will get to the real core of what it means—that, in effect, the small amount of money that people on the average wage will get in their hands will be chipped away by GST, by power prices, by accident compensation, by tobacco tax, and by increased rates, if one happens to live in Auckland, to pay for the super-city structure. On top of that, there have been the lowest wage increases in a decade. When the combination of those facts sinks in, people will start to understand that the Budget, as we have been saying today, is an enormous swindle, and it will leave a bitter taste in people’s mouths.

What I want to talk about is what the tax cuts mean in terms of our productive economy. Let us take a look across the Tasman, as this Government always wants to do, and see what the Australians are doing. They will decrease their company tax rate down to 28 percent, like New Zealand is doing. We have got the jump on them, as the Government says. But companies in Australia pay superannuation contributions of 9 percent to 12 percent. Let us think about how much money in that economy—how much savings—is available for the productive sector to reinvest in the economy. What has been done here in New Zealand? The Government has dropped the employer superannuation contribution from 4 percent down to 2 percent. Our savings are woeful. In Australia people understand that increasing their savings, increasing their capital to be able to invest into their productive economy, is the way forward.

Australia has given a 40 percent tax credit to its innovative companies—a 40 percent tax credit. So a company in Australia that invests in innovation gets 40 percent of its tax back for its efforts. We used to have a tax credit, and it would have doubled our business research and development. Instead, we have the State subsidising our companies. The State, which cannot afford to do so at the moment, is subsidising our companies. On top of that, we have a farcical scheme called Primary Growth Partnership. Thirty million dollars was supposed to go into the Primary Growth Partnership in 2009-10. How much has gone out of the scheme? About $3 million went to greenhouse gas research. The rest of it has delivered nothing. So 18 months after the Government axed the Fast Forward Fund, which transferred $700 million into productive research, what do we have? We have nothing—zip, zero—going out of the Primary Growth Partnership. For 18 months, during which our scientists, in combination with business, could have been investing in our productive economy, they have not received a thing. What has happened as a result? I will tell members. Thirty-six staff from AgResearch’s wool and meat sector have been laid off. That used to be a productive enterprise. Under this Government, it will no longer be a productive enterprise. We have lost 12 to 15 people from the Institute of Environmental Science and Research. We have seen today that the Budget’s reprioritisations, as the Government is calling them, will move money out of environmental research and out of heath research, and a bunch of good policies will be cut as a result.

JO GOODHEW (Junior Whip—National) Link to this

I move, That the question be now put.

The CHAIRPERSON (Lindsay Tisch) Link to this

Before I put the question on Part 1, there are four amendments to Part 1 in the name of the Hon David Cunliffe. The three amendments to clause 45 are not in order, as the Minister has issued a financial veto certificate in respect of each of them. These certificates are on the Table.