Taxation (KiwiSaver and Company Tax Rate Amendments) Bill

Hon BILL ENGLISH Link to this

Andrew Little knows that. If he thought this was a great idea, he would be coming in here to get the political credit, but he is staying out there. So Dr Cullen’s challenge is to explain to the households of New Zealand that this is what he is saying. The Government will keep spending up large—$3.785 billion of new spending in this Budget—so it can win the 2008 election with people’s taxes, and it will cut New Zealanders’ consumption and make them save in order to cure the inflation that he caused. That is the recipe. That is why 50 percent of New Zealanders will not take it up.

He has made it more attractive, but they just cannot afford it. After 8 years of a growing economy, nothing has come back to New Zealanders. What lies behind this bill is the fundamental problem with Labour. Dr Cullen imagines himself as engineering the economic outcomes for New Zealand. He is absolutely dismissive of the idea that any proceeds of growth should be allowed to be used by households, and that they should have any say at all over what happens about the future of this economy—it is all him. Labour does not fundamentally trust the people of New Zealand. The effect of that is the worst growth outlook we have had for 15 years, and that is 5 years of 2½—

Hon BILL ENGLISH Link to this

Well, even in the depths of the recession in the 1990s it turned out that we got up to 4 to 5 percent growth. Now we have an economy that will grow at 2.3 percent, and that means that the gap between us and Australia will continue to widen. The income gap will continue to widen.

We support some incentives for savings, but we also support a much better balance between a focus on savings for problems that will actually come up in 20 to 30 years, and a focus on growth in an economy that needs to yield higher incomes for New Zealand households so they can make their own choices, take their own opportunities, express their own innovations, and fulfil their own aspirations, all of which are increasingly different from those of the Labour Government.

Hon Dr MICHAEL CULLEN Link to this

Oh, both. That was Lockwood Smith, who has it both ways at everything in life. He can actually have the tax incentive costing employers $2 billion a year, but somehow it is the workers paying for it. This is mickey mouse economics at its worst.

Hon Dr MICHAEL CULLEN Link to this

No it isn’t? It is what goes down well in Nightcaps—it is the kind of economics they run down there for the poor old member from Southland! When will he front up with some solutions around savings and investing?

Let me take his leader’s numbers—$2 billion a year. That figure is actually completely impossible. He thought that everybody who is employed is in full-time employment. There are actually 1.35 million full-time equivalents in employment, and if 50 percent signed up, as Mr Key said, that would actually cost the employers $1.35 billion a year. But half of that is paid back straight away in the tax credits—$670 million. One-third of what—

Hon Dr MICHAEL CULLEN Link to this

The point of that is that John Key cannot add up, for a start, and his finance spokesperson is even worse: he was out by a factor of three. When one is a shoddy money trader, that stuff may do, but it does not do when one is trying to run a country, and when people’s success in life depends on what one does. Borrow and hope went out of fashion 25 years ago, and Mr Key said today that he wanted to borrow more money—that is what he actually said in this afternoon’s speech. Then, if there was only a 0.5 percent moderation of wage demand in total over the next 4 years—in total, not each year—that $670 million would come down to a bit over $300 million a year. That is actually—

Hon Dr MICHAEL CULLEN Link to this

No, a 0.5 percent moderation in wage demands for a 4 percent contribution into superannuation is actually a pretty good deal.

Bill English’s problem is that he has been on the parliamentary superannuation scheme for too long. He does not realise how it works out there in the real world for the average person who actually expects to save in order to increase his or her savings. The average person does not think there is a magic tap that gets turned on and savings come out of it. We have a finance spokesperson who thinks that with a current account deficit we should be increasing the rate of growth in consumption. What on earth is that supposed to be? It will not even sell out there in mickey mouse land, which he tries to appeal to.

What do people say? Standard and Poor’s says that this will maintain our triple A foreign currency rating, and, importantly, that the Budget includes measures to boost contributions to KiwiSaver to promote high savings. What does the New Zealand Exchange say? It says: “There’s no doubt we’re swimming in a global talent pool. Now employers will be able to contribute to their employees’ savings in a low-cost, tax-efficient way, adding a degree of flexibility to structuring pay packages that will help them to attract and keep the best people,”. This will actually help to keep the best people in New Zealand. He does not want to do that; he thinks that if people are given a five-bucks-a-week tax cut, then they will stay in New Zealand rather than go to Australia. That is what he is saying. No wonder his leader ripped up every page of the speech as he went along—screwed it up and threw it away. That is all it was worth this afternoon as a speech in the House; it was so shallow that it was unbelievable, given the challenges facing this country.

The fact is that the member has fallen through the trapdoor I talked about a week or so ago. He is voting against a company tax rate reduction; the biggest—and only—tax rate change since 1988 under a Labour Government. For 9 long years National did not reduce the company tax rate and we now find out why: it is opposed to it. The National Party, the party of business, opposes a cut in the company tax rate.

Hon Dr MICHAEL CULLEN Link to this

That sound members just heard was the sound of Bill English’s neck being stretched as he fell through the trapdoor. No wonder his leader will not allow him to go on Close Up in order to debate with me tonight. His leader is going to go on instead, because he thinks that he is prettier and better than Bill English is. Well, he is half right in that respect.

He is going to vote against a tax credit that will add to KiwiSaver contributions and that will help lower-income people make the decision to save, because proportionately it is worth more to somebody on $25,000 per year than to someone on $50,000 per year or $100,000 per year. It is worth basically four times as much to somebody on $25,000 per year compared with somebody on $100,000 per year. It is a very good tax credit, because it will increase people’s savings proportionately over the long term.

Of course, the National Party does not want to see a more equal distribution of wealth over the long term. It does not want to see people more independent in retirement. It does not want to see people building up their own savings, just as Australians are building up their savings. No wonder it has got no answers to New Zealand’s economic and social future. No wonder National members sat there like stunned mullets as they came in at 2 o’clock wondering what to do about this Budget. It swept the ground out completely from under their feet. All they could do was come back and say that there should have been a personal tax cut.

Mr English rejected a personal tax cut publicly on more than one occasion over the last few weeks; he knows it would make no sense at all. He knows that in a country with our savings and investment problems and with our current account deficit it would be madness to be feeding more demand into the New Zealand economy. He knows that it would keep interest rates higher for longer. He knows that it would keep the exchange rate higher for longer, as well.

Hon Dr MICHAEL CULLEN Link to this

They are very, very silent now. He knows that it is economic nonsense, but for the sake of trying to make a cheap speech in the House this afternoon, he got up and somehow suggested that is what should be done.

We are going to have the National Party voting against a corporate tax rate cut, and voting against a tax credit for savers that helps those on modest incomes more. I say to National members: make my day; please do it. I ask them to please carry on opposing it for as long as they can all the way through tomorrow.

Dr the Hon LOCKWOOD SMITH Link to this

I ask Trevor Mallard, who is interjecting, whether he honestly believes that low-income wage and salary earners—those on $20,000 to $25,000 a year—who pay 20 percent of their income in PAYE if they have no children, will be able to put 4 percent of their income into KiwiSaver.

Dr the Hon LOCKWOOD SMITH Link to this

Of course they will not. So they will get no benefit whatsoever. And what is worse is that not only will they get no benefit but, when they come to their annual wage negotiations, their bosses will say: “Uh-uh! The Government has already forced us to put money into its scheme, and there is no money to increase your pay.” So the low-wage earners will miss out twice. They will miss out twice, because they will not get any pay increase.

Let us remember that when people do not get an increase, this Labour Government has a habit of calling that a cut. Members will recall Labour said that with regard to national superannuation. When the rate of increase was reduced in the late 1990s by not linking it to the movement in the average wage, Labour called that a cut. So if Labour members are honest, they will call this measure a measure to cut wages, as well. Low-income people will not get the same wage increases that they would otherwise have received, and they will not be able to put 4 percent of their incomes into the KiwiSaver scheme. They will not get the $20 a week tax credit, and they will hurt. They are hurting already. Working for Families does nothing for low-income people with no children, and what is more, they pay significant tax. At $25,000 a year of income, as I said, 20 percent goes in PAYE. Those low-income people have to pay a lot of tax.

This Budget does nothing for low-income people. Their costs have gone up very much in the last few years. The cost of housing has gone up hugely. This Budget does nothing, and this bill will do nothing, for the low-income New Zealanders whom Labour once used to believe in and used to support and help. It is little wonder that ordinary New Zealanders are leaving the Labour Party in droves.

R DOUG WOOLERTON Link to this

Dr the Hon—is it that way round?

R DOUG WOOLERTON Link to this

I would like to be more positive than him, anyway. I do not usually talk about my family, but I want to do so tonight, because I want to be positive. But before I do that, I want to say that I think taking the company tax rate down from 33c to 30c in the dollar is positive. I think it is long overdue. It is something that needed to be done in this country. Now it has been done, and I applaud the Government for doing it. New Zealand First would like to take the rate down further, but that is something for the future.

As we are talking about incentivised savings and tax cuts, I want to talk about the Working for Families package and how it affected my family. My youngest son, who is a hard-working funeral director, has a wife and two young children, the second of whom was born only a year ago. We were talking about Working for Families during the time his wife was unable to earn an income to help with the bills. At that point—I am quoting from memory, and I am not as exact as some of my more financially learned colleagues—I think, under National’s tax cuts, I as an MP would receive something like $90 a week, and my son, with a newborn babe, would earn no income at all from tax cuts, or perhaps, at best, $5 a week. Under Working for Families, my son now receives something like $120 a week extra, and I—and I do not believe I need anything—receive nothing. I would like it, but I do not believe I need it. I think that is right, I think that is proper, and, more than any of that, I think that is just.

We are more than happy to see that sort of thing continue. It is a tax cut, it is targeted, and it is targeted at the people we want to encourage in this country. I go on talking about my son and say that if the KiwiSaver scheme, incentivised as it is with an employer contribution, will help him and my daughter-in-law, and my other family members, to save for their future, then I say it is fantastic and we are voting for it—and we are. These things are of real interest, because I believe that at some point in life we do have enough.

I know that people say one has to have more and more to invest more and more. I have three brothers—I said I would talk about my family, and I hope they are not listening to this—who are millionaires of substantial means. Good luck to them; they worked really, really hard and I am very, very proud of them. But I have to say that at this point in their lives, when they have that wealth, rather than entrepreneurial investors I see cautious people who are intent on retaining their wealth. I think that that is right and proper too. But members should not come into this House and say that tax savings for the rich will go into investment, because they will not, and they have not for anybody I have known in my lifetime. Tax cuts go into consumption. That is what this Budget is about. This Budget is about trying to cool an overheated economy without putting penalties on people, and I think that has been done in innovative ways and in ways that protect the future of families and people in this country. I applaud that, and New Zealand First applauds that.

I am not saying that wealth should be punished. I am not suggesting in any way that the seeking of wealth—and I am saying this for my brothers, because they are all bigger than me—should be inhibited. Hard work should be encouraged, and while I am talking about hard work I must say that I do not see my son, who is receiving money from Working for Families, working any less. I do not see that his drive to succeed is any less than it has ever been. In fact, I see just the opposite. He is able to go to work and give his skills, his sympathy, and his empathy to the people who need it without having to worry that he might have to go out and get another job or that his beloved wife will have to go out and work when she should be looking after that child in its first year, and things like that. We are not talking about losing incentives to work. I will always work. My sons work hard. My daughter works hard, and my brothers have worked hard, and because they have been, shall I say, perhaps more cautious than me and perhaps less profligate than me, they are commensurately wealthier, and God bless that fact. I do not deny them one cent of what they have.

But I think that when we retire into our corners and talk politically we should at some point admit that there is a crossover here between one side of politics and the other. I do not like to hear the bold statement that if one gives a young person a chance not to work, then those young people will not work. That is not true. By the same token, if one says that the rich should be stopped from getting richer, that is not true, either. It is also not true to say that the wealthier a person gets, the more that person will invest. I know from experience that that is sometimes true, but not always. New Zealand First is in favour of this bill. New Zealand First has long wanted to see company tax rates reduced and to see some incentives in the taxation system. This bill is a recognition that we need to catch up to other countries in that area. I applaud this bill.

RODNEY HIDE Link to this

I would like to vote for that bit, but I am afraid I cannot vote for this other stuff.

RODNEY HIDE Link to this

I know that the member for Waimakariri is upset that I am not joining him on this particular occasion, but I have a problem with it. One of the things that concerns me is that people are actually voting for a pay cut for the people who will go into this scheme.

RODNEY HIDE Link to this

It is a pay cut. What I want is a tax cut and a boost to people’s pay, and Mr Woolerton is voting for people who go into this scheme to have a pay cut. How smart is that? What people think about when they get paid each week is what they get in their hand each week. If people enrol in this scheme, what they will get each week will be less. It will be less—they will be getting it paid, but it will be paid into Michael Cullen’s scheme. Then he is telling people that he will pay them if they put it into that scheme, but they will not be able to get it until they are 65.

I think that it is quite a good thing that people save, but saving is not for everyone all through their lives. I pick up on what Mr Woolerton was saying about his son. It is probably not the smartest thing for him to be saving in an investment scheme right now. He would be better off investing in his business and paying off his mortgage. But what will happen under this scheme is that he will be denied the opportunity to invest in his business or pay off his mortgage. He will be encouraged to put money into the KiwiSaver and, as a consequence of his doing that, his take-home pay will be reduced. I do not know why this House is so cock-a-hoop about voting for a scheme that will reduce people’s take-home pay. [Interruption] Mr Clarkson has a point.

RODNEY HIDE Link to this

I look forward to hearing about that too, because I tell Mr Clarkson that I am just a simple man, and what I see is a reduction in take-home pay.

Here is another problem with this scheme. John Key and Bill English are quite right. This scheme is a money-go-round, and it does nothing to boost investment and saving in New Zealand—nothing. It does nothing whatsoever, because it simply takes money that people have already earned and gives it back to them if they put it into the dopey KiwiSaver scheme. That is what it does. It is money they have already earned.

If we care about the future of New Zealand and about providing for our elderly into the future, the only way we can do that is to have a bigger economy. That is the only thing we can do. If we think about it, if our economy is just this size there is only this much for everyone—it does not matter how much we have saved or invested. If our economy is only this size, that is what we have. However, if we have an economy twice as big in 30 years’ time, we will have twice as much ability to provide for the elderly. That is where we should be focusing our attention.

Dr Cullen is right: it takes investment and saving—in part—to grow an economy. By the way, it is not guaranteed that if we invest and save, we will get a stronger economy. It depends on where we put it, and that is another key thing about this scheme. I think that if Doug Woolerton’s son were to be left to his own devices, he would be better off taking his own money and investing it into his mortgage, his business, and into his family, rather than into a State-run superannuation scheme, particularly given that he has a young family. That is the point.

Investment and saving are important, but it has to be good investment and good saving. The other thing is that just letting people keep a little more of the money they earn if they save in a particular scheme does not actually generate any economic growth or prosperity. It would be far better to do this: cut taxes across the board and flatten taxes across the board. That would produce—[Interruption] Mr Woolerton says that he has heard it before. I am pleased that he listens to my speeches, because he will hear it time and time again. The great thing is that in the 2009 Budget he will hear it, and it will actually be happening. If we cut taxes and have a flatter tax system, then we will get investment, we will get savings, and we will grow the economy.

I can tell Mr Woolerton that his son will be far better off when our economy is growing at 4 percent, 5 percent, and 6 percent in real terms, rather than at 2 percent in real terms. I can tell the Māori Party that Māori will be better off if they can keep more of their money, and they will be better off if the economy is growing at 4 percent, 5 percent, and 6 percent than when it is growing at 2 percent. All this bill does is to take what money we have and redistribute it slightly, and it says that we have to save it until we are 65. It does nothing—nothing—to boost the economic fortunes of our country. That is why I tell Mr Cosgrove that I am sorry, I know he is looking forward to the day that the ACT party joins him in a vote—and I will tell him when that day will be; it will be when Labour returns to its glory days, when it actually stood up for the working person of New Zealand, actually stood up for the future of New Zealand, and when it actually had a vision for the people of New Zealand—not this little Budget that tinkers around.

In this bill the Government says to working people that it has this scheme, that it is a savings scheme, and that it knows that people do not want to invest in it. The Government is saying that what it will do is rob some money from people and that it will give them some of it back if they put even more money into its scheme. That is the deal Michael Cullen is promising New Zealanders—and Doug Woolerton is voting for a scheme that will reduce the take-home pay of New Zealanders. I do not get it. Thank you, Madam Assistant Speaker.

Hon CLAYTON COSGROVE Link to this

Yes—Mr Hide said “Roger Douglas’s.”, so I must be fair to the member. Sir Roger Douglas was part of that. That is true; it is dead right. Also, Sir Roger Douglas, as patron of the ACT party, ran a mile when that member became its leader—but we will get back to that later. However, the member is right; Sir Roger Douglas was part of the Norman Kirk scheme. The biggest act of economic and social vandalism perpetrated in this Parliament by a National Government has now taken 30 years to correct, and the KiwiSaver scheme begins to correct it today.

Is it not interesting that this bill has the first corporate tax cut since 1988? I would ask Mr Hide who gave that.

Hon CLAYTON COSGROVE Link to this

Labour—and who was the Minister of Finance, I would ask Mr Hide. It was Roger Douglas. Again, I say the cut was given under a Labour Government. I never thought that Rodney Hide would be a cheerleader for Labour, but he has proved he is today. It was not National that cut the corporate tax rate. It had 9 years to do so—9 long years—and it did not. When was the last time that a National Government cut the corporate tax rate? I cannot remember the date, but I believe it was under “Kiwi Keith” Holyoake in the 1960s.

The National Opposition turns up today and tells the business community of New Zealand that it will vote against a 3 percent reduction in the corporate tax rate. Dr Cullen said that Bill English has fallen through the trapdoor. Bill English has fallen on his head, because what did Mr English say right through the election campaign? And what did the leader of the National Party at that time, Don Brash, and John Key say right through the election campaign? They said we should cut the corporate tax rate. What did National’s leaders say up until a few weeks ago? John Key, of course, said we should cut the personal and corporate tax rates. Then, on 24 April of this year, on Morning Report, Bill English said: “and we would agree the last thing it”—it being the economy—“would need would be sweeping tax cuts”. Then he comes in here and votes against the cut in the corporate tax rate.

Every business person out there who has called for corporate tax rate cuts and who believed the National Party was in favour of business is sitting stunned tonight, as “Barmy Bob” Clarkson makes his contribution and confirms that National will not just vote against the corporate tax rate cut but vote against a measure in the KiwiSaver scheme that, as I have said, will correct 30 years of economic vandalism perpetrated by that party while in Government in 1976. The National members are very quiet over there on the Opposition benches. Mr Groser is very quiet. He may be one of the few intelligent people on that side of the House, because he knows his history. He may not know much about this House, but I give him this: he knows his history. And he ain’t arguing, because he knows that is a fact. “Barmy Bob” is also history; we know that.

I never thought I would say this in the House, but I say to National members that although I disagree with Mr Hide’s contribution, it was a far more logical contribution—a wrong contribution, but far more logical—than anything we have heard from the National Party members. Do members know why? I will give Mr Hide this: he and I have had the odd rumble, but at least he is consistent. He is consistently wrong, but he is consistent; he is consistent in what he says and in the policies he believes in. The crew on the other side of the House—the National Party members—have flip-flopped on tax cuts. That is the most recent policy they have flip-flopped on: their flagship policy of tax cuts. Today, after saying we should have tax cuts—after months and years of saying we should back business, and encourage innovation and investment, by cutting the corporate tax rate—what are they doing? They are doing the biggest flip-flop since that mob has been in Opposition, because today Mr English confirmed National will vote against the cut in the corporate tax rate.

Well, I do not know what to say. Those guys are good. The problem is that they speak out of both sides of their mouths. John Key wanders around the country—I would love to know what he will say tomorrow—going into business houses, into chambers of commerce, and into manufacturers, saying the National members are in favour of a cut in the corporate tax rate.

Hon CLAYTON COSGROVE Link to this

But they are going to vote against it in Parliament. So I look forward with relish to hearing what the chambers of commerce say about the National Party’s position on business tax. I look forward with relish to hearing that.

There have been so many flip-flops. The National crew over there has a simple strategy. Anything this Government has done that is popular, it will adopt. Any policy it has had that is unpopular, it will drop. [Interruption] Oh, the National members do not like hearing that; Tweedledum and Tweedledumber over there do not like that. But they know it is true. What will the National members do before the next election? Here is a prediction: I reckon they will probably turn to my learned friend Peter Dunne and concede that he is absolutely damn right, and that the bill he proposes today to cut the corporate tax rate was right. They will do that on the eve of an election, to try to “me too” the Government and our partners and get into power. That is what they will try.

But, you see, business people are smart. Business people go beyond reading the papers, to read what politicians and finance people say in this Parliament and what analysts say outside Parliament. They know about voodoo economics, and they know flip-flops when they see them. Mr English ruled out tax cuts as being inappropriate, after a year or two or three of ruling them in—John Key said he would drop $7.2 billion in tax cuts on the country. The National members belittle the KiwiSaver scheme. When KiwiSaver is fully ramped up and fully implemented, a person on the projected full-time average wage in 2011 will need to save about $40 a week. The result will be that $100 a week, or $5,200 a year, will go into his or her KiwiSaver account.

National members, of course, say we should scrap sustainable saving for people’s retirement. They say we should give people a tax cut. Most of the people in my electorate would get about $5 or $10 a week from National’s tax cut proposal. Although Mr Key, Mr Groser, and “Barmy Bob” over there would get $100 a week, most New Zealanders would get about $5 or $10 a week. What can someone do with $5 or $10? Not a lot. I stack up $5,200 a year—with the Government contribution, the employer contribution, and the saver’s contribution—against the $5 or $10 a week that that motley crew over there, those indecisive champions of mediocrity and flip-flop, would give to most people.

National members have told us to give a tax cut, and then they come into this House and confirm they will vote against a cut in the corporate tax rate. Well, I say today that the National Party has dived to new depths. Mr Foss is the man who knows about tax; he questioned the Finance and Expenditure Committee about his own tax return, of course—that was his priority. He understands tax, especially his own tax return.

Hon CLAYTON COSGROVE Link to this

I wonder what Mr Foss, who has a reasonable understanding of tax, will say when he goes to the local corporates in his electorate. What will he say to them? How will he justify National’s position of voting against a corporate tax rate cut, when it campaigned on the basis that it would give tax cuts? National campaigned on the basis that it would give tax cuts up until at least 24 April, when Bill English killed the policy off. What will Mr Foss say to the corporates?

The one thing that has come out of this debate today is that the National Party members are all over the shop. I tell members that we have put our Budget on the Table; we have put a solid Budget and a plan on the Table. Did we hear one policy, one creative thought, one bit of initiative or innovation from the National Party? Not one thing! Well, ours is out. Our plan is on the deck; I ask the National members to give us theirs.

TIM GROSER Link to this

The Government has challenged us to explain why we are voting against the bill. As I explained just prior to the break, we are not looking at just a bill, we are looking at a bill that the Government itself has described as the centrepiece of its economic strategy—the centrepiece of its economic strategy. That is what we are voting against, and I will tell members why. I do not know quite what lies behind the political thinking in this Budget. What I can see is that it is a political accommodation to certain political pressures by a Minister of Finance who, for eight Budgets in a row now, has had a deep and abiding reluctance to face the facts of a huge and growing Budget surplus.

This is actually a nip and tuck operation. Michael Cullen, the ultimate Budget surplus denier, faced with unmistakable evidence that he could no longer torture the statistics until they confessed, has had to own up to the reality that we have a Budget surplus. Essentially what the Minister of Finance has done is make a series of minimal concessions to those facts. What he has had to finally face up to is the fact that since he took the responsibility for economic management in this country the total tax take has gone up by $20 billion. The average wage or salary earner’s tax bill has gone up by a little less than $2,500, and a little bit of nip and tuck has gone into this Budget bill. That is why we are opposed to it. What this country needs is a coherent strategy that addresses the fiscal realities of this country.

This is, as our party leader said, a money-go-round. What the Government is trying to ask us to do tonight is to give approval to this churn factor that will cause more and more of the taxpayers’ own moneys to be recycled in various ways to very little positive effect. So instead of actually facing up to the underlying reality that has been building on the Minister of Finance over the course of the last eight Budgets for which he has had the awesome responsibility of managing this economy, he has done some minimal adjustments to accommodate some overriding pressures from the minor parties on whose support his very survival depends.

I do not know whether we are looking at the eighth and the last, or the eighth and the penultimate Budget in this sorry series; I do not think anyone knows that. The answer to that lies not so much directly in the hands of the New Zealand electorate but inside the minds of perhaps four or five increasingly nervous people in some of the minor parties as they assess the relative long-term damage to themselves of staying on board this ship.

So that is essentially the political calculation that has happened. I think that beyond that we can also see the internal political calculation. Here is a Minister of Finance with a long—and, I would have to say, very consistent—track record of opposing tax cuts, and particularly a dislike of tax cuts for “the rich” and for companies. But he has actually been manoeuvred in a direction in which he does not really emotionally or psychologically want to go. So what has he done? He has given tax relief in the form of a reduction in the company tax rate with one hand, and he has taken off with the other hand, in order to finance the KiwiSaver subsidy scheme, a net $672 million—$1.3 million gross, $672 million net. So we have here yet another example of the money-go-round approach of this Minister.

Why does he have this reluctance to face up to fundamentals? Well, what we hear is not what I call a neo-Keynesian approach to economics, it is a Palaeolithic approach to Keynesian economics—something that he learnt and perhaps I learnt 40 years ago, but some of us have just added a little to the sum of knowledge in those years. Faced with this Budget surplus he seems to think that the only issue in terms of inflation is the overall fiscal surplus or deficit. What he has never accepted is that when the Government makes real claims on real assets, it forces up prices, and when it forces up prices it leads to inflation tendencies, particularly in the non-tradable sector. That causes the Governor of the Reserve Bank to put up interest rates. That causes the exchange rate to rise.

So when the Government bids up wages—and we know that for the last 5 years, wage increases in this country have been led by the State sector—that is a claim on real resources. When the Government fills Wellington with more and more bureaucrats, such that it is hard to find spare office rental accommodation in Wellington City, that is putting pressure on real asset prices. When the Government expands its core spending, often in poor-quality areas of spending, there are very few demonstrable outcomes for this extra spending. Take the $4 billion spending on public health and look at the results of that. That is putting pressure on real asset prices. But he has failed to understand that that is his responsibility to deal with, and now things are coming home to roost.

Another Minister of Finance, not too far removed from us across the ditch, Mr Costello, yet again, using what is actually relatively more modest headroom for tax reform in Australia, initiated yet another series of a continuing process of tax reform. The economists of the Commonwealth Bank of Australia, in their analysis of that, put out the following statement: “There have been 13 significant tax cuts since the late 1970s. But history shows no clear correlation between those cuts, or the size of the cuts, and ensuing trends in consumer spending.” If that was not enough, the OECD said just a few weeks ago to the Government: “A clearer strategic direction for the tax system is needed to maximise living standards in the long term.” If that was not enough, he should have listened at least to Tom Scott.

TIM GROSER Link to this

Because there is some speaking inside the cartoon, mate. I have the cartoon in front of me, and it is a typical, very clever Tom Scott cartoon. It has a picture of Michael Cullen in the sandpit guarding the toys in the sandpit against any encroachment from others. The teacher writes: “Michael is a very clever boy who needs to learn how to share. If not corrected soon it could affect his whole life.” Well, ladies and gentlemen, it has affected the whole macroeconomic settings of this country over the last 8 years. But Michael Cullen is not prepared to listen to the OECD. He is not prepared to look at the Australian experience. He will not even follow the implicit advice of a cartoon. He has convinced himself, as a Budget surplus denier, to the point at which the evidence has accumulated beyond any reasonable stretch of imagination to where he has had to make some minimal adjustments. This churn factor, this money-go-round bill we are being asked to support, is not a coherent approach to New Zealand problems and that is the reason the National Party will not be supporting this bill.

Hon TREVOR MALLARD Link to this

I apologise to the member. There are a number of those new members around who have not really made an impression on Parliament yet, and if that is Mr Groser, I apologise. [ Interruption] Sorry? I apologise to Mr Hayes as well, just to make it even-handed. [] That is right. To accuse Mr Hayes of making a speech like that would be a terrible thing to do.

Hon TREVOR MALLARD Link to this

Oh, no. He could not be worse than Groser. But what I think is really interesting is coming down and listening to the man who was paid excessively to go around the world for years and years as a public servant, and who now criticises their wages. He was one of the highest-paid public servants in the country. He got overseas allowances and put money in his pocket all over the place, but now he is attacking the public servants of Wellington. Well, I say that for someone who apparently wants to run for Wellington Central, not for Wairarapa, that is very, very sad indeed.

The next question I want to ask Mr Groser is whether he ever got a posting to Australia. Did he ever notice what happens in Australia? He does the comparators between New Zealand and Australia, but what will the net effect of KiwiSaver be on employers in New Zealand when fully implemented? There is debate about it—it may be 1.1, 1.15, or 1.2 percent of salaries. And what does it cost in Australia?

Hon TREVOR MALLARD Link to this

The figure is 9 percent. He says that firms will flee to Australia—

Hon TREVOR MALLARD Link to this

—to pay 8 percent more, and have capital gains tax—

Hon TREVOR MALLARD Link to this

—and a few other things, and some local taxes as well.

Well, generally public servants are good, but I have a feeling that as that member has come from the public service to the National Party, the average has improved in the public service. I am not sure about the National Party; that is something that is truly debatable in the House today. But what I could not believe in the House earlier was Bill English saying that the National Party will vote against the biggest cut in company tax rates since 1988. I know that politics is turning on its head and I know that the world is upside down, but how could the party of Holyoake, the party of Marshall, and the party of Brash vote against massive tax cuts for companies? Of course it could, but I can see Mike Williams doing the phone calls now. The donations will probably all be under $5,000 or $10,000, but companies will be saying that the National Party wants to reverse the tax cuts, and they will be running to the Labour Party. I tell members that I will be photocopying that Hansard—

Hon TREVOR MALLARD Link to this

—and I will be sending it far and wide, I tell Bill English. Every employer in my electorate will get a copy of Bill English’s speech, because he said that National members are against company tax cuts. You know, a bright party—and even old Bob Clarkson knows this—

Hon TREVOR MALLARD Link to this

No, he is bright enough to know that a bright party says: “We will oppose parts of this at the Committee stage. There are bits of it that we don’t like. We can’t work out which bits, but we will get through to there, identify the bits we are opposed to, and vote against it at the Committee stage, but we won’t make tits of ourselves voting right through.” There are good bits, even from a National Party perspective, in this bill. I think that the whole bill is excellent. I think that the bill is absolutely brilliant. I mean, “Trapdoor Bill” has the noose around his neck—

Hon TREVOR MALLARD Link to this

I mean that Mr English has the noose around his neck and his legs are dangling in the trapdoor, because he got caught. He opposed something when he did not know what was coming.

Hon TREVOR MALLARD Link to this

No, he does not run the strategy. No, no, they have “Bright Gerry” doing the strategy, or Murray McCully—it is probably Murray McCully, actually, by the way they are going at the moment. I think it is a McCully approach—you know, to build up a lead and blow it. He has done it four elections in a row now.

Hon TREVOR MALLARD Link to this

I really would not go into the detail of Mr McCully. But what is clear is that Mr McCully specialises, as National’s strategist, in building up leads and blowing them—and we can see it happening here now. It is just absolutely obvious, for anyone who has any experience in politics, when something is to be adopted. We know that John Key will cuddle up to KiwiSaver. We know it. We know that John Key will not take money off ordinary punters, who will get their money for KiwiSaver. We know he is not as stupid as that. So why does that party oppose it now, which will mean having to do a flip-flop? Why would anyone who is half rational not say: “OK, every now and again Labour has a good idea, assisted by Peter Dunne”—but not assisted by all of Peter Dunne’s previous team—“and Winston Peters. There is a good package here. Let’s adopt it. Let’s go for it and get it over with.” But what do they do? They say traditional, old, Opposition crap: “We’ll oppose it for the sake of opposing it.”

Hon TREVOR MALLARD Link to this

Well, actually it is the 1999 strategy for the Labour Party policy—the bits of it they should have adopted then. In 2005 they had a very, very similar strategy—and they fell over. I am not going to complain. You know, Michael Cullen is approaching the mid-point of his career as Minister of Finance and if they want to take that sort of approach, it is something I absolutely welcome. But I would have thought that with the quality of education these days, the continuing education courses that people do, the political science that is available at universities around the country, and some of the wise old heads there—

Hon TREVOR MALLARD Link to this

Well, no—people who have gone. All they had to do was give Jim Bolger a ring. Jim Bolger would have given them advice. I rang him yesterday and got some advice. He is in Ireland. They could have given him a ring and said: “Jim, what should we do? You know, this is quite good. We don’t want to damage ourselves. What should we do?”. Any reasonable former leader—any reasonable person—would have said: “If you really agree with it, cuddle up quick. Don’t let there be any divisions, and go for it. And for goodness’ sake, don’t get caught doing a flip-flop, because that’s the fatal thing.”

Hon TREVOR MALLARD Link to this

Well, a flip-flop like Mr Clarkson on smacking, or puffing—“Flip-flop Bob”! We know that he was against it, and now he is for it. I want to make one final comment on stadia. I want to put on the record that John Key was a stronger supporter of the waterfront stadium than I was.

CHRIS TREMAIN Link to this

I will explain that to Mr Parker. This is something that, together with across-the-board tax cuts, the National Party would welcome. But this business tax rate cut comes, as I said before, like a wolf in sheep’s clothing. The wolf is Dr Cullen, and the sheep’s clothing is today’s Budget and this bill. This bill does not include just a company tax rate cut but it comes with a kick in the tail. That kick in the wolf’s tail is the compulsory matching employer contributions to employee savings, and that kick is the reason that National will not be voting for this bill.

Up front that measure looks good, and no doubt the spin on it will be fantastic. But here is a question for Labour, and particularly for those Labour members who have run businesses. Mr Parker would fall into that category. I ask Minister Parker what the single largest cost is for most businesses, particularly for service businesses.

CHRIS TREMAIN Link to this

It is the cost of labour. After materials, it is normally the cost of labour—the cost of employees. In many businesses—in fact, in most—labour is the highest cost by a long shot. For most small to medium sized enterprises—86 percent of the businesses in this country have fewer than six employees, and 97 percent have fewer than 20 employees—the cost of labour is the largest cost. I put it to that member that the cost of labour is often significantly higher than the bottom line of a business. That would be a fair comment. For most businesses, as I say, the cost of labour is higher than the profit of the business. For some it is not, but for most it is the biggest cost, and for the majority the cost of labour is larger than the bottom line, as I said previously.

Let me give members an example from the travel industry. I no longer have businesses in that game, but I do understand the figures—I have a pretty good knowledge of that industry. In the travel business, the cost of labour is 40 percent. If one is making a profit, which not many businesses in the travel industry do, and if the bottom line is 10 percent, one is doing pretty well. Let me take a business that has a $250,000 turnover, with a wages cost of $100,000 and a possible net bottom line of $25,000. Under this bill, with a drop in the tax rate from 33 percent to 30 percent, we have a 3 percent saving. So with a bottom line of $25,000 that business, which would have paid $8,250 in tax, will now pay $7,500. That is a straight tax break of $750, which is good.

I am a fair man in doing this calculation, so I will take out the credits that will be given back on the PAYE, and allow for the fact that there will be employees who do not take up the KiwiSaver scheme. So I will drop the cost of wages down to 50 percent of what I was talking about—from $100,000 to $50,000. In year 1, a 1 percent contribution will cost that business $500. In year 2 it will be $1,000, in year 3 it will be $1,500, and in year 4 it will be $2,000. That is more than the tax saving that the business will make. That situation will apply to many, many businesses in this country.

So on the one hand, Labour is out there saying it is fantastic that there is a tax break—a 3 percent drop—but Labour members forget that the cost of labour is significantly higher than the bottom lines in most of our small businesses in this country. What will happen is that the poor old small-business person will be kicked.

CHRIS TREMAIN Link to this

He or she will be kicked in the guts. In fact, it is worse than that, because the contribution costs rise for the business—to 4 percent over 4 years—and what happens if businesses cannot pass that on to the consumer, which competitive businesses like service businesses cannot? That will erode the bottom line. So instead of having, as in the example I gave, a bottom line of $25,000, that will drop to $22,750.

Members should tell me how that improves the situation for small businesses in this country. It does not. This bill is a wolf in sheep’s clothing, and that is why members on the Opposition side of the House will not be voting for it. Additional contributions on the key expenditure line could easily outspend the actual tax advantage on the bottom line, and that will be the case especially in service businesses. Members can do the numbers.

CHRIS TREMAIN Link to this

I would certainly give this speech on Marine Parade. I ask the member to listen to this.

Labour says that the contributions by employers will be taken into account in future wage negotiations. That was in Dr Cullen’s speech today. That is, if an employer pays a 1 percent contribution into an employee’s superannuation, the employee will forgo that as part of the rest of the wage rise. Let me quote the Budget speech: “The Government expects”—members should note that word; it does not guarantee—“that the phase-in of the compulsory”—and take note of that word as well—“matching employer contributions will be taken into account in wage and salary bargaining as is the case”—this is great—“in the current campaign by the Engineering, Printing, and Manufacturing Union.” Guess what! When that campaign was being negotiated, was that contribution compulsory? No, it was not. But it will be compulsory from today, if this bill goes ahead.

What happens in negotiation when something is compulsory? Suddenly it cannot be negotiated, can it? Here we see the wolf coming out from under the sheep’s clothing yet again. Firstly, the Labour Government expects—it thinks—that there might be a phase-in and that employees will take a cut in their future wages, and that employers will not be worse off because of that. Secondly, the employer contribution will be compulsory. That makes a big difference when one is on the other side of the negotiating table. Mr Parker will know that, having negotiated wages before. When something is not compulsory, it is a bargaining chip, is it not? When something is not compulsory, it is a bargaining chip. When it is compulsory, it is a given and it cannot be used in a negotiation. The only reason that employer contributions are being taken into account in the current wage and salary bargaining campaign by the Engineering, Printing and Manufacturing Union is that the decision to allow the scheme right now is optional. It is optional, and because it is optional, it can be put on the negotiation table as something that can be negotiated. As soon as a superannuation contribution is compulsory, it is off the negotiation table. As I have said, as soon as that becomes compulsory, it comes straight off the negotiating table.

The other key point, which members on the Government side of the House—or, in fact, any member of this House who has employed people—should understand is the reality of life for people on low to medium wages. The reality is that every dollar they take home counts. So, firstly, Dr Cullen expects medium and low-paid workers to sacrifice 4 percent—and that is not 4 percent of net income; it is 4 percent of gross income. It is 4 percent of net income, but it is taken off gross income, so it is about 5 or 6 percent.

CHRIS TREMAIN Link to this

I am talking about medium to low-wage employees, who will be put in the situation of having deductions taken out of their wages but who cannot afford them.

The Minister is trying to tell us that those employees will be happy to forgo future wage rises in lieu of the money being put into a scheme that will deliver something to them at the age of 65. I tell members that people will not like that. They are expected to do that while at the same time inflation, in the range of 3-plus percent per annum, is burning away at their spending power. What is worse is that employees have no chance of rising up through the marginal tax brackets. There are no changes to those in this Budget. The marginal tax brackets will stay the same and keep picking up more people.

The guts is that employees and unions will not accept the employer contribution and forgo wage rises for two reasons. Firstly, they will not be able to afford it, and, secondly, the employer contribution has become compulsory for employers, so it is off the negotiating table. Employers will not be able to use it as a bargaining chip. National will not be voting for this bill, because it is a wolf in sheep’s clothing.