Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
I move, That the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Bill be now read a first time. This bill has three essential elements, and I will deal with them in ascending order of importance. One element is a series of relatively minor corrections to current tax laws—largely corrections to the Income Tax Act. Since that large, expansive, omnibus legislation was passed, a few errors have been found that need correcting quickly. The second element, of somewhat greater importance, relates to the issue of charities. Two things are done in that respect. The first is to clarify that certain kinds of bodies are charities. This includes, for example, State schools and integrated schools. The second is to provide a transition element because—sadly, I think—the Charities Commission has been much slower than the Government anticipated in dealing with the applications for charitable status, and a number of charities would lose their tax-exempt status on 1 July if no remedial action were taken. This provides for any body that currently has a tax-exempt status and that has applied for that status under the new legislation to continue to exercise that status until the Charities Commission has made a ruling in that regard.
Thirdly, of course, the most important part of the legislation is to implement the new tax rates announced in the Budget. This bill, therefore, provides for the implementation of a complete new tax scale system, which has within it the following elements. Firstly, there is the abolition of the low-income earner rebate, which has become more and more out of date in terms of the size of that rebate, and which simply adds complexity to the tax system. It therefore replaces the current effective bottom tax rate of 15 percent up to $9,500 with a new bottom rate of 12.5 percent, which on 1 April 2011 will reach $20,000, with the initial move, on 1 October this year, being $14,000 a year. The effective 21c rate will then move to a new threshold of $40,000 on 1 October, eventually rising to $42,500 on 1 April 2011, and the 33c rate will extend out to $70,000 on 1 October, going to $75,000 on 1 April 2010 and $80,000 in 2011.
These changes deliver significant tax cuts across the board. In the first stage they deliver tax cuts of $12 to $20 a week per individual taxpayer, rising to $22 to $55 a week for an individual taxpayer by 1 April 2011. These are the largest changes to individual taxes for a very long time within New Zealand. We are bringing forward the Working for Families adjustment to much longer than 1 October, in terms of actual tax rates, particularly at the bottom end because the $9,500 threshold has not been moved since 1988. Therefore, for people—[Interruption] Yes, indeed. National never moved the $9,500 threshold. It never gave tax cuts to the lowest-income earners in the country—never. National never gave tax cuts to the lowest-income earners in the country—never ever. It never lowered the company tax rate—never ever. It never lowered the tax on savings—never ever. Only the Labour Government has done that. What we want to know is whether National will today vote for tax cuts for individuals.
Hon Dr MICHAEL CULLEN Link to this
Well, they cannot make up their minds, indeed. We heard this afternoon from Mr Key, and I watched Mr English’s mouth drop as he thought “My God! He’s about to announce a much bigger tax cut.” I could see him getting ready to grab his coat and pull him down at any moment. Bill English has read the Budget. He knows we are forecasting cash deficits of $3.5 billion a year. He knows, therefore, that the National Party cannot promise billions of dollars a year in additional tax cuts, over and above this Budget.
The second time when he looked terrified, even more worried, was when Mr Key said: “We’ll have to cut Government spending to fund any additional tax cuts.” Bill almost grabbed him and said: “Don’t say that. That’s not the game plan. That’s not what we’re saying. What we’re saying is we’ll cut out bureaucracy and we will save all this money in cutting out bureaucracy so we can have these huge tax cuts, so that every individual can buy an extra 20 large blocks of cheese a week.” Why an individual would want an extra 20 large blocks of cheese a week is not apparent, but that is what the National Party was promising this afternoon in Mr Key’s speech. Indeed, the whole speech of Mr Key was: “I have a plan. I just can’t remember what it is. I just hope that sometime between now and the election I will find that plan somewhere in Bill’s back pocket, because Bill is responsible for writing the plan for the National Party.”
These tax cuts are spread across the board. Proportionately, people on modest incomes, around the minimum full-time average wage, get a bigger proportion of the tax cuts than people on an MP’s salary or people on a Deputy Prime Minister’s salary. I do not have to go back to Napier at the weekend and explain to people why I am getting proportionately a much bigger tax cut than people who often work at rotten jobs. Those are jobs where they work hard, jobs that are often dirty, jobs where they are not treated well, and the National Party has always said to those people: “You should get a measly tax cut, if anything, because we’re all about giving tax cuts to those at the very top.” Somehow or other, to quote Mr Key “We ‘belieeve’ in tax cuts.” He sounded like the Rev. Wright in Washington. “We ‘belieeve’ in tax cuts. ‘Halleluuja’, brother!” In America, every politician has to believe in God, and has to mention God after every three sentences, unless of course he or she really believes in God, in which case he or she does not have to keep saying it. But in New Zealand we have to “belieeve” in tax cuts—halleluja, brother! It is a religious belief.
What we are about is helping families. We are about helping people who are facing pressures on the family budget. Does anybody really believe that anybody in this House is facing the pressure of higher petrol prices and the price of a bigger block of cheese? Really? Anybody in this House? No, not at all. The people who need relief from that are the people on below-average incomes, average incomes, and a bit above. We need to do something about that top tax threshold because we have people paying that rate now who were never intended to be in that top tax bracket. Senior teachers, nurses, and people like them are now finding themselves in the top tax threshold.
But let us get real. They are not going to work harder. I know a few teachers—I know some quite intimately, to coin a phrase; well, one anyway. I know they are not going to work harder just because they are paying 33c in the dollar instead of 39c in the dollar. They already work hard, on behalf of the children of this country. We do not need these religious beliefs. We need a belief in fairness and in social justice, and that is what this tax reduction does. It says that all Kiwis should share in the dividend of growth to which they have been contributing over the last 8½ years. We have grown faster than Australia, Britain, the US, Japan, and the European area, and it is time to stop condemning ourselves because of that success. Everybody should share in it.
If there is one thing I do not apologise for—and it is no chip on the shoulder, because I am a highly paid person—it is that people who work hard at low-paying jobs deserve as much respect as those who work hard at jobs that are highly fulfilling. The notion that we have to reward those who work in highly fulfilling jobs miles more than those who work in the jobs we cannot do without, who work hard in our society, is simply not right and not fair. I believe in social justice. I believe in every Kiwi having a fair go. I am moving a bill today that is doing that in the tax cut area, and we on this side of the House are proud of that fact.
Hon BILL ENGLISH (Deputy Leader—National) Link to this
I think we all know why we are here, putting this bill through now.
It is because Dr Cullen does not trust himself, nor do his colleagues trust him, to execute tax cuts unless there is a law that compels him to do it. Why does he not trust himself? It is because the last time he promised tax cuts before an election, he cancelled them once he was re-elected. The reason why he cancelled them once he was re-elected was that Labour had big spending ideas and did not have enough money to pay for them. Well, I have to say that the forecasts past the 2005 election were much more promising and generous than the forecasts published today for past the 2008 election. That means there is a much greater probability that if Dr Cullen and Helen Clark are re-elected, they will do what they did before, which is to say, as they said in 2007, “We have other priorities, so we are going to cancel the tax cuts.”
It is all very well for Dr Cullen to shed crocodile tears for hard-working New Zealanders; what happened to hard-working New Zealanders before the 2005 election? They were promised tax cuts, with the same crocodile tears that are being exhibited today. What happened to those people on the average wage, paying tax of 33c in the dollar? After the election their tax cut was cancelled, so that Labour could create a lot more hundred-thousand-dollar jobs doing nice, fulfilling things around Wellington, like liaising, coordinating, going to workshops, launching strategies, and putting out miles of publications with fawning prose about a fantastic Minister, on behalf of a Government department.
So Dr Cullen’s new-found interest in people on the average wage is new-found, but it is not surprising. Why is it not surprising? Because it is election year. The tax cut will turn up 2 weeks before polling day, apparently. It will be enough to top up the gas tank so that people can get to the polling booth. I have to tell Dr Cullen that when they get there they will vote against cynicism, against mistrust, against limited ambition, against misuse of taxpayers’ money, and against the arrogance that says the tax system is there for Labour politicians to take money off people so that they can spend it on what they want so that they can stay in power.
National will support this piece of tax legislation, and I will tell members why.
Hon Darren HughesThe member may not know it, but the pension increase in compulsory. One cannot get around it without changing the law. If taxes on the average wage and on the lower tax brackets are cut, pensioners have to get an increase. We heard the Prime Minister carrying on as if the increase was the gracious gift of the most popular and competent Prime Minister we have ever had. The truth is that she has been forced to give pensioners an increase; she has been forced by the National Party campaigning on tax cuts, and by a public who have had enough and have said: “If you don’t give it to us, none us will vote for you.” That is what has happened, and the member for Otaki needs to know it. Labour has been forced to give superannuitants an increase. The increase today is their due right according to the law of New Zealand. That is what it is about. It is not about gifts and generosity.
The reason we are supporting this legislation is to keep faith with all those hard-working New Zealanders who have waited 9 long years, through the squandered opportunities of a growing economy, to get some recognition that they should have some of the benefits of a growing economy. And they have waited a long time. How many of them are there? Well, 1.6 million taxpayers at any one time do not qualify for the Working for Families package. Only 370,000 taxpayers qualify for Working for Families, and Labour tries to make it sound as though everyone has got a tax cut because of Working for Families. Well, I tell those members that the resentment among New Zealanders who are sick of being lectured about getting tax cuts when they did not get any is growing by the day. National has to keep faith with them, because they have waited for so long.
This legislation is an admission of failure by Dr Cullen. He has tried to hold the line—and he has done so up until now. He almost lost an election over it in 2005. He still did not get the message, mind you. Having almost lost an election on tax cuts that were pathetic, he then stuck it to the New Zealand public by cancelling those tax cuts. He is today doing everything he has argued against for the last 8 years—everything. Whenever we said we would reduce the growth of Government spending, Dr Cullen, every Labour member, and Helen Clark said that that meant sacking teachers and doctors. What is Dr Cullen doing today? He is reducing the growth of Government spending. He also said that any kind of tax cut would require a Government to run cash deficits, that it would have to borrow to cover them, and that is bad. What is he doing today? He is running biggish cash deficits, and he will have to do some borrowing to cover them. And he will run down the little cash windfalls he has had sitting on the balance sheet, to help finance them. That is what he is doing today.
He always said tax cuts meant spending cuts. He is giving tax cuts and he is cutting spending. He always said giving tax cuts would mean the Government would have to borrow some money, and he is giving tax cuts and he is borrowing some money.
Well, no. He is not totally self-obsessed about it. It is election year—that is the other reason. It is not OK just because he is doing it; it is OK because it is election year. A lot of this bill is unsatisfactory. People get a tax cut 2 weeks before the election, then they have to wait 18 months. They get nothing in 2009. Why is that?
Well, it probably falls within the regulated period in the run-up to the election. Is it the Electoral Finance Act or something that is stopping the Government from giving people the next tranche in 2009?
Nathan GuyWhat sort of vision is that? This bill is an admission of failure by Dr Cullen. It is not the best that New Zealand can do. We can do much better. It is cynical because it is trying to buy people’s votes 2 weeks before an election. But New Zealanders have waited for so long and are so deserving, and this Government is so undeserving, that National will support this bill in order to keep faith with those people whose concerns have been dismissed, year after year, with contempt, until election year, when they vote. In every other year, Labour has said to New Zealanders concerned that their after-tax wages are not enough: “Too bad! You’re greedy—in fact, most of you are rich pricks—and we want the money to spend on our little projects, because we know better.” Well, finally, they will get some money, but do members know what the real tragedy is? Dr Cullen and Helen Clark still think they know better. All week Dr Cullen has been giving us long speeches about what an anguished and tortured process it is for him. He spat it out today, through the Budget speech, because he cannot stand the taste of tax cuts.
Hon TREVOR MALLARD (Minister for the Environment) Link to this
Those of us who were listening and watching noticed something really interesting today. It took Bill English 5½ minutes of his 10-minute speech—actually it was an 11-minute speech—to tell us whether National members were for or against this Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Bill. What did he do during that entire period? He looked up to the gallery. He looked to the members of the Exclusive Brethren up there, asking for his instructions. “Do I vote for it or against it?”, he was asking. The Brethren were there. They were overseeing their investment in the National Party and they will be very, very disappointed with that speech.
One of the reasons the Exclusive Brethren invested in that man is that he is the pension cutter. It was Bill English who, as the Minister of Finance, oversaw the last cut in the pension for the oldest and most vulnerable New Zealanders. He is a person without a heart. He is the person who was shaking when he thought that John Key might promise not to do it. He was worried that John Key might make a commitment not to cut the pension, and he knows that is part of his plan. He criticised Labour for putting pensions up. He said it was inevitable and that we did not want to do it. Well, I tell that member that our party has a proud history in this area, whereas the National Party has a history of wrecking the lives of older people. It has a record of abolishing superannuation schemes that could have made this country rich, and of attacking the most vulnerable, through both Ruth Richardson—whom Bill English supported—and Bill English himself when he was the Minister of Finance.
It is also, I think, somewhat ironic that that member starts criticising public servants and their numbers. What was that member before he came into Parliament? He was a Treasury official.
Eric RoyHon TREVOR MALLARD Link to this
Oh no, he wandered back to the family farm occasionally, but he spent his time in Wellington as a Treasury official. I know what Eric Roy thinks of Bill English, and he knows that he is not a farmer’s backside. Eric Roy knows that, and he has told people all over the place what a useless farmer Bill English was. It was for show that Bill English went down to Dipton when he was running for Clutha-Southland, not because he was ever a proper farmer, and we all know that. He was a public servant, and he is a person who not only hates the old and the young but does not like family tax credits, and he hates his former workmates. Everyone around Wellington knows that that is where he wants to attack. But I tell the member that that is not good enough.
When one is in Government one has a look around at the relative cost of things. There is not a chance of getting the extra $2.5 billion over these tax cuts that was promised as recently as Sunday and Monday by his leader, John Key, without cutting the pension, without cutting health services, and without cutting into the education budget. We know that, and Bill English knows that, and that is why he was shaking as John Key was speaking. He was scared about what John Key was going to say—not that anyone would expect John Key to say the same thing 2 days in a row, or even 2 hours in a row, or sometimes, within an interview, even 2 minutes in a row. Bill English was worried that in this debate John Key would commit National to something. But, of course, the investment worked, the speech was vacuous, he said nothing, and it was absolutely hopeless. John Key could not even say in his speech—after dozens of briefing notes, after being on the phone for ages during the debate, after reading the speech and the Budget documents, and after having, I think, about a dozen of his officials involved in lock-ups—whether he supported these tax cuts. Half an hour after the Minister of Finance had finished his speech, and an hour after he started it—and an hour after he had all the information—John Key could not say whether he supported the tax cuts. When one is running for Prime Minister, one needs to have more brains than that. One needs to have more instinct than that and to be able to react in a way that is proper and consistent—
Hon Maryan StreetHon TREVOR MALLARD Link to this
One does need backbone, but John Key does not have that. He has a flip-flop instead of a backbone. The approach that John Key has given us has been of a rubber-backed man.
I will give one more example of a family. It fits fairly well with a family that I know—a couple, both of whom are in their early 40s, with two children. The couple are called JJ and Kiri, and they have Maria who is 19 and Jade who is 12. JJ works as an electrician and he earns $65,000 a year, Kiri is not in paid employment, and Maria still lives at home while she is studying full-time at university. From October this year JJ will start paying $1,160 less per year in tax, and the family will receive an additional $588 per year of Working for Families tax credits. In year 1, JJ and Kiri are $1,748 a year better off as a result of the October changes. The family will continue to benefit as the credits are rolled out. In year 2, JJ will pay $1,438 less in tax; in year 3 the savings will reach nearly $2,000 a year, and the additional tax credits will be $1,260. As well as this, the 19-year-old, Maria, will get her student allowance increased by $22 to $52 a week. That is another $880 over the year for that family. National members say “So what?”.
Chester BorrowsHon TREVOR MALLARD Link to this
It just shows how out of touch with ordinary Kiwis National is when members like Chester Borrows are saying “So what?”. He should knock on a few doors in Wanganui and work out that $4,114 a year to a family will make an enormous difference. If he knew Wanganui better he would know that $4,114 a year makes an enormous difference. It means $80 a week to a family, but National members say “So what?”. It might be that they are all as out of touch as John Key is. It might well be that they all roll out of a Manhattan bar instead of going to the Anzac Day celebrations in their electorates; it might be that they are out of touch and do not wander home often and do not knock on doors. But I know that a family—a not unusual family—in Hutt South that is getting an extra $80 a week will say that that is great.
GERRY BROWNLEE (National—Ilam) Link to this
I am quite confident that the family in Hutt South said this Budget is great. I am quite confident that when Trevor Mallard rolled up in the 7-series BMW and got out of the car in his flash suit and his shiny shoes and said “We’re giving you tuppence-ha’penny after 9 years.”, they said it was great. The word on the street already, after a very short time, is that Michael Cullen must be joking. After 9 years of claiming that the economy was under brilliant management, after 9 years of claiming that he knew what he was doing, that everything was going well and it has never been better, all he can do is to deliver $16 a week to the average worker in this country and hold out the hope that if people are silly enough to buy into his scheme, then in 18 months’ time he will give them a little bit more. What can the family that Trevor Mallard was talking about buy for $16? They could perhaps buy a block of cheese. They cannot buy a kilogram of steak. They could barely buy some sausages. That amount of money will not fill up a quarter of a tank of petrol. It will not meet much of the increased cost of the mortgage. It will not pay the average increase on the monthly electricity bill.
When the Prime Minister spoke after the Budget today she said the Labour Government knows that dairy prices have gone up, that petrol prices have gone up, that other food prices have gone up, that the cost of mortgages has gone up, and that the credit squeeze is making things harder for families, but she said none of that is the Government’s fault.
The puzzled little fellow on the other side of the House, Daren Hughes, says it is not. I can tell him that it is the Government’s fault that people cannot afford to meet the increase in prices. It is directly the Government’s fault. Why is it that those prices are rising? It is because other countries can afford those prices. They can afford to pay the prices of dairy products. They can afford to pay for petrol. They can afford to pay for rising food prices, but that is not so here in New Zealand—
—and I say to Darren Hughes that is the Government’s fault. It is why people in the member’s electorate think this Budget is a joke. It is why they are saying Michael Cullen must be joking.
Darren Hughes says he will survive the next election because of the pensioners. The pensioners will save the young white hope of the Labour Party, because he will be able to go back to the pensioners of Ōtaki and ask them whether they have read the Budget. He will ask the pensioners of Ōtaki whether they read the Budget and noticed that there was extra money for them in it. When he has to explain that it is six lousy dollars for every year his Government has been in office, they will join the other people and tell Darren Hughes he has to be joking. His time, like that of the rest of those members, is nearly over, because people will not tolerate this.
There is general anger in the community.
He has just yelled out: “Oh, but you’re going to vote for him.” I tell Darren Hughes we are like the rest of the country. We have woken up. We are not stupid, and we are not going to stop people from getting the 6 months or so of this tax cut that they deserve. I want to tell him one other thing: I hope that all the resources of the Government worked out that just those 2 weeks actually do line up with the pay cycles, so that enough of the voters will go along to the cash-flow machine and find that they are a little less down on the overdraft than they usually are. If they do, then one or two of them might say: “Oh, that’s Helen Clark’s gift to me! Where’s the polling booth? Get me there fast! I’ve got to tick Darren Hughes.”
Well, I do not think that is going to happen. I think this measure will exacerbate the anger that New Zealanders have with this Government. It will make it a lot, lot worse.
The thing that really is galling is to have Michael Cullen come in here today and say he believes in social justice—that somehow he has a calling to do this work, and that his principles of social justice have finally allowed him to give this tax cut. Well, people should get this straight: a tax cut is not giving anybody anything. A tax cut is not taking as much in the first place, because the money belongs to the worker. Michael Cullen talks about those people who do rough jobs, tough jobs, and dirty jobs, working long hours. Well, we care about them, but we are not so darned arrogant as to say that we are going to tax the hell out of them for 9 years and then give them a lousy $16 back at the last minute, just in the hope that they will vote for us.
I think the decision that we have reached, that we should vote for this tax cut, is pretty obvious. We believe that New Zealanders—and we have said so for at least the last 9 years—should be keeping more of the money they earn in their pockets. That is a subtle difference from Labour’s position, because Michael Cullen seems to think that he is keeping more of the money he should have, and was making a case over all those years that he could spend it better than they could.
I do not normally respond to hecklers, right? Normally I cannot see that particular heckler, but because he is so excited and red in the face, he has suddenly become visible. I just want to say to him that all of the protestations he might make, all of the little jokes he might make, and all of the screaming, yelling, laughing, waving, and everything else he does will not make a blind bit of difference to the vote that goes to the Labour Party, because what we will see out there is people doing exactly as I predicted. They will be saying: “Too little, too late. Not on your nelly are we voting for you again.” I know, Madam Assistant Speaker, that I have just breached the Standing Orders by referring to you. I apologise. You, fortunately, are not up for re-election, so you will not suffer the ignominy that the likes of poor old Darren here will suffer.
I wanted to make a few comments about the extraordinary remarks from Winston Peters this afternoon, but, unfortunately, his remarks were so forgettable I am not able to respond to them.
I just want to say again to the member across the way that he has distracted me rather more than he might normally be able to do, only by the breathtaking arrogance demonstrated by him and his ilk thinking they can build an entire Budget around this pathetic tax cut and expect that New Zealanders will re-elect them.
Look, it is a book full of tables. But there is quite a bit of space around the edges for the member to work his colour pencils on later on tonight.
The arrogance of coming into this House before an election with a Budget that is so blatantly determined to try to buy the way back into Government is a total disgrace. The National Party, as Bill English said, will support this measure, because we want New Zealanders to know that we are serious about tax cuts. But we also want them to know that this measure should be considered to be a bit of a start. Dr Cullen’s 18-month gap in his multi-year promise—which we believe is all about hoping, firstly, that $16 will be enough to get him back and, secondly, that 18 months will be enough time for everybody to forget about the next bit—is just a start.
The ASSISTANT SPEAKER (Hon Marian Hobbs) Link to this
Before I call the next speaker, Doug Woolerton, I remind the two major parties that we are now to have speakers from the other parties in the Chamber, and I would appreciate it if the level of noise came down. I may have to apply for a hearing aid under the new provisions in the Budget.
GERRY BROWNLEE (National—Ilam) Link to this
I raise a point of order, Madam Speaker. Are you suggesting that Mr Woolerton should give his speech in silence?
The ASSISTANT SPEAKER (Hon Marian Hobbs) Link to this
No, I am not suggesting that; I am suggesting that the barrage that goes on between the two major parties can at least lower in volume so that the other parties can have a say.
R DOUG WOOLERTON (NZ First) Link to this
I am pleased, Madam Assistant Speaker, that you did not use the words you were going to use when you were talking about the other parties. I knew you were going to say “those other fantastic parties”, which would have been humiliating to National and Labour.
Today we saw the start of the tax wars. We have heard a lot about them and we have had skirmishing for months. But today was the start of the tax wars, and we now know what the Labour-led Government is going to deliver. We know in detail, because we have the tables to support it, and we have thresholds and all of the tax credits lined up for Working for Families. But what we did not hear today was what the other side of the House would deliver, how much it would deliver, and when. On Monday we saw John Key resiling from the $50 per worker statement he had made, but at this point we do not know what National is offering in the tax cut debate.
It is all very well for National members opposite to get up and go on about the tax changes in this bill, and I am surprised and delighted that they are supporting them, but it is the first time they have supported a tax cut in the 9 years of this Government. They have voted against every tax cut that has been put up by the Labour Government, and now they say they are going to support one. If that does not tell us that an election is coming up, nothing will. But we do not know how much National will put up.
I do not for one minute think that National will win the next election, but I want to put this scenario out there for people to ponder. I want to look at what would happen the day and the week after the election if National were to win.
David BennettDavid Bennett would not even be asked, God bless his soul. An interviewer would say to Mr Key: “You promised at one stage before the election that you were going to deliver a $50-a-week reduction in tax for every worker in New Zealand. What’s the story?”. He would reply: “Oh, well, Mr Interviewer, it’s different now, because the books are not what we thought they were. There have been changes, we have to look to the future, and we have other things happening. We have some prime problems in America and we have a tightening economy. We can no longer deliver on those $50-a-week promises we made earlier.”
Actually, I am wrong. That actually happened on Monday, so after the election it would be: “No, we can’t deliver on $25 a week. No, we cannot agree on $16 a week.” They would give nothing in tax cuts after the election if they were to win it. We know that because of the history of the National Party.
There was one thing that I was very, very pleased with today as the Budget was read out. New Zealand First was afraid, because we lived through the last hiccup in the international economy and had to stand by and see pensioners’ pensions cut. I listened for that in this Budget, and pensions were increased—as they should be. Even in America they understand that when an economy is starting to look at a recession, they need to prime the pumps to a degree. National does not believe that. That is what happened when Jenny Shipley was Prime Minister and forced us into more of a recession than we should have had at the time.
I have read with interest the comments of the Federal Reserve chairman in America, who said on several occasions that they have learnt something from 1929. That guy studied it; that is his bag of chips, if you like. He said that they cannot leave it just up to the financial markets in a recessionary situation. And they have primed the pumps big time. They have done everything they can to support the financial institutions in America, and by goodness they needed to because they have surely done some stupid things. That is where John Key came from, interestingly enough. I do not know whether he has learnt anything, but this is definitely not the time to be cutting pensioners’ incomes. I am pleased to see, and New Zealand First is delighted to see, that that has not happened.
New Zealand First would like to have seen the first $5,200 of people’s incomes to be tax free. We would like to have seen that threshold put in there, and we will fight in subsequent years for that to happen. We think it would have made sense to reduce GST to 10 percent. That is easy to do and is something that would help people during this period, and we would like to have seen that happen, as well.
We would also like to see incentives in the taxation system in order to help exporters, and we will keep pursuing this issue. Mr David Carter can get up shortly to confirm this. We were in the Primary Production Committee this morning, as it happened, and—
The member will get up in a minute to confirm this. We were in the Primary Production Committee meeting and were told that since 1990 productivity on farms has increased by 100 percent, while the rest of society’s productivity has increased by only 50 percent. So farmers are facing a hard time right now. We believe, quite clearly, that farmers should have incentives to write down their plants and machinery, and all of those sorts of things, more quickly, because that is what is needed at this time. National does not believe in priming the pump in tough times. It believes in cutting, and worsening the situation. One would hope that in the future National members will take some lessons from the Federal Reserve in America and do something about it.
People may wonder why New Zealand First goes on about superannuitants and why it is so important that their position—particularly their financial situation—in society is protected. We go on about it because we know—and other people in this Parliament should know—that it is the pensioners, the people who are retired nowadays, who in many cases are paying for school uniforms, for school fees, and for children to go away on school programmes. It is the grandparents who in many cases are paying those fees for their children and grandchildren. We believe that money that is put into that sector of the economy has an immediate return, and therefore it is good for the whole economy, not just for superannuitants.
So, as well as for reasons of dignity, we believe that there is a real and sensible reason for putting money into the hands of superannuitants, and that is that in most cases it goes right down two generations. Madam Assistant Speaker, you, like me, would know that not every parent thinks that their daughter-in-law or son-in-law is the greatest thing since sliced bread—in fact, there has been many a television programme made about such things—but there is no grandparent I know who does not love, unconditionally, his or her grandchildren. That is what superannuitants spend their money on, that is why their position in society should be protected, and that is why we fight for them.
JEANETTE FITZSIMONS (Co-Leader—Green) Link to this
There is one fair way to give tax cuts, if we have a surplus in the economy and we want to redistribute it to people, and that is by having a tax-free income band at the bottom of the income scale—and the higher the income is, the better. That means that all taxpayers get the same tax rebate, whether they are beneficiaries, low-income earners, waged workers, or the super wealthy. That has been the Green Party’s policy since some time in the mid-1990s.
I was very pleased tonight to hear that Winston Peters has now picked up a Green idea, despite saying in the same sentence that he does not much agree with us. He has picked up our policy on tax, and I say good on him.
When we fiddle with tax thresholds, even if we do it as fairly as we possibly can, we still always end up giving those on higher incomes a lot more in actual dollars than we give to those on low incomes, and that increases the poverty gap in society. Michael Cullen has been quite clever in the way that he has devised this new taxation system. He has combined it with Working for Families, and he has ensured that those workers on the lowest incomes will get a quarter, that those on the medium wage will get a sixth, and that those on $80,000 and above will get an eighth. But those on $80,000 are still getting more than twice as much in the hand each week than those on $10,000—$28 a week, as distinct from $12 in the first round. That shows that we have to be careful when we play with tax rates, because after these tax cuts, in terms of cash and real dollars, there will in fact be a bigger gap between those on the lowest wages and those on the highest incomes than there is at the moment.
But the biggest anomaly here is what happens to invalids, the sick, those who can only work part-time because they are caring for elderly parents, and those who are trying to develop a career in the arts—for which they do not get paid at the moment—who are holding down a small, part-time job to keep body and soul together because they are trying to do other, creative things in their time. Those people will come off worst because they will get the least. Beneficiaries will, in fact, get nothing out of the tax cut system. They will get only a very, very small amount out of Working for Families, because it has always discriminated against the children of beneficiaries because they do not get the in-work tax credit.
This tax legislation is probably not as bad as what National would have done, which sounds like it would have been to remove the 39c tax rate altogether, benefiting only those who earn over $60,000—or, as is shortly to be the case, over $70,000—but the fact is that this legislation will still not improve equity within our society. It still will not help the poorest and most vulnerable people in our society. Invalids without children will be particularly hard hit. They do not get any Working for Families benefits, as one would expect. They do not get any tax cuts either, and their benefits go up only in relation to CPI, while their costs go up in relation to the increased prices of food, housing, transport, and energy, all of which move much faster than the CPI.
The Green Party, in accordance with its cooperation agreement with the Government, will be abstaining on this Budget and on the tax legislation that flows from it. But I have to say that we are not overwhelmed at the beneficence of these tax cuts, particularly when—as I outlined in my speech on the Budget a short time ago—there are some very major problems facing us as a society and as an economy that are not being addressed.
In relation to the Budget speech, it is very obvious that the word “sustainability” has been dropped like a hot brick. We had a speech last year in which the Prime Minister used it 33 times. She did not use that word once today, and I think that Michael Cullen used it once. But more particularly, when one looks at the money in the Budget, one sees that the only initiatives that take us in the direction of sustainability, really, are the ones that the Green Party has put up. “Carbon neutral” does not appear anywhere in the Budget speeches or in the rhetoric around it. There is an emissions trading scheme, but we do not know whether it will go through; it keeps getting weakened and delayed.
The Budget does not show a great sense of urgency in dealing with the big matters that will have the biggest effect on our economy in the future—that is, oil depletion and continuous oil-price rises, climate change, and resources that are limited. We are bumping up against those limits in everything we do at the moment.
Hon PETER DUNNE (Minister of Revenue) Link to this
I want to speak, as one would expect, in support of this legislation. I want to put a few facts on the table that arise particularly in response to the last couple of speeches, and I also want to make some comments about the charities changes that are contained in the bill.
The total cost of the tax package, in its third year, that is set out in this bill is just under $3.9 billion. One can debate whether that is good, bad, or indifferent, but that is a fact. I have heard suggestions from the two previous speakers that we should have some level of tax-free threshold. I want to tell the House that Dr Cullen and I looked at that very seriously in the early stages of the design of this package. To give a tax-free threshold for the first $10,000 would effectively cost $3.9 billion not over 3 years but over 1 year. So when one starts to talk about relative priorities one now has the cost of this package split, if one likes, three ways, if a tax-free threshold is to be delivered. My colleague to my right from New Zealand First says that they would go one step further and put GST down to 10 percent. On the figures contained in the Budget, that 2.5 percent reduction is another $2 billion each year, not over 3 years.
What one has, in effect, is the contrast between a package that is about $3.9 billion in 3 years versus some alternative policies that would be that amount and more, and in some cases almost double that in 1 year and certainly up to around an additional $12 billion over the 3-year period. So when we start to debate these things, let us put those figures on the table and let us have some debate about how sustainable that is. Would New Zealanders tolerate a tax-free threshold and no other tax reform? Would New Zealanders tolerate a reduction in the GST rate and other very minimal tax reform? Because that is what it comes down to in that particular debate. It is not a question, as some might suggest, of having one’s cake and eating it as well, because the cake simply is not big enough. It is the perennial story in that regard.
I want to make some remarks about what is contained in Part 3 of the bill, the matters that relate to charities. Dr Cullen, in his introductory speech, made some overall reference to the situation that is being resolved. I want to put on record in just a little bit more detail precisely what the issues are and why it is important that we act at this time. The bill brings in tax changes to resolve tax uncertainties in the law relating to the continuing tax-exempt status of certain organisations. These uncertainties have emerged over recent months in the lead-up to the 1 July deadline for charities to register with the Charities Commission. From that date charitable entities will have to be registered with the Charities Commission to be entitled to the charity-related income tax exemption and for gifts to those charities to be exempt from gift duty. There is no particular problem with that. But the uncertainties arise when entities such as universities and schools ask whether they must also register with the Charities Commission in order to remain tax-exempt, and it is here that we find that some associated legislation in several differing pieces of legislation contains a number of grey areas. That is why the Minister of Finance and I announced a week or so ago that we would, via the earliest available vehicle, make changes to provide tax certainty for a range of those entities in these circumstances. That is why they have been included in the bill before the House at the moment.
The Income Tax Act and the Estate and Gift Duties Act are being amended to confirm that tertiary education institutions, as defined in the Education Act, are exempt from income tax and gift duty. That means they will not have to register with the Charities Commission to retain their tax-exempt status, although they may still chose to register if they want to, if they want to have access to other benefits that they perceive to come from registration. Further changes will ensure that tertiary education institutions automatically have Inland Revenue Department - approved donee status. That means that people who donate money to them will continue to qualify for tax rebates for their donations.
Further amendments to the same Acts will ensure that gifts to State and State-integrated schools are exempt from gift duty and that they have automatic Inland Revenue Department - approved donee status, as well. State and State-integrated schools do not need to register with the Charities Commission to be exempt from income tax, because they already have an explicit exemption in the Education Act.
A further amendment in this group of changes relates to non-resident charities that cannot register with the Charities Commission because they are not established in New Zealand, although they may have investments here and be registered as a charity in their own country. An example of this would be an international charity that invests New Zealand donations in a New Zealand bank account. This bill protects their current tax-exempt status, subject to Inland Revenue Department approval, for both income tax and gift duty.
The bill also introduces transitional measures to provide greater tax certainty to organisations that encounter difficulty in completing their application for registration with the Charities Commission within the deadline, owing to circumstances that may be beyond their control. Under the bill’s provisions the Commissioner of Inland Revenue is being given a limited discretion to protect their tax status in the meantime, provided they can prove that they started the application process before 1 July and that they intend to complete it. I want to emphasise that these transitional measures are intended to be used on a limited basis. They are not intended for organisations that are merely late in applying for registration. We do not want to see a situation where organisations that have submitted their applications in good faith, and that, for reasons beyond their control, find that the registration process has not been completed by 1 July, then discover that their tax-exempt status is at risk.
This legislative provision follows on from various announcements that the commissioner, the Minister of Finance, and I have made over recent months, in the hope that the rate of registration would accelerate so that the backlog we were likely to face would be of a relatively small nature. Sadly, that has not been the case, and we now face the potential of significant problems unless a provision of this type is passed. I emphasise to the House that both the measures relating to educational institutions and those relating to charities that have their registrations within the system do not in any way change the status quo. What they effectively do is reassure those bodies that the status quo that they thought applied will continue to apply. It would be the ultimate of ironies, surely, to suddenly discover, at a time when we were registering charities, that our educational institutions, which for a hundred and something years have been tax exempt, were now to be taxable. Once we became aware that that possibility existed, even before $1 of tax was assessed or sought, we have sought as quickly as possible to eliminate that and to return, via legislative fiat, to the status quo that everyone understood they were under.
So I wanted to put those points on the record, because, in the rarefied atmosphere of the debate about tax rates—it is perfectly understandable and of huge interest to people—it is also important to note that some other significant changes are being made in this legislation that will be beneficial to another significant group of New Zealanders. In fact, when people benefit from the tax cuts they might find that they want to spend some of their money by donating to the charities that we are protecting by this legislation.
HONE HARAWIRA (Māori Party—Te Tai Tokerau) Link to this
Kia ora, Madam Assistant Speaker. Kia ora tātou e te Whare. I do not often support the Employers and Manufacturers Association in this House, but when it comes up with the comment “Was that it?” about these tax cuts, I absolutely support that comment. The difference is that I am talking on behalf of the poorer people in this country. I am talking on behalf of organisations like the Child Poverty Action Group. I am talking on behalf of the Salvation Army. I am talking on behalf of all of those social service agencies that have been calling for some real, basic relief for people in need.
The fact that both ends of the scale can be screaming out for assistance and getting nothing suggests that this Budget is going nowhere for anyone. I am talking about food, for example, and the call for GST to be taken off food. The response of the Prime Minister is that it would be an administrative nightmare. Hello—an administrative nightmare? We would be happier to have people starve than to bother to do the paperwork to take GST off food. That is insulting to the population of this country. I am surprised that the so-called Labour Party—the so-called party of the working class, the party that is supposed to represent the interests of those in need—could talk about an issue as important as reducing the price of food and say that the Government is not going to take GST off food simply because it will be an administrative nightmare. Then on top of that we find out that Australia has done it—it is not too hard for Australia. Canada has done it—it is not too hard for Canada. Why can we not do it? At a time when this Government admits that there is not a lot else that it can do for the poor, a simple step would have been to take GST off food. Sure, there are all kinds of arguments that we should be looking at non-processed food etc., but let us get there eventually. The simple call to take GST off food would have lifted a weight off the families in greatest need in this country. This Government had the opportunity to do it in this Budget, and it chose not to because that would have meant more paperwork. For anybody to assume we cannot do it because of too much paperwork is an insult to the people who have voted Labour for so long, an insult to the people most in need in this country, and an insult to the intelligence of New Zealanders.
I am not a great fan of Labour, but I saw something from John Tamihere—a former Labour Minister, apparently. He made a comment in the paper that if the Government wanted to connect with the voter, it could start with something as simple as saying that the first $5,000 of people’s incomes would be tax-free. The Māori Party thinks it should actually be $10,000, but $5,000 is a start—if the first $10,000 were tax-free it would be great. That does not mean anything to people in Parliament. I am probably the lowest-paid guy in Parliament and I am getting $125,000. That is bucket loads of money where I come from. That is more money than I could ever contemplate making; it is more than twice as much as I ever made before. Taking the tax off the first $10,000 is kind of meaningless to me. But for a family whose total income is $15,000 it is a hell of a change. It is a huge change.
It is an opportunity for them to actually do things for their kids at school, to buy their child a pair of pants instead of having their child come to the school—I have seen this—wearing pants that he or she must have had handed down from his or her grandad. It is really saddening when that child stops coming to school. When we track down that child’s parents we find out that the reason the child cannot come is that he or she loves doing kapa haka but cannot afford to go away on the kapa haka trip, and the parents are embarrassed about it so they do not let their child go to school. It is simple stuff; it is not rocket science. If we take tax off the first $10,000 earned by every New Zealander we will create the opportunity for everybody to benefit, and most of all those in most need—those at the bottom of the ladder.
At the moment those at the bottom of the ladder are in desperate need, not because I am saying so or because the Māori Party is saying so but because everybody is saying so. Every economic commentator in the country is talking about how dear the basics of life are, and, for example, how costly milk is. I do the shopping in my family, and I have watched it rocket up. When I came into Parliament, milk cost $2.05 at our local Pak ‘N Save; now it is $4.15. It has gone up by more than 100 percent. Those are the basics of life that we should have been trying to address in this Budget, but they have been completely ignored. What happens to the people at the bottom? They will get $12 in their hands. Well, that is 2 litres of milk, a little tub of butter, and one loaf of bread. That will make a difference at the end of the week—not! This Government had the opportunity to signal that even in times of genuine stress for the whole country it would make a genuine commitment to those at the bottom, but it has chosen not to do so.
I congratulate the Green Party on winning that $50 million retrofit for all of the State houses. I know that heaps and heaps of my whānau will benefit from that, and I congratulate the Greens on pushing that and on the fact that it has come up in the Budget. I also thank Labour for going ahead with that. That is a really cool one. I would also like to thank Labour for putting up that $12 million for the Māori nurses. I think that is amazing. That is awesome. That is fantastic.
I was also going to congratulate Labour on putting $17 million into Māori wardens, until I did a bit of a check and found out that it stole $7 million from Te Puni Kōkiri to pay for it. The other $10 million ain’t coming next year; it is spread out over the next 4 years. Folks, Budgets should be based only on 1 year. We can have a projection, but let us be honest: will this Government be around to spend the rest of it? No, it will not. It is $2.5 million, and that is all it will be—that is all that the Māori wardens will get. When I talk about kōhanga, I am talking about Māori-specific money here. How much will kōhanga get? Nothing. How much will kura kaupapa get? Nothing. How much will wharekura get? Nothing. How much will wānanga get? Nothing. I am a member of the Māori Party. It is our role to defend Māori rights and advance Māori interests for the benefit of the whole nation. This Budget destroys all of the things that we have wanted to achieve over a period of I do not know how many years. There is not a heck of a lot going on.
We support absolutely a bottom-line philosophy of ending child poverty. We had the opportunity here to do it. This Labour Government had the opportunity here to do it. It chose not to do so, and at a time when it has been running surpluses of more than $6 billion for the last 5 or so years. The total tax cut is $1.5 billion. We could have done a lot better than that. This Labour Government has chosen not to do so, and I think this will rebound on it in the polls, when Māori people start looking at those issues. Māori wardens received only $2.5 million, nurses received $3 million, kura kaupapa received nothing, kōhanga received nothing, wharekura received nothing, wānanga received nothing—Māori have received nothing. We are disgusted with what is being presented here and we will be taking this back to our people, because we do not accept that this Government, at any time—neither this Government nor the next one—should ever again be allowed to treat Māori so badly. Tēnā koe. Huri rauna kia ora tātou katoa.
RODNEY HIDE (Leader—ACT) Link to this
I have listened to the speeches on this tax legislation with some interest, and I should tell Mr Harawira that although I am no fan of this Budget either, and will not be voting for it—it is not as good as Labour says it is—I have to say I do not think that it is as bad as he paints it. But let us talk particularly about tax legislation, and reiterate that the ACT party will be supporting this tax cut. We see it as a faltering, baby step in the right direction. But I will pick up on the discussion that has been around the traps here, and just warn us, as parliamentarians, about a trap we are falling into. I am thinking of Mr Harawira in particular when thinking of tax design as to who gets what. That is how we are thinking about the Budget. If we are thinking about our country, and our young ones, we should actually be thinking about where we will be in 5 years’ time, in 10 years’ time, in 15 years’ time, and in 20 years’ time. That is what matters. Actually, a few dollars this week and a few dollars in October sort of pale into insignificance compared with what we can achieve over the next 5, 10, or 15 years. By that, in particular, I am focusing on economic growth, because that is what will provide the jobs, the incomes, the housing, the environment, the health service, and the educational service we all want.
Listening to the speech, I heard about everyone wanting the good things but not talking about how we build an economy to provide for them. I think that is how we should be thinking about tax cuts, too—that we should be thinking about whether there is a way we can cut taxes that will make a bigger cake, rather than just carve up the one we have.
I also want to pick up on a point that the Greens made about what is fair. You know, fairness is in the eyes of the beholder, I guess, and let me just illustrate that with two points. Jeanette Fitzsimons’ point was that the fairest tax cut we could have—and I think Mr Harawira was saying this too—is a tax cut that gives the same amount to everyone, and that is “fair”. But I am not so sure that their policies would do that. Let me give members an example. I think we have created this with this tax policy, too. For example, the first $10,000 or the first $5,000 is tax-free. And one thinks “Well, that’s great, because everyone gets the same amount.”—but I can promise members that they will not. The people who overwhelmingly will benefit from that tax policy are the wealthy. Why? Because anyone with a business that is doing well will employ his or her children, spouse, mother, and mother-in-law and pay them all $10,000. They will pay them $10,000, and that $10,000 they pay them will no longer be taxed at 39c in the dollar; it will not be taxed, at all. And enormous income-splitting will be seen as a consequence. What is fair about that?
In a funny way, we have added to that problem with Mr Cullen’s Budget by going to 12½ percent and 39 percent, so there is a greater incentive. We have already seen it happening. We will see a greater employment of business people’s family members in order to minimise those people’s tax liabilities, and that is quite a significant thing.
The other reason why I question fairness from Jeanette Fitsimons’ point of view is that she says: “Well, it should be the same so that somehow the way we are taxing people now is fair, and we should not adjust that process in any way, shape, or form.” But how can that be? We set the tax policy, basically, back in December 1999, and it came into effect in the year 2000. Since then we have had inflation and bracket creep. So instead of, say, 5 percent of people being taxed at the top rate, we actually have, say, 12 percent. So all those relativities have changed. But somehow Jeanette Fitsimons is saying: “OK, what we are doing now should be the measure of whether it is fair.”, but that would mean that what we were doing back in 2000 was not fair, because what we were doing back in 2000 was different.
I also think that when we think about tax cuts, we should be realistic. And here I want to chide New Zealand First members, because I think they want to make the first $5,200 tax-free. Well, we heard from the Minister of Revenue and the Minister of Finance that to take the amount to $10,000 would cost—I think, from memory—$3.9 billion. It is a flat rate up to $9,500, so if we are to make $5,200 tax-free, it will cost exactly half of that. So we are talking of just on $2 billion for the tax cut, to make $5,200 tax-free—$2 billion a year. I think New Zealand First also said that it would take the rate of GST from 12½ percent to 10 percent. I would vote for that—absolutely. It was promised to be 10 percent and it should be 10 percent. But I think I heard the Minister of Revenue—and I am looking across at officials to see whether I have the numbers right—say that on the current Budget that is about $2 billion, $2.5 billion, or something like that. So New Zealand First would actually have to cut Government spending by $4.5 billion. But all I heard from New Zealand First in its Budget speech was how much extra spending it had, through its good initiatives, and that it was disappointed in the Budget that there was not more spending. Well, we cannot have it both ways. We cannot cut $4 billion a year out of the Budget and spend more money, without cutting a huge amount.
Sue MoroneyWell, to be fair to National, it has not said what its tax cut plan is. It might be that Ron Mark’s numbers do not add up, but at least he has put the numbers out. We have to be realistic. But the point I would make—and this is probably why ACT is so low in the polls—is different from everyone else’s. I think that before we talk about fairness we should think about where we want to be in 5 years’ time, or in 10 years’ time, in terms of the economic pie. So instead of arguing about $10, $16, or $20 a week, we should ask whether we want to continue to be, say, $450 a week behind Australia in wages, on average. Do we want to be poorer than Tasmania? I do not think so, but I think that on the present course we will sink further behind. I think everyone, including the Government, is concerned about the number of New Zealanders who are leaving for Australia and further afield, and why they are doing that. A lot of Māori are going, I tell Mr Harawira—probably an entire electorate. They are doing that because it is more creative and more entrepreneurial, it makes more money, and it gives more opportunities.
Is that going to get better or worse? I think it will get worse. We can imagine hitting—to coin a new phrase—a tipping point, where so many of our young people will have left that it will actually become a cumulative flood of more and more people going. We have to ask ourselves whether these tax changes we are having will bring our kids home. Will they reverse the trend of young Māori and other young New Zealanders to head overseas? I do not think so. If we start thinking like that—and I know that this might be offensive to people’s ears—we should say “Let us have a tax policy that delivers growth.”, and then we are actually talking about getting the top rates down.
It is absolutely true, I tell Mr Harawira, that if we go to a flat tax rate of 20c in the dollar, or of 15c in the dollar, that those on high incomes will pay proportionately less tax than they do now. But that is because they pay such a lot now. So those people on $80,000 compared with those on $20,000 do not pay four times as much tax; they pay 50 times as much tax, depending on where they fall with children, and whatever. So they are paying a lot of tax. It is true that people might say “Oh, well, this is what an MP gets.” If people are worried about what MPs get, then let us cut MPs’ salaries. But let us not drive tax policy by what the Leader of the Opposition or the Deputy Prime Minister might get; let us drive tax policy by what is good for the country. I ask Mr Harawira to imagine us getting the tax rate down to 20c in the dollar. Then we would start growing the economy. Would that not be the best thing we could do for the young people of New Zealand! Thank you.
Hon RUTH DYSON (Minister for Social Development and Employment) Link to this
At peak viewing time it gives me great pleasure to contribute to this, the first reading of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Bill 2008. This bill primarily deals with two issues: tax rates and changes to the charities regime in relation to ensuring that the charities registration process and the tax process are better aligned. But, most important, this bill delivers a fair deal to New Zealanders. All those in paid work will benefit, as will those on a benefit with children, and superannuitants.
As I was saying, the Budget and the subsequent tax legislation deliver a fair economy and a strong future. I commend the Hon Dr Michael Cullen for the ninth Budget in a row in which he has made progress on both those fronts. I look forward to the next nine Budgets to be delivered by the Hon Dr Michael Cullen. Over the last 8 years the Labour-led Government has delivered major reinvestment in public services and infrastructure—public services that were run down by National, and infrastructure that was neglected by National. We have delivered substantial tax relief to businesses, savers, and families with children. On every occasion when tax legislation has been before this House, the National Party has voted against tax relief. National members voted against tax relief for New Zealand businesses, for New Zealand savers, and for New Zealand families with children. The personal tax cuts in this legislation are the next step in our Government’s programme to build a fair and strong economy and society, in which all New Zealanders have a strong stake.
Our Government, through the leadership of our Minister of Finance, Michael Cullen, has managed our public purse responsibly. We have not squandered resources in times of great optimism; nowhere is that more obvious than in New Zealand, and at no better time than now, as we watch what is happening internationally. We see that even in these times, New Zealand can deliver a $10.6 billion personal tax package.
Over the last 8½ years we have seen 377,000 more jobs created in our economy, giving more families a stake in our future. The unemployment rate has fallen by more than half, and it has stayed below 4 percent for over 4 years. We are the only country in the OECD that has been able to achieve that record. We have had less than 4 percent unemployment for 15 straight quarters. We now have 140,000 fewer people on a benefit.
Our child poverty rates have also fallen dramatically. Earlier today I heard National members talking about our OECD ratings. It is very interesting that they focus only on the areas that are of interest to them. The level of child poverty was a disgrace in New Zealand a decade ago. We were in the bottom quarter of the OECD in relation to child poverty, and by the middle of this year we will be in the top half. We have a way to go; we still have children living in comparative poverty in our country, and our goal is to work towards the elimination of that.
Of particular interest to me, as Minister for Senior Citizens, is the fact that we have ensured that those people who are dependent on superannuation are included in the benefits of this tax package. Superannuitants in New Zealand have had substantial financial support from the Labour-led Government. We restored the relative rate of superannuation for a married couple to 65 percent of the average weekly wage; it was 60 percent under the previous National Government. If National had continued in power after 1999 with the same level of superannuation, a married couple would be $34 a week worse off.
They would be $34 a week worse off under National—and that is before this tax package, not after it. We know that this package delivers substantially for superannuitants.
We have also been able to reduce the cost of visiting a doctor by, on average, $22 a visit. We have reduced the cost of prescription medicines from $15 an item to $3 an item. We have expanded access to health services, screening, and immunisation. These are the areas that make a difference to the most vulnerable people in our community—those who are dependent on a benefit or superannuation, or who are on a low income. They are able to access those services that are critical to their health.
We have also provided 20 hours’ free early childhood education. Again, the National Party opposed that policy day in and day out when it was debated in this House. National opposed access to free early childhood education for thousands and thousands of New Zealand children, many of whom would not have been able to access early childhood education had it not been made free for those 20 hours. We have also kept the cost of tertiary education under control. Every year we have improved access to tertiary education, and there has been another step forward in the Budget today. We have also built thousands of State houses while restoring income-related rents for those on the lowest incomes. Those substantial gains have been made in the last 8 years under a Labour-led Government, and I am looking forward to another decade so that we can continue on this path toward improving the lives of ordinary New Zealanders. We have begun a major assault on income inequality in retirement through KiwiSaver. Over 600,000 people are now part of the KiwiSaver regime.
The tax package to be delivered through this legislation is part of the overall contribution we have been able to make. I mention one other aspect of the tax legislation—a point the Hon Peter Dunne referred to earlier. I refer to the provisions that deal with charities and tax. We have uncovered uncertainties in the law with regard to the continuing tax-exempt status of some organisations. It is really important that this be clarified, because the deadline for charities to register with the new Charities Commission is 1 July. From that date, charitable entities have to be registered with the Charities Commission to be entitled to the charity-related income tax exemption and for gifts to charities to be exempt from gift duty. Obviously, there are no difficulties with those principles, but uncertainties between the tax legislation and the charities legislation have arisen.
It has been unclear whether entities such as universities and schools also have to register with the Charities Commission in order to maintain their tax-exempt status. It is clear there has been uncertainty in the legislation, and it is better for us to use this opportunity to resolve that uncertainty. Legislative changes are being made to provide tax certainty for a range of entities in those circumstances. These involve changes to the Income Tax Act and the Estate and Gift Duties Act. Those Acts will be amended to confirm that tertiary education institutions, as defined in the Education Act, are exempt from income tax and gift duty. They will not have to register with the Charities Commission to remain tax-exempt. Of course, if they want to register in order to gain access to other benefits, they will be entitled to do so. However, they will not be required to register in order to retain their tax-exempt status.
Another provision in this legislation relates to a discretion given to the Commissioner of Inland Revenue. It is a very limited discretion, and it is very important that charitable organisations that are considering registering, or are in the process of registering, with the commission recognise that the discretion is very limited. The provision gives the Commissioner of Inland Revenue discretion to ensure that an organisation that has started the application process to register as a charitable organisation before 1 July, and that intends to complete the application but for reasons beyond its control has not been able to do so, will not have its tax-exempt status nullified. So it is a very limited discretion. It will be of assistance to organisations, but I repeat that it is a very limited discretion and should be applied only when there are exceptional circumstances and a charitable organisation has not been able to progress its registration to fruition.
In conclusion, it is a privilege for me to speak in this debate on the Budget, which was released this afternoon. The Budget makes a huge $10.6 billion personal tax cut contribution but, more important—
That is the third time I have said it. But, more important, the Budget contributes to a fair economy and a strong future.
SIMON POWER (National—Rangitikei) Link to this
Well, that speech just says it all! There is a Minister of the Crown who wants to protect her own personal legacy in not standing up and endorsing tax cuts. There is a Minister from the left of the Labour Party, who wants no record in Hansard, whatsoever, that she supports tax cuts. I have to say there must be a huge amount of tension in the Labour caucus at the moment. When Michael Cullen introduced this bill prior to the dinner break, he essentially gave a speech about all the reasons why tax cuts were a bad idea and how he was having his arm wound right up his back to have to do this. Yet the Hon Ruth Dyson, somebody who would be regarded as one of the leaders of the left wing of the Labour Party, although probably not likely to vote for Phil Goff when the leadership spill comes, none the less could not get the words out—“tax cut”! Ms Dyson could not say “tax cut”. That is what her Government is proposing; that is what is before the House at the moment.
If only I had a dollar for every single “meet the candidates” meeting I have been to with Labour candidates and Labour MPs over the last 10 years. I have sat on the stage with those people, and I have heard them stand up and say, year after year: “Tax cuts are not on the agenda for the Labour Party, and never will be.” They said at those “meet the candidates” meetings: “We’re a party that will not cut tax, because we’re too concerned about social services.” Well, what has changed from those 10, 15, 20 meetings a year that National Party members fronted up to with Labour candidates where they said that no tax cuts would come from Labour? What has changed? What has changed is that this is election year. Not only has that changed but Michael Cullen is so reluctant to drive this package through the House that he has even decided to do a bit before the election, reluctantly—and then do nothing for 2 years after that. That is purely because he knows, in his heart of hearts, that he did not want to do this. He was interested in protecting his own legacy by doing as little as possible to initiate what all New Zealanders have known for a long time—that is, that they deserve some of their own money back. It is not the Government’s money to sort of wave about and hand down to the working folk of New Zealand. It is their money.
What I found most interesting about the Budget debate today was when we sat here reading through the Budget speech, and I waited for the applause after the paragraph where Michael Cullen announced the tax cuts, and do you know what? It did not come. There was not a whisper, not a clap, not even a “Hmm!” or any sort of approval, at all. The first clap from the Labour Party came when Dr Cullen talked about superannuitants receiving a bit more, as a result of this legislation and the Budget today. But when the actual tax cut package was announced in the Budget, there was not a clap. Not one single Labour member of Parliament put his or her hands together to say that that was a job well done. Does that not just say it all! This is too little, too late; and the public will not fall for it.
Was it not interesting that when the Prime Minister stood to speak, following John Key, she talked about the Springbok Tour, the Viet Nam War, and Rob Muldoon’s Budget in 1984. Well, sorry, Prime Minister, but a whole lot of us out there in voter land are not having those debates any more. In fact, we have not had those debates for 24 years. So if the Labour Party wants to keep having those debates, wants to keep looking backwards, then that is where it will end up. Out there in voter land they are not having a discussion about the Viet Nam War. They are not having a discussion about the Springbok Tour. They are not having a discussion about Rob Muldoon’s Budget in 1984. They are talking about the fact that under this Government, interest rates have doubled. They are talking about how under this Government, where petrol prices are $2 a litre and where cheese is $16 a kilogram, we do not want to have a discussion about the Springbok Tour in 1981, or the Viet Nam War in the 1960s or 1970s; we want to know, after 9 years, what those people on the other side of the House are going to do about relieving the pressure on household incomes. It has taken far too long for those people to realise that. People out there in voter land have had a gutsful of reliving those debates, which are 25 years old.
I want to talk about squeezing social services if tax cuts were introduced, as Labour candidates and MPs have been saying on the platform for the last 8 or 9 years. Well, how about we not overspend half a billion dollars building four prisons. Maybe that sort of dollar amount could have been put to better use in tax cuts over the last 7 or 8 years. Instead, what do we get? We get $16 a week for the average household wage earner—enough to go out and buy that elusive block of cheese! The Prime Minister stands in this House on Budget day and says: “I know where I stood on the Springbok Tour.” Well, we do not care! We want relief to household incomes and we want to have a debate about where New Zealand is going, not where New Zealand has been. Too many Labour MPs are way, way back in history where Labour has been.
What we are seeing today is legislation being rushed through this House for those tax cuts to be introduced, for one reason and one reason only—that is, the Prime Minister does not trust the Minister of Finance to do the business. After 2005’s broken promise on the “chewing gum tax cuts” the Prime Minister has said to the Minister of Finance: “You will legislate for those tax cuts to avoid us getting into a situation we got into in 2005.” Back-downs are no longer acceptable, and that is why the National Party is here to keep them honest.
The pressure this Government is feeling is in economic households. The problem is being solved only because that Government is feeling political pressure. That is the only reason this tax cut legislation has finally made it to the floor of the House. As Bill English and Gerry Brownlee have said tonight, we will vote for the tax cuts because we have consistently said that that is what New Zealand needs. We have not just turned on our tail in introducing those things 2 weeks before an election to try to save our own skins at the polls. We are going to keep talking about the future, while that party keeps talking about the past.
The ASSISTANT SPEAKER (H V Ross Robertson) Link to this
Before I call the next speaker, I advise the House that this 10-minute call will be divided between Labour and National, with 5 minutes each.
CHARLES CHAUVEL (Labour) Link to this
Thank you, Mr Assistant Speaker, and may I begin by wishing you a happy birthday.
I am really proud to speak in support of the Taxation (Personal Tax Cuts, Annual Rates, and Remedial Matters) Bill, and I am very sad to have heard the previous speech. Let me tell the previous speaker, Mr Power, that one of the reasons why history matters, one of the reasons why it is important to know where one’s country, one’s party, and the economy have been in the past and what positions were taken in the past is so one does not relive any mistakes. I point that out to Mr Burrows, who is trying to interject. The problem with the speech we just heard from Mr Power is that it explains exactly why that member gave a speech some years ago saying: “Where Britain goes, we go. Where America goes, we go.” He is the Young Fogey of the National Party. With speeches and positions like that, it is clear that he does not know his history; it is clear from the speeches on this side of the House that we do. We have learnt from our history and we make sure it informs our future actions.
I want to praise Dr Cullen for the Budget that has been delivered today. It is no wonder that he is the longest-serving Minister of Finance since Walter Nash in the 1940s, because he has delivered a successful economic record to this country and he continued to do exactly that today. I am very proud of the tax cuts that were announced in the Budget. I am very proud that they followed the four tests that Dr Cullen has been articulating consistently over the last year as part of the only coherent tax policy that is being articulated in this country at the moment. I am very proud that they are Labour policies. It is good just to measure these tax reductions against those four tests.
The first test is that the tax reductions will not lead to greater inequality in our society, and there are three reasons for that: they will be applied across the board, they will be proportionate to income, and they will benefit all households, regardless of whether they have children. Also, they will apply to all taxpayers—including superannuitants—regardless of whether they are in paid employment.
The second test is that these tax cuts will not require cuts to public services. Having managed New Zealand’s finances responsibly throughout its term in office, this Government can now afford both to offer tax relief to New Zealanders in need and to make new investments in the health, education, justice, public transport, roading, science and technology, and social services sectors. Those are great things, and these are balanced tax cuts for that reason.
The third test is that the reductions should not exacerbate inflationary pressures—and they will not. Labour has been careful to introduce these tax reductions over 3 years to avoid extra pressure on mortgage interest rates. This cautious approach is particularly important in difficult economic times and it is a tribute, I think, to this Government that in an election year, when any other Government might have been tempted to offer full tax relief immediately, this Government put New Zealand’s economic interest first with a phased-in tax reduction.
The final test is that the Government will not need to borrow to fund these cuts. New Zealand is currently in a net positive financial asset position. This is thanks to the Government having reduced the country’s national debt significantly, from over 30 percent of GDP at the commencement of its term in office to its current level of around 20 percent. Also, having conserved resources, the Government can now afford to offer tax reductions to recognise the contribution that hard-working New Zealanders have made to our economy and continue to do so.
The bill’s tax reductions build on existing tax relief, which this Government has not received a lot of credit for, frankly, and which is worth billions of dollars. Mr Carter, over the way, sneers in the way that he does in that little “born to rule” way; that will be National’s downfall. Let me remind the House that the tax cuts delivered already by this Government via a systematic programme since 2004 amount to many billions of dollars—[Interruption] They stand at $4.6 billion, as Mr Mallard points out. They stand in stark contrast to the policies of the National Party which, as we have seen, are just to promise tax cuts at any cost, no matter what the consequences—that is, a return to run-down public services, higher debt, and runaway inflation. Anyone who compares the two approaches will see which one is better for New Zealand.
Hon DAVID CARTER (National) Link to this
National will vote enthusiastically for this legislation because National, like the rest of New Zealand, has waited 9 long years for the chance to vote for personal tax cuts. If we listen to the contributions from the Labour members, starting with Dr Cullen’s, we realise Dr Cullen could hardly bring himself to support his own legislation. He spent 10 minutes in the House giving every reason possible why he should not be delivering tax cuts and acknowledged in his own contribution that we have moved into urgency tonight to pass the legislation before he wakes up tomorrow morning and changes his mind, as he did in 2005. He said himself he could not be trusted to deliver these tax cuts unless they were enshrined in legislation immediately after the Budget that was read earlier.
The Labour members fundamentally do not want to do this tonight; they do not believe in these tax cuts. They have spent 9 years being philosophically opposed to tax cuts, and they are bringing them in for only one reason: it is a cynical, arrogant attempt to buy the votes they will need at the next election in order to get back to the Treasury benches. Tim Barnett nods his head and agrees. It will not work, because $16 is not enough; $16 is not enough to address the suffering that most New Zealand households are under.
The pressure that households are under may not be recognised by the Labour members as they drive their BMWs around and as they hand over their credit cards, supplied by the taxpayer, to the fuel attendant when they fill up their cars—they probably do not even realise that petrol has reached $2 a litre tonight. Coupled with that sort of pressure is the fact that every time any mum goes into the supermarket to fill up the shopping basket, the price of food goes up—it goes up every week. In addition to that, interest rates have doubled because of the reckless inflationary spending we have had from the Labour Government. That is why people are under pressure, and that is why tonight on TV every commentary I have seen is saying that the tax cuts are too little, too late.
The Government has had 9 years to do something about the tax rates and, as Mr Mallard, the Associate Minister of Finance, knows, it is with the greatest amount of reluctance that it has brought in a tax package today that has delivered, on average, $16 a week—the price of two blocks of cheese. But let us wait for it; people will get the tax cut 2 weeks before the election. And then Mr Cullen talks about a programme of tax cuts! When is the next one? There is nothing for another 18 months. That is not a credible tax reduction policy, and it will not wash with the electors as we move towards the election. Media commentary has summed the situation up tonight. Commentators have consistently said that Mr Cullen has now delivered his last Budget; it has been called his “valedictory Budget” on TV tonight, and that is a fact. He had every opportunity to address the tax package issue in this country, and he has not taken the opportunity to do that.
I want to conclude by saying I was pleased to see one very good thing in this Budget. It is the fact that superannuitants have been recognised as a group that is under extreme pressure; they will benefit from the tax cuts. But for Helen Clark to go on TV tonight and to say in the House today that the Government has increased superannuation in recognition of that pressure is a con. Superannuitants would do better simply because of tax cuts. If we had had a tax cut programme over the last 8 or 9 years, which the surpluses would have allowed, we would have been able to deliver substantial payments to superannuitants now. Superannuitants will not buy it, I say to Mr Mallard. They will not buy it that they have been generously given a break tonight, which they will receive 2 weeks before the election, because they know that that opportunity was denied to them for years. Mr Mallard, you had your chance to deliver tax cuts—