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Taxation (Urgent Measures and Annual Rates) Bill

Third Reading

Wednesday 10 December 2008 Hansard source (external site)

EnglishHon BILL ENGLISH (Minister of Finance) Link to this

I move, That the Taxation (Urgent Measures and Annual Rates) Bill be now read a third time. It is not surprising that there was some debate in the House over this matter. The political parties have had competing tax packages out in the public arena for some time. The previous Government, in the 2008 Budget, finally gave in on the argument for tax cuts. It announced tax cuts of its own, which is described as being at the edge of reasonable, or at the edge of prudence, or whatever it was. In the run-up to the election the National Party announced its tax package. There have probably been few issues as thoroughly debated as tax rates over the last 4 or 5 years, particularly at the time of the 2005 Budget, because the previous Government had promised some tax cuts and it was a matter of some debate that after the election it decided not to implement the tax cuts it had promised. It has been a fairly significant debate since then.

This bill has been part of the plan on which the National Party was elected. It is a plan to get this country through a recession as best we can—a recession that began well before international events started to unfold as dramatically as they have in recent months; it began early this year—and to lift our long-term growth rates for the benefit of all New Zealanders. We were elected on the basis of that plan just a month or so ago, but also, I think, on the basis that many New Zealanders felt it was time for a Government that had a bit more respect for their capacity to make their own decisions about their own lives, whether they be about the size of the heads they were allowed to have in the shower, and how long they were allowed to stand in the shower, right through to making more of their own financial decisions. Of course, any Government makes a great number of financial decisions for people, but they were in a position where the previous Government was telling them when to save, when to spend, and when to pay off debt. Our approach is different from that, which is one of the reasons that our tax cuts are larger than the previous Government’s.

This tax cut is part of a fiscal stimulus that began with the 2008 Budget, which, according to Treasury calculations—and it is somewhat of a dark art as to how it does them—means that over the next 2 years, $7 billion of fiscal stimulus will come into the New Zealand economy. I have seen some commentators and some of our political opponents describe that as being insignificant or too small. In fact, it is not. By international standards it is one of the largest fiscal stimuli that are occurring in the developed world. So it will make a difference to this economy. Of course, we cannot avoid being in a recession. As I said, New Zealand was in a recession before international events came on. That was a product, to a large extent, of 9 years of complacent and misdirected economic management by the previous Government. But this fiscal stimulus will help people to keep jobs who would have otherwise lost them, and it will protect people from the sharpest edge of recession. We will see in other countries just how sharp that edge can be.

The tax package fits into that context, but it also fits into a longer-term context where we have argued for many years—it is part of the philosophy of our party—that a lower tax take and lower tax rates would in the long run provide better incentives for people to get ahead, and that the private sector part of the economy is more likely to get things right than the Government would when making decisions about too much of the activity in the economy. Of course, the balance between those two swings around. In the last couple of months the previous Government, with our support, issued guarantees for bank deposits and wholesale borrowing by banks, which was quite a big shift in the role of the Government. Of course our view has to adapt according to the circumstances.

That is the tax part of the legislation. Then we come to the KiwiSaver part of the legislation where, I think, the fundamental point that the debate missed is that many working-age New Zealanders—even with the number at apparently 800,000, or whatever it is—are simply not in KiwiSaver, and they face tough times. During the election campaign we made our plan for KiwiSaver clear: it is focused on making it fair—that is, allowing more New Zealanders access to the benefits of KiwiSaver, because if they cannot afford to save almost 6 percent of their net income, then they cannot afford to be in KiwiSaver. I would suggest, as we go into this recession, that we should be realistic about how many Kiwis feel about their job security and their ability to give up 5 percent of their net income, particularly when many of them are carrying too much debt. Putting money into KiwiSaver does not pay off one’s debt. In fact, putting it in there means one is likely to lose it in the current circumstances, but one still has to pay interest on the mortgage.

So our approach has been to give people tax cuts. They then have the opportunity to decide how they will use that money. Many of them will pay off debt; that is actually a form of saving. That is why savings rates are bound to increase. The Labour Party missed the reality that the only way to save is actually to consume less, and many New Zealanders are doing that right now. One of the reasons they are consuming less is to pay off their debt, and that is a decision that they make according to their own sense of what the risks are. That is why we have lowered the threshold for KiwiSaver contributions to 2 percent. People are free to contribute whatever they like above that and to make use of whatever arrangements they have made, or will continue to make, with their employers.

The bill also includes one significant change from our pre-election policy on KiwiSaver, which is to revert to what was the pre-existing policy on KiwiSaver—that is, the member tax credit will be paid out at the rate of dollar for dollar. There was some suggestion during the debate that this was not what it appeared to be. Well, it is what it appears to be. If people on $30,000 a year are contributing 4 percent of that to KiwiSaver, then they will get $1,040 from the Government. Of course, if they go in at the default rate of 2 percent, they will get a smaller member tax credit. Everyone knows that.

Finally on KiwiSaver, I say we should see it in the context of retirement income for all New Zealanders. We have, as was discussed during the Committee stage, a universal pension in New Zealand—New Zealand superannuation—after many years of debate. We have a pre-funding arrangement that is beaten, I think, by only the Norwegians, who are using oil revenues—very large-scale pre-funding by any international standard—and in that context the Opposition’s argument that KiwiSaver has to be as big as the Australian scheme can only mean that Opposition members envisage KiwiSaver one day replacing New Zealand superannuation. That is not our vision for KiwiSaver; it is a top-up for people who save during their working life.

We are pleased to support this bill in its third reading. It is a different tax package from Labour’s, and that means there will be different rates and thresholds. But I will make this one simple point: no one is worse off as a result of this legislation. [Interruption] If, as an Opposition member claimed, Māori are going into Christmas on bad incomes, I say that they are the incomes Labour left them with after 9 years of the strongest economic growth the country has had. They are not affected at all by this legislation, so I say the rubbish from the Opposition about low-income people being attacked is nonsense. If those people are hard up, it is because they have loyally voted for Labour for 10 years and not been rewarded, either by Labour winning the election or by the benefits of economic growth. The crocodile tears for low-income New Zealanders were, I think, ridiculous; 630,000 people will finally get a tax break after 10 years of Labour ignoring them. We are proud that that is part of this legislation.

Debate interrupted.

Dec 2008
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