Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
I move, That the Taxation (Annual Rates of Income Tax 2005-06) Bill, the Taxation (Urgent Measures) Bill, and the Student Loan Scheme Amendment Bill be now read a third time. The Taxation (Urgent Measures) Bill and the Student Loan Scheme Amendment Bill deliver on key Labour election pledges aimed at improving the lives of a very large number of New Zealanders. They reflect our commitment to a fair and an inclusive society that offers its young people the opportunity to achieve their full potential. The new legislation will also make a real difference to the income of many thousands of working families with children. To be precise, some 160,000 working families will be better off as a result of this legislation. One hundred thousand families already entitled to family support and targeted tax assistance from 1 April next year will receive increased assistance, and some 60,000 additional families will also qualify for that targeted assistance.
Much has been made during the debate in the Committee stage of the marginal tax rates. All that this legislation does in that respect is to lower the marginal tax rate for 100,000 families but increase it for 60,000 families. The other matters referred to by Dr Lockwood Smith have, I am afraid, been par for the system for many years. If he wants to go off on the lonely road of trying to solve the problem of high effective marginal tax rates on beneficiaries as they move into employment, he will join the large group of bleached bones that lies within that desert marked as the tax benefit interface.
I see that my old colleague the member for Clutha-Southland is smiling at that, because he has no doubt been down the same track as others, in the past, of looking at the various papers on that particular issue. [Interruption] No. I am saying that everybody faces that problem, or otherwise people on very high incomes would still get partial unemployment benefits, partial domestic purposes benefits, or partial whatever else their benefit was. At some point the benefit system has to be exited from, in terms of the domestic purposes benefit or the unemployment benefit, and therefore that means very high effective marginal tax rates across a range of incomes. I say to Dr Lockwood Smith that nobody has solved that problem in New Zealand, although many people have tried to solve it. The most stupid example of trying to solve it was that of my former colleague the Hon Roger Douglas, who ended up with 100 percent effective marginal tax rates for everybody on low incomes.
Hon Dr MICHAEL CULLEN Link to this
Exactly—it was lagged. The member knows precisely what I am referring to, and that was done to try to solve the problem. It was the worst possible solution to come up with.
The change in student loans will encourage our graduates to stay in New Zealand, because the loans are interest-free if they stay here. Graduates will pay interest if they go overseas. They will stay here to invest their skills, and New Zealanders will be attracted back here from overseas. Of course, the main opponent of this legislation in the debate has been the Hon Dr Lockwood Smith—or, as he prefers to call himself, Dr the Hon Lockwood Smith—who in 1990 said that he would abolish the fees that Labour had put in place for tertiary education, and that those toll gates on knowledge would go. Ever since then, and ever since National was elected in the 1990s, he has never even been back to a university campus to explain why he did not abolish those toll gates on knowledge but instead built them about three times higher, and then saw them go up 10 to 15 percent every year that National was in power. That is why, although some day later on the member may crawl back to a campus, he will certainly not go back there in coming elections—unless he has all the windows and doors checked to make sure he can get out in a hurry, should he need to do so.
The other element in this bill, of course, is the confirmation of the annual rates of taxation. We have had the usual whinge of the wealthy come from the National members that unless, God help them, their tax rate is cut, they will not work another day. They have said they will not get out of bed in the morning but will lie there, because they would rather live there in poverty than go to work in mere affluence. That is what those in the National Party say.
My goodness me, since the year 2000 we have seen that National has been on strike. Since its members have had to pay 39c in the dollar on income above $60,000 a year, not a finger has been lifted by those in National. Occasionally, two fingers have been lifted in this House, but the National members have never lifted one finger in terms of doing work, because we know they cannot possibly work if they will keep only 61c in the dollar of their income.
Katherine RichHon Dr MICHAEL CULLEN Link to this
Even Katherine Rich—the eponymous Katherine Rich—has joined in the debate on this matter. [ Interruption] I said “eponymous”. If you had borrowed a decent amount of money and had a decent education, you would know what it means, Jacqui Dean, I think the name is, from Aoraki or one of those sorts of places. No, you are from Otago; you are that particular woman. And soon she will get to Middlemarch as well, proudly boasting that she had been to Cromwell and Palmerston in the Otago electorate—
I raise a point of order, Mr Speaker. That member has been in the House for some time and should know that he cannot use the second person unless he is addressing the Speaker.
The ASSISTANT SPEAKER (H V Ross Robertson) Link to this
Yes, I am aware of that. I thank the member.
The ASSISTANT SPEAKER (H V Ross Robertson) Link to this
Mr English is absolutely right. Dr Cullen will come to order.
Hon Dr MICHAEL CULLEN Link to this
As the Irish would say, I must keep myself to the third person in these matters as we move on. So Jacqui Dean will visit Middlemarch at some future point—which she still thinks is simply the title of a George Eliot novel, but she will find out soon that it is actually within her electorate.
On the Government side of the House we know that since we changed the tax rates we have achieved the highest participation rate in the labour force of any developed country in the world. We have achieved the lowest unemployment rate of any developed country in the world. We have grown faster than the developed world’s average for every year that we have been in power—but apparently none of that can happen. National members say that although that may work in practice, they know it does not work in theory. According to National, we have to stop doing the practical things that are working and encourage the wealthy, by making their tax rates lower—and, as we know, at the same time making sure that the poor are worse off.
We always know the fundamental Tory philosophy: the poor will work harder if they are poorer, the rich will work harder if they are richer, and the middle class will take their chances on the boundaries. That is National’s philosophy in those matters. We wish it well. It is why in the end the National members lost the election, and it is why they will stagger on for another 3 years in bitterness and hatred and in the end lose the next one, as well.
Hon BILL ENGLISH (National—Clutha-Southland) Link to this
When it comes to political parties staggering, that member should look along his front bench.
Judith CollinsThat is right. Actually, the taxpayer’s dollar is much safer when they are not here than when they are.
One has only to look at the issues this Parliament has been dealing with in the last few weeks to see why taxpayers are so resistant to the level of taxation that Labour is reaffirming in this legislation. I will come back to that. You see, the tragedy of today—and it is a tragedy of a lost election, from our point of view—is what this Parliament could be passing as a tax bill. We could have been passing legislation by which 85 percent of wage and salary earners in New Zealand faced a tax rate of 19c in the dollar. That is what we could have had—85 percent of them facing 19c in a dollar.
We could have done that with the support of parties that are actually supporting this legislation, by which I mean United Future, New Zealand First—at a bit of a stretch—and maybe even the Māori Party, too. They have a much better understanding of how New Zealanders want to get ahead and what they need to do to get ahead then the Labour Party ever does. If it were not for the accident of those parties promising to support, after the election, the party that got the most number of seats, they could be supporting tax legislation today—as they are supporting this legislation—where 85 percent of New Zealanders faced a statutory tax rate of 19c in the dollar. What better incentive would there be to get ahead, not only for all those people Dr Cullen says he cares about but also for all the ones that he does not care about?
Actually, he summed it up in his argument about participation rates and employment rates. The Government is priding itself on economic growth that was essentially built on increased employment. So more New Zealanders now work. We have more workers. I agree with that; growth has flowed from it, and people getting jobs has been a good thing, but it is no credit to the Government, because it has done nothing to contribute to it. But that is not the point now. The point now is not more workers, but better workers—
Dr the Hon Lockwood Smith—and productivity. Is it not typical of Dr Cullen to be spending tens of millions of taxpayers’ money on seminars, workshops, advisory groups, and industry advisory business council consulting strategic groups talking about productivity when he does not believe a word of it himself? Productivity needs workers with strong incentives to lift their skills and their levels of education to be more productive. The days of easy economic growth are gone, which is a truth the Labour Government will find out to its political cost over the next couple of years. That is why National’s tax policy is the one that should be being passed by this Parliament. It would give all workers in New Zealand the incentive to get ahead, because we can all contribute.
But that is not what the Government thinks. One reason it needs to confirm the current tax rates is that it needs to pay the burgeoning State sector wage bill. From looking at the figures, one would think—and Government members somehow think, in so far as they have paid any attention to productivity—that the most productive people in New Zealand were in the public sector. When we look at the Labour Cost Index, we see that every single day this Government has been in power, public sector wages have gone up faster than private sector wages. In the last 12 months the difference has accelerated.
Hon Marian HobbsThat is excluding nurses and teachers. When we include them, it is more, but when we exclude them, it is still faster.
It is no wonder that private enterprises are struggling hard to get labour, because the Government is out there outbidding them. Why is the Government outbidding them? It is not because civil servants are more productive. It is not paying more to the civil service because it is more productive. That is clear in Treasury’s briefing paper to the incoming Minister, which states that there is no evidence that, for the much greater expenditure on public services, taxpayers are receiving better services or a better deal. So private enterprises are out there, trying to get skilled people, and what is outbidding them? It is the Government. The public sector wage bill will rise by $1 billion per Budget for the rest of the life of this Government, and everything New Zealand First wants to get is in hock to that first billion dollars in public sector wages. That is why New Zealanders are resistant to paying the amount of tax that Dr Cullen wants them to pay.
Is it just National Party voters, MPs, or ACT supporters who are saying that? No, it is not. It is the membership of the Council of Trade Unions. In its brief to the incoming Minister of Finance, the leadership of the Council of Trade Unions recognises, in a polite way, the pressure coming on from its own membership. It says of its own membership that they believe the surplus is too big and that they should get some of it. We absolutely agree. The group of people in New Zealand who best reflect the interests of the membership of the Council of Trade Unions are those who make up the National Party. It is not the Council of Trade Unions leadership, and it is certainly not the Labour Government—which keeps taking dollars out of the workingman’s pocket to put them into the bureaucrats’ pocket. That is what happens; it is as simple as that.
The Council of Trade Unions goes on to make one constructive suggestion, which I hoped Dr Cullen would have addressed during this debate: why does the Government not bring forward its inflation indexation of tax thresholds from 2008 to 2006? Dr Cullen said one thing about it. He said: “At least someone now thinks it is a good idea.” Well, they do so because it is the only option for reducing the overtaxation of the New Zealand worker. It is the only option on the table because he has ruled all the others out and, as part of the coalition agreement with New Zealand First and United Future, those parties that are now part of the Government have made mention of that.
Dr Cullen did not address it. He has plenty of money to do it. I do not think he realises how silly it now looks to be the only person in the country who thinks the Government does not have enough money.
Lindsay TischEveryone else knows the Government has more than it can handle, but over the next 2 years we will see the odd situation unfold whereby on the one hand Dr Cullen has to tell his colleagues he does not have enough money for things that matter but on the other hand he has far too much, so that he is wasting it on all sorts of things, from the TVNZ charter to something I came across the other day. It is costing the Government $141 million, by its own figures, to run the tertiary education system. That is just the Wellington bureaucracy; it costs $141 million. I can tell Parliament that I have spent 2 years looking at what those bureaucrats do, and they do nothing. There is no evidence of the spending of that money benefiting any single New Zealander.
So that is why National does not support this bill. We could have been passing a much better one that would have put 85 percent of taxpayers on a 19c tax rate. We know that if the Government sticks to this overtaxation of the New Zealand worker, it will continue to waste money, and now it has incompetent Ministers like Steve Maharey and David Benson-Pope to do it with, which will make the problem twice as bad. What is more, the Government is getting the message from its own people—some of whom voted for the Labour Government—that the membership of the Council of Trade Unions is saying that the surpluses are too big. Those people want a reasonable and small amount of it now, but Dr Cullen has thrown that back in their faces with this bill, and he will pay a price for doing that.