Hon BILL ENGLISH (Deputy Leader—National) Link to this
Well, Mr Peters might want to explain just where he got the $158,000 from.
Rt Hon Winston Peters Link to this
I raise a point of order, Mr Speaker. I did not get it from abroad, as the member’s party did.
Mr DEPUTY SPEAKER Link to this
Enough points of order have been raised this afternoon. Members will settle down please, particularly Mr Peters.
What we do know about New Zealand First’s repayment is that those members did not get it from the taxpayer, which is where Dr Cullen got the money he used to break the cap on electoral expenses in the 2005 election, in a manner that was unprecedented. That is directly relevant to this legislation, which sets our tax rates, because that particular incident helps explain some of Dr Cullen’s ambivalence about tax policy and where it is headed. I will just pick up on some of the statements Dr Cullen made in his speech to the House. He is falling back on the mechanism that Labour uses when it is in electoral trouble—that is, the making of loud and vigorous statements of principle.
Dr Cullen made a couple of statements that I think bear some scrutiny. In relation to the first, one would think that Labour had invented the idea of compensating families for the cost of raising children. Well, it did not. Working for Families is simply an extension of the child tax credits that were brought in by National in 1996 and 1997. Those child tax credits, which were much criticised by Labour at the time, were simply an extension of the rationalisation of family assistance through family support that was carried out by the Labour Government in 1987, under Roger Douglas when he brought in the family support system. So for Dr Cullen to claim that only Labour has ever recognised the cost of raising children, and that it is some kind of radical new statement of equity, is rubbish. It is just rubbish. He updated a model brought in 10 years ago under National, a tax package that cost, I think, about $3 billion, which was the largest personal income and family support tax package the country has ever seen, even including those in the 10 years since then—even since then.
The point my colleague Dr the Hon Lockwood Smith was making was simply that taxing people at 39c in the dollar when they earn under $40,000, and then recycling all of that money back to them as child tax credits, is a system that bears some scrutiny because we may be able to simplify it. We have had quite a lot of discussion about how that could happen, but Dr Cullen is going far too far—in the manner he has become accustomed to—by saying that Dr the Hon Lockwood Smith is opposed to Working for Families and tax credits for families. Of course, the system can be simplified.
The other statement Dr Cullen made in respect of equity for taxpayers leaves me absolutely puzzled. You see, as Dr the Hon Lockwood Smith pointed out, tax policy has become a hotchpotch of ad hoc arrangements. One of the reasons is that Dr Cullen is now implementing policies he has opposed for almost all of the time he has been the finance spokesman for Labour, going back, I think, to 1994 or 1995. So he has had to change his mind under political pressure—
Well, that is not an outrage, but there is clearly no principle in what he is doing. I will just use the examples that have come through the debate. The way the Government will handle the tax on redundancies will effectively reduce the tax rate on redundancy payments, compared with the tax rate people are due to pay on their income. So someone on the tax rate of 39c in the dollar, which cuts in at well under the income levels that anyone would consider wealthy, will be paying 39c in the dollar on their income tax and they will pay 33c on their redundancy payment. People who earn $400,000 can use tax and company structures that mean, effectively, they pay the same tax rate as a person who earns $40,000. They can pay 33c in the dollar. Under Labour, people who earn less than the average wage—who earn $39,000—pay tax at the rate of 33c in the dollar. Again, the tax regime on savings now provides through the portfolio investment entity regime the opportunity for people who pay 39c in the dollar on their personal income to pay 30c in the dollar on the income they earn on savings.
What is actually happening is that Dr Cullen is gradually flattening the tax rates on everything except personal income. Why is he doing that? Well, one can only assume that it is some kind of obsession, as expressed the other day when he referred to the leader of the National Party not just as a “scumbag” but also as a “rich”—and then a four-letter word that I think is probably unparliamentary.
It was a five-letter word that we cannot repeat. Dr Cullen and Labour have this fixed view that anyone who earns $60,000 is rich and, therefore, that they should be punished. So he has reduced the tax on companies, reduced the tax on savings, and today he has reduced the tax on redundancy payments. He has done everything except reduce the tax that people pay on their personal incomes. What is it with Dr Cullen that, although he claims to be the guardian of equity, the first $2 billion worth of tax cuts he has made have gone to companies? How does he explain that to the Council of Trade Unions conference—to the person on $39,000 who has had no tax breaks for 8 years under Labour, but who knows that $2 billion worth of taxes a year have been reduced for companies. What did Dr Cullen used to say about company tax cuts? He used to say that they were mindlessly stupid. He used to say that the only beneficiaries of company tax cuts were overseas investors who owned businesses in New Zealand.
Hon Darren HughesWell, I ask whether that is right. Why is it that Labour, all fired up about equity and fairness, has given the first $2 billion worth of tax cuts to the overseas owners of New Zealand businesses? That is apparently what Labour has done, according to its own logic. Of course, there is a logic to what Labour has done, which is that the lower company tax rate means that companies will retain their profits and reinvest them. There is some logic to that, but what has happened to the equity argument? How will Labour MPs explain to middle-income New Zealanders on the factory floor why those people have not had a single tax break in 8 years? Labour members cannot explain it. They cannot explain it, and that is why they have lost the argument.
Well, they have lost the argument. That is why Helen Clark suddenly announced her new-found understanding of fiscal surpluses, and said that they are big enough for tax cuts. The reality is that middle New Zealand should have had a dividend from economic growth over the last 8 years. People are looking increasingly to Australia, where workers have had a dividend from economic growth. New Zealand workers can feel doubly aggrieved that the dividend from economic growth has gone to people who can afford to save, to people who run companies, and to Kiwis who live in Australia. So Kiwis have had tax breaks, but they have had to go to Australia to get them.
Dr Cullen cannot have it both ways. One argument he makes is that National is a bunch of mad tax-cutters who cannot be trusted. Today he made the opposite argument: that people cannot trust National to cut taxes because it never has. He is actually wrong about that. But he cannot have it both ways.
Labour members will have to make up their own minds about tax cuts. They need to own their record and their record is that they have given tax breaks to those who are better off, to people who own companies, and to those who can afford to save, but Labour’s own supporters have gone wanting for 8 years for a single dime, for a single cent. Dr Cullen promised them in 2005 the “chewing gum tax cuts”—as the leader of the ACT party so grandly called them. Then he took those cuts away. So the only thing Labour members promised workers, it took away. That is why, next year, workers will not trust them. Labour members had the chance, with the passage of this bill this year, to give some tax reductions to low and middle income New Zealanders, yet for the eighth year in a row they have refused to do it. But magically in election year the workers out there who have had to pay more and more tax are meant to believe that now Labour members are giving tax cuts out of the goodness of their hearts. What a load of rubbish! Dr Cullen has spent 8 years ruining his credibility on tax; it will not come right next year.
RODNEY HIDE (Leader—ACT) Link to this
The performance of the Rt Hon Winston Peters in the House, just before, illustrates why we have got ourselves in such a muddle over tax policy. It was all about politics and grandstanding and nothing about principle or sound policy. Just to recap, I remind members that all of the political parties were discovered by the Auditor-General at the last election to have spent money outside what the rules were considered to be, and every party—some begrudgingly—paid the money back. Mr Peters and New Zealand First did not. They were going to take a legal case, they held off, and they kept the interest, apparently, on their money all that time. Then, rather than pay back the money to the taxpayer, as every other party did, they grandstanded and had their picture taken giving the money to a hospital. That is like a taxpayer who, on being found not to have paid his or her tax, does not actually pay it back for 2 years and does not pay any interest or any penalties, but who then gives the money owed to the taxman to his or her favourite charity, gets his or her picture in the paper doing so, and says: “Look at me, how wonderful I am!”. There is nothing principled or sound about that.
If Mr Doug Woolerton wants to keep chirping in as he does, he and his party should announce where the money that New Zealand First has been spending has actually come from—not just the money it paid to the hospital but the money that Mr Peters spent in taking Bob Clarkson to court—money that has never been declared. I say to New Zealand First members that before they start giving some bad motives to the National Party or to the ACT party over what those parties are doing, I think they should be a bit more upfront about where their leader has been getting his money from all these years.
As to this bill, I say that the problem is that there is no principle, there is no sound policy, and there is no forward thinking in anything that this Government is doing in the area of tax. Let me explain. The first thing we should do with a Government is decide what we want that Government to do. Once we decide what we want the Government to do, we can then go and figure out how we raise the money for that. But that is not what this Government has done. It has sat on a pile of cash and asked “How can we spend it?”. In fact, it has asked “How can we get more?”. It has put up taxes and charges to get more money to spend rather than think about what New Zealanders want their Government to do.
The second thing we should do, having decided that, yes, it is appropriate that the Government spends this amount of money, is raise tax as efficiently and as effectively as possible, because a poorly designed tax system puts costs on the economy—that is to say, on all New Zealanders. The costs are not just the cost of filling out the forms, the costs are what is called in the jargon the dead weight costs of tax—the costs, the trades, the deals, the business, the jobs, and the opportunities that are not realised because of the tax system that this Parliament has put in place.
If people think like that, they will want this—they will want the tax system to be fair. It is fair to say that fairness is somewhat in the eyes of the beholder, but let us discuss both concepts. If we want a tax system to be efficient—that is, to raise a set amount of money in the least costly way—then, indeed, we will have a low flat tax on income, or a consumption tax like GST. That is the way we will do it. And we will say to ourselves: “We are not going to have a tax system that is designed to push people a certain way, or that tells us how to spend our remaining bits of money left after the tax has been taken.” No, because when we do that, we distort the economy, we add costs to the tax system, and we complicate the tax code.
So we would be looking for, maybe, a flat tax of something like 18c in the dollar and a GST of 12.5c in the dollar, and then people would be left with the money above that to spend as they choose, not as politicians think they should choose. That is what we would be doing; not saying “We think saving’s a great idea. Let us allow people to keep some of their money if they save it.”, or “We think research and development is a good idea and we will give tax breaks for that.” No, we would not say that, because that is just politicians telling people what to do with their own money.
Here is another thing. We would not be having this argument about tax rates of 39c and 33c in the dollar, because we would be thinking about tax from the point of view of efficiency and fairness. We would say that the fair proposition is that if someone earns twice as much money as others, they should pay twice as much tax—not three times as much, not four times as much, and not 100 times as much, as can happen under the Labour Government, but twice as much. People can live with that, but they cannot live with the idea that as they earn more money they should pay not just progressively more tax but exponentially more tax, because that quells any incentive to be entrepreneurial, to invest, and to get ahead. That is another feature we have seen in our current tax code.
But there is a big elephant in the whole room of this debate about tax, and it is the one that I think we have to link in much more closely—that is, we cannot talk about tax cuts, or what tax rates should be, unless we get Government expenditure under control. As long as politicians sit there and view the cash they take off New Zealanders through the tax system as a war chest to spend on policies to win an election, then no tax cuts will be sustainable, taxes will continue to rise, New Zealand’s economy will continue to be sluggish, our performance will be poor, and our best and brightest will leave for overseas climates. In order to get a strong economy, in order to get savings, and in order to get interest rates down, one thing is needed, and that is for the Government to get its own spending under control.
Government spending is not under control. This Parliament cannot begin to scrutinise the spending of Government departments that are running out of control. The budgets are simply too big. When I first came here I made a bit of a name for myself by exposing the odd million dollars, $10 million, or $20 million that was wasted. I made a bit of a name for myself, but I soon realised that those sums were a pittance because while I was doing that, this Parliament had gone from spending $100 million a day every day to $150 million a day. That is what happened. While we were saving by exposing the odd scandal of around a few million, actual Government spending was going up by billions.
What should we do about it? It seems to me, and to the ACT party, that we do need some discipline on ourselves and on Governments to constrain Government spending. I think we should agree to hold Government spending at the rate of inflation. How is that for a start? Then Government spending can increase to compensate for inflation, but it cannot go beyond that. We constrain ourselves. If the Government wants to spend more money, there is a simple solution to that: ask the people. Let us have a referendum and say “Look, we have all these great projects. We have got KiwiSaver, and this and that, and we want to spend the money on that.” Let us ask taxpayers if they want their taxes to go up this year at a rate faster than inflation. I know that it seems odd to people in this House that we would actually ask for taxpayers’ consent, but, after all, it is their money. Thank you very much.
R DOUG WOOLERTON (NZ First) Link to this
New Zealand First supports the third readings of the three bills arising from the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill—
Seeing as those members want me to talk about paying the money back, I will talk about that in a moment. Firstly, I say that New Zealand First supports, and always has done, any cut in taxation that we possibly can support. We support savings wherever and however we see them packaged, we support incentives that give an advantage to our producers and our entrepreneurs as opposed to those in other countries, and we support the Government to help our businesses wherever it can.
We believe that the Working for Families package is a positive thing, and that it sends the right messages and does the right thing. I say for about the sixth time that if at the time of the last election—around the time when Working for Families came out—we had adopted across-the-board tax cuts as proposed by the Opposition, I would have received something in the vicinity of $90-odd a week extra, as an MP, which I would have enjoyed. As opposed to that my son, who has a very good job, and his wife have recently had their second child. She was off work—off paid work, I might say, but working harder than ever as a mother—and they would have received nothing under across-the-board tax cuts. Under the Working for Families package they received in excess of $100 per week, and I received nothing. [Interruption] We will never cross the divide on that argument, because it is a philosophical one. We in New Zealand First believe that Working for Families is the right way to go, and we support this bill.
Talking about principle, Mr Hide made a statement that we are not acting in a principled way in New Zealand First. I say to members that if we believe that we have not done wrong, if we believe that we have been served badly by circumstances or a wrong decision, and if we believe that the principle is wrong, then it is wrong to go, under pressure, and pay back money when we do not believe we owe it—
We are talking about principled decisions now; we are not talking about the tax department, or anything close to the tax department. If we want to act in a principled way—and, as a party, we want to give the message that we understand people’s concerns, but we will not fulfil the demands of people who demand wrongly that we pay some money back that we do not believe we owe—then we take a principled decision and give the money to a worthy charity. That is what we have done. We have paid the money to a charity, and good will come out of that.
Let the members in the Opposition tell me whether they would take the money off Starship Children’s Health. Would they take it away from those children? Will they say that that money is not doing good? Are they saying that that money will not help a child in New Zealand? Are they saying that that money does not help the community? Are they saying that that is not the right thing to do? If they are saying that, let them go into the public, and stand on a platform at election time and say that they would take that money off Starship Children’s Health and deny those children the opportunity for health. That is what we call a principled decision. I come back to the bill—
Dr the Hon Lockwood SmithWe have not stolen any money, and we certainly do not use $7 million of public money like the National Party does.
We support this legislation because we believe it does all of the right things for society. It sends the right messages, it provides help where it is needed, and it is good for society overall.
NANDOR TANCZOS (Green) Link to this
I rise to give a brief contribution on two points in the legislation before us.
The first one is in relation to the tax cut debate that has been going on here. The National Party and Mr Hide have talked a lot about the need for greater tax cuts, and that has been debated both here and in the public domain. The Green Party considers it unfortunate that the debate in this House, in particular, is always between whether we should have higher or lower rates of income tax, or, for that matter, company tax. We believe that it is time to redefine the question of what is being taxed. Outside this House there is increasing recognition of and support for the use of Pigovian taxes and other forms of eco-taxation as a way of both simultaneously addressing environmental problems and raising revenue, ideally to provide a means to reduce income tax as a result. The Green Party will continue to push for the use of those forms of taxation.
The other issue relates to KiwiSaver, where the Green Party would have liked to see substantial ethical investment criteria set out in the legislation. There are obviously strong incentives for New Zealanders to participate in the KiwiSaver scheme, and we support it, but it seems obvious to us that making substantial ethical investment criteria part of the package would have been a sensible thing to do. We think it is unfortunate that that has not happened.
On both of those fronts, we consider the failure to incorporate those ideas to be a lost opportunity.
CHARLES CHAUVEL (Labour) Link to this
I am going to take a brief call on these bills that enact promises outlined in the 2007 Budget, and which are the latest example of this Labour-led Government keeping its promises to continue the process of New Zealand’s economic transformation.
In this third reading speech I want to address three of the matters that are dealt with in this legislation—KiwiSaver, the company tax cut, and the research and development tax credits. I will start with KiwiSaver. An important aspect of these bills is the enhancement made to KiwiSaver, first, in the Budget, secondly, in the recommendations coming from the Finance and Expenditure Committee, and, thirdly, in the Minister’s Supplementary Order Paper. To refocus KiwiSaver, definitions have been reviewed, loopholes have been closed, and general submissions as to the burden on companies and individuals have been considered and dealt with. This bill will ensure that the original aims of KiwiSaver will be met in the fairest and most efficient way possible.
The enhancements to KiwiSaver, introduced by this legislation, will make it even more attractive to New Zealanders, and they certainly come in a timely fashion. If anyone doubted the need for this scheme, he or she should consider the statistics that I found the other day when I was considering the remarks that I would make on this occasion. Members opposite might be interested to know that in the year to March, prior to the opening of the scheme, savings from all sectors in New Zealand fell to $1.3 billion. This was down from $5.9 billion in 2005, and $7.4 billion in 2004, and our household savings rate remains very poor. New Zealanders spend $1.15 for every $1 saved. Just this month a World Economic Forum report ranked New Zealand 108th out of 131 for our national savings rate. Those are historical scandals.
We simply must do something to address those dreadful savings rates, and KiwiSaver starts us along the road. The public understand this. They have embraced the scheme. As the Minister of Finance and the Minister of Revenue observed, over 300,000 New Zealanders have enrolled in the scheme already, after only 6 months of it being open for enrolment. Finally, 32 years after the Kirk Labour Government first sought to guarantee retirement peace of mind to New Zealanders, and after all the years after National dismantled it and put nothing in its place, KiwiSaver, along with the New Zealand Superannuation Fund, accomplish that goal. I cannot describe how proud I am to be about to cast a vote for that future.
I want to speak briefly also about the company tax rate and the research and development tax credits. I am not one of those people, like members opposite, who believe in cutting tax for the sake of it. Frankly, anyone who does is a fool. Depriving a State—distant from its markets and with a history of under-investment in infrastructure—of revenues can be downright dangerous, as the 1990s showed us. I am not one of those, like members opposite, who think that tax rates by themselves are the only determinant of where companies choose to base themselves. If they were, no company would ever elect to base itself in the United States with a federal company tax rate of 39.3 percent, or Japan 39.5 percent, or Germany 38.9 percent. For the foreseeable future, clearly we will never compete, nor should we, with ultra-low corporate tax regimes in nations like Singapore and Hong Kong.
Having said all that, though, it is clearly desirable to maintain rates of taxation that are broadly competitive with those jurisdictions in our neighbourhood and with those with living standards with which we like to compare ourselves. Australia is obviously relevant in this regard, having cut its corporate tax rate last year to 30 percent. Even though we have to treat comparisons with Australia with some caution as we have a very simple tax system, unlike Australia’s system with its payroll tax, superannuation levies, Medicare surcharges, and stamp duties, it was clearly important to consider following suit and to make the necessary amendments. We now do so and, as Dr Cullen said, we are doing it in the first cut in corporate tax rates in New Zealand since Labour was last in office in 1988.
The value of these tax cuts to New Zealand business next year will be $2.1 billion. Astonishingly, members opposite, whose rhetoric is all about cutting tax—indeed, it seems to be their only policy—are voting against this legislation. This legislation also introduces a 15 percent research and development tax credit to bring us into line with the many other developed countries that invest in building know-how in this way.
Just as KiwiSaver is addressing our abysmal savings record, so too research and development tax credits will help to raise the level of private sector investment in research and development in New Zealand. It will benefit business to the tune of $630 million in its first year of operation. I really do believe that this measure will help New Zealand businesses to expand domestically and overseas, to improve their ability to research and develop new products, and to invest in skilled staff. All this will drive higher productivity with internationally competitive firms selling products for which international consumers will pay a premium. These outcomes are absolutely key to our future economic success.
I say in conclusion that New Zealand is enjoying the longest period of economic growth in 30 years. Since 1999 our average growth rates have outstripped those of Europe, Japan, the US, and the UK. Company tax returns show that recent profit growth has averaged some 20 percent per annum. We continue to rate highly in terms of international competitiveness, openness, freedom from corruption, and ease of doing business. Unemployment at 3.6 percent is at record lows, and labour force participation is at record highs. None of this is happening by accident. It is in very large part a legacy of Michael Cullen’s excellent economic management, typified by the measures contained in this legislation. Long may that continue.
Dr PITA SHARPLES (Co-Leader—Māori Party) Link to this
Tēnā koe, Mr Deputy Speaker. At the end of this month all Ngāi Tahu whānui who have joined the Whai Rawa programme will be eligible to receive the next distribution from Te Rūnanga o Ngāi Tahu. The distribution of some $250 is twice as much as last year. Every dollar that a member contributes to his or her savings under Whai Rawa will receive $1 in matched savings from Ngāi Tahu. It gets even better for Ngāi Tahu rangatahi, youth, who are matched at a ratio of 4:1. So if one of their young people under 16 years of age saves $15, Ngāi Tahu will match it with $60. This is Māori enterprise and success at its absolute best. It is a programme designed to provide a base level of saving for all registered Ngāi Tahu members, as well as supporting a culture of savings and asset building.
At the end of July 2007 there were over 6,300 members and over $1.5 million invested. But the entrepreneurial capacity of Ngāi Tahu is confined not only to their steady membership and the fund size of their medium to long term savings scheme. The influence of Te Rūnanga o Ngāi Tahu is also felt in this legislation. Ngāi Tahu specifically lobbied to ensure there was creativity and clarity around the retirement scheme contribution tax. Their efforts have been rewarded through the provisions that Ngāi Tahu have promoted, which means that contribution tax can be directed at source, rather than 6,300 members having to make their own individual contribution.
We commend Te Rūnanga o Ngāi Tahu for their efforts, and we acknowledge also the sponsor of this legislation, the Hon Peter Dunne, for being willing to do what was necessary to achieve simplicity and clarity. We also note that this legislation enables the retirement contribution to be offset by any imputation credit or Māori authority credit. These two initiatives, we believe, will avoid setting up a whole new raft of compliance issues that can only run the risk of creating non-compliance breaches at an individual level.
The legislation we are debating today sets the annual income tax rates for the 2007-08 year, introduces amendments to encourage voluntary compliance with tax obligations, and amends other Acts and regulations such as the KiwSaver Act 2006. In many respects there are some positive proposals included within the legislation. We welcome the tax credit for research and development, and support the changes made in the select committee to the eligibility criteria for clarity purposes and to make them less restrictive.
We believe that it is a very positive initiative to establish a tax credit for science and technology - based research and development conducted predominantly in New Zealand by New Zealand businesses, and we are confident that such support will pay dividends in the long run. We support also the tax incentives for charitable donations. We accept the rationale of submitters who suggested that increasing the tax incentives will in itself increase the opportunity for charitable giving. We will be interested to learn how the Inland Revenue Department will take this into account in its review of tax incentives, which is to be reported back on 31 March 2008.
The other major development we wish to speak to in this legislation is the recommendation that the minimum employee contribution be reduced to 2 percent to facilitate greater participation in the KiwiSaver scheme. At the second reading of the legislation, my colleague Hone Harawira revealed the results of the Marae DigiPoll carried out just 1 month ago, in which it was disclosed that 84 percent of the 1,000-strong group polled had decided not to join the KiwiSaver scheme—84 percent.
Yet although there was such little interest in KiwiSaver, there was enormous interest in the issue of tax cuts. Tax cuts were one of the highest priorities. We in the Māori Party are very interested in the whole concept of support for tax cuts. Manaakitanga and rangatiratanga lead us to address the impacts for low-income taxpayers. We certainly are of the view that those people on lower incomes should carry less burden proportionately than those who are on high income levels. We know, for instance, that 1.9 million taxpayers are on an income of $25,000 or less and that these people are paying $1.5 billion in tax while the Government is accumulating surpluses of $4 billion to $7 billion per year. It is this group that should benefit from tax cuts.
I come back to the issues with KiwiSaver. We are pleased to note that following advocacy from the New Zealand Council of Trade Unions, the National Distribution Union, and the New Zealand Nurses Organisation the minimum employee contribution will be reduced to 2 percent in order to facilitate greater participation in KiwiSaver. The recommendation that came back from the Finance and Expenditure Committee duly included a minimum contribution rate of 2 percent of gross salary until 31 March 2010, 3 percent from 1 April 2010, and 4 percent from 1 April 2011.
Although we are pleased that the recommendation for a lower contribution rate for KiwiSaver was accepted, we were disappointed that another recommendation from the combined unions that under 18-year-olds should be eligible for KiwiSaver was not accepted. We did have to wonder at the evident flaws in the argument that opening up the door for people under 18 might reduce incentives for young people to remain in education and training. We have to ask whether this will be another piece of legislation that acts against the interests of our young people, just as, for instance, we saw the Minimum Wage (Abolition of Age Discrimination) Bill have the words “age discrimination” removed from the title, and promptly do exactly that.
Like many of thesemultifaceted bills, some very positive changes are included alongside the not so desirable changes. We support the tax credit facility for research and development, tax relief for donations, tax exemptions for Tokelau and Niue trusts, and the lower contribution rate agreed to for KiwiSaver. But we have to once more temper our support by asking the constant question: when will we see tax changes for the poor that will bring about justice for those who are not currently enjoying an enviable standing of living? We wonder why the endless name changes are necessary. The terminology that has been associated with tax—for example, credits for families, the in-work tax credit, the parental tax credit, Working for Families tax credits, family assistance, family support, and minimum family tax credits—just adds layer upon layer of confusion, which makes an already alien concept like taxation even more inaccessible to the general public. It is just as nonsensical as the logic around excluding 18-year-olds from being able to join.
We will be supporting this legislation, and we hope that some of the issues we have raised here tonight will be given further consideration in the interests of the well-being and the wealth of all peoples of Aotearoa.
Hon PAUL SWAIN (Labour—Rimutaka) Link to this
There are lots of businesses in my electorate, and I will tell those businesses that the National Party voted against a tax cut for them. I will tell the businesses in my electorate that when National, the so-called party of tax cuts, had a chance to vote for a reduction in the corporate tax rate, it voted against that—again. I am absolutely going to tell them that.
Lots of businesses in my electorate do research and development. I have something to tell those companies, which wanted a tax incentive to be provided for research and development. [Interruption] Mr Bennett has been saying he supports a tax incentive for research and development. I will ask those companies whether they know that when the Government took legislation to Parliament that gave companies incentives for research and development, Mr Bennett voted against it. I will tell them that all Mr Bennett did was to shout and scream across the House. He would not stand up and make a speech to tell people why he was voting against research and development incentives. He just shouted across the House. I will tell businesses that.
I will tell the companies in my electorate that make charitable donations that when the Government put forward legislation to try to improve the incentives for that, the National Party voted against it.
Yep—National members did. They voted against incentives and improved contributions for companies, which they had been calling for for some time. Pansy Wong stood in this House and said she was pleased that that would happen. I will say to those companies that when National members had the chance to vote for that, they voted against it.
Then, of course, I will be talking to lots of people in my electorate who have joined the KiwiSaver scheme. I will tell those people that when the Government introduced legislation to make improvements to the KiwiSaver scheme, so that when they retire they will have more money in their pockets—which I thought the National Party was in favour of—the National Party voted against it.
Hon Ruth DysonNational voted against it. No one has given us any reason why that should be; National members just shout across the House. [ Interruption] No, I did not hear anything from the National Party as to the reason for that. I think National will remove those incentives. In fact, the message that is going out is simply that if people vote for National, the KiwiSaver scheme is in peril. In my view, it is gone if the National Party gets in. That is just a message of warning to the voters.
Now, a few workers in my electorate have been made redundant, particularly at South Pacific Tyres. I will tell those workers and their families that when the Government introduced a scheme in this legislation to give them a tax rebate of 6c in the dollar on their redundancy payments, the National Party voted against it. The National Party voted against a tax rebate on their redundancy payments.
Finally, there are taxpayers in my electorate who have suffered penalties—we know people who have suffered penalties. I will tell the taxpayers in my electorate that the Government listened to what they said. We said that the penalty regime was too rigid, and that we would introduce a scheme to make it more flexible and more reasonable, in order to encourage compliance. I will tell them that the National Party voted against that.
National voted against tax cuts for business, voted against incentives for research and development, voted against improvements for companies that wanted to make donations to charities, voted against increased incentives for KiwiSaver, voted against a better redundancy for workers, and voted against a more liberalised scheme for the penalties that taxpayers have to pay. National is a party that has only one policy: tax cuts. It is the only tax policy it has. Of course, we waited during the entire debate on this legislation to hear what National’s policy was. There was not one dicky-bird, not one sausage, and not one mention of what the National Party was going to do. National talks about making tax cuts when it is in Opposition; it never gives them when it is in Government, of course. It has talked about tax cuts for years. Here was the chance for National members to stand up and say what they were going to do, and there was not one mention of that—not one dicky-bird. And when the National members had the chance to vote for tax cuts, they decided to vote against them.
I want someone to explain the reason for that. I cannot understand it. Maybe I am missing something. Maybe I am not bright enough to get the little nuances from the National Party. But I do not understand why, when the National members had a chance to vote for tax cuts, they voted against them.
In conclusion, all I will say is that the National Party supports tax cuts; it says it is in favour of tax cuts. But when it is in Opposition and it gets the chance to vote for tax cuts, it votes against them. That is why no one will trust National on tax cuts. I say roll on next year!
CHRIS TREMAIN (National—Napier) Link to this
Well, that was Mr Paul Swain, the hard-working MP from Rimutaka, who just gave an election platform speech for the next election.
Mr Swain will not be giving that speech, because he is, in fact, retiring from Parliament at what I would suggest is a very good time in his career. He is retiring before the Labour Party is run out of office. So I say to Mr Swain “Well done!”; that was a good election platform speech, but unfortunately the electorate will not be hearing that one when it comes to the next election.
I want to get into the taxation debate, but before I do that I must comment about the antics of Mr Winston Peters this afternoon. The leader of New Zealand First, before waltzing into the Chamber, quietly had a look at himself in the window to make sure he was looking just right for the occasion. He came in, sat down next to Mr Woolerton, and requested leave of the House to table a picture of himself—a picture of his giving a gift to Starship Children’s Health hospital. I am a short-term MP here, but the arrogance of that is hard to justify, and I cannot understand it. It begs the question whether young MPs like myself should be seeking leave to table pictures of ourselves giving donations to charities in, say, Napier, because we do not feel like paying our Bellamy’s bill on a particular occasion. Quite frankly, it was unbelievable. But we are not here to debate those antics; we are here to discuss the third readings of the taxation legislation.
I want to get to the guts of why National is not supporting this legislation. Mr Swain stood over there and spoke at length about how he could not understand why we are against it. Various members across that side of the House have tried to say that our opposition to this legislation is all about protecting our rich mates. Well, if they call nurses, policemen, and wharfies our rich mates, then maybe they are right. If they call builders, plumbers, engineers, and fitters and turners our rich mates, then maybe they are right. If they call university staff, plumbers, and Wellington bureaucrats our rich mates, then maybe they are right. We believe that hard-working Kiwis are being overtaxed, and this legislation does nothing to resolve it—absolutely nothing.
I want to talk to five specific points this afternoon to put our side of the argument as to why we are not supporting the legislation. The first point is the increasing tax burden, and the second is the quantity—the mountain of tax that has been collected in the last 6 years. I want to touch on fiscal drag, I want to look at our surpluses vis-à-vis Australia’s, and, lastly, I want to finish on the chance of tax cuts under this Government.
Once again, we think Labour has overtaxed hard-working Kiwis, and, as a result, we will not be supporting this legislation. In terms of the increasing tax burden, when Labour came into office and introduced the 39 percent tax rate, Dr Cullen said on 23 December 1999 that 95 percent of people will not be asked to pay more tax, and that, instead, only the top 5 percent of income earners will pay more. According to Cullen’s answers to questions in the House just recently, not 5 percent but 12.9 percent of taxpayers are now expected to pay the top income tax rate in the 2008 income year. They include those nurses, those wharfies, and those fitters and turners who are now in that top tax bracket, and who that side of the House believes are rich. Treasury’s key facts paper released on Budget day actually goes further than 12 percent; it states that 14 percent of taxpayers are now paying that level of taxation.
Remember also, and more important, that virtually everyone—not just those top taxpayers but virtually everyone—is paying more tax because of bracket creep. People on the 19.5 percent rate will have drifted to 33 percent simply because of CPI increases in their wages without any accompanying adjustment to the bracket levels. Bracket creep means that in real terms our tax rates increase subtly every year as we earn more income and move to higher tax brackets. As a result, a person on the average wage now pays an extra $2,400 in personal income tax a year than he or she did in 2000, despite being no better off in real terms. It is those people who have moved into higher tax brackets who that side of the House believes are in the rich category.
Note too that our top tax rate kicks in at only 1.4 times the average wage. Although Australia has a higher top personal tax rate—National members acknowledge that—it kicks in at $180,000, not $60,000. That is what catches our nurses, that is what catches our policemen, and that is what catches our wharfies. Do members on this side of the House think that nurses, teachers, and wharfies are rich? No, not one iota. We think Labour has overtaxed those hard-working Kiwis, and as a result we do not support this legislation.
Secondly, in terms of the quantum of the tax burden, let us have a look at how much tax has been collected over the last 6 years. In the year ended 30 June 2000, $34.4 billion was collected in tax in this country. In the year ended 30 June 2007, it had risen to $56.5 billion. That is a whopping $22.1 billion increase in taxation across the country over those 6 years—$5,525 per man, woman, and child in this country in extra taxation—a whopping 64 percent increase in additional taxation. If that is not reason enough to be voting against this legislation, then I do not know what is. National members think Labour has overtaxed hard-working Kiwis, and as a result we are not supporting this legislation.
The third point is fiscal drag, which is the net effect of additional tax collected through people rising into higher tax brackets. Fiscal drag in New Zealand since 1 April 2000 is estimated as being in the order of $1 billion in extra income tax revenue. Since 2000 Australia has increased tax thresholds and reduced tax rates. Like I said before, the top personal income tax threshold has increased in Australia over that period from $60,000—where we are at now—to $180,000. The lower personal tax rate, which applies immediately after the tax-free threshold—yes, the Australians have a tax-free threshold, which they are aiming to pick up to $20,000 over the next 6 years—has reduced from 17 to 15 percent. So, above the tax-free threshold, if one is a low-income earner, the lower rate that one pays is 15 percent. These tax changes have largely offset the effects of fiscal drag in that country, and that was a key reason behind average take-home pay increasing in Australia over recent years. Between 2000 and 2006, the gross average hourly wage in Australia increased by 34.3 percent, and the average net income increased at a similar rate.
But here in New Zealand, between 2000 and 2006 the gross average hourly wage increased by only 22.1 percent. New Zealand net incomes have grown at a slower rate. That has to do with income taxation. That has to do with the personal tax rates that we charge people in the middle and lower income levels. Changes to those levels can have a massive impact on the take-home pay of hard-working Kiwis, and that is why we are not voting for this bill.
This situation has been exacerbated in no small way by the number of Kiwis moving to Australia. There were 75,000 last year in total, with net migration of some 40,000. Dr Cullen wrote that off as a lifestyle choice. He said people were leaving because of a lifestyle choice. Then he went on to say that they are functionally innumerate and we do not need them anyway. Unbelievable! In closing, I say that I think those people understand the numbers. I believe they are not functionally innumerate. They understand that the tax rates are lower there and that they earn a better wage there, and that is why they are going.
KATRINA SHANKS (National) Link to this
It is a pleasure to take a call on the third readings of the Taxation (Annual Rates of Income Tax 2007-08) Bill, the Taxation (Business Taxation and Remedial Matters) Bill, and the Taxation (KiwiSaver) Bill.
First of all, I acknowledge the Minister in the chair for the Committee stage, Peter Dunne. He sat in that seat and listened very carefully to what the debate was about, and he responded on a very regular basis in order to address the concerns we had in relation to the original Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill. I realise I am new to this House, and I have spoken few times compared with everybody else, but it is not often that I have watched a Minister sit there, listen intently to the debate, respond, and add some value to the debate as a bill has gone through the Committee stage. That is what he did, and I acknowledge that, because we appreciate the respect he showed in paying attention to what we were saying during the debate.
At the same time, I apologise to the officials who normally would be sitting on those seats by the Chair. They sat here all last night, until 10 o’clock—because we sat until 10 o’clock on this legislation—and they listened and took notes. Then they came back into the Chamber this morning to listen to the rest of the Committee stage. Obviously, they did not realise that this debate on the legislation would come up now. The legislation is being rushed through—that is what happens in urgency; things are pushed through this House, instead of being planned out—and they have not been able to make it back for the third readings. I apologise to those officials. They do good work for this Parliament and this Government, and they work long and hard to try to make legislation as good as they can for the Government at the time. I apologise to those officials who have done the long yards for us and who are not here today.
I must say that during the Committee stage I was expecting the Labour MPs to take a lot more calls than they did. I think one call was taken, by Charles Chauvel, in over 2 hours of debate this morning, and that is disappointing, because this legislation is really important for New Zealanders. The fact that Labour members did not give it enough respect during the Committee stage to get up to speak to it and support it says something about this legislation.
I have been sitting here during these third readings and I have been disappointed again in the personal attacks happening in this House—the attacks Michael Cullen made against Lockwood Smith—and I really think we can do better for New Zealanders. I think New Zealanders are getting frustrated by the personal attacks that are happening in this House. It is about time we raised the level of debate in the House.
I come to the taxation bills that we are here to talk about. This legislation is very comprehensive and it has taken a long time to come before the House, but the thing that strikes me about it is that there is nothing about personal taxes. People are coming to our constituency offices to talk about how they do not have enough money, and how they find it hard to make ends meet. One would think this legislation would address that at some level, but, no, there is nothing about personal tax cuts in it. In fact, soon this Government will not have to worry about it, because 40,000 people a year are leaving this country to go where they can get tax cuts—Australia. More and more people are leaving. Steve Chadwick over there is laughing her head off, thinking it is funny, but it is not, because what we are losing are the people we want to keep—good, hard-working New Zealanders. We want them to stay in New Zealand and get ahead under their own steam because we have a good environment for them.
Moana MackeyWe hear Labour members say “What about 1990?”. I do not actually care about 1990. I care about the future. I care about the future for myself, my family, and my children. If that member wants to sit there and talk about 1990 and live in the past, she should please do so, because next year, in 2008, when the people of New Zealand get to have their say, they will not say that they want a worn-out, tired Government, which you are, because you have no answers to any of these issues—
The ASSISTANT SPEAKERMy apologies, Mr Assistant Speaker. The people of New Zealand will be asking for a change of Government, and they will put National on to the Government benches. That is what will happen, because they are sick of this Labour Government interfering in their lives and not delivering what Labour said it would deliver. Take, for example, the “chewing gum tax cuts”. Where are they? Where are they in this tax legislation? They are absolutely nowhere. Many, many more people will be joining those 40,000 people who left last year to go to Australia to get the tax cuts that they deserve because they are hard-working New Zealanders. The Government over there does not believe in building the kitty like the Government here does.
I looked at this tax legislation in quite a bit of detail the other day, when I knew I would be speaking on it, and I could not figure out where the long-term strategy for tax was. Where are we going with our taxation policies in New Zealand? The Minister of Revenue is in charge of this legislation. He has advocated for 24 years for income splitting—that is his passion. He has been in charge of this legislation. He has charged ahead, taken the lead, and gone out there, but there is nothing in this legislation about his passion. There is nothing about what he really believes will make a difference to New Zealanders, which is income splitting. He has put together this tax legislation, but he has not put in it what he believes in. So how much is his heart in it, and does he really have a long-term strategy, considering that he thinks he will change this legislation in a year’s time? That is not what the people of New Zealand want. They want to see a Government that is committed to a long-term tax strategy that will get us ahead in the years to come.
At the same time, the Government should be interested in protecting its revenue base. That is very important for this country, if we want to get ahead as a country. What we do not realise when we look at this legislation is that the New Zealand Government is the biggest business in New Zealand. It takes the most money—it has the biggest revenue—of any business in all of New Zealand. Given that it takes in the most revenue in New Zealand and it has no long-term strategy, what does that tell us about this legislation? It tells us quite a bit. It tells us that it has no direction and that it is piecemeal legislation. I truly believe that is what we are seeing here today.
This legislation addresses four or five main issues. They are the new research and development tax credits; a reduction in corporate tax rates; the KiwiSaver employer tax credit and compulsory employer contributions; moving the rebate cap on charitable donations, which is what the National Party talked about last year, and which this Government has picked up on; technical changes to portfolio investment entity rules, which have already had changes; offshore portfolio share investment rules; and amendments to tax penalties, which are interesting in themselves. When I was out there in my previous life as a chartered accountant, I talked to those poor business people who try their hardest to keep it together and run their businesses. They have a passion for their small businesses. They are trying to make ends meet, which is really hard for many small businesses out there, and they wear every single hat one can imagine. They do HR, they do finance, they do law, they import—you name it, they do it in their businesses—and then they forget to file a GST return on time.
Or they make simple errors because they cannot afford accounting systems. Many small-business people do not know how to use accounting systems, which is even more important; they do not have the time to sit down and learn that, because they are busy trying to run their businesses. So they input a spreadsheet backwards on to a GST return, inputs become outputs and outputs become inputs—it is very easy to do, and many people do it in New Zealand—and all of a sudden they are slammed for a false return, or for a return that is dated incorrectly, or for a return that is on the wrong form. Many businesses do Internet banking today, and they may draw down the wrong form off their Internet banking website. All of a sudden they find that there are a zillion transfers between all these accounts to make up the differences—which the Inland Revenue Department automatically does—and before they know it they have got a muddle and they cannot get out of it. It is such a common theme coming through, which I saw as a chartered accountant. All of a sudden one has four or five different tax accounts within the Inland Revenue Department—one for GST, one for annual tax, one for provisional tax, and so the list goes on. Then one has PAYE and student allowances. It is really difficult for people out there.
To conclude, I would like to say that this tax legislation that the Government has put together for New Zealanders is disappointing.
A party vote was called for on the question,
That the Taxation (Annual Rates of Income Tax 2007-08) Bill, the Taxation (Business Taxation and Remedial Matters) Bill, and the Taxation (KiwiSaver) Bill be now read a third time.
Ayes 65
- New Zealand Labour 49
- New Zealand First 7
- Māori Party 4
- United Future 2
- Progressive 1
- Independent 2 (Copeland, Field)
Noes 50
Abstentions 6
Bills read a third time.