Budget Statement

Hon BILL ENGLISH (Minister of Finance) Link to this

I move, That the Appropriation (2010/11 Estimates) Bill be now read a second time.

Mr Speaker,

I move that the Appropriation (2010/11 Estimates) Bill be now read a second time.

On election day 2008, New Zealanders voted for a more prosperous, ambitious New Zealand, where Kiwis have opportunities to get ahead.

The National-led Government came into office with the New Zealand economy well into recession and with the world’s financial system experiencing its worst crisis since the Great Depression.

By necessity, last year’s Budget was focused on getting New Zealand through the global crisis. Budget 2009 maintained the nation’s credit rating, preserved income support entitlements and fulfilled commitments from the 2008 election.

To help sustain economic activity and support jobs, the Government absorbed much of the shock of the recession on its own balance sheet, thereby significantly increasing its borrowing.

The worst of the global crisis has for now passed and the economy has begun to grow again. In fact, New Zealand has weathered the economic storm better than many other developed economies.

Government policy struck the right balance between blunting the sharp edges of recession and maintaining control of public finances.

But we have work to do. That’s why Budget 2010 is about building the recovery, creating jobs and helping Kiwi families get ahead.

Creating and passing through this House a budget each year is at the heart of stable government. I want to especially thank the Government’s support parties, ACT, the Māori Party and United Future, for their contributions.

I am pleased to tell the House that this Budget will fund improved services to the public, will produce a lower track for future debt, and will deliver a tax package that will be good for the economy and good for families.

Mr Speaker,

I now turn to four main objectives of this Budget.

The first is lifting the long-term performance of the economy.

The second is reform of the tax system, to make it fairer, more sustainable and more supporting of economic growth.

The third is better delivery of public services, to make them better for users of those services and better for taxpayers.

The fourth is to maintain firm control of the Government’s finances, so we can return to budget surpluses and pull back our rising debt.

Mr Speaker,

Growth matters. It is the only way that we can lift incomes, create permanent jobs and build the kind of country we aspire to be.

Lifting the long term performance of the economy will require considered and consistent change over the next decade because the challenges are significant.

It is convenient to blame sluggish growth on the global recession, but that is not the sole cause.

Our economy entered recession well before the financial crisis began in late 2008.

Growth in the three years prior was below one per cent per annum. This was less than half our trading partner average, and less than one-third of Australia’s growth rate.

From mid-decade on, growth had been fuelled by a mix of rising household debt and ballooning Government expenditure, which grew 50 per cent in the five years to 2009.

By contrast, output from exporters and import competing industries had been in decline since 2005.

These include sectors such as agriculture, horticulture, mining and resources, forestry, fishing, food manufacturing and tourism, all areas where New Zealand should be benefiting from its natural advantages.

Too many New Zealanders have discovered that growth driven by debt, Government spending and property speculation does not create permanent, worthwhile jobs.

The consequences of this decline in our earning capacity are now clear: too few jobs created, a balance of payments deficit over 8 per cent of GDP until its recent decline, and negative productivity growth between 2000 and 2009.

The economy has spent more than it earned and borrowed to make up the difference.

New Zealand’s largest single vulnerability is now its large and growing net external liabilities. New Zealand owes the world $168 billion, or around 90 per cent of GDP.

Private sector debt to foreign lenders has grown steadily over the last decade and our vulnerability will be increased by growth in government debt to foreign lenders over the next five years.

The dangers of too much debt are well illustrated by a number of European nations who are currently undergoing painful changes, involving increasing taxes, cutting public services, or both.

The Government is committed to policies that will reduce our vulnerabilities by tilting our economy away from debt and consumption toward savings, investment and exports.

Mr Speaker,

These policies underpin the updated Treasury forecasts showing steady growth of around 3 per cent over each of the next four years.

The forecasts also show that this growth will raise real incomes of the average household by about $7,000 over the next four years, and create 170,000 jobs.

Unemployment has already fallen to 6 per cent. We share with both ACT and the Māori Party a common desire to help New Zealanders move off welfare and get ahead under their own steam.

Global developments highlight the opportunity for New Zealand to stand out. We will emerge from recession with sound finances, quality public services and low and stable tax rates.

We will naturally appeal as a place people want to live and do business.

Mr Speaker,

The Government’s growth strategy has identified six key drivers of stronger economic performance—a better regulatory environment for business; skills and education; quality infrastructure; science, innovation and trade; improved public sector performance; and tax reform.

These jointly form a programme to address economic imbalances and lift growth.

The Government is making progress in all six areas.

Mr Speaker,

I now turn to the Budget’s second objective, that of improving the tax system.

Tax reform is a centrepiece of this Budget.

We want a system that rewards effort and helps families get ahead.

One that attracts and retain skilled people in New Zealand.

One that encourages savings and productive investment.

And we want to make the tax system fairer.

Mr Speaker,

Tax has a powerful influence on savings and investment decisions. Uneven tax rates have been a major drag on growth. Sectors with low effective tax rates have expanded at the expense of the rest of the economy.

The Government is strongly of the view that investments should stand on their own merits, and not be unduly influenced by tax.

There is also compelling evidence of widespread avoidance, mostly brought about by taxpayers exploiting differing effective tax rates. The system lacks integrity and fairness.

The Tax Working Group of 2010 echoed the findings of the earlier McLeod Tax Review of 2001 on these matters.

We also required any changes to be broadly fiscally neutral. Given the increase in public debt of recent years, it would be irresponsible to saddle the next generation to pay for tax cuts now.

Over four years the package delivers around $15 billion of tax cuts. This is matched by a similar level of revenue increases from less economically damaging sources.

The total package has a cost of $460 million in the first year due to some revenue initiatives which cannot be immediately implemented.

The main elements of the tax package are a shift towards lower and more uniform rates of income tax, more indirect taxation and broadening the existing tax bases.

It represents the most thorough and beneficial overhaul of the tax system in 25 years.

From 1 October 2010 we will lower personal income tax rates, and increase the rate of GST to 15 per cent.

The increase in GST has been estimated by Statistics New Zealand to raise the level of prices by about 2 per cent.

To put this in perspective, this is less than actual CPI inflation in each of the past six years.

The Government is concerned to protect the vulnerable and those less well off from this one-off rise in the general level of prices.

This continues the approach taken in last year’s Budget, which preserved income support and entitlements in the face of the global recession.

The tax package will protect the incomes of New Zealanders in two ways.

First, for income earners at all taxable income levels, the reduction in personal income tax will be sufficient to match the increase in GST.

Second, the package will provide, from 1 October 2010, an immediate lift in the levels of New Zealand Superannuation, all main benefits, student allowances and Working for Families payments. This will be sufficient to offset the estimated impact on prices due to the rise in GST.

The payments will be adjusted to ensure the full CPI effect is captured, excluding the CPI impact of the tobacco excise increase.

Revenue raised, from GST and other base broadening measures, will be used to fund an across the board reduction in all income tax rates.

The changes to personal income tax rates, to apply from 1 October 2010, will be as follows:

The initial income tax rate applying up to income of $14,000 will reduce from 12.5 per cent to 10.5 per cent.

The tax rate applying to income between $14,000 and $48,000 will reduce from 21 per cent to 17.5 per cent.

The tax rate applying to income between $48,000 and $70,000 will reduce from 33 per cent to 30 per cent.

The tax rate applying to income over $70,000 will reduce from 38 per cent to 33 per cent.

These are substantial and worthwhile tax reductions.

They mean that, for example, a typical two earner family, with two children who earns the average household income, will, after allowing for the increase in GST, be better off by $25 per week, or $1,285 per year.

When combined with the tax cuts already delivered from 1 April 2009, that family will be better off by over $43 per week or $2,245 per year.

The changes also mean that since March 2009 the marginal rate of income tax faced by taxpayers earning between $40,000 and $48,000, just below the average wage, will have almost halved from 33 per cent to 17.5 per cent.

Taxpayers wanting to know how their own position is changed by today’s tax package can consult our website, www.taxguide.govt.nz and make this calculation.

Mr Speaker,

The Government believes that in a world of mobile capital, business income is particularly sensitive to tax rates.

When New Zealand’s company tax rate was set at 33 per cent more than 20 years ago that rate was competitive by world standards.

Since then company tax rates show strong downward momentum around the globe.

The tax rate applying to New Zealand companies will reduce from 30 per cent to 28 per cent. This will apply from the start of the 2011/12 income year.

28 per cent will also become the standard tax rate applying to most savings vehicles.

It will apply to vehicles taxed as companies, including Group Investment Funds, unit trusts, life insurance and superannuation funds. It will also be the maximum tax rate applicable to Portfolio Investment Entities, known as PIEs.

Lower income taxpayers will still have access to lower rates via imputation credits from companies and electing lower PIE rates.

The tax rate applying to trusts will remain at 33 per cent, the same as the new top personal rate of income tax.

The previous gap between the 33 per cent tax rate for trusts and the 38 per cent rate for higher income individuals has spawned widespread use of trusts as tax planning vehicles. Trusts have an important role in our economy, but this should not be driven by tax advantages.

Applying a lower and more uniform tax rate to most forms of capital income will improve the durability and integrity of the tax system. It will encourage individuals to save and companies to invest.

Mr Speaker,

The Tax Working Group also reported that anomalies arise through the use of taxable income as a means of determining eligibility for certain Government assistance. Taxable income may not always be a good measure of true economic circumstances.

As an initial step, from 1 April 2011 investment losses will be added back to taxable income for the purpose of determining a family’s eligibility for Working for Families assistance.

Further changes of eligibility for Government assistance, including student allowances, covering areas such as distributions from trusts and income from cash PIEs, will follow after the Budget. Officials will release a paper setting out the issues and proposed solutions later this year for implementation from 1 April 2011.

Mr Speaker,

The Budget will also introduce a range of measures to broaden tax bases. These measures are being introduced to improve the fairness and efficiency of the tax system, and to improve the economy.

The existing 20 per cent loading on depreciation for new investments will be removed for assets acquired after today. Assets already purchased will continue to receive the loading.

This allowance explicitly departed from the principle of allowing deductions for true economic depreciation. It results in other taxpayers effectively supporting investments that might not stand up on their own merits.

In addition, the Government is not convinced that all buildings actually depreciate.

It is clear that some do. But many New Zealanders live happily in houses constructed over 100 years ago.

Allowing tax deductions for depreciation provides an unfair tax advantage for these assets.

Accordingly, the depreciation rate for most buildings with an expected life of 50 years or more will be set to zero from the start of the 2011/12 income year.

Those buildings where the current depreciation schedule is consistent with a useful life of less than 50 years will be unaffected.

Building owners who believe that, under these rules, a class of buildings should qualify for depreciation, may seek a provisional rate from Inland Revenue as they do at present.

Following the Budget, the treatment of commercial building fitout will be reviewed and if necessary amended prior to 1 April 2011 to clarify the law on the split between buildings which will not be depreciable and separate assets which will continue to be depreciable.

Taxpayers will, of course, still be able to claim deductions for repairs and maintenance.

Many investors hold property through Loss Attributing Qualifying Companies, or LAQCs. After a short period of consultation, legislation will be proposed so that from 1 April 2011 all LAQCs will be taxed as limited partnerships.

The main impact of this change will be to ensure both profits and losses are assessed at the marginal tax rate of the investor.

The Government has also reviewed taxation of inward investment into New Zealand. International tax law generally provides that income should be taxed in the jurisdiction where it is earned.

However, it is relatively easy to transfer income between jurisdictions by use of debt, often between related parties.

New Zealand, like most countries, operates “thin capitalisation” rules to limit this practice. The current “safe harbour” limit for gearing on foreign owned investments, will be reduced from 75 per cent to 60 per cent from the 2011/12 income year.

Mr Speaker,

This package of tax changes represents a major step forward. By improving incentives to save, and evening up effective tax rates across sectors and across vehicles, it directly addresses some of the problems that have beset the economy in recent years.

The package improves fairness and the integrity of the tax system. It ensures that taxpayers with similar circumstances and true economic incomes will have similar tax positions.

The package is broadly neutral in terms of income distribution.

While higher income earners pay more tax and therefore receive larger personal income tax reductions, these groups also bear most of the impact of the tax base broadening measures.

In addition, the compensation package is targeted to those on lower incomes.

On average most New Zealanders receive roughly a half to one per cent average increase in real disposable income.

The impact of the tax changes on economic growth will be positive, though only a small allowance has been made for this in the fiscal projections.

Finally, I thank my colleague, the Hon Peter Dunne, who as Minister of Revenue has worked tirelessly to help deliver the tax package before the House today.

Mr Speaker,

Budget 2010 also contains a range of other initiatives that will promote growth.

We have focused funding on investing in innovation and encouraging growth in selected productive sectors.

The Budget allocates $321 million over four years for a range of science and R&D incentives, lifting total spending to $750 million per annum.

This includes business R&D grants and assistance for firms to access new ideas, science and technology from Public Research Organisations, stronger commercialisation within CRIs and universities, and research infrastructure.

The global financial crisis was a setback for tourism. The Budget allocates $30 million of new spending in 2010/11, mostly to increase the marketing of New Zealand as a tourism destination internationally.

The Government will legislate this year to support the aquaculture sector’s objective of becoming a billion dollar industry by 2025, working with industry and other stakeholders to lift regulatory barriers.

Late last year the Government agreed to most of the recommendations of the Capital Market Development Taskforce, and is in the process of implementing them.

The Government released a plan to unlock New Zealand’s petroleum and mineral potential in November 2009 and has begun implementing it. This Budget funds implementation of that plan.

Water is also a key strategic resource. The Government is currently working on improving the regulatory regime, including those parts that impact storage and irrigation, as part of an efficient and sustainable water management programme.

Mr Speaker,

Another important leg of our growth plan is to improve access for New Zealand exporters to world markets.

China has recently and rapidly become our second largest trading partner.

Given the increasing importance to New Zealand of trade with Asia and the Pacific Rim, we have also recently signed Free Trade Agreements with Hong Kong and Malaysia, and are negotiating with Korea and India.

Our Agreement with the 10 countries of ASEAN recently came into force.

We are working with the Trans-Pacific Partnership regional grouping, including the United States, to open further markets and opportunities for New Zealand exporters.

Mr Speaker,

To ensure that these and related initiatives continue to benefit the economy, we have established the Productivity Commission. This will be a standing body with high level expertise, operating independently with a wide brief to undertake inquiries into productivity-related matters. It will be in place by April 2011.

The Government also intends to release a discussion document on ways to ensure that all new and existing regulation is subject to proper scrutiny. This will help avoid proliferation of red tape.

For both of these initiatives the Government is grateful for the leadership shown by the Hon Rodney Hide and the ACT Party.

Mr Speaker,

I now turn to how the Government can ensure better delivery of services to the public.

A more efficient public sector will deliver better quality services, while reducing fiscal and tax pressures on the rest of the economy.

The Government determined that rather than spread new spending resources thinly, it would focus on those few high priority areas that really mattered.

Three quarters of the new spending allowance has been allocated to improving health and education services, and to lifting science and innovation. Most of the other votes received either small or no increases. Many will see no additional funding for several years.

The Government is working with public sector chief executives to deliver higher quality services more efficiently, as every other organisation in the community has had to do over the past two years, and I thank them for their efforts. We will continue to scrutinise every dollar of public spending.

As we committed a year ago, Budget 2010 lives within a new operating spending allowance of $1.1 billion per year. In addition, a further $1.8 billion has been made available between now and 2014 by redirecting resources into higher priority areas, including within health and education spending.

Core Crown expenditure also increases due to rising benefit and superannuation costs, increased finance costs and expenditure on the emissions trading scheme.

In total, core Crown expenditure is forecast to increase by $5.9 billion, to over $70 billion, in 2010/11.

Mr Speaker,

The largest share of new spending has been dedicated to improving core Government services.

In total, Health has been allocated an additional $2.1 billion over the next four years, including an extra $512 million in 2010/11 to cater for ongoing demographic and price pressures.

This includes $93 million for disability support and $60 million to boost elective surgery over the next four years.

The Government’s commitment to education remains strong. This Government wants all young New Zealanders to reach their potential and be given the opportunity to succeed.

The Budget provides an extra $1.6 billion for education over four years.

This will fund a 4 per cent increase in operating expenditure for schools. It also includes $349 million for school property, $92 million to raise participation in Early Childhood Education for families in areas currently under-represented, and $48 million to extend the Youth Guarantee.

Social services are also a priority. Building on the success of the Government’s Community Response Fund, the Budget provides $91 million over the next four years for Non-Government Organisations to deliver extra services.

Justice receives $147 million in new operating expenditure, as well as significant capital expenditure. This will fund a lift in prison capacity, legal aid restructuring and increase Family and Youth Court professional services.

Our commitment to Whānau Ora is matched by funding of $134 million over four years. The first wave of 20 Whānau Ora providers will be selected through an Expressions of Interest process that begins next month.

The Budget provides almost $20 million for two new Whare Oranga Ake reintegration units.

I particularly thank the Hon Dr Pita Sharples and the Hon Tariana Turia as the Ministers responsible, together with the rest of the Māori Party.

The Government retains an on-going commitment to growing the supply of affordable housing for New Zealanders and their families. $20 million has been provided to extend Housing New Zealand’s Housing Innovation Fund for another year.

Mr Speaker,

The Government is determined to improve management of government owned assets. Too often Government assets have been poorly managed and liabilities poorly monitored.

As at 30 June 2009, the Crown balance sheet showed $217 billion of assets and $118 billion of liabilities.

The Crown has a wide range of holdings, and is by far the largest asset owner in the country.

It holds around $100 billion of what could be termed social assets, including roads, national parks, state housing, schools and hospitals.

It holds around $70 billion of financial assets, comprising a wide range of local and overseas investments, all of which produce commercial returns.

And it holds over $50 billion worth of commercial assets, comprising mainly SOEs and KiwiRail.

These assets have been funded by New Zealanders paying taxes and fees over decades.

The Budget forecasts show that over the next four years the value of Government owned assets is expected to increase by some $32 billion. This represents growth in taxpayer wealth.

This level of investment demands a high standard of stewardship by Government.

Since taking office the Government has been working hard to understand the capital demands of its operations, and to allocate capital to where it can best be used.

We have produced the first National Infrastructure Plan, tightened commercial disciplines on SOEs and started to introduce better disciplines on procurement processes.

New capital spending decisions in this Budget reflect this increased emphasis on managing the public’s resources to promote growth.

We continue to invest in our $7.5 billion infrastructure programme over the next four years.

The Budget funds major investment in the rail network.

The Government has committed in principle to investing $750 million over the next three years, as its contribution to KiwiRail’s $4.6 billion turnaround plan.

This is in addition to $500 million over four years to purchase electric commuter trains.

Another major investment is the Government’s ongoing investment in ultra-fast broadband infrastructure through Crown Fibre Holdings.

Budget 2010 allocates a further $200 million of capital funding, in addition to the $248 million allocated last year, as part of a total expected investment of $1.5 billion.

This funding will enable Crown Fibre Holdings to start making substantial contract commitments with the private sector to start rolling out the new fibre network.

A further $48 million has been allocated for ultra-fast broadband in schools.

Funding has been set aside for a new prison, potentially delivered via a Public Private Partnership.

Mr Speaker,

I now turn to the Government’s fourth objective, that of maintaining firm control of the government’s finances, so we can return the budget to surplus and reduce our rising debt.

The fiscal outlook has improved from last year, due to the economy returning to growth and the positive impact of Budget 2009 decisions.

The projected operating deficit for the next financial year is $8.6 billion or 4.2 per cent of GDP.

It is projected to improve steadily in each subsequent year, and to reach surplus in 2015/16, three years ahead of last year’s projection.

As a result of this improved outlook the debt projections have also become more favourable.

Net core Crown debt is now projected to peak at 27 per cent of GDP in 2014/15 and then decline steadily. This is both a lower and earlier peak than was projected in last year’s Budget. It contrasts strongly with the outlook of ever rising debt which the Government was presented with in late 2008.

By 2024, net core Crown debt is projected to be back to 14 per cent of GDP, or about the level before the crisis struck.

However, it will require at least a further decade of disciplined fiscal management to deal with the effects of the global financial crisis and the huge lift in Government spending during the boom years leading up to that crisis.

Financing new and maturing debt will require the Government to borrow around $240 million every week over the next three years. Debt is projected to reach $68 billion by 2014/15.

This substantial rise in debt will mean that interest costs more than double.

Our long term fiscal objective remains to ensure that net debt is brought back to no more than 20 per cent of GDP by the mid 2020s. The current projections show this being achieved by 2022.

If possible it would be preferable to return to this low level of debt earlier.

Mr Speaker,

The improvement in the debt outlook gives the Government some flexibility to absorb part of any future shocks, as it did in the last recession.

Our intention is that any favourable surprises will be used for deficit reduction and debt consolidation.

When the books are balanced and debt has stopped rising the Government will have more choices about where to invest, spend or reduce taxes.

Mr Speaker,

Budget 2010 is about building the recovery and helping New Zealanders prosper.

The Prime Minister has made clear this Government’s aspirations for an economy that values enterprise, rewards people for effort and encourages them to get ahead.

New Zealand has successfully navigated the worst global crisis in a generation. The challenge now is to build growth and create new jobs. Sustained growth provides opportunities for New Zealanders to achieve their aspirations.

Budget 2010 drives the New Zealand economy forward, moving away from debt and consumption while increasing investment and exports.

We set a path for responsible Government spending last year, and we maintain that path in this Budget.

We have changed the tax system to rebalance the economy, to put cash into people’s hands and to encourage them to save more and consume less. This will have a long term benefit.

We now have our debt under control and unemployment is beginning to fall. We will emerge as one of the countries that other nations aspire to be more like.

There are risks to the recovery. A mountain of debt hangs over a number of our export destinations, and will also influence the markets that lend to New Zealand.

We cannot take for granted the contribution that the Australian and Chinese economies have made to our growth.

However, we are on track to a position most developed economies will envy.

This includes more new jobs, falling unemployment, rising family incomes, quality public services and sound public finances.

Mr Speaker,

This Budget continues to build a platform for a much more ambitious New Zealand.

Mr Speaker,

I commend this Budget to the House.

Hon PHIL GOFF (Leader of the Opposition) Link to this

I move, That the words after “That” be omitted and the following substituted: “this House has no confidence in the National Government led by John Key which has blatantly broken its clear promise not to raise the Goods and Services Tax, has pushed up prices when working people have had their lowest wage rises in more than a decade, has failed to implement a plan for jobs, lacks any vision for a smart, high-skill, high-tech and high-wage economy, has cut services and assistance to the most needy in our community, and has rewarded the most wealthy at the expense of middle and low income New Zealanders.”

Today the National Government had the opportunity to deliver a Budget that was fair for all New Zealanders—a Budget for the many, not the few. Today, the National Government had the chance to produce a Budget that invested in the future, a Budget that promoted a modern, smart economy with more and better jobs and higher wages. This National-led Government has failed absolutely in those objectives. There were no new ideas to create jobs and the future that they need. Instead, the Government has pushed up the price of just about every good or service that New Zealanders buy. It has borrowed extra to give a windfall to the most wealthy people in this country. It has broken its promises to senior citizens. It has created the highest level of inflation in decades—nearly a 6 percent rate of inflation. In the time that we have had, our estimate is that average earners will be $30 a week worse off after inflation—$30 a week worse off after inflation. Those on the average wage will get a $15 a week tax cut. Goods and services will go up by $45 a week. That leaves them $30 a week worse off, by Mr English’s own figures. The top 1 percent of income earners will get 12 times the cut in their income tax of the average earner—12 times the cut of the average earner.

This Budget is a short-term plan that will look after the interests of the highest-income earners, which this National Government represents, but it is a Budget that comes with a huge cost. It was ironic to listen to the National backbenchers cheering the figures on health. Why would they cheer the figures on health when those figures left a $300 million gap in maintaining health services even at the current level? That is a $300 million hole in the health budget.

When we look at the education budget, we see that there is not the additional funding in education that will come even near to meeting the cost of extra inflation. If we take the critical area of education where the foundation is laid for our children to learn, early childhood education, we see a slashing of $400 million over 4 years—$400 million over 4 years. My challenge to the Prime Minister is to ask how that cut will be met. Will it be met with additional fees on all of those who are trying to get a quality early childhood education for their families, or will it mean a cut to the quality of early childhood education? Either way, that is a disastrous failure to invest in the future of our country—our children.

Before the election, Mr Key promised that the average wage earner would get a tax cut of $50 a week. That has not eventuated. There is no $50 a week tax cut for the average income earner. The Government promised tax cuts. Last year it cancelled the tax cuts and it talked about a tax switch. But this year they have actually delivered a tax swindle—a tax swindle. There is no $50 a week tax cut for those on the average wage. National has done what it never told New Zealanders it would do. It promised income tax cuts, but it never told New Zealanders that they would be paying for those cuts themselves through the increase in GST. In fact, 2 weeks before the election Mr Key stood up, looked down the barrel of the camera, and said that National would not increase GST. Every time he denies or tries to qualify that, his credibility goes down. That is a broken promise by the National Government.

This Budget will do nothing to create jobs or fix the problems that need to be fixed for New Zealand.

Hon JOHN KEY (Prime Minister) Link to this

Shane Jones was happy with that speech, I have to tell you. The one conclusion we can draw from Phil Goff’s speech is that he has to stop reading those Greek economic textbooks, because that speech was about borrow and hope. It was Greek economics, Labour Party style. That is all Labour knows how to do.

When I went to bed last night at 12.30 I read the Dominion Post. In the Dominion Post Vernon Small listed 10 things that are highly predictable about today’s Budget, and one was a vein-popping speech from Phil Goff.

Dr RUSSEL NORMAN (Co-Leader—Green) Link to this

This Budget is a triple deficit Budget. It runs a fiscal deficit, it runs an environmental deficit, and it runs a social deficit. Perhaps most sadly, it portrays a deficit of vision for New Zealand. This Budget takes money from overseas creditors to fund its fiscal deficit.

Hon RODNEY HIDE (Leader—ACT) Link to this

The ACT Party is proud to be part of this Government. We are proud to support it on confidence and supply, and we are pleased to vote for this Budget. Along with the majority of all Kiwis, we are pleased that we have a Government that is addressing the scandalous abuse of taxpayers that we saw over the past decade.

We are pleased that we finally have a Government that understands that every dollar that it spends either comes from some hard-working taxpayer or is an attempt to put the tab on our children and grandchildren. We are staggered that after 9 years of grotesque, wasteful spending, Labour members Phil Goff and Darren Hughes have the cheek to stand in this House and urge yet more spending and more borrowing.

Hon TARIANA TURIA (Co-Leader—Māori Party) Link to this

If ever a political speech was made to get the votes away from National, I would have to say that was one of them.

The Māori Party joins with the Government today to congratulate the Minister of Finance on his leadership in trying to chart a pathway forward in this 2010 Budget statement. A challenge that we in the Māori Party face every day in this House is to lay the w’āriki for the long term, and to create the foundation for the generations to come. We have every reason to believe with this Budget and the emphasis accorded to Whānau Ora that this Government is prepared to invest in that foundation.

Whānau Ora is evidence of a Government prepared to back w’ānau, families, and prepared to let the people determine their own solutions. This Budget has given a clear direction to providers and agencies alike that we want to see outcomes that derive from families having real ownership of their solutions. The transformation that we seek through this approach is that in building w’ānau capability and nurturing resilience we are restoring to families that sense of collective responsibility to take care of their own. From the Government’s perspective, $134 million is an investment in outcomes achieved for w’ānau, for providers, and, we believe, for the nation as a whole. But most of all this is an investment in how they do it—how we make the difference by placing trust in people. The Minister of Finance has laid out the challenge for Aotearoa, which is emerging from the sharper edges of a global recession. We have an opportunity as a Parliament either to sink further into a cycle of ever-spiralling debt or to take some initiatives to back ourselves.

The changes that the Budget brings with it—and I am thinking particularly of the tax impact—will not be universally popular, despite the acknowledgment from Mr English that at all taxable income levels tax cuts will more than offset the GST rise. We know that the biggest challenge will be encouraging our constituency to look more broadly at the whole picture of the Budget rather than focusing on one measure in isolation. I am reminded of the wisdom of our rangatira from Whanganui, Dr Whakaari Rangitakuku Metekingi, who told us “Ko te pae tawhiti whāia kia tata, ko te pae tata whakamaua kia tīna”. It means “Seek out the distant horizons; cherish those that you attain”. The grim reality is that we are in a situation in which we have been spending more than we earn. If the horizons we seek are a stronger economic outlook—a future in which our tamariki and our mokopuna will achieve the jobs, the incomes, and the living standards that they aspire to—then we must be prepared to take bold action now.

Lifting long-term economic performance will require a careful balancing of measures of restraint and of support. But it is not as if w’ānau Māori are not used to the concept of making the most of meagre resources. The mastery of Māori in managing massive crowds through tangi, w’ānau reunions, or events such as the koroneihana, poukai, iwi festivals, and the Rātana Church celebrations, is legendary. Our Māori incorporations have acquired a distinctive reputation for being conservative by nature, and at a w’ānau level making do with what we have is part of our history.

But we do not resile from a major issue that neither National nor Labour have ever responded to well, which is the challenge to close the gaps. We have constantly argued for a more equitable society where social and economic justice count for something. In our coalition agreement we made the call to eliminate poverty, and we will not resile from that challenge either. So we have advocated ferociously for this Budget to protect the most vulnerable and for an immediate lift in benefits, superannuation, student allowances, and Working for Families to offset the GST increase.

Some aspects of this Budget will help to focus on growth to help our families to get ahead. There is allocation of new funding to grow Māori productivity and export growth, and support Māori innovation. The $4.5 million allocated for skills and training for Māori in the primary sector and Māori innovation, and the $4.5 million to support initiatives to strengthen and promote Māori tourism are key achievements for the Minister of Māori Affairs and will help to build the recovery that we need. There is $20 million over 4 years for the Māori Innovations Fund in Vote Health, which will support Māori service providers with funding and resources that they need to build and implement innovative Whānau Ora services.

The Housing Innovation Fund has been lifted with another boost of $20 million to extend the fund for another year, thereby growing the supply of affordable housing for w’ānau. The emphasis on the building blocks for families is also evident with an additional $16 million for grants and loans to support social and affordable housing. The additional $24 million to grow the Warm Up New Zealand: Heat Smart home insulation programme is immensely important to our families. The Māori Party is very proud that we were able to increase the number of low-income households that will benefit from this scheme by at least 8,500 families. That is about making a lifetime difference to every aspect of w’ānau well-being, including health, education, and employment participation.

In the disability sector, the lifetime difference has been supported through the $1.5 million invested in promoting accessible housing for disabled people through the Lifetime Design Standard. It will also be supported through the $3 million that has been allocated to improving attitudes towards disabled persons and the $2.34 million invested in promoting, protecting, and monitoring the rights of disabled persons. A key priority for me and this Government is to ensure that the voice of disabled persons is heard, and this Budget does that. Although there is $93 million more for disability support, I particularly draw attention to the very substantial injection of an additional $20 million over the next 2 years for home modifications and equipment. This funding will have a considerable impact on the waiting lists and will mean that people can access equipment and home modifications much sooner than they can now. Although this is fantastic, there is so much more that we need to do, and it will remain a key priority for me to continue this work.

We welcome the injection of $90 million into community-led participation in early childhood education. We believe that this will have particular relevance for Māori and Pasifika families. The increase of $48 million for the Youth Guarantee scheme will help our rangatahi to go forward on a more secure footing. I know that Dr Sharples is particularly pleased about the $12.6 million that will enable kura to benefit from specific and specialised Māori medium assessment tools, which will tell us whether any difference has been made. I am particularly pleased with an initiative within the community and voluntary sector to support w’ānau to access the information highway through $7.9 million to increase the Computers in Homes and the Computer Clubhouse initiatives.

Finally, Budget 2010 is about putting the support where it is most needed, and so I also acknowledge the initiative pioneered by Dr Sharples, with close to $20 million set aside for Whare Oranga Ake—rehabilitation centres that have been founded on kaupapa Māori, which are available to everybody to help pre-release prisoners with their re-entry into their communities. The Minister of Finance has talked about the goals of economic transformation. For the Māori Party, we see this Budget as about a transformation of another kind: the transformation of attitudes. It is about an attitude that backs ourselves, an attitude that supports potential, an attitude that is about being self-sustaining and in charge of our own destiny, and a Government attitude that trusts family and community to know best what their needs are. We are in this for the long haul. It is in that context that we, the Māori Party, support Budget 2010 for investing in the future for the next generation, ngā taonga tukunga iho.

Hon JIM ANDERTON (Leader—Progressive) Link to this

What is the Government saying with today’s Budget to families on low incomes? Let them eat cake—that is what it is saying. It says not to worry about an increase in GST and rising food prices, because the rich eat more than the poor, so they will pay more in GST. Is that meant to make low-income families feel better? They might not be able to afford to buy food, but just think of the GST they are saving by not eating! The rich have a choice if they want to spend more money and pay more GST; they can choose whether to upgrade the Mercedes or to buy another boat. Those on lower incomes cannot choose whether to eat. What is John Key saying to New Zealand families struggling to pay the bills and to make ends meet on low incomes? He tells them to stop being envious. Well, I say to Mr Key that they will not be envious; they will be angry, like I am.

Are New Zealand families more or less equal after this Budget? They are less equal, and shame on the Prime Minister and the Minister of Finance, and on all those who support those Ministers. After today’s Budget, the wealthiest New Zealanders will take home thousands of extra dollars a week compared with those on average incomes. People like Telecom’s chief executive officer, who earned $7 million last year, will get a tax cut of $6,608 per week. State sector chief executive officers, who earn more than $600,000 in some cases, will get a tax cut of nearly $500 a week. However, if one earns $50,000, after one pays more in GST at the supermarket alone one will take home about $5 a week. The chances are that that $5 will be wiped out by inflation any time soon. Is a chief executive officer who got a $1000 a week pay rise last year really the highest priority for a $700-a-week tax cut this year?

New Zealand is now on a par with the United Kingdom, which has one of the most entrenched income gaps between rich and poor in the world. Our ancestors came to this country to get away from that kind of inequality. John Key is determined to bring it back from his speculating years overseas. Others might be taken in by the Prime Minister’s rags-to-riches story, but not me. I remember that he helped to make a pot of money speculating against the New Zealand dollar in the 1980s, at a cost to New Zealand of $700 million. Guess what! At the same time, New Zealand’s increasing rate of income inequality became one of the worst in the OECD. Over the same period, Australia closed the income gap between rich and poor. Mr Key wants us to emulate Australia, but he goes in exactly the opposite direction.

Income inequality widened again under National Governments in the 1990s—I will not mention the Governments in the 1980s—and it started to get better during the period of the Labour-led Governments in the 1999-2008 period. Mr Key misled the House yesterday when he said that income gaps between rich and poor “became worse under the previous Labour Government,”. I say to Mr Key that they actually became better and they are set to become worse under this National Government. I will table the facts after this speech to prove just that. Here they are: under a Labour-Progressive Government between 2001 and 2008 everyone became richer, even Mr Key, but those on low and middle incomes increased their wealth the most, thanks to the Working for Families tax break. We closed the gap; National will again widen it.

The Prime Minister also said yesterday that it was a terrible injustice that 10 percent of the wealthiest New Zealanders pay 44 percent of the tax. He used to invite New Zealanders to go to Australia to pay less. But what is the truth of that? In Australia, the top 10 percent do not pay 44 percent of the tax; they pay 46 percent of the tax. Should we all go to Australia and pay some more tax? Where does Mr Key come from? Does he read anything? It turns out that most countries do exactly that: those who earn more pay more tax, because they earn a higher share of income. That is what is called a progressive, fair tax system. I do not think that Mr Key has ever heard of it.

John Key is no Robin Hood. I saw Robin Hood the other night; John Key looks more like the Sheriff of Nottingham to me, and this is the Sheriff of Nottingham’s Budget. Will the average New Zealander be better off after this Budget from the “Sheriff”? No, because they will not be getting the lion’s share of the tax cut; the top 10 percent of income earners will. Can members guess who got the lion’s share from the last round of tax cuts by the National Government? The same top tax earners. Has the penny dropped yet? If people are not on a high income, this Government is not interested and will not help. Some might have voted for them in 2008, but in 2011 they can make this National-led Government a one-term Government—the first one since 1975—and I say good riddance to them. If New Zealanders are on an average income and have aspirations to do better, they can forget it. This Budget puts reinforced glass into the glass ceiling. This Government is showing its true colours today. It does not want our people to prosper; it wants them to know their place. It does not want them to be envious; it does not want them to worry about buying any food, because they will be saving some GST, for goodness’ sake! This Government is out of touch with the way in which poorer and low-income people live in this country.

Will more children be lifted out of poverty after today’s Budget? The answer is no. A recent Unicef survey of the well-being of children put New Zealand almost last—24th out of 25 countries. It measured immunisation levels, infant deaths, and early death from injury and illness. The Ministers have laughed at Greece over recent times. It is collapsing, the streets are on fire, and the people protest. But do members know what? It is way ahead of New Zealand when it comes to looking after its kids—way ahead. A respected professor of epidemiology in New Zealand said recently that “ … in New Zealand social injustice”, which means income inequality, “is killing and maiming our kids on a grand scale.” What do we mean by that? We top the scales for OECD rates of whooping cough, rheumatic fever, pneumonia, and other diseases in children.

I ask whether these tax cuts to the richest New Zealanders help any of that. The answer is that they do not; they make it worse, because the Government denudes itself of income to do it. We spend less than the OECD average on child health, and the only thing that will change as a result of this Budget is that this appalling situation will get worse. Twenty-eight percent of our children still live in poverty. The Government that I was proud to be associated with lifted 100,000 kids out of poverty, and we were heading in the right direction. This Budget goes in exactly the opposite direction. I was disgusted to hear the backbenchers in National clap for the Budget. They do not understand what they are doing. It is absolutely disgraceful. This rate started to decline under the last Labour-Progressive Government for the first time in decades. As I said, Working for Families lifted 100,000 children out of poverty.

Senior people in the medical profession know what the problem is. Two professors of child health wrote to me yesterday—and I think they wrote to all other parliamentarians—saying that they were absolutely embarrassed by the fact that things have got worse for kids on their watch. They were begging the Government not to make them worse this time, but they will be deeply disappointed. I was touched by that letter.

How do we get rid of poverty? We increase people’s incomes. We give people decent wages and jobs. Will there be more jobs after today? Will there what! There is nothing in this Budget to create new jobs. Where on earth does the Minister of Finance gets his figures from? How many jobs were created by the Prime Minister’s great cycleway from the north to Bluff? The answer is none—not one single job. How many jobs have been created by the amount of money invested in research, science, and technology, which we provided $2 billion for through Fast Forward? The answer is not one cent in the 18 months since this Government was elected.

This country does not have a tax problem, as we have one of the most modest income rates for low to middle-income earners in the world; it has a wage problem. There is nothing in this Budget to fix that, at all. If John Key thinks that cutting the top tax rate will stop young doctors and entrepreneurs from going overseas, he is dreaming. Australia’s top tax rate in 45c in the dollar, and we have already discovered that the top 10 percent pay more tax there than they do here. Yet is that a disincentive? John Key should ask himself why he left the country to go into the world of international speculation. Did he leave to avoid our high taxes? I do not think so. I think he left to get more money. He succeeded, and I say: “Good on him.” But tax cuts for the wealthy will not increase the wage or incomes of ordinary New Zealanders. Will the economy grow as a result of this Budget from the “Sheriff” today? No. There is nothing in this Budget for increased exports. The Government is dreaming if it thinks otherwise.

I will wind up. This Budget has not turned out to be a smiley Robin Hood Budget; it has turned out to be a nasty Sheriff of Nottingham Budget. This Parliament should be ashamed to have received it today.

Hon PETER DUNNE (Leader—United Future) Link to this

The best way to create a sustainable economy that deals with poverty, that deals with disadvantage, and that gives all the things that the previous speaker, Jim Anderton, and others have said we ought to be providing to people is to have one that is funded on a sound basis. The reality is that until this Budget there were real questions raised first by the Tax Working Group and second by some of the actions taken in years gone by that put the long-term viability of our tax base at risk.

Let me give the House an example. With the benefit of hindsight, what some of us suspected at the time to be true has been proven to be correct. The most disastrous tax decision in the last decade was the previous Government’s decision to hike the top tax rate in December 1999. The consequence of that has been as follows. We have seen a huge explosion in the use of trusts for income-sheltering purposes. The calculation has been that that move alone, driven by that differential in the tax rate, has cost the revenue around $300 million a year. That is $2.7 billion lost over the last decade as a consequence of that policy shift. But it gets worse. A lot has been said about loss attributing qualifying companies and how they have become another diversionary tactic along the way. The growth in loss attributing qualifying companies in the same period has been over 240 percent. We now have in the order of 130,000 loss attributing qualifying companies in New Zealand. The value of their tax losses is now $2.3 billion, which is 400 percent higher than it was at the start of the decade. If we put those two figures together, we can draw the reasonable conclusion that the net consequence of Labour’s hiking of the top tax rate in 1999 has been a $5 billion revenue hole for the New Zealand taxpayer.

The speaker who preceded me, Jim Anderton, asked why we were not doing more to alleviate poverty. I would love to do more to alleviate poverty. I would love to give a bigger boost to child health. But when we have a $5 billion hole to fill, it becomes a little difficult. And it gets worse. If members listened to the Leader of the Opposition this afternoon, they would have heard that he proposes to restore the hole. He is opposed to the cut in the top tax rate. He would restore it to what it was and set the whole process off again. We heard him and also Russel Norman, the co-leader of the Greens, say that coming in alongside that would be a capital gains tax. We have a situation where members on that side of the House say that this Budget is all doom and gloom, it is terrible, people will be punished, etc., and to vote for them to have the top tax rate go up, a $5 billion hole in our revenue, and a capital gains tax, as well. That is what does not add up; that is what does not make sense.

I say to those who advocate a capital gains tax because it is efficient that it is efficient in the sense that it captures just about everything, but it is not efficient in terms of producing revenue. I heard the Greens say the other day that with the $4.5 billion we would gain from a capital gains tax we could do all sorts of marvellous things. I have a couple of points about that. That would probably be over a 10-year period, because it assumes that assets are moving all at the same time, and, actually, at a maximum of about $450 million a year it is not the huge windfall that people make it out to be.

As a result of the tax package in this Budget, we have a dramatic change in the arrangements that will affect the average New Zealand family. For nearly three-quarters of taxpayers in New Zealand, as a result of this Budget’s changes their maximum tax rate will be 17.5 percent. That compares more than favourably with the situation in any other jurisdiction we like to compare ourselves with. We also see a package that supposedly gives more to the rich, but actually two-thirds of the cost of the package is dedicated to lowering the bottom two rates of tax. Those rates of decrease are greater than the rates of decrease for the higher rates of tax. So we are seeing a significant shift.

Let us talk about the GST increase. Yes, it goes up to 15 percent from 1 October. Let us contrast that with what happened the last time GST was raised. I was part of the Government that did that, too. Unlike now, at that time GST was raised with 6 weeks’ notice.

Hon GERRY BROWNLEE (Leader of the House) Link to this

I move, That this debate be now adjourned.