2. JOHN KEY (National—Helensville) Link to this
to the Minister of Finance
What was the amount of tax revenue raised by the Government in 1999-2000 and in 2005-06?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
Excluding the accounting effect of the provisional tax change—the one-off effect in the last year—tax revenue has increased over the period from 28.8 percent of GDP to 32 percent. At the same time the economy grew by 24 percent, making it one of the fastest growing in the OECD.
Why has he allowed tax revenues to rise by 62 percent over the period of time that he has been Minister of Finance, when the economy as a whole has grown at 41 percent, and what justifies him taking a bigger and bigger slice of the cake?
Hon Dr MICHAEL CULLEN Link to this
The year 1999-2000, of course, represented the bottom end of an economic cycle and therefore of the revenue cycle. Since that period we have had very, very strong economic growth and obviously, therefore, that has been a factor. There was, of course, a change to the top tax rate that has affected revenue as well.
Gordon CopelandIs the Minister aware that personal taxation increased by $8.5 billion between 1999-2000 and 2005-06, and that approximately $1.85 billion of that was solely due to inflation, and will he now commit to adjusting the thresholds so that, at least in real terms and at a minimum, New Zealand taxpayers are put back to where they were as at 1 April 2000, in line with United Future’s advocacy to him over the last 3 years?
Hon Dr MICHAEL CULLEN Link to this
My advice is that those figures somewhat overstate the case, but it is interesting that on the member’s own figures the so-called fiscal drag effect was only about 20 percent of the total movement in income tax returns. I acknowledge the continuing interest in the issues around tax thresholds, and of course they will be considered in the light of final decisions around the business taxation review in the context of next year’s Budget, for implementation on 1 April 2008.
Does he think people who are fed up with increases in local body rates realise that taxes have gone up faster than rates in recent years—growing 62 percent since 1999-2000, compared with a 45 percent increase in rates—and does he think that when people cotton on to the fact that central government taxes have been rising at a faster rate than rates, there will be not just a rates revolt but a tax revolt as well?
Hon Dr MICHAEL CULLEN Link to this
The member makes a very interesting point, that rates have risen by only 45 percent compared with nominal GDP growth of 41 percent. In other words, they have scarcely shifted as a proportion of GDP, contrary to what National Party members often claim.
Does he think the enormity of tax increases will become even more stark when people realise that over the last 6 years the take from rates has increased, in nominal terms, from $2 billion to $3 billion—a $1 billion increase—while total taxes have risen, in nominal terms, from $32 billion to over $52 billion, which is a $20 billion increase?
Hon Dr MICHAEL CULLEN Link to this
Nearly $2 billion of that is simply an accounting change that will not be repeated, as the member well knows. Of course, one of the things that has also driven Government spending in that period is that we have now increased the subsidisation of local government to some 13 percent of its total revenue—an all-time record.
If his Government is supporting an independent inquiry into rates, can he now tell us whether his Government will also be supporting an independent inquiry into taxes?
Hon Dr MICHAEL CULLEN Link to this
The Government has a business taxation review document out for public consultation. We are making decisions on that, in the context of next year’s Budget, and those will come into implementation on 1 April 2008. I am sure that if there are any tax cuts, and if they are big enough, the member will try to claim full credit for them, from his position as Leader of the Opposition at the time. [ Interruption] I raise a point of order, Madam Speaker. I note that the member just interjected on my statement that he would probably be Leader of the Opposition at the time. I do not know whether he meant to do that, but it is interesting.
Madam SPEAKERThat is not even amusing. Can the Minister confirm that, according to the latest statistics, only nine OECD countries had a lower tax to GDP ratio than New Zealand in 1999 but that by 2004 a total of 15 countries were ahead of us, putting us in the bottom half of the OECD—a further sign that under his financial management our country is becoming less competitive, on a relative basis, than other countries?
Hon Dr MICHAEL CULLEN Link to this
I can confirm that a clear majority of OECD countries saw tax increase as a proportion of GDP over the period, including the United States. I can confirm that New Zealand had one of the best fiscal performances over that period—unlike, say, the United States, which was running massive deficits throughout that period. I can confirm that we are in a far better fiscal position, for the long term, than almost any other OECD country, along with Australia.