1. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
In how many of his eight Budgets has he reduced statutory tax rates?
Can the Minister confirm that the Australian Government has reduced personal taxes for the fifth Budget in a row, further increasing the significant gap between after-tax incomes in Australia and after-tax incomes in New Zealand; why did he not reduce personal taxes in the last five Budgets?
Hon Dr MICHAEL CULLEN Link to this
There has been a large range of tax reductions over a number of Budgets. They have been particularly concentrated in the business taxation area in order to encourage business investment.
Jeanette Fitzsimons Link to this
In how many of the Minister’s last seven Budgets has he put in place economic incentives to reduce carbon emissions and promote sustainability; if there were some, what were they?
Hon Dr MICHAEL CULLEN Link to this
There were no specific incentives in those areas. They would be, I think, amongst the most difficult tax incentives to design, and would require a great deal of thought before being worked through properly. Obviously, as I think all members understand, any tax incentives also create opportunities for tax avoidance and evasion, and the Government has been mindful of that.
Can the Minister confirm that a policy of consistent and affordable tax reductions has been one of the significant factors behind the fact that the Australian after-tax average wage has grown by 33.6 percent in the last 6 years and the New Zealand after-tax average wage has grown by 18.9 percent in the last 6 years?
Hon Dr MICHAEL CULLEN Link to this
Certainly tax changes will have been a factor, but also, generally speaking, wage increases have been higher in Australia than in New Zealand, even when the growth rate has been lower. Of course, until recently Australia had a much more heavily regulated labour market than New Zealand’s, which gave the trade unions more bargaining power.
Shane JonesWhat reports has the Minister seen on the effect of the tax wedge on the average New Zealand family?
Hon Dr MICHAEL CULLEN Link to this
The latest OECD report on taxing wages shows that for a single-income family with two children on the average full-time wage, New Zealand now has the second-lowest tax wedge in the OECD, at 2.9 percent compared with the OECD average of 27.5 percent. That is a reduction from 13.6 percent in 2000 down to 2.9 percent, and the 1 April 2007 Working for Families extension will reduce that even more.
Can the Minister tell the House and the public why he did not follow the path the Australian Government has followed—namely, that when inflation was low and surpluses were big, it set out on a programme of consistent tax reductions—and why did he not do that when he could have done so?
Hon Dr MICHAEL CULLEN Link to this
The Government has a range of priorities in areas such as education, health, and superannuation. I welcome the confirmation from the member that he believes in cutting education, health, and superannuation.
Does the Minister now wish he had followed that path, now that New Zealanders are increasingly impatient that all the benefits of the growing economy have been used by Labour for Labour’s purposes rather than on expanding the capacity of the economy to grow, and given the fact that many New Zealanders believe that the Australian Government has made better decisions than this Government?
Hon Dr MICHAEL CULLEN Link to this
What a great deal has gone into is, firstly, a massive increase in spending on infrastructure, in both land transport and public transport, which was significantly ignored under the National Government; secondly, a massive increase in expenditure on education to invest in our human capital and skills for the future; and, thirdly, massive reductions in key areas of business taxation, notably through depreciation, changes in fringe benefit tax, and related matters, which are also investments in future growth and production. But what the member has to explain is why he has been arguing for some weeks that we should have a tighter fiscal policy, and suddenly today he is once again arguing, after the Australian Budget, that we should have a looser fiscal policy. To put his mind at rest, I will say the coming Budget will be slightly tighter than the Australian Budget in the first year, and slightly looser in the second year.
Will the Minister, in his Budget or somewhere else, explain to New Zealand why he gave up the opportunity that Australia took—namely, to use the chance of a growing economy to reduce personal tax rates and enhance the capacity of this economy to grow without the high inflation and high interest rates that New Zealand families and businesses will now have to pay because he made the wrong call?
Hon Dr MICHAEL CULLEN Link to this
The member remains obsessed with the notion that cutting tax rates, especially on higher incomes, is the sole route to growth. This Government has concentrated on infrastructure, on human capital, on the business taxation area, on offshore investments, and on continuing to address those kinds of issues as much higher priorities for stronger growth in the New Zealand economy.
Why does the Minister insist that there was no alternative to what he did, when the Australian Government has demonstrated it can increase the spending on public services, increase the investment in infrastructure, reduce taxes, and still have lower inflation and interest rates than New Zealand has?
Hon Dr MICHAEL CULLEN Link to this
I noticed that after the last Australian pre-election Budget, interest rates rose twice after the election. I noticed that the immediate commentary on the Australian Budget from The Economist was that it has increased the probability of interest rates rising in Australia after the election.