8. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
Did the business tax cuts announced in the 2007 Budget meet his “four tests” for tax cuts; if not, why not?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
As I made clear, the four tests relate to changes to personal tax. The main tests apply to the business tax package.
Hon Dr Nick SmithHon Dr MICHAEL CULLEN Link to this
It is very hard to apply a test of equity to business tax cuts. The main tests applied to the business tax package were fiscal affordability and the likely impact on economic growth. As with all tax reductions introduced since I have been Minister of Finance, the National Party voted against these tax cuts.
Why is he introducing a test of social equity now for personal tax cuts, when he did not apply it to his tax credits for KiwiSaver and his business tax cuts, possibly for the reason that they would not have met a test of social equity?
Hon Dr MICHAEL CULLEN Link to this
Let me just deal with the issue of KiwiSaver. Tax credits for KiwiSaver rise to a maximum of $20 a week. In other words, the maximum tax credit under KiwiSaver is achieved at $26,000 a year. A person on that level who can afford to save $20 a week—in some cases that means giving up less than two packets of cigarettes in a week—will get $40 a week, and eventually $60 a week, into his or her savings. A person, say, on $78,000 a year will have to save $60 a week to qualify for the same $20 a week tax credit. That is in fact a progressive assistance for savings.
Charles ChauvelHas the Minister seen any other reports outlining appropriate tests to be applied when considering support for tax cuts?
Hon Dr MICHAEL CULLEN Link to this
I have seen a report basically that says tax cuts should be opposed if they are proposed by Labour. This can be the only reason why the National Party has voted against every tax cut this Government has introduced. But I should also note that I have gone back 40 years trying to search the records, and in not one of those 40 years—during most of which, of course, the National Party was in power—did National ever introduce a reduction in the standard corporate rate of business tax. The only change it made was in 1970, to increase it.
R Doug WoolertonCan the Minister confirm the fact that his business tax cuts form part of the confidence and supply agreement between New Zealand First and Labour, and that new parties, such as New Zealand First, have had a greater role in cutting taxes for business than the National Party within the last two decades, given that National did not cut business tax at all when it was last in power?
Hon Dr MICHAEL CULLEN Link to this
Indeed it was the subject of the confidence and supply agreements of both New Zealand First and United Future. Of course, it is most unlikely one would ever have a confidence and supply agreement with National, because, for a start, we have no confidence in National.
Hon Peter DunneCan the Minister also confirm that as part of the business tax review, both in the original document and in its conclusion, it was acknowledged that any consequential changes for personal taxes would have to be considered, and that that is precisely what is on the agenda at this point?
Hon Dr MICHAEL CULLEN Link to this
That is absolutely correct and, as I have said now on a number of occasions, as the economy is growing faster than anticipated and the Government has higher surpluses than it was previously forecasting, that means that the country at large can enjoy a dividend out of that. The question is how much, when, and to whom it goes.
Does he recall saying: “The actual benefit of a lower company tax goes to foreign resident shareholders, for whom it is, in the main, the final tax. Leaving aside the political question of whether our fiscal priority is to give tax breaks to foreigners …”; and, if that is the case, why should anyone take seriously a social equity test that he sets up, when he spent his first billion dollars of tax reductions on foreign resident shareholders?
Hon Dr MICHAEL CULLEN Link to this
It is pity one cannot apply a social equity test to business tax cuts, because that is the nature of the ownership of business. It is equally clear that a number of people have noticed—perhaps it has gone missing in the minds of National members opposite—that the Australians have lowered their corporate tax rate. Of course, in that situation two things may happen: a higher corporate tax rate here may tend to bias investment into Australia rather than New Zealand; also, of course, it may tend to bias trans-Tasman profit activity to be in Australia rather than New Zealand to take advantage of the lower rate, even though, of course, in Australia corporates have to pay things like stamp duties, general capital gains tax, and a number of other taxes they do not have to pay in New Zealand.
Given his very recent attention to the comparison, does he recall saying: “Firstly, it is not valid to compare a 30 percent nominal company tax rate in Australia with 33 percent in New Zealand. … Australian corporates have other non-discretionary levies … Since this is a small increase in what is left over from profitable investment, is the business community really saying to me that the profit potential of investment options for foreigners here versus elsewhere is so finely balanced …”; and does not that mean that he never even believed in the company tax cut when he did it?
Hon Dr MICHAEL CULLEN Link to this
As I said in the Budget, if the member cares to go back to the speech, businesses kept saying that they saw reducing the corporate tax rate as one of the most important issues for corporate profitability and investment. As I said in the Budget, they will now have a chance to put their actions where their words have been for some time. I am sure that any future Government will monitor very carefully what their response is, before considering further changes to the corporate tax rate reduction.
Why does the Minister not just own up to the fact that his new attention to a social equity test for tax cuts is an attempt to hang on to some shred of what he believes is his principled opposition to tax cuts, when he has been under enormous pressure from the Prime Minister to deliver personal income tax cuts and he will have to do it whether he likes it or not?
Hon Dr MICHAEL CULLEN Link to this
I have been under no such pressure at all. The member just keeps making that up, as he makes up almost everything he ever says on any issue. The member totally lacks credibility. The reality is that the National Party always argues for tax cuts where the vast bulk of them go to those on high incomes. It is not worried about people on low incomes. If we can afford a dividend, that dividend should go across the board, not simply to those on the highest incomes. That may be what the Macquarie Bank is paying for from National; it is not what it will get from a Labour-led Government.
Can the Minister confirm that a quick look at the facts shows exactly the opposite and that, in fact, National brought in the family tax credit when it was last in Government, and, as he said himself, did not reduce company tax, and that he who is meant to be the prophet on social equity, and so principled, has done just about the opposite—that is, his first $1 billion of company tax cuts have gone to high-income people, most of whom are foreign-resident shareholders?
Hon Dr MICHAEL CULLEN Link to this
What a short memory a man has when he has to make it up as he goes along. The Government’s first big moves on tax were the Working for Families package, which is now worth $2.5 billion a year, which has increased the average income for families with two kids by about $100 a week, and which the National Party voted against and still will not endorse. Indeed, National says that any campaign to advise people of their rights to Working for Families is a political campaign—ipso facto, one that distinguishes Labour from National.