3. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
Is it the Government’s policy that a person earning less than the average full-time wage of $46,002 should pay 33c on every dollar they earn between $38,000 and the average full-time wage?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
For those who are not eligible for Working for Families, that is the current tax structure. Of course, some people earning less than that amount who qualify for Working for Families pay no net tax, at all.
Is the Minister aware that the threshold at which low-income taxpayers go on to a 33c tax rate has remained the same since he took office in 1999; and why has he made no adjustment to either the rate or the threshold of tax paid by people who earn less than the average wage?
Hon Dr MICHAEL CULLEN Link to this
Yes, that is correct. The primary answer to the second question is that the Government, unlike the member, does not believe in borrowing for tax cuts.
Hon Mark GoscheHon Dr MICHAEL CULLEN Link to this
Over the last three Budgets we have reduced taxes by $2.5 billion from 1 April 2006, rising to $4 billion a year from 1 April 2008. That, of course, includes the major packages around business taxation, depreciation, Working for Families, and so on.
Why is the Minister raising false hope among people who earn less than the average wage but pay 33c in the dollar tax, by promising tax reductions next year, when he has stated in Cabinet papers that: “We should not adjust thresholds in the medium term and thereby retain fiscal drag.”—fiscal drag being the effect of people paying more tax because their incomes have risen?
Hon Dr MICHAEL CULLEN Link to this
It is possible not to appear in drag but to be beautifully clothed. There are other ways of cutting taxes.
Hon Dr MICHAEL CULLEN Link to this
I received a report that states that high-end taxpayers will save a lot of what they get, if they get a tax cut, so that does not go into the inflation pool. That came from John Key, which makes it clear that National’s priority is for tax relief for those on higher incomes. The Government will continue to look at the possibility of tax reductions, but only in a manner that meets the four key tests: we will not borrow to pay for them, we will not cut services to pay for them, and we will not implement them at a time that will contribute to inflationary pressures or in a way that increases inequalities.
What does it say about the Government’s priorities that a New Zealander who earns $39,000 faces a tax rate of 33c—and has done now for the whole 8 years that that Minister has been in charge—and that the Minister’s first tax cut was $1 billion for corporates?
Hon Dr MICHAEL CULLEN Link to this
I note that the 33c rate was actually introduced in 1988 and remained unchanged throughout the 1990s. The member has suddenly had a conversion experience, but unfortunately for him it was on the road to nowhere rather than on the road to Damascus.
Is the Minister not aware that the threshold at which taxpayers reach 33c was adjusted in 1996 and 1998 from $30,875 to $38,000, and that there has been no adjustment for almost 10 years since, because he regards company tax cuts as more important than tax cuts for people on $39,000 who are paying the same rate as millionaires used to pay?
Hon Dr MICHAEL CULLEN Link to this
The problem with the last bit of that statement is that if one cuts the top tax rate, for example, it would cut in at an even lower rate. Thirty-three cents was always the rate millionaires paid from 1988 onwards, but of course it was National that raised the top marginal rate to 66c in the dollar. It was a Labour Government that in two steps reduced the rate from 66c to 33c in the dollar. The fact is that the Government’s priority was business tax cuts to fund economic growth. National opposed business tax cuts. I wonder whether the member ever told that to Mr Phil O’Reilly.
Why has the Labour Government after 8 years in office not cut the 33c tax rate that applies to anyone earning over $38,000 up to $60,000, when no one would regard those people as wealthy?
Hon Dr MICHAEL CULLEN Link to this
Firstly, because the last time there was a cut in such a rate it was accompanied by a cut in New Zealand superannuation. That was in 1998-99. Secondly, the Government restored the level of New Zealand superannuation. Thirdly, the Government introduced the New Zealand Superannuation Fund. Fourthly, the Government gave a huge boost to family incomes via Working for Families. Fifthly, the Government has introduced KiwiSaver. Sixthly, the Government is introducing tax credits for research and development. Seventhly, the Government has cut business taxation. National opposed every one of those moves.
Can the Minister confirm that answer by telling us that he is merely carrying out Helen Clark’s economic strategy, which she described in public statements as “building up the kitty”, which means getting as much tax as possible off people on $39,000 to spend on Labour’s vote-buying schemes?
Hon Dr MICHAEL CULLEN Link to this
We would much rather build up the kitty than strangle the cat and describe that as a free-market system.