1. Hon BILL ENGLISH (Deputy Leader—National) Link to this
to the Minister of Finance
Why is it Government policy that someone earning $39,000 a year should pay the 33c tax rate?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
As I outlined on Tuesday, there are various factors that can tell me whether someone earning that amount does pay 33c in tax at the margin. The average rate he or she pays at that point is normally 20 percent. In the example of a single-income earner in a family with two children, the Working for Families package means that person may effectively pay no net tax at all.
Why does the Minister keep using the example of people in the Working for Families package, when the vast majority of earners on $39,000 a year do not have children who qualify for the Working for Families package and pay, on their marginal dollar, 33c in the dollar, which is the rich person’s tax rate according to that Minister.
Hon Dr MICHAEL CULLEN Link to this
On the last point, I have never said that 33c in the dollar is the rich person’s tax rate. It is not even the highest tax rate in the New Zealand scale. Why the member keeps making things up is quite beyond me.
Charles ChauvelCan the Minister tell the House how the tax paid by an average family changed between the years 2000 and 2006?
Hon Dr MICHAEL CULLEN Link to this
According to the OECD’s Taxing Wages Report 2006, the tax burden for a one-earner married couple on the average wage and with two children has fallen from 13.6 percent to 2.6 percent—that is before the extension on 1 July this year. At the same time, that family will have seen cuts in the cost of going to the doctor, which Mr English wants to increase again, prescription costs falling, and saving for retirement made easier.
Hon Peter DunneWill the Minister confirm that just under a quarter of taxpayers earn between $40,000 and $80,000 per annum, yet they contribute just under 40 percent of all personal taxes paid, and that reducing the burden on those people has to be a priority for any future tax reform?
Hon Dr MICHAEL CULLEN Link to this
I think it is fair that what people see as the priority depends very much on where they are on the tax scale. I have heard people argue that the priority is to lower the top tax rate; they tend to be on the top tax rate. I have heard people argue that the 33c in the dollar rate is the most important criterion, and they tend to be on the 33c in the dollar rate. I tend to hear a lot of people—something like 45 percent of total full-time wage earners, and way, way more than that as a percentage of total income earners—who are on the bottom tax rate, and who would like to see some relief at their level, as well.
Gordon CopelandDoes the Minister recall that in announcing his plan to end fiscal drag in Budget 2005 by adjusting the tax brackets, he gave as his reason its logic; if he does recall that, where did the logic go in Budget 2007 when he canned those plans, and might we see a return to logic in Budget 2008—or does he now regard fiscal drag as acceptable, even though illogical?
Hon Dr MICHAEL CULLEN Link to this
In Budget 2007 the priority was clearly outlined: to try to lift New Zealand’s savings record. With over 200,000 New Zealanders having joined KiwiSaver already, I think it is clear that that policy is succeeding very substantially. In terms of the issues the member raises, of course there are many different ways in which taxes can be cut. Indeed, I have made it quite clear that one of the criteria that I will apply is aspects of fairness, particularly in a society where incomes at the top end tend to increase faster than incomes at the bottom end, in any case.
I raise a point of order, Madam Speaker. I asked the Minister straightforwardly whether he regards fiscal drag as acceptable, and he did not answer that part of the question.
Madam SPEAKERYour question actually involved several thoughts, and the Minister is only required to address only one of them. I thought he addressed two.
Is the Minister aware that since he took office in 1999 the average wage has grown by 30 percent and the tax on the average wage of $46,000 has grown by 40 percent; and why does he think that that is a good idea?
Hon Dr MICHAEL CULLEN Link to this
I thank the member for telling New Zealanders that the average wage has grown by 30 percent over the life of this Government. I would not have thought so from National’s usual propaganda in that regard. During that time, people on such a wage have also seen enormous improvements in a range of areas. Their prospects for New Zealand superannuation have been lifted by restoring it to the level that that member cut when he was a Minister. At the same time, we are saving money to ensure that we can afford to pay it at that level over the long term. For those people with dependent children, we have introduced Working for Families. If they go to a doctor, the cost of a doctor’s visit has been reduced. If they have a young person who is a student, that student now has access to an interest-free loan. I could go on endlessly about the benefits of the Government—and all of those policies are supported by an overwhelming majority of people, and all of them were opposed by the National Party on introduction.
Has the Minister seen any reports about mechanisms for funding revenue reductions; and how do those compare with the Government’s four criteria for assessing revenue reductions?
Hon Dr MICHAEL CULLEN Link to this
Yes, indeed. I well recollect the approach employed in 1998-99 when personal taxes were cut. The then Government decided it could not actually afford those cuts, and it then cut New Zealand superannuation so that retired New Zealanders could pay for those tax cuts. That does not meet the criterion of fairness that I outlined on Tuesday.
Hon Dr Nick SmithHon Dr MICHAEL CULLEN Link to this
Oh, the member says it is not true that the National Government cut New Zealand superannuation. It lowered the floor from 65 percent of the average wage to 60 percent of the average wage, and that was one of the first things that the incoming Labour Government restored. Taxes were cut by National and the elderly paid for it.
Rt Hon Winston Peters Link to this
Are the facts that the Minister is referring to that on 1 October 1998 National took the level of superannuation down to 60 percent of the average working wage, that when Labour came back into power it restored the level of superannuation to 65 percent of that wage, but that when the Minister used the words “restored the level”, he really meant that Labour, at the behest of New Zealand First, increased the level at the recent Budget to 66 percent of the average working wage—is that not the chronological series of facts?
Hon Dr MICHAEL CULLEN Link to this
I can confirm that the incoming Labour Government increased the level of superannuation back to 65 percent of the average wage, and that we responded to Mr Peters’ polite request to raise that to 66 percent of the average wage as part of the confidence and supply agreement.
What does the Minister say to those who would argue that the thrust of tax changes in recent years has been to benefit families and working couples but has been of no benefit to individuals; and how would he envisage changes that might benefit individual taxpayers being considered in the future?
Hon Dr MICHAEL CULLEN Link to this
It is a fair comment that the Government’s priority around tax cuts has been for modest-income families with dependent children—[ Interruption] Apparently Mr English objects to that being done, because, of course, he is a high-income person with dependent children, so it does not worry him at all, in that particular regard. But we do worry about people who are struggling to bring up their kids and provide properly for them. Other changes in the taxation system, of which there are many potential changes, can help those people who are not in that position. But, of course, I emphasise that once one gets into tax cuts across the board, then the cost of those becomes very expensive in relation to the benefit for any individual person.
Why should the public believe the Minister’s crocodile tears for middle-income earners, when the Government accounts yesterday showed that in the last 12 months wage and salary earners paid $1 billion more in tax than previously, and when the only tax cut he has actually put forward was for companies to pay $1 billion less?
Hon Dr MICHAEL CULLEN Link to this
I note again the pro-business National Party’s opposition to tax cuts for business. I hope Mr English keeps going to those business lunches and breakfasts and saying: “We will increase the corporate tax rate back to 33c in the dollar.”—yeah, right!
Rt Hon Winston Peters Link to this
Can the Minister confirm the following information: in 1998 the then leader of the National Government threatened the then Treasurer of this country that not taking the rate down from 65 percent to 60 percent of the average working wage could be a coalition breaker, and, more important, the then Treasurer had papers to show that National wanted the rate to go down to 55 percent of the average working wage; and can the Minister confirm the very important fact that when Labour got back into power and the rate was still at 60 percent, New Zealand First agreed in its negotiations with Labour for the urgency vote for the Cullen fund that the condition would be to raise it back to 65 percent—a glorious history of defence of the elderly?
Hon Dr MICHAEL CULLEN Link to this
I can confirm half of the last claim. It is certainly correct that we could not have introduced the New Zealand Superannuation Fund without the support of New Zealand First. It would have failed because other parties opposed the fund. Now, of course, almost every party supports the New Zealand Superannuation Fund; even the Greens keep trying to find new and innovative ways of changing the entire world with the New Zealand Superannuation Fund. However, it is not true, I have to say to my friend and colleague, that it was a condition that superannuation be raised back to 65 percent. That was a clear promise of the Labour Party manifesto, which was implemented. It was one reason for cancelling the further tax cuts that National was planning.
Can we take it from the Minister’s answers today that Labour’s policy is to tax people on $39,000 a year at 33c in the dollar, which used to be the top tax rate in New Zealand, that it is Labour policy that people on the average wage pay an increasing proportion of their wages as tax, and that the reason for that is so that Labour can collect the money, then pay it back through its own political bribes?
Hon Dr MICHAEL CULLEN Link to this
What, of course, the member is saying is this: it is absolutely essential and desperately needy that taxes should be cut, and God forbid that a Labour Government should do it.
Why did the Labour Government announce in the 2005 Budget that it would lift tax thresholds across the board in election year, then decide in 2007 to break that promise to middle New Zealand, and then give advice in Cabinet papers for the 2007 Budget that the Minister has no intention of giving middle-income earners the benefit of increases in tax thresholds because the Government will need the money for its plans?
Hon Dr MICHAEL CULLEN Link to this
The member is factually wrong again. The decision taken was to lift tax thresholds on 1 April 2008—actually well after the 2005 election, so the member has that wrong for a start. The decision to abandon that was taken because there was clear advice that the Government had to be careful of the fiscal stimulus of doing that. That is why the Government enhanced KiwiSaver, and 200,000-plus Kiwis have responded to that. We still do not know the National Party’s policy on KiwiSaver, but no doubt we will have at least two versions of it before the year is out.
Why does the Minister not just front up and acknowledge to those people on $40,000 a year who are still paying 33c in the dollar, after 8 years under Labour, that he made a promise to them to reduce the burden of tax, and that he broke that promise?
Hon Dr MICHAEL CULLEN Link to this
I notice the member is already outbidding himself. He started off at $39,000 a year, and now he is up to $40,000 a year. By the end of question time he might be up to $60,000 a year.