4. AARON GILMORE (National) Link to this
to the Minister of Finance
What issues will the Government consider in deciding on its tax package for the Budget?
Hon STEVEN JOYCE (Associate Minister of Finance) Link to this
There are a number of considerations for the Government. Any changes need to contribute to a better-performing economy. We need to encourage more productive investment, savings, and exports, and have less borrowing, consumption, and Government spending so we can increase the wealth of families in New Zealand. The tax system is one large policy lever we can pull to achieve this. Unlike the previous Government, which was all talk and no action around the economy, this Government is doing a number of things to turn round the economy. For example, we are investing billions of dollars to build schools, ultra-fast broadband, electricity transmission, and roads—all of which will help increase productivity, create new jobs, and help families get ahead.
Another important issue is ensuring the tax system is fair and equitable for all New Zealanders. That is why our starting point is considering personal income tax cuts across the board, not just for those on the top marginal rate. The vast bulk of households will be better off as a result of the package of tax measures in the Budget delivered on 20 May. We will also make sure that individuals’ taxable income more accurately reflects their true income, and we will move from a system that has nominally high tax rates, which both harm growth and are being widely avoided, to one that is fair to all taxpayers.
Stuart NashTalking of “fair” and “equitable”, how will tax rate alignment and significantly reducing the top marginal rate for the 8 percent of New Zealanders earning over $70,000 benefit the 70 percent of Kiwis earning under $40,000?
I note that, according to a number of surveys, the proposal to reduce tax rates across the board is widely supported by New Zealanders. I think it is important to point out to the member that we currently have a tax system that taxes labour and investment income at relatively high rates, taxes consumption at relatively low rates, and generally gives money back to people when they invest in investment property. Therefore, is it any wonder that our economy is tilted towards consumption and property investment, that we have a shortage of savings, and that a high proportion of our skilled labour lives overseas? Those are the problems we have to solve.
Mr SPEAKERBefore I call the next question, I say that that was a very interesting answer but I am not sure it said anything about how changes to the top tax rate would assist someone under $40,000. I invite the Minister to answer the question asked.
I was making the point that if we did not reduce the top tax rate, then a number of things would not happen. That is what I was seeking to explain to the member.
What are some of the problems with the current tax system that means it is neither fair nor equitable?
The Tax Working Group identified a number of problems that show that the current tax system is unfair for hard-working New Zealand families. For example, since the previous Government increased the top personal tax rate there has been very slow growth in the number of taxpayers reporting higher incomes compared to growth rates in earlier years, and a major spike in those earning almost exactly $60,000 a year, which was quite magical. This is most evident for people earning more than a million dollars a year. Between 1999 and 2007 the number of people in this category barely grew at all, unlike previous years, indicating a greater use of income sheltering and undermining of the integrity of the tax system.
Hon Ruth DysonCareful. The Government will make a number of changes that will not only make the tax system fairer and more equitable but also help increase productivity and exports.
Hon Sir Roger Douglas Link to this
In deciding on the Government’s tax package in this year’s Budget, why does he intend to trade off horizontal equity for vertical equity, as he indicated in an earlier reply today, when horizontal equity—that is, the same treatment for taxpayers with the same capacity to pay—is likely to increase savings, investment, and entrepreneurial activity, and to lift our productivity growth?
The Government acknowledges that high marginal tax rates are a disincentive to people to work hard and get ahead, but, by the same token, the Government thinks it is inequitable in the New Zealand context to have flat income tax rates, which, I think, is what the member was proposing in his question.
David GarrettHow can taxpayers have any confidence in this year’s Budget when Paul Morgan and Wayne Mulligan can rip off Tekau Plus to the tune of millions and all the Government will do is call for a “value-for-money” audit, when the Minister should be asking the Auditor-General or the Serious Fraud Office to conduct a fraud investigation?
The primary question uses the word “issues”—what issues will the Government consider? Surely one of the prime issues must be the integrity and the use to which money is put and the controls on the use of that money, given that it is taxpayers’ money. That has to be a primary issue, surely.
Hon Trevor Mallard Link to this
I would like in fact to defend the Minister. That question was well wide of the primary question. There might be an issue around the level of revenue to be got, and if a supplementary question had led to that, it could have been possible for the member to get there, but—
We have heard enough. Rather than just rule the member’s question out of order, I invite the member, because he asked a question in good faith, to ask a question that does relate to the primary question. Although David Garrett mentioned the word “issues” in the question, it is issues in respect of the tax package that the primary question covers. So I invite the member, if he would like to, to ask a supplementary question that is consistent with the primary question.
Does the Minister intend to conduct investigations where there is good evidence that taxation moneys have been ripped off?