6. Hon DAVID CUNLIFFE (Labour—New Lynn) Link to this
to the Minister of Finance
Does he stand by his statement that the gap between rich and poor is “about the same” after Budget 2010?
Hon BILL ENGLISH (Minister of Finance) Link to this
Yes. The tax base broadening measures, particularly those that close loopholes and change the effect of taxation on property, mostly impact on wealthier taxpayers. The GST compensation measures are concentrated among low-income earners. The end result is that low, middle, and high-income groups all receive about the same percentage increase in real after-tax incomes.
Hon David Cunliffe Link to this
How does he reconcile his statement that he is concerned about the gap between rich and poor with his admission that the Budget tax cuts have actually done nothing to close that gap?
Very easily. The Government has created a tax system with stronger incentives in the direction the economy needs to go in—that is, there are more incentives towards work, savings, and investment, and less incentives towards consumption, borrowing, and property speculation. That means we will have an economy with more opportunities for New Zealanders to get ahead, whatever their income.
Hon David Cunliffe Link to this
When the Minister said that the Government is creating stronger incentives, could he be referring to the fact that, according to this graph, an average wage earner takes until year 5—2014—to break even after the effects of the rampant inflation that will take place next year?
No, I do not. That member should recall the time when he was, I think, an Associate Minister of Finance, when there was 5 percent inflation in this economy. I do not remember him protesting about its effect on average wage earners then.
Hon David Cunliffe Link to this
When he said that incentives had been strengthened, was he referring to the net position after tax of average and minimum wage earners, which—by the time we take out GST, inflation, and accident compensation levies—does not recover, in the case of average wage earners, even by 2014?
The member has been doing some magic with the inflation numbers. The fact is that the inflationary effect of GST is more than offset by the reduction in income taxes. The rest of the inflationary effect is dealt with in the usual way: low-income people on income support get an annual adjustment, and wage earners do their best to claw back increases in the cost of living through wage increases. That is no different from how it has ever been.
Peseta Sam Lotu-Iiga Link to this
How does the Budget improve the position of lower-income taxpayers?
As I have pointed out, the Budget lowers tax rates for all taxpayers and improves their incentives to work, save, and invest, because in this economy we need a bit less incentive towards borrowing, consumption, and property speculation. Over 70 percent of all income earners now face a marginal income tax rate of 17.5 percent or less, and a family with two children that receives Working for Families will now pay no net tax on income up to $50,000.
Hon David Cunliffe Link to this
If the Minister is so concerned about lower-wage earners, then why did he use this “once-in-a-generation” tax cut to give himself a double-dip tax cut of $240 a week instead of focusing that money and other sums like it on closing the income gap between rich and poor New Zealanders?
I point the member to a graph that I used in, I think, the Budget lock-up; it is readily available to him. It will show him that over the last 15 years people on incomes of $30,000 to $50,000 have had about a 40 percent reduction in the income tax that they pay. Our tax system has become more progressive over the last 15 years, not less progressive.
Peseta Sam Lotu-Iiga Link to this
How is the cost of lowering personal income taxes distributed across taxpayers?
The cost of lowering personal tax rates is estimated at just over $4 billion per year by 2014. About two-thirds of this cost was used to reduce tax rates in the lowest two tax brackets—that is, people earning up to $14,000 on the lowest tax rate, and people earning up to $48,000 on the next lowest tax rate. This distribution demonstrates the Government’s commitment to making tax cuts across the board. The reason for that is we believe that the incentives matter for people who are on the minimum wage as much as they do for people who are above the average wage.