4. CHRIS TREMAIN (National—Napier) Link to this
to the Minister of Finance
How will the tax changes on 1 October benefit New Zealanders?
Hon BILL ENGLISH (Minister of Finance) Link to this
Treasury advice I have released today shows that even—
Mr SPEAKERI will ask the Minister to resume his seat for a moment, and I apologise to him. I say to members on both front benches that this has to stop. It is simply not a good enough performance today, at all. I blame myself partly for that, and I will be sorting out this matter; members can rest assured I will be sorting it out. Interjections across the front benches will cease.
The Treasury advice I have released today shows that when all forecast cost of living increases are taken into account, real after-tax wages are forecast to rise by 1.2 percent in the last 3 months of the year on the back of the 1 October tax cuts. This calculation uses the same data series that is used to calculate the rate of New Zealand superannuation, adjusted for tax and inflation. It captures the effect of personal tax cuts, the increase in GST, and all other forecast price increases in the period, including tobacco price, the effects of the emissions trading scheme, and accident compensation levies. Even when those cost of living increases are taken into account the vast majority of New Zealanders come out better off, after the tax changes on 1 October this year.
How does the forecast rise in real after-tax wages due to 1 October tax changes compare with previous years?
This is a significant increase in real after-tax earnings, especially when we compare it with the 3 percent increase in the 9 years to September 2008, under Labour. It is even more remarkable when we consider that almost all of that growth under the previous Government occurred before 2004, and there was almost no growth in real after-tax earnings between 2004 and 2008. So the 1.2 percent increase in real after-tax earnings in the final quarter of this year, after the tax changes, will be just a bit less than half of the increase that New Zealand achieved in the 9 years to September 2008.
Hon David Cunliffe Link to this
I raise a point of order, Mr Speaker. I seek this point of order under Standing Order 106 on misrepresentation. It has been previously established in this House, and the Minister has not denied it, that the numbers that he quotes include Labour’s 2008 tax cuts as part of National’s purported growth rate—
Forgive my taking so long to respond but that is a matter for debate, not question time. The member cannot do that by way of point of order during question time.
After the 1 October tax changes an average family will be about $25 a week better off. An individual on the average wage will be around $15 a week better off, while a couple living on New Zealand superannuation, with no other income, will be about $11 a week better off. That is setting off the benefit of the income tax cut against the increase in GST. All New Zealanders, including the Opposition, can go to taxguide.govt.nz to see these benefits for themselves. The benefits, of course, will grow over time as wages grow. Across-the-board personal tax cuts will give New Zealanders more incentives to save, invest, work, and export, while the increase in GST will discourage New Zealanders from spending too much and borrowing too much.
Hon David Cunliffe Link to this
In addition to the fact that the Government’s tax calculator omits the effects of inflation, can he confirm that a wide range of commentators are, effectively, contradicting his claim that Kiwis will be better off, including the New Zealand Institute of Economic Research analysis showing that at least 50 percent of households will be worse off after the tax switch; the Reserve Bank governor holding interests rates steady because “growth is losing momentum”; the New Zealand Institute of Economic Research consensus reports stating that unemployment will not improve over the next 2 years; and Baycorp forecasting a massive spike, over the next 6 months, of people unable to pay their bills?
No. If the member uses the same numbers that are used for calculating New Zealand superannuation, which the previous Government used for its whole term in office, and applies those after the tax cuts, they show that after taking into account all inflation effects New Zealanders’ real after-tax wages will rise by 1.2 percent.
Treasury has made what one could argue is a pretty conservative estimate of the effect of the tax changes, but Treasury says the changes will increase New Zealand’s real GDP by about 1 percent over the next 7 years. This is a significant increase compared with any other policy change that the Government could have made. Getting sustainable jobs and faster growth are the only ways that New Zealanders will get higher incomes and better living standards. The tax changes are just part—but a significant part—of a wide-ranging Government programme to achieve this.