3. Hon JIM ANDERTON (Leader—Progressive) Link to this
to the Minister of Finance
What is the fiscal deficit likely to be in the calendar year 2011, and what would the fiscal deficit be if there had been no tax cut on 1 October 2010 for the top 5 percent of earners?
Hon BILL ENGLISH (Minister of Finance) Link to this
It is hard to answer the member’s question in detail, for two reasons. First, the Government uses a March year and not a calendar year, so it is a bit complicated to isolate the calendar year. Secondly, all earners have benefited from reductions in, say, the bottom tax rate. It would be fair to say that if there had been no reduction in, say, the top rate of tax, then the deficit would be smaller. However, tax reductions right across the board have been part of tax packages that have been fiscally neutral—that is, where the Government has given away income tax it has paid for that by taking more tax in other forms.
Has the Minister seen the table on the Treasury website that allows revenue from tax changes to be calculated; if so, has he seen that it shows that the cost of the tax cut for the top 5 percent of income earners this year will be $462 million, meaning that the deficit will be worse by that amount this year than it would have been if the top rate had been left unchanged?
I think that is what I said in answer to the first question. The tax packages that we introduced, on 1 April 2009 and then in October 2010, were both self-funding so the Government’s tax packages have not contributed to the deficit. We have offset income tax cuts with other tax increases.
Would not the $462 million a year from the top 5 percent of income earners with incomes over $100,000 a year help to raise $4.6 billion over 10 years, which could be used to help pay for the Canterbury earthquake and give jobless young Cantabrians trade skills to help rebuild their city?
It has, I think, long been that member’s position that higher taxes are a good thing. We do not believe that they are a good thing, unless they are used for effective purposes. People who had reductions in the top tax rate are also subject to higher taxes on investment housing, and higher effective taxes on overseas owners of New Zealand assets where they may have a share in those assets. They are paying higher GST. The rules have been tightened on social support such as Working for Families to ensure that broader definitions of income are used. So we are satisfied that the tax packages have been fiscally neutral. Of course there are challenges with funding the recovery for Canterbury, but the Government is determined to do a good job and will fund what is necessary.
Amy AdamsWhat has been the cumulative fiscal impact of tax changes made by this Government since taking office in 2008?
Hon David Cunliffe
Stuart NashThe members are wrong about that. The combined impact of the two tax packages the Government has introduced is a net gain, in 2011-12, in revenue of $950 million. That is to say if the Government had had no tax packages, revenue would be almost a billion dollars lower than it will be in 2011-12. I know that the Opposition might be startled about that, but that is the result of the Government changing the tax system to make it more effective and provide better incentives for a stronger economy and more jobs.