1. JOHN KEY (Leader of the Opposition) Link to this
to the Prime Minister
Does she stand by her assurance, given on Agenda, that she expects to have new initiatives and new programmes and new spending in health and education while still delivering tax cuts?
How does the Prime Minister reconcile her view with that of the Minister of Finance, who, last year, said: “When anyone promises tax cuts you need to read their lips carefully, because what they are actually saying is longer waiting-times for health care, longer queues for public services, lower pensions, and fewer police, and so on and so forth.”?
Hon Dr MICHAEL CULLEN Link to this
I am assured the Prime Minister always reads the Minister’s lips carefully.
Is this the first time since 1999 that it has been possible for the Government to fund new initiatives and new spending in health and education, while still delivering across-the-board personal tax cuts, or has it been possible in previous years?
Hon Dr MICHAEL CULLEN Link to this
I think this member referred yesterday to 2003-04 and advised that there was some increased fiscal headroom, and the Government at that point delivered very substantial increases in the family support tax credits, averaging about $100 a week for a two-child family. Of course, the National Party still refuses to commit to the entire Working for Families programme and is still promising to take back $10 per week, per child, from the poorest families in this country.
How does her finance Minister’s four tests for tax cuts have any credibility, when the finance Minister said, during the last election campaign: “It’s like a household budget: when you cut your income—that is, when you cut your taxes—you either borrow more or spend less. What John is going to try and get you to believe is that you can do all of it without borrowing more or spending less.”; and how come when John cuts taxes it means spending less but when Michael cuts taxes it means spending more?
Hon Dr MICHAEL CULLEN Link to this
What the member seems to have forgotten is that he keeps saying, week after week, that the Government should be borrowing more and that the Government’s balance sheet is too strong. What he will not do is accept an invitation from Agenda to go on the programme and repeat that assertion.
Does it not strain the credibility of the Government’s position that only 6 months ago across-the-board personal tax cuts were so unaffordable that the Government cancelled $400 million of proposed tax cuts, yet, lo and behold, at the Labour Party conference all of a sudden tax cuts have become the high priority, affordable, and doable in an election year?
Hon Dr MICHAEL CULLEN Link to this
What the member seems to have forgotten is that Treasury, over the last 2 years, has underestimated the total cash surplus by a total of over $7 billion. Why is that? It is because this Government has produced stronger growth than Treasury expected.
Jeanette Fitzsimons Link to this
Does the Prime Minister have enough confidence in the economic modelling at Treasury to ensure that any tax cuts will not be inflationary?
Hon Dr MICHAEL CULLEN Link to this
Treasury continues to advise the Minister of Finance that there is still significant uncertainty about the size of fiscal headroom. Both Treasury and the Reserve Bank are clear that any moves have to be calibrated carefully to avoid further inflationary pressure.
Does the Prime Minister anticipate that the Minister of Finance will have to phase in any tax cuts the Government may make, and is it likely that those tax cuts may well start before the election in 2008?
Hon Dr MICHAEL CULLEN Link to this
As both the Prime Minister and the Minister of Finance have said, there are no decisions yet about the timing, size, or shape of any tax cuts. The one thing that the Prime Minister has been very, very clear about is that the Minister of Finance will be delivering those tax cuts—and that got the largest round of applause at the Labour Party conference.
When the Prime Minister said “Michael Cullen is the man to deliver tax cuts.”, was it because he is on the record as having said: “My view is that tax cuts are largely offered as a political bribe, not because of beneficial economic or social effects.”?
Hon Dr MICHAEL CULLEN Link to this
The Minister of Finance certainly still believes that the notion that modest tax cuts would suddenly accelerate the growth in the New Zealand economy, long term, is a pure piece of nonsense—and ideological nonsense, at that. What the Minister of Finance has been very clear about is that any tax cuts will be across the board and have a substantial element of fairness—something the National Party has never promised in that area, at all.
Rt Hon Winston Peters Link to this
In regard to the complexity of our economy or similar economies, is it right and sound to describe a surplus being maintained, and tax cuts replacing that surplus as having the same potential economic effect—particularly in regard to the second half of my question?
Hon Dr MICHAEL CULLEN Link to this
I think that is true. The important point, of course, is that members opposite still cannot work out that an operating surplus is not what is available for tax cuts. Mr Key, at one point, when the operating surplus was $11 billion a year, promptly that day promised $11 billion a year of tax cuts, which would have required something like $9 billion a year of borrowing.
Jeanette Fitzsimons Link to this
What specific aspects of Treasury’s economic forecasting has the Prime Minister been informed needs revision, in light of Treasury’s recent admission that the surpluses are structural?
Hon Dr MICHAEL CULLEN Link to this
It is important to remember that the most important factor in this is actually estimates around the growth rate in the economy. Treasury has consistently forecast over the last 3 years a declining rate of economic growth, and that has not actually occurred in the out-turn. Obviously, stronger economic growth means high revenue, more people in employment, and lower expenditure on benefits. Under this Government, after 8 years, we are still not spending an additional dollar on working-age benefits than we were at the start of the Government. After 9 years under National, despite cutting benefits, it was spending a vastly increased amount of money on working-age benefits.
If the Prime Minister just told the people of New Zealand that modest tax cuts do not have much impact on economic effects, can she now tell the country whether we are in store, under Labour, for large tax cuts or tiny tax cuts; and if previous form is anything to go by, should New Zealanders go to bed tonight knowing that not only will they be tiny tax cuts but, for the record, they will never be delivered?
Hon Dr MICHAEL CULLEN Link to this
It may surprise the member to learn that between tiny and large there is a very large amount of space.
Rodney HideWhen the Government is designing its tax cuts for next year, will it be considering removing the taxes that it has introduced—in particular the top rate of tax of 39c, which is both unfair and inefficient to the economy?
Hon Dr MICHAEL CULLEN Link to this
As I have said on many occasions, no decisions have been taken about shape or timing, or indeed even phasing, around any matters. Of course, if one is on the top tax rate it always looks unfair. Those people who would love to be earning more than $60,000 a year may have a somewhat different view.
Rt Hon Winston Peters Link to this
I wonder whether the Deputy Prime Minister could outline what the differences are between our tax rates and Australia’s, seeing as Australia is so often used by certain members of this Parliament as a comparison, and unfavourably, against New Zealand?
Hon Dr MICHAEL CULLEN Link to this
The largest differences are pretty simple. Tax rates are much lower at the bottom end in Australia—indeed they start with a zero rate—and they are higher at the top end. Equally important is that Australia has a range of taxes that do not exist in New Zealand, including a general capital gains tax, stamp duties, and a range of other taxes.