Taxation (Annual Rates, Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Bill

Part 1 of this Taxation (Annual Rates, Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Bill consists of only one clause, but it is a huge clause. This clause confirms the current tax rates on the people of New Zealand. What we now know about the tax rates being imposed by this legislation is that they will confirm New Zealand in the top half of the OECD, but not for our economic growth—no, we are down near the bottom of the OECD for our economic growth. The Economist published on 1 March this year, 2003, confirms that New Zealand ranks sixth in the OECD—top half of the OECD—for the level of income tax, direct tax, we impose on industrial workers with a family. The tax burden on the average working family in New Zealand is the sixth highest in the OECD.

What is more, the rate of increase, since Labour has been in office, according to OECD data released just 2 weeks ago, shows us that this Labour Government has clawed, from the average working family in New Zealand, the biggest increase in tax that has occurred in any other country in the OECD—except the Czech Republic. What a great record; what pride this Labour Government must have! The Hon Paul Swain in the chair must feel delighted that he has clawed from the average working family in New Zealand the biggest increase in tax of any country in the OECD—other than the Czech Republic. Part 1 confirms that next year that process will continue; that the Government will continue to claw more money from average working families.

I want the Minister to address this particular issue. Labour claims to care about low-income people. I want him to face this fact: Part 1 will confirm that low-income working people with, say, one, two, or three children, earning between $10,000 and $15,000 a year, will pay an effective marginal tax rate of 100 percent.

💬 Opposition Members: What!

Dr the Hon LOCKWOOD SMITH: I repeat this for the benefit of the Minister in the chair: working families earning between $10,000 and $15,000 a year will pay an effective marginal tax rate of 100 percent. For every dollar they earn above $10,000 a year, the Government takes the lot. Part 1 confirms that fact. I want the Minister in the chair to stand and tell the Committee why he is exempting the wealthy people on superyachts from paying any income tax at all, while for poor families, earning between $10,000 and $15,000 a year, for every extra dollar they earn, the Government takes 100 percent, and if we add on GST, it is more than 100 percent.

That is frankly disgusting. It is disgusting to exempt workers on superyachts from paying any tax, and to tax our poorest families 100 percent. It is not just on those poorest families, either. Take middle-income families. Take a family with four children, earning between $40,000 and $55,000—there are a lot of working families with four kids, in that tax bracket—Part 1 confirms their effective marginal tax rate is 63 percent. If they earn an extra dollar above $40,000 the Government takes from a family, with four children, 63c of that extra dollar. Add GST, and if they are spending all they earn, which they probably will be, on $40,000, with four kids—they will not be saving any money, so they will be spending it all—and the Government takes 75 percent of every extra dollar they earn above $40,000, for a family with four children. That is disgusting. I want the Minister to justify what he is doing to working people in this country.

I want to support my colleague, Dr the Hon Lockwood Smith. We are talking on the Taxation (Annual Rates, Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Bill, which is a long-titled bill. Amongst its many provisions is one that provides a concessionary taxation rate for people on the basis of the colour on their skin. That provision is not in Part 1, which we are discussing. Part 1 does not provide a taxation benefit depending on whether one is Māori; this part confirms the current tax rates.

I think it is worth repeating to those who are listening to this debate the very, very enlightening figures that the National Party’s spokesperson on revenue, Dr the Hon Lockwood Smith, talked about. He said that The Economist provided information not 2 weeks ago that proved that New Zealand is in the top half of the OECD—not by 2011, but now—when it comes to the level of income tax on workers with a family. In fact, that information shows that New Zealand has the sixth-largest taxation burden on working families in the entire Western World. Further, Dr Smith went on to tell the Committee that New Zealand has had the biggest single increase in the taxation burden on working people. The tax burden has increased more on working people here than in any other country in the Western World, except the Czech Republic. So that means that New Zealand’s working families are carrying more of a tax burden than working families in any country—just in the last few years under Labour—other than the Czech Republic. I presume that in the case of the Czech Republic that has a lot to do with industrialisation, yet that certainly would not have anything to do with it here in New Zealand. That is just outrageous.

I am not prepared to vote to confirm the current tax rates. This Government is on track to collect several billion dollars more from working New Zealanders than it needs. Government members do not need to collect several billion dollars more from them, and I will not vote to give it to the Government. This Government cannot be trusted with our money. It is to close down the private prison in Auckland that costs $43,000 per prisoner, and to have a public prison that will cost $72,000 per prisoner. That is a waste of our money, and I will not give this Government one extra dollar. This Government does not realise that, by closing down that private prison, it will now have to staff the prison as per the collective employment agreement. That means the number of staff in the prison will go from 120 to 480. Cabinet did not work that out when it made that decision. It means more of our hard-working taxpayers’ money will be wasted, and I will not give the Labour Party one more dollar of that.

During Dr Smith’s speech he talked about the fact that a low-income family earning between $10,000 and $15,000 a year with one child faced an effective marginal taxation rate of 100 percent. That means that for every dollar the family earns over $15,000, it loses a lot of the social welfare and inland revenue add-ons. Basically it is a substitution: the family loses $1 off the add-ons for every dollar that it earns. During Dr Smith’s debate the senior Government whip, Mr Benson-Pope from Dunedin, said that that was too low, and asked the Minister whether we could do better than that. In fact, he went on to suggest the effective marginal taxation rate should be $1.05 for every dollar. He said the effective marginal taxation rate should be 105 percent. I want to explain to Mr Benson-Pope, who is on $120,000 a year as the senior Government whip, that when one is earning $15,000 a year, a 100 percent effective taxation rate is an awful lot of money. He may have forgotten what it is like for those people now that he is on $125,000 a year, but I say that when one is on $15,000 a year every dollar counts. I am not prepared to vote extra money to that Labour Government when its senior whip says an effective marginal taxation rate of 100 percent is not high enough. That is appalling.

Dr Smith also went on to say that a working family on about $40,000 a year with four kids faces an effective marginal taxation rate of 75c in the dollar.

💬 David Benson-Pope: You are so concerned—

That member says that we are concerned. We cut taxation for those people, but he has not done so.

It is very interesting to be talking to this bill. It is an undeniable fact, and I am sure that people from different parties will agree with me, that the higher one’s taxes are, the more that stifles growth. That is a fact. Would the member agree with me?

💬 Brian Connell: Basic construct!

That is right; yes, that is very true. That is in honour of the Minister of Māori Affairs. If we are to look at the basic construct, as the Minister of Māori Affairs would say, as far as tax weighing down the growth of a country is concerned, we have to look at a few facts. So let us do that. We see that New Zealand’s average gross domestic product (GDP) volume growth since 1985 was 2 percent. If we compare that with the growth rate of other nations, we find that every year for the last 16 years we have been falling behind. So the predicted growth that is being described as robust by this Government continues to lag behind the predicted growth in other OECD countries, and is far below both our potential and our requirements. When we compare our performance with that of other countries of similar populations but with fewer resources, the picture is even gloomier. That all comes back to what I was talking about as far as the annual rates of income tax for 2002-03 are concerned.

New Zealand First has always been, and still is, on a campaign to think outside the square a little more. We need to think more creatively with regard to taxation and what is going on in terms of economic growth in New Zealand, and how to expand growth. One of the ways that we can expand growth is by providing taxation incentives to exporters. We just need to look at a few figures with regard to that. New Zealand’s exports total US$3,600 per man, woman, and child. The figure for Ireland is US$19,300—over 530 percent more. Our beautiful country has many resources and things to export, but Singapore’s exports are US$34,700 per person—10 times more than New Zealand’s.

💬 Gordon Copeland: I raise a point of order, Madam Speaker. I am reluctant to interrupt the speaker, but I really fail to see the connection between the export levels of various countries and the rates of taxation.

💬 Madam DEPUTY SPEAKER: That is a valid point. One clause is about income tax.

That is exactly what I am saying, and Gordon Copeland has to agree with me—I heard him talking, in his maiden speech, about how taxes weigh down an economy. If one can reduce the taxes, then one can create more growth. That can be done in many ways. I am talking about tax incentives; that is one way of increasing growth. The National Party members agree with me. I have heard Dr Lockwood Smith, many a time, saying that the amount of income tax—

💬 Madam DEPUTY SPEAKER: It is about the basic rates of income tax.

The higher the basic construct of the income tax rates, the harder it will be for a country to grow. That is all I have to say about that.

I also feel that higher annual rates of income tax will put a heavy weight on families. United Future members are supporting the Labour Government.

💬 Dr Muriel Newman: No, are they supporting the Labour Government?

That is what I hear through the grapevine. Those members are strong advocates of the family.

I move, That the question be now put.

I rise on behalf of the ACT party to speak on this bill, which introduces race-based tax laws. We absolutely oppose every part of the bill.

Part 1 is the part that concerns our income tax rates, and it tells me and every other New Zealander that Labour has turned its back on working New Zealanders. Traditionally, working New Zealanders used to vote for the Labour Party. My family voted for Labour until 1996, because we were a poor family and we thought that Labour stood up for poor families and poor workers. This bill confirms that that has absolutely changed, and Labour has now turned its back on its traditional voting bloc. Under Labour, working families are worse off than they have ever been. They are 2.4 percent worse off than they were before Labour came into power. That means that the average family is working harder and going backwards. I say to the Minister sitting in the chair that he should take a call and try to explain why it is that, after New Zealand has had the best economic conditions in decades, working families have slipped backwards. I would like to hear the Minister’s answer to that.

Low-income working New Zealanders pay the highest taxation rate in the world. Those people being taxed at 19.5c in the dollar in New Zealand would be paying 3.5c in the dollar in Britain. Their income tax would be 3.5 percent of their income there, whereas here it is 19.5 percent. That is too high. We should be seeing, right now, a bill to lower taxes for workers. If this bill lowered taxes for workers, ACT would be supporting it. Instead, it is a bill that lowers taxes for Māori. I tell members why that is. The reason is that Labour has a strategy of trying to buy support from Māori, Pacific Islanders, people on welfare, and superannuitants—not from workers, who are out of the door. Labour has figured out that if it looks after that lot, it will have over a million voters and it will stay in power. That is absolutely shameful. We need a Government that provides incentives for hard work and that rewards people who go out of their way to try to better their families. We should be doing that through lower taxes for those families and giving the money back to families to use in their best interests, not giving it to a Government to buy votes.

This Government is very lucky. Firstly, it had a low exchange rate—as a result of Labour getting into power, all confidence left New Zealand and the exchange rate plunged—which has meant that exporters have done well. There has been a windfall gain in earnings, which the Government did not expect. Secondly, the Government stuffed up the immigration numbers. An extra 33,000 people came into the country who had not been planned for, which has driven the economy. So there have been two different events driving the economy. But that is not sustainable. One just has to watch the world news to know that New Zealand’s economy will get crunched along with all the other economies.

This Government has not put the economy on a sound footing. To do that, it should lower taxes and reduce compliance costs on small business, and get on with the process of welfare reform. Instead of being soft on welfare so that more people go on to it, the Government should be helping those people who are on welfare to get themselves off it and into jobs, so that they can be independent of the State. John Tamihere brought some of those things up in the House, and what happened? Labour bashed him, gagged him, and silenced him. We want to know whether Labour members listened to Mr Tamihere. I suspect they did not. ACT has been saying those things since we came into Parliament, and it is shameful that Labour has not realised that that is a plan for growth. Lower taxes are the key to getting this economy on a sound footing, so it can weather any storm that comes up.

Part 1 of this bill tells us that the Government is ignoring common sense and experience from around the world. Every other sound economy has lower taxes than ours, not higher taxes. What Labour is doing is absolutely shameful, and for Labour to be turning its back on working families is even worse. Those people used to vote for Labour, but now they have to vote for other parties in Parliament instead.

I move, That the question be now put.

National does not accept what has been proposed in Part 1, clause 3, “Rates of income tax for 2002-03 income year”. Despite the golden weather of the last couple of years, New Zealand stands at the edge of a cliff, economically speaking. We are simply not earning enough to support our level of expenditure. We are languishing in the bottom half of the OECD, and the Pinocchios Clark and Cullen deny that they have even had a discussion about setting a target to turn that around. Treasury is predicting growth of around 2 percent for the next decade. The level of Government expenditure as a percentage of gross domestic product is just far too high, and compliance and red tape are killing business.

If we are not able to grow our economy, we must reduce our expenditure. [Interruption] Surely the member who is yelling out understands the connection between the levels of expenditure, revenue, and taxation.

💬 Hon David Carter: And therefore rates.

And rates. Every housewife in the country understands the basic budgeting concept that if one cannot earn enough, then one must stop spending. But the Government ignores that basic premise. It wants to keep dishing out money to unwitting folk, so it keeps paying for them. The damage that does to this country is absolutely sickening. To grow our economy in a sustainable way we must reduce taxation, not increase it, as that stimulates investment, which, in turn, brings about jobs and prosperity.

It is a basic construct that if we want to share wealth—and I do not mean just to distribute it—we first have to create that wealth. It might surprise members to learn that only 47 percent of the people in this country are actually earning a living. Yet this Government is hell-bent on tapping them for more and more, not just through income tax, but through indirect taxes, the compliance costs of legislation like the Health and Safety in Employment Act and the Holidays Act, which are eroding profits, and, as people from Rakaia know, petrol taxes.

💬 David Benson-Pope: We’re on Part 1.

The Government whip is yelling out again. When he does that it makes one think that we cannot bring on the legislation dealing with dangerous dogs quickly enough, because I would support him being muzzled.

This Government’s problem is that it has no vision and no coherent growth strategy. Its only answer is to push up taxes and to take more from those who already contribute far too much. If we want our children and their children to call New Zealand their home, then we must address that problem. I have lived and worked in economies where, if the growth rate got to 4 percent, people became pessimistic. Yet we are being conditioned to think that 4 percent is the best that we can do. Well I say “Humbug!” to Michael Cullen and his cronies. If they had not lived in academia for most of their lives they would know how to make a buck, rather than just how to spend somebody else’s.

The Government wants to keep putting up taxes in order to support its welfare expenditure. It might surprise members of the Committee to know that since the 1970s the number of beneficiaries has risen to such an extent that the whole working-age population of beneficiaries would not fit into the city of Christchurch. We have seen a twelvefold increase in the number of beneficiaries, yet our population has not even doubled. Every working-age beneficiary in this country at the moment has only four people supporting him or her. We need to address that issue not by putting taxes up but by lowering taxes, so that we can stimulate growth.

I move, That the question be now put.

I raise a point of order, Madam Chairperson. I have delayed raising this point of order until now because I did not want in any way to be questioning your decision to accept the closure. I would like you to reflect on a very important issue. A senior colleague left the Chamber in disgust, having waited for some time to speak on probably the most important debate—

The CHAIRPERSON (Ann Hartley): The member will be seated. The member is relitigating the—

Dr the Hon LOCKWOOD SMITH: I am not.

The CHAIRPERSON (Ann Hartley): I have put the closure. It is my decision, and there is no debate on it. It is a matter for me to decide, and I have decided. The matter cannot be relitigated. I warn the member about relitigating.

Dr the Hon LOCKWOOD SMITH: I raise a point of order, Madam Chairperson.

The CHAIRPERSON (Ann Hartley): I warn the member that it had better be a new point of order.

Dr the Hon LOCKWOOD SMITH: My point of order relates to the general issue of the acceptance of closures. I have made it very clear—

The CHAIRPERSON (Ann Hartley): I am sorry; the member will be seated. There is a clear Standing Order on closures, and it is the Chairperson’s call. I have addressed that, and I have called the closure correctly. The member cannot relitigate the closure issue. I warn the member that raising points of order that have been ruled on, and that I have dealt with, is in itself disorderly.

Dr the Hon LOCKWOOD SMITH: I raise a point of order, Madam Chairperson. I have been a member of this Parliament for 19 years. There is no member of this Parliament who has served as a Cabinet Minister longer than I have. I do not raise a point of order for no good reason. I accept absolutely that it is the Chair’s perfect right to accept a closure. I am not disputing that in any way at all, and obviously a Chair has to weigh up certain reasons for accepting a closure. My plea, however, is that where debates are of huge moment to the whole of New Zealand—and I do not want to refer to the specific issue here; let me just leave it as a general case—the Chair considers that fact when weighing up whether to accept a closure. That is my point of order, and I trust it is not out of order.

The CHAIRPERSON (Ann Hartley): I have taken those matters into consideration. That is how the decision was made.

Part 2 Amendments to Income Tax Act 1994

Part 2 is probably the most offensive part of this legislation. Part 1, which we have just debated, is bad enough because it locks into place tax rates on our lowest-income people that result in 100 percent of effective marginal tax rates. But Part 2 does something even worse. Clause 68 sets a favourable tax rate for a proportion of our population, based purely on race. Members of the Opposition of many ethnic backgrounds find that offensive. For certain organisations defined as Māori organisations, clause 68 prescribes a new tax rate of 19.5 percent. We would have no objection to certain organisations receiving a tax rate of 19.5 percent if a general condition applied—that is, if 90 percent of the beneficiaries of an organisation were people on a 19.5 percent personal tax rate. No one could object to that, because the ultimate rate being paid by the beneficiaries is 19.5 percent, and such an organisation should qualify for that. But that is not what Part 2 does. It picks out only those organisations that are Māori.

Let me challenge the Minister in the chair to identify just one New Zealand person who, under Part 2, could receive the benefits of a 19.5 percent tax rate, but is not a Māori person. If the Minister can name one, I would be prepared to apologise profusely, but as I read clause 68 and the various other clauses in Part 2, the only people who can benefit from that 19.5 percent tax rate are Māori. That is why it is a racist tax measure, and why Chen Palmer and Partners argued before the select committee that it was contrary to the New Zealand Bill of Rights Act. If I remember correctly, when we tried to get information from the Attorney-General, she would not tell us what her advice was on the matter.

When we have the consultancy of a former Prime Minister and a former leader of the Labour Party telling us that this provision is contrary to the New Zealand Bill of Rights Act, we have an issue. What is more, we know that the Federation of Māori Authorities has written to the Minister of Finance wanting the decision of the select committee not to allow this special beneficial tax rate to be extended to wholly-owned subsidiaries to be changed so that wholly-owned subsidiaries can get the benefit. That shows that this 19.5 percent tax rate confers a very real competitive advantage on Māori businesses alone. If there are two businesses side by side and one is owned by Pacific Islanders—whose beneficiaries, sadly, are overrepresented among our low-income people—the Pacific Island business where 90 percent of the shareholders are Pacific Islanders will not benefit from this special tax rate. Only a Māori business will get it.

National considers that does not confer one standard of citizenship in this country. It is objectionable to most New Zealand people, and that is why we are implacably opposed to that provision. We accept there is a problem with the status quo. We accept that under certain circumstances some Māori organisations could be doubled taxed. If they retained their earnings for 4 years before distributing, they could be doubled taxed. That is not right, either. We accept that change is necessary. That is why we initiated a process to examine this issue, but to come up with an answer that confers a privilege—a competitive advantage—based purely on race is simply not acceptable. That is why I challenge the Minister to name one person other than a Māori, who, under Part 2, could receive the benefits of a 19.5 percent tax rate. If he can do so, I will apologise.

I would like to respond just briefly to the frequent challenge that the Hon Lockwood Smith has made to the Minister in the chair, Mr Swain, and also, I think, in an earlier speech, to United Future. He said he will apologise if we can name, under clause 68, one person who is not Māori who will receive a tax rate of 19.5c in the dollar. I would like to ask whether the member is confident that no one of Chinese ancestry—

Progress reported.

The House adjourned at 6 p.m.