Third Readings

, on behalf of the Minister of Revenue: I move, That the Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill, the Taxation (Annual Rates of Income Tax 2003-04) Bill, the Student Loan Scheme Amendment Bill (No 2), and the Child Support Amendment Bill (No 2) be now read a third time. The Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill introduces a number of major tax reforms. By introducing bilateral legislation, it brings into effect New Zealand’s part in a landmark agreement with Australia to remove a tax obstacle to trans-Tasman investment. The bill makes it possible for Australian companies to join New Zealand’s imputation credit rules, for which corresponding legislation has been recently enacted in Australia. The legislation also introduces a better alignment of GST treatment of the financial services sector with that of other sectors. Banks, credit unions, life insurers, and other financial institutions will be able to recover GST on purchases related to the supply of services to other businesses, which will reduce possible overtaxation of that sector.

The legislation introduces a GST reverse charge to tax certain imports of services to alleviate the distortion in favour of imported services, which are not currently subject to GST. It introduces an anti-avoidance measure to combat aggressive tax arrangements that have resulted in investors receiving more in tax deductions than they put up in investment. It enables employer contributions to superannuation funds on behalf of lower-income employees to be taxed at lower rates, and to remove a disincentive for them to save for their retirement. This omnibus bill also introduces an extensive number of amendments to current tax law, ranging from measures to reduce compliance costs, to measures to protect the revenue base, and includes a range of remedial amendments intended to produce better, more effective tax law. The Taxation (Annual Rates of Income Tax 2003-04) Bill confirms the income tax rates that will apply for the 2003 and 2004 years.

I am pleased that the bills have arrived at their third reading. May I take this opportunity to thank all of those who contributed to their passage—the many people and organisations who made submissions on the proposed legislation, the officials who worked on the bills and supported their passage, and the Finance and Expenditure Committee for its careful consideration and thorough report. I commend the bills to the House.

On behalf of the National Party, I will also be supporting the Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill, because the legislation contains a number of important elements that National played a part in working hard to achieve while it was in Government between 1990 and 1999. In particular, I refer to the triangular tax treatment arrangement of dividends earned by New Zealand investors in Australian companies. Up until this point, they were unable to receive dividend cheques on an imputed basis, and therefore had the unfortunate experience of being double-taxed—having the tax paid by the Australian company they invested in, and then having to record the dividend cheque as income on their New Zealand tax statements, and, as such, having to pay tax here. Important work was undertaken, and National is happy to continue to support it in this bill, although we note—as the Government itself would probably note—that this is the first step on quite a long road. We look forward to more work being undertaken in this area to harmonise and streamline tax treatment across both countries in due course.

I also refer to the zero rating of GST in financial services, which National thinks is an important move, because it prevents the cascading effect, and because up until this point financial services firms were treated on an exempt basis and had to pass on GST as a price. I agree also with the Minister’s comments about the reverse charge on imported services, which will now be subject to GST, but I note that the $40,000 limit for individuals might pose some problems if they are unaware of it. I recommend that the department spend quite some time in making sure that individuals are aware of that provision, otherwise they will become liable to penalties and suchlike, should it fail to do so.

I also want to mention the issue of specified superannuation contributions and withholding tax. This is an important part of New Zealand. We need to save for our retirement, and we need to encourage New Zealanders to save, along with employers on their behalf. We should do so because the New Zealand Superannuation Fund, otherwise known as the “Cullen Fund”, is a complete con—

💬 Rod Donald: A dog.

JOHN KEY:—and a complete dog. It tries to tell the people of New Zealand that it will fund their retirement, when even the Minister knows that it will not even reduce the liability to New Zealand by 1 percent. In a country that has currently one in eight people aged over 65—and by 2040 that figure will be one in four—more needs to be done in the area of superannuation planning than the con job the Government has put up in the form of the New Zealand Superannuation Fund.

I want to make reference to Part 1, which the National Party cannot support—no good party would support it. That is the part that sets the annual rate of taxation, but despite this Government having an operating balance excluding revaluations and accounting changes of $5.6 billion, and the fact that the economy has been benefiting from some very high agricultural prices—and some great work done by the National Party in the 1990s—the Government simply does not know what to do. It is caught like a deer in headlights, and simply wants to overtax the hard-working people of New Zealand.

During the Committee stage yesterday, the Minister gave what I am sure was one of his finest speeches—not. He tried to tell us that the entrepreneurs on Paritai Drive did not deserve any support whatsoever, that his Government was not a pro-growth Government, did not support the hardworking people of New Zealand, and would not grow the cake for all New Zealanders to benefit from—rather, that he was into redistribution and did not really care whether big business, business people, risk-takers, and hard-working people were supported or not. All he cared about was redistribution to lower earners.

If he thinks that will grow the economy and deliver bigger results for superannuitants who are caught by the average wage, and if he thinks it will do anything to grow the wage rates of lower-income and middle-income New Zealanders, then I strongly suggest that he start reading the many Treasury reports posted on its website. These are delivered by hand to the Minister, and staff try to go through them with him line by line. Those reports tell us—as anyone who has read them can tell us—that such a policy of progressive taxation is the worst possible thing we can do if we want to develop a growth economy, provide real opportunities for young New Zealanders, and not force them overseas by giving them one option only. If the Government did not believe that, and did not know it was correct, then the Minister and the Associate Minister would stand in the House and proudly tell the people of New Zealand that the $5.6 billion operating balance excluding revaluations and accounting changes was not a cyclical result but a structural result, and resulted from the work they had been doing.

The Minister cannot come to the House and tell us that, nor can the Associate Minister, and nor can any Minister involved in commerce in this Government—whether it be the Associate Minister for Small Business, John Tamihere, or the Minister of Commerce, Lianne Dalziel. They know it is a complete con, they know they are doing nothing for the growth of this economy, they know they inherited some wonderful policies from the National Government. They know that when their time is up in 2005, they—like the All Blacks on Saturday night—would have blown a wonderful opportunity and will have to step aside and let a real party like the National Party take New Zealand to the great heights we once enjoyed and will enjoy again.

I am proud to stand in support of this legislation. This legislation brings into effect New Zealand’s part in a joint Australia – New Zealand agreement to remove a tax impediment to trans-Tasman investment. That is good for New Zealand.

New Zealand is in the midst of a debt crisis. Total overseas debt is growing and household debt is equally out of control. The financial liabilities of New Zealanders have increased from 49 percent of their personal disposable income in 1978 to 130 percent in 2002. In 25 years New Zealanders have gone from owing half their annual personal disposable income to owing 1.3 times their income. In that time, household financial liabilities have increased from $5 billion to $91 billion. Of course, total household financial assets have also grown, but here is the rub: household net financial wealth has actually shrunk—yes, shrunk—in the last decade. Ten years ago we were collectively worth $55 billion, but by 2002 our net financial wealth had dropped 33 percent to $37 billion.

What has changed? Clearly, our financial liabilities have increased; in fact, they have increased by 146 percent in that 10-year period, from $37 billion to $91 billion. Why? Because Kiwis are spending more than they are earning, and they are saving less as a result. According to the Reserve Bank, household savings as a percentage of disposable income were minus 4.25 percent for the year ended March. If members think that is bad, the Reserve Bank predicts that savings will be minus 7 percent this year, minus 6 percent next year, and minus 5.5 percent in the 2005-06 year. The Green Party’s concern for New Zealanders’ negative savings rates, for New Zealand’s crippling dependence on foreign capital, for the almost certain failure of Dr Cullen’s Superannuation Fund, and that New Zealanders will therefore need to save for their own retirement, sum up our reasons for supporting today’s tax legislation.

While this legislation contains a number of measures, the ones we are most pleased with are the small, positive steps the Government has taken to help working people in employer-subsidised superannuation schemes to save for their retirement, and the encouragement that this should give employers who do not currently provide subsidised superannuation, to reward their loyal staff by offering them the chance to put some money aside for their retirement. What the Government has done is remove the tax penalty that has been in place for a very long time on employer-subsidised superannuation. Until now, employees receiving subsidised superannuation have been watching the contributions of their employers be taxed at 33 percent, when, if the employees’ income is between $9,500 and $38,000, their own marginal rate of tax is only 21 percent, and if their income is below $9,500, their marginal tax rate is only 15 percent. So they have been watching the Government clip the ticket and take money that really belongs to them, because there has not been a flexible specified superannuation contribution withholding tax regime in place.

The problem was exacerbated when the Labour Government increased the top tax rate on those earning more than $60,000, and, at the same time, left the superannuation withholding rate at 33 percent. In other words, what happened a couple of years ago was that the Labour Government introduced a 6 percent tax incentive for well-off salary and wage earners in this country, while maintaining a tax penalty for those low and middle income earners who have been struggling to save for their retirement—the very people whom the Labour Government relies on to get elected.

So today’s legislation takes us one step in the right direction. One could say the cup is now half full, because the penalty has been removed, but it is an indictment on this Labour Government that it is not prepared to fill that cup, especially in the lead-up to Christmas, and provide all New Zealand workers with a tax incentive to save for their retirement. I would challenge members on the other side of the House to reflect on the Scrooge mentality of this Government—especially as it is running a massive Budget surplus—when it comes to giving good, hard-working New Zealanders an incentive to save for their retirement, and to giving their employers a decent incentive to offer subsidised superannuation. I would, however, concede that there are other measures on the way that will help employers to do the right thing, and that some of the measures in the Business Law Reform Bill will reduce compliance costs for employers.

I would also congratulate the Government on bringing in a public service superannuation scheme. It is a shadow of the former Government Superannuation Fund, which was closed off by the National Government in 1992, but at least it is another small step in the right direction. That is the real problem with this Labour Government; it makes small steps in the right direction, but it never goes as far as it should, from either a financial or a moral point of view. That public service scheme will offer a mere 1.5 percent subsidy in its first year, 3 percent in its second, and there is talk of it getting up to 6 percent. Well, I do not see why it cannot start at 6 percent, because this Government—a Government that claims it cares for the workers, that says it is committed to pay equity, and that wants to encourage people to save for their retirement—should be taking a lead by offering public servants a decent subsidy for their superannuation savings. Until that happens, it is not in a position to put pressure on the private sector to match that, which means the private sector can get away with a very low expectation, and I think that is unfortunate. If the Government moved straight to a 6 percent subsidy for public servants and introduced a 6 percent tax concession for all employer-subsidised superannuation, it would send the right signals to employers in this country to value their staff by offering them a financial incentive to save for their retirement.

Having said that, the other big problem that many people face, which was highlighted in the negative savings figures I referred to earlier, is that far too many New Zealanders are not in a position to save for their retirement, even though they desperately want to, simply because their income is inadequate. That is why we moved amendments to the annual rates to bring in a tax break for all income earners in this country by making the first $5,000 of income tax-free.

I know that some of my colleagues on the right of this House are surprised that we wanted to do that, because, they have said to me, they are already very well off, thank you very much. May I say to those people listening that I have assured the likes of John Key that it is not through generosity on our part that we would bring in a policy that the first $5,000 of income be tax-free, because we would also be looking forward to clawing that back through a capital gains tax, and through a suite of eco-taxes on the likes of carbon, diesel, resource rentals, waste, and pollution. So, at the very least, our tax measures would be revenue neutral, but what they would do is shift taxation away from penalising work and enterprise, and on to making sure that people and businesses are paying their fair share of the costs when it comes to looking after the environment and looking after society, because too often in this country the business sector has been able to externalise its costs on to the rest of the community while making massive profits along the way. Right at the moment, there is far too much capital going into speculative investment instead of productive investment, and a capital gains tax would tackle that particular problem.

I am disappointed that the Minister of Revenue vetoed both the amendments we put up—the 6 percent concession for savings and the income tax amendment—because I was looking forward to seeing which parties in this House would support such family-friendly moves. I know, for example, that at the Finance and Expenditure Committee the National Party supported our amendment to the superannuation savings rate, and I am grateful for that, but I am equally ungrateful to the ACT party, New Zealand First, and United Future for not helping New Zealanders to save for their retirement. I think it is an indictment on those parties. But it is an even bigger indictment on the Labour Government, which is running a $5.6 billion surplus, that it is not offering working people in this country some genuine, serious, direct encouragement to save for their retirement.

Finally, I would like to thank the Inland Revenue Department again for helping me prepare my tax amendments. If nothing else, they were at least acknowledged by the Minister as being robust.

I note that the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill was referred to the Finance and Expenditure Committee on 26 June this year. I recall hearing about 20 submissions from people from different companies. Once again, I thank the officials from the Inland Revenue Department and Treasury for their advice, and I also thank Terese Turner, the specialist tax adviser.

New Zealand First wants to confirm and applaud different sections of this legislation that we agree with. We have voted against only one part. We agree with and want to applaud the section allowing zero rating of business-to-business supplies for financial services. Under the Goods and Services Tax Act, business-to-business supplies of financial services are exempt from GST, meaning that GST is not charged on the supply, and the financial service providers are therefore unable to claim import tax credits. This treatment has resulted in distortions due to the potential for overtaxation of the supply of financial services to businesses. The legislation introduces new provisions allowing the supply of financial services from providers to business customers to be zero-rated if the customer is GST-registered, and makes taxable supplies that equal or exceed 75 percent of total supplies in a 12-month period. The proposal is optional, of course, and financial services may be treated as exempt if the provider does not wish to incur the compliance cost associated with zero rating.

We also applaud this legislation for introducing a reverse-charge mechanism to impose GST on certain imports and services, and for reforming the imputation laws to reduce double-taxation of trans-Tasman investments as part of an agreement with Australia. The legislation changes the imputation laws to address the problem of triangular tax, which involves the double-taxation of certain trans-Tasman investments. That is all I briefly want to say on trans-Tasman imputation.

We also like the sections of this legislation introducing a deferred deduction rule to combat aggressive tax arrangements, and introducing progressive rates of specified superannuation contribution withholding tax on an employer’s contribution to match the employee’s marginal tax rate. We applaud measures in clauses 5 and 17 that provide community trusts established under the Trustee Banks Restructuring Act with an income tax exemption.

I want to close on a note that is not quite as positive, but I want to reiterate New Zealand First’s position. I want to convey New Zealand First’s disappointment in this Government for not taking more initiative with this area of taxation. We feel that the No. 1 priority for this Government should be reprioritising social spending to place a greater focus on the real needs of New Zealanders. We believe that the real solution lies not just in keeping annual tax rates as they are in the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill, but in providing tax incentives for research and development, for exporters, and so on.

Once again, I thank the select committee and the advisers for putting the legislation through. We support most parts of this legislation.

The ACT party will be opposing the Taxation (Annual Rates of Income Tax 2003-04) Bill. We will be doing so because taxes in this country are too high. I know that Mr Craig McNair will appreciate this point of history, but I am old enough to remember—and I think John Key is old enough to remember—when the Labour Party stood for the working person in New Zealand. When Norm Kirk came to power, he stood for working families.

💬 Craig McNair: I read that in the history books.

Craig McNair has read that Norman Kirk and the Labour Party stood for the working person and for everyday New Zealanders. Norman Kirk would be shocked at this Government. When was the last time we heard someone from this Government get up in the House and ask: “What about the worker?” No one on the Government side can say that. Why? They would be embarrassed to ask “What about the worker?”. I do not think anyone on the front bench has met or talked to a worker in this country. The situation is that New Zealanders are now working harder than ever before, they are paying more money to their Government than ever before, and they are getting less service from that Government than ever before. We have forgotten in this Parliament—and this Government has forgotten—who provides the wealth.

💬 Hon David Cunliffe: It’s the workers.

To hear Dr Cullen speak, one would get the sense that he provided the wealth of this country. He stands up in this House, pats himself on the back, and says: “Oh, look at my surplus.” That surplus has been bought and paid for by taxpayers. I hear David Cunliffe call out it is produced by the workers. Yes, it is produced by the workers, and we say: “Shame on you! Shame on this Government! Shame on Dr Cullen!”. Is it not about time that the working families in this country were given a pay increase and were allowed to have more in their budget, by being provided with some tax relief? This is the history of New Zealand: taxes up, taxes up, taxes up. Who is paying for it? Mr Cunliffe is quite right—I just wish he would act on it. It is the working people of New Zealand.

And Mr Copeland is quite right, because it is the top rate of tax that determines the cost of capital in New Zealand, in part, and it is a policy variable that we can change. If we want to prosper, we have to get taxes down. We have to make it more worthwhile to work, invest, and be entrepreneurial in New Zealand. It does not matter too much what the rate in Australia is. The lower we can get our tax rate, the better and the more competitive New Zealand will be. Henry Ford was successful in the car-making business, not because he made a car that was the same as everyone else’s, but because he made a car that was much better than everyone else’s. That is what we should be doing with our tax rate—not having an argument, like Mr Cunliffe and Mr Tamihere like to have, about how we are about the same as Australia. No, no, no; we want to be so much better than Australia, and therefore to grow our economy.

Mr Cunliffe stood up in this House—I know people listening will be interested in this, because I think people listening actually will understand this—and said that it does not matter if we tax people hard, and it does not matter whether we tax them more, because they will still work the same. He has only ever seen one study; he said it was not conclusive—it sounded like a sociological study. He said that if we tax people hard, they will still work just as hard, and they will still invest here. Does that make sense? Do we not put tax on cigarettes and alcohol so that people will smoke and drink less? Is it not the case that if we tax people for working, they will be discouraged from working? Why? Because they will get to keep less of what they produce. Does it not make sense that if we tax the returns of people who save and invest in New Zealand, they will save and invest less?

Who confronts the largest effective tax rate in New Zealand? It is a young woman on the domestic purposes benefit who is working to try to improve her life. A young woman in New Zealand today who is on the domestic purposes benefit, who is working, and who is earning $181 a week is taxed effectively at 91c in the dollar. She works hard, she earns $1, and she gets to keep 9c of that money. If people on the domestic purposes benefit earn $100 from working hard, this Government lets them keep $9. And we wonder why people in New Zealand feel like just giving up.

This Government is saying “Here is a handout.” This person over here is a criminal: “Here, have a handout.” This person over here cannot cope: “Here, have a handout.” Here is a big business thinking of investing in New Zealand: “Let’s give it a handout.” Who is paying for it? It is that young woman on the domestic purposes benefit who is being taxed; it is the family person who is working 60 hours a week and being taxed; it is the small-business person, working until midnight to fulfil orders to pay the GST. They are the ones paying tax. Do we hear Dr Cullen mention them? No siree. Do we hear this Government saying: “Thank you, New Zealanders, for the hard work, for paying the taxes.”? No, we do not.

In fact, we get the sense that the Government has become so arrogant that it looks down its long nose—like Pinocchio—at people who work and earn a living. Yet people who work and pay taxes created everything we have and enjoy. The people who work and pay taxes pay our wages through the tax system. We should remember that, each and every time—[Interruption] I know that Mr Cunliffe thinks it is funny that people have to work and pay taxes. I know he thinks it somehow amusing that, by sitting in that chair, he gets his hands on loot to hand out to every little enterprise. Mr Anderton, on the road, says: “Here is $2,000.”; “Here is $5,000.” to every little group. I know that Mr John Tamihere thinks it is great to be going around handing out money. But let us understand where that money comes from.

So we say we should get taxes down. What would be the best tax of all? It would be a low tax, and it would be one rate of tax on income. That would mean that if people earned twice as much as someone else, they would pay twice as much tax. That is fair, is it not? Hands up those who think that is not fair? See, even Labour Party members go along with that. Actually, they are still trying to do the sums. But why should someone who works hard and earns twice as much pay three times as much tax? That is wrong. There should be one low, flat tax. We are against the annual tax rates bill.

I rise to contribute on behalf of United Future, and I will take but a few moments. We will be supporting the bill. However, I will make a few observations.

One of them is simply that we often hear from the people of this country the claim that they need higher wages, that the cost of living is too high, and that they need more money to look after their families and kids. The simplest way that we can guarantee people across this country a higher living wage is simply to give them an equitable tax cut. No inflationary pressure is brought to bear in doing so. In most cases where a monetary increase has been given, much of it has ended up in the pockets of—guess who—the Government. It seems to me—a very good idea, in fact—that what we are talking about is raising the consumption power of the New Zealand worker, and the best possible mechanism to do that is a tax cut. We can afford it, with over $5 billion—if Rodney Hide can help me here—in surplus.

💬 Rodney Hide: Cut out the dopey spending and you can have $10 billion.

The member is probably right. That money belongs rightfully to the people who earned it. It seems to me that while we sit around here and debate how the cake should be sliced up, how the money should be redistributed amongst the people of this country, we are forgetting the main thing: that those people who drive the economy, those people who provide the jobs, those people who are creating that cake in the first place, ought to have first dibs on the largest slice. The rest should be left over for this Government to use. In the past we have seen greedy Governments—not just this one but many down the track of the last 20 to 30 years—take a larger proportion of the gross national product from the workers of this country, and use it to dangle baubles prior to an election. In the process we have created ever-increasing levels of dependency, and we have marginalised families—one generation after another—to the point where we now have an intergenerational problem of families that are simply unable to be economically capable of looking after themselves and of being resilient. Unfortunately, this seems to show no signs of abating.

While we do support this bill, and we will vote in favour of it, I would just like to reiterate some of the previous comments in saying that, down the track, what this country really needs and deserves is the ability for families to be independent and economically viable, and to look after themselves. The best means of doing that is to cut out the outrageous rates of taxation that this country is inhibited by, and to give back to the very people who create the wealth of this country that portion of the wealth that they deserve.

Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill read a third time.