Taxation (Annual Rates, Venture Capital andMiscellaneous Provisions) Bill

Part 5 is the decisive part of this bill, because it includes United Future’s amendments to change the thresholds for setting out the taxation rates. Of course, there will be a test for the United Future members when we get to the end of this stage. They are proposing to vote for their amendments, which we understand will be lost because the Greens are voting with Labour on them. But then, the United Future members will vote for the bill, even though the issue of the taxation rates is one of United Future’s main campaigning tools over the next couple of months. Generally, if a party puts up amendments to a bill and they are lost, it votes against the bill. The most critical issue in this bill, which is the setting of the taxation rates, will be resolved in an unsatisfactory way for United Future.

Firstly, I want to follow my colleague the Hon Bill English in urging the Minister to look at and support Supplementary Order Paper 284 in the name of Gordon Copeland of United Future. After all, United Future has been very cooperative with this minority Labour Government. It has now brought in a Supplementary Order Paper to ensure that the taxation threshold will be indexed to inflation every year, in order to relieve hard-working New Zealanders from paying too much tax. After all, yesterday the Minister in the chair, Dr Michael Cullen, announced another record forecast surplus of $6.5 billion. There is no reason why New Zealanders should not get tax relief. But more than that, Dr Cullen has also introduced a bill providing for a 5c per litre petrol tax increase that is subject to indexation. So I hope the Minister will take a call and explain to the public why it is that when the Government is gathering revenue, it is acceptable to increase the rate annually according to the movement in the consumer price index, but when it comes to providing relief for hard-working New Zealanders, then the Government will not support that.

I challenge United Future not to support this bill in its entirety if the Government does not agree to what is the single most important opportunity for United Future to demonstrate that it has come into Parliament to campaign vigorously for hard-working New Zealanders. All eyes will be on United Future.

I also want the Minister in the chair to take a call to answer a question that I will pose to him. One of the provisions in this part allows people who have applied for the grant of a resource consent under the Resource Management Act and been refused consent, or who withdraw the application, to claim a tax deduction for the expenditure they have incurred. I want to know whether that particular provision has been introduced for the benefit of the State-owned enterprise Meridian Energy. When it called off Project Aqua, the company wrote off over $1 million of costs relating to that very ambitious project, so I want to know whether that provision was introduced to benefit that State-owned enterprise.

I also want to point out that, interestingly, now we see a taxation provision that grants relief to people who apply unsuccessfully or withdraw their application under the Resource Management Act. It seems to me that the root of that problem is the difficulty people have in getting applications through under that Act. The Labour Government, instead of looking to simplify the Act in order to enable people to have their applications decided swiftly and effectively, is introducing relief by means of a taxation deduction if an application fails or the person withdraws it. That is another example of the Labour Party, instead of treating the real cause of the problem, tending to look at the symptoms. I think lots of people would not look forward to simply deducting expenditure incurred on an application for resource management consent. They would rather have their application approved, or understand that the law will be applied consistently or will be simplified.

I look forward to the Minister taking a call to tell us whether that provision has been introduced because of the failure of Project Aqua by the State-owned enterprise Meridian Energy.

We have at last discovered the National Party’s taxation policy, after some five attempts. It is to adopt the proposal by my good friend Gordon Copeland to index the rates on an annual basis. Let me say first of all that United Future—I can speak on its behalf on this occasion—has put up amendments, which will be vetoed. Then, given that United Future has a binding agreement with the Government, it will be voting for the bill, because United Future, unlike National, keeps its word on matters. It does not sign a document and then break its word because it is convenient to do so in a political context. Let me say to Ms Wong what indexation would actually mean in an average year. For the vast majority of taxpayers, in relation to the great National Party tax cuts, the alternative is 22c a week. On average for most taxpayers, 22c a week is what would occur as a result of indexation. For the great majority of the rest, the princely reduction in the demands of the Government—the lifting of the great yoke of the State, which the National Party wants to see—would be $1.77 a week. That will not win an election.

The United Future amendments set out on Supplementary Order Paper 284 deserve much more intellectual honesty than the Minister of Revenue gave them in that 30-second burst. We are not debating an average year here. United Future has not proposed indexation on some mythical average that the Minister’s minions have calculated; it has proposed quite specific changes in the thresholds. For instance, it has proposed moving the low-income rebate threshold from $9,500 to $10,750. That will make a great deal more difference than 22c a week. In proposed new clause 229A, United Future wants to shift the threshold from $38,000 to $43,000. At the rate of 30c in the dollar at $5,000, that is about $1,600 a year, not 22c a week.

What permeates the relationship between Labour and United Future is an agreement to mislead, shall we say. They play these fancy little games. United Future has put up a serious proposition, in the light of the circumstances that my colleague Pansy Wong has pointed out. The Government has collected $34 billion more tax over the last 4 years. Yesterday it projected the largest surpluses ever. Taxation revenue is going up faster than ever, and it will become one of the biggest issues of election year. Why should working people not get the benefit of a growing economy? Why should it all go to Dr Cullen and to his colleagues’ favourite political projects? It is just the sheer unfairness of it. The Government reaps all the benefits, yet the people who do the work do not reap the benefits of a growing economy.

United Future will go through the charade of putting up its nice little proposition, then turning round and voting for the Government, against what it has proposed. It will continue its track record of keeping in Government a Government that does all of the things its voters are opposed to. There is not a single United Future voter who wanted to support a Government that passed the Civil Union Bill. There is not a single United Future voter who wanted to support a Government that collected record levels of tax, then had record levels of Government spending, with record levels of recklessness in that Government spending. That is not what United Future voters put Peter Dunne and Mr Copeland into Parliament to do.

I compliment United Future on having before the Committee today a set of amendments that are directly relevant to what will be one of the biggest issues in election year—whether the Government is collecting too much tax. We agree with United Future that the Government is collecting far too much tax—much more than it expected, but, worse than that, much more than it can effectively spend. The Government is now reduced to throwing good money after bad at categories of spending, just to get rid of it, just so that it can say it will not reduce taxes. I say to United Future members that it is time they stood by some of their principles. We are not asking them to stand by all the principles their voters voted for, but, let us say, just one or two. If United Future members vote for these amendments—and we will vote with them on these amendments, because they are good amendments that will reduce the burden of taxation on working people—then if they are serious about any of this, they will have to follow through on it and vote against the Government by voting against the whole bill. These amendments relate to what is by far the most important and critical part of the bill.

I also found the Minister’s comments on the indexation of petrol tax quite specious. Why will the Government index those tax mechanisms when it suits it, by automatically increasing the revenue, even if it is only by a small amount? I am sure that the indexation of petrol is worth less than 22c a week per person.

ACT also supports United Future’s amendments, but if they do not go through, we will be voting against this bill—unlike United Future. We actually believe that we should vote according to our principles, not according to political expedience. I know that a United Future member fasted for 21 days in order to stop the Civil Union Bill, then got a message from God about a 59:59 vote on a taxation bill. United Future could have sunk the Civil Union Bill with one vote. But what did it do? Its members walked in, like ducks to the slaughter, and voted for it. Here we have the United Future members supporting a Government that has taxed and spent like none other. They have come down to the Chamber with amendments to this bill the Government will veto, yet they will turn round and vote for the bill.

💬 Pansy Wong: Oh, shocking.

It is shocking and I just do not understand it. But Mr Copeland does have a point, and it is this: last week in the House the Hon Dr Michael Cullen admitted that after 5 long years of Labour’s great administration, the average household, after tax—

💬 Clayton Cosgrove: That’s right.

I see that Mr Cosgrove agrees with this point. After 5 years of economic growth, the average household, after tax, is no better off in real terms. What else did Michael Cullen admit to the House last week? He admitted that that same average household is having to give an extra $2,910 in real terms, which is an increase of $3,000 in 5 years, to the Government. That is the trouble with this taxation bill. Hard-working New Zealanders are worse off under Labour because they are paying so much more tax. We have “Scrooge McCullen” sitting there awash in their tax dollars—he is swimming in their tax dollars—so why does he not, for Christmas, provide a bit of tax relief?

United Future and Mr Copeland are going about it in the wrong way. When members turn up to Parliament they do not just promise their votes to a Government no matter what.

💬 Hon Bill English: Yes, you do.

No, one does not, and I say to Bill English that the ACT party will not be doing that next year with the National Party. We will not be promising support to the new Government no matter what. There will be a price. But United Future comes along and joins the anti-Christian, high-tax, and high-spend Labour Party. It says: “Take us for granted for the next 3 years, and we will go down to the House and talk about things but never deliver.” I say to Mr Copeland that when people vote us into this great Parliament of ours, they expect a bit more than “poodle power” when we get here. They actually want members to stand up here and say what they believe, and to vote accordingly—not vote for the opposite of what they talk about.

I say to Mr Copeland that there is a fallacy in the whole idea of indexing thresholds and, indeed, income splitting. It is this: why do we have a progressive tax rate to begin with? Why does someone who earns twice as much pay three, four, or five times more tax than he or she otherwise would? What is fair about that? That is why the ACT party stands for a flattening of the tax rate—so that someone who earns twice as much pays twice as much tax, not three times as much. I say to Mr Copeland that if we did that, we would not need to worry about indexing the rates, because we would have a tax rate system that was fair, efficient, and good for the economy. One simple rate would also overcome any concern about income splitting between a man and his wife, and all the attendant problems of such income splitting.

The fact is—speaking to my Supplementary Order Paper—that if the tax brackets are not adjusted for inflation, taxes are increasing in real terms. I will give members an example. A person earning $38,000 in the year 2000, now needs $43,000 just to stand still in terms of purchasing power. However, the tax rate on the last $5,000 has moved from 19.5c to 33c, an increase of 13.5c, $675 per annum, or $56.25 per month. In real terms, people are now less well off than they were in the year 2000. I contrast that with the commitment made by Helen Clark in 1999. She said that there would be no rise in income tax for the 95 percent of taxpayers earning under $60,000 a year, and no increases in GST or company tax. The Minister was good enough to say, a few moments ago, that United Future was a party that kept its word. I challenge the Labour Party today as to whether it is a party that keeps its word. Because how is that commitment made by Helen Clark in 1999 to be understood? Is it to be understood as meaning that the current rates will remain unchanged in the long term? If not, when will they be changed? Does it literally mean that there will be no rise in income tax, etc.? If that is the case, then the Government has clearly broken its promise and its commitment to the people of New Zealand.

What about the fact that only 78 percent of New Zealanders now earn under $60,000 a year? What about the missing 17 percent? Do they not matter? Let us look at the facts. The number of taxpayers paying the 19.5c rate has dropped by 144,000, the number of taxpayers paying tax at 33c has increased by 106,000, and the number of people paying tax at 39c has increased by 150,000. How can that be squared with the statement and the commitment that there would be no rise in income tax?

Why will the Government not move on this matter? Is it because the estimated $714 million per annum cost is unaffordable? That is hardly likely, in view of the extra $4.5 billion over and above the Budget that has been collected in the last 3 years alone. Is it not about time to share some of that surplus with the people of this country?

Believe it or not, a couple of parties in this Parliament—I refer to the Labour Party and the Green Party—believe that the reasonable proposal in my Supplementary Order Paper to index tax brackets for inflation is no more than a tax cut for the rich. In response, I say that, under the proposal put forward by United Future every taxpayer in New Zealand earning more than $9,500 a year would receive a tax cut. That is the first point.

The second point is that if Green Party and Labour Party members believe that, say, a single-income person supporting a wife and three kids and earning 60 grand a year is rich, my response is that those members should get real. That person is far from rich; he is struggling and is going more deeply into debt each day, as we speak.

Members also have to face the fact that the United States of America, the United Kingdom, and Canada, have all adopted bracket creep legislation—an automatic adjustment to the brackets in a progressive taxation system, when inflation moves beyond a certain level. If it happens in those countries, why, for goodness’ sake, does it not happen here?

I want to say very, very clearly indeed that it is time for taxes in New Zealand to be cut, to be reduced. There is no reason at all—economically, fiscally, socially, and particularly in terms of social justice—to continue to take more money out of people’s pockets than the Government really needs. In fact, Michael Cullen himself said in yesterday’s press release on the Budget Policy Statement that the Government is going to bank some of it and spend the rest. There is a great, great future for the New Zealand taxpayer: “You pay more tax; we’ll bank some of it and spend the rest.”!

I am happy to engage in the Committee stage debate on Part 5. This legislation really cuts to the heart of the problem with the Labour Government. This is a Government that believes that it can spend taxpayers’ money better than they can themselves—a Government that thinks that if it spends money it has no impact on monetary policy, but if taxpayers go out there and spend money themselves it has an impact on monetary policy.

Yesterday we saw a classic moment in voodoo economics from Michael Cullen. It was unbelievable. He was out there telling the business community of New Zealand he was going to give them some indirect tax cuts—because he does not believe in direct tax cuts—but what he did not quite tell them was that he will introduce his carbon tax credit on one hand, but he will tax them with his carbon tax on the other hand; he will get that money and give it to businesses on the other side. That is right—I see that Darren Hughes has finally woken up to realise that the infamous indirect tax cut is not a tax cut at all; it is just another tax being added to the other 30 tax increases we have had this year.

National will support United Future’s Supplementary Order Paper on indexation. We will proudly support this proposal, which is a lot better than what the Government did with its plans to index petrol. Darren Hughes is looking equally confused. He needs to get with the programme and find out what is actually going on in the economic department of his own Government. The Government decided that it was going to index petrol in New Zealand. That is a very significant event. It is going to allow the Minister of Finance, every year, to increase petrol tax at the rate of inflation, without coming to Parliament.

And guess what the Minister of Finance did with that little piece of information? He forgot to tell the people of New Zealand. He left it off the press release. In February, 2 months afterwards, we pointed out to him that he had forgotten to tell the people of New Zealand that he was introducing an indexation of petrol taxes. At exactly the same time, with his coalition partner over there—his confidence and supply partner—he did not want to have a bar of indexation when it came to income tax.

There is a very good reason why income bands in New Zealand need to be adjusted. When Labour came into office it told New Zealanders that 5 percent of all New Zealand workers would pay the top personal tax rate.

💬 Rodney Hide: It wasn’t true back then!

Mr Hide is quite right.

💬 Rodney Hide: It was 7 percent.

It was 7 per cent back then. Interestingly enough, the Government did not quite mention the number of full-time taxpayers the top rate would apply to. Back in 1999 the figure was about 10 percent—one in 10 full-time taxpayers paid the top rate of taxation in New Zealand. They were the elite rich of New Zealand, and they paid the top rate of personal taxation, because they were lucky enough to earn income of over $60,000—one in 10 of them. Interestingly enough, when we look around today the number has risen from one in 10. I see Mr Cosgrove is holding up a sign saying that it must be 11 percent, I hear the Hon George Hawkins is saying that it has to be 12 percent, and Darren Hughes always thinks big, so that might be 15 percent. No, it is not 15 percent, 11 percent, or 12 percent. Think big—that was a good idea back in the old days—22 percent of New Zealanders now pay the top rate of taxation. That is one in four.

💬 Rodney Hide: No, 22 percent of full-time workers.

Twenty-two percent of full-time workers pay the top rate of taxation. One in four secondary school teachers in New Zealand pay the top rate of taxation. One in four secondary school teachers—they are the elite rich of New Zealand! They are schoolteachers—one in four of them, which is 22 percent. Well, yesterday when Dr Cullen was swiftly telling the country how he has so much more tax revenue but he does not have anything to give back to anybody else, he forgot to tell the good people of New Zealand that he does not change the income brackets where tax rates cut in in New Zealand. That will take until about 2009, when one in three full-time workers in New Zealanders will be paying the top rate of taxation—one in three. They are the elite rich, are they?

💬 Darren Hughes: Give us a detailed alternative.

Well, why do we not look at what the OECD said to Australia when it criticised that country for having the top personal rate of tax that cut in at A$80,000?

💬 Darren Hughes: Name it.

The OECD—it is a Paris-based organisation. Darren Hughes may have heard of it. That Paris-based organisation criticised Australia for doing that. This is a disgrace. This Government wants to take hard-earned taxpayer dollars from New Zealanders, but it does not want to give anything back to those people. It does not want to do that slightly, but in a big way.

It is quite ironic that members all sit here at the end of the year talking about tax, while the Government sits on a record high tax revenue under its feet. I am probably in a unique position in talking about this issue, because I am the newest MP coming from the bottom end of this society, as I regard myself as a hard-working New Zealander. We are talking about a tax bill that applies to every New Zealander who has an income. It is ironic that we are talking about a high tax rate of 39c in the dollar applying to everyone earning above $60,000 a year in income. We regard that as a high income, but I regard it as a petty income, because by international standards, that is not high. Compared with our neighbour, NZ$60,000, by the exchange rate, would probably go down to about $50,000. If any of us relied on that income to support the average family of four, to pay for everything from household costs, power, water, rental costs, kids’ school costs, food, and clothes, we would know that what was regarded as the high salary level was really a petty amount.

From my personal experience, I know how hard every dad and mum works to support the family household. I know how hard it is. I know they desperately need their reward back in their own hands rather than having to wait until the Government hands it out. I know that having the Government handing it out has its own criteria. When those people desperately need a handout, they have to apply for it. Well, would they get anything? That would be determined by the Government’s agenda. That is a political agenda, and it is according to the Government’s own wish, which is to buy the vote during the term and hope that it will win another term.

I have kids. I have a family and, particularly, I know my staff and I know my neighbour. My neighbour is a typical working-class Indian. He is working full time, supporting his family. He has an income of very little. He told me that he wished he could earn more and keep more, but it is out of his hands.

Perhaps members still remember one of the stories that I quoted in my maiden speech. A taxi driver was working 12 hours a day and 60 hours a week, and his words were: “Where’s the money? The Government is sitting on a big pot of money and it’s not in my pocket.” His request was: “Please don’t take it away. Let me keep it.” Well, I am the person coming fresh from this society, and from every working family in our society. I bring their request to this Chamber, directly to all of the MPs who will vote on this bill. I congratulate United Future. Good on you, for standing on your feet to speak on your amendment, but I do have a question for you. If your amendment does not go through, will you still support this bill?

The CHAIRPERSON (Hon Clem Simich): The member must not refer to the Chair.

I would say that the ACT party’s flat tax, or universal tax cut, to both company and personal income tax is the remedy to really resolve this whole issue.

The Hon Michael Cullen, who was the Minister in the chair earlier, was good enough to take a call to answer some of the issues that I raised. I challenge the current Minister in the chair, the Hon David Cunliffe, to also take a call.

💬 John Key: Who?

I have problems explaining to my colleagues just who the Hon David Cunliffe is. I am afraid he might have to make more visits in Auckland. I think his biggest problem is that he campaigns in west Auckland, but lives in central Auckland. That may be causing the confusion.

The Hon Michael Cullen was good enough to take a call, laugh off United Future’s Supplementary Order Paper 284, and say that United Future’s Supplementary Order Paper’s indexation would give back to a household only about a dollar a week. But that same Minister, when he introduced the bill to index the petrol tax increase, gave the same reason. He said that it would cost the household about a dollar a week, and that it was no big deal. So it seems to me that if the Minister of Finance thought that it was no big deal, why not reward that amount to hard-working New Zealanders? We in National believe that is a very small step, but it would be a step in the right direction.

A Minister cannot laugh off the petrol tax indexation as no big deal, then not support United Future’s Supplementary Order Paper to index the rate of income. But, as my learned colleague the Hon Bill English pointed out, that was a misleading statement anyway, because United Future brought to the Committee a very sensible Supplementary Order Paper on adjusting the tax threshold. The only problem is that United Future is not committed to see it through. Now, that party campaigned on integrity and on battling for its supporters, but I am afraid that it will not see this bill through by voting against it, because every other party apart from Labour and, I think, the Progressives is against this bill. United Future has the single opportunity to make a difference in its 3-year term in this Parliament, by showing that it is serious about representing the hard-working, middle New Zealanders. So all eyes will be on United Future members to take their fight to the end and to challenge the minority Labour Government to show its respect for United Future by supporting this Supplementary Order Paper, because in the words of Dr Michael Cullen: “This indexation is no big deal.”

I look forward to the Minister in the chair taking a call to explain to his good friends, United Future members, why the Government would not support their Supplementary Order Paper. It certainly would make a hole in the $6.5 billion tax surplus that was announced yesterday. It is obscene for the Government to tax New Zealanders to the extent that it has brought in an additional $34 billion in tax.

💬 Lynne Pillay: Good Government!

Oh, a good Government! That is wonderful to hear. Now we know that the Labour member’s idea of a good Government is to rip off hard-working New Zealanders. We can see that is just what Labour MPs believe. I think the electorates will have something else to say in the election year, to show Labour MPs that a good Government is one that is considerate and compassionate to hard-working New Zealanders, and would not tax them so it can waste that money on community education in polytechnics!

I move, That the question be now put.

The mistake we are making in this debate is that we are concentrating a lot on the surplus, and not enough on Government expenditure. It is not just the surplus that should be returned to New Zealanders but also a whole lot of Government spending that this Government has overseen, which is a disgrace. Just last week we learnt that hard-working Kiwis are being squeezed so they are no better off, that they are paying more in tax than they have ever done in their lives, and that Jim Anderton is taking money so he can spray it around multinational companies and their multimillion-dollar chief executives. Then we discovered that when the Auditor-General went in there to have a squiz, the officials did not even know whom they had been giving it to.

💬 John Key: Did they know who Jim Anderton was?

They did not even know where Jim Anderton was. They could not find where that taxpayers’ money was going. They said it was spent last year and they did not have records on it, because they had been “updating our systems ”.

💬 John Key: Was it a few thousand?

It was a few million. Jim Anderton said that there had been some problems because the officials had not been dotting every “i” and crossing every “t”, and they were not into very much red tape.

Here is another thing that the Auditor-General found out about how this Government spends taxpayers’ money. He found that New Zealand Trade and Enterprise—which Helen Clark used to talk about once, and which Jim Anderton used to want to get on TV and on radio to talk about at every opportunity, and then suddenly he was nowhere to be seen—that great department, was spending money without regard to Cabinet criteria. So the Government, which Mr Copeland will vote to support in terms of this bill, was taking taxpayers’ money and spending it contrary to the intent of Parliament and Cabinet. That is what it was doing. Does this Government care about that? No.

What else did we find out from the Auditor-General’s report? We found that the money was being taken off hard-working taxpayers and spent, and there was no monitoring or follow-up. I would like to know what Mr David Cunliffe thinks about that.

💬 John Key: He is happy with it.

Mr Cunliffe is over the moon about it.

💬 John Key: He’s ecstatic!

He is ecstatic over it.

💬 John Key: Business as normal!

Well, it is not his money; why would he worry? Mr Cunliffe is sitting over an administration that, first, does not know where some of the money has been spent, second, spent money not according to the criteria that Cabinet has laid down, and third, spent it without any monitoring. Do members know what Jim Anderton’s response was? He said that the Auditor-General did not find that it was not effective spending.

💬 John Key: He did not know who Jim Anderton was.

Well, actually, there is a reason for that: the Auditor-General could not find the spending. He could not find where the money was being spent, let alone determine whether it was effective spending.

This Government has no comprehension of what it is to work hard, pay one’s taxes, have nothing left at the end of the week, and watch a socialist, greedy Government—headed up by Michael Cullen, sitting in that chair by David Cunliffe—that is awash with taxpayers’ cash spend it like there is no tomorrow. The Government is piling up surpluses like some giant Scrooge McDuck, swimming in cash, and telling New Zealanders that they can go and eat cake.

I just say this to the United Future party. The United Future party is right about the need for lower taxes. Its amendments to this bill are right. All that the United Future party members need to do is to vote according to their principles, vote according to what they have said in this Committee they stand for, and vote according to what they told the New Zealand people they were going to Parliament to do. They should stop criticising the Government, and just vote against this dopey bill. That is all that United Future needs to do.

I move, That the question be now put.

There were a number of amendments proposed to Part 5 by Gordon Copeland. They were vetoed. The relevant certificate has been sitting on the Table.

The question was put that the amendment set out on Supplementary Order Paper 287 in the name of the Hon Dr Michael Cullen to insert new clause 236 be agreed to.