Taxation (Annual Rates, Venture Capital andMiscellaneous Provisions) Bill

The Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill is pretty important legislation going through Parliament at the moment. I want to raise, if I can, what is so wrong, not just with the education policies of the Minister of Education—that is, until he gets the flick, or whatever will happen to him on Monday in the Cabinet reshuffle, because if Margaret Wilson is to be the Speaker, goodness only knows where Trevor Mallard will go! Anyway, we will assume that he will be the Minister of Customs on Monday.

This is what is so wrong with annual rates being confirmed in this legislation. This is about a Government that came into office and told the people of New Zealand that 5 percent of all taxpayers would pay the top personal rate—and that was wrong. It was wrong then, it is wrong now, and the number of people paying the top personal rate is progressively getting larger and larger. However, the Government says that it does not want to give anything back to the people who actually make income in New Zealand, irrespective of whether they pay the top, middle, or bottom rate. It does not want to give anything back to the people who contribute to our society and work very hard. Dr Michael Cullen wants to keep the money so that he can go on a bit of a vote-buying exercise. The tragedy of that position is that so many New Zealanders at this time of year will be feeling the pinch. They will look at their credit card bill and rising mortgage and they will wish that they had a little bit of extra money.

The Reserve Bank made an interesting observation. It noted for the Finance and Expenditure Committee just recently that household debt in New Zealand has moved in the last 5 years from being 100 percent of average household income, to 130 percent. At a time when the economy has been doing pretty well, when the growth rate has been, on average, about 3.7 percent, for the last 10 years, not just the last 5 years—through nothing of this Government’s doing—at a time when it has been lucky enough to babysit one of the largest surpluses in New Zealand’s history, New Zealanders up and down the country are being overtaxed and having to raise money on their own mortgage to make ends meet. That is what is happening out there.

It is OK for Dr Cullen to improve the Crown’s financial balance sheet, OK for Dr Cullen to have plenty of money to spend on anything and everything in the weird and wacky file, but it is not OK for New Zealanders who are struggling to make ends meet to have a little more.

I want to refer to just how large that spending programme has been, funded on the back of those annual rates. Yesterday, we had the Budget Policy Statement—the 6-months stocktake, if one likes. Basically, Dr Cullen did not have quite enough courage to tell the people of New Zealand that there would not be a tax cut. He sort of tried to meander around that issue. He did not quite say whether there would be or would not be one, but essentially, in his press release, he said there was no room for tax cuts. When he was asked a hard question at the press conference he did not quite want to answer it, because he knows that the case for tax cuts is now irrefutable.

He knows that, because he has looked at the numbers, just as the National Party has looked at the numbers. The Government is telling the very New Zealanders who are being told there is no room for tax cuts that next year, after the Government has paid its entire operating surplus—everything it does to run the country—and after it has paid its entire capital budget, everything it wants to spend in funds, on student loans, the New Zealand Superannuation Fund, roads in Auckland, and anything else it might want to spend money on, after it has paid for all of that, it will have $1.5 billion in cash hanging around.

That is absolutely unbelievable. The Government is so flush with cash that it cancelled the 2005 January bond tender. It does not need it. At a time when household debt is going through the roof, because New Zealanders are being squeezed, and it is OK for them to have three credit cards, it is OK for New Zealanders to work hard on two or three jobs to pay the bills, the Government has $1.5 billion of surplus cash. It is a disgrace.

I have a brief comment on clause 1, the title. This bill, as the title reflects—the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill—does fix the annual rates for another year. It does contain provisions that will assist the promotion of venture capital in New Zealand by non-residents. It contains a number of miscellaneous provisions such as preventing the sale and lease-back of intangibles, and thus, the fiscal risk attached to that, the early payment of rebates of income tax, provisions around horticultural plants, dispute procedures, Australian unit trusts, and so on. In many ways it is a mechanical bill. It is part of the good governance that is required to ensure the security of the fiscal base.

In this short call I wish to make two points on the issue of taxation rates. The first is that we have heard a number of arguments from the Opposition that the Government has money in the coffers, and why does it not spend it. Whether it is spent by giving tax cuts or expenditure increases is essentially an accounting identity. It does not make any difference to the fiscal balance. However, the Opposition members are Keynesians in reverse. They are not prepared to spend when we are down on the cycle, and thus they make it worse. They want us to spend when we are at the top of the cycle, causing an overheat.

I have two words for the Opposition—“Allan Bollard”. Why those two words? If we increase spending or give tax cuts now by more than we can afford, that will have the effect of raising interest rates, and in turn, raising the exchange rate. The Opposition’s argument that the Government is flush with tax implies that Opposition members have not even read the December economic forecast. If they had, they would know that the Government will be in a cash-negative situation by 2006 with about a $700 million cash borrowing requirement, and about a $1.5 billion cash borrowing requirement the following year. So this rhetoric about “rolling in dough” is simply that—just rhetoric. This Government is committed to good prudent fiscal management, and that is what this bill delivers.

The previous speech demonstrates that the Minister may like to give the impression that he knows a lot, but he just has no judgment. Because the issues involved in this—

💬 Rodney Hide: He went to Harvard!

What a waste of money that was! He may as well have done one of Steve Maharey’s dodgy community education courses, because it has made no difference. The issue involved here is a matter of judgment. This bill sets out tax rates, and the question the Minister needs to answer is this: under what conditions does he think the Government would have enough money to reduce taxes? Because the conditions the Government enjoys now were never imagined in my adult lifetime. In 40 years of government in New Zealand, going right back to 1960, there has never been anything like this. Fortunately, on the way through, there have been Governments that have had the judgment to say that they have enough money to reduce taxes, so the workers who go to work every day and earn an income can keep a bigger share of what they work for. This Government is unable to exercise that judgment, because it does not have any judgment.

He is right: the Government regards this bill as mechanical. The business of raising taxes is purely mechanical. It is like getting in one’s combine harvester and just driving into the paddock and going until it stops, because then the fun bit is how one spends it. That is what Labour has always been about. It has no interest in the incentives that people face, no interest in their aspirations, no interest in a reasonable balance between what the Government takes from economic growth and what the people keep, who actually create that economic growth. It is purely the mechanical business of raising as much tax as possible and then getting on with the party of spending. And oh, what a party!

The leader of ACT is quite right: the biggest issue actually is what is happening to this money. If we are going to raise so much, what are we going to do with it? I raised questions yesterday in the House just in my portfolio, about Steve Maharey, the Minister for tertiary education, having in the last 4 years spent $1.5 billion on certificate and diploma courses that were never finished. He has spent $1.5 billon on New Zealanders who never finished the courses they started. I have found that that figure is so big, no one believes it. If he had spent that $1.5 billion only on the people who completed the courses, every working family in New Zealand could have a tax cut of about $50 or $60 a week. He regards that as just a minor issue and he does not quite believe the figures himself—yet. That is just one example.

This bill is giving permission to Ministers to do more and more of that kind of reckless spending. That is how Ministers see this. They see it as a licence not to print money but to spend the money that other people make. There is no restraint. Dr Cullen has decided to pitch himself as a fiscal conservative, who is tight with the spending, and his Ministers, unfortunately, seem to think that he is tight with spending. That is how distorted this Government’s view has become. They think they are being tight with spending, when over the next 3 or 4 years they plan to spend $13 billion from the last Budget, and in the December Economic and Fiscal Update yesterday they put it up to a total of $23 billion over the next 4 years.

They are huge amounts of money, and as my colleague Mr Key has pointed out, household debt is going up. So the Government is improving its situation dramatically at the expense of households that are borrowing, short term and long term—short term at high interest rates—in order to meet their requirements, whereas the Government is keeping more than it should. That is why United Future should take the courage of its convictions in its own hands and vote against the bill. Because United Future voters are opposed to an endlessly taxing Government and an endlessly spending Government. United Future should vote against it.

It was marvellous to see David Cunliffe stand up and explain this bill, but did he talk about the annual tax rates? No, he did not. He was prepared only to stand up and debate the title, to explain it to the listening public, and to have that recorded in Hansard. One of the problems with Dr Cullen’s history degree and with Mr David Cunliffe’s studying away at Harvard—[Interruption]—and they have worked at this—[Interruption]

The CHAIRPERSON (Hon Clem Simich): Order! Twice was enough.

The trouble with Mr David Cunliffe and Dr Michael Cullen is that although they have done all that studying they have not worked out a couple of basic things that every household in the country can grasp. The first is that Michael Cullen thinks there is something magical about a dollar that he takes from a working person and spends. He says: “When I spend the money, it’s not inflationary.” But then he comes out with this Labour Party doublespeak that if he lets the poor worker keep the dollar in the first place, that is called spending. When this Government talks about tax cuts, it says they are like spending money. They are not like spending money; a tax cut is just letting people keep what they earn. I would like David Cunliffe to reflect on that and explain how a tax cut can be spending money. It is not spending money; it is letting people keep what they earn. If I as a Government take a dollar from someone and spend it, as Michael Cullen does, it is called tax and spend, and I understand that. If I let the worker keep that dollar, it is called letting him keep it—it is not spending the money.

Another thing that Michael Cullen and David Cunliffe cannot understand, but everyone else can, is that tax does matter.

💬 John Key: That’s right.

Tax does matter. Michael Cullen has stood in this Chamber time and time again and said that it does not matter how much tax we take from people—that they will work just as hard, they will invest just as much, and they will be just as entrepreneurial, no matter what. That defies all experience, all logic, all common sense. When he reaches around for an example to illustrate his great economic insight he draws upon the experience of MPs, and he says that Labour Party MPs would not work any harder or any less, whether or not they had a tax cut. Well, I have to explain to Mr Cunliffe and to Dr Michael Cullen that tax does matter and people are not stupid. They are not going to work their guts out and they are not going to invest their dollars in a country where the Government comes along and takes the money from them—takes away any reward that they get. That is what this Government is doing. We are in a situation now where working people face an effective tax rate of 91c in the dollar. If people double the number of hours they work, they find that for every extra dollar they earn they get to keep only 9c.

Well, I do not think David Cunliffe would do that. I do not think Michael Cullen would do that. Yet they stand up here and pretend that tax rates do not matter. Well, Mr Cunliffe is absolutely wrong. He should be taking this money and returning it to New Zealanders as part of a Christmas bonus. I say to Mr Copeland that he is well on the way with his proposal to increase the thresholds, but would it not be better to drop the tax rates and actually drop Government expenditure? It seems quite simple to me, when one sees how Trevor Mallard, Steve Maharey, Parekura Horomia, and Jim Anderton spend money—

💬 Jill Pettis: When you see how Donna spends money.

Jill Pettis raises a good point. Where did Donna Awatere Huata get the money from? The Labour Government! The Labour Government gave it to her. Trevor Mallard gave the money out. It is very, very simple. Trevor Mallard gave the money out, so Donna Awatere Huata spent it. That is the trouble with our taxation. We would not see that, I say to Mr Mallard, if people were spending their own money that they had earned—not that member spending other people’s money.

We are debating clause 1, the title. I believe that the bill should be called the “Taxation (Still Putting Foreign Investors First and Miscellaneous Provisions) Bill”. Why should it be called that? I am obviously referring to the venture capital provisions. I have always said, in speaking to this bill, that I disagree with giving certain non-residents a tax advantage on profits from the sale of shares in unlisted New Zealand companies. That disadvantages New Zealand - resident venture capital investors. Even proponents of those provisions say they will not attract the appropriate capital that is needed—the purpose and reason for creating them.

I will show Labour Governments’ track record of putting foreign investors, not New Zealand investors and not New Zealanders, first. Between 1984 and 1990 a Labour Government sold to foreign investors New Zealand Steel, Petrocorp, Health Computing Services, the Development Finance Corporation, PostBank, the Shipping Corporation, Air New Zealand, Landcorp Financial Instruments, the Rural Bank, the Government Printing Office, the National Film Unit, Communicate New Zealand, the State Insurance Office, the Tourist Hotel Corporation, New Zealand Liquid Fuel Investment, Māui Gas, Telecom, and forestry - cutting rights—to the tune of $10.1 billion. That is right—$10.1 billion. I thought that, when this Labour Government came in in 1999, it promised to stop putting foreign investors first and to start putting New Zealanders first, but it did not do that. We can see the fruition of its policy in the venture capital provisions of this bill.

Unfortunately, and very sadly, National was not much better as far as putting foreign investors first goes. That is probably one of the reasons National members are supporting the venture capital provisions in this bill. National sold $6.36 billion worth of State-owned assets to foreign-owned companies: the Export Guarantee Office, the Government Supply Brokerage Corporation, mortgages held by the Housing Corporation of New Zealand, Taranaki petroleum-mining licences, the Bank of New Zealand—yes, we do remember the Bank of New Zealand—New Zealand Rail, Wrightson rights, Fletcher Challenge Ltd shares, the Māori Development Corporation, the Radio Company Ltd, the Forestry Corporation, the Ministry of Works’ civil construction arm, and New Zealand Timberlands.

💬 Pita Paraone: A headache.

That is right. My colleague says one gets a headache listening to it, because it is so sad. It is so sad because the foreign investors of the global market have taken advantage of New Zealanders, and the previous Labour Government and successive National Governments have allowed them to do that. I think that has been devastating for the country, and we are still paying for the consequences of those actions, years and years later. Another name for the bill could be the “Taxation”—

💬 Clayton Cosgrove: Drum roll.

Even the Labour member over there, the chairman of the Finance and Expenditure Committee, is getting all excited about the next title. It could be called the “Taxation (We Don’t Care What You Think and Miscellaneous Provisions) Bill”, because the Government time and time again has proven that it does not care what the average Kiwi thinks.

💬 Hon Trevor Mallard: This is a very average speech.

It is. It will get angrier. The Minister will start to hear me get more and more angry, and get wound up, because what this Government has done in the past few years, while it has been in power, has been very devastating. The reason why I say the bill should be called the “Taxation (We Don’t Care What The People Think and Miscellaneous Provisions) Bill” is that it provides high income-tax rates, high business compliance costs, and a whole bunch of compliance costs, which the average New Zealand taxpayer has to foot, and that is because of this Government.

I move, That the question be now put.

This is more than a bill about mechanics. We in the National Party would like to take many more calls, because we want to invite the Minister in the chair, David Cunliffe, to explain further why he describes the bill as pure mechanics. If he had read the bill, he would know that it introduces issues that are a lot more substantial that that.

My colleagues have talked a lot on the taxation rates, so I will leave those provisions aside and come back to the other parts of the title. The title contains the phrases “Annual Rates” and “Venture Capital”. Submitter after submitter from the venture capital sector told the Finance and Expenditure Committee that the bill will not work. It will not introduce any more venture capital investors into New Zealand, because they like a limited-liability partnership mechanism. Also, the list of countries that the provisions apply to, in terms of relief of taxation on capital distribution, is too restrictive for it to be effective. The provisions in the bill relating to venture capital are nothing more than further Labour Government feel-good legislation. Once again, what the Government introduces sounds good and looks good but does nothing. Why should Parliament continue to spend time debating legislation that is without substance?

I also want to touch on another provision, which is hidden under the miscellaneous provisions, and that allows individuals to deduct expenditure relating to applications under the Resource Management Act that fail or are withdrawn. Recently we have seen Meridian Energy withdraw its large Project Aqua. Members should guess how much was written off by that State-owned enterprise. The amount was $38.7 million—because the Labour Government refused to simplify and make substantial amendments to the Resource Management Act. It is not good enough simply to allow people to deduct expenditure, without tackling the core problem relating to applications under the Act.

The miscellaneous provisions also include a provision introduced to close off the loophole relating to Australian unit trusts. While supporting the provision, National wishes to point out that investors will continue to look for overseas investments that give them a tax advantage. It is not very effective for this Government to continue to introduce legislation to close off loopholes while the tax rate remains high, because that is the main incentive that drives investment consultants or investors to look for loopholes. At the same time as the Inland Revenue Department is busy chasing investors in order to close those loopholes, these high tax rates continue to give investors the incentive to look for overseas or internal mechanisms. The most effective way for the Labour Government to address these issues is to bring down both the company and the personal tax rates, so that the Inland Revenue Department does not have to continue to chase individuals or entities, and to spend a lot of time and energy closing off loopholes.

I will come back to the issue of the high tax rate, which continues to bring in high amounts of taxes to feed the Labour Government’s appetite for spending.

I move, That the question be now put.

I raise a point of order, Mr Chairperson. I might have missed this. I know that earlier on you said that Gordon Copeland’s Supplementary Order Paper amendments were vetoed. Does that relate to his amendments to clause 2 on Supplementary Order Paper 284? I do not know that you covered that clause. You talked about Part 5, and now we are talking about clause 2. I am interested to know whether the veto covered those amendments as well. If not, we should be voting on them.

When we commenced Part 5 I read out the information that the veto also applied to his amendments to clause 2. I thank the member for raising that.

I move, That the Committee divide the bill into the Taxation (Venture Capital and Miscellaneous Provisions) Bill and the Taxation (Annual Rates of Income Tax 2004-05) Bill, pursuant to Supplementary Order Paper 288.