Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill

I move, That the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill be now read a first time. I shall be recommending later that the bill be referred to the Finance and Expenditure Committee for consideration.

The main feature of this bill is a package of tax measures, announced in the Budget and over recent weeks, designed to promote economic growth. Many of these changes take the form of reducing tax barriers and impediments to economic growth. The bill introduces changes to the tax depreciation laws that are designed to ensure more productive use of capital. That is achieved by reducing biases in the depreciation rules that distort the structure of capital investment away from the best investment opportunities—and when taxes distort investment decisions, the result is likely to be lower growth. The changes are motivated by concerns that our current depreciation rates are too fast for buildings and too slow for short-life plant and equipment, which can result in excessive investment in tax-preferred assets and under-investment in others. For this reason, the depreciation rates of buildings will decrease, while the rates for short-life plant and equipment will increase, becoming consistent with the rates for longer-lived plant and equipment. To reduce some of the compliance cost of businesses, the low-value threshold for depreciable assets will rise from $200 to $500.

A number of other changes in the bill also focus on reducing the cost of tax to business, and, generally, making the tax side of business easier for small businesses. To reduce the number of tax payment dates that businesses must cope with, the bill aligns the three payment dates of provisional tax with those of GST; both will now be due on the 28th of the month. Small businesses that want to pay provisional tax more frequently, to help with their budgeting, may choose to make six payments a year, rather than three large payments as at present. A related change will allow businesses the option of basing their provisional tax payments on a percentage of their GST turnover. This will suit businesses that have seasonal income and that want their tax payments to be more closely aligned with their income flow. The bill also introduces a new subsidy designed to encourage small businesses to take advantage of the help that payroll agents can give them in dealing with PAYE, child support, and student loan deductions, and staff wages. Payroll agents will be subsidised for up to five employees per employer, for an amount to be decided by negotiation with payroll agents.

Wide-ranging changes to the fringe benefit rules are designed to reduce compliance costs and remove anomalies that have developed since the rules came into operation in the 1980s, including the inadvertent overtaxation of some benefits. As well, improved anti-avoidance measures ensure that the original purpose of the rules—to treat non-cash remuneration on a par with cash remuneration—is not undermined.

Several of the changes relate to motor vehicles, the main source of fringe benefit tax. Employers will have the option of calculating the private benefit from an employer-provided private motor vehicle on the basis of its depreciated tax value instead of its cost—a change that a lot of businesses said they wanted. At the same time, the valuation rate applying to the cost price of a motor vehicle will reduce from 24 percent to 20 percent, which will significantly reduce the amount of fringe benefit tax paid on motor vehicle benefits. These changes will also apply to leased vehicles as part of achieving a better alignment of the fringe benefit treatment of leased vehicles with that of owned vehicles.

To reduce compliance costs in relation to other fringe benefits, several new options and exemptions from fringe benefit tax are being introduced, and the minimum value thresholds applying to miscellaneous fringe benefits are being raised substantially. As a result, many small, hard-to-measure, unintended benefits will no longer be covered by the rules.

Several other amendments in the bill are aimed at increasing our access to worldwide labour, skills, and capital. To remove a tax barrier to international recruitment, a new exemption on certain types of foreign income will be made available to migrants, or to returning New Zealanders who have been non-resident for tax purposes for 10 years. To help resolve problems associated with the New Zealand tax treatment of accrued entitlements for foreign job-related superannuation schemes, the bill introduces changes to extend the scope of the current exemption for interest in those schemes. The Government proposes to introduce in a subsequent bill, subject to further work, an exemption for certain Australian superannuation schemes. These changes should resolve any recruitment problems and disincentives arising from our current tax treatment of interest in those schemes.

The tax rules on securities lending transactions are being updated to bring them into line with the rules on other commercial transactions, and with those of countries such as Australia. The changes remove tax barriers to securities lending transactions, and make us a more attractive place for international investment while also preventing the use of securities lending for tax avoidance.

The bill allows companies that bring in new equity investors to have better access to tax deductions for research and development expenditure. These changes cater for the growth cycle of technology companies in particular, and remove a barrier to investment in research and development. Similarly, the bill exempts non-resident investors from tax on the sale of shares in companies that they have invested in, alongside the New Zealand Venture Investment Fund. The change complements earlier reforms aimed at removing tax barriers to venture capital investment in New Zealand.

The bill introduces a number of other business tax changes. For example, it clarifies the tax treatment of income from investments in what are known as foreign hybrids. The change will allow members of a controlled foreign company to access tax credits for foreign tax paid on its income. Foreign hybrids will also be eligible for the so-called “grey list” exemption, of course—for as long as that lasts. The bill extends the concessionary continuity rules that apply to carrying forward losses and imputation credits, to allow for the use of a concession when a smaller, widely held listed company takes over, or merges with, a larger one. I understand that there is some concern about the proposed application date, so I will be interested in what submissions to the select committee have to say about that matter.

The bill introduces new information reporting and record-keeping requirements for New Zealand - resident trustees of foreign trusts, to ensure that we can satisfy information requests from tax jurisdictions elsewhere with which we have a double tax agreement. It clarifies the tax deductibility of re-grassing and fertilising costs associated with farm conversions, to provide greater certainty and reduce compliance costs for farmers.

The bill also introduces important measures to protect the tax base. New tax rules on corporate migration will ensure that companies that migrate from New Zealand pay tax on their worldwide income earned while resident in New Zealand. The changes will apply from the date of announcement—21 March this year. A further measure prevents avoidance of GST by the use of third parties to import goods such as luxury cars that were offshore at the time of supply. Once enacted, that change will apply from 19 May, the date of the bill’s introduction.

Finally, the bill sets the annual income tax rates that will apply for the 2005-06 tax year.

Those are many of the changes introduced in this large, omnibus taxation bill. They and other changes proposed in the bill are described in detail in the separate, 135-page commentary on the bill that has been distributed to members of the House, and I am sure that all have read it with great eagerness already. I commend the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill to the House.

I will be fascinated to see how this debate unfolds, because this bill is full of good news for the business sector. I suspect that members opposite will choose to talk about something that is scarcely in the bill at all—almost everything else they can think up to try to make up a reason to vote against it. I want to see the National Party and the ACT party voting against this bill, so that I can write to every chamber of commerce in the country and tell them that National and ACT voted against the biggest single set of simplification measures of the taxation system for small business that has ever been introduced into this Parliament—particularly the fringe benefit tax and provisional tax changes. I will be able to write to them to say that the National and ACT parties voted against measures to align depreciation more accurately with the actual economic cost of things that businesses purchase. I want to be able to write to them to say that those parties opposed measures designed to make it easier to recruit high-value individuals to work in New Zealand for New Zealand businesses and New Zealand corporates.

I want, in fact, the National Party and the ACT party to walk into what in effect is a trap laid for them in this legislation, because they have this terrible problem when the word “tax” is mentioned. They start behaving like a collection of mad, hydrophobic dogs, carrying on and salivating madly, and trying to bite anybody in sight from the centre-left. We will see this, I am sure, this afternoon, unless, of course, we are lucky enough to have Deborah Coddington speaking on these matters, rather than Mr Hide; as we all know, she is now a happy person and fulfilled in life, and lacks the desire to be as mean and nasty as her colleagues.

All I can say to the Minister of Finance, Michael Cullen, is that if this is a trap carefully laid, then he must be a hunter who has gone into the bush, laid a trap, and, like so many hunters unfortunately do, somehow got a part of his body over that trap and had the trap snap firmly on his arm.

As I picked up the Dominion Post yesterday morning I saw the grovelling apology from the Minister of Finance as he begged the country—and, I suspect, the Prime Minister—for forgiveness for laying out a Budget that was so disastrous and that backfired so badly. He had no option but to apologise, because, as the cartoon so correctly showed in the Dominion Post on Tuesday, the Prime Minister, Helen Clark, was in bed at night dreaming of ways that Michael Cullen could disappear from her Cabinet. My goodness, she has had plenty of Ministers go over the last few years, so she is no stranger to bad news when it comes to Cabinet Ministers.

National will be opposing the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill, and we will happily do so. The outgoing Labour Government will write to the chamber of commerce to beg for forgiveness and will include the apology that Michael Cullen made to the House. On the same morning that the chamber gets that letter, it will get a letter from the National Party explaining exactly the reason.

The reason is that the explanatory note very, very clearly lays out the most important thing to the Government. The explanatory note of this 195-page bill states, in respect of Part 1: “This provision sets the annual income tax rates that will apply for the 2005-06 tax year.” That paragraph can be put into any bill over the next 3 years, if this Government remains in office. The Government sent the message pretty clearly indeed that there is no room for tax changes. That is what happened in the Budget. That paragraph states that the same tax rates can apply. The drafting team at the Parliamentary Counsel Office should not bother trying to think up a new paragraph; the same paragraph applies. If the Labour Government gets re-elected with the Greens—goodness forbid!—then the drafting team can just put “ditto”. Part 1 can state: “Ditto last year.”

Brian Fallow is not somebody who is known to be an extremist. I know that Michael Cullen likes to attack every media journalist—he lashed out at TV3 wrongly the other day and had to grovel with another apology. Actually, he is getting quite good at apologies. I know that he had to grovel, and I know that he likes attacking journalists.

💬 Jill Pettis: That’s how marriages last.

What was that? The seagull said something.

💬 Jill Pettis: Don’t be so rude and personal.

Jill Pettis said not to be so rude and personal about Michael Cullen. I am very sorry. It is just that he apologises once or twice a week.

Let us have a look at Brian Fallow’s comments in today’s New Zealand Herald: He wrote: “There is more to that reaction than disappointment engendered by false hopes raised in the days before the Budget, although, as the Finance Minister appeared to concede on Tuesday, he blundered in not hosing those expectations down.” He went on: “It reflects a deeper sense of grievance, a recognition that bracket creep, or fiscal drag, is a kind of stealth tax increase.” That is the truth of it—the absolute truth of it.

I refer to a very well-written document from Westpac, entitled How many hands are in your pocket?. It is a very good document—Brendan O’Donovan did a good job of writing it. He writes in the document about what adjustments would be required for taxpayers if they were to get just the adjustment for inflation. We are not asking for anything special from this Government, which has collected $55 billion worth of additional taxes in the last 5 years. It is no wonder that every week 600 people are leaving New Zealand to go to Australia. They have got the message. They are the fast learners. They have learnt that this Government just wants to tax them. But let us not ask for anything special. Let us just ask for the impact of inflation—I might add, in exactly the same way that this Government asked for the impact of inflation when it indexed the petrol tax. Westpac calculated, quite correctly of course, that if the tax threshold for the middle income rate—let us say the 33c rate—was adjusted for inflation, it would no longer cut in at $38,000, as it does today, but at $46,406. That would be the threshold rate that the middle income level would hit at.

Let me have a look at what the Government is adjusting the threshold to. It is $40,324. Let me just repeat that. The adjustment for inflation is $46,406, and $40,324 is the adjustment made by the Government. Lo and behold, though, it will not happen until 2008.

The Reserve Bank governor said a very interesting thing today. He said that a material fiscal impulse on the economy happens at 1 percent. The entire tax package from the Government, generous as it is—the chewing gum Budget, if you like—is 67c in 2008. Those people who are earning $38,000 or less will get 67c extra per week. That will cost $360 million. We have a $150 billion economy. I do not have a calculator with me, but I am sure I can do the maths. I think that $360 million is a third of a percent of GDP. I happen to know that, off the top of my head.

Here we go. We have $2.4 billion of available cash, so we have no problems with cash. While we are at it, we have another $700 million that the Government is giving the Reserve Bank in actual cash, and another $724 million whereby the Government is acting as the banker for a loan to the student loan scheme that is going to be repaid to it. That is a capital item, according to this Budget. So the Government has $4 billion, give or take the odd calculation, of available cash, and Michael Cullen had the audacity to come down to the House, read out a Budget, and expect people to be grateful that they will get 67c extra in 3 years’ time. He also had the audacity to argue he could not afford it. If he cannot afford it with $4 billion of available cash, then he will never be able to afford it.

Then Dr Cullen said that it will have an impact on monetary policy. No, not according to the Reserve Bank governor. But Dr Cullen does not want to listen to market experts like Brendan O’Donovan. Dr Cullen does not want to listen to other bank economists who are market experts. Now he does not want to listen to the Reserve Bank governor, because the governor is telling him that the way it is would not have any impact at all.

It goes on and on. This Government is so out of tune with the public of New Zealand. It is no wonder that those members over there are feeling so glum. I noticed them this morning at the select committee. I wandered in. I was feeling pretty chipper. I had been up at Ōtaki, winning a lot more votes than Nathan Guy. I was really chipper. I had been to a chicken factory. That is not a place the media would normally turn up at, but I had so many media behind me it was unbelievable. Every local paper was there—the Manawatu Standard and the Ōtaki Mail. I had to do a radio interview afterwards. The media were dying for material from the National Party, because they are sick of the member for Otaki. That member is gone, and he had such a bright future.

It is no wonder the Labour members were so sour in the select committee. They were the bunch of people who Dr Cullen relied on to tell him that the Budget would be OK. He said to the chief of the Finance and Expenditure Committee: “I’m only going to give them 67c, champ, in 3 years’ time. Will that be OK?”. The chief said: “Three bags full, Dr Cullen. Of course, you’re right. They should be grateful to get 67c. They should thank you, Dr Cullen”. And they will! They will thank him so much that they will vote in National in about 3 months’ time.

National will not be supporting this taxation bill because it robs the people of New Zealand of what they deserve. We will be very happy for Michael Cullen to write to the chamber of commerce. We are opposed to this bill.

I have to say that from time to time I have praised that member in Parliament for his motivation for being here. But I have to say that after that display, the rubber has now hit the road. I thank Mr Key for verifying the facts for us. He is the Opposition spokesperson on finance, who gave a 10-minute speech, talked about everything else but the bill, and bleated on—as does his leader, Dr Brash—about tax cuts. He then told every small business and the commercial sector that National will vote against $1.5 billion worth of tax cuts to small to medium sized businesses.

It was very apt that that member went to a chicken factory, given that we heard on the Sunday programme that he had chopped 5,000 or 6,000 staff and then had the audacity to look down the barrel of a camera and say: “I never cried.” [Interruption] He says again that he did not cry. He does not give a rat’s—I will not continue that sentence. It was very apt that the member went to a chicken factory, because Opposition members do act like a lot of headless chooks most of the time. Today he has told the commercial sector that the fringe benefit tax reductions, depreciation, research and development, payroll agents, and the alignment of provisional tax with GST is all off, under a National Government. Under a National Government the $1.5 billion worth of tax reductions for the commercial sector, which in fairness the sector has called for, for some time, will be gone—not by lunchtime, but gone today.

That is a really interesting message, especially when we look at the payroll agent issue. I have been around. I know that John Key is a big businessman. Well, 85 to 90 percent of the jobs in this economy in this country are created by small to medium sized enterprises, with five people or fewer. If we got out of the chicken factory and went around to the small to medium sized enterprises, what would they tell us? I used to be a small-business owner many moons ago and I am thankful for that experience. It taught me that if we do not work, we do not eat. If we do not get out of bed to run the business, we do not get a pay check on Thursday. Unlike that member, when he was with whoever he was with—PricewaterhouseCoopers, or whichever foreign exchange dealer it was—he could drink his Moet champagne and still get a cheque for his dividend on Thursday. If guys in small businesses, with five employees or fewer, take their eye off the ball, they lose.

If we asked most people in this country why they thought businesses go broke, they would say it is because they do not make any money. That is not true. Most businesses, and I remember this, go bust because they cannot manage their cash flow. So what does this bill intend to do? It intends to drop compliance costs. The payroll agent one is very, very interesting. We say that a business with five employees can hire a payroll agent, and the State will pay. The business just writes a cheque for child support, for the student loan, for all those bits and pieces, and the payroll agent deals with the paperwork. This legislation says to the small-business person that he or she will get to spend more time behind the counter growing his or her business and less time behind the desk—or less time that his or her partner, normally, has to spend behind the desk—doing the paperwork, the wage bill, the compliance costs. But oh no, the big fellow over there is the man who does not cry when he sacks people; the man who says that there will be no job losses under a National Government, that he will not be cutting expenditure—that he will not be cutting expenditure on health or education. Yeah, right!

On the next Tui billboard will John Key have a heart? Yeah, right! He is the man who does not cry! He has told every small business today that the rug is being pulled out from under them. He says that he wants tax cuts all right, but he wants them for the ones who earn the most. If Mr Key visited small businesses he would find that a lot of them are not rich, a lot of them are middle earners. A lot of small-business owners of engineering firms in my electorate are working their guts out every day to ensure that their cash flow is met to grow their businesses. They say that they want a break. But will John Key’s tax cut package do anything for the small to medium sized firms in my electorate or around the country? They will do zip; nothing. Let us refresh ourselves about that.

John Key is offering to get rid of this bill, which aligns provisional tax with GST. This is very important. Why? Most small businesses, when they are trying to gather the money for their provisional tax, of course, have two strategies for the three times a year that it is due. One is that they squirrel it away in the bank every week and it just becomes dead money that they are too scared to use, because they know that the big mountain of provisional tax is on the way. Most of them run around in desperation the week before provisional tax is due, trying to scrape up the money to pay the bill. The big peak and the big trough of provisional tax hammers the cash flow of small to medium sized enterprises. So what do we say? We say, very simply, let us align provisional tax with GST payments and let us flatten out the peaks and troughs so that small-business owners can manage their cash flow better.

What is wrong with that? I would have thought that Mr Key, the commercial genius, who got a damn good education from Burnside High School, would say that that is not a bad idea and would support it. But oh no, he has forgotten his roots. When was the last time he walked into a small business, or ran a small business? I know that he is a corporate high-flyer, and I respect that. He is a man of talent. But he should get out of his ivory tower and visit the odd engineering firm, the odd small to medium sized enterprise, and the small businesses that are the lifeblood of our economy. I do not mean the foreign exchange traders. Ninety-five percent of jobs are provided by small to medium sized enterprises. He should talk to them, because I have. They like the idea that we will align provisional tax with GST. They like the idea that somebody else can take over the burden of paying their staff. They just write the cheque. Somebody else can do the accident compensation, childcare, student loan, and PAYE, so that they can get back behind the counter and grow their business. I think they are good moves. They like the fact that we are moving on fringe benefit tax, that we are moving on research and development, and that we are moving on depreciation. But what we know today is that small to medium sized business has been sold out by John Key to the tune of $1.5 billion, but those on his salary, or Dr Brash’s salary, or my salary will get a nice Christmas present—so he says! For the likes of us it will be 300 or 400 bucks more a week. But what will people on $32,000 or $38,000 a year—like many small-business people and sole traders—get out of Mr Key? We will wait and see! They will get absolutely zero.

As I go around my electorate, I relish the debate over tax in respect of small to medium sized enterprises. I worked in that sector. I owned a small to medium sized enterprise, a very small one, but it taught me this: “You don’t work, you don’t eat.”; and: “If you don’t manage your cash flow, if you take your eye off the ball, if you get buried in the paperwork, then your business suffers.” So this bill attempts to provide some assistance to that commercial sector—indeed, some of the ideas came out of the sector. I will relish seeing Mr Key stand up and reinforce that he will provide a tax cut for the wealthy. But what will he do for the job creators of 95 percent of our jobs? Will it be $1.5 billion worth of tax cuts? No, those people are out the door; they are not going to be supported.

I would like to hear him say why he will not support aligning provisional tax with GST. I would like to hear why he will not support the subsidising of payroll agents for small to medium sized enterprises. Because we have not heard a lot from Mr Key, since the Budget. He said to the Governor of the Reserve Bank today, at the Finance and Expenditure Committee, that National would provide an alternative budget pre-election—he nods, so they will—and a tax cut policy. I wait to see that! Will he put up his tax policy to Treasury’s independent consultants, which he voted for originally, when the select committee put the proposition up, to cost the tax policies of all political parties? He voted for it because he was asleep, but Don Brash kicked him and he came back and protested. The Greens have put up their policy, and even ACT has put up its policy to be costed; New Zealand First did not, and that should tell us something; United Future did, and, of course, ours is out there as a Government.

Why will a man who is so proud of his alternative budget and his tax policy not put it up to be costed? I tell the House: there is a secret in there! It is a ticking time bomb for every small business and every person who is not on the salary of John Key and does not have his dividend stream coming in the back door. They get absolutely nothing. So when he puts up his alternative budget, and when we finally see the unveiling of this wonderful tax policy that he is going to come out with, but we will all be holding our breath, as most New Zealanders will, I challenge him, like the other parties of the Finance and Expenditure Committee, to put it up to the independent financial consultants for a costing. They can tell us, even if he will not—“Jack the Axe”, the man who does not cry—which sectors of our community and our society are going to have the axe put into them. Because he will not tell us, but the people of New Zealand will judge. I will join him on the stump any time to debate that one.

New Zealand First supports the referral of the Taxation (Deprecation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill to the Finance and Expenditure Committee. This bill contains a lot of material, and there will be much to talk about during the first reading debate and during its consideration by the select committee. I look forward to submissions from individual New Zealanders and companies and to hearing what they have to say. I know that many enhancements will be suggested and could be included in the bill. The bill is a very, very small step in the right direction.

We have heard both the chairman of the Finance and Expenditure Committee and the Minister of Finance rant and rave about how the world will change because of this bill and about how people will have more money in their pockets. I say to the House, and those two members in particular, that we have a very long way to go. Previous speakers have talked specifically about Part 1, “Annual rates of income tax for 2005-06 tax year”, which is the provision that sets the annual income tax rates that will apply for the 2005-06 tax year. It will also apply, we know now, if the Labour Government still has its way, which we know it will not, after the election—

💬 Rod Donald: Aren’t you going to help them?

Oh, well, we might.

💬 Rod Donald: Aren’t you going to help them?

We might. We are not saying.

💬 Rod Donald: You just made a commitment in the House.

No, I did not make a commitment.

💬 Hon Member: That’s a bit untidy.

Well, it might be a little bit untidy but I can clear it up pretty quickly. New Zealand First has always stated that it will wait until the voters have decided. So Labour might have to deal with us. Somebody is going to have to deal with us, and that is exactly what I meant. Mr Donald might try to twist what I say, but the fact is—and the people of New Zealand are starting to see it in the polls—that one of the parties in this House is going to have to deal with New Zealand First. That is what I meant. After the election New Zealand First will have a big role to play regarding this bill, whether or not Mr Donald likes it—and we know he does not like it. He is starting to come out with some scurrilous comments about my leader and about my party, which have backfired on him.

Members of the Green Party all over New Zealand are saying that the Green Party has lost its way. Even one of its own members said at their conference—and it was reported in the newspaper—that the Green Party has lost its way on environmental issues. They know it. They know they will not have any part to play in this tax bill after the election.

💬 Rod Donald: So there!

So there—that is right. I come back to the income tax rates in Part 1. If this Government is going to keep overtaxing New Zealanders, then it should at least increase spending where it counts—on social services, the elderly, and protecting our borders. This Government fails on all those counts. While maintaining income tax levels, this Government will spend millions keeping ethnic communities happy, but it will not spend one cent raising superannuation for struggling New Zealand senior citizens.

The Government delivered a Budget 3 weeks ago, and this bill, which is a development of that Budget, could have imparted vision and injected enthusiasm, excitement, and gravitas into the New Zealand economy. But this bill has done none of that. It has no vision as far as income tax is concerned. It has no vision in relation to tax incentives for exporters, or the allocation of tax deductions for research and development expenditure. It makes little tinkerings, but it has no vision. That is what this bill stands for—no vision. If we were debating Part 1 during the Committee stage, I would suggest that the title of the bill should be the “No Vision Tax Bill”.

💬 Jill Pettis: Shush! I was beginning to think we were in church.

That is what it should be, I say to the member for Whanganui. What do we have in this tax bill? There is no vision, but in 3 years the average, hard-working Kiwi will get a tax cut that could buy a stick of gum. That is all Kiwis get—one piece of gum. A stick of gum in 3 years is the Labour Government’s vision, as far as tax is concerned. That is the Labour Government’s vision for this economy—one stick of gum for an average Kiwi in 3 years. Quite frankly, we could say that that is disgraceful. We could say it is heartless. I prefer to say it is heartless, because that is simply what it is.

As far as vision, injecting a bit of excitement into the economy, and, among other things, reducing our current account deficit, are concerned, this Government could have been more creative. It could have been a bit more creative about income tax and superannuation. It could have given money back to average New Zealanders who want to save for their future. Average New Zealanders want to save for their future, but this Government has said that it does not really want to help them. It will give them $5,000 over 10 years, but, with high immigration, house prices will continue to increase by tens of thousands and that piddly little amount will be a drop in the bucket. The Government is giving them a drop in the bucket—absolutely nothing.

What also surprises me when we talk about tax policy is United Future’s tax policy, which was released, I think, last week. The United Future spokesperson on finance, Gordon Copeland, talked about how that party would fund its tax cuts by selling off 40 percent of some of our strategic State-owned enterprises.

💬 Rod Donald: Dumb policy.

What a stupid policy! Mr Donald and I do not agree on a lot, but we do agree on that.

The United Future party is trying to position itself in the centre. It says, though, that it will join National and Labour in the hall of shame and sell off State-owned assets. It wants to sell our assets to foreign enterprises, whereby the money goes straight over our borders and overseas. What do Kiwis see of it? They do not see anything of it—nothing at all! Telecom, which was sold for $4.2 billion, has made $7.2 billion. What have New Zealanders seen of that money? They have seen absolutely diddly-squat. The mates of the Labour Party and the National Party have seen a heck of a lot more of it than the average Kiwi has. New Zealand First was astonished at United Future’s right-wing, “loony tunes”, crazy tax policy. It absolutely baffled me, but it will be the reason that United Future will do very badly in the polls.

The Green Party will vote for this bill to go to the select committee, but it unless it is amended we may not support it beyond that. I want to make it clear, of course, that we support measures to reduce compliance costs for small and medium enterprises, such as lining up fringe benefit tax with provisional tax and providing a payroll agent. Those policies are just plain common sense.

Of course, the Green Party supports the introduction of a carbon tax. We have argued for it for at least the last 9 years, and certainly for the 9 years that we have been in Parliament. But the tax should be brought forward to 2006, and we should not wait until 2007. Its introduction should coincide with income tax cuts, especially for those on low incomes, to enable them to meet the $4 a week extra cost they will face from increased power and fuel bills. Kiwi battlers need tax relief in order to pay for the increase in their living costs through the carbon tax, and it would be even better if they could receive more than $4 a week—certainly, more than 67c a week in 2008—so that they could invest their tax cut in energy-efficient light bulbs, cylinder wraps, and insulation to reduce their cost of living and to make their homes warm and healthy.

The introduction of an excise tax on diesel should also coincide with the carbon tax. Diesel users, especially truck operators, are not paying their fair share of the total costs of road transport, let alone of the cost of building and maintaining roads. Those users are not contributing to the environmental and health costs that the country’s diesel fleet is imposing on New Zealand. Taken together, the carbon tax and a diesel excise tax would more than pay for the first year of the Green Party’s $15 per week across-the-board tax cut, and still leave some money over to help businesses make the necessary adjustments to cope with the carbon tax, which are contained in this bill. Other eco-taxes would fund the second and third years of our plan to introduce a tax-free threshold of $5,000 of income.

The Green Party is committed to cutting tax on work and enterprise and introducing taxes on waste and pollution. It is time for the Government to modernise the tax system, so that it not only generates revenue to pay for Government services but also encourages good behaviour and discourages bad. But we do not support all the goodies the Government has put in this bill to sweeten up businesses. The Green Party’s first commitment is to help those who are most in need, particularly low-income families with children. Those who are most in need would not be the only beneficiaries of our policies. Inevitably businesses would also benefit, because people who are struggling to make ends meet will spend, rather than save, any extra income they get, in order to survive. So the business community would do very well out of our income tax cuts, too.

I stand on behalf of ACT New Zealand to speak on the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill. I would like to make some comments on the condition of the tax system in New Zealand overall, as well as to look at the specific bill.

As the Labour member just mentioned, the aim of this bill is said to be to reduce compliance costs and simplify the process, particularly to benefit small businesses in New Zealand. I seriously doubt that that will happen. Specifically, the bill deals with provisional tax calculation and the payments system, tax depreciation rules, and streamlining the taxation of fringe benefits. I seriously doubt that benefits resulting from the bill will really be delivered to businesses and to the people working hard in the front line supporting our economy.

I would like to draw members’ attention to a report in the National Business Review at the end of April, just before the 2005 Budget was released, that research and polling showed that 63 percent of New Zealanders—an overwhelming majority—wanted tax cuts. [Interruption] That is quite right. Unfortunately the Minister of Finance ignored that overwhelming wish of New Zealanders and delivered nothing to satisfy it. Everyone knows what he delivered: a pack of chewing gum.

Let me come to the bill. Regarding provisional tax, the current situation for business owners, particularly small-business owners, is that they suddenly have to pay a huge amount upfront in provisional tax. It looks as if this will be a lot more affordable when it is divided more frequently and streamlined with their GST calculations. But one must ask from day one, from the start, why they have to pay so much tax. After all, the current tax rate of 33 percent is the highest of any OECD country.

The ACT party promotes a tax rate of 25c in the dollar applying to all businesses, no matter whether they are big or small. That, for a start, would simplify the system and reduce a lot of compliance costs, not to mention that it would also reduce the tax burden.

Another thing the bill talks about is tax depreciation rules. Increasing the low-value asset threshold will assist some investors to claim expenses costs more quickly and easily, and to get their investment back better. But, overall, the cost of complying with those regulations is still high—let alone the cost of complying with fringe benefit tax.

Fringe benefit tax was introduced in 1985, and I can bear witness to the difficulty of simply trying to comply with fringe benefit tax regulations. I challenge any member of this House to tell me all the details of those regulations. If any members can tell me all the regulations that are in place today, I will give them a prize, but I doubt if anyone knows how much burden the current fringe benefit tax system places on business owners.

The bill itself does not do anything positive to help our business owners to get on with their businesses. It just shifts the burden from one corner to another.

ACT strongly opposes the bill because it does not address the problem. We strongly draw the House’s attention to the fact that ACT has constantly promoted a flat tax of 25c in the dollar for all businesses. We would heavily reduce the current compliance costs in place for all New Zealand businesses.

One of the things that Part 1 of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill does is to fix the annual rate of income tax. We do that every year in these kinds of bills, which go under different names. Every year since the year 2000 we have used the same wording, which is that the tax brackets will remain unchanged. They have remained unchanged since this Government came into power in 1999 and lifted the top tax rate from 33c to 39c in the dollar, cutting it in at $60,000 per annum. Members will remember that when we debated the equivalent bill last year, I tabled an amendment during the Committee stage and said that it was time to adjust those tax brackets for the 13 percent inflation that had occurred since 2000. My amendment, incidentally, would have adjusted them with effect from 1 April 2005. In other words, they would be applying right now as we speak, which would have made those 63.7 percent of New Zealanders who want to see tax cuts, and whom Kenneth Wang referred to, very happy indeed.

I can tell the House today that if United Future has a say in the next Government, we will be shifting the tax brackets. In other words, depending on what happens after the election, one should not assume that this clause will go through as it stands, although we will be supporting the first reading of the bill. Our policy is that on 1 April 2006—not 1 April 2008—we will shift the tax brackets by $5,000, from $38,000 to $43,000, and from $60,000 to $65,000. Why? Because New Zealanders want it, it is fair, and it is just. By contrast, of course, as every person without exception in the country now knows, the Minister of Finance, Dr Michael Cullen, decided wisely to pick up on bracket creep in order to bring to an end the rort of bracket creep that has been going on in this country since, almost, time immemorial. It certainly hit the headlines when Rob Muldoon allowed it to continue, even though inflation was in double digits. Michael Cullen decided to break the logjam, and I compliment him on that. Then, taking everyone’s breath away, he said that it would not take effect until 2008, and then for 6.12 percent only. It saddens me that the Minister of Finance, having broken the logjam and created a piece of history by being the first Minister of Finance in the history of this country to admit it was time to bring fiscal drag to an end, spoilt it by making it far too little, far too late.

There are some other good things about the bill that we willingly support. The first one relates to the changes to be made for depreciation rules. The principle of depreciation is that the cost of an asset should be matched against the revenue it produces across its useful life for tax purposes. This new policy does that, and does it by way of realignment, and therefore it is something I wholeheartedly support. However, a little increase is buried away in the low-value asset threshold. That is the threshold below which one does not actually have to record an asset in the books for depreciation. Being all heart, the Government has decided, after many, many years—I think about 25 years—to increase that amount from 200 bucks to 500 bucks. Big deal! United Future would increase that amount to at least $1,000, if not $1,500.

The bill also introduces a new tax simplification system for small and medium sized businesses. They will now pay their provisional tax in tandem with their GST, and it will therefore fluctuate with the seasons of the year. I know that will be very, very welcome to many small businesses, as Clayton Cosgrove eloquently outlined, and, in particular, by those who have a seasonal cash flow, such as farmers, real estate agents, and many other businesses that go with the seasons. I welcome that, and I am sure small to medium sized enterprises will welcome it very much. But I say to the House that, by contrast, United Future’s policy is to give a tax holiday to new small-business start-ups for the first 2 years of their life, for the very simple and sound reason that many new business start-ups in New Zealand do not survive the first 2 years because of having to pay provisional tax. They simply do not have the cash flow to both grow their business and pay tax at one and the same time. We would give them a 2-year tax holiday so that we could see more new businesses start up in this country, giving our economy a greater dynamism and helping it to grow it.

Likewise, our policy would be to pay a 1 percent commission to all of those who collect GST for the Government on the first $200,000 of GST collected and paid to the Government every year. It is really quite outrageous, when one thinks about it. The collection and payment of GST by a business does absolutely nothing whatever for that business. Businesses are, in reality, unpaid agents of the Crown for collecting taxation. Even in the days of the Roman Empire, tax collection agents got a commission. I think it is an idea whose time has come, and it will be part of United Future’s policy, as well.

I welcome the changes relating to fringe benefit tax. I think that overall they will be good for business and be very worthwhile. Something that has not been mentioned by any of the speakers in the debate so far is the new information reporting requirements for foreign trusts. I think it will come as an absolute surprise to the great majority of Kiwis to know that we have foreign trusts registered in this country that handle billions—not millions—of dollars a year. In fact, we are one of the international havens for foreign trusts. Looking after the funds of foreigners who choose to invest their funds in trusts registered here is really what keeps a lot of the lawyers and accountants in our country going. They register in New Zealand because they see this country as being a good, safe haven. So it is something that really benefits our economy immensely. But those trusts will now have to start recording and keeping information, which can, if need be, be accessed by the Inland Revenue Department, and that is a big change. We need to have that provision because of the opportunities for tax avoidance. We also need it as part of the international war on terrorism, to make sure that funds flowing through any country that are owned by foreigners are not being laundered or used to fund terrorism. I think that that is also a good move.

The Government has decided to bring in new rules about the “selling” and “buying” of assets—securities lending transactions, they are called. Again, that is a good anti-avoidance thing to do. Also, the bill increases the child rebate—the point at which the child has to start paying tax. Let me inform the House today that that would be completely unnecessary if United Future were to be in Government, or working with a party in Government, because our policy is very straightforward. It is that we would exempt from tax, entirely, the first $3,000 earned by any New Zealander. Kids would not have to pay tax on the first $3,000 they earn, even if the earnings come from interest or dividends. Students would not have to pay tax on the money they earn in order to try to subsidise their way through university—up to the first $3,000—either. In fact, every single taxpayer in New Zealand would not have to pay one cent of tax on the first $3,000 they earned. That is a very sensible policy, and it should be adopted. In that respect, the difference between ourselves and the Greens, as I have mentioned, is that we would link that to an adjustment to the tax brackets at the high levels. We would also have income-splitting for couples raising kids, and implement a lot of other very good common-sense ideas that would reduce the tax burden on Kiwis by about $2.5 billion—a very worthwhile objective.

Let me briefly say that the rant we heard from New Zealand First in terms of the possible sell-down of 40 percent of State-owned enterprises to New Zealand investors was no more than that—a lot of hot air, completely lacking in any intellectual rigour, analysis, or substance. But I have to say that that does not surprise me at all, because it is probably a description of most of the policy initiatives that come from that party, led by “Winston Le Pen”.

I can assure members opposite that this is not a valedictory speech; that is still to come.

💬 Hon Paul Swain: When is that?

Well, that is up to the Prime Minister, really. I am fascinated to learn that the National Party is going to oppose this bill. That surprises me enormously, because the package of reform in this bill will return to taxpayers, and in particular to the business community, $1.5 billion. Let us just put that figure out there again—$1.5 billion will be returned to New Zealand taxpayers. When we have a tax-cut debate in Parliament these days, and when we have a Government that is prepared to make changes in the bill to distribute back to taxpayers that amount of money now, then it beggars belief that an Opposition party cannot see past its own party political whims—its desire to sloganise the debate—in order to do something to help the business community in this country.

So what will the Opposition vote against? I see that the member for Clutha-Southland is in the Chamber. One of the things Mr English will vote against today in this first reading stage is the set of rules that will clarify the tax deductibility of re-grassing and fertilising costs associated with farm conversions. He will actually scab on his own farmers. That is what he will do by not supporting this legislation.

Major changes are not being made by the legislation, but incrementally the changes all add up, and they will provide a regime in which business in this country will get significant relief.

I want to go through some of the changes, because there are some interesting issues there. We are going to do some very simple things to reduce compliance costs—very simple things indeed in terms of depreciation of assets, and things of that ilk, which will take the sum of the depreciable assets from $200 to $500. That does not sound like a lot of money, but there is a cost to the revenue as a result of that, and that cost is directly passed on to the business community.

We will change the number of tax payment dates for small businesses, and will reduce their compliance costs along the way. Why would a National Opposition want to vote against doing that? To me, that does not seem to make any particular sense, at all.

We will introduce a new subsidy designed to encourage small business to take advantage of payroll agents. What is wrong with that? What is wrong with providing some assistance for small businesses to be able to employ someone to take that particular cost away from them, that obligation away from them, so that they can get on with what they do best—which is to run their businesses?

The one thing that is becoming clear about small businesses in New Zealand at this point is that they are quite dynamic. They are working hard, and the issue they have now is not about survival; it is about getting the necessary staff to be able to do the work that needs to be done. That is the issue now, so if they are able to relieve themselves of some of the administrative burden by taking on—even in the area of payroll—someone to do that work, then that is a good thing. It provides business with the opportunity of getting on and doing some things that need to be done.

We are doing some work on the fringe benefit tax. It is work that has been overdue for some time, and it will provide a direct and tangible benefit to small business in this country.

The National Party is going to vote against all of this. It just beggars description. I just cannot believe that the National Opposition does not want to support business. But I suppose there is nothing new in that. We on this side of the House when in Opposition had been calling on them in Government for a long period of time to do something about the compliance rates. I see Pansy Wong sitting opposite—we do not hear much from her. When Pansy Wong was in Government she chaired the Commerce Committee that looked at compliance costs, and Paul Swain was on that committee. I actually became part of that committee at the end as well. Not one thing that Pansy Wong worked on in that select committee was ever picked up by her Government—not one thing, not a brass razoo, not a comma, not a dot on an “i”, nothing. Not one bit of the work that she did was ever picked up.

Frankly, the National Party does not care about small business. It promoted John Key—a person who visited a chicken factory and says he has no compunction about sacking people. He is the silent assassin. He is the man who will grin as he puts the knife across one’s throat. That man is not the nice, fluffy man that he is painted to be. He is, without doubt, one of the most ruthless international finance traders in this country. That is where he comes from. If anybody thinks that his intentions in the finance area will do good things for the people of New Zealand through tax cuts—think again!

I have seen the odd letter or two since John Key has been on television talking about tax—and by the way, he and Don Brash cannot agree. They cannot agree at all about the issue of tax cuts. Don Brash says maybe will have a mini-Budget before Christmas. John Key says: “No, no, 9 years.” Any workers who think there will be any change for them to have a tax cut as John Key looks at it, had better think again.

We are already delivering millions of dollars to middle and low income families right now through targeted tax changes—right this very minute. What would workers hope to get under about a $1.5 billion tax cut? National is talking about a $1.5 billion tax cut, which is not a lot of money when one distributes it across the tax base. Workers on the medium income might get about 6 bucks a week if they are lucky. Well, whoopee, strike me dead! What will they cut along the way? Well, if people vote for tax cuts, they should vote to pay for their own policeman. They should vote to pay for their own nurse. They should vote to pay for their own teacher. They should look at having more tolls on the roads, because there will be no roading packages. They should vote for their own prison officers, and they probably should put fences up around their properties. National members cannot, in any way at all, provide the sorts of tax cuts they are talking about, and maintain services. It simply cannot be done.

It was fascinating to see them troop into the House after their caucus on Tuesday, because they learnt for the first time that the numbers do not add up. When they talk about providing services and making tax cuts, they are talking so much cant. We can change some of their billboards. We can change them overnight. In talking about health: with Labour, yes, one gets health; with National, one gets cuts. In talking about education: with Labour, one gets education; with National, one gets cuts. In talking about roads: with Labour, one gets roading; with National, one gets cuts. That is the debate. To think that at this very small level now—the issue of dealing with this particular bill that brings in some employer-friendly provisions and some farmer-friendly provisions that a National Opposition will vote against—they will give out $1.5 billion to that sector of our community, I cannot believe it. I think National must have had a brainstorm, because it just beggars belief.

That sounds like a party that is readying to go into Opposition mode. It is obsessed with the National Party. Mark Peck devoted three-quarters of his speech to talking about National, and I thank him for that.

Before I start getting into this bill, I wish to reflect on the title. It is known as the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill. But what happened to annual income tax rates? The Hon Dr Michael Cullen, the Minister of Finance, who has that title for about 3 more months, is obviously embarrassed to talk about this bill. In fact, it is about confirming the high income tax rate. He is ashamed to even include that in the title.

Anybody picking up this bill will miss Part 1 in total. The whole of Part 1 is devoted to reaffirming the high income tax rate. This is about the ninth Budget debate we have had on a taxation bill since I have been in this Parliament, and it is the first time there has been a confirmation of income tax rates. But I am sure it is also the first time that that term has been totally omitted from the bill’s title.

I think it is very clear that the public has sent a message to Labour: they are wholeheartedly disgusted with the arrogant minority Labour Government that actually thinks a 67c tax cut in 3 years’ time is what hard-working New Zealanders are entitled to. So National is opposing this bill, because we are totally committed to cutting the tax that has been imposed on hard-working New Zealanders through both income tax and business tax.

I want to pick up on some of the statements made by Labour members about how friendly this bill is for businesses, particularly small to medium sized businesses, in terms of compliance costs. One example is the subsidy for payroll agents. Clayton Cosgrove claimed that he has been a small-business owner, although we do not know in what form or for how long. However, this measure shows that he does not understand anything about being a small-business owner.

Small businesses do not want a subsidy. They do not want to have to prepare their data to submit to payroll agents in order to meet compliance requirements; they simply want the Government to reduce compliance costs. That single initiative by the Labour Government, supposedly to help small-business agents, has resulted in about four or five pages of legislation that spells out, for example, who will qualify to be listed by the Inland Revenue Department as a payroll agent, entitled to service businesses that claim a subsidy.

For a start, I have a warning for small-business people: they should watch out for the name cards of those so-called listed PAYE intermediaries. Three pages of the legislation actually outline who qualifies to be agents, but small businesses must watch out. This is really scary stuff, because the bill also spells out the consequences when employers and listed PAYE intermediaries terminate their arrangements with each other. There are also very strict criteria stating that both the agent and the business have to claim those subsidies within 30 days. I want to know whether business owners would be penalised if the agents made mistakes. Members should think about that.

This is a typical Labour Government initiative. When Labour members say they want to reduce a compliance cost, they introduce a whole range of compliance requirements for businesses, in order for them to qualify to receive a subsidy—that is, they introduce a whole raft of more compliance costs.

The other matter I want to introduce into this debate is the change to depreciation rates. In general, being an accountant, I know that depreciation rates are introduced to reflect—[Interruption] A fellow accountant, as well. In general, a depreciation rate is meant to reflect the economic life of plant and equipment in generating assessable income. So I welcome the fact that the Inland Revenue Department is revising its depreciation rates, but I am slightly concerned that Labour members are saying that they know better how to influence business people’s decisions. Instead of saying that depreciation rates are meant to be objective, and to reflect the economic life of the assets used in deriving assessable income, the Labour Government is high-handedly moving to tell people what types of investment decisions they have to make.

During the bill’s time in the select committee I will be looking forward to the Inland Revenue Department demonstrating to us what research it has done, because it has decided to introduce a set of depreciation rates that will increase the economic life of buildings, thereby discouraging so-called rental income. I am looking forward to campaigning in Clayton Cosgrove’s electorate and telling people how he dislikes New Zealanders who happen to earn their money and purchase a second property for investment, for saving, or for whatever purpose. He is going to make sure that those people will pay higher taxes. We want to know why Labour is hell-bent on penalising people who happen to be owners of properties and may rent them out to manufacturers, etc. I shall give that member an example: owning property does have its purpose as well—manufacturing has to be carried out in buildings. So this bill is not entirely beneficial to businesses.

National will also make sure that a lot of hard questions are asked of the Government, so that it will have to explain to hard-working New Zealanders why the tax rates have not been adjusted, and why it will take 3 years to bring in a 67c tax cut.

I also want to share a piece of information that will be of interest to all small-business people. When looking at the Budget, I found that in respect of the Inland Revenue Department the personnel cost for tax collecting is going up by $33 million. There will be $33 million more for tax collecting, but the police will have an increase of only $41 million. My suspicion is that this Labour Government is more interested in ensuring that hard-working New Zealanders are subject to more scrutiny by tax collectors than in ensuring they get the protection they are crying out for. This Labour Government has seen fit to allocate more in the Budget for tax collecting, but I want to know why hard-working small-business owners applying to have a subsidy under the payroll tax are actually going to be given the run-around again.

That speech was a sad effort, really. The reality is that this bill improves depreciation deductibility, changes provisions relating to when one has to pay one’s income tax, and reduces fringe benefit tax, as well as doing a number of other things. It reduces the taxes of businesses by $1.5 billion.

We have heard members on the other side of the House assert that members on this side do not understand business.

💬 Pansy Wong: It’s true.

I tell that member that I probably have more business experience than most members of her own party. I have big-business experience and I have small-business experience. My parents were small-business people. My grandparents on both sides were small-business people. I and many other members of the Labour Party have business experience, I understand our tax system, and I know that this tax bill is a good bill.

Most people in business understand that New Zealand’s business tax regime gives dividend imputation credits for every dollar of company tax that is paid. People credit that against their personal income tax. Overseas-based companies actually benefit from tax cuts in a way that does not benefit New Zealand taxpayers, because the extra tax cut given to an overseas company flows from New Zealand to that overseas jurisdiction. It does not stay in New Zealand, whereas the benefit of tax cuts at the company tax level to New Zealanders who own companies is merely one of timing, and it does not usually alter their overall tax bill when they come to pay their personal tax.

I turn now to some of the individual provisions in the bill. We have followed the recommendation of the business compliance cost advisory panel. It identified that one issue affecting small businesses is that it is quite onerous for them to complete PAYE returns. We are helping them by taking that cost from small business and turning it into a Government cost, which is what it ought to be—after all, those businesses are collecting and paying PAYE for their employees on behalf of the taxpayer, and they should not have to bear the cost of doing so. We are taking that big cost from small businesses.

We are also improving depreciation rules. At present, if an asset is worth less than $200, people do not have to depreciate it; they just write it off in the year that they buy it rather than having to put it through the compliance costs associated with depreciating it over time. We are changing that threshold from $200 to $500 so that assets up to $500 can be written off in the year they are purchased rather than have their value depreciate over time. That, again, is quite a costly measure, and this move is beneficial to business.

What else is the Government doing? Businesses sometimes have difficulty matching their income tax payments with their cash flow. One of the issues that has been raised with us is that if business people have to make their provisional tax payments three times a year, the payments do not actually coincide with the cash flow from the business. We are changing that. We are making that better by allowing people a choice. We are not forcing it on them; we are just giving them the choice. If they want to make their tax payments coincide with their GST returns and their GST return payments, they can now do so, so that their tax payments will reflect their cash flow and, therefore, their ability to pay their taxes, rather than be an artificial “one third, one third, one third” provisional tax payment.

What else are we doing? Fringe benefit tax rates are being changed. For years the National Government did not move on fringe benefit tax rates. We have the absurd situation where, if people own a car that they purchased years ago for a high amount, they pay fringe benefit tax on that high amount years later after the car has depreciated in value. At present, people have to pay fringe benefit tax on the purchase price of the car, rather than on the value of the car at the later date. We are changing that. It is another very sensible but quite expensive thing to do. We are saying that if a car bought 10 years ago cost $30,000 but its value is now $10,000, we will not charge fringe benefit tax on the $30,000 purchase price; we will charge fringe benefit tax on the decreased value of $10,000. So, in that example, fringe benefit tax would go down by two-thirds. That is not an unusual circumstance.

This is very good legislation. It decreases the tax burden of businesses by $1.5 billion, the benefits of which will be received in New Zealand and not exported overseas.

What are National members doing? They are voting against the bill because, of course, they have their very expensive tax bribe to offer later in the year, predicated on the assumption that this Government spends money unwisely. The reality, however, is that our core Government spending at present is around 30 percent of GDP, which is less than the 33 percent of GDP spent by the National Government on its core Government spending when it was in office. I am very happy to support the first reading of this bill.

I am pleased that National is opposing this legislation. Some provisions in it have some merit. I see, in particular, the changes in provisions for what are called farm conversions, which are actually regrassing and fertilising expenditure associated with significant capital activity. But, like any number of other measures in the bill, that just lines up the tax world with reality, and any Government ought to do that.

Of course, the problem for Labour members, when they look at this legislation, is that they wish it had all been different. They keep quoting a figure of $1.5 billion of business tax cuts. I bet there is not a member of that caucus who does not wish he or she was standing up here in the House to argue for changes in Part 1 of $1.5 billion of income tax cuts. It really does erode the confidence of a caucus, when its members have relied on the Minister of Finance to make all the political judgments related to the Budget and then they find that he has simply misjudged—well, not simply misjudged, but completely misjudged. Labour MPs came out of their Budget briefing feeling very chipper. They came into the House feeling even better. At the end of the Budget speech, they felt just terrific. The next day they felt sick. A week later they wished the Budget had never happened, and that it was still 2 or 3 weeks away. But, unfortunately, it did happen.

Dr Cullen made the astounding political judgment—let us look at the politics of it—that a series of changes, mostly minor, the odd one significant, to business tax was where Labour’s big hit would be for the election. Actually, he did not think it was going to be a big hit because his real problem was that he thought he had persuaded New Zealanders, particularly mainstream middle-income New Zealanders, that they ought to keep paying the tax rates set out in Part 1 of this bill. He thought he had their political support and their votes, and therefore the election, in the bag. He thought he could then try to do some tricky stuff, by being business friendly, and maybe pick up a few more votes.

Dr Cullen’s big miscalculation was that middle New Zealand decided he was taking it for granted. Those people know how much more this Government has spent. They may not know the detailed numbers, but they know there has been an awful, awful lot more spending in the last 5 years. Some of them have been voting Labour because they thought the Government was competent and the economy seemed to be going along OK. Then they found out in the Budget 2 weeks ago that Helen Clark was taking their vote for granted. Many of the middle-income mainstream New Zealanders who vote for Helen Clark are not centre-left people. They are not social democrats; they are conservative New Zealanders. They wanted a signal from the Labour Party that Labour knew it had to earn their support—that it had to repay those voters for the enormous amount of tax they have paid over recent years, which has financed Labour’s record spending increases. But Labour ignored them, took them for granted, and put up a Budget that did not even refer to them. And that is why Labour is going to pay a political price.

Dr Cullen decided to focus on these business tax cuts. Well, let us just get the story straight. Different front-bench Labour Ministers are saying different things about the business tax cuts. The major tax increase implemented by the Government in the last 12 months is the carbon tax. Pete Hodgson and Michael Cullen are saying quite different things about the relationship between the carbon tax and the business tax cuts. Dr Cullen says that the $700 million of carbon tax, over a couple of years, will be used to help to finance the other business tax cuts. His numbers say that something like $700 million in carbon tax is coming into the Government, to help pay for the $1.5 billion of business tax cuts that he is giving away. We may disagree with the story, but at least it is straight up. But Pete Hodgson, who is the convenor of the climate change group, and who needs a new suit, instead of recycling the one he has been wearing for 20 years—

💬 Hon Paul Swain: What about your haircut?

It is pretty awful, is it not? Pete Hodgson says that the carbon tax will be used by the Government to pay for carbon credits when New Zealand needs them. It cannot do both. If the Government is to collect $700 million in carbon tax, then either it will be used to finance business tax cuts or it will be put away to pay for carbon credits when we need them. And we most certainly will need them under the Kyoto Protocol, which is a large and looming problem.

So which story is correct: what the Minister of Finance is telling us, or what Pete Hodgson, the convenor of the climate change group, is telling us? I do not think it is competent to have a $700 million conflict in the story about the Budget. Why do we not get that one sorted out? The Government has one more speaker. That speaker can tell us where the carbon tax fits. Will it be used to finance these business tax cuts or will it be put away, to buy carbon tax credits when we need them? We need to know whether Pete Hodgson and Dr Michael Cullen are talking to each other, whether they think they are telling the same story, or whether they do not even realise that they are telling different stories.

I also want to talk about the fiscal impulse issue, which Dr Cullen has been talking about. Fiscal impulse is driven by a combination of tax and spending in the Government’s accounts and in the real economy. Treasury calculates the fiscal impulse as a percentage of GDP. It is in the additional fiscal information, on its website. What that shows is quite different from Dr Cullen’s story. Dr Cullen’s story is that there is no net fiscal impulse from what he is doing, and that any change in anything would have a bad effect on inflationary pressure. Dr Cullen does not have a smooth pattern of no fiscal impulse in front of him. What he actually has, according to this document, on page 8 of Treasury’s additional fiscal information, is a strong tightening of fiscal policy in the 2005 fiscal year. In fact, it is a very strong tightening of fiscal policy. It will be the most positive fiscal impulse for at least 6 years. That is because Dr Cullen has had a huge tax intake. That is what has happened—he has had a huge tax intake. However, after 2005, the fiscal impulse reverses quite sharply, because Dr Cullen has a huge spend-up forecast for 2006, 2007, and 2008. He will be pumping money into the economy flat out.

I invite the financial media, in particular, to look at that fiscal impulse information. They need to know that the story of this Budget is quite different from Dr Cullen’s story and that his scare tactics over National’s prospective tax cuts package are just nonsense.