Taxation (Base Maintenance and Miscellaneous Provisions) Bill

As various members mentioned in their second reading speeches, this legislation contains three major issues. I would like to start with one of the most high-profile issues that this legislation seeks to address, which is the thin capitalisation provision. That means that a foreign-owned bank would have to measure its equity financing against a yardstick of 4 percent. I understand that the Inland Revenue Department has carried out individual negotiations and consultations with the various trading banks. I must say that National is sceptical as to whether the annual taxation revenue will increase by $360 million. We all know, as my colleague Lindsay Tisch and various other members have pointed out, that if there is a high income tax break, then people and entities can prepare themselves for that, with tax consultants and tax lawyers all trying to minimise the tax paid, and that that is legitimate. There are legitimate ways to minimise tax payments.

But there is a further complication to this issue. The bill went into a lot of technical provisions to establish the formula to calculate the equity, etc. The Finance and Expenditure Committee deliberations were quite interesting. We were looking at Supplementary Order Paper 337 in the name of the Hon Dr Michael Cullen, which was brought to the select committee, and the Inland Revenue Department pointed out correctly the complicating issue about financing instruments. New types of debt instruments are being created every day. The Inland Revenue Department first came to the select committee to seek the regulatory-making power to declare whether a certain new financial instrument would be classified as debt or as equity. It was just as well that we had help from the regulatory select committee, which brought it to the attention of the Finance and Expenditure Committee that the original Supplementary Order Paper contained powers that were too wide. It was almost as though Parliament was giving away the power of determining the taxation level to the Inland Revenue Department, and the department concurred with that advice.

I would like the Minister to take a call to assure us—because Supplementary Order Paper 378 in the name of the Hon Dr Michael Cullen is very technical in terms of its drafting—that indeed that Supplementary Order Paper now contains a provision that does not subject Parliament, in a de facto sense, to giving away the power to set the taxation rates because the department can determine whether an instrument is a debt or an equity. We have given the department a narrow power, because we appreciate that the banking and commerce sectors will come up with financial instruments, and will need clarification of their status from the department in a relatively short time. So I want the Minister to take a call to assure us that the amendments on that Supplementary Order Paper, in terms of that regulatory power, do nothing but simply clarify whether a financial instrument is regarded as debt or as equity. Members can appreciate that, with a bill of 170 pages that contains a lot of technical provisions, the select committee relied on the officials to understand it and to preserve the integrity of the intention of the bill’s provisions. I want to make sure the Minister can assure us that we have not given away the power of Parliament’s right to set the taxation level.

I will now move away from the thin capitalisation rule. I also want to point out that we do welcome the provisions for deductions, for example, for expenses relating to patents, etc.

I want to take a call to talk about the thin capitalisation rules. First of all, I want to highlight to the Committee that what I said earlier in my second reading speech was misrepresented by Mr Prebble. I have no problem with banks making profits. Obviously I am very supportive of banks making profits. Any business needs to make a profit to survive, and obviously that is just a statement of fact. I have no problem with that. What I do believe—whether or not Mr Prebble thinks it is an immature belief, a young belief, or a junior belief—is that there are certain strategic assets that should be kept within New Zealand hands. The facts are that most New Zealanders agree with my view in that respect.

💬 Hon Dr Nick Smith: So do most of them bank with a local bank, or an Aussie bank?

Mr Smith from the National Party asks why most of them bank with an Aussie bank; but when only one or two banks in New Zealand are owned by New Zealand, and the other 15 or 16 are owned by foreign-owned enterprises, it will probably stay that way until more time passes. Kiwibank is growing and, hopefully, the tide will turn in that regard over time.

I do not want to focus my whole speech on what Mr Prebble said, but I was interested that he said that this is police-State legislation. Towards the end of his speech, I honestly thought he would vote against the bill, but he said he would vote for it. I do not know whether I am allowed to ask this, but I would like that member, when he next speaks, to clarify his position on that. It would be informative for the Committee.

We are debating the new thin capitalisation rules on stopping banks from avoiding certain tax that really should be paid. A lot of companies, foreign-owned and New Zealand - owned alike, are in that situation. I agree that it is in human nature to find the best way to pay the least amount of tax, but regardless of whether that is wrong or right, what I stated was that for the last 7 or 8 years, New Zealand First has been highlighting the issue of unpaid tax and that it needed to be addressed.

It may be 7 or 8 years too late, but tonight we are debating the issue. I am proud to be in a party that has highlighted that issue for many years now—which, I believe, is a triumph in its own little way.

Given that we are talking about tax and money earned, I think it was disappointing that Westpac joined other Australian-owned banks in not paying imputation to Kiwi shareholders. That highlights the fact that there are certain strategic assets that, I believe, should be kept within the hands of New Zealanders so that those banks can make decisions in the best interests of New Zealanders because to do so will be in their own best interests. The Australian-owned banks are doing what is in their best interests. I guess some people would say that they cannot really be blamed for that.

I have say to the honourable member that that speech was even more confused. If I understood him correctly, he criticised Westpac and said that certain assets should remain in the hands of New Zealanders. Westpac used to be the Bank of New South Wales—I think it was formed possibly even before New Zealand was—and now the member appears to be saying he thinks it should be confiscated. I think he should think through his positions. He did make one reasonable point: given my strong speech against the bill, why am I not voting against it? Perhaps I did not explain it to him clearly enough. Given the complex nature of our tax laws, if we are to keep an integrity to it, then these sorts of laws are inevitable. We have thin capitalisation rules for other entities. Is there a particular reason why they should not apply to banks? No, there is not. So for that reason, the ACT party will reluctantly vote for the legislation.

Let me give the member an example of the arbitrary powers that exist. I turn to clause 110, “Cancellation of registration”, which is a simple example. Clause 110 allows the Commissioner of Inland Revenue to cancel the GST registration of a non-resident. Perhaps that does not worry the New Zealand First Party, but non-residents, like New Zealanders in Australia, do not get treated like that. Is that a police power? Yes, it is, because the commissioner, who is a civil servant, is able, under this measure, purely at his or her own whim, to cancel the GST registration of someone just because that person is not a New Zealand resident—and we will trust the commissioner to do it properly. Well, I do not know; I just do not like that. I think one should never have any right that one has—and the right to be able register for GST could be quite a valuable right—removed except by process of law by the courts. But we have this measure, and the reason it is inevitable that we have to have it is that we have such a complicated tax system that in order to make it work, we need police-State measures.

That is the point I was making to the honourable member. I am saying that if we continue to collect this much tax, if we continue to have an escalating tax system, and if different taxpayers continue to be treated in different ways, then, because people think that that is arbitrary and unfair, we will inevitably end up having police-State measures. The Australian tax system has it, so does the British system, so does the United States. Any country that has an escalating tax system that treats different taxpayers in different ways according to arbitrary rules—and I was trying to say to the member that it is an arbitrary rule to determine that something is capital or income—ends up with these sorts of police-State measures.

I am philosophically opposed to giving those sorts of powers to unelected civil servants, even if they have the highest integrity. That is why I say to the member that as a general principle, we as a House ought to be starting to have a look at these tax laws, and starting to ask ourselves what sort of country we are creating and whether there is a different way of doing it. Of course, there is. We just have to go to a low flat rate of tax. Then everyone is treated the same and there are no exemptions, and we would not have to hand the Commissioner of Inland Revenue police-State powers in order to be able to collect the revenue.

Perhaps the member is right. Perhaps, for that reason, I should vote against the whole of the legislation. I thought about that, but I thought the New Zealand First Party might then go around the country—of course, that member would not, but his leader might—and say I was trying to do special deals for foreign bankers. I am not. I want everyone, including banks that are foreign-owned, to be treated in exactly the same way. So I thought it would be safer not to vote against the legislation and, instead, speak against it vigorously in the hope that I might educate the honourable member so that he could see that there are some real reasons why this House ought to be concerned about the Taxation (Base Maintenance and Miscellaneous Provisions) Bill.

I make this prediction, and I am sure the Minister in the chair, David Cunliffe, will not disagree with it: next year, no matter which party is the Government, we will see a similar bill that will probably also be 170 pages long and will also give the Commissioner of Inland Revenue arbitrary powers—and this one is an arbitrary power, because under that provision he can cancel the GST registration of anyone who is a non-resident New Zealander.

It is absolutely appropriate that in the last few weeks of this parliamentary session, we are debating tax law. When the New Zealand public go to the polls, issues of tax will be at the forefront of their minds. They know that in the term of this Government, the amount it gets, by hook or by crook, out of the pockets of hard-working New Zealanders, has gone up from $34 billion when Labour came to Government, to $50 billion this year, and by the Government’s own estimates, by 2009 it will go to $60 billion. The spending appetite of the Minister in the chair, David Cunliffe, and the members opposite—[Interruption] David Benson-Pope, the famous tennis player from the Government benches, is getting a bit upset that I dare suggest to him that the tax increases.

💬 Hon Rick Barker: That member is unbelievable.

I ask Mr Barker or Mr Benson-Pope what justification there has been for increasing the taxes by $7,000 for every single household. I can understand that Rick Barker and David Benson-Pope are getting upset. They know that the electoral guillotine is coming along. They know that the electors out there have had enough of the tax-and-spend policies of this Labour Government. Those electors are struggling to meet their family bills, and the extra $7,000 a year that every household is having to pay in increased taxes is one reason why this Government will go down the tube in a few weeks’ time.

I am disappointed that in this bill there is no reduction in taxes. Every New Zealander knows that the Government is bursting at the seams with money. The Government boasts a $7.5 billion surplus, so why will those meanies on the Government benches not let working New Zealanders have a little bit of their hard-earned cash? What is it about the members opposite that they believe they are so smart and so brilliant that they can spend hard-working New Zealanders’ money better than New Zealanders can?

💬 Mahara Okeroa: We are!

I just heard the interjection from the member for Te Tai Tonga. He said that yes, the Government can. How does he justify taxing my constituents an extra $7,000 per household? Suddenly he is silent. He cannot justify it, and that is why he knows that a tax cut for working families is what we should be giving in this bill.

But I am also amused, because clause 11B provides for the tax deductibility of failed or withdrawn resource management consents. That is an issue David Benson-Pope should be interested in. It costs New Zealanders who are putting up with the bureaucracy of the Resource Management Act tens of thousands of hard-earned dollars, and all Labour can offer them is a tax deduction. We on this side of the Chamber say that we should fix the Resource Management Act. Let us make sure that businesses and private individuals are not having to spend huge sums of money on failed and withdrawn resource consent applications. Would that not be a smarter policy proposition? What is gained by those hard-working New Zealand families and businesses having to apply to create wealth for New Zealand, to put a garage on their house, or maybe to be able to expand their business? [Interruption]

I remind the member opposite that the Forest Industries Council says that 20 new forest processing plants are being built in Australia as we speak. How many are being built in New Zealand? Not one. The only one we have is in Thames, which is in the very good member Sandra Goudie’s electorate, and that is being appealed by the Government. That is why members on this side of the Chamber say that the first thing a National Government will do is reduce taxes. You bet that we will bring in a tax bill—one that reduces taxes for ordinary New Zealanders, and does not increase them.

We have carbon taxes. The Government has increased income taxes and petrol taxes. National’s tax spokespeople have identified 34 increases in taxes that this Government has imposed on hard-working New Zealanders.

💬 Hon David Benson-Pope: No one believes you.

Well, I say to Mr Benson-Pope that if that is the case, why did 80 percent of the New Zealanders who voted in the New Zealand Herald poll on tax say that they prefer National’s policy on tax over Labour’s policy, when we have not announced it yet? I say that again: 80 percent of New Zealanders prefer National’s tax policy over Labour’s, and we have not yet announced it! That says what New Zealanders believe. It says that they know that this Government is taxing the heart out of ordinary, working New Zealanders.

It is interesting. Even Jim Anderton, a member of this Government, has signed up to the view that taxes need to be reduced. Even United Future members, Labour’s bosom buddies in Government, have said that the Government is taxing too much and needs to reduce taxes. Why is it that the only parties left in this Parliament that want to keep putting up taxes are the Labour Party and what I call the “Watermelon Greens”? Although they are green on the outside, they are good old plain red socialists in the middle. Only those two parties stand by Labour’s policy of continuing to increase taxes.

One of the very first bills from an incoming National-led Government will be a tax relief bill. That will be one of the first things we do. One of the second things we will do is to fix the Resource Management Act. We will not have this bumbled amendment from David Benson-Pope—an amendment that has just been rubbished in the Finance and Expenditure Committee. It is the sort of resource management bill that we have—

💬 Hon David Benson-Pope: The select committee approved it. They thought it was great.

I wonder whether David Benson-Pope stands by his view that no longer having de novo hearings in the Environment Court is a good idea. [Interruption] Is it not interesting? David Benson-Pope says that the most significant change in his resource management bill is the removal of de novo hearings in the Environment Court.

💬 Hon David Benson-Pope: Tell the whole story.

That is what the member said. I seek the leave of the Committee to table a press release from Mr David Benson-Pope, dated 14 February this year, in which he said that the most significant change in his resource management bill was the removal of de novo hearings in the Environment Court.

The CHAIRPERSON (Hon Clem Simich): Leave has been sought for that course. Is there any objection? There is.

Mr Benson-Pope does not want to table his own press release in the Chamber, because it is garbage. There is as much truth in his own press release as there is in his claims to this Parliament about what he did with tennis balls when he was a teacher at an earlier time.

David Benson-Pope’s resource management bill is a disaster. It is a flop. Even his own colleagues have abandoned his key reforms, and not until we get a National Government will we get the sorts of resource management reforms that are required. That is why I again draw the attention of the Committee to clause 11B. The only thing that Labour is promising in respect of the Resource Management Act is that if people get dorked in the process and lose their money, they can reclaim it in their tax return. That is as good as it gets. Nothing is said about the lost opportunity and lost wealth. All people will get is a tax deduction. National will do far better than that.

This bill is a disappointment. As has so correctly been said, when we are taxing the heck out of New Zealanders, we continually have to have bills of this sort to try to knock all those New Zealanders who try to avoid the capricious tax that this Government is imposing on them. We need a change of Government so that we get a reduction in tax.

As others have mentioned, a significant part of this bill deals with the thin capitalisation rules, to ensure that foreign-owned banks in New Zealand pay their fair share of taxation. As I said earlier, we are not asking them to pay any more than their fair share. But I am afraid that I cannot buy into the rather sunny, utopian philosophy that has been voiced on this issue by the Hon Richard Prebble of ACT. He has just been joined in that sunny optimism by the Hon Nick Smith of the National Party. Both members correctly defined the problem: that we have to pass these huge tax bills. In fact, there are two of them every year, each about 160 pages long, so we are churning out tax law at the rate of about 320 pages per year. I agree that that is a bad thing, and I think that their analysis is correct in that regard, but I do not think they have come up with a solution to the problem.

If we buy into the argument that a flat tax rate of, let us say, 20c in the dollar would mean that businesses would no longer endeavour to avoid paying tax or to minimise their tax bill, I think we are dreaming. As someone who, as I mentioned, has worked in the sector, I know that any self-respecting tax adviser to a big corporation does not really think he or she has done a good job unless the corporation ends up paying no tax whatsoever. That view will continue to be held, regardless of whether the tax rate is 20c in the dollar. I do admit, on the basis of human nature, that the motivation to minimise tax is greater the higher the tax rate is, but I simply dispute the optimistic view that if we had a rate of, say, 20c in the dollar, that would somehow magically remove the need for bills such as this one. It certainly will not.

The other thing I have been surprised by in this debate is the announcement by Peter Brown that New Zealand First will cut taxes. It has taken New Zealand First a long time to make that announcement, and it almost sounds like a deathbed conversion. Anyway, New Zealand First joins the ranks of all the parties in Parliament, with the single exception now of the Labour Party—because Nick Smith is wrong, is he not? The Greens do have a tax reduction policy; they want to make the first 5,000 bucks earned by every taxpayer tax-free. Is that right?

💬 Sue Bradford: Absolutely!

Every single party in this Parliament except for the Labour Party now believes that the time has arrived for Kiwis to get some tax breaks and some tax cuts. So I think the New Zealand First announcement tonight is quite momentous from that point of view. Although New Zealand First is a johnny-come-lately, at least it has finally got it right.

It was interesting to hear the last speaker correctly announce that even the Green Party is in favour of tax reduction. We are here tonight debating the Taxation (Base Maintenance and Miscellaneous Provisions) Bill. It is yet another complex pile of bureaucratic socialist engineering to try to outwit clever lawyers, accountants, and tax people, when all of it is unnecessary. One simple question that has been put tonight is yet to be answered. This question has been put many times over the last couple of sittings of Parliament and is yet to be answered: why not avoid it all, by just lowering the tax rate and taking out the incentive for those who invest so heavily in trying to get around the New Zealand tax system? Why is that question not answered? The reason is quite simple. It is that the Labour Party and all socialist parties fundamentally disagree that one can lower the tax rate and still provide basic services at the level people have come to expect.

Yet all the evidence in New Zealand, from our own experiment back in the 1980s, was that when the tax rate was lowered, the actual tax revenue went up. I see a former Minister from that period in the Chamber, and I am sure that he will agree with me.

💬 Hon Richard Prebble: That’s right.

That is exactly what happened. The members on the Government side of the Chamber—and I see a couple of current Ministers having a little conversation in the back—should pause for a moment and listen to this, because clearly it is news that has never ever made it to their ears. It is just too logical for them to understand it—too simple. When the tax rate was lowered in the 1980s, tax revenue went up. More tax was paid. Far less was spent on consultants. There was far less need for this kind of bureaucratic nonsense to try to stop those who would use various tax loopholes—tax provisions is probably a more accurate way to describe them—to get around the taxation system.

Here in the New Zealand Parliament tonight we face a situation that is absolutely unique. Never before in the history of New Zealand have we had a situation like this. That is, we have surpluses that are higher than ever before in this country, no matter how we measure them. Whether we measure them on a per capita basis, or on an export dollar basis—whatever measurement we use—at the moment this socialist Government enjoys the highest surpluses New Zealand has ever seen. Yet at this stage, with those revelations—and clearly they must be revelations to the Government—and in these circumstances the Government still cannot see its way clear to having a lower tax rate for all New Zealanders, in particular for those they purport to represent. That is the most perplexing thing. The Government purports to represent hard-working ordinary mums and dads, yet it is that group that the Government is so disadvantaging through its taxation policy. I say to the Committee that I cannot understand for one moment why the Government will not listen to that kind of simple logic, when the evidence is overwhelming that lowering taxes will work and has worked before.

I would like to talk tonight about a number of other areas of income tax. One of them is the whole notion that if a company is growing and prospering, then the State should take a bigger chunk of its profits and have a bigger say in how it operates. Effectively, that is what happens. Through passing copious piles of regulation and legislation, such as the bill we have before us, that is exactly what the Government does. The Minister of Finance effectively says to those companies that he is much better at advising them on what they should do with regard to the management of their businesses than they are. He has no track record to prove it. No Government in this country has ever had a track record to prove it. But despite all the evidence, the Minister of Finance believes that he and his advisers are in a better position to tell companies how to run their businesses than they are. So what the Government says is that it will take a higher percentage of their income.

Hon DAVID CUNLIFFE (Associate Minister of Revenue): I would like to take the opportunity to respond to a couple of the questions that members opposite have raised.

The first came from Pansy Wong in relation to Supplementary Order Paper 378. Her question was whether the changes to the definitions there would change the underlying policy around equity and debt. The answer is no. The amendments were made at the request of the banks themselves. They provide some certainty and clarity, but the underlying policy will not change. The regulation-making power cannot be used for anything beyond clarifying those definitions.

Mr Prebble raised the issue of clause 110, which gives the Commissioner of Inland Revenue discretion to deregister non-residents who do not carry on a taxable activity in New Zealand. Mr Prebble described that rule as akin to those in Nazi Germany. It seemed a long stretch of the imagination, because what that provision in fact does is clarify that someone who is not carrying on a business in New Zealand, and essentially is not incurring any input costs to defray GST on, should not be able to take the GST margin as a final profit because he or she does not operate in New Zealand. In other words, we are treating such people in the same way that we would treat any other business in New Zealand. It is entirely fair, and of course we must reject the suggestion of Mr Prebble.

Mr Nick Smith argued that this so-called greedy Government has seen its tax take go up, but he forgot to tell the Committee that, in fact, tax as a share of GDP has gone down. According to the OECD, in the year 2000 tax as a share of GDP was 37.2 percent, and in 2002 it was down to 36.3 percent. [Interruption] The member has asked about the growth in GDP. It is true that under this Government GDP growth is nearly double that achieved by National when it was in Government throughout the 1990s. So part of the reason why tax as a proportion of GDP has fallen is that the economy has grown so quickly under this Labour-Progressive coalition Government.

Mr Nick Smith argued that the Government was sitting on a $7.5 billion surplus. That simply does not wash. Kiwis know that whether they are in surplus or in deficit is determined by whether, after they collect their pay packets and pay the bills, they have got any cash left in their pockets. [Interruption] On a cash measure, that is right. In 3 of the next 4 years, according to the Budget, we will be in a cash deficit situation. In 2008 we will face nearly $3 billion of cash deficit. There simply is no pot of gold. For the ladies and gentlemen out there in radioland, National is spinning them a line. If National were ever lucky enough to be elected, which is looking increasingly unlikely, it would spend New Zealand into the kind of oblivion that Rob Muldoon left the country in last time Labour had to rescue it, in 1984.

Nick Smith argued that 80 percent of people prefer National’s tax policy—even though it has not got one. That is the highest number that National members will ever see, because when they finally unveil their policy and try to make the numbers add up, it will be very, very clear that they do not. New Zealanders know a swindle when they see it, and they will vote for the Government that has delivered solid growth and fiscal credibility for the last 5 years.

Gordon Copeland said that Labour does not believe in tax cuts. Well, that does not square with the evidence in this year’s Budget, because we brought in a nearly $2 billion business tax cut package. I will recall it for members. Fringe benefit tax thresholds were raised, provisional tax was eased, tax on actively managed funds was erased, tax on international migrants and venture capital funds was lowered, there was a small-business tax discount in the first year of operation, and there were tax cuts in the $3 billion Working for Families package. This Government has already cut taxes. [Interruption]

He asked the key question—and Mr Shane Arden is asking it again—“Why didn’t you just cut rates?”, and that is a good question. The answer comes back to the central point of this bill, which is that if you just cut rates, the benefit would flow—

💬 Dr Richard Worth: I raise a point of order, Mr Chairperson. Prior to your assuming your position as Chairperson of the Committee, we had a most unpleasant exchange with your predecessor, which was all about members bringing the Chair into the argument. In the last minute, we have had three instances of gross breach by this very young Minister. If he could just be brought to order, we would be grateful.

The CHAIRPERSON (Hon Clem Simich): Thank you for raising that point. The member is quite right, but I did not intend to interrupt the Minister.

💬 Hon DAVID CUNLIFFE: I shall endeavour to speak in the third person. The central question is why we did not just lower the tax rates. There are two key reasons for that. This bill makes clear that certain large banks are foreign-owned, and they have kind of forgotten to pay tax—or enough tax—for the last 5 years. If we lowered the tax rates, much of the benefit of that would flow straight to the foreign owners. It would not go to the hard-working Kiwi battlers, to the panel beater shops, to the farmers in Taranaki, to my constituents in New Lynn; it would go to the Sydney financial markets, like the $360 million of tax that three Aussie banks have forgotten to pay per annum—and this bill is required to fix that. Do I care? You bet I care, because that adds up to the loss of an Auckland hospital every year, built from scratch, because those banks have hired smart accountants and lawyers to cheat the honest people of New Zealand of their hard-earned tax money.

I say, ladies and gentlemen, that this bill is, sadly, necessary. It is moderate. It has even been agreed by the New Zealand Bankers’ Association as a good basis for moving forward. Of course, I make no comment about individual taxpayers, but I regard it as sad but true—and it goes back to New Zealand First’s point—that although making a profit is an entirely laudable and legitimate thing to do, being a good corporate citizen in paying one’s fair share of tax is also a good thing to do. We regret that we have had to clamp down on this kind of corporate behaviour, but we make no apology for it. We do it for the sake of children and mums and dads in New Zealand who elect the Government to defend the interests of the little people from the Queen Street lawyers who are paid to enrich big foreign-owned business interests.

Before I get on to the populist nonsense that the Associate Minister of Revenue put forward, let me just go to a technical point. He suggested that what I had said about clause 110 is wrong. What is a way of settling that? Well, KPMG, which is one of the world’s largest accounting firms, said this about clause 110: “If clause 110 is enacted, non-resident businesses engaged solely in taxable activities outside New Zealand may, at the commissioner’s discretion, have their GST cancelled. The effect of this would place New Zealand at a disadvantage in attracting non-resident businesses, as non-residents would be treated less favourably. … The unilateral and retrospective cancellation gives potential for significant losses.” I say to the Minister that that is an arbitrary use of power. I suspect this is the first time he has ever looked at clause 110.

Then the Minister came up with an argument that makes me take back everything I said about the New Zealand First MP—compared with the Minister, he is highly mature. The Minister told us that we cannot have a cut in tax rates, because if we did so, an overseas firm would be paying less tax. I say to the Minister that that may well be so, but his attitude also means that every New Zealander has to pay more tax just because this Minister is concerned that some overseas taxpayers will pay less. What a load of nonsense! That is exactly what the Minister said. Members can look at his Hansard.

If the Minister wants to know why he will be in Opposition—because I do not think he will lose New Lynn—within the next 3 months, it is because the Labour Government, for ideological reasons, refused at Budget time to make a cut in tax rates that all New Zealanders thought was reasonable. He can try to tell us that the books are cooked, and that it is not really a $7 billion surplus. Good luck to him. I say to him that every New Zealander knows that this Government has been collecting record tax receipts, and that the average New Zealander—the person who pays tax—according to Treasury, is now in no better financial position after tax than he or she was 5 years ago. The country is more prosperous, the Government is much, much more prosperous, but not the people paying tax, because of the increased amount of tax they pay—and people are paying more tax because inflation has put them in higher tax rates. In spite of the Minister’s promise, or the promise made on his behalf, that only 5 percent of all New Zealanders were going to pay a 39c tax rate, I say to the Minister that now 20 percent of all New Zealanders pay it. Now people are being told that they have to pay 39c in the dollar, because if they do not,Westpac might get a tax cut. I would like to be on a panel with David Cunliffe debating that during the election campaign, to see what the average New Zealander thinks of that particular argument.

But let me make it quite clear to the Government the real reason, the 38,000 reasons, that Dr Cullen feels he cannot cut tax—apart from his ideological belief in tax. He has increased the number of civil servants and bureaucrats in New Zealand by 38,000. He has a paper from Treasury, which has a lot of experience in how much it costs to employ civil servants, which states that, as a result of that, the Minister will be in deficit within the next 3 years. That is because the cost of employing those 38,000 people includes, of course, not just their salaries but also their accommodation, and the like.

The interesting thing about employing civil servants is that they actually cost more every year. Why is that? Well, out of that 38,000 about 1,000 will probably bring a personal grievance case against the Government next year. Another number will be pregnant. Another number will actually do some work—they will produce some papers—and then the Government will have to hire some consultants to look at the work that is being done. Every year they cost more and more money, and Treasury, which has a great deal of experience in these matters, has told Dr Cullen that he will be in deficit as a result of the 38,000 extra civil servants.

They are not actually producing any more hospital operations—there are more bureaucrats, more costs, but no more hospital operations. We all know that the result of the extra bureaucrats is a scholarship system that is a disaster. They have not resulted in higher educational standards, and they have not resulted in the elderly getting better social services—no, not a thing. But they have meant that the Labour Government feels completely unable to make any cut in tax rates.

That is the real reason, I tell Mr Cullen; it is not because he is trying to catch the Westpac bank. The reason Dr Cullen cannot make a tax cut is that he has 38,000 bureaucrats who are not producing any more hospital operations.

My understanding, along with the understanding of 3.5 million New Zealanders, is that Wellington, the Beehive, and Dr Cullen are absolutely and utterly awash with cash. Every New Zealander believes that Wellington is absolutely awash with cash. But I have found out from Mr Prebble this evening that Wellington is awash with civil servants as well—in fact, with 38,000 extra civil servants. It is no surprise that what was not an election issue 3 or 4 months ago is now an election issue—that is, the fact that Wellington is awash with cash and it is time for some serious tax cuts.

Now the Labour Government has put forward this bill, and the Budget a month ago made a tremendous offer to New Zealanders, which was 67c extra to spend in 3 years’ time.

💬 Lindsay Tisch: How much?

It is 67c extra to spend. I can see the galleries clearing; the people up there did not know they had an extra 67c in 3 years’ time. Look—they are off down the road to buy themselves a packet of chewing gum just to celebrate, and good for them! National thinks there should be some serious tax cuts on top of the 67c in 3 years’ time, because Wellington is awash with cash, and every New Zealander knows it.

I would like to support Nick Smith, who was challenged by the tennis player opposite about the number of tax and levy increases over the last 5 years. I have a document that came out in August 2003, and it lists 24 tax and levy increases from Labour, which is the party that, members will recall, promised at the 2002 election there would be no new taxes. That is what it promised back then, but there have been 24 tax increases.

Perhaps members will remember the petrol tax increase—that 4.7c plus GST increase that came along with road-user charges for diesel vehicles. That tax was up 30 percent. The second was petrol tax II, which of course we are seeing at the moment. The third was the threatened flatulence tax, which at the time was going to be 9c on sheep, 54c on cattle, and 72c on dairy cattle. Well, that one did not come to pass, because of political pressure. The fourth was that income tax went from 33 percent to 39 percent. Members will remember that, and the Hon Richard Prebble talked about that. Fringe benefit tax went up from 49 percent to 64 percent, and trust income tax, the sixth increase, went up from 19.5 percent to 33 percent. There was an electricity tax, and an increase in the tax on alcoholic beverages—from $21 per litre to $38 per litre of alcohol. Members will recall a debate all night on the sherry tax. Dr Cullen decided he would stiff-arm the elderly; they could not go to bed with a sherry, because he whacked the tax up from $21 to $38 per litre of alcohol. He hit the elderly hard. He believed he was stopping young people from drinking high-alcohol beverages, but it was the elderly, sitting with their blankets over their knees in front of the heater and watching Coronation Street, who were the ones that suffered.

Members will recall that the ninth increase was the driver’s licence renewal fee. Its cost went up, as did the costs of birth, death, and marriage certificates. I have never had so many emails on an issue as those from people concerned about the cost of those certificates going up significantly. The ciggy tax increased, so that the cost of a packet of cigarettes went from $7 to $8. And there were Accident Compensation Corporation (ACC) levies, ACC motor vehicle levies, a petrol ACC levy, and the resident withholding tax. The 16th was an import fee, and the 17th was a Fire Service levy. Households’ and motorists’ levies went up 17.7 percent. A fishing-licence went up 10 percent.

My colleague Phil Heatley, who was only halfway through his speech, made a very valid point. We should look back over the last few years at the record of a Government that says it is looking after middle New Zealand—that is what the Associate Minister of Revenue said; he said it is looking after hard-working New Zealanders. My colleague to my right, Phil Heatley, represents the area of Whangarei, and what a great electorate MP he is. Up in his area there are so many people who are in business, so many people who are enterprising and want a reward for their initiative, and what does this Government do? It sticks it to them—absolutely sticks it to them. The Minister says the Government is looking after middle New Zealanders; well, I will mention some of the facts my colleague did not get to mention.

He did not mention the carbon tax. Well, the carbon tax has come about because we have ratified the Kyoto Protocol. What does that do? At this stage, we do not really know, because of the implications of the carbon tax that is being introduced. But we do know that it will affect our international competitiveness. On the world stage, it will be difficult for us to compete internationally when two of our most significant trading partners, the United States and Australia, have decided not to ratify that protocol. That is the first thing, but let us look now at what the implications of the carbon tax are. At $15 per tonne of carbon dioxide emissions, that tax will be a compliance cost added on to all New Zealanders, not just those in business. What does it mean? It means that we will probably see a 4c per litre increase in the price of petrol at the pump, over and above the 5.6c per litre increase that we debated in the House about a month ago. Do members remember that one?

💬 Phil Heatley: Yes, tax No. 33.

Ah, there we are—tax No. 33. On top of that we are going to have a 10 percent increase in electricity charges. Well, who will be paying that? I tell members that it will be the hard-working New Zealanders, the hard-working families. I am telling the Minister and the Government now that that is their death knell, because people are not prepared to accept it. The Minister had the audacity to stand up here and say Labour was the party that was going to give tax cuts, and that it was the party looking after hard-working New Zealanders.

💬 Hon David Carter: 67c.

That is 67c—

💬 Hon David Carter: In 3 years’ time.

LINDSAY TISCH:—in 3 years’ time, so I ask Labour members what planet they are on. I tell them that they will be looking for another job shortly.

Let us look at the Holidays Act. Well, for those in business there are increased compliance costs of employing staff in the holidays. I was down in Queenstown at Queen’s Birthday weekend, and do members know what was happening on Monday? Businesses were shut. Why were they shut? Because under this Government someone who works on a statutory holiday gets penal rates—that is OK; we used to have penal rates, anyway—but, on top of that, employers have to give a day off in lieu. It is double-dipping. So what are the firms saying? They are saying they cannot afford to pay the costs, and they just shut down. Who misses out in that arrangement? I will tell members who misses out: it is the employees—the people whom this Government says it is looking after. They miss out because, at the end of the day, if the business does not meet the bottom line and make a profit—the Government thinks “profit” is a dirty word—the business cannot reinvest and cannot create jobs. It is as simple as that, but Government members would not know that, because they have never been in business. They have never invested a dollar, never put a dollar at risk.

So what happens now is the Government introduces costs like the provisions in the Holidays Act concerning statutory leave and relevant daily pay, and people abuse the system to get extra money because they are having a holiday. Then we have the open-ended provision for bereavement leave that allows 3 days’ leave for the funeral of a close relative and 1 day’s leave for that of a close associate—open-ended—and we wonder why businesses are saying: “Enough’s enough!”. That is what they are saying, and they come to National and tell us to sort it out—and we will sort it out. I tell the Minister that we have a business policy that is attracting the attention of all New Zealanders.

In speaking again in the Committee stage, I just want to raise a few points that some members have referred to concerning what my colleague Peter Brown and I have said on the issues raised in this bill.

First of all, I say to Mr Copeland, who said that he had never heard New Zealand First advocate a tax reduction, that for a long time, even since before the last election, New Zealand First has constantly talked about tax reductions. That has been in our policy for many years and we have talked about it in exactly the way Peter Brown talked about it in his speech. New Zealand First believes that once we prioritise our economic and social spending, we should look at a reduction in tax. That is what Mr Brown said, and we stand by that statement. Our policy even states: “following the achievement of intermediate growth goals and focused social expenditure aim to reduce personal income tax levels;”. That is pretty simple and clear, and we stand by it.

💬 Marc Alexander: You are down to one finger now.

Well, it is all right for “Mr 2 Percent” over there to be talking about a one-finger campaign, but the fact is we are campaigning on the right issues, and the people of New Zealand seem to be happy with the direction we are going in.

💬 Lindsay Tisch: I raise a point of order, Mr Chairperson. The member cannot refer to somebody as “Mr 2 Percent”. The member must refer to other members by their full name, but in his speech the member called the member from United Future “Mr 2 Percent”. I do not know of any member in the Chamber whose name is “Mr 2 Percent”. I think the member should stand, withdraw that comment, and apologise to the member.

The CHAIRPERSON (Hon Clem Simich): Thank you for raising that. All members know that if they are referring to any other member in this Chamber, they are to use the member’s full name, and if a member is referring to a party, the member is to refer to it correctly. But the member may not have been referring to anyone at all.

Our other policy concerning taxation is: “Upon achieving short term growth goals aim to reduce corporate taxation beginning with a 20% tax rate for ‘new exports’ net income;”. So the question that I come to as far as this taxation bill is concerned is where is the vision in this bill. I ask where the vision is for this Government to be taking our country down the track of high expenditure, with the growing numbers of civil servants increasing the State sector by 38,000—as was just commented on. Where is this Government’s vision as far as taxation is concerned? As Mr Tisch has just said, it is 67c in 3 years. We in New Zealand First say that is a stick of gum in 3 years.

Another issue that I want to speak about briefly is what the Associate Minister of Revenue was saying—rightly so—just a few moments ago about banks paying the appropriate amount of tax. He was very passionate on that issue. I am glad to see that he was passionate on that issue, but New Zealand First is asking why the Government was not passionate on that issue 7 or 8 years ago, when we started raising it. The fact is we are approaching an election, and it just seems too coincidental that this Government is bringing this bill in under urgency in this way. We say it is incredibly ironic, and the fact is New Zealand First has been passionate about this issue for the last 7 or 8 years. The Minister was very passionate on the issue, and I was very impressed with how passionate he was, but the fact is the Government has berated New Zealand First for many, many years while we, year in, year out and month in, month out, have spoken against banks doing that.

We have suggested different ways that we can stop those banks wriggling their way out of paying their taxes. I remember talking to an official when we were going through this bill. I asked him whether he thought that this bill would be it, and that the banks would put their hands up in surrender and say: “OK, we’ll just start paying the appropriate amount of tax.” He said they would try to find new ways to avoid paying tax.

I raise a point of order, Mr Chairperson. I just wonder whether a copy of the speech made by the member who has just sat down will be made available for purchase later. It was absolutely riveting stuff. It had the crowds in the rafters jumping up and down—stunning!

The CHAIRPERSON (Hon Clem Simich): That is not a point of order. I am going to call someone who may, just by chance, speak to the bill.

Mr Chairperson, I am pleased you have allowed me to take a call, because I want to focus on the seriousness of this bill. I want to focus on the tax bill before the Committee tonight.

Today I have had the privilege of actually being amongst real people, at the Fieldays at Hamilton. Thousands of people were there, and I was very interested to see that Dr Cullen and Helen Clark had made another significantly tactical error by having Helen Clark there to open the Fieldays. She was in the main arena at around 12 noon today, and she had assembled about 20 loyal Labour Party supporters and perhaps 100 passers-by. Helen Clark had the audacity to say at the opening that agriculture was the backbone of the economy—and everybody laughed! Everybody laughed, because the people who were there had been talking to me about tax. The issue on everybody’s lips at the Fieldays was tax. New Zealanders know they are grossly overtaxed.

We have had Dr Cullen trying to control the argument for many months now by saying that New Zealanders are not grossly overtaxed, yet he had the audacity and arrogance to come into the House and actually recognise that New Zealanders are overtaxed, and to say that they needed a tax break. “Yep, they need a tax break.”, said Dr Cullen. The Labour caucus had been briefed at 1 o’clock that day. Labour members had nodded their heads and said: “Dr Cullen, you are on the right track. Go in there and offer them a tax cut. Go in there and offer them 67c a week.” But there was a proviso.

💬 Lindsay Tisch: What was that?

People have to hang around for 3 years before they get their 67c. Phil Heatley’s contribution, when he wisely advised New Zealanders listening tonight not to spend their 67c all in one go, was important. Tax is an issue at this election, and tax is an issue because Labour has created it as an issue. It has grossly overtaxed New Zealanders. Phil Heatley mentioned 24 new taxes—

💬 Shane Ardern: It’s 33!

My point exactly—it was an old newsletter. Phil Heatley has been busy producing newsletters for a long period of time, busy trying to keep up with the rate at which the Government keeps imposing new taxes. The figure now is over 30 new taxes, and everybody down at the Westpac Stadium tonight watching that game had one thing on his or her lips.

💬 Lindsay Tisch: What was that?

It was not the British and Irish Lions, and it was not Wellington; it was tax. People know they have been overtaxed and ripped off by this Labour Government for 6 long years, and even Dr Cullen notices it—even Dr Cullen acknowledges it. He comes in here and audaciously, stupidly, and arrogantly says: “You guys have been pretty good. You’ve paid your taxes. You deserve a tax break, so if you hang around for 3 years, we’ll give you 67c a week.” That is the issue at this election. We are debating this tax legislation today, but that is what people will focus on at the next election. They know that the Government has created a huge surplus of $7 billion. It is not a Government surplus; it is surplus taxpayer funds that have been collected over the last few years. It is money that the Government has collected and now is wastefully spending. That is what New Zealanders are focusing on. So I tell Dr Cullen, as we debate yet another tax bill, that he has created the environment for this election.

Mr Cunliffe is sitting in the chair, and has not taken a call while I have been in the Chamber.

💬 Hon Member: Yes, he has.

Not while I have been in the Chamber. He knows that he is beaten. He hangs his head dejectedly, knowing that he listened patiently to Dr Cullen, who normally delivers, but after that Budget he is trying to justify the generosity of giving people 67c—provided people wait 3 years; we have to add that proviso. It is no wonder that 700 New Zealanders who went out of Auckland International Airport last week ticked Australia as their permanent place of residence now. The Australian Government managed to deliver substantial tax cuts. The Australians do not have to wait 3 years for 67c. That Government knows the importance of delivering tax cuts to an overtaxed country.

It is very, very frustrating for us, constantly debating this taxation bill. To me it is all about money-grubbing and money spending.

I would like to draw attention to the fact that this House has been sitting under urgency since yesterday, and before that we debated the Appropriation (2004/05 Supplementary Estimates) Bill. That bill has been debated and is in the past. But what was it about? It was all about giving legitimacy to this Government grabbing more and extravagantly spending more. This bill is another example of this Government grabbing even more. We say that if we had adopted a lower, flat tax rate in the first place as the ACT party has suggested—25c in the dollar—there would be no need to sit here until midnight debating this bill and wasting taxpayers’ money.

I would like to draw attention to the fact that before Michael Cullen’s 2005 Budget speech the public had already spoken. The National Business Review survey at the end of April this year showed that 63 percent of New Zealanders were looking for lower tax rates. They expected our Government to deliver. They expected our Government to listen. Unfortunately, we have a very arrogant Labour Government that did not listen.

I would like to comment on the Minister’s statement that if we had a lower tax rate, it would benefit only those who are rich, the corporates, and foreign owners, who would grab our money and directly transfer it overseas overnight. But I would like to draw attention to the basic knowledge that in this country over 90 percent of businesses are small businesses. Those small-business owners have spoken. One needs only to look at the opinion polls. Business confidence has plunged to a 70-year low. Why? Do members think they are foolish or dumb? Of course one cannot say that; one would not dare to say that. But why does the Government still insist on a high tax rate? Is the Government going to label them all as rich, or foreign-owned corporates, or crooks? Of course, the Minister is shaking his head.

I know that the reason for this Government taxing all and taxing more is only that it wants to spend more. Of course, there are 38,000 more civil servants. Under this Government, that is not a big figure. It expects to spend more. It wants to spend more on things like the hip-hop tour and the wānanga institutions.

Every New Zealand family has also spoken out. Even Michael Cullen admitted earlier this year that the average New Zealand family’s income, in real terms, is no better off than it was 6 years’ ago. Those Labour members should not shake their heads; they should just look at the real figures. Those members can say: “We have a great plan—the Working for Families package.”, but the Government is not a machine to produce wealth. Where does the money come from? Tax and more tax. This Government knows how to do that very, very well. It should just remember where that revenue came from. It came from hard-working New Zealanders. It came from the 90 percent of business owners such as dairy owners, electricians, and plumbers.

I move, That the question be now put.

First of all, I congratulate the Hon David Cunliffe, the member for New Lynn, on taking a call before—a very passionate call. What that young new Minister’s call demonstrated overwhelmingly was two things. One is that there is no substitute for experience, and the other is that David Cunliffe does not have any—he absolutely does not have any. I just say to that member that it was interesting to listen to him stand up and justify the Government’s position, by saying that the way to defend poor hard-working “Joe Hard-worker” out there—a traditional Labour supporter—is to layer another tier of bureaucratic nonsense on top of him and employ another pile of bureaucrats, to add to the now 38,000 new bureaucrats and civil servants that this Government has employed. Somehow that will protect people.

But what “Joe Hard-worker” will tell Mr Cunliffe, when he goes back to New Lynn, is that people have been told, and have read, that in this country we have had strong growth over the last 6 years. They have been told, and they have read, that the Government—the Minister, the Hon David Cunliffe and his Government colleagues—have a surplus like none other. They have been told that. Yet those hard-working small business people, or other hard-working New Zealanders, have never had it so hard. They are struggling. They cannot pay the school fees, cannot pay to get the 10-year-old Japanese import through the next warrant of fitness, and are struggling to meet their mortgage payments, so this Government is not working for them. The Minister will learn that when he goes back to his electorate in the election campaign that is coming up.

The reason for that is very simple: this Government simply has its hands too deep in the taxpayer’s pocket. There are 34 new taxes. I congratulate my colleague from Whangarei on his newsletter, which is now well out of date. It shows 24 new taxes and is a very important document. In fact, we may table it at the end of this debate, just to bring the Government up to speed with what it is doing. By the time that newsletter was off the print, another 10 new taxes had been added. This Government has introduced 30-odd new taxes. That is the reason why the good folk of New Lynn will tell the Minister, when he goes back there, that he is just too tough on them. And he is not delivering the services he promised, either. He said, and they believed him, that if they paid a little more tax—were a bit more generous, and gave a few more dollars—the Government would fix the health and education system.

Well, what have people got? Three billion dollars more are going into health, but there are fewer operations. A whole pile more money will go into various educational courses, but with less end results there. We have 1,200 more bureaucrats in the education system alone. I have before me something quite interesting. I have a document with a photo of a person who looks very similar to the Prime Minister. I am not sure whether it is her, but it states: “My commitments … [are] No rise in income tax for the 95 per cent of taxpayers earning under $60,000 year. No increase in GST or company tax.” Where does one go from there? The fact is that a huge number of the people who believed in that commitment have been let down. That is a broken promise, like none other we have seen in the history of New Zealand.

When we look at the legislation that we are debating tonight, we see a complex list of regulations to try to stop some foreign banks from using the taxation system, which has been designed by that Minister, to avoid paying their fair share of tax. No one will have too much sympathy for the banks that do that, and I accept the proposal the Minister has put forward in that regard. But here is a simple question for the Minister, which he did not answer, and on which there is overwhelming evidence: if he were to lower the tax rate and flatten the tax rate, would those banks go to the effort that they do now to avoid paying that tax, and would this regulation be necessary? The evidence in this country, if one goes back through history, is overwhelmingly that no, they would not make the investment they do, in terms of employing high-powered tax consultants, lawyers, and accountants, to get around the New Zealand system. The banks just would not bother; it would be cheaper to pay the tax.

I move, That the question be now put.

Motion agreed to.

The question was put that the amendments set out on Supplementary Order Paper 378 in the name of the Hon Dr Michael Cullen to clause 2 be agreed to.

Amendments agreed to.

The question was put that the following amendment in the name of the Hon Dr Michael Cullen to clause 2 be agreed to:

to omit from subclause (9) the expression “75C,”.

Amendment agreed to, and clause 1 agreed to.

Clause 2 agreed to.

Schedules agreed to.

The Committee divided the bill into the Taxation (Base Maintenance and Miscellaneous Provisions) Bill and the Privacy Amendment Bill (No 3), pursuant to Supplementary Order Paper 379.

Bill reported with amendment.

Report adopted.