Taxation (Annual Rates, Savings Investment, and Miscellaneous Provisions) Bill

Part 1 of this Taxation (Annual Rates, Savings Investment, and Miscellaneous Provisions) Bill has actually been largely ignored because of the very controversial issues contained in Part 2, in particular. But Part 1 is a very important part of this bill because it confirms the current income tax rates for the 2006-07 year. There are a number of questions that, I think, should be rightly posed about this to the Minister in the chair, the Hon Peter Dunne, because when the current tax rates—including the 39 percent tax rate—were introduced by this Labour Government back in 2002, I clearly remember Dr Cullen speaking in this Parliament and telling New Zealanders that this higher tax rate of 39c in the dollar would be imposed on only 5 percent of New Zealand income earners. It would be only the highest income earners who would be paying this high tax rate. So the question I now have for the Minister in the chair is what percentage of New Zealand income earners, when we confirm these same tax rates—including the 39 percent tax rate above $60,000 income—will be paying that 39 percent marginal tax rate.

I think it is a relevant issue. Dr Cullen promised that only 5 percent of New Zealanders would pay this rate. It is relevant to the Minister in the chair because we all know he is of the view, and has pushed the policy quite strongly, that the tax thresholds should be indexed. Now I have two questions on that matter to the Minister. The first question is when will the tax thresholds be indexed. The second question, in relation to that, is at what point they will be indexed.

Let me explain what I mean. Will they be indexed at a point where only 5 percent of New Zealand income earners pay that top tax rate? In other words, will the threshold be raised until only 5 percent of New Zealand income earners pay the top rate as Dr Cullen promised, or will they be indexed at the status quo where—what is the figure—10 percent or 15 percent of New Zealand income earners now pay that top tax rate? So I think there are two issues there that I would be particularly interested in. The first issue is what is the percentage of New Zealand income earners paying that top tax rate. The second issue is when indexation will start and what proportion of New Zealand income earners will lock into that top tax rate.

There is no question that by confirming these tax rates this Parliament is locking in a very high level of revenue collection—a very high level. Revenue collection by this Labour Government has gone up since it came into office in 1999, I think, something like 60-odd percent—a massive increase in tax collection by this Labour Government. Clearly this Labour Government is currently carrying very large fiscal surpluses. So I think the Minister in the chair should tell us exactly when the indexation of the thresholds will start, and whether it will lock in the status quo where a very much higher number of New Zealanders will be paying that top tax rate.

I think New Zealanders deserve to know whether this Government will seriously address the possibility of a reduction in personal income tax rates for New Zealanders. We are becoming a very highly taxed country. The proportion of our GDP being taken as tax is climbing now. It has declined for many years, and it is now climbing again. We all know that that is a negative for our economy. For the percentage of our GDP taken in tax to be climbing again is a negative for economic growth. Given the overall tax policy he is pursuing as Minister of Revenue, I would like to hear as well from the Minister what the prospects are not only for indexing thresholds but of us seeing these actual tax rates that Part 1 confirms are the current arrangements—15 percent up to $9,500, 21 percent up to $38,000, 33 percent from $38,000 to $60,000, and 39 percent from $60,000 and above—being reduced. These are very specific questions to the Minister.

Hon PETER DUNNE (Minister of Revenue): Let me respond to the points the member has raised. The first point he asked was what is the percentage of taxpayers now in the 39 percent bracket, bearing in mind the claim in 2000 that only 5 percent of taxpayers would be affected. If he cares to look at Treasury’s estimates that were produced at the time of this year’s Budget, he will see that that figure has now risen to 12 percent. He will note also from the comments made to my right that that has to be taken into account alongside income growth in the period since the year 2000. [Interruption]

The second question that the member raised—and by way of interjection now he makes a reference to bracket creep—was to ask when indexation might occur. Let me say this in response to him. The Budget last year made provision for the start of an indexation programme along the lines that my own party had advocated for. The agreement that we have between the two parties at this stage relates to a business tax review. That work is ongoing and will be completed in time for decisions next year. We have indicated that the consequence of any shift in corporate tax rates or corporate tax arrangements will have implications for the personal tax system, and they will be considered at that time.

So in response to his question, I would expect decisions on all of these matters to be made in the first half of next year—announcements around the time of next year’s Budget—and legislation to be in the House shortly thereafter to give effect to changes, in time for 1 April 2008. All of that information has been available since the business tax review document was released in July.