Taxation (Budget Measures) Bill

on behalf of the Minister of Finance: I move, That the Taxation (Budget Measures) Bill be now read a first time. The measures contained in this bill represent the most significant package of tax reforms for New Zealand in over two decades. Although the measures themselves are wide ranging, their underlying purpose is straightforward. That purpose is to lift the long-term performance of the economy by giving people greater incentives to work, to save, and to invest, by improving the fairness, coherence, and integrity of the tax system so that people pay their fair share of tax, and by encouraging productive investment in New Zealand, thereby increasing productivity and raising wages. The effect of the reforms will be to rebalance the tax mix so that it better supports the economic growth, saving, and investment that New Zealand needs right now, rather than the excessive consumption, borrowing, and overinvestment in housing that we have had in the past.

To encourage people to work and contribute to a better-performing economy, personal income tax rates will be reduced across the board from 1 October this year. The new rates will be 10.5 percent for people earning up to $14,000 a year, a 16 percent reduction in that rate; 17.5 percent for those who earn between $14,100 and $48,000, a 17 percent reduction in the rate; 30 percent for people who earn between $48,100 and $70,000, a 9 percent reduction in the rate; and 33 percent for those earning income over $70,000 a year, a 13 percent reduction in that rate. Similarly, the company tax rate will be lowered from 30 percent to 28 percent from the beginning of the 2011-12 income year, which will encourage productive investment in New Zealand. Tax rates and savings are being reduced so that they are in line with the new personal income tax rates, thus giving people more income to reinvest towards their retirement.

The main balancing feature of the changes is a lift in the GST rate from the current—[Interruption]

The ASSISTANT SPEAKER (Eric Roy): I am sorry to interrupt the member. Interjections are acceptable as long as they are rare and reasonable; discussions across the House while a member is introducing a bill or at any other time is inappropriate.

I was saying that the main balancing feature of the changes in this bill is a lift in the GST rate from the current 12.5 percent to 15 percent. That is in keeping with the intention of the tax reforms to shift the current economic balance away from consumption and spending, and towards greater productivity and investment in the economy. The Government does, however, recognise that the increase in GST will impose increased costs, and for certain groups such as superannuitants, beneficiaries, and others receiving Government assistance, relief will be necessary. This compensation will be provided in the form of immediate compensation from 1 October. For those receiving Working for Families assistance, the bill contains measures that raise the level of support that families will receive as tax credits from 1 October. Those on New Zealand Superannuation or the veterans pension, or recipients of Consumer Price Index adjusted Government Superannuation Fund or National Provident Fund payments will also receive an increase in their payments from 1 October. This one-off compensation will be in place until the normal annual inflation adjustment occurs on 1 April next year.

In weighing up the changes needed to rebalance the tax system, the bill also introduces a number of changes to strengthen the tax rules and ensure that everyone pays his or her fair share of tax. With that purpose in mind, measures are being introduced to tighten the income tax test for Working for Families entitlements so that investment losses such as those from rental properties cannot be used to inflate a family’s entitlement to Working for Families tax credits. The rules around property investment are also being tightened so that no depreciation deductions will be allowed for buildings with an estimated useful life of 50 years or more, from the 2011-12 income year. That change more accurately reflects the way that New Zealand buildings actually change in value over time, which, on average, means that buildings increase rather than decrease in value. Removing this unnecessary tax advantage will reduce the incentives for people to invest in property for tax reasons, and will encourage wider investment in more productive parts of the economy. The 20 percent depreciation loading on new plant and equipment has been removed for assets purchased after today. Finally, stricter rules will also be applied to foreign-owned companies to reduce the interest deductions they can claim against debt allocated to their New Zealand subsidiaries.

Together, the changes contained in this bill form a balanced package of measures that will reward people for the work they do, encourage broader and deeper economic growth, and make New Zealand’s tax system stronger and more equitable for all. I therefore commend the bill to the House.

Budget 2010 is a tax swindle. It is a lost opportunity and it is a Budget of broken promises. It rewards the wealthiest and it swindles the middle class by gobbling up their small change with the highest rampant inflation in 20 years. It took the previous Labour Government a decade to get inflation down, yet this Government has blown it out to 6 percent next year. With that, the hopes of middle New Zealand are washed away.

💬 Carmel Sepuloni: Shame on them.

Shame! Most Kiwi tax cuts, which the Minister of Finance vaunts in the House, are worse than gone. How bad is it? People on the average wage will be $30 a week worse off, on Treasury’s own numbers, after the effect of inflation and GST. Every working family on the average wage will be $30 a week worse off. When they get to the supermarket counter, they will be 30 bucks a week short. People on $70,000 a year will be $45 a week worse off after GST, inflation, and their tax cut. They will be worse off; those New Zealanders will be going backwards.

It gets worse. These tax cuts are unfair. There is a group who will be better off: the upper income earners. People on the same salary as the Prime Minister will be $350 a week better off, as promised. People on $1 million a year will be $1,000 a week better off. What is that? Someone who is already earning $1 million a year will be $1,000 a week better off, but someone on the average wage will be $30 a week worse off. What is fair about that? New Zealanders will vote against that package in next year’s election. This Government will be a one-term Government and that will be a record for the National Party.

The Government has broken its promise to be revenue-neutral. There will be a $450 million fiscal hole in the Budget next year as a result of this tax bill. The Government is borrowing nearly half a billion dollars extra to fund the tax cuts for the millionaires who back the National Party. The Government is borrowing the public’s money to fund its mates. It gets worse. The Government will be $1 billion extra in the red over 4 years to fund those tax cuts.

The Government promised that it would return to pre-funding superannuation when the economy got back into surplus. Do colleagues remember John Key saying that he would resign rather than break the promise to elderly New Zealanders? Has National kept its promise? No, it has not. The economy is getting back into surplus. Actually—wait for this—the economy would have been back in surplus by 2012, if it were not for those upper income tax cuts. But the Government is borrowing to sort its mates out. The economy should be going back to surplus in 2016, but when is its pre-funding of superannuation coming back? That will not be until 2019. That is a decade of deferrals. It will wreck the chances of New Zealanders to feel secure in their retirement.

What about the health budget? The Government promised that health would be paid for, but what has happened? There is a $300 million hole in the budget that health needs just to stand still. The Government will be $300 million short next year alone because of the inflation impact on health. So even if there are no new services, and even if there is no innovation in health, the Government will be $300 million short.

What about early childhood education? It has been put at risk by this tax bill. It will take $25 a week per child out of the pockets of ordinary New Zealand families. That $25 a week per child is a $100 million-a-year swindle out of New Zealand families. The Government says that this is a Budget for all New Zealanders; we say this is a Budget of broken promises. This is not a tax switch; it is a tax swindle.

This Budget does not rebalance the economy. Let us look at that part of it. The Minister said that he would address the bias towards property investment. What has he actually managed to do? The chief Government whip has 15 rental properties, and I guess he probably had a quiet word with him in the corridor. The Government took only half the depreciation write-down on rental properties. But it did take away the short-life depreciation allowance on high technology. That will cut innovation. The Government failed to ring-fence property losses. People who have a portfolio like Mr Tremain’s can write off their costs against their personal income and make a whopping great tax loss. That is wrong. The Government should have at least touched ring-fencing. It did not. It did not have the bottle, it did not have the nerve. It rolled over in front of the Property Council, and it will get back only $600 million a year.

What about loss attributing qualifying companies? The Government had the nerve to state, in the Budget, that it was fixing the rorts around loss attributing qualifying companies. How much has it actually fixed? In 2008 alone, loss attributing qualifying companies cost the Crown $2.3 billion in tax losses. It has mushroomed in the last couple of years. Do members know that the Government is getting back a measly $70 million? That leaves over $2.2 billion a year of the public’s money in the hands of phoney companies being written off against people’s personal income, when it should not be. Labour would fix that—

💬 Hon Steven Joyce: Labour set it up.

Yes, Labour set it up and Labour has seen it being used for purposes that were never intended. We have the guts to admit that it should be changed, and we will change it. We will change it because National does not have the nerve to do what is right. I say to National that we cannot make an omelette without breaking eggs, and we cannot fix the property imbalance without putting a few property speculators on the wrong side of the ballot box. So it should have the nerve to front up and do the job.

This was supposed to be a Budget for the many. It is quite obviously a Budget for the few. It was supposed to be a Budget for middle New Zealand. Those people will find that their incomes go down when rampant mega-inflation from the Minister of Finance hits them in the wallet. It was not supposed to be a Budget that made our elderly, our sick, our frail, and our children worse off in order to pay for the tax cuts for the rich. But that is what the Budget has done. This Opposition will fight this Budget all the way to the ballot box, because we know that New Zealanders can tell the difference. We know that New Zealanders have a sense of fairness and a sense of decency. They know that when an average earner is 30 bucks a week worse off and a millionaire is 1,000 bucks a week better off, something is wrong. Something is not right in the state of New Zealand. Do members know what it is? It is the current Government. Fortunately for New Zealanders that problem can be fixed relatively easily.

To sum up, this Budget is not a tax switch; it is a tax swindle. Headline numbers pretend people are better off, but the Treasury documents calculated those numbers with a 2 percent inflation rate, while the actual inflation rate that is in the rest of the Budget is 5.9 percent. That is why average income earners are worse off.

💬 Hon Steven Joyce: No, it’s not. You’re making it up.

That is in the Budget documents, I say to Mr Joyce. I thought he was inside the loop. Obviously, he has been left out. That is a bad sign. He has been consigned to the focus group routine. He has been consigned to reading the focus groups. John Key rings him only after a Tūhoe moment, but not to prepare for the Budget. Now he probably will not ring him at all, after the trouble that Mr Joyce caused over Tūhoe. That was a bad Sunday afternoon phone call, I say to Mr Joyce.

I raise a point of order, Mr Speaker. It is a technical point about the bill. The regulatory impact statement that is referred to in the explanatory note of the bill contains a reference to a website, and I am advised that the website address that is in the explanatory note does not actually connect to the regulatory impact statement. It can probably be fixed very quickly, from an information technology perspective, but it is the Minister for Regulatory Reform’s—

💬 Hon Member: Is this a point of order?

It is a point of order about the bill. We need to have the information. If the Minister in charge of the bill could see to that, it would be great.

The ASSISTANT SPEAKER (Eric Roy): It is not a point of order in relation to the order of the House. I think that, the member having raised the point, someone will now address it.

First, before I comment on the Taxation (Budget Measures) Bill, I acknowledge and thank the Minister of Finance, Bill English, and our Prime Minister, Mr John Key, for a step change Budget, which this bill starts to bring alive and put into effect. The Budget is a step change. It gets rid of some of the imbalances in our economy, it addresses so much of what has been talked about by so many over so many years, and this bill puts the Budget into action. As I acknowledged yesterday, the previous Labour Government talked about some of those issues, but it never did anything about them. In fact, it perpetuated them and made them worse. I also acknowledge our coalition partners, and particularly the Hon Peter Dunne for the work he has done on the taxation changes.

I was quite intrigued that the previous speaker, the Hon David Cunliffe, had a new-found interest in inflation. Under his regime—when he was in Cabinet, in fact—non-tradable inflation was running at about 4 percent, and the rest of the economy was in recession. The reason I raise that is the member made inflation a key point of his speech. Labour is focusing on inflation, yet it is also trying to rewrite the monetary policy framework—it is doing some task groups on it, or something. Members on the other side of the House need to get their story straight. Either they are rigid about inflation or they are not. David Cunliffe missed some other points. Labour assumes life is static. If inflation is going up, one assumes that wages are going up, because wages tend to track inflation; real wages actually increase as our economy gets better.

Fairness and equity are back. This bill brings fairness and equity back. Interestingly, as the Prime Minister noted in his Budget speech, many of the tax rate numbers have been brought back to exactly where they were in 1988 and 1989, from memory, when Mr Goff was in Cabinet. It also puts some of the balance back. There is encouragement for financial assets. We heard time and time again the previous member wrongly, I suggest, talk about nothing being done about the housing bubble and the creation of housing assets or investment property assets. Actually, if we look at the change in the taxation of financial assets—down to 28c in the dollar, matching the awesome corporate tax changes—therein lies the incentive in action. Members should watch those macros change as investment moves to financial assets in New Zealand, and hand in hand with some of the changes the Hon Simon Power is bringing in.

I just say one other thing. There are a few commentaries in already. Regardless of what the previous member said, I will quote from Mr Bernard Hickey’s commentary on the Budget, which is only about 2 hours or 3 hours old. I could not put it better myself, I do not think—apart from the last sentence, perhaps. But I will read it: “This is the most comprehensive and coherent reform of New Zealand’s taxation system in more than 25 years. It goes a long way to tilting the economy back towards productive investment and away from property investment.” That sums up the Budget, which is only 3 hours old. Feeding from that Budget is the bill that is before us tonight. I will not read it right through to page 61. I suggest members read the explanatory note. There are some interesting highlights on page 2, which has the new schedule of taxation rates, particularly the changes—the current rates versus the rates from 1 October 2010.

Fairness, equity, and sustainable growth are back. New Zealand is about to step up and take charge of its destiny again. With the current financial stresses around the globe, this is a Budget for our time and for future generations. Fairness and equity are back.

Debate interrupted.