Taxation (Budget Measures) Bill

We are at the technical stages of this bill, the Taxation (Budget Measures) Bill, where there is an opportunity to go through part by part and within the parts. Part 1 is the most substantial, although I think that it is fair to say that Part 2 reflects a lot of what is in Part 1 and some additional things. Part 3 may be described as a bit more technical and not quite as substantive, in the way that these things work. There will be, within Part 1, areas that the Opposition are supportive of and there will be areas within it that we are opposed to. I think, probably, in my first call that it is worth going through the areas that we are supportive of and asking the Minister in the chair, the Hon Peter Dunne, a couple of questions, because there is room for some explanation.

Starting off with that, I ask the Minister whether he can give some explanation as to the reasons for the CPI treatment of tobacco price increases. I think these are being excluded from CPI adjustments for the purposes of the benefit, of national superannuation, and, I understand, of war pensions. That is something that I can vaguely remember the background to and quite a lot of discussion on. But I think that it would be good if members who had not focused on that issue had an explanation of it.

On the question of depreciation, again, this, at first glance, is pretty technical and might not mean much. As far as depreciation on buildings for rental purposes is concerned, it is fair to say that the Opposition is broadly supportive of this part, although later, when we focus more on short-life depreciation of assets, there will be more debate on that area, because the Government is yet to convince the Opposition that its plans in that area are appropriate.

As far as thin capitalisation is concerned, the changes in the rules are logical. I think that giving the ability to shift the “safe harbour” regime from 75 to 60 percent and the ability for the Inland Revenue Department to look more carefully at transactions under or over that threshold are matters that I do not think there will be much argument on from this side of the Chamber.

If we look at two areas, at personal tax cuts and the GST increase, there will be substantial opposition from the Labour Party and, I expect, from the Greens as well. As far as company tax is concerned, it is an area where we would like to have more discussion with the Minister to work the issue through. Members on this side want some reassurance that we are not just moving to further subsidies for Australian banks. I think the Minister is pretty aware of the views of some members on this side—that is, for New Zealanders the company tax rate is essentially withholding tax. In the end, the people to whom the dividends are paid or who sell the company effectively end up paying the tax. For overseas owners, it is effectively the final tax—certainly for the New Zealand taxation system—that they pay. The likely major beneficiaries of this will be the Australian banks.

As I move through, I say that the Inland Revenue Department has done a good job with major litigation over recent years. I think the banks thought they would be able to see the department off, and I am pleased they did not and are paying. That is not exactly part of this, but the point I make is that the very people and institutions that have been forced by the courts to pay their tax appear to be being forgiven some of that tax in the future through the changes we are making here. Of course, I am not asking the Minister of Revenue to identify individual taxpayers, but I would like him to give an indication as to groups of taxpayers that are most likely to benefit from this change, and where it is a withholding tax rather than washing out as part of a final taxation rate.

I want to focus the major part of my speech on GST and personal income taxes. The more and more we look at the detail in this particular area, the more uncomfortable the Opposition is getting. We see a change to the rates of income tax from 38 cents to 33 cents for people who earn above $70,000. Frankly, I would find it pretty hard to argue if there was a threshold increase to $100,000 or even $120,000. I would not find it that hard to argue with if the vast majority of people who voted for the National Party at the last election had their tax effectively cut from 38 cents to 33 cents at the margin. It is not something I would support or promote—

💬 Chris Tremain: The vast majority of people who voted for National were under that threshold.

I tell that member, because he may not understand this, that at the margins we now have, working families are paying the top marginal tax rate. That is what the Prime Minister told us. I know the Prime Minister gets a bit loose; he is a bit Abbott-like with the truth every now and again. He gets a bit enthusiastic and he is not always right on the facts, but I believe—

💬 Chris Tremain: Three-quarters of New Zealand workers’ tax is capped at 17.5 percent.

That member can tell me if I am wrong. Chris Tremain can tell me that the Prime Minister is a liar if he wants to.

The CHAIRPERSON (Lindsay Tisch): The member cannot use the word “liar”—[Interruption] I am on my feet. The member said “the Prime Minister is a liar”. Under Speaker’s ruling 43/6, members cannot use the word “liar”. I ask the member to continue.

I do not think the Prime Minister is a liar, but Chris Tremain might be contradicting me—

💬 Chris Tremain: I raise a point of order, Mr Chairperson. If you alleged that the member called the Prime Minister a liar—

The CHAIRPERSON (Lindsay Tisch): I have ruled, and the member knows exactly what I said. Members cannot refer to anyone as being a liar, nor to say that they are not a liar. I know that the member knows what I am saying. I do not need any help in this matter. I invite the member to continue. I know it will be a robust debate over the next few hours, and I ask him to continue in that vein.

💬 Hon Clayton Cosgrove: I raise a point of order, Mr Chairperson. It may be that we do not waste the time of the Committee with this, but I invite you to very carefully consider your last ruling, and I think I might be joined by some colleagues across the aisle. If it is the case that we are defending somebody by not calling them a liar or saying they are not a liar, we are in difficulty.

The CHAIRPERSON (Lindsay Tisch): I am on my feet. Let me say this: the slate is clean.

I thank the Chair; I am glad we got there. I want to really thank Chris Tremain for his intervention as it was particularly helpful to get the truth on to the table, whichever way it went—whether he was right or the Prime Minister was right, or whichever side of the National Party was accurate. We know that no one voted for the Prime Minister to get a $1,000-a-week tax cut. That is what he has come to this House to promote and vote for. Some of his mates will get tax cuts that are seven times that size. Some of his mates—

💬 Paul Quinn: That’s exactly what they voted for.

No one voted for that. I am saying that most decent Tories would have accepted a lifting of the threshold to $100,000 or $120,000. They would have thought that that was fair—[Interruption]

💬 Hon Clayton Cosgrove: I raise a point of order, Mr Chairperson. It is an absolute rule in the House that a member cannot move his or her seat to take advantage. “Mr What’s-his-name” sits right at the back in the cheap seats, and he has moved his seat to interrupt my colleague.

The CHAIRPERSON (Lindsay Tisch): I thank the member for that; the member is correct. I say to Mr Quinn, the member on my right, that interjections are fine, but he also brought me into the debate by saying “you” and he mentioned the member by his first name, not his full name, which one cannot do. I know that the member’s seat is usually at the back and he has moved forward. I am happy to accept interjections and I am happy to acknowledge that this is a robust debate, but I ask the member to tone it down.

💬 Simon Bridges: Mr Speaker—

The CHAIRPERSON (Lindsay Tisch): I have ruled on this matter, and I am inviting the member to continue.

Thank you—

💬 Simon Bridges: I raise a point of order, Mr Chairperson. Mr Cosgrove referred to “Mr What’s-his-name”. I thought we had to use correct names in this House.

The CHAIRPERSON (Lindsay Tisch): This is getting silly. I thank the member for that intervention. The member knows exactly what needs to be done. I am inviting Trevor Mallard to continue. He has 1 minute 34 seconds to do so.

The point I am making is that these tax cuts are inherently unfair. They are absolutely unfair because in the end, although some loopholes are being closed to give lower and middle-income people a little bit of relief, a massive GST impost is being put on those people to give the Prime Minister and people on similar incomes $1,000-a-week tax cuts. No one from the National Party, and certainly no one who ran against me in Wainuiōmata, told the public that they would be voting for the Prime Minister to get a $1,000-a-week tax cut. We know that if National members had said that the Prime Minister would get a $1,000-a-week tax cut, they would never have been elected. If they had told the truth, if they had had integrity going into the election campaign, they would not have been elected.

I finish the way I started an earlier speech, which is to congratulate Peter Dunne on the minor change he made to this legislation to make it slightly more palatable than it might have been.

Part 1 of the Taxation (Budget Measures) Bill deals with some of the technical issues, as the previous speaker, Trevor Mallard, said. They were probably the only couple of words he got right. From there he departed a bit, but he was right in saying that Part 1 is the technical part that addresses the schedules, the changes in the income tax rate, the changes in the portfolio investment entity rates, the changes in company rates, and, of course, changes in GST rates. It also provides the mechanism for amendments to the Income Tax Act 2007, and their wording, so that we can have transitional rates, because much of these proposals move in halfway through the financial year.

Part 1 is quite substantial, and I look forward to the Greens speaking on it, because it proposes an increase in GST. As members opposite have said, GST is a tax on consumption. I note that in many speeches in this House the Greens say that they are opposed to consumption, so presumably they will be speaking for this part of the bill putting a tax on consumption and perhaps even slowing down consumption.

Other clauses in this part point to an encouragement in relation to financial assets, where portfolio investment entity rates go down from 30 percent to 28 percent. So, for once, I am looking forward to the contribution of Green members, to see whether they would encourage an increased tax on consumption a movement to more financial assets.

This is a technical part and I have been reading some of the provisions to do with GST. I was trying to figure out how on earth one would write this bill if the GST clauses included exemptions for fresh fruit and veges. In the whole bill there are 50-odd pages dealing with GST. Apparently that absurd suggestion in relation to fresh fruit and veges was an opinion from the Labour caucus, but not from the leader, I understand—and I am sure other members may correct me on that. We have a world-renowned tax on consumption in New Zealand. In fact, this very clean and crisp tax was brought in by the party now in Opposition—some of its current members were either near or in Cabinet at that time; they were definitely in Cabinet when the rate was increased from 10 percent to 12.5 percent without any compensation—so I will be interested to hear their comments about that. There are no exceptions to GST; it is an across-the-board goods and services tax.

One point seemed to be missed in some of the earlier speeches related to tilting New Zealand’s economy away from consumption towards saving or reducing debt. Of course, if people want to go out and spend their entire after-tax income, that is fine, and 15 percent of that, as proposed in this bill, would attract GST. But, if people pay off their mortgage with their higher after-tax income, which would increase their home affordability, they will get a better bang for their bucks, so their net debt position would improve because of this Budget. If people have positive savings, they will attract tax at 28c in the dollar on their portfolio entity investment regime, as Part 1 changes those rates.

To be fair, I acknowledge that it was the previous administration that brought in the portfolio investment entity regime in recognition of the imbalances in the New Zealand economy. So I find it curious that members opposite seem to be attacking some of the moves in the bill before us, and I will be interested to hear their justifications for that.

To go back to the GST side of things, can you imagine what would have to be in this bill if it included the proposals from the other side? Essentially a cabbage that is dug out of the ground and an apple that is picked off the tree would not attract GST, but an apple that has gone through the pack-house and been washed and bagged, or a cabbage that has been chopped up, would attract GST. Can you imagine the legislation, the regulation, the holes, and the arbitrage you would have under that regime? The administration of it would far outweigh any gain to the Crown, or any perceived gain to the consumer, because they would have—

The CHAIRPERSON (Lindsay Tisch): I remind the member that he is continually bringing me into the debate.

I apologise, Mr Chairperson. Someone somewhere would have to pay the impost on that. It would fall on the taxpayer or on small businesses, which a previous speaker was so concerned about earlier. The previous speaker contradicted another speaker on his side when he talked about some court cases today, totally forgetting the outcome of some cases that are now no longer before the court. The other Opposition speaker, who was the Minister of Commerce at the time when all that mischief happened, started to justify them, so again we have contradictions.

Clause 36 is one of the highlights of this part because it contains the changes to schedule 2, which includes the basic tax rates of PAYE income payments. Subsections (a), (b), (c), (d), and (e) are identified in that clause and I would like to read them for members opposite because they contain some highlights. In fact they highlight the changes, not the transitional rates.

Clause 36(a) states: “in clause 4, ‘0.21’ is replaced by ‘0.175’;”, being the PAYE rate. That is interesting because three-quarters of New Zealand taxpayers will be attracting that rate or less. Three-quarters of New Zealand taxpayers will be facing a rate of only 0.175, or 17.5 percent, as they make their PAYE payments. At the next levels, “0.33” goes to “0.300”, and “0.38” goes down to “0.330”, which seems to be causing so much concern to Labour members opposite. There does not seem to be any acknowledgment whatsoever that it was that particular party that took the rate from 33 percent to 38 or 39 percent. It was the first thing Labour members did in regard to tax when they became the Government in 1999. I will be interested to hear their comments on that. If they are opposed to this, it implies that with the $7 billion of extra spending announcements they have already made, they would have to increase personal tax rates, corporate tax rates, savings PAYE tax rates, or GST rates. I thought they were going to axe the tax, but I do not know what they are doing now. I look forward to those members, as we talk about the clauses in Part 1 in particular, telling us what they would do if this Taxation (Budget Measures) Bill were their bill.

💬 Hon Clayton Cosgrove: No, no, you’re in Government, you’re responsible, you explain.

No, I say to the gentleman from the South Island that the Chairperson is not responsible. I look forward to the comments from the Greens in relation to the increase in the consumption tax, which I believe aligns with their core philosophy. At least the Greens are consistent in their advocacy of a capital gains tax. If I look at the material from Labour when in Opposition and when in Government, there are huge inconsistencies, and we heard that in earlier speeches on the Budget itself. I look forward to those speeches and to this bill being robustly debated, but, overall, Part 1 is the real detail and the real thrust of the bill, and it is that which is getting the nod from New Zealand as we speak. I will be particularly proud to go on the hustings next year and debate and discuss these points.

Sometimes people watching Parliament wonder why we appear to disagree all the time. It is certainly true that there are some things in the Tax (Budget Measures) Bill that we agree on. For example, I think both sides of the Committee agree on the need to improve New Zealand’s parlous savings rate. The debate on the savings and tax interface is about whether the measures in the bill will get us there, or whether some alternative measures would be better. Likewise, both sides of the Committee agree very strongly on the need to rebalance our economy away from the tax privileges of the property sector towards a more neutral tax playing field. Again, the question is whether the measures in the bill get us to that objective.

💬 Hon David Parker: They say they want that.

They say they want that, but in fact the measures do not get us very far, and we will come to that.

The previous speaker, the member for Tukituki, said that three-quarters of taxpayers will be on the 17.5c tax rate. I wonder whether the taxpayers who go to the Government’s online calculator to see whether they will be better off or worse off have factored in what that calculator rather sneakily leaves out: that next year they will face 6 percent inflation. That means that everybody has to take 6 percent off his or her gross income before working out whether he or she is better off or worse off. For example, by the time a family earning as much as $78,000 with two kids in preschool gets their great tax benefit, they face higher GST, paying more for childcare, and inflation, and they will be 55 bucks a week worse off. So Labour members will be working with the public—the listeners and the viewers—over the next week or so during this debate to uncover some of the hidden traps, the fine print, and the places where the gloss is not as good as people were led to believe it would be.

There has been some discussion of whether GST should be on or off fruit and vegetables. Labour has not taken a position on it but we think it is worth having the debate. The reason it is worth having the debate is that it is easier to have a comprehensive GST programme when GST is at a low rate, but the higher we raise the rate, the stronger we make the case for a possible—note, “possible”—exemption. At the moment, prior to the increase in GST, New Zealand has—wait for it—the fifth-highest level of indirect tax in the developed world. And that is before the increase in GST. The arguments against taking GST off fruit and vegetables are partly based on compliance and partly on definition. But I do not believe that New Zealanders in their hearts would actually find it very difficult to say what a vegetable was. They might look at the members opposite. They might look at, say, the member for Maungakiekie and ask what he has done since he got to Parliament, and whether he would qualify. But that is not very nice, so I will back right off it.

Mr Foss made another point about how fair this measure is. The word “fair” keeps coming up almost as often as Craig Foss saying “Mr Chairman”. What does he say? He says: “Mr Chair, Mr Chair.” The word “fair” keeps coming up, but here is something that is not fair in this bill: 14 percent of the tax refund goes to the top 1 percent of the population. Trevor Mallard is absolutely right: if you are earning a million bucks you will get $1,000 a week extra in your hand. If you are earning a million bucks, do you need anything extra in your hand? I am not asking you, Mr Chair; I am sure you earn much more than that—I am sure you do. But if a person in the real world, the member Mr Foss for example, earned $1 million, he would get $1,000 in his hand. That is not a matter of need. If the Government is to be believed that the country needs to move forward and to address the structural challenges, then the country’s needs should be put ahead of the need of millionaires to get another $1,000 a week in the hand, especially when a family with two kids on $78,000 is $55 a week in the red. That is not fair.

On the question of rebalancing, both sides of the Committee—I think all sides of the Committee—agree with the need to rebalance. What we are wondering is why the Government has lost its nerve. It has taken away only a part of the building depreciation tax allowance. The Tax Working Group said that $1.1 billion a year was sitting there; the Government has taken about $600 million. But it did not touch ring-fencing, which is worth $2.5 billion—it did not touch that. What it did do, rather stupidly, is take $200 million off the depreciation of short-lived assets, which is technology, which is needed for innovation and growth. It is running against the growth objective in order to raise funds, because it did not have the bottle to really take some parts of the property industry to task. So the Government has not achieved the goal. It has not achieved the goal of comprehensive reform to achieve rebalancing.

Let us sum up. In this Committee stage, Labour members will be going through the detail of the “how”—not so much the “why”, which we will get back to in the third reading debate, but the “how”. Are the measures in the bill going to deliver on the stated objectives of the bill? Will they encourage savings? Frankly, the Government has got a nerve to ask the question.

💬 Hon Clayton Cosgrove: Gutted KiwiSaver.

It is the same Government that gutted KiwiSaver, as Mr Cosgrove said. Its members said they will return to pre-funding New Zealand superannuation when the country is back in surplus, except they have changed their mind, done a Tūhoe, call it what one likes—

💬 Hon Clayton Cosgrove: Broken their promise.

They have broken another promise. The country will be back in surplus in 2016, but pre-funding does not resume until 2019. When will the Government have the courage to say to senior citizens that it is sorry but superannuation as they know it is for a limited time? Do they have the bottle to do that? I do not know. And if they do not, why not resume pre-funding?

💬 Hon Gerry Brownlee: I raise a point of order, Mr Chairperson. I am surprised that you did not pick up on the unparliamentary comment from the Hon David Cunliffe. Perhaps it is because his rhetoric is normally so filled with unparliamentary comments—

The CHAIRPERSON (Lindsay Tisch): I want the member to state exactly what the point of order is, and not make a speech.

💬 Hon Gerry Brownlee: To refer to another member or to any number of members as lacking courage is completely unparliamentary.

The CHAIRPERSON (Lindsay Tisch): I say sorry to the member. I did not hear that comment. If David Cunliffe did say that, I say to him that in future he must not say that someone lacks courage.

Thank you, Mr Chairperson. It is certainly good to have Gerry Brownlee back early from his dinner break, at a quarter to 10. We are summing up this part of the debate by showing that there is some common ground between the parties. We agree on the need to encourage savings; we are rather surprised that National has come late to that, but it is good that it has. We agree on the need to rebalance the economy, but we have serious doubts that this bill will get us there. What we disagree with is the “Robin Hood in reverse” of this Budget, which takes from the poor, takes from the forgotten middle class, and gives $1,000 a week to millionaires who do not need it and probably did not ask for it—and it is being done at the expense of the country.

To make matters worse, this Government is borrowing extra to give millionaires a handout. Next year it will borrow $450 million extra for the millionaire handouts, and that is $1.1 billion extra borrowing over 4 years for the millionaire handouts. Gross debt goes up, and interest payments double and do not come down till 2021. This is not a Government that has got its priorities right. This Budget neither is fair nor fixes the problems.

As this debate continues, Labour members will be showing, for each of the portfolios represented by members of our team, where the sneaky cuts have come, where the loopholes are, where the rules are wrong, and the better way that we could have achieved those objectives that are sensible and that are agreed across the House. We challenge the Government to be open-minded. It is not too late for it to accept sensible amendments. There is a very sensible Minister in the chair. The Hon Peter Dunne looks great on TV without his tie on. We hope that he will accept the odd amendment as the Committee stage goes on. Thank you.

I was not going to intervene in the discussion as early as this, but given that some measures have been put on the Table that there seems to be a measure of agreement about, I thought I would address those now so we could then move on to the more substantive debate about the areas where we disagree on.

💬 Hon David Cunliffe: We were just warming up.

I appreciate that the member may be just warming up, and we have a long way to go yet and it can get very hot before it is all over. Mr Mallard raised a question earlier on about the reasons why the tobacco excise increase had been excluded from the CPI calculations in respect of changes to veterans pensions and New Zealand superannuation. The reason is quite simple: it is not a taxation argument; it is simply because compensation would be made available in due course in the normal course of events for that increase. That increase was made to encourage people to desist from smoking; it seems somewhat perverse to then factor in what would effectively be compensation for that decision that had been made.

💬 Hon David Cunliffe: What about the broader 5.9 percent?

That is a question we will come to separately. I am answering questions that have been raised by other speakers. I will come to that point in a moment. But let me just say that when GST was introduced in 1986 the rate of inflation, post-introduction, rose to about 18 percent. The effect of that was comparatively short term. It is exactly the same here; if we look at the underlying track for inflation over next year, the year beyond, and the year after, it is around 2.5 percent flat. That, in fact, will mean that the tax changes will not have the negative effect that the member claimed in his address; they will be very beneficial by comparison. One cannot make an omelette without breaking some eggs. The change here gives that short-term boost but, in the long term, as I say, it will even out.

Let me come to the question of depreciation, and the issue Mr Cunliffe raised, which I want to pick up on because it is quite critical. The Tax Working Group costed depreciation changes at around $1.3 billion. In fact, when officials retested that calculation, the figure came out at around half that. So when the member says that we picked up on only half the recommendation, in fact we picked up the actual cost, if he follows what I am saying. [Interruption] Let me just work my way through it. The issue there was not so much of saying we would go with only half the figure; when we looked at the size of a figure it was only half of what the Tax Working Group had set it as being.

The issue then came down to the introduction of the 50-year limit. That is a very practical exercise, given the nature of the buildings that will be categorised as being under 50 years. One may say that that is very easy to get around; I know that one or two colleagues had discussions earlier on about fit-outs and renovations, and I think we had given a pretty clear signal that that is on our agenda. There will be a discussion paper issued by the Inland Revenue Department in due course about how those issues will be handled.

I wanted to talk about the depreciation loading, particularly the 20 percent excess. The reason for the change is a twofold one: it is picking up on a recommendation from the Tax Working Group and it is also aligning the rate of depreciation to the actual economic rate of depreciation, not the accelerated 20 percent that was there previously. So this is really a streamlining, given the recommendation from the Tax Working Group.

Mr Mallard also raised a question relating to company tax, and I am tempted to remind him of his arguments, which he knows in reverse very well because they were rehearsed at the time of the 2007 company tax changes. But the reality is this: we live in, as members know—I am not going to lecture on this point—a competitive international environment. Our company tax rate was, even at 30c, out of line with a number of jurisdictions. The international average is around 26.3 percent. We were cognisant of the fact that the Henry review in Australia was likely to recommend a company tax change. In fact, it did. The time frame has been a slightly more elongated one. We felt that, given the scope of this package, it was prudent to make this change now. It certainly gives New Zealand a short-term competitive advantage. It preserves, if you like, the gain that we had when we cut the tax rate to 30 percent a couple of years ago.

On the point about who benefits, Mr Mallard is correct when he talks about the banks, to some extent. But I think the point needs to be made that a lot of New Zealand businesses pitch themselves against that company tax rate. In fact, many of those smaller businesses will be more advantaged by the change in the marginal tax rates than they will be by the change in the company tax rate. Some of the very small sole traders, I think, will do quite well out of that 17.5 percent rate.

I simply wanted to take a call at this point to cover those points. I appreciate that issues relating to the imposition of the GST and the changes in personal tax rates will excite more debate, and I will come back in due course and take part in that.

I take a call to speak on Part 1 of the Taxation (Budget Measures) Bill, and in particular some of the rationale for the tax cuts that are outlined in this part. We have heard some arguments from the Government as to why it is so important that it makes these tax cuts, so I think it is important to examine its reasoning.

One of the reasons given, and probably the predominant one, concerns growth. The Government argues that as a result of these changes we will get increased growth, so it is important to look at some of the historical record and what we know in New Zealand about the relationship between tax rates and growth. We can draw on some case studies. For example, we know that in 1986 we cut the top rate from 66 to 33 percent. If the argument for this tax cut was correct—that it results in increased GDP growth—then one would expect that, if there is some relationship, there would have been an increase in GDP per capita growth after that tax cut in 1986. In fact, from the period 1984 to 1992 the average GDP per capita growth was 0.4 percent. After the tax cuts of 1986 the New Zealand economy flat-lined. So in spite of the rhetoric of the Government, the evidence, in fact, is extremely hard to find. Many, many studies from numerous countries will repeat that evidence: there is a very poor relationship between the top rate of income tax and GDP per capita growth.

We can compare that case to the year 2000, when we increased the top rate back up from 33 to 39 percent. In the 5 years after the increase in the tax rate compared to the 5 years before, GDP growth per capita doubled. So we see that the evidence for the central argument being made by the Government regarding growth is extremely thin. That evidence is not just from New Zealand; it is from the United States and many other countries. If the Government is to rely on that piece of evidence for its argument, then the Government does not really seem to have a leg to stand on.

The other argument that has been promoted by the Government is labour mobility. One of the key arguments relates in particular to Australia. The Government argues that our tax rates in relation to Australia’s result in people moving to Australia. They also argue that that is the case in relation to wages. I will get to wages in a second. If we look again at the two examples of changes in the top tax rate, we see that we actually get the complete opposite result of what the Government would argue. In 1986 we cut the top rate from 66 to 33 percent. In the 5 years after we cut that top tax rate, we had a net migration of 65,900 people. So in the 5 years after we cut the top tax rate, on a net basis we lost about 66,000 people through their moving overseas. In 2000 we increased the tax rate from 33 to 39 percent. We actually had, in the 5 years that followed that, a net migration gain of about 84,000. So if the argument is that we have to cut the top tax rate in order to keep more people in New Zealand and to attract more people to New Zealand—the labour mobility argument, which is obviously an interesting argument to have—the problem is that the evidence goes in completely the opposite direction.

Whether we look at GDP per capita or whether we look at labour mobility, the evidence for the arguments that the Government is putting on the table for the cut in the top tax rate is actually in the opposite direction. That is odd. We would think that the Government, with all its resources and the entire monolith of Treasury behind it, in looking at tax rates and legitimising a cut in the top tax rate would make two arguments in relation to GDP per capita growth and labour mobility, but the evidence in New Zealand is the opposite. The evidence is as plain as day. Anybody can go and look at that evidence; it is freely available.

Part of the reason for all of this argument is that there is actually not a strong relationship, at all. I am not arguing that if we increase tax rates we increase GDP per capita, or that if we increase tax rates we increase net migration into New Zealand. In fact, the relationship is not very strong. That is the fundamental truth. None of us here would be able to prove that the relationship is very strong. The relationship is not very strong, so in making this argument there is not very strong evidence for the Government to rely on.

I think that one of the arguments that ties into both of these relationships is about relative tax rates. The Minister spoke, for example, about the international environment, and that is a legitimate argument. We have seen a race to the bottom with tax rates, and particularly with company tax rates around the world but also with personal income tax rates, labour has, theoretically, been competing and playing countries off one against the other. Supposedly we have been seeing that race to the bottom and New Zealand has had to lead that race to the bottom. We are leading that race to the bottom. That reality is unfortunate for the Government’s argument.

PricewaterhouseCoopers and the World Bank, in their Paying Taxes 2010 report, compared the total tax take. When we look at the headline “Income tax rates”, we know that it does not take into account everything else that goes with it. We do not know whether it takes into account a Medicare levy, as in Australia; state taxes; or all the different taxes that are allocated. When we look at Australia, we find that the total tax rate that PricewaterhouseCoopers and the World Bank came up with was 48 percent. When we look at New Zealand, and at all of its taxes together, we find that the total tax rate is 32.8 percent. So the New Zealand total tax rate is already dramatically lower than that of Australia. The problem with the Government’s rhetoric—rhetoric we hear constantly telling us that we have to do all of this to compete with Australia—is that it does not stand up against the evidence. The evidence is that Australia is much more highly taxed than New Zealand, and if we look at the World Bank’s Ease of Doing Business report, which is linked into tax rates, we find that New Zealand is rated right at the top of that report.

In relation to both of the key levers that the Government wants to use to promote economic growth—tax rates and regulation—Australia is both much more highly regulated, and much more highly taxed. One could make an argument, if one wished to, that there seems to be a correlation—if we compare Australia with New Zealand—between higher rates of GDP growth, more regulation, and higher tax rates.

This part of the bill is justified on the basis that lower tax rates will result in higher GDP growth, but we see very poor evidence for it. To the extent that there is evidence, if we compare ourselves with Australia, we know that New Zealand has much lower tax rates than Australia does. Some of the members opposite disagree with that, but I ask them to go and read the PricewaterhouseCoopers and World Bank report Paying Taxes 2010, which compares the numbers. It may be that the Government does not believe the World Bank and PricewaterhouseCoopers, but although I do not agree with them on everything I think they do have a point: compared with Australia, New Zealand is a much lower taxed environment. So the arguments for this part—the arguments based on GDP growth, labour mobility, and international comparisons—do not have strong evidence.

We have to wonder why this bill is being brought into the House with justifications for which there is not strong evidence. Surely we should have an evidence-based approach to legislating. Just as we should have an evidence-based approach to medicine or to any other field, we should have an evidence-based approach to making decisions about taxation. But the truth, sadly, is that the evidence does not support the Government’s position.

The CHAIRPERSON (Lindsay Tisch): I am sorry to interrupt the member. There is a lot of noise over on the Government benches. It is difficult for me to concentrate on hearing what is being said. If members want to talk, that is what the lobbies are for.

Those arguments go on top of the other arguments in respect of this part, which, of course, are about equity and avoidance. I have already addressed those issues. The issue of equity particularly has been done to death in this debate; clearly these are regressive tax changes. The issue of avoidance is basically about rewarding avoidance behaviour rather than closing loopholes. Thank you.

This Budget and this bill are about tax cuts for the many. This is the people’s Budget, and I think that is why Labour members do not like it. That is why they are angry. Actually, I think they were a bit embarrassed when their leader was speaking this afternoon. Labour members had come to the Chamber prepared for a Budget that was about tax cuts for the rich; that is what they thought they were getting. They had done all their sums, and Phil Goff had a pre-prepared speech that he was to give on all of that. But what we have found is that this Budget has tax cuts for the many. Whether one is an employee at any level, he or she is getting a tax cut. In fact, the bulk of the tax cuts are going to those on lower incomes.

Let me give a few, I think remarkable, facts that show very clearly why this is tax cuts for the many. This is not about doctors, lawyers, and people in those kinds of professions. It is also about cleaners, and the people whom the Labour Party says it thinks it is about. Two-thirds of the tax cuts apply to people on incomes below $48,000, and 73 percent of income earners will now face a statutory income tax rate of 17.5 percent or less. The tax changes that we are seeing in Part 1 are not about the rich. The effect will be felt by those people on low and middle incomes.

It is remarkable as well, when we look at these tax changes and tax cuts. Of course we know that, and I will not go through the various rates. The tax rate of 12.5 percent for people in the bottom income bracket, zero to $14,000, has gone down to 10.5 percent. We know all that. But what is also very interesting is that when we go through the various average tax rates, we find that the rates are even lower than that. The average tax rate—I suppose we could say, the actual tax rate—on an income of $48,000 is 15.46 percent. It is not 17.5 percent, but 15.46 percent. For someone on an income of $40,000, the tax rate is 15.05 percent. People earning $35,000 have a 14.7 percent tax rate, people earning $30,000 have a 14.23 percent tax rate, and those on twenty-five grand have a 13.58 percent tax rate. We have not brought a bill to this Parliament—Bill English has not given a Budget today—that is about the rich. The Budget has been about the many. It has been the people’s Budget. We have the people’s princess over there, the people’s daffodil, but this is the people’s Budget. It has not been about just doctors, lawyers, engineers, and consultants. It has been about ordinary Kiwi jokers, such as cleaners and house workers.

I can understand why Labour members are quite angry tonight. They thought they were getting something else. They had a caricature of the Budget ready to present and to hoe into. But they have had the rug pulled out from underneath them. We are giving these people—the cleaners, the street workers—an incentive to get ahead. But we are giving them more than incentive to get ahead; we are not doing just that. We are giving them future options, and a desire to get ahead, to make more money, and yes, to get into the top tax bracket. I am not one of those members who think that earning $100,000 is evil.

Debate interrupted.

Sitting suspended from 10 p.m. to 9 a.m. (Friday)