Taxation (Budget Measures) Bill

Sorry, Mr Chairman; I did not hear you at first. I was dreaming a little bit about what I would do if I were Paul Reynolds and I was about to receive $1,700 a week extra in the hand. That is about $7,300 a month. I could go first-class home once a month I suppose—or I could buy a rental property. Here was a classic opportunity to change the structure, and balance the economy around rental property investment, but that opportunity was not taken. But with about $88,000 in the hand every year, thanks to these tax cuts, I think Paul Reynolds will be smiling.

The thing is, as my colleague Trevor Mallard pointed out, inflation will really eat into the majority of New Zealanders’ tax cuts. The Minister will know better than I do but I think that about 0.89 percent of people earn over $150,000. Those people who earn over $150,000 will do very, very well out of this Budget. They can do exceptionally well. But, then again, if I were on the median income, I would be getting about $5 a week in the hand. I would be getting about $250 a year. What can a person do with $5 a week in the hand? Simon Bridges said this Budget was about all New Zealanders. He said the Government was providing opportunities for street sweepers—those were his words. Well, the Government has taken away community education, but, anyway, that is another story.

One thing that has not been factored into this, which I think really has to be, is the inflation rate of 5.9 percent. I do not think that that inflation figure is right. I think it is too low, and the reason I point that out is that there is an overlying assumption that prices will increase by about 2.5 percent, because that is the rate of the increase of GST. What will happen—and I started to talk about this before but I ran out of time—is that businesses will price strategically. Let us consider an item priced at $49.95. We do not pay $50; we pay $49.95. The reason is that it sounds lower than $50. We know there is only a 5c difference but it sounds lower. It is a feel-good factor. So if we take off GST of 12.5 percent and put on GST of 15 percent the price comes up to $51.06. No retailer will price something at $51.06c. It does not sound good; it does not sound like a bargain. The next strategic price point on that item is actually $54.95, which represents about a 10 percent increase. We will see this practice on a lot of goods.

Now, there is an argument that the market will not allow that—it will allow only $49.95 and therefore the increase will not happen. The problem with that is that the retailer’s margins will be really squeezed, and he or she will look for other ways to claw back that margin. So we will get a completely uneven distortion of prices. Here is my real concern for a lot of New Zealanders, and I include superannuitants in this. They believe or have been told it is only 2.5 percent, which will raise $2 billion a year, but it will be a lot more than that.

The other thing is I did a radio interview this morning and I talked about inflation at 5.9 percent. That is not a Labour figure; we are not scaremongering. That figure is in the official Budget documents. I said inflation was going up to 5.9 percent, but the guy said it was dropping down to about 2.4 percent again. I said it would, but that does not mean that prices drop down. I think there is a perception out there that if inflation increases, then prices go up, and if inflation drops from 5.9 percent to 2.4 percent, then prices drop. That is not the case. It means that, everything being equal, prices increase by 5.9 percent, then increase by only 2.4 percent. The real value of savings, tax cuts, and all that money people put away is eroded right down to the point where it is worth nothing. Anyone on the median income or anything below $70,000—and people on that income are not wealthy—is worse off than before the Budget.

I want to talk about something that the Minister of Revenue, Peter Dunne, talked about, on which I am in total agreement with him; that is, aligning the trust and the top marginal tax rates. I do not agree with dropping the top marginal tax rate down to 33 percent; I think we could get away with increasing the trust rate. As the Minister alluded to, people were channelling profit through trusts. When people get dividends from a company, they pay tax on that at their marginal tax rate. Before this Budget, people were paying tax on their dividends, their profits, from a company at 38 percent if that was their correct marginal tax rate.

Before I discuss the issue of energy poverty in terms of the tax cuts in Part 2 of the Taxation (Budget Measures) Bill, I will refer to a couple of statements made by the Minister of Revenue, Peter Dunne. One was his criticism of a capital gains tax, excluding the family home. He mentioned the compliance costs and how difficult it would be. There is a capital gains tax in practically every OECD country on the planet. It is an area of tax reform that is progressive and broad, and New Zealand is seriously lagging behind. Not only do most of the other OECD countries have a capital gains tax of some form but also they include—

The CHAIRPERSON (Lindsay Tisch): I bring the member back to Part 2. Part 2 is not about capital gains tax, so I ask the member to concentrate on Part 2.

Part 2 is about the rates, but it is also about personal tax cuts and decision by this Government that the best way to fund those personal tax cuts is by giving to the richest a tax cut that is funded by an increase in GST, which affects the poorest. The alternative is a capital gains tax, as the Minister was describing just a few moments ago. I remind Minister Dunne that the UK, the US, and Australia have a capital gains tax, but New Zealand does not. On that basis alone, we are obviously lagging behind.

The other issue the Minister raised, again in terms of the justification for cutting taxes for the richest in this country, concerned the corporate tax rate. The fact is that those who are the richest and who were using dodgy means to avoid paying the top tax rate will now have to pay only 33 percent if they are being straight up. But now they can use business as a means to funnel their income to the tune of a 28 percent tax rate as opposed to a 38 percent tax rate.

New Zealand is one of the easiest places in the world in which to do business and to establish a business. It is very common for New Zealanders to set up businesses for a variety of purposes. I am very concerned that the corporate tax rate dropping to 28 percent opens up another loophole for those who are very wealthy to avoid paying their fair share. There are other choices too.

One of the issues with the personal tax cuts is that prices are increasing. We have seen energy prices increase by 40 percent in the last 9 years. People are having to pay more in all sorts of areas, but they are not being compensated in these personal tax cuts. One of the areas where they are not being compensated is that of energy and electricity. We know that a pensioner who lives on his or her own in an old house has a 97 percent chance of living in energy poverty. There is nothing in this legislation, or in the personal tax cuts this legislation deals with, that will address the needs of that pensioner, or of a solo parent in the same situation, who is living in energy poverty.

We need to have reform—and this is a choice John Key could have made—of the electricity system to provide for progressive pricing so that all families have access to a fixed cheaper rate of electricity to help alleviate energy poverty. Seventy thousand of our poorest families are suffering the most, but 350,000 would benefit from that change. These were the choices this Government could have made, but it did not make them. Instead, in this legislation it has chosen to give the biggest tax cuts to the wealthiest and to make the poorest people pay.

It begs the question of why this Government would make those choices. Why would it place the burden on those who have the least? Why did it not look at alternatives—alternatives that would not cost the Government money except for set-up costs? Certainly that would be the case if we looked at progressive pricing. National did look at progressive pricing in the 1990s and considered it as a potential option as a means to reduce the costs on families. These are costs they cannot avoid and that they have to bear in order to keep their families safe and warm.

We know that families in this country are not safe and warm in their homes. We have a terrible problem with cold, damp housing, and it is causing a billion dollars of costs to our economy in lost productivity, in truancy and education costs, and in health costs. There is no plan in this legislation, which is so urgent we have to deal with it on a Friday, to deal with any of the expected costs that our poorest families must deal with. The personal tax cuts will do nothing for those families who are living in energy poverty. We are coming up to winter. It is May and we need it now.

I am very pleased to speak on Part 2 of the Taxation (Budget Measures) Bill. My colleague Stuart Nash chose a Rolling Stones analogy for this Budget and this bill, in terms of saying it did not give people satisfaction. There are other Rolling Stones songs that are equally appropriate. One is “Paint it Black”, because this is a “black” Budget and bill for many New Zealanders at the lower end of town. Another song is “Gimme Shelter” from the top tax rates—and, in the words of another song, “Gimme my money back”. If members recall, there is a Rolling Stones album called “Voodoo Lounge”, and this bill is about voodoo economics. President Reagan believed that if he cut the top tax rate, suddenly there would be a new surge of economic growth that would pay those funds back. We will see the borrowing of half a billion dollars in order to pay for tax cuts at the top end of town. “Jumping Jack Flash” is another Rolling Stones song. Jack Flash is very happy. He is jumping because he is receiving the benefits of this Budget.

Let us turn to Part 2 of the bill, which has two changes. The one that I want to speak in support of is the integrity of the Working for Families package and the efforts of the Government to remedy the problem arising from some people offsetting investment losses, such as losses from rental properties, against their taxable income, for the purpose of increasing their Working for Families entitlements. There are no problems from this side of the House with that change in the bill.

But the other change relates to the indexation of the Working for Families abatement rate. The party opposite used to rail about the impact of fiscal drag on working people and say we needed to adjust the rates so that people would not have their incomes eroded by inflation. Yet here were are heading into an inflationary period that Treasury estimates will hit darn near 6 percent, and we see this bill de-index the abatement rate for Working for Families.

Those working New Zealanders who—

💬 Hon Dr Wayne Mapp: There is a tax reduction instead.

They will get tax reductions instead? Oh, wonderful! I ask Mr Mapp whether those reductions will not be affected by 6 percent inflation or by the July increases in power and petrol prices as a result of his subsidies in the emissions trading scheme.

In this part of the bill we see a move to stop indexing for the impact of inflation on the abatement rate. There is no surprise about that, coming as it does from the party opposite. Was it not the Prime Minister who described Working for Families as communism? “Communism by stealth” was the phrase that he used. Well, excuse me if I am a mite suspicious of Part 2 when we are seeing very stealthily the de-indexation of the abatement rate at a time of high inflation, and at a time when it is most important that Working for Families continues to rise with inflation. Yet this bill does absolutely the opposite of that. It will stop the inflation indexation of the abatement rate, and that, of course, will mostly come at the expense of lower to middle income families, who are the major beneficiaries of Working for Families.

Yes, as the bill acknowledges, there are people who are perpetrating rorts and maximising their exposure to Working for Families, and this part attempts to close off that. We have no difficulty regarding that. But de-indexing from inflation, at a time when we are expecting, by Treasury estimates, to see inflation go to 6 percent in the year ahead, is being done at absolutely the wrong time. It is being done because this Government really has no commitment to Working for Families; it regarded it as a terribly, awfully socialist policy. The fact is that Working for Families has lifted many thousands, tens of thousands, of New Zealand families out of poverty, and it sees many families not pay tax because they are on low to middle incomes and have a number of children. Those families deserve to be supported. We are supposedly a Parliament, a Government, and a nation that wants to protect and preserve families and their integrity.

The changes in Part 2 are around the integrity of the Working for Families package. I applaud the changes that will mean that people cannot rort Working for Families. But at the same time, this part clobbers ordinary working families, because at a time of such high inflation we will see an end to indexation. This will simply be one of those exercises that this Budget repeats time and time again: it gives with the one hand, and it takes back viciously with the other. It takes back viciously with the other because we will see an end to the indexation of Working for Families, at a time when inflation will go through the roof. That is wholly inappropriate. Members opposite should be screaming against that change.

My colleagues have let me speak because I wanted to continue on this theme that I talked about before, because I think it is quite an important piece of legislation. As I mentioned, I agree with the Minister of Finance on this, and I was explaining what used to happen. If people paid their marginal tax rate at 38 percent, they could channel money through a trust, and the final rate on a trust was 33 percent. But the dividends, or the disbursements, from the trust were not counted as income, and as someone said, there are trusts sprouting up like rabbits in Southland; I think John Shewan said that. People were setting up trading trusts that owned the companies, so they were paying a company tax rate. They were paying themselves about $70,000 or $69,995, just below the top marginal tax rate, and then that dividend from the company went into a trust, and they were paying money from the trust, disbursing it at 33 percent—that is how they were avoiding tax. That is why it is very important to align the top marginal tax rate with the trust rate.

I do not agree personally with dropping the top marginal rate down to meet the trust rate; one could have increased the trust rate to meet the top marginal rate. The difference with a company, for example, is that one does not need to have a trust to run a company. People were setting up trusts to avoid tax. There are a whole lot of reasons why people have trusts, and I know that the vast majority of members on this side of the Chamber have trusts, but the reason a lot of Kiwis have trusts is to protect their assets, not to run income through them. But the difference with a company is that dividends that were paid from a company were paid at its marginal tax rate, so it was harder to avoid. This will still create an avoidance industry, as Metiria Turei has pointed out, because if there is a differential, it will still create an avoidance industry. But it will not be nearly as high as it was under the trust rate. This is something we would have changed, there is no doubt about that. So I support the Minister on this change.

The Inland Revenue Department also estimated that about 9,800 Kiwis were channelling their income through a trust, and therefore saying it was not a part of their income and claiming Working for Families. The cost of this was about $57 million. Here is a story. I have a very good friend, whom I talked about yesterday, who is one of New Zealand’s top entrepreneurs. He went to his accountant, who said to him that he was paying too much money in tax and the accountant would channel his income through his trust and he would claim Working for Families for him. This guy is worth about $80 million or $100 million, and he threw up his hands and said that Working for Families was not for him and that it was put there for the 335,000 Kiwis who actually need that extra money. He said that he was not prepared to do that at all.

Unfortunately I showed my indignation too early so I could not get the name of this accountant. But although the Inland Revenue Department estimates the number is 9,800 people, this accountant had told my friend that most of his clients do this, so I suspect the figure was a lot higher. I suspect we did not know the half of it. This is why I support this clause in terms of allowing the Inland Revenue Department to get rid of the avoidance industry around restructuring things through trusts.

Let me talk to Part 2. Am I right in saying that the Minister in the chair, the Hon Peter Dunne, was the person who set up the Families Commission?

💬 Hon Ruth Dyson: Say that again.

Did Peter Dunne set up the Families Commission? He did. We have an ex - Families Commissioner in our caucus, Rajen Prasad, and the thing that astounds me is that Part 2 also takes away the automatic indexing of Working for Families to inflation. That is astounding. I ask the Minister to stand up and tell us his logic behind that. I ask him to stand up and take a call, because he set up the Families Commission and Part 2 means it is not now automatically indexed to inflation. It is at the will of the Government. So if inflation, which is running at 5.9 percent—that is the Government figure—does not get indexed, that means there are a whole lot of Kiwi families who could really miss out. Working for Families was set up because the previous Labour Government understood how hard it was for families to re-engage in the workforce. Kids cost money; we absolutely love them dearly, but they cost money.

We are debating Part 2 of the Taxation (Budget Measures) Bill, which makes changes to the Working for Families allowances, and also adjustments to the personal rates of taxation. It sets up much lower rates of taxation. In particular, it drops the rate of taxation for those earning less than $14,000 from 12.5c in the dollar to 10.5c in the dollar; for those earning in that big bracket from $14,000 to $48,000, the rate goes down to 17.5c in the dollar, and for those earning from $48,000 to $70,000, the rate is reduced to 30c in the dollar. One of the reasons the Government has given for these reductions in personal income tax rates is the need to compensate for the increase in GST. Of course, the first part of this bill gives effect to that increase in the GST rate from 12.5 percent to 15 percent.

But I challenge these decreases in personal tax rates. I was very pleased to hear Brendon Burns say just a short time ago that one of the things these tax reductions will not do is compensate for the increases in power and petrol that we can expect from 1 July as a consequence of the emissions trading scheme. Mr Burns has been the first MP I have heard from the Labour side to acknowledge that the emissions trading scheme will have an effect on inflation. I am very pleased that Mr Burns has done that, because his colleagues have talked in very general terms about the inflation rate of 5.9 percent, and how a rate of 5.9 percent will eat into these tax reductions. There are two components to that 5.9 percent: there is the general effect of inflation, and there is the one-off effect of the increase in GST and in the price of power and electricity, which will flow throughout the economy as a consequence of the emissions trading scheme.

I find it also interesting that Labour is constantly referring to Paul Reynolds, the chief executive of Telecom, and the impact that these tax reductions will have on his take-home pay. I suggest that another group of people we should be looking at is not individual persons but farmers. I ask what impact these personal tax reductions will have on the incomes of farmers, who are the actual backbone of our economy. We have heard a lot from the Government in recent times about the fact that the costs of the emissions trading scheme will not affect agriculture until 2015. But farmers, like all New Zealanders, will be affected by increases in electricity, petrol, and diesel prices from 1 July. Meat and Wool New Zealand, the lobby group that represents sheep and beef farmers, has said that the impact on farmers, as a consequence of the electricity and petrol cost increases, will be about $1,300 a year, and will be a further $1,300 at the beginning of 2013 when the emissions trading scheme is effected. Essentially, that is $2,600 for electricity and petrol costs. Will these tax reductions fully compensate farmers for that? No, they will not.

There is another cost that the emissions trading scheme will impose on dairy farmers’ incomes from 1 July. Fonterra has announced publicly that the cost on its company from 1 July will be about $38 million, which is firstly a consequence of electricity price increases, but also because the emissions dairy herds give off will have to be accounted for in the processing of milk. That cost of $38 million on Fonterra will be passed directly back to farmers. Dairy farmers will be paying, on account of the emissions trading scheme and the processing of milk, about $2,600 a year from 1 July and a further $2,500 from 1 January 2013. All up, those two costs—on the one hand the cost of electricity and petrol, and on the other hand the cost of Fonterra processing dairy farmers’ milk—will affect dairy farmers’ incomes by $3,900 on 1 July 2011 and a further $3,900 on 1 January 2013. I acknowledge that the Government has said that it may well review the emissions trading scheme and that that secondary increase may not come in, but certainly Meat and Wool New Zealand are quoting $3,900 as the first one-up impact on dairy farmers’ incomes. Thank you.

I want to lead on for a second from where Mr Boscawen ended just now in terms of what this Budget is doing to the productive economy. I think that buried in amongst the detail is a significant cost to farmers and other productive industries that want to be able to invest—for example, to invest in capital. If they invest in the leading edge technology that will be able to drive and increase their businesses, they no longer have the ability to claim depreciation. So they will not be able to invest in that way. That will be another impact on the productive economy.

I have spoken earlier about the need to look at investments, our savings rate, and our ability to increase our exports, and the complete absence of real incentives in this Budget for that to occur. I particularly touched on innovation and research and development. Frankly, if we look at the history of our economy, we see that it was innovation and research and development applied to our natural resources that made us wealthy. It is as simple as that. When we see the paltry amount of money that this Budget invests in research and development and innovation, we know that this Government is not serious about moving New Zealand’s economy up the value chain and increasing its productivity.

💬 Stuart Nash: What’s the Labour budget on this?

I can tell members right now that if Labour’s 15 percent tax credits for innovation and research and development had been continued, business research and development would have doubled. The productive end of the economy is not being looked after in this Budget.

The other part that is not being looked after is the people at the bottom of the pile. The previous Labour Government, through the Working for Families scheme, was able to lift 130,000 people out of poverty and put them into productive enterprise. That was the legacy of the Labour Government. It was really touching last night to look at the Tagata Pasifika TV programme and see the impact that this Budget will have on families at the bottom of the pile. I refer to the family of a husband, wife, and four kids on that programme. By the time they take off their rent, their electricity costs, the cost of running their car, etc. they have $80 a week left to feed six people. According to the budgeting service, the family need more than $200 for food; they are trying to get by on $80 a week.

The family rely on Working for Families to give them the incentive—and I emphasise the word “incentive”—to move forward, to get into productive work, to do the best for themselves, and, obviously, to benefit our economy. What will the family get from this Budget? They will get a kick in the teeth, because, as a number of speakers have said, the Government has removed the indexing to inflation. That is what it has done with this Budget. So the Working for Families incentive that people receive will be slowly eroded over time. It is not only that poor family in Manurewa that will not benefit from the Budget; the many poor families in my electorate—which make up most of my electorate—will not benefit from the Budget, at all. Most of them will find that the paltry tax breaks that the Budget gives them will be eroded by the GST increase, by power prices, by fuel prices, by the tobacco price increase, and by the accident compensation levy hikes. That is what will happen to the people in my electorate, and that is what will happen to that particular family. Inflation, as Mr Nash pointed out before—

💬 Craig Foss: 0.9 of the 5.9 percent.

I get a bit tired of members on the other side quoting percentages at me. These people cannot eat percentages, I say to Mr Foss; they cannot eat percentages.

The Budget release is one of the big political events of the year. It is a time when the public pay a bit of attention to what goes on in this place, and, of course, the media get excited. I think one of the best media commentaries, one of the most astute, and also one of the most succinct, is on the front page of today’s Dominion Post. The headline reads simply: “Lollies for all”. I think that brief phrase captures the essence of this Budget. After all, what are lollies? They give us a momentary sense of sweetness and they give us a bit of a sugar rush, but there is not a lot of long-term value in them. There is not much nutrition in lollies. There is nothing to build strength or, over time, to add value. I think that sums up this Budget quite nicely. We all get a nice wee sugar rush; we get a tax cut. The difference between the gross income figure and the net income figure is reduced momentarily, or it will be in a few months’ time, but the apparent benefit, that sugar rush, will not last for very long. Inevitably, people will get over it, and what will be left is quite a sour taste.

Already people have lost some of the benefits of the tax cut, through such things as accident compensation levy increases. When families need to re-register their cars, they will discover it will cost them a great deal more than it did last year. The accident compensation employers’ levy has also gone up. Electricity prices have been mentioned; they are on the up. That is because the Government is not adopting a progressive system, such as the one the Greens are proposing in our Mind the Gap package, which is a system whereby people would get affordable electricity and would pay extra for excess use only. No, the Government chooses to stay with a much less progressive policy. People will be paying more for their public transport, because of the insistence on dumping massive amounts of cash into roads, which is a subsidy for road transport, albeit that is denied. People using public transport are being forced to pay more, because, apparently, some ideological purity demands that public transport must pay its way. So in many ways people are being cheated by this Budget. The little sugar rush is all they are getting. There is no long-term value in it for the average family.

GST, clearly, is where the rubber hits the road immediately. In a few months’ time, every time people purchase an item they will be paying more. GST is a highly regressive form of taxation, because those who earn the least will pay the most in terms of their overall expenditure. People will pay more for food, petrol, and accommodation—all of those things that people must have. The people who have the least choice will have even fewer choices than they had before.

What has been missing from some of this debate is the effect on retailers when people spend their money. The retailers will be the ones in the front line, bearing—literally, in many ways—the cost of the increase in GST. We know that when the Government proposed to raise the level of GST it did not talk to small-business owners and it did not talk to small to medium sized enterprises. We know this because some weeks ago we asked the Minister of Finance what consultation there had been with small to medium sized enterprises over the probable impact, the cost to that sector, of raising the level of GST. The answer from the Minister was that there had been no consultation. Despite the fact that 85 percent of New Zealanders earn their living in the small to medium sized enterprise sector, that sector was not consulted about the cost to it and to the wider community of GST being put up in this way.

That is a remarkable reflection, and it says something about the priorities of this Government and its blindness to what happens in the real economy in the real world. We know that there will be a cost to retailers in particular, and that cost inevitably will be passed on to consumers. There will be the one-off cost of rejigging the way in which they charge—the technology change, effectively—and repricing everything on their shelves. There will be an inbuilt cost. What do retailers do when they are running near a sensitive price point on a given product? Do they simply add the GST, which puts the product into another pricing point, which creates consumer resistance? They then have to either cut their margin or face consumer resistance to purchasing the product.

Four months is a very short time for small-business people without the resources of large companies and large organisations to try to get their heads round how they will actually manage the transition. They have not been consulted by this Government. I fail to see anywhere any measure with which this Government will assist them with that transition, and that cost will come back to hit consumers, to hit the families who are already struggling. Suddenly their tax cut will be seen for the illusion it really is. Again, the Dominion Post headline showed that very well. Kia ora.

I am very happy to follow the member who has just resumed his seat, David Clendon, because today I am announcing the establishment of a special GST advisory panel precisely to deal with the interests of retailers and the small business sector in terms of the technical adjustments that they will need to make through to the introduction of the changed rate on 1 October. That panel will be in place until the end of this year. It has a 6-month lifespan and it will be out there consulting with those who are most affected to make sure that the very things that the member was talking about are able to be addressed in time for 1 October. I simply say to him that the reason that we did not make that announcement earlier was that, quite obviously, until yesterday there was no announcement of a decision to increase the rate of GST. So we are getting the cart behind the horse rather than in front of it.

I come back to the comments that Mr Nash made regarding the abatement rate for Working for Families. I point out to him that he has the wrong part of the bill; the clause that gives effect to that change is actually clause 94, which is in Part 3 of the bill, which we are yet to debate. But since he has jumped the gun, I am happy to address at this stage some of the points that he raised. Clause 94, in Part 3—which we will debate when we get to it—holds the abatement at the current threshold of $36,827. The reason for this is quite simple. A person earning $36,827—or above, but we will stick just with the bottom rate at the moment—as a result of the tax changes we passed in Part 1 of the bill, will be $1,078 a year better off. So the issue about whether the automatic indexation that was provided for previously needs to continue is somewhat overtaken by events.

I ask members to bear in mind that people earning that rate of income and below will now be paying a marginal rate of 17.5 percent. That is a big drop on the current 21 percent rate, and it is a virtual halving of the rate that only a couple of years ago was as high as 33 percent for that bracket of taxpayers. In fact, around 73 percent of taxpayers will be paying no more than 17.5 percent as a marginal rate. So against that background the notion of a periodic indexation for the Working for Families abatement rate becomes somewhat irrelevant. The provision will be there, as set out in clause 94, for it to be adjusted by Order in Council from time to time as circumstances dictate. But the real point of the change, and why we felt it was unnecessary to continue with the automatic indexation—which was, in effect, a form of compensation for a lack of movement in tax rates—was the fact that we are making not only a change in that marginal rate but, proportionately, the biggest change in any of the measures in the bill. The drop-down from 21c, as it currently stands, to 17.5c is being made for the very group affected by that provision.

💬 Dr Cam Calder: Eminently sensible.

I take the member’s point; it was eminently sensible. It delivers a far bigger benefit to those households than would have been possible under the regime that was in place. As I said, even for someone at that threshold level, their tax gain is over $1,000 a year—around $20.75 per week. That is a good advantage and far better than anything an adjustment in the abatement rate would have delivered. So although the member jumped the gun, I am happy to respond to him at this point and indicate the reasons why that change was made.

I am very pleased that the Minister in the chair, the Minister of Revenue, traversed the subject that he did, because I would also like to discuss the same material. The Minister talked about percentages and things that are somewhat intangible to real families. I would like to talk about the real example of a real family who actually happen to live not far from where I live in Palmerston North, and the effects that the changes set out in Part 2 of the Taxation (Budget Measures) Bill will have on them.

This family has four children. Dad works—he is a scientist, funnily enough, and he earns a reasonable income. Mum is at home with the kids. One of the great things about Working for Families is that it allows many families to have one parent at home, and I am sure the Minister in the chair thinks that that is a good idea. Using the Government’s tax calculator, that family figured out that even with the dodgy inflation calculations in that calculator, the tax cuts would get them between $16 and $20 a week extra. That sounded quite nice, on the surface of it. But then we have the changes to Working for Families and the lack of indexation, as set out here in this bill. So the inflation rate is to hit 5 percent to 6 percent, yet we have no indexation of Working for Families. That family, a hard-working family that this Government reckons that it is targeting, will see the benefit that they are receiving from Working for Families become slowly eroded over time. They will become steadily worse off.

But that is not actually the worst thing that will happen to this family. The worst thing concerns the fact that they have kids who still need to go through early childhood education—in fact, my youngest will be going to kindy with their youngest. The cost to them of early childhood education will be far greater than the amount that they receive from tax cuts. So the Government gives with one hand but it takes an awful lot away with the other hand.

That is the truth about this bill, that is the truth about this Budget, and that is one of the biggest swindles in this Budget. The Government goes on and on about what it is doing for hard-working, battling Kiwi families, but in truth, what it is doing is giving a tiny amount with one hand and taking away a whole lot more with the other hand. Let us look at the regulatory impact statement for the bill. Why is the Government looking at taking these measures around Working for Families? We see that it is to save money. The Government hopes that it will spend a lot less money on Working for Families.

Let us look at the impact of the equity measures, which Treasury has looked at. It says the impact is mixed. When Treasury says the equity measures will have a mixed impact, that is hardly a ringing endorsement of this bill for the middle-income families of New Zealand. Basically that means that even Treasury knows that the changes happening as a result of this bill will be unfair on middle-income families—at best. At the very best, if we are very charitable to the Government, we could say that hard-working families are no better off than they have been. But the truth is that when we talk about real families, when we step away from percentages and the theory and get down to the practical impact of this taxation bill on real families in New Zealand, we find the truth is that they will become worse off. They will become worse off because this Government wants to appear to be supportive. It gives with one hand with the tax cuts, but when we look at what is happening with Working for Families, we see the truth is that with the inflation that we will no doubt see through the increase to GST, through higher power bills and higher rent, those inflationary increases will be passed on to families through the changes that this Government is bringing into place.

Working families will become worse off. Let us make no bones about it; that is the fact. That is what is happening as a result of the changes to Working for Families that are made in Part 2 of this bill.

I move, That the question be now put.