Taxation (Budget Measures) Bill

When we talk about the commencement date, there is a slight concern. GST increases are coming in on 1 October, and cuts to personal taxes are coming in on 1 October. The systems are changing over in the middle of a financial year. Firms have the end of their financial year either at the end of April or at the end of the calendar year; I have never heard of any starting their financial year on 1 October. As we know, and as the Minister in the chair, the Hon Peter Dunne, himself pointed out, the Minister has set up a commission or a task force or something to help small to medium sized business with their questions, their concerns, and the issues of compliance costs around GST. This commencement date will only compound that further, because I suspect businesses will have to run two series of accounts and two payrolls, and the cost of that will be higher than it should have been. So I have some concerns around that clause.

Sitting suspended from 1 p.m. to 2 p.m.

I was looking at the title over the break, and I do not think that the title we have at the moment is a true reflection of the bill. The bill is called the Taxation (Budget Measures) Bill; it should probably be called the “Tax Cuts for the Extremely Wealthy Bill”. If people earn really big money, they will get a really big tax cut from this bill.

The name of Paul Reynolds has been dragged out at every debate, but there is a good reason for that: he is one of our highest-earning people. He will do incredibly well out of this bill. He will get about $1,600 extra a week, or an extra $88,000 a year in the hand, so he is absolutely rapt about this bill. But for the worker on the median wage, the tax cut is about $5 a week or $262 a year. Eighty eight thousand dollars versus $260—that is not really very equitable, is it? I do not think that that is equitable, at all, in fact, and I think that the vast majority of New Zealanders out there will be looking at this—not enviously, because New Zealanders are not envious sorts of people—and thinking that it is not really fair. So we could call the bill the “Don’t Be Envious Tax Bill”—

💬 Hon Clayton Cosgrove: Jealous.

—sorry, the “Don’t Be Jealous Tax Bill”—because the Prime Minister signalled very early on, before we knew what would be in this bill, that he thought there would be Kiwis who would be jealous about this bill. What message does that send? We did not even know what the tax package would be, yet the Prime Minister told Kiwis not to be jealous. Immediately, everyone knew that this was a bill where the top players, the very wealthy, would get a substantial amount of money—like Paul Reynolds’ extra $1,600 a week—and the person on the median wage would get an extra $5 a week.

H V Ross Robertson: How much?

Five dollars a week. As I said, Kiwis are not envious by nature; we are not jealous by nature. In fact, we do not ask for very much, at all. But what we do ask for—

💬 David Shearer: We want a fair go.

Mr Shearer is dead right—we want a fair deal. We kind of know when we are being ripped off or rorted, and we do not like it. We just do not like it. So when someone on the median wage, who will get an extra $5 a week, hears about someone like Paul Reynolds getting an extra $1,600 a week, or John Key getting an extra $350 a week, it does not feel right. It actually feels to them as if they have been ripped off a little. As I say, it is just not fair.

How about a title like the “Budget of Broken Promises Bill”, or the “Broken Promises Bill”? John Key looked at the camera and said that he would not raise GST. He also said that he would not borrow for tax cuts.

💬 Hon Darren Hughes: Jonathan Coleman said that too.

Yes. In fact, every member on that side of the Chamber went to the electorate and said that they would not raise GST or borrow for tax cuts. But this bill allows the Government to borrow $1.1 billion over 4 years for tax cuts—$1.1 billion over 4 years for tax cuts. In this bill there is provision for increasing GST. This bill increases GST for every single New Zealander. It increases it for Paul Reynolds, but he does not care; he has about $1,600 a week extra. But average people on the median wage will get an extra $5. This is the bill of broken promises.

How about the “Inflation Upwards and Onwards Bill”? As the Government has said in the Budget, because of this bill inflation will rise to about 5.9 percent. That rise will eradicate the real value of the savings of many, many Kiwis. There is a bit of a misconception over on that side of the Chamber, because this bill is about broken promises and inflation. This is not a great bill, at all.

I probably cannot do any better than my colleague Mr Nash in his summation of the Taxation (Budget Measures) Bill as the “Broken Promises Bill”.

H V Ross Robertson: Give it a go!

I will give it a go, anyway. We could also call this bill the “Mark Bryers (I Am Getting a Thousands Bucks a Week After I Finish My 75 Hours’ Community Service) Bill”, because, as I said last night to “The Maestro” who is sitting in the back row over there, after Mark Bryers, the biggest crook in the Blue Chip scandal, has finished his 75 hours’ community service he will get a lovely little letter from John Key—because Mark Bryers earns over a million bucks a year—saying “Thanks, do not pass go and do not go to jail. You will get $1,000 a week in tax cuts from the Government.”

💬 David Shearer: As a reward.

As a reward. So we could call the bill the “Mark Bryers (Thanks for Coming) Bill”. We could call it that. We could also reflect on the fact that as Mark Bryers gets his extra thousand dollars a week—because he earns a million dollars a year—all the people on the average wage will be worse off after taking their meagre tax cut, flicking on the increase in GST, and then being exposed to 5.9 percent inflation.

💬 Hon Dr Jonathan Coleman: What about the “Goodbye Labour 2011 Bill”?

Oh no. You see, that member over there, the great “Maestro”—the man who did such a wonderful job in the Mt Albert by-election that his name as a tactician is mud—thinks he is so good; I wish I were half as good as he thinks he is. Even in his electorate—what is that member’s electorate; I cannot remember—

💬 Grant Robertson: Northcote.

—Northcote—about 60 or 70 percent of the people earn below $40,000 a year. Therefore, with the increase in GST and with 9.5 inflation, they will be worse off. The great “Maestro”, I am sure, will organise one of those wonderful public meetings that he tried to organise in Mt Albert—in a telephone box or a Portaloo. He should collect together the 60 to 70 percent of his electorate who are worse off, hold up the bill, say it is the “I Broke My Promises Bill”, and explain to those of his constituents who remember his name why he broke the promise not to increase GST, why he broke the promise on the Superannuation Fund, why he comes into the Chamber and says that National members are here to encourage savings when he kicked the living daylights out of KiwiSaver and never told his constituents about it, and why he said before the election that National would not borrow for tax cuts yet, under the scenario in the Budget documents, $240 million per week is being borrowed for 3 years, and the financing costs of that will not even start to track down till 2021. I say to the great “Maestro” that those are a couple of political problems that he might want to exercise his mind round, given the hopeless job that he did in Mt Albert.

This bill could be called the “Broken Promises Bill”, as my colleague Mr Nash said. People will be reflecting on that tonight. We know that Government members held a big breakfast meeting this morning, and we know that they puffed out their chests when they read a few of the headlines. We know that they are going around gloating that a poll on Close Up said that 80 percent of the public is positive about the Budget. But I can tell those members that we have all been there after Budgets—we have all been there. We have seen those wonderful polls. The people in our communities will take a little bit of time to work through some of the malarkey that the media put out, and some of the spin from the National Government, but then they will get out their calculators, and they will work out that although the Government has given them a few dollars here, the pile of GST receipts on a Friday from the grocery store has gone up a bit. Then they will work out that the price of vegetables, the price of meat, school fees, car insurance—everything—have gone up. The electricity bill has gone up. Education costs have gone up by 5.9 percent. Then they will work out, of course—it is called inflation, I say to “The Maestro”—that the National Government giveth with one hand and grabbeth all of it back, and then some, with the other hand. If the great “Maestro” thinks that his constituents are silly and cannot work their calculators—

💬 Hon Darren Hughes: Open their eyes.

—if he wants to pull the smokescreen down over their eyes, as he has been wont to do from time to time with the odd cigar, as we know, he is treating those people with disrespect.

This bill is quite rightly more appropriately called the “Broken Promises Bill”. I will go on to say that if—

💬 Hon Dr Jonathan Coleman: What about the “Clayton Could Be Leader Soon Bill”?

No, no. There is no danger of that—no danger, at all, I say to the member. But, you see—

💬 Dr Rajen Prasad: Take a call.

Well, that is a good point, actually. Rather than sitting there barracking from the sidelines, that member should stand on a street corner in his electorate and hold up a sign that says “I ripped off and sold out 60 to 70 percent of my electorate; what do you reckon?”. He should do that.

💬 Dr Rajen Prasad: Sorry!

Maybe he could say sorry, but he just giggles and laughs. He has Judith Collins-itis. He is grinning away like the Cheshire Cat. But as the weeks and days go by, the men and women in this country—the battling families—will examine this bill and see it for what it is. They will examine the fact that it will cost them an extra $25 a week because of the $400 million cut to the funding of early childhood education. The Government has piled that cut on top of the GST increase, then it has piled inflation on top of that. And we will not talk about—because it would not be appropriate—the accident compensation scheme levy increases, the increase in the cost of car registration, and all the other taxes that have been piled up.

💬 David Shearer: Interest rates.

Then, as my colleague Mr Shearer says—I say to Jonathan Coleman, the great “Maestro”, that he is the one who thrashed the living daylights out of his candidate in Mt Albert, whom he managed so well—there is that thing called interest rates. Dr Bollard will look through the 2.5 percent increase in GST, but he will not be able to look through the added 4 percent that, when one makes the calculations, makes up the 5.9 percent increase in inflation. What does that mean? Mr Foss said that some members on this side of the Chamber will pay off their mortgages with their tax cut. Well, I say to Mr Foss, who is an economic genius, that I suspect that most New Zealanders—and I am talking about the 20 or 30 percent who are on the top rate, or even less, who will actually get something—might try to pay down their debts and their mortgages, but the vast majority of people will be exposed to an increase in interest rates.

💬 Craig Foss: Phil Goff stated he would use it to pay his mortgage.

I ask the member whether he will go to his constituents and explain that because of the 5.9 percent inflation rate—

💬 Craig Foss: What interest rates—which ones?

Well, maybe we should explain the policy targets agreement to that member. Maybe we should explain that the Governor of the Reserve Bank, given a 5.9 percent inflation forecast, will have to lift interest rates in order to get inflation back within the target range. But Mr Foss says that Dr Bollard is wrong. Everybody is wrong except for Mr Foss. [Interruption] The Chairman is not wrong. I would never say that the Chairman is wrong; he is the Chairman. If we add up the mortgage interest, the increase in inflation, the adjustment to the cost of living, and the increase in GST—

💬 Craig Foss: Why are you reviewing monetary policy if Dr Bollard is wrong?

Oh, those members are very vocal now, but I say to Mr Foss that if he is so vocal, he should hold a public meeting. He should hold a public meeting. But, oh no, he laughs; he will not front up to his constituents. If he is so good and has such a gift of the gab, then he should take this bill, which we are calling the “Broken Promises Bill”, and have a public meeting on it in his patch. He should fill the hall with people who fall in the various tax brackets that he has put in place in the legislation, and let them hear an explanation.

💬 Hon Darren Hughes: And in Nelson.

Oh yes, goodness, gracious, I forgot about the Minister for ACC, whose electorate is Nelson. Let us look at Nelson, because Nelson is interesting. In Nelson, which is Nick Smith’s electorate, 76 percent of people earn under $40,000 a year—76 percent. After he parks his little car at Nelson Airport and rolls into Nelson Airport, I wager that one or two people on the aircraft might ask him: “Dr Smith, you are our MP. Why am I worse off?”, because they will be one or two of the 76 percent of his electorate who are worse off thanks to that member and his Government. But, oh no, Nick will not front up to his constituents. This bill is the “Broken Promises Bill”, so I challenge that member to hold a public meeting. He should ring up people, get some of the 76 percent of his electorate who earn under $40,000—

💬 Hon Dr Nick Smith: They’re better off.

No, they are not. Just as Mr Nick Smith cannot do the calculations on accident compensation, he cannot do a decent tax calculation. I say to him that he should hold public meetings. We will be there.

💬 Hon Darren Hughes: It’s his last term.

It is his last term, all right. We will be there. If National members do not give explanations, then we are quite happy to do that on their behalf. As we speak, 76 percent of Nelsonians will be worse off when this legislation commences, thanks to that member. The Government’s tax calculator does not factor in inflation.

The title of this bill, the Taxation (Budget Measures) Bill, is an anodyne one, is it not? But I think we need to look deeper than at just the title to see what this bill really means. I think that a more appropriate title would be the “Taxation (Cake Stalls for Crayons) Bill”, because that is what will be happening in early childhood centres all around New Zealand.

💬 Jo Goodhew: Four percent operations grants.

I say to Ms Goodhew that early childhood centres all around New Zealand are now thinking about how they will make up that deficit. The priority in this bill is tax cuts for the wealthy, not early childhood education. Early childhood centres all around New Zealand know, and parents reading the New Zealand Herald this morning all know, that their early childhood education is at risk. Those cuts of $400 million over 4 years—$400 million over 4 years—will have an impact on the quality of early childhood education services. The cuts will have an impact on access to early childhood education.

I ask what could be more important than that. This is not a Budget where Bill English came down and said that we were in a recession and that we had to pull back. No, this was a Budget where he thought he could be generous. And who did he decide to be generous to? He was generous to people who already had had three tax cuts from this Government. He was generous to them but took money out of early childhood education.

That is an absolute outrage, because one option now available to early childhood centres is that they will probably get rid of their trained teachers. But I ask what good that will do for early childhood education in New Zealand. Other options, potentially, are that centres might have to cut back on hours or try to raise some money some other way. We had someone on the news last night saying that they will have to do fund-raising to buy paper. They will be fund-raising to buy paper. That is why this bill should be called the “Taxation (Cake Stalls for Crayons) Bill”, because that is effectively what this taxation bill will mean. Those early childhood centres, rather than focusing on the quality of the education they are delivering, and ensuring that trained teachers are there and giving children in New Zealand the best possible start in life, will be forced to be out there raising money or cutting back on quality teachers. In many cases, some parents simply will not be able to enrol their children, and that is what people are already saying in the New Zealand Herald today.

Another title could be the “Taxation (Field of Broken Promises) Bill”. Let us be absolutely clear: National went into the election in 2008 saying that there would be no increase in GST. Mr Key can dance on the head of a pin and say he was saying that if a National Government had a deficit or say he was talking in some other way. But he stared down the barrel of that camera and told New Zealanders that there would be no increase in GST when National came into Government. That promise has been broken, and that is why this bill should be renamed the “Taxation (Field of Broken Promises) Bill”.

Another promise was made that there would be no borrowing for tax cuts, but that is exactly what we are seeing today.

💬 Hon Dr Nick Smith: Rubbish!

It is what we are seeing, I say to Dr Nick Smith. If we are to borrow money, which we may well need to do, I ask whether it should not be in things where we are getting a return on an investment. Should it not be in making sure that we have investment in education, and in research and development? That would be real investment, and that should not be broken down. That would be real, proper investment in ensuring we had research and development that grew companies and that grew our economy, but that is yet another broken promise within this bill.

Then there is the broken promise on public services, which is another reason why this bill should be renamed. This Government came in saying that it would cap but not cut public services, but it has continually cut them. In this Budget Bill English tells us there is $1.8 billion of low-priority spending. That “low-priority spending” is in tertiary education, it is in early childhood education, and it is in health. Those are areas where this Government thinks there is low-priority spending. That is another broken promise, and it is another reason to rename this bill. Public services in New Zealand have to be rebuilt time and time again by Labour Governments, who come in on the back of National Governments that know they can get away with undermining public services while delivering tax cuts. This is not a Budget about the long-term future of New Zealand; this is a Budget about short-term political thinking from National. It is not good for the economy of New Zealand, and it is not good for the society of New Zealand.

We could also rename the bill the “Taxation (Rob Peter to Pay Paul) Bill”—literally, to pay Paul Reynolds—and that, in fact, is what this bill will be doing. It ensures that people like Paul Reynolds, who have already benefited significantly from pay rises and tax cuts, once again are the main beneficiaries of this bill. The main beneficiaries are not the strugglers in New Zealand; they are not the people who have been facing higher power prices and who are now facing higher GST.

We are debating clauses 1 and 2 of the Taxation (Budget Measures) Bill—that is, the title and the commencement date. I note that the Labour Opposition has focused its efforts on renaming this bill. I would like to focus on the second clause, which is the commencement date. The substance of this bill starts on 1 October. I know that various provisions come into effect on the day after the date of Royal assent, but the substance of this bill commences on 1 October.

💬 Hon Clayton Cosgrove: The man’s a genius!

I thank Mr Cosgrove. We have a GST increase from 1 October, and we have the start of the personal tax cuts and the income tax cuts on 1 October.

I suggest that this legislation should start on 1 July. I actually think the country needs to have tax cuts on 1 July. The reason I say that is that National has been at absolute pains over the last 4 months to say that if it went ahead with an increase in GST, it would make sure that there were at least equal compensatory reimbursements or equivalent tax cuts. Well, we have another tax coming into effect on 1 July, and it is the emissions trading tax. I know that National does not like me referring to that as a tax, and, no, it is not a tax in the true sense of the word. It is not revenue collected by the Government and redistributed, but the substance of it is a tax on electricity and petrol. Treasury estimates that the impact of that emissions trading scheme tax is to add 5 percent to the price of electricity and 3c or 4c a litre to the price of petrol, and that will double again on 1 January 2013. The effect of that, the Reserve Bank tells us, is to add 0.4 percent to the cost of living. That starts on 1 July.

We could actually bring this legislation further forward than that. We could introduce the tax cuts in June, because Contact Energy, a company that generates electricity from gas and that has to pay for its emissions from 1 July, has already announced tariff increases effective from the middle of June. Naturally, the electricity companies will not all come together and increase their prices on 1 July. So what has happened? Contact Energy has the early running. It has moved to increase its tariffs 3 weeks before 1 July. So we do not need to wait until 1 October for the tax reductions; they need to be brought forward to at least 1 July.

Finally, I will comment on the Minister’s Budget speech. He said, when referring to tax cuts: “First, for all income earners at all taxable income levels, the reduction in personal income tax will be sufficient to match the increase in GST.” The Prime Minister and Government Ministers, including the Minister of Finance, have been at pains over the last 3 or 4 months to say they were going to reimburse people for the increase in GST. The Prime Minister even went and gave a speech at North Shore Grey Power back in April about that. But this Government has continuously refused to acknowledge that we have a tax being put on electricity and petrol, and that that tax will make its way through the whole economy. It puts a cost on every single individual in this country.

At this title and commencement debate in the Committee stage, we have the opportunity to reflect upon some of the arguments that have been made of a more technical nature. The first issue I wish to bring to Parliament’s and the Minister’s attention is the inappropriateness of this Taxation (Budget Measures) Bill including within it matters of a technical nature that are not required for the purposes of implementing the Government’s major pieces of Budget policy. There is precedent to put major Budget policy through in urgency in all stages, but it is well established and bipartisan—

💬 Hon Gerry Brownlee: Ha, ha!

The member may laugh, but he is not known for detailed attention, and it would be of value to him as well as to taxpayers if any unintended wrinkles or mistakes of a technical nature in this legislation were sent to a select committee, as has been the normal practice. I see the officials, who are aware of the risks—

💬 Hon Gerry Brownlee: It has not. My goodness, we’ve forgotten our recent history.

The member is in danger of digging himself in a deeper hole.

💬 Hon Clayton Cosgrove: It’ll be a big hole.

We all know it will be a wide as well as a deep hole, and there will be plenty of his colleagues ready to put the dirt in on top when he burrows down. The Leader of the House is misnamed.

We need to put the marker down right at the start that we think it would have been more appropriate to restrict this 96-page bill, much of which is technical. The reason for that is that, try as our officials might, and assiduous as they are, it is always possible that material of a technical nature would benefit from submissions and the review of tax practitioners and others at the select committee process.

The Committee of the whole House has made much note of the fact that, as last evening’s first reaction sees the cold light of dawn, and people’s expectations of being better off meet the reality of next year’s inflation, three-quarters of New Zealanders will find themselves worse off after this budget, at least until 2012 or 2013.

💬 Hon Gerry Brownlee: What rubbish!

Here is some simple mathematics for the Leader of the House. Let us apply 6 percent inflation to that member’s gross salary. Does that member believe he could multiply his gross salary by 6 percent and come up with a number? I would yield to the member if he would like to do that sum in his head. Would the member like to do that sum in his head—6 percent times God knows what he earns; a quarter of a million dollars? How about 10 percent times a quarter of a million dollars, for the member sitting opposite? Ten percent times a quarter of a million, I say to Gerry. That is an easy one. A round number, I say to Gerry. I ask him to give it a go. Well, I say to Mr Brownlee, that is around about the amount he would lose from inflation over the next 2 years because this ill-informed Budget will stretch the borrowing capacity of the economy. Poor old Alan Bollard’s job just got a lot harder. He will have to raise interest rates to sterilise off this Budget, which ends up borrowing to give a $1,000 a week tax cut to a millionaire.

It does not worry Gerry, because he cannot multiply 250,000 by 10 percent. Detail focus, I think, proves the point that this bill should have gone to a select committee. I ask members whether I am right. I am right about that. When we go beyond the fact that most Kiwis will get nothing out of this Budget for at least 2 years, we then come down to the question of priorities. The Government is really saying that it is a higher priority to give a millionaire $1,000 a week than it is to give a rape victim counselling, to give a frail, elderly woman an hour a week of home help, or to help all the people who are reliant—because they have not got $1,000 a week extra tax back—on our public hospitals and public health services to be there for them and their families when they need them. The health budget is $300 million a year short—$1.2 billion short over 4 years. That is the real change to the health budget when we apply inflation from this Budget. There will be 6 percent inflation, so the health budget will be $300 million short.

I concur with my colleague Stuart Nash in terms of renaming this bill the “Broken Promises Bill”. The Taxation (Budget Measures) Bill is a little bit like one of those sugary drinks: it looks good and it tastes good, but when we have had it, we think it is not so good for us after all. This bill really is not so good for us after all. As David Cunliffe just said, if we subtract from the tax that we are supposedly getting back in this Budget the 6 percent inflation, the accident compensation levies, the car registration increases, the Auckland tax increases that will be imposed upon us in terms of rates because we are making such a mess of the Auckland super-city, the tobacco tax, and the power prices—and, of course, because the inflation rate has gone up, interest rates will go up—what do we have? We have a rather uncomfortable feeling that maybe we have just been had. It will take a couple of days to work through, but, as my colleague Clayton Cosgrove said before, we know what it is like. The Government puts its Budget down, it gets plaudits saying that it is a good Budget, and after 2, 3, or 4 days the real oil comes out, and suddenly we realise that, actually, it is not so good, after all.

I will touch on another aspect of this Budget, and what this Budget really does not address, at all. The Budget mentions agriculture only once or twice. It does not look at the productivity of this country. Productivity is based on, for example, our savings rates. If we look across the Tasman to Australia we see that Australia’s employers’ contribution has just gone from 8 percent—

The CHAIRPERSON (Lindsay Tisch): We are debating clauses 1 and 2.

I beg your pardon, Mr Chairman. The title of this bill should be the “Broken Promises Bill”.

I will tell members about one other broken promise. In 2008 the National Party said it would double the amount spent on research and development. What do we have today? We have half the rate of research and development that National promised in 2008. Not only that, it took away the 15 percent tax credit that the Labour Government had already put in place. So that is why I believe this bill should be called the “Broken Promises Bill”.

This Government has broken its promises about what it has already said. Not only has the Government broken its promise not to increase GST but also it has broken its promise to increase spending on research and development. The research and development spend that the Government came out with was $56 million a year, which will be paid in the form of grants and vouchers. That means that small and medium sized businesses have to go on their knees to Government bureaucrats to ask for money in order to be recompensed for their research and development. That is what they have to do. If the Government had stayed with the tax credits that Labour put in place, it would have been able to double the amount of business research and development spend in this country. It could have been upped from $1 billion to $2 billion.

This bill is aptly named the “Broken Promises Bill”, as my colleague Mr Nash has said. It breaks the promises on innovation. The Government therefore breaks its promise on productivity, and it breaks its promise on GST. As I said, the “Broken Promises Bill” is an apt name for this bill.

The question was put that clause 1 be agreed to.

A party vote was called for on the question that clause 1 be agreed to.

Before I give the result of the vote I remind members that the previous Chairman, prior to the luncheon adjournment, said that there was to be silence during the taking of votes. I ask members to respect that.

Before I call on the Minister to move that the bills be read a third time, I have a small matter to attend to. The result of the vote on the question that the Taxation (Budget Measures) Bill be read a second time was announced as Ayes 69 and Noes 53. The correct result is Ayes 69 and Noes 52. I order that the record be corrected.