Taxation (Annual Rates and Budget Measures) Bill

It is appropriate at this point in the debate to come up a level and consider the broad framework of tax policy that stands behind the Taxation (Annual Rates and Budget Measures) Bill. It is appropriate in the Committee stage to repeat what we have said in the first reading debate, and to stake out the ground upon which the Labour Opposition will be fighting this bill. Although it is uncontested that a significant and serious debt problem, with net international liabilities equalling 85 percent of our GDP, confronts this country, and that a deficit of $16.7 billion per annum cannot be sustained, it is also true that in reducing those deficits, the tax system plays a key part, and that the equity and efficiency of any tax rate changes must be carefully considered as a means of deficit reduction.

It is essential that the Committee recalls the changes that have recently been made. When I say recently I mean during Budgets 2008, 2009, and 2010, which formed the basis of the rates that we are being asked to pass today. In 2008 a number of changes were made to tax rates, mainly in the middle and the bottom brackets, which cost the country about $8 billion in forgone tax revenue. That was passed against the background of a somewhat slowing economy, and there was a view that that was an appropriate level of stimulus, based on the information available at the time the Budget went to print in about March 2008—in other words, 6 months before Lehman Brothers collapsed, the global financial crisis, and the terrible deleveraging process that has since ensued affected New Zealand. I think it is a fair bet that had we known how bad that was going to be, there may have been some reconsideration of the depth of those tax remissions. However, that was the information available. Nonetheless, even with those reductions in tax rates, Labour was able to bequeath to the incoming National Government—

💬 Hon Dr Nick Smith: Rubbish!

Dr Smith is a man of letters, a man of intelligence, discernment, and an impeccable reputation. He has declared that my sentence is “rubbish” before I have even finished it. He cannot, therefore, know what he is rubbishing—except himself. The Labour Government bequeathed to the incoming National Government a net debt position, including the assets of Crown financial institutions—Treasury numbers—of 7.6 percent of GDP. I have it in front of me on a spreadsheet. That has deteriorated to a net debt position, including financial assets, of minus 15 percent, and is headed for minus 30 percent before the measures taken in this Budget. There could be no clearer deterioration in position than that.

The CHAIRPERSON (Lindsay Tisch): I reminded the member right at the beginning, on two occasions, that we are debating clause 3. Clause 3 is about the annual rates of income tax for the 2011-12 tax year. The member must come back to clause 3.

Clause 3. As I said at the start, but I will repeat, the passing of the rates today has to be considered in light of how we got those rates. Three preceding Budgets are essential for us to recall. The first was 2008. I have acknowledged that it may have been somewhat brave in the remissions it offered in those rates. In 2009, as the Chair will remember, National incorporated rate changes into the 2009 Budget that were passed in urgency around Christmas of 2008, so urgent were they. It was the first part of a three-part rate reduction programme by the incoming National Government, which dropped the top rate from 39c to 38c in the dollar. Then, in their wisdom, in the 2009 Budget, those members cancelled the rest of the three-part programme, only to re-instigate them the following year in the 2010 Budget. How is that for leadership? It was a reversing of the reversal, rather like KiwiSaver, for which today they were brave enough to half-reverse the reversal of last year’s Budget change. But in this case, in terms of income tax rates, which is what we are discussing in clause 3, those measures in Budget 2009 cost another $8.5 billion in forgone tax revenue over 4 years.

When we get to Budget 2010, which was, of course, the doozy, the Government was so concerned about the Crown’s fiscal position and the growing deficit that what did it do? It dropped the top tax rate from 39c to 33c in the dollar, and the company rate from 30c to 28c. That was extraordinary. That cost $14.3 billion in forgone revenue growth over the 4-year forecast period, resulting in an accumulated amount of revenue forgone—wait for it—of $23 billion under the National Government over 4 years, plus Labour’s $8 billion, which equals around $31.5 billion. Why is that relevant? Because today we face a deficit of $16 billion, which is roughly half the quantum of the tax remission in gross terms in the last three Budgets. So, go figure! The Government reduced rates, reduced revenue, and could not manage the economy out of a paper bag; growth fell in a hole, and now we do not have any money to spend.

That brings me to the second important point of the argument about tax rates. If we are contracting Crown expenditure to accommodate the size of the deficit, might we not also consider changing some of those rates back up? Why is it that the top tax rate is somehow sacrosanct? Why is it that when middle-income New Zealanders are having KiwiSaver cut and Working for Families cut—and I see that those cuts go way below $70,000 combined family income; $60,000 is caught by these changes—why is the top tax rate sacrosanct? In other words, if the country is being asked to tighten its belt, why are the tight belts the first to be further tightened, and the rather more generously proportioned waistlines of certain other taxpayers allowed to expand further? Are we creating, in short—

💬 Craig Foss: Leave Parekura out of this!

—I am not speaking about the distinguished chairman of the Finance and Expenditure Committee in person; his waistline is no business of mine. But why are some being asked to bear the brunt, and not others? Why are we building two New Zealands? Those who have not, who shall have less, and those who have, who shall have more. This seems wrong to me, but, hey, I am only a social democrat—what would I know? I represent, very proudly, only the electorate of New Lynn. I do not represent some other electorate such as Grey Lynn, those latte-sipping socialists from the inner city. No, no: New Lynn, where good working people live, and I am very proud to be their MP. Does Cam Calder come from the North Shore and commute to South Auckland? The nice thing about New Lynn is that when I look up on a crystal-clear day when the birds are singing, I can actually sometimes see John Key flying over us in his helicopter to get from his mansion in Parnell to his electorate in Helensville. I count that a great privilege—but back to the rate issue.

What would a sensible moderation of tax rates look like? We have to have regard for international competiveness, and I am sure Mr Dunne in the chair would remind us of that. Therefore, changing the corporate tax rate would not be top of our list of things to do. But in looking at the marginal personal rates, it seems to me that some rebalancing there that brought a stronger sense of social equity to the exercise of reducing the Crown’s deficit would be appropriate in most ordinary Kiwis’ sense of fairness. Of course, we have to balance the growth aspects of this—the building of the strong export-oriented economy that we need. That brings me back to the part of the discussion in the first reading of the bill where we noted—I think, collectively; I think Government members joined with the Opposition on this—that there was no economic development strategy anywhere in this Budget, no pretence of one. That is not what they do; they are conservatives. They are good with a little nip and tuck here and there around the fist, they reckon. Even so, some of them take us backwards. But growing the pie? That is not for them. That is for us. When the public wants the pie grown they will vote them out and vote us in. Is that not right, colleagues? And that is what we do. They are also the party of continuity. They are the Holyoakes of the modern era, there to sit on their well-proportioned bottoms while the country goes to rack and ruin. It is Labour that historically has been the party of change.

Coming back to the bill: if we want rates changed again, this is unlikely to be the Government that will do it. They seem to think the epitome of courage is to semi-reverse last year’s reversal. That is not strategic; that is not the kind of change this country needs. It will not take us forward.

This is a rare opportunity. It happens once a year for Parliament to recall what has happened to tax rates. What has happened to tax rates in three successive Budgets before this one has been massive tax remission to the public, and, proportionately speaking, much of it to the top end. That needs to be rebalanced.

What a pleasure it is to rise to speak on the Taxation (Annual Rates and Budget Measures) Bill. That was a very learned discourse from the member opposite on the relative merits of lattes in Grey Lynn, New Lynn, and possibly St Mary’s Bay. There was a very brief discussion about taxes, but he did mention at one stage that, yes, the default position is that he wants to raise taxes. Can members believe that? He wants to raise taxes. Actually, I can believe that, because that seems to be the default position of his leader, Mr Phil Goff, as well.

Incidentally, we heard Mr Goff make the breathtaking assertion in the House earlier today that the global financial crisis finished in 2009. What, then, is happening in Portugal and Ireland—Mr Goff has completely missed that on the radar—as well as in Greece and Spain? He seems to be completely unaware of the EU bail-out or, in fact, the IMF bail-out masterminded by DSK, before he himself bailed out. There were billions of dollars in quantitative easing.

Tax, borrow, spend, and hope seems to be, once again, the default position of the Labour Party. We heard Mr Phil Goff confirm that Labour members have not learnt. Punitive, pusillanimous, and pathetic describe Labour’s politics of envy as it once again wants to hit the 13 percent of New Zealanders who pay over 50 percent of tax in this country. Labour members want to wallop the wealth creators, evict the entrepreneurs, and bash the businessmen and businesswomen who are so—[Interruption]

The CHAIRPERSON (Lindsay Tisch): The Hon Pete Hodgson knows he cannot be on his feet while interjecting.

—crucial in growing the economic cake for the benefit of the most vulnerable New Zealanders.

National’s tax changes will provide more money for hard-working New Zealanders. We heard from the Prime Minister this afternoon that three-quarters of New Zealanders pay a top marginal tax rate of only 17.5 percent. Despite international pressures on food and petrol, tax reforms have allowed after-tax wages to go up faster than the cost of living. Wages have gone up 7.1 percent in real terms. If my memory serves me well, in the blighted 9 years of the previous administration real wages went up 3 percent.

As a result of our tax changes, a typical married couple on superannuation has seen their joint income increase by $166 per fortnight. That is almost 20 percent over the last 3 years; 8.5 percent if adjusted for inflation. Interest rates have fallen dramatically to their lowest level since 1964. Our tax rates have put more money in the pockets of hard-working New Zealanders. I commend the Taxation (Annual Rates and Budget Measures) Bill to the House.

I will refer to clause 3 of the Taxation (Annual Rates and Budget Measures) Bill. I ask the Minister in the chair, the Minister of Revenue, to take a call in order to advise the Committee on the income tax rates proposed in clause 3. According to this clause, “Income tax imposed by section BB 1 of the Income Tax Act 2007 must, for the 2011-12 tax year, be paid at the basic rates specified in schedule 1 of that Act.” In my reading of that clause, the rates of income tax are not being adjusted for the losses that most New Zealanders in the KiwiSaver scheme are suffering as a consequence of the decrease in the tax credits applying for KiwiSaver. As I understand it, despite the fact that people are losing the member tax credit, and therefore the effective tax burden they suffer in New Zealand is greater, their income tax is not going down. That is my reading of clause 3. It would be good if the Minister would take a call to confirm that the tax credits are going down—so people do not have the old benefit they had for saving under KiwiSaver—but their income tax rates under clause 3 remain unadjusted, and therefore they are worse off. I ask the Minister to take a call in respect of that point.

The second point I would like the Minister to confirm is that the adjustments that are made to Working for Families are of similar effect; that the middle-class tax bill after the changes to Working for Families in the later part of the bill, which take money off them, is not adjusted in this part of the bill by an amendment to the income tax rates. At the same time, I would be grateful if the Minister could explain why, if I am right, it is fair that there has not been some redistribution of the disproportionate tax cuts that went to higher-income earners in respect of National’s income tax cuts in the last Budget. Remember that the statistic we were given was that 42 percent of the income tax cuts last year went to the top 10 percent of income earners. If I am right in my assessment of what happens overall in this bill, why has there not been some redistribution so as to make that fair, because it does not seem to me to be fair.

Similarly, why are there no significant changes to the rates of income tax in respect of the farming sector? There was a headline in the paper yesterday on this subject, and I agree with some of the criticisms that were made of what I think were sub-editorial changes to the heading, which suggested that farmers got $500,000 of income but paid only a small amount of tax. The headline did not make clear whether it was gross income or net income, and that should not have been the case.

💬 Amy Adams: Yeah, it did, it was just wrong.

It did not make it clear whether it was net income or gross income, and some people, like Amy Adams, read it and chose to interpret it as being a reference to net income, which it never was. None the less, it was clear that, effectively, an insufficient rate of income tax was being paid by the rural sector. Why is that not addressed here?

I ask the Minister whether it is right that the only change that is signalled in respect of those tax settings is a future review of the livestock valuation schemes that are open to farmers. One of the ways in which those effective income tax rates are low in practice for the farming sector, one of the ways that members of the farming sector can effectively minimise their taxes in New Zealand, is by opting in and out of different livestock valuation schemes. At the moment, if the value of livestock is going up, farmers can opt in to the capital scheme, and the increase in value is not attributable to them for tax purposes, because it falls into a capital scheme. But when the value goes the other way, at the moment farmers can opt out of the capital scheme and go into the revenue-based scheme for the valuation of livestock, the value of their livestock goes in, and they decrease their income for tax purposes on that part of the cycle. So farmers capitalise the upside and put a drop in value into the revenue scheme.

Even that problem is not fixed in this Budget. The Government knows that it is a problem that decreases the effective rate of tax, and these tax rates are set for the forthcoming year by clause 3 of this bill. The Government could have fixed that problem in this bill this year by saying that it is plainly wrong, but, no, all it has done—as far as I am aware, and I have seen the press release from the Hon Peter Dunne today—is to say that it will look at the situation in the future. I congratulate him on doing that, because it is better than doing nothing, but given how little tax is being paid by this sector, looking at it and maybe doing something tomorrow is actually better summed up as doing nothing in this Budget, because nothing is done in this Budget to remedy it. That is one of a number of areas of unfairness in the tax system relating to farmers, and I thank the Minister for identifying that one, but there is a long list of other things that are not being fixed that I do not have time to go into today.

I come back to my primary point. Will the Minister confirm that notwithstanding the other changes to taxes for individuals that increase the effective tax burden of middle-class people in KiwiSaver and middle-income people who are having their Working for Families abatements made more severe, the income tax rates that clause 3 in Part 1 of this bill sets remain unchanged, so the net effect of both of those things is that the tax payments, in effect, go up, and, notwithstanding that last year 42 percent of income tax cuts went to the top 10 percent, that is not revisited, and, instead, there is an increase in middle-class tax burden.

The member who has just resumed his seat, David Parker, raised a number of points that I want to respond to. I am sure he will forgive me if I do not get them all in order.

I will start with the last one first: the question about the change in the livestock regime that we foreshadowed in an announcement today. His analysis of the problem is correct. One of the reasons why we are going to have a look at this regime is precisely the situation he described to the House. I remind the House that what we are doing is the normal way of addressing these changes. We will issue an issues paper that will lead to some decisions being made. I imagine there will probably then be either a discussion paper or draft legislation to follow. The member should take it from me as a very clear indication that this area is not being looked at just for the sake of it. An issue needs to be addressed and we are keen to address it.

That leads me back to the question about the material that was in the media yesterday relating to the amount of tax paid, or not paid, by dairy farmers. As I said at the time, it was a shoddy piece of reporting. I think the member partially acknowledges that. It was a case of apples and pears. I will explain some of the reasons why. We have a self-assessment tax system. When people put in their tax returns they describe their occupation. A number of people describe themselves as dairy farmers. That led to the categorisation of those people and the amount of tax that was attributed to them. From memory it was around $26 million.

But if the member had looked down the table he would have seen that there was another category—effectively, “other”—that had $1.5 billion of tax assessed for it. A lot of the people in that category would be dairy farmers or other farmers who would simply describe themselves as farmers, agricultural businesses, or whatever. It becomes a classification issue. The issue was also raised about the distinction between taxing on turnover and taxing on income. I do not want to canvass that point any further, because it has been well canvassed today.

I will come back to the other questions that David Parker raised relating to the status, in effect, of Part 1 of the Taxation (Annual Rates and Budget Measures) Bill in relation to the changes made in Part 2. I see from the wry smile on his face that he knows the answer as well as I do. I am happy to confirm for the member that Part 1 of this bill confirms the rates of taxation that were put in place in the companion measure last year and that they are not being changed in this bill.

I come to the other point that underpins both his contribution and the contribution of Mr Cunliffe earlier. I say to the Committee that it is now very clear that Labour and, I suspect, the Greens—although, to be fair, the Green Party members have not yet spoken in this debate—will go into the election with a policy of increasing taxes. It is only a matter of by how much.

💬 Michael Woodhouse: They won’t tell us.

They will not tell us.

💬 Hon David Cunliffe: We are.

I am grateful for that admission.

💬 Hon David Cunliffe: Read our lips.

The member says we should read his lips. I place as much credibility on him as I placed on the original George Bush when he made that comment. Let us take the member at his word: Labour will increase at least the top tax rate.

💬 Hon David Cunliffe: We said that.

He has confirmed it. Let me then work though the consequences of that increase, which is where I come back to the points raised by Mr Parker. The biggest adverse tax change made in this country in the last decade was when Labour put up the top personal rate as its first act in Government in 1999. That triggered the explosion in the growth of loss attributing qualifying companies, the explosion in the growth of family trusts for tax avoidance purposes, and the explosion in a whole raft of people trying to define their income as something else in order to minimise it in respect of their tax obligations. All Labour is doing by signalling that it will go back to that policy is again setting off those massive distortions that we have spent the last few years trying to tidy up. The member may well say—

💬 Hon David Cunliffe: We haven’t announced that.

That is exactly the point. It is the consequence of his actions. He knows it, because he was part of a Government that started the process of trying to unwind the problem.

The next issue that arises from that increase relates to differential rates. At the moment we have a top personal rate of 33 percent. The company rate is at 28 percent. There is an argument about whether a 5c gap is too great. In an ideal world it probably is, but it is survivable in these circumstances because we aligned the trust rate with the top personal rate. If Labour wants to put up the top tax rate again—I think I heard Mr Cunliffe say this evening that Labour will not touch the company rate, which will remain at 28 percent—

💬 Hon David Cunliffe: I didn’t say that.

He did not say that.

💬 Hon David Cunliffe: No, I said we’d be reluctant.

This gets better the more we go on. The company rate would probably go up as well. The question we are then left to answer—and we may get an answer if I push Labour members—is what Labour’s attitude to the trust rate is. Unless the trust rate is aligned to the top personal rate, then it will set off that whole process of avoidance that we spent the last decade trying to get over.

So far we know from the debate this evening that an incoming Labour Government at some theoretical point in the future will put up the top tax rate. It will probably put up the company rate, although by not quite so much. It is bound then to put up the trust rate and—[Interruption] As the member interjects quite correctly, because it will need to in order to get the support of the Greens, it will have a capital gains tax, a carbon tax, a resource tax, and all sorts of other things.

I am grateful to Mr Parker for raising the question of what is in Part 1 of this bill. It confirms the annual tax rates as they were passed in last year’s Budget. We have no intention of changing those. I am delighted that we have now confirmed that just about everything is on the table to be increased if Labour gets into power.

We are talking about Part 1 of the Taxation (Annual Rates and Budget Measures) Bill, but I feel as though I have to clarify a couple of things that the Minister in the chair, the Hon Peter Dunne, has mentioned. First and foremost, I find it a little rich that we have the Minister of Revenue in the chair talking about the bad things Labour did when it was in power, when that Minister was also the Minister of Revenue under Labour. If the loss attributing qualifying company structure was so poor, then why did the Minister of Revenue in the previous Government not do something about it? If there was such a discrepancy between the trust rate and the company rate, then why did that Minister not do something about that? I find it a little bit rich to have him stand there and lecture Labour members on what they did wrong, when in fact he was the Minister in charge of revenue under Labour. The irony has not escaped any member on this side of the Chamber.

There is one thing the Minister said that I think I am allowed to rebut. He talked at length about dairy farms. He said that the figures were a little bit disingenuous, because there was a figure under “other” that contained $1.5 billion worth of revenue. But I would like to say to the Minister that in the line for dairy farms, over 17,000 entities classified their primary activity as dairy farming. They were companies, trusts, and partnerships. The definition, according to the Inland Revenue Department, was that they had to have tradable activity. There were no shelf companies there, and there were no trusts that hid assets. Instead, these were trading trusts, trading partnerships, and trading companies, as defined by the Inland Revenue Department. I am more than happy to send over to those members the information that I received from the Minister, and that he received from the Inland Revenue Department. These were not shelf companies; these were trading companies. The statistics from the Inland Revenue Department said that dairying was taxed $26 million.

The statistics also showed that 9,000 of those trading entities declared a loss. I have had a number of calls from farmers, and one was from a very high executive in Federated Farmers. He said to me that I was right, and that the farming industry was in trouble.

💬 Peseta Sam Lotu-Iiga: Name and shame!

The member really wants me to? Conor English called me and said that, yes, the farming industry was in trouble. This is a debate that we need to have as a country, because the farming sector is the backbone of this economy. It is a very important part of this economy. No one on this side of the Chamber would deny that. But the question that was posed, and the question we pose, is whether the sector is in such a dire state that it can afford to pay only $26 million in tax. That is the question we pose.

The other question we pose, which goes back to Part 1, is whether the integrity of the tax system is in such bad shape that it has allowed farmers to claim expenses for a whole lot of stuff they were able to write off against their incomes. They were allowed to write them off against their incomes to the point where they paid no tax.

💬 Amy Adams: What are you smoking, mate?

I would love Amy Adams to take a call, because she has three farms that are all held in trusts. She is a lawyer, and I would like Amy Adams to stand up and tell us how she did that.

💬 Amy Adams: I do—sheep farms. You hate them, too?

It does not matter, because the statistics on dry stock were just the same. In fact, according to the figures from the Minister, which were supplied by the Inland Revenue Department, 75 percent of dry stock farms earned $20,000 or less. Are they really in such a bad shape that they cannot pay tax, or is the integrity of the tax system in such a bad way—

💬 Amy Adams: You’re a moron.

Am I a moron, Amy Adams? Mr Chair, I take personal offence—

The CHAIRPERSON (Lindsay Tisch): The member knows that that is not a parliamentary term. I ask the member to withdraw and apologise.

💬 Amy Adams: I withdraw and apologise.

Thank you very much. All I am saying is that I know the difference between income and payout, and I know about expenses. I know how economics works, but I also know that when a sector that describes itself as the backbone of this country pays only $26 million in tax, some serious questions need to be asked.

I would like to say to the listening public that that was the voodoo economist in this Chamber, or possibly the “member for misleading information”. I accept that he is not a moron, at all, and I am pleased—

The CHAIRPERSON (Lindsay Tisch): No. I ruled against the use of that term, and it is not appropriate to bring it into any form of debate following. I tell the member to not do that.

Thank you—

💬 Hon Rick Barker: I raise a point of order, Mr Chairperson. The other point I would make—and you have been very good on your rulings to make sure the Committee is in order—is that the member made reference to a member for such-and-such. I thought that was a disrespectful reference to members on this side of the Chamber. Members are either members for an electorate or they are list members, but to call the member the “member for misleading information” was, I thought, disrespectful to a member in this Chamber.

The CHAIRPERSON (Lindsay Tisch): The intent of that was not directed particularly to a member. These are debating points, and I am sure they will be taken in that light.

The point of the issue is that we have had two members speak in this Committee who are both list members of Parliament—unlike myself, who deals with a provincial area of New Zealand, the Wairarapa. I have a great connection with dairy farmers, sheep farmers, and beef farmers. I can tell members that there has been a very important rain event in the northern part of my electorate, which, if members will bear with me, bears on this argument. The reason is that some of the farms in my electorate have lost more than 60 percent of their land area between Porangahau and Cape Kidnappers. For that reason we have tax rules, as I am sure the Minister in the chair, Peter Dunne, understands, that allow farmers to remove their capital stock from their land, sell it, and raise capital from it. That money is treated as capital, not as income, because when the pasture is restored and the grass starts growing in the spring, those farmers will want to bring back capital stock on to their pastures. So it is fundamentally important that we have flexible arrangements, as we have in the legislation, for allowing this sort of transaction.

I have to say to the member Stuart Nash that he is quite wrong, and I do not believe he understands the difference between a person who draws wages or a salary, and a person who pays an employee. All of those people take money from the business entity for which they work, and they pay full tax on that at whatever is the relevant rate. That does not mean that the business, and all dairy farmers, pay no tax. That is absolutely outrageous to suggest—

💬 Stuart Nash: I’ll send you the figures.

I think the member needs to look at the issues he was talking about, and it is how he was talking about it. I have to assert again that this is voodoo economics, and the member is just taking headline figures and wrongly interpreting them for the benefit of his argument.

I return to clause 3 of Part 1. I need to say that when the Government took the reins of office in the financial crisis, the economy had gone into recession and had shrunk 3 percent a year, topping off 5 years of historically low growth. Then what happened was that exports flattened out completely, Government spending—which the member David Parker, who spoke earlier, was responsible for—was out of control, and Treasury books showed never-ending budget deficits spiralling out to 60 percent of GDP and beyond. Despite the surprises of the two earthquakes and the global recession, our economy now, under John Key’s leadership, is far stronger than it was 3 years ago. We have improved the tax system so that we are setting up signals for people in my electorate and elsewhere in New Zealand who want to improve their lot by working hard, by saving hard, and by paying tax through GST rather than on income tax. We have done that to improve the efficiency of the economy and to set up signals so that people will respond better. They will put money in their pockets and spend it as they wish.

If we did not do that, what would the list member across the Chamber do? He would be involved in a Government that would tax businesses on revenue, not on profit. David Cunliffe has already explained that Labour plans to spend $5 billion a year, but it will not tell anyone where the money is coming from. The member opposite has a really good opportunity to do that. It may be a turnover tax. I expect that Labour is going to give people a discount on GST; it has already said that in the House. That discount would cost about $250 million. It would benefit 10 percent of households by a magnificent amount: $1.50 a week. The Labour Party is talking about having a $5,000 tax-free threshold, but David Cunliffe said that the tax-free regime will not happen for 5 years, and even then it would be worth about $10 per week. A month ago Labour had fully costed policies, according to Mr Cunliffe—fully costed policies on a spreadsheet.

I take the first opportunity in this debate to acknowledge that the Government is making some effort in respect of the recovery in Christchurch. I acknowledge also that it will, of course, be hard-working New Zealanders who provide the money for that recovery through their taxes, and that is what is provided for in clause 3.

I also want to pick up on the point made by my colleague Mr Nash about taxes being paid by particular sections in the community. I acknowledge too that we have a situation in respect of the dairy farming community where tax liabilities are also created because of the failure of the Minister for the Environment, who is sitting opposite, to deliver in the national water policy statement of last week any mechanisms for environmental control. So we have taxpayers funding the clean-up of some of the inputs that the dairy industry provides. We need only look at the lakes in Rotorua and at the Waikato River for examples of where taxpayers, through their annual rates set in bills like this one, are paying twice, in effect. Not only is tax not being paid effectively by many across that sector but also we are paying, through taxes, for the clean-up.

Then, of course, provided for under this Budget will be the irrigation schemes, which the dairying industry will, with others, be a major beneficiary of. That, of course, will also be funded by taxpayers—ordinary hard-working taxpayers who, on about a $50,000 income, are paying 10 times what, at least in one recent financial year, some dairy farmers were paying. That is a matter of fairness and equity, and it is simply not acceptable to have that kind of imbalance in the taxes being paid by two sectors of society.

The Prime Minister commented today that the largest amount of tax is paid by a relatively small part of the community, and that is always the case when we have a progressive tax system. This part of the bill is implementing that progressive tax system, and I for one believe that that is an appropriate tax system for us in New Zealand. Just last night I attended the graduation of my daughter from Victoria University. She graduated as a primary teacher. I was a very, very proud father there last night, amongst many, many others; there were many other parents there. Those students, of course, will have contributed somewhere around 20 percent of the cost of their tertiary education. We as taxpayers will have contributed 80 percent, as provided for under the clause in this bill where we have set the annual rates for our taxes.

But I make the point that those students, as they graduate and go into high-earning jobs, will be the beneficiaries of the stable and orderly society that we treasure in New Zealand. How do we provide for that stable, orderly society? We provide for it through our taxes. We provide for it through parts of bills like this one tonight.

We have rules in our society, and those at the top end are generally as much, if not more, the beneficiaries of those rules as those at the bottom end. Things like the courts, things like regulations in business, and things like tenancy requirements are all paid for, overseen, supported, and facilitated through the taxes we pay, and we as taxpayers also get back benefits for those. Those of us on higher incomes tend to get more benefit back because we get the regulations in business and tenancies, and things like that, which lower-income taxpayers may not be receiving, even if they might sometimes be getting more in terms of particular other benefits.

We get a welfare net and we get the provision of health care, and I would rather live in a society where somebody is able to go to a hospital provided for in a health system, funded through our taxes, through clauses like this, than have the system we see in other countries, where, as David Lange once put it: “They feel for your wallet before they feel for your pulse.” That is part of having a progressive tax system.

Of course, the Government makes much play sometimes about the fact that it has cut taxes, and it points to the fact that there have been three tax cuts across the last 3 years. But it usually fails to take account of the fact that the first of those tax cuts took place under the guidance of Dr Michael Cullen, and that those tax cuts were really sheeted home to lower and middle income earners, not to the top end of town. We have seen in the latest two tranches of tax cuts, without any doubt, that the top end of town has been the real beneficiary, and we have seen some of the figures on that provided to the House on numerous occasions.

I will pick up on some of the commentary in the Economic and Fiscal Update, as tabled today by the Minister of Finance, around tax matters. I say to the Minister that on page 80 it is acknowledged that we are yet to see a full year of GST at the new 15 percent rate. I just wonder whether the Minister can give us any assurance as to whether there is any work consideration going on for any further lift in the GST rate, under the potential of a re-elected National Government, should he still be there as part of that. I think that is an important question to ask.

I also draw attention to page 82 of the Economic and Fiscal Update, which is reflected, I think, by this bill and the annual setting of the tax rates, and to the differential between Treasury and the Inland Revenue Department in respect of the tax revenue forecasts, and as Treasury—

💬 Craig Foss: All Budgets always use Treasury forecasts.

No, but Treasury notes that the Inland Revenue Department has produced a set of tax forecasts that are much lower than Treasury’s—

💬 Craig Foss: Read the whole paragraph.

—much lower than Treasury’s. In this update—

💬 Craig Foss: Read the whole thing.

—yes, I will—the total difference between those tax forecasts across the 5 June years, 2011 to 2015—it is on page 8; it will help the member with his own guidance—is nearly $4 billion. That is not an amount to be sneezed at or to be dismissed as just a minor variation between two Government departments. It is an actual $4 billion difference in projections between—

💬 Craig Foss: Four years.

That is right, and that is a billion dollars a year in anybody’s language. A billion dollars a year is not to be sneezed at. Why has that come about? It has come about because the Inland Revenue Department is less upbeat on the business tax—

💬 Craig Foss: At the same time they upsized the risk—

That is right. The bulk of the difference—I am again quoting from the papers—is the difference in estimates for corporate tax, because Treasury is upbeat. It is saying the corporate sector is bouncing back. The Inland Revenue Department, which is a less political organisation, if you like, is simply there to make sure that the revenue comes in to meet the needs and objectives of the Government. It is simply there for that reason, and it is simply not prepared to be as upbeat as that on that issue.

I refer the member opposite and the Minister in the chair, the Minister of Revenue, to the regulatory impact statement for this bill, which refers to the issues of KiwiSaver. That is another issue of analysis by credible officials. It is actually an analysis by both Treasury and the Inland Revenue Department, if my memory serves me right. It has, I think, the Inland Revenue Department’s fingers all over it, because it is talking about the department’s concern that we are making changes to KiwiSaver when it is less than 5 years old. It was launched only in 2007. There have already been several significant changes to contribution requirements. Who made those? Those changes were made in 2008 and 2009 by the National Government, which wanted to fund the first round of its tax cuts. So it took away the 2 percent contribution.

💬 Craig Foss: Half the people are on 4 percent now.

Yes, it did. It took it away, and now it is going halfway back to reinstating it because we need a new savings regime. Here is what the department says about that in the regulatory impact statement: “The KiwiSaver industry has not experienced any period of stability in which to establish its core products, and this uncertainty and unpredictability is not helpful to either the industry or savers.” The National Government’s track record on this issue is appalling, dating back to Muldoon.

So now we know that Labour is going to campaign in the general election on a new top tax rate. It was not very clear in what Mr Cunliffe said, but if we take the Leader of the Opposition’s speech, there will be a new top tax rate, because the alternative is that Labour simply puts up the existing top tax rate. Let us analyse why that will be so bad for New Zealanders. I will give members a scenario. It is of a family with two kids under the age of 13 where the gross income is $60,000. I will take another family with exactly the same circumstances, but the gross income is $90,000.

💬 Stuart Nash: Do you know the difference between income and revenue?

Yes indeed, absolutely. This chartered accountant knows the difference. That is one-and-a-half times more income. A progressive tax system says that the higher-income family should pay more than one-and-a-half times more tax. How much more? Is it 200 percent or 250 percent? At the moment that family is currently paying 675 percent more in effective income tax than the family on $60,000 pays. That is nearly seven times more income tax. They are looking at each other and saying: “How can that be?”.

💬 Stuart Nash: It’s called a progressive tax system.

It is the system that the member put in place.

Debate interrupted.

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