Taxation (Annual Rates and Budget Measures) Bill

I thought it was very important to come back and complete my call, given the confused look on the face of Labour’s spokesman on revenue when I tried to explain the answer to the question that Mr Cunliffe posed in his last call in respect of why top tax rates are sacrosanct. Well, I would not say that they are sacrosanct, but they are certainly at the appropriate place. He simply could not believe that the total tax paid by a family earning $90,000 a year with two children under the age of 13 was 676 percent more than the same family earning $60,000. The journey from $60,000 to $90,000 under the present regime is steep. The effective marginal tax rates are somewhere in the region of 56 to 58 percent, depending on the earning trajectory. But it is challenging and it is one of the reasons why many people faced with that hurdle choose to go somewhere else, like Australia, for low effective marginal tax rates.

We heard yesterday an absolute admission that Mr Cunliffe’s party will campaign this year on increasing the top tax rate or creating a new top tax tier. Labour members denied that when I challenged them on it yesterday. It means that the top tax rate of $70,000 will probably stay at $70,000. Those really big income earners in that earnings bracket, like senior nurses and policemen—you know, the real uber-rich that Labour is calling the rich pricks—will suffer the extra tax that that party would put in place were it to attain the Treasury benches.

I am very grateful to Deloitte for its Budget 2011 perspective report, which was released yesterday afternoon. It firmly confirms that last year’s tax switch was, indeed, fiscally neutral, according to the tax bands. I paraphrase from page 18 of that report. In 2008-09, earners of over $70,000 a year contributed 46 percent of the income tax base. This year, after the tax switch, which Labour members bang on about, those earners of over $70,000 will, according to Deloitte—on reliable information that is better than the information Mr Nash got, I have to say—contribute 51 percent of the income tax base. So rather than tax cuts for the rich, that group is contributing another 5 percent to the total tax base.

About 12 or 13 percent of the earning population are paying more than 51 percent of the income tax in this country, and Labour wants to punish that group further. It is punitive. It adds to the confused fiscal and monetary policy that that party is coming out with: raising tax rates, loosening monetary policy so that interest rates go up, and increasing spending, which will plunge our children into more debt by about $45 billion. At some point the rot has to stop. This legislation is really sensible and sound. If we put those top tax rates back, of course, the sorts of things that the Minister in the chair, the Minister of Revenue, talked about yesterday will certainly come back.

Clause 3 of the Taxation (Annual Rates and Budget Measures) Bill is a piece of law that says that tax rates are not going to change. This side of the Chamber asks why the hell not. When the global economic crisis struck, we all became Keynesians around the world, and we all did two things: we increased expenditure and we reduced taxes. This country increased expenditure and reduced taxes. The April 2009 tax cuts all went to rich people—that is a matter of fact. Now it is time to wind back from that Keynesian impulse and start to get our deficit of $17 billion under control.

There are two ways of doing it: one is to reduce expenditure, and one is to increase taxes. We did both the first time round, but we are doing only one the second time round. We want to know why when tax cuts came they went to rich people, but when costs are to be increased they are borne by low and middle income earners. That is what we want to know. It is the essence of this Budget and of the past 2 years.

When David Cunliffe spoke he laid out the costs of the Labour tax cuts in October 2008, the tax cuts in April 2009, and the tax switch of last year. He laid it out and added up the millions. He told us where that money went and how much was lost to the Government accounts. He made it clear that the amount of tax that had been cut over the past 2½ years under successive Governments had reached the point where it ought to be partially reversed. But we are not doing that in clause 3—we are not doing it. We are leaving tax rates exactly where they were. The net result is that the rich have done better over the past 2 or 3 years and the low and middle income earners will do worse.

Take me: I am on $130-something-thousand. [Interruption] That seems to have caused a whole lot of interjection from a bunch of people on the other side of the Chamber, all of whom are also on $130-something-thousand. My story is the same as theirs. Let us hear what that is. Roughly, I am $100 or so a week better off as a result of the changes that this Government has made over the past 2 years. I am roughly $100 or so a week better off, or a bit over. I have not been hurt by this Budget one iota. I have been asked to give back nothing.

💬 David Bennett: Put it in your KiwiSaver.

💬 Katrina Shanks: Give it to charity.

People across the way are telling me to save it or give it to charity. They think they are being helpful. I am making a point: I am one of those well-off people who have had a significant increase in income under this Government and have not suffered one little bit from this Budget. That seems to have evoked quite a lot of emotional—almost visceral—reaction from my colleagues opposite. I simply say it as a matter of fact: I am, and people like me are, better off; people on half the income that I am on are worse off. That is not fair. It is not fair and it is to be found in the inaction of clause 3.

Some interesting things have happened in the course of this debate. A couple of things have come from members on the other side of the Chamber that I think are revealing. One is that they all have notes that say something like this: 50 percent of tax is paid by 15 percent of the people, or whatever it is. Those members have a research note and they have been parroting it. That means that the people on the other side of the Chamber think that the tax system as it is now is too progressive. That is what it means. Otherwise they would not bother to start parroting that stuff.

They parrot something else. They say that they must take care of the wealth creators—they must take care of the wealth creators. That is an awful, ugly, right-wing argument. It basically says that low and middle income earners cannot succeed. That is what it means. It says that low and middle income earners cannot succeed; only the rich people can create more wealth, so we must tax them in an ever-lighter way in order for that to happen.

Then we get on to the silliness about dairy farmers and how much tax they pay. Let me just say that on this side of the Chamber we understand very well that taxes go up and down in business year by year. We know very well that the taxes paid by those farmers of only $1,500 a year, or whatever it was in that year, were low because the milksolids price for the previous year was not very flash, and that tends to carry over into the profits for the following year and the taxes that are paid. We know that the tax paid by dairy farmers the year before would have been higher, and the year after will be higher. We know that.

But when we look at the average tax paid by dairy farmers over years—I have been to DairyNZ to find out—we see that it is a little over $20,000. If one has a business that is paying $20,000 or $30,000 in taxation but is using something like $2 million or $3 million worth of debt—and these days dairy farms in New Zealand are—then that is a very bad use of capital. It is a bad use of capital. Basically, people are capitalising the gains and socialising the losses. We know that; it is known on both sides of the Chamber.

That has been a pretty interesting debate, but it got more interesting. Mr Dunne, the Minister of Revenue—I do not want to upset him in any way—made a contribution stating that it was to do with classification. Stuart Nash received the answer that some dairy farmers had declared themselves as dairy farmers and were considered in a group, and other people had not. Those others had called themselves Agribusiness, or whatever, so they were classified as “other”. Mr Dunne went on to make the point that the figure that the dairy farmers paid, whatever it is—$2.5 million or $25 million—

💬 Hon Peter Dunne: $26 million.

—$26 million—was too low. I agree with Mr Dunne on that. But the figure of $1,500 per dairy farm did not change. That does not change. There is no way in the world that there will be any correlation where people who describe themselves as dairy farmers pay low tax, as opposed to other dairy farmers who describe themselves as being in Agribusiness and pay high tax. That does not work. Do not run that argument around here; it will not work, I say to Mr Dunne. The point is that there is an unfair incidence of burden in this Budget and it is not a good look.

I will make another couple of points. We have one of the lowest top tax rates in the world—one of the lowest top tax rates in the world—but we never hear that from the other side. We have a whole thesis in this country that says that if there is a gap between a company rate of 28 percent and a trust rate of 33 percent, then that 5 percent gap is tolerable, but if there is a gap between a company rate of 33 percent and income tax rate of 39 percent, then that is intolerable: 5 percent is OK; 6 percent is intolerable. I tell those members to look at other nations. They will see that their trust rates, company rates, and top personal tax rates do not align. Then these members should ask themselves why the growth of loss attributing qualifying companies is exploding in this country, and why the growth of family trusts is exploding in this country. Those members should ask themselves whether it is because our tax law needs fixing, or whether it is something to do with the accounting profession’s culture in this country. But they cannot say that we have to reduce taxation in order to avoid avoidance. That just will not work. It is just not logical by any international comparison. It will be true at the margins somewhere, somehow—I absolutely acknowledge that—but I believe that it has been grossly overstated.

We heard from the member who has just resumed his seat, Michael Woodhouse, an argument on the effective marginal tax rate. He was wrong on every count.

There is an old adage in politics: “Explaining is losing”. I admire the more senior departing member Pete Hodgson for trying to go to the rescue of his colleague Mr Nash, who found himself on the front page of the paper the other day discussing things related to taxation, and promoting, perhaps, the Labour turnover tax or whatever it may be called. Other members have tried to come to Mr Nash’s rescue. Even his party leader tried to come to his rescue. The sad truth of it in terms of Mr Nash’s career is that he is the Labour Party spokesperson on revenue, and because that is his portfolio I presume that one day he would like to sit where the Hon Peter Dunne sits as the Minister of Revenue. But Mr Nash is now for ever tainted in the sector that he wants to become the Minister in charge of, if you will: the financial sector, or at least part of it. Every time that he gets up to speak we will be asking him, and the public will be asking him, to tell us about the turnover tax he promoted on the front page of the Dominion Post.

I am sure—and we know that explaining is losing—that in order for that kind of story to get out, it would have gone from Mr Nash to Mr Cunliffe, and then it would have gone to the inner sanctum of Mr Goff, so it would have had the total approval of the Labour Party and its hierarchy. There is a fair bit of back-pedalling and re-explaining going on. That does not matter. Mr Nash got on to the front page, but I think it was for all the wrong reasons.

What is the obsession that Labour has about increasing taxes? What is the obsession about that? We can recall way back, to when Labour brought in GST. It went from zero to 10 percent and there was no compensation, although Labour had increased taxes. When GST went from 10 percent to 12.5 percent, Labour increased taxes but there was no compensation. The only time that Labour did provide compensation was when Dr Cullen was looking at the polls in 2008 and decided even he could not trust himself, so he legislated to provide for the first tax cuts in about 9 years under the Labour Government. I cannot understand that obsession.

The previous speaker talked about fairness. What could be fairer? About 72 percent of New Zealand taxpayers face a highest marginal tax rate of no more than 17.5 percent. How could that be made fairer? That is what is confirmed in Part 1 of the Taxation (Annual Rates and Budget Measures) Bill. How could that rate be made fairer? Although GST is not income tax, GST has been confirmed as staying at the current rate of 15 percent. What could be fairer than providing that those who spend more pay more tax? The gentleman talked about progressive tax. Well, there we go. If someone is on a higher income, that person spends more and pays more GST. I do not understand the Labour members’ obsession. They try to use the word “fairness”, yet they really get it wrong.

Interestingly, to go back to the story on the front page of the Dominion Post, the allegation was that farmers do not pay, or the rural sector does not pay, their fair share of tax. That is an interesting argument, and I will address it, as I am sure others will.

Yesterday there was a protest outside Parliament. I did not know about it until I read about it somewhere. Just like Mr Cunliffe’s polling on the Budget, which was conducted 2 days before the Budget, a protest against the Budget was apparently held 2 hours before the Budget was delivered. But, most interestingly, I believe that the protest was organised by the Unite union. If we are talking about fairness in terms of tax, and about an organisation that supports the Labour Party and that owes the Inland Revenue Department $200,000 to $300,000 of PAYE from its employees, then I say that is not fair. That was in the newspaper. Next time I will bring to the Chamber the article from Stuff; it was from about a year ago. That is not fair. If members on the other side of the Chamber want to talk about fairness or otherwise, I suggest that they think a bit more carefully.

Finally, these income tax rates also have the effect of confirming lower interest rates for longer for New Zealand. The ability to meet the cost of living by lifting after-tax incomes, which is confirmed by Part 1, is enhanced not only by this bill but by the actions of this Government over the past two Budgets and the Budget we are talking about today. Fairness is enhanced, the ability to own a home is enhanced, and the ability to fund a mortgage is enhanced by record low, short-term interest rates. Floating mortgage rates are at a record low, and in some instances are almost half what New Zealanders had to suffer under the previous regime, when those rates hit 10 percent and higher. When Labour members talk about fairness, let us hear them talk about the fairness of the double-digit mortgage rates that we had under the Labour Government, versus the single-figure 5 and 6 percent mortgage rates that we have under this Government, as confirmed by the tax rates in Part 1.

It is very kind of Craig Foss to be concerned about my career. He said that he is concerned about my career, but I say to Mr Foss that he should perhaps worry about his own career. With that sort of attitude, Mr Foss’s chances of holding the Tukituki electorate have just diminished, let alone his chances of sitting in the same chair that the Minister of Revenue is sitting in at the moment. Mr Foss, unfortunately, may never realise his ambition of being a Cabinet Minister, because with this sort of Budget, with that sort of speech, and with that sort of attitude I do not think that this Government has much longer to go.

Mr Foss asked what Labour’s obsession was about raising taxes. I would turn that round: what is that Government’s obsession with cutting taxes for those who do not really need it? We are talking about Part 1, “Annual rates of income tax for 2011-12 tax year”, and these are the very same tax rates for someone on a million dollars. The Inland Revenue Department told me that 650 New Zealanders had a declarable income of a million dollars. If a taxpayer earned a million dollars, then that person last year received a tax cut of a thousand dollars a week—a thousand dollars a week—extra, in the hand. A person on the median wage in Napier received about $5 a week extra.

Mr Foss and other Government members have trumpeted the fact that 72 percent of New Zealanders are on one of our two lowest tax rates. But I have to ask whether it is really a fact to trumpet that we are such a low-wage economy that the vast majority of our taxpayers are on a low tax rate. I actually do not think that it is anything to be proud of, at all. In fact, I think that the fact that so many of our workers are on such a low rate of tax is quite shameful. Goodness me; I would have thought the aim of any Government was to drive wages up, because through increased productivity, increased wages, and increased growth the economy would grow and people would be better off. But, no; it is apparently a point of competitive advantage when we have a low-wage economy.

Pete Hodgson nailed a further point, and it was confirmed by John Hayes. Pete Hodgson said that he is better off under these tax cuts—under the rates we are debating in clause 3. But do members know what John Hayes said? He told Mr Hodgson to put the money in KiwiSaver or save it. Do members know the problem we have? The problem we have at the moment is that the tax cuts that were implemented last year, the rates we are debating in clause 3 at the moment, have had absolutely no positive effect on this economy. This is “Keynesian Economics 101”. It says that if tax cuts are given to the very wealthy in times of recession, the very wealthy will save the money from those cuts; they will not spend it. But if tax cuts are given to those who really need it, those who are really struggling, then those people will spend the money from those cuts, and that will help to drive economic growth in this country, which is what we need at the moment. That is what we need—economic growth. We need incomes to rise, and we need people to be spending money in this economy, which is one of the problems we have with the cuts to KiwiSaver, and the cuts to Working for Families. In Napier and in Hawke’s Bay, Working for Families pumps about $120 million into the local economy. If we take that money out of the local economy, it will have a huge impact on the people of Napier, and a huge impact on the people of Hawke’s Bay.

I would like Mr Dunne to take a call, and I would like Mr Dunne to chastise the first speaker of the day, Michael Woodhouse, because Mr Woodhouse said he would trust the figures from Deloitte much more than he would trust my figures. Do members know where my figures came from? They came from the Inland Revenue Department. They came from that Minister’s department. I tell members I have much more faith in the figures provided by the Inland Revenue Department than I do in the figures provided by Deloitte. In the Finance and Expenditure Committee we hear a lot from the Inland Revenue Department, because a lot of tax laws go through that committee, and my experience of the Inland Revenue Department is that it does a very good job. The figures that the Inland Revenue Department provides are first class. The advice that the Inland Revenue Department gives is normally very, very robust and very, very sound. In fact, I think the Minister presides over what I would say is one of the better ministries—one of the best ministries—of this Government. I congratulate the Inland Revenue Department, and that is why I find it quite insulting that Michael Woodhouse would say that the figures from Deloitte are much better than the figures from the Inland Revenue Department.

When I look at the figures from the Inland Revenue Department with regard to this Budget, I have some grave concerns about the fundamental premise of the figures provided by Mr Key and Mr English yesterday. Why? There was a $4 billion discrepancy between the forecast from the Inland Revenue Department, and the forecast from Treasury on which this Budget is based—a $4 billion discrepancy. As I said, my dealings with the Inland Revenue Department through the Finance and Expenditure Committee have been very, very good. I think it is a very professional organisation. In fact, I was saying to the Minister the other day that of all the written questions I send to all ministries, I think those from the Inland Revenue Department come back in the quickest time and provide the best data. So I ask why the Government would trust Treasury, which has constantly got it wrong, over the figures from the Inland Revenue Department. There is a grave concern when advice from the Government’s tax collectors is ignored. There is a grave concern there; of that there is no doubt.

Mr Woodhouse and all the members on that side talk about Labour’s obsession with raising tax rates. They talk about our obsession with taxing the very wealthy. Well, I say that our system is called a progressive tax system. How a progressive tax system works is that those who can pay the most tend to carry a little bit more of the burden, because they can. It is exactly the same sort of system that citizens have in Australia, and exactly the same sort of system they have in the United Kingdom, and in the United States. In fact, every single OECD and developed country in the world has a progressive tax system. As Pete Hodgson said, our top tax rate is one of the lowest in the OECD; it is one of the lowest in the world. In fact, Australia’s top tax rate is 45 percent and ours is 33 percent. The Australians have not given $1,000 a week to someone who earns a million dollars; I think that is actually quite reprehensible. When John Key was asked about it, he gave that classic, very wealthy man’s response: “Well, I earn so much, so why should I have to pay so much?”. We asked him to pay only 39 percent; that is all he was paying. He was still getting 61 percent of everything he earned, in his back pocket. Goodness me! Was 39 percent too much to ask?

💬 David Bennett: Is that what you want—61 percent? Can we quote you on it?

It is called a progressive tax system, I tell Mr Bennett, and it is the foundation of our tax system.

But I must admit that when I read this Budget I wondered whether the Government was going to put up the business tax rate. The Fiscal Strategy Report on page 55 of the Budget documents states that the tax policy will be “consistent with a broad-base, low-rate tax system that raises revenue in the most efficient manner to support the medium-term goal of reducing and aligning personal, trust and company tax rates at a maximum rate of 30%”. Is the Government planning on raising the tax rate? One thing that Mr Cunliffe said was that Labour would not raise the company tax rate. Yet the Government’s Budget document says that it is planning to raise the company tax rate to 30 percent. I ask Mr Dunne whether there will be an announcement on that. Could the Minister perhaps stand up and say whether there is a plan to raise the company tax rate to 30 percent, as it says in the Fiscal Strategy Report on page 55 of the Budget documents. If the Government is going to do that, then I think businesses in New Zealand deserve to know. I must admit that if we look at the commentary from business on this Budget, we see that the sector has come out very strongly against this Budget. In fact business has said that this is not a Budget that will promote growth, and it is not a Budget that will promote efficiency. In fact, Matthew Hooton—and we could hardly call him left-wing—

I am happy to put Mr Nash out of his excitement over the status of the company tax rate. Legislated for in Part 1 of this Taxation (Annual Rates and Budget Measures) Bill is a company tax rate of 28c in the dollar. The Government has no intention of changing that. It is not in our forecast and it is not on our horizon. The reference the member makes, if I recall it correctly, actually relates to provisions in confidence and supply agreements, written after the 2008 election. It is a commitment, really, about the alignment of rates. We have achieved two-thirds of that, in terms of the trust and personal rates being aligned. The outlier is the company rate. Any alignment will be downwards, not upwards. I assure the member of that point.

💬 Stuart Nash: I’m just quoting from the Budget documents.

I am simply responding. The member asked a question; I am giving him a response that is accurate in the circumstances.

I have listened to some of the discussion this morning about the ongoing argument about high tax versus low tax. I will say to the Committee that, frankly, our international competitiveness is important. It is a reality that a small, isolated trading nation has to deal with, every day of the week, every week of the year. Therefore, our tax rates, however they are structured, cannot afford to be too far out of line with those of major competitors. Having said that, I am not particularly interested in international league tables, because really we have to do what we see is best for our own interests in this country.

If we turn it on its head, the reality is that if we have a high tax-rate system, such as the one that Mr Nash seemed to be advocating, going back to a top tax rate of 39c in the dollar, at a time when there is already an argument that people feel that the grass is greener on the other side of the Tasman, all we will do is fuel that fire. Then the argument about who is the last person to turn out the light becomes that much stronger.

I will reiterate the point that Mr Foss made, because it is the key here. The Opposition argument about the unfair incidence of tax might have a sliver of merit, were it not for the reality that as a result of the changes we made last year in reducing particularly the bottom two rates, we now have a situation where nearly three-quarters of all taxpayers face a marginal tax rate of no more than 17.5c in the dollar. That is something we should be lauding extremely loudly, because we are well placed in terms of any comparable society—notwithstanding my earlier comments—in terms of the low incidence of personal tax on the bulk of our population.

Opposition members seem to be fixated, but not on that. I would have thought, given their concern, they would be out there championing that tax rate, because it is for the constituency they claim to represent. What they seem to be fixated on is not the 17.5c but the fact that a few people—and Mr Nash made the point that they are a few people—have a tax rate of just 33c in the dollar on their income. The reality is that if Opposition members actually looked at where New Zealand’s tax revenue comes from they would see that it falls unevenly on those people at the top. We do not have the wealthy middle class that the United States has, for instance. We have a very long, slow progression to a comparatively small group of people at the top of the income scale.

The Opposition argument—and I am not sure whether they are talking about tax cuts for people down the scale—certainly seems to be, for some sort of ideological reason and no other, as far as I can see, that the people at the top should pay more and should always be charged more. What we are saying here is that the tax rates in this bill are in balance with the country’s requirements. It is important—and it is great—that we have a marginal rate of 17.5c for three-quarters of our population. The fact that we have not gone into—I think Mr Woodhouse used the comment—uber-taxes for those at the top end of the scale demonstrates a fundamental sense of equity. If we go down the path the Opposition members are talking about, we would be saying that if people earn to a certain point, we will keep a relatively low tax structure in place, but if people earn beyond that, we will penalise them. That approach is not about celebrating achievement; it is about penalising success. That is the fundamental divide. Part 1 puts in place a tax regime that is fair and equitable and will last.

It is a bit rich for Peter Dunne to stand up and say what he said. The Taxation (Annual Rates and Budget Measures) Bill is not what he talked about. It is simply about ideology. It is about the ideology of bringing down tax rates and rewarding those people at the top of the tax pile.

The reason we are here today talking about this bill is that we will be stripping out provisions on Working for Families and KiwiSaver, and making changes that will affect the middle-income people we do not have enough of, according to the Minister. We are doing that because we have a $16.7 billion deficit. This Government came in on a $5 billion surplus, and we now have a $16.7 billion deficit—in 3 years. That is extraordinary. How can a Government fail so comprehensively in 3 years? The only comparable thing I can think of is when the man who is now the Minister of Finance took over the National Party when it was polling at 30 percent and drove it down to 21 percent in 3 years, between 1999 and 2002. That is the only thing I can think of that is comparable to such a failure as taking a $5 billion surplus and turning it into a $16.7 billion deficit.

Because the Government has restructured the tax rates so inequitably, we are now sitting here debating how we will strip out the KiwiSaver provisions, undermine people’s confidence in KiwiSaver, and hit those people whom Mr Key calls “richer people” on Working for Families. My God, those people are not rich. They are the people who come into my electorate office.

The CHAIRPERSON (Lindsay Tisch): Changes to KiwiSaver and Working for Families are in Part 2. Although you can mention them now, we are actually on Part 1. If you tie your comments back to Part 1 that is fine, but do not spend the rest of your time on KiwiSaver, otherwise I will have to stand up and pull you up.

The point is that a tax bill like this one is really looking to try to pull money back to fund a deficit that has blown out to $16.7 billion, which is seven times higher than the projected deficit in 2008.

Stuart Nash mentioned the projections. When we look at the projections from Treasury we see they have been consistently above the reality. The Inland Revenue Department probably has it much, much closer to the truth. Here is what Standard and Poor’s said: “The budget foresees an operating deficit … of NZ$16.7 billion (8.4% of GDP) in fiscal 2010/11 compared to the $11.1 billion deficit (5.5% of GDP) foreshadowed in the Half Year Economic and Fiscal Update announced in December 2010.” Literally 5 months ago we were looking at an $11.1 billion deficit, and now we have a $16.7 billion deficit. I do not understand how on earth Treasury can get it so wrong so consistently for so many years, unless this Government is pushing Treasury to raise the forecast to make it more optimistic.

People are starting to realise that. They are starting to realise that not only is this Budget gutting the many provisions that middle-class New Zealanders need, but also it is based on a whole bunch of false promises and false projections—false promises and false projections. It means that as we struggle to curb this deficit that seems to be out of control—because those projections will not come true any more in the next 2 or 3 years than they have in the last 2 or 3—we are not funding the very things that are growing this economy. If one thing is absent from this Budget, it is a plan to grow the economy. There is absolutely no plan to grow this economy.

I looked at some of the provisions in research and development and in tertiary education. There is nothing that would give me any confidence that this Budget will try to grow our economy any more.

This is extraordinary: we are into the third year of this Government’s outstanding stewardship of this country, and for the third year we hear the same rhetoric and the same arguments. I am intrigued as to when Labour members will work out that the arguments they have been running for the last 2½ years have got them only 20 percent—and falling—support from the populace. They need to change their story. If they are going to succeed—

💬 Hon Steve Chadwick: Point of order.

The CHAIRPERSON (Lindsay Tisch): We are on a tax bill.

In terms of the Taxation (Annual Rates and Budget Measures) Bill, Labour members keep going on about the fact that we are hurting the middle-income earners, the fact that we are hurting the low-income earners, and the fact that all the benefits from the tax changes we have made have gone to the rich. They base that on percentages. Well, in the same way that they can regurgitate the record, I want to remind them of something I said last year, and that was this: if my friend Parekura Horomia loses 10 percent of his weight, and I lose 10 percent of my weight—

💬 Hon Steve Chadwick: I raise a point of order, Mr Chairperson. This seems to be far off Part 1 of this taxation bill.

The CHAIRPERSON (Lindsay Tisch): Yes, we are moving into dangerous territory with the comments you are making. Let us keep the focus on the tax bill. It is a very important bill and we should focus our efforts on Part 1, which is about taxation rates.

Point of order.

The CHAIRPERSON (Lindsay Tisch): No, I have ruled.

I will give an example to the Committee about how percentages work. If I lose 10 percent of my weight, then, clearly, in absolute terms, I lose less in absolute terms than Parekura Horomia if he loses 10 percent of his weight. That is how the tax system works when we make percentage changes versus absolute terms. If the Opposition cannot understand that, then I am afraid that is just another classic example, like the one we had in terms of the headline and the Opposition not understanding the difference between revenue and net income—another classic example of the Opposition not understanding how calculations work and how systems work.

💬 Hon Pete Hodgson: Why are all your heads down?

Of course, we heard earlier from the grand old man who is about to go out the back door, who talked about the fact that we have the lowest—the lowest—tax rates in the Western World. Well, so what—so what? When we had the emissions trading scheme debate, the Opposition talked about wanting to be a world leader. Those members pick and choose; they want to be world leaders, but when it does not suit them, they want to be “fast followers”. Well, I say from this side of the Chamber, in terms of tax rates, big deal. If we are the world leaders, then so be it. We are an innovative country, and we are an innovative party. We reward success. We do not penalise success; we reward it. If that means that we are world leaders in terms of our tax rates, then so be it. That will attract more people. That will attract the innovators to come to this country because they know they will be rewarded for success.

💬 Hon Pete Hodgson: And are they coming? Where are they?

They are—they are on the way. The other thing I want to talk about is it would be nice if the members sitting opposite were to tell me what the appropriate tax rate is for middle-income earners. And what is middle income? Let us hear from those members as to what middle income is. In terms of the changes—and I stray into the phrase “Working for Families” only by way of example, because I am tying it to the tax rate—I want to understand from the Opposition what middle income is. When we get to Part 2 I will point out to the Opposition that the 7,000 people earning more than $100,000 are actually coming off Working for Families. So are we penalising the people who earn $100,000? Is that middle income? What is middle income?

I start by expressing some disappointment in the Minister in the chair, Peter Dunne, because he has made it his hallmark to represent the middle classes of New Zealand. That has been his rallying cry. His political rhetoric has been built around assisting middle-income New Zealanders to get ahead. But this Budget, in my view, is doing nothing to assist middle-income New Zealanders to get ahead.

I think he has bought into the rhetoric that was very much in prominence back in 2008. Basically, the deal from National to the New Zealand electorate was that people could have their cake and eat it as well. The New Zealand electorate could have everything that the Labour Government had provided to it. They could have Working for Families and KiwiSaver, and they would be given tax cuts as well, as picked up by Part 1 of the Taxation (Annual Rates and Budget Measures) Bill, which enshrines the tax cuts that have been put in place by this Government.

But here is the reality: as we see in this bill, those tax cuts, as enshrined by Part 1, are only part of the equation. They are being eroded—they are being eroded—by all the other measures that are included in this bill, and by other Government measures we have seen in the recent past, such as the cuts in early childhood education and resulting increase in fees, increases in accident compensation levies, and the like.

I also note that that set of tax cuts, as implemented by Part 1, was affirmed as feasible and realistic by National when in Opposition in 2008, just as the world’s financial markets were falling apart. New Zealanders were told that those tax cuts, as enshrined by Part 1, were affordable, even after Goldman Sachs had collapsed and the US economy was in turmoil, and even after Merrill Lynch had collapsed and had to be bailed out by the taxpayers of America to the tune of $3 billion.

Where do we end up? Part 1 has the tax rates that will apply through part of this year, as set out by this legislation. What is the legislation trying to deal with? It is trying to deal with a deficit of $16.7 billion—$16.7 billion. That is what the tax revenue is attempting to address. As my colleague David Shearer pointed out, when this Government came into office there was a surplus of $5 billion, so that is a turn-round of more than $20 billion. We now have 16 billion tonnes of debt upon our backs, and this part of the bill is attempting to have tax revenues offset some of that debt.

I ask the Minister in the chair how secure the revenue predictions are that underlie Part 1 and the tax rates that will apply in the financial year ahead. I ask that because already we are hearing through the media today that employers are saying that the other measures in this bill in respect of KiwiSaver will have to be met by their cutting back on the tax they pay and putting increases on to their employees. We have heard Alasdair Thompson of the Northern Employers and Manufacturers Association say that the employers’ KiwiSaver components in Part 2 will be coming out of the wage increases—the wage increases—of employees. How can we set any store by the tax-projected revenues incorporated in Part 1 of this bill, when employers are saying that they will not be meeting the KiwiSaver ramifications included in Part 2? Instead, they will be looking to their employees to meet those costs. I ask the Minister what revenue implications that will have. What revenue implications will it have for Part 1 of this bill?

I also point out the difference between the Inland Revenue Department’s projections and Treasury’s projections, as outlined in the Budget’s Economic and Fiscal Update. The difference is in the order of $3.5 billion over the next 4 years, which is nearly $1 billion a year. That is a huge component, as we know, in respect of Part 1 of this bill.

Just before I start my speech on the unfair incidence of taxes, an issue that the Opposition has been raising today, I want to put on the parliamentary record that those of us on this side of the Chamber have been enduring about 80 or 90 decibels—[Interruption] in fact 95 decibels—from Mr Quinn. I was thinking we would quite possibly have to bring in the Occupational Safety and Health Service before I commence my speech.

💬 Hon Tau Henare: The decibel counter!

The decibel counter—yes, it was indeed up there.

We are talking about Part 1 of the Taxation (Annual Rates and Budget Measures) Bill. In Part 1 we are talking about the taxation rates that will apply for the coming year. On this side of the Chamber we have been listening to Labour members talk about the unfair incidence of tax, so I thought I would stand up and take a brief call on that. I will talk about the unfair incidence of tax that occurred through the 9 years of the previous Labour Government. If we are talking about people who should not be at the highest marginal tax rates, then I am thinking about nurses, police, teachers, wharfies, and welders. I am thinking about highly qualified blue-collar workers. What happened over the 9 years of the Labour Government? Many, many of those people ended up paying the highest rate of marginal tax. That party on the other side of the Chamber called teachers, welders, wharfies, and nurses “rich”. Now, that shows that a party is starting to lose it—Labour called those guys “rich pricks”. Well, by no way or means were those workers rich. That was an unfair incidence of tax.

When National became the Government we changed that, so that on any level of the marginal or progressive tax rate, people in New Zealand are paying lower tax rates on their income and earnings. That is a fact. Let me talk members through the particular rates. Right now, people earning under $14,000, based on this tax bill, will pay no more than 10.5c in the dollar. That is down from 12.5c—a 2 percent drop in the tax rate. People earning between $14,000 and $48,000 will pay no more than 17.5c in the dollar. That is down from 21c. That is a big drop for those middle-income earners. On the other side of the Chamber, members are arguing that middle-income New Zealanders did not receive decent tax cuts, but in fact there has been a huge, a massive, drop. In fact, if we take the 10.5 percent on income under $14,000 and the 17.5 percent on income between $14,000 and $48,000, the average tax rate is even lower than 17.5 percent, and that is absolutely fantastic.

On income between $48,000 and $70,000, people now pay only 30c in the dollar, and many people—the nurses, the police, the doctors—in this country sit within that range. We delivered them a lower tax rate. We do not believe they are rich. They are hard-working Kiwis who do not deserve to be on the top tax rate, but they were put on the top tax rate by the Labour Government—not by this Government. But people on the higher tax rates, people earning over $70,000, still pay the highest progressive tax rate in this county. That is down from 38c to 33c. The top 13 percent of people in this country pay 51 percent of the tax. They should pay a higher tax rate—I have no problems with that. But those people are often the entrepreneurs, the people who invest their own hard-earned capital into businesses that employ other people and create jobs. On this side of the Chamber we are not all about endless rinky-dink schemes created by the Government to create jobs. We believe that it is businesses that create jobs. It is people who are prepared to put their money on the line, to mortgage their houses, to invest in their businesses, who create jobs, and actually, yes, if they do that and they make a profit, we believe they deserve to keep a fair bit of it—in fact, a lot of it.

Many years ago, when my dad was working, Muldoon had set the highest marginal tax rate at—I think it was—66c in the dollar. My dad came home one day and he said: “You know, CJ, it ain’t worth working any more. Every time I earn a dollar I get to keep only about 30c of it.” I rest my case.

I think it is worth asking the Minister of Revenue to advise the Committee whether he is confident that Treasury has its predictions right. More particularly, if Treasury’s predictions are wrong, what does that do to the Budget and what does it do in terms of New Zealand’s credit rating, etc.?

I have had my staff look at recent predictions made by Treasury, and those predictions do not give me a lot of confidence. If we look at Treasury’s predictions of GDP, we see they are all in the band between slightly higher than 1 percent and 4 percent. I have here a graph showing the actual GDP line. We are being told in this Budget that growth will be up near 4 percent initially and then will tail off. That is one side of the ledger, and one has to feel that Treasury predictions of growth, and wage growth in particular, are pretty high. But if we look at Treasury predictions of core Crown expenditure from 2005 through to 2010, we see that the one consistent factor is that every year the predicted expenditure is lower than the actual. It is lower by an average of 6.8 percent, which is about $4 billion. So if the predictions are wrong again this year, we will have a deficit of $20 billion. Treasury is actually saying that over the next 2 or 3 years Government expenditure will not go up by the $4 billion to $5 billion that it has been going up by each year; it will go up by only 1.4 percent.

This graph shows us the difficulty we have. It shows the amount of growth consumed by Government spending. The green line shows the increase in nominal expenditure, and another line shows the increase in Government expenditure over 3-year periods. We get to a stage where the Government—

💬 Hon Pete Hodgson: It is not a zero-based graph.

It is the actual nominal. We are talking nominal.

💬 Hon Pete Hodgson: I am saying that the graph does not start at zero.

It starts at 1999-2000, and it is in 3-year periods. But members should look at the next 3 years. We are led to believe that nominal GDP growth will be 23 percent, but guess where we have been told Government expenditure will be? At 1 to 2 percent. If someone believes that, I think that person will believe almost anything.

If I look at the numbers in the back of the book I see that, for example, Vote Corrections expenditure went up over the last 4 years by $350 million. We are told that in the next 4 years it will actually go down by $3 million. Maybe that is right; maybe that is wrong. But some of these estimates seem to be fairly tough. It we look at primary education in the last 4 years, we see that expenditure has gone up by $630 million and student numbers have gone down by 4,000. In the next 4 years, student numbers will go up by 25,000, but expenditure will go up by only $100 million.

So all I am asking is how confident the Minister is that he has it right, both in terms of revenue and in terms of expenditure. I am not particularly confident, given that if we look at every year from 2005 through to 2010, we see that Government expenditure every year has averaged 6.8 percent more than the estimate, and that GDP growth has been lower than the estimate by a considerable amount. How confident are we? If we get it wrong both on lower revenue and on higher expenditure, then we have some very real difficulty.

Kia ora. I am happy to speak to the Taxation (Annual Rates and Budget Measures) Bill, and in particular focus on Part 1, “Annual rates of income tax”. I listened very carefully to contributions from members of the Government. I came out with three very clear points. First, the member Craig Foss promoted the idea that if one talks about something long enough, maybe people will believe it. He made the point that 13 percent of people pay 51 percent of tax. If we take that tag line alone, it explains exactly why most of the tax cuts go to top income earners. But I do not think people are convinced by Mr Foss’s argument. In fact, I think they are more perplexed with that rationale because it justifies the unfairness of the current tax system and the fact that the Government is prioritising investment that does not benefit a lot of people.

Then I listened to Mr Paul Quinn. He operates by the standard that if he talks loud enough then maybe people will hear him. But we all know that once the decibels start to rise, people turn off. In fact, I could not quite figure out what point he was making with regard to Part 1 of the bill. Then I listened to the member Chris Tremain. He operates by the edict that if he says it often enough then maybe even he will believe it. One of the points he made was just how much middle-income earners are benefiting under this Government’s tax cuts.

I present a response, particularly in relation to Mr Tremain’s points about income tax for middle-income earners. He highlighted these groups specifically: nurses, policemen, teachers, wharfies, and builders. He made the point that under Labour they were paying a higher marginal tax rate and under National they are not. Let me say this: those same people are parents, those same people have kids, those same people utilize public services, and those same people are saying—we are listening to them—that they did not bet on the rate of GST increasing, on paying more over the counter for their kai, or on rising petrol prices. They say that when they take their kids to the doctor the after-hours costs are as much for them as they are for anyone else, and they are still paying the mortgage. Some of them are paying higher rents, particularly in areas like Auckland.

Those nurses, policemen, teachers, wharfies, and builders are making the same noises in terms of concerns about where this Government has got its priorities wrong. Even though they are middle-income earners and they have a lower marginal tax rate, they have to pay exorbitant costs at the other end because this Government has its priorities in the wrong place.

The Government has ripped out the guts of the public health sector. It says it is moving resources to the front line. It says it is moving resources to the front line, but backroom functions cannot be absorbed by front-line staff. Those members might not like that, but they know it is true. Those middle-income families are parents, they have kids, they are paying the same costs as low-income families, and they have the same concerns: paying more for their kai, paying more for petrol, and paying more for after-hours general practitioner services—paying more and getting less. Their wage is worth less under this Government than it ever was before. Why? Because they are feeling the pay at the other end.

💬 Tim Macindoe: Rubbish.

The member for Hamilton West may say it is rubbish, but we can find middle-income earners in the Hamilton West electorate who are making very clear complaints about after-hours health care because they have to pay more. If they go to Waikato Hospital, albeit to a well-developed accident and emergency service, they have to wait for 8 hours, so rather than wait for 8 hours they pay $69 for after-hours health care.

I go back to Part 1 of this bill. The Government’s members are saying it long enough, loud enough, and often enough, but they are still not convincing middle and low income earners that their tax cuts are benefiting them in the long run. The concerns we hear day after day show that prices and the cost of living are higher for middle and low income families.

Those members are very quiet now. Their heads are down now. They know that the cost of living—[Interruption] They know that when they talk about middle-income earners and the tax cuts that have been promoted by this Government, they are not talking about the costs at the other end. I challenge members of the National Government to talk about the costs at the other end. They talk about tax cuts at the front end but not the costs accrued by those same families at the other end. Policemen, nurses, teachers, wharfies, and builders are parents. They have kids and they have mortgages. All those costs are adding up. The price and the cost of living for those same families—

💬 Paul Quinn: 20,000 more elective surgeries.

There we go again. That member operates by the edict that if he says it loud enough maybe people will hear him. They actually turn off.

Those people are parents. They have children and they are paying at the other end. I see the Minister in the chair, the Minister for Building and Construction, smiling, because he knows exactly what I am talking about. Government members might be able to promote the benefits of tax cuts at the one end, but they cannot justify the increased pressure of costs on families at the other end. That is what we are saying. The tax promotion that this Government is making is creating an inherent imbalance and unfairness. National is creating greater inequality between middle and low income families.

Government members say that the top 13 percent pay 51 percent of the taxes. They are trying to justify it so that that 13 percent get most of the benefits. People can see through that. It does not matter whether members opposite talk long enough, loud enough, or often enough; people can see through that. They do not believe that the proposals at one end offering tax cuts are offset by the cost of living pressures at the other end.

💬 Paul Quinn: You’re still prattling on about the same things you were in the previous 2 years.

I will say it again and again, because members on this side of the Chamber are presenting those issues. We know that the cost of living pressures are not being alleviated by the solutions that the member Paul Quinn is promoting in this Chamber.

I am happy to speak to Part 1 and to reject the proposition that it is promoting better opportunities for middle-income families. There is just no balance between tax cuts for middle and low income families at one end and the increasing pressure of costs at the other end. There is a greater imbalance, greater unfairness, and greater inequality in the treatment of those groups of people: nurses, policemen, teachers, wharfies, and builders. I am happy to speak to Part 1.

I am delighted to follow the Hon Nanaia Mahuta. Of course, we represent the same area—her electorate is a little bigger than mine, but we are in the same region. I particularly thank her for acknowledging that under this Government tax rates have come down and that this Government has been focusing particularly on the needs of vulnerable New Zealanders, those on low and fixed incomes, who have needed protection through the worst impacts of the current economic recession.

💬 Hon Steve Chadwick: Tell us about cuts to family violence.

It is about focusing on the things that matter to New Zealanders, I say to Ms Chadwick—things such as the huge improvements that Tony Ryall has secured in the health system, or the fantastic work that Anne Tolley is doing in the education system.

But I need to come back to tax, because that is what this debate is about. Nanaia Mahuta reminded us of that old political principle that if one repeats a lie often enough, people will start to believe it. That, frankly, is Labour members’ strategy at the moment. That is their entire plank in the current election year, as they go towards 26 November. Those members have nothing positive to say, they do not have a credible plan, and they do not have any ideas of their own, so they will keep misrepresenting what is actually being done in the hope that enough people will believe it to get them over the line.

In fact, Labour has taken one of the oldest political maxims of all time and slightly adapted it: no taxation without misrepresentation. That is the Labour mantra that we now have to put up with. The really fascinating thing when one listens to Labour members is that they never talk about the figures. They never actually get down to the detail. They hate that. It is always “cuts” here and “National’s rich mates” there, but they never give an honest analysis of who pays the tax, how it is used, and what the overall impact of tax policy is on commercial activity, encouraging savings and investment, and Government spending. They love to do the spending, but they just cannot get it right in terms of how to provide for that.

The first thing to remember—and the Minister of Revenue reminded us of this when he took a call about half an hour ago—is that last year’s tax package was essentially fiscally neutral. It was about rebalancing the overall tax imposition on all New Zealanders to create fairness—I repeat that phrase for Ms Chadwick, because she is pretty concerned about it; to create fairness—to give extra support to vulnerable New Zealanders, and to stimulate investment in manufacturing, primary production, small and medium sized enterprises, and so on because, I say to Ms Chadwick, those are the kinds of activities that protect and create jobs, and generate wealth for this country. They generate wealth, and Labour members cannot stand that word. Next I will be saying “profits” and I will be hounded out of the Chamber by the Hobbit haters and the muppets, and the envy brigade opposite. But, actually, profits are a pretty important thing to protect and to ensure we can get in an economy.

The tax switch last year is already playing an important role in building the platform for economic growth and putting more money in the pockets of low and middle income New Zealanders. Labour members hate the fact that most of last year’s income tax reductions went to those on modest incomes, whom they profess to represent in this House, but when one listens to what those members are actually saying about this bill, one can tell that they have abandoned that group completely.

As the Minister of Revenue reminded us when he took a call, Labour members never admit that the bottom two rates were reduced in last year’s Budget to the point where nearly three-quarters of the population pay a marginal tax rate of just 17.5 percent. So I can tell the Hon Nanaia Mahuta, who challenged me a short time ago about how my constituents are faring in the current conditions, that most of the electors in Hamilton West who are on middle incomes or lower incomes were absolutely delighted by that change, and I was pleased to be part of a Government that delivered it for them.

What a fantastic achievement that was, especially in the challenging economic circumstances that we inherited from the outgoing Labour Government. That Government had the best global conditions of any Government for at least a generation and it squandered the lot—blew it, spent irresponsibly, and made no provision for the bad times that would inevitably come with economic cycles. It just blew the lot. Well, I say that we should celebrate what this National Government and its support partners have been doing and are continuing to achieve.

Labour avoids the figures, but the figures are quite clear. Let me return to the Deloitte analysis, which Mr Woodhouse talked about a short time ago. In terms of total Government revenue, the 2011-12 forecast is for $64.1 billion. The large majority of this—$47.4 billion—will come from GST, corporate tax, and individual income tax.

Tēnā tātou. Greetings, Mr Chairperson. It is a pleasure to stand and—unlike the previous speaker, Tim Macindoe—to direct our attention to Part 1 of the Taxation (Annual Rates and Budget Measures) Bill, which is to do with the tax rates. Mr Chairperson, given that you have provided a level of latitude to the man who has put to sleep what will remain of the farming community, unless it starts to pay its way in areas such as Matamata, Morrinsville—

💬 John Hayes: Wairarapa.

Actually, I must talk about Wairarapa at the moment. There will be a monumental change in Wairarapa, and it is called the removal of the member. That is about to come as a consequence of our passing the discredited script that is otherwise known as the Budget.

All societies need to contribute, we know, towards meeting the costs of the apparatus of Government. All societies need to contribute towards meeting the costs of any vision, any aspiration, etc., that a Government seeks to implement—although this Government is devoid, despite its rhetoric, of such aspiration or vision. But we have a concern, and we will repeat it. John Key invited members on the Opposition side of the Chamber to meet him on the hustings, and we cannot wait for that to begin. Actually it did begin yesterday, because his speech was not a parliamentary speech but a hustings speech. He was entitled to make it, but it is very difficult for us to be serious when he directs such belligerence to this side of the Chamber and forgets that the vast majority of women, for example, who heard his speech found it to be a very discreditable presentation. It overlooked the actual suffering, discomfort, and fear that many New Zealand families now feel and that will get worse as a consequence of this document.

The tax rates, at one level, are a quantitative reality, but the issue is about their burden. We on this side of the Chamber know that the burden must fall evenly, but, more important, that we actually need the revenue. I am concerned that the tax rates may have been changed, and that it will do damage to the conservation budget for endangered species. We know on this side of the Chamber that that member over there is an endangered species. He will not be back in 2012; he will not beat Trevor Mallard. As National gets to the end of its list, the member will drop off. So I say to Paul: “UB40 for you.”

The CHAIRPERSON (H V Ross Robertson): The member must use the member’s full name.

Of course I must. Unfortunately, I was borrowing from the biblical expression of robbing Peter to pay Paul; that is all that I was doing. I was not taking in vain, either, the name of this fearless champion of the vanquished. Unfortunately, when he hopped in the limo he forgot about them. I was just talking about the new status for Paul Quinn, which will be unemployment.

But let me come back to the bill. I will talk about the burden that falls upon society. We genuinely believe that if tax relief is to be offered through the rates, it ought to fall on those people who are under the most pressure. Our belief is based on a different vision that members on the Opposition side of the Chamber have from the vision of Government members, in relation to who ought to pay. They have been telling us over the last 24 hours that there is a small slither of people in New Zealand who are the wealth generators. Those members believe, unfortunately, that they are a proxy for the wealth-generating community. But they are not. The reality is that every single New Zealander whom we know wants to do the right thing by their own family and their community. But if they are not treated fairly through the taxation system, then whatever initiative they have is stifled.

Of course we need tax revenue in order to overcome the mountain of debt. I personally think that all New Zealanders, especially those who are living through the misfortune of having used their homes as ATM machines, know at a personal level that we have to bring debt down. Mr Dunne is right in his press statements to challenge all members of Parliament to think seriously and to chart a course forward as to how we can do that. But when we manipulate the taxation system and the spread is grossly uneven, we do not create a system whereby those who have the ability to contribute towards substantially reducing the burden of debt upon us are paying their full share. That is a reasonable, debatable point. We will take it forward and debate it up and down the country during the latter part of November, when, as a consequence of Helen Clark’s having brought the Rugby World Cup competition to New Zealand, we will celebrate the victory of the All Blacks. We will remind people that just as we look for fairness and for aggression in sport, we were hoping to see something fair in the taxation system. OK, we know the Government will not be bold. We know it is vacuous, and that is why the philosophy underlying these rates, etc., favours a narrow caste of economic players in the economy.

Mr Jones actually nailed it on the head. A Government can use the tax system in a number of ways. What the Labour Government fundamentally believes—it is one of Labour’s basic principles, and what Phil Goff has said many, many times—

💬 Craig Foss: There is no Labour Government.

Sorry, I was looking in the crystal ball and I had a vision 6 months ahead; I apologise. The Labour Party believes that a Labour Government will be the next Government to deliver a Budget. I can promise members it will not have the same level of inequality as this Budget has. [Interruption] There is no doubt about that, I say to Mr Foss. What the Labour Party believes, and has always believed, and what Mr Goff has said time and time again, and what he will continue to tell Mr Key when he meets him on the hustings, is that the tax system should be used for good. The tax system should be used to promote equality. The tax system should be used to promote fairness. That is what the tax system should be used for. The tax system should not be used to reward those who do not need it.

Let me give one example. When the chief executive officer of Westpac looked at these rates, I think he probably would have been a little embarrassed. I think he would have been a little embarrassed when he received a tax cut of $5,000 a week. I have to ask: is that fair? Is that equitable? Is that the sort of society we want—that there are some at the top who amass huge wealth? He has a salary of about $5.2 million; about $5.2 million. He has had an increase of about $5,000 a week.

💬 Hon Maurice Williamson: What does he actually pay in tax already?

I tell the Minister to ask his Minister of Revenue and ask the Inland Revenue Department, whose figures the Government does not trust. The Government does not trust the figures from the Inland Revenue Department. What the Government does is use Treasury’s figures. I think that Minister should ask the Inland Revenue Department what the chief executive officer of Westpac earns as a salary; ask how much he gets in his hand every week. I think even that Minister, a Minister earning a Cabinet salary, would be slightly disgusted. I do not know of any way to justify a tax cut of $5,000 a week, let alone the amount of money he is receiving in the hand every single month. In fact, I have no doubt it is more than the vast majority of his employees receive in a year; I have no doubt about that.

This is what Labour stands for: Labour stands for using the tax system to promote equality and fairness. With regard to the rates we are talking about, I have heard from that bloke from Hamilton, Mr Macindoe, and Mr Woodhouse, that the tax cuts have been fiscally neutral. What do they quote? They quote a Deloitte report. But I can inform this Committee that Dr Bollard, for whom I have the utmost respect, has sat in front of the Finance and Expenditure Committee and said, well, the tax cuts are not fiscally neutral. In fact, it has cost us. This is what last year’s Budget told us, that these tax cuts would cost the country about a billion dollars. But it has cost more than that, and I will tell members why it has cost more than that: because Treasury got the figures wrong. Last year GST receipts were down by about $270 million dollars. That is what GST receipts were down by. That equates to a decrease of about $2 billion in spending on goods and services. This Committee was told that these rates were neutral, that an increase in revenue from GST would easily match the amount of money—I think it is about $23 billion over the term of the Government—it would cost to implement these tax cuts. Well, that is wrong, because that has not been the case. In fact, $2 billion has been taken out of the economy since this tax switch. That is shown by the drop in the GST receipts. That is why I have grave concerns when the Government uses the tax revenue forecasts put forward by Treasury and not the Inland Revenue Department. That is why I have grave concerns that it is the forecast—Mr Chair—

The CHAIRPERSON (H V Ross Robertson): I call the honourable member Stuart Nash.

💬 Jo Goodhew: I raise a point of order, Mr Chairperson. I ask whether you could assure me that that member has not had more than his allowable number of calls in this debate.

The CHAIRPERSON (H V Ross Robertson): I will just check that for you. This is the fourth call now.

I know it seems like we have been talking about the inequality of the tax system for a long time, but it is not just me. I think it is the whole of Labour. Everyone on this side of the Chamber has talked about the inequality of these tax rates for a long, long time.

💬 John Hayes: It’s boring.

That member may say it is boring, but I think the vast majority of New Zealanders do not find it boring. They find it a little bit shameful.

As I was saying, one of the major concerns I have about the Government using Treasury data and not the Inland Revenue Department data when it promotes its forecasts is the fact that Bill English stood up and said the Government will create 170,000 new jobs. Bill English said the Government will create 170,000 new jobs, and this is what the revenue forecasts are based on. But when he was questioned on television this morning, he was asked where the jobs would come from. Where will those 170,000 new jobs come from? Do members know what he said? He said commodity prices will go up, and he thought there would be a lot of jobs created in the commodity sector. That was a very enlightening comment. The reason I say that is that the opposite is happening.

I will give members an example. In the forest industry we are exporting a record number of unprocessed logs. That is causing major stress for domestic processes, mills are closing, and people are losing jobs. The prediction of 170,000 new jobs is actually a little bit of a fallacy. I think it is a “let’s hit it and hope” strategy, in which those members close their eyes, pick a figure out, and hope like hell that if they say it long enough, people will believe it. Government members believe that all they have to do is get to the election, and if they get elected—which they will not—people will believe them. Well, the people are not silly. I think this Government has treated the people of New Zealand with contempt for too long. I think the people of New Zealand deserve to know what the plan is for creating these 170,000 new jobs. We admit there will be more jobs out of the reconstruction of Christchurch, but there will not be 170,000 new jobs. That is just a one-off sort of event; it is not sustainable, long-term economic growth. That is why Michael Cullen delivered nine Budgets of surplus.

💬 Craig Foss: Based on Treasury forecasts.

That is a very good point that Mr Foss brings up, because never before has there been such a discrepancy between Treasury figures and Inland Revenue Department figures. When the Budget document is being put together, Treasury models it and the Inland Revenue Department models it. Those departments make similar sorts of assumptions, as we would imagine, but usually the models are pretty close. This time there is a discrepancy of $4 billion over 5 years.

💬 Hon Steve Chadwick: How much?

There is $4 billion over 5 years. The Government says there may be a little bit of risk in relation to that. That is the understatement of the century. There is huge risk in the Government’s figures, because the Inland Revenue Department has said the Government will be $4 billion short over 5 years. That is a major concern.

As I was saying, Michael Cullen believed that a Government creates economic growth by creating jobs. When a Government creates jobs, people pay tax. When the Government creates jobs, the taxpayers pay tax. When taxpayers pay tax, the Government gets revenue. When the Government gets revenue, it can pay down debt. That is what Michael Cullen did. Michael Cullen left this country in such sound shape that when the global financial crisis hit, the economy was doing OK. Despite the mismanagement of this Government—despite the gross economic mismanagement of this Government—the economy is in not too bad shape, because Michael Cullen had 9 years of Budget surplus based on 3 percent unemployment. We now have double the unemployment, thanks to this Government, that we had when Michael Cullen read his last Budget. We have 150,000 people who are not contributing.

All we wanted to see was a plan—a plan for growth, a plan for creating jobs, because when there are jobs, people pay their tax. That is my huge concern. Minister Dunne actually admitted that we do not have a great middle class like the United States has. He said we have a very few up the top, but we do not have that great middle class like the United States has, and this is a major problem.

I move, That the question be now put.

I appreciate being able to speak on the Taxation (Annual Rates and Budget Measures) Bill. I am very pleased to follow my colleague Stuart Nash. He has been making outstanding contributions in this debate and has enlightened a lot of New Zealanders on issues to do with our tax system, and that is very important. Part 1 is about our current tax system, and I want to make some comments following on from Mr Nash’s comments. Perhaps I should seek leave of the Committee to allow Mr Nash to make some more comments. I think he has done an exceptional job in enlightening New Zealand on how unfair our current tax system is.

It has been a deliberate decision of this National Government to create a less fair tax system. Let us be clear about what we are talking about here. We are talking about tax rates that were changed so that the top 10 percent of earners in New Zealand had significant tax cuts—tax cuts that they do not need, and tax cuts that have not actually benefited our economy. On this side of the Chamber we do not believe in the trickle-down effect that members on the other side of the Chamber seem to be so reliant on. We do not believe that just because those at the top are given more money in their pockets, they will spend it in a productive way that assists the economy. We believe that the people who need assistance from the Government are low and middle income New Zealanders.

As Mr Nash pointed out to us, the Government tried to sell those tax cuts as being fiscally neutral. It said that they were a tax switch. Members across the other side of the Chamber must think New Zealanders are very silly. I certainly do not, but you must think they are—

The CHAIRPERSON (H V Ross Robertson): Order!

I am sorry, Mr Chair; you, of course, do not. Members across the other side of the Chamber, however, clearly do think the public are silly if they think the public believe this tax switch nonsense. Out there in the real world, low and middle income New Zealanders know that things cost them more. They know that, through the increase in GST, they have effectively had to bear the cost of tax cuts being given to the wealthy. It has not been fiscally neutral. There is a hole in the Government finances.

I find it bizarre that people across the other side of the Chamber can go out there and talk about the reason for the deficit being the Christchurch earthquake and the global economic crisis. Yes, of course, those are elements in it, but some of it was a deliberate decision of the Government to cut its own revenue—to give tax cuts that were unfairly weighted in favour of those at the top. So take responsibility for the deficit and do not ensure that the costs are all borne by low and middle income New Zealand. That is our message to members opposite. Of course, it is not going to be listened to. Members across the other side of the Chamber are out of touch if they think New Zealanders buy that the deficit is nothing to do with the Government. People do not buy that. They do not buy the tax switch notion.

I really liked the description my colleague Stuart Nash gave of the importance of the tax system being about taxing to do good. Tax is effectively the income the Government gets to do things. Unfortunately for all of us, this Budget is another do-nothing Budget in terms of rebuilding our economy. If members opposite—if we all—looked at what was needed to grow our economy, we would not see things like cuts in investment in industry training and skills development. It is an absolute outrage that in this country we are not investing in our people so that they have the opportunity to get a job, they have the opportunity to get a better-paid job, and they have the opportunity to keep a job and have greater job security. It is an absolute outrage that we are not investing in our people so that they can be more productive at work and we can transform our workplaces into better, more effective, more productive workplaces that provide the goods and services this country needs. It is an absolute outrage that across the other side of the Chamber there is some view that the Government has no responsibility for growth, for stimulus, and for other things that will lead to jobs.

I move, That the question be now put.