Taxation (Annual Rates for 2015-16, Research and Development, and Remedial Matters) Bill

I want to thank the Minister in the chair for taking a call, and I am not supposed to refer back to the last part, but it was useful to have those reassurances, and I do think it would be good as we go through the remaining parts of this bill if we could have that continuing dialogue. I am not wholly convinced, I have to say, by the Minister’s answer, but at least we got one.

Part 2 of the bill is a relatively simple part, but it is one I think that members of the public will be very interested in because this is the bit where we set the tax rates—the rate of tax that New Zealanders actually pay in a given year. These are the annual rates for the 2015-16 year. It was not a subject of massive debate when the Budget came before the House because the Government did not propose to make any significant changes to those tax rates, but they are a matter of significant public interest for two reasons: one historical and one looking to the future, and that is what I want to talk about in this call.

The tax rates as prescribed in Part 2 of the bill are those imposed by section BB 1 of the Income Tax Act 2007, and they must be paid at the basic rates specified in the schedule of that Act. What those rates are, which I am sure most New Zealanders know, is that from $0 to $14,000 your marginal tax rate would be 10.5 percent; from $14,000 to $48,000 it is 17.5 percent; from $48,000 to $70,000 is it 30 percent; and from $70,000 upwards it is 33 percent.

It is that point that I want to note because each year, as the House comes to this particular clause or part in a bill, it is the bit where we remember what happened in 2010. It is when we remember that a National Government, faced with an economy coming out of the global financial crisis—still in it in terms of the effect on most businesses—made the remarkable decision that the best thing it could do with the resources of the Government was to give tax cuts that benefited the highest income earners. That was the best thing that the National Party could come up with: a set of tax cuts where 43 percent of the benefit of those tax cuts went to the top 10 percent of earners. That was the effect of those tax cuts. The effect of those tax cuts was to widen inequality in New Zealand.

The Child Poverty Action Group has a wonderful graph, and it actually shows that inequality started to reduce once Working for Families was brought in, and it continued to reduce until we get to the point of these very tax cuts, when it clicks back up again. So that was the effect of the tax changes, enshrined now in what we are doing in Part 2 of this bill, because Part 2 of this bill reaffirms that decision. It reaffirms the decision taken by this Government to say: “We think the wealthiest of New Zealanders need a break. We are not so concerned about those on low and middle incomes—they can make do for themselves—but if we give that tax break to the wealthiest New Zealanders it will trickle down.” It has never changed—the National Party’s view that that wealth will eventually trickle down. Well it has not happened—it has not happened.

Then, rather than come back to this House and, in this piece of legislation, as it could be doing in Part 2—and actually Part 2 would be much longer if it had—prescribe new rates for schedule 1 of the Income Tax Act, but it does not because those rates are not changing because this Government is prepared to let inequality grow. If we look to the future, as I said I would do, we now have the prospect that we will have a longer Part 2 in the version of this bill that will come before the House in a couple of years’ time, because the tax cut carrot is being dangled out again by Bill English, the finance Minister, only just a couple of weeks ago. He is dangling out tax cuts as the economy slows down. We hear this morning that unemployment has gone up to 6 percent; there are 11,000 fewer people in work; there are 151,000 New Zealanders unemployed.

And what could the Government do? It could invest in the regions, support research and development, support diversification of the economy—but no, it wants to dangle out tax cuts again, no doubt again weighted to the wealthy. It wants to dangle out a change to the provision in the Income Tax Act that Part 2 of this bill amends, because that is its real goal: to reduce that heavy, heavy burden on the top income earners in the vain hope that somehow that will trickle down to hard-working, ordinary New Zealanders who go to work each week and pay the taxes in the middle bands that are here in Part 2 of this bill, and who do not feel themselves getting ahead. They have not been given a break by this Government. This Government does not care about them; it only cares about those people at the high end. Part 2 of this bill entrenches that.

Like Mr Robertson, I am grateful to the Minister in the chair for answering some questions on the previous part, and I hope that that will continue as we go on.

In respect of Part 2—confirmation of the annual income tax rates—it is interesting to note, as Mr Robertson has said, that it raises an interesting question: as these rates are confirmed, what could have been the alternative? I was debating with one Nicky Wagner on radio on Monday—

💬 Grant Robertson: A meeting of minds?

—pass—about the skilled jobs that do exist in Christchurch in the private sector that are required. There are quite a few opportunities, despite unemployment moving up—to 6 percent, as Mr Robertson said—but the real gap in the whole system is training: training for those young people in apprenticeships and in other ways, so that they can fill those jobs.

The question that arises, as we yet again reconfirm what happened when the Government took office—as Mr Robertson has illustrated—is one could look at the alternative and say that the money could have been redeployed, and instead of providing tax cuts that enable the top 10 percent to reap the benefits of 43 percent of those tax cuts, it could have gone to reducing unemployment and upskilling our young people and others. The earthquake then, sadly, rolls through and those young people are there, ready, willing, skilled, and able to fill those job opportunities as we go through. That is one alternative that could have occurred.

If you look across at Australia at the time, of course—unlike what this Government did and reconfirmed every year—during the global financial crisis they targeted their tax cuts at middle and low incomes, at those people who cannot actually afford to save it. They have got to spend it, and they have got to spend it on the basics of life. That allowed money to flow through the lifeblood of the Australian economy. Yes, some people spent it on the odd Lotto ticket, but, in general, people had to spend that money.

If you are in the top 10 percent, I would argue that, well, there might be a fair few cases of extra wine and a few other things, but you will either retire debt generally or you will save it. It does not allow that money to flow into the lifeblood of the economic system. If Part 2 was to be amended to differing tax rates, then those tax rates targeted at low and middle income people—they cannot afford the luxuries of life. They have to spend the dough. They have to spend it, and that, of course, engenders money flowing through the system.

That could have been an alternative, but we sit here today looking at Part 2. As Mr Robertson has said, we may as well get the rubber stamp out and bang it on. That Part 2 is sort of xeroxed out every year. It is just reconfirmed and reconfirmed, and the Government is quite happy with the policy it has. However, as has been stated—and I think people are getting a wee bit cynical with this—as we move to an election in another 24 months, out comes the spectre of tax cuts. But the interesting thing will be whether, as we revisit Part 2 prior to the next election—whether those tax cuts, if they are going to be put in a bill like this, will actually be targeted at people in need. Will they be actually targeted at folks who need them? I am sure that a number of people around here have studied history, a bit of political science, a bit of theory, a bit of practical. I would have thought that the trickle-down theory was discredited 20 or 30 years ago. Maggie Thatcher tried it. Ronnie Reagan tried it. I think most people looked at it and went: “Well, it doesn’t really work.” But these guys, these geniuses on the Government benches, feel that they can just reinvent a tired and discredited old political theory.

Every year we come back and we have a Part 2, and they do it again, and they compound it again and again and again. This stacks up against evidence, as others have said, of an income inequality gap that widens and widens and widens, and the Government simply fails to acknowledge it through any change through a part like this. They seemed very, very comfortable, and they seemed extremely comfortable with spending the original tax cuts, as we reaffirmed in this part. The top 10 percent gets a big whack. Not spending tax cuts on infrastructure and hospitals and capital expenditure, putting value into the economy, creating jobs—no, simply lining the pockets of those folks who are the recipients of 43 percent of the tax cuts: the top 10 percent of the population. I would be really interested in a response from the Minister on those few points.

The CHAIRPERSON (Hon Trevor Mallard): I have probably been negligent, in that I did not intervene during Mr Robertson’s speech or at the end of it. I just want to remind members that this is a very narrow debate. The two speeches that we have had so far would have been marginal for a second reading, and were certainly outside the scope of this debate. I just want to warn members that we have accepted the principles here, and it is now just a question of whether the bill actually does what has been accepted or not. If members have not got some point to make on either side of that, then they had better not talk.

I raise a point of order, Mr Chairperson. Thank you very much for that clarification and somewhat pejorative explanation of my speech. Can I ask you a question—a point of clarification? When we are debating Part 2, are we able to draw in material relating to the commencement date of that part, or would you rule us as not able to do that, as a result of there being a separate debate on clause 2 of the bill?

The CHAIRPERSON (Hon Trevor Mallard): I think that if members made passing reference, it would be acceptable, but if people try to focus their entire speech on something that is actually part of a later part of the bill, then I will rule them out of order.

I would like to stand up and talk to Part 2 of the bill. The wording around this is actually quite interesting, because what this relates to is schedule 1 of the Income Tax Act 2007. The wording in that Act is actually quite humorous, because what it says is that a person’s taxable income—this is the formula for deriving a person’s taxable income: “tax under table 1 ÷ taxable income;”. You read that, and you go: “‘tax under table’, well, goodness me, are we including that now?” Luckily, they define ‘tax under table 1” as the “Table 1” below that formula, so it is not actually “tax under table, 1”, it is actually “tax under table 1”, which specifies the rates. But I suppose that if you read that in a particular way, you may be talking about the tax you have received under the table, and that is what you are eligible for.

This is an interesting part of the legislation, because, not surprisingly, no one submitted on Part 2 to the Finance and Expenditure Committee. But I suspect that if they had submitted on Part 2, on the rates, and if it was open to debate, then it would have been quite a robust debate. I suspect there would have been a whole lot of submitters who argue that the tax rates, as they stand under Part 2, are unfair and are wrong. I suspect that what they would have done—because we debated tax legislation last night; all submitters but two said that the legislation was rushed, it was not fit for purpose, and it will only cause a whole lot of problems going forward. I suspect that if we had called for submissions on Part 2—and, of course, the reason we did not call for submissions—

💬 David Bennett: You were only meant to talk about the bill.

—on Part 2, or the reason no one submitted on Part 2 of the bill as on page—I am talking about clause 65, Mr Bennett. The reason no one did put submissions on this is that they knew it would be a complete and utter waste of time. They knew it would be a waste of time submitting on clause 65, because the Government would not have listened. It has gone through anyway. It is actually retrospective, and so what is the point? I wonder whether the next time that this comes up, because it comes up every year, clause 65, or whatever the name is on the particular bill—I wonder whether we call for submissions on this, knowing that, of course, it will not have any impact. But then again, the Government is not listening to submissions on a whole lot of this stuff. What sort of submissions we would get, and how long—

The CHAIRPERSON (Hon Trevor Mallard): Order! I am now going to draw the member back to the bill. Submissions that were not made are certainly not part of the debate at this stage of the bill.

OK. Well, I was trying to do that. Part 2, as has been alluded to, is under the Income Tax Act 2007. By and large, the Income Tax Act 2007 and all tax legislation made before 2008, of which this is a piece of legislation, was very good tax legislation. What it actually did is set up the country and New Zealand’s families to reap the rewards of a prosperous economy. That is what the 2007 Act did.

Unfortunately, this amendment to the 2007 Act—because, of course, these figures have to go into an amended Act, and they are not changing, but if they did change, they would have to go into an amended Act. What it does, unfortunately—and the former Minister of Finance, the Hon Sir Michael Cullen, would be disappointed, I suspect, if he saw that a piece of legislation under his name from 2007 carried tax brackets that in fact defied or undermined the philosophy that he took as the finance Minister when shepherding this 2007 Act through the House. I know that Michael Cullen really took great care when he put tax legislation forward to make sure that it was fair for all New Zealanders, not just the top 0.1 percent. He made sure that the tax burden carried by New Zealanders was done in a way that was fair for everyone. He made sure that the tax system was equitable. He made sure that it was fit for purpose. That is what this 2007 legislation did.

However, amending the 2007 legislation to put in the tax brackets or the tax burden put forward by the Key Government in fact undermines, I believe, the purpose and the philosophy that Michael Cullen and that Labour Government, of which the Chair was an integral part, of course—

The CHAIRPERSON (Hon Trevor Mallard): OK, that is enough.

I move, That the question be now put.