Families Package (Income Tax and Benefits) Bill

I’m happy to be taking this first call in what I know will be a detailed and comprehensive committee stage on the legislation that we have before us. While we have been debating this matter this afternoon, this bill of course hasn’t had the opportunity to go to a select committee. There are, in Part 1, a number of the most important and substantial changes in this piece of legislation, so there will be a number of contributions that the members on this side of the committee will be wanting to take as we work our way through the detail of some of those changes.

In starting it, and given that Part 1 does contain the changes to the tax package that National had put in place in the 2017 Budget, and clause 46 in Part 1, of course, repeals those changes, it’s only right, I think, to point out to Kiritapu Allan—who spoke last in the second reading, which has just been completed—that it isn’t in fact a $1,000 a week tax cut that is being cancelled; it is, of course, $1,000 a year. Now, the difference may not be substantial to that side of the committee, but, actually, for New Zealand workers, $1,060 a year is what the Government was going to let them keep, of their own money. This isn’t Government money. This isn’t public money. This is the money of those workers, and when National was in Government the decision had been made that, actually, the economy was running well, the Government was running well, and we could afford to let hard-working New Zealanders keep more of their money.

That $1,060 of tax cuts was well-supported in this House. It was supported by every party in this House except for the Labour Party. What you’ve got, of course, in this bill is the cancelling of that legal entitlement that taxpayers currently have to keep more of their money. It isn’t simply about returning surpluses; it’s also very importantly about reflecting the real cost of those tax thresholds that are being debated, because the way the tax cuts were being delivered was not simply a reduction, but adjusting the thresholds at which the graduated levels of our tax system applied. In doing that, it is important that this committee is mindful of the fact that over the period of time, the real buying power of the average wage, of course, decreases, but the average wage itself increases.

If you want to maintain the relative parity between the taxpayers in New Zealand and the income earners in New Zealand and the respective tax rates that they should be subject to, you have to periodically ensure that those tax brackets are adjusted. The brackets that were focused on, which this bill is now seen to repeal in Part 1, were the lowest brackets in the tax system. They were the tax brackets in which the entire income of people on low to middle incomes are paying. So this bill undoes tax cuts that were exactly designed to ensure that the lowest paid in our economy got to keep more of their money. That is something that this side of the committee feels passionately about. I know that other speakers will want to spend some more time on that.

One of the other matters that I wanted to touch on in this first contribution is the strange reinstatement of a little known—and in a moment I will talk about why it’s little known, or how little known it is—part of the tax system, which is called the independent earner tax credit. The independent earner tax credit is one of those strange little parts of the system that effectively says, well, if you are a single person without children, if you’re a married couple that doesn’t have children or you have older children—at one point in the system where there was a lot of focus on especially supporting our families with children, actually there was a desire to want to give a little bit back to those earners as well.

It is the part of the system, or it used to be the part of the system, that really supported those childless earners. The amount of that independent earner tax credit is $10 a week. It isn’t a huge amount of money. Over the course of a year, even my grasp of maths tells me that that’s $520 a year.

💬 Hon Grant Robertson: I can confirm that.

I’m pleased to get the confirmation from the Minister of Finance. I’m touched and honoured that the Minister has confirmed my maths. So, $520 a year. But let’s think about this it this way. If the taxpayers listening at home, the workers watching this debate at nearly 10 o’clock on a Thursday night, or those who are following this with interest—and actually, when you’re talking about people’s own money and how much of it a Government helps itself to, I think people do care. When they’re following this debate, what they need to understand is that, while this bill will give independent earners who don’t have children $10 a week—[Time expired]

Thank you, Madam Chair Williams. The first point I want to make, in debating Part 1 of this bill, is how unusual and how lucky the Government is to be in a financial position where we are able to introduce such significant increases in income for New Zealanders.

I just ask the committee to reflect for a moment. Can any member of this committee remember a time when an incoming Government has had the sort of fiscal room to increase family incomes as much as this incoming Government? I do note my colleague Bill English is in the Chamber. Has there been the courtesy of either the new finance Minister or any member of the Government acknowledging the wise stewardship that actually puts us in this privileged position where we can increase the income of New Zealand families?

The second really important point I want to make is that we should not just be focused on how we spend, but actually on how we structure our tax and our family support packages to ensure that we continue to grow the economy. What really upsets me in this part is the degree to which we are going to increase the marginal tax rates and remove the incentives for New Zealanders to create wealth.

If we look at a person on the average wage, under the current law they’ll be paying a marginal tax rate of 17.5c. What members opposite, with this part, are saying is that they want to take another 12.5c, and remove the incentive for average Kiwis to go out and do another hour of overtime, and the small-business person to create an extra hundred bucks of wealth. What this party is doing is removing the incentives to create wealth.

Let’s just add it up. What members opposite are saying, with the combination—

💬 Greg O’Connor: No, they have to do the overtime. They have to, to be able to afford the food. That’s why they’re taking the overtime.

No, I say to the member over there, you are taking incentives away from people who want to get ahead. Let me just explain it to him. What you’re doing is you are saying you’re going to put up not just the marginal tax rate; you’re also going to put up the abatement rate. In fact, if you’re on the average wage and you add up this new tax rate, you add on to it the 25c in the dollar abatement for anybody with children, you add on to it the ACC income levy, and you’re, effectively, saying to someone on the average wage, “Go out and earn an extra dollar, and we’re going to take 70c off you.” Earn an extra dollar, and they’re going to take 70c off you if you add these tax rates, the student loan abatement, and the family support abatement.

I simply say to the members opposite: what they do not get is that spending is easy; creating wealth is more difficult, and with this part of the bill you’re actually creating the ingredients in which you are taking away the incentives for New Zealanders to get ahead.

And then the third part is this: a key part of New Zealand’s competitiveness story has been the simplicity of our tax system. You talk to those from Australia, you talk to those from Europe, and you talk to those from the US, and what they say is great about New Zealand is a simple system that provides incentives to work, and what we see in this part is a hotchpotch that takes our system backwards. There’s been a pretty broad consensus over the last 25 years that a simple tax system is a good one, and between the measures to bump up the tax rates, to introduce these new baby bonus - type provisions, the provisions for heating allowances—why not just let Kiwis keep more of what they earn? Why do we want to make a tax system with all these fiddles, these bells and whistles that might, Mr Robertson, get you a cheap headline during the election campaign but fundamentally undermine the quality of public policy in New Zealand, our tax system, and our benefit system, that means more money spent on bureaucracy, less people understanding how it works, and, basically, making our country poorer as a consequence. That’s why we should oppose this part.

Madam Chair Williams, thank you. Well, I look forward to continuing on with what I was saying in my earlier contribution. When I was making that contribution, I was talking about the independent earner tax credit, and I wanted to talk about it. It isn’t the biggest part of the bill, but we’ve had a lot of discussion around the core aspects already today, and this is a part that I think does deserve some attention. So in making this change—let’s just be really clear about this—this bill, and the Labour Government, will be enabling those earners to retain $520 a year, on the face of it, but in return they’re taking away from them $1,060 per year. So they get to keep $520 a year but lose $1,060. Just earlier, the Minister of Finance was complimenting me on my maths, and I’m sure he will agree with me that $1,060 being lost is a heck of a lot worse than $520 being given back.

Actually, there’s a common theme here—there’s a common theme in here—because when you look through the package, the bulk of it, in Part 1, and you look at the families that it purports to help, 625,000 families that are included in the numbers that the Government claims this package will help are only $13 on average a week better off. Now, again, it doesn’t take a whole lot of maths to know that those families will, therefore, be worse off than they would’ve been under the package that the National Government put in that this bill that we’re debating tonight is repealing.

So let’s just be really clear that there are at least 1.2 million New Zealanders—and I would argue a heck of a lot more than that—who lose under this bill; 1.2 million New Zealanders who work every day, and, as Dr Smith was saying, who understand that money has to be earned and that earning it is the hard part, are going to lose out under this bill. In addition, even some of the people who, under this bill, on the face of it, get an extra entitlement, are getting less than they lost. They’re getting less than they lost, and I think that is something that the taxpaying members of New Zealand certainly want to hear about.

Again, when you look at another part of what’s included in Part 1, we have the baby bonus. We have this strange anomaly where, in a package that has been sold to the public as being a better way of targeting spending, we have a baby bonus that is paid out indiscriminately. And, again, over the course of this afternoon, I’ve heard so many crocodile tears and so much railing against any sort of indiscriminate giving back of money to the poor people who earned it, because they don’t need it because they’re too wealthy, and yet in Part 1 we have a baby bonus paid out to anyone, irrespective of need, irrespective of income, just for having a baby. Why would you put up a package that is supposed to be about targeting better those in need where 1.2 million New Zealanders, at least, are worse off, and the money is spent in a large part without any sort of targeting at all, paying a baby bonus to the very people they say don’t deserve a tax cut—the very people who don’t deserve a tax cut?

The tax cuts that are cancelled through Part 1 of this legislation have almost—well, the biggest part of them has been used to fund even more untargeted spending, which is the free gap year at university for young people. And, again, none of that’s targeted. So the very people who the Labour Government say don’t deserve a tax cut and who can support their children through university—and in my case are happy to do that—still get funded, and as a result the hard-working plumbers, cleaners, truck drivers, and sparkies around New Zealand are told they don’t deserve a tax cut.

Well, I’m sorry, Madam Chair, and I’m sorry to the members of this committee, but I cannot accept that a Government should take money that it doesn’t need off people who’ve worked damn hard for it, and spread it around in a way that even Treasury says they have no idea whether it will make a difference or achieve its goals. If you read the departmental disclosure statement, Treasury have said they cannot assess whether this package would achieve its goals. So why would you breach the fundamental duty of a Government not to take more money away from people than it needs, to do something that isn’t giving attention to the purposes of the bill, in terms of targeting it; isn’t allowing people to keep money that they’ve worked damn hard for; and isn’t, according to Treasury, even able to tell us whether it will meet its goals? It makes simply no sense at all.

Madam Chair Williams, thank you very much for granting me the call. Part 1 of this bill does several extremely important things. The first of those is it creates a brand new tax credit, the Best Start tax credit—a tax credit that is fundamentally based in the best evidence that we can find about what will make a difference in the lives of children. The Children’s Commissioner expert group recommended that there be a universal payment for all newborns—that’s what they did. The reason they did that is because every single family faces costs at that time; every single family has to balance up the needs of looking after their newborn children with other parts of their lives.

Then the expert advice—not only from the Children’s Commissioner’s group, but also from things like the longitudinal study in Dunedin—tells us that the first three years of life are the most important in a child’s development. What Part 1 of the bill does is actually take action on that. Sixty dollars per week will make a massive difference to families, especially low and middle income families. Around 65,000 newborns every year will benefit from this from 1 July.

In earlier parts of the debate, the genesis of this idea was raised. It may have been the Hon Tracey Martin who did so. There was, once upon a time, a thing in New Zealand called the family benefit. There was a time when New Zealanders said, “We’re all in this together.” It doesn’t actually matter whether you’re rich or poor, we think that children deserve the best start in life. We think that families can be given strength by being given support by a Government that thinks that they are all equal, so that is the basis of this kind of payment. I am very proud that Part 1 of this bill says it’s time to bring that back—it is time to have that kind of support for all of our children. And then, yes, as we go on that begins to be targeted more, and it’s targeted more because low and middle income people raising children in New Zealand are struggling.

I do want to respond to the contribution from Amy Adams in this regard. It is vitally important that we understand that Part 1 and indeed Part 2 of this bill do focus on children, and we make absolutely no apology for that. We have done this package on the basis of evidence. We have done this package on the basis of what will help child development because we want New Zealand to be the best country in the world to raise children, and this is a step in the right direction for that. So I am extremely proud of the fact that Part 1 of this bill introduces the Best Start package. But I can respond to Amy Adams’ question about why we’re doing this: because, yes, we do want to focus on children and support for families with children.

Part 1 of the bill also goes on to implement the Working for Families changes and also repeal the Taxation (Budget Measures: Family Incomes Package) Act 2017. I do want to say to this committee: we have made a deliberate choice to repeal that Act because that Act did not deliver the fair outcomes we wanted. It did not deliver that, because it gave over $400 million to the top 10 percent of earners. On this side of the House we’re proud to have put up a bill and a piece—

I’m sorry to interrupt the honourable Minister—[Interruption] Order! I’m sorry to interrupt the honourable Minister. The committee is suspended until 9 a.m. tomorrow, when we will resume. Pō mārie.

Debate interrupted.

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