Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill

Members, we come first to the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill, and the debate on Part 1. This is the debate on clause 3, setting the annual rates of income tax for the 2020-21 tax year. Note that Standing Order 352 requires that this provision be debated separately. The question is that Part 1 stand part.

Thank you, Mr Chair. I’m pleased to take the first call on what I expect will be a long and pretty robust debate on this bill. It does pain me to point out that whereas in the past, taxation, annual rates and remedial matters bills tend to be reasonably bipartisan affairs, that’s no longer the case, for two reasons. The first is—and it is the essence of Part 1 of this bill—the inflationary impact of bracket creep on the after-tax incomes of middle New Zealanders.

Now, this has been a problem for generations. The previous Labour Government, in 2007-08, attempted to address it by passing what turned out to be known as the “block of cheese” amendments, which they promptly reversed in the following year as the global financial crisis started to become apparent. Now, we have an opportunity, I think, as part of the package of measures that the Government has introduced to combat the economic impacts of COVID-19 on our economy, to do something good for those middle-income earners, and that is to raise the thresholds of income tax in order that they are not punished for the increases in costs and the increases in their income that takes them into new tax brackets. The best economic advice, actually, globally, is that those pump-priming responses that have, in this country as well, seen incredibly large sums of money put into the economy in order to sustain jobs and livelihoods and businesses and that, by and large, have been successful, should also be accompanied by reductions in income tax.

Not only are there no reductions in income tax; this Government is doing two things. Firstly, it is acting to increase the top tax rate in the future. It’s not part of this bill, but I’m sure the Minister of Revenue will be introducing a bill in the not too distant future to do the 2021-22 rates of tax, and that will include an increase in the top tax rate to 39 percent. But indirectly, by their failure to act, they are giving every single New Zealander whose income increased over the last period of time and who, as a consequence, has gone into another tax bracket the punishment of more tax, despite the fact that they are incurring more costs and the inflationary impact of those costs mean that they’re not only no better off but are worse off.

So I think it’s really important that when the Minister does take a call to explain Part 1, which superficially is a fairly straightforward part but which has such a huge impact on New Zealanders’ lives—whether or not the Government considered a threshold change, either as part of business as usual or as part of a COVID response, which other countries have done, and, if not, why did they not ask for that advice, and if they did ask for that advice, why they didn’t take it. I can’t see anything more than a perfunctory reference to the issue in the regulatory impact assessment, and therefore it suggests to me that the Government weren’t even interested in a tax threshold change. I find that rather sad because of those impacts.

Inflation is a tax. Economists have said for years that the best way to cover, for example, Government debt as a proportion of GDP is simply to wait until the economy grows as a consequence of inflation to the point where the debt looks smaller on the radar than it otherwise would. Indeed, going back to the previous Labour Government, who crowed about the fact that their net debt to GDP ratio plummeted to nearly zero, what’s not talked about is the fact that they didn’t repay in the nine years of the Clark-Cullen Government a single dollar of sovereign debt. In fact, gross sovereign debt under that Government went up from $37.4 billion, I think it was, from memory, to $37.7 billion. The thing that got debt to GDP down was inflation and the growth of the economy. So I’d like to hear from the Minister in that regard.

Thank you, Mr Chair. It’s a pleasure to be talking on this bill. I think we’re in for a long night because we’ve heard today that there’s going to be a major change, which, in effect, relates to tax. I know this first part relates to income tax, but we’ve got a whole stack of things happening with tax in this bill, which does worry me, and I think we need to look at them in the context of what Part 1 is about, which is setting the income tax rates at the same level. I think, just as my colleague was talking about before, this gives rise to a whole raft of issues. I think in a tax context, what are we trying to achieve for the country? What is the purpose of what we’re trying to achieve? Now, obviously, a Government has a demand and an expectation to get revenue, and that’s a fair comment. But what is the best way to do that? What is the best way to achieve the highest tax take and how to support the people that are actually making those payments? In that case, in Part 1, we’re talking about income tax on individuals, but also it relates to corporate tax, to GST, and it also relates to duties, and we’re at risk, I think.

As we work our way through the bill, I think you’ll find the context of what we’re talking about in terms of tax in this bill alone covers issues such as GST on mobile roaming fees—something that we’re going to oppose very definitely and already have stated our position on it. But there’s a whole lot of other tax changes, and I think we are concerned that having come through a global crisis and having now gone through the COVID crisis, which we’re still in the midst of, we’re in a situation where we have got many vulnerable businesses and individuals as part of New Zealand out there trying to survive, trying to get through the next period so they can start to generate some money, hopefully, when the border is opened—hopefully, when the border is opened. So we’ve got people with little cash flow who are really struggling and here we are—we’re just sailing on as if we’ve got nothing to worry about. We’ll keep taxing at the same rate. We don’t need to worry about those hard-working New Zealanders, those hard-working mums and dads who are out there trying to create a livelihood for their families.

I think we should actually be having a much more strategic conversation around where we see tax at the moment, what we’re trying to do to balance the needs of the Government against the requirements and the sensitivities around people who’ve actually got to make those payments, and, by the way, the timing of those payments is quite ruthless in terms of, particularly, for businesses. One of the things we were very keen to see was a change of when the payments were going to be made for businesses, particularly the 15 January payment, which we think is a dreadful time to be forcing businesses to be making tax payments. I think what we haven’t seen from the Government—and I note that the new Minister of Revenue is in the chair and, hopefully, he’s going to bring some innovation to tax over time, because I think we need to be much more innovative about supporting New Zealanders in general to make sure that, yes, we get enough tax, but, actually, we don’t put them in a disadvantaged situation where they have to make those payments.

I want to just concur with my good colleague the Hon Michael Woodhouse. This issue around inflation is a crucial one—it’s an absolutely crucial one—and that’s why we propose a change. It’s called fiscal drag, where, effectively, inflation starts to push people up into a next-higher tax bracket, which would not otherwise have occurred if it weren’t for inflation. We came up with that proposal. We were very strong on it. It was back then when we proposed it, a couple of years ago. It was about a $660 million package, and, of course, it’s probably more than that now, given what’s happened. I think, in terms of supporting New Zealanders—because we do not want to see New Zealanders progressing into higher levels of tax, and that is what’s going to happen with the issue of fiscal drag. That’s why I’d been keen to hear the Minister’s view around those proposals and whether in fact he even contemplated it, whether in fact he actually sought advice from Treasury or the IRD on the importance of it, whether in fact it would help to drive economic activity in New Zealand, and whether in fact it was actually a fair thing to do for all New Zealanders, particularly those hard-working mums and dads.

Part 1 talks only to income tax rates for the 2020-21 year. It says nothing about GST or other taxes. The Supplementary Order Paper 23, which is the Government’s Supplementary Order Paper in my name, makes no changes to Part 1 of the bill, so the only thing that I can see as being relevant that has been raised by members to Part 1 so far is the question as to whether we should have an inflation adjustment of income tax rates so as to prevent what is commonly called fiscal drag.

The Tax Working Group considered this issue, and they noted that the fiscal impact of indexing income tax thresholds to inflation would likely be high, the benefits to low-income earners compared to others would be low, the benefits to higher-income earners obviously would be higher, and the resulting revenue loss and potential reduction in Government services would disproportionately affect low-income New Zealanders, and that the projected increase to the labour supply from the increased investment that would result from lower taxation was modest compared with the projected costs.

Thank you, Mr Chair. I’m very pleased to take a call on what I believe is probably the most important single part debated in this House each year, and I want to just spell out—because I think sometimes things get rushed over a little bit here—what it means. We’re debating Part 1, “Annual rates of income tax”, and it says “Income tax imposed by section BB 1 (Imposition of income tax) of the Income Tax Act 2007 must, for the 2020-21 tax year,”—that’s the one just about to finish on 31 March—“be paid at the basic rates specified in schedule 1 of that Act.” If you are to go to the Income Tax Act 2007, Schedule 1, it says if you’re a New Zealander and you earn income, you must pay 10.5 percent of that income to the IRD on everything you earn between zero and $14,000. OK, that doesn’t sound too bad. Then, on every dollar from $14,001 up to $48,000 you’ve got to pay 17.5 percent, and then, on every dollar from $48,001 up to $70,000, you have to pay 30 percent of the income you earn to the IRD. And from $70,001 onwards, it’s 33 percent—almost exactly a third of every dollar you earn gets taken off you by the IRD and put into the Treasury’s coffers.

There’s nothing more fundamental to what Parliament does than deciding what percentage of your hard-earned income gets taken off you by force by the IRD and put to uses over which you have little, if any, control. So I think it’s worth just outlining what this debate is actually about, because there’s nothing, in my view, more important that Parliament does other than giving consent to tax. No taxation without representation—that’s what this debate is about.

I make another observation about what it means, and, Mr Chair, I could take quite a few calls on this, because it’s sort of a favourite subject and it’s important to a lot of people personally and to the long-term future of the New Zealand culture and its economy. But for the rest of this call, let me just give you one useful piece of information, I think, that the IRD website provides about how much tax different people pay on different incomes, because what it says is that people who earn $150,000-plus—that is 3 percent of New Zealanders—pay 24 percent of all of the income tax in this country.

Chlöe Swarbrick: It’s progressive.

That is one in 30 people pay almost a quarter—one-fourth—of all the income tax. Chlöe Swarbrick here, who’s a quick study, she said “It’s progressive.” Well, Chlöe Swarbrick, not much gets past you. Actually, of course it’s progressive, but the point of the story is I don’t think most people realise quite how progressive our current tax rates are, that 3 percent of New Zealanders end up paying 24 percent of all income tax.

Chlöe Swarbrick: How does that compare internationally?

I get people who come to me—oh, and then Chlöe Swarbrick, she’s saying, “What about internationally?”, and that’s the thing that the left love to do. When things aren’t going their way they say, “Oh, there’s 200 countries in the world, I think I can think of one where things are worse.” Well, that’s not the kind of aspirational culture that I think New Zealand should have. At the other end of the spectrum, we hear that actually—

Chlöe Swarbrick: We’re mentioned as a tax haven in the Panama Papers.

Oh, she’s on about the Panama Papers. I mean, this is why the Green Party have the sometimes—no disrespect—kooky reputation that they do.

But let’s bring this back to what it means for New Zealand and its culture. We can also see that people who earn, what, 16, 33, 48—people that earn under $30,000. That’s 48 percent of all taxpayers, and what do they pay in total? Thirteen percent of all taxes—income tax, that is. So 48 percent of New Zealanders, or almost half of all income tax payers, pay 13 percent. So when people say it’s progressive, man, is it progressive. On the one hand, 3 percent of people end up paying a quarter of all the income tax. On the other hand, half the people pay only 13—one-three—percent of the income tax.

Man, is that progressive, and a lot of people say to me, “I don’t mind so much, if only I got a little bit of thanks.”, because, see, this Government takes the attitude that, actually, it’s not progressive enough. They feel that if somebody has money, it’s right to take it, and they would like to go further and introduce another tax rate in the next bill like this next year. They will say that, actually, if you earn over $180,000, it’s 39c in the dollar—getting up close to half your income gets taken in income tax alone.

Now, as the Minister rightly stated, GST, company tax, excise tax on your petrol, tax on your beer, tax on your baccy—that’s all separate from this debate. We’re not even talking about all the other taxes that people put on your income at some point in the cycle; we’re talking about just the PAYE that you pay when you get your wages after working for the fortnight.

The effect of these numbers is not just economic it’s cultural. The effect of these tax rates that this Parliament, this committee, is being asked to recommend to the people of New Zealand is that we are putting mediocrity and tall poppy syndrome writ large in our tax code and we’re putting a simple, efficient, meritocratic tax system to the back of the bus.

See, we teach our children in New Zealand something like this: go to school, listen to your teacher, get home, do your homework, learn, work hard—be nice, in other words—and if you do all that and you do well in your exams, you might get skills that turn into qualifications, and those qualifications can turn to higher learning. If you borrow money and get a student loan and upskill yourself, that can turn into a job, and if you get a job you can get a career, and if you get a career, you can earn money. Then, if you put some aside and save it and invest it carefully, eventually, you can end up comfortable in this country.

That is the New Zealand Dream and the New Zealand story of meritocracy and working hard and succeeding through your own efforts of making a difference in your own life and the lives of those people around you that you care about, and that is the dream of New Zealand. But this legislation is saying “Nope, if you do all of those things, we will triple your tax rate.” Remember? Up from 10.5 percent on your first $14,000 to more than three times that—33 percent on all income above $70,000—and soon a 39 percent tax rate will be introduced as well.

I said that this is the most important debate on a single clause that our Parliament has all year because it’s so much more than a technicality. It decides how much of whose money is taken by the IRD at the behest of this Parliament when they get out, study hard, work, save, and invest. In the long term, it’s more than just numbers; it’s our culture. It’s a choice. It is a conscious choice that we are going to say to kids who do all the things we ask of them, who listen to their teacher, do their homework, study hard, do well on their exams, work diligently, be nice, save some of the money they earn and invest it carefully. We say, “If you do all that kids, guess what? We’re going to take it off you.”

That is what this legislation is about. It is an affront to the values that saw New Zealanders of every class, creed, and race make heroic voyages to the edge of the known world, often at the time, to give their kids a better life. If we were serious about the future of New Zealand, we wouldn’t be passing these progressive taxes. We would have a flat tax that says that if you do things right, the money is yours to keep. Thank you, Mr Chair.

Thank you, Mr Chairman. I too want to comment on Part 1 of this bill and reflect on the extraordinary situation that we are in urgency debating measures announced this morning, we’ve got a Supplementary Order Paper with over 400 clauses in a complex area, and it’s intended to be law by Saturday, and what sort of mickey mouse legislation we have. How do we reasonably expect this Parliament to give proper consideration to hundreds of clauses when MPs have had access only a few hours ago to the legislation we’re debating in this committee stage?

This specific clause may seem small, but it is the $38 billion clause. It’s the clause that authorises from Parliament the collection of all income taxes for the new tax year. That impacts on every single New Zealand household—an impacting on all of that $37 billion.

I’m one of those that wants to share the view that we should acknowledge about where that tax burden is falling. I hear all the time in the speeches from members of the Government about how unfair and inequitable our society is. Well, I want to point out the facts on clause 3 of this bill. It says that the 10 percent of New Zealanders who earn over $100,000 a year are going to pay 50 percent of the income tax—10 percent of the people are going to be required under this clause to pay 50 percent of the income tax. To give some sense, we’ve got 50 percent of the population—taxpayers—who are going to be required to pay 13 percent. Now, I share with David Seymour, the previous speaker, a view that we should acknowledge that the heavy lifting of funding Government and Government services is being carried by those people that are working hard, doing the overtime, earning the income to actually—

Chlöe Swarbrick: What about nurses, Nick?

Well, actually, there are nurses that are earning $100,000 a year, and I hear a hundred speeches from Green members about how the upper-income earners are not carrying their fair share of the burden. My question for the member for Auckland Central: 10 percent of the taxpayers are paying 50 percent of the tax, but have I ever heard that member acknowledge those hard-working New Zealanders that are paying 50 percent of the costs? I would just love to hear the Green Party or any member of the left in Labour acknowledge that over 50 percent of the tax is being paid by over 10 percent of the people. Is that something that the member for Auckland Central or members of Labour—maybe the Minister in the chair, the Hon David Parker, might acknowledge that huge contribution.

The reason it’s relevant is because every single day I hear the members of the Green Party and members of the Labour Party saying that these people that are paying 50 percent of the tax bill need to pay more. In fact, with this bill, we’re going to whack all of those people with a whole lot more tax. That’s what this bill is all about. What we’re going to be ramming on to New Zealanders in the next few days, as we debate this bill, is more taxes.

The last little challenge I’d have for the Minister in the chair, the Hon David Parker: I heard, word for word, Labour members promise “No new taxes.” I heard the Minister of Finance give an absolute commitment that there would be no more taxes. So why are we, under urgency, ramming a tax bill through that does the opposite to what Labour members got a mandate for at the general election last year? It is just another example that you can’t trust Labour—[Bell rung]

The member’s time has expired, thank you. Before I call the Hon Gerry Brownlee, I just want to make a comment on Part 1. There is nothing new in Part 1. It isn’t altered by any of the tabled amendments or Supplementary Order Papers. [Interruption] Thus far, it hasn’t come to my Table. So the debate is only about what’s in the bill.

Well, thank you, Mr Chair. You are right: the debate is about what’s in the bill, and what is about to go into the bill is, of course, everything that’s contained in the Supplementary Order Papers (SOPs) that sit on the Table—everything that’s contained in the 50-page SOP dropped on the table at 1.30 this afternoon. They are in the bill, and every one of those provisions relates to what’s here in Part 1 of the bill.

CHAIRPERSON (Adrian Rurawhe): Yes, sorry to interrupt the member, but I’m saying nothing that has been tabled affects Part 1.

Well, with respect, Mr Chair, everything that has been tabled as an SOP affects everything that is in Part 1 of this bill. This bill, in Part 1, sets out, as previous speakers have said, that under Schedule 1 of the Income Tax Act 2007, there are requirements for workers to pay particular levels of tax, requirements for businesses to pay particular levels of tax, and it goes on and on and on. But the bill today also, of course, undoes some of the usually reasonable expense claims that can be assessed against income for people who are paying tax.

I go back to the point that’s been made by the previous two speakers that 10 percent of the workforce—10 percent of the taxpayers in this country is a better way to put it—cover off or pay for 50 percent of that Government revenue: 50 percent of the $38 billion that the Government collects annually in income tax. So the question becomes, if that is such an embraced fact, an embraced circumstance, by the population of this country, why do we need these other SOPs? Why can’t this particular part stand on its own, as it does in this Act, and why there a necessity to start digging into it and pulling it to bits and making it harder for people to invest in a way that has wider social benefit?

One thing that is absolutely certain is that this will see, in my opinion, a number of people recognising their obligations under the Income Tax Act 2007 for the 2021 tax year and beyond—and beyond—start to make investments that will in some way at some point mitigate against some of the tax that they are liable for at the present time. So what we’re going to see is a massive industry of transfer of investment as a result of these provisions that are put in the bill today.

I think it’s very interesting to have listened to a previous speaker who talked, somewhat dismally, I think, about what life is like in this country: work hard, put your head down, make an effort, be entrepreneurial, be deeply committed to your workplace, do your best, day in, day out, through your entire 40-plus years of the workforce, and if you do get up to the top end of the salary scale above $100,000—above $180,000, even—then you pay massive amounts of tax. That seems to me to be a legislated disincentive to growing the New Zealand economy, and we’ve had this as a way of operating for far too long. It’s being exacerbated, I think, by the insistence that we stick to the rates that are in the 2007 Act and incorporate the new $180,000-plus, 39c in the dollar rate but then also have a whole lot of previously accepted mitigations against the tax liability removed in the same bill.

Mr Chair. I’m conscious of what you said about sticking tightly to this part, but we will talk later, and extensively, about the effect that some of the provisions proposed for this bill and the SOPs will have on some of the problems that are supposed to be sorted out by it. In the meantime, it would have been far more innovative for the Government of the day to say, “We can encourage a whole lot of activity if we were to start lowering the tax burden on that 10 percent of New Zealanders who provide half of that revenue now.” Even if we’d said, too, “We’ll lower the burden on some of the 13 percent of taxpayers who pay that chunk in the middle.”, that might have made some difference to some of the problems this bill’s proposing to sort out.

I note, again, that there is nothing in this part of the bill other than income tax rates for the 2020-21 year. I would also say in reference to some of the comments that have been made as to progressivity of the tax system that you can’t assess that in relation to income tax alone. GST, of course, is a regressive tax that’s not affected by this provision. But members who are making sweeping assertions as to the progressivity of the tax system and who they think pays the proportions of tax can’t really make a meaningful contribution without taking into account the effect of GST, which, of course, is not set by this part.

In respect of Mr Brownlee’s comments about other parts of this bill as amended by the Supplementary Order Paper, with respect, Mr Brownlee, you’re wrong. There’s nothing in either this bill as introduced or in the Supplementary Order Paper about interest deductibility.

We could spend quite a bit of time just on that very point about the degree to which GST is regressive or not. But the reality is that the higher-income earners pay the lion’s share of GST, and that’s fair enough. I think the question of progressivity, as the Minister mentions, is absolutely central to the debate on what the tax rates and tax thresholds as set out in Part 1 of the bill should actually be.

As Mr Seymour pointed out, we have, because of the wealth transfers such as Working for Families and accommodation supplements, a very highly progressive tax system, and those who receive those wealth transfers—for example, if they’re on incomes of up to $60,000 a year or more—will, effectively, pay no net income tax whatsoever. I think everybody in this House, or at least a good number of members of this House, will say that’s absolutely fair. But the bracket creep and the fiscal drag that is going to be continued as a consequence of not addressing the tax rates and thresholds is actually relevant.

Now, there was reference, I think, to teachers, and, of course, when I left the hospital I managed nearly 13 years ago, nearly all of my senior nurses were not on the top tax bracket. Now a second-year nurse will pay the highest marginal tax rate on their income over $70,000. Depending on their shift configuration and how many weekends they work and how many evenings and night shifts, a second-year nurse or midwife would comfortably exceed the $70,000. In fact, depending on the shift configuration, potentially a first-year nurse could do that as well. So we’re now talking about the potential, if not this year then next, that graduate nurses are going into the top tax bracket, and that was never—never, I don’t believe—the intention of our progressive tax system. Broad-based and low rate it should be, but it is still progressive.

Now, the Minister referred to the Tax Working Group report and quite selectively picked some extracts from that. I think it’s pertinent to consider that the chair of the Tax Working Group was the very person—it wasn’t the “block of cheese” tax; it was actually the “bubble gum” tax in 2007—who firstly, begrudgingly, waited eight years to put tax threshold increases in and then reversed them in the following year, so nobody ever benefited from them anyway. The fact that the Labour Government, when in Opposition, committed to reversing any tax threshold changes a National Government would have put in speaks volumes to the attitude that this Government has towards tax. It might be fair, it might be progressive, but it’s not very smart, and that is because higher taxes are a drag on productivity.

Now, it’s certainly most apparent at the extremes, so, very low tax rates, very flat tax systems, will increase productivity materially. A 100 percent tax on income would mean nobody would bother to go into that tax bracket, because they get no benefit from it. The question is—and it’s, in theory, known as the Laffer curve—where in the middle of those two extremes is the sweet spot to ensure people are most motivated and most productive in contributing to the economy and in creating revenue for the Crown to pay for its health, education, law and order, and social services? We’re not going to answer that question today, but what we can see is if over 12 or 13 short years, senior nurses who weren’t in the top tax bracket have been replaced by second-year nurses going into our top tax bracket, then we have a problem, and it’s one that a Government has to address at some point.

I think what we know now is that no left-wing Government is going to do that. They can’t stand the idea of tax reductions, even in the threshold. The reason they gave for opposing a change, even in the lowest-income tax threshold, was the fact that I would get it, as an upper-income earner. That’s the degree of envy we now have, and their reluctance to increase thresholds is envy.

I rise to speak on Part 1, clause 3 of the Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill before us. As other speakers have mentioned, this is really a pivotal and crucial part of the bill in that it determines what the thresholds and rates for taxation are for income tax. This is very significant because what we see in the bill as it’s presented is a missed opportunity. What we know has happened in the past year since income tax thresholds and rates were last set is that there has been significant asset price inflation across our economy, particularly in the housing area. What we’ve also seen is that there have been some income increases in wages, and, as other speakers have very well laid out, what those income increases have meant for some taxpayers is that they have jumped from being in one bracket of taxation to being in a higher taxation bracket. So by their own efforts, and the increase in the earnings that they’re facing, whether that’s just through inflation or, for another group of taxpayers, through receiving promotions or other things, that inflationary effect has meant that more people are having to pay more tax.

So these rates here represent a missed opportunity because they could have been adjusted to allow for that inflationary impact on overall wage levels. The important thing to realise here is that while the tax rates aren’t adjusting, the Crown is continuing to collect more and more tax. The impact of this on taxpayers is not only that individuals are having to pay more tax but that they are also in an economy where accessing the things they want to with their after-tax incomes is becoming more difficult. That is where housing is a very good example.

The other important thing, of course, about where these tax rates are set is that they relate to income tax. It is significant in this bill that we understand what is meant by income tax, because the rates as set out in this bill, when we were last debating it in this Chamber, were thought of in the ordinary sense of the term—that is, income earned and tax paid therefore. But what we know this will extend to is, in fact, the capital gain on property that is sold within a 10-year period. The capital gain on residential properties that are sold within a 10-year period will now also face these tax rates. While I’m concentrating on this specific part, I do think it’s important that those in the Chamber consider how wide the net of this particular part of the bill can now be cast, because it affects not only the taxes that people pay for income but the taxes that they will pay for new capital gains.

National believes that the tax burden on New Zealanders should be reduced. This is particularly the case during what have been tough economic times, and we see a real missed opportunity here not to adjust these thresholds. What we see over time is that this gets worse and worse cumulatively, so that in fact what we see when we don’t have bracket adjustment—when we don’t have these adjustments—is that over time the Crown is taking more of what people earn, and we think that that is the wrong direction of travel. Where possible, the Crown should be working as hard as New Zealanders are to get more impact out of every dollar to ensure that it is doing more with the tax dollars it gets this year than it got with the tax dollars it got last year. We know that that’s what New Zealanders are doing. We know that New Zealanders with their income are always working to get value for that income, and what we don’t think is fair is that they get placed in a situation where tax rates take more and more of their income over time.

We also note, very carefully, that cumulatively, over time, this means that more and more taxpayers are being put into higher tax brackets where the marginal tax they face for the incremental additional effort they do is increased. This, of course, also has a significant incentive impact, because as people move up through the brackets and move up through the tax rates, what that means for them is that they get to keep less of what they earn for every bit of work and effort that they do. We think that, overall, that has a severely negative impact in an economy where we are wanting to encourage people to innovate, to be entrepreneurial, and to be productive.

I’ll just give some advice to Damien Smith: if you want the call, you need to say “Mr Chair”.

I hope my honourable colleague Damien Smith will have the opportunity to speak, because I know he will have a lot to contribute. On that note, I’d like to invite the members from the Government party to stand up. I see Dr Deborah Russell. I know she’s an expert in tax matters, and I’d like her to stand up and tell us why fiscal drag is something we don’t have to worry about—how New Zealanders should just pay more tax just because of inflation. I just urge her to take a call, talk about it, support her Minister in the chair, and just give us the benefit of her wisdom on this matter. Anyway—hopefully.

CHAIRPERSON (Adrian Rurawhe): Now, come to the part.

Rapidly, Mr Chair. I want to return to this thing about fiscal drag, which is a dreadful term, I know. It basically says that as you have inflation in the economy, people’s wages go up because of course everyone wants to make sure they’re not missing out and going backwards in terms of wages. So their wages get increased, and, of course, what happens is that people pop into the next higher threshold of tax. So at the end of the day we’re talking about mums and dads paying tax—more money out of their household budget going to the Government rather than looking after their children, paying for their school fees, or paying for their sporting clubs.

I just acknowledge Minister Parker, who stood up and did at least talk about fiscal drag and read something from, I presume, the IRD—a report talking about it and saying it was a significant cost. I just remind the Minister that just prior to that I’d actually told him what the cost was. We costed it when we announced the policy. Back a couple of years ago, it was about $660 million. We don’t do things by halves on our side, Mr Parker; we actually do things, and when we prepare announcements we actually make an announcement and know the fiscal consequences of it, of course. So the cost is $600 million - odd, but you said it is a significant cost.

Well, I think you’re only giving us half the story. You’re always just giving the downside, and I didn’t take you for a pessimistic man, Mr Parker. I thought you were an optimistic person. So you were highlighting the fact that it was going to cost you as the Minister of Revenue a lot of money: $660 million. Well, that’s fine, but, actually, on the other side of the coin, Mr Parker, I’m sure you would know that the Government, of course, is raking in a lot more money—a lot more money. If you go back to the Budget prior to COVID, actually the gross tax revenue of the Government was going to go from $85 billion to $100 billion - odd over four years, and, largely, most of that was to do with fiscal drag, or its inflation impact, and, of course, assumptions around growing our economy.

So I think it’s wrong for you to talk about and highlight how you as the Government are going to miss out on this revenue. I think the question we should be talking about in the context of these tax rates is what is best for New Zealand, and particularly what’s best for mums and dads who are having to pay their sporting club fees for their children. I think this is a really important point and, for some reason, your Government and you as the Minister of Revenue seem to be just trying to blow it away and refer to some skewed report.

The issue in another context: my colleague the Hon Michael Woodhouse has been talking about the impact on nurses, which is a very interesting thing, and, of course, it no doubt applies to teachers—two groups of New Zealand society that we’re all deeply concerned about—and, of course, many are now going straight into very high tax brackets. Just for another context, the Government just recently announced that it was going to increase benefits by $25 a week. We heard a lot of hue and cry about how we’re looking after the most vulnerable members and, of course, talking about increasing benefits—as, by the way, the National Party did for the first time in 43 years when we increased them when we were in power, I hasten to add. But of course that means that people were receiving more income but, of course, paying more tax.

It’s great to talk about the upside when you’re trying to portray the Government as a caring Government but not talk about the downside, which is the increased tax. I think that in this context, we do need to talk about tax rates, particularly at the lower rates, with the $14,000 tax rate cutting in at 10.5 percent. There’s a whole range, a gamut, of opportunities there and nothing from the Minister on any of it.

Minister, it’s strange in these COVID times and in a pandemic that we’re actually in a situation for the second time that a major tax change has been brought here under urgency without what I would consider proper select committee scrutiny. I just wanted to talk about specifics in terms of compliance and the introduction of the top tax rate at 39 percent.

CHAIRPERSON (Adrian Rurawhe): That’s not in this bill. You can mention it in passing, but you can’t—

Yeah, but I just want to talk about the trends of where that’s going.

CHAIRPERSON (Adrian Rurawhe): —debate that issue, because it’s not before the committee.

We have a responsibility under this bill to provide for a fair and ethical tax bill, and a progressive and practical tax bill, and it’s clear with regards to elements like fiscal drag, the lack of certainty over the revenue that will be coming in this year, which has been estimated to be down by between 6 and 8 percent of income tax levels, that this is the right time to be making these types of decisions. So we have proposed before an overhaul of the tax system and we think the way it’s structured at the moment is punitive. It brings us back to the Michael Cullen era, where people who were trying to get on—and just for the Labour and Green parties’ benefit, everybody in this country has an aspiration to do well and to pay their income taxes and to provide public services, but the toll poppy syndrome that our leader had mentioned earlier is interesting because we want to develop a high-wage economy, yet the Labour Party wants to disincentivise people through their tax structure this year to actually not deliver on that, and it’s something we have to address in the future.

One final thing is that our tax system as it progresses for this year is across the Asia-Pacific region, the fifth-highest corporate tax rate in the OECD. In terms of income tax, we produce on a like-for-like basis around 50 percent of the revenues, like Australia does, but they have a different tax structure and we believe it’s time to readdress that. So every business that is out there, every person that’s earning personal income, is looking today at the way the Government introduces these tax changes and whether it’s fair and ethical, and every week we now seem to be heading into a tailspin where people just don’t know what their tax rate’s going to be. You earn your money and then you try and invest it in a property and, suddenly, you’re taxed again. This isn’t what I would consider to be the most effective use of our tax base.

One last thing to introduce, which I thought Mr Robertson had agreed to, was we’re finding from our research that at this new introduction of taxes, people are exploiting our labour here in New Zealand and setting up in foreign jurisdictions their companies and not paying taxes here in New Zealand. So there’s another problem that’s being compounded by the existing tax structure. So what we’re saying is: give people a fair go, let’s stop introducing taxes under urgency without proper select committee scrutiny, and let’s get back to the spirit of clause 1 of this bill, which is to actually not be unfair, not provide something that isn’t workable, but actually get back to treating people in New Zealand who earn money—whether it’s a nurse, a doctor, or a business person—as someone that we respect and we’re not on the take from.

So, Minister, on the specificity, we can’t support this bill. But we do agree with Labour that we thought until today that a capital gains tax other than 39 percent wasn’t possible, but we’ve learnt today that a stealth tax is where we’re going, and so we need to stop that. I’m afraid the infringement on the tax base is one that we’re all going to have to contemplate in a very quick step time. So that’s our contribution, please, from the ACT Party.

Nothing in Part 1 is being changed by the Supplementary Order Paper, and it has gone through a select committee process. This urgency motion really doesn’t unduly affect the full consideration by the House of that provision in Part 1, which is also the subject of commentary—including minority views—in the report from the select committee.