Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill (No 2)

Members, the House is in committee on the Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill (No 2). Members, we start with Part 1. This is the debate on clause 3, annual rates of income tax. This is where the debate on the tax rate should take place, but the vote on any proposed amendments to the tax rates will take part place in Part 2, which amends the Income Tax Act 2007.

💬 Nicola Willis: Madam Chair.

CHAIRPERSON (Hon Poto Williams): I call Nicola Willis.

Madam Chair—

Apologies, apologies. Standing Order 352 requires that the annual taxing provision be considered separately. The question is that Part 1 stand part.

What this part of this taxation bill represents is a significant missed opportunity by the Government to adjust tax thresholds to account for some of the extreme inflation that has beset New Zealand workers over these past few years.

What we are experiencing as a country is a prolonged cost of living crisis. There has been an admission of that via the Government, an admission that for the first time in many, many years, real wages are now trailing the inflation rate, so that in real terms, many New Zealanders are going backwards. While their nominal incomes are increasing, their actual ability to get ahead is reducing. It is that fact that has led the Government in recent times to make specific inflation adjustments to the rates of benefits, student payments, and superannuation payments paid to New Zealanders, out of recognition that tagging those to wages no longer suffices because inflation has become so out of control under this Government.

So it has been National’s consistent contention that it is very wrong, in the midst of a cost of living crisis, for the Government to persist with a rate of income taxation that is punitive. The rates that are in this bill mean that, in real terms, New Zealanders are paying a higher proportion of their income in tax than they have in many, many years. This is even while the Government’s tax take is upped by billions and billions of dollars as they are committed to a clutch of new taxes and allow fiscal drag to push people into higher tax brackets. It has been National’s consistent view that if the Government could only be disciplined about its own spending, then adjusting these tax rates for some of the inflation that has occurred in recent years would be possible.

So my question for the Minister in the chair is a simple one. It is: why won’t you simply adjust the tax thresholds to allow for this inflation so that New Zealanders can keep more of what they earn and pay a fairer rate of tax?

Thank you, Madam Chair. It’s a pleasure to be speaking on this bill, and obviously we’re dealing with Part 1. As my good colleague Nicola Willis has just said, the issue with this is that this bill enshrines the current rates of tax and the thresholds at which you pay the higher rates of tax. Of course, as we know, this Government has been raking in additional tax revenue; an increase of $42 billion from when I first came into office 5½ years ago.

So, first of all, let’s get some confirmation, because I know the Minister is very aware of tax revenue. Can he confirm that the Government has increased its revenue by $42 billion since it first came into office?

The second thing is: can he confirm whether or not that equates to $15,500 per family—which is not an insignificant amount of money? As I was talking about the other night at the first reading, that equates to quite a nice car that hard-pressed families could go and buy. That’s the scale of the additional tax that has been levied against New Zealand families, and it is just something that—as Nicola Willis has identified—in a period where we’ve just had rampant inflation, that additional cost could not have come at a worse time for New Zealand families.

The third thing I want to just touch on is that with the move to a 39 percent tax—and, obviously, this is about tax income rates and different personal tax rates. I would be interested to know whether the Minister would comment on whether, in fact, he’s going to move the trust tax rate to somewhere closer to 39 percent in line with personal tax rates that are set out in this bill, because he’s now, I believe, found himself in a conundrum where we’ve got a company tax rate at 28 percent, you’ve got tax on unit rates at 28 percent, you’ve got the top personal tax rate at 39 percent, and, of course, trusts are now taxed at 33 percent.

So given that the Minister and the Government want to enshrine these existing rates of personal tax rate—whether in fact he wants to or feels the need to increase the trust rate, because I think it is inevitable that the longer that the Government enshrines this differential—which is actually one of the highest differentials since 1997; a long time ago—it means that there is now an incentive for people to restructure their affairs, particularly using company trusts, etc. That’s come about through this rise in the top tax rate. So that’s the third question that I’d like to put to the Minister, and then we can maybe talk about specific thresholds after this.

Thank you, Madam Chair. Despite being a very small part in words of the overall bill, the taxation rates are really the lion’s share of what we’re doing here. Now, we had an answer from the Prime Minister to Nicola Willis’ question around tax threshold changes that makes me wonder—in fact, I’m pretty sure I know the answer, but it’s worth putting it to the Minister of Revenue—whether the New Zealand public will ever see tax threshold changes under a Labour-led Government. Because the track record is pretty clear.

Remember the bubble gum tax? Because I do. I remember that after about seven or eight Budgets where Michael Cullen steadfastly refused to adjust tax thresholds, he bent under the weight of public pressure and threw crumbs at the New Zealand taxpayer—well, actually he didn’t, he threw bubble gum at the New Zealand taxpayer—and then he took it away again. They never actually got it. So, if you count, let’s be generous and say that it was only seven Budgets, and we’re now approaching the sixth Budget of the fifth Labour Government. So you’ve probably got a dozen or 13 times when a Labour Government in modern times could have adjusted tax thresholds. And not only did they not, but the Prime Minister said in question time today, and has many times said: “It ain’t going to happen.” Why? Because it’s not possible to give a tax threshold change to a low-income worker without giving a tax threshold change to David Parker. So they are prepared to put low-income New Zealanders through the pain of having to pay more tax because of an envy from someone who earns more than they do. That is letting low and middle income New Zealanders down. And what happens is middle income New Zealanders become low income - New Zealanders by the theft—through inflation and through tax. I talked in the second reading about this—

Chlöe Swarbrick: And a disproportionate tax burden on work over wealth.

Oh, well, OK, we can have that discussion, but it’s a moot point because the Government won’t even entertain it. And I want to get the Minister to confirm that it simply won’t be possible for New Zealanders to get any sort of tax relief under this Government because they won’t change the thresholds. They’re certainly not going to change the rates because that would also benefit people who are in upper incomes.

But I talked about registered nurses, that when I left the hospital I managed one would have to be a quite senior registered nurse to be on the 30 percent tax rate. Because of the failure of this Government to change tax thresholds, somebody working a bit of overtime and weekends could be on the 30 percent rate in their second year after graduating. They don’t feel any better off, but they’re paying a 30 percent tax rate where 10, 15 years ago they’d have only been paying 17.5. That’s what we’re talking about. It really hurts New Zealanders. So my question to the Minister is: is the Prime Minister’s answer indicative of an attitude, and is the track record indicative of an attitude, that no New Zealander will ever see a tax threshold change and tax relief under a Labour-led Government?

Thank you, Madam Chair. The first point I would make is that implicit in the questions from the Opposition is the underlying assertion that New Zealanders are highly taxed and, therefore, taxes should be lower overall in New Zealand.

💬 Hon Member: No.

Well, that is the implication that I take from the questions that are asked by the Opposition—that every time we come to this House, they’re saying “tax cuts, tax cuts, tax cuts.”

The reality is that the OECD keeps statistics on the amount of taxes as a proportion of the economy for all OECD nations, and New Zealand sits in the lower half of those OECD nations for taxation as a proportion of the economy. Taxes, of course, are needed to pay for services like health and education. Those costs, particularly in the health field, have been high in recent years. Every New Zealander knows that; we’ve all been through COVID. And now we’re also facing the costs of dealing with the storm events that we’ve had in the last month or so in New Zealand. So New Zealand is not highly taxed. We do not see a case for significant tax cuts.

In respect of the idea that we adjust thresholds or that we never adjust thresholds: the last time Labour was in Government, when we also had a 39c top income tax rate, that kicked in, from memory, at $69,000; when we reintroduced the 39c rate during this term of Government, it was introduced at a $180,000 threshold, so that incomes over $180,000—not the tax up to $180,000, but the tax over $180,000—is taxed at 39c in the dollar, and I contrast that with the threshold for that same rate in the last Labour Government, which is $69,000.

In respect of alternative ways in which you could cut the pie, I would note that the last National-ACT Government chose to increase GST into fund a decrease in income tax is typical of the last National and ACT Government and prior iterations of that. Of course, 40 percent of the income tax cuts went to the top 10 percent of income earners.

Implicit in those remarks by the Minister of Revenue is something he keeps hinting at, which is his view that a tax swap is the way to deliver tax reduction. My question is: why is he waiting to deliver lower income tax for New Zealanders when he could do it in this bill today; and which part of the productive economy—and which talented and skilled New Zealanders—is he planning to slap yet more taxes on to pay for it?

Answering that question, there is no increase to income tax rates for any New Zealander in this bill. They are being set at the rate that they were last year.

In respect of the earlier question from another National Party member, there is no increase to the trustee rate in this bill either.

I wish to return to my question, because that was a cute response from the Minister and I know he can do better. This is an opportunity, in this bill, to allow for some facts which I know that he will not have argument with. Some facts, one: the tax take as a proportion of GDP is the highest it has been in more than 17 years. Fact two: this Government has increased the tax take by many billions of dollars and, as a proportion of GDP, it is up. Fact three: the effect of inflation has been to increase New Zealanders’ nominal incomes such that average wage workers have been pushed into higher tax brackets and are now paying a higher proportion of their income in tax.

So if we were to keep tax at stable levels, that would require an adjustment to the levels at which tax thresholds kick in. My question for the Minister is why won’t he do that, and, given the admission in the past 24 hours by this Government, that there is a bonfire of wasteful spending going on, why hasn’t there been an effort to prioritise taking the Government’s own belt in so that it can deliver tax relief to working New Zealanders?

To the Minister, does he recognise that 98 percent of New Zealanders have been punished with his tax policies, and have received no benefits under this Government and are unlikely to, and that the word “Labour” now is a word that does not make sense any more because the hard-working people of New Zealand are being taxed perniciously at an income level? And also, economically, from a worldwide perspective, that his figures on the OECD per capita are incorrect and that we are actually going backwards in this area?

Well, if our system is described by the member as “pernicious” in its tax rates, how does he reconcile that with the fact that the highest income tax rate in Australia is 45c on the dollar, whereas the highest it is here is 39c?

Thank you very much, Madam Chair. I want to go back to the Minister’s statements, before, because the only explanation that he could articulate in regards to why the Government is not using this opportunity to adjust the annual rates of income tax in Part 1 of this bill is because there or thereabouts New Zealand is in the pack with other OECD countries, right? That is the only real reason that he could stump up with in this committee stage. And what that fails to acknowledge is that Kiwis are hurting across this country right now, and this Government is responsible for that hurt. This Government’s expenditure is driving up the cost of living crisis that those Kiwis are facing. And this Government have an opportunity today, right here, to make adjustments to the annual rates of income tax that would inflation-adjust these rates to put those dollars back in the pockets of hard-working Kiwis. But all the Minister can come up with is some lovely statistics about OECD countries, which is abdicating responsibility from the fact that his Government is responsible for the setting of rates and they have the ability, here and now, to be able to put that benefit back in the pocket of hard-working Kiwis. But the answer to that is “No, we’re not willing to go there. We’re not willing to do that because we’re in the pack with every other country in the world, blinded to the reality of Kiwis at home, around this country, that are hurting as a result of this cost of living crisis.”

Why will this Minister not use the opportunity sitting in front of him today in regards to updating of the annual income tax rate? Why will the Minister not use this opportunity to do what is the right thing, to put that benefit back in the pockets of hard-working Kiwis? And when will the Minister—if he’s not going to do it today—look to make those adjustments in tax brackets for Kiwis across this country so that middle income New Zealand, in particular, who are heavily squeezed at the moment as a result of increasing costs across the board, will actually get that benefit?

The other aspect in regards to what the Prime Minister noted in question time today is very relevant. The Hon Michael Woodhouse raised this as well, because the Prime Minister basically gave an insight. He said that this was something that was—or potentially was—being considered. And that’s very interesting, because that seems to be in contrast to what the Minister in the chair has just said to us. So I acknowledge that sometimes communication is a little bit lax on that side of the House between the left hand and the right hand, but I’ll give the Minister an opportunity to jump in because, you know, I’ll give him the benefit of the doubt. Maybe they didn’t have a chat in the hallway on the way down to question time today about the change in policy, but the way that these policies are being burnt on a bonfire at the moment by this Government it’s no surprise that probably it’s hard to keep up with this race. But if the Minister could answer the question in regards to why and when will the Prime Minister be announcing a reassessment or a refresh of the tax rates, that would be much obliged. Thank you, Madam Chair.

Thank you, Madam Chair. As I thought would happen, we have got into a quite deep, philosophical discussion about tax, and that’s what I love as a lapsed accountant. But I was mindful of the comment made by the Prime Minister in his post-Cabinet press conference yesterday, when he was asked about whether Government spending was inflationary. What he said was: “Well, tax threshold changes could also be inflationary.”, and what he was really saying to New Zealanders was the Government knows better how to spend their money than they do. It’s like: “Trust us. We’re going to take that money out of the pockets of hard-working New Zealanders and spend it better than they can.” Well, I don’t think hard-working New Zealanders would agree with the Prime Minister on that.

But I have three questions for the Minister of Revenue. Firstly, is he seriously asking New Zealanders to accept that the Government is committed to tax threshold changes? Because when they put back the punitive 39 percent top tax rate, they did it at a higher threshold than when Michael Cullen did it. So actually that signals a commitment to tax threshold changes. I think that’s a very long bow, but I would like to hear from the Minister. I believe the Minister said that 40 percent of the benefit of the tax threshold changes goes to the top 10 percent of income earners. Was that the metric that I think he said? He could clarify—if I try and get that. He said something about a disproportionate benefit to upper income earners for tax threshold changes—he’s not going to acknowledge that. Well, let’s pretend that that’s what he meant.

I would want to point out and ask the Minister if he can confirm whether the top 10 percent of New Zealand income earners actually pay somewhere in the region of 47 percent of income tax. So they’re already disproportionately burdened with that tax obligation, and we think that’s fair; we think that is about right. But to then turn around and say they don’t deserve the benefit of a tax threshold change because they are upper income earners is classic left-wing “play on the swings but not on the roundabouts”, and that cannot be right.

I also agree that it’s fair that because of the income transfers that take place through accommodation supplements, Working for Families, and so on, many middle income families actually aren’t paying any net income tax. They’re certainly contributing to the tax base, but they’re not paying any net income tax. So can he confirm, then, that the top 10 percent of income taxpayers are paying about 47 percent of the income tax?

And he also said about tax as a proportion of the economy and that we’re sort of in the pack in the OECD. Well, that is not surprising if in a high inflationary environment one doesn’t change tax thresholds. It’s like “It’s blue because it’s blue.” And I think those comparisons with the OECD countries can be very fraught because they have very different thresholds for a start. I mean, Australia has a quite big zero tax threshold—I can’t remember when it stops, but I think it’s something like $15,000 or $16,000—and we don’t have that. I don’t actually support that particularly, necessarily; it’s quite expensive. But also those income transfers, the very high scales that some jurisdictions will go to—the amount of sales tax that is applied both at a state and federal level in those countries with whom we compare—make that kind of comparison pretty irrelevant. And by the way, New Zealanders aren’t paying tax in those countries. They’re only worried about how much money the Government is taking out of their pockets and how that’s changed over the last six years. And the answer is a lot and a lot; in fact, a lot and a lot more.

So I ask the Minister to reconsider, and actually I think there is going to be an amendment tabled at some point. And it’s not too late. We are setting the tax rates for this year. It’s certainly not too late to do the right thing by the taxpayers of New Zealand who are being squeezed. I was at the supermarket the other day and if it made my eyes water, I really dread to think how average-income earning families are coping. It was quite a revelation.

To clarify, the 40 percent statistic that I gave, I was making the point that the last time the National Party significantly adjusted tax thresholds, they paid for it by an increase to GST that everyone paid, and 40 percent of the income tax decreases were given by them to the top 10 percent of income earners.

Thank you, Madam Chair. Well, first of all, I just want to return to the Minister’s earlier response where he said “Oh well, it’s great that we tax then. We need to increase taxes because we need to spend it on vital things like health and education, and all those sort of things.” Well, actually, we agree with that, that it is vital that we spend good money on worthwhile projects like upgrading our health services, improving our education facilities, doing roads, etc., but it doesn’t quite stack up because what we do know is that the Government has just been hoeing into the COVID fund, which has been like a slush fund to fund such a raft of worthless projects. And here we had Christopher Bishop in question time identifying that out of the 180-odd so-called “shovel-ready” projects, many of them haven’t finished—most of them haven’t finished, even though they were done for the express reason that they were going to be completed within 12 months, and of course they haven’t, because we know about lack of delivery. So the point I’m making is that it’s fine if you tax and spend the money wisely. Unfortunately, we’ve had a Government that taxes and taxes, and keeps increasing the tax—$15,500 per family—and spending it, and blowing it on wasteful stuff. And so that’s the first point to his earlier response.

I suppose the thing about the whole approach is the Minister’s saying “Look, we need to tax.”, and then, of course, “National’s doing the wrong thing.” Is the Minister aware that on 6 March this year, 2023 just to be exact, the bastion of capitalism, the US—guess what they’ve done! They’ve changed the personal tax rate thresholds—exactly what National has been proposing. Now, you’d think the US—wow, they wouldn’t be worried about those poor people, those hard-working families that are struggling to go to the supermarket. I’m so glad to hear that Michael Woodhouse goes to the supermarket, a modern man, so he’s grounded in what’s happening—you know, the price of milk—unlike some people. And so even the bastion of capitalism recognises that it’s actually quite good to increase thresholds to try and deal with this inflationary pressure. And, of course, we’ve had rampant inflation in New Zealand, largely driven by this Government, who, as I’ve said before, has been wasting money on a whole lot of stuff. Even the Reserve Bank Governor agrees that fiscal and monetary policy need to work together, and we’ve had fiscal policies that have been out of kilter.

So I suppose this raises this big issue: what’s best? What’s the best economic approach? What the Government wants to do is keep on increasing the tax burden on New Zealand families. So, as I said at the outset, the tax take in New Zealand’s increased by $42 billion per year—if you go back to 2017 it’s now $42 billion higher—and it will continue to increase partly as a result of people being more productive in Government, companies paying more tax, but largely due to inflation. It’s called fiscal drag that we’re all aware of. So that tax take will keep increasing. And the issue is: are you not better to leave the money in the hands of the families that need it most? The point has been made earlier about it being the middle income, the hard-working families that are the ones that have missed out and are facing the hardest onslaught of the cost of inflation.

The Government’s obviously announced increases to beneficiaries and superannuitants—that’s one way of dealing with it. But it’s the working families that have largely missed out on a way to deal with these huge cost increases that they’re incurring. And so the issue is: do you actually reduce the tax burden on people so they keep their money—so when the pay packet comes in, they immediately keep more of that money—or are you better to do the thing where the Government takes a greater share of that tax and then uses the ministry of social welfare, that big mincing machine, to then, using several hundreds or maybe thousands of staff, work out how to pay it, and then pay back in the form of benefits? We think it should be, firstly, by reducing the tax burden.

Once again, listening to the Opposition you would think that they are the vanguard of tax cuts for the middle-income New Zealanders, when their actual record when they were last in Government was that 40 percent of the income tax cuts went to the top 10 percent of income earners.

Indeed, it was only just before Christmas that, again, the National Party was saying their core tax policy would be to get rid of the 39c rate. In respect of these assertions that, according to the Opposition, taxes are somehow out of control and burgeoning in a way that is improper in New Zealand, I would note that core Crown tax revenue in 2008 was 30 percent of GDP and the actual figures for 2022 were 30.2 percent of GDP. In the intervening period, it did drop by 1 or 2 percent of GDP under a National Government, because, of course, that’s what they always do: they cut services in order to reduce taxes. Who gets the benefit of those tax decreases under National and ACT administrations? Well, as I said, the facts speak for themselves. Their major change to thresholds was when they increased GST to pay for a decrease in income tax, 40 percent of which went to the top 10 percent. Always has been that way, always will be that way; some things never change.

E te Māngai, tēnā koe. Tēnā koutou e te Māngai. It appears as though this debate this afternoon has descended into a discussion on the philosophy behind tax and what the outcomes are that we’re trying to incentivise in our economy. So with all of those contributions, particularly from members of the Opposition, I thought it timely to raise the spectre of the research that I know the Minister in the chair has been undertaking within the broader revenue portfolio, because, of course, in this platform economy and remedial matters bill, we will be touching on some of those tax burdens and where they, perhaps, could be alleviated.

I note, in early 2020, that he delivered a speech to the University of Auckland and said—and I quote—“What’s hidden is that the effective marginal tax rate for middle income kiwis is generally higher than it is for their wealthier co-citizens. Indeed some of their wealthier Kiwi compatriots pay very low rates of tax on most of their income.” Of course, then it was followed up by Official Information Act requests to Treasury and the IRD, as published by Thomas Coughlan in our press gallery, where it was found that the wealthiest New Zealanders, on average, tend to pay a lower rate of tax than essential workers in our economy.

So, as a follow-up question, to the Minister, actually based off some of the interactions that we’ve had in annual reviews, and otherwise, where he noted that we could, perhaps, have expected there to be some initial research published at the end of last year—where that research is.

A couple of Budgets ago, Parliament authorised the collection—or Budget night legislation—of information on a survey basis from the highest wealth holders and income earners in New Zealand. Until that legislation was passed, there was a dispute amongst some taxpayers as to whether Inland Revenue was entitled to that information. Some taxpayers and their agents said that the only information that Inland Revenue was entitled to was information for the administration of tax that was payable, rather than for the administration of the tax system. So this Parliament changed the law to make it clear that the Commissioner of Inland Revenue has the ability to collect information for policy purposes, not just for tax administration purposes.

In the same Budget, the Parliament gave another Budget line to the Inland Revenue Department. The Commissioner of Inland Revenue was authorised to do a survey to find out how much tax is, in fact, being paid by the wealthiest New Zealanders as a proportion of their economic income, which is a different question to taxation as a percentage of taxable income, because we know from overseas studies that the wealthiest cohort earn a lot of their income in non-taxable forms, even though it’s economic income. That information is expected to be published in full within the next two months.

Just on the current situation, would the Minister accept that one of the reasons why wages after tax didn’t keep up with inflation in 2022 is because the Government is actually taxing more? And, on the 98 percent of low and middle income earners who want to keep their wages and manage inflation, why has there been no conversation to pull the additional lever to cut wasteful spending in Wellington and make sure all workers have more money in their hand after tax—wouldn’t that be a better bread and butter solution?

As the Prime Minister said just yesterday, we, of course, always review expenditure. We reprioritise spending initiatives within Government departments every year and the Budget exercises how that is controlled by the Minister of Finance. So the idea that we don’t reprioritise expenditure is just nonsense.

It is true that there are some of the major cost centres in New Zealand cost yet more year on year. The most obvious example of that is in health: health technology improves and, therefore, there are more treatments that are available to assist people in their health needs. The demographic of the population also changes through age. As a consequence, the costs of servicing the health needs of not just the New Zealand population but every wealthy population around the world—the cost of health services increases as a percentage of the economy year on year in just about every country in the world.

Of course, if you don’t fund those costs increases properly, then you squeeze things like the amount of money that’s available to Pharmac for drug expenditure, which is one of the reasons why, when we came into Government—because there had been such miserly increases in the Budget for Pharmac—there were a lot of drugs that could save lives that weren’t being funded, and we’re making progress in ensuring those drugs are funded. How do we do that? We actually do that through the taxes that we collect from New Zealanders, and New Zealanders value that when they have health needs that the public system provides for.

Really appreciate the engagement from the Minister on that broader philosophical question, which, of course, was raised by the comments of the Opposition around where tax burden can and perhaps should lie in this country, particularly his comments on that tax burden on wealth versus work and the research that he’s undertaking, which, of course, will help us to have a far more informed debate moving forward.

Just reflecting on those answers, there are two key questions that fall out of those answers. The first is whether, in his statements, we can expect to see that research published in full in the next two months—for clarity’s sake, the first question, whether we can expect that to be published prior to the Government’s Budget being debated in this House.

The second question is whether we can expect to see this term of Parliament, prior to the election, the introduction of the bill on tax principles, which I understand was a piece of work occurring in line with that broader piece of research.

The information on the high wealth inquiry that Inland Revenue are conducting—which is anonymous by the way, I never see, no one ever sees, who the people involved are. Indeed, there are very strict security protocols around that information so that it cannot be used for tax administration purposes. It’s an inquiry for tax policy purposes, not any enforcement reasons. That information, I expect, will be out before the Budget.

In respect of the question on the tax principles Act, a final decision hasn’t been taken by Cabinet on that matter yet.

Thank you, Madam Chair. I’m going to return to that topic in a sec, but I must admit the Minister’s sounding like the Minister of Education did last week when she started to talk about proportionality, which was a very confusing sort of session, if anyone had been following question time last week. When the Minister in the chair, David Parker, says, “Look, hey, the tax percentage take compared to GDP hasn’t increased much.”, the reality is that GDP, the gross measure of GDP, has increased quite significantly in New Zealand. It was about $330 billion and now it’s about $370-375 billion. Of course, a lot of that is driven not from the actions of Government—in fact, I’d have to say, in many cases, in spite of the Government, even though this current Government has laboured businesses with, we’ve estimated, about $3.5 billion of additional costs because they just love socking it to businesses in New Zealand. But even though they’ve been socking it to New Zealand businesses, none the less, in the spirit of entrepreneurship, New Zealand businesses have grown, and that’s why the GDP has grown quite significantly, a major portion of that increase.

So on one side of the coin, we’ve got an economy that has grown, partly through inflation but mainly through the efforts of people working in businesses—not only the owners; all their staff, all that good stuff. Then, at the other level, we’ve got the tax take, and what I take from the Minister is “Hey, look, as long as you keep that in balance, that’s OK.” The issue is that would be OK (a) if you’re spending on the right sort of stuff—and as I said before, we’ve had that slush fund during the COVID period. But, secondly, what we’ve seen is just money going into other projects that obviously offer little benefit, and at the same time we’ve been running quite significant deficits.

So the issue around the tax position for New Zealanders is: how do we grow the economy? How do we support middle-income families? That is why it always comes back to: what is the personal tax rate that New Zealand pays? As I said before, the US, and also the UK, has been looking at adjusting, and have adjusted, their tax thresholds, in line with what the National Party has supported.

Now, just going back to the issue of looking for other sources of tax, the issue has been raised around the witch hunt of those with owned trusts, particularly. That’s why my earlier comment, which the Minister I think addressed, was around “Is the trust tax rate going to go up as a result of going and looking at wealthy New Zealanders’ trust position and their personal tax position?” But there is a perception that the Minister has used that initiative and used the IRD to further the policy intent of the Labour Party. I think Chlöe Swarbrick’s question is actually appropriate, because there is a view that this is a Labour initiative and using IRD to further its own policy agenda. It doesn’t matter whether it’s a confidential study or not. So I would reiterate, in that question from Chlöe, that it would be great to have visibility around the results of that prior to the Budget, and we do need to understand the tax principles that the Minister’s been talking about for quite some period of time.

But the final bit I just want to touch on, and we haven’t talked about, is the issue of the hidden economy and those not paying tax, because the estimates of the hidden economy in New Zealand vary quite significantly, from a billion dollars, I’ve seen, right through to about $10 billion. So the questions I put to the Minister about the actions of the IRD, how much effort is going into it, I’ve got to say, from the—

💬 Hon Dr Deborah Russell: Point of order. This is Part 1 of the bill, and it is about the annual rates of taxation. I just question the relevance of what the member is talking about—in your judgment, of course, Madam Chair.

CHAIRPERSON (Hon Poto Williams): Thank you; I appreciate that. It is a very broad-ranging part of the legislation, and I am feeling some anxiety as the member does traverse these questions over and over again. However, I have given members some leeway considering it is a very broad part of the legislation.

Thank you. I’d just like to thank the tax expert Dr Deborah Russell for her helpful interjection there. The reason why I’m asking this question—one of the reasons—is that we need to maintain the personal tax rates to fund part of the Government’s expenditure, and if there is a good argument that we should be getting more income from the hidden economy, it actually gives the potential to reduce the personal tax rates. I have written many written questions to the Minister. It seems the approach around—[Time expired]

Question for the Minister: does the Minister accept that 98 percent of New Zealanders under these income tax rules are receiving no benefits, and that, in a cost of living crisis and the greatest inflationary period we’ve had in recent history, it’s been a mistake not to be more flexible in his approach?

That’s an easy answer to that. The answer is obviously no. The benefits that New Zealanders receive from these tax rates include a health system, an education system, more police, and many other benefits. In terms of Mr Bayly’s assertion that the COVID recovery fund was a slush fund, that is the fund that paid the income supports via businesses to many millions of New Zealanders who remained attached to their employment during COVID, as a consequence of which the upturn from the economic consequences of COVID were far better than anyone predicted. Because we managed the economy so well coming out of COVID, New Zealand had amongst the lowest rate of unemployment in the world.