Taxation (Annual Rates and Urgent Measures) Bill

It is probably a fitting way for the Government to end its legislative year, virtually, by passing the Taxation (Annual Rates and Urgent Measures) Bill. I get the feeling that when Parliament meets again next year, it will not be quite so much the taxation that is controversial as the spending. Government members have pointed out that, as is often the case, people pay the tax. They do not like it, and National members oppose this legislation because the tax rates do not need to be this high. They absolutely do not.

The public are very much focused on how the money is being spent. We saw today one way in which Labour is spending this money that shows that the tax rates in this legislation are not justified. I have a little graph here of the Labour Cost Index since it began in 1992. [Interruption] Yes, that one. I know the Minister in the Chair, Dr Cullen, will not like it because it shows as a fact what he regards as ideological burping. It shows that up to December 1998 the private sector wage rates grew faster, or at about the same rate, as the public sector wage rates. Since December 1999, the two lines head in different directions. Without fail, the public sector has grown consistently faster than the private since December 1999, and the rate of difference is growing. The public sector is now growing faster; for December 2003 and 2004, it just about goes off the end of the graph. The gap between the two is opening.

So when Dr Cullen wonders why people are worried about their tax rates, he needs to think about the way he is spending the money. His own department has said there is pretty much no evidence to believe that public sector productivity reflects the growth in public sector pay. The index excludes teachers and nurses, so the Minister should not stand up and say he wants to cut the pay for teachers and nurses and sack a whole lot of them. That is not the point. What is happening here is that Labour’s interest groups in the public sector are being over-rewarded. They are getting more than their fair share of the growth dividend.

Of course, the spending pattern within which this is all happening is putting pressure on interest rates. As my colleagues have pointed out to the Minister, there have been nine increases in interest rates in the time that he has been the Minister of Finance. They keep going up, and the New Zealand Council of Trade Unions membership is starting to feel the pressure of it, so they will be trying to bring pressure to bear on the Minister to do something about tax rates. He did not answer the question that the Council of Trade Unions, I think, quite reasonably asked. Why cannot the Minister bring forward the inflation adjustment in the tax rates, which he himself proposed? I do sympathise with the Minister in that he has found it very hard to find anyone who thought it was a good idea. Now the Council of Trade Unions and its membership have figured out that it is the only option on the table for reducing taxes—and bringing some discipline to Government spending, because that is the other benefit of lower taxes—they want to know why they have to wait until 2008. The Minister has the opportunity to get up and explain that to us.

I cannot see why they should wait until 2008. They are facing higher interest rates, driven by low-quality Government spending. They see in the newspaper every day examples of wasteful Government spending. They are going to hear about the Labour Cost Index, which shows that public sector wages are going up a lot faster than theirs. The members of the Council of Trade Unions are not public sector employees; they are private sector employees. They are out there in the nasty real world. Their wages are not going up as fast as public sector wages. They think, quite reasonably, that the Government should act sooner than is proposed in order to transfer some of that excess surplus from the pockets of civil servants, who do not need it, to their pockets.

I am not quite sure whether that was a waving of the white flag or simply another leadership bid from the member. He said the most important thing right at the start of his speech: next year taxation will not be as big an issue as it was this year. That sounds awfully like waving the white flag. It is only in an election year that taxation is a big issue for the National Party . The party does not like to talk about bribes, of course, but one can afford billions of dollars worth of tax cuts, at no cost.

Mr English said that taxation will be off the agenda next year; it will be much less important than it has been. Why? Because Mr English never supported the National Party’s tax programme. He knew, and said this privately, that it did not add up. He knew it did not add up, because he has been a Minister of Finance. He knew the programme would not work, and that all National’s candidates up and down the country were being fed a whole load of bovine something or other. They were feeding it out to the people, paid for by the Exclusive Brethren, who I hope pay their taxes even if they do not vote—although our check of the rolls shows that the men vote but the women do not, which is very interesting. All of that was leading to the conclusion that somehow or other a cornucopia of riches would flow forth, in terms of tax cuts, without impacting upon anybody.

Then Mr English told us that the issue will always come down to where the money is spent. Well indeed, it will. But I have to tell him that Treasury has not come up with any great ways of saving money. Treasury’s ways of saving money, if we are looking seriously at doing that, come down to all the usual things, such as lifting the age at which one receives New Zealand superannuation, and “targeting childcare more precisely”, or roughly those words—that is, more income testing for middle-income people who are trying to access childcare, and hence more of the effective marginal tax rates that the National Party so objects to, time after time. They come down to targeting heath assistance, particularly in terms of primary health care—in other words, raising the cost of going to the doctor or the cost of prescriptions for the great mass of middle-income New Zealanders. Those are where the savings can be made.

I invite Mr English to signal that his programme as the next National Party leader, if he gets the job, is to raise those costs of the middle class and give them back the money, by way of tax cuts, that they otherwise would have got the benefit of through services. Of course, he will not say that. Mr English is an old-fashioned interventionist who always says that the Government should do something. He says the Government should do something whenever there is any problem in New Zealand.

Hon Bill English: I don’t.

Hon Dr MICHAEL CULLEN: Did anybody else recognise me then? Did it not sound familiar? Mr English says the Government should do something. He does not say what it should do; as long as it does something, it will be all right. Deep inside Mr English a real, old-fashioned Muldoon tries to come out whenever there is any kind of problem in running the country. Mr English is not like Mr Key, of course, who wants to give everybody back their own money, by way of tax cuts.

Sitting suspended from 6 p.m. to 7.30 p.m.

I rise to speak to the Taxation (Annual Rates and Urgent Measures) Bill, which is quite a surprising title, because it seems to me that the bill is all about middle-class welfare and student loans, and I do not actually see that mentioned in the title of the bill. However, I will continue.

This bill encapsulates just some of the things that are wrong with this Labour Government. It will entrench middle-class welfare; it says to the people of New Zealand: “It’s OK. You don’t have to strive, because we will top up your wages—that is, as long as you have children.” The bill says: “It’s OK. We may be overtaxing you, but we know better than you how to spend your hard-earned wages. So now, under this piece of legislation, you can stand in a line. You can stand in a line, mum, with all your children. You can stand in a line and fill out forms. How exciting! You can fill out forms so that some young office worker can scrutinise your private affairs. After that, you may be eligible for a benefit.”

I ask members to picture how good this will be for a young mother who has, say, three children under 3 years old. Let us say she has twins of 5 months old and a 2-year-old. Heaven forbid, but it does happen. I ask members to imagine the process that this young mother will have to go through in order to access the Working for Families package. I remember that when my children were little, it used to take me a long time to get them dressed, get them clean, get them ready to go out, then to walk along the road and have to stand in line to fill out forms.

But tonight I want to focus on the uncosted interest-free loans, which is Part 3 of the Taxation (Annual Rates and Urgent Measures) Bill. I wonder what message we are sending to our young people and students. I suggest that under this Labour Government the message is: “It’s OK, because under a Labour Government you get a free ride.” I go back in time a wee bit to when the interest-free student loans policy was announced by the Government during the campaign—that uncosted election promise that we had. I was on the road at the time. We had a fabulous tax policy that we were on the road with. I went out and started talking to people. They were very interested in this interest-free loan of Labour’s.

In Palmerston, which is a wonderful part of the Otago electorate, I talked to a pensioner. This elderly gentleman had fought in the war, and he had paid tax all his life because he had worked all his life. Borrowing was the last thing that this elderly gentleman would contemplate doing, because when he was growing up one actually paid for what one wanted. So it was really hard to explain to him—and he could not understand—why this generation should get a free ride. Then, on another occasion, because I was a particularly hard-working candidate, I was in Cromwell—

Lindsay Tisch: That’s why you won.

JACQUI DEAN: Thank you, Mr Whip. I was talking to a worker in Cromwell who had a student loan. He had been to university, had got a degree, and he had a student loan. It was really interesting, because I thought: “Here we go, here’s a guy who’s going to say: ‘Yay! Interest-free student loans!’ ”. But he did not. He said—and I think he is absolutely right—that from his point of view this policy sends all the wrong messages to the people of New Zealand. He said: “Everyone else has to pay interest on loans when they go borrowing from the bank, so why shouldn’t students?”.

I take issue with even the title of this bill. It is very unwisely called the Taxation (Annual Rates and Urgent Measures) Bill. That is deceptive; it should actually be called the “Taxation (Hide the Bad Parts Amongst the Good Parts) Bill”. Like most wine, that part of the content is certainly palatable. As a parochial Cantabrian I give my support to it on behalf of the winegrowers in our province, who include the makers of superb pinot noir, such as Muddy Water, which is the literal translation of Waipara—although some may have thought it referred to the Minister for Social Development and Employment. In our area we have the makers of wonderful cool-climate riesling and chardonnay, among others. So I support my colleagues in their support of their Hawke’s Bay and Marlborough wines.

But, unlike the Labour Government, we also support the Gisborne growers—not just the winegrowers but the squash growers and the tomato growers. Those poor Gisborne growers have endured two civil defence events, and they have been promised absolutely nothing in relief aid. That is like the rest of the bill. It is discriminatory, it is poorly targeted, and it is very, very bad decision-making.

This bill discriminates against so many working families for whom Working for Families just does not work. Under this Government a person is not even in a family if he or she has only one child. Under this Government a person is not in a family, at all, if he or she has no children or, sadly, cannot have children. How discriminatory is that? A parallel can be drawn with the student loan package, which also discriminates. It discriminates against those such as plumbers, who borrow to buy their tools of trade. They take the risk, they borrow the money, and they pay the interest. Why should students, who are also purchasing their tools of trade—their education—not pay interest when the plumbers do? That is unfair, it is bad decision-making, and it discriminates. The student loan policy discriminates against those who have scrimped and saved and got rid of their student debt.

I am appalled with the student loan policy, the unashamedly—and, admittedly, bold—vote-buying and bribery, the knee-jerk, panic reaction. Where are the costings? Where is the fiscal responsibility, the calculations, or the budget? What is worse is that we have a lack of fiscal responsibility in the bill. How on earth can we expect our students to be responsible when the Government cannot be responsible, as shown by it bringing forward such a reckless, irresponsible bill?

It is also unrealistic to suggest that students will not change their spending habits. That is naive. Labour members should tell that to the student who has just bought a $400 pair of sunglasses, and I know one.

Hon Marian Hobbs: You can’t do that on your student loan.

KATE WILKINSON: This student did, and similarly, like the bloated education bureaucracy, the Working for Families package increases its own bureaucracy. It is plain and simple redistribution. The Government takes the money in higher than necessary taxes, and processes it through an expensive bureaucracy. Then, if people are lucky and ask nicely, some may get it back. But some may not get it back.

We do not think that is fair, we do not think that is reasonable, and we do not think that is sensible. We want to encourage responsibility, not discourage it, as my learned colleague says—and I have a lot of learned colleagues on this side of the Chamber. We want to send the right message to New Zealanders, not the wrong messages. We want to give New Zealanders incentives for hard work, not to turn them into super-beneficiaries. We need to make working, and working harder, more rewarding than not working.

I move, That the question be now put.

In speaking to the title of this bill, I suggest that the title should be changed to “Abandonment of the Kiwi Go-ahead, Look After Yourself Ethic Bill”. It is absolutely outrageous.

This bill has three parts. I find it very interesting that, although the members of New Zealand First talked in support of Part 3, they actually voted against it. I say to them “Well done!”.

I note that the student loan provisions will strike $2 billion off the balance sheet of New Zealand. I also note that when this policy was introduced, the Green Party was running at about 9 percent in the polls. After its policy was taken from it, it just snuck in, at about 6 percent or thereabouts. I also note that this policy was alleged to be an attack on the Māori Party vote, but in that sphere it failed.

I wonder whether there is a dark secret behind this bill. It is my recollection that the Minister sponsoring this bill, the Hon Dr Michael Cullen, has never had any involvement in an education portfolio in the past. With the shenanigans surrounding the tertiary education sector and the interest-free student loans legislation, and with that Minister being in charge of the purse strings, I think there is something untoward here. I think we should watch this space.

I also note that the publicity surrounding this issue said it was aimed at hauling New Zealanders back from overseas. Well, quite frankly, if the average student loan is about $14,000, which is about 4000 quid, and if someone is earning about another £30,000 or £40,000 in the UK, there is still no incentive whatsoever for that person to come home, even with the interest knocked off.

I believe that New Zealanders are rational investors. They are rational economic beings; they are good people; they are sensible. Mr Bollard from the Reserve Bank agrees, having recently hiked interest rates for the ninth time to discourage New Zealanders from borrowing. The Inland Revenue Department also has penalty rates of about 26 percent to discourage people from extending their borrowing.

But I issue a challenge to every single member of any party that votes for this bill. It is very simple. Those members should give me, for 5 or 10 years—they can choose—$1,000. I will borrow it off them at zero percent interest. I will pop it in the bank, and at the end of that time I will donate the entire proceeds from interest to a charity of their choice, and I will give the principal back to them. Is that a good policy? I issue that challenge to them. I look forward to all comers taking me up on that bet. If every member on the other side of the Chamber gave me that money—the ones I presume will vote for this bill—I could put about 60 grand on deposit.

This bill also does not quite address some of the key operational issues. A few clauses are about borrowers having to advise the Commissioner of Inland Revenue of their absence from New Zealand, the discretionary power of the commissioner, etc. Nowhere does it address how, what the process is, when, and what the rules are. This will turn into a shambles. If members think the National Certificate of Educational Achievement is a shambles, they should wait until our smart and rationally investing students start to see what is in front of them. Those students will play games; they will send excuses to the commissioner, to try to make use of the discretion to be considered outside the 183-odd days. They will play the system, quite frankly. I say again that they are rational human beings.

I suggest also that this entire bill is a contradiction in terms of incentives. In respect of Working for Families, what incentive is there to get out of bed? What incentive is there to get ahead? In respect of the student loan provisions, what incentive is there to get out of bed to earn some money to pay off one’s loan? There is none, zero—funnily enough, that is the same as the rate of interest.

Some people call this a student loan scheme. For me, with my banking background, a loan tends to have some kind of return. A zero percent loan is no longer an asset. That is why $2 billion will get knocked off the New Zealand balance sheet. New Zealand has a massive private debt problem. What will happen to New Zealand’s private debt ratios once that sum comes off? Again, we will have an injection of dependency, more debt, and more control by this Government, which is absolutely hooked on control by various means.

My good colleague Chris Finlayson mentioned tradespeople. They invest in their future income; they invest in their brains. So why are they not included in this bill? There are so many contradictions. I would be interested to hear the Minister of Revenue take a call on, in particular, the provisions regarding a zero return on a taxpayer asset. I suggest he would say he was quite opposed to that, if he were to take a call.

I move, That the question be now put.

I move, That the Committee divide the bill into the Taxation (Annual Rates of Income Tax 2005-06) Bill, the Taxation (Urgent Measures) Bill, and the Student Loan Scheme Amendment Bill, pursuant to Supplementary Order Paper 6.