Brash Don: Income Tax Bill — First Reading 
Brash Don: Income Tax Bill — First Reading 
[Volume:606;Page:3541] 
Dr DON BRASH (NZ National) 
: 
 I am not quite sure who we should thank for this astonishing document which is 2011 pages long. Mr Barker referred to the first reading of this bill; I am not sure whether all of us will read it one or two let alone three times; indeed I am not sure whether even those of us who are here have read it a first time yet. But let me say that the National Party welcomes this bill. We have to be in favour of anything that will simplify what has been a very complex piece of legislation. I guess that my major regret about it is that the simplification is 2011 pages long. That is a major nightmare for people in income tax practice. 
Some reports suggest that for businesses employing a relatively small number of employees tax represents some 80 percent of the regulatory burden that they face. Between lost management time spent completing their tax returns and the fees they pay for external advice income tax GST fringe benefit tax and the other kinds of taxes that businesses are subjected to are a very major impost on the business sector in New Zealand. This Government has been increasing taxes over the last 3 and a bit years. It increased the top personal income tax rate from 33 percent to 39 percent because basically it is driven by ideology and envy. It increased the cigarette excise tax by 23 percent in 2001 and more recently it has increased the petrol tax as well. So taxes have been increased. 
In addition compliance costs in the tax system have gone up in part at least because of the uncoupling of company tax from the top personal tax rate. A previous Labour Government in 1988 had I would have to concede the good sense to unify those two rates—the company tax rate and the top personal tax rate—and for the next 12 years we had a common company and top personal tax rate. That was a useful contribution to reducing the compliance costs involved in the tax system. As soon as those two rates were split we had a whole raft of other consequential changes in fringe benefit tax and so on all of which add significantly to the compliance costs facing the private sector. I think that is a matter of great regret. 
I am bound to say that this Labour Government is very different indeed from the Labour Government of 1984-90 in this respect. I had the opportunity when that Government was in office of working with then Ministers of Finance to improve the tax system at that time. The commitment of that Government was such that tax experts from the private sector lawyers and accountants were willing to work with the Government to try to eliminate the rorts to eliminate the loopholes and to eliminate the scope for tax avoidance and evasion. That was a Government committed to reducing tax rates simplifying the tax system and reducing compliance costs. 
Let me illustrate by one example. In 1985 the then Government decided to introduce a goods and services tax. I had the privilege of chairing the committee that designed that tax. The simple instruction I received from the Minister of Finance was to design a value-added tax that minimised the compliance costs facing the business sector. The Government had heard as we all had of the horrendous compliance costs that British companies faced with the multiplicity of value-added tax rates in that country. It killed off many small companies and middle-sized companies. The compliance costs were horrendous. So that Government had the good sense to say: “Let’s have a tax system that minimises compliance costs.” and that was the instruction I had in designing the GST. I think it is fair to say that that Government had the courage to put in place a goods and services tax that is still the envy of other countries throughout the world. Sadly this Government is not like that Government. It has been increasing tax rates significantly complicating the tax system and increasing the compliance costs in it. 
Let me briefly also remind the House of the two occasions on which the Minister of Finance has indicated that he is inclined to reduce the company tax rate. On 22 September 1999 he was reported in the  
Evening Post 
 as saying that Labour “would look at lowering business tax if elected”. That of course was before the election in 1999. At that point he was only the Opposition spokesperson on finance. Then a year or so later in April 2000 he told the Asia Society in Hong Kong that: “… the Government wanted to reduce the 33 percent company tax rate when it could afford to.” That was in the  
Press  
of 13 April 2000. Well nearly 3 years have gone by since the second of those two statements and what has happened? There is no sign at all of any reduction in the company tax and indeed the Minister more recently has specifically ruled out the possibility of a cut in the company tax. 
This Government talks about wanting more growth. It talks about reaching the average living standards of other OECD countries. It was a significant point in the Speech from the Throne last year. It was reiterated by the Prime Minister in her speech last week. I do not doubt that Government members will keep on saying it. But how sincere is the Government in that objective when it has a tax system that is moving the country in the opposite direction? 
I mentioned the increased compliance costs and the movement of the top personal tax rate from 33c to 39c. Of course the other impact of that tax is on growth. All the studies done on taxation show that the higher the marginal tax rate the higher the deadweight costs of the tax system. All the studies that have been done show that. They vary depending on how different techniques are used to measure the deadweight costs but all of them suggest that the deadweight costs are significant and that they are higher if the marginal tax rate is higher. This Government did not worry about that. It simply decided to increase the marginal tax rate from 33c to 39c. That means that people earning more than NZ$60000—less than US$30000—are now paying almost half the additional income they earn above that modest figure in tax. So instead of cutting those taxes the Government has increased those taxes and has made increasing the growth rate in this country that much more difficult. 
We welcome this bill. It is long overdue. But it is a huge disappointment to those who hoped we might see some significant structural changes in the tax system. 
Let me say one more thing. This Government decided a year or two back that it should look carefully at the total tax system and it appointed the McLeod committee to look at the tax system. 
Rodney Hide 
: It was a good report. 
Dr DON BRASH 
: It paid a significant amount of money for that. Mr Hide is right; it is a good report. So far none of the significant recommendations in that report have been followed by this Government. It paid money for it. It got the best experts it could find to do the report and then it has consistently ignored it. That is a huge disappointment to all of those who care about the growth and prosperity of this country.