Parker David: Taxation (Budget Measures) Bill — In Committee 
Text is incorporated into the Bound Volume 
Parker David: Taxation (Budget Measures) Bill — In Committee 
[Sitting date: 20 May 2010. Volume:663;Page:11132. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 I want to comment on what I think is the greatest misrepresentation of this Budget and that is the myth that it rebalances the New Zealand economy. I will not deal with the issue as to whether the tax switch as the Government has called it is the right tax switch or whether it is weighted unfairly to the higher-income earners. I think other speakers have dealt with that well. But I will deal with the myth being pushed by the Minister of Finance that this is the greatest change in tax policy for 20 or 30 years. Plainly it is not. Plainly it does not rebalance the economy away from speculative investment in property towards the tradable sector and exports. That is plain from the forecasts that are included in the Budget. 
If we look at this Budget we see that it does not redistribute investment between property and the tradable sector; it redistributes the amount of income and consumption tax that is paid by different people in society. It states that overall less of those taxes as a proportion is paid by high-income earners and more of them is paid by low and middle income earners. It does very little to change the balance between taxing capital and labour because it does not do much to tax capital. 
Indeed it is interesting that in terms of picking up the recommendations of the Tax Working Group it goes a little way in respect of investment in property. It does not catch the kernel of the problem which is over-investment in residential property. This Budget could have done that through ring-fencing losses but instead it has done away with the ability to claim depreciation on buildings which has as much effect in the commercial property sector as it does in the residential property sector. The Budget does not curb the largest of the problems which is over-investment in the residential property sector with people incurring large losses in respect of their mortgages on residential borrowing which they offset against their other income. 
Why can I say with absolute confidence that this Budget has not rebalanced the economy? Because we see it in what happens with the current account deficit. If this Budget was going to improve the current account deficit we would see the current account deficit going down but we do not. We actually see the current account deficit going up year on year to 7 percent of GDP. I think that the best commentary on this so far from the commentators has come from Business and Economic Research. Business and Economic Research is not overcome by the somewhat surprising amounts of the Government’s tax switch; it looks at the effects on the fundamentals of the New Zealand economy. Business and Economic Research says—and I think it is right—that at least it is good to see the Minister of Finance acknowledge that New Zealand’s largest single vulnerability is now its large and growing net external liabilities. New Zealand now owes $168 billion which is about 90 percent of GDP. So overall New Zealand’s net asset position in the world is that we owe more than we own. We owe so much that if we total it up and compare it to the size of our economy we already owe the equivalent of 90 percent of GDP. Under this Budget that situation gets worse at the equivalent of 7 percent of GDP per annum. So by 2014 New Zealand’s net asset position in the world is that our debt will be 100 percent of GDP. 
So if our growth is not coming from export growth and if we have an increasing current account deficit as is shown by the projections in this Budget where is the growth in this economy to pay for the borrowings and to overcome the increase in borrowings that is needed to fund the tax cuts? It is actually coming from internal growth in the property sector. It is not coming from export growth; it is coming from exactly the problems that the Prime Minister and the Deputy Prime Minister said they were trying to overcome in this Budget. It is actually coming from those imbalances in the economy getting worse again. I think the Business and Economic Research analysis of this Budget is very interesting. This is a quote; it states: “If the net external sector is not the lead driver of Treasury’s growth forecast what is? Our reading indicates the growth forecast relies heavily on a noticeable rebound’’—