Woodhouse Michael: Debate on Prime Minister’s Statement 
Woodhouse Michael: Debate on Prime Minister’s Statement 
[Volume:660;Page:8713] 
MICHAEL WOODHOUSE (National) 
: 
 I will begin by wishing you Mr Deputy Speaker and members a very happy New Year. I trust we have all enjoyed a relaxing break and are now fired up and ready to go for what is going to be a pretty busy and aspirational year if anything that the Prime Minister has laid out is to go by. 
But let me talk about tax. Tax is a subject that is pretty close to my heart as I am one of the few chartered accountants in the House albeit I have not been practising for quite some time. It is a bit like riding a bike I suppose: we get a bit wobbly when we get back into it but our basic skill never really goes away. Certainly neither has my desire to make sure that New Zealand has a fair and equitable tax system that is simple to administer and that does not result in the sort of arbitrage that is possible. Sadly I think we have moved away from that goal and that is not just my view or the view of the Government. It is the view of the Institute of Chartered Accountants Business New Zealand and more recently the Tax Working Group which was pretty critical of the status quo. 
Labour’s revenue spokesperson Stuart Nash who is probably the best Tory in the Labour Party quoted from the report but I think it is worth repeating it. [ 
Interruption 
] Oh it is a contest with Mr Jones is it? We will see who wins there. Stuart Nash said that according to the Tax Working Group report New Zealand’s tax system was regarded in 1989 as one of the least distortionary in the OECD. But then the report goes on to say the Tax Working Group believes that in order “for New Zealand to have a world-class tax system and to ensure that the system is sustainable in the medium-term significant changes are required to the current tax mix and base. Small changes at the margin are unlikely to achieve this.” 
The Opposition may scoff at the Tax Working Group and that would be consistent with its “we know best” approach to fiscal policy but that group included some of the finest minds in finance and accounting. I think it is very pleasing that the Government is prepared to listen and to take that report seriously. Where the Labour Party is on that report goodness only knows. According to Mr Nash its members seem to support a broad-based tax as long as the status quo does not change—support change only do not change anything. They are very clear about their opposition to changes in the tax framework that would be inequitable and penalise low-income workers. That is OK; I accept that. The Government is committing itself to make changes that are fiscally neutral but that do not result in fluctuations in take-home income. But I want to know what is equitable about the fact that 10 percent of New Zealanders pay over 75 percent of the income tax in this country as the Tax Working Group reported. I think there is an elephant in the fiscal policy room. It has been there for some time and it is the impact on aspiration for middle-income earners of the marginal tax rates. 
In 2008 following the last Cullen Budget a PricewaterhouseCoopers accountant put the following scenario to readers of a tax newsletter. It went something like this: we understand the concept of a progressive tax system and the fairness that those in a higher-income tax bracket should pay a proportionately greater level of income tax. But how much more is fair? We can take a family in 2008 on the average wage of $47000 and with two children under 13 years. We can take another family with the same circumstances but who earn $75000 a year—that is 1.8 times more in income. A progressive tax system would say that that family should pay more than 1.8 times in tax. That is only fair. But how much more is fair? Should it be 3 times as much? Should it be 5 times as much? Should it be 7 times more in income tax? Well after the 2008 Budget of those two families the higher-income earning family was paying 14 times more in income tax and their marginal tax rate was about 58c in the dollar. 
I would like to be able to make the same calculation for the period after 1 October 2008 but it is simply not possible to do so. Why? Because the family on $47000 a year is not paying any effective income tax—none whatsoever. It pays no income tax. In fact for some families their net income would be greater than their gross income were it not for the rules that prevent that from occurring. So I refute the nonsense claims that any changes to income tax are tax cuts for the rich because it is simply not possible to give any more tax back to many low and middle-income earners in this country who do not pay it in the first place. 
What are the practical implications of that on a day-to-day basis? Well if one wants to get ahead and increase one’s income the increasing burden of the marginal tax rates acts as a handbrake on that aspiration and too many of our junior doctors our nurses and our other health professionals respond by jumping the Ditch for higher salaries and lower marginal tax rates—rates that stay lower than New Zealand’s until one earns several hundred thousand dollars a year in Australia. It is real it is happening and our country is really good at it. We have talked a lot about how our performance has slipped relative to that of other OECD countries on a variety of measures. Here is where we have not slipped; we are No. 1 in the export of our best and brightest. Fifteen percent of our tertiary-skilled New Zealanders live overseas. That is nearly one in six of our best and brightest gone and the tax system as it is is a material contributor to that. 
I want to talk about the possibility of an increase in the rate of GST. It is important to note that even those who pay little or no income tax do contribute to our tax system by way of GST. The Government has reassured the public—not that we would get any sense of this from the Opposition’s scaremongering—that those who are on benefits or low incomes would have a consequent adjustment to their earnings or tax liability in order to compensate for any increase in the GST rate that is decided on so that their take-home pay would not be any different from what it is currently. The most ironic statement we have heard today was Mr Goff in his leader’s reply suggesting now that Labour does not support a goods and services tax. Well that is a bit rich given that he was in Cabinet and part of the decision to first bring in GST and then increase it. It was good enough then but is not good enough now. 
I refer to another speech that Mr Goff made recently. I think it was entitled “The Many. Not the Few.” He said too many people on good incomes were avoiding paying taxes and evading taxes. He said it was not right that some high earners pay a lower percentage of their income tax than those on the average wage. I agree with Mr Goff’s comments but I find them incredibly rich coming from the leader of the party that created the climate for that to occur in the first place. When Labour took office in 1999 there was a pretty close correlation between the top personal company and trust tax rates. The first thing Labour did was to slap a 6c in the dollar increase on the top personal tax rate. Eventually it dropped the company tax rate. That was necessary I think to maintain competition with Australia but it created a form of arbitrage that enabled people to legally and legitimately undergo tax planning means to reduce their taxable income. Then it had a secondary impact—that is in child support payments in Working for Families and in student allowances. I challenge the Labour Party to say why on earth Labour put those structures in place if that is not fair and if it believes that those people albeit legitimately are not paying their tax burden. 
The 2009 Budget records that the Government maintains in the mid to long term that we are committed to aligning the tax rates for individuals for companies and for trusts at 30 percent and to returning to a broad-based tax strategy. I am confident that when the tax package is announced in Budget 2010 we will see moves in that direction albeit there are some constraints on our ability to do those things in these straitened times. 
I will quickly touch on the spending side and I applaud the Government’s expectations of continuing public sector constraint. The public sector grew by 49 percent under the previous Labour Government whereas GDP growth was only about 24 percent in the same period. But what was more concerning was that at the same time the tradable sector the sector that pays the taxes and fuels public sector services was stagnant. In fact in real terms it went backwards. I think the Public Service has got the message that constraint is necessary. I reinforce the fact that constraint does not necessarily mean cuts in services and it does not necessarily mean low wages. What we are looking for is productivity improvements and I know from my experience in the health sector that they are very very possible. They are possible by innovating and by introducing new technologies. We will hear of course that this will result in reductions in bed days or something. Ms Dyson will stand up and roar about cuts in services but the fact is that the productivity dividend is there. If the Opposition does not understand that fact and does not engage in a real discussion about the improvements in public policy that are possible it will be in Opposition for a very very long time.