Smith Lockwood: Taxation (Annual Rates and Urgent Measures) Bill — In Committee 
Smith Lockwood: Taxation (Annual Rates and Urgent Measures) Bill — In Committee 
[Volume:628;Page:749] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I suspect that history will not treat this Minister of Finance well. This former history lecturer argues that one of the reasons Government spending is clearly not burgeoning out of control is that the Government is running a big surplus. He argues continuously that quite clearly Government spending is not burgeoning out of control because we have got a big surplus so that cannot be. Then on the other hand he argues that in fact the Government does not have a big surplus. That is what he has been arguing just now. I say to the Minister that he actually needs to get his mind focused a little better around some of these economic issues. He has a capable mind and he should focus it a little better. 
As we debate Part 1 the question is whether we should now be confirming the current tax rates. I would like the Minister to answer a couple of questions. When he became Treasurer and Minister of Finance and raised the top tax rate to 39c which is reconfirmed today what percentage of taxpayers did he say would be affected by that and what percentage of taxpayers will pay that top tax rate next year once we confirm these tax rates for next year? I remember when the Government raised those tax rates back in early 2000. The Minister said that not many New Zealanders would be affected by this it would be only a very small percentage of New Zealand taxpayers. I do not know how many New Zealand taxpayers will be paying that top tax rate next year once we confirm them. The second question is whether it is correct that last year OECD data indicated that ordinary New Zealand workers—I think the OECD calls them production workers—faced the biggest increase in tax payments or the second biggest in the entire OECD. Is it possible that one of the reasons is that the average New Zealand production worker as the OECD calls them was at that $38000 threshold of annual income from where they go on to a higher tax rate? If that is the case why will this Minister not listen even to the Council of Trade Unions? Almost every economist other than the most left wing argues there should be some tax easing. Even the Council of Trade Unions argues that there should be some tax easing. Why does the Minister not bring forward as the Council of Trade Unions argues the inflation adjustments for those thresholds? Unless there is an inflation adjustment clearly increasing numbers of New Zealanders will be paying higher taxes. 
This is where I come back to my first point. How can the Government argue that its spending is prudent when it is collecting hugely increasing levels of taxation because of fiscal drag when there are huge increases in the number of New Zealanders paying higher tax rates when the Government is raking in massive increases in revenue and this Minister is presiding over a 40 percent increase in Government spending just since he has been Minister? This is the problem we have. We are confirming these tax rates locking in the massive increase in tax revenue that this Minister has been dragging in and consequently the Minister claims that the big fiscal surpluses as a result mean that he is not allowing Government spending to burgeon out of control. Treasury says that Government spending is out of control. The Reserve Bank has made it very clear that Government spending is a serious problem as it seeks to control inflation. 
The Minister does not seem to understand that the difference between Government spending and tax cuts is significant. Both obviously put inflationary pressure in the system but the difference is that all Government spending puts inflationary pressure into the system. Tax cuts mean that some money is saved. Some people save money and history shows us that. If Treasury is questioned on this matter if the Reserve Bank is questioned on this matter—as they were at the select committee the other day—they would confirm that tax cuts are less inflationary than Government spending because some tax cuts are saved by certain taxpayers. 
Hon Dr Michael Cullen 
: In New Zealand? 
Dr the Hon LOCKWOOD SMITH 
: Indeed they are. Some tax cuts are saved; all Government spending is spent. If we are concerned about interest rates and the future of this economy we should not be confirming these tax rates.