Parker David: Taxation (Consequential Rate Alignment and Remedial Matters) Bill — First Reading 
Text is incorporated into the Bound Volume 
Parker David: Taxation (Consequential Rate Alignment and Remedial Matters) Bill — First Reading 
[Sitting date: 28 July 2009. Volume:656;Page:5165. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 The previous speaker Craig Foss is correct in saying that the Labour Party will be supporting the technical provisions of the Taxation (Consequential Rate Alignment and Remedial Matters) Bill. I will deal with a couple of the specific changes to the legislation proposed by this bill before dealing with what is not in the bill which I also think should be highlighted. 
First of all the previous speaker was correct in saying that the default resident withholding tax rates are being changed. When people earn interest in this country it has tax deducted from it before it is paid to them by the person who is paying the interest. The rate at which interest is deducted is set out in law and that is the resident withholding tax rate. This bill adjusts the resident withholding tax rates to update them for recent changes in income tax rates so that the amount paid by way of a deduction from the interest one earns corresponds with the amount of tax one is likely to pay as a taxpayer. One of the most major changes in recent years has been to the corporate tax rate; it was reduced from 33c in the dollar to 30c in the dollar. This bill adjusts the resident withholding tax rate the default rate at which tax is deducted from interest payments that are earned by companies. It decreases the resident withholding tax rate for companies from 33 percent to 30 percent. 
It is worth reflecting on why that is necessary. It is because the previous Labour Government cut the corporate tax rate. At times we have heard from National Party members that they are the party of business. They like to pretend that they are the ones who know how to grow the economy when in reality many people in New Zealand know that it was the previous Labour Government that had the better handle on economic policy as reflected in the fact that we cut the corporate tax rate from 33c in the dollar to 30c in the dollar. 
By way of contrast I say the effect on resident withholding tax rates being changed in this bill as a consequence of National Party policy is in the main to change the top personal tax resident withholding tax rate from 39 percent down to 38 percent. Rather than giving a leg-up to the most productive parts of our economy—encouraging companies to save more so they have more to invest having a lower tax burden so that companies have more money to reinvest in productive enterprises and improving the productivity of our companies which is what the previous Labour Government was achieving through reducing the corporate tax rate—the National Government has focused its tax cuts on those who already earn the most in a personal sense in New Zealand by reducing their tax rate at the margin from 39c in the dollar to 38c in the dollar. 
 The effect was that the highest-earning people in New Zealand who were already in a better position economically than everyone else in New Zealand were given another tax break in order to make them even better off. Whereas a middle-income family with children a family that might be struggling to pay a mortgage rising power prices and other costs got nothing from the Government’s tax package those who were the highest earners had a tax reduction and that tax reduction is now being reflected in this consequential bill which changes their resident withholding tax rate. 
Therein lies one of the differences between Labour and National. We understand it is important to have a strong productive economy. In order to encourage that we do not need to reduce the tax rate for the highest earning people in the country but we do need to make things easier for companies. 
Peseta Sam Lotu-Iiga 
: What happened to exports in the last 5 years? 
Hon DAVID PARKER 
: I had an interjection there from someone who was saying Labour never reduces taxes but of course we did reduce the corporate tax rate. It is an interesting fact of history to reflect on which Government before the previous Labour Government reduced the corporate tax rate. Does the member know the answer to that question? 
Peseta Sam Lotu-Iiga 
: We’re talking about exports. 
Hon DAVID PARKER 
: Oh he is talking about exports but he does not know the answer to that question. It was actually a prior Labour Government that last reduced the corporate tax rate before we did it again in the last term in Government. That is somewhat ironic—[ 
Interruption 
]. The National Party voted against the Budget that reduced the tax rate for companies from 33c to 30c in the dollar. 
It is also time to reflect on what has happened since the election. Of course by the time of the last election the writing was already on the wall as to the effect of the downturn in the world economy on the New Zealand economy and the fourth estate was already on to it. During the last election campaign the media asked the then National Opposition how it could promise its tax cuts given that the world economy was declining so sharply. By that time the IMF was warning that a very sharp international contraction was already occurring and New Zealand was already in recession as the Hon Bill English continually reminds us from day to day. Yet at the time of the election he was willing to ignore those realities when he was promising unaffordable tax cuts. Not only was the IMF issuing those warnings and New Zealand already in recession but also by that time one of the big international banks Lehman Brothers had failed. We had an IMF warning New Zealand was in recession and Lehman Brothers had failed yet at the time of the election the National Party pretended that these things would not have any material effect on its ability to fund its election promises. 
Well we all know now that that was untrue. Since the election we have seen the National Government resile from some of its tax cuts. It left tax cuts in place for the most wealthy in New Zealand whose personal tax rate it cut as is reflected today in the cuts in the resident withholding tax rate for those highest income earners but it cut most of the other tax relief it had planned for low and middle income people. That left a terrible disparity whereby most of the tax relief was given to the people who needed it the least. In addition because of National’s reckless promises in the election and its belief that it had to keep at least some of its promises to cut taxes—and as I have said it did that for the most well-off—the Government had less money in the kitty than it would have had it not made those rash promises. That is why the Government had to cut the pre-funding of the New Zealand Superannuation Fund. One consequence of those changes to the tax rates for the highest-paid people in New Zealand was the inability in the Government’s view to properly pre-fund New Zealand superannuation. 
Currently about 500000 people in New Zealand are reliant on superannuation. That number doubles over the next decade or so or it may be over the next 2 decades. I am unsure of the exact number—forgive me for that failure of memory—but over the next period that figure doubles from 500000 to 1 million people. That figure as a proportion of the workforce changes as well. The proportion of people who are reliant on Government finances for their superannuation as a percentage of the labour force increases very substantially. It is a real challenge for future Governments to fund that and that is why there appeared to be at the time of the last election virtual unanimity across the major parties that there was a need to pre-fund some of the cost of that through the New Zealand Superannuation Fund. This was to avoid an intergenerational inequity. Subsequent generations would otherwise be carrying the burden of paying superannuation to an increased pool of superannuitants despite a relatively smaller proportion of working-age population in employment. That is why there was apparently almost universal approval for the New Zealand Superannuation Fund across both the National and Labour parties. But of course we all know that was a fraud. In reality that was not the case and when National came into Government it sacrificed the pre-funding of superannuation in order to fund its tax cuts for those who were already the best off. 
Further the National Government did away with the research and development tax credit and I absolutely agree with my colleague David Cunliffe in saying that change was inappropriate. New Zealand has to invest in more high-value products for export if we are to overcome our current account deficit and become wealthier as a country. There are two essential ingredients to that. One is encouraging savings which I will come to but the other is providing appropriate incentives for business to invest. One of the ways that most countries in the world incentivise investment in the appropriate capital equipment and new products is through a research and development tax credit. We need only to look across the ditch at our closest economy and our biggest economic competitor in these areas Australia to see that Australia has a research and development tax credit. It is also clear that at one stage the Australian Government cut its research and development tax credit and lo and behold the research and development spend by its corporates went down. The Australian Government addressed that by introducing another variant of its research and development tax credit. 
New Zealand has neither of those provisions. We do not have any research and development tax credit. We are a glaring anomaly when we compare ourselves with most OECD countries and that anomaly coincides with our under-investment in research and development and therefore our poor performance relative to a lot of overseas countries in lifting our productivity so as to improve the wealth of our nation and improve our ability to fund health services and responses to environmental things like climate change etc. Abandoning the research and development tax credit was a real mistake by the National Government and this bill does not fix that. 
Similarly if we have a deficit in savings—and New Zealand certainly does—we must have appropriate interventions like KiwiSaver which was also cut.