Cullen Michael: Taxation (Annual Rates and Urgent Measures) Bill — In Committee 
Cullen Michael: Taxation (Annual Rates and Urgent Measures) Bill — In Committee 
[Volume:628;Page:760] 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 Firstly on the last point could I tell the member that he is factually wrong. We have not introduced any new complexity in the system. The only structural change that has been introduced since 1999 which comes into force in April next year is to replace the child tax credit introduced by National with the in-work payment which is actually significantly simpler because for the vast majority of families there is no relationship to family size. Whereas under the child tax credit of course it was more whether families had three children or two children or one. Whether families have one two or three children makes no difference to the size of the in-work payments. It is a great deal simpler. 
The rest of the structure is exactly the same. The abatement levels the thresholds and the levels of payment are all that have changed. The levels of payment have been substantially increased the thresholds have been raised and the abatement rate has been lowered. That does not make it more complex at all. It means that more people are entitled to targeted tax assistance; it does not make the system more complex in that regard. 
The choice to pay all these payments universally as the member will know is vastly expensive. We could not possibly afford to pay a fully universal tax rebate for children at the level of the family support payments—that would run into some billions of dollars of additional expenditure. 
I come to the issue of why the change. I indicated immediately after the 2004 Budget when we announced the Working for Families package—in response to questions and in response to some issues raised particularly by United Future—that I would at the earliest opportunity address the issue of abatement rates and seek to lower the 30 percent single level of abatement rate that was being introduced as part of the Working for Families package. Again we simplified it from two thresholds to one single abatement rate and a single threshold. We actually simplified the system compared with the system that National had in place during the 1990s. The Pre-election Fiscal Update indicated a growth in revenue that had not been anticipated at Budget time. That was exactly the amount that was therefore translated into the two things in this legislation. 
 Firstly lifting the threshold from $27500 to $35000 means that for a lot of families on lower incomes there is no abatement at all. Secondly lowering the abatement rate from 30 percent to 20 percent is a significant reduction for quite a large number of families of the effective marginal tax rate—some 100000 families having a lower effective marginal tax rate. Of course 60000 families have a higher marginal tax rate because they now qualify for family support targeted assistance which they did not previously qualify for. 
This bill helps a lot of New Zealand families with children particularly low to middle income families. We make no apology for that at all. Fiscally the result has come out at almost the same as the Budget night fiscal forecast in terms of the operating surplus and the fiscal stimulus over the next 2 to 3 years. Beyond that of course it does represent some further fiscal loosening by about year 4 of the forecast period. 
It is a simplified package compared with the package we inherited. There is a single abatement rate a single threshold and for most families there is no longer a two-tier system with the in-work payment not related to size of family. 
Finally of course in terms of childcare the 20-hours-free policy will take a lot of people out of the targeted assistance. It will reduce for a large number of families the level of targeted assistance which they were previously dependent upon. Also as the member might be aware we changed the accommodation supplement rules so that there is not a doubling-up of the abatement regimes around some aspects of that. 
Does this work? Yes it does. Look at the result. We have the highest labour-force participation rate in the developed world—not just the lowest unemployment rate but the highest labour-force participation rate. Have people stopped working because of the 39c rate? No they have not. Has the economy stopped growing? No it has not. Have the participation rates gone up? Yes they have. Has growth been good? Yes it has. The National Party argument is just wrong on the facts. It is not what has happened. Did the National Party stop working after 1999 because the top tax rate went up? Yes it did. Did it affect those members’ incomes? No because they are on a salary. Did it affect the election outcome subsequently? Possibly because they lost both the subsequent elections. They in their own private little world may have demonstrated their own theory but the rest of New Zealand carried on working carried on earning carried on getting better off and feels very good about the results.