English Bill: Taxation (Annual Rates and Urgent Measures) Bill — In Committee 
English Bill: Taxation (Annual Rates and Urgent Measures) Bill — In Committee 
[Volume:628;Page:759] 
Hon BILL ENGLISH (National—Clutha-Southland) 
: 
 I thank the Minister for that acknowledgment which meant that he did not have to talk about the bit in this part that really matters which is in clause 5: the change in the thresholds and abatement regimes for the child tax credit. There is an interesting history to that. I am sure I cannot recall every twist and turn but clause 5 should really be called the “Michael Cullen Back-down Clause”. As the Committee will remember Dr Cullen announced the Working for Families package under a certain set of fiscal conditions and then he was forced at a later time—not long after the Budget actually in 2005—to announce a much more generous Working for Families package. The fiscal conditions had not changed dramatically or even significantly but the political conditions actually had. 
This is how it went. Dr Cullen announced in his 2005 Budget what he believed to be clearly an important and a large-scale family tax package. It was greeted with derision—there is really no other word for it—around the country. I think the  
Dominion Post  
headlined it— 
Darren Hughes 
: The original one? 
Hon BILL ENGLISH 
: —sorry it was not the original one; it was after the 2005 Budget—as “Is that it?”. I take the member’s correction; Working for Families was announced the year before that. But in 2005 when there was an expectation that many more people would benefit from it no one did. Instead they were given the “chewing gum” tax cut. So the provision in clause 5 of this bill came along after Dr Cullen had realised just how badly he had miscalculated in a political sense. 
I would like Dr Cullen to explain given that he had put so much emphasis on the surplus and the fiscal conditions how he could suddenly afford a much more generous family tax package not long after the Budget that he could not afford at the time of the Budget. What had changed? I think if Dr Cullen explained that we would see at least some of his fiscal argument for what it is. Dr Cullen has calculated that he can defend the surplus which enables him to have enough expenditure to keep the Labour Party’s various constituencies happy. He will probably be reluctant to say that he misjudged the Budget that the whole Labour caucus and the Prime Minister came down on him pretty hard and that in the run-up to the election he was therefore forced to increase the thresholds for abatement forced to increase the child tax credit as he has done here and just as important forced to drop the 30c abatement rate down to a 20c abatement rate. 
The simple reason for that is that a large chunk of middle New Zealand income earners with children were going to be faced with very substantial marginal tax rates that gave them the feeling—and I have to say the reality—that it was not worth trying to get ahead. That of course is one of the fundamental problems with regard to the way Dr Cullen thinks about these issues. He is a Minister of Finance who believes incentives do not matter and who believes that people do not really respond to them when it does not suit him. Well of course they do respond to incentives. But if the marginal tax rate is high and the net gain from an extra hour of work is minimal people will not go out and do that work. 
Dr Cullen may also like to explain to us just how he intends to maintain the complexity of the package Labour now has in place of which this tax credit is part. When one looks at the accommodation supplement the family tax system and the fast-growing complexity of support for children in early childhood education one sees it will be impossible for a Kiwi family to understand what benefit there is to it from doing an extra hour of work. There is now a plethora of different thresholds different abatement rates and accumulating marginal tax rates that are hard enough even for a bureaucrat to understand. A Ministry of Education bureaucrat will have real trouble understanding how the 20 hours’ free support—