Cullen Michael: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — First Reading 
Cullen Michael: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — First Reading 
[Volume:639;Page:9407] 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 By the standards of Dr the Hon Lockwood Smith PhD that anger was very mild indeed—very very mild. That is not surprising because when National’s leader tie askew and unshaven was asked on  
Close Up 
 this evening what National would do about the KiwiSaver tax credits we heard a kind of pause which is unusual for Mr Key. He does not usually pause before he says anything. It was a long pause and he said National would have to think carefully about them before the next election. When Mr English was asked on  
Checkpoint  
what National would do about the tax credits he also said it would have to think about them before the next election. 
Darren Hughes 
: Hellfire and brimstone. 
Hon Dr MICHAEL CULLEN 
: Well of course Dr Lockwood Smith is incredibly staunch on this issue. He will oppose them—until of course it is in his interests to support them. 
Dr Lockwood Smith tells us he has a sudden large interest in people on low incomes. Well how will people on low incomes be helped to save if not through a scheme whereby if they change their job they are compulsorily enrolled and their deductions occur immediately and as long as they can continue to withstand that they will get a proportionately larger tax incentive? I am sure that if National were designing a tax incentive for savings we would get one that gave more to people like Dr the Hon Lockwood Smith PhD than to someone on $25000. People will also get the employer contribution which on a low income of $25000 will be entirely paid for by the Government at a rate of 20 bucks a week or 4 percent—if he can do the maths and work it out. As a consequence of that they will end up with three times their contributions going into their KiwiSaver account and the prospect of a substantially increased standard of living in retirement. But more than that they will be contributing to savings and to investment in New Zealand. 
We heard Mr Key on television tonight essentially say that the way to build the economy is to spend our way to prosperity and that the way to spend our way to prosperity is to borrow the money to spend. It is true of course that Jackie Dean did have the answer at the last election. She said National would not need to borrow for tax cuts and would just get the money from overseas. That I suppose is a slightly more sophisticated approach to the problem. So what is National’s answer? How do we grow the economy when our gap between savings and investment is 9 percent of GDP and when we have to borrow $15 billion from offshore every year just in order to maintain our current inadequate level of investment in economic growth? From a sort of “British Indian army” what does Dr Lockwood Smith PhD tell us—that the answer is to give somebody a $2 a week or a $3 a week tax cut? That is what National is actually offering to people on $25000 a year. Well that will go nowhere at all. 
Then we heard from Dr Lockwood Smith that research and development tax credits do not work. Well why the hell is Fonterra doing research in Melbourne? There is total silence. Maybe it is because the Australians offer tax credits and we do not. 
Maybe it is time to learn some facts—some pragmatic simple bits of fact. We have been told for years—and I used to believe this—that we did not need tax incentives for saving. We were told that we just had to get the macroeconomic conditions right—low inflation blah blah blah—and savings would go up. They have gone down. We cut the rate of superannuation and raised the age of eligibility and savings went down. They were supposed to go up. Younger people do not believe that superannuation will be there for them but they do not save. Dr Lockwood Smith has no answer to that except to say that if we give them a $5-a-week tax cut they might save it—but of course they will not. They will not save it at that point and he knows that. We know that we have one of the worst savings records in the developed world. National says that is all right. It says we will just borrow more so we can spend more and in that way we will become more prosperous. That is National’s economic policy as explained by the unshaven tie-askew Mr Key on television tonight. It would have been better to have Mr English on television; at least he looks clean-shaven and properly dressed at this particular moment. 
Then we are told that research and development tax credits do not work and I used to believe that too. We continue to have one of the worst private sector research and development records in the world and Australia which has research and development tax incentives has a much better record than New Zealand on private sector research and development. We lose private sector research and development to Australia. Even Treasury has changed its mind on that issue. I have to tell Dr the Hon Lockwood Smith that he is the last person stuck in the 1980s paradigm. Treasury believes that research and development incentives will have spill-over benefits. 
Treasury in a report that will be released tomorrow agrees that savings are a major problem and that there is a role for the Government to play by intervening and providing support for savings. That is a sea change in Treasury’s view of life but it is a fact—it is pragmatism. I suppose National members will now try to argue that I tell Treasury what to think. Well I wish that were true on occasions. But it is certainly not actually true. Treasury is highly independent in the way it arrives at those kinds of views. 
So the National Party members will be voting against research and development tax incentives. They voted against corporate tax rate cuts only half an hour ago. They voted against a tax credit for employees only half an hour ago. 
Hon Members 
: Employees? 
Hon Dr MICHAEL CULLEN 
: Employees not employers. Now they argue that compulsory contributions somehow will not work. Let us take a broader view than that. Let us stop this stupid “let’s look this far in front of our face” way of looking at the future of this country. Yes compulsory contributions will cost employers a bit. How much will it be at a 50 percent take-up rate? It will be 1 percent of the total wage and salary bill in 5 years’ time. Already there are indications and expectations of some modesty in but not nil wage increases—which is silly from Mr English—and a reduction of 0.5 percent in total wage growth over the next 4 years would pay half the net cost to employers of the employer contribution. That is not $2 billion. On the basis of a 50 percent take-up it is about $670 million and 0.5 percent moderation in wage growth in total over 4 years would pay half of that. 
What do employers get? They get out of that greater employee loyalty. They get out of that a greater tie to New Zealand particularly among our semi-skilled and skilled workers as Australia has with its compulsory savings scheme. It will improve the supply of skilled labour because we will lose fewer people. KiwiSaver at that level will lock more people into New Zealand. Employers also get out of that contribution a greater pool of savings and investment capital for New Zealand—and National members are voting against all of that which is in the long-term interest of business in New Zealand because they are obsessed with tax cuts. 
I do not know whether the National members watched television tonight but they better learn something. A sea change is going on as a result of this Budget already and they are on the wrong side of the argument. They will have to change their position before the next election. That is easy for them to do because they change every position they have. Every major initiative of this Labour Government is wrapped up cuddled and kissed and sweated to death by the National Party these days and sooner or later this will be one of those. National members will not go into the next election promising to demolish KiwiSaver; I suspect they will promise to regularly update the employer contributions maximum tax credit. That will be where they will get to by the election. They will not go into the election promising to remove the research and development tax credits will they? Well why the hell are they voting against them now then? That is very stupid. They will vote against something and give me a free speech for the next 16 or 17 months in front of businesses. I can say to them: “National voted against a cut in the corporate tax rate. National voted against the research and development tax credits. National does not believe in updating Auckland’s infrastructure and public transport system. National does not believe in increasing the pool of savings and investment in New Zealand.” 
But come election time there is one thing we can guarantee: the National members will flip-flop and flip-flop and the changes will be there. It is a pathetic effort from a narrow shallow pathetic party.