Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill — In Committee Procedure 
Text is incorporated into the Bound Volume 
Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill — In Committee Procedure 
[Sitting date: 14 December 2004. Volume:622;Page:17806. Text is incorporated into the Bound Volume.] 
Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill 
In Committee 
Debate resumed from 1 December. 
Part 5 Amendments to Income Tax Act 2004 ( 
continued 
) 
Hon BILL ENGLISH (National—Clutha-Southland) 
: 
 Part 5 is the decisive part of this bill because it includes United Future’s amendments to change the thresholds for setting out the taxation rates. Of course there will be a test for the United Future members when we get to the end of this stage. They are proposing to vote for their amendments which we understand will be lost because the Greens are voting with Labour on them. But then the United Future members will vote for the bill even though the issue of the taxation rates is one of United Future’s main campaigning tools over the next couple of months. Generally if a party puts up amendments to a bill and they are lost it votes against the bill. The most critical issue in this bill which is the setting of the taxation rates will be resolved in an unsatisfactory way for United Future. 
PANSY WONG (National) 
: 
 Firstly I want to follow my colleague the Hon Bill English in urging the Minister to look at and support Supplementary Order Paper 284 in the name of Gordon Copeland of United Future. After all United Future has been very cooperative with this minority Labour Government. It has now brought in a Supplementary Order Paper to ensure that the taxation threshold will be indexed to inflation every year in order to relieve hard-working New Zealanders from paying too much tax. After all yesterday the Minister in the chair Dr Michael Cullen announced another record forecast surplus of $6.5 billion. There is no reason why New Zealanders should not get tax relief. But more than that Dr Cullen has also introduced a bill providing for a 5c per litre petrol tax increase that is subject to indexation. So I hope the Minister will take a call and explain to the public why it is that when the Government is gathering revenue it is acceptable to increase the rate annually according to the movement in the consumer price index but when it comes to providing relief for hard-working New Zealanders then the Government will not support that. 
I challenge United Future not to support this bill in its entirety if the Government does not agree to what is the single most important opportunity for United Future to demonstrate that it has come into Parliament to campaign vigorously for hard-working New Zealanders. All eyes will be on United Future. 
I also want the Minister in the chair to take a call to answer a question that I will pose to him. One of the provisions in this part allows people who have applied for the grant of a resource consent under the Resource Management Act and been refused consent or who withdraw the application to claim a tax deduction for the expenditure they have incurred. I want to know whether that particular provision has been introduced for the benefit of the State-owned enterprise Meridian Energy. When it called off Project Aqua the company wrote off over $1 million of costs relating to that very ambitious project so I want to know whether that provision was introduced to benefit that State-owned enterprise. 
I also want to point out that interestingly now we see a taxation provision that grants relief to people who apply unsuccessfully or withdraw their application under the Resource Management Act. It seems to me that the root of that problem is the difficulty people have in getting applications through under that Act. The Labour Government instead of looking to simplify the Act in order to enable people to have their applications decided swiftly and effectively is introducing relief by means of a taxation deduction if an application fails or the person withdraws it. That is another example of the Labour Party instead of treating the real cause of the problem tending to look at the symptoms. I think lots of people would not look forward to simply deducting expenditure incurred on an application for resource management consent. They would rather have their application approved or understand that the law will be applied consistently or will be simplified. 
I look forward to the Minister taking a call to tell us whether that provision has been introduced because of the failure of Project Aqua by the State-owned enterprise Meridian Energy. 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 We have at last discovered the National Party’s taxation policy after some five attempts. It is to adopt the proposal by my good friend Gordon Copeland to index the rates on an annual basis. Let me say first of all that United Future—I can speak on its behalf on this occasion—has put up amendments which will be vetoed. Then given that United Future has a binding agreement with the Government it will be voting for the bill because United Future unlike National keeps its word on matters. It does not sign a document and then break its word because it is convenient to do so in a political context. Let me say to Ms Wong what indexation would actually mean in an average year. For the vast majority of taxpayers in relation to the great National Party tax cuts the alternative is 22c a week. On average for most taxpayers 22c a week is what would occur as a result of indexation. For the great majority of the rest the princely reduction in the demands of the Government—the lifting of the great yoke of the State which the National Party wants to see—would be $1.77 a week. That will not win an election. 
Hon BILL ENGLISH (National—Clutha-Southland) 
: 
 The United Future amendments set out on Supplementary Order Paper 284 deserve much more intellectual honesty than the Minister of Revenue gave them in that 30-second burst. We are not debating an average year here. United Future has not proposed indexation on some mythical average that the Minister’s minions have calculated; it has proposed quite specific changes in the thresholds. For instance it has proposed moving the low-income rebate threshold from $9500 to $10750. That will make a great deal more difference than 22c a week. In proposed new clause 229A United Future wants to shift the threshold from $38000 to $43000. At the rate of 30c in the dollar at $5000 that is about $1600 a year not 22c a week. 
What permeates the relationship between Labour and United Future is an agreement to mislead shall we say. They play these fancy little games. United Future has put up a serious proposition in the light of the circumstances that my colleague Pansy Wong has pointed out. The Government has collected $34 billion more tax over the last 4 years. Yesterday it projected the largest surpluses ever. Taxation revenue is going up faster than ever and it will become one of the biggest issues of election year. Why should working people not get the benefit of a growing economy? Why should it all go to Dr Cullen and to his colleagues’ favourite political projects? It is just the sheer unfairness of it. The Government reaps all the benefits yet the people who do the work do not reap the benefits of a growing economy. 
United Future will go through the charade of putting up its nice little proposition then turning round and voting for the Government against what it has proposed. It will continue its track record of keeping in Government a Government that does all of the things its voters are opposed to. There is not a single United Future voter who wanted to support a Government that passed the Civil Union Bill. There is not a single United Future voter who wanted to support a Government that collected record levels of tax then had record levels of Government spending with record levels of recklessness in that Government spending. That is not what United Future voters put Peter Dunne and Mr Copeland into Parliament to do. 
I compliment United Future on having before the Committee today a set of amendments that are directly relevant to what will be one of the biggest issues in election year—whether the Government is collecting too much tax. We agree with United Future that the Government is collecting far too much tax—much more than it expected but worse than that much more than it can effectively spend. The Government is now reduced to throwing good money after bad at categories of spending just to get rid of it just so that it can say it will not reduce taxes. I say to United Future members that it is time they stood by some of their principles. We are not asking them to stand by all the principles their voters voted for but let us say just one or two. If United Future members vote for these amendments—and we will vote with them on these amendments because they are good amendments that will reduce the burden of taxation on working people—then if they are serious about any of this they will have to follow through on it and vote against the Government by voting against the whole bill. These amendments relate to what is by far the most important and critical part of the bill. 
I also found the Minister’s comments on the indexation of petrol tax quite specious. Why will the Government index those tax mechanisms when it suits it by automatically increasing the revenue even if it is only by a small amount? I am sure that the indexation of petrol is worth less than 22c a week per person. 
RODNEY HIDE (Leader—ACT) 
: 
 ACT also supports United Future’s amendments but if they do not go through we will be voting against this bill—unlike United Future. We actually believe that we should vote according to our principles not according to political expedience. I know that a United Future member fasted for 21 days in order to stop the Civil Union Bill then got a message from God about a 59:59 vote on a taxation bill. United Future could have sunk the Civil Union Bill with one vote. But what did it do? Its members walked in like ducks to the slaughter and voted for it. Here we have the United Future members supporting a Government that has taxed and spent like none other. They have come down to the Chamber with amendments to this bill the Government will veto yet they will turn round and vote for the bill. 
Pansy Wong 
: Oh shocking. 
RODNEY HIDE 
: It is shocking and I just do not understand it. But Mr Copeland does have a point and it is this: last week in the House the Hon Dr Michael Cullen admitted that after 5 long years of Labour’s great administration the average household after tax— 
Clayton Cosgrove 
: That’s right. 
RODNEY HIDE 
: I see that Mr Cosgrove agrees with this point. After 5 years of economic growth the average household after tax is no better off in real terms. What else did Michael Cullen admit to the House last week? He admitted that that same average household is having to give an extra $2910 in real terms which is an increase of $3000 in 5 years to the Government. That is the trouble with this taxation bill. Hard-working New Zealanders are worse off under Labour because they are paying so much more tax. We have “Scrooge McCullen” sitting there awash in their tax dollars—he is swimming in their tax dollars—so why does he not for Christmas provide a bit of tax relief? 
United Future and Mr Copeland are going about it in the wrong way. When members turn up to Parliament they do not just promise their votes to a Government no matter what. 
Hon Bill English 
: Yes you do. 
RODNEY HIDE 
: No one does not and I say to Bill English that the ACT party will not be doing that next year with the National Party. We will not be promising support to the new Government no matter what. There will be a price. But United Future comes along and joins the anti-Christian high-tax and high-spend Labour Party. It says: “Take us for granted for the next 3 years and we will go down to the House and talk about things but never deliver.” I say to Mr Copeland that when people vote us into this great Parliament of ours they expect a bit more than “poodle power” when we get here. They actually want members to stand up here and say what they believe and to vote accordingly—not vote for the opposite of what they talk about. 
I say to Mr Copeland that there is a fallacy in the whole idea of indexing thresholds and indeed income splitting. It is this: why do we have a progressive tax rate to begin with? Why does someone who earns twice as much pay three four or five times more tax than he or she otherwise would? What is fair about that? That is why the ACT party stands for a flattening of the tax rate—so that someone who earns twice as much pays twice as much tax not three times as much. I say to Mr Copeland that if we did that we would not need to worry about indexing the rates because we would have a tax rate system that was fair efficient and good for the economy. One simple rate would also overcome any concern about income splitting between a man and his wife and all the attendant problems of such income splitting. 
GORDON COPELAND (United Future) 
: 
 The fact is—speaking to my Supplementary Order Paper—that if the tax brackets are not adjusted for inflation taxes are increasing in real terms. I will give members an example. A person earning $38000 in the year 2000 now needs $43000 just to stand still in terms of purchasing power. However the tax rate on the last $5000 has moved from 19.5c to 33c an increase of 13.5c $675 per annum or $56.25 per month. In real terms people are now less well off than they were in the year 2000. I contrast that with the commitment made by Helen Clark in 1999. She said that there would be no rise in income tax for the 95 percent of taxpayers earning under $60000 a year and no increases in GST or company tax. The Minister was good enough to say a few moments ago that United Future was a party that kept its word. I challenge the Labour Party today as to whether it is a party that keeps its word. Because how is that commitment made by Helen Clark in 1999 to be understood? Is it to be understood as meaning that the current rates will remain unchanged in the long term? If not when will they be changed? Does it literally mean that there will be no rise in income tax etc.? If that is the case then the Government has clearly broken its promise and its commitment to the people of New Zealand. 
What about the fact that only 78 percent of New Zealanders now earn under $60000 a year? What about the missing 17 percent? Do they not matter? Let us look at the facts. The number of taxpayers paying the 19.5c rate has dropped by 144000 the number of taxpayers paying tax at 33c has increased by 106000 and the number of people paying tax at 39c has increased by 150000. How can that be squared with the statement and the commitment that there would be no rise in income tax? 
Why will the Government not move on this matter? Is it because the estimated $714 million per annum cost is unaffordable? That is hardly likely in view of the extra $4.5 billion over and above the Budget that has been collected in the last 3 years alone. Is it not about time to share some of that surplus with the people of this country? 
Believe it or not a couple of parties in this Parliament—I refer to the Labour Party and the Green Party—believe that the reasonable proposal in my Supplementary Order Paper to index tax brackets for inflation is no more than a tax cut for the rich. In response I say that under the proposal put forward by United Future every taxpayer in New Zealand earning more than $9500 a year would receive a tax cut. That is the first point. 
The second point is that if Green Party and Labour Party members believe that say a single-income person supporting a wife and three kids and earning 60 grand a year is rich my response is that those members should get real. That person is far from rich; he is struggling and is going more deeply into debt each day as we speak. 
Members also have to face the fact that the United States of America the United Kingdom and Canada have all adopted bracket creep legislation—an automatic adjustment to the brackets in a progressive taxation system when inflation moves beyond a certain level. If it happens in those countries why for goodness’ sake does it not happen here? 
I want to say very very clearly indeed that it is time for taxes in New Zealand to be cut to be reduced. There is no reason at all—economically fiscally socially and particularly in terms of social justice—to continue to take more money out of people’s pockets than the Government really needs. In fact Michael Cullen himself said in yesterday’s press release on the Budget Policy Statement that the Government is going to bank some of it and spend the rest. There is a great great future for the New Zealand taxpayer: “You pay more tax; we’ll bank some of it and spend the rest.”! 
JOHN KEY (National—Helensville) 
: 
 I am happy to engage in the Committee stage debate on Part 5. This legislation really cuts to the heart of the problem with the Labour Government. This is a Government that believes that it can spend taxpayers’ money better than they can themselves—a Government that thinks that if it spends money it has no impact on monetary policy but if taxpayers go out there and spend money themselves it has an impact on monetary policy. 
Yesterday we saw a classic moment in voodoo economics from Michael Cullen. It was unbelievable. He was out there telling the business community of New Zealand he was going to give them some indirect tax cuts—because he does not believe in direct tax cuts—but what he did not quite tell them was that he will introduce his carbon tax credit on one hand but he will tax them with his carbon tax on the other hand; he will get that money and give it to businesses on the other side. That is right—I see that Darren Hughes has finally woken up to realise that the infamous indirect tax cut is not a tax cut at all; it is just another tax being added to the other 30 tax increases we have had this year. 
National will support United Future’s Supplementary Order Paper on indexation. We will proudly support this proposal which is a lot better than what the Government did with its plans to index petrol. Darren Hughes is looking equally confused. He needs to get with the programme and find out what is actually going on in the economic department of his own Government. The Government decided that it was going to index petrol in New Zealand. That is a very significant event. It is going to allow the Minister of Finance every year to increase petrol tax at the rate of inflation without coming to Parliament. 
And guess what the Minister of Finance did with that little piece of information? He forgot to tell the people of New Zealand. He left it off the press release. In February 2 months afterwards we pointed out to him that he had forgotten to tell the people of New Zealand that he was introducing an indexation of petrol taxes. At exactly the same time with his coalition partner over there—his confidence and supply partner—he did not want to have a bar of indexation when it came to income tax. 
There is a very good reason why income bands in New Zealand need to be adjusted. When Labour came into office it told New Zealanders that 5 percent of all New Zealand workers would pay the top personal tax rate. 
Rodney Hide 
: It wasn’t true back then! 
JOHN KEY 
: Mr Hide is quite right. 
Rodney Hide 
: It was 7 percent. 
JOHN KEY 
: It was 7 per cent back then. Interestingly enough the Government did not quite mention the number of full-time taxpayers the top rate would apply to. Back in 1999 the figure was about 10 percent—one in 10 full-time taxpayers paid the top rate of taxation in New Zealand. They were the elite rich of New Zealand and they paid the top rate of personal taxation because they were lucky enough to earn income of over $60000—one in 10 of them. Interestingly enough when we look around today the number has risen from one in 10. I see Mr Cosgrove is holding up a sign saying that it must be 11 percent I hear the Hon George Hawkins is saying that it has to be 12 percent and Darren Hughes always thinks big so that might be 15 percent. No it is not 15 percent 11 percent or 12 percent. Think big—that was a good idea back in the old days—22 percent of New Zealanders now pay the top rate of taxation. That is one in four. 
Rodney Hide 
: No 22 percent of full-time workers. 
JOHN KEY 
: Twenty-two percent of full-time workers pay the top rate of taxation. One in four secondary school teachers in New Zealand pay the top rate of taxation. One in four secondary school teachers—they are the elite rich of New Zealand! They are schoolteachers—one in four of them which is 22 percent. Well yesterday when Dr Cullen was swiftly telling the country how he has so much more tax revenue but he does not have anything to give back to anybody else he forgot to tell the good people of New Zealand that he does not change the income brackets where tax rates cut in in New Zealand. That will take until about 2009 when one in three full-time workers in New Zealanders will be paying the top rate of taxation—one in three. They are the elite rich are they? 
Darren Hughes 
: Give us a detailed alternative. 
JOHN KEY 
: Well why do we not look at what the OECD said to Australia when it criticised that country for having the top personal rate of tax that cut in at A$80000? 
Darren Hughes 
: Name it. 
JOHN KEY 
: The OECD—it is a Paris-based organisation. Darren Hughes may have heard of it. That Paris-based organisation criticised Australia for doing that. This is a disgrace. This Government wants to take hard-earned taxpayer dollars from New Zealanders but it does not want to give anything back to those people. It does not want to do that slightly but in a big way. 
KENNETH WANG (ACT) 
: 
 It is quite ironic that members all sit here at the end of the year talking about tax while the Government sits on a record high tax revenue under its feet. I am probably in a unique position in talking about this issue because I am the newest MP coming from the bottom end of this society as I regard myself as a hard-working New Zealander. We are talking about a tax bill that applies to every New Zealander who has an income. It is ironic that we are talking about a high tax rate of 39c in the dollar applying to everyone earning above $60000 a year in income. We regard that as a high income but I regard it as a petty income because by international standards that is not high. Compared with our neighbour NZ$60000 by the exchange rate would probably go down to about $50000. If any of us relied on that income to support the average family of four to pay for everything from household costs power water rental costs kids’ school costs food and clothes we would know that what was regarded as the high salary level was really a petty amount. 
From my personal experience I know how hard every dad and mum works to support the family household. I know how hard it is. I know they desperately need their reward back in their own hands rather than having to wait until the Government hands it out. I know that having the Government handing it out has its own criteria. When those people desperately need a handout they have to apply for it. Well would they get anything? That would be determined by the Government’s agenda. That is a political agenda and it is according to the Government’s own wish which is to buy the vote during the term and hope that it will win another term. 
I have kids. I have a family and particularly I know my staff and I know my neighbour. My neighbour is a typical working-class Indian. He is working full time supporting his family. He has an income of very little. He told me that he wished he could earn more and keep more but it is out of his hands. 
Perhaps members still remember one of the stories that I quoted in my maiden speech. A taxi driver was working 12 hours a day and 60 hours a week and his words were: “Where’s the money? The Government is sitting on a big pot of money and it’s not in my pocket.” His request was: “Please don’t take it away. Let me keep it.” Well I am the person coming fresh from this society and from every working family in our society. I bring their request to this Chamber directly to all of the MPs who will vote on this bill. I congratulate United Future. Good on you for standing on your feet to speak on your amendment but I do have a question for you. If your amendment does not go through will you still support this bill? 
The CHAIRPERSON (Hon Clem Simich) 
: The member must not refer to the Chair. 
KENNETH WANG 
: I would say that the ACT party’s flat tax or universal tax cut to both company and personal income tax is the remedy to really resolve this whole issue. 
PANSY WONG (National) 
: 
 The Hon Michael Cullen who was the Minister in the chair earlier was good enough to take a call to answer some of the issues that I raised. I challenge the current Minister in the chair the Hon David Cunliffe to also take a call. 
John Key 
: Who? 
PANSY WONG 
: I have problems explaining to my colleagues just who the Hon David Cunliffe is. I am afraid he might have to make more visits in Auckland. I think his biggest problem is that he campaigns in west Auckland but lives in central Auckland. That may be causing the confusion. 
The Hon Michael Cullen was good enough to take a call laugh off United Future’s Supplementary Order Paper 284 and say that United Future’s Supplementary Order Paper’s indexation would give back to a household only about a dollar a week. But that same Minister when he introduced the bill to index the petrol tax increase gave the same reason. He said that it would cost the household about a dollar a week and that it was no big deal. So it seems to me that if the Minister of Finance thought that it was no big deal why not reward that amount to hard-working New Zealanders? We in National believe that is a very small step but it would be a step in the right direction. 
A Minister cannot laugh off the petrol tax indexation as no big deal then not support United Future’s Supplementary Order Paper to index the rate of income. But as my learned colleague the Hon Bill English pointed out that was a misleading statement anyway because United Future brought to the Committee a very sensible Supplementary Order Paper on adjusting the tax threshold. The only problem is that United Future is not committed to see it through. Now that party campaigned on integrity and on battling for its supporters but I am afraid that it will not see this bill through by voting against it because every other party apart from Labour and I think the Progressives is against this bill. United Future has the single opportunity to make a difference in its 3-year term in this Parliament by showing that it is serious about representing the hard-working middle New Zealanders. So all eyes will be on United Future members to take their fight to the end and to challenge the minority Labour Government to show its respect for United Future by supporting this Supplementary Order Paper because in the words of Dr Michael Cullen: “This indexation is no big deal.” 
I look forward to the Minister in the chair taking a call to explain to his good friends United Future members why the Government would not support their Supplementary Order Paper. It certainly would make a hole in the $6.5 billion tax surplus that was announced yesterday. It is obscene for the Government to tax New Zealanders to the extent that it has brought in an additional $34 billion in tax. 
Lynne Pillay 
: Good Government! 
PANSY WONG 
: Oh a good Government! That is wonderful to hear. Now we know that the Labour member’s idea of a good Government is to rip off hard-working New Zealanders. We can see that is just what Labour MPs believe. I think the electorates will have something else to say in the election year to show Labour MPs that a good Government is one that is considerate and compassionate to hard-working New Zealanders and would not tax them so it can waste that money on community education in polytechnics! 
LYNNE PILLAY (Labour—Waitakere) 
: 
 I move  
That the question be now put 
. 
RODNEY HIDE (Leader—ACT) 
: 
 The mistake we are making in this debate is that we are concentrating a lot on the surplus and not enough on Government expenditure. It is not just the surplus that should be returned to New Zealanders but also a whole lot of Government spending that this Government has overseen which is a disgrace. Just last week we learnt that hard-working Kiwis are being squeezed so they are no better off that they are paying more in tax than they have ever done in their lives and that Jim Anderton is taking money so he can spray it around multinational companies and their multimillion-dollar chief executives. Then we discovered that when the Auditor-General went in there to have a squiz the officials did not even know whom they had been giving it to. 
John Key 
: Did they know who Jim Anderton was? 
RODNEY HIDE 
: They did not even know where Jim Anderton was. They could not find where that taxpayers’ money was going. They said it was spent last year and they did not have records on it because they had been “updating our systems ”. 
John Key 
: Was it a few thousand? 
RODNEY HIDE 
: It was a few million. Jim Anderton said that there had been some problems because the officials had not been dotting every “i” and crossing every “t” and they were not into very much red tape. 
Here is another thing that the Auditor-General found out about how this Government spends taxpayers’ money. He found that New Zealand Trade and Enterprise—which Helen Clark used to talk about once and which Jim Anderton used to want to get on TV and on radio to talk about at every opportunity and then suddenly he was nowhere to be seen—that great department was spending money without regard to Cabinet criteria. So the Government which Mr Copeland will vote to support in terms of this bill was taking taxpayers’ money and spending it contrary to the intent of Parliament and Cabinet. That is what it was doing. Does this Government care about that? No. 
What else did we find out from the Auditor-General’s report? We found that the money was being taken off hard-working taxpayers and spent and there was no monitoring or follow-up. I would like to know what Mr David Cunliffe thinks about that. 
John Key 
: He is happy with it. 
RODNEY HIDE 
: Mr Cunliffe is over the moon about it. 
John Key 
: He’s ecstatic! 
RODNEY HIDE 
: He is ecstatic over it. 
John Key 
: Business as normal! 
RODNEY HIDE 
: Well it is not his money; why would he worry? Mr Cunliffe is sitting over an administration that first does not know where some of the money has been spent second spent money not according to the criteria that Cabinet has laid down and third spent it without any monitoring. Do members know what Jim Anderton’s response was? He said that the Auditor-General did not find that it was not effective spending. 
John Key 
: He did not know who Jim Anderton was. 
RODNEY HIDE 
: Well actually there is a reason for that: the Auditor-General could not find the spending. He could not find where the money was being spent let alone determine whether it was effective spending. 
This Government has no comprehension of what it is to work hard pay one’s taxes have nothing left at the end of the week and watch a socialist greedy Government—headed up by Michael Cullen sitting in that chair by David Cunliffe—that is awash with taxpayers’ cash spend it like there is no tomorrow. The Government is piling up surpluses like some giant Scrooge McDuck swimming in cash and telling New Zealanders that they can go and eat cake. 
I just say this to the United Future party. The United Future party is right about the need for lower taxes. Its amendments to this bill are right. All that the United Future party members need to do is to vote according to their principles vote according to what they have said in this Committee they stand for and vote according to what they told the New Zealand people they were going to Parliament to do. They should stop criticising the Government and just vote against this dopey bill. That is all that United Future needs to do. 
Hon GEORGE HAWKINS (Minister of Police) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 70 
New Zealand Labour 51; Green Party 9; United Future 8; Progressive 2. 
Noes 49 
New Zealand National 27; New Zealand First 13; ACT New Zealand 9. 
Motion agreed to. 
The CHAIRPERSON (Hon Clem Simich) 
: There were a number of amendments proposed to Part 5 by Gordon Copeland. They were vetoed. The relevant certificate has been sitting on the Table. 
The question was put that the amendment set out on Supplementary Order Paper 287 in the name of the Hon Dr Michael Cullen to insert new clause 236 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 70 
New Zealand Labour 51; Green Party 9; United Future 8; Progressive 2. 
Noes 49 
New Zealand National 27; New Zealand First 13; ACT New Zealand 9. 
Amendment agreed to. 
A party vote was called for on the question  
That Part 5 as amended be agreed to. 
Ayes 70 
New Zealand Labour 51; Green Party 9; United Future 8; Progressive 2. 
Noes 49 
New Zealand National 27; New Zealand First 13; ACT New Zealand 9. 
Part 5 as amended agreed to. 
Schedule 
A party vote was called for on the question  
That the schedule be agreed to. 
Ayes 70 
New Zealand Labour 51; Green Party 9; United Future 8; Progressive 2. 
Noes 50 
New Zealand National 27; New Zealand First 13; ACT New Zealand 9; Maori Party 1. 
Schedule agreed to. 
The CHAIRPERSON (Hon Clem Simich) 
: A new schedule 2 has been proposed by Rod Donald as set out on Supplementary Order Paper 295 in his name. That amendment is inconsistent with the decision of the Committee on Part 1 which confirmed the rates of taxation set out in schedule 1 of the Income Tax Act 1994. The amendment is therefore out of order. 
Clauses 1 and 2 
JOHN KEY (National—Helensville) 
: 
 The Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill is pretty important legislation going through Parliament at the moment. I want to raise if I can what is so wrong not just with the education policies of the Minister of Education—that is until he gets the flick or whatever will happen to him on Monday in the Cabinet reshuffle because if Margaret Wilson is to be the Speaker goodness only knows where Trevor Mallard will go! Anyway we will assume that he will be the Minister of Customs on Monday. 
This is what is so wrong with annual rates being confirmed in this legislation. This is about a Government that came into office and told the people of New Zealand that 5 percent of all taxpayers would pay the top personal rate—and that was wrong. It was wrong then it is wrong now and the number of people paying the top personal rate is progressively getting larger and larger. However the Government says that it does not want to give anything back to the people who actually make income in New Zealand irrespective of whether they pay the top middle or bottom rate. It does not want to give anything back to the people who contribute to our society and work very hard. Dr Michael Cullen wants to keep the money so that he can go on a bit of a vote-buying exercise. The tragedy of that position is that so many New Zealanders at this time of year will be feeling the pinch. They will look at their credit card bill and rising mortgage and they will wish that they had a little bit of extra money. 
The Reserve Bank made an interesting observation. It noted for the Finance and Expenditure Committee just recently that household debt in New Zealand has moved in the last 5 years from being 100 percent of average household income to 130 percent. At a time when the economy has been doing pretty well when the growth rate has been on average about 3.7 percent for the last 10 years not just the last 5 years—through nothing of this Government’s doing—at a time when it has been lucky enough to babysit one of the largest surpluses in New Zealand’s history New Zealanders up and down the country are being overtaxed and having to raise money on their own mortgage to make ends meet. That is what is happening out there. 
It is OK for Dr Cullen to improve the Crown’s financial balance sheet OK for Dr Cullen to have plenty of money to spend on anything and everything in the weird and wacky file but it is not OK for New Zealanders who are struggling to make ends meet to have a little more. 
I want to refer to just how large that spending programme has been funded on the back of those annual rates. Yesterday we had the Budget Policy Statement—the 6-months stocktake if one likes. Basically Dr Cullen did not have quite enough courage to tell the people of New Zealand that there would not be a tax cut. He sort of tried to meander around that issue. He did not quite say whether there would be or would not be one but essentially in his press release he said there was no room for tax cuts. When he was asked a hard question at the press conference he did not quite want to answer it because he knows that the case for tax cuts is now irrefutable. 
He knows that because he has looked at the numbers just as the National Party has looked at the numbers. The Government is telling the very New Zealanders who are being told there is no room for tax cuts that next year after the Government has paid its entire operating surplus—everything it does to run the country—and after it has paid its entire capital budget everything it wants to spend in funds on student loans the New Zealand Superannuation Fund roads in Auckland and anything else it might want to spend money on after it has paid for all of that it will have $1.5 billion in cash hanging around. 
That is absolutely unbelievable. The Government is so flush with cash that it cancelled the 2005 January bond tender. It does not need it. At a time when household debt is going through the roof because New Zealanders are being squeezed and it is OK for them to have three credit cards it is OK for New Zealanders to work hard on two or three jobs to pay the bills the Government has $1.5 billion of surplus cash. It is a disgrace. 
Hon DAVID CUNLIFFE (Associate Minister of Revenue) 
: 
 I have a brief comment on clause 1 the title. This bill as the title reflects—the Taxation (Annual Rates Venture Capital and Miscellaneous Provisions) Bill—does fix the annual rates for another year. It does contain provisions that will assist the promotion of venture capital in New Zealand by non-residents. It contains a number of miscellaneous provisions such as preventing the sale and lease-back of intangibles and thus the fiscal risk attached to that the early payment of rebates of income tax provisions around horticultural plants dispute procedures Australian unit trusts and so on. In many ways it is a mechanical bill. It is part of the good governance that is required to ensure the security of the fiscal base. 
In this short call I wish to make two points on the issue of taxation rates. The first is that we have heard a number of arguments from the Opposition that the Government has money in the coffers and why does it not spend it. Whether it is spent by giving tax cuts or expenditure increases is essentially an accounting identity. It does not make any difference to the fiscal balance. However the Opposition members are Keynesians in reverse. They are not prepared to spend when we are down on the cycle and thus they make it worse. They want us to spend when we are at the top of the cycle causing an overheat. 
I have two words for the Opposition—“Allan Bollard”. Why those two words? If we increase spending or give tax cuts now by more than we can afford that will have the effect of raising interest rates and in turn raising the exchange rate. The Opposition’s argument that the Government is flush with tax implies that Opposition members have not even read the December economic forecast. If they had they would know that the Government will be in a cash-negative situation by 2006 with about a $700 million cash borrowing requirement and about a $1.5 billion cash borrowing requirement the following year. So this rhetoric about “rolling in dough” is simply that—just rhetoric. This Government is committed to good prudent fiscal management and that is what this bill delivers. 
Hon BILL ENGLISH (National—Clutha-Southland) 
: 
 The previous speech demonstrates that the Minister may like to give the impression that he knows a lot but he just has no judgment. Because the issues involved in this— 
Rodney Hide 
: He went to Harvard! 
Hon BILL ENGLISH 
: What a waste of money that was! He may as well have done one of Steve Maharey’s dodgy community education courses because it has made no difference. The issue involved here is a matter of judgment. This bill sets out tax rates and the question the Minister needs to answer is this: under what conditions does he think the Government would have enough money to reduce taxes? Because the conditions the Government enjoys now were never imagined in my adult lifetime. In 40 years of government in New Zealand going right back to 1960 there has never been anything like this. Fortunately on the way through there have been Governments that have had the judgment to say that they have enough money to reduce taxes so the workers who go to work every day and earn an income can keep a bigger share of what they work for. This Government is unable to exercise that judgment because it does not have any judgment. 
He is right: the Government regards this bill as mechanical. The business of raising taxes is purely mechanical. It is like getting in one’s combine harvester and just driving into the paddock and going until it stops because then the fun bit is how one spends it. That is what Labour has always been about. It has no interest in the incentives that people face no interest in their aspirations no interest in a reasonable balance between what the Government takes from economic growth and what the people keep who actually create that economic growth. It is purely the mechanical business of raising as much tax as possible and then getting on with the party of spending. And oh what a party! 
The leader of ACT is quite right: the biggest issue actually is what is happening to this money. If we are going to raise so much what are we going to do with it? I raised questions yesterday in the House just in my portfolio about Steve Maharey the Minister for tertiary education having in the last 4 years spent $1.5 billion on certificate and diploma courses that were never finished. He has spent $1.5 billon on New Zealanders who never finished the courses they started. I have found that that figure is so big no one believes it. If he had spent that $1.5 billion only on the people who completed the courses every working family in New Zealand could have a tax cut of about $50 or $60 a week. He regards that as just a minor issue and he does not quite believe the figures himself—yet. That is just one example. 
This bill is giving permission to Ministers to do more and more of that kind of reckless spending. That is how Ministers see this. They see it as a licence not to print money but to spend the money that other people make. There is no restraint. Dr Cullen has decided to pitch himself as a fiscal conservative who is tight with the spending and his Ministers unfortunately seem to think that he is tight with spending. That is how distorted this Government’s view has become. They think they are being tight with spending when over the next 3 or 4 years they plan to spend $13 billion from the last Budget and in the December Economic and Fiscal Update yesterday they put it up to a total of $23 billion over the next 4 years. 
They are huge amounts of money and as my colleague Mr Key has pointed out household debt is going up. So the Government is improving its situation dramatically at the expense of households that are borrowing short term and long term—short term at high interest rates—in order to meet their requirements whereas the Government is keeping more than it should. That is why United Future should take the courage of its convictions in its own hands and vote against the bill. Because United Future voters are opposed to an endlessly taxing Government and an endlessly spending Government. United Future should vote against it. 
RODNEY HIDE (Leader—ACT) 
: 
 It was marvellous to see David Cunliffe stand up and explain this bill but did he talk about the annual tax rates? No he did not. He was prepared only to stand up and debate the title to explain it to the listening public and to have that recorded in  
Hansard. 
 One of the problems with Dr Cullen’s history degree and with Mr David Cunliffe’s studying away at Harvard—[ 
Interruption 
]—and they have worked at this—[ 
Interruption 
] 
The CHAIRPERSON (Hon Clem Simich) 
: Order! Twice was enough. 
RODNEY HIDE 
: The trouble with Mr David Cunliffe and Dr Michael Cullen is that although they have done all that studying they have not worked out a couple of basic things that every household in the country can grasp. The first is that Michael Cullen thinks there is something magical about a dollar that he takes from a working person and spends. He says: “When I spend the money it’s not inflationary.” But then he comes out with this Labour Party doublespeak that if he lets the poor worker keep the dollar in the first place that is called spending. When this Government talks about tax cuts it says they are like spending money. They are not like spending money; a tax cut is just letting people keep what they earn. I would like David Cunliffe to reflect on that and explain how a tax cut can be spending money. It is not spending money; it is letting people keep what they earn. If I as a Government take a dollar from someone and spend it as Michael Cullen does it is called tax and spend and I understand that. If I let the worker keep that dollar it is called letting him keep it—it is not spending the money. 
Another thing that Michael Cullen and David Cunliffe cannot understand but everyone else can is that tax does matter. 
John Key 
: That’s right. 
RODNEY HIDE 
: Tax does matter. Michael Cullen has stood in this Chamber time and time again and said that it does not matter how much tax we take from people—that they will work just as hard they will invest just as much and they will be just as entrepreneurial no matter what. That defies all experience all logic all common sense. When he reaches around for an example to illustrate his great economic insight he draws upon the experience of MPs and he says that Labour Party MPs would not work any harder or any less whether or not they had a tax cut. Well I have to explain to Mr Cunliffe and to Dr Michael Cullen that tax does matter and people are not stupid. They are not going to work their guts out and they are not going to invest their dollars in a country where the Government comes along and takes the money from them—takes away any reward that they get. That is what this Government is doing. We are in a situation now where working people face an effective tax rate of 91c in the dollar. If people double the number of hours they work they find that for every extra dollar they earn they get to keep only 9c. 
Well I do not think David Cunliffe would do that. I do not think Michael Cullen would do that. Yet they stand up here and pretend that tax rates do not matter. Well Mr Cunliffe is absolutely wrong. He should be taking this money and returning it to New Zealanders as part of a Christmas bonus. I say to Mr Copeland that he is well on the way with his proposal to increase the thresholds but would it not be better to drop the tax rates and actually drop Government expenditure? It seems quite simple to me when one sees how Trevor Mallard Steve Maharey Parekura Horomia and Jim Anderton spend money— 
Jill Pettis 
: When you see how Donna spends money. 
RODNEY HIDE 
: Jill Pettis raises a good point. Where did Donna Awatere Huata get the money from? The Labour Government! The Labour Government gave it to her. Trevor Mallard gave the money out. It is very very simple. Trevor Mallard gave the money out so Donna Awatere Huata spent it. That is the trouble with our taxation. We would not see that I say to Mr Mallard if people were spending their own money that they had earned—not that member spending other people’s money. 
CRAIG McNAIR (NZ First) 
: 
 We are debating clause 1 the title. I believe that the bill should be called the “Taxation (Still Putting Foreign Investors First and Miscellaneous Provisions) Bill”. Why should it be called that? I am obviously referring to the venture capital provisions. I have always said in speaking to this bill that I disagree with giving certain non-residents a tax advantage on profits from the sale of shares in unlisted New Zealand companies. That disadvantages New Zealand - resident venture capital investors. Even proponents of those provisions say they will not attract the appropriate capital that is needed—the purpose and reason for creating them. 
I will show Labour Governments’ track record of putting foreign investors not New Zealand investors and not New Zealanders first. Between 1984 and 1990 a Labour Government sold to foreign investors New Zealand Steel Petrocorp Health Computing Services the Development Finance Corporation PostBank the Shipping Corporation Air New Zealand Landcorp Financial Instruments the Rural Bank the Government Printing Office the National Film Unit Communicate New Zealand the State Insurance Office the Tourist Hotel Corporation New Zealand Liquid Fuel Investment Maui Gas Telecom and forestry - cutting rights—to the tune of $10.1 billion. That is right—$10.1 billion. I thought that when this Labour Government came in in 1999 it promised to stop putting foreign investors first and to start putting New Zealanders first but it did not do that. We can see the fruition of its policy in the venture capital provisions of this bill. 
Unfortunately and very sadly National was not much better as far as putting foreign investors first goes. That is probably one of the reasons National members are supporting the venture capital provisions in this bill. National sold $6.36 billion worth of State-owned assets to foreign-owned companies: the Export Guarantee Office the Government Supply Brokerage Corporation mortgages held by the Housing Corporation of New Zealand Taranaki petroleum-mining licences the Bank of New Zealand—yes we do remember the Bank of New Zealand—New Zealand Rail Wrightson rights Fletcher Challenge Ltd shares the Maori Development Corporation the Radio Company Ltd the Forestry Corporation the Ministry of Works’ civil construction arm and New Zealand Timberlands. 
Pita Paraone 
: A headache. 
CRAIG McNAIR 
: That is right. My colleague says one gets a headache listening to it because it is so sad. It is so sad because the foreign investors of the global market have taken advantage of New Zealanders and the previous Labour Government and successive National Governments have allowed them to do that. I think that has been devastating for the country and we are still paying for the consequences of those actions years and years later. Another name for the bill could be the “Taxation”— 
Clayton Cosgrove 
: Drum roll. 
CRAIG McNAIR 
: Even the Labour member over there the chairman of the Finance and Expenditure Committee is getting all excited about the next title. It could be called the “Taxation (We Don’t Care What You Think and Miscellaneous Provisions) Bill” because the Government time and time again has proven that it does not care what the average Kiwi thinks. 
Hon Trevor Mallard 
: This is a very average speech. 
CRAIG McNAIR 
: It is. It will get angrier. The Minister will start to hear me get more and more angry and get wound up because what this Government has done in the past few years while it has been in power has been very devastating. The reason why I say the bill should be called the “Taxation (We Don’t Care What The People Think and Miscellaneous Provisions) Bill” is that it provides high income-tax rates high business compliance costs and a whole bunch of compliance costs which the average New Zealand taxpayer has to foot and that is because of this Government. 
JILL PETTIS (Senior Whip—Labour) 
: 
 I move  
That the question be now put 
. 
PANSY WONG (National) 
: 
 This is more than a bill about mechanics. We in the National Party would like to take many more calls because we want to invite the Minister in the chair David Cunliffe to explain further why he describes the bill as pure mechanics. If he had read the bill he would know that it introduces issues that are a lot more substantial that that. 
My colleagues have talked a lot on the taxation rates so I will leave those provisions aside and come back to the other parts of the title. The title contains the phrases “Annual Rates” and “Venture Capital”. Submitter after submitter from the venture capital sector told the Finance and Expenditure Committee that the bill will not work. It will not introduce any more venture capital investors into New Zealand because they like a limited-liability partnership mechanism. Also the list of countries that the provisions apply to in terms of relief of taxation on capital distribution is too restrictive for it to be effective. The provisions in the bill relating to venture capital are nothing more than further Labour Government feel-good legislation. Once again what the Government introduces sounds good and looks good but does nothing. Why should Parliament continue to spend time debating legislation that is without substance? 
I also want to touch on another provision which is hidden under the miscellaneous provisions and that allows individuals to deduct expenditure relating to applications under the Resource Management Act that fail or are withdrawn. Recently we have seen Meridian Energy withdraw its large Project Aqua. Members should guess how much was written off by that State-owned enterprise. The amount was $38.7 million—because the Labour Government refused to simplify and make substantial amendments to the Resource Management Act. It is not good enough simply to allow people to deduct expenditure without tackling the core problem relating to applications under the Act. 
The miscellaneous provisions also include a provision introduced to close off the loophole relating to Australian unit trusts. While supporting the provision National wishes to point out that investors will continue to look for overseas investments that give them a tax advantage. It is not very effective for this Government to continue to introduce legislation to close off loopholes while the tax rate remains high because that is the main incentive that drives investment consultants or investors to look for loopholes. At the same time as the Inland Revenue Department is busy chasing investors in order to close those loopholes these high tax rates continue to give investors the incentive to look for overseas or internal mechanisms. The most effective way for the Labour Government to address these issues is to bring down both the company and the personal tax rates so that the Inland Revenue Department does not have to continue to chase individuals or entities and to spend a lot of time and energy closing off loopholes. 
I will come back to the issue of the high tax rate which continues to bring in high amounts of taxes to feed the Labour Government’s appetite for spending. 
Hon TREVOR MALLARD (Minister of Education) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 70 
New Zealand Labour 51; Green Party 9; United Future 8; Progressive 2. 
Noes 50 
New Zealand National 27; New Zealand First 13; ACT New Zealand 9; Maori Party 1. 
Motion agreed to. 
A party vote was called for on the question  
That clause 1 be agreed to. 
Ayes 70 
New Zealand Labour 51; Green Party 9; United Future 8; Progressive 2. 
Noes 50 
New Zealand National 27; New Zealand First 13; ACT New Zealand 9; Maori Party 1. 
Clause 1 agreed to. 
A party vote was called for on the question  
That clause 2 be agreed to. 
Ayes 70 
New Zealand Labour 51; Green Party 9; United Future 8; Progressive 2. 
Noes 50 
New Zealand National 27; New Zealand First 13; ACT New Zealand 9; Maori Party 1. 
Clause 2 agreed to. 
LINDSAY TISCH (Junior Whip—National) 
: 
 I raise a point of order Mr Chairperson. I might have missed this. I know that earlier on you said that Gordon Copeland’s Supplementary Order Paper amendments were vetoed. Does that relate to his amendments to clause 2 on Supplementary Order Paper 284? I do not know that you covered that clause. You talked about Part 5 and now we are talking about clause 2. I am interested to know whether the veto covered those amendments as well. If not we should be voting on them. 
The CHAIRPERSON (Hon Clem Simich) 
: When we commenced Part 5 I read out the information that the veto also applied to his amendments to clause 2. I thank the member for raising that. 
Hon DAVID CUNLIFFE (Associate Minister of Revenue) 
: 
 I move  
That the Committee divide the bill into the Taxation (Venture Capital and Miscellaneous Provisions) Bill and the Taxation (Annual Rates of Income Tax 2004-05) Bill 
 pursuant to Supplementary Order Paper 288 
. 
A party vote was called for on the question  
That the motion be agreed to. 
Ayes 70 
New Zealand Labour 51; Green Party 9; United Future 8; Progressive 2. 
Noes 50 
New Zealand National 27; New Zealand First 13; ACT New Zealand 9; Maori Party 1. 
Motion agreed to. 
House resumed. 
Procedure 
Bill reported with amendment. 
Report adopted.