Smith Lockwood: Taxation (Annual Rates GST Trans-tasman Imputation and Miscellaneous provisions) bill — First Reading 
Smith Lockwood: Taxation (Annual Rates GST Trans-tasman Imputation and Miscellaneous provisions) bill — First Reading 
[Volume:609;Page:6655] 
Dr the Hon LOCKWOOD SMITH (NZ National—Rodney) 
: 
 The National Party will be supporting this bill to the select committee because it does have a couple of important and valuable measures in it. In introducing it though the Minister of Finance Dr Michael Cullen has just told us that there is a lot of meat in this legislation. I am interested in knowing how much more tax revenue is in it. I wish the Minister were able to stay around to respond because there are some measures in this bill that we are not happy with at all. 
Let me start right at the beginning. Part 1 sets the annual rates of income tax for 2003-04. This Labour Government has had 4 years in Government and is heading into its fifth and in that time frame has refused to adjust the thresholds for the different tax rates to apply on income tax in this country. As a consequence New Zealanders in the last year faced the second-highest increase in income tax of any country in the developed world. Only in the Czech Republic—according to OECD figures—did workers face higher increases in income tax than is the case in New Zealand. One of the main reasons for that is that this Labour Government has refused to adjust the thresholds. As a consequence Dr Cullen has grabbed millions upon millions of extra tax. The average income of New Zealanders has just moved above that $38000 threshold where the tax rate goes up to 33c in the dollar. 
As a consequence New Zealanders are now finding themselves paying a whole lot more money. When Dr Cullen brought in the top 39c tax rate he said that only 5 percent of New Zealanders would pay that 39c tax rate. Ten percent of New Zealanders are now paying it because of a process called fiscal drag. As salaries go up people move into higher tax brackets and the Government grabs more tax. We see that done unashamedly by this Labour Government. 
Its supporters do not agree with it. I know that Mr Copeland ofUnited Future does not agree with it. He thinks that the Government should adjust the thresholds for inflation. If United Future is prepared to stand up for what it believes in it should put some pressure on the Government to amend this part of this legislation. After 4 years as this legislation applies to the fifth year of this Labour Government it is time it eased the income tax burden on working New Zealanders. 
 It is not good enough to have our working people facing the second-highest tax increase of any country in the OECD after the Czech Republic. It is shameful and United Future which supports this Government on confidence matters should not support this measure without adjustment to those threshold levels because it is simply unfair to working people in New Zealand. So that is my first complaint about this legislation. 
Having said that let me be fair and congratulate the Minister on the first part of Part 2 the trans-Tasman imputation provisions because I know a bit about the history of those. As a former Deputy Minister of Finance and former trade Minister I tried hard to get Australia to agree to making these kinds of changes and I know from that involvement that it was not easy. It was quite challenging and I do congratulate Dr Cullen on achieving this. On the 20th anniversary of closer economic relations it is a good move. This part of the bill National supports wholeheartedly. 
I know that it was not easy to get it in place. In fact Dr Cullen did pick up from where National was in working this through with the Australians. It is not as though Dr Cullen started from scratch. National had done years of work on trying to get this measure in place but I do congratulate Dr Cullen on building on National’s work and bringing it to fruition. It will be very important for New Zealand businesses and help keep a number of companies registered in New Zealand that otherwise might have had to shift their head office to Australia to avoid the problems of trans-Tasman triangular taxation. 
While I am being positive about the Government I want to mention the second thing that we support in this legislation and that is the specified superannuation contribution withholding tax. What is a bit rich about it is that when National sought to introduce legislation like this back in the late 1990s Labour voted against it. We tried to do this when we were in Government but Labour voted against it. 
Hon David Carter 
: In the House and during the Committee stage. 
Dr the Hon LOCKWOOD SMITH 
: Yes. In the House and during the Committee stage Labour voted against it. I suppose this is the “Maharey principle” at work is it? The “Maharey principle” is to vote against something when one is in Opposition but to vote for it when in Government. That shows a Government of integrity does it not? It shows great integrity and great principle! It voted against the same measures when in Opposition but now in Government it will do it. Despite the—I cannot use the word “hypocrisy”—of that— 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: No. 
Dr the Hon LOCKWOOD SMITH 
: Let me say despite the—I am not sure I can find a word that says a similar thing because it is a bit like that when the Government flip-flops. Let me say that despite the flip-flop by the Government National endorses the move. We are not unprincipled like Labour. Despite the fact that we are in Opposition we will support this measure because it is the right thing to do. Labour should have had the integrity to do the right thing when it was in Opposition. Labour members should have had the you-know-what to do the right thing. They flip-flopped—but that is good because it is good for New Zealanders and that is why National will support that measure in this legislation. 
Let me now move to the measures that are just a little more tricky. This is where we need the select committee to look at some of the measures quite carefully because they are quite complex and we need to make sure there are not fishhooks in them that we are not aware of. 
Let me start with the deferred deduction rule which the Minister referred to. On the face of it it looks like closing a serious loophole that verges on the move away from tax avoidance towards the tax evasion scale of things whereby people are able to claim a greater tax deduction than they have actually invested. But it is interesting to note that this measure will net the Government between $400 million and $450 million. Let us not forget the very first thing: fixing the current tax rates nets the Government a whole lot of extra tax through fiscal drag or bracket creep as some people call it. This measure will add another $400 million to $450 million to the Government’s coffers. It cannot help itself. 
This rapacious Government and Michael Cullen love to collect tax and this measure will collect a whole pile of it for him. What we must make sure of at the select committee is that what this measure does is no more than is set out on the face of the bill. Although National accepts that there is a loophole we want to make sure that the measure proposed closes only that loophole and does not go further. 
Likewise there is the repeal of the sick accident or death benefit fund income tax exemption. Again I think that on the face of it that measure is possibly worth supporting but at the select committee we need to know for example how much tax will be grabbed from that one. Quite clearly there will be a further tax grab from that one and the Government has not told us so far about that. 
Finally let me mention the last issue and that is the zero rating of business to business supplies of financial services. Again National is likely to support that measure because of the cascading cost effect in the current arrangements. But again it is a measure that we need to examine in some detail at the select committee to make sure that there are not some unforeseen consequences in that zero rating of business to business supplies of financial services. On the face of it National would support that measure because of the possibility to reduce costs to businesses. 
But there we have it typical of a Labour taxation bill a couple of positive measures. The two most positive measures are the two things that the previous National Government had worked on. One of them I give credit to Dr Cullen for because he has taken it further than we achieved and that is the trans-Tasman imputation provisions but the bit that one cannot help but be cynical about is how the Government has flip-flopped on the specified superannuation contribution withholding tax. Labour had the audacity to vote against it when the previous National Government moved it and now it brings it forward itself. It is just as well that the National Party is more principled than the Government because we will support what is right in this legislation and we will fight the tax-grab bits of it that are unsatisfactory.