English Bill: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — First Reading 
English Bill: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — First Reading 
[Volume:626;Page:21230] 
Hon BILL ENGLISH (National—Clutha-Southland) 
: 
 I am pleased that National is opposing this legislation. Some provisions in it have some merit. I see in particular the changes in provisions for what are called farm conversions which are actually regrassing and fertilising expenditure associated with significant capital activity. But like any number of other measures in the bill that just lines up the tax world with reality and any Government ought to do that. 
Of course the problem for Labour members when they look at this legislation is that they wish it had all been different. They keep quoting a figure of $1.5 billion of business tax cuts. I bet there is not a member of that caucus who does not wish he or she was standing up here in the House to argue for changes in Part 1 of $1.5 billion of income tax cuts. It really does erode the confidence of a caucus when its members have relied on the Minister of Finance to make all the political judgments related to the Budget and then they find that he has simply misjudged—well not simply misjudged but completely misjudged. Labour MPs came out of their Budget briefing feeling very chipper. They came into the House feeling even better. At the end of the Budget speech they felt just terrific. The next day they felt sick. A week later they wished the Budget had never happened and that it was still 2 or 3 weeks away. But unfortunately it did happen. 
Dr Cullen made the astounding political judgment—let us look at the politics of it—that a series of changes mostly minor the odd one significant to business tax was where Labour’s big hit would be for the election. Actually he did not think it was going to be a big hit because his real problem was that he thought he had persuaded New Zealanders particularly mainstream middle-income New Zealanders that they ought to keep paying the tax rates set out in Part 1 of this bill. He thought he had their political support and their votes and therefore the election in the bag. He thought he could then try to do some tricky stuff by being business friendly and maybe pick up a few more votes. 
Dr Cullen’s big miscalculation was that middle New Zealand decided he was taking it for granted. Those people know how much more this Government has spent. They may not know the detailed numbers but they know there has been an awful awful lot more spending in the last 5 years. Some of them have been voting Labour because they thought the Government was competent and the economy seemed to be going along OK. Then they found out in the Budget 2 weeks ago that Helen Clark was taking their vote for granted. Many of the middle-income mainstream New Zealanders who vote for Helen Clark are not centre-left people. They are not social democrats; they are conservative New Zealanders. They wanted a signal from the Labour Party that Labour knew it had to earn their support—that it had to repay those voters for the enormous amount of tax they have paid over recent years which has financed Labour’s record spending increases. But Labour ignored them took them for granted and put up a Budget that did not even refer to them. And that is why Labour is going to pay a political price. 
Dr Cullen decided to focus on these business tax cuts. Well let us just get the story straight. Different front-bench Labour Ministers are saying different things about the business tax cuts. The major tax increase implemented by the Government in the last 12 months is the carbon tax. Pete Hodgson and Michael Cullen are saying quite different things about the relationship between the carbon tax and the business tax cuts. Dr Cullen says that the $700 million of carbon tax over a couple of years will be used to help to finance the other business tax cuts. His numbers say that something like $700 million in carbon tax is coming into the Government to help pay for the $1.5 billion of business tax cuts that he is giving away. We may disagree with the story but at least it is straight up. But Pete Hodgson who is the convenor of the climate change group and who needs a new suit instead of recycling the one he has been wearing for 20 years— 
Hon Paul Swain 
: What about your haircut? 
Hon BILL ENGLISH 
: It is pretty awful is it not? Pete Hodgson says that the carbon tax will be used by the Government to pay for carbon credits when New Zealand needs them. It cannot do both. If the Government is to collect $700 million in carbon tax then either it will be used to finance business tax cuts or it will be put away to pay for carbon credits when we need them. And we most certainly will need them under the Kyoto Protocol which is a large and looming problem. 
So which story is correct: what the Minister of Finance is telling us or what Pete Hodgson the convenor of the climate change group is telling us? I do not think it is competent to have a $700 million conflict in the story about the Budget. Why do we not get that one sorted out? The Government has one more speaker. That speaker can tell us where the carbon tax fits. Will it be used to finance these business tax cuts or will it be put away to buy carbon tax credits when we need them? We need to know whether Pete Hodgson and Dr Michael Cullen are talking to each other whether they think they are telling the same story or whether they do not even realise that they are telling different stories. 
I also want to talk about the fiscal impulse issue which Dr Cullen has been talking about. Fiscal impulse is driven by a combination of tax and spending in the Government’s accounts and in the real economy. Treasury calculates the fiscal impulse as a percentage of GDP. It is in the additional fiscal information on its website. What that shows is quite different from Dr Cullen’s story. Dr Cullen’s story is that there is no net fiscal impulse from what he is doing and that any change in anything would have a bad effect on inflationary pressure. Dr Cullen does not have a smooth pattern of no fiscal impulse in front of him. What he actually has according to this document on page 8 of Treasury’s additional fiscal information is a strong tightening of fiscal policy in the 2005 fiscal year. In fact it is a very strong tightening of fiscal policy. It will be the most positive fiscal impulse for at least 6 years. That is because Dr Cullen has had a huge tax intake. That is what has happened—he has had a huge tax intake. However after 2005 the fiscal impulse reverses quite sharply because Dr Cullen has a huge spend-up forecast for 2006 2007 and 2008. He will be pumping money into the economy flat out. 
I invite the financial media in particular to look at that fiscal impulse information. They need to know that the story of this Budget is quite different from Dr Cullen’s story and that his scare tactics over National’s prospective tax cuts package are just nonsense.