Cullen Michael: Taxation (Urgent Measures and Annual Rates) Bill — Second Reading In Committee 
Cullen Michael: Taxation (Urgent Measures and Annual Rates) Bill — Second Reading In Committee 
[Volume:651;Page:142] 
Hon Dr MICHAEL CULLEN (Labour) 
: 
 The various parts of this bill are either unfair incompetent dishonest or stupid. Part 1 is the unfair and incompetent and dishonest part. Part 1 is entitled “Personal tax cuts”. 
Chris Tremain 
: Yes! 
Hon Dr MICHAEL CULLEN 
: Well the member may be able to afford a brand-new four-wheel drive to park out at Napier airport even further into the future because he actually is not in the electorate; he needs the four-wheel drive at the airport to give the impression he is somewhere around. But in fact for many New Zealanders Part 1 is a personal tax rate increase. For many people it is a personal tax rate increase. 
In the debate on Part 3 I will move an amendment—and I foreshadow this now because it relates to this part—that will provide an opportunity for the Maori Party in particular and the National Government. In the case of the Maori Party the amendment will give it the chance to put its mana where its mouth is and in the case of National to put its money where its mouth is—that is to move for a new tax credit that will apply where anybody under this legislation will be paying more tax than he or she would have done under the personal tax cuts legislation of 2008. Those taxpayers will be able to apply for a compensatory tax credit to make up the difference between what they would have received under the existing legislation and what they will get under this new legislation. It is very simple—they will be able to apply at the end of the tax year for that compensatory tax credit. That will show whether National believes that nobody is worse off under this bill. If nobody is worse off under this bill that amendment will cost it nothing. If the Minister in the chair the Hon Bill English then issues a financial veto saying that it will have more than a significant impact on the fiscal balance we will know that it will cost money. In other words people will be worse off under this bill. 
Who is worse off under these personal tax cuts? The answer is anybody earning $14000 to $24000 a year of taxable income. Why? Because the $14000 threshold does not go up to $20000 as it does under the existing legislation. The difference of $6000 will be at a different marginal tax rate by 2011 of 7.5c in the dollar. That is $450 a year. That is nearly $9 a week. For a person on $20000 a year $9 a week is quite a lot of money. It is peanuts for the members of this Committee. It means nothing to Jackie Blue who is looking bored over there. It means a lot to a person on $20000 a year. Who is such a person? It is a second-income earner in the family. Maybe it is the wife going out on a part-time job. It is a cleaner—a beneficiary who is putting in some effort and earning some money himself or herself. And now these people will be paying a higher tax rate on that than they otherwise would have done. It is a superannuitant with a bit of investment income or a superannuitant who has a small part-time job maybe delivering pamphlets. Would it not be ironic if that superannuitant had been delivering National Party pamphlets at the last election and ended up paying a higher tax on those deliveries than he or she otherwise would? So I invite members to consider this very simple amendment; let us just see what they will do with it. The amendment protects the low-income earners. 
The second group who will lose under this bill are all families with kids who earn under $44000 a year. There are quite a lot of those people—that is nearly the average wage. So by 2011 a single-income family on nearly the average wage will be worse off under this bill than they will be under the current Act. But even people earning a good deal more than that are worse off because they lose their entitlement to the new independent tax credit if they are receiving Working for Families and that is a cunning means of trying to stop them applying for Working for Families if they get only a little bit at the end of the day. They will all be worse off. 
Surprisingly Mr English has developed an antipathy towards modest-income families on small incomes. Why that is I do not know. Maybe he supports only large families on large incomes; he does not seem to support small families on small incomes. They will be penalised as a result of National’s taxation changes. So I say to Mr English that a family on 40000 bucks a year struggling to pay the rent and the mortgage—we have heard about them for the last 3 years from the National Party—will face a higher rate of tax and a lower net income as a consequence of this bill. How does that fit in with a Catholic social justice perspective? I remember asking Mr Bolger the same question in late 1990 when the National Government legislated to provide that a widow had to go to the Department of Social Welfare to apply for a widow’s benefit within a week or she would lose money. How did that fit in with those kinds of precepts? It does not fit in with those kinds of precepts at all. 
You see we used to attack the National Party for the trickle-down theory—the notion that as long as the people at the top got more eventually it would trickle down to those at the bottom. What was proposed for those at the bottom was not even a 6-litre shower but a half-a-litre shower as the margin eventually trickled down to those people. Well this is “trickle up”; it is a new theory from National whereby the taxes on low incomes are increased and that trickles up to those at the top. And why? In one of his previous speeches Mr English gave away that it is more expensive to give tax cuts to people on low incomes because as he said people on high incomes get that tax cut as well—as if somehow that was wrong. That was a very interesting little slip there as if to increase the bottom threshold or lower the bottom rate was somehow wrong because everybody got it because the rich also got it. 
That was Mr English doing his usual strange reverse logic in trying to look equitable by saying that it is awful that rich people get the tax cut that poor people get. Of course the point is that it is the other way around: poor people get the tax cut that rich people get whereas if one does it the other way and simply lowers the top rate poor people do not get the tax cut that rich people get. But of course we were told that the important thing was the threshold. Under this bill the threshold that the top rate cuts in at is lower than under the existing legislation because under the existing legislation it rises to $80000 a year. Under this bill it goes up to only $70000 a year. Do members remember when we were told that there was some kind of envy tax whereby the top tax rate would cut in at $60000? That was in 1999 and 2000 which was 8 years ago. It is perfectly all right now to cut in at $70000 a year some way down the track from here and that is not some kind of envy tax! But of course the theory underlying this is that if marginal tax rates are lowered people work harder. This is the capitalist version of the Stakhanovite worker—much beloved of the Soviet Union. This approach says that if we kept an extra 1c or 2c in the dollar we would all work miles harder. 
Well Mr Bridges will not do so. He will get paid the same anyway; it does not matter how hard he works. Members should look at National members; most of them have not done a stroke of work for the last 3 years. That is becoming very obvious in the way they have carried on in the House in the last day or two. They have not done a stroke of work. They are pretty well paid. They received a personal tax cut on 1 October and did not even say thank you for that; it just was not big enough—they want more please! In fact the marginal tax rate goes up on those people who earn between $14000 and $20000 a year—the people we want to encourage into work who are on benefits to earn a bit and to help themselves get started and move along. The superannuitants want to keep a little bit of work to earn a bit so their marginal tax rate goes up from $70000 to $80000 a year. That is a lot of senior teachers and nurses and other people who will be paying a higher marginal tax rate than they would have done under the current legislation. It goes down to Mr Foss who does not believe in work. He is the poor man’s John Key. He went overseas and did not make a fortune then came back to New Zealand. 
We have one area where there is a big cut in the marginal tax rate. Where is it? Between $42500 and $44000 a year the marginal tax rate goes down 13c. So we will see an extraordinary country a country where people earning low incomes will work less because that must be the theory—the marginal tax rate goes up. People in the next range will work exactly the same amount because their marginal tax rate has not changed. Then there will be this extraordinary group of heroes of the new sort of capitalist Soviet Union earning from $42500 to $44000—the turbocharged people of New Zealand—who will be working incredibly hard until they get to $44000 a year. Then suddenly they will stop working harder as there is no point because their marginal tax rate would now be back to where it was going to be before in any case. Of course if the taxpayers are independent credit earners then their marginal tax rate would not be 20c in the dollar but 32c in the dollar. So there is basically no change at all. So from an economist’s perspective there are no real incentives in this at all that make any difference to people working harder. So the theory then became—because they have kept trying to invent new theories—that the whole purpose was a stimulus for an economy in recession which many countries have been in for some time. But in fact if one wants to stimulate an economy in a recession one does something temporary to increase demand in the short term but one does not in a country with a chronic current account deficit and a chronic savings problem have a structural change.