Dunne Peter: Budget Statement — Budget Debate 
Dunne Peter: Budget Statement — Budget Debate 
[Volume:663;Page:11064] 
Hon PETER DUNNE (Leader—United Future) 
: 
 The best way to create a sustainable economy that deals with poverty that deals with disadvantage and that gives all the things that the previous speaker Jim Anderton and others have said we ought to be providing to people is to have one that is funded on a sound basis. The reality is that until this Budget there were real questions raised first by the Tax Working Group and second by some of the actions taken in years gone by that put the long-term viability of our tax base at risk. 
Let me give the House an example. With the benefit of hindsight what some of us suspected at the time to be true has been proven to be correct. The most disastrous tax decision in the last decade was the previous Government’s decision to hike the top tax rate in December 1999. The consequence of that has been as follows. We have seen a huge explosion in the use of trusts for income-sheltering purposes. The calculation has been that that move alone driven by that differential in the tax rate has cost the revenue around $300 million a year. That is $2.7 billion lost over the last decade as a consequence of that policy shift. But it gets worse. A lot has been said about loss attributing qualifying companies and how they have become another diversionary tactic along the way. The growth in loss attributing qualifying companies in the same period has been over 240 percent. We now have in the order of 130000 loss attributing qualifying companies in New Zealand. The value of their tax losses is now $2.3 billion which is 400 percent higher than it was at the start of the decade. If we put those two figures together we can draw the reasonable conclusion that the net consequence of Labour’s hiking of the top tax rate in 1999 has been a $5 billion revenue hole for the New Zealand taxpayer. 
The speaker who preceded me Jim Anderton asked why we were not doing more to alleviate poverty. I would love to do more to alleviate poverty. I would love to give a bigger boost to child health. But when we have a $5 billion hole to fill it becomes a little difficult. And it gets worse. If members listened to the Leader of the Opposition this afternoon they would have heard that he proposes to restore the hole. He is opposed to the cut in the top tax rate. He would restore it to what it was and set the whole process off again. We heard him and also Russel Norman the co-leader of the Greens say that coming in alongside that would be a capital gains tax. We have a situation where members on that side of the House say that this Budget is all doom and gloom it is terrible people will be punished etc. and to vote for them to have the top tax rate go up a $5 billion hole in our revenue and a capital gains tax as well. That is what does not add up; that is what does not make sense. 
I say to those who advocate a capital gains tax because it is efficient that it is efficient in the sense that it captures just about everything but it is not efficient in terms of producing revenue. I heard the Greens say the other day that with the $4.5 billion we would gain from a capital gains tax we could do all sorts of marvellous things. I have a couple of points about that. That would probably be over a 10-year period because it assumes that assets are moving all at the same time and actually at a maximum of about $450 million a year it is not the huge windfall that people make it out to be. 
As a result of the tax package in this Budget we have a dramatic change in the arrangements that will affect the average New Zealand family. For nearly three-quarters of taxpayers in New Zealand as a result of this Budget’s changes their maximum tax rate will be 17.5 percent. That compares more than favourably with the situation in any other jurisdiction we like to compare ourselves with. We also see a package that supposedly gives more to the rich but actually two-thirds of the cost of the package is dedicated to lowering the bottom two rates of tax. Those rates of decrease are greater than the rates of decrease for the higher rates of tax. So we are seeing a significant shift. 
Let us talk about the GST increase. Yes it goes up to 15 percent from 1 October. Let us contrast that with what happened the last time GST was raised. I was part of the Government that did that too. Unlike now at that time GST was raised with 6 weeks’ notice. 
Chris Tremain 
: 6 weeks? 
Hon PETER DUNNE 
: Six weeks’ notice with no compensation. Members can talk about people being adversely affected by a change that is 3½ months away with compensation and tax cuts on the day it comes into force but compare that with 6 weeks’ notice with no compensation I think it is reasonable to draw a conclusion about who is better off as a consequence. 
I am particularly pleased that the changes that will take effect from 1 October include full compensation for contributors to the Government Superannuation Fund and to the National Provident Fund as well because they are a group that has often missed out in the past when tax changes have occurred. I am pleased they will be addressed in the context of this Budget. 
So there we have it. We have a Budget that makes some significant changes in the disposition of taxes and that gives people more ability to make some choices for themselves about how they spend their income. Surely that is a reasonable proposition. Some may well spend more on food than others; that is a matter of choice. Some may well choose to do other things; again it is a matter of choice as to how one spends one’s income. 
We have heard the suggestion from those opposite that one way of compensating people for an increase in GST is to take fresh fruit and vegetables out of the mix. Let us have a look at that. It is a very arbitrary consideration. It probably would cost about $150 million to do but there are practical problems about how it would apply. Most retailers operate their GST return off their cash register returns. For a start every cash register in New Zealand would have to be recalibrated to take out a fresh fruit or vegetable item. There would be a growing industry in that respect. Also no account is taken of the cost of claiming a GST refund to produce those tax-free items. And it is so arbitrary that other unprocessed items like meat poultry fish and eggs would somehow be in the tax net but not fresh fruit and vegetables. One has only to look at what happened in Australia when this was tried. The great example was that of John Hewson Paul Keating and the ham sandwich. The ham by itself was exempt of GST and the bread by itself was exempt from GST but the sandwich was subject to GST. That is what the Labour Party is proposing to give us as an alternative to a very clear and straightforward system where everyone ends up better off as a result of these changes than they were beforehand. That is the line that cannot be surpassed. 
It is interesting to assess what the public reaction to this has been. At the lock-up this morning and in the various media commentaries subsequent to the presentation of the Budget there has been a generally favourable reaction and it comes around two key points. Firstly there has been surprise at the extent of the movement on the lower two tax rates; people did not expect as big a reduction and they certainly did not expect the move to reduce the company tax rate. Both of those things are positive for New Zealand: they certainly boost our competitiveness; they certainly make it easier for those New Zealanders contemplating a shift offshore to make the choice to stay here; they position our economy well for the future in terms of the uptake that will come from the international recovery; they position our economy well in respect of our traditional major partner and competitor Australia; they send a very clear signal to New Zealanders that what we are about is a better fairer tax system that removes the distortions that have nobbled it for a long time; and they get away from the envy politics that have actually made it more difficult to deliver quality policies in terms of the areas of traditional concern of members opposite. 
So this is a good Budget. It does not do all the dastardly things that were predicted for it; it does a lot of good for New Zealand families and I suspect that it will be well welcomed and positively accepted.