Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Instruction to CommitteeCWH In Committee 
Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill — Instruction to CommitteeCWH In Committee 
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Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill 
Instruction to CommitteeCWH 
Hon DAVID CUNLIFFE (Associate Minister of Revenue) 
 on behalf of the 
 Minister of Revenue 
: I move  
That it be an instruction to the Committee of the whole House on the Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill that it take the bill part by part 
. There are no schedules to this bill. 
Motion agreed to. 
In Committee 
Clause 1 Title 
PANSY WONG (National) 
: 
 This title is more reflective of the substance of the bill than are the titles of most of the bills that come before the House. At least we know that this legislation is about confirming a new taxation rate GST trans-Tasman imputation and miscellaneous provisions. But I would still like to point out that the minority Labour Government could have done better with the description if it had been even more upfront and transparent and had stated that the bill confirms the high annual income tax rate. I think we now have a halfway house. This minority Labour Government which always says it believes in transparency has failed to convey such an obvious factor in the title as the high annual income tax rate. I have brought that point up in this debate on the title because it is important to highlight it. Later on when we start to debate the various parts of the bill we will find that the high personal income tax marginal rate—increased from 33 to 39 percent—has led to many complications requiring adjustments to the Income Tax Act. So it has quite serious implications. 
I think the Minister may like to take a call to explain to the poor taxation petitioner and to people who file their own taxation returns why this legislation has 15 commencement dates. I ask the Minister to stand up take a call and explain to all accountants and more important to small-business people and individuals who file their taxation returns how they are supposed to comprehend legislation that has 15 commencement dates. There are 159 pages of this legislation— 
The CHAIRPERSON (Ann Hartley) 
: I am sorry to interrupt the member but clause 1 is not the commencement date clause. 
PANSY WONG 
: I will come back to the title because we will take up the debate on the commencement dates later. The title when I think about it—apart from the issue of the high income tax rate complicating the taxation legislation—is also complicated because of the many commencement dates which will certainly confuse everybody. If this minority Labour Government had not instigated that high personal income tax rate we would be debating a much simpler bill today. 
Apart from that the National Party wants to demonstrate to the public that we are constructive about the parts of the bill that relate to the GST provisions for imports and also to the harmonisation of taxation treatment and income tax dividend imputation between us and Australia. We are in agreement with those parts of the bill. 
 In terms of the title I feel that it is does a better job of reflecting the contents of and the types of issues that this bill tackles than the titles of some other bills do. It does not do too bad a job of highlighting for the benefit of any tax petitioner or business person who wants to know what is in the bill that it does cover the GST issue and the issue of trans-Tasman imputation. But I think the title does a very poor job by just simply describing the annual taxation rates without highlighting the difficulties caused by the varying personal tax rates and the high income tax rate which cause a lot of complications amendments and adjustments that people have to face every year. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 In speaking to the title of the Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill I guess that is a classic example of a title that tries to cover what is in the bill but actually misses the boat quite badly. Let me point out why that is so. 
The first problem with the title is the “Taxation (Annual Rates” bit because the bill does not spell out the rates that people do have to pay. The legislation is very poor at doing that. The Minister in the chair may choose to take a call on this. There are people in this country who pay effective marginal taxation rates that are far higher than this legislation implies. It is kind of misleading to refer to what this legislation specifies in the law as being the annual rates because they bear no relationship to the actual rates some people pay. We will get on to Part 1 which covers the annual rates but it does not really tell us the taxation rates that people face. It spells out a statutory taxation system if one likes. That is why the words “Annual Rates” in the title are misleading. The title implies that this legislation should tell people what they are to pay. The legislation does not do that. Some people in this country face effective marginal taxation rates of over 90 percent on a lot of the income they earn and this title does not give any indication that that is what is going on at all. 
For this title to be a fairer title it should specify “Taxation (Statutory Tax Rates GST” etc. rather than “Annual Rates”. The words “Annual Rates” imply that this legislation somehow gives people guidance as to the tax they pay when it does not do that in any way at all. Sooner or later the Government has to become much more upfront with people about the effective marginal taxation rates they are paying in this country. That is what is implied by annual rates and this legislation does not do that. That is my first concern. I think that rather than the present title of the bill the title should be “Taxation (Confirmation of Statutory Rates” etc. There is a huge difference between the statutory taxation rates and the effective marginal taxation rates that people face in this country today and “Annual Rates” fudges that because it implies that that is the actual rate people pay when it is not. This legislation simply confirms the statutory rates and does not spell out what people face. 
My second concern is this: why just pick the first four issues and then state “and Miscellaneous Provisions)”? That seems to be what the Government has done. I recognise there has to be some limit perhaps to how long a title is but there are other important issues in this bill. OK the confirmation of the statutory taxation rates is the first issue and there are a number of GST issues included in the bill. We have the zero rating of business-to-business supplies of financial services for GST purposes and the reverse charge mechanism to impose GST on imported services. That is all good stuff and it can be covered by “GST” in the title. “Trans-Tasman Imputation” is one very good thing in this bill that the National Party applauds totally and that is identified in the title. 
But there are also one or two other good measures in this bill. Although we are totally opposed to the confirmation of the current high taxation rates the introduction of progressive rates of specified superannuation contribution withholding tax on an employer’s contribution to match the employer’s marginal taxation rate is an important measure in this bill. It is too important to be just covered by “Miscellaneous Provisions”. I think an important provision like that should be identified in the title. So there is another problem. We have a problem over the annual rates not being a proper descriptor and a problem over the fact that the title does not cover something as important as the issue of progressive rates of specified superannuation contribution withholding tax. 
Finally I would also like to add that another important issue in this legislation is the removal of the double incidence for shortfall penalties for attributing qualifying companies and their shareholders. That is an important issue but the title misses it out completely. 
CRAIG McNAIR (NZ First) 
: 
 I take pleasure in speaking on behalf of New Zealand First on the title of this bill which is a bit of a mouthful. In speaking to the title clause I want to briefly come up with some different names that could be used in relation to this bill. 
We could call this bill the “Predominantly Sensible Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill”. I have two reasons for suggesting that as a new name. The first reason is that this bill changes the imputation laws to address the problem of triangular taxation which involves the double-taxation of certain trans-Tasman investments and it allows Australian companies to allocate imputation credits for New Zealand tax paid to their shareholders in proportion to their ownership of the company. I note that that arrangement is reciprocal and requires both countries to pass the relevant legislation. The necessary legislation was introduced in Australia—to recap a little on why we are doing this—on 29 May as the Taxation Laws Amendment Bill (No 6). The bill also seeks to mitigate a problem that imputation credits cannot pass through companies resident in neither Australia nor New Zealand by introducing a new form of grouping for imputation purposes that Australian companies may also join. 
Secondly I suggest “Predominantly Sensible” be added to the beginning of the title “Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill” because of the annual income tax rates. This legislation confirms the annual income tax rates for the 2003-04 year. In light of that issue we could even call this bill the “Taxation (Misuse of Taxpayers’ Money GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill”. New Zealand First believes that this Government should reprioritise its social spending so as to place greater focus on the real needs of New Zealanders. It should do that rather than spend its income from taxpayers on its politically correct agenda which includes as I mentioned earlier on in the second reading prostitution reform and abolishing the Privy Council. Those are both examples of that agenda. 
 Another title that we could use which relates to the annual taxation part of the bill—and as I said in the second reading New Zealand First supports all the other parts of this bill—could be the “Taxation (Lack of Vision for Taxes GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill”. I say that because I feel very strongly that there is a lack of vision on the Government’s behalf in the way it addresses taxation. In the run-up to the general election in 2002 we in New Zealand First talked about how we could make and produce a stronger economy by addressing the taxation area—not so much by addressing the annual income tax rates but by addressing taxation incentives for exporters for research and development and so on to really produce a strong economy. 
ROD DONALD (Co-Leader—Green) 
: 
 It is not often that I agree with Dr Lockwood Smith but on this occasion I entirely concur with his point of view that the Government should have included in the title of this bill the section on specified superannuation contribution withholding tax. That is one part of this bill for which I believe there is universal support around this Chamber. It is a part that I would have thought the Government would be making a big deal about. The Government is finally doing the right thing for those New Zealand workers earning less than $38000 a year who are trying to save for their retirement through a subsidised employer superannuation scheme. The title should have reflected that by including before “Miscellaneous” the phrase: “SSCWT: Removal of Tax Penalties”. That would have encapsulated what this bill is going to achieve. 
This Government is making a very important step forward by removing those tax penalties and it is a step we support but we would have much preferred the title to include “SSCWT: Extending the Superannuation Withholding Tax Concession to All Workers”. Unfortunately this Government has signalled that it wants to preserve a 6 percent concession or tax break for those workers earning more than $60000 a year and receiving an employer subsidy. It wants to preserve that concession for wealthy wage and salary earners but not extend that same 6 percent concession to heartland Labour Party voters who are the very workers in this country who need an incentive to save for their retirement. It is disappointing that the Government is not prepared to contemplate it would seem amendments along those lines. I am however looking for support from all the other parties in the Chamber and if those parties that support family-friendly policies can see their way to supporting my amendments we will have the majority. Then the title of the bill could be changed to refer to extending superannuation withholding tax concessions to all workers. 
Another change to the title we would like to see would be to incorporate the words “Tax Relief for Struggling Kiwi Families” after the words “Annual Rates”. That is something I think every member of this Committee would surely support including the Minister in charge of the bill Hon Dr Michael Cullen who I am pleased to see is just joining us. To that end I will be moving an amendment at the appropriate time to make the first $5000 of income tax-free. That would have across-the-board benefits for all New Zealanders but proportionately greater benefits for people struggling at the bottom. Whether they are beneficiaries or workers that would put more money in their pockets and therefore it would be important to add that to the title after the words “Annual Rates”. 
Straight after that it would also have been ideal if this bill had incorporated in the title “Carbon Taxes and Other Eco-taxes” because that is the Green strategy to pay for the tax cuts we want to offer New Zealanders across the board. Unfortunately again the Minister has signalled that carbon taxes are still way off in 2007 and other eco-taxes are not quite yet a twinkle in his eye but we will continue to encourage the Minister in that regard. But in the meantime I think this bill would have been more rounded if the Government—indeed the Minister—had taken credit for the excellent initiative on removing the tax penalties from the specified superannuation contribution withholding tax. In an ideal world he would have gone further and extended that as a tax concession as well as bringing in tax relief and eco-taxes. 
Clause 1 agreed to. 
Clause 2 Commencement 
The CHAIRPERSON (Ann Hartley) 
: I inform members that the Government has issued two veto certificates in respect of amendments in the name of Rod Donald set out on Supplementary Order Paper 171. The amendments are therefore out of order and no question will be put on them. However the certificates may be debated in the context of the debate on the provisions to which the vetoes relate. The certificates are available on the Table for inspection. 
PANSY WONG (National) 
: 
 When I took my first call I was slightly ahead of time in commenting on the wide range of commencement dates. In effect there are 15 commencement dates and I wonder whether the Minister in the chair the Hon Dr Cullen would take this opportunity to enlighten tax consultants petitioners and small-business people as to how they could comprehend and understand this bill when there are about 15 implementation dates. 
When I look at clause 2 “Commencement” it is interesting to note the schedule of commencement dates and while I may be ahead of time I can see that the Government is very much behind time. For example some of the commencement dates go back to 1994. In the latest Supplementary Order Paper there are amendments to the commencement dates that go back to 1994. Clause 2(2) on Supplementary Order Paper 169 states: “Section 103 is treated as coming into force on 1 July 1994.” Subclause (3) is treated as coming into force in December 1994. Subclause (4) states: “Section 75 is treated as coming into force on 1 April 1995.”; and subclause (5) states: “Sections 52(1) and 54(1) are treated as coming into force on 26 July 1996.” The references in the clauses refer to 1998 and 1999 and it is only halfway through those 15 implementation dates that I read that something will come into force in the year 2003. 
Maybe the Minister should take a call and explain all these complications and reassure taxpayers. Should taxpayers be panicking? Should they worry about the Inland Revenue Department knocking on their doors wondering what happened 6 7 or 8 years ago when they might not have filed a tax return correctly? Overall in this Parliament we treat retrospective legislation very seriously. It is bad enough for most people who are quite panicky about what the impact of changes to taxation bills might be but we are now facing a bill that not only includes changes but has 15 implementation dates. Half of those dates date back to before 2003 so how many tax consultants and accountants will have to go back to their clients’ files and make sure they are not caught inadvertently? 
Out of courtesy to the public I think the Minister should take a call to explain why we have a Supplementary Order Paper dated Tuesday 18 November 2003 when most of the dates we are looking at are between 1994 and 2000. I think catch-up legislation might be necessary but this bill seems to go back quite a few years. I think business people and tax accountants will be seeking guidance and reassurance from the Government that this bill is not looking to catch people up in these provisions without them even knowing that quite a few of those provisions have been backdated. 
People might think that a taxation bill is a dry piece of legislation but it has consequences even for small-business people because a lot of the issues we are looking at relate to GST. The threshold for GST registration is quite low and we are looking at some of the provisions relating to exempt income to see which part of the income might be subject to tax and which part might not be. But it is complicated in that one of the sections of the Act I was looking at—for example the definition of “financial services”—might be backdated to 1994. 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 To be very brief I thank the member for her second contribution in the debate as Opposition spokesperson on revenue. Where they are backdated the great majority of these commencement dates are beneficial to the taxpayer and are sometimes consequential on other structural changes so we need to carry the provisions back over the period to ensure that no harm is done. I think the one area where there will be a question is around GST in relation to some local body purposes where the ruling has changed. In order not to create the risk of a very substantial back-tax liability the law is being confirmed as it was originally intended to be and understood to be. The Inland Revenue Department itself actually changed its interpretation. 
So there is nothing terribly strange about any of these provisions. The bill is not in the usual sense retrospective legislation or in the vast majority of cases a matter for concern. The change is beneficial. It will suit tax accountants and lawyers who will be well aware of these changes as a result of the way the process of consultation occurred. Indeed one or two of the changes have been made at the request of the tax profession. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I appreciate the Minister of Revenue’s explanation but what troubles me somewhat over the commencement clause is that as a member of the Finance and Expenditure Committee I have checked back over my notes that I took during the hearings and I find that the committee did not focus particularly on the issue of the commencement dates. What worries me somewhat is that an amendment on Supplementary Order Paper 169—that is clause 2(5) amending clauses 52(1) and 54(1)—changes one particular aspect with regard to commencement dates. In the bill as introduced that commencement date of 26 July 1996 applied to clauses 52(2)(i) and 54(2)(i). What I have been trying to check in haste is whether the two references in the original bill and the two on the Supplementary Order Paper are identical—whether clauses 52(2)(i) and 54(2)(i) in the bill as introduced are the same as clauses 52(1) and 54(1) mentioned in the amendment on the Supplementary Order Paper. It would seem to me that in fact they are not the same because clause 52(1) is a new provision inserted by the select committee as distinct from the previous reference to clause 52(2)(i). Whether clause 52(2)(i) was simply an error— 
Hon Dr Michael Cullen 
: It was taken out. 
Dr the Hon LOCKWOOD SMITH 
: But when one looks at— 
Hon Dr Michael Cullen 
: It’s been replaced by clause 52(1). 
Dr the Hon LOCKWOOD SMITH 
: The Minister says it was taken out but when I look at what was struck out I cannot see mention of clause 52(2)(i). I see clause 52(2)(ii) but I do not see clause 52(2)(i). Likewise in the bill as introduced I do not see clause section 54(2)(i)— 
Hon Dr Michael Cullen 
: If I could help the member. It was 52(2). The committee changed it to 52(1) because of the change to the clause. It’s just a technical change which does exactly what was previously intended given the fact the number has now changed on the clause itself. 
Dr the Hon LOCKWOOD SMITH 
: But the thing is though the bill that the Committee is working off should show what the select committee did. If the committee struck out clause 52(2)(i) that should be evident on the face of the bill. Yet I cannot see where the committee has done that. I can see where the committee has struck out clause 52(1) and clause 52(2) but the bit of subclause (2) that is struck out is paragraph (ii) not paragraph (i). 
Hon Dr Michael Cullen 
: Because there was no clause 52(2)(i). It was meant to be 52(2). 
Dr the Hon LOCKWOOD SMITH 
: I appreciate the Minister’s explanation. So the bill as introduced was actually wrong in that regard. 
Hon Dr Michael Cullen 
: Yes. 
Dr the Hon LOCKWOOD SMITH 
: OK. I accept the Minister’s explanation that the bill as introduced was actually wrong. 
Then we come to the substance of that issue. What is being referred to in those clauses is the branch-equivalent tax account of a company which is quite complex tax law. I would not mind betting that 99 percent of members do not understand it and I do not claim—I have to be quite honest here—to understand exactly what this new clause 52(1) does. That provision is being backdated to 26 July 1996. The select committee did not particularly focus on this issue. I want the Minister’s absolute assurance that what is now spelt out in the amended legislation before the Committee with reference to new clauses 52(1) and 54(1) contains nothing that will in any way be negative for a company that falls into the branch-equivalent tax accounting system. The measures are obviously retrospective. I accept the Minister’s argument that retrospective measures are normally considered satisfactory if they are favourable for taxpayers but there are a number of them; we do not often see as many retrospective measures in a taxation bill as there are in this one. It worries me but I guess I have some comfort in that if there were too much in the bill that was negative that would have been drawn to the attention of the select committee. The committee did not particularly focus on it and I want to be absolutely satisfied that none of these retrospective measures especially those relating to international taxation are negative in any way at all because our reputation with international companies is hugely important. We must not be passing retrospective legislation that has negative elements in it. 
Hon Dr Michael Cullen 
: I can assure the member on that. 
The CHAIRPERSON (Ann Hartley) 
: I need to rule that the amendment put forward by Rod Donald is out of order. 
Clause 2 agreed to. 
Part 1 Annual Rates of Income Tax for 2003-04 
The CHAIRPERSON (Ann Hartley) 
: I remind members that there is a veto on Rod Donald’s amendment set out on Supplementary Order Paper 171. 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 I will take the first call on this part as I will have to go in a short period of time I am afraid to another meeting but my able colleague the Hon David Cunliffe will take over again. 
I want to comment briefly on the reasons why I have vetoed the amendment in the name of Mr Donald. The amendment has two problems—one relatively minor because it could perhaps be fixed with further conversation and one relatively major. The relatively minor one is that we cannot just create a $5000 tax-free zone and just shift the 19.5 percent boundary and keep it at $38000 and not address the structure of the tax system within that range. There is a whole set of issues around low-income earner rebates etc. In fact the veto certificate says between $1.7 billion and $2 billion cost because it is not quite clear what the amendment means in terms of some of the consequentials that would need to be moved to make the system actually work. On the face of it the amendment actually makes a nonsense of the current income tax rates. 
The second and more substantive—because we could try to work out the first one over some period of time—reason is that I feel it is fundamentally wrong to do as the member suggests. It is commonly suggested by people that if one makes a certain area free from income tax at the start somehow or other one is helping people on low incomes and people living in poor circumstances. There are a number of things wrong with that. The first might not appear on the face of it to be a sensible comment but it is true. Many people with low taxable incomes are not necessarily poor for a number of reasons. Some people are very good at reducing their actual income to a low taxable income. They tend to be called accountants and lawyers. 
Secondly many people who are on low incomes are second third fourth or fifth income earners within a family where the total structure of the family income is quite high so one is giving a tax break to perhaps the third income earner in a household with income of $200000 a year. That is particularly so because as we found when we had those kinds of exemptions at the front end it is remarkable how many children in better-off families manage to earn $5000 a year if $5000 a year is tax-free. The effort that goes into those young people at that point is quite remarkable. A cynic might suggest it has something to do with rearrangement of income within the family as opposed to actually representing a valid approach to the income tax system. 
So the proposal introduces a layer of unnecessary complexity in the tax system with very very little social benefit. For those on pensions and those on benefits in effect their levels are set in relation to net incomes in any case. New Zealand superannuation is related to the net average wage so if one changes the tax rates there is an automatic benefit to superannuitants. The gross simply changes to reflect the same net at the end of the day so all of that group of people who dominate people with low household incomes actually are not affected by this sort of change in any case. It is far better in fact as the Government proposes to deal with this issue through mechanisms such as family support which is targeted to people on low incomes with family responsibilities as opposed to perhaps a 17-year-old person with an income of $15000 or $20000 a year who is an awful lot better off than a household on $30000 a year and supporting three or four kids. 
So the amendment would not address social equity issues terribly well it would create tax compliance issues and avoidance opportunities and as cast it would actually create a nonsense of the current scales in any case. 
JOHN KEY (National—Helensville) 
: 
 On those comments we agree with the Minister of Revenue. I want to address Part 1 which National strongly opposes. It sets the annual tax rates in train for a further year. When the Government raised the top personal tax rate to 39c in the dollar it told the people that it would affect only 5 percent of all taxpayers. Well that is not correct at all. In fact one in five full-time taxpayers now pay the top personal tax rate—one in five. 
Lindsay Tisch 
: That is 20 percent. 
JOHN KEY 
: Yes a touch under 20 percent—one in five full-time taxpayers. One in two full-time taxpayers pay the next rate down—between 33c and 39c. 
Hon Dr Michael Cullen 
: Not quite— 
JOHN KEY 
: Well in totality. There is no logic in a top personal tax rate being raised from 33c to 39c. It creates a huge number of costs for the industry and a huge number of compliance issues. It was simply as we know it to be an envy tax—a disincentive for hard-working New Zealanders to go the extra mile to work hard and to create incentives. 
Mark Peck 
: Oh! 
JOHN KEY 
: The member for Invercargill does not seem to think that entrepreneurs and risk takers are worth supporting but on this side of the Committee we applaud those people. 
Hon Dr Michael Cullen 
: It costs me $190 per week. 
JOHN KEY 
: Well the Minister should look at his own tax plan then. I want to raise that issue for a second because the Inland Revenue Department actually tracks individual sector groups and it looks at the total amount of average tax paid by those groups. 
Mark Peck 
: What’s the member’s income? 
JOHN KEY 
: Reasonable. If the Minister would like to refer to those particular sector groups he would find that architects’ average income has gone up and average tax has gone up and plumbers’ average income has gone up and average tax has gone up but that is not so for accountants or lawyers because they have re-arranged their financial affairs to allow themselves to be earning more income and to be paying less tax. So what is the logic behind the increase? It does not work for hard-working New Zealanders who work for companies because they cannot pay themselves in that manner. It works for certain groups it is an envy tax and it is a particularly poor piece of legislation that this Government has saddled New Zealand with. It is one of the reasons why this Government is not a pro-growth Government. 
Hon Dr Michael Cullen 
: We’re doing all right! 
JOHN KEY 
: During 1983 and 1993 New Zealand grew at about 1.8 percent and between 1993 and 2003 it grew at about 3.3 percent. For every year of the last two decades our growth was under Australia’s by about 1 percent. New Zealand will have to perform better if it wants to outperform Australia and if it wants to narrow the gap between what New Zealand families are earning and what Australian families are earning. 
Dr the Hon Lockwood Smith 
: We could pay our rugby players more! 
JOHN KEY 
: That is right. Anti-growth policies like progressive tax rates are not an incentive for hard-working New Zealanders to go forward. 
This part also sets company tax rates in New Zealand. Company tax rates here will be set 10 percent higher than company tax rates in Australia as a result of this bill. The Minister could have sent a very strong message to companies all across New Zealand that he wanted them to compete head-on with Australia that he wanted them to be successful and that for $420 million the Government was prepared to let them do that. The Government could have pre-funded it because part of this legislation attacks aggressive tax planning and it is estimated that the Inland Revenue Department will net between $400 million and $450 million as a result of those schemes being closed down. The Government could have self-funded a wonderful bonus a wonderful Christmas present and a wonderful incentive for the businesses of New Zealand but no it does not want to do that. It wants to rely on its good luck and its good fortune and what has been a competitive exchange rate—and the Minister with his open-mouth policies is trying unsuccessfully to get it back to being competitive. That is what the Government is relying on. It is not sending a hard and fast message and we think that is a complete sham and a complete disgrace. 
We believe that a progressive tax system such as the one we have here is not creating efficiency in the economy is not driving economic growth and will not take New Zealand back into the top half of the OECD. 
ROD DONALD (Co-Leader—Green) 
: 
 Unlike National the Green Party does support progressive taxation but we would like it to be more progressive than it currently is and combined with a suite of eco-taxes. I am disappointed that the Minister of Revenue has exercised his financial veto on my amendment but I do thank him for engaging in the debate on how to help those people who are struggling on low incomes in our community. I hope he will find the heart to offer them something generous before Christmas so that the tag of “Scrooge” no longer applies to him. Perhaps he is trying to model himself after Arnold Nordmeyer—as a famous person once said to me after a Budget a couple of years ago. Although he has pointed out some flaws in the amendment we have put up what we are trying to achieve is an outcome that will benefit all New Zealanders particularly those at the bottom on middle and low incomes who genuinely are struggling and particularly the children of those people. 
In case anyone was thinking the Greens were being fiscally imprudent can I say we would recover the cost of our proposed tax cuts as referred to on our Supplementary Order Paper from a suite of eco-taxes. The first would be a carbon tax. We would also want to end the exemption from taxation that diesel currently enjoys to bring it into line with petrol and we would bring in other eco-taxes on a range of areas such as Crown resource rentals toxics and waste. Our whole philosophy is to cut tax on work and enterprise and also to use tax to discourage waste and pollution. I do not have the resources that Dr Cullen has to calculate that the cost would be between $1.7 billion and $2 billion; our own estimates are around $1 billion. Be that as it may we think making the first $5000 of income tax-free would be a step in the right direction and we note and appreciate the support from Grey Power in a press release from its National President Graham Stairmand for our proposal. 
My challenge to Dr Cullen is that if he does not like it I would like him to offer something better—something that at least matches what we are putting up. Our amendment would put $18.70 into the pockets of most New Zealanders—that is what it would work out as on a weekly basis—and $18.70 a week for a struggling family would make a real difference. Imagine the difference it would make to a one-income family with two children on the average wage! It would certainly help to address the level of child poverty in this country which is something the Minister should not be smiling about. Child poverty is one of the indictments on this Labour Government. I thank the Minister; that is much better. The Minister is now praying that we can solve child poverty. I hope he uses the power that is in his hands through the taxation system and the benefit system to address that very real concern. Any surplus is not real if it is built on the backs of children living in poverty. 
RODNEY HIDE (ACT) 
: 
 The ACT party will oppose this bill but I should point out that we certainly disagree with Mr Rod Donald’s analysis of the issue. I fear— 
Hon Harry Duynhoven 
: Rod’s feeling better already! 
RODNEY HIDE 
: Well the National Party ACT and New Zealand First are feeling pretty good because we like the thought of Dr Cullen campaigning at the next election on what Rod Donald is proposing for tax and economic policy in this country. 
However let me cut to the chase on the issue of annual rates. Why did this Government put the tax rate up to 39c in the dollar? The National Party ACT and New Zealand First opposed it. Why? Because we said it was not necessary. Can anyone remember that Dr Cullen said he needed the money said how much he was going to get and said he would spent it—$400 million? 
Hon Dr Michael Cullen 
: We got $500 million. 
RODNEY HIDE 
: He got $500 million. Does he need it? No. It was a cheap election ploy that he felt honour-bound to implement. We should ask ourselves this: was putting the top tax rate up to 39c good for the economy or bad for it? 
Hon Dr Michael Cullen 
: Look at the growth. 
RODNEY HIDE 
: Michael Cullen thinks it was good for the economy. My goodness no wonder he is not rated in the business world or around the world. Everyone knows that to put up taxes is bad for the economy—except Michael Cullen. He has spent too long in Parliament because he stands up and says: “But I pay the 39c rate.” But the Government pays his pay; the taxpayer pays his pay— 
Hon Member 
: And yours! 
RODNEY HIDE 
: Yes and mine. But I do not get up here and pretend that I am somehow equivalent to a person who is a wealth creator—who is investing risking and in business. Michael Cullen says that it makes no difference to him whether he pays tax at a rate of 39c or 33c. That is true. Why? Because we are paid by the taxpayer. Those in business those working and those who invest actually have to create the wealth. We put taxes up and we reduce the return on their working hard we reduce the return on their investing and we reduce the return on their being entrepreneurial. I know that Dr Cullen is shaking his head trying to get his head around that because he has never been any one of those three. But that is what provides the wealth for this country which this Government is grabbing through this tax take and distributing willy-nilly. 
We say as we said in 1999 that the tax increase to 39c in the dollar was wrong. We should be going to a low flat tax not to a more disproportionate tax. I say “Shame on Dr Cullen!”. He did not need the 39c rate. I think he knows that that is bad for the economy. He shakes his head and does not agree. Why does he not put the rate up to 99c? He cannot work that out. If a rate of 39c is such a good thing for the economy what about a rate of 40c? I had better not give the Minister of Finance ideas. If putting up taxes is not bad how come it is bad to have the rate at 66c or 75c as Jim Anderton and Rod Donald would have? Dr Cullen is not that silly; a rate of 39c does not do anything but a rate of 45c or 99c would be silly. The lower we can have taxes the better it is in terms of the productivity of our nation. Of course we need a Government and of course we have to fund it but we certainly do not need taxes at 39c in the dollar—especially when we see how this Government wastes and spends the hard-earned money produced by working New Zealand. 
Hon David Cunliffe 
: What rot! 
David Benson-Pope 
: Yes what rot! 
RODNEY HIDE 
: It is clear that those members are out of touch. They do not know where taxpayers’ money comes from. I doubt whether David Benson-Pope has ever worked in his life. If he did he would be cheerful instead of a miserable old grump sitting here in Parliament. If we look at David Cunliffe we can see that he has never worked in his life. We can tell. I say to this Government: remember where the money comes from. 
Hon Dr MICHAEL CULLEN (Minister of Revenue) 
: 
 I want to respond by saying that David Cunliffe spent a lot more time in the private sector than Mr Hide ever did. Mr Hide started off as some kind of scientist then pretended to become an economist who taught I think part-time at Lincoln University where nobody could tell the difference between whether he was teaching science or economics. 
However let me respond to him. We heard all this garbage back in 1999—that is: “If we put the top tax rate up to 39c everybody will go overseas nobody will work and economic growth will stop.” But what have we seen? Firstly net migration has reduced every year under the Labour-led Government. It is now much lower than it was under the National Government. Secondly economic growth has been above the OECD average in all but one of those years. Indeed this year we will be above the OECD average again. For the first time that I can remember for a very long time we will be above the OECD average for at least 3 years in a row. Thirdly there is no demonstrated connection at all between average tax rates or marginal tax rates and productivity. 
If we had had German productivity growth—because the member confuses gross domestic product growth with productivity growth—for the last 20 years now we would have been at least as rich as Australia. Australia’s problem is its sclerotic labour market; it is nothing to do with productivity growth which has been averaging 2 percent or so per annum. We have averaged about 1 percent or so growth per annum. If we could double that we would be doing fine as a country. President Clinton put up tax rates at the top end in his first year and had the longest successful boom in United States post-war history. It took a Republican president to manage to turn that around and generate massive federal deficits. 
I want to talk about the logic because Mr Hide really thinks that the well-off are really really stupid. 
Hon David Cunliffe 
: Do they vote ACT? 
Hon Dr MICHAEL CULLEN 
: Some of them do vote ACT and they are really really stupid if they do that. But members should listen to what Mr Hide says: if one’s tax rate goes up so that one’s net income goes down one will work less hard so one’s net income will go down even further. That is Mr Hide’s logic. We are supposed to believe that someone sitting up there in Paratai Drive is saying: “Oh goodness me they have just put my tax rate up so my income’s come down so I think I’ll do a lot less work so that my income drops even further.” That argument is really really stupid but it is put up almost every time by people in favour of somehow lowering that top tax rate. Equally we could argue that if people’s net income goes down they need to work harder to get their net income back up to where it was. The only survey I have ever seen on these matters—done years ago in the UK—asked: “If the top rate went up would you work less hard work the same or work harder?”. One third said “less hard” one-third said “the same” and one-third said “harder.” Nobody actually knew. 
We do know that when we have the kinds of stupid tax rates National used to have—at 66c in the dollar—then it is worth our while spending a dollar to avoid more than a dollar’s worth of tax. That rate is such that people can actually make money by spending money under that tax system. At a rate of 39c people cannot do that. Indeed even all of these famous schemes people use at best may defer their tax liability because at the end of the day the money has to come out go back into their own hands and be taxed at their individual rates. 
 What they are really saying now is that given $1 billion $2 billion or $700 million to spend—and this is Dr Brash’s argument—we put it at the top end with nothing for the bottom. Why? Because those at the top end are the only people who create wealth. In other words according to the National Party and the ACT party only those people on high incomes create wealth. That is utter garbage and an insult to every ordinary Kiwi out there who is battling away working for this country creating wealth and producing goods and services. Wealth is not created in Paratai Drive alone I tell Mr Hide. When that member wakes up to that fact his party might get more than 4.5 percent in the polls and perhaps something a bit more approaching the 45 percent that this party gets—this party that recognises who creates wealth in this country. And that is everybody who contributes in terms of working. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 What a bitter tirade from the Minister! The Minister said that the tax burden does not affect the economy and that putting up tax rates improves the performance of the economy. He said that Clinton put up tax rates and the economy went better. That shows the appalling economic ignorance of Dr Michael Cullen. He might have been a good academic historian but he sure ain’t an economist. All the research shows us that an economy carrying the total tax burden that New Zealand is currently carrying which is in the order of 40 percent of GDP has never succeeded in sustaining 4 percent GDP growth. Nowhere in the world has a developed economy carrying that tax burden ever succeeded in sustaining 4 percent growth which we must achieve if we are to close the gap with Australia. Dr Cullen thinks that he knows better than all the history of the last 50 years of the world. He thinks he knows better in saying that putting up tax rates improves the economy. 
First I endorse the comments made by my good colleague John Key about how there is a critical need to get down our corporate tax rate to make us competitive with Australia. The tax burden our economy is carrying is too high and the best research I have seen covering the last 50 years across the developed world shows an almost linear relationship between tax burden and economic growth. 
However I shall focus on another issue. Dr Cullen talks about the needs of the lower-income people of this country. I challenge him to do something about that instead of just blathering on about it. I want Dr Cullen to do that or his ministerial helper who I note is wearing an identical tie shirt and suit to Dr Cullen. I note that the Hon David Cunliffe so admires Dr Cullen that he is wearing an identical tie shirt and suit. I guess that crawling around the Minister like that may help with promotion but he has to wait a little bit of time yet. 
However the issue of substance I want to raise is this. If Dr Cullen and the Hon David Cunliffe are concerned about lower-income people what will they do about this issue? At the moment in New Zealand people with limited skills trying to get off benefits and improve their lives earning say $10 an hour as they seek to work under David Cunliffe’s taxation scheme in this country once those people have worked 8 hours a week at $10 an hour they earn a certain amount of money for their family. Does David Cunliffe know how many hours more than 8 they have to work to earn another dollar for their family? I want the Minister to indicate whether he knows the answer. 
Jill Pettis 
: He’s working on it. 
Dr the Hon LOCKWOOD SMITH 
: I shall help him. I would not mind betting that not one Government member knows. Does one think that if those people doubled their hours of work they might be a dollar better off? If they worked 16 hours a week instead of 8 might they be better off? Does any member know? I can tell members that they will not be better off. What if those people trebled their hours of work and went from 8 hours to 24 hours a week? Surely they would be better off. But I tell the Minister in the chair that they will not be. Under his taxation regime that family after trebling their hours of work will not have a dollar more in the pocket. Does that Minister know how many hours that family would have to work to be a dollar better off? They would have to work 50 hours a week to be a dollar better off in the pocket than they would be after they worked 8 hours a week. 
That is because of the way the benefit abatement system the tax credit system and the progressive tax system work that Rod Donald and the Greens like so much. If the Minister bothered to do the work instead of parroting nonsense he would see the way the poverty trap in this country works. I want the Minister in the chair to acknowledge that Labour is presiding over a huge poverty trap for our low-income lesser-skilled people. It is an indictment on this Government that after 4 years it has done nothing for the family I described—that is mum dad and two kids—trying to get off the benefit system working 8 hours a week to get a certain amount of income and as they seek to gain more income through work to try to improve their livelihoods they will have to work 50 hours a week before they get another dollar in their pocket. The Minister should be ashamed of what they are doing to our low-income people. 
MARK PECK (Labour—Invercargill) 
: 
 What an extraordinary speech from a man who was a Minister in a Government that cut benefits increased State house rentals presided over exactly that particular marginal tax rate and did nothing about it! When those members get into Opposition they become the job delegates for the low paid. I tell them that I saw that back in the 1980s up to 1990 before they were re-elected. However I have to say that they are hardly likely to get re-elected at the moment with the sort of shambles that they are in. I saw that then and I recognise it for what it was. It is so much cant. The only people who would be better off under a National Government and its tax policy would be the people on $70000-plus. If members know anything that is the only place they are polling any better and who are they getting the votes from? Rodney Hide! 
I tell the Committee that nobody is fooled by the protestations of the National Party—not a person. They know that Dr Brash will take something. He will take their holidays. That is what he will do. Dr Brash will take their pension. This is what he will do. Dr Brash will take their schools and hospitals. He will make them pay for them. Even worse than that Dr Brash will make sure that prisoners have to pay to go to jail. There will be private jails and prisoners will have to pay for the pleasure of going there. That is what they will do. That particular party should grow up and start to learn about economics. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 I raise a point of order Madam Chairperson. I have no problem with what the member is saying—it is so ridiculous—apart from the fact that it has nothing whatsoever to do with the bill. There is nothing in Part 1 about pensions schools holidays or whatever he was rabbiting on about. 
The CHAIRPERSON (Ann Hartley) 
: The member is correct. Obviously the bill is about revenue income tax and I would ask members to keep to that. 
CRAIG McNAIR (NZ First) 
: 
 I shall speak briefly to Part 1 to state New Zealand First’s view. New Zealand’s First’s view on this very important part is clearly that the money collected from taxpayers as stated in this bill should be reprioritised by this Government with regard to social spending so as to place greater focus on the real needs of New Zealanders. The Government should do that rather than spend its income on the different social policy that it is spending it on. 
New Zealand First calls on this Government—and I call on the Minister as well to speak to this if he can—to provide more economic leadership with regard to this part of the bill and to focus less on other legislation like the Smoke-free Environments Bill. I believe that the lack of an export policy providing tax incentives for exporters research and development and so on and the continued running down of the country’s infrastructure is very unfortunate. 
Jill Pettis 
: For goodness’ sake! Where have you been for the last 5 years? 
CRAIG McNAIR 
: New Zealand First believes that the Government should be working on an economic vision that will help to lift living standards and provide some sort of future for our young people—and I just had to throw in the “young people” since I am spokesperson on youth affairs for the party. 
Jill Pettis 
: We can work that out. 
CRAIG McNAIR 
: I thank the member. But on a positive note I want to say that providing income tax exemptions for community trusts is a very positive move and that move is set out in clauses 5 and 17. There are provisions giving community trusts that are established under the Trustee Banks Restructuring Act of 1988 an exemption from income tax. So New Zealand First does support the other parts of this bill but we feel we have to oppose this part for the reasons I have just given. This Government is showing a lack of vision in the area of taxation not so much for income tax but for— 
Jill Pettis 
: That’s a very profound reason. 
CRAIG McNAIR 
: It is a very very profound reason. This Government needs to provide vision for exporters because it will be exports that will grow our economy. 
Hon DAVID CUNLIFFE (Associate Minister of Revenue) 
: 
 This debate reminds me a little of the ghosts of Christmases past; although perhaps we should call it the ghosts of decades past. This debate is all about tax rates and it reminds one of the early days of the 1990s. Let us recall some of the myths that have been sadly trotted out again today. 
John Key 
: What was the average growth rate in 1990? 
Hon DAVID CUNLIFFE 
: Let us start with that member—that newly ebullient deputy deputy deputy spokesperson on finance the man whom Merrill built the man who says that 20 percent of taxpayers are currently earning over $60000. 
John Key 
: They are. 
Hon DAVID CUNLIFFE 
: No I am afraid they are not. At the time this Government took office we upheld our promise. It was 5 percent. Now as a result of the growth in the economy and incomes that might have crept up a percentage or two but I would eat my hat if it were more than 7 percent. 
Rodney Hide 
: I raise a point of order Madam Chairperson. I am pushing it a little bit here but it is for the benefit of the new Minister. It was 7.2 percent at the time that this Government came in. Official records show that. It was not 5 percent. 
The CHAIRPERSON (Ann Hartley) 
: That is not a point of order. 
Rodney Hide 
: I am trying to save the Minster from his own ignorance. 
The CHAIRPERSON (Ann Hartley) 
: Please be seated. That is not a point of order. It is a debating point. 
Hon DAVID CUNLIFFE 
: It is good that the honourable member has become so self-aware. Mr Key also said that company tax rates were now 10 percent higher than in Australia. Well pinch me I must be dreaming because I just cannot calculate how that could be true. Our basic company tax rate is 33c; theirs is reduced to 30c. Let us look at some of the associated costs. In Australia they abolished accelerated depreciation rates when they reduced their company tax rate. We still have them. In Australia there is a payroll tax of 6 percent for large employers. In New Zealand we have none. The top personal rate in Australia is 47 percent. In New Zealand it is 39 percent. As far as paying for one’s health is concerned in Australia there is a compulsory Medicare charge of 1.5 percent. We have none. They have a compulsory superannuation charge of 9 percent of one’s salary. We have none. They have a house-purchase stamp duty which is 6.5 percent of the house price. We have none. They have a land tax which is set at 1.5 percent of land value. We have none. And here is the biggie—they have a capital gains tax and we have none. So when I hear people say they want to pack up their business and jump across the ditch to the land of milk honey and wallabies because they want lower tax rates I say: “Mate good on you! Go for it cos you could be just a bit disappointed when you get there.” 
Mr Hide talks about 20 percent tax rates. That is really a blast from the past is it not? He said that if we reduce tax rates we will always get increases in productivity. “Reduce them how far?” I ask. Should we reduce them to zero? How good would productivity look? 
Hon Maurice Williamson 
: Very good idea! 
Hon DAVID CUNLIFFE 
: That has Maurice Williamson excited. That got two thumbs up from him. But how would we go with no education system? How would we go with no police? How would we go with no judges to enforce contracts? The proposition is patently absurd. I could go on and on but I think that tells us that what we are encountering is simply the ghosts of decades past. 
PANSY WONG (National) 
: 
 If that is the type of reply speech we get from the Minister in the chair Mr Cunliffe I think we should be spared. That was a very tiring speech—one that is always being trotted out. Without the 1990s the Government would not have got the gains it is getting in 2003. The National Party is definitely voting against Part 1 and the reason is very simple. I am an accountant by qualification. When we have a company that reports and says: “Wonderful! We have had a great year. We have sales and profits exceeding our budget.” everybody is overjoyed because the company earns its way and provides employment. The minority Labour Government announced that it has a bigger surplus than it had last year. Maybe that Minister can take a call and explain how the minority Labour Government earned a surplus that was bigger than budgeted for last year. It was achieved largely through taxation. Tax is not something that individuals and companies can volunteer and say: “Well because I think this Government provides a better service so we volunteer to pay more.” 
No it was compulsory. It is as my honourable colleague Dr Lockwood Smith said. It was statutory—it was achieved by legislation. People had no choice. They had to pay that tax. So in effect the minority Labour Government overtaxed people. Largely that surplus has come from business. Some people may argue that they are happy to pay more tax if the Government provides more services and they may say that the extra services are a justification. 
I want to come back to a tragic incident that the public can relate to. Miss Trish Grant who wrote the report on the latest tragedy from the Office of the Commissioner for Children—the tragic deaths of the two girls—asked why the priority for Government spending is on setting up a database for dogs and not a database for children at risk. That is a very sad reflection on this minority Labour Government. It is actually celebrating the overtaxing of our very hardworking small-business owners and it is upsetting the public in terms of how it is spending that money. 
So before that Minister gives us a lecture on how we are doing better than Australia he should reflect on the fact that the average income for an Australian is $200 per week more than it is for a New Zealander. He has given misleading quotations about the taxation rates of Australia. He has not told the New Zealand public the full story which is that although the top personal income tax rate in Australia may be higher they have a higher threshold. 
I think everybody owes it to the public to tell the truth. Members should give the public the whole picture and not mislead them. If anybody would buy into that argument of the Minster of Finance and say that higher taxation is good for the economy I wonder why he has stopped at 39 percent. 
The truth is that when this minority Labour Government put up the taxation rate it sent a very clear message to New Zealanders: “The more you earn the more you will be taxed.” The underlying assumption is to say that if people earn more and become well-off if they become high-income earners somehow they are doing something wrong and because they are doing something wrong the Government—[ 
Interruption 
] Rod Donald says that people who are hard-working are not contributing to society. When people earn more they can discretionally spend more and thus contribute to society. 
JOHN KEY (National—Helensville) 
: 
 What a woeful bunch of speeches from the Minister the mini-Minister and whatever Mark Peck calls himself! They need a good economic speaker. If I were any of those three I would go over to Treasury I would sit down and I would say: “Help! Shut the door don’t tell anyone we’re over here we don’t know anything we’re totally clueless. Could you possibly give us a hand?”. There are some very intelligent people in Treasury who will help and will keep it confidential. Those members have spent 15 minutes of our day in the Chamber today declaring to the people of New Zealand in their speeches that they are absolutely clueless. They do not know what drives the economy what takes things forward or how to build a growth economy. Why do we know that? It is because this is a Government that will not declare to the people whether its surpluses are structural or cyclical. 
Why will it not do that? It is because the Government knows they are not structural. It knows it has not done anything since it has been in power that has been pro-growth. It will not tell people when we are to go back into the top half of the OECD because it cannot work that out and every time Government members go over to Treasury the boys and girls there tell them that their policy and planning systems are so anti-growth that we will not get back into the top half of the OECD any time in our lifetime. 
The Minister in the chair David Cunliffe stood up—and misquoted me might I say: he said that I said that the top rate would affect 5 percent. What I said was that one in five—19 percent—full-time taxpayers now pay the top tax rate in New Zealand. That is a statement of fact. 
What a hopeless situation we have when somehow people think it is OK to increase the top rate because it affects 5 percent only—people earning NZ$60000. We think it is OK to increase the top rate to penalise those people and to tell them not to go out there and work harder. We do not want to give them incentives because they are rich by virtue of earning $60000! Do members know what the top tax rate in America is? People who pay that tax rate are earning US$500000. If we want to create incentives in this country and get people going they will have to have some real incentives. 
I refer to the Minister trying to tell us that the Paritai Drive sector were not the only people creating wealth. Members should think about this for just a moment. Maybe the Minister can pay some serious attention because clearly Labour Party members need an economics lesson. If the average growth rate can grow by just 1 percent more than Treasury’s long-term forecast which is currently set at about 2 percent—and we will be lucky if we can achieve that with this Government in action—the average income of all New Zealanders would double in 30 years. If we do not grow by 1 percent more it will double in 50 years. 
What do New Zealanders want? Do they want to double their income in 30 years or in 50 years? The Government thinks that putting in a progressive tax system that discourages entrepreneurs risk-taking and making the economy go faster is a really good thing to do. Why do we not put up the top tax rate to 95c in the dollar and while we are doing that why do we not bring in 4 weeks’ holiday in a couple of weeks’ time because that sounds like a really good idea as well. If we really get the boat rocking and rolling we will see how many people leave and get on those 747s. The Minister cannot tell us that we have positive migration that is a result of the Government’s pro-growth economy either because we all know that what is actually happening is that natural New Zealanders are leaving and going to Australia America and the United Kingdom and that we are letting a whole load of other people come down here. 
Frankly the whole population of the country could leave if it wanted to and we could still replace it with net migration. The Government may not have noticed but there are a billion people living in China. If China wanted to send 10 million of them down here we could have a population that is 2.5 times the size of the current one. No one should be fooled by thinking that we have positive net migration so that somehow this is a pro-growth economy. There is nothing pro-growth about this Government. If we can get growth out of the economy it will be superannuitants who will benefit. The people who will benefit are the very people Rod Donald was talking about. 
If Mark Peck does not know that—which he does not—maybe he should go up to Auckland and ask the average plumber what he or she is earning. The answer will be that it is double what he or she was earning before the growth rate happened in Auckland. That is what growth does. Growth needs economic incentives. Let people work hard enjoy those rewards and be investors and entrepreneurs. That is what we have to do if we want to get the country going forward. We will not get it by putting up an envy tax for no good reason. 
Hon DAVID CUNLIFFE (Associate Minister of Revenue) 
: 
 I take a very brief call to attempt to insert a few facts into this increasingly rhetorical discussion. Both Ms Wong and Mr Key—deputy deputyDawg—have argued about the level of the surpluses. Let us strip it down. 
The CHAIRPERSON (Ann Hartley) 
: The member cannot use that term. He will withdraw and apologise. 
Hon DAVID CUNLIFFE 
: I withdraw and apologise. The operating balance excluding revaluations and accounting changes is $5.6 billion. From that we must subtract $800 million for retained earnings after dividends of trading activities. 
Rodney Hide 
: I raise a point of order Madam Chairperson. This debate is actually on part of this bill. I ask the Chair to reflect on what the hell the definition of the operating balance excluding revaluations and accounting changes etc. etc. has to do with this bill. 
The CHAIRPERSON (Ann Hartley) 
: I remind the member that clause 3 is about rates of income tax. I ask the Minister to keep to the rates of income tax as I have reminded others. 
Hon DAVID CUNLIFFE 
: Very briefly other members have referred to the level of surpluses that have been generated by those rates and I am simply trying to explain the composition of those surpluses. 
Rodney Hide 
: I raise a point of order Madam Chairperson. That was a direct challenge by the Minister to the Chair after you had ruled. 
Jill Pettis 
: Oh sit down. 
Rodney Hide 
: Now I have the fishwife complaining and interjecting while I am on my feet on a point of order and the Chair does not seem to mind. 
The CHAIRPERSON (Ann Hartley) 
: That is not a point of order. Please be seated. The member will continue and stick to the rates of income tax. 
Rodney Hide 
: I raise a point of order Madam Chairperson. 
The CHAIRPERSON (Ann Hartley) 
: I have ruled on the point of order Mr Hide. 
Rodney Hide 
: This is a new one. 
Hon DAVID CUNLIFFE 
: Madam Chair I fully accept your ruling. 
The CHAIRPERSON (Ann Hartley) 
: Mr Hide has another point of order. 
Rodney Hide 
: Speakers have instantly thrown members out of this Chamber for interjecting on a point of order—I think I myself may have suffered that indignity—but I notice that when the member opposite interjected you clearly heard her. You refused to comment and discipline that member. She should be gone. She is the whip—she should know better. 
The CHAIRPERSON (Ann Hartley) 
: Several members have interrupted this afternoon. I have not given a warning but I will certainly give a warning now. 
Hon DAVID CUNLIFFE 
: Very briefly to conclude the point at issue— 
Hon Judith Tizard 
: I raise a point of order Madam Chairperson. In that exchange an extremely unparliamentary term was used about a respected colleague. All members are honourable members and I ask that the offending member withdraw and apologise for that expression. 
The CHAIRPERSON (Ann Hartley) 
: I am sorry I did not catch that. Did the member— 
Rodney Hide 
: I wasn’t offended. 
Hon Judith Tizard 
: In his purported points of order Rodney Hide used an expression about the Government whip that is extremely unparliamentary. All members are honourable members and I find that term deeply offensive. 
The CHAIRPERSON (Ann Hartley) 
: The member used an unparliamentary description of a member. He will withdraw and apologise. 
Rodney Hide 
: I withdraw and apologise. 
Hon DAVID CUNLIFFE 
: Very briefly to conclude the point—and I fully accept your ruling—the implication of the rates as they currently stand with the economy growing as strongly as it is is that a cash surplus of some $5.6 billion translates to an available surplus after adjustments of around $1 billion which must be apportioned between debt repayment and new spending. The Opposition has called for tax cuts. That must be seen in the context of the available surplus of the day. 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 In addressing Part 1 I endorse what my colleague John Key has again said about it. I was recently overseas and for the Minister to claim that these tax rates have not driven New Zealanders off shore is simply arrant nonsense. I met taxation refugees from New Zealand around the world who were escaping from— 
Sitting suspended from 6 p.m. to 7.30 p.m. 
DIANNE YATES (Labour—Hamilton East) 
: 
 I move  
That the question be now put 
. 
LINDSAY TISCH (National—Piako) 
: 
 We had an interesting debate prior to the dinner break. We saw the Government defending a high rate of taxation even though other countries in the world have actually reduced their rates. The OECD group of countries has reduced taxation over the last few years yet this Government has increased the tax rate from 33 percent to 39 percent for those earning over $60000. The Government said when it was planning to do that that only 5 percent of the population would be affected by it. That was on the Government’s credit card pledge which stated that only 5 percent of New Zealanders would be affected by an increase in the taxation rate. It was shown before the dinner break that in fact that rate has gone up to 19 percent. Nineteen percent of New Zealanders now fall into the category of paying the higher rate of tax. If we look at other countries around the world— 
Dail Jones 
: How many percent? 
LINDSAY TISCH 
: It is 19 percent. It has gone from 5 percent to 19 percent—20 percent or thereabouts—which is a fourfold increase. 
When we look at other countries’ tax rates we see they are coming down because it is a disincentive to have high tax rates. Any Government worth its salt will look very closely at investment growth and the incentive to invest. Where there are high tax rates there is a disincentive. Even countries like Russia have moved to a flat tax. It states here that Russia’s flat tax works. Well well! 
Hon Dr Michael Cullen 
: Zero! 
LINDSAY TISCH 
: No no. Russia’s flat tax is 13 percent. What is our corporate tax rate? Our corporate rate is 33 percent which is 10 percent higher than that of Australia. Why would anyone want to invest in New Zealand at a 33 percent corporate tax rate when Australia’s rate is 30 percent? We are seeing already that businesses are going off shore and putting their money in offshore investments because there will be more incentive there. 
In any country—[ 
Interruption 
] I was in the Chamber before dinner and I heard the Minister’s comments then that tax rates do not matter. I can tell him that if he were in business and paying those high tax rates he would be in for a big shock. Tax is the biggest compliance cost that businesses have to face. Numerous surveys have been done that state that the No. 1 compliance cost facing businesses is the higher tax rate. 
As well there are those on wages and salaries. Members may recall that it was National that reduced the tax figure and increased the threshold for tax. Back in the early 1990s when we had the higher tax figure the threshold was $30875. 
Hon Dr Michael Cullen 
: You didn’t change the tax rates in 7 years. 
LINDSAY TISCH 
: It was $30875 and National took it up to $38000. 
Hon Dr Michael Cullen 
: Rubbish! 
LINDSAY TISCH 
: I tell the Minister that the threshold was $30875 and National took the threshold for the 19.5c rate up to $38000. The rate was 19.5c up to $60000 when the rate changed to 33 percent. Under this Government the rate above $60000 has now gone up to 39 percent. 
There is no incentive for sole trader businesses to pay those high taxes. What are they doing? I will tell members what they are doing. Those sole traders are forming companies because as directors of companies they will be treated as employees of that company and will pay the personal tax rate on income up to $60000. Those earning over and above a taxable income of $60000 will pay a corporate rate of 33 percent only. That is a lot less and that is where the incentive comes in. A lot of small businesses and sole traders are forming companies—a company needs only one person—in order to reduce their rate of taxation from that 39 percent rate which is applied to income over $60000 to 33 percent which is the corporate rate. 
Hon Lianne Dalziel 
: Nonsense. What do you mean— 
LINDSAY TISCH 
: That is what is happening. I ask what the member knows about business. When businesses are being restructured one of the things looked at is how to reduce liabilities and those huge compliance costs. The No. 1 problem that businesses are facing is high taxation rates. That is identified in compliance cost surveys. 
NANAIA MAHUTA (Labour—Tainui) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 68 
New Zealand Labour 52; Green Party 9; United Future 7. 
Noes 44 
New Zealand National 25; New Zealand First 13; ACT New Zealand 5; Independent: Awatere Huata. 
Motion agreed to. 
The CHAIRPERSON (Ann Hartley) 
: As I have advised the amendment to Part 1 in the name of Rod Donald on Supplementary Order Paper 171 has been vetoed. 
A party vote was called for on the question  
That Part 1 be agreed to. 
Ayes 68 
New Zealand Labour 52; Green Party 9; United Future 7. 
Noes 44 
New Zealand National 25; New Zealand First 13; ACT New Zealand 5; Independent: Awatere Huata. 
Part 1 agreed to. 
Part 2 Amendments to Income Tax Act 1994 
BRIAN CONNELL (National—Rakaia) 
: 
 I am delighted to be able to take a call on the Taxation (Annual Rates GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill. If we factor in time I suppose there are compliance costs in all those matters. I have not had the opportunity to take part in the debate on this bill but I would like to say for other than Part 1 that I commend the people who worked on the bill. I think that they have put together something that is very worthwhile and well considered so I am sending out bouquets to those people. 
I would like to concentrate in Part 2 on trans-Tasman imputation and credits and for the sake of accuracy I would like to read a bit of the commentary on the bill which states: “The bill changes the imputation laws to address the problem of triangular tax which involves the double-taxation of certain trans-Tasman investments. It allows Australian companies to allocate imputation credits (for New Zealand tax paid) to their shareholders in proportion to their ownership of the company. This arrangement is reciprocal and requires both countries to pass the relevant legislation.” It goes on to state that the amendments permit a new form of grouping for imputation purposes only which Australian companies can also join. That attempts to mitigate the problem that imputation credits cannot be passed through intermediate companies that are not resident in New Zealand or Australia. I say that that is sensible and closes that loophole. As I said the Finance and Expenditure Committee has worked on something that is rather complex and has come up with what I believe is a first-class solution. I have to say that attracting investment to this country is something that is desperately needed. I do not say this legislation in itself will do everything that is required but I think it is a step in the right direction. 
Yesterday I met with the executives of a multinational company called Weyerhaeuser. It is an international forestry organisation with a turnover of something like US$22 billion. They were out here looking at some of their investments in Nelson and the conversation that I had with them was very constructive. One of the things that the executives of that company were doing here was looking for opportunities to invest further but one of their concerns was the compliance regime that New Zealand is working under. They cited—the Minister may be interested in this—the Resource Management Act as the biggest turn-off to business investment in this country. Now in a constructive way I said that is something that everyone in this Committee has to get their heads around and try to do something about because it is clear that those executives are sending signals to us as are other international investors that we just have to address the compliance regime. 
I believe the Government has started down the right track with this legislation. I have been on record as saying that I think some of the work that the Government has done in some of its recent legislation is anti-business but I think this bill is a step in the right direction. It is critical that one of the things that we look at addressing beyond the Resource Management Act is our occupational safety and health legislation. Before anyone jumps on me I say I am the first person to accept that we need to do something about our safety record but I do not want that to go to the point where it distracts businesses from their core business. I think we have to look at our accident compensation legislation particularly as it relates to small business and what I sincerely believe to be just nonsense around the issue of 4 weeks’ holiday is something that we also should look at. 
So having tabled those views I would like to conclude by saying that this part is a step in the right direction. I think the select committee has worked well together to bring something to the Committee that is sensible. That demonstrates that when we put our collective will together to do something that is constructive we can come out with something that is to the betterment of this country. I commend the work that has been done thus far. 
ROD DONALD (Co-Leader—Green) 
: 
 I am delighted to speak to this part of the bill because this is the good-news part of the bill. I can see from Dr Cullen’s smile that he agrees with me on that. This is the part of the bill where the Government has finally succumbed to pressure from the Greens and others to end the taxation penalties on low and middle income workers who are saving for their retirement. I think all parties in the House would applaud that because it is totally unfair that anyone earning less than $38000 a year who is a member of an employer-subsidised superannuation fund should be faced with the employer component of that fund being taxed at a higher rate than the marginal tax rate of the employee. So I give a big tick to the Government for removing the tax penalties and also an acknowledgement and a note of gratitude to the Government for supporting the further Green Party initiative to include a 15 percent rate for those earning less than $9500 a year. I know that not many people are affected by that that it will cost the Minister only $1 million a year and that he is very cash-rich at the moment. But it does make this a genuinely progressive specified superannuation contribution withholding tax and that is a good thing. 
I would also like to acknowledge that the Government is prepared to back something that was I think originally a United Future initiative to ensure that the taxation rate on superannuation is set at the level of a person’s salary rather than his or her salary plus superannuation. That measure helps those people earning just under $38000 who are currently receiving superannuation or who may be eligible for it. Those are very important steps in the right direction and I would like to hear from the Minister to make sure that he is in planning to take a lead by ensuring that the superannuation contributions to Government employees will be taxed at the lower rate. He may be able to clarify whether that will apply to anyone in GSF New Zealand given its defined benefit scheme. Certainly for anyone in the National Provident Fund I hope the Government will opt to make sure that those employees are taxed at the lower rate. I hope that the Government will provide a lead to all employers to opt to pass on the tax savings to their staff. What is in this bill is optional; it is not compulsory. So I hope that employers will take that option will be generous and will give their staff an early Christmas present even though that measure does not kick in until some time in the future. 
That is end of the good news. The bad news is that Dr Cullen is keeping the taxation penalty in place. My amendment in Supplementary Order Paper 171 addresses that issue and it is unfortunate that the Minister has invoked the financial veto provision in order to stop my amendment proceeding. All that it would have done was to simply extend the current 6 percent specified superannuation contribution withholding tax rate concession enjoyed by employees earning over $60000 to low and middle income earners. In practice that would have reduced the 15 percent rate to 9 percent the 21 percent rate to 15 percent and for those earning between $38000 and $60000 the 33 percent rate to 27 percent. It would have cost the Minister and this Government only $77 million a year—a fraction of the $1.88 billion that the Minister wants to put into the Superannuation Fund which in turn will be gambled on the overseas sharemarket. 
I would like to thank the officials at this point for their drafting assistance with regard to my amendment. They did a sterling job and I am grateful for that. I would like to thank National members for supporting my amendment at the Finance and Expenditure Committee and I would have hoped that they could support me here in the Committee had the Minister not vetoed my amendment. I was disappointed that ACT United Future and New Zealand First did not support me at the select committee. I thought they were all family-friendly parties but never mind that. 
I do challenge Dr Cullen having vetoed my amendment to propose an alternative because New Zealand is in the grip of a savings crisis at the moment. The number of Kiwi workers in employer-subsidised superannuation schemes has plummeted from just over 310000 in 1990 to a mere 246946 as at 30 June this year. That is an indictment on employers but it is also an indictment on the Government for not providing an incentive to employers to provide subsidised superannuation to their staff. I believe my proposal was a serious solution to that problem and it was a solution that should have been adopted. 
GORDON COPELAND (United Future) 
: 
 I would like to speak briefly about three items in Part 2 of this bill. The first one concerns the large-budget screen production grants which are set out in Supplementary Order Paper 170 in the name of the Hon Dr Michael Cullen. United Future has signalled its support for those grants to proceed but we do so with a number of reservations. Although that particular scheme seems to have been well-thought-through and well costed and I am assured by the officials that it will result in net gains for the New Zealand economy instinctively in a way I think I still feel uneasy about the fact that it does involve a process of picking winners. We do open ourselves up to the criticism that if grants should be made for movies then why not for building luxury yachts for example? If the idea is to attract movie business to New Zealand through those grants then why not say that we can also bid into New Zealand the construction for example of luxury yachts that might otherwise be built somewhere else? So I think that we will get on to a slippery slope. 
The point I would like to make is that United Future for that reason would support a general decrease in the corporate tax rate itself. In that regard we are all square with the National Party in saying that we believe the corporate rate should be reduced from 33c to 30c in the dollar. However some of my reasoning is a little different from that advanced by John Key. He simply mentioned that that would bring the headline rate between Australia and New Zealand to a comparable level and that is a very valid point. But I think there are some more important issues than that. 
The first issue I would like to mention is that lowering the taxation rate would actually reduce the cost of capital for New Zealand companies. All companies assess the cost of capital after taxation and if the taxation rate is lowered to 30c in the dollar New Zealand would be brought back into a much more competitive situation with regard to the cost of capital if for nothing else than because normally we run a higher interest rate than virtually anyone else in the world. So I see that as very much a business-friendly thing that would reduce the cost of capital and encourage investment in this country. That is the first point I wanted to make. 
The second point is that by reducing the company tax rate to 30c in the dollar—when the personal tax rate remains at 39c in the dollar and the trustee rate stays at 33c in the dollar—we would increase the incentive for people to leave money in their businesses and capitalise them because if they withdrew money from their businesses then their tax would go up. If they went through a trust then they would go from a rate of 30c to one of 33c in the dollar. At the moment a lot of people go through a trust in order to avoid the 39c in the dollar rate. The gap becomes bigger if the company rate is reduced to 30c in the dollar and we create an incentive for people to leave money in their businesses. That would be good for business and good for saving and I believe it would unleash a dynamic scoring effect in our economy in the sense that the flow-on would be an increase in job creation and in wealth for all New Zealanders. Those are United Future’s reasons for supporting the bill but in our view not doing so at the cost of continuing to examine the possibility of lowering the corporate tax rate. 
The second matter I will mention in brief is Subpart S “Arrangements involving money not at risk” which is to be inserted in Part E of the Act by clause 14. I am delighted this action has been taken to sew up the blatant tax avoidance schemes that have been going on. In particular I congratulate the Inland Revenue Department on its recent success in the Advanced Communication Technologies of New Zealand case which involved hundreds of millions of dollars. When I look at tax avoidance arrangements I always keep something very simple in my mind. We have nurses for example who work very hard in the intensive care ward at Wellington Hospital and do fantastic work paying tax on every single cent they earn. I do not think it is acceptable that when some clever dick comes up with a so-called “smart” scheme for avoiding tax we should let him or her get away with it. Anybody who walks into an office and says that if we put $1000 into a scheme that will save us $2000 or $3000 against our tax bill—” 
John Key 
: Where do I sign? 
GORDON COPELAND 
: I say to John Key that if he buys into that and wants to sign up for it then he has succumbed to—[ 
Interruption 
] I was going to say avarice one of the seven deadly sins. It is avaricious to enter into schemes like that because at the end of the day all the other people of New Zealand pay the bill. 
RODNEY HIDE (ACT) 
: 
 I rise in support of my colleague Mr Copeland. He has absolutely hit the nail on the head because in New Zealand the more capital we have in our country the more productive we are. The more productive we are the more we produce and the higher our income. I see the Minister of Finance is shaking his head in disbelief. 
Hon Dr Michael Cullen 
: It’s crude but it’s roughly true. 
RODNEY HIDE 
: It is roughly true. Perfect! One of the things we can influence in New Zealand is the cost of capital and as my new-found friend and colleague Mr Copeland pointed out one of the things we can influence regarding the cost of capital in New Zealand is the tax rate on income. I know that Dr Cullen sat there and said: “If we lower the tax rate what can people do? A third will work hard and a third—well it will all balance out.” That was what we heard before tea. But we should think about it in terms of capital because people make decisions about where they invest their money. 
Hon Dr Michael Cullen 
: What has this got to do with Part 2? 
RODNEY HIDE 
: I am commenting on Mr Copeland’s speech. I know that Dr Cullen does not like to hear this. He would rather get up and give a stage I history lecture confuse the income effect with the price effect and then say that when it comes to tax the income effect always overwhelms the price effect because that is what he said before tea. He is certainly wrong on that in terms of the work-leisure trade-off and he is absolutely wrong in terms of capital because we live in a free world. I know that Dr Cullen would like to put an end to it but people choose where they invest their money. They decide whether to invest in New Zealand Hong Kong Japan the United States South Korea or Timbuctoo. 
What do people look at when investing? They look at two things: expected return and risk. After adjusting for risk they look at the expected return. I ask Mr Copeland what that is. It is the expected return after tax. So when we try to raise capital in New Zealand—Mr John Key from the National Party knows this and Mr Rod Donald from the Green Party knows this—the tax on capital income in New Zealand grosses up the cost of capital. It has to. So the higher the tax on income in New Zealand—including capital income—the higher the cost of capital in New Zealand the less capital we have to work with the less productive we are and the smaller our income is in consequence. I wish we had a Minister of Finance who understood that. Mr Copeland understands it and John Key and the National Party understand it. 
Hon Lianne Dalziel 
: What about secret commissions? 
RODNEY HIDE 
: I know that Lianne Dalziel the Minister of Immigration does not have a clue what we are talking about. I cannot help that—she is a member of the Labour Party. Labour members were too busy studying what was happening to the Sandinistas in Nicaragua to learn any basics about how to work or earn an income—basic economics. No they were into world-saving theories. I wish Mr Copeland would say: “Actually I am right”. 
David Benson-Pope 
: Taint. Smells doesn’t it? 
RODNEY HIDE 
: David Benson-Pope sits over there. Has anyone ever heard Mr Benson-Pope say anything positive in this Chamber other than growl and grumble? What a miserable life he must have. I say to Mr Copeland that he is absolutely right and that he should get rid of this rotten Government. He should not vote for this bill; he should vote for lower taxes more capital and a more productive and prosperous New Zealand. I ask him please to stop his support for this mad Labour Government because we can have— 
Hon Lianne Dalziel 
: The ACT party stands for secret commissions unpaid bills— 
RODNEY HIDE 
: Do members not love Lianne Dalziel? Has anyone heard Lianne Dalziel being positive? This is the most negative Government I have ever seen in my short time in Parliament; it has nothing positive to say. It starts from the Prime Minister and goes all the way down to David Benson-Pope who has never smiled in his life and never had a happy day in his life. 
ROD DONALD (Co-Leader—Green) 
: 
 I will return to Part 2 if I may. As I said when I last spoke— 
Hon Dr Michael Cullen 
: That was Part 1 we were just discussing. 
ROD DONALD 
: Yes I know. I did not want to point that out to Mr Hide because he might have delayed things even more. We are actually dealing with Part 2. 
Hon Dr Michael Cullen 
: Your responses slow down under certain conditions. 
ROD DONALD 
: Far be it from me to comment. As I said when I last spoke on this part employers deserve—I would say need—an incentive to provide subsidised superannuation to their employees. There are some good measures in the Business Law Reform Bill to reduce compliance costs and I see that as an indirect incentive. Obviously I see the good news in this part about eliminating the tax penalty as something of an incentive. But employers need a real incentive which is what my amendment is all about. It says to employers that if they give their staff subsidised superannuation the staff will get an extra 6 percent added to their savings which they would not get if employers paid it in the form of salaries. Surely that is a good thing because we need to shift money away from consumption and into saving. 
I believe that that is one of the major problems the country is facing. It is confirmed when we look for example at net household wealth which has declined 33 percent in the last decade in terms of personal disposable income. So while the value of our financial assets has gone up 39 percent in that period our household financial liabilities have gone up 146 percent and I think that points to a real problem. 
It is a dramatic and disastrous trend that this Government I believe has the opportunity to reverse. Yes the Government is shuffling in the right direction but it should be taking positive steps by providing employers and employees with real tax incentives to encourage people to save for the future. I know that the Government is looking at the “t’s” and the “e’s” and where they should go and I will wait for the Minister to make some announcements in that regard. But it certainly makes sense to me to defer some of the revenue the Government is currently making—at the point where people are making a contribution to their savings and employers are making a contribution—and to pick that up at the point where people are drawing down on that contribution when they retire. 
That would help solve two problems. It would reduce the embarrassingly large surplus the Minister is currently facing and it would also lead to more Government revenue being available in 20 30 or 40 years’ time when he is going to need it. Whatever the Minister does it is time for the Government to face up to the savings crisis. It is time we tackled the problems I was outlining. The Government claims with one breath that it needs to put money into the New Zealand Superannuation Fund but it is not doing enough to change the tax structure to encourage more second-tier saving. That is certainly what we want the Government to be doing. There are a lot of benefits in addition to that deferred income: the Government would help to facilitate households to get their net debt down; if more money is going into superannuation schemes there would be less need—hopefully no need—for foreign investment; and people would be more comfortable in their retirement. They are all good steps that I hope this Government will give serious consideration to now that it has exercised— 
John Key 
: What is our savings rate compared with Australia? 
ROD DONALD 
: I do not know but perhaps we could ask the Minister to comment on that. Certainly our savings rate is not good because if we look at the last Reserve Bank of New Zealand figures for the 2003 year we see that not only did we have negative savings of 4.5 percent I think but our household savings rate was minus 4.25 percent. But wait the news only gets worse. The rate is projected to be minus 7 percent for 2004 minus 6 percent for 2005 and minus 5.5 percent for 2006. It is time for the Government to reverse those disastrous trends. 
John Key 
: Our debt levels are the same as every English-speaking country. 
ROD DONALD 
: That may well be but I would still say to the Government: let us not follow the sheep let us plot our own path let us shift from consumption to savings and let us shift from speculative investment to productive investment. 
DIANNE YATES (Labour—Hamilton East) 
: 
 I move  
That the question be now put 
. 
GORDON COPELAND (United Future) 
: 
 I would like to take a brief call concerning Dr Cullen’s amendments to the specified superannuation contribution withholding tax on Supplementary Order Paper 170 which is being considered with Part 2 of this bill. 
I am delighted that the Minister of Finance has decided to introduce this important Supplementary Order Paper. I think it will give a very very fair outcome to taxpayers. Over 70 percent of all New Zealand taxpayers pay tax at a marginal rate of 21c in the dollar which is something that we frequently overlook. That is by far the overwhelming majority of taxpayers. For those people around the margin at the $38000 threshold it is important that this Supplementary Order Paper will determine that as long as their wages or salary in the previous year—or in the current year if that information is not available—are below $38000 they will in respect of the whole of the employer’s contribution enjoy that 21 percent rate. As it was originally introduced the bill provided that the whole of the amount in those circumstances was taxed at 33c in the dollar which would have been a clear case of overtaxation. 
Initially Dr Michael Cullen looked at a truly progressive rate—part of that amount being taxed at 21c and the other part at 33c—and there is now a move to tax the whole amount at 21c in the dollar. 
That is a great step forward. For once we are giving the benefit if one likes of that threshold-bracket situation to the taxpayer instead of to the consolidated account. It is a big step forward and I agree with Rod Donald that it sends a very important message to New Zealanders about the need for us to encourage private savings. Like Rod Donald I call on the Minister of Finance Dr Cullen to continue to work in this area because it is a step in the right direction. However on its own it will not get the job done. 
The next thing that needs to be tackled is the taxation rate on earnings derived from superannuation funds where again we have a flat rate of 33c in the dollar. As I have mentioned given that over 70 percent of taxpayers pay tax at 21c in the dollar they are clearly overtaxed in that regard. I think the solution to that is not difficult. I have had extensive discussions with the Investment Savings and Insurance Association and others who have expressed a willingness to undertake at their end—the investment end—the kind of compliance costs involved in allocating the earnings of the fund to each individual member and then deducting tax and sending a cheque to the Inland Revenue Department at the marginal tax rate of the employee. I would like to see that work move in that direction and I would like to see it pursued within the next year as well. 
I must say though that even then—like Rod Donald—I harbour some doubts as to whether that will be enough. We have a “taxed/taxed/exempt” superannuation regime in place at present. I sometimes wonder whether the overriding solution ultimately will be to grandfather the present scheme—I think we are one of the very very few nations in the world that has that approach—and go back to an “exempt/exempt/taxed” superannuation regime approach like most other nations in the world. I very much encourage the Government to keep working in that area because the stakes are high and we need to encourage more private savings in this country. 
Finally I say to Rod Donald that I am unable to support the amendments to Part 2 on his Supplementary Order Paper—which are now vetoed anyway—that would bring the rate back down by 6 percent to the lower tax bracket. The argument he put forward is actually based on a fallacy. He seems to think that the 33c rate for people on the 39c in the dollar rate is some sort of concession. The reality is simply that the Government increased the rate from 33c to 39c for people in the upper income bracket but at the same time it said that if people decide to contribute or have their employers contribute some of that into long-term savings for superannuation they would be taxed at only 33 percent. That is not really a concession in favour of high-income earners because they are already paying so much more tax than the people further down the chain. I do not think it is logical to say that because we are not taxing the people who are paying most—even in real dollar terms—of the tax in this country quite as much as we could be we should therefore give some relief to people down the chain. To me the logic of that does not stack up. Furthermore the officials advised the Finance and Expenditure Committee that that sort of system has been tried elsewhere notably in the USA and it was not successful. 
CLAYTON COSGROVE (Labour—Waimakariri) 
: 
 I move  
That the question be now put 
. 
Motion agreed to. 
The question was put that the amendments set out on Supplementary Order Paper 170 in the name of the Hon Dr Michael Cullen to Part 2 be agreed to. 
Amendments agreed to. 
The CHAIRPERSON (Ann Hartley) 
: The amendments to Part 2 in the name of Rod Donald on Supplementary Order Paper 171 have been vetoed. 
Part 2 as amended agreed to. 
Part 3 Amendments to Tax Administration Act 1994 
BRIAN CONNELL (National—Rakaia) 
: 
 I am just going to practise my Government speeches for 2005. I commend this legislation to the Committee. Part 3 is well-thought-through and very sensible. 
The question was put that the amendments set out on Supplementary Order Paper 170 in the name of the Hon Dr Michael Cullen to Part 3 be agreed to. 
Amendments agreed to and Part 3 as amended agreed to. 
Part 4 Amendments to other Acts 
JOHN KEY (National—Helensville) 
: 
 I rise to comment briefly on the importance of the zero rating of GST in financial services and just to say this: the financial services sector has produced some of the finest people in New Zealand! Their contribution has been absolutely incredible. It has been wonderful to see the way they have been distributed throughout sport culture arts and of course politics although I know not many! I believe that zero rating of GST will make this industry even more successful and more profitable and will add to the woes of the Green Party—that is their worries about New Zealand’s savings ratio. Even if we had the same savings ratio as Australia I do accept that reliance on foreign capital is an issue. The National Party will be supporting Part 4 of this very important bill. 
Part 4 agreed to. 
New Schedule 1 
The CHAIRPERSON (Ann Hartley) 
: New schedule 1 set out on Supplementary Order Paper 171 in the name of Rod Donald has been vetoed. 
The Committee divided the bill into the Taxation (GST Trans-Tasman Imputation and Miscellaneous Provisions) Bill the Taxation (Annual Rates of Income Tax 2003-04) Bill the Student Loan Scheme Amendment Bill (No 2) and the Child Support Amendment Bill (No 2) pursuant to Supplementary Order Paper 169. 
Bill reported with amendment.