Rurawhe Adrian; Woodhouse MichaelTAXATION (ANNUAL RATES FOR 2020-21 FEASIBILITY EXPENDITURE AND REMEDIAL MATTERS) BILLIn CommitteePart 1 Annual rates of income taxCHAIRPERSON (Adrian Rurawhe): Members we come first to the Taxation (Annual Rates for 2020-21 Feasibility Expenditure and Remedial Matters) Bill and the debate on Part 1. This is the debate on clause 3 setting the annual rates of income tax for the 2020-21 tax year. Note that Standing Order 352 requires that this provision be debated separately. The question is that Part 1 stand part. Hon MICHAEL WOODHOUSE (National): Thank you Mr Chair. I'm pleased to take the first call on what I expect will be a long and pretty robust debate on this bill. It does pain me to point out that whereas in the past taxation annual rates and remedial matters bills tend to be reasonably bipartisan affairs that's no longer the case for two reasons. The first is—and it is the essence of Part 1 of this bill—the inflationary impact of bracket creep on the after-tax incomes of middle New Zealanders.Now this has been a problem for generations. The previous Labour Government in 2007-08 attempted to address it by passing what turned out to be known as the block of cheese" amendments which they promptly reversed in the following year as the global financial crisis started to become apparent. Now we have an opportunity I think as part of the package of measures that the Government has introduced to combat the economic impacts of COVID-19 on our economy to do something good for those middle-income earners and that is to raise the thresholds of income tax in order that they are not punished for the increases in costs and the increases in their income that takes them into new tax brackets. The best economic advice actually globally is that those pump-priming responses that have in this country as well seen incredibly large sums of money put into the economy in order to sustain jobs and livelihoods and businesses and that by and large have been successful should also be accompanied by reductions in income tax.Not only are there no reductions in income tax; this Government is doing two things. Firstly it is acting to increase the top tax rate in the future. It's not part of this bill but I'm sure the Minister of Revenue will be introducing a bill in the not too distant future to do the 2021-22 rates of tax and that will include an increase in the top tax rate to 39 percent. But indirectly by their failure to act they are giving every single New Zealander whose income increased over the last period of time and who as a consequence has gone into another tax bracket the punishment of more tax despite the fact that they are incurring more costs and the inflationary impact of those costs mean that they're not only no better off but are worse off.So I think it's really important that when the Minister does take a call to explain Part 1 which superficially is a fairly straightforward part but which has such a huge impact on New Zealanders' lives—whether or not the Government considered a threshold change either as part of business as usual or as part of a COVID response which other countries have done and if not why did they not ask for that advice and if they did ask for that advice why they didn't take it. I can't see anything more than a perfunctory reference to the issue in the regulatory impact assessment and therefore it suggests to me that the Government weren't even interested in a tax threshold change. I find that rather sad because of those impacts.Inflation is a tax. Economists have said for years that the best way to cover for example Government debt as a proportion of GDP is simply to wait until the economy grows as a consequence of inflation to the point where the debt looks smaller on the radar than it otherwise would. Indeed going back to the previous Labour Government who crowed about the fact that their net debt to GDP ratio plummeted to nearly zero what's not talked about is the fact that they didn't repay in the nine years of the Clark-Cullen Government a single dollar of sovereign debt. In fact gross sovereign debt under that Government went up from $37.4 billion I think it was from memory to $37.7 billion. The thing that got debt to GDP down was inflation and the growth of the economy. So I'd like to hear from the Minister in that regard."