Cunliffe David: Taxation (Urgent Measures and Annual Rates) Bill — First Reading Second ReadingText is incorporated into the Bound VolumeCunliffe David: Taxation (Urgent Measures and Annual Rates) Bill — First Reading Second Reading[Sitting date: 09 December 2008. Volume:651;Page:84. Text is incorporated into the Bound Volume.]Hon DAVID CUNLIFFE (Labour—New Lynn): Quite clearly the honeymoon is already over for those New Zealanders who thought they had voted for a kinder gentler kind of National Government. This morning the Governor-General graciously read the Government’s agenda-setting Speech from the Throne. The Government’s overriding goal is to go for growth by turbocharging productivity while at the same time protecting the most vulnerable! That of course reflected the lines recited by the National Party during the recent election campaign: “Vote for us—none of the good stuff will change but you will all be better off.”As a loyal Opposition we see our role as being to encourage that which is good for New Zealanders and to oppose robustly that which is not. Today on this first business day of this new House of the forty-ninth Parliament New Zealand already has the opportunity to test whether National’s rhetoric matches its reality. Patently and sadly it does not. Badly designed tax cuts benefit upper and middle-income earners while the losers are low-income families. National is undermining KiwiSaver at a time when the world is facing an unprecedented credit squeeze. Go figure! While targeting productivity and supposedly innovation National guts the research and development tax credit that has almost universal support by people who actually design things build things and export things. Go figure!The problem with this bill is essentially twofold. Firstly equity: who gets what? This is Robin Hood in reverse—taking from the poor to give to Bill English. But perhaps even more important it is design. There is no logical link between the measures contained in this rushed bill and the Government’s own self-described priorities. It willnot work. It will not contribute to growth and productivity. It is the wrong tool at the wrong time for the wrong problem.What will it cost? National’s tax plan will cost about $12.3 billion once we take into account the October tax cuts from Labour’s plan that have already been instituted over 5 years. It is about the entire health or education budgets. Of course it is partly offset by the $3.5 billion that is being sucked away from KiwiSaver or the $1.5 billion from our innovative firms. But even so due to the Government’s self-confessed snafu around the contribution to KiwiSaver it is not fiscally neutral. The extra $700 million has tipped it into the red.That is despite Treasury’s advice that there is no problem to solve—that the level of fiscal stimulus in Labour’s earlier package was sufficient given the level of borrowing and the international environment. It is timely therefore to consider Labour’s economic legacy to New Zealand: the longest postwar expansion; real incomes up a quarter after inflation over the decade; gross Government debt cut in half from 35 percent to 17 percent; net debt in surplus for the first time since Sir Julius Vogel borrowed to build the railway system in the first place; $14 billion contributed to the Cullen fund; inflation at moderate levels and falling allowing an official cash rate cut of 1.5 percent last week; and huge investment in infrastructure roading and rail around ten times that invested by the previous National Government. That is not to mention the buy-backs of corporate failure like Air New Zealand and KiwiRail or promoting a New Zealand - owned Kiwibank.National knows that things do not look good internationally. Last week Bill English issued a press release to announce that 2009—shock horror probe!—would be “challenging”. Yesterday John Key took time away from directing money markets on where the exchange rate should be to say that the forecasts do not look great. But that has not stopped the Government from launching tax cuts that are badly designed and a profligate waste of money that will only build up debt by borrowing to fund household consumption rather than contributing to the drivers of productivity which the Government says it is espousing.So how far into debt is this going to drive us? The answer is that we simply do not know. The Government has not yet published the forward debt track projections. The Government knows what they are. My bet is they will take us all the way back to what we inherited in 1999. I would be surprised if they do not clip 35 percent again. The decade of prudence under Labour was gone on the first day of the new Government’s profligacy.So who gets what? What about the equity of this package? National’s tax plans state its true priorities. Rewarded are the highest paid by getting the top marginal tax rate dropped from 39c to 37c in the dollar. But almost as important is the fact that someone on three quarters of a million gets $240 a week whereas the average income earner gets about $2 a week. Even more important than that is the disadvantage to working families who are caught by the threshold changes that they do not get which were in Labour’s package. By 2011 anyone earning from $14000 to $20000 will be paying 21c in the dollar under National but they would have been paying 12.5c under Labour. Those are hard-working families who are not being compensated in any way in this package. They are the real New Zealanders who are bringing up kids in a recession and are worried about their jobs but they are being hit by this tax package. It is Robin Hood in reverse—giving to the top income earners.It is a scandal. But more important it is the truth of what National stands for. Forget the election rhetoric forget the flimflam. On the first business day of the House the real agenda has surfaced. I thought the Government would have had a more decent pause but on the first business day we see what it is about.Just to put into practical terms what this means for families let us take under the Labour and National packages the two families who were mentioned in the Inland Revenue Department’s briefs. Under the Labour plan Meg and Jack who are both 35 have two kids. Jack earns $45000 and Meg earns $20000. By 11 April they would have been $85 a week better off. This is an average family with two kids. Under National its poster couple Dave and Diane have three kids. They are earning $30000 and $50000 around the same and are receiving Working for Families. They are $26 a week better off or roughly $60 worse off than they would have been under Labour. These are official Inland Revenue Department figures.So let us be really clear about who is getting what. Ordinary working families are not getting anything and top income earners are. Why are we not surprised? Does it help the economy? I am afraid not. It is a huge spend-up that will do nothing to address the underlying drivers of growth and innovation. It does not boost productivity. It guts the research and development tax credit. It is no wonder the manufacturers and exporters associations say that that credit was essential to level the playing field with Australia. This is from a Government that criticised us for the fact that people were crossing the ditch. In its first day the Government has gutted the competitive advantage of our most innovative firms that employ more export more and earn more on average and grow faster.What is the sense in that? Will it boost savings or increase liquidity in the banking system? It will do quite the reverse. Stunning logic is it not? When international banking is under threat and is having to give guarantees to get wholesale deposits into the system the Government is undermining the best savings scheme ever designed in New Zealand’s history. Are we surprised? No we are not surprised because the last time we free-funded superannuation Muldoon came and took it away in his first year in the House.This is déjà vu ladies and gentlemen. I hate to say: “We told you so.” but we did tell you so. Unfortunately we are all going to have to live with the consequences. It does not matter to us—we are happy to serve as Her Majesty’s loyal Opposition—but it sure as hell matters to New Zealand families who are struggling and worrying about their jobs and about the household budget. Those are the people most at risk from this ill-conceived inequitable hurried wolf-in-sheep’s clothing Robin Hood in reverse shambles of a tax plan.